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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)
November 17, 1999
NUTRITION FOR LIFE INTERNATIONAL, INC.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas
---------------------------------------------
(State or other jurisdiction of incorporation)
0-26362 76-0416176
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(Commission File Number) (IRS Employer Identification Number)
9101 Jameel, Suite 180, Houston, TX 77040
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 460-1976
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___________________________ (Former address, if changed since last report)
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NUTRITION FOR LIFE INTERNATIONAL, INC.
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
------------------------------------
On November 17, 1999, Nutrition For Life International, Inc. (the
"Company") finalized the acquisitions of Advanced Nutraceuticals, Inc. ("ANI")
and Bactolac Pharmaceutical Inc. The acquisition of ANI was completed through a
merger with the Company's wholly-owned subsidiary, NL Acquisition Company. The
acquisition of Bactolac Pharmaceutical Inc. was completed through a merger with
the Company's wholly-owned subsidiary, BPI Acquisition Company. In connection
with the merger of Bactolac Pharmaceutical Inc. into BPI Acquisition Company,
the name of the surviving corporation was changed to Bactolac Pharmaceutical
Inc.
ANI was formed to pursue a consolidation and integration program in the
nutrition industry. ANI's business plan and arrangements to complete
acquisitions of other companies were factors utilized in determining the amount
of stock of the Company to be issued in connection with the acquisition of ANI.
The former ANI stockholders received an aggregate of 75,000 shares of a newly
created Series A Preferred Stock of the Company. Each one share of Series A
Preferred Stock will be automatically converted into ten shares of the Company's
common stock upon approval of the Company's shareholders. The Series A Preferred
Stock has no voting rights (except as required by law) and no dividend rights.
Upon liquidation, dissolution or winding up of the Company, the Series A
Preferred Stock has a preference of $28.40 per share, payable prior and in
preference to any distribution of any assets or surplus funds of the Company to
the holders of the Company's common stock. The former principal stockholders of
ANI were Gregory Pusey and Barry C. Loder. Upon completion of the Company's
acquisition of ANI, Mr. Pusey became Chairman of the Board of Directors of the
Company and Mr. Loder became Vice President of Corporate Development of the
Company. Prior to the Company's acquisition of ANI, there was no material
relationship between the Company and ANI. Mr. Loder had served as an officer of
the Company from March 1995 to January 1998. Mr. Pusey had served as a director
of the Company from 1994 to 1998.
Bactolac Pharmaceutical Inc. headquartered in Westbury, New York,
manufactures nutritional supplements for private labeled customers. The purchase
price of the Bactolac acquisition consisted of $2,500,000 in cash, a
subordinated promissory note in the principal amount of $2,500,000 and 96,831
shares of Series A Preferred Stock. Additionally, up to 17,606 shares of Series
A Preferred Stock may be issued pursuant to an earnout agreement. Prior to the
Company's acquisition of Bactolac Pharmaceutical Inc., the sole shareholder of
Bactolac was Pailla M. Reddy. Bactolac Pharmaceutical Inc. entered into an
employment agreement and covenant not to compete agreement with Mr. Reddy at the
closing on November 17, 1999. Mr. Reddy will serve as President of Bactolac
Pharmaceutical Inc. Assets acquired from Bactolac Pharmaceutical Inc. consisted
primarily of accounts receivable, inventory, machinery and equipment. The nature
and value of the assets acquired, including the going concern value of Bactolac
Pharmaceutical Inc., were factors utilized in determining the amount of
consideration to be paid to Mr. Reddy who was the sole stockholder of Bactolac
Pharmaceutical Inc. Prior to the merger with Bactolac Pharmaceutical Inc., there
was no material relationship between Bactolac Pharmaceutical Inc. and the
Company, except that Bactolac Pharmaceutical Inc. was a subcontractor to a
supplier to the Company of nutritional supplements. The Company intends to
continue the operations of Bactolac Pharmaceutical Inc. and to use its
inventory, machinery and equipment in connection with the manufacture of
nutritional supplements.
Financing for the acquisition of Bactolac Pharmaceutical Inc. was provided
primarily through a financing arrangement entered into on November 17, 1999 with
General Electric Capital Corporation (the "Lender"). The Company borrowed
$2,360,000 from the Lender pursuant to a term loan payable in three years, and
obtained a revolving credit loan with a maximum availability of $12,000,000,
subject to limitations based upon eligible accounts. The loan facility is
secured by substantially all of the assets of the Company and its subsidiaries.
The interest rate on borrowings is 0.5% above the
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prime rate. There is a fee of 0.25% on the unused portion of the facility and an
annual monitoring fee of $10,000. It is required, among other things, that the
Company maintain as of the end of the fiscal year ending September 30, 1999, a
minimum net worth of $18 million, a minimum net worth of $25,500,000 at
September 30, 2000, and a minimum net worth of $27 million for each fiscal year
after September 30, 2000. In addition, the Company is required to maintain a
fixed charge coverage ratio of 2.0 to 1.0 through July 1, 2000, and 1.5 to 1.0
at July 2, 2000 and at all times thereafter. The Company is also subject to
additional covenants, including filing of reports and significant restrictions
on dividend payments, debt and equity issuances, mergers, changes in business
operations and sales of assets.
ITEM 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements of Business Acquired.
It is impractical to provide the required financial information at the
time of filing this Report. The required financial information will be filed by
amendment to this Report within the 60 day extended period for reporting.
(b) Pro forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this Report. The required pro forma financial
information will be filed by amendment to this Report within the 60-day
extended reporting period.
(c) Exhibits.
2.1 (a) Agreement and Plan of Merger dated as of November 5, 1999 among
Nutrition For Life International, Inc., Advanced Nutraceuticals, Inc., BPI
Acquisition Company, Bactolac Pharmaceutical Inc. and Pailla M. Reddy.
2.1 (b) Agreement and Plan of Merger, dated as of October 20, 1999,
among Nutrition For Life International, Inc., Advanced Nutraceuticals, Inc., NL
Acquisition Company, Gregory Pusey and Barry C. Loder.
2.2 Earnout Agreement, dated November 17, 1999, between Pailla M. Reddy
and Nutrition For Life International, Inc.
4. Statement Establishing a Series of Shares (Series A Preferred
Stock).
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUTRITION FOR LIFE INTERNATIONAL, INC.
Dated: November 30, 1999 By: /s/ David P. Bertrand
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David P. Bertrand, President
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EXHIBIT 2.1A
AGREEMENT AND PLAN OF MERGER
Dated as of NOVEMBER 5, 1999
among
NUTRITION FOR LIFE INTERNATIONAL, INC.,
ADVANCED NUTRACEUTICALS, INC., BPI ACQUISITION COMPANY
and
BACTOLAC PHARMACEUTICAL INC. and PAILLA M. REDDY
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TABLE OF CONTENTS
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THE MERGER........................................................................ 3
1.1 The Merger................................................................. 3
1.2 Effective Time Of The Merger............................................... 3
1.3 Certificate of Incorporation, Bylaws, Board Of Directors And Officers Of
The Surviving Corporation.................................................. 4
1.4 Certain Information With Respect To The Capital Stock Of Newco and BPI..... 4
1.5 Effect Of Merger........................................................... 4
2. CONVERSION OF STOCK........................................................ 5
2.1 Conversion of BPI Stock.................................................... 5
2.2 Effect Of Merger On Newco Stock............................................ 5
3. DELIVERY OF MERGER CONSIDERATION........................................... 5
3.1 Exchange Procedure......................................................... 5
3.2 Delivery of Certificates................................................... 5
4 CLOSING.................................................................... 5
5 REPRESENTATIONS AND WARRANTIES OF BPI AND THE SHAREHOLDER.................. 6
5.1 Due Organization........................................................... 6
5.2 Authorization.............................................................. 6
5.3 Capital Stock Of BPI....................................................... 6
5.4 Transaction In Capital Stock; Organization; Accounting..................... 7
5.5 No Bonus Shares............................................................ 7
5.6 Subsidiaries............................................................... 7
5.7 Predecessor Status; Etc.................................................... 7
5.8 Spin-Off By BPI............................................................ 7
5.9 Financial Statements....................................................... 7
5.10 Liabilities And Obligations................................................ 8
5.11 Accounts And Notes Receivable.............................................. 8
5.12 Permits And Intangibles.................................................... 9
5.13 Environmental Matters...................................................... 10
5.14 Personal Property.......................................................... 10
5.15 Significant Customers; Material Contracts And Commitments.................. 11
5.16 Real Property.............................................................. 13
5.17 Insurance.................................................................. 16
5.18 Compensation; Employment Agreements; Organized Labor Matters............... 16
5.19 Employee Benefit Plans..................................................... 17
5.20 Compliance With ERISA...................................................... 17
5.21 Conformity With Law; Litigation............................................ 18
5.22 Taxes...................................................................... 19
5.23 No Violations.............................................................. 19
5.24 Government Contracts....................................................... 20
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5.25 Company Products........................................................... 20
5.26 Absence of Changes......................................................... 20
5.27 Deposit Accounts; Powers of Attorney....................................... 21
5.28 Validity of Obligations.................................................... 22
5.29 Relations With Governments................................................. 22
5.30 Disclosure................................................................. 22
5.31 Prohibited Activities...................................................... 22
5.32 Ownership of Shares........................................................ 22
5.33 Authorization of Shareholder............................................... 22
5.34 No Conflicts............................................................... 23
5.35 Restriction On Transfer Of The Merger Consideration Under Securities Laws.. 23
5.36 Advice of Counsel.......................................................... 24
6. REPRESENTATIONS OF NDI, ANI AND NEWCO...................................... 24
6.1 Due Organization........................................................... 24
6.2 Authorization.............................................................. 24
6.3 Capital Stock Of Newco..................................................... 24
6.4 Capital Stock of NFLI...................................................... 24
6.5 No Violations.............................................................. 25
6.6 SEC Filings; Financial Statements.......................................... 25
7. COVENANTS PRIOR TO CLOSING................................................. 26
7.1 Access And Cooperation; Due Diligence...................................... 26
7.2 Conduct Of Business Pending Closing........................................ 26
7.3 Prohibited Activities...................................................... 27
7.4 No Shop.................................................................... 28
7.5 Notice To Bargaining Agents................................................ 28
7.6 Notification Of Certain Matters............................................ 29
7.7 Cooperation................................................................ 29
7.8 Final Financial Statements; Tax Returns.................................... 29
7.9 Further Assurances......................................................... 29
7.10 Compliance With The Hart-Scott-Rodino Antitrust Improvements
Act Of 1976 (The "Hart-Scott Act")......................................... 30
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BPI................................. 30
8.1 Representations And Warranties; Performance Of Obligations................. 30
8.2 Satisfaction............................................................... 30
8.3 No Litigation.............................................................. 30
8.4 Opinion Of Counsel......................................................... 30
8.5 Consents and Approvals..................................................... 30
8.6 Good Standing Certificates................................................. 31
8.7 No Material Adverse Change................................................. 31
8.8 Officer's Certificate...................................................... 31
8.9 Incumbency Certificate and Other Documents................................. 31
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF NFLI, ANI and NEWCO...... 31
9.1 Representations And Warranties; Performance Of Obligations...... 31
9.2 Satisfaction.................................................... 31
9.3 No Litigation................................................... 31
9.4 Opinion Of Counsel.............................................. 32
9.5 Consents And Approvals.......................................... 32
9.6 Good Standing Certificates...................................... 32
9.7 No Material Adverse Change...................................... 32
9.8 Officer's Certificate........................................... 32
9.9 Incumbency Certificates And Other Documents..................... 32
9.10 Employment Agreements........................................... 32
9.11 Financing....................................................... 32
9.12 Other Agreements................................................ 32
10. ADDITIONAL AGREEMENTS........................................... 33
10.1 Reasonable Best Efforts......................................... 33
10.2 Public Announcements............................................ 33
10.3 Further Assurances.............................................. 33
11. TERMINATION OF AGREEMENT........................................ 33
11.1 Termination..................................................... 33
11.2 Liabilities In Event Of Termination............................. 34
12. INDEMNIFICATION................................................. 34
12.1 Indemnification By NFLI, ANI And NEWCO.......................... 34
12.2 Indemnification By BPI And The Shareholders..................... 34
12.3 Indemnification Notice.......................................... 35
12.4 Matters Involving Third Parties................................. 35
13. GENERAL PROVISIONS.............................................. 35
13.1 Survival Of Representations, Warranties And Agreements.......... 35
13.2 Assignment...................................................... 36
13.3 Entire Agreement................................................ 36
13.4 Counterparts.................................................... 36
13.5 Brokers and Agents.............................................. 36
13.6 Expenses........................................................ 36
13.7 Notices......................................................... 36
13.8 Governing Law................................................... 38
13.9 Enforcement..................................................... 38
13.10 Exercise Of Rights And Remedies................................. 38
13.11 Time............................................................ 38
13.12 Reformation And Severability.................................... 38
13.13 Remedies Cumulative............................................. 38
13.14 Captions; Construction.......................................... 38
13.15 Amendment....................................................... 38
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LIST OF EXHIBITS
Exhibit.................................................................. Title
2.1(a) Form of Subordinated Promissory Note
2.1(b) Form of Earnout Agreement
2.1(c) Form of Statement of Designation of Preferred Stock
7.2 Form of Subordinated Promissory Note
9.10 Employment Agreement - Pailla M. Reddy
9.12(i) Covenant Not To Compete Agreement - Pailla M. Reddy
9.12(ii) Lock-Up Agreement - Pailla M. Reddy
9.12(iii) Shareholder Releases - Pailla M. Reddy and Pailla S. Reddy
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of
November 5, 1999, among Nutrition For Life International, Inc., a Texas
corporation ("NFLI"), Advanced Nutraceuticals, Inc., a Delaware corporation
("ANI"), BPI Acquisition Company, a Delaware corporation ("Newco"), Bactolac
Pharmaceutical Inc., a New York corporation ("BPI") and Pailla M. Reddy
("Shareholder").
WHEREAS, NFLI and ANI have entered into an agreement and plan of merger
pursuant to which ANI will become a wholly owned subsidiary of NFLI;
WHEREAS, Newco is a wholly owned subsidiary of NFLI;
WHEREAS, the respective Boards of Directors of NFLI, ANI, Newco and BPI
deem it advisable and in the best interest of each corporation and their
respective stockholders that BPI merge with and into Newco pursuant to this
Agreement;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule or exhibit attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
"Acquired Party" means BPI (Bactolac Pharmaceutical Inc.).
"ANI" has the meaning set forth in the first paragraph of this Agreement.
"Articles of Merger" shall mean those Articles or Certificates or Agreement
of Merger with respect to the Merger as may be required by applicable state
laws.
"Balance Sheet Date" shall mean June 30, 1999.
"BPI" has the meaning set forth in the first paragraph of this Agreement.
"BPI Disclosure Letter" shall mean the disclosure letter delivered by BPI
and the Shareholder to NFLI, ANI and Newco concurrently with the execution and
delivery of this Agreement by BPI and the Shareholder and all Schedules attached
thereto.
"BPI Products" means all products manufactured, marketed, sold or licensed
by BPI since March 29, 1995.
"BPI Stock" has the meaning set forth in Section 2.1.
"Business Day" shall mean any day other than (i) a Saturday, (ii) a
Sunday or (iii) a day on which the United States federal government has a legal
holiday.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
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"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended and all
regulations and rules promulgated thereunder.
"Effective Time of the Merger" shall mean the time the Merger becomes
effective as set forth in Section 1.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Knowledge" shall mean with respect to NFLI, ANI, Newco or BPI the
knowledge of its directors or officers, which such persons would have had if he
or she had conducted a reasonable inquiry into the relevant subject matter.
"Leased Real Property" has the meaning set forth in Section 5.16.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contracts" has the meaning set forth in Section 5.15.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of BPI with and into Newco pursuant to this
Agreement.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"Newco Charter Documents" has the meaning set forth in Section 6.1.
"Newco Stock" means the common stock, par value $.001 per share, of Newco.
"NFLI" has the meaning set forth in the first paragraph of this
Agreement.
"NFLI Common Stock" means the common stock, $.01 par value, of NFLI.
"NFLI Common Stock Trading Price" means the average of the closing prices
of the NFLI Common Stock as reported by The Nasdaq Stock Market for the five
trading days which immediately precede the trading day before the Closing.
"NFLI Preferred Stock" means the Series A preferred stock, $.001 par value,
of NFLI.
"Owned Real Property" has the meaning set forth in Section 5.16.
2
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"Prohibited Activities" has the meaning set forth in Section 7.3.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Real Property" has the meaning set forth in Section 5.16.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached to the BPI Disclosure Letter, which
shall reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Security Act" means the Securities Act of 1933, as amended.
"Surviving Corporation" shall mean Newco as the surviving party in the
Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, or other taxes, assessments, duties,
fees, levies or other governmental charges of any nature whatever, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, BPI shall be merged with and into Newco at the Effective Time of
the Merger. Following the Merger, the separate corporate existence of BPI shall
cease and Newco shall continue as the Surviving Corporation.
1.2 Effective Time Of The Merger. At the Closing, Newco and BPI shall
file Articles of Merger in such form as is required by and executed in
accordance with the relevant provisions of the corporate laws of the States of
Delaware and New York. The Merger shall become effective at such time as the
Articles of Merger are duly filed with the Delaware Secretary of State or at
such subsequent time as Newco and BPI shall agree and as shall be specified in
the Articles of Merger.
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1.3 Certificate Of Incorporation, Bylaws, Board Of Directors And Officers
Of The Surviving Corporation.
(i) The Certificate of Incorporation of Newco as in effect
immediately prior to the Effective Time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law, except that the name of the Surviving
Corporation shall be changed to Bactolac Pharmaceutical Inc.
(ii) At the Effective Time of the Merger, the Bylaws as in effect
immediately prior the Effective Time of the Merger shall be the Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(iii) Directors and officers of Newco in office immediately prior to
the Effective Time of the Merger, shall be the directors and officers,
respectively, of the Surviving Corporation, and each shall hold his or her
respective office or offices from and after the Effective Time of the Merger
until his or her successor shall have been elected and shall have qualified or
as otherwise provided in the Bylaws of the surviving corporation.
1.4 Certain Information With Respect To The Capital Stock Of Newco and
BPI. The respective designations and numbers of outstanding shares and voting
rights of each class of outstanding capital stock of Newco and BPI as of the
date of this Agreement are as follows:
(i) As of the date of this Agreement, the authorized and outstanding
capital stock of BPI consists of 100 shares of common stock, $1.00 par value of
which 100 shares are issued and outstanding.
(ii) As of the date of this Agreement, the authorized capital stock
of Newco consists of 10,000 shares of common stock, $.001 par value, of which
100 shares are issued and outstanding.
1.5 Effect Of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Delaware
General Corporation Law and the New York Business Corporation Law. Except as
herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of Newco shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of BPI shall be merged with and into Newco, and Newco, as the
Surviving Corporation, shall be fully vested therewith. At the Effective Time of
the Merger, the separate existence of BPI shall cease and, in accordance with
the terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public, as well as of a
private, nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all and every other
interest of or belonging to or due to Newco and BPI shall be taken and deemed to
be transferred to, and vested in, the Surviving Corporation without further act
or deed. The name of the Surviving Corporation from and after the Effective Time
of the Merger shall be "BPI
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Acquisition Company" which name shall be changed after the Closing to Bactolac
Pharmaceuticals, Inc. in accordance with applicable law.
