ASSET PURCHASE AGREEMENT

 

TABLE OF CONTENTS

SECTION 1.		PURCHASE AND SALE OF ASSETS		1
1.1		Sale of Assets		1
1.2		No Assumption of Any Liabilities or Obligations		4
1.3		Purchase Price and Payment; Adjustments		4
1.4		Place of Closing; Closing Date		5
1.5		Earn-Out		5
1.6		Transfer of Subject Assets		8
1.7		Delivery of Records and Contracts		8
1.8		Further Assurances		8
1.9		Post-Closing Processing of Receivables and Orders		8
1.10		Allocation of Purchase Price		9
1.11		Employees, Wages and Benefits		9
1.12		Consulting Agreement		10
1.13		Non-Competition Agreements		10
1.14		Customer Returns and Promotional Discounts		10
1.15		Current Litigation		10
SECTION 2.		REPRESENTATIONS AND WARRANTIES OF SELLER AND FOUNDER		11
2.1		Making of Representations and Warranties		11
2.2		Organization and Qualification; Capital Stock		11
2.3		Authority		11
2.4		Title to Properties; Liens; Condition of Properties		12
2.5		Financial Statements		13
2.6		Absence of Undisclosed Liabilities		13
2.7		Absence of Certain Developments		13
2.8		Ordinary Course		14
2.9		Inventories		14
2.10		Tax Matters		14
2.11		Material Contracts and Arrangements		14
2.12		Intellectual Property Rights		15
2.13		Litigation		16
2.14		Employees; Labor Laws		17
2.15		List of Suppliers		17
2.16		Compliance with Laws		17
2.17		Investment Banking; Brokerage		17
2.18		Insurance		17
2.19		Transactions with Affiliates		17
2.20		Customers, Distributors and Brokers		17
2.21		Disclosure		18

 

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SECTION 3.		COVENANTS OF SELLER AND BUYER		18
3.1		Non-Use of Trade Names, Etc		18
3.2		Notifications to Customers and Third Parties		18
3.3		Consents and Waivers.		18
3.4		Payment of Fees and Commissions to Customers, Distributors and Brokers		18
3.5		Assumed Liabilities		19
SECTION 4.		REPRESENTATIONS AND WARRANTIES OF BUYER		19
4.1		Making of Representations and Warranties		19
4.2		Organization of Buyer		19
4.3		Authority of Buyer		19
4.4		Litigation		20
4.5		Investment Banking; Brokerage		20
4.6		Reliance		20
4.7		“As Is Where Is” Sale		20
SECTION 5.		SURVIVAL OF WARRANTIES		20
5.1		Survival of Warranties		20
SECTION 6.		INDEMNIFICATION		21
6.1		Indemnification by Seller and Founder		21
6.2		Indemnification by Buyer		23
6.3		Notice; Defense of Claims		25
6.4		Sole Remedy		26
6.5		Satisfaction of Indemnification Obligations		26
6.6		Insurance Proceeds		26
SECTION 7.		MISCELLANEOUS		26
7.1		Law Governing		26
7.2		Notices		26
7.3		Prior Agreements Superseded		27
7.4		Assignability		27
7.5		Captions and Gender		27
7.6		Certain Definitions		27
7.7		Execution in Counterparts; Facsimile Signatures		28
7.8		Amendments; Waivers		28
7.9		Severability		28
7.10		Publicity and Disclosures		28
7.11		Arbitration		28
7.12		Expenses		30

 

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EXHIBITS AND SCHEDULES

Exhibits
Exhibit 1.12				Form of Consulting Agreement
Exhibit 1.13				Form of Non-Competition Agreement
Schedules(1)
Schedule 1.1(a)(i)		-		Intellectual Property Rights
Schedule 1.1(a)(ii)		-		Contracts
Schedule 1.1(a)(iii)		-		Permits
Schedule 1.1(a)(iv)		-		Inventory
Schedule 1.1(a)(v)		-		Marketing Contracts
Schedule 1.1(a)(viii)		-		Domain Names and Website Content
Schedule 1.1(a)(ix)		-		Pre-Closing Supplier Orders
Schedule 1.2		-		Assumed Liabilities
Schedule 1.9(a)		-		Open Purchase Orders
Schedule 1.9(b)		-		Retained Receivables
Schedule 2.2		-		Capital Stock and Options; Subsidiaries
Schedule 2.3(a)		-		Authority
Schedule 2.4		-		Real Property
Schedule 2.5		-		Financial Statements
Schedule 2.6		-		Undisclosed Liabilities
Schedule 2.7		-		Certain Developments
Schedule 2.8		-		Conduct of Business
Schedule 2.11		-		Material Contracts
Schedule 2.12		-		Intellectual Property Rights
Schedule 2.13		-		Litigation
Schedule 2.15		-		Suppliers
Schedule 2.16		-		Compliance with Laws
Schedule 2.17		-		Investment Banking or Brokerage Fees
Schedule 2.18		-		Insurance
Schedule 2.19		-		Transactions with Affiliates
Schedule 2.20		-		Customers, Distributors and Brokers
Annex
Annex A		-		Rule 12. Arbitrator Selection and Replacement

