<PAGE>
SCHEDULE 14C INFORMATION
(RULE 14C-101)
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. 1)
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for use of the
[ ] Definitive Information Statement Commission only (as
permitted by Rule 14c-5(d)(2))
FUTUREBIOTICS, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.0001 per share
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2) Aggregate number of securities to which transaction applies:
1,350,000 shares of Common Stock Outstanding
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
N/A
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
INFORMATION STATEMENT
TO STOCKHOLDERS
OF
FUTUREBIOTICS, INC.
THIS INFORMATION STATEMENT IS BEING PROVIDED TO YOU BY
THE BOARD OF DIRECTORS OF THE COMPANY
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
FUTUREBIOTICS, INC.
145 RICEFIELD LANE
HAUPPAUGE, NY 11788
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JUNE , 1999
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TABLE OF CONTENTS
PAGE
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Information Statement................................................. 1
Additional Information................................................ 1
Outstanding Voting Securities......................................... 2
Principal Stockholders................................................ 3
Description of Transaction............................................ 4-9
Financial Statements.................................................. 10
Notes to Financial Statements......................................... 11
Selected Financial Data............................................... 12
Signature............................................................. 13
Exhibits
A. Asset Purchase Agreement dated as of March 3, 1999 by and among FB
Acquisition Corp., Nutraceutical Corporation, Futurebiotics, Inc. and PDK
Labs, Inc.
<PAGE>
THIS INFORMATION STATEMENT IS BEING PROVIDED TO YOU BY
THE BOARD OF DIRECTORS OF THE COMPANY.
WE ARE NOT ASKING YOU FOR A
PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
FUTUREBIOTICS, INC.
145 RICEFIELD LANE
HAUPPAUGE, NY 11788
INFORMATION STATEMENT
This Information Statement is furnished to holders of shares of common
stock, $.0001 par value (the "Common Stock"), of Futurebiotics, Inc. (the
"Company") to notify such stockholders that on or about April 15, 1999 the
Company received written consents in lieu of a meeting of stockholders from
holders of 700,000 shares of Common Stock and 8,335,000 shares of Preferred
Stock representing approximately 70.2% of the total issued and outstanding
shares of voting stock of the Company approving the execution and delivery of
that certain Asset Purchase Agreement (the "Purchase Agreement") dated as of
March 3, 1999 by and among FB Acquisition Corp., a Delaware corporation ("FB
Acquisition"), Nutraceutical Corporation, a Delaware corporation
("Nutraceutical"), the Company and PDK Labs, Inc., a New York corporation
("PDK"), and authorizing the consummation of the transactions contemplated
thereby (the "Transactions"). Included in the Transactions, is the filing of an
amendment to the Company's Certificate of Incorporation changing the Company's
name to "Pharmaceutical Products, Inc."
This Information Statement describing the approval of the Purchase
Agreement and the authorization of the consummation of the Transactions is first
being mailed or furnished to the Company's stockholders on or about June , 1999,
and such matters shall not become effective until at least 20 days thereafter.
The Company has included a copy of its Annual Report on Form 10-K for
consideration by the Company's stockholders. Expenses in connection with the
distribution of this Information Statement will be paid by the Company and are
anticipated to be less than $10,000.
The Board of Directors knows of no other matters other than those
described in this Information Statement which have been recently approved or
considered by the holders of a majority of the shares of the Company's voting
stock.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
including annual and quarterly reports on Form 10-K and 10-Q (the "1934 Act
Filings") with the Securities and Exchange Commission (the "Commission").
Reports and other information filed by the Company can be inspected and copied
at the public reference facilities maintained at the Commission at Room 1024,
450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can be
obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
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regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The
information contained in this Information Statement concerning Nutraceutical and
FB Acquisition has been furnished to the Company by Nutraceutical. The Company
assumes no responsibility for the accuracy or completeness of such information.
The following documents, as filed with the Commission by the Company
are incorporated herein by reference:
(1) Current Report on Form 8-K filed on March 10, 1999.
(2) Annual Report on Form 10-K for the year ended November 30, 1998.
(3) Quarterly Report on Form 10-Q for the period ended February 28, 1999.
OUTSTANDING VOTING SECURITIES
As of the April 15, 1999 (the "Record Date"), out of the 40,000,000
shares of Common Stock authorized there were 1,350,000 shares of Common Stock
issued and outstanding, and out of the 8,335,000 shares of the Preferred Stock
authorized all of such shares were issued and outstanding.
Only holders of record of the Common Stock and Preferred Stock at the
close of business on the Record Date were entitled to participate in the written
consents of the Company's stockholders. Each share of Common Stock was entitled
to one vote and each share of Preferred Stock was entitled to one-tenth (1/10)
of a vote.
The Delaware General Corporation Law ("DGCL") provides in substance
that unless the Company's certificate of incorporation provides otherwise,
stockholders' may take action without a meeting of stockholders and without
prior notice if a consent or consents in writing, setting forth the action so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to take such action at a meeting
at which all shares entitled to vote thereon were present. Under the applicable
provisions of the DGCL, such action is effective when written consents from
holders of record of the minimum number of shares of common stock necessary to
authorize the action (here a majority of the voting shares of capital stock) are
executed and delivered to the Company within 60 days of the earliest dated
consent delivered in accordance with the DGCL.
On the Record Date, PDK Labs, Inc. ("PDK") executed a written consent
in lieu of a meeting of stockholders of the Company (the "Written Consent")
approving the Purchase Agreement and authorizing the consummation of the
Transactions. PDK executed the Written Consent with respect to its beneficial
ownership of (i) 700,000 shares of Common Stock, and (ii) 8,335,000 shares of
Preferred Stock. The shares of the Company's capital stock voted by PDK
constituted as of the Record Date 70.2% of the Company's total voting stock
outstanding. In accordance with the DGCL, the Company received more than a
majority of the shares of voting stock approving the Purchase Agreement and
authorizing the consummation of the Transactions. As a result, the Company shall
take all actions necessary to consummate the Transactions.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the Record Date with
respect to the beneficial ownership of the outstanding shares of the Company's
Common Stock and Preferred Stock by (i) each person known by the Company to
beneficially own five percent (5%) or more of the outstanding shares; (ii) the
Company's officers and directors; and (iii) the Company's officers and directors
as a group:
<TABLE>
<CAPTION>
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Shares of Shares of Common
Name Company Common Stock of PDK
and Address Stock Percent Shares of Company Percent Labs, Inc. Percent
of Beneficially of Preferred Stock of Beneficially of
Beneficial Owner(1) Owned(2) Class Beneficially Owned (2) Class Owned(2) Class
------------------- -------- ----- ---------------------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
PDK Labs, Inc. 700,000 51.9% 8,335,000 100%
145 Ricefield Lane
Hauppauge, NY
Reginald Spinello (3) - - - - 672,500(6) 21.1%
Karine Hollander (4) - - - - 50,000(7) 1.6%
Thomas Keith (5) - - - - - -
Lawrence Simon (5) - - - - - -
Theresa Giove (5) - - - - - -
Directors and Officers as - - - - 672,500 21.1%
a Group (5 persons)
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</TABLE>
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(1) Unless noted otherwise, the address for all listed beneficial owners is c/o
the Company at 145 Ricefield Lane, Hauppauge, New York 11788.
(2) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-K of the
Securities Exchange Act.
(3) President, Chief Executive Officer and Director of the Company
(4) Chief Financial Officer and Director of the Company.
(5) Director of the Company.
(6) Includes 150,000 shares of Common Stock which are the subject of a ten (10)
year voting trust held by Mr. Spinello, 50,000 shares of which are owned by
Karine Hollander.
(7) Ms. Hollander's shares of Common Stock are subject to a ten (10) year
voting trust held by Mr. Spinello.
-3-
<PAGE>
DESCRIPTION OF THE TRANSACTION
The Company
The Company, which was incorporated on March 16, 1994 distributes,
markets and sells vitamins, minerals, herbal formulations and specialty
nutritional supplements principally to health food stores through national
distributors. The Company's primary product line consists of more than 150
items, including multi-vitamin/mineral formulas, green superfood powders,
herbal/mineral tonics and herbal complexes, and specific specialty supplements.
All of the Company's products are supplied by its parent company, PDK Labs Inc.
("PDK").
The principal executive offices of the Company is located at 145
Ricefield Lane, Hauppauge, NY 11788, telephone number is (516) 273-2630.
The Purchase Agreement
On March 3, 1999, an Asset Purchase Agreement (the "Purchase
Agreement") was executed by and among FB Acquisition, Nutraceutical, the Company
and PDK, pursuant to which FB Acquisition agreed to acquire, and the Company
agreed to sell, substantially all of the Company's assets (the "Assets").
As consideration for the Assets, FB Acquisition has agreed to pay in
cash (i) $3,700,000, (ii) the value of purchased inventory up to a maximum of
$1,500,000, and (iii) the net book value of accounts receivable up to a maximum
of $725,000. The purchase price is subject to adjustment in the event that the
proceeds actually received from collecting the purchased accounts receivable
differs from the amount of purchased accounts receivable.
In connection with the Transaction, the Company anticipates that PDK
may enter into a Transition Services Agreement at the closing of the
Transactions (the "Closing") which will require PDK to provide certain services
at its cost to FB Acquisition on a temporary basis in order to facilitate a
smooth transition of the transfer of the Assets to FB Acquisition. However, the
parties may agree to pursue alternative arrangements in lieu of the execution
and delivery of a Transition Services Agreement.
The following is a summary of the material provisions of the Purchase
Agreement and is qualified in its entirety by reference to the complete text of
the Purchase Agreement, a copy of which is attached as Exhibit A to this
Information Statement.
The Purchaser
FB Acquisition Corp., a Delaware corporation ("FB Acquisition") was
specifically formed for the purpose of entering into the Purchase Agreement and
consummating the Transaction. FB Acquisition is a wholly-owned subsidiary of
Nutraceutical which is a wholly-owned subsidiary of Nutraceutical International
Corporation ("Nutraceutical International"). Nutraceutical International is
publicly traded on The Nasdaq National Market under the symbol "NUTR". The
4
<PAGE>
principal executive offices of FB Acquisition, Nutraceutical and Nutraceutical
International are located at 1400 Kearns Boulevard, 2nd Floor, Park City, Utah
84060, telephone number (435) 655-6106. Nutraceutical International and its
direct and indirect subsidiaries sells nutritional supplements under the
Soloray, KAL, NeutraMax, VegLife, Premier One, Solar Green, Natural Sport and
Action Labs brand names. Nutraceutical's customers primarily include health food
stores and distributors for such stores.
The Sale
Upon the terms and subject to the conditions contained in the Purchase
Agreement, (i) the Company will sell and transfer, and FB Acquisition will
purchase and acquire, the Assets (as described below) and (ii) the Company will
transfer and delegate to FB Acquisition, and FB Acquisition will assume and
agree to pay, perform and discharge (to the extent not paid, performed or
discharged prior to the closing date) the Assumed Liabilities (as described
below).
Assets
The assets being transferred pursuant to the Purchase Agreements (the
"Assets") include all of the right, title and interest of the Company in and to
(i) substantially all of its tangible and intangible assets, other than Excluded
Assets (as described below), (ii) substantially all of its contracts, agreements
and commitments, and (iii) all governmental license and permits. Excluded Assets
include (i) cash (and cash equivalents), (ii) prepaid taxes, (iii) the Company's
books and records, and (iv) the Company's private label nutritional supplement
business.
Liabilities
The Assumed Liabilities include all liabilities and obligations of the
Company which relate to the leases, agreements, contracts and commitments
transferred to FB Acquisition under the Purchase Agreement, if any, none of
which are reflected as liabilities on the Company's balance sheet.
Consideration; Purchase Price Adjustments
Subject to adjustment as described below, the total purchase price (the
"Purchase Price") to be paid by FB Acquisition to the Company for the Assets
shall be (i) $3,700,000, (ii) an amount equal to the aggregate amount of the
purchased inventory (the "Inventory Portion") and (iii) an amount equal to the
aggregate net book value of the trade accounts receivable transferred from the
Company to FB Acquisition which are aged 90 days or less as of the date of
closing (the "Closing Date"), provided that in no event will the amount to be
paid exceed $725,000 in the aggregate (the "Receivables Portion").
The Purchase Price shall be delivered on the Closing Date by FB
Acquisition for the Purchased Assets as follows: (i) $3,450,000 (the "Cash
Portion") by wire transfer of immediately available funds to the Company, to an
account designated by the Company, (ii) $250,000 (the "Escrow Amount") by wire
transfer of immediately available funds to the escrow agent pursuant to the
terms and conditions of an escrow agreement (in a form to be mutually agreed to
by FB
-5-
<PAGE>
Acquisition, the Company and Bankers Trust Company, as escrow agent (the "Escrow
Agent"), (ii) the Inventory Portion by wire transfer of immediately available
funds to the Company, to an account designated by the Company and (iii) the
Receivables Portion by wire transfer of immediately available funds to the
Company, to an account designated by the Company. At the Closing, FB Acquisition
shall also assume the liabilities certain identified liabilities (the "Assumed
Liabilities"), by executing and delivering an Assignment and Assumption
Agreement in a form mutually agreeable to FB Acquisition and the Company.
The Escrow Amount will be available to satisfy any amounts owed by the
Company to FB Acquisition pursuant to the Purchase Agreement and the Escrow
Amount shall be held and disbursed in accordance with the Escrow Agreement.
As soon as reasonably practicable following the 120th day after the
Closing Date (the "Collection Date") (but in no event later than ten (10) days
thereafter), FB Acquisition shall prepare and deliver to the Company a written
notice (the "Adjustment Notice") reporting the aggregate amount of cash
collections received by FB Acquisition on account of the Purchased Receivables,
as determined in accordance with GAAP (the "Receivables Proceeds"). The
Adjustment Notice shall also specify accounts and amounts uncollected which
comprised Purchased Receivables.
If the amount of the Receivables Proceeds is less than the Receivables
Portion, the Company shall pay FB Acquisition in immediately available funds an
amount equal to such shortfall, within five business days after the amount of
such shortfall, if any, is finally determined, plus interest at the rate of
8.50% per annum from the Closing Date to the date of such payment.
If the amount of the Receivables Proceeds is greater than the
Receivables Portion, FB Acquisition shall pay the Company in immediately
available funds an amount equal to such excess amount within five business days
after the amount of such excess, if any, is finally determined.
If the Company has any good faith objections to FB Acquisition's
calculation set forth in the Adjustment Notice, the Company must deliver to FB
Acquisition, within 30 days after delivery of the Adjustment Notice, a detailed
statement describing such objections thereto (the "Company's Statement") or FB
Acquisition's calculation of the price adjustment set forth in the Adjustment
Notice will be final, binding and non-appealable upon each of the parties
hereto. FB Acquisition and the Company shall negotiate in good faith to resolve
any such objections, but if they do not reach a final resolution with 15 days
after delivery of the Company's Statement to FB Acquisition, the parties shall
submit such dispute to a mutually agreeable independent nationally recognized
public accounting firm located in New York, New York for resolution (the
"Independent Auditor"), whose costs shall be shared equally by FB Acquisition
and the Company.
The parties shall instruct the Independent Auditor to resolve all
disagreements over the calculation of the price adjustment set forth in the
Adjustment Notice no later than 15 days after submission of the disputes to the
Independent Auditor, whose determination thereof shall be final, binding and
non-appealable upon the parties hereto.
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<PAGE>
The Closing
It is anticipated that the closing of the Transactions will occur
shortly after the conditions to closing have been satisfied which the Company
anticipates occurring during the second calendar quarter of 1999.
Representations And Warranties
The Purchase Agreement contains certain representations and warranties
of the parties relating to, among other things: (i) their organization and good
standing; (ii) the execution, delivery and performance of the Purchase
Agreement; (iii) the legality, validity and enforceability thereof against the
parties, and the non-contravention of, and lack of conflict with, the
Certificate of Incorporation or by-laws of the parties, the terms of any lien or
any contract of agreement to which any of the parties is bound, or any provision
of any statute, law, ordinance or administrative rule or regulation, license or
order of any governmental authority or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree; (iv) the receipt
of requisite consents and approvals; (v) title to the Assets; (vi) the condition
of the Assets; and (vii) the absence of litigation and other legal proceedings.
Certain Covenants
The Purchase Agreement contains certain covenants and agreements
of the parties that are customary for transactions similar to the Transaction
and include the agreement, among other things: (i) by all parties to not
publicly reveal any information relating to the operation of the Company's
business which is not specifically already a matter of public record and (ii) by
the Company to maintain and operate the Assets in accordance with past practice.
In addition, concurrent with the Closing, the Company will also
amend its Certificate of Incorporation to change its name from Futurebiotics,
Inc. to Pharmaceutical Products, Inc.
For a period of three (3) years after the Closing, the Company and
PDK may not, directly or indirectly, without the prior written consent of FB
Acquisition, engage in the merchandising, distribution or sale in the United
States of (i) a broad line of branded nutritional supplements, other than to
mass merchandisers, or (ii) any of the Company's proprietary products and/or
formulations. As a result, the Company intends to commence a new business by
either acquiring a going concern or by acquiring or developing assets which may
constitute a new business. However, since the Company has not identified any new
business or assets which may constitute a new business, no assurance can be
given that such a business or assets will acquired or developed. The Company has
not established a timeframe within which a business plan will be realized or an
acquisition transaction will most likely occur. Nevertheless, the Company
intends to use its best efforts to acquire a going concern or by acquiring or
developing assets which may constitute a new business. It is anticipated that
the Company will not seek stockholder approval in connection with such proposed
transaction.
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<PAGE>
Conditions To Closing
The obligations of the parties to consummate the Transaction on the
Closing Date shall be subject to the prior satisfaction, or waiver, of certain
conditions including: (i) receipt of all necessary consents and/or approvals to
the Transaction, including the approval of the Company's stockholders; (ii) the
absence of any actual or threatened suit, action or proceeding to restrain,
enjoin or otherwise prevent the consummation of the Transaction, or any other
action, suit, claim, investigation or proceeding against the parties; and (iii)
the representatives and warranties contained in the Purchase Agreement are
materially true.