2. CONVERSION OF STOCK
2.1 Conversion Of BPI Stock. At the Effective Time of the Merger and
without any action on the part of the holders of BPI Stock, the BPI Stock shall
be converted into the right to receive (i) $2,750,000 in NFLI Preferred Stock,
(ii) $2,500,000 in cash, without interest, (iii) a subordinated promissory note
(the "Note"), in substantially the form attached as Exhibit 2.1(a), having an
aggregate principal amount of $2,500,000, an interest rate of 7.0% per annum and
payable $1,000,000 on the first anniversary of the Closing Date, $1,000,000 on
the second anniversary of the Closing Date, and $500,000 on the third
anniversary of the Closing Date and (iv) an earnout payment, the determination
and payment of which shall be in accordance with the terms and conditions in the
Earnout Agreement substantially in the form attached as Exhibit 2.1(b). The
method for determining the number of shares of NFLI Preferred Stock to be
received by each holder of BPI Stock prior to the Effective Time of the Merger
is set forth in Schedule 2.1. The form of Statement of Designation of Series A
Preferred Stock is attached hereto as Exhibit 2.1(c).
2.2 Effect Of Merger On Newco Stock. At the Effective Time of the Merger
without any action on the part of the holders of Newco Stock, each share of
Newco Stock issued and outstanding immediately prior to the Effective Time of
the Merger shall remain outstanding as one share of Newco Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 Exchange Procedure. At the Effective Time of the Merger the holders
of the BPI Stock shall, on surrender of certificates representing the BPI Stock
("Certificates"), receive their respective percentages of the shares of NFLI
Preferred Stock which constitute the Merger Consideration as set forth on
Schedule 2.1 hereto. The surrender of the Certificates by the Shareholder to
Newco and the delivery by NFLI to the Shareholder of the NFLI Preferred Stock
specified in Section 2.1 shall occur on the Closing Date. On the Closing Date,
the Shareholder shall also receive the cash payment in the form of a certified
check or by wire transfer to a bank account in New York designated by the
Shareholder and the Note in the amounts specified in Section 2.1.
3.2 Delivery Of Certificates. Each holder shall deliver to Newco, ANI and
NFLI at the Closing the Certificates representing the shares of BPI Stock owned
by him or her, duly endorsed in blank by the holder, or accompanied by blank
stock powers. Each holder agrees promptly to cure any deficiencies with respect
to the endorsement of his or her Certificates or other documents of conveyance
with respect to such BPI Stock or with respect to the stock powers accompanying
any BPI Stock. All shares of NFLI Preferred Stock issued upon conversion of
shares of BPI Stock shall be deemed to have been issued in full satisfaction of
all rights pertaining to the BPI Stock. Until surrender as contemplated by this
Section 3, each Certificate shall be deemed at any time after the Effective Time
of the Merger to represent only the right to receive upon such surrender the
Merger Consideration.
4. CLOSING
Subject to the terms and conditions of this Agreement, the closing of the
Merger and the transactions contemplated by this Agreement (the "Closing") will
take place on the second
5
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business day after the satisfaction or waiver (subject to applicable law) of the
conditions set forth in Sections 8 and 9, unless another time or date is agreed
to in writing by the parties hereto (the actual time and date of the Closing
being referred to herein as the "Closing Date"). The Closing shall be held at
the offices of Patton Boggs, LLP, 1660 Lincoln Street, Suite 1900, Denver,
Colorado 80264, unless another place is agreed to in writing by the parties
hereto.
5. REPRESENTATIONS AND WARRANTIES OF BPI AND THE SHAREHOLDER
BPI and the Shareholder jointly and severally represent and warrant that
all of the following representations and warranties in this Section 5 are true
at the date of this Agreement and shall be true at the time of Closing.
5.1 Due Organization. BPI is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the requisite power and authority to carry on its business as it is now
being conducted. BPI is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except (i) as set
forth on Schedule 5.1 to the BPI Disclosure Letter or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of BPI taken as a whole (as used herein with respect to BPI, or with respect to
any other person, a "Material Adverse Effect"). Schedule 5.1 to the BPI
Disclosure Letter sets forth the jurisdiction in which BPI is incorporated and
contains a list of all jurisdictions in which BPI is authorized or qualified to
do business. True, complete and correct copies of the Articles of Incorporation
and By-laws, each as amended, of BPI (the "Charter Documents") are all attached
to Schedule 5.1 to the BPI Disclosure Letter. The stock records of BPI, as
heretofore made available to Newco, are correct and complete in all material
respects. There are no minutes or other records or proceedings in the possession
of BPI which have not been made available to Newco, and all of such minutes or
other records of proceedings are correct and complete in all respects.
5.2 Authorization. The representatives of BPI executing this Agreement
have the authority to enter into and bind BPI to the terms of this Agreement and
BPI has the full legal right, power and authority to enter into this Agreement
and the Merger, subject to any required approval of the shareholders and the
Board of Directors of BPI as set forth on Schedule 5.2 to the BPI Disclosure
Letter, executed copies of which are attached thereto.
5.3 Capital Stock Of BPI. The authorized capital stock of BPI is as set
forth in Section 1.4(i). All of the issued and outstanding shares of the capital
stock of BPI are owned by the holders in the amounts set forth in Schedule 2.1
and further, except as set forth on Schedule 5.3 to the BPI Disclosure Letter,
are owned free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind. All of the
issued and outstanding shares of the capital stock of BPI have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the holders listed and further, such shares were
offered, issued, sold and delivered by BPI in compliance with all applicable
state and Federal laws concerning the issuance of securities. Further, none of
such shares was issued in violation of any preemptive rights of any past or
present stockholder.
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5.4 Transactions In Capital Stock; Organization; Accounting. Except as
set forth on Schedule 5.4 to the BPI Disclosure Letter, (i) BPI has not acquired
any BPI Stock since its inception; (ii) no option, warrant, call, conversion
right or commitment of any kind exists which obligates BPI to issue any of its
authorized but unissued capital stock; (iii) BPI has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iv) neither the voting stock structure of
BPI nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the Merger.
Schedule 5.4 to the BPI Disclosure Letter also includes complete and accurate
copies of all stock option or stock purchase plans, including a list of all
outstanding options, warrants or other rights to acquire shares of BPI's stock.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5 to the BPI
Disclosure Letter, none of the shares of BPI Stock was issued pursuant to
awards, grants or bonuses in contemplation of the Merger.
5.6 Subsidiaries. Except as set forth on Schedule 5.6 to the BPI
Disclosure Letter, BPI (i) has no subsidiaries and (ii) does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is BPI, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; Etc. Set forth in Schedule 5.7 to the BPI
Disclosure Letter is an accurate list of all names of all predecessor companies
of BPI, including the names of any entities acquired by BPI (by stock purchase,
merger or otherwise) or owned by BPI or from whom BPI previously acquired
material assets, in any case, from the earliest date upon which any person
acquired his or her stock in BPI. Except as disclosed on Schedule 5.7 to the
BPI Disclosure Letter, BPI has not been, within such period of time, a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-Off By BPI. Except as set forth on Schedule 5.8 to the BPI
Disclosure Letter, there has not been any sale, spin-off or split-up of material
assets of either BPI or any other person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, BPI ("Affiliates") since its inception.
5.9 Financial Statements. Schedule 5.9 to the BPI Disclosure Letter
includes copies of the following financial statements (the "BPI Financial
Statements") of BPI: BPI's audited Balance Sheets as of December 31, 1998, 1997
and audited Statements of Operations, Shareholders' Equity and Cash Flows for
each of the fiscal years ended December 31, 1998, 1997 and 1996, unaudited
Balance Sheets as of June 30, 1999 and 1998 and unaudited Statements of
Operations, Shareholders' Equity and Cash Flows for each of the six month
periods ended June 30, 1999 and 1998 (June 30, 1999 being hereinafter referred
to as the "Balance Sheet Date"). Such BPI Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9 to the BPI Disclosure Letter). Except as set forth
on Schedule 5.9 to the BPI Disclosure Letter, such
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Balance Sheets present fairly in all material respects the financial position of
BPI as of the dates indicated thereon, and such Statements of Operations,
Shareholders' Equity and Cash Flows present fairly in all material respects the
results of operations for the periods indicated thereon.
5.10 Liabilities And Obligations. Schedule 5.10 to the BPI Disclosure
Letter includes accurate lists as of the Balance Sheet Date of (i) all material
liabilities of BPI which are not reflected on the Balance Sheet of BPI at the
Balance Sheet Date or otherwise reflected in the BPI Financial Statements at the
Balance Sheet Date which by their nature would be required in accordance with
GAAP to be reflected in the Balance Sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements. Except as set forth on Schedule 5.10 to the BPI Disclosure
Letter, since the Balance Sheet Date BPI has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. Schedule 5.10 to the BPI Disclosure Letter
also includes, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or otherwise
accrued or reserved, a good faith and reasonable estimate of the maximum amount
which BPI reasonably expects will be payable. For each such contingent liability
or liability for which the amount is not fixed or is contested, BPI has provided
to Newco the following information:
(a) A summary description of the liability together with the
following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and
(iii) name of claimant and all other parties to the claim, suit
or proceeding;
(b) The name of each court or agency before which such claim, suit or
proceeding is pending; and
(c) The date such claim, suit or proceeding was instituted; and
(d) A good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability. If
no estimate is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
5.11 Accounts And Notes Receivable. Schedule 5.11 to the BPI Disclosure
Letter includes an accurate list of the accounts and notes receivable of BPI, as
of the Balance Sheet Date, including any such amounts which are not reflected in
the Balance Sheet as of the Balance Sheet Date, and including receivables from
and advances to employees and the stockholders. Except to the extent reflected
on Schedule 5.11 to the BPI Disclosure Letter, to the Knowledge of BPI and the
Shareholder, such accounts, notes and other receivables are collectible in the
amounts shown on Schedule 5.11 to the BPI Disclosure Letter, net of reserves
reflected in the Balance Sheet as of the Balance Sheet Date.
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5.12 Permits And Intangibles.
(i) BPI and/or its employees hold all licenses, franchises, permits
and other governmental authorizations the absence of any of which could have a
Material Adverse Effect on BPI's business and Schedule 5.12 to the BPI
Disclosure Letter includes an accurate list and summary description of all such
licenses, franchises, permits and other governmental authorizations, including
permits (it being understood and agreed that a list of all environmental permits
and other environmental approvals is set forth on Schedule 5.13 to the BPI
Disclosure Letter), titles (including motor vehicle titles and current
registrations), fuel permits, licenses, franchises and certificates, as well as
(a) registered or unregistered trademarks, trade names, patents, patent
applications and inventions and discoveries that may be patentable, (b)
copyrights owned or held by BPI or any of its employees (including interests in
software or other technology systems, programs and intellectual property). To
the Knowledge of BPI and the Shareholder, the licenses, franchises, permits and
other governmental authorizations listed on Schedules 5.12 and 5.13 to the BPI
Disclosure Letter are valid, and BPI has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. BPI has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12 and 5.13
of the BPI Disclosure letter and is not in violation of any of the foregoing
except where such non-compliance or violation would not have a Material Adverse
Effect on BPI. Except as specifically provided in Schedule 5.12 to the BPI
Disclosure Letter, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to BPI by, any such licenses, franchises, permits
or government authorizations.
(ii) The patents, the marks and copyrights, as well as the know how,
trade secrets, confidential information, customer lists, software, technical
information, data, process technology, plans and drawings owned, used or
licensed by BPI (collectively, the "Trade Secrets") are all those necessary to
enable BPI to conduct and to continue to conduct its business as it is currently
conducted. Schedule 5.12 of the BPI Disclosure Letter also contains a
description of all material Trade Secrets owned or used by BPI. Except as set
forth on Schedule 5.12 to the BPI Disclosure Letter (a) all of the patents,
marks, copyrights and Trade Secrets (collectively, the "Intellectual Property")
are owned, or used under valid licenses, by BPI, and, are free and clear of all
liens and other adverse claims; (b) to the Knowledge of BPI and the Shareholder,
BPI has not infringed on or misappropriated, is not now infringing on or
misappropriating, and has not received any notice that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (c) there is no claim pending or, to the Knowledge of BPI
and the Shareholder, threatened against BPI with respect to the alleged
infringement or misappropriation by BPI or a conflict with, any intellectual
property rights of others; (d) to the Knowledge of BPI and the Shareholder, the
operation of any aspect of the business in the manner in which it has heretofore
been operated or is presently operated does not give rise to any such
infringement or misappropriation; and (e) to the Knowledge of BPI and the
Shareholder, there is no infringement or misappropriation of the Intellectual
Property by a third party or claim, pending or threatened,
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against any third party with respect to the alleged infringement or
misappropriation of the Intellectual Property by such third party.
5.13 Environmental Matters. Except as set forth on Schedule 5.13 to the
BPI Disclosure Letter, and except where any failure to comply or action would
not have a Material Adverse Effect, (i) BPI has complied with and is in
compliance with all Federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to any of them or any of their respective
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Laws); (ii) BPI has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, an accurate list of all of which permits and approvals is set forth
on Schedule 5.13 to the BPI Disclosure Letter, and have reported to the
appropriate authorities, to the extent required by all Environmental Laws, all
past and present sites owned and operated by BPI where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by BPI
except as permitted by Environmental Laws; (iv) to the Knowledge of BPI and the
Shareholder there is no on-site or off-site location to which BPI has
transported or disposed of Hazardous Wastes and Hazardous Substances or arranged
for the transportation of Hazardous Wastes and Hazardous Substances, which site
is the subject of any Federal, state, local or foreign enforcement action or any
other investigation which is reasonably likely to lead to any claim against BPI
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) to the Knowledge of BPI and the Shareholder, BPI has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. Schedule 5.14 to the BPI Disclosure Letter
includes an accurate list of (i) all personal property included (or that will be
included) in "depreciable plant, property and equipment" on the Balance Sheets
of BPI, (ii) all other personal property owned by BPI with an individual value
in excess of $25,000 (a) as of the Balance Sheet Date and (b) acquired since the
Balance Sheet Date and (iii) all leases and agreements in respect of personal
property, including, in the case of each of (i), (ii) and (iii), (1) true,
complete and correct copies of all such leases and (2) an indication as to which
assets are currently owned, or were formerly owned, by stockholders, relatives
of stockholders, or Affiliates of BPI. Except as set forth on Schedule 5.14 to
the BPI Disclosure Letter, (x) all material personal property used by BPI in its
business is either owned by BPI or leased by BPI pursuant to a lease included on
Schedule 5.14 to the BPI Disclosure Letter, (y) all of the personal property
listed on Schedule 5.14 to the BPI Disclosure Letter is in good working order
and condition, ordinary wear and tear excepted and (z) all leases and agreements
included on Schedule 5.14 to the BPI Disclosure Letter are in full force and
effect and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective
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terms.
5.15 Significant Customers; Material Contracts And Commitments.
(i) Schedule 5.15 to the BPI Disclosure Letter includes an accurate
list of (i) all significant customers of BPI, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15 means a
customer (or person or entity) representing 5% or more of BPI's annual revenues
as of the Balance Sheet Date. Except to the extent set forth on Schedule 5.15 to
the BPI Disclosure Letter, none of BPI'S significant customers has canceled or
substantially reduced or, to the Knowledge of BPI and the Shareholder, are
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by BPI.
(ii) Schedule 5.15 to the BPI Disclosure Letter includes an accurate
list as of or on the date hereof, of all material written or oral leases,
agreements or other contracts or legally binding contractual rights or
contractual obligations or contractual commitments relating to or in any way
affecting the operation or ownership of the business of BPI (the "Material
Contracts"), including but not limited, those of a type described below:
(a) Any consulting agreement, employment agreement, change-in-
control agreement, and collective bargaining arrangements with any labor union
and any such agreements currently in negotiation or proposed;
(b) Any contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $25,000.
(c) Any contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such contract is made
in the ordinary course of business and requires aggregate future payments of
less than $25,000);
(d) Any contract other than trade payables in the ordinary
course of business relating to the borrowing of money, or the guaranty of
another person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) Any contract granting any person a lien on all or any part
of the assets of BPI or any of its subsidiaries;
(f) Any contract for the cleanup, abatement or other actions in
connection with hazardous materials as defined under any Environmental Laws, the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) Any contract granting to any person an option or a first
refusal, first-offer or similar preferential right to purchase or acquire any
material assets of BPI or any
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BPI Subsidiary;
(h) Any contract with any agent, distributor or representative
which is not terminable by BPI upon ninety calendar days' or less notice without
penalty;
(i) Any contract under which BPI is (1) a lessee or sublessee of
any machinery, equipment, vehicle or other tangible personal property, or (2) a
lessor of any tangible personal property owned by BPI, in either case having an
original value in excess of $25,000;
(j) Any contract under which BPI has granted or received a
license or sublicense or under which it is obligated to pay or has the right to
receive a royalty, license fee or similar payment;
(k) Any contract concerning any Affiliates;
(l) Any contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other than as
provided in the by-laws of BPI;
(m) Any contract for purchase or sale by BPI or the granting of
any options with respect to, or providing for any labor, services or materials
(including brokerage or management services) involving any real property on
which BPI conducts any aspect of its business involving aggregate future
payments of more than $25,000;
(n) Any contract limiting, restricting or prohibiting BPI from
conducting business anywhere in the United States or elsewhere in the world;
(o) Any joint venture or partnership agreement;
(p) Any lease, sublease or associated agreements relating to the
property leased by BPI;
(q) Any material contract requiring prior notice, consent or
other approval upon a change of control in the equity ownership of BPI, which
contracts shall be separately identified on Schedule 5.15 to the BPI Disclosure
Letter;
(r) Any other contract, whether or not made in the ordinary
course of business, which involves future payments in excess of $25,000.
BPI has provided Newco a true and complete copy of each written Material
Contract and a true and complete summary of each oral Material Contract, in each
case including all amendments or other modifications thereto. Except as set
forth on Schedule 5.15 to the BPI Disclosure Letter, each Material Contract is a
valid and binding obligation of, and enforceable in accordance with its terms
against, BPI, and, to the Knowledge of BPI and the Shareholder, the other
parties thereto, and is in full force and effect, subject only to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally. Except as set
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forth on Schedule 5.15 of the BPI Disclosure Letter, BPI has performed all
obligations required to be performed by it as of the date hereof and will have
performed all obligations required to be performed by it as of the Closing Date
under each Material Contract and neither BPI, nor, to the Knowledge of BPI and
the Shareholder, any other party to any Material Contract is in breach or
default thereunder, and to the Knowledge of BPI and the Shareholder, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. BPI has not been
notified that any party to any Material Contract intends to cancel, terminate,
not renew, or exercise an option under any Material Contract, whether in
connection with the transactions contemplated hereby or otherwise.
5.16 Real Property. Schedule 5.16 to the BPI Disclosure Letter is a
correct and complete list, and a brief description of, all real estate in which
BPI has an ownership interest (the "Owned Real Property") and all real property
leased by BPI (the "Leased Real Property"), and all facilities thereon. Except
as lessee of Leased Real Property, BPI is not a lessee under or otherwise a
party to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another person or entity has granted to BPI
the right to use or occupy all or any portion of any real property.
BPI has good and marketable fee simple title to the Owned Real
Property and, assuming good title in the landlord, a valid leasehold interest in
the Leased Property (the Owned Real Property and the Leased Real Property are
sometimes referred to as the "Real Property"), in each case free and clear of
all liens, assessments or restrictions (including, without limitation, inchoate
liens arising out of the provision of labor, services or materials to any such
Real Property) other than (a) mortgages shown on the BPI Financial Statements as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) liens for current taxes not yet due, and (c) minor
imperfections of title, such as utility and access easements that do not impair
the intended use of the Real Property, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of BPI, and zoning laws and other land use
restrictions or restrictive covenants that do not materially impair the present
use of the property subject thereto. The Real Property constitutes all the real
properties reflected on BPI Financial Statements or used or occupied by BPI in
connection with its business or otherwise.