 

(1)  The disclosure schedules referred to herein have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Natrol, Inc. will furnish a copy of any omitted schedule to the SEC upon request.

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT dated as of October 13, 2006 by and among Natrol, Inc., a Delaware corporation (“Buyer”), Biotech International Corporation, a Connecticut corporation (“Seller”), and Gregory J. Kelly (“Founder”).

WITNESSETH

WHEREAS, a portion of Seller’s overall business consists of developing, formulating, manufacturing, marketing and distributing men’s and women’s all natural hair loss and thinning hair and other related men’s and women’s hair care products under the Nu Hair and Shen Min tradenames (such portion of the overall business being referred to as the “Nu Hair and Shen Min Brands”);

WHEREAS, subject to the terms and conditions hereof, the Seller desires to sell the Subject Assets (as defined herein);

WHEREAS, the Founder desires to facilitate the sale of the Subject Assets by making the representations, warranties and agreements set forth herein; and

WHEREAS, subject to the terms and conditions hereof, Buyer desires to purchase the Subject Assets for the consideration specified herein;

NOW, THEREFORE, in order to consummate said purchase and sale and in consideration of the mutual agreements set forth herein, the parties hereto agree as follows:

SECTION 1.           PURCHASE AND SALE OF ASSETS .

1.1            Sale of Assets .

(a)            Subject to the provisions of this Agreement, at the Closing (as defined in Section 1.4 hereof) Seller shall sell, transfer, assign and deliver to Buyer and Buyer shall purchase and acquire all of Seller’s right, title and interest in and to the following properties, assets and rights, to the extent used or held for use in connection with the Nu Hair and Shen Min Brands as they exist on the Closing Date:

(i)             all intellectual property rights, including trade secrets, proprietary information, designs, trade dress, styles, technologies, inventions, know-how, formulae, processes, procedures, research records, test information, software and software documentation, source and object code, algorithms, promotional materials, customer lists, supplier and dealer lists, market surveys, marketing know-how and manufacturing, research and technical information, the “Nu Hair,” “Shen Min” and “Scalpblock” trademarks (and all other names or marks incorporating or using such names or marks, including all applications and registrations therefor) and all related and associated logos and all licenses to or from third parties with respect thereto, copyrights and copyright registrations, patents and patent applications (including without limitation the trade names, copyrights and copyright registrations, service mark and trademark registrations and applications and patents and patent applications described in Schedule 1.1(a)(i) ), and all licenses to or from third parties with respect to the foregoing

 

or rights related thereto, in each case which is used or held for use in the or in connection with the Nu Hair and Shen Min Brands, and all documentation and media constituting, describing or relating to the foregoing, including without limitation, manuals, memoranda and records, and all other documentation upon which Seller relies in claiming title to the intellectual property transferred hereby (collectively, the “Intellectual Property Rights”));

(ii)            all rights and interests of Seller in and to those oral and written commitments, contracts and agreements of the Nu Hair and Shen Min Brands, all of which are listed on Schedule 1.1(a)(ii) (the “Contracts”);

(iii)           to the extent permitted by law, all right, title and interest in and to all governmental franchises, licenses, permits, certifications, approvals and authorizations, applications and registrations relating to the Nu Hair and Shen Min Brands, all of which are listed on Schedule 1.1(a)(iii) (the “Permits”);

(iv)           all inventory, stock in trade, work-in-progress, finished goods, product packaging and raw materials relating to the Nu Hair and Shen Min Brands, all of which are listed on the physical inventory listing set forth on Schedule 1.1(a)(iv) (collectively, the “Inventory”);