Indemnification
The Company and PDK have agreed to jointly and severally indemnify,
defend and hold harmless FB Acquisition and its affiliates directors, officers,
employees, shareholders (collectively, the "Buyer Group") from and against any
and all losses, liabilities, expenses, or other obligations suffered or incurred
by the Buyer Group which, directly or indirectly, arise out of, result from or
relate to (i) a breach of any representation or warranty of the Company or PDK
contained in the Purchase Agreement or in any other document contemplated by the
Purchase Agreement; (ii) any action, demand, proceeding investigation or claim
by a third party against the Company which, if successful, would give rise to or
evidence the existence of breach of representation warranty or covenant by the
Company; (iii) any claim brought by a broker or finder by, through, or under
Buyer; or (iv) any claim brought against the Buyer Group relating to an Excluded
Liability (as defined in the Purchase Agreement).
FB Acquisition and Nutraceutical have agreed to jointly and severally
indemnify, defend and hold harmless the Company, PDK and their respective
affiliates directors, officers, employees, shareholders (collectively, the
"Seller Group") from and against any and all losses, liabilities, expenses, or
other obligations suffered or incurred by the Seller Group which, directly or
indirectly, arise out of, result from or relate to (i) a breach of any
representation or warranty of the FB Acquisition or Nutraceutical contained in
the Purchase Agreement or in any other document contemplated by the Purchase
Agreement; (ii) any action, demand, proceeding investigation or claim by a third
party against FB Acquisition which, if successful, would give rise to or
evidence the existence of breach of representation warranty or covenant by FB
Acquisition; (iii) any claim brought by a broker or finder by, through, or under
FB Acquisition; or (iv) any claim brought against the Seller Group relating to
an Assumed Liability (as defined in the Purchase Agreement).
The obligations of the Company to indemnify, defend and hold harmless
the Buyer Group pursuant to the Purchase Agreement and other related documents
shall not exceed the sum of $3,700,000 plus the net amount paid by FB
Acquisition for the purchased inventory. In addition, the obligations of PDK to
indemnify and hold harmless the Buyer Group pursuant to the Purchase Agreement
and other related documents shall not exceed the sum of $2,000,000.
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Obligations and Rights of PDK
Under the terms of the Purchase Agreement, PDK is obligated to (i) vote
in favor of the transaction, (ii) provide services pursuant to the Transition
Services Agreement, (iii) refrain from competing with FB Acquisition in certain
circumstances and (iv) indemnify FB Acquisition under certain circumstances.
PDK has fulfilled its obligations to vote in favor of the Transactions
by executing a written consent on April 15, 1999 which approves the Purchase
Agreement and the consummation of the transactions contemplated thereby. In
addition, the Company anticipates that PDK may enter into a Transition Services
Agreement at the Closing which will require PDK to provide certain services at
its cost to FB Acquisition on a temporary basis in order to facilitate a smooth
transition of the transfer of the Assets to FB Acquisition. However, the parties
may agree to pursue alternative arrangements in lieu of execution and delivery
of a Transition Services Agreement. See "Covenants" and "Indemnification" above
for description of PDK's obligation not to compete with, and indemnify, FB
Acquisition, respectively. PDK is also entitled to indemnification from FB
Acquisition under certain circumstances. See "Indemnification" above.
Termination
The Purchase Agreement may be terminated (i) upon mutual consent of the
Company and FB Acquisition, (ii) by either party in the event certain
representations, warranties or covenants have been breached or the Closing has
not occurred by June 30, 1999 or (iii) by FB Acquisition, in the event that
certain schedules referenced in the Purchase Agreement were not reasonably
satisfactory to FB Acquisition.
Interests Of Certain Persons In The Sale Transaction
In considering the foregoing, stockholders should be aware that PDK
stands to indirectly benefit from the Transaction by virtue of the fact that it
is a stockholder of the Company. Reginald Spinello, the Company's President, and
Karine Hollander, the Company's Chief Financial Officer, are also the President
and Chief Financial Officer, respectively, of PDK and are also stockholders of
PDK. See "Principal Stockholders." In addition, a majority of the Board of
Directors of PDK constitute a majority of the Board of Directors of the Company.
The proceeds from the Transaction may be used to acquire or develop another
business which may directly or indirectly benefit PDK Labs. A new business
pursued by the Company may (like the Company's present business) engage PDK to
provide certain services to the Company, including supplying product, accounting
and other administrative and management services.
Regulatory Approvals
No State or Federal regulatory approval is required in connection with
consummating the Transaction.
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Accounting Treatment
The Transaction will be accounted for as a sale of certain assets and a
transfer of certain liabilities. The sum of the consideration to be received by
the Company and the liabilities to be assumed by the FB Acquisition will be
materially more than the book value of the assets. The Transaction will result
in a taxable gain of approximately $2,242,000. The Company intends to pay the
proper state, federal and local taxes incurred as a result of consummating the
Transaction.
Certain Income Tax Consequences
The Company expects to incur a gain for income tax purposes with
respect to the Transaction. The consummation of the Transaction will not result
in any direct federal or state income tax consequences to the stockholders of
the Company.
Effect Of The Sale Transaction On The Company's Stockholders
If the Transaction is consummated, the stockholders of the Company will
retain their equity interest in the Company. Such sale will not result in any
issuance of any capital stock by the Company nor will it change the rights of
the Company's stockholders. Although the Company does not presently anticipate
paying any dividends, the net proceeds from consummating the Transaction may be
used for this purpose.
Use Of Proceeds Of The Sale Transaction
The Company anticipates that the net proceeds from consummating the
Transaction will be approximately $5,925,000. The Company intends to use the
funds to pay ordinary operating expenses such as rent, utilities and
professional fees and to pursue acquiring a going concern or developing a new
business. The Company will not retain its employees following the Closing with
the exception of senior management involved in establishing a new business or
acquiring a going concern. Prior to their intended use, the Company will invest
available funds in U.S. Treasury and other short term obligations. None of the
proceeds from consummating the Transaction will be used to pay for any debts of
PDK Labs under its senior credit agreement or otherwise.
Reasons For The Transaction
During the past 3 fiscal years the Company has sustained increased
losses from operations. The Board of Directors determined that these losses
could not be curtailed by the Company at its present size and capacity because
marketing and distribution costs were disproportionately high relative to the
Company's sales.
The Board of Directors determined that the Company's business could be
profitable if it was able to increase sales considerably in order to take
advantage of economics of scale. The Board of Directors concluded that these
economics of scale would never be realized by the Company unless it acquired
additional product lines or initiated new product lines. Neither of these
alternatives were viable because of the financial commitment needed to fund
them.
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Therefore, the Board of Directors determined that the best value for the
Company's shareholders would be to sell the Company's business before losses
increased further.
In August 1998, the Company commenced its search to identify potential
buyers for the Company's business. After some investigation, the Company
believed that there were a limited number of potential purchasers, and that it
was most likely to locate a buyer in the vitamin and nutritional supplement
business with established distribution through which such an entity could sell
the Company's products. The Company entered into preliminary informal
discussions with at least three of the larger companies in the industry,
including Nutraceutical. After months of discussions, Nutraceutical made a
lucrative offer to buy the Company assets. Other potential purchasers never made
definitive offers and indicated that the Company's business was too small, if
acquired, to accomplish their strategic goals.
For these reasons, the Board of Directors believes that the Transaction
is fair to, and in the best interests of, the Company and its stockholders. In
making this determination, the Board of Directors considered both the interests
of PDK and of its unaffiliated shareholders. As a result of the Transaction, PDK
and the unaffiliated shareholders will benefit because they will continue to
maintain their equity ownership interests in the Company (and in the Company's
new business when it commences). Accordingly, the Board of Directors has
unanimously approved the Transaction.
In reaching its conclusions, the Board of Directors considered, among
other things, the following material factors:
(1) A range of alternative strategic options, including the sale of the
Company's stock or merging with another entity out of which options the
Transaction enabled the Company to realize the greatest amount of consideration
for the sale of the business.
(2) Based upon the Board of Directors determination that the Company's
business would be most attractive to an organization capable of taking advantage
of economies of scale, the Board realized that there was a relatively small
number of potential acquirors, due in great measure to the necessity of finding
a purchaser that is presently selling nutritional supplements to the health food
store market, and the inability of the Company to negotiate with any of such
potential acquirors a definitive agreement with terms more favorable than the
Transaction.
(3) The proposed terms and structure of the Transaction and the terms
and conditions of the Purchase Agreement.
(4) The ability to consummate the Transaction without restricting,
limiting or altering the rights of the stockholders of the Company.
(5) The perceived motivation of Nutraceutical and their executives and
Nutraceutical's financial condition, which factors underscored the earnest
intent of Nutraceutical to consummate
-11-
<PAGE>
the Transaction and demonstrated the Nutraceutical's financial ability to assume
the obligations and liabilities associated with the Company's business.
(6) The recommendation of the Company's management to enter into the
Transaction because (i) management did not believe that the Company had a
strategic plan which would result in the Company becoming profitable and (ii)
management did not believe there were additional potential purchasers who would
pay a more favorable purchase price than Nutraceutical.
(7) The extensive experience of the Nutraceutical's management in
sourcing, marketing, distributing and selling nutritional supplements to the
health food store market.
In light of these factors and the consideration to be received in
connection with the Transaction, the Board determined that the Transaction was
in the best interests of the Company and its stockholders. The Board took into
account the fact that only a relatively small number of parties expressed
interest in acquiring the Assets. It was reasonably unlikely that the Company
would receive, in the foreseeable future, offers to engage in alternative
transactions on terms more favorable to the Company and its stockholders than
those offered by Nutraceutical.
-12-
<PAGE>
FUTUREBIOTICS, INC
PRO FORMA BALANCE SHEET
FEBRUARY 28, 1999
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments As Adjusted
------ ------------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83 $ 5,675 $ 5,758
Restricted cash -- 250 250
Accounts receivable, less allowance for
doubtful accounts of $12 1,084 (875) 209
Inventories 1,989 (1,500) 489
Due from parent 2,846 -- 2,846
Property, plant and equipment held for disposal 179 (179) --
Intangible assets held for disposal 405 (405) --
Prepaid income taxes 5 -- 5
Prepaid expenses and other current assets 299 (299) --
Deferred income tax asset 278 (278) --
------ ------------- -------------
Total current assets 7,168 2,389 9,557
OTHER ASSETS 142 -- 142
------ ------------- -------------
$7,310 $ 2,389 $ 9,699
====== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 204 -- $ 204
Income taxes payable -- 373 373
------ ------------- -------------
Total current liabilities 204 373 577
------ ------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 40,000,000
shares; 1,350,000 issued and outstanding -- -- --
Preferred stock, $.0001 par value; authorized, issued and
outstanding 8,335,000 shares 1 -- 1
Additional paid-in capital 9,395 -- 9,395
Unearned compensation (1,162) -- (1,162)
Retained earnings (Deficit) (1,128) 2,016 888
------ ------------- -------------
7,106 2,016 9,122
------ ------------- -------------
$7,310 $ 2,389 $ 9,699
====== ============= =============
</TABLE>
-13-
<PAGE>
FUTUREBIOTICS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FEBRUARY 28, 1999
(in thousands, except share and per data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments As Adjusted
--------------- ---------------- ---------------
<S> <C> <C> <C>
NET SALES $1,748 (1,748) --
--------------- ---------------- ---------------
COSTS AND EXPENSES:
Cost of sales 991 (991) --
Selling, general and administrative 937 (834) 103
--------------- ---------------- ---------------
1,928 (1,825) 103
--------------- ---------------- ---------------
OPERATING (LOSS) INCOME (180) 77 (103)
--------------- ---------------- ---------------
PROVISION (BENEFIT) FOR INCOME TAXES (94) 94 --
--------------- ---------------- ---------------
NET (LOSS) INCOME ($86) ($17) ($103)
=============== ================ ================
BASIC (LOSS) INCOME PER SHARE ($0.06) ($0.08)
=============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,350,000 1,350,000
=============== ================
</TABLE>
-14-
<PAGE>
FUTUREBIOTICS, INC
PRO FORMA STATEMENT OF OPERATIONS
NOVEMBER 30, 1998
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Actual Pro Forma As Adjusted
(Audited) Adjustments (Unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
NET SALES $10,304 (10,304) --
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 6,529 (6,529) --
Selling, general and administrative 4,689 (4,276) 413
--------- --------- ---------
11,218 (10,805) 413
--------- --------- ---------
OPERATING INCOME (LOSS) (914) 501 (413)
--------- --------- ---------
OTHER EXPENSES (INCOME)
Interest income (51) -- (51)
Interest expense 123 (123) --
Other (9) (9)
--------- --------- ---------
63 (123) (60)
--------- --------- ---------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES (977) 624 (353)
PROVISION (BENEFIT) FOR INCOME TAXES 3 (3) --
--------- --------- ---------
NET (LOSS) INCOME ($980) $ 627 ($353)
========= ========= =========
BASIC (LOSS) INCOME PER SHARE ($0.73) ($0.26)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,350,000 1,350,000
========= =========
</TABLE>
-15-
<PAGE>
SELECTED FINANCIAL DATA (1)
SUMMARY BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
November 30, As of Febrauary 28, 1999
Pro
1994 1995 1996 1997 1998 Actual Forma (2)
---- ---- ---- ---- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $9,865 $10,142 $11,764 $10,975 $7,340 $7,310 $9,699
Long - Term Obligations -- 1,250 3,000 3,000 -- -- --
Stockholders' Equity 7,890 8,547 8,545 7,798 7,126 7,106 9,122
Net Book Value Per Common Share $12.52 $6.33 $6.33 $5.78 $5.27 $5.26 $6.76
SUMMARY INCOME STATEMENT DATA
(in thousands, except share and per share data)
<CAPTION>
Years Ended November 30,
1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ----
(Pro Forma) (3)
<S> <C> <C> <C> <C> <C> <C>
Revenues $7,415 $10,647 $12,713 $11,682 $10,304 --
Operating (Loss) Income 895 516 (372) (1,206) (914) (413)
Net (Loss) Income 533 442 (290) (1,034) (980) (353)
Cash Dividends -- -- -- -- -- --
Net (Loss) Income Per Common Share $1.15 $0.33 ($0.21) ($0.77) ($0.73) ($0.26)
Average Number of Common Shares
Outstanding 463,472 1,327,643 1,350,000 1,350,000 1,350,000 1,350,000
<CAPTION>
Three Months Ended
February 28,
1998 1999 1999
---- ---- ----
(unaudited) (Pro Forma)(3)
<S> <C> <C> <C>
Revenues $2,344 $1,748 --
Operating (Loss) Income (243) (180) (103)
Net (Loss) Income (181) (86) (103)
Cash Dividends -- -- --
Net (Loss) Income Per Common Share ($0.13) ($0.06) ($0.08)
Average Number of Common Shares
Outstanding 1,350,000 1,350,000 1,350,000
</TABLE>
(1) On March 3, 1999 the Company entered into an Asset Purchase Agreement to
sell substantially all of the Company's assets. Following the closing of
this transaction, the Company shall be restricted from engaging in its
normal course of business. As a result, the Company intends to commence a
new business.
(2) Gives effect to the sale of assets by the Company under the proposed
Asset Purchase Agreement.
(3) The Pro Forma Income Statement Data refects the discontinuance of
operations under the proposed Asset Purchase Agreement . The
non-recurring gain on the sale of assets of approximately $2,016, net of
taxes of $651 and an adjustment for interest income on the proceeds from
the sale are not reflected in the Pro Forma Income Statement Data.
-16-
<PAGE>
FUTUREBIOTICS, INC
NOTES TO PRO FORMA FINANCIAL STATEMENTS
PERIODS ENDED FEBRUARY 28, 1999 AND NOVEMBER 30, 1998
(in thousands)
(Unaudited)
The Unaudited Pro Forma Statements of Operations for the year ended
November 30, 1998 and the three months ended February 28, 1999 (the "Pro Forma
Statements of Operations") and the Unaudited Pro Forma Balance Sheet of the
Company as of February 28, 1999 (the "Pro Forma Balance Sheet" together with
the Pro Forma Statements of Operations, the "Pro Forma Financial Statements"),
have been prepared to illustrate the estimated effect of the sale of assets by
the Company to FB Acquisition Corp. under the proposed Asset Purchase
Agreement. The Pro Forma Balance Sheet gives effect as if the transaction was
consummated on February 28, 1999. The Pro Forma Statements of Operations give
effect to the transaction as if it occurred on December 1, 1997. The Pro Forma
Financial Statements do not purport to be indicative of the results of
operations or financial position of the Company that would have actually been
obtained had such transaction been completed as of the assumed dates and for
the period presented, or which may be obtained in the future. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Pro Forma Financial Statements should
be read in conjunction with the Company's annual report filed on Form 10-K for
the fiscal year ended November 30, 1998 and the Company's quarterly report
filed on Form 10-Q for the period ended February 28, 1999.
As consideration for the assets sold, FB Acquisition Corp has agreed
to pay in cash (i) $3,700 (ii) the value of purchased inventory up to a
maximum of $1,500 and (iii) the net book value of accounts receivable up to a
maximum of $725. The purchase price is subject to adjustment in the event that
the proceeds actually received from collecting the purchased accounts
receivable differs from the amount of purchased accounts receivable. The Pro
Forma Balance Sheet reflects a gain on the sale of assets of approximately
$2,016, net of taxes of $651.
Following the closing of this transaction, the Company shall be
restricted from engaging in its normal course of business. The Company is
making an effort to reduce inventory levels prior to the closing of this
transaction and does not expect to incur any significant inventory write-off.
It is anticipated that any inventory that FB Acquisition Corp does not acquire
will consist of unlabeled products which may be subsequently sold to mass
merchandisers by the Company.