With respect to the Owned Real Property, except as reflected on
Schedule 5.16 to the BPI Disclosure Letter:
(i) BPI is in exclusive possession thereof and no easements, licenses
or rights are necessary to the conduct of its business thereon in addition to
those which exist as of the date hereof;
(ii) No portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Real Property and, to the Knowledge of BPI and the
Shareholder, there is no threatened condemnation or proceeding with respect
thereto;
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(iii) The buildings, plants, improvements, structures and fixtures
owned, leased or used by BPI at the Owned Real Property, including, without
limitation, heating, ventilation and air conditioning systems, roofs,
foundations and floors, are in good operating condition and repair; the Owned
Real Property is properly zoned for its use by BPI (without being a legal
nonconforming use or subject to a conditional use permit), and is not, to the
Knowledge of BPI and the Shareholder, in violation of any zoning, subdivision,
health, safety, landmark preservation, wetlands preservation, building,
environmental, land use or other ordinances, laws, codes or regulations or any
covenants, restrictions or other documents of record; nor has any notice of any
claimed violation of any such ordinances, laws, codes or regulations or any
covenants, restrictions or other documents of record been served on BPI; and BPI
has not received notice of, and to the Knowledge of BPI and the Shareholder
there has not been, any change in such zoning, subdivision, health, safety,
landmark preservation, wetlands preservation, building, environmental, land use
or other ordinances, laws, codes or regulations that affects BPI's use of such
Owned Real Property (without regard to any non-conforming use or other so-called
"grandfather" provision);
(iv) Since January 1, 1998, BPI has not received notice of any
increase in the assessed valuation of the Owned Real Property or of any
contemplated special assessment; Schedule 5.16 to the BPI Disclosure Letter
contains a true and correct description of all pending proceedings to reduce the
general real estate taxes against the Owned Real Property; none of the Owned
Real Property is located in a special service district, special service area,
tax increment financing district or similar district or area, or to the
Knowledge of BPI and the Shareholder, subject to a threatened special
assessment; and, to the Knowledge of BPI and the Shareholder, none of the Owned
Real Property is located in an area for which federal flood risk insurance is
necessary;
(v) All facilities located on any parcel of the Owned Real Property
are supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection, necessary
for the current operation of such facilities, all of which services are adequate
to conduct that portion of BPI's business conducted at each of such facilities
and such facilities are, to the Knowledge of BPI and the Shareholder, maintained
in accordance with all laws, ordinances, rules and regulations applicable to BPI
or the Owned Real Property;
(vi) BPI is not a party to any written or oral agreements or
undertakings with owners or users of properties adjacent to any facility located
on any parcel of the Owned Real Property relating to the use, operation or
maintenance of such facility or any adjacent real property;
(vii) BPI is not a lessor under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which BPI has granted to any party or parties the right to use or
occupy all or any portion of the Owned Real Property;
(viii) To the Knowledge of BPI and the Shareholder, the buildings,
plants, improvements, structures, and fixtures on the Owned Real Property are
free from regulated quantities of asbestos;
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(ix) There are no material defects in any improvements on or to the
Owned Real Property;
(x) No portion of any parcel of the Owned Real Property is subject
to any roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(xi) All assessments and taxes currently due and payable on the Owned
Real Property have been paid; and
(xii) The buildings, plants, and structures on the Owned Real Property
are free from flooding and leaks.
With respect to the Leased Real Property, except as reflected on
Schedule 5.16 to the BPI Disclosure Letter:
(i) BPI is in exclusive possession thereof and, to the Knowledge of
BPI and the Shareholder, no easements, licenses or rights are necessary to
conduct BPI's business thereon in addition to those which exist as of the date
hereof;
(ii) To the Knowledge of BPI and the Shareholder, no portion thereof
is subject to any pending condemnation proceeding or proceeding by any public or
quasi-public authority materially adverse to the Leased Real Property and there
is no threatened condemnation or proceeding with respect thereto;
(iii) To the Knowledge of BPI and the Shareholder (a) the buildings,
plants, improvements, structures and fixtures at the Leased Real Property,
including, without limitation, heating, ventilation and air conditioning
systems, roofs, foundations and floors, are in good operating condition and
repair; (b) the Leased Real Property is not in violation of any health, safety,
building, or environmental ordinances, laws, codes or regulations; nor has any
notice of any claimed violation of any such ordinances, laws, codes or
regulations been served on BPI;
(iv) The Leased Real Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of BPI's
business, and such Leased Real Property is, to the Knowledge of BPI and the
Shareholder, maintained in all material respects in accordance with all laws
applicable to BPI or the Leased Real Property;
(v) BPI is not a party to any written or oral agreement or
undertaking with owners or users of properties adjacent to the Leased Real
Property relating to the use, operation or maintenance of such facility or any
adjacent real property;
(vi) BPI is not a party to any lease, sublease, license, concession
or other agreement, whether written or oral, pursuant to which BPI has granted
to any party or parties the right to use or occupy all or any portion of the
Leased Real Property;
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(vii) To the extent that BPI has responsibility under the lease(s)
for the Leased Real Property for compliance with the provisions of the ADA, to
the Knowledge of BPI and the Shareholder, all alterations, rehabilitations,
structures, or improvements in the Leased Property comply with the ADA;
(viii) To the Knowledge of BPI and the Shareholder (a) there are no
material defects in any improvements on or to the Leased Real Property; (b) the
Leased Real Property is free from regulated quantities of asbestos; and (c) the
Leased Real Property is free from flooding and leaks.
5.17 Insurance. Schedule 5.17 to the BPI Disclosure Letter includes (i)
an accurate list of all insurance policies carried by BPI for the past three
years, and (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past five policy years and complete copies
of the foregoing items have been delivered to Newco. Such insurance policies
evidence all of the insurance that BPI has been required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All insurance policies for the current policy periods are in full force and
effect and shall remain in full force and effect through the Closing Date. Since
January 1, 1995, no insurance carried by BPI has been canceled by the insurer
and BPI has not been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters.
Schedule 5.18 to the BPI Disclosure Letter includes an accurate list of (i) all
officers, directors and key employees of BPI, (ii) all employment agreements
with such officers, directors and key employees and the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of the Balance Sheet Date and the date
hereof. BPI has provided to Newco true, complete and correct copies of any
employment agreements for persons listed on Schedule 5.18 to the BPI Disclosure
Letter. Since the Balance Sheet Date, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices. Except as set forth on Schedule 5.18 to
the BPI Disclosure Letter, (i) BPI is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any arrangement with any
labor union, (ii) no employees of BPI are represented by any labor union or
covered by any collective bargaining agreement, (iii) to the Knowledge of BPI
and the Shareholder, no campaign to establish such representation is in progress
and (iv) there is no pending or, to the Knowledge of BPI and the Shareholder,
threatened labor dispute involving BPI and any group of its employees nor has
BPI experienced any labor interruptions over the past three years. BPI believes
its relationship with its employees to be good.
5.19 Employee Benefit Plans. Schedule 5.19 to the BPI Disclosure Letter
sets forth all employee benefit plans of BPI, including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements. BPI has
delivered to Newco true, complete and correct copies of such plans, agreements
and any trusts related thereto, and classifications of employees covered thereby
as of the Balance Sheet Date. Except for the employee benefit plans, if any,
described on Schedule 5.19 to the BPI Disclosure Letter, BPI does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an
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"employee pension benefit plan," nor has BPI any obligation to contribute to or
accrue or pay any benefits under any deferred compensation or retirement funding
arrangement on behalf of any employee or employees (such as, for example, and
without limitation, any individual retirement account or annuity, any "excess
benefit plan" (within the meaning of Section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. BPI has not sponsored, maintained or contributed
to any employee pension benefit plan other than the plans set forth on Schedule
5.19 to the BPI Disclosure Letter, nor is BPI required to contribute to any
retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
BPI's employees. All accrued contribution obligations of BPI with respect to any
plan listed on Schedule 5.19 to the BPI Disclosure Letter have either been
fulfilled in their entirety or are fully reflected on the balance sheet of the
BPI as of the Balance Sheet Date.
5.20 Compliance With ERISA. All plans listed on Schedule 5.19 to the BPI
Disclosure Letter that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Code are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 to the BPI
Disclosure Letter. Except as disclosed on Schedule 5.20 to the BPI Disclosure
Letter, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 5.19 to the BPI Disclosure Letter. None of the stockholders has engaged
in any transaction prohibited under the provisions of Section 4975 of the Code
or Section 406 of ERISA. No plan listed in Schedule 5.19 to the BPI Disclosure
Letter has incurred an accumulated funding deficiency, as defined in Section
412(a) of the Code and Section 302(1) of ERISA; and BPI has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. BPI and the Shareholder
further represent that:
(i) There have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and approval by the Internal
Revenue Service;
(ii) No plan listed in Schedule 5.19 to the BPI Disclosure Letter,
subject to the provisions of Title IV of ERISA, has been terminated;
(iii) There have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19 to the BPI Disclosure Letter;
(iv) BPI has not incurred liability under Section 4062 of ERISA; and
(v) No circumstances exist pursuant to which BPI could have any
direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise
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tax or penalty, or being subject to any statutory lien to secure payment of any
such liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than BPI that is, or at any time was, a
member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code)
that includes BPI.
5.21 Conformity With Law; Litigation.
(i) Except to the extent set forth on Schedule 5.21 to the BPI
Disclosure Letter, BPI is not in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
which would have a Material Adverse Effect.
(ii) Except as set forth on Schedule 5.21 to the BPI Disclosure
Letter (which shall disclose the parties to, nature of and relief sought for
each matter to be disclosed), other than collection actions by BPI in the
ordinary course of business on its own behalf, none of which is greater than
$10,000 and which in the aggregate do not exceed $25,000:
(a) There is no suit, action, proceeding, investigation, claim
or order pending or, to the Knowledge of BPI and the Shareholder, threatened
against BPI, or with respect to any Employee Plan, or any fiduciary of any such
plan (or pending or, to the Knowledge of BPI and the Shareholder, threatened
against any of the officers, directors or employees of BPI with respect to the
business or currently proposed business activities of BPI, or to which BPI is
otherwise a party, or which may have or is likely to have a Material Adverse
Effect, before any court, or before any governmental authority, department,
commission, bureau, agency or other governmental department or arbitrator
(collectively, "Claims"), nor, to the Knowledge of BPI and the Shareholder is
there any basis for any such Claims.
(b) BPI is not subject to any unsatisfied or continuing
judgment, order or decree of any court or governmental authority, and to the
Knowledge of BPI and the Shareholder, BPI is not otherwise exposed, from a legal
standpoint, to any liability or disadvantage which could have a Material Adverse
Effect. Schedule 5.21 to the BPI Disclosure Letter sets forth all closed
litigation matters to which BPI was a party during the preceding five years, the
dates such litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
5.22 Taxes. BPI has timely filed all requisite federal, state and other
tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22 to the BPI
Disclosure Letter, there are no examinations in progress or claims against any
of them for federal, state and other Taxes (including penalties and interest)
for any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes, whether pending or threatened, has been received.
All Taxes, including interest and penalties (whether or not shown on any tax
return) owed by BPI, any member of an affiliated or consolidated group which
includes or included BPI, or with respect to any payment made or deemed made by
BPI herein have been paid. The amounts shown as accruals for Taxes on the BPI
Financial Statements are sufficient for the payment of all Taxes
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of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of BPI for the last three fiscal years, are
attached as Schedule 5.22 to the BPI Disclosure Letter.
5.23 No Violations. BPI is not in violation of any of its Charter
Documents. Neither BPI nor, to the Knowledge of BPI and the Shareholder, any
other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on the Schedules to the BPI Disclosure Letter, or
any other material agreement to which it is a party or by which its properties
are bound (the "Material Documents"); and, except as set forth in Schedule 5.23
to the BPI Disclosure Letter, (a) the rights and benefits of BPI under the
Material Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation of, or breach of, or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents. Except as set forth on Schedule 5.23 to the
BPI Disclosure Letter, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 5.23 to the BPI
Disclosure Letter, none of the Material Documents prohibits the use or
publication by BPI or Newco of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts BPI from
freely providing services to any other customer or potential customer of BPI or
Newco.
5.24 Government Contracts. Except as set forth on Schedule 5.24 to the
BPI Disclosure Letter, BPI is not now a party to any governmental contracts
subject to price redetermination or renegotiation.
5.25 Company Products. Except as set forth on Schedule 5.25 to the BPI
Disclosure Letter, there have been no BPI Products which have been recalled,
withdrawn or suspended in, or outside of, the United States (whether voluntarily
or otherwise) since January 1, 1994 and ending on the date hereof, or (ii)
proceedings in the United States and/or outside of the United States pending
against BPI at any time since January 1, 1994 and ending on the date hereof
(whether such proceedings have since been completed or remain pending) seeking
the recall, withdrawal, suspension or seizure of any BPI Product or seeking to
enjoin BPI from engaging in any activities pertaining to such BPI Products or to
affirmatively perform activities pertaining to such BPI Products prior to
shipping such products. To the Knowledge of BPI and the Shareholder except as
set forth in Schedule 5.25 to the BPI Disclosure Letter, there exists no facts
which could reasonably be expected to furnish a basis for the recall or
withdrawal of any BPI Product or the suspension of any product registration,
product license, manufacturing license, wholesale dealers license, export
license or other governmental license, approval or consent of any governmental
regulatory agency with respect to any of the BPI Products and there are no facts
which could reasonably be expected to form the basis for the issuance of an
injunction pertaining thereto or to cause BPI to cease further distribution or
marketing of any of the BPI Products. The BPI Products have been manufactured,
marketed
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and distributed in accordance with the specifications under which such BPI
Products have normally been manufactured and in accordance with all requirements
of law. Since January 1, 1994, BPI has not received or been subject to consent
decrees, orders, settlement agreements or similar matters relating in any
fashion to the BPI Products or received any warning letter or other
correspondence from the Food and Drug Administration, Federal Trade Commission
or other governmental agencies, federal, state or local, or any governmental
officials concerning the BPI Products or which have in any manner asserted that
the operations of BPI have not, or may not, be in compliance with applicable
laws, regulations, rules or guidelines. BPI has complied in all respects with
current reporting requirements relating to the BPI Products;
5.26 Absence Of Changes. Since the Balance Sheet Date, except as set
forth on Schedule 5.26 to the BPI Disclosure Letter, there has not been:
(i) Any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of BPI;
(ii) Any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of BPI;
(iii) Any change in the authorized capital of BPI or its outstanding
securities or any change in its ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
(iv) Any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of BPI;
(v) Any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by BPI to any of its officers,
directors, stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(vi) Any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting the
business of BPI;
(vii) Any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of BPI to any person, including, without
limitation, any of the stockholders and their affiliates;
(viii) Any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the BPI, including without limitation any indebtedness
or obligation of any stockholder or any affiliate thereof;
(ix) Any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of BPI or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
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(x) Any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of BPI's business;
(xi) Any waiver of any material rights or claims of BPI;
(xii) Any amendment or termination of any Material Documents or other
right to which BPI is a party;
(xiii) Any transaction by BPI outside the ordinary course of its
business;
(xiv) Any cancellation or termination of a Material Contract with a
customer or client prior to the scheduled termination date; or
(xv) Any other distribution of property or assets by BPI other than
in the ordinary course of business.
5.27 Deposit Accounts; Powers Of Attorney. Schedule 5.27 to the BPI
Disclosure Letter includes an accurate list as of the date of the Agreement of:
(i) the name of each financial institution in which BPI has accounts or safe
deposit boxes; (ii) the names in which the accounts or boxes are held; (iii) the
type of account and account number; and (iv) the name of each person authorized
to draw thereon or have access thereto. Schedule 5.27 to the BPI Disclosure
Letter also sets forth the name of each person, corporation, firm or other
entity holding a general or special power of attorney from BPI and a description
of the terms of such power.
5.28 Validity Of Obligations. The execution and delivery of this
Agreement by BPI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of BPI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of BPI.
5.29 Relations With Governments. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which the stockholders have been stockholders of BPI, BPI has not
made, offered or agreed to offer anything of value to any governmental official,
political party or candidate for government office nor has it otherwise taken
any action which would cause BPI to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended or any law of similar effect. If political
contributions made by BPI have exceeded $10,000 per year for each year in which
any person has been a stockholder of BPI, each contribution in the amount of
$5,000 or more is described on Schedule 5.29 to the BPI Disclosure Letter.
5.30 Disclosure. This Agreement, including the Exhibits and BPI
Disclosure Letter and the Schedules thereto, together with the other information
furnished to NFLI, ANI and Newco by BPI in connection herewith, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of
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the circumstances under which they were made, not misleading.
5.31 Prohibited Activities. Except as set forth on Schedule 5.31 to the
BPI Disclosure Letter, BPI has not, between the Balance Sheet Date and the date
hereof, taken any of the actions (Prohibited Activities) set forth in Section
7.3.
5.32 Ownership Of Shares. The Shareholder owns of record and
beneficially all of the issued and outstanding shares of BPI Stock and has, and
at all times prior to and as of the Closing, will have, good and marketable
title to such shares free and clear of all liens and adverse claims.
5.33 Authorization Of Shareholder. The Shareholder has the power and
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform his obligations under this Agreement. This
Agreement, upon its execution and delivery by the Shareholder (assuming the due
authorization, execution and delivery hereof by the other parties hereto), will
constitute the legal, valid and binding obligation of the Shareholder,
enforceable against Shareholder in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws relating to creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
5.34 No Conflicts. The execution, delivery and performance of this
Agreement by the Shareholder and the consummation by the Shareholder of the
transactions contemplated hereby will not conflict with or result in a breach or
violation of any term or provision of, or (with or without notice or passage of
time, or both) constitute a default under, any indenture, mortgage, deed of
trust, trust (constructive and other), loan agreement or other agreement or
instrument to which the Shareholder is a party or by which the Shareholder or
the Shareholder's shares are bound, or violate the provisions of any statute, or
any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court
or any arbitrator, having jurisdiction over the Shareholder or the property of
the Shareholder.
5.35 Restrictions On Transfer Of the Merger Consideration Under
Securities Laws.
(i) The Shareholder understands and agrees that the shares of NFLI
Preferred Stock and the Note that the Shareholder will acquire in the Merger
have not been registered under the Securities Act and that, accordingly, such
shares and the Note will not be fully transferable except as permitted under
various exemptions contained in the Securities Act or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act. The
Shareholder acknowledges that the Shareholder must bear the economic risk of his
investment in such shares and the Note for an indefinite period of time as such
shares and the Note have not been registered under the Securities Act and
therefore cannot be sold unless they are subsequently registered or an exemption
from registration is available. The Shareholder hereby represents and warrants
that Shareholder is an Accredited Investor as defined under Rule 501(a) of the
Securities Act and is acquiring the shares and the Note in the Merger for
investment purposes only, for Shareholder's own account, and not as nominee or
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agent for any other person, and not with the view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act.
(ii) The Shareholder understands and agrees that the certificate
evidencing the shares of NFLI Preferred Stock and the Note he will acquire in
the Merger, and each instrument or certificate issued in transfer thereof, will
bear substantially the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO THE DISTRIBUTION AND SUCH SECURITIES MAY NOT BE SOLD
OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. IF THE
SECURITIES ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN
EXEMPTION THE CORPORATION MAY REQUIRE AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND WILL NOT VIOLATE SUCH
ACT OR ANY OTHER APPLICABLE SECURITIES LAWS.
(iii) The Shareholder consents to a notation on the records of NFLI
and its transfer agent in order to implement the restrictions on transfer set
forth in this Section 5.35.
5.36 Advice Of Counsel. The Shareholder acknowledges that Shareholder
has obtained advice from independent counsel with respect to this Agreement to
the extent Shareholder desired to do so. The Shareholder is not relying on any
representations, except those set forth herein, or advice from NFLI, ANI or
Newco, or any of their respective officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. REPRESENTATIONS OF NFLI, ANI AND NEWCO
NFLI, ANI and Newco represent and warrant that all of the following
representations and warranties in this Section 6 are true at the date of this
Agreement and shall be true at the time of Closing.