(v)            all rights of Seller under contracts or agreements with representatives marketing and selling the products and services of the Nu Hair and Shen Min Brands, all of which are listed on Schedule 1.1(a)(v) (collectively, “Marketing Contracts”);

(vi)           all rights and benefits of Seller in and to all third party warranties and guarantees relating to the Subject Assets (as defined below), and all indemnification rights against third parties related to the Subject Assets, except that Seller shall retain a non-exclusive license to all such third party warranties and guaranties and all such indemnification rights as a defense or counterclaim to any cause of action or claim against Seller;

(vii)          electronic copies of customer lists, customer records and histories, customer invoices, lists of suppliers and vendors and all records relating thereto, market research information, advertising matter, catalogues, photographs, sales materials, purchasing materials, media materials, files, data and all other records with respect to the Nu Hair and Shen Min Brands;

(viii)         all domain names incorporating the Nu Hair and Shen Min names, which are listed on Schedule 1.1(a)(viii), and all content, software, source and object code related to the Nu Hair and Shen Min Brands (collectively, “Domain Names and Website Content”);

(ix)            the unfulfilled portions of supplier orders relating to the purchase and sale of raw materials and other components of inventory set forth on Schedule 1.1(a)(ix) (collectively, the “Pre-Closing Supplier Orders”);

(x)             all UPC Codes that are applicable to the Nu Hair and Shen Min Brands (the “UPC Codes”), except that Seller shall retain a non-exclusive license to use

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the first five digits to the UPC Codes for the sale of Seller’s products currently in inventory or with customers until depleted or returned to Seller, which are not being acquired as part of the Subject Assets ; and

(xi)            the telephone number 1-800-774-3664, which is the telephone number for Seller’s telesales.

The assets, property and business of Seller being sold to and purchased by Buyer under this Section 1.1(a) are hereinafter sometimes referred to as the “Subject Assets.”

(b)            Notwithstanding the foregoing, there shall be excluded from such purchase and sale, and the Subject Assets shall specifically exclude, the following property and assets of Seller:

(i)             all cash and cash equivalents, bank deposits and bank accounts and accounts receivable in existence as of the Closing Date (as defined in Section 1.4 hereof);

(ii)            Seller’s interest in the real property subject to that lease dated as of November 1, 2004 between 107 Oakwood Real Property Holding LLC and Seller, as amended or supplemented, together with leasehold improvements thereon;

(iii)           corporate franchise, stock record books, and corporate record books containing minutes of meetings of directors and shareholders (collectively, the “Corporate Records”); provided, however, that Seller shall have made available to Buyer and its counsel prior to the Closing true and correct copies of each of the foregoing;

(iv)           original and paper copies of the documents listed above in (a)(ix); provided, however, that each Seller shall (x) make such documents available to Buyer or its accountants, counsel or other representatives, after the Closing as reasonably required by Buyer, (y) maintain such documents for a period of at least five (5) years in a reasonably safe fashion and (z) give Buyer not less than thirty (30) days notice of any intention to dispose of any or all documents; upon such notice, Buyer shall have the option to purchase or take delivery of any or all such documents free and clear of any claim of ownership by Seller;

(v)            the Retained Receivables (as hereinafter defined);

(vi)           all properties, assets and rights of the Nu Hair and Shen Min Brands, other than those items specifically included within the definition of the Subject Assets; and

(vii)          all of Seller’s rights with respect to any “holdback” or “holds” imposed by Walgreen; and

(viii)         all other properties, assets and rights of Seller, including without limitation all intellectual property rights of Seller to the extent not used or held for use in connection with the Nu Hair or Shen Min Brands.

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The assets, property and business of Seller which are excluded from the Subject Assets under this Section 1.1(b) are hereinafter sometimes referred to as “Excluded Assets.”