The pro forma adjustments included in the Pro Forma Statements of
Operations reflect the discontinuance of operations. Certain expenses are
expected to have a continuing impact on the Company. These expenses include
amortization of costs related to certain supply and management agreements,
rent, utilities, and professional fees. The Company will earn interest on the
proceeds from the transaction during the period in which it is pursuing a
going concern or developing a new business. The Pro Forma Statements of
Operations do not include (i) a non-recurring gain on the sale of assets or
(ii) an adjustment for interest income on the proceeds from the sale.
-17-
<PAGE>
IF YOU HAVE ANY QUESTIONS REGARDING THIS INFORMATION STATEMENT,
PLEASE CONTACT:
Reginald Spinello
Futurebiotics, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
(516) 273-2630
By order of the Board of Directors
Futurebiotics, Inc.
------------------------------
Reginald Spinello
Chief Executive Officer and
President
-18-
<PAGE>
Exhibit A
Asset Purchase Agreement
19
<PAGE>
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND AMONG
FB ACQUISITION CORP., A DELAWARE CORPORATION,
NUTRACEUTICAL CORPORATION, A DELAWARE CORPORATION
FUTUREBIOTICS, INC., A DELAWARE CORPORATION
AND
PDK LABS, INC., A NEW YORK CORPORATION
DATED AS OF
MARCH 3, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS................................................................1
1.1 Definitions.............................................................1
ARTICLE 2
PURCHASE AND SALE OF ASSETS................................................3
2.1 Purchase and Sale of Assets.............................................3
2.2 Limited Assumption of Liabilities.......................................6
2.3 Closing.................................................................6
2.4 Purchase Price..........................................................7
2.5 Purchase Price Adjustment...............................................7
2.6 Disposition of Escrow Amount............................................8
ARTICLE 3
CONDITIONS TO CLOSING......................................................8
3.1 Conditions to Seller's Obligations......................................8
3.2 Conditions to Buyer's Obligation.......................................10
ARTICLE 4
COVENANTS PRIOR TO CLOSING................................................12
4.1 Affirmative Covenants of Seller........................................12
4.2 Negative Covenants.....................................................13
4.3 Stockholder Approval...................................................14
4.4 Financial Statement Deliveries.........................................14
4.5 Affirmative Covenants of Buyer.........................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER..................................15
5.1 Organization and Power; Capitalization; Subsidiaries and Investments...15
5.2 Authorization..........................................................15
5.3 No Breach..............................................................15
5.4 Financial Statements...................................................16
5.5 No Material Adverse Changes............................................17
5.6 Absence of Certain Developments........................................17
5.7 Title and Condition of Properties......................................18
5.8 Contracts and Commitments..............................................19
5.9 Proprietary Rights.....................................................19
5.10 Product Warranty......................................................20
5.11 Government Licenses and Permits.......................................21
5.12 Litigation; Proceedings...............................................21
5.13 Compliance with Laws; FDA Compliance..................................22
5.14 Environmental Matters.................................................23
5.15 Employees and Employee Benefits.......................................24
5.16 Insurance.............................................................25
i
<PAGE>
5.17 Tax Matters...........................................................25
5.18 Customers and Suppliers...............................................26
5.19 Brokerage.............................................................26
5.20 Affiliate Transactions................................................26
5.21 Exclusivity of Representations; Reliance on Representations...........26
5.22 Closing Date..........................................................26
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR.....................27
6.1 Organization and Power.................................................27
6.2 Authorization..........................................................27
No Violation...............................................................27
6.4 Litigation.............................................................28
6.5 Brokerage..............................................................28
6.6 Exclusivity of Representations; Reliance on Representations............28
6.7 Closing Date...........................................................28
6.8 No Material Adverse Change.............................................28
ARTICLE 7
TERMINATION...............................................................28
7.1 Termination............................................................28
7.2 Effect of Termination..................................................29
7.3 Waiver of Right to Terminate...........................................30
ARTICLE 8
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING............................30
8.1 Indemnification........................................................30
8.2 Mutual Assistance and Records..........................................33
8.3 Press Release and Announcements........................................33
8.4 Expenses...............................................................34
8.5 Specific Performance...................................................34
8.6 Arbitration Procedure..................................................34
8.7 Further Transfers......................................................35
8.8 Change of Name.........................................................35
8.9 Transition Assistance..................................................35
8.10 Non-Competition; Non-Solicitation.....................................35
8.11 Communications........................................................36
8.12 Best Efforts To Consummate Closing Transactions.......................36
8.13 Employees and Employee Benefits.......................................36
8.14 Confidentiality.......................................................37
8.15 Taxes; Recording Charges..............................................37
8.16 Collection of Purchased Receivables...................................38
ARTICLE 9
MISCELLANEOUS.............................................................38
9.1 Amendment and Waiver...................................................38
9.2 Notices................................................................38
9.3 Assignment.............................................................39
9.4 Severability...........................................................39
9.5 No Strict Construction.................................................39
9.6 Captions...............................................................39
ii
<PAGE>
9.7 No Third Party Beneficiaries...........................................39
9.8 Complete Agreement.....................................................40
9.9. Counterparts..........................................................40
9.10. Governing Law........................................................40
9.11. Consent to Jurisdiction..............................................40
9.12. Guaranty.............................................................40
9.13. Maintenance of Insurance.............................................40
9.14. Delivery of Schedules................................................40
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF PDK.....................................41
10.1 Organization and Power................................................41
10.2 Authorization.........................................................41
No Breach..................................................................41
10.4 Litigation............................................................42
10.5 Brokerage.............................................................42
10.6 Exclusivity of Representations; Reliance on Representations...........42
10.7 Closing Date..........................................................42
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of March 3, 1999, by and among (i) FB Acquisition Corp., a Delaware
corporation ("Buyer") and wholly-owned indirect subsidiary of Nutraceutical
International Corporation, (ii) solely for purposes of Section 9.12 hereof,
Nutraceutical Corporation, a Delaware corporation ("Guarantor") and wholly-owned
direct subsidiary of Nutraceutical International Corporation, (iii)
Futurebiotics, Inc., a Delaware corporation ("Seller") and (iv) PDK Labs, Inc.,
a New York corporation and the holder of not less than a majority of the
outstanding equity securities of the Seller ("PDK").
On the terms and subject to the conditions set forth in this Agreement,
Buyer desires to acquire from Seller, and Seller desires to sell to Buyer,
substantially all of the assets and properties of and relating to Seller's
business of developing, producing, packaging, marketing, selling and
distributing Nutritional Supplements, excluding Seller's private label business
(the "Business").
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" of any particular Person shall mean any other Person
controlling, controlled by or under common control with such Person.
"Affiliated Group" shall mean an affiliated group as defined in Section
1504 of the Code (or any analogous combined, consolidated or unitary group
defined under state, local or foreign income Tax law) of which Seller is or has
been a member.
"Business Day" means any day other than Saturday or Sunday or a public
holiday under the laws of the State of New York or any other day on which
banking institutions are authorized or obligated to close in the State of New
York as of the date of determination.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied, as promulgated by the relevant United States
accounting authorities.
<PAGE>
"Government Licenses" means all permits, licenses, franchises, orders,
registrations, certificates, variances, approvals and other authorizations
obtained from foreign, federal, state or local governments or governmental
agencies or other similar rights, and all data and records pertaining thereto.
"Knowledge" shall mean (i) in the case of an individual, to the best of
such Person's knowledge and (ii) in the case of any Person other than an
individual, to the best of such Person's actual knowledge after due inquiry of
all key employees, officers and directors of such Person.
"Liens" shall mean any mortgage, pledge, security interest, conditional
sale or other title retention agreement, encumbrance, lien, easement, option,
debt, charge, claim or restriction of any kind, excluding liens for taxes not
yet due and payable.
"Nutritional Supplements" means vitamins, minerals, herbs and other
nutritional supplements, including, without limitation, products within the
categories of sports nutrition, aroma-therapy, personal care, liquid herbs,
flower essence, essential oils and other products typically found in health food
stores, but excluding OTC products.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated association, corporation, limited liability
company, entity or governmental entity (whether federal, state, county, city or
otherwise and including, without limitation, any instrumentality, division,
agency or department thereof).
"Proprietary Rights" means all of the following owned by, issued to, or
licensed to Seller, or used in the Business, along with all associated income,
royalties, damages and payments due from or payable by any third party
(including, without limitation, damages and payments for past, present, or
future infringements or misappropriations thereof), all other associated rights
(including, without limitation, the right to sue and recover for past, present,
or future infringements or misappropriations thereof), and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world: (i) trademarks, service marks, trade dress, logos, slogans, trade names
and corporate names (including, without limitation, the name "Futurebiotics" and
any derivation of the foregoing) and all registrations and applications for
registration thereof, together with all goodwill associated therewith; (ii)
copyrights and works of authorship, and all registrations and applications for
registration thereof; (iii) computer software (including, without limitation,
data, data bases and related documentation); (iv) trade secrets, confidential
information, and proprietary data and information (including, without
limitation, compilations of data (whether or not copyrighted or copyrightable),
ideas, formulae, compositions, blends, processes, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, improvements, proposals, technical
data, financial and accounting data, business and marketing plans, and customer
and supplier lists and related information); (v) all other intellectual property
rights; and (vi) all copies and tangible embodiments of the foregoing, if any
(in whatever form or medium), including, without limitation, in the case of each
of the foregoing items (i) through (v), the items set forth on the "Proprietary
Rights Schedule" attached hereto.
2
<PAGE>
"Purchased Inventory" is defined in Section 2.1(a)(xiii) hereof.
"Purchased Receivables" is defined in Section 2.1(a)(xii) hereof.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (irrespective
of whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a partnership, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof.
"Tax" shall mean any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, real property gains, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect of the foregoing;
the foregoing shall include any transferee or secondary liability for a Tax and
any liability assumed by agreement or arising as a result of being (or ceasing
to be) a member of any Affiliated Group or being included (or required to be
included) in any Tax Return relating thereto.
"Tax Return" shall mean any return, declaration, report, claim for
refund, information return or other document (including any related or
supporting schedule, statement or information) filed or required to be filed in
connection with the determination, assessment or collection of any Tax of any
party or the administration of any laws, regulations or administrative
requirements relating to any Tax.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets.
(a) Purchased Assets. On the terms and subject to the conditions
contained in this Agreement, on the Closing Date, Buyer shall purchase from
Seller, and Seller shall sell, convey, assign, transfer and deliver to Buyer by
appropriate instruments reasonably satisfactory to Buyer and its counsel, free
and clear of all Liens, all of the following assets, properties, rights, titles
and interests of every kind and nature owned, licensed or leased by Seller or
3
<PAGE>
otherwise used in the Business (collectively, the "Purchased Assets"), but
excluding all Excluded Assets:
(i) all prepayments and prepaid expenses listed on the Purchased
Assets Schedule;
(ii) all machinery, equipment, tools, dies, jigs, molds, patterns,
furniture, spare parts and supplies, computers and all related equipment,
telephones and all related equipment and all other tangible personal
property listed on the Purchased Assets Schedule;
(iii) all rights existing under all purchase orders to purchase or
sell goods or products, including, without limitation, any such purchase
order listed on the "Contracts Schedule" and under each other contract
listed on the Contracts Schedule and specifically identified as a contract
to be assigned to Buyer (collectively, the "Assigned Contracts");
(iv) all distribution systems and networks including, without
limitation, the right, from and after the Closing Date, to contact and do
business with any distributor, broker or sales representative that
distributes Seller's products (excluding any rights or obligations under
any Distribution Contracts (as defined in Section 2.1(b)(ix) below)) and
all rights (but not the obligation) to hire Seller's employees;
(v) all lists and records pertaining to customer accounts (whether
past or current), suppliers, distributors, personnel and agents and all
other books, ledgers, files, documents, correspondence and business
records;
(vi) all claims, deposits, prepayments, warranties, guarantees,
refunds, causes of action, rights of recovery, rights of set-off and rights
of recoupment listed on the Purchased Assets Schedule, other than those
relating exclusively to Excluded Assets or Excluded Liabilities;
(vii) all Proprietary Rights, including, without limitation, those
listed on the Proprietary Rights Schedule;
(viii) all Government Licenses, including, without limitation, any
foreign product registrations and those Government Licenses listed on the
attached "Licenses Schedule," but excluding any such Government Licenses
which are by their terms not transferable;
(ix) all insurance, warranty and condemnation proceeds received after
the date hereof with respect to damage, non-conformance of or loss to the
Purchased Assets;
(x) all rights to receive mail and other communications addressed to
Seller;
(xi) except as provided in Section 2.1(b)(v) below, all books,
records, ledgers, files, documents, correspondence, lists, studies and
reports and other printed or written materials;
4
<PAGE>
(xii) all trade accounts receivable as of the Closing Date (but
excluding any private label accounts receivable), such accounts receivable
to be set forth on a schedule to be jointly prepared by Seller and Buyer as
of the Closing (the "Purchased Receivables"); and
(xiii) a number of units of each item of individual finished goods
inventory set forth on the "Estimated Purchased Inventory Schedule"
attached hereto as of the Closing Date which is (A) no greater than 110% of
the "Estimated Purchase Units" set forth on the "Estimated Purchased
Inventory Schedule" attached hereto and (B) not less than one month's
supply of each such product (as denoted in the column labeled "Minimum
Purchase Units" in the "Estimated Purchased Inventory Schedule"),
determined at PDK's unit costs for such inventory (which unit costs are set
forth on the "Estimated Purchased Inventory Schedule"); provided that the
definitive quantities of such inventory shall be set forth on a schedule to
be jointly prepared by Buyer and Seller as of the Closing and provided
further, that in no event shall Buyer be obligated to purchase in excess of
$1.5 million of inventory pursuant to this Agreement (the "Purchased
Inventory").
(b) Excluded Assets. Notwithstanding the foregoing, the following
assets are expressly excluded from the purchase and sale contemplated hereby
(the "Excluded Assets") and, as such, are not included in the Purchased Assets:
(i) all cash, cash equivalents and securities;
(ii) all prepaid or deferred Taxes or any other Tax assets;
(iii) all interests in real estate or any leased real property;
(iv) Seller's rights under or pursuant to this Agreement and the other
agreements contemplated hereby;
(v) Seller's general ledger, accounting records, Tax Returns, stock
and minute books and corporate seal; provided that Buyer shall be given
copies of the general ledger, Tax Returns and accounting records as such
documents exist as of the Closing Date;
(vi) any right to receive mail and other communications addressed to
Seller relating exclusively to the Excluded Assets or the Excluded
Liabilities;
(vii) except as provided in Section 2.1(a)(xii), all accounts or notes
receivable;
(viii) except as provided in Section 2.1(a)(xiii), all inventories;
(ix) except for the Assigned Contracts, all contracts, agreements and
arrangements of Seller, including, without limitation, any contract,
agreement or arrangement related to the distribution of Seller's products
or services ("Distribution Contracts"); and
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(x) all assets expressly listed on the "Excluded Assets Schedule"
hereto.
2.2 imited Assumption of Liabilities.
(a) Limited Assumed Liabilities. Except for any Assigned Contract which
is terminated by the other party thereto due to an improper assignment by
Seller, from and after the Closing, Buyer will assume and agree to pay, defend,
discharge and perform as and when due all liabilities and obligations of the
Seller under the Assigned Contracts first arising after the Closing Date, to the
extent they relate to the Business (the "Assumed Liabilities").
(b) Excluded Liabilities. Notwithstanding anything to the contrary
contained in this Agreement and regardless of whether such liability is
disclosed herein or on any schedule or exhibit hereto, Buyer will not assume or
be liable for any liabilities or obligations of Seller (i) not described in
Section 2.2(a) hereof or (ii) arising out of or related to any (A) accounts
payable or accrued expenses or any other obligation required to be recorded on a
balance sheet of Seller prepared in accordance with GAAP, (B) Taxes, (C)
indebtedness for borrowed money or deferred purchase price for property
(including, without limitation, pursuant to any capital lease), (D) any amounts
due to Affiliates, (E) any Excluded Asset or (F) breach of contract, breach of
warranty, tort, infringement, violation of law or environmental matter (in each
case, whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) (collectively, the "Excluded Liabilities").
(c) Distribution Contracts. With respect to each Distribution Contract
(each of which is to be retained by Seller and as a result thereof, no
liabilities or obligations with respect thereto shall be assumed by Buyer), as
soon as reasonably practicable after the Closing (but in no event later than 10
Business Days thereafter), the parties shall jointly prepare and deliver
mutually acceptable notices to the third party distributors, brokers and sales
representatives party to such Distribution Contracts notifying such third
parties that (i) the transactions contemplated by this Agreement have been
consummated and, as a result thereof, Seller will no longer be conducting
business pursuant to such Distribution Contracts and (ii) that Buyer may desire
to enter into new contractual arrangements with such third parties at a future
date and, in the meantime, Buyer desires to conduct business with such third
parties on a purchase order basis.
2.3 Closing. Subject to the conditions contained in this Agreement, the
closing of the transactions contemplated by Sections 2.1 and 2.2 hereof (the
"Closing") will occur at the offices of Berlack, Israels & Liberman LLP, 120
West 45th Street, New York, New York, 10036, at 10 a.m. on a Business Day
designated by Buyer which is within five Business Days following the date as of
which the conditions to each party's obligations (as set forth in Article 3
hereof) have been satisfied or at such other time and on such other date as the
parties hereto mutually agree (the "Closing Date"). The Closing shall be
effective as of the opening of business on the Closing Date.
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2.4 Purchase Price.