6.1 Due Organization. Each of NFLI, ANI and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each of NFLI, ANI and Newco is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary, except where the failure to be so authorized or
qualified would not have a material adverse effect on the business, operations,
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properties, assets or condition (financial or otherwise), of NFLI, ANI and Newco
taken as a whole (as used herein with respect to NFLI, ANI and Newco, or with
respect to any other person, a "Material Adverse Effect"). True, complete and
correct copies of the Certificate of Incorporation and Bylaws (the "Newco
Charter Documents") have been provided to BPI.
6.2 Authorization. The representatives of each of NFLI, ANI and Newco
executing this Agreement have the authority to enter into and bind each
respective corporation to the terms of this Agreement. Each of NFLI, ANI and
Newco has the full legal right, power and authority to enter into this Agreement
and the Merger.
6.3 Capital Stock Of Newco. The authorized capital stock of Newco is as
set forth in Section 1.4. All of the issued and outstanding shares of the
capital stock of Newco have been duly authorized and validly issued, are fully
paid and nonassessable, and further, such shares were offered, issued, sold and
delivered by Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
6.4 Capital Stock Of NFLI. The authorized capital stock of NFLI consists
of 20,000,000 shares of NFLI Common Stock of which 5,808,595shares are issued
and outstanding, and 1,000,000 shares of NFLI Preferred Stock, of which no
shares are issued and outstanding. All of the issued and outstanding shares of
NFLI Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. As of June 30, 1999, 585,880shares of NFLI Common Stock
were reserved for issuance upon the exercise of stock options, 811,103 shares of
NFLI Common Stock were reserved for issuance upon the exercise of certain
warrants, and 79,000 shares of NFLI Common Stock were held by NFLI in its
treasury.
6.5 No Violations. Each of NFLI, ANI and Newco is not in violation of any
of its Charter Documents. Neither NFLI, ANI nor Newco, to the Knowledge of NFLI,
ANI and Newco, is in default under any material lease, instrument, agreement,
license, or permit; and, (a) the rights and benefits of NFLI, ANI and Newco
under such documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation of, or breach of, or
constitute a default under, any of the terms or provisions of such documents.
None of such documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect and consummation
of the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
6.6 SEC Filings; Financial Statements.
(i) NFLI has filed all forms, reports and documents required to be filed
with the SEC and has made available to BPI and the Shareholder (a) its Annual
Reports on Form 10-K for the fiscal years ended September 30, 1998 and 1997, (b)
its Quarterly Reports on 10-Q for the periods ended December 31, 1998, March 31,
1999 and June 30, 1999, and (c) all proxy statements relating to NFLI's meetings
of shareholders held since January 1, 1998
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(collectively, the "NFLI SEC Reports"). To the knowledge of NFLI, the NFLI SEC
Reports (a) were prepared in all material respects in accordance with the
requirements of the Exchange Act, as in effect on the date such NFLI SEC Reports
were filed, and (b) did not at the time they were filed (or if amended or
superceded by a filing prior to the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(ii) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the NFLI SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of NFLI and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
7. COVENANTS PRIOR TO CLOSING.
7.1 Access And Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, BPI will
afford to the officers and authorized representatives of NFLI, ANI and Newco
access to all of BPI's sites, properties, books and records and will furnish
NFLI, ANI and Newco such additional financial and operating data and other
information as to the business and properties of BPI as NFLI, ANI and Newco may
from time to time reasonably request. BPI will cooperate with NFLI, ANI and
Newco, their representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement or necessary to complete the
Merger.
(b) Between the date of this Agreement and the Closing Date, NFLI,
ANI and Newco will afford to the officers and authorized representatives of BPI
access to all of NFLI, ANI and Newco's sites, properties, books and records and
will furnish BPI such additional financial and operating data and other
information as to the business and properties of NFLI, ANI and Newco as BPI may
from time to time reasonably request. NFLI, ANI and Newco will cooperate with
BPI, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement or necessary to complete the
Merger.
7.2 Conduct Of Business Pending Closing. Between the date of this
Agreement and the Closing, BPI will, except as set forth on Schedule 7.2 to the
BPI Disclosure Letter:
(i) Carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
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(ii) Maintain its respective properties and facilities in as good
working order and condition as at present, ordinary wear and tear excepted;
(iii) Perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective assets,
properties or rights;
(iv) Use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) Use its reasonable efforts to maintain and preserve its
business organization intact, retain its present key employees and maintain its
relationships with suppliers, customers and others having business relations
with it;
(vi) Maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) Maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, without the Knowledge and consent of
Newco (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of Newco if such
replacement instruments are on terms at least as favorable to BPI as the
instruments being replaced; provided, further, that (1) the Shareholder shall
loan $450,000 to BPI which obligation shall be evidenced by a subordinated
promissory note in substantially the form attached as Exhibit 7.2, (2) an entity
formed or to be formed by the Shareholder, Shilpa-Saketh Realty, Inc., may
purchase a building in which BPI would become a tenant of approximately 20,000
square feet on or about March 1, 2000, with a rental charge of approximately
$.50 per square foot less than the rent paid by the current tenant in such
space, all as set forth in a lease agreement which shall provide for a term of
five years, with two five-year renewal options to BPI, and which shall be in
form and satisfactory to counsel for both BPI and Newco and (3) BPI shall
maintain in force a lease and insurance for a Lexus automobile used primarily by
the Shareholder; and
(viii) Maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 Prohibited Activities. Between the date hereof and the Closing Date,
BPI will not, without the prior written consent of Newco, engage in any of the
following (the "Prohibited Activities"):
(i) Make any change in its Charter Documents;
(ii) Issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4 to
the BPI Disclosure Letter;
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(iii) Declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock except that
during the period from August 20, 1999 and the Closing Date, the Shareholder may
receive S Corporation distributions from BPI in an amount not to exceed
$750,000;
(iv) Enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice);
(v) Create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of BPI, (2) (A)
liens for taxes either not yet due or being contested in good faith and by
appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics' or
other like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set
forth on Schedule 5.10 and/or 5.15 to the BPI Disclosure Letter;
(vi) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) Negotiate for the acquisition of any business or the start-up
of any new business;
(viii) Merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) Waive any material rights or claims of BPI, provided that BPI
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided, further, that
such adjustments shall not be deemed to be included in Schedule 5.11 to the BPI
Disclosure Letter unless specifically listed thereon;
(x) Commit a breach or amend or terminate any Material Documents or
right of BPI; or
(xi) Enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 No Shop. Neither BPI, nor any agent, officer, director, trustee or
any representative of any of the foregoing will, during the period commencing on
the date of this Agreement and ending with the earlier to occur of the Closing
Date or the termination of this Agreement in accordance with its terms, directly
or indirectly: (i) solicit or initiate the submission of proposals or offers
from any person for; (ii) participate in any discussions pertaining to; or (iii)
furnish any information to any person other than NFLI, ANI and Newco
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<PAGE>
or their authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, BPI or a merger,
consolidation or business combination of BPI. Furthermore, BPI and the
Shareholder shall not, and the Shareholder shall not permit BPI to, directly or
indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any person other than NFLI, ANI or Newco, and their respective representatives,
with a view to engaging, or preparing to engage, that person with respect to any
matters referenced in this Section 7.4. The Shareholder shall insure that BPI
shall not commence any proceeding to merge, consolidate or liquidate or dissolve
or obligate itself to do so.
7.5 Notice To Bargaining Agents. Prior to the Closing Date, BPI shall
satisfy any requirement for notice of the transactions contemplated by this
Agreement under any applicable collective bargaining agreements, and shall
provide Newco written proof that any required notice has been sent.
7.6 Notification Of Certain Matters. BPI shall give prompt notice to
Newco of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of BPI contained herein or in the BPI Disclosure Letter to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of BPI to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. Newco
shall give prompt notice to BPI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of Newco contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material failure
of Newco to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.6 shall not be deemed to (i) modify the representations or
warranties of the party delivering such notice, (ii) modify the conditions set
forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
7.7 Cooperation. BPI shall furnish or cause to be furnished to NFLI, ANI
and Newco all of the information concerning BPI required to reasonably inform
prospective lenders and investors of NFLI, ANI and Newco who are interested in
financing the Merger, and will cooperate with NFLI in the preparation of a
Report on Form 8-K for filing with the SEC (including audited and unaudited
financial statements of BPI, prepared in accordance with GAAP, in form suitable
for inclusion in the Report on Form 8-K).
7.8 Final Financial Statements; Tax Returns. BPI shall provide to NFLI,
ANI and Newco prior to the Closing Date, the unaudited consolidated balance
sheets of BPI as of the end of all months following the Balance Sheet Date, and
the unaudited consolidated statement of income, cash flows and retained earnings
for all months ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition or the results of its operations from
the financial statements as of the Balance Sheet Date. Such financial statements
shall have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations for the
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periods indicated therein. At Closing or as soon thereafter as reasonably
practicable (and prior to the deadline under law), the Shareholder shall cause
to be filed all requisite federal, state and other tax returns related to BPI's
operations prior to Closing. The costs related to such filings shall be borne
solely by the Shareholder and any taxes owed shall also be the sole
responsibility of the Shareholder. The Shareholder shall provide copies of such
returns to NFLI a reasonable time prior to the filing with the appropriate
governmental agency to enable NFLI to provide comments and the Shareholder shall
provide NFLI with copies of all such filed returns upon filing with the
appropriate governmental agencies.
7.9 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents, or
to take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated hereby.
7.10 Compliance With The Hart-Scott-Rodino Antitrust Improvements Act Of
1976 (the "Hart-Scott Act"). The parties to this Agreement hereby recognize
that one or more filings under the Hart-Scott Act may be required in connection
with the transactions contemplated herein. If it is determined by the parties
to this Agreement that filings under the Hart-Scott Act are required, then: (i)
each of the parties hereto agrees to cooperate and use its best efforts to
comply with the Hart-Scott Act, and (ii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to be
made. If filings under the Hart-Scott Act are required, the costs and expenses
thereof (including filing fees) shall be borne by Newco.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BPI
The obligations of BPI with respect to actions to be taken on the Closing
Date are subject to the satisfaction or waiver on or prior to the Closing Date
of all of the following conditions.
8.1 Representations And Warranties; Performance Of Obligations. All
representations and warranties of NFLI, ANI and Newco contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as though such representations and warranties had been made as of that
time; all the terms, covenants and conditions of this Agreement to be complied
with and performed by NFLI, ANI and Newco on or before the Closing Date shall
have been duly complied with and performed in all material respects; and
certificates to the foregoing effect dated the Closing Date, and signed by the
President of each of NFLI, ANI and Newco shall have been delivered to BPI.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to BPI and its counsel.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of BPI as a result of which the management of
BPI deems it inadvisable to
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proceed with the transactions hereunder.
8.4 Opinion Of Counsel. BPI shall have received an opinion from counsel
for Newco, dated the Closing Date, in form and substance satisfactory to counsel
for BPI and the Shareholder.
8.5 Consents And Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of BPI as a result of which BPI deems it inadvisable to
proceed with the transactions hereunder.
8.6 Good Standing Certificates. Newco shall have delivered to BPI a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Secretary of State of its state of incorporation that
Newco is in good standing and that all state franchise and/or income tax returns
and taxes for Newco for all periods prior to the Closing have been filed and
paid.
8.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to NFLI, ANI or Newco which would constitute a Material
Adverse Effect.
8.8 Officer's Certificate. BPI shall have received a certificate or
certificates, dated the Closing Date and signed by the President of each of
NFLI, ANI and Newco, certifying the truth and correctness of attached copies of
their respective Articles of Incorporation (including amendments thereto),
Bylaws (including amendments thereto), and resolutions of the boards of
directors and the stockholders (if required) adopting this Agreement.
8.9 Incumbency Certificate And Other Documents. BPI shall have received
an incumbency certificate or certificates, dated the Closing Date and signed by
the Secretary of each of NFLI, ANI and Newco, certifying the names, titles and
signatures of the officers authorized to execute the documents referred to in
this Section 8 and such additional supporting documentation and other
information with respect to the Merger as BPI or its counsel may reasonably
request.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF NFLI, ANI AND NEWCO. The
obligations of NFLI, ANI and Newco with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
9.1 Representations And Warranties; Performance Of Obligations. All the
representations and warranties of BPI contained in this Agreement and in the BPI
Disclosure Letter shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and conditions
of this Agreement to be complied with or performed by BPI on or before the
Closing Date shall have been duly performed or complied with in all
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<PAGE>
material respects; and BPI shall have delivered to Newco certificates dated the
Closing Date and signed by the President of BPI to the foregoing effect.
9.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Newco and its counsel.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of NFLI, ANI or Newco as a result of which the
management of NFLI, ANI or Newco deems it inadvisable to proceed with the
transactions hereunder.
9.4 Opinion Of Counsel. NFLI, ANI and Newco shall have received an opinion
from counsel to BPI and the Shareholder, dated the Closing Date, in form and
substance reasonably satisfactory to Newco and its counsel.
9.5 Consents And Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of NFLI, ANI or Newco as a result of which NFLI, ANI or
Newco deems it inadvisable to proceed with the transactions hereunder.
9.6 Good Standing Certificates. BPI shall have delivered to NFLI, ANI and
Newco a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Secretary of State of its state of
incorporation that BPI is in good standing and that all state franchise and/or
income tax returns and taxes for BPI for all periods prior to the Closing have
been filed and paid.
9.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to BPI which would constitute a Material Adverse Effect.
9.8 Officer's Certificate. NFLI, ANI and Newco shall have received a
certificate, dated the Closing Date and signed by the President of BPI,
certifying the truth and correctness of attached copies of BPI's Articles of
Incorporation (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and the stockholders of BPI
adopting this Agreement.
9.9 Incumbency Certificates And Other Documents. NFLI, ANI and Newco shall
have received an incumbency certificate, dated the Closing Date and signed by
the Secretary of BPI certifying the name, titles and signatures of the officers
authorized to execute the documents referred to in this Section 9 and such
additional supporting documentation and other information with respect to the
Merger as NFLI, ANI or Newco or their counsel may reasonably request.
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9.10 Employment Agreements. Pailla Reddy shall have entered into an
employment agreement with Newco effective as of the effective Time of the Merger
substantially in the form annexed hereto as Exhibit 9.10.
9.11 Financing. NFLI, ANI and Newco shall have received from third parties
financing in amounts sufficient for them to complete the Merger and the other
acquisitions disclosed to BPI as well as to provide working capital in amounts
deemed reasonably sufficient by NFLI, ANI and Newco.
9.12 Other Agreements. The Shareholder shall have entered into covenants
not to compete and lock-up agreements effective as of the Effective Time of the
Merger substantially in the form attached as Exhibits 9.12(i) and 9.12(ii). The
Shareholder and his wife shall have entered into a shareholder release
substantially in the form attached as Exhibit 9.12(iii).
10. ADDITIONAL AGREEMENTS
10.1 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Merger and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof
10.2 Public Announcements. BPI and Newco shall use reasonable best efforts
to develop a joint communications plan and each party shall use reasonable best
efforts to (i) insure that all press releases and other public statements with
respect to this Agreement or the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law, to consult with each other and provide each other a
reasonable opportunity to review and comment before issuing any press release or
otherwise making any public statement with respect to this Agreement or the
transactions contemplated hereby.
10.3 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, common, proper or advisable under applicable legal
requirements, to consummate and make effective the transactions contemplated by
this Agreement. If at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement, the Shareholder, BPI,
NFLI, ANI or Newco, as the case may be, shall take or cause to be taken all such
necessary or convenient action and execute, and deliver and file, or cause to be
executed, delivered and filed, all necessary or convenient documentation.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
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(i) By mutual consent of all of the parties hereto;
(ii) By BPI, on the one hand, or by Newco on the other hand, if the
transactions contemplated by this Agreement to take place at the Closing shall
not have been consummated by November 15, 1999, unless the failure of such
transactions to be consummated is due to the failure of the party seeking to
terminate this Agreement to perform any of its obligations under this Agreement
to the extent required to be performed by it prior to or on the Closing Date; or
(iii) By BPI, on the one hand, or by Newco, on the other hand, if a
material breach of the representations or a material breach or default shall be
made by the other party in the observance or in the due and timely performance
of any of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Closing Date or by BPI, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date, or by Newco, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date.
11.2 Liabilities In Event Of Termination. Termination of this Agreement
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
or in the Schedules delivered by such party, including, but not limited to,
legal and audit costs and out of pocket expenses.
12. INDEMNIFICATION
12.1 Indemnification By NFLI, ANI And NEWCO. NFLI, ANI and NEWCO, jointly
and severally, agree to indemnify and hold harmless BPI, the officers,
directors, employees and agents of BPI and the Shareholders, against any and all
losses, claims, damages, liabilities, costs and expenses (including but not
limited to, attorneys' fees and other expenses of investigation and defense of
any claims or actions), directly or indirectly resulting from, relating to or
arising out of: (i) any breach of any covenant, agreement, warranty or
representation of NFLI, ANI or NEWCO contained in this Agreement, (ii) any
misstatement of a material fact contained in this Agreement or in any of the
documents executed in connection with the transactions contemplated by this
Agreement, but only if the misstatement relates to information concerning NFLI,
ANI, NEWCO or their operations, or (iii) the omission to state any fact
necessary to make the statements contained in this Agreement or in any of the
documents executed in connection with the transactions contemplated by this
Agreement not misleading, but only if the omission relates to information
concerning NFLI, ANI, NEWCO or their operations.
12.2 Indemnification By BPI And The Shareholders. BPI and the
Shareholders, jointly and severally, agree to indemnify and hold harmless NFLI,
ANI, NEWCO and the officers, directors, employees and agents of NFLI, ANI and
NEWCO, against any and all losses, claims, damages, liabilities, costs and
expenses (including but not limited to, attorneys' fees and other expenses of
investigation and defense of any claims or actions) directly or indirectly
resulting from, relating to or arising out of: (i) any breach of any covenant,
agreement, warranty or representation of BPI or the Shareholders contained in
this
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Agreement, (ii) any misstatement of a material fact contained in this Agreement
or in any of the documents executed in connection with the transactions
contemplated by this Agreement, but only if the misstatement relates to
information concerning BPI or its operations or the Shareholders, or (iii) the
omission to state any fact necessary to make the statements contained in this
Agreement or in any of the documents executed in connection with the
transactions contemplated by this Agreement not misleading, but only if the
omission relates to information concerning BPI or its operations or the
Shareholders.
12.3 Indemnification Notice. Should any party (the "Indemnified Party")
suffer any loss, damage or expense for which another party (the "Indemnifying
Party") is obligated to indemnify and hold such Indemnified Party harmless
pursuant to this Section 12 of this Agreement, the following shall apply: If an
Indemnified Party intends to exercise its right to indemnification provided in
this Section 12, such Indemnified Party shall notify each Indemnifying Party in
writing of such Indemnified Party's intention to do so and the facts or
circumstances giving rise to the claim (the "Indemnification Claim"). An
Indemnification Claim, at the option of the Indemnified Party, may be asserted
as soon as any situation, event or occurrence has been noticed by the
Indemnified Party regardless of whether actual harm has been suffered or out-of-
pocket expenses incurred. During the period of 15 days after notice by the
Indemnified Party, each Indemnifying Party shall be entitled to cure the defect
or situation giving rise to the Indemnification Claim to the satisfaction of the
Indemnified Party. If the Indemnifying Parties are unwilling or unable to cure
the defect giving rise to the Indemnification Claim during the 15-day period,
the Indemnified Party shall thereafter be entitled to indemnification as
provided in this Section 12.
12.4 Matters Involving Third Parties. If any third party shall notify any
Indemnified Party with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against any Indemnifying Party under
this Section 12, then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing. Provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced. Any Indemnifying Party
will have the right to defend the Indemnified Party against the Third Party
Claim with counsel of its choice reasonably satisfactory to the Indemnified
Party so long as (i) the Indemnifying Party notifies the Indemnified Party in
writing within 15 days after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnified Party
from any adverse consequences the Indemnified Party may suffer resulting from or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder, and
(iii) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party shall not consent to the entry
of any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party, which consent
shall not be withheld unreasonably.