1.2            No Assumption of Any Liabilities or Obligations .  Except for the liabilities with respect to the Open Purchase Orders described in Section 1.9 and those liabilities, debts and obligations set forth on Schedule 1.2 (all of the foregoing being referred to collectively as the “Assumed Liabilities”), all of which shall be assumed and/or filled, as the case may be, by Buyer at the Closing, Buyer shall not assume or be bound by any obligations or liabilities of Seller or any affiliate of Seller of any kind or nature, known, unknown, accrued, absolute, contingent or otherwise, whatsoever (the “Excluded Liabilities”).  Consistent with the foregoing, and without limitation, Seller and Founder shall retain and be responsible for and pay, as the same are incurred, any and all losses, damages, obligations, liens, assessments, judgments, fines, costs and expenses, liabilities and claims, including, without limitation, interest, penalties and reasonable fees of counsel and experts of every kind or nature whatsoever, made by or owed to any person to the extent any of the foregoing relates to (i) the Excluded Assets or (ii) the Nu Hair and Shen Min Brands which arise in connection with or on the basis of events, acts, circumstances, omissions, conditions or any other state of facts occurring or in existence on or prior to the Closing (including, without limitation, any liabilities, costs or expenses any claim relating to or associated with product liability or warranty matters, environmental matters, California’s Proposition 65, intellectual property matters, tax matters, employee, labor and union matters, pension and benefits matters, any failure to comply with applicable laws and/or permitting or licensing requirements, any failure to manufacture, test and certify products in accordance with applicable law, personal injury and property damage matters and worker health and safety matters and the litigation described in Schedule 2.13 , including any amended pleadings or any action, suit or proceeding brought in any court or tribunal based on the same or similar set of facts as those alleged in such litigation (the “Current Litigation”).

1.3            Purchase Price and Payment; Adjustments .

(a)            In consideration of the sale by Seller to Buyer of the Subject Assets and subject to any increase in the Purchase Price (as hereinafter defined) in accordance with Section 1.6, at the Closing Buyer shall (a) deliver to Seller by bank or wire transfer of immediately available funds, to such account(s) as Seller shall have indicated in writing to Buyer not less than one (1) business days prior to the day of Closing, Five Million Five Hundred Thousand Dollars ($5,500,000)(the “Purchase Price”), subject to adjustment as set forth in Section 1.3(c).

(b)              Not less than two (2) business days prior to the Closing Date, Buyer and Seller jointly caused a physical count and valuation of the Inventory to be conducted, using a valuation method consistent with generally accepted accounting principles in the United States, on a basis consistent with (x) that historically used in the Nu Hair and Shen Min Brands and (y) the following principles: (i) the Inventory was valued at cost; (ii) only finished goods with an expiration date of at least 18  months following the Closing Date were valued; (iii) no raw materials were valued; (iv) no labels or boxes were valued; and (v) the Inventory was good and usable. The results and dollar amount (the “Physical Inventory Amount”) of the physical count and valuation as agreed to by Buyer and Seller are attached hereto as Schedule 1.1(a)(iv) and shall be final and binding on the parties. Prior to the closing, Seller placed purchase orders (the “Pre-Closing Supplier Orders”) on behalf of and for the benefit and account of Buyer, with Seller’s suppliers for products (the “Post-Closing Delivered Products”) of the Nu Hair and Shen Min Brands, which Pre-Closing Supplier Orders are identified on Schedule 1.3(b) attached hereto.

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(c)           The Purchase Price payable at Closing shall be adjusted on a dollar-for-dollar basis by the dollar amount by which the Physical Inventory Amount is more (resulting in an increase in the Purchase Price) or less (resulting in a decrease in the Purchase Price) than $195,072 (exclusive of labels and boxes).

(d)            Buyer hereby covenants and agrees that after the Closing, (X) it shall sell or distribute nothing but Covered Products in the Pre-Closing Packaging; (Y) it shall only sell or distribute Covered Products in the Pre-Closing Packaging applicable to the particular Covered Product; and (Z) and other than as set forth in clauses (X) or (Y) , it shall not use the name “Biotech” or variants thereof with respect to the sale of any of its products, including products of the Nu Hair and Shen Min Brands. When used in this Agreement:

(i)             “Covered Products” means products of the Nu Hair and Shen Min Brands as of the Closing Date that are in (x) the Inventory and (y) Post-Closing Delivered Products;

(ii)            “Pre-Closing Packaging” means, the boxes, packaging and labeling for products of the Nu Hair and Shen Min Brands that are in the Inventory;

(iii)           “Appropriately Packaged Covered Product” shall mean a Covered Product which is sold or distributed by Buyer after the Closing in the Pre-Closing Packaging applicable to that particular Covered Product.

1.4            Place of Closing; Closing Date .  The closing of the purchase and sale provided for in this Agreement (the “Closing”) shall be held at the offices of Buyer at 21411 Prairie Street, Chatsworth, CA 91311, on October 13, 2006, or at such other place or earlier or later date as may be fixed by mutual agreement of Buyer and Seller (the “Closing Date”).