(a) Subject to adjustment in accordance with Section 2.5 below and the
other terms and conditions contained in this Agreement, the total purchase price
(the "Purchase Price") to be paid by the Buyer to the Seller for the Purchased
Assets shall be (i) $3,700,000, (ii) an amount equal to the aggregate amount of
the Purchased Inventory, as determined pursuant to Section 2.1(a)(xiii) (the
"Inventory Portion") and (iii) an amount equal to the aggregate net book value,
determined in accordance with GAAP, of the trade accounts receivable transferred
from Seller to Buyer pursuant to Section 2.1(a)(xii) hereof which are aged 90
days or less as of the Closing Date, provided that in no event will the amount
to be paid at the Closing pursuant to this clause 2.4(a)(iii) exceed $725,000 in
the aggregate (the "Receivables Portion").
(b) The Purchase Price shall be delivered at the Closing by Buyer
hereunder for the Purchased Assets as follows: (i) $3,450,000 (the "Cash
Portion") by wire transfer of immediately available funds to the Seller, to an
account designated by Seller, (ii) $250,000 (the "Escrow Amount") by wire
transfer of immediately available funds to the Escrow Agent pursuant to the
terms and conditions of the escrow agreement (in a form to be mutually agreed to
by Buyer, Seller and the Escrow Agent (the "Escrow Agreement")) to be entered
into as of the Closing by and among Buyer, Seller and Bankers Trust Company, as
escrow agent (the "Escrow Agent"), (ii) the Inventory Portion by wire transfer
of immediately available funds to the Seller, to an account designated by Seller
and (iii) the Receivables Portion by wire transfer of immediately available
funds to the Seller, to an account designated by Seller. At the Closing, Buyer
shall also assume the Assumed Liabilities, by executing and delivering an
Assignment and Assumption Agreement in a form mutually agreeable to Buyer and
Seller.
In addition to any other rights and remedies available to Buyer and without
limiting Buyer's ability to recover for any claims made pursuant to this
Agreement, the Escrow Amount will be available to satisfy any amounts owed by
Seller to Buyer pursuant to this Agreement and the Escrow Amount shall be held
and disbursed in accordance with Section 2.6 hereof.
2.5 Purchase Price Adjustment.
(a) As soon as reasonably practicable following the 120th day after the
Closing Date (the "Collection Date") (but in no event later than ten (10) days
thereafter), Buyer shall prepare and deliver to Seller a written notice (the
"Adjustment Notice") reporting the aggregate amount of cash collections received
by Buyer on account of the Purchased Receivables, as determined in accordance
with GAAP (the "Receivables Proceeds"). The Adjustment Notice shall also specify
accounts and amounts uncollected which comprised Purchased Receivables. Buyer
shall make available to Seller all work papers, purchase orders, invoices and
related data used in connection with the preparation of the Adjustment Notice.
(b) If the amount of the Receivables Proceeds is less than the
Receivables Portion, Seller shall pay Buyer an amount equal to such shortfall.
Any amounts payable pursuant to this Section 2.5(b) shall be paid, in
immediately available funds, within five Business Days after the amount of such
shortfall, if any, is finally determined pursuant to this Section 2.5, plus
interest at the rate of 8.50% per annum from the Closing Date to the date of
such payment.
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(c) If the amount of the Receivables Proceeds is greater than the
Receivables Portion, Buyer shall pay Seller an amount equal to such excess. Any
amount payable pursuant to this Section 2.5(c) shall be paid, in immediately
available funds, within five Business Days after the amount of such excess, if
any, is finally determined pursuant to this Section 2.5(c).
(d) If Seller has any good faith objections to Buyer's calculation set
forth in the Adjustment Notice, Seller must deliver to Buyer, within 30 days
after delivery of the Adjustment Notice, a detailed statement describing such
objections thereto ("Seller's Statement") or Buyer's calculation of the price
adjustment set forth in the Adjustment Notice will be final, binding and
non-appealable upon each of the parties hereto. Buyer and Seller shall negotiate
in good faith to resolve any such objections, but if they do not reach a final
resolution with 15 days after delivery of Seller's Statement to Buyer, the
parties shall submit such dispute to a mutually agreeable independent nationally
recognized public accounting firm located in New York, New York for resolution
(the "Independent Auditor"), whose costs shall be shared equally by Buyer and
Seller.
(e) The parties shall instruct the Independent Auditor to resolve all
disagreements over the calculation of the price adjustment set forth in the
Adjustment Notice no later than 15 days after submission of the disputes to the
Independent Auditor, whose determination thereof shall be final, binding and
non-appealable upon the parties hereto.
(f) Each party shall afford to the other, and cause its officers,
employees, agents and representatives (including, without limitation, its
independent accountants) to afford, reasonable access to the personnel
(including, without limitation, independent accountants), and financial,
accounting and other data and information (including, without limitation,
workpapers of its independent accountants, whether prepared in contemplation of
this Section 2.5 or otherwise), to the extent relating to the calculation of the
purchase price adjustment as reasonably requested by any party or its
representatives or agents for purposes of evaluating compliance with the terms
and conditions of this Agreement.
2.6 Disposition of Escrow Amount.
The Escrow Amount shall be held and disbursed in accordance with the
terms and conditions of the Escrow Agreement.
ARTICLE 3
CONDITIONS TO CLOSING
3.1 Conditions to Seller's Obligations. Except as otherwise expressly
provided herein, the obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 6 hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date were substituted for the date of
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this Agreement or, in the case of any representations and warranties made as of
a specified date earlier than the Closing Date, on and as of such earlier date
(in either case, without taking into account any disclosures made by Buyer to
Seller pursuant to Section 6.7 hereof);
(b) Buyer will have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
(c) all necessary filings with regulatory authorities will have been
made and all waiting periods will have expired;
(d) Buyer shall have executed and delivered a Transition Services
Agreement with PDK in form and substance to be mutually agreed to by Buyer and
PDK prior to the Closing (the "Transition Services Agreement");
(e) no action or proceeding before any court or government body will be
pending or threatened which, in the reasonable judgment of Seller, makes it
inadvisable or undesirable to consummate the transactions contemplated by this
Agreement by reason of the probability that the action or proceeding will result
in a judgment, decree or order that would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare unlawful the
transactions contemplated hereby or cause such transactions to be rescinded;
(f) Seller's stockholders shall have approved this Agreement and the
transactions contemplated hereby in accordance with the Delaware General
Corporation Law and any requirement of any securities exchange on which Seller's
securities are listed, it being acknowledged and agreed that nothing contained
in this Section 3.1(f) shall limit or impair any obligation of Seller or PDK
pursuant to Section 4.3 hereof;
(g) on the Closing Date, Buyer shall have delivered to Seller each of
the following:
(i) a certificate from an officer of each of Buyer and Nutraceutical
in a form to be mutually agreed to by Buyer and Seller prior to the
Closing, dated the Closing Date, stating that the preconditions specified
in subsections (a) through (d) hereof, inclusive, have been satisfied
(taking into account any disclosures made by Buyer to Seller pursuant to
Section 4.5(b) or Section 6.7 hereof);
(ii) certified copies of the resolutions duly adopted by Buyer's and
Nutraceutical's board of directors authorizing the execution, delivery and
performance of this Agreement and the other agreements contemplated hereby,
and the consummation of all transactions contemplated hereby and thereby;
(iii) copies of all necessary governmental and third party consents,
approvals, releases and filings required in order to effect the
transactions contemplated by this Agreement and the other agreements
contemplated hereby;
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(iv) a copy of the Assignment and Assumption Agreement, duly executed
by Buyer, and such other instruments, in form and substance reasonably
satisfactory to counsel for Seller, as are required in order to evidence
the assumption by Buyer of the Assumed Liabilities;
(v) such other documents or instruments as Seller reasonably requests
to effect the transactions contemplated hereby;
(h) Seller will have received from Buyer's counsel, Kirkland & Ellis, a
legal opinion, addressed to Seller and dated as of the Closing Date, in a form
to be agreed to by counsel for Buyer and Seller;
(i) all proceedings to be taken by Buyer in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, instruments and other documents required to effect the
transactions contemplated hereby reasonably requested by Seller will be
reasonably satisfactory in form and substance to Seller and its counsel.
Any condition specified in this Section 3.1 may be waived by Seller;
provided, that no such waiver will be effective against Seller unless it is set
forth in a writing executed by Seller.
3.2 Conditions to Buyer's Obligation. Except as otherwise expressly
provided in this Agreement, the obligation of Buyer to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 5 and
Article 10 hereof will be true and correct in all respects at and as of the
Closing as though then made and as though the Closing Date were substituted for
the date of this Agreement or, in the case of any representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date (in either case, without taking into account any disclosures made
by Seller or PDK to Buyer pursuant to Section 4.1(e), Section 5.22 or Section
10.7 hereof), except where the failure of such representations and warranties to
be true and correct could not reasonably be expected to have a Material Adverse
Effect (as defined in Section 4.2(a)(ii)), it being agreed that for purposes of
determining such "Material Adverse Effect" for purposes of this Section 3.2(a),
all references to "materiality", "Material Adverse Effect" and words of similar
import contained in the representations and warranties of Seller and PDK shall
be disregarded;
(b) Seller and PDK will have performed in all material respects all of
the covenants and agreements required to be performed by them under this
Agreement prior to the Closing;
(c) all consents and approvals by governmental agencies and other third
parties that are set forth on the attached "Required Consents Schedule" and
releases of all Liens on the Purchased Assets will have been obtained on terms
and conditions reasonably satisfactory to Buyer;
(d) all necessary filings with regulatory authorities will have been
made and all waiting periods will have expired;
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(e) all Government Licenses that are required to own and operate the
Purchased Assets and to carry on the Business as now conducted will have been
transferred to or obtained by (or, if not required at Closing, applied for by)
Buyer on terms and conditions no less favorable to Buyer than they are to
Seller;
(f) PDK shall have executed and delivered a Transition Services
Agreement with Buyer in form and substance to be mutually agreed to by Buyer and
PDK prior to the Closing;
(g) Seller shall have delivered to Buyer, copies of all assignments and
other instruments of transfer and conveyance as Buyer may reasonably request, in
form and substance reasonably acceptable to Buyer, which are effective to vest
in Buyer all right, title and interest in and to all Proprietary Rights
(including any Proprietary Rights licensed from a third party) and, prior to
such conveyance to Buyer, Seller's title to all such Proprietary Rights shall
have been recorded or updated with the appropriate government office or entity,
including, but not limited to, the United States Patent and Trademark Office and
the United States Copyright Office;
(h) no action or proceeding before any court or government body will be
pending or threatened which, in the reasonable judgment of Buyer, makes it
inadvisable or undesirable to consummate the transactions contemplated by this
Agreement by reason of the probability that the action or proceeding will result
in a judgment, decree or order that would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare unlawful the
transactions contemplated hereby or cause such transactions to be rescinded;
(i) on the Closing Date, Seller and the PDK, as applicable, shall have
delivered to Buyer each of the following:
(i) a certificate from an officer of Seller in a form to be agreed to
by Buyer and Seller prior to the Closing, dated the Closing Date, stating
that the preconditions specified in subsections (a) through (g) hereof,
inclusive, have been satisfied (taking into account any disclosures made by
Seller or PDK to Buyer pursuant to Section 4.1(e), Section 5.22 or Section
10.7 hereof);
(ii) certified copies of the resolutions duly adopted by Seller's
board of directors and shareholders and PDK's board of directors
authorizing the execution, delivery and performance of this Agreement and
the other agreements contemplated hereby, and the consummation of all
transactions contemplated hereby and thereby;
(iii) copies of all necessary governmental and third party consents,
approvals, releases and filings required in order to effect the
transactions contemplated by this Agreement and the other agreements
contemplated hereby;
(iv) a copy of the Bill of Sale, in the form to be agreed to by Buyer
and Seller prior to the Closing, and such other instruments of sale,
transfer, assignment, conveyance and delivery, in form and substance
reasonably satisfactory to counsel for Buyer, as are required in order to
transfer to Buyer good and marketable title to the Purchased Assets, free
and clear of all Liens;
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(v) such other documents or instruments as Buyer reasonably requests
to effect the transactions contemplated hereby;
(j) Buyer will have received from the Seller's counsel, Berlack,
Israels & Liberman, LLP, a legal opinion, addressed to Buyer and dated as of the
Closing Date, in a form to be agreed to by counsel for Buyer and Seller prior to
the Closing Date; and
(k) All proceedings to be taken by Seller in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, instruments and other documents required to effect the
transactions contemplated hereby reasonably requested by Buyer will be
reasonably satisfactory in form and substance to Buyer and its counsel.
Any condition specified in this Section 3.2 may be waived by Buyer; provided
that no such waiver will be effective unless it is set forth in a writing
executed by Buyer.
ARTICLE 4
COVENANTS PRIOR TO CLOSING
4.1 Affirmative Covenants of Seller. Between the date hereof and the
Closing Date, except as otherwise expressly provided herein, Seller will:
(a) conduct the Business, including, without limitation, the cash
management customs and practices of the Business (including the collection of
receivables and payment of payables) only in the usual and ordinary course of
business in accordance with past custom and practice;
(b) use best efforts to preserve the present business relationships
with all material customers, suppliers and distributors of the Business, to the
extent such relationships are beneficial to the Business and promote the smooth
transition of such customers, suppliers and distributors from Seller to Buyer;
(c) permit Buyer and its employees, agents, potential lenders,
investors, environmental consultants and accounting and legal representatives to
have access, upon reasonable notice, to its books, records, invoices, contracts,
leases, key personnel, independent accountants, legal counsel, property,
facilities, equipment and other things reasonably related to the Business or the
Purchased Assets, including, without limitation, key distributors and/or vendors
selected by Buyer and Seller for such purposes, it being understood and agreed
that Seller's covenants contained in this Section 4.1(a) shall not act as a
waiver to any attorney-client privilege;
(d) use best efforts to cause all conditions to Buyer's obligation to
close to be satisfied; and
(e) promptly inform Buyer in writing of any variances from the
representations and warranties contained in Article 5 hereof.
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4.2 Negative Covenants.
(a) Between the date hereof and the Closing Date, except as otherwise
provided herein, Seller will not:
(i) except as disclosed on the attached "Developments Schedule" or
permitted under Section 4.2(a)(iii) below, take any action that would require
disclosure under Section 5.6 hereof;
(ii) take any action or omit to take any action (the omission of which)
that has had or will have a material and adverse effect upon the business,
financial condition or operating results of Seller taken as a whole (a "Material
Adverse Effect");
(iii) without the prior written consent of Buyer, (A) enter into any
contract (1) out of the ordinary course of business (it being agreed and
understood that nothing in this clause 4.2(a)(iii)(1) shall limit or otherwise
impair Seller's ability to take any action with respect to any of its real
estate) or (2) restricting in any way the conduct of the Business, (B) make any
loans, (C) increase any officer's or employee's compensation, incentive
arrangements or other benefits, except for increases made in the ordinary course
of business consistent with past custom and practice; or
(iv) enter into any transaction, arrangement or contract (including,
without limitation, any transfer of any of the Purchased Assets or placing a
Lien on any of the Purchased Assets) except on an arm's-length basis in the
ordinary course of business consistent with past custom and practice.
(b) Neither Seller nor PDK, nor any officer, director, employee,
stockholder, agent, representative or affiliate thereof shall (i) until the
earlier of the Closing Date or the date this Agreement is terminated pursuant to
Section 7.1 hereof, discuss or pursue a possible sale, recapitalization or other
disposition of Seller, any securities or substantial portion of the assets of
Seller, or the Business or any portion thereof with any other party or provide
any information to any other party in connection therewith or (ii) disclose to
any other party the terms of this Agreement (except as may be required by law or
the requirement of any securities exchange on which any party's securities are
traded). Neither Seller nor PDK nor any of their respective affiliates shall, by
pursuing the transactions contemplated hereby, violate the terms of any other
agreement or obligation to which any of them is subject, and each of Seller and
PDK shall inform Buyer of and provide Buyer with information regarding any other
offers or expressions of interest for Seller, any securities or substantial
portion of the assets of Seller, or the Business or any portion thereof.
Notwithstanding the foregoing, at any time prior to obtaining the stockholder
approval required in Section 4.3 hereof, Seller may participate in discussions
or negotiations with any third party with respect to any Acquisition Proposal if
Seller's board of directors determines in good faith, after consultation with
counsel, that the failure to participate in such discussions or negotiations may
constitute a breach of its fiduciary duties under applicable law. For purposes
of this Agreement, an "Acquisition Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or
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readily marketable securities, more than 50% of the combined voting power of the
shares of Seller's common stock then outstanding or all or substantially all of
the assets of Seller.
4.3 Stockholder Approval. Seller shall, as soon as
reasonably practicable, (i) obtain the necessary stockholder consents or (ii)
shall cause a meeting of its stockholders to be duly called and held for the
purpose of obtaining the approval of Seller's stockholders to this Agreement and
the transactions contemplated hereby. The board of directors of Seller will (i)
unanimously recommend approval of this Agreement and the transactions
contemplated hereby and (ii) use its best efforts to obtain the approval of
Seller's stockholders to this Agreement and the transactions contemplated
hereby. PDK covenants and agrees to approve this Agreement and the transactions
contemplated hereby at any stockholder's meeting called to consider such matters
(or to execute any stockholder consents in lieu of such meeting) and further
agrees that such approval shall not be rescinded or otherwise revoked.
4.4 Financial Statement Deliveries. Seller shall furnish or shall cause
its independent accountants to furnish to Buyer, no later than 45 days after the
Closing Date, (i) audited financial statements for Seller for the year ended
11/30/98, prepared in accordance with GAAP and in a form meeting the
requirements of Regulation S-X of the Securities Act of 1933, as amended and
(ii) unaudited financial statements for Seller for following interim periods:
(A) 12/1/97 through 2/28/98, (B) 3/1/98 through 5/31/98, (C) 6/1/98 through
8/31/98 and (D) 9/1/98 through 11/30/98, prepared in accordance with GAAP and in
a form meeting the requirements of Item 301 of Regulation S-K of the Securities
Act of 1933, as amended. In addition, Seller shall, and shall cause its
independent accountants to, cooperate in Buyer's efforts to prepare unaudited
financial statements for the Seller for the stub period from 12/1/98 through and
including the Closing Date. Seller acknowledges and agrees that time is of the
essence in the performance of the provisions of this Section 4.4.