13. GENERAL PROVISIONS
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13.1 Survival Of Representations, Warranties And Agreements. The
representations and warranties of the parties hereto contained in this Agreement
or in any writing delivered pursuant hereto or at the Closing shall survive the
execution and delivery of this Agreement and the Closing and the consummation of
the transactions contemplated hereby (and any examination or investigation by or
on behalf of any party hereto) until the date three years after the Closing Date
except for claims in respect thereof pending at such time, which shall survive
until finally resolved or settled). No action may be commenced with respect to
any representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 13.7 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 13.1 for such representation, warranty, covenant or agreement.
13.2 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
13.3 Entire Agreement. This Agreement and any attachments hereto, the BPI
Disclosure letter and the Schedules thereto (including the schedules, exhibits
and annexes attached hereto and thereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the parties and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by all
parties, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors.
13.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.5 Brokers And Agents. Except as provided in Schedule 13.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction, except that a fee will be paid to Kevin Thomas
13.6 Expenses. Except as otherwise specifically provided herein, each
party to this Agreement shall bear its own direct and indirect expenses incurred
in connection with the negotiation and preparation of this Agreement and the
consummation and performance of the transactions contemplated hereby, including,
without limitation, all legal fees and fees of any brokers, finders or similar
agents; provided, however, that BPI may advance such expenses on behalf of the
Shareholder which such advances the Shareholder shall repay to BPI at, or prior
to, the Closing; provided, further, that the fees of independent auditors to
audit BPI's financial statements shall be paid by ANI.
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13.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (i) on the date of delivery if delivered
personally, or by telecopy or facsimile upon confirmation of receipt, (ii) on
the first business day following the date of dispatch if delivered by a
recognized next-day courier service, or (iii) on the 5th business day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) If to Newco, ANI or NFLI to:
BPI Acquisition Company
9101 Jameel
Houston, Texas 77040
Facsimile: (713) 895-8927
Attention: David Rodrigue, Vice President
with a copy to:
Patton Boggs, L.L.P.
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
Facsimile No.: (303) 894-9239
Attention: Robert M. Bearman, Esq.
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Facsimile No.: (713) 895-8927
Attention: David Bertrand, President
(b) If to Bactolac to:
Bactolac Pharmaceutical Inc.
51 Brooklyn
Westbury, New York 11590
Facsimile: (516) 333-4714
Attn: Pailla Reddy, President
(c) If to the Shareholder:
Pailla M. Reddy
51 Brooklyn
Westbury, New York 11590
Facsimile: (516) 333-4714
Attn: Pailla Reddy, President
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with a copy to:
Anthony T. Scotto, Esq.
401 Franklin Avenue
Garden City, New York 11530
Facsimile No.: (516) 739-5451
13.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Texas.
13.9 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
13.10 Exercise Of Rights And Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
13.11 Time. Time is of the essence with respect to this Agreement.
13.12 Reformation And Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
13.13 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive, but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
13.14 Captions; Construction. The headings of this Agreement are inserted
for convenience only, and shall not constitute a part of this Agreement or be
used to construe or interpret any provision hereof. This Agreement has been
fully reviewed and negotiated by the parties and no uncertainty or ambiguity in
any term or provision of this Agreement shall be construed strictly against any
party under any rule of construction or otherwise.
13.15 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By: ______________________________________
Name:
Title:
ADVANCED NUTRACEUTICALS, INC.
By: ______________________________________
Name:
Title:
BPI ACQUISITION COMPANY
By: ______________________________________
Name:
Title:
BACTOLAC PHARMACEUTICAL INC.
By: ______________________________________
Name:
Title:
__________________________________________
PAILLA M. REDDY
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SCHEDULE 2.1
The holder of BPI Stock shall receive NFLI Preferred Stock determined as
follows:
1. "NFLI Common Stock Trading Price" means the average of the closing
prices of the NFLI Common Stock as reported by The Nasdaq Stock Market for the
five trading days which immediately precede the trading day before the Closing.
2. $2,750,000 will be divided by the NFLI Common Stock Trading Price to
determine the number of shares of NFLI Common Stock which would be received upon
the conversion of the NFLI Preferred Stock.
3. The number of shares of NFLI Preferred Stock will be equal to 10% of
the number of shares of NFLI Common Stock which would be received upon the
conversion of NFLI Preferred Stock.
The sole holder of BPI Stock is Pailla M. Reddy and, accordingly, all of
the NFLI Preferred Stock will be issued in the name of Pailla M. Reddy.
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated as of October 20, 1999
among
NUTRITION FOR LIFE INTERNATIONAL, INC.,
NL ACQUISITION COMPANY,
and
ADVANCED NUTRACEUTICALS, INC.,
GREGORY PUSEY, AND BARRY C. LODER
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of
October 20, 1999, among Nutrition For Life International, Inc., a Texas
corporation ("NFLI"), NL Acquisition Company, a Delaware corporation ("Newco"),
Advanced Nutraceuticals, Inc., a Delaware corporation ("ANI"), Gregory Pusey
("Pusey"), and Barry C. Loder ("Loder") (Pusey and Loder being referred to
herein as the "Controlling Shareholders").
WHEREAS, NFLI and ANI plan to enter into: (1) an agreement and plan of
merger with Ash Corp., a Mississippi corporation ("Ash"), pursuant to which Ash
will merge with a company that is currently a subsidiary of ANI and will become
a wholly owned subsidiary of NFLI (the "Ash Agreement"); and (2) an agreement
and plan of merger with Bactolac Pharmaceutical, Inc., a New York corporation
("Bactolac"), pursuant to which Bactolac will merge with a company that is
currently a subsidiary of ANI and will become a wholly owned subsidiary of NFLI
(the "Bactolac Agreement") (Ash and Bactolac being collectively referred to as
the "Acquired Companies," and the Ash Agreement and the Bactolac Agreement being
collectively referred to as the "Acquisition Agreements");
WHEREAS, Newco will be a wholly owned subsidiary of NFLI;
WHEREAS, the respective Boards of Directors of NFLI, Newco, and ANI,
deem it advisable and in the best interest of each corporation and their
respective stockholders that ANI merge with and into Newco pursuant to this
Agreement;
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule or exhibit attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
"Acquired Companies" has the meaning set forth in the second paragraph
of this Agreement.
"Acquired Party" means ANI.
"Acquisition Agreements" has the meaning set forth in the second
paragraph of this Agreement.
"Ash" has the meaning set forth in the second paragraph of this
Agreement.
"Ash Agreement" has the meaning set forth in the second paragraph of
this Agreement.
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"ANI" has the meaning set forth in the first paragraph of this
Agreement.
"Articles of Merger" shall mean those Articles or Certificates or
Agreement of Merger with respect to the Merger substantially in the forms
attached as Exhibit A hereto or with such other changes therein as may be
required by applicable state laws.
"ANI Disclosure Letter" shall mean the disclosure letter delivered by
ANI and the Controlling Shareholders to NFLI and Newco concurrently with the
execution and delivery of this Agreement by ANI and the Controlling Shareholders
and all Schedules attached thereto.
"ANI Stock" has the meaning set forth in Section ?.
"Bactolac" has the meaning set forth in the second paragraph of this
Agreement.
"Bactolac Agreement" has the meaning set forth in the second paragraph
of this Agreement.
"Balance Sheet Date" shall mean September 30, 1999.
"Business Day" shall mean any day other than (i) a Saturday, (ii) a
Sunday or (iii) a day on which the United States federal government has a legal
holiday.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended and all
regulations and rules promulgated thereunder.
"Controlling Shareholders" has the meaning set forth in the first
paragraph of this Agreement.
"Effective Time of the Merger" shall mean the time the Merger becomes
effective as set forth in Section 1.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Knowledge" shall mean with respect to NFLI, Newco, or ANI the knowledge
of its directors or officers, which such persons would have had if he or she had
conducted a reasonable inquiry into the relevant subject matter.
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"Leased Real Property" has the meaning set forth in Section 5.16.
"Loder" has the meaning set forth in the first paragraph of this
Agreement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contracts" has the meaning set forth in Section 5.15.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of ANI with and into Newco pursuant to this
Agreement.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"Newco Charter Documents" has the meaning set forth in Section 6.1.
"Newco Stock" means the common stock, par value $.001 per share, of Newco.
"NFLI" has the meaning set forth in the first paragraph of this Agreement.
"NFLI Common Stock" means the common stock, $.01 par value, of NFLI.
"NFLI Preferred Stock" means the preferred stock, $.001 par value, of NFLI.
"Owned Real Property" has the meaning set forth in Section 5.16.
"Prohibited Activities" has the meaning set forth in Section 7.3.
"Pusey" has the meaning set forth in the first paragraph of this Agreement.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Real Property" has the meaning set forth in Section 5.16.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached to the ANI Disclosure Letter, which
shall reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations, warranties and
covenants.
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"SEC" means the United States Securities and Exchange Commission.
"Security Act" means the Securities Act of 1933, as amended.
"Shareholders" means all of the holders of any issued and outstanding
capital stock of ANI.
"Surviving Corporation" shall mean Newco as the surviving party in the
Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, or other taxes, assessments, duties,
fees, levies or other governmental charges of any nature whatever, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, ANI shall be merged with and into Newco at the Effective Time of
the Merger. Following the Merger, the separate corporate existence of ANI shall
cease and Newco shall continue as the Surviving Corporation.
1.2 Effective Time Of The Merger. At the Closing, Newco and ANI shall
file Articles of Merger in such form as is required by and executed in
accordance with the relevant provisions of the corporate laws of the State of
Delaware. The Merger shall become effective at such time as the Articles of
Merger are duly filed with the Delaware Secretary of State or at such subsequent
time as Newco and ANI shall agree and as shall be specified in the Articles of
Merger.
1.3 Certificate Of Incorporation, Bylaws, Board Of Directors And Officers
Of The Surviving Corporation.
(i) The Certificate of Incorporation of Newco as in effect
immediately prior to the Effective Time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(ii) At the Effective Time of the Merger, the Bylaws as in effect
immediately prior to the Effective Time of the Merger shall be the Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
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(iii) Directors and officers of Newco in office immediately prior to
the Effective Time of the Merger, shall be the directors and officers,
respectively, of the Surviving Corporation, and each shall hold his or her
respective office or offices from and after the Effective Time of the Merger
until his or her successor shall have been elected and shall have qualified or
as otherwise provided in the Bylaws of the Surviving Corporation.
1.4 Certain Information With Respect To The Capital Stock Of Newco and
ANI. The respective designations and numbers of outstanding shares and voting
rights of each class of outstanding capital stock of Newco and ANI as of the
date of this Agreement are as follows:
(i) As of the date of this Agreement, the authorized and outstanding
capital stock of Newco consists of 10,000 shares of common stock, $.001 par
value of which 100 shares are issued and outstanding.
(ii) As of the date of this Agreement, the authorized capital stock
of ANI consists of 30,000,000 shares of common stock, $.001 par value, of which
2,028,000 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, $.001 par value, of which no shares are issued and outstanding.
1.5 Effect Of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Delaware
General Corporation Law. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of Newco shall continue unaffected and unimpaired by the Merger and
the corporate franchises, existence and rights of ANI shall be merged with and
into Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of ANI
shall cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all and every other interest of or belonging to or due to Newco and
ANI shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed.
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2. CONVERSION OF STOCK
2.1 Conversion Of ANI Stock. At the Effective Time of the Merger and
without any action on the part of the holders of ANI Stock, all of the issued
and outstanding capital stock of ANI (the "ANI Stock") shall be converted into
the right to receive NFLI Preferred Stock which is convertible into 750,000
shares of NFLI Common Stock upon the approval of the stockholders of NFLI. A
copy of the proposed Statement of Designation of the Series A Preferred Stock is
attached as Exhibit 2.1. The aggregate liquidation preference will be calculated
by multiplying 750,000 times the average closing price of the NFLI Common Stock
for the five trading days which immediately precede the trading day before
Closing. Each holder of ANI Stock prior to the Effective Time of the Merger
shall receive such number of shares of NFLI Preferred Stock as is derived by the
product of: (a) 75,000, times (b) the quotient of (x) the number of shares of
ANI stock held by such holder, divided by (y) the number of issued and
outstanding shares of ANI Stock prior to the Effective Time of the Merger.
2.2 Effect Of Merger On Newco Stock. At the Effective Time of the Merger
without any action on the part of the holders of Newco Stock, each share of
Newco Stock issued and outstanding immediately prior to the Effective Time of
the Merger shall remain outstanding as one share of Newco Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 Exchange Procedure. At the Effective Time of the Merger the holders
of the ANI Stock shall execute and deliver to Newco and NFLI the Representation
Letter substantially in the form annexed hereto as Exhibit 3.1. Upon surrender
of certificates representing the ANI Stock ("Certificates"), the holders of the
ANI Stock shall receive such number of shares of NFLI Preferred Stock as
constitute such holder's share of the Merger Consideration as determined
pursuant to Section 2.1 hereto.
3.2 Delivery Of Certificates. Each holder of ANI Stock shall deliver to
Newco and NFLI at the Closing, or as soon thereafter as possible, the
Certificates representing the shares of ANI Stock owned by him or her, duly
endorsed in blank by the holder, or accompanied by blank stock powers. Each
holder agrees promptly to cure any deficiencies with respect to the endorsement
of his or her Certificates or other documents of conveyance with respect to such
ANI Stock or with respect to the stock powers accompanying any ANI Stock. All
shares of NFLI Common Stock issued upon conversion of shares of ANI Stock shall
be deemed to have been issued in full satisfaction of all rights pertaining to
the ANI Stock. Until surrender as contemplated by this Section 3, each
Certificate shall be deemed at any time after the Effective Time of the Merger
to represent only the right to receive upon such surrender the Merger
Consideration.
4. CLOSING
Subject to the terms and conditions of this Agreement, the closing of the
Merger and the transactions contemplated by this Agreement (the "Closing") will
take place on the second
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business day after the satisfaction or waiver (subject to applicable law) of the
conditions set forth in Sections 8 and 9, unless another time or date is agreed
to in writing by the parties hereto (the actual time and date of the Closing
being referred to herein as the "Closing Date"). The Closing shall be held at
the offices of Patton Boggs, L.L.P., 1660 Lincoln Street, Suite 1900, Denver,
Colorado 80264, unless another place is agreed to in writing by the parties
hereto.
5. REPRESENTATIONS AND WARRANTIES OF ANI AND THE CONTROLLING SHAREHOLDERS
ANI and the Controlling Shareholders jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5 are true at the date of this Agreement and shall be true at the time of
Closing (without giving effect to the consummation of the transactions
contemplated by the Acquisition Agreements).
5.1 Due Organization. ANI is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the requisite power and authority to carry on its business as it is now
being conducted. ANI is duly qualified to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except (i) as set
forth on Schedule 5.1 to the ANI Disclosure Letter or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of ANI taken as a whole (as used herein with respect to ANI, or with respect to
any other person, a "Material Adverse Effect"). Schedule 5.1 to the ANI
Disclosure Letter sets forth the jurisdiction in which ANI is incorporated and
contains a list of all jurisdictions in which ANI is authorized or qualified to
do business. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of ANI (the "Charter Documents") are
all attached to Schedule 5.1 to the ANI Disclosure Letter. The stock records of
ANI, as heretofore made available to Newco, are correct and complete in all
material respects. There are no minutes or other records or proceedings in the
possession of ANI which have not been made available to Newco, and all of such
minutes or other records of proceedings are correct and complete in all
respects.
5.2 Authorization. The representatives of ANI executing this Agreement
have the authority to enter into and bind ANI to the terms of this Agreement and
ANI has the full legal right, power and authority to enter into this Agreement
and the Merger, subject to any required approval of the shareholders and the
Board of Directors of ANI.
5.3 Capital Stock Of ANI. The authorized capital stock of ANI is as set
forth in Section 1.4(ii). All of the issued and outstanding shares of the
capital stock of ANI are owned by the holders in the amounts set forth in
Schedule 5.3 and further, except as set forth on Schedule 5.3 to the ANI
Disclosure Letter, the shares owned by the Controlling Shareholders are owned
free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of the capital stock of ANI have been duly authorized and
validly issued, are fully paid and nonassessable, are owned of record and
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beneficially by the holders listed and further, such shares were offered,
issued, sold and delivered by ANI in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such
shares was issued in violation of any preemptive rights of any past or present
stockholder.
5.4 Transactions In Capital Stock; Organization; Accounting. Except as
set forth on Schedule 5.4 to the ANI Disclosure Letter, (i) ANI has not acquired
any ANI Stock since its inception; (ii) no option, warrant, call, conversion
right or commitment of any kind exists which obligates ANI to issue any of its
authorized but unissued capital stock; (iii) ANI has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iv) neither the voting stock structure of
ANI nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the Merger.
Schedule 5.4 to the ANI Disclosure Letter also includes complete and accurate
copies of all stock option or stock purchase plans, including a list of all
outstanding options, warrants or other rights to acquire shares of ANI's stock.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5 to the ANI
Disclosure Letter, none of the shares of ANI Stock was issued pursuant to
awards, grants or bonuses in contemplation of the Merger.
5.6 Subsidiaries. Except as set forth on Schedule 5.6 to the ANI
Disclosure Letter, ANI (i) has no subsidiaries and (ii) does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is ANI, directly or
indirectly, a participant in any joint venture, partnership or other non-
corporate entity.
5.7 Predecessor Status; Etc. Set forth in Schedule 5.7 to the ANI
Disclosure Letter is an accurate list of all names of all predecessor companies
of ANI, including the names of any entities acquired by ANI (by stock purchase,
merger or otherwise) or owned by ANI or from whom ANI previously acquired
material assets, in any case, from the earliest date upon which any person
acquired his or her stock in ANI. Except as disclosed on Schedule 5.7 to the
ANI Disclosure Letter, ANI has not been, within such period of time, a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-Off By ANI. Except as set forth on Schedule 5.8 to the ANI
Disclosure Letter, there has not been any sale, spin-off or split-up of material
assets of either ANI or any other person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, ANI ("Affiliates") since its inception.
5.9 Financial Statements. Schedule 5.9 to the ANI Disclosure Letter
includes copies of the following financial statements (the "ANI Financial
Statements") of ANI: ANI's audited Balance Sheets as of December 31, 1997 and
1998 and audited Statements of Operations, Shareholders' Equity and Cash Flows
for each of the fiscal years ended December 31, 1997 and
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1998, unaudited Balance Sheet as of September 30, 1999 and unaudited Statement
of Operations, Shareholders' Equity and Cash Flows for the nine month period
ended September 30, 1999 (September 30, 1999 being hereinafter referred to as
the "Balance Sheet Date"). Such ANI Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated (except as noted thereon or on
Schedule 5.9 to the ANI Disclosure Letter). Except as set forth on Schedule 5.9
to the ANI Disclosure Letter, such Balance Sheets present fairly in all material
respects the financial position of ANI as of the dates indicated thereon, and
such Statements of Operations, Shareholders' Equity and Cash Flows present
fairly in all material respects the results of operations for the periods
indicated thereon.
5.10 Liabilities And Obligations. Schedule 5.10 to the ANI Disclosure
Letter includes accurate lists as of the Balance Sheet Date of (i) all material
liabilities of ANI which are not reflected on the Balance Sheet of ANI at the
Balance Sheet Date or otherwise reflected in the ANI Financial Statements at the
Balance Sheet Date which by their nature would be required in accordance with
GAAP to be reflected in the Balance Sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements. Except as set forth on Schedule 5.10 to the ANI Disclosure
Letter, since the Balance Sheet Date ANI has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. Schedule 5.10 to the ANI Disclosure Letter
also includes, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or otherwise
accrued or reserved, a good faith and reasonable estimate of the maximum amount
which ANI reasonably expects will be payable. For each such contingent
liability or liability for which the amount is not fixed or is contested, ANI
has provided to Newco the following information:
(a) A summary description of the liability together with the
following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and
(iii) name of claimant and all other parties to the claim, suit
or proceeding;
(b) The name of each court or agency before which such claim, suit
or proceeding is pending; and
(c) The date such claim, suit or proceeding was instituted; and
(d) A good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability. If
no estimate is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 Material Contracts And Commitments.