1.5            Earn-Out . As additional consideration for the purchase of the Subject Assets, Buyer shall pay to Seller payments (the “Earnout”) based upon sales levels achieved by the Nu Hair and Shen Min Brands by Buyer and any of its direct and indirect subsidiaries during the three consecutive one year periods (referred to respectively as “Year 1,” “Year 2,” and “Year 3”) commencing as of January 1, 2007 as follows:

(a)            Year 1 :

With respect to Year 1, Seller will be paid $1.00 (one dollar) for every dollar of Gross Revenue of the Nu Hair and Shen Min Brands above $7.6 million.  For purposes of this Agreement, “Gross Revenue” shall mean the total amount invoiced to customers by Buyer or any of its affiliates with respect to the sale or licensing of (i) any men’s and women’s all natural hair loss and thinning hair and other related men’s and women’s hair care products under the Nu Hair and Shen Min tradenames or any of the trade

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names and brand names set forth in Sections 2.12(a) and (b) or any variations thereof; or (ii) any natural hair loss and thinning hair and other related products using similar formulations to any of those currently used by the Nu Hair and Shen Min Brands or any of the trade names and brand names set forth in Sections 2.12(a) and (b) or any variations thereof.  Buyer, for itself and its affiliates, hereby covenants and agrees to properly invoice all such sales.  The total amount of the Earnout payment for Year 1 will be capped at $2.0 million.

The Earnout payment for Year 1 will be paid by Buyer to Seller as follows:

Quarterly payments:

Within 20 days following the last day of each quarter during Year 1, Buyer will deliver its certificate signed by its chief financial officer setting forth Buyer’s calculation of the total amount of Gross Revenue and the amount of the Earnout Payment for the period from the first day of Year 1 to the respective quarter end, together with such back up documentation as Seller may reasonably request with respect to Buyer’s calculation of Gross Revenue and the Earnout payment.  If the period to date average of the quarterly Gross Revenue is greater than or equal to $2,375,000 an Earnout payment by Buyer to Seller will be made.  The Earnout payment will be such that the total period-to-date payments equal the number of months in such period multiplied by $500,000.

Example:

Quarter 1: Gross Revenue		$1,800,000		Average $1,800,000		no payment
Quarter 2: Gross Revenue		$2,300,000		Average $2,050,000		no payment
Quarter 3: Gross Revenue		$3,600,000		Average $2,566,667		payment of 3 X 500,000 $1,500,000

 

All quarterly Earnout payments to Seller will be made on or before the 20 th  day after the respective quarter end.

Year-end settlement :

Within 30 days of the end of Year 1, a final settlement payment with respect to the Earnout will be made as follows:

Gross Revenue for Year 1 will be calculated by Buyer and Buyer will deliver its certificate signed by its chief financial officer setting forth Buyer’s calculation of the Gross Revenue for Year 1 together with such back up documentation (including copies of invoices) as Seller may reasonably request with respect to Buyer’s calculation of Gross Revenue and the Earnout payments for Year 1.  The amount of Gross Revenue above $7.6 million will be calculated.  The amount paid by Buyer to Seller during the year will be subtracted from this amount (and the result thereof being referred to as the “Earnout Difference”) and an additional Earnout payment will be paid by Buyer to Seller equal to the Earnout Difference.

Example:

Gross Revenue:		$	8,600,000
Gross Revenue above $7,600,000		$	1,000,000
Amount paid during year		$	1,500,000
Settlement amount		$	(500,000	)

 

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If the Earnout Difference is a negative number (as it is in the above example), then Buyer’s sole recourse with respect thereto will be to offset this amount (but not more than the total amount of the Earnout payments previously paid by Buyer with respect to Year 1) against the Earnout payments to be made in years 2 and 3 as provided below.

(b)            Year 2 :

Within 30 days of the last day of Year 2, Buyer will pay to Seller an Earnout payment equal to 15% of Gross Revenue for Year 2 which are in excess of $11.4. Within 30 days of last day of Year 2, Buyer will deliver its certificate signed by its chief financial officer setting forth Buyer’s calculation of the Gross Revenue for Year 2 together with such back up documentation as Seller may reasonably request with respect to Buyer’s calculation of Gross Revenue and the Earnout payment for such period.