4.5 Affirmative Covenants of Buyer. Between the date hereof and the
Closing Date, except as otherwise expressly provided herein, Buyer will:
(a) use best efforts to cause all conditions to Seller's obligation to
close to be satisfied;
(b) promptly inform Seller in writing of any variances from the
representations and warranties contained in Article 6 hereof;
(c) continue to abide, and shall cause its Affiliates to continue to
abide, with the terms and conditions of the confidentiality agreement previously
entered into between Seller and Nutraceutical International Corporation; and
(d) upon Seller's reasonable request, promptly make available to
Seller, all non-confidential information with respect to Buyer, Nutraceutical
International Corporation or any of its Subsidiaries as may be reasonably
requested by Seller in order to assist Seller in preparing any information
statement or other disclosure document to be disseminated to Seller's
stockholders
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to obtain any stockholder approvals necessary in connection with the
transactions contemplated by this Agreement or the transactions contemplated
hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement, Seller hereby
represents and warrants to Buyer that:
5.1 Organization and Power; Capitalization; Subsidiaries and
Investments. Seller is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. Seller is qualified to do
business as a foreign corporation and is in good standing in the state of New
York, which is the only jurisdiction in which the ownership of its properties or
the conduct of its business requires Seller to be so qualified. Seller has all
requisite corporate power and authority and all licenses, permits and
authorizations necessary to own and operate the Purchased Assets and to carry on
the Business as now conducted and as presently proposed to be conducted. Seller
has all requisite power and authority to execute and deliver this Agreement and
the other agreements contemplated hereby and to perform its obligations
hereunder and thereunder. The attached "Capitalization Schedule" accurately sets
forth the authorized and outstanding capital stock of Seller and the number of
shares of such capital stock held by PDK. Seller does not own or control
(directly or indirectly) any stock, partnership interest, joint venture
interest, equity participation or other security or interest in any other
Person. The certificate of incorporation and bylaws of Seller that have
previously been furnished to Buyer reflect all amendments thereto and are
correct and complete.
5.2 Authorization. The execution, delivery and performance by Seller of
this Agreement, the other agreements contemplated hereby and each of the
transactions contemplated hereby or thereby have been duly and validly
authorized by Seller and no other corporate act or proceeding on the part of
Seller, its board of directors or stockholders is necessary to authorize the
execution, delivery or performance by Seller of this Agreement or any other
agreement contemplated hereby or the consummation of any of the transactions
contemplated hereby or thereby, except for the approval of the stockholders of
Seller of this Agreement and the transactions contemplated hereby as required by
the Delaware General Corporation Law. This Agreement has been duly executed and
delivered by Seller, and this Agreement constitutes, and the other agreements
contemplated hereby to which Seller is a party, upon execution and delivery by
Seller, will each constitute, a valid and binding obligation of Seller,
enforceable against Seller in accordance with their terms, except to the extent
enforcement thereof may be limited by applicable bankruptcy or insolvency laws
or general equitable principles.
5.3 No Breach. Except as set forth on the attached "Restrictions
Schedule," the execution, delivery and performance by Seller of this Agreement
and the other agreements contemplated hereby and the consummation of each of the
transactions contemplated hereby or thereby do not and will not (a) violate,
conflict with, result in any breach of, constitute a default under, result in
the termination or acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under Seller's certificate of
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incorporation or bylaws, or any contract, agreement, arrangement, license,
sublicense, franchise, permit, indenture, mortgage, obligation or instrument to
which Seller is a party or by which Seller is bound or affected or to which any
of the Purchased Assets is bound or affected, (b) result in the creation or
imposition of any Lien upon any of the Purchased Assets, (c) require any
authorization, consent, approval, exemption or other action by or notice to any
court, other governmental body or other Person or entity under, the provisions
of any law, statute, rule, regulation, judgment, order or decree or any
contract, agreement, arrangement, license, sublicense, franchise, permit,
indenture, mortgage, obligation or instrument to which Seller is subject, or by
which Seller is bound or affected or to which the Purchased Assets are bound or
affected or (d) violate or require any consent or notice under any law, statute,
regulation, rule, judgment, decree, order, stipulation, injunction, charge or
other restriction of any government, governmental agency or court to which
Seller or any of the Purchased Assets is subject, or by which Seller or the
Purchased Assets is bound or affected. Except as set forth on the attached
"Restrictions Schedule," no permit, consent, approval or authorization of,
declaration to or filing with, or notice to, any governmental authority or any
third party is required in connection with the execution, delivery or
performance by Seller of this Agreement or the other agreements contemplated
hereby, or the consummation by Seller of the transactions contemplated hereby or
thereby.
5.4 Financial Statements.
(a) The attached "Financial Statements Schedule" contains the following
financial statements (the "Financial Statements"):
(i) the audited balance sheets of Seller as of November 30, 1997 (the
"1997 Balance Sheet") and November 30, 1996, and the related statements of
operations, stockholders' equity and cash flows for the three years ended
November 30, 1997;
(ii) the unaudited balance sheet of Seller as of August 31, 1998 (the
"Latest Balance Sheet") and the related statements of operations,
stockholders' equity and cash flows for the nine-month period then ended;
and
(iii) the audited balance sheet of Seller as of November 30, 1998, and
the related statements of operations, stockholders' equity and cash flows
for the year then ended.
Each of the foregoing Financial Statements presents fairly the financial
condition, results of operations and cash flows of Seller in accordance with
GAAP throughout the periods covered thereby.
(b) All Purchased Receivables will be (A) valid obligations incurred in
the ordinary course of business, (B) properly reflected in Seller's books and
records in accordance with GAAP and (C) free of any counterclaim, or a claim for
a charge back, deduction, credit, set-off or other offset, other than as
reflected in the allowance for doubtful accounts therefor. As of the Closing
Date, no Person will have any Lien on any Purchased Receivable or any part
thereof, and no agreement for deduction, free goods or services, discount or
other deferred price or quantity adjustment will have been made by Seller with
respect to any Purchased
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Receivable other than in the ordinary course of business and as reflected in the
allowance for doubtful accounts therefor.
(c) All Purchased Inventory will (A) represent a bona fide asset, (B)
be properly reflected in Seller's books and records in accordance with GAAP at
PDK's cost and (C) be free of any counterclaim, or a claim for a charge back,
deduction, credit, set-off or other offset, other than as reflected by
appropriate inventory reserves. All Purchased Inventory conforms to the
warranties described in Section 5.10.
5.5 No Material Adverse Changes. Except as set forth on the attached
"Developments Schedule," since August 31, 1998, there has been no Material
Adverse Effect.
5.6 Absence of Certain Developments.
(a) Except as set forth in the attached "Developments Schedule," since
August 31, 1998, Seller has conducted the Business only in the ordinary course
of business consistent with past custom and practice (including, without
limitation, with respect to the offering of special sales or incentive programs
or the filling of its distribution channels), has incurred no liabilities other
than in the ordinary course of business consistent with past custom and
practice, and Seller has not:
(i) sold, assigned or transferred any of its assets, except for sales
of inventory in the ordinary course of business consistent with past custom
and practice, or mortgaged, pledged or subjected them to any material Lien,
except for Liens for current property Taxes not yet due and payable, or
canceled without fair consideration any material debts or claims owing to
or held by it;
(ii) sold, assigned, transferred, abandoned or permitted to lapse any
Government Licenses which, individually or in the aggregate, are material
to the Business or any portion thereof, or any of the Proprietary Rights or
other intangible assets, or disclosed any material proprietary confidential
information to any Person, except in the ordinary course of business
consistent with past custom and practice, or granted any license or
sublicense of any rights under or with respect to any Proprietary Rights;
(iii) conducted its cash management customs and practices (including,
without limitation, the collection of receivables, payment of payables and
maintenance of inventory control and pricing and credit practices
(including, without limitation, extension of credit terms or sales discount
programs)) other than in the usual and ordinary course of business
consistent with past custom and practice;
(iv) made any loans or advances to, or guarantees for the benefit of,
or entered into any transaction with PDK or any of its other stockholders
or any employee, officer or director of Seller or PDK, except for the
transactions contemplated by this Agreement and for advances consistent
with past custom and practice made to Seller's employees, officers and
directors for travel expenses incurred in the ordinary course of business
or entered into any transaction, arrangement or contract (including,
without
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limitation, any transfer of any assets of placing a Lien on any assets)
except on an arms-length basis in the ordinary course of business
consistent with past custom and practice;
(v) suffered any extraordinary loss, damage, destruction or casualty
loss or waived any rights of material value, whether or not covered by
insurance and whether or not in the ordinary course of business or
consistent with past custom and practice;
(vi) received notification, or become aware of facts which would lead
a reasonable person to believe, that any material customer or supplier will
stop or decrease in any material respect the rate of business done with the
Business;
(vii) become subject to any material liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
under contracts entered into in the ordinary course of business consistent
with past custom and practice;
(viii) settled or compromised any litigation involving equitable
relief or involving any money damages in excess of $50,000; or
(ix) entered into any other material transaction, other than
in the ordinary course of business consistent with past custom and
practice.
(b) No party has accelerated, terminated, modified or canceled any
Assigned Contract.
5.7 Title and Condition of Properties.
(a) Title to Personal Property. Seller owns good and marketable title,
free and clear of all Liens, to all of the personal and intangible personal
property and assets of Seller included within the Purchased Assets. At the
Closing, Seller will convey good and marketable title to the Purchased Assets,
free and clear of all Liens. Except with respect to any real property interests,
the Purchased Assets so conveyed, in conjunction with the services to be made
available pursuant to the Transition Services Agreement, will include all of
those assets (personal, tangible and intangible) necessary to conduct the
Business in substantially the same manner as presently conducted and all assets
used during the twelve months prior to the Closing Date (other than inventory
sold or consumed in the ordinary course of business and worn out or obsolete
fixed assets disposed of in the ordinary course of business) and will enable
Buyer to operate the Business in substantially the same manner as operated by
Seller during the twelve month period prior to the Closing Date.
(b) Condition of Assets. All of the machinery, equipment and other
tangible personal property and assets of Seller included within the Purchased
Assets are in good condition and repair in all respects, ordinary wear and tear
excepted, and are useable in the ordinary course of business.
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5.8 Contracts and Commitments.
(a) Seller is not a party to, bound by or subject to any contract,
agreement or arrangement, whether written or oral, except for (i) this Agreement
and the other agreements contemplated hereby, (ii) any oral contract for
employment at the will of Seller, (iii) any contract or order with the same
party for the purchase or sale of products or services under which the
undelivered balance of such products or services does not exceed $20,000, (iv)
any contract, agreement or arrangement under which it is the lessee of, or holds
or operates, any personal property owned by any other party calling for payments
of less than $20,000 annually and (v) those contracts, agreements and
arrangements described on the attached "Contracts Schedule."
(b) Except as disclosed on the attached "Contracts Schedule," (i) no
Assigned Contract has been breached in any respect or canceled by the other
party that has not been duly cured or reinstated, (ii) Seller has performed all
of its obligations required to be performed by it under each of the Assigned
Contracts and Seller is not in receipt of any written claim of default under any
Assigned Contract, (iii) no event has occurred which with the passage of time or
the giving of notice or both would result in a breach or default under any
Assigned Contract and (iv) to Seller's Knowledge, Seller is not a party to any
Assigned Contract which, individually or in the aggregate, could have a Material
Adverse Effect. Each Assigned Contract is valid, binding and enforceable and is
in full force and effect, except to the extent enforcement thereof may be
limited by applicable bankruptcy or insolvency laws or general equitable
principles.
(c) Buyer has been supplied with a true and correct copy of all
Assigned Contracts, together with all amendments, waivers or other changes
thereto.
5.9 Proprietary Rights.
(a) The attached "Proprietary Rights Schedule" contains a complete and
accurate list of all: (i) patented or registered Proprietary Rights and pending
patent applications and other applications for registration of Proprietary
Rights owned or filed by or on behalf of Seller (including, in each case, an
identification of the registration or filing number, the date of registration,
and the relevant registration authority, as well as the name, address, telephone
and facsimile numbers of the law firm or other group, if any, which has ongoing
responsibility for maintaining the registration current); (ii) trade names,
corporate names and unregistered trademarks and service marks owned or used by
Seller; (iii) material unregistered copyrights and non-confidential descriptions
of material trade secrets and confidential information owned or used by Seller;
(iv) software and databases owned or used by Seller; and (v) licenses or other
rights granted by Seller to any third party with respect to any Proprietary
Rights, and all licenses or other rights granted by any third party to Seller
with respect to any Proprietary Rights, in each case identifying the subject
Proprietary Right.
(b) The Proprietary Rights comprise all of the proprietary or
intellectual property rights necessary for the operation of the Business as
currently conducted. Seller has taken all necessary actions to maintain and
protect the Proprietary Rights which it owns and will continue to maintain and
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protect such Proprietary Rights prior to the Closing so as to not adversely
affect the validity or enforceability of the Proprietary Rights. To Seller's
Knowledge, the owners of any Proprietary Rights licensed to Seller have taken
all necessary actions to maintain and protect the Proprietary Rights which are
subject to such licenses. The Proprietary Rights owned or used by Seller
immediately prior to the Closing hereunder will be available for use on
identical terms and conditions immediately subsequent to the Closing hereunder.
(c) Except as indicated on the attached "Proprietary Rights Schedule:"
(i) Seller owns all right, title and interest in and to, or has a valid and
enforceable license to use, the Proprietary Rights, free and clear of all Liens;
(ii) the loss or expiration of any right in or to the Proprietary Rights or
related group of Proprietary Rights has not and would not reasonably be expected
to have a Material Adverse Effect on the conduct of the Business, and no such
loss or expiration is threatened, pending or reasonably foreseeable; (iii) there
have been no claims made against Seller asserting the invalidity, misuse or
unenforceability of any Proprietary Rights, and there are no grounds for the
same; (iv) the conduct of the Business has not infringed, misappropriated or
otherwise violated, and does not infringe, misappropriate or otherwise violate
the intellectual property rights of any third party, nor would the continued
conduct of the Business as currently conducted infringe, misappropriate or
otherwise violate the intellectual property rights of any third party; (v)
Seller has not received any notices of, and Seller is not aware of any facts
which indicate a likelihood of, any infringement, misappropriation or other
violation by, or any conflict with, any third party, with respect to the
Proprietary Rights (including, without limitation, any demand or request that
Seller cease using any Proprietary Rights or license any rights from any third
party); (vi) Seller is not in breach of any license or other grant of rights
with respect to the Proprietary Rights; and (vii) the transactions contemplated
by this Agreement will not have a Material Adverse Effect on the right, title
and interest in and to the Proprietary Rights.
5.10 Product Warranty. Except as disclosed on the "Developments
Schedule," all products designed, manufactured, merchandised, serviced,
distributed, sold or delivered by Seller at any time prior to the Closing Date
have been in conformity with all applicable contractual commitments and all
express or implied warranties. No liability exists for replacement thereof or
other damages in connection with such sales or deliveries made at any time prior
to the Closing Date. No products heretofore sold by Seller are now subject to
any guarantee or warranty other than Seller's standard terms and conditions of
sale, a copy of which has been previously delivered to Buyer. Without limiting
the generality of the foregoing, Seller represents and warrants that all
Purchased Inventory and all products sold or shipped by Seller on or prior to
the Closing (the Purchased Inventory and such products sold or shipped on or
prior to the Closing collectively referred to herein as the "Products") (i) are
and will be fit for human consumption, and do not and did not contain any
substances or ingredients that may be harmful to any person who consumes the
Products (assuming compliance with any label instructions for the use thereof),
(ii) comply, and have complied with, all applicable laws and regulations
concerning human consumption of such products and required disclosures or
warning labels, (iii) do, and did, conform to applicable labeling,
specifications, drawings, descriptions, samples, (iv) are, and were,
merchantable, of good workmanship and materials, fit for the
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purpose or purposes for which intended, free from defects and in compliance with
law, (v) together with the trademarks and other Proprietary Rights used in
connection therewith, as well as the claims and representations made by Seller
with respect thereto, and the manufacturing processes and structure thereof, do
not, and did not, infringe the intellectual property rights of any other Person
and (vi) together with all claims, representations and other statements with
respect thereto that are made, and have been made, by Seller in labeling,
advertising or other promotion for the Products are truthful, not misleading and
supported by valid substantiating data and Buyer may properly repeat in any
labeling, advertising or other promotion for the Products, any or all of the
claims, representations or other statements about the Products that are made, or
have been made, by Seller in its labeling, advertising or other promotion for
the Products. Without limiting the generality of the foregoing, Seller
represents and warrants that the Products: (i) are and were not adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, 21
U.S.C. ss. 301 et seq. (the "FDC Act") or any corresponding regulations of any
applicable administrative or regulatory body or agency, and conform and have
conformed to the applicable laws of other countries or states with jurisdiction
over Seller or the Products as such acts and such laws are constituted and
effective at the time the Products are delivered to Buyer or were shipped or
delivered by Seller to other purchasers, (ii) are and were formulated,
manufactured, packaged, labeled, advertised, promoted and handled in accordance
with all other applicable requirements of federal, state and local law, (iii)
are and were manufactured in accordance with then current good manufacturing
practices, (iv) are not, and were not, manufactured by any Person debarred under
subsections 335a(a) or 335a(b) of the FDC Act and (v) are not, and were not,
otherwise an article that may not properly be introduced into commerce under the
provisions of the FDC Act or any other federal, state or local law.