(i) Schedule 5.11 to the ANI Disclosure Letter includes an accurate
list as of or on the date hereof, of all material written or oral leases,
agreements or other contracts or legally binding contractual rights or
contractual obligations or contractual commitments relating to or in any way
affecting the operation or ownership of the business of ANI (the "Material
Contracts"), including but not limited, those of a type described below:
(a) Any consulting agreement, employment agreement, change-in-
control agreement, and collective bargaining arrangements with any labor union
and any such agreements currently in negotiation or proposed;
(b) Any contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $25,000.
(c) Any contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such contract is made
in the ordinary course of business and requires aggregate future payments of
less than $25,000);
(d) Any contract other than trade payables in the ordinary
course of business relating to the borrowing of money, or the guaranty of
another person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) Any contract granting any person a lien on all or any part
of the assets of ANI or any of its subsidiaries;
(f) Any contract for the cleanup, abatement or other actions
in connection with hazardous materials as defined under any Environmental Laws,
the remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) Any contract granting to any person an option or a first
refusal, first-offer or similar preferential right to purchase or acquire any
material assets of ANI or any ANI Subsidiary;
(h) Any contract with any agent, distributor or representative
which is not terminable by ANI upon ninety calendar days' or less notice without
penalty;
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(i) Any contract under which ANI is (1) a lessee or sublessee
of any machinery, equipment, vehicle or other tangible personal property, or (2)
a lessor of any tangible personal property owned by ANI, in either case having
an original value in excess of $25,000;
(j) Any contract under which ANI has granted or received a
license or sublicense or under which it is obligated to pay or has the right to
receive a royalty, license fee or similar payment;
(k) Any contract concerning any Affiliates;
(l) Any contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other than as
provided in the by-laws of ANI;
(m) Any contract for purchase or sale by ANI or the granting
of any options with respect to, or providing for any labor, services or
materials (including brokerage or management services) involving any real
property on which ANI conducts any aspect of its business involving aggregate
future payments of more than $25,000;
(n) Any contract limiting, restricting or prohibiting ANI from
conducting business anywhere in the United States or elsewhere in the world;
(o) Any joint venture or partnership agreement;
(p) Any lease, sublease or associated agreements relating to
the property leased by ANI;
(q) Any material contract requiring prior notice, consent or
other approval upon a change of control in the equity ownership of ANI, which
contracts shall be separately identified on Schedule 5.11 to the ANI Disclosure
Letter;
(r) Any other contract, whether or not made in the ordinary
course of business, which involves future payments in excess of $25,000.
ANI has provided Newco a true and complete copy of each written Material
Contract and a true and complete summary of each oral Material Contract, in each
case including all amendments or other modifications thereto. Except as set
forth on Schedule 5.11 to the ANI Disclosure Letter, each Material Contract is a
valid and binding obligation of, and enforceable in accordance with its terms
against, ANI, and, to the Knowledge of ANI and the Controlling Shareholders, the
other parties thereto, and is in full force and effect, subject only to
bankruptcy, reorganization, receivership and other laws affecting creditors'
rights generally. Except as set forth on Schedule 5.11 of the ANI Disclosure
Letter, ANI has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither ANI, nor,
to the Knowledge of ANI and the Controlling Shareholders, any other party to any
Material Contract is in breach or
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default thereunder, and to the Knowledge of ANI and the Controlling
Shareholders, there exists no condition which would, with or without the lapse
of time or the giving of notice, or both, constitute a breach or default
thereunder. ANI has not been notified that any party to any Material Contract
intends to cancel, terminate, not renew, or exercise an option under any
Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
5.12 Leased Real Property. ANI does not now, and has never, owned any
right, title, or interest in any real property other than a leasehold interest.
Schedule 5.12 to the ANI Disclosure Letter is a correct and complete list, and a
brief description of, all real property leased by ANI (the "Leased Real
Property"), and all facilities thereon. Except as lessee of Leased Real
Property, ANI is not a lessee under or otherwise a party to any lease, sublease,
license, concession or other agreement, whether written or oral, pursuant to
which another person or entity has granted to ANI the right to use or occupy all
or any portion of any real property.
ANI has a valid leasehold interest in the Leased Real Property, in
each case free and clear of all liens, assessments or restrictions (including,
without limitation, inchoate liens arising out of the provision of labor,
services or materials to any such Leased Real Property) other than (a) mortgages
shown on the ANI Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) liens for current
taxes not yet due, and (c) minor imperfections of title, such as utility and
access easements that do not impair the intended use of the Leased Real
Property, none of which is substantial in amount, materially detracts from the
value or impairs the use of the property subject thereto, or impairs the
operations of ANI, and zoning laws and other land use restrictions or
restrictive covenants that do not materially impair the present use of the
property subject thereto. The Leased Real Property constitutes all the real
properties reflected on ANI Financial Statements or used or occupied by ANI in
connection with its business or otherwise.
With respect to the Leased Real Property, except as reflected on
Schedule 5.12 to the ANI Disclosure Letter:
(i) ANI is in exclusive possession thereof and, to the Knowledge of
ANI and the Controlling Shareholders, no easements, licenses or rights are
necessary to conduct ANI=s business thereon in addition to those which exist as
of the date hereof;
(ii) To the Knowledge of ANI and the Controlling Shareholders, no
portion thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the Leased Real
Property and there is no threatened condemnation or proceeding with respect
thereto;
(iii) To the Knowledge of ANI and the Controlling Shareholders (a)
the buildings, plants, improvements, structures and fixtures at the Leased Real
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; (b) the Leased Real Property is not in violation of any
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health, safety, building, or environmental ordinances, laws, codes or
regulations; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations been served on ANI;
(iv) The Leased Real Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of ANI=s
business, and such Leased Real Property is, to the Knowledge of ANI and the
Controlling Shareholders, maintained in all material respects in accordance with
all laws applicable to ANI or the Leased Real Property;
(v) ANI is not a party to any written or oral agreement or
undertaking with owners or users of properties adjacent to the Leased Real
Property relating to the use, operation or maintenance of such facility or any
adjacent Leased Real Property;
(vi) ANI is not a party to any lease, sublease, license, concession
or other agreement, whether written or oral, pursuant to which ANI has granted
to any party or parties the right to use or occupy all or any portion of the
Leased Real Property;
(vii) To the extent that ANI has responsibility under the lease(s)
for the Leased Real Property for compliance with the provisions of the ADA, to
the Knowledge of ANI and the Controlling Shareholders, all alterations,
rehabilitations, structures, or improvements in the Leased Real Property comply
with the ADA;
(viii) To the Knowledge of ANI and the Controlling Shareholders (a)
there are no material defects in any improvements on or to the Leased Real
Property; (b) the Leased Real Property is free from regulated quantities of
asbestos; and (c) the Leased Real Property is free from flooding and leaks.
5.13 Insurance. Schedule 5.13 to the ANI Disclosure Letter includes (i)
an accurate list of all insurance policies carried by ANI for the past three
years, and (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past five policy years and complete copies
of the foregoing items have been delivered to Newco. Such insurance policies
evidence all of the insurance that ANI has been required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All insurance policies for the current policy periods are in full force and
effect and shall remain in full force and effect through the Closing Date. Since
January 1, 1995, no insurance carried by ANI has been canceled by the insurer
and ANI has not been denied coverage.
5.14 Compensation; Employment Agreements; Organized Labor Matters. Schedule
5.14 to the ANI Disclosure Letter includes an accurate list of (i) all officers,
directors and key employees of ANI, and (ii) all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of the Balance Sheet Date and the date
hereof. ANI has provided to Newco true, complete and correct copies of any
employment agreements for persons listed on Schedule 5.14 to the ANI Disclosure
Letter. Since the Balance
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Sheet Date, there have been no increases in the compensation payable or any
special bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.14 to the ANI Disclosure Letter, (i) ANI is
not bound by or subject to (and none of its assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of ANI are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the Knowledge of ANI and the Controlling Shareholders, no
campaign to establish such representation is in progress and (iv) there is no
pending or, to the Knowledge of ANI and the Controlling Shareholders, threatened
labor dispute involving ANI and any group of its employees nor has ANI
experienced any labor interruptions over the past three years. ANI believes its
relationship with its employees to be good.
5.15 Employee Benefit Plans. Schedule 5.15 to the ANI Disclosure Letter
sets forth all employee benefit plans of ANI, including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements. ANI has
delivered to Newco true, complete and correct copies of such plans, agreements
and any trusts related thereto, and classifications of employees covered thereby
as of the Balance Sheet Date. Except for the employee benefit plans, if any,
described on Schedule 5.15 to the ANI Disclosure Letter, ANI does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has ANI any obligation to contribute to
or accrue or pay any benefits under any deferred compensation or retirement
funding arrangement on behalf of any employee or employees (such as, for
example, and without limitation, any individual retirement account or annuity,
any "excess benefit plan" (within the meaning of Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any non-
qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. ANI has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.15 to the ANI Disclosure Letter, nor is ANI
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the ANI's employees. All accrued contribution obligations
of ANI with respect to any plan listed on Schedule 5.15 to the ANI Disclosure
Letter have either been fulfilled in their entirety or are fully reflected on
the balance sheet of the ANI as of the Balance Sheet Date.
5.16 Compliance With ERISA. All plans listed on Schedule 5.15 to the ANI
Disclosure Letter that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Code are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.15 to the ANI
Disclosure Letter. Except as disclosed on Schedule 5.16 to the ANI Disclosure
Letter, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 5.15 to the ANI Disclosure Letter. None of the stockholders has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No plan listed in
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Schedule 5.15 to the ANI Disclosure Letter has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and ANI has not incurred any liability for excise tax or penalty due to
the Internal Revenue Service nor any liability to the Pension Benefit Guaranty
Corporation. ANI and the Controlling Shareholders further represent that:
(i) There have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and approval by the Internal
Revenue Service;
(ii) No plan listed in Schedule 5.15 to the ANI Disclosure Letter,
subject to the provisions of Title IV of ERISA, has been terminated;
(iii) There have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19 to the ANI Disclosure Letter;
(iv) ANI has not incurred liability under Section 4062 of ERISA; and
(v) No circumstances exist pursuant to which ANI could have any
direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than ANI
that is, or at any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes ANI.
5.17 Conformity With Law; Litigation.
(i) Except to the extent set forth on Schedule 5.17 to the ANI
Disclosure Letter, ANI is not in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
which would have a Material Adverse Effect.
(ii) Except as set forth on Schedule 5.17 to the ANI Disclosure
Letter (which shall disclose the parties to, nature of and relief sought for
each matter to be disclosed), other than collection actions by ANI in the
ordinary course of business on its own behalf, none of which is greater than
$10,000 and which in the aggregate do not exceed $25,000:
(a) There is no suit, action, proceeding, investigation, claim
or order pending or, to the Knowledge of ANI and the Controlling Shareholders,
threatened against ANI, or with respect to any Employee Plan, or any fiduciary
of any such plan (or pending or, to the Knowledge of ANI and the Controlling
Shareholders, threatened against any of the officers, directors or employees of
ANI with respect to the business or currently proposed business activities of
ANI, or to which ANI is otherwise a party, or which may have or is likely to
have a Material Adverse Effect, before any court, or before any governmental
authority, department, commission,
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bureau, agency or other governmental department or arbitrator (collectively,
AClaims@), nor, to the Knowledge of ANI and the Controlling Shareholders is
there any basis for any such Claims.
(b) ANI is not subject to any unsatisfied or continuing
judgment, order or decree of any court or governmental authority, and to the
Knowledge of ANI and the Controlling Shareholders, ANI is not otherwise exposed,
from a legal standpoint, to any liability or disadvantage which could have a
Material Adverse Effect. Schedule 5.17 to the ANI Disclosure Letter sets forth
all closed litigation matters to which ANI was a party during the preceding five
years, the dates such litigation was commenced and concluded, and the nature of
the resolution thereof (including amounts paid in settlement or judgment).
5.18 Taxes. ANI has timely filed all requisite federal, state and other
tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.18 to the ANI
Disclosure Letter, there are no examinations in progress or claims against any
of them for federal, state and other Taxes (including penalties and interest)
for any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes, whether pending or threatened, has been received.
All Taxes, including interest and penalties (whether or not shown on any tax
return) owed by ANI, any member of an affiliated or consolidated group which
includes or included ANI, or with respect to any payment made or deemed made by
ANI herein have been paid. The amounts shown as accruals for Taxes on the ANI
Financial Statements are sufficient for the payment of all Taxes of the kinds
indicated (including penalties and interest) for all fiscal periods ended on or
before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of ANI for the last three fiscal years, are attached as
Schedule 5.18 to the ANI Disclosure Letter.
5.19 No Violations. ANI is not in violation of any of its Charter
Documents. Neither ANI nor, to the Knowledge of ANI and the Controlling
Shareholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on the Schedules to the ANI
Disclosure Letter, or any other material agreement to which it is a party or by
which its properties are bound (the "Material Documents"); and, except as set
forth in Schedule 5.19 to the ANI Disclosure Letter, (a) the rights and benefits
of ANI under the Material Documents will not be adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation of, or breach
of, or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.19 to the ANI Disclosure Letter, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.19 to the ANI Disclosure Letter, none of the Material Documents prohibits the
use or publication by ANI or Newco of the name of any other party to such
Material
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Document, and none of the Material Documents prohibits or restricts ANI from
freely providing services to any other customer or potential customer of ANI or
Newco.
5.20 Business Activity. Except as set forth on Schedule 5.20 to the ANI
Disclosure Letter, ANI has never manufactured, marketed, sold, or licensed any
products to the public, and has not otherwise provided goods or services to any
other person or business.
5.21 Absence Of Changes. Since the Balance Sheet Date, except as set
forth on Schedule 5.21 to the ANI Disclosure Letter, there has not been:
(i) Any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of ANI;
(ii) Any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of ANI;
(iii) Any change in the authorized capital of ANI or its outstanding
securities or any change in its ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
(iv) Any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of ANI;
(v) Any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by ANI to any of its officers,
directors, stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(vi) Any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting the
business of ANI;
(vii) Any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of ANI to any person, including, without
limitation, any of the stockholders and their affiliates;
(viii) Any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the ANI, including without limitation any indebtedness
or obligation of any stockholder or any affiliate thereof;
(ix) Any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of ANI or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
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(x) Any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of ANI=s business;
(xi) Any waiver of any material rights or claims of ANI;
(xii) Any amendment or termination of any Material Documents or
other right to which ANI is a party;
(xiii) Any transaction by ANI outside the ordinary course of its
business;
(xiv) Any cancellation or termination of a Material Contract with a
customer or client prior to the scheduled termination date; or
(xv) Any other distribution of property or assets by ANI other than
in the ordinary course of business.
5.22 Deposit Accounts; Powers Of Attorney. Schedule 5.22 to the ANI
Disclosure Letter includes an accurate list as of the date of the Agreement of:
(i) the name of each financial institution in which ANI has accounts or safe
deposit boxes; (ii) the names in which the accounts or boxes are held; (iii)
the type of account and account number; and (iv) the name of each person
authorized to draw thereon or have access thereto. Schedule 5.22 to the ANI
Disclosure Letter also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from ANI and a
description of the terms of such power.
5.23 Validity Of Obligations. The execution and delivery of this
Agreement by ANI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of ANI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of ANI.
5.24 Relations With Governments. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which the stockholders have been stockholders of ANI, ANI has not
made, offered or agreed to offer anything of value to any governmental official,
political party or candidate for government office nor has it otherwise taken
any action which would cause ANI to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended or any law of similar effect. If political
contributions made by ANI have exceeded $10,000 per year for each year in which
any person has been a stockholder of ANI, each contribution in the amount of
$5,000 or more is described on Schedule 5.24 to the ANI Disclosure Letter.
5.25 Disclosure. This Agreement, including the Exhibits and ANI
Disclosure Letter and the Schedules thereto, together with the other information
furnished to NFLI, ANI and Newco by ANI in connection herewith, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading.
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5.26 Prohibited Activities. Except as set forth on Schedule 5.26 to the
ANI Disclosure Letter, ANI has not, between the Balance Sheet Date and the date
hereof, taken any of the actions (Prohibited Activities) set forth in Section
7.3.
5.27 Authorization Of Controlling Shareholders. The Controlling
Shareholders have the power and authority to execute and deliver this Agreement,
to consummate the transactions contemplated hereby and to perform their
obligations under this Agreement. This Agreement, upon its execution and
delivery by the Controlling Shareholders (assuming the due authorization,
execution and delivery hereof by the other parties hereto), will constitute the
legal, valid and binding obligation of the Controlling Shareholders, enforceable
against the Controlling Shareholders in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency and
similar laws relating to creditors' rights generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
5.28 No Conflicts. The execution, delivery and performance of this
Agreement by the Controlling Shareholders and the consummation by the
Controlling Shareholders of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any term or provision of, or
(with or without notice or passage of time, or both) constitute a default under,
any indenture, mortgage, deed of trust, trust (constructive and other), loan
agreement or other agreement or instrument to which any Controlling Shareholder
is a party or by which any Controlling Shareholder or any Controlling
Shareholder's shares are bound, or violate the provisions of any statute, or any
order, rule or regulation of any governmental body or agency or instrumentality
thereof, or any order, writ, injunction or decree of any court or any
arbitrator, having jurisdiction over any Controlling Shareholder or the property
of any Controlling Shareholder.
5.29 Restrictions On Transfer Of the Merger Consideration Under Securities
Laws.
(i) Each of the Controlling Shareholders understands and agrees that
the shares of NFLI Common Stock that the Controlling Shareholders will acquire
in the Merger have not been registered under the Securities Act and that,
accordingly, such shares will not be fully transferable except as permitted
under various exemptions contained in the Securities Act or upon satisfaction of
the registration and prospectus delivery requirements of the Securities Act.
Each of the Controlling Shareholders acknowledges that each Controlling
Shareholder must bear the economic risk of his investment in such shares for an
indefinite period of time as such shares have not been registered under the
Securities Act and therefore cannot be sold unless they are subsequently
registered or an exemption from registration is available. Each of the
Controlling Shareholders hereby represents and warrants that each Controlling
Shareholder is an Accredited Investor as defined under Rule 501(a) of the
Securities Act and is acquiring the shares in the Merger for investment purposes
only, for each Controlling Shareholder=s own account, and not as nominee or
agent for any other person, and not with the view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act.
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(ii) Each of the Controlling Shareholders understands and agrees
that the certificate evidencing the shares of NFLI Common Stock he will acquire
in the Merger, and each instrument or certificate issued in transfer thereof,
will bear substantially the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION
THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING
SUCH SECURITIES OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
IF THE SECURITIES ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN
EXEMPTION THE CORPORATION MAY REQUIRE AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND WILL NOT VIOLATE SUCH ACT OR ANY OTHER
APPLICABLE SECURITIES LAWS.
(iii) Each of the Controlling Shareholders consents to a notation on
the records of NFLI and its transfer agent in order to implement the
restrictions on transfer set forth in this Section 5.29.
5.30 Advice Of Counsel. Each of the Controlling Shareholders acknowledges
that each of the Controlling Shareholders has been advised to and has had the
opportunity to obtain advice from independent counsel with respect to this
Agreement to the extent each of the Controlling Shareholders desired to do so.