(c)            Year 3 :

Within 30 days of the last day of Year 3, Buyer will pay to Seller an Earnout payment equal to 15% of Gross Revenue which are in excess of $13.68 million. Within 30 days of the last day of Year 3, Buyer will deliver its certificate signed by its chief financial officer setting forth Buyer’s calculation of the Gross Revenue for Year 3 together with such back up documentation as Seller may reasonably request with respect to Buyer’s calculation of Gross Revenue and the Earnout Payment for such period.

(d)  Within ninety (90) days after the end of Year 1, Year 2 and Year 3, Seller shall have the right to examine and audit the books and records of Buyer and its affiliates with respect to any calculation of Gross Revenue and the Earnout payment with respect to such year.  Buyer shall provide Seller and its employees, agents and auditors with reasonable access to the books and records of Buyer and its affiliates with respect to sales and licensing of the Nu Hair and Shen Min Brands and the determination of Gross Revenues and the Earnout payments for such year.  In the event any calculation of Gross Revenue and any Earnout payment as determined by Seller’s examination or audit for such year is more than the amount thereof set forth in Buyer’s calculations for such year, then Seller shall provide Buyer written notice thereof within 15 days after the end of the applicable 90-day period.  If no dispute notice is received by Buyer within such period, then the Gross Revenue and Earnout payments for such year shall be deemed accepted by the parties.  Within 30 days after delivery of any dispute notice by Seller, Buyer and Seller shall use their reasonable efforts and attempt in good faith to resolve any differences in the calculations of Gross Revenue and the Earnout payment.  If Buyer and Seller are unable to resolve their differences despite their reasonable efforts, then Buyer and Seller shall jointly retain a firm of independent accountants mutually acceptable to them, and independent from them, the cost of which will be borne below.   Within 30 days after being retained, the reviewing accountants shall deliver to Buyer and Seller a report setting forth in reasonable detail its findings and determination as to the amount of the Gross Revenue and Earnout payment for such year.  Such reviewing accountants’ report shall be final and binding on the parties.  In the event it is ultimately determined that there was an underpayment of the Earnout payment by Buyer hereunder, Buyer shall promptly make payment to Seller of any shortfall.  If such underpayment by Buyer

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results in a discrepancy during any year between the Earnout payments actually made to Seller and the Earnout payment actually owed to Seller, as determined by the reviewing accountants, in excess of the greater of five percent (5%) and $25,000, all fees and expenses of the reviewing accountants shall be borne by and promptly paid by Buyer.

(e)  Any Earnout payments required to be paid by Buyer pursuant to this Section 1.5 which is not paid on the due date thereof shall thereafter bear interest at a floating rate of interest which is at all times equal to the “Prime Rate” as published in the Wall Street Journal (Hartford Connecticut edition) until such amount is paid in full.

1.6            Transfer of Subject Assets .  At the Closing, Seller shall deliver or cause to be delivered to Buyer good and sufficient instruments of transfer transferring to Buyer title to all of the Subject Assets.  Such instruments of transfer (a) shall be in the form which is usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, (b) shall be in form and substance satisfactory to Buyer and its counsel, (c) shall effectively vest in Buyer good title to all of the Subject Assets free and clear of all mortgages, pledges, security interests, charges, liens, restrictions and encumbrances of any kind, except for liens for taxes not yet due and payable (collectively, “Liens”), and (d) where applicable, shall be accompanied by evidence of the discharge of all liens and encumbrances against the Subject Assets.  Buyer shall also execute an Assumption Agreement with respect to the Assumed Liabilities which shall be in the form which is usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, shall be in form and substance satisfactory to Buyer and its counsel.

1.7            Delivery of Records and Contracts .  At the Closing, Seller shall deliver or cause to be delivered to Buyer all of the Contracts.  Seller shall also deliver to Buyer at the Closing, copies of all of Seller’s business records, books and other data relating to the assets, business and operations of the Nu Hair and Shen Min Brands, to the extent the same constitute part of the Subject Assets.

1.8            Further Assurances .  Seller from time to time after the Closing at the request of Buyer and without further consideration shall (a) execute and deliver further instruments of transfer and assignment (in addition to those delivered under Section 1.6) and take such other actions as Buyer may reasonably require to more effectively transfer and assign to, and vest in, Buyer each of the Subject Assets and (b) cooperate with and provide assistance to Buyer in taking possession of the Subject Assets (including but not limited to the Inventory).