5.11 Government Licenses and Permits. To the best of Seller's
Knowledge, the attached "Licenses Schedule" contains a complete listing and
summary description of all Government Licenses used by Seller in the conduct of
the Business. Except as indicated on the attached "Licenses Schedule," Seller
owns or possesses all right, title and interest in and to all of the Government
Licenses that are necessary to own and operate the Purchased Assets and to
conduct the Business as presently conducted, including, without limitation, all
Government Licenses required under any federal, state or local law relating to
public health and safety, employee health and safety, pollution or protection of
the environment. Seller is in compliance with the terms and conditions of such
Government Licenses and Seller has not received any notice that it is in
violation of any of the terms or conditions of such Government Licenses. Seller
has taken all necessary action to maintain such Government Licenses. No loss or
expiration of any such Government License is pending, or to Seller's Knowledge,
threatened or reasonably foreseeable other than expiration in accordance with
the terms thereof. Except as indicated on the attached "Licenses Schedule," all
of the Government Licenses are transferable to Buyer and will be transferred by
the Seller to Buyer on or before the Closing Date.
5.12 Litigation; Proceedings. Except as set forth in the attached
"Litigation Schedule," there are no actions, suits, proceedings, hearings,
orders, investigations, charges, complaints or claims pending or, to Seller's
Knowledge, threatened against or affecting Seller, the Business or the Purchased
Assets (or, to Seller's Knowledge, pending or threatened against or affecting
any of the officers, directors, employees or stockholders of Seller in their
capacities as
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such), or to which Seller, the Business or the Purchased Assets may be bound or
affected, at law or in equity, or before or by any federal, state, municipal,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there is no basis for any of the
foregoing; neither Seller nor the Business is subject to any judgment, order or
decree of any court or governmental agency; Seller has not received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may be
material to its business, and neither Seller nor the Business is engaged in any
legal action to recover monies due it or for damages sustained by it.
5.13 Compliance with Laws; FDA Compliance. Except as set forth in the
attached "Compliance Schedule:"
(a) Seller is in compliance with, and Seller has not violated any
applicable law, rule or regulation of any federal, state, local or foreign
government or agency thereof. No notice, claim, charge, complaint, action, suit,
proceeding, investigation or hearing has been received by Seller or filed,
commenced or threatened against Seller, alleging a violation of or liability or
potential responsibility under any such law, rule or regulation which has not
heretofore been duly cured and for which there is no remaining liability.
(b) Seller is not in receipt of notice of, or subject to, any adverse
inspection, finding of deficiency, finding of non-compliance, compelled or
voluntary recall, investigation, penalty, fine, sanction, assessment, request
for corrective or remedial action or other compliance or enforcement action, in
each case relating to Nutritional Products or to the facilities in which the
Nutritional Products are designed, manufactured, merchandised, serviced,
distributed, sold, delivered or handled by Seller, by the Food and Drug
Administration (the "FDA"), the Federal Trade Commission (the "FTC") or by any
other federal, state, local or foreign authority having or asserting
responsibility for the regulation of Nutritional Products ("Other Authorities").
(c) Seller has obtained all necessary approvals, registrations and
authorizations from, has made all necessary and appropriate applications and
other submissions to, and has prepared and maintained all records, studies and
other documentation needed to satisfy and demonstrate compliance with the
requirements of, the FDA, the FTC and Other Authorities for its current business
activities relating to Nutritional Products.
(d) Seller has not made any false statement in, or omission from, the
applications, approvals, reports or other submissions to the FDA, the FTC or the
Other Authorities or in or from any other records and documentation prepared or
maintained to comply with the requirements of the FDA, the FTC or Other
Authorities relating to Nutritional Products.
(e) To Seller's Knowledge, no third party retained by Seller or
otherwise acting on behalf of Seller has made any false statement in, or
omission from, any report, study, or other documentation prepared in conjunction
with the applications, approvals, reports or records submitted to or prepared
for the FDA, the FTC or Other Authorities relating to Nutritional Products.
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(f) Seller, nor to Seller's Knowledge, any third party or agent for
Seller has made or offered any payment, gratuity or other thing of value that is
prohibited by any law or regulation to personnel of the FDA, the FTC or Other
Authorities in connection with the approval or regulatory status of Nutritional
Products or the facilities in which Nutritional Products are designed,
manufactured, merchandised, serviced, distributed, sold, delivered or handled by
Seller or the Business.
(g) Seller is in compliance with all applicable regulations and
requirements of the FDA, the FTC and Other Authorities relating to Nutritional
Products, including, without limitation, any good manufacturing or handling
practices, requirements for demonstrating and maintaining the safety and
efficacy of the Nutritional Products, export or import requirements,
certificates of export, requirements for investigating customer complaints and
inquiries, labeling requirements and protocols (including, without limitation,
requirements for substantiation of marketing, advertising or labeling claims,
requirements which prohibit "drug" claims or which require that the FDA receive
notice of structure/function claims or pre-market notification of new dietary
ingredients), labeling or registration requirements of any foreign jurisdiction
into which the Nutritional Products are shipped or sold, shipping requirements,
monitoring requirements, packaging or repackaging requirements, laboratory
controls, sterility requirements, inventory controls and storage and warehousing
procedures.
(h) All Nutritional Products included in the inventory being conveyed
to Buyer at Closing comply in all respects with current FDA and FTC requirements
and the requirements of Other Authorities and were handled by Seller in
conformity with current FDA requirements and the requirements of Other
Authorities and in accordance with the best practices of the industry.
(i) Seller has not received any notification, written or verbal, which
remains unresolved as of the date hereof, from the FDA, the FTC, FDA or FTC
personnel or Other Authorities indicating that any Nutritional Product is unsafe
or ineffective for its intended use, or has shipped or sold (or permitted to be
shipped or sold) any products into any jurisdictions without first having
obtained all requisite approvals, registrations and permissions from the FDA,
the FTC and Other Authorities or has made claims with respect to such
Nutritional Products which are "drug" claims or would cause such products to be
deemed misbranded, or which questioned or requested the support or
substantiation for any such claims.
5.14.....Environmental Matters.
(a) Seller, and its predecessors and affiliates, has complied with and
is in compliance with all Environmental Laws, including, without limitation,
with respect to all permits, licenses and other authorizations that are required
pursuant to Environmental Laws for the occupation of its facilities and the
operation of its business. "Environmental Laws" means all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, each as amended and as now or hereafter in effect.
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(b) Neither Seller, nor its predecessors or affiliates has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including, without limitation, any hazardous
substance, or owned or operated any property or facility (and no such property
or facility is contaminated by any such substance), in a manner that has given
or would give rise to any obligations or liabilities of any kind or nature
pursuant to any Environmental Law or otherwise.
(c) No facts, events or conditions relating to the past
or present facilities, properties or operations of Seller or its predecessors or
affiliates will prevent, hinder or limit continued compliance with Environmental
Laws, give rise to any investigatory, remedial or corrective obligations
pursuant to Environmental Laws, or give rise to any other obligations or
liabilities (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) pursuant to Environmental Laws.
5.15 Employees and Employee Benefits.
(a) Seller is not a party to any labor or collective bargaining
agreement. Within the last two (2) years, Seller has not experienced any union
organization attempts, general labor disputes or work stoppages or slowdowns due
to labor disagreements. There is no labor strike, general labor dispute, work
stoppage or slowdown pending or, to Seller's Knowledge, threatened. There is no
request for representation pending and no question concerning representation has
been raised.
(b) Except as set forth on the attached "Employee Benefits Schedule,"
with respect to current or former employees of Seller, independent contractors,
or the spouses, beneficiaries or dependents thereof, Seller does not maintain
and has not maintained, does not contribute to and has not contributed to, does
not have and has not had any obligation to contribute to, and does not have and
has not had any liability or potential liability with respect to any (i)
qualified defined contribution or defined benefit plans or arrangements (whether
or not terminated) which are employee pension benefit plans (as defined in
Section 3(2) of ERISA) (the "Employee Pension Plans"); (ii) any ongoing or
terminated funded or unfunded employee welfare benefit plans (as defined in
Section 3(1) of ERISA) ("Employee Welfare Plans"); or (iii) any plan, policy,
program or arrangement (whether or not terminated) which provides nonqualified
deferred compensation benefits, bonus benefits or compensation, incentive
benefits or compensation, severance benefits or compensation, "change of
control" (as set forth in Code Section 280G) benefits or compensation or any
program, plan, policy or arrangement which provides any health, life,
disability, accident, vacation, tuition reimbursement or other fringe benefits
("Other Plans"). Seller does not participate in or contribute to and has not
participated in or contributed to any multiemployer plan (as defined in Section
3(37) of ERISA) ("Multiemployer Plan") nor does Seller have any other liability
with respect to any Multiemployer Plan, and Seller has not incurred any current
or potential withdrawal liability as a result of a complete or partial
withdrawal (or potential partial withdrawal) from any Multiemployer Plan. Seller
does not maintain or have any obligation to contribute to (or any other
liability with respect to) any funded or unfunded Employee Welfare Plan,
Multiemployer Plan or Other Plan which provides post-retirement health, accident
or life insurance benefits to current or former
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employees, current or former independent contractors, current or future
retirees, their spouses, dependents or beneficiaries, other than limited medical
benefits required to be provided to former employees, their spouses and other
dependents under Code Section 4980B or similar provision of state law. (Any
Employee Pension Plan, any Employee Welfare Plan, any Other Plan and any
Multiemployer Plan shall be referred to herein collectively as the "Plans").
(c) All Plans (and related trusts and insurance contracts) comply in
form and in operation in all respects with the applicable requirements of ERISA
and the Code and the Employee Pension Plans which are employee pension benefit
plans (as defined in section 3(2) of ERISA) meet the requirements of "qualified
plans" under Section 401(a) of the Code, and each such Employee Pension Plan has
received a favorable determination letter from the Internal Revenue Service.
(d) Seller has not incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC"), the Internal Revenue Service, the Department
of Labor, any other governmental agency, any Multiemployer Plan or any Person
with respect to any Plan currently or previously maintained by members of the
controlled group of companies (as defined in Section 414 of the Code) that
includes Seller (the "Controlled Group") that has not been satisfied in full,
and no condition exists that presents a risk to Seller, or any other member of
the Controlled Group of incurring such a liability, other than liability for
premiums due the PBGC.
5.16 Insurance. The attached "Insurance Schedule" sets forth an
accurate description of each insurance policy to which Seller has been a party,
a named insured or otherwise the beneficiary of coverage at any time during the
past two years. All of such insurance policies are legal, valid, binding and
enforceable and in full force and effect, and Seller is not (and never has been)
in breach or default with respect to its obligations under such insurance
policies.
5.17 Tax Matters.
(a) Seller has timely filed all Tax Returns required to be filed by it,
each such Tax Return has been prepared in compliance with all applicable laws
and regulations, and all such Tax Returns are true and accurate in all respects.
All Taxes due and payable by Seller have been paid. Seller has delivered to
Buyer correct and complete copies of all federal income Tax Returns filed with
respect to Seller for taxable periods ended since the date of Seller's formation
on March 16, 1994, and all examination reports, and statements of deficiencies
assessed against or agreed to by Seller with respect to such taxable periods.
(b) Except as set forth in the attached "Taxes Schedule:" (i) no
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted or assessed by any
taxing authority against Seller; (ii) there is no action, suit, taxing authority
proceeding or audit now in progress, pending or, to Seller's Knowledge,
threatened against or with respect to Seller with respect to any Tax; (iii)
Seller does not reasonably expect any taxing authority to claim or assess any
additional Taxes
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with respect to Seller for any period; (iv) no claim has ever been made by a
taxing authority in a jurisdiction where Seller does not pay Tax or file Tax
Returns that Seller is or may be subject to Taxes assessed by such jurisdiction;
and (v) Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(c) The attached "Taxes Schedule" contains a list of states and
jurisdictions (whether foreign or domestic) in which Seller is required to file
Tax Returns relating to the Business.
5.18 Customers and Suppliers. Seller has not received any notice (nor,
to Seller's Knowledge, is any such notice forthcoming) that any material
customer or supplier intends to terminate or materially reduce its business with
the Business and no material customer or supplier has terminated or materially
reduced its business with Seller in the last twelve (12) months. For purposes of
this Section 5.18, a material customer or supplier shall be any of the Business'
top ten customers or suppliers, by dollar volume of business conducted with any
such Person during the twelve months immediately preceding the date of this
Agreement.
5.19 Brokerage. There are no claims for brokerage commissions, finders
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made (or alleged to have
been made) by or on behalf of Seller.
5.20 Affiliate Transactions. Except as disclosed on the "Affiliate
Transactions Schedule" attached hereto, neither PDK nor any officer, director or
employee of Seller or PDK (or any of the relatives or Affiliates of any of the
aforementioned Persons) is a party to any agreement, contract, commitment or
transaction with Seller or affecting the Business, or has any interest in any
property, whether real, personal or mixed, or tangible or intangible, used in or
necessary to the Business which will subject Buyer to any liability or
obligation from and after the Closing Date. Except as disclosed on the attached
"Affiliate Transactions Schedule," no officer, director or employee of Seller or
PDK (or any of the relatives or Affiliates of any of the aforementioned Persons)
is an officer or director of any distributor or supplier of Seller.
5.21 Exclusivity of Representations; Reliance on Representations. The
representations and warranties made by Seller in this Agreement and any writing
delivered in connection herewith at the Closing are in lieu of and are exclusive
of all other representations and warranties, including, without limitation, any
implied warranty of merchantability or of fitness for a particular purpose and
any other implied warranties of Seller. Seller hereby disclaims any such other
or implied representations or warranties.
5.22 Closing Date. All of the representations and warranties of Seller
contained in this Article 5 and elsewhere in this Agreement and all information
delivered in any schedule, attachment or exhibit hereto or in any certificate
delivered by Seller to Buyer are true and correct on the date of this Agreement
and shall be true and correct on the Closing Date, except (i) with respect to
any representations and warranties made as of a specified date earlier than the
Closing Date, which shall be true and correct as of such date or (ii) to
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the extent that Seller has expressly advised Buyer otherwise in writing prior to
the Closing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR
As an inducement to Seller and PDK to enter into this Agreement, Buyer
and Guarantor represent and warrant to Seller and PDK that:
6.1 Organization and Power. Each of Buyer and Guarantor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. As of the Closing, and assuming the accuracy of the
representations and warranties made by Seller in Section 5.1 above, Buyer will
be qualified to do business as a foreign corporation and will be in good
standing in each jurisdiction in which the ownership of its properties or the
conduct of its business requires it to be so qualified. Buyer has all requisite
corporate power and authority necessary to own and operate the Purchased Assets.
Each of Buyer and Guarantor has all requisite corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
and to perform their respective obligations hereunder and thereunder.
6.2 Authorization. The execution, delivery and performance by each of
Buyer and Guarantor of this Agreement and the other agreements contemplated
hereby to which Buyer and Guarantor is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate action, and no other corporate act or
proceeding on the part of Buyer, Guarantor, their respective boards of directors
or stockholders is necessary to authorize the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby or thereby. This Agreement
has been duly executed and delivered by each of Buyer and Guarantor and this
Agreement constitutes, and the other agreements contemplated hereby to which
Buyer is a party upon execution and delivery by Buyer will each constitute, a
valid and binding obligation of Buyer and Guarantor, as the case may be,
enforceable in accordance with their terms, except to the extent enforcement
thereof may be limited by applicable bankruptcy or insolvency laws or general
equitable principles.
6.3 No Violation. The execution, delivery and performance by each of
Buyer and Guarantor of this Agreement and the other agreements contemplated
hereby and the consummation of each of the transactions contemplated hereby or
thereby do not and will not (a) violate, conflict with, result in any breach of,
constitute a default under, result in the termination or acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or require
any notice under Buyer's or Guarantor's certificate of incorporation or bylaws,
or any contract, agreement, arrangement, license, sublicense, franchise, permit,
indenture, mortgage, obligation or instrument to which Buyer or Guarantor is a
party or by which Buyer or Guarantor is bound or affected or to which any of
their respective assets are bound or affected, (b) require any authorization,
consent, approval, exemption or other action by or notice to any court, other
governmental body or other Person or entity under, the provisions of any law,
statute, rule, regulation, judgment, order or decree or any contract, agreement,
arrangement,
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license, sublicense, franchise, permit, indenture, mortgage, obligation or
instrument to which Buyer or Guarantor is subject, or by which Buyer or
Guarantor is bound or affected or to which their respective assets are bound or
affected or (c) violate or require any consent or notice under any law, statute,
regulation, rule, judgment, decree, order, stipulation, injunction, charge or
other restriction of any government, governmental agency or court to which Buyer
or Guarantor or any of their respective assets are subject, or by which Buyer or
Guarantor is bound or affected. No permit, consent, approval or authorization
of, or declaration to or filing with, any governmental or regulatory authority
or any other party or person is required in connection with the execution,
delivery or performance of this Agreement by Buyer or Guarantor, or the
consummation by Buyer or Guarantor of the transactions contemplated hereby and
thereby.
6.4 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Buyer's or Guarantor's Knowledge,
threatened against or affecting Buyer or Guarantor, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
would adversely affect Buyer's or Guarantor's performance under this Agreement,
the other agreements contemplated hereby or the consummation of the transactions
contemplated hereby or thereby.
6.5 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made (or alleged to have
been made) by or on behalf of Buyer or Guarantor.
6.6 Exclusivity of Representations; Reliance on Representations. The
representations and warranties made by Buyer and Guarantor in this Agreement and
any writing delivered in connection herewith at the Closing are in lieu of and
are exclusive of all other representations and warranties of Buyer or Guarantor.
Each of Buyer and Guarantor hereby disclaim any such other representations or
warranties.
6.7 Closing Date. All of the representations and warranties contained
in this Article 6 and elsewhere in this Agreement are true and correct on the
date of this Agreement and will be true and correct on the Closing Date, except
(i) with respect to any representations and warranties made as of a specified
date earlier than the Closing Date, which shall be true and correct as of such
date or (ii) to the extent that Buyer has expressly advised Seller otherwise in
writing prior to the Closing.