Each of the Controlling Shareholders is not relying on any representations,
except those set forth herein, or advice from NFLI or Newco, or any of their
respective officers, directors, attorneys or other representatives regarding
this Agreement, its content or effect. In particular, the Controlling
Shareholders, individually, and on behalf of ANI, acknowledge that Kochman &
Piper, P.C. and Patton Boggs, LLP, have not represented them or ANI and they
have not relied on their advice.
6. REPRESENTATIONS OF NFLI AND NEWCO
NFLI and Newco represent and warrant that all of the following
representations and warranties in this Section 6 are true at the date of this
Agreement and shall be true at the time of Closing.
6.1 Due Organization. Each of NFLI and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each of NFLI
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and Newco is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, except where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of NFLI and Newco taken as a whole (as used herein with respect to NFLI and
Newco, or with respect to any other person, a "Material Adverse Effect"). True,
complete and correct copies of the Certificate of Incorporation and Bylaws, each
as amended of NFLI (the "NFLI Charter Documents") and Newco (the "Newco Charter
Documents") have been provided to ANI.
6.2 Authorization. The representatives of each of NFLI and Newco
executing this Agreement have the authority to enter into and bind each
respective corporation to the terms of this Agreement, subject to any required
approval of the Board of Directors of NFLI and the shareholders and Board of
Directors of Newco.
6.3 Capital Stock Of Newco. The authorized capital stock of Newco is as
set forth in Section 1.4. All of the issued and outstanding shares of the
capital stock of Newco have been duly authorized and validly issued, are fully
paid and nonassessable, and further, such shares were offered, issued, sold and
delivered by Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
6.4 Capital Stock Of NFLI. The authorized capital stock of NFLI consists
of 20,000,000 shares of NFLI Common Stock of which 5,808,595 shares are issued
and outstanding, and 1,000,000 shares of NFLI Preferred Stock, of which no
shares are issued and outstanding. All of the issued and outstanding shares of
NFLI Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. As of June 30, 1999, 585,000 shares of NFLI Common
Stock were reserved for issuance upon the exercise of stock options, 811,103
shares of NFLI Common Stock were reserved for issuance upon the exercise of
certain warrants, and 79,000 shares of NFLI Common Stock were held by NFLI in
its treasury.
6.5 No Violations. Each of NFLI and Newco is not in violation of any of
its Charter Documents. Neither NFLI nor Newco, to the Knowledge of NFLI and
Newco, is in default under any material lease, instrument, agreement, license,
or permit; and, (a) the rights and benefits of NFLI and Newco under such
documents will not be adversely affected by the transactions contemplated
hereby, and (b) the execution of this Agreement and the performance of the
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any violation of, or breach of, or constitute a
default under, any of the terms or provisions of such documents. None of such
documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.6 SEC Filings; Financial Statements.
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(i) NFLI has filed all forms, reports and documents required to be
filed with the SEC and has made available to ANI and the Shareholders (a) its
Annual Reports on Form 10-K for the fiscal years ended September 30, 1998 and
1997, (b) its Quarterly Reports on 10-Q for the periods ended December 31, 1998,
March 31, 1999 and June 30, 1999, and (c) all proxy statements relating to
NFLI=s meetings of shareholders held since January 1, 1998 (collectively, the
"NFLI SEC Reports"). To the knowledge of NFLI, the NFLI SEC Reports (a) were
prepared in all material respects in accordance with the requirements of the
Exchange Act, as in effect on the date such NFLI SEC Reports were filed, and (b)
did not at the time they were filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(ii) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the NFLI SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of NFLI and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
7. COVENANTS PRIOR TO CLOSING.
7.1 Access And Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, ANI
will afford to the officers and authorized representatives of NFLI and Newco
access to all of ANI's sites, properties, books and records and will furnish
NFLI and Newco such additional financial and operating data and other
information as to the business and properties of ANI as NFLI and Newco may from
time to time reasonably request. ANI will cooperate with NFLI and Newco, their
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement or necessary to complete the Merger.
(b) Between the date of this Agreement and the Closing Date, NFLI
and Newco will afford to the officers and authorized representatives of ANI
access to all of NFLI and Newco's sites, properties, books and records and will
furnish ANI such additional financial and operating data and other information
as to the business and properties of NFLI and Newco as ANI may from time to time
reasonably request. NFLI and Newco will cooperate with ANI, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement or necessary to complete the Merger.
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7.2 Conduct Of Business Pending Closing. Between the date of this
Agreement and the Closing, ANI will, except as set forth on Schedule 7.2 to the
ANI Disclosure Letter:
(i) Carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(ii) Maintain its respective properties and facilities in as good
working order and condition as at present, ordinary wear and tear excepted;
(iii) Perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective assets,
properties or rights;
(iv) Use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) Use its reasonable efforts to maintain and preserve its
business organization intact, retain its present key employees and maintain its
relationships with suppliers, customers and others having business relations
with it;
(vi) Maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) Maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, without the Knowledge and consent of
Newco (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of Newco if such
replacement instruments are on terms at least as favorable to ANI as the
instruments being replaced; and
(viii) Maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 Prohibited Activities. Between the date hereof and the Closing Date,
ANI will not, without the prior written consent of Newco, engage in any of the
following (the AProhibited Activities@), except in connection with the
consummation of the transactions contemplated by this Agreement or the
Acquisition Agreements:
(i) Make any change in its Charter Documents;
(ii) Issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4 to
the ANI Disclosure Letter;
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(iii) Declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(iv) Enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) and involves an amount
not in excess of $25,000;
(v) Create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
ANI, (2) (A) liens for taxes either not yet due or being contested in good faith
and by appropriate proceedings (and for which contested taxes adequate reserves
have been established and are being maintained) or (B) materialmen's, mechanics'
or other like liens arising in the ordinary course of business (the liens set
forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 and/or 5.11 to the ANI Disclosure Letter;
(vi) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) Negotiate for the acquisition of any business or the start-up
of any new business;
(viii) Merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) Waive any material rights or claims of ANI, provided that ANI
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided, further, that
such adjustments shall not be deemed to be included in Schedule 5.11 to the ANI
Disclosure Letter unless specifically listed thereon;
(x) Commit a breach or amend or terminate any Material Documents
or right of ANI; or
(xi) Enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 No Shop. Except as contemplated by this Agreement or the Acquisition
Agreements, or except as otherwise permitted by NFLI, neither ANI, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending with
the earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person for; (ii) participate in any
discussions pertaining to; or (iii) furnish any information to any person other
than NFLI and Newco or their
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authorized agents relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, ANI or a merger,
consolidation or business combination of ANI. Except as contemplated by this
Agreement or the Acquisition Agreements, or except as otherwise permitted by
NFLI, ANI and the Controlling Shareholders shall not, and the Controlling
Shareholders shall not permit ANI to, directly or indirectly, through any
officer, director, agent or otherwise, engage in negotiations concerning any
such transaction with, or provide information to, any person other than NFLI,
ANI or Newco, and their respective representatives, with a view to engaging, or
preparing to engage, that person with respect to any matters referenced in this
Section 7.4. Except as contemplated by this Agreement or the Acquisition
Agreements, or except as otherwise permitted by NFLI, the Controlling
Shareholders shall insure that ANI shall not commence any proceeding to merge,
consolidate or liquidate or dissolve or obligate itself to do so.
7.5 Notice To Bargaining Agents. Prior to the Closing Date, ANI shall
satisfy any requirement for notice of the transactions contemplated by this
Agreement under any applicable collective bargaining agreements, and shall
provide Newco written proof that any required notice has been sent.
7.6 Notification Of Certain Matters. ANI shall give prompt notice to
Newco of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of ANI contained herein or in the ANI Disclosure Letter to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of ANI to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. Newco
shall give prompt notice to ANI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of Newco contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material failure
of Newco to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.6 shall not be deemed to (i) modify the representations or
warranties of the party delivering such notice, (ii) modify the conditions set
forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
7.7 Cooperation. ANI shall furnish or cause to be furnished to NFLI and
Newco all of the information concerning ANI required to reasonably inform
prospective lenders and investors of NFLI and Newco who are interested in
financing the Merger, and will cooperate with NFLI in the preparation of a
Report on Form 8-K for filing with the SEC (including audited and unaudited
financial statements of ANI, prepared in accordance with GAAP, in form suitable
for inclusion in the Report on Form 8-K).
7.8 Final Financial Statements. ANI shall provide to NFLI and Newco
prior to the Closing Date, the unaudited consolidated balance sheets of ANI as
of the end of all months following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings for all
months ended after the Balance Sheet Date, disclosing no material adverse change
in the financial condition or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall have
been prepared in
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accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations for the periods indicated therein.
7.9 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents, or
to take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated hereby.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF ANI
The obligations of ANI with respect to actions to be taken on the Closing
Date are subject to the satisfaction or waiver on or prior to the Closing Date
of all of the following conditions.
8.1 Representations And Warranties; Performance Of Obligations. All
representations and warranties of NFLI and Newco contained in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though such representations and warranties had been made as of that time; all
the terms, covenants and conditions of this Agreement to be complied with and
performed by NFLI and Newco on or before the Closing Date shall have been duly
complied with and performed in all material respects; and certificates to the
foregoing effect dated the Closing Date, and signed by the President of each of
NFLI and Newco shall have been delivered to ANI.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to ANI and its counsel.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of ANI as a result of which the management of
ANI deems it inadvisable to proceed with the transactions hereunder.
8.4 Consents And Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of ANI as a result of which ANI deems it inadvisable to
proceed with the transactions hereunder.
8.5 Good Standing Certificates. Newco shall have delivered to ANI a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Secretary of State of its state of incorporation that
Newco is in good standing and that all state franchise and/or income tax returns
and taxes for Newco for all periods prior to the Closing have been filed and
paid.
8.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to NFLI or Newco which would constitute a Material Adverse
Effect.
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8.7 Officer's Certificate. ANI shall have received a certificate or
certificates, dated the Closing Date and signed by the President of each of NFLI
and Newco, certifying the truth and correctness of attached copies of their
respective Articles of Incorporation (including amendments thereto), Bylaws
(including amendments thereto), and resolutions of the boards of directors and
the stockholders (if required) adopting this Agreement.
8.8 Incumbency Certificate And Other Documents. ANI shall have received
an incumbency certificate or certificates, dated the Closing Date and signed by
the Secretary of each of NFLI and Newco, certifying the names, titles and
signatures of the officers authorized to execute the documents referred to in
this Section 8 and such additional supporting documentation and other
information with respect to the Merger as ANI or its counsel may reasonably
request.
8.9 Approvals; Appraisal Rights. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and adopted
by the Board of Directors of NFLI, the Board of Directors and the shareholders
of Newco, and the Shareholders of ANI, in accordance with applicable law. No
more than holders of five percent (5%) of the issued and outstanding shares of
ANI shall be entitled to appraisal rights.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF NFLI AND NEWCO. The obligations of
NFLI and Newco with respect to actions to be taken on the Closing Date are
subject to the satisfaction or waiver on or prior to the Closing Date of all of
the following conditions.
9.1 Representations And Warranties; Performance Of Obligations. All the
representations and warranties of ANI and the Controlling Shareholders contained
in this Agreement and in the ANI Disclosure Letter shall be true and correct in
all material respects as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by ANI on or before the Closing Date shall have been duly performed or
complied with in all material respects; and ANI shall have delivered to Newco
certificates dated the Closing Date and signed by the President of ANI to the
foregoing effect.
9.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Newco and its counsel.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of NFLI or Newco as a result of which the
management of NFLI or Newco deems it inadvisable to proceed with the
transactions hereunder.
9.4 Consents And Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated
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herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no
governmental agency or body shall have taken any other action or made any
request of NFLI or Newco as a result of which NFLI or Newco deems it inadvisable
to proceed with the transactions hereunder.
9.5 Good Standing Certificates. ANI shall have delivered to NFLI and
Newco a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Secretary of State of its state of
incorporation that ANI is in good standing and that all state franchise and/or
income tax returns and taxes for ANI for all periods prior to the Closing have
been filed and paid.
9.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to ANI which would constitute a Material Adverse Effect.
9.7 Officer=s Certificate. NFLI and Newco shall have received a
certificate, dated the Closing Date and signed by the President of ANI,
certifying the truth and correctness of attached copies of ANI=s Articles of
Incorporation (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and the stockholders of ANI
adopting this Agreement.
9.8 Incumbency Certificates And Other Documents. NFLI and Newco shall
have received an incumbency certificate, dated the Closing Date and signed by
the Secretary of ANI certifying the name, titles and signatures of the officers
authorized to execute the documents referred to in this Section 9 and such
additional supporting documentation and other information with respect to the
Merger as NFLI or Newco or their counsel may reasonably request.
9.9 Financing. NFLI and Newco shall have received from third parties
financing in amounts sufficient for them to complete the Merger and the other
acquisitions disclosed to ANI as well as to provide working capital in amounts
deemed reasonably sufficient by NFLI and Newco.
9.10 Other Agreements. NFLI and Newco shall have received from the
shareholders of ANI Representation Letters substantially in the form attached as
Exhibit 3.1.
9.11 Approvals; Appraisal Rights. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and adopted
by the Board of Directors of NFLI, the Board of Directors and the shareholders
of Newco, and the Shareholders of ANI, in accordance with applicable law. No
more than holders of five percent (5%) of the issued and outstanding shares of
ANI shall be entitled to appraisal rights.
9.12 Payment of Indebtedness. The Controlling Shareholders shall have
paid all indebtedness owing by the Controlling Shareholders to ANI. NFLI and
Newco shall have received from the Controlling Shareholders releases
substantially in the form attached as Exhibit 9.12.
10. ADDITIONAL AGREEMENTS
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10.1 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Merger and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof
10.2 Public Announcements. ANI and Newco shall use reasonable best
efforts to develop a joint communications plan and each party shall use
reasonable best efforts to (i) insure that all press releases and other public
statements with respect to this Agreement or the transactions contemplated
hereby shall be consistent with such joint communications plan, and (ii) unless
otherwise required by applicable law, to consult with each other and provide
each other a reasonable opportunity to review and comment before issuing any
press release or otherwise making any public statement with respect to this
Agreement or the transactions contemplated hereby.
10.3 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, common, proper or advisable under applicable legal
requirements, to consummate and make effective the transactions contemplated by
this Agreement. If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Controlling Shareholders, ANI, NFLI or Newco, as the case may be, shall take or
cause to be taken all such necessary or convenient action and execute, and
deliver and file, or cause to be executed, delivered and filed, all necessary or
convenient documentation.
10.4 Employment Agreements. Newco and each of Pusey and Loder shall enter
into an employment agreement mutually satisfactory to the parties as soon as
possible after the Closing, to be effective as of the effective Time of the
Merger.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) By mutual consent of all of the parties hereto;
(ii) By ANI, on the one hand, or by Newco on the other hand, if the
transactions contemplated by this Agreement to take place at the Closing shall
not have been consummated by November 15, 1999, unless the failure of such
transactions to be consummated is due to the failure of the party seeking to
terminate this Agreement to perform any of its obligations under this Agreement
to the extent required to be performed by it prior to or on the Closing Date; or
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(iii) By ANI, on the one hand, or by Newco, on the other hand, if a
material breach of the representations or a material breach or default shall be
made by the other party in the observance or in the due and timely performance
of any of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Closing Date or by ANI, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date, or by Newco, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date.
11.2 Liabilities In Event Of Termination. Termination of this Agreement
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
or in the Schedules delivered by such party, including, but not limited to,
legal and audit costs and out of pocket expenses.
12. INDEMNIFICATION.
12.1 Indemnification By NFLI And NEWCO. NFLI and Newco, jointly and
severally, agree to indemnify and hold harmless the Controlling Shareholders
against any and all losses, claims, damages, liabilities, costs and expenses
(including but not limited to, attorneys= fees and other expenses of
investigation and defense of any claims or actions), directly or indirectly
resulting from, relating to or arising out of: (i) any breach of any covenant,
agreement, warranty or representation of NFLI or Newco contained in this
Agreement, (ii) any misstatement of a material fact contained in this Agreement
or in any of the documents executed in connection with the transactions
contemplated by this Agreement, but only if the misstatement relates to
information concerning NFLI, Newco or their operations, or (iii) the omission
to state any fact necessary to make the statements contained in this Agreement
or in any of the documents executed in connection with the transactions
contemplated by this Agreement not misleading, but only if the omission relates
to information concerning NFLI, Newco or their operations.
12.2 Indemnification by the Controlling Shareholders. The Controlling
Shareholders, jointly and severally, agree to indemnify and hold harmless NFLI,
Newco and the officers, directors, employees and agents of NFLI, and Newco
(other than the Controlling Shareholders or any Shareholder), against any and
all losses, claims, damages, liabilities, costs and expenses (including but not
limited to, attorneys= fees and other expenses of investigation and defense of
any claims or actions) directly or indirectly resulting from, relating to or
arising out of: (i) any breach of any covenant, agreement, warranty or
representation of the Controlling Shareholders contained in this Agreement, (ii)
any misstatement of a material fact contained in this Agreement or in any of the
documents executed in connection with the transactions contemplated by this
Agreement, but only if the misstatement relates to information concerning ANI or
its operations or the Controlling Shareholders, or (iii) the omission to state
any fact necessary to make the statements contained in this Agreement or in any
of the documents executed in connection with the transactions contemplated by
this Agreement not misleading, but only if the omission relates to information
concerning ANI or its operations or the Controlling Shareholders.
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12.3 Indemnification Notice. Should any party (the "Indemnified Party")
suffer any loss, damage or expense for which another party (the "Indemnifying
Party") is obligated to indemnify and hold such Indemnified Party harmless
pursuant to this Section 12 of this Agreement, the following shall apply: If an
Indemnified Party intends to exercise its right to indemnification provided in
this Section 12, such Indemnified Party shall notify each Indemnifying Party in
writing of such Indemnified Party=s intention to do so and the facts or
circumstances giving rise to the claim (the "Indemnification Claim"). An
Indemnification Claim, at the option of the Indemnified Party, may be asserted
as soon as any situation, event or occurrence has been noticed by the
Indemnified Party regardless of whether actual harm has been suffered or out-of-
pocket expenses incurred. During the period of 15 days after notice by the
Indemnified Party, each Indemnifying Party shall be entitled to cure the defect
or situation giving rise to the Indemnification Claim to the satisfaction of the
Indemnified Party. If the Indemnifying Parties are unwilling or unable to cure
the defect giving rise to the Indemnification Claim during the 15-day period,
the Indemnified Party shall thereafter be entitled to indemnification as
provided in this Section 12.
12.4 Matters Involving Third Parties. If any third party shall notify any
Indemnified Party with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against any Indemnifying Party under
this Section 12, then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing. Provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced. Any Indemnifying
Party will have the right to defend the Indemnified Party against the Third
Party Claim with counsel of its choice reasonably satisfactory to the
Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified
Party in writing within 15 days after the Indemnified Party has given notice of
the Third Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from any adverse consequences the Indemnified Party may suffer resulting
from or caused by the Third Party Claim, (ii) the Indemnifying Party provides
the Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification obligations
hereunder, and (iii) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently. The Indemnifying Party shall not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified Party,
which consent shall not be withheld unreasonably.
13. GENERAL PROVISIONS
13.1 Survival Of Representations, Warranties And Agreements. The
representations and warranties of the parties hereto contained in this Agreement
or in any writing delivered pursuant hereto or at the Closing shall survive the
execution and delivery of this Agreement and the Closing and the consummation of
the transactions contemplated hereby (and any examination or investigation by or
on behalf of any party hereto) until the date three years after the Closing Date
except for claims in respect thereof pending at such time, which shall survive
until finally resolved or settled); provided, however, that the representations
and warranties of ANI shall not survive the
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Closing. No action may be commenced with respect to any representation,
warranty, covenant or agreement in this Agreement, or in any writing delivered
pursuant hereto, unless written notice, setting forth in reasonable detail the
claimed breach thereof, shall be delivered pursuant to Section 13.7 to the party
or parties against whom liability for the claimed breach is charged on or before
the termination of the survival period specified in Section 13.1 for such
representation, warranty, covenant or agreement.