1.9            Post-Closing Processing of Receivables and Orders .

(a)            Subsequent to the Closing, Buyer and its assignees shall have the right and authority to collect all receivables and other items resulting from any sales of Nu Hair and Shen Min products on or after the Closing .

(b)           Buyer and Seller agree that as of the Closing Date: (i) all purchase orders for the sale of products to customers and all Pre-Closing Supplier Orders, in each case related to the Nu Hair and Shen Min Brands and in existence as of the Closing Date are listed on Schedule 1.9(a) (the “Open Purchase Orders”), and shall be assumed, processed and/or filled by Buyer; (ii) all accounts receivable of Seller existing on or outstanding as of the Closing Date, including those related to related to the Nu Hair and Shen Min Brands, a list of which are set forth on Schedule 1.9(b), shall be retained by and processed by Seller (the “Retained

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Receivables”); (iii) Seller shall promptly remit to Buyer (within one business day) any purchase order for the sale of products to customers outstanding or received on or after the Closing Date; (iv) Buyer shall promptly remit to Seller (within five business days) all accounts receivable collected and all cash and cash equivalents collected with respect to the Retained Receivables; and (v) Seller shall promptly remit to Buyer (within five business days) all accounts receivable with respect to the Nu Hair and Shen Min Brands that arise after the Closing Date and all cash and cash equivalents collected with respect to such accounts receivable.

(c)           Until March 31, 2007, Seller shall submit as soon as possible after the end of each month (but in any event within 15 days after the end thereof) a monthly open item report containing a listing of those Retained Receivables that are still open and unpaid at the end of such prior month .  Buyer shall have the right at Buyer’s expense to examine and audit the books and records of Seller with respect to Retained Receivables retained and processed by Seller (and any offsets to Retained Receivables as a result of Pre-Closing Return Obligations) after the Closing.  Seller shall provide Buyer and its employees, agents and auditors with reasonable access to its books and records to permit such examination and audit.

(d)           Until March 31, 2007, Buyer shall provide a monthly statement (on or before the 15 th  day following the end of each month during said period) to Seller setting forth an itemized listing by customer and dollar amount of all such sums, cash and cash equivalents collected with respect to the Retained Receivables.  Seller shall have the right at Seller’s expense to examine and audit the books and records of Buyer and its affiliates with respect to the Retained Receivables processed and required to be remitted to Seller by Buyer after the Closing. Buyer shall provide Seller and its employees, agents and auditors with reasonable access to its books and records to permit such examination and audit.

1.10          Allocation of Purchase Price .  The purchase price payable by Buyer pursuant to Section 1.3 shall represent payment for the Subject Assets in the amounts on a schedule to be mutually agreed upon by the parties within 90 days after the Closing Date .  The amounts reflected in said schedule shall represent the fair market values of the Subject Assets at the Closing, to the best of the knowledge and belief of the parties hereto.  As soon as practicable thereafter, Buyer and Seller shall execute an IRS Form 8594 in accordance with the allocation set forth in said Schedule and in compliance with Section 1060 of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder.  All tax returns and reports filed by Buyer and Seller with respect to the transactions contemplated by this Agreement shall be consistent with such schedule.

1.11          Employees, Wages and Benefits .

(a)            Seller shall be responsible for the employ of all employees of the Nu Hair and Shen Min Brands as of or prior to the Closing and shall be responsible for making all compensation and any severance payments, to which such employees may be entitled. Buyer shall not assume or have any obligation or liability with respect to such employees or any termination of such employees.

(b)            Except as provided in Section 1.12 hereof, nothing in this Agreement shall be construed as a commitment or obligation of Buyer to accept for employment, otherwise continue the employment of, or enter into any kind of consulting relationship with, any of Seller’s employees.

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(c)            Seller acknowledges and agrees that Buyer is not assuming and shall not have any obligations or liabilities under, any benefit plan maintained by or for the benefit of employees of, the Nu Hair and Shen Min Brands, including without limitation obligations for severance pay benefits or vacation pay for vacation time accrued but not taken as of the Closing Date.

1.12          Consulting Agreement.   As a material inducement to and a condition precedent to this Agreement, Founder and Buyer shall execute and cause to be delivered to each other at the Closing a consulting agreement substantially in the form of Exhibit 1.12 attached hereto (the “Consulting Agreement”).