6.8 No Material Adverse Change. Since August 31, 1998, there has been
no material adverse change in the business, financial condition or operating
results of Buyer or Nutraceutical.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to
the Closing only as follows:
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(a) by mutual consent of Buyer and Seller;
(b) by either Buyer or Seller if there has been a misrepresentation or
breach of warranty or breach of covenant on the part of the other party in the
representations and warranties or covenants set forth in this Agreement which
would (i) have a Material Adverse Effect or (ii) a material adverse effect on
the ability of such other party to consummate the transactions contemplated
hereby or if events have occurred which have made it impossible to satisfy a
condition precedent to the terminating party's obligation to consummate the
transactions contemplated hereby, unless such terminating party's breach of this
Agreement has caused the condition to be unsatisfied, which in either case has
not been cured by the non-terminating party after such party has been afforded a
reasonable period (not to exceed ten Business Days) to effect such cure;
(c) by either Buyer or Seller if the transactions contemplated hereby
have not been consummated by June 30, 1999; provided that a party will not be
entitled to terminate this Agreement pursuant to this subsection (c) if (i) that
party's breach of this Agreement has prevented the consummation of the
transactions contemplated hereby at or prior to such time or (ii) that party has
failed to satisfy any condition set forth in Article 3 hereof that such party
was required to satisfy;
(d) by Seller, at any time prior to obtaining the stockholder approval
required pursuant to Section 4.3 hereof, solely to allow Seller to concurrently
enter into a definitive purchase and sale agreement in respect of an Acquisition
Proposal which Seller's board of directors has determined in the exercise of its
fiduciary duties is more favorable to Seller and its stockholders than the
transactions contemplated hereby, it being understood and agreed that the
termination described in this Section 7.1(d) shall not be effective unless and
until Seller shall have paid to Buyer the fee and other amount described in
Section 7.2(b) hereof; provided that no such termination may be effected until
the fifth Business Day following Buyer's receipt of written notice from Seller's
board of directors advising Buyer of Seller's intention to terminate this
Agreement pursuant to this Section 7.1(d), specifying the material terms and
conditions of such Acquisition Proposal and identifying the Person making such
Acquisition Proposal; or
(e) by Buyer, on or prior to the date which is five (5) Business Days
after the delivery to Buyer of the Deferred Schedules pursuant to Section 9.14,
if the Deferred Schedules are not satisfactory to Buyer in its reasonable
discretion.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 7.1 hereof, this Agreement will forthwith become void and there will be
no liability hereunder on the part of Seller, PDK, Buyer or Guarantor, except as
arising under the provisions of Sections 7.2(b), 8.4, 8.5, 8.6 and 8.14 hereof
(all of which shall survive termination) and except for liability for any breach
of this Agreement prior to the time of such termination.
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(b) If Seller shall have terminated this Agreement pursuant to Section
7.1(d) hereof, then Seller shall promptly, but in no event later than two (2)
Business Days after the date of such termination, pay Buyer a termination fee of
$296,250 plus an amount equal to the actual and reasonably documented
out-of-pocket expenses incurred by Buyer directly attributable to the proposed
acquisition of substantially all of the assets of Seller, including, without
limitation, the due diligence review undertaken in connection therewith, the
negotiation and execution of this Agreement and the attempted completion of the
transactions contemplated hereby, which fee and amount shall be payable in
immediately available funds.
7.3 Waiver of Right to Terminate. Each of the parties hereto shall be
deemed to have waived their respective rights to terminate this Agreement upon
consummation of the Closing. No such waiver shall constitute a waiver of any
other rights arising from the non-fulfillment of any condition precedent set
forth in Article 3 hereof or any misrepresentation or breach of any warranty,
covenant or agreement contained herein unless such waiver is made in writing and
then any such written waiver shall only constitute a waiver of the specific
matters set forth therein.
ARTICLE 8
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
8.1 Indemnification.
(a) Seller and PDK Indemnification. Seller and PDK, jointly and
severally, agree to indemnify Buyer and its affiliates and their respective
officers, directors, employees and representatives (the "Buyer Indemnitees"),
and hold them harmless against any loss, liability, deficiency, damage or
expense (including reasonable legal fees and expenses and including interest and
penalties) (a "Loss") which any Buyer Indemnitee may suffer, sustain or become
subject to, as a result of (i) the breach by Seller or PDK of any
representation, warranty, covenant or agreement made by Seller or PDK contained
in this Agreement or in any writing delivered by Seller or PDK in connection
with this Agreement (without taking into account any disclosures made by Seller
or PDK pursuant to Section 4.1(e), Section 5.22 or Section 10.7 hereof), (ii)
any action, demand, proceeding, investigation or claim by a third party
(including governmental agencies) against or affecting any Buyer Indemnitee, the
Business (as operated by Buyer or its successor in interest) or the Purchased
Assets which, if successful, would give rise to or evidence the existence of or
relate to a breach of any of the representations, warranties, covenants or
agreements of Seller or PDK, (iii) any claims of any brokers or finders claiming
by, through or under Seller or PDK or (iv) the assertion against any Buyer
Indemnitee of any liability or claim against any Buyer Indemnitee relating to
any Excluded Liability.
With respect to any claim or claims for breaches or alleged breaches of
representations and warranties contained in Article 5 hereof (except for the
first two sentences of Section 5.7(a), Section 5.9 and 5.17), neither Seller nor
PDK will be liable with respect to any such breach or alleged breach unless
written notice of a possible claim for indemnification with respect to such
breach or alleged breach is given by Buyer (i) in the case of Seller, on or
before the second anniversary of the Closing Date and (ii) in the case of PDK,
on or before
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the first anniversary of the Closing Date (collectively, the "Survival Date"),
it being understood that so long as such written notice is given on or prior to
the Survival Date, such representations and warranties shall continue to survive
until such matter is resolved. Notwithstanding the foregoing, any breaches or
alleged breaches of the representations and warranties contained in the first
two sentences of Section 5.7(a), Section 5.9 or 5.17 hereof, and any breaches or
alleged breaches of the covenants or agreements contained herein, including,
without limitation, any breach or alleged breach of the covenants or agreements
contained in this Article 8, shall survive the Closing and will not be subject
to any time limitations.
With respect to any claim or claims for breaches or alleged breaches of
representations and warranties contained in Article 5 hereof, neither Seller nor
PDK will have any obligation to indemnify any Buyer Indemnitee from and against
such Losses by reason of all such breaches or alleged breaches until the Buyer
Indemnitees have suffered Losses by reason of all such breaches and alleged
breaches in excess of $50,000, and then only to the extent that such Losses
exceed such amount.
(b) Buyer Indemnification. Buyer agrees to indemnify Seller and PDK and
their respective officers, directors, employees and representatives (the "Seller
Indemnitees") and hold them harmless against any Loss which any Seller
Indemnitee may suffer, sustain or become subject to, as the result of (i) the
breach by Buyer of any representation, warranty, covenant or agreement made by
Buyer contained in this Agreement or in any writing delivered by Buyer in
connection with this Agreement (without taking into account any disclosures made
by Buyer pursuant to Section 6.7 hereof), (ii) any action, demand, proceeding,
investigation or claim by a third party (including governmental agencies)
against or affecting any Seller Indemnitee which, if successful, would give rise
to or evidence the existence of or relate to a breach of any of the
representations, warranties, covenants or agreements of Buyer, (iii) any claims
of any brokers or finders claiming by, through or under Buyer or (iv) the
assertion against any Seller Indemnitee of any liability or claim against any
Seller Indemnitee relating to any Assumed Liability.
With respect to any claim or claims for breaches of representations and
warranties contained in Article 6 hereof, Buyer will not be liable with respect
to any such claim unless written notice of a possible claim for indemnification
with respect to such breach or alleged breach is given by PDK to Buyer on or
before the first anniversary of the Closing Date, it being understood that so
long as such written notice is given on or prior to such date, such
representations and warranties shall continue to survive until such matter is
resolved. Notwithstanding the foregoing, any breaches or alleged breaches of the
covenants or agreements contained herein, including, without limitation, any
breach or alleged breach of the covenants or agreements contained in this
Article 8, shall survive the Closing and will not be subject to any time
limitations.
With respect to claim or claims for breaches or alleged breaches of
representations and warranties contained in Article 6 hereof, Buyer will not
have any obligation to indemnify any Seller Indemnitee from and against such
Losses by reason of all such breaches (or alleged breaches) until the Seller
Indemnitees have suffered Losses by reason of all such breaches (or alleged
breaches) in
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excess of $50,000, and then only to the extent that such Losses exceed such
amount.
(c) Defense of Claims. If a party hereto seeks indemnification under
this Section 8.1, such party (the "Indemnified Party") shall give written notice
to the other party (the "Indemnifying Party") of the facts and circumstances
giving rise to the claim. In that regard, if any suit, action, claim, liability
or obligation (a "Proceeding") shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified Party to indemnity
pursuant to this Section 8.1, the Indemnified Party shall within 30 days notify
the Indemnifying Party of the same in writing, specifying in detail the basis of
such claim and the facts pertaining thereto; provided that the failure to so
notify an Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent such failure shall have harmed the
Indemnifying Party. The Indemnifying Party, if it so elects, shall assume and
control the defense of such Proceeding (and shall consult with the Indemnified
Party with respect thereto), including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of expenses; provided,
however, that in the event any Proceeding shall be brought or asserted by any
third party which, if adversely determined, would not entitle the Indemnified
Party to full indemnity pursuant to Section 8.1, the Indemnified Party may elect
to participate in a joint defense of such Proceeding (a "Joint Defense
Proceeding") for which the expenses of such joint defense will be shared equally
by such parties and the employment of counsel shall be reasonably satisfactory
to both parties. If the Indemnifying Party elects to assume and control the
defense of a Proceeding, it will provide notice thereof within 30 days after the
Indemnified Party has given notice of the matter and if such Proceeding is not a
Joint Defense Proceeding, the Indemnified Party shall have the right to employ
counsel separate from counsel employed by the Indemnifying Party in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel employed by the Indemnified Party shall be at the expense of the
Indemnified Party unless (i) the employment thereof has been specifically
authorized by the Indemnifying Party in writing or (ii) the Indemnifying Party
has failed to assume the defense and employ counsel. The Indemnifying Party
shall not be liable for any settlement of any Proceeding, the defense of which
it has elected to assume, which settlement is effected without the written
consent of the Indemnifying Party; provided that no settlement of a Joint
Defense Proceeding may be effected without the written consent of both parties.
If there shall be a settlement to which the Indemnifying Party consents or a
final judgment for the plaintiff in any Proceeding, the defense of which the
Indemnifying Party has elected to assume, the Indemnifying Party shall indemnify
the Indemnified Party with respect to the settlement or judgment. If the
Indemnifying Party elects to assume and control the defense or in the event of a
Joint Defense Proceeding, the Indemnified Party shall take all reasonable
efforts necessary to assist the Indemnifying Party in such defense.
(d) Payments. Any payment pursuant to a claim for indemnification shall
be made not later than 30 days after receipt by the Indemnifying Party of
written notice from the Indemnified Party stating the amount of the claim,
unless the claim is subject to defense as provided in Section 8.1(c) or is a
dispute, claim or controversy which is the subject of an unresolved arbitration
proceeding pursuant to Section 8.6, in which case payment shall be made not
later than 30 days after the amount of the claim is finally determined. Any
payment required
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under this Section which is not made when due shall bear interest at the rate of
8.50% per annum.
(e) Adjustments. Amounts paid as indemnification shall be treated as
adjustments to the Purchase Price.
(f) Maximum Liability. Seller will not be liable for any Losses of
Buyer resulting from any breach or alleged breach of any of the representations
or warranties contained in Article 5 or elsewhere in this Agreement in an amount
in excess of the sum of $3,700,000 plus the Inventory Portion. PDK will not be
liable for any Losses of Buyer resulting from any breach or alleged breach of
any representations or warranties contained in Article 5 or elsewhere in this
Agreement in excess of $2,000,000.
8.2 Mutual Assistance and Records. Each of the parties hereto agrees
that they will mutually cooperate in the expeditious filing of all notices,
reports and other filings with any governmental authority required to be
submitted jointly by Buyer and Seller in connection with the execution and
delivery of this Agreement, the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby or thereby. Subsequent to
the Closing, Seller and Buyer at their own cost, will assist each other
(including by the retention of records and the provision of access to relevant
records) in the preparation of their respective Tax Returns and the filing and
execution of Tax elections, if required, as well as in the defense of any audits
or litigation that may ensue as a result of the filing thereof, to the extent
that such assistance is reasonably requested. The Purchase Price shall be
allocated among the Purchased Assets in accordance with the methodology
described on Schedule 8.2 hereof. Each of the parties hereto covenants and
agrees to prepare and timely file all applicable Tax Returns and information
reports in accordance with the allocations developed by Buyer based on the
methodology set forth on Schedule 8.2, which allocations are intended to comply
with Section 1060 of the Code. Each of the parties hereto agrees that Seller may
retain copies of any records purchased by Buyer hereunder, subject to the
provisions of Section 8.14 hereof. Buyer shall maintain the records purchased
hereunder and Seller shall maintain the books and records retained hereunder for
the lesser of seven (7) years or the standard retention policy of the holder;
provided that no such records shall be destroyed unless the holder provides the
other party hereunder with at least ninety (90) days prior written notice. Upon
receipt of notice of destruction, the nonholder shall have the option, at its
sole cost and expense, to take possession of the records set for destruction, in
which case the nonholder shall assume all further cost of storage and
destruction of such records. Each of the parties hereto shall be afforded access
to and the right to copy such records in the hands of the other party during
normal business hours, at the expense of the person requesting access.
8.3 Press Release and Announcements. Unless required by law or the rule
or regulation of any securities exchange upon which any party's securities are
traded (in which case each party hereto shall consult with each other party
prior to any such disclosure as to the form and content of such disclosure),
after the date hereof, no press releases, announcements to the employees,
customers or suppliers of Seller or other releases of information related to
this Agreement or the transactions contemplated hereby will be issued or
released by any party without the consent of each other party. From and after
the Closing Date, Buyer
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may issue any such releases of information without the consent of any other
party hereto.
8.4 Expenses. Except as otherwise set forth in this Agreement, each
party hereto shall be solely responsible for and shall bear its own costs and
expenses incident to its obligations under and in respect of this Agreement and
the transactions contemplated hereby, including, but not limited to, any such
costs and expenses incurred by any party in connection with the negotiation,
preparation and performance of and compliance with the terms of this Agreement
(including, without limitation, the fees and disbursements of counsel and other
advisors).
8.5 Specific Performance. Each of the parties hereto acknowledges and
agrees that Buyer would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached. Accordingly, each of the parties hereto agrees
that Buyer shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in any action instituted in any court in the
United States or in any state having jurisdiction over the parties and the
matter in addition to any other remedy to which they may be entitled pursuant
hereto.
8.6 Arbitration Procedure.
(a) Each of the parties hereto agrees that they will attempt to settle
any dispute, claim or controversy arising out of this Agreement through good
faith negotiations in the spirit of mutual cooperation between senior business
executives with authority to resolve the controversy.
(b) Any dispute, claim or controversy that cannot be resolved by the
parties through good faith negotiations within 30 days of the notification to
the other party of the commencement of the dispute resolution procedures of this
Section 8.6 will then, upon the written request of any party hereto, be resolved
by binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator. Such
arbitrator shall be mutually agreeable to the parties. If the parties cannot
mutually agree upon the selection of an arbitrator, the arbitrator shall be
selected in accordance with the rules of the then effective Commercial
Arbitration Rules of the American Arbitration Association. To the extent not
governed by such rules, such arbitrator shall be directed by the parties to set
a schedule for determination of such dispute, claim or controversy that is
reasonable under the circumstances. Such arbitrator shall be directed by the
parties to determine the dispute in accordance with this Agreement and the
substantive rules of law (but not the rules of procedure or evidence) that would
be applied by a federal court required to apply the internal law (and not the
law of conflicts) of the State of New York. The arbitration will be conducted in
the English language in Chicago, Illinois. Judgment upon the award rendered by
the arbitrator may be entered by any court having jurisdiction.
(c) Nothing contained in this Section 8.6 shall prevent any party
hereto from resorting to judicial process if injunctive or other equitable
relief from a court is necessary to prevent injury to such party or its
affiliates. The use of arbitration procedures will not be construed under the
doctrine of laches,
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waiver or estoppel to affect adversely the rights of any party hereto to assert
any claim or defense.
8.7 Further Transfers. Seller shall, and PDK shall and shall cause its
Affiliates to, execute and deliver such further instruments of conveyance and
transfer and take such additional action as Buyer may reasonably request to
effect, consummate, confirm or evidence the transfer to Buyer of the Purchased
Assets. Seller shall, and PDK shall and shall cause Seller to, execute such
documents as may be necessary to assist Buyer in preserving or perfecting its
rights in the Purchased Assets. Buyer shall execute and deliver such further
instruments and take such additional actions as Seller may reasonably request to
effect or consummate the assumption by Buyer of the Assumed Liabilities.
8.8 Change of Name. As of the Closing, Seller will change its name to a
name substantially dissimilar to "Futurebiotics, Inc." and thereafter shall not
use any name or title similar to such name.
8.9 Transition Assistance. Neither Seller nor PDK will in any manner
take any action which is designed, intended or might be reasonably anticipated
to have the effect of discouraging customers, suppliers, lessors, licensors and
other business associates from maintaining the same business relationships with
Buyer and its Affiliates after the date of this Agreement as were maintained
with the Seller and its Affiliates prior to the date of this Agreement.