13.2 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
13.3 Entire Agreement. This Agreement and any attachments hereto, the ANI
Disclosure letter and the Schedules thereto (including the schedules, exhibits
and annexes attached hereto and thereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the parties and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by all
parties, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors.
13.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.5 Brokers And Agents. Except as provided in Schedule 13.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction.
13.6 Expenses. Except as otherwise specifically provided herein, each
party to this Agreement shall bear its own direct and indirect expenses incurred
in connection with the negotiation and preparation of this Agreement and the
consummation and performance of the transactions contemplated hereby, including,
without limitation, all legal fees and fees of any brokers, finders or similar
agents; provided, however, that the fees of independent auditors to audit ANI=s
financial statements shall be paid by NFLI.
13.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (i) on the date of delivery if delivered
personally, or by telecopy or facsimile upon confirmation of receipt, (ii) on
the first business day following the date of dispatch if delivered by a
recognized next-day courier service, or (iii) on the 5th business day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
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(a) If to Newco or NFLI to:
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Facsimile No.: (713) 895-8927
Attention: David Bertrand, President
NL Acquisition Company
9101 Jameel
Houston, Texas 77040
Facsimile No.: (713) 895-8927
Attention: David Bertrand, President
with a copy to:
Kochman & Piper, P.C.
11 Greenway Plaza; Suite 2806
Houston, Texas 77046
Facsimile No.: (713) 871-2495
Attention: David S. Piper, Esq.
(b) If to ANI to:
Advanced Nutraceuticals, Inc.
2715 Bissonnet, Suite 303
Houston, Texas 77005
Facsimile: (713) 874-1443
Attention: Gregory Pusey, President
Any notices to any Controlling Shareholder shall be sent to the address set
forth for such Controlling Shareholder set forth on the Shareholder Signature
Page.
13.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Texas.
13.9 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
13.10 Exercise Of Rights And Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or
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remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
13.11 Time. Time is of the essence with respect to this Agreement.
13.12 Reformation And Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
13.13 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive, but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
13.14 Captions; Construction. The headings of this Agreement are inserted
for convenience only, and shall not constitute a part of this Agreement or be
used to construe or interpret any provision hereof. This Agreement has been
fully reviewed and negotiated by the parties and no uncertainty or ambiguity in
any term or provision of this Agreement shall be construed strictly against any
party under any rule of construction or otherwise.
13.15 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:
Name:
Title:
NL ACQUISITION COMPANY
By:
Name:
Title:
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ADVANCED NUTRACEUTICALS, INC.
By:
Name:
Title:
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SHAREHOLDER SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER
[Signature of Shareholder]
Date:
Name and Address of Shareholder for Notice:
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EXHIBIT 2.2
EARNOUT AGREEMENT
-----------------
This Earnout Agreement ("Agreement") is entered into this 17th day of
November, 1999, by and between Pailla M. Reddy ("Reddy") and Nutrition For Life
International, Inc. ("NFLI"). Reddy and NFLI are collectively referred to as
the "parties".
RECITALS
--------
A. On November 5, 1999, NFLI, Advanced Nutraceuticals, Inc., BPI
Acquisition Company, Bactolac Pharmaceutical Inc. ("BPI") and Reddy entered into
an Agreement and Plan of Merger (the "Merger Agreement").
B. A condition to the closing of the merger transaction contemplated by
the Merger Agreement (the "Closing") is the execution and delivery of this
Agreement.
C. Reddy is the sole shareholder of BPI. As provided in the Merger
Agreement, Reddy, as the sole shareholder of BPI, shall receive for the
conversion of his shares of BPI, $2,500,000 in cash, a $2,500,000 subordinated
note, stock in NFLI valued at $2,750,000 and up to $500,000 in NFLI stock as an
earnout payment, the determination and payment of which shall be in accordance
with the terms and conditions of this Agreement.
STATEMENT OF AGREEMENT
----------------------
NOW THEREFORE, in consideration of the premises and of the respective
covenants and provisions herein contained, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
EARNOUT PAYMENT
---------------
1.1 Nature of Earnout Payment.
--------------------------
(a) NFLI shall reserve for issuance as an earnout payment to Reddy up
to 17,605.6 shares of NFLI's $.001 par value Series A Preferred Stock (the
"Convertible Preferred Stock") and 176,056 shares of NFLI's $.01 par value
common stock (the "Common Stock"). The 17,605.6 shares of Convertible
Preferred Stock are automatically convertible into 176,056 shares of the
Common Stock pursuant to the terms of the Statement of Designation for the
Series A Preferred Stock. The value of the 176,056 shares of Common Stock
is $500,000. The maximum of 176,056 shares of Common Stock which may be
received by Reddy as an earnout payment pursuant to this Agreement has been
determined by dividing $500,000 by the average of the closing prices per
share
-1-
<PAGE>
of the Common Stock on The Nasdaq Stock Market for the five trading days
preceding the trading day immediately preceding the Closing.
(b) For purposes of this Agreement, it is assumed that the NFLI
shareholders will approve the conversion of Series A Preferred Stock to
Common Stock prior to the time that Reddy would be entitled to receive his
earnout payment(s) pursuant to this Agreement. Accordingly, it is provided
in this Agreement that shares of Common Stock will be issued to Reddy. In
the event that the shareholders have not approved the conversion of Series
A Preferred Stock to Common Stock prior to the time that Reddy would be
entitled to receive his earnout payment(s), then NFLI shall issue
Convertible Preferred Stock instead of Common Stock to Reddy. In that
event, Reddy shall receive one share of Convertible Preferred Stock for
every ten shares of Common Stock that he would have received pursuant to
this Agreement if the shareholders had approved the conversion.
(c) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year One which is in excess of $1,500,000.
However, in no event, will Reddy be entitled to receive more than 88,000
shares of Common Stock as an earnout payment based on Year One results.
(d) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year Two in excess of $1,600,000. In addition,
if Year One income exceeded $1,750,000, then the difference between Pre-Tax
Income for Year One and $1,750,000, will be applied for purposes of
calculating Pre-Tax Income for Year Two.
(e) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year Three in excess of $1,700,000. In
addition, if Year Two income exceeded $1,850,000, then the difference
between Pre-Tax Income for Year Two and $1,850,000, will be applied for
purposes of calculating Pre-Tax Income for Year Three.
(f) Notwithstanding anything herein to the contrary, the maximum
number of shares of Common Stock which may be issued as an earnout payment
pursuant to this Agreement to Reddy shall be 176,056.
1.2 Period for Payment. For purposes of calculation of the earnout
-------------------
payment, Year One will begin on December 1, 1999 and end on November 30, 2000,
Year Two will begin on December 1, 2000 and end on November 30, 2001 and Year
Three will begin on December 1, 2001 and end on December 30, 2002.
1.3 Registration Obligation. Prior to the issuance of shares of Common
-----------------------
Stock to Reddy as an earnout payment pursuant to this Agreement, the Company
shall prepare and file with the Securities and Exchange Commission (the "SEC") a
registration statement with respect to such Common Stock. The Company shall use
its
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<PAGE>
best efforts to cause such registration statement to become effective, and, upon
the request of Reddy, keep such registration statement effective for a period of
up to one year. It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this registration obligation that Reddy
shall furnish to the Company such information regarding himself and the intended
method of disposition of the Common Stock as shall be required to effect the
registration for resale by Reddy of the Common Stock received by him pursuant to
this Agreement. NFLI shall be entitled to postpone for a reasonable period of
time (not to exceed 180 days) the filing of any registration statement if, in
the good faith judgment of NFLI's Board of Directors, such registration would
materially interfere with NFLI's own impending financing.
1.4 Withholding Taxes. NFLI or its affiliates may take such steps as they
-----------------
deem necessary or appropriate for the withholding of any taxes which they may be
required by law or regulation or any governmental authority, whether federal,
state or local, domestic or foreign, to withhold in connection with the earnout
payment, including, but not limited to, the withholding of all or any portion of
any payment owed by them to Reddy, or the withholding of the issuance of NFLI
stock to be issued in connection with the earnout payment.
ARTICLE II
COMPUTATION OF PRE-TAX INCOME
-----------------------------
2.1 Manner of Computation. For purposes of this Agreement, "Pre-Tax
----------------------
Income" of BPI for each of Year One, Year Two and Year Three shall mean BPI's
aggregate earnings net of losses from operations, calculated as if it were being
operated as a separate and independent corporation, after deduction of all
appropriate expenses, charges, and reserves, but before adjustment for federal,
state, and local income or franchise taxes. Pre-Tax Income shall be determined
in accordance with generally accepted accounting principles (GAAP") consistently
applied by NFLI after consultation with the firm of independent certified public
accountants engaged by NFLI for purposes of its own audit ("NFLI's
Accountants"); provided, however, that in determining such Pre-Tax Income:
(a) Pre-Tax Income shall be computed without regard to "extraordinary
items" of gain or loss as that term shall be defined in GAAP;
(b) Pre-Tax Income shall not include any gains, losses or profits
realized from the sale of any assets other than in the ordinary
course of business;
(c) No deduction shall be made for any management fees, general
overhead expenses or other intercompany charges, of whatever kind
or nature, charged by NFLI to BPI, except that NFLI may charge
interest on any loans or advances made by NFLI to BPI in
connection with its business operations at a rate of 9%;
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<PAGE>
(d) No deduction shall be made for legal or accounting fees and
expenses arising out of this Agreement or the Merger Agreement;
(e) The purchase and sales prices of goods and services sold by BPI
to NFLI or its affiliates or purchased by BPI from NFLI or its
affiliates shall be adjusted to reflect the amounts that BPI
would have realized or paid if dealing with an independent party
in an arm's length commercial transaction; however, it is
understood that NFLI or its affiliates may offer special
arrangements to BPI. Any such arrangements which modify this
Agreement shall be in writing and signed by both NFLI and Reddy;
and
(f) Depreciation and amortization of assets acquired from BPI shall
be computed under the straight-line method, using the carrying
value of depreciable assets less applicable reserves, as shown on
the books and records of BPI, and the useful lives for such
assets, or categories thereof as though the merger of BPI and
NFLI had not been effected.
2.2 Time of Determination.
----------------------
(a) The Pre-Tax Income of the BPI shall be determined promptly after
filing of NFLI's Annual Report on Form 10-K for the close of Year
One, Year Two and Year Three by NFLI after consultation with
NFLI's Accountants. Copies of the reports setting forth the
computation of the Pre-Tax Income of BPI shall be submitted in
writing to Reddy and, unless Reddy notifies NFLI within 15
business days after receipt of the report that he objects to the
computation of Pre-Tax Income set forth therein, the reports
shall be binding and conclusive for the purposes of this
Agreement. Reddy shall have access to the books and records of
BPI and to NFLI's Accountant's workpapers (to the extent that
NFLI can facilitate such access) during regular business hours to
verify the computation of Pre-Tax Income made by NFLI.
(b) If Reddy notifies NFLI in writing within 15 business days after
receipt of NFLI's report that he objects to the computation of
Pre-Tax Income set forth therein, the amount of Pre-Tax Income
for the Year (or other period) for which such report relates
shall be determined by negotiation between Reddy and NFLI. If
Reddy and NFLI are unable to reach agreement within 20 business
days after such notification, the determination of the amount of
Pre-Tax Income for the period in question shall be submitted to a
mutually agreeable third party firm of independent certified
public accountants ("Special Accountants") for determination,
whose
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<PAGE>
determination shall be binding and conclusive on the parties. If
the Special Accountants determine that the Pre-Tax Income has
been understated by 10% or more, then NFLI shall pay the Special
Accountants' fees, costs and expenses. If Pre-Tax Income has not
been understated or has been understated by less than 10%, then
Reddy shall pay the Special Accountants' fees, costs and
expenses.
ARTICLE III
-----------
MISCELLANEOUS
-------------
3.1 Benefit of Parties. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of the parties and
their respective permitted representatives, successors and assigns.
3.2 Entire Agreement. This Agreement contains the entire
-----------------
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect thereto.
3.3 Counterparts. This Agreement may be executed simultaneously in
-------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Cooperation. During the Term each party will cooperate with and
------------
assist the other party in taking such acts as may be appropriate to enable all
parties to effect compliance with the terms of this Agreement and to carry out
the true intent and purposes hereof.
3.5 Notices. All notices, elections, request, demands or other
--------
communications hereunder shall be in writing and shall be deemed given at the
time delivered personally or by fax or upon receipt if deposited in the United
States mail, certified or registered, return receipt requested, postage prepaid
addressed to the parties as follows (or to such other person or place, written
notice of which any party hereto shall have given to the other):
(a) If to Reddy: Pailla M. Reddy
----------- 51 Brooklyn
Westbury, NY 11590
Fax: 516-333-4714
With a Copy to: Anthony T. Scotto, Esq.
-------------- 401 Franklin Avenue
Garden City, NY 11530
Fax: 516-739-5451
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<PAGE>
(b) If to NFLI: Nutrition For Life International, Inc.
---------- 9101 Jameel
Houston, TX 77040
Fax: 713-895-8927
Attention: Gregory Pusey, Chairman of the
Board of Directors
With a Copy to: Patton Boggs, LLP
-------------- 1660 Lincoln Street, Suite 1900
Denver, CO 80264
Fax: 303-894-9239
Attention: Robert M. Bearman, Esq.
3.6 Waiver of Compliance. The party for whose benefit a warranty,
---------------------
representation, covenant or condition is intended may in writing waive any
inaccuracies in the warranties, representations, covenants or conditions
contained in this Agreement or waive compliance with any of the foregoing and so
waive performance of any of the obligations of the other party hereto and any
defaults hereunder; provided however, that such waiver shall not affect or
impair the waiving party's rights in respect to any other warranty,
representation, covenant, condition or default hereunder.
3.7 Index and Captions The captions of the Articles and Sections of
------------------
this Agreement are solely for convenient reference and shall not be deemed to
affect the meaning or interpretation of any Article or Section hereof.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed in multiple original counterparts as of the date set forth above.
______________________________________
Pailla M. Reddy
NUTRITION FOR LIFE INTERNATIONAL, INC.
By: __________________________________
Authorized Officer
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<PAGE>
EXHIBIT 4
STATEMENT ESTABLISHING A SERIES OF SHARES
FOR
NUTRITION FOR LIFE INTERNATIONAL, INC.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "Act"), Nutrition For Life International, Inc., a Texas
corporation (the "Corporation"), adopts the following Statement Establishing a
Series of Shares:
1. The name of the Corporation is Nutrition For Life International, Inc.
2. A copy of the resolution establishing and designating Series A
Preferred Stock and fixing and determining the preferences, limitations, and
relative rights thereof is attached hereto as Exhibit A to this Statement
Establishing a Series of Shares.
3. The resolution establishing and designating Series A Preferred Stock
and fixing and determining the preferences, limitations, and relative rights
thereof was adopted on October 25, 1999.
4. The resolution establishing and designating Series A Preferred Stock
and fixing and determining the preferences, limitations, and relative rights
thereof was adopted by all necessary action on the part of the Corporation.
Dated as of November 17, 1999.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By: ______________________________________________
John R. Brown, Jr., Vice President-Finance
<PAGE>
EXHIBIT A TO
STATEMENT ESTABLISHING A SERIES OF SHARES
FOR
NUTRITION FOR LIFE INTERNATIONAL, INC.
RESOLVED, that the Board of Directors hereby authorizes and approves the
following Statement of Designation of the Series A Preferred Stock, setting
forth the relative powers, preferences, limitations, and rights of the Series A
Preferred Stock (the "Statement of Designation"), and authorizes and directs the
proper corporate officers to execute and file the Statement of Designation with
the Secretary of State of the State of Texas, and take such other actions as
such officers may deem necessary or appropriate in order to effectuate the
purposes of this resolution;
STATEMENT OF DESIGNATION OF THE SERIES A PREFERRED STOCK
A. 500,000 authorized shares of the Corporation's $.001 par value
preferred stock (the "Preferred Stock") are established as a series of Preferred
Stock designated as the "Series A Preferred Stock," which have the following
powers, preferences, limitations and rights:
1. Liquidation Preference.
----------------------
a. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, subject to the rights of
holders of Series A Preferred Stock and any other series of Preferred Stock that
may from time to time come into existence, the holders of the Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of the
Common Stock by reason of their ownership thereof, $28.40 (as adjusted for any
stock dividends, combinations or splits with respect to such shares) for each
share of Series A Preferred Stock then held by them. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
b. After payment (if any) to the holders of the Series A Preferred
Stock of the amounts set forth in Section A.1(a) above, the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock in proportion to the
shares of Common Stock then held by them.
<PAGE>
c. Whenever the distribution provided for in this Section A.1
shall be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors.
2. Voting. Except as may be specifically required by the provisions
------
of the Texas Business Corporation Act, the holders of shares of the Series A
Preferred Stock shall have no right to vote on any matter.
3. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
a. Automatic Conversion. No share of Series A Preferred Stock
--------------------
may be converted into common stock without the approval of such conversion by a
majority of the total votes cast on a proposal to convert by shareholders of the
Corporation in person or by Proxy at a meeting duly held by the Corporation's
shareholders (the "Shareholder Approval"). Upon the attainment of Shareholder
Approval, each share of Series A Preferred Stock shall automatically be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $28.40 by the Series A Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date of "Shareholder Approval." The price at which shares of Common Stock shall
be deliverable upon conversion of shares of the Series A Preferred Stock (the
"Series A Conversion Price") shall initially be $2.84 per share of Common Stock.
Such initial Series A Conversion Price shall be adjusted as hereinafter
provided.
b. Mechanics of Conversion. Upon attainment of Shareholder
-----------------------
Approval, all shares of Series A Preferred Stock shall no longer be outstanding
and shall automatically be cancelled and cease to exist and each certificate
previously representing shares of Series A Preferred Stock shall thereafter
represent only the right to receive a certificate representing the number of
shares of Common Stock into which the shares of Series A Preferred Stock have
been converted pursuant to this Section A.3. Upon attainment of Shareholder
Approval, each holder of Series A Preferred Stock shall surrender the
certificate or certificates of Series A Preferred Stock, duly endorsed, at the
office of the Corporation or of any transfer agent for such stock designated by
the Corporation, and the Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such person, a certificate for the number of
shares of Common Stock to which he shall be entitled as aforesaid.
c. Adjustments to Conversion Prices for Stock Dividends and for
------------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that this
- - --------------------------------------------
Corporation at any time or from time to time after the date on which shares of
Series A Preferred Stock were first issued shall declare or pay, without
consideration, any dividend on the Common Stock payable in Common Stock or in
any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock),
or in the event the outstanding shares
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<PAGE>
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series A
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
d. Adjustments for Reclassification and Reorganization. If the
---------------------------------------------------
Common Stock issuable upon conversion of the Series A Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section A.3(c) above), the Series A Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series A Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock immediately before that change.
e. No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section A.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
f. Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section A.3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate executed by
the Corporation's President or Chief Financial Officer setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price for such
shares of Series A Preferred Stock at the time in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of the Series A Preferred Stock.
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<PAGE>
g. Notices of Record Date. In the event that the Corporation
----------------------
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up;
Then, in connection with each such event, the Corporation shall send
to the holders of Series A Preferred Stock: (1) at least ten days prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv) above, at least ten
days prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event).
h. Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these Articles.
i. Fractional Shares. No fractional share shall be issued upon
-----------------
the conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
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<PAGE>
j. Notices. Any notice required by the provisions of this Section
-------
A.3 to be given to the holders of shares of Series A Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
4. No Reissuance of Series A Preferred Stock. No share or shares of
-----------------------------------------
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the Corporation shall
be authorized to issue.
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