1.13          Non-Competition Agreements .  As a material inducement to and a condition precedent to this Agreement on the part of the Buyer, Seller and Founder shall each enter into and deliver to Buyer at the Closing a Non-Competition Agreement in the form of Exhibit 1.13 attached hereto (the “Non-Competition Agreement”).

1.14          Customer Returns and Promotional Discounts.

(a)            Subject to clause 1.14(b) hereof, Buyer shall have no recourse against Seller, either by way of indemnification or otherwise with respect to any liabilities, costs or claims (or costs and expenses associated therewith) related to customer returns or promotional discounts for or related to products sold or held for sale by Seller (or Covered Products sold by Buyer) (including the cost of packing and shipping invoiced by any customer for any product return (“Pre-Closing Return Obligations”)).

(b)            To the extent either Buyer or Seller is notified that any customer of the Nu Hair and Shen Min Brands is asserting any Pre-Closing Return Obligations after the Closing Date, the party receiving such notice shall promptly notify the other of such notice (within two business days thereof), and Seller shall as promptly as reasonably practical notify Buyer (within five business days thereof) whether there is any Retained Receivable with respect to such customer related thereto which Retained Receivable (i) is either unpaid or (ii) has not been offset against in accordance with this Section 1.14(b) (such Retained Receivable being referred to as a “Unpaid Retained Receivable”).  Seller shall then be responsible for and offset such Pre-Closing Return Obligations against and to the extent of such Unpaid Retained Receivable.

(c)            After the Closing Date, Seller shall promptly notify (within two business days thereof) Buyer of any customer returns (including any request for return authorizations) or promotional discounts for or related to products sold or held for sale by Buyer on or after the Closing Date of which Seller receives written notice.

1.15          Current Litigation.                 In connection with any proceeding that is part of the Current Litigation, Seller agrees that in addition to any other agreement set forth herein, it will: (i) maintain the corporate existence of any named defendant in the Current Litigation controlled by Seller in such manner as to provide a defense to any claim of successor liability of Buyer for the Current Litigation; (ii) so long as any aspect of the Current Litigation is pending, continue to vigorously defend such litigation, including providing a defense to Buyer in any effort to join Buyer in such litigation as successor to Seller; and (iii) in the event any settlement is reached with respect to the Current Litigation, cause any release obtained from plaintiff to extend to Buyer.

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SECTION 2 .            REPRESENTATIONS AND WARRANTIES OF SELLER AND FOUNDER.

2.1            Making of Representations and Warranties .  Seller and Founder jointly and severally hereby make to Buyer the representations and warranties contained in this Section 2.  For the purposes of this Agreement, references to the “knowledge” or terms of similar import of Seller shall be deemed to mean the actual knowledge of the Founder and Liisa Livingston, the Seller’s chief financial officer or the knowledge that such executive officer reasonably ought to have in the prudent exercise of his or her duties.

2.2            Organization and Qualification; Capital Stock .  Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut with full corporate power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it.  Seller is qualified to do business as a foreign corporation in any jurisdiction in which such qualification is necessary, except where the failure to be so qualified would not have a material adverse effect on Seller.  All of the issued and outstanding capital stock of Seller is owned beneficially and of record as set forth in Schedule 2.2 , free and clear of any lien, restrictions or encumbrances, and there are no outstanding options, warrants, rights, commitments, pre-emptive rights or agreements of any kind for the issuance or sale of, or outstanding securities convertible into, any interest of Seller, that would encumber or result in a lien against any of the Subject Assets or otherwise prevent consummation of the transactions contemplated by this Agreement.  Except as set forth in Schedule 2.2, Seller does not have any subsidiaries or own any securities issued by any other business organization or governmental authority or any direct or indirect interest in or control over any corporation, partnership, joint venture or entity of any kind relating to the Nu Hair and Shen Min Brands.

2.3            Authority .

(a)            Seller has full corporate power and authority to execute, deliver and perform this Agreement and each other agreement or instrument contemplated hereby and the execution and delivery of this Agreement and each other agreement or instrument contemplated hereby and the performance of all obligations hereunder and thereunder have been duly authorized by all necessary action of Seller.  This Agreement and each other agreement, document and instrument executed by Seller pursuant to or in connection with this Agreement constitutes, or when executed and delivered will constitute, the