8.10 Non-Competition; Non-Solicitation. As condition precedent to Buyer
to enter into and perform its obligations under this Agreement, each of Seller
and PDK agrees, on behalf of itself and its Affiliates, that:
(a) For a period of three (3) years after the Closing Date (the
"Non-Competition Period"), it shall not, without the prior written consent of
Buyer, anywhere in the United States of America, directly or indirectly, either
for itself or for any other Person, own, operate, manage, control, engage in,
participate in, invest in, permit its name to be used by, act as consultant or
advisor to, render services for (alone or in association with any Person) or
otherwise assist in any manner, any Person that engages in or owns, invests in,
operates, manages or controls any venture or enterprise which directly or
indirectly engages or proposes to engage in the merchandising, distribution or
sale of (i) a "broad line" of branded Nutritional Supplements, other than into
Mass Trade Channels or (ii) any of the proprietary products and/or formulations
listed on Schedule 8.10(a). Nothing herein shall prohibit Seller or PDK from (i)
being a passive owner of not more than 5% of the outstanding stock of any class
of securities of a publicly traded corporation engaged in such business, so long
as it has no active participation in the business of such corporation, (ii)
performing any services for Buyer or its Affiliates, (iii) performing any
private label manufacturing for any Person in compliance with this Section 8.10
or (iv) merchandising, distributing or selling any of the products listed on
Schedule 8.10(b) for the customers listed thereon. For purposes hereof: (i) a
"broad line" of branded Nutritional Supplements shall mean a line of ten or more
products and (ii) "Mass Trade Channels" shall mean any of the national chain or
large regional chain grocery stores, drugstores, discount or convenience stores
which (A) are not primarily involved in the sale or distribution of natural
products or natural
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foods, including, without limitation, Nutritional Supplements and (B) neither
such Person nor its Affiliates currently carry the Futurebiotics brand.
(b) During the Non-Competition Period, it will not directly or
indirectly offer employment to or hire (in any capacity) any former employee of
Seller who is hired by Buyer.
(c) If, at the time of enforcement of this Section 8.10, a court shall
hold that the duration, scope, geographic area or other restrictions stated
herein are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope, geographic area or other restrictions deemed
reasonable under such circumstances by such court shall be substituted for the
stated duration, scope, geographic area or other restrictions.
(d) Each of Seller and PDK recognizes and affirms that in the event of
breach by it of any of the provisions of this Section 8.10, money damages would
be inadequate and Buyer would have no adequate remedy at law. Accordingly, each
of Seller and PDK agrees that Buyer shall have the right, in addition to any
other rights and remedies existing in its favor, to enforce its rights and
Seller's and PDK's obligations under this Section 8.10 not only by an action or
actions for damages, but also by an action or actions for specific performance,
injunctive and/or other equitable relief in order to enforce or prevent any
violations (whether anticipatory, continuing or future) of the provisions of
this Section 8.10 (including, without limitation, the extension of the
Non-Competition Period by a period equal to (i) the length of the violation of
this Section 8.10 plus (ii) the length of any court proceedings necessary to
stop such violation). In the event of a breach or violation by Seller or PDK of
any of the provisions of this Section 8.10, the running of the Non-Competition
Period (but not of Seller's and PDK's obligations under this Section 8.10) shall
be tolled with respect to Seller and PDK during the continuance of any actual
breach or violation.
8.11 Communications. All mail and other communications directed to
Seller and received by Seller or PDK at any time after the Closing Date (other
than relating exclusively to the Excluded Assets or the Excluded Liabilities)
shall be promptly turned over to Buyer by such party. All mail and other
communications relating exclusively to the Excluded Assets or Excluded
Liabilities received by Buyer at any time after the Closing shall be promptly
turned over to Seller by Buyer.
8.12 Best Efforts To Consummate Closing Transactions. On the terms and
subject to the conditions contained in this Agreement, each of the parties
hereto agrees to use best efforts to take, or to cause to be taken, all
reasonable actions, and to do, or to cause to be done, all things, necessary,
proper or advisable under applicable laws and regulations to consummate, as soon
as reasonably practicable, the Closing, including but not limited to the
satisfaction of all conditions thereto set forth herein.
8.13 Employees and Employee Benefits. The parties acknowledge and agree
that, from and after the Closing, Buyer shall have the right (but not the
obligation) to interview any of Seller's employees and to elect which employees
(if any) which Buyer shall have the sole and exclusive right to (i) offer
employment to and hire and (ii) set all terms and conditions of employment that
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any Person so hired by Buyer shall receive. Seller will be responsible for, and
will pay and hold Buyer harmless in respect of, all salary, wages, commissions
and other compensation, withholding, payroll and other Taxes, benefits and other
amounts which are or become payable to or in respect of any employee of Seller
by reason of his or her employment by Seller. Buyer will not assume any Plan of
Seller and Buyer will not assume any obligation of Seller to any Person under
any Plan. Upon the resignation of any employee from Seller's employ to accept an
offer of employment made to any such person by Buyer, Seller shall satisfy any
remaining liability or obligation to such person for accrued but unused vacation
pay and holiday or sick pay and any other employee benefits to which such person
is entitled.
8.14 Confidentiality. After the Closing Date, Seller and PDK shall, and
shall cause each of their Affiliates to, (i) continue to maintain the
confidentiality of all information, documents and materials relating to the
Business or relating to Buyer, Nutraceutical International Corporation or any of
its Subsidiaries which has been disclosed to any of them (including, without
limitation, the terms of this Agreement and the other agreements contemplated
hereby), except to the extent disclosure of any such information is required by
law or the rule or regulation of any securities exchange, is made in connection
with any investigation or inquiry by the FDA, the FTC or Other Authorities, or
authorized by Buyer or reasonably occurs in connection with disputes over the
terms of this Agreement and (ii) except with respect to this Agreement and the
other agreements contemplated hereby, Seller, PDK and their Affiliates shall
immediately return all such information, documents and materials to Buyer. After
the Closing, Buyer shall, and shall cause each of its Affiliate to, (i) continue
to maintain the confidentiality of all information, documents and materials
relating to Seller (other than to the extent relating to the Business) or PDK
which has been disclosed to any of them, except to the extent disclosure of any
such information is required by law or the rule or regulation of any securities
exchange, is made in connection with any investigation or inquiry by the FDA,
the FTC or Other Authorities, or authorized by Seller or reasonably occurs in
connection with disputes over the terms of this Agreement and (ii) except with
respect to this Agreement and the other agreements contemplated hereby,
immediately return all such information, documents and materials to Seller. In
the event that any party reasonably believes after consultation with counsel
that it is required by law to disclose any confidential information described in
this Section 8.14 the disclosing party will (a) provide the other party with
prompt notice before such disclosure in order that any party may attempt to
obtain a protective order or other assurance that confidential treatment will be
accorded such confidential information and (b) cooperate with the other party in
attempting to obtain such order or assurance. The preceding sentence shall not
apply to any disclosures made by Buyer to the FDA, the FTC or Other Authorities
in response to or in connection with any investigation or inquiry to the extent
that Buyer reasonably determines that notifying Seller or PDK would prejudice
Buyer or would be contrary to law. The provisions of this Section 8.14 shall not
apply to any information, documents or materials which are, as shown by
appropriate written evidence, in the public domain or, as shown by appropriate
written evidence, shall come into the public domain, other than by reason of
breach by the applicable party bound hereunder or its Affiliates.
8.15 Taxes; Recording Charges. All transfer, documentary, sales, use,
stamp, registration, conveyance and similar transfer Taxes arising out of the
sale
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of the Purchased Assets or otherwise incurred in connection with this Agreement
or the consummation of the transactions contemplated hereby and all charges for
or in connection with the recording of any document or instrument contemplated
hereby shall be borne equally by Buyer and Seller. Seller shall file all
necessary Tax Returns and other documentation in connection with the Taxes
encompassed in this Section 8.15.
8.16 Collection of Purchased Receivables. From and after the Closing
Date, Buyer shall use commercially reasonable efforts, consistent with Buyer's
collection efforts with respect to its other accounts receivables, to collect
all of the Purchased Receivables in accordance with their terms, it being
understood and agreed that nothing in this Section 8.16 shall require Buyer to
institute a lawsuit, engage a collection agency or take any other extraordinary
means to collect any of the Purchased Receivables.
ARTICLE 9
MISCELLANEOUS
9.1 Amendment and Waiver. This Agreement may be amended, and any
provision of this Agreement may be waived; provided that any such amendment or
waiver will be binding on any party hereto only if such amendment or waiver is
set forth in a writing executed by such party. No course of dealing between or
among any persons having any interest in this Agreement will be deemed effective
to modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
9.2 Notices. All notices, demands and other communications to be given
or delivered to any party hereto under or by reason of the provisions of this
Agreement will be in writing and will be deemed to have been given when
personally delivered, sent by reputable overnight courier or transmitted by
facsimile or telecopy, to the addresses indicated below (unless another address
is so specified in writing):
Notices to Seller or PDK:
-------------------------
Futurebiotics, Inc.
PDK Labs, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Attention: Reginald Spinello
Facsimile Number: (516) 273-1165
with a copy to:
Berlack Israels & Liberman LLP
120 West 45th Street, 28th Floor
New York, New York 10022
Attention: Steven F. Wasserman, Esq.
Facsimile Number: (212) 704-0196
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Notices to Buyer or Guarantor:
------------------------------
FB Acquisition Corp.
Nutraceutical Corporation
c/o Nutraceutical International Corporation
1400 Kearns Boulevard, 2nd Floor
Park City, Utah 84060
Attention: Frank W. Gay II
Facsimile Number: (435) 655-6080
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner, Esq.
Gary M. Holihan, Esq.
Facsimile Number: (312) 861-2200
9.3 Assignment. This Agreement and each of the provisions hereof shall
be binding upon and inure to the benefit of each of the parties hereto and their
respective successors and permitted assigns. Except for (i) any assignment by
Buyer to any other wholly-owned Subsidiary of Nutraceutical International
Corporation or (ii) any assignment by Buyer or any of its permitted assignees
for collateral security purposes to any of their third party financing sources,
neither this Agreement nor any of the rights, benefits or obligations set forth
herein may be assigned by any party hereto, without the prior written consent of
each of the other parties hereto.
9.4 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
9.5 No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
Person. The use of the word "including" in this Agreement or in any of the
agreements contemplated hereby shall be by way of example rather than by
limitation.
9.6 Captions. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and shall not
be deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
9.7 No Third Party Beneficiaries. Nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any person, firm or
corporation, other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this
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Agreement, such third parties specifically including, without limitation,
employees or creditors of Seller.
9.8 Complete Agreement. This Agreement contains the complete agreement
between the parties hereto with respect to the subject matter hereof and
supersedes any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts (any one or more of which may be by facsimile), all of which taken
together shall constitute one and the same agreement.
9.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
9.11 Consent to Jurisdiction. Subject to the provisions of Section 8.6
hereof, each of the parties hereto (i) consents to submit itself to the
co-exclusive personal jurisdiction of any federal court located in the State of
New York or any New York state court in the event of any dispute arising out of
this Agreement or any of the transactions contemplated by this Agreement and
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court.
9.12 Guaranty. Subject to the terms and conditions of this Agreement,
Guarantor hereby guarantees Buyer's obligation to pay the purchase price set
forth in Section 2.4; provided that, from and after the occurrence of the
Closing and the payment of the Purchase Price, Guarantor shall have no further
liability or obligation pursuant to this Agreement.
9.13 Maintenance of Insurance. Seller and PDK each hereby covenant and
agree that they shall cause Seller to remain a named insured or otherwise as
beneficiary of products liability insurance coverage (whether through the
purchase of a "tail" insurance policy or otherwise) of not less than $10 million
of aggregate insurance coverage during the one year period immediately following
the Closing Date.
9.14 Delivery of Schedules. Except for the Excluded Assets Schedule,
the Estimated Purchased Inventory Schedule, the Proprietary Products and
Formulations Schedule and the Excluded Products Schedule (which are attached
hereto and made a part hereof) and any schedules to be delivered at the Closing
(i.e., the Purchased Receivables Schedule, the Purchased Inventories Schedule
and the Purchase Price Allocation Schedule), Seller shall prepare in good faith
and deliver to Buyer all of the remaining Schedules to this Agreement (the
"Deferred Schedules"), on or prior to March 10, 1999. Seller shall use its best
efforts to describe in reasonable detail the facts, events and occurrences
required to be disclosed on the Deferred Schedules. Seller acknowledges and
agrees that the Deferred Schedules shall not contain the words "know,"
"knowledge," "material," "materiality" or derivations of such words. The parties
will use reasonable efforts to resolve in good faith any disputes regarding the
information and/or
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level of detail disclosed on the Deferred Schedules. Notwithstanding any
provision in this Agreement or any schedule or exhibit hereto to the contrary,
Seller's obligation to consummate the transactions contemplated by this
Agreement shall not be conditioned upon the waiver or amendment of any
instrument governing any indebtedness for borrowed money or any security
interest granted in connection therewith. In furtherance of the foregoing, on or
prior to the Closing Date, Seller hereby covenants and agrees to obtain the
release of any Liens encumbering any of the Purchased Assets pursuant to the
terms of any instrument governing any such indebtedness for borrowed money or
any security interest granted in connection therewith, including any such item
listed on Schedule 5.3 hereof.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF PDK
As an inducement to Buyer to enter into this Agreement, PDK hereby
represents and warrants to Buyer that:
10.1 Organization and Power. PDK is a corporation duly organized,
validly existing and in good standing under the laws of the state of New York.
PDK has all requisite power and authority to execute and deliver this Agreement
and the other agreements contemplated hereby and to perform its obligations
hereunder and thereunder. Except for Seller and Compare Genetics, PDK does not
own or control (directly or indirectly) any stock, partnership interest, joint
venture interest, equity participation or other security or interest in any
other Person who participates in any manner in the business of merchandising,
distributing or selling branded Nutritional Supplements.
10.2 Authorization. The execution, delivery and performance by PDK of
this Agreement, the other agreements contemplated hereby and each of the
transactions contemplated hereby or thereby have been duly and validly
authorized by PDK and no other corporate act or proceeding on the part of PDK,
its board of directors or stockholders is necessary to authorize the execution,
delivery or performance by PDK of this Agreement or any other agreement
contemplated hereby or the consummation of any of the transactions contemplated
hereby or thereby. This Agreement has been duly executed and delivered by PDK,
and this Agreement constitutes, and the other agreements contemplated hereby to
which PDK is a party, upon execution and delivery by PDK, will each constitute,
a valid and binding obligation of PDK, enforceable against PDK in accordance
with their terms, except to the extent enforcement thereof may be limited by
applicable bankruptcy or insolvency laws or general equitable principles.
10.3 No Breach. The execution, delivery and performance by PDK of this
Agreement and the other agreements contemplated hereby and the consummation of
each of the transactions contemplated hereby or thereby do not and will not (a)
violate, conflict with, result in any breach of, constitute a default under,
result in the termination or acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under PDK's
certificate of incorporation or bylaws, or any contract, agreement, arrangement,
license, sublicense, franchise, permit, indenture, mortgage, obligation or
instrument to which PDK is a party or by which PDK is bound or affected or to
which any of its assets are bound or affected, (b) require any authorization,
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consent, approval, exemption or other action by or notice to any court, other
governmental body or other Person or entity under, the provisions of any law,
statute, rule, regulation, judgment, order or decree or any contract, agreement,
arrangement, license, sublicense, franchise, permit, indenture, mortgage,
obligation or instrument to which PDK is subject, or by which PDK is bound or
affected or to which its assets are bound or affected or (c) violate or require
any consent or notice under any law, statute, regulation, rule, judgment,
decree, order, stipulation, injunction, charge or other restriction of any
government, governmental agency or court to which PDK or any of its assets are
subject, or by which PDK is bound or affected. No permit, consent, approval or
authorization of, declaration to or filing with, or notice to, any governmental
authority or any third party is required in connection with the execution,
delivery or performance by PDK of this Agreement or the other agreements
contemplated hereby, or the consummation by PDK of the transactions contemplated
hereby or thereby.
10.4 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of PDK's Knowledge, threatened against or
affecting PDK, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would adversely affect PDK's
performance under this Agreement, the other agreements contemplated hereby or
the consummation of the transactions contemplated hereby or thereby.
10.5 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made (or alleged to have
been made) by or on behalf of PDK.
10.6 Exclusivity of Representations; Reliance on Representations. The
representations and warranties made by PDK in this Agreement and any writing
delivered in connection herewith at the Closing are in lieu of and are exclusive
of all other representations and warranties, including, without limitation, any
implied warranty of merchantability or of fitness for a particular purpose and
any other implied warranties of PDK. PDK hereby disclaims any such other or
implied representations or warranties.
10.7 Closing Date. All of the representations and warranties of PDK
contained in this Article 10 are true and correct on the date of this Agreement
and shall be true and correct on the Closing Date, except (i) with respect to
any representations and warranties made as of a specified date earlier than the
Closing Date, which shall be true and correct as of such date or (ii) to the
extent that PDK has expressly advised Buyer otherwise in writing prior to the
Closing.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
FB ACQUISITION CORP.
By:
Its:
FUTUREBIOTICS, INC.
By:
Its:
PDK LABS, INC.
By:
Its:
Solely for purposes of Section 9.12 hereof:
NUTRACEUTICAL CORPORATION
By:
Its:
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LIST OF DISCLOSURE SCHEDULES
----------------------------
Excluded Assets Schedule 2.1
Purchased Receivables Schedule 2.1
Estimated Purchased Inventory Schedule 2.1
Purchased Inventories Schedule 2.1
Required Consents Schedule 3.2
Capitalization Schedule 5.1
Restrictions Schedule 5.3
Financial Statements Schedule 5.4
Developments Schedule 5.5
Contracts Schedule 5.8
Proprietary Rights Schedule 5.9
Licenses Schedule 5.11
Litigation Schedule 5.12
Compliance Schedule 5.13
Employee Benefits Schedule 5.15
Insurance Schedule 5.16
Taxes Schedule 5.17
Affiliate Transactions Schedule 5.20
Purchase Price Allocation Schedule 8.2
Proprietary Products and Formulations Schedule 8.10(a)
Excluded Products Schedule 8.10(b)
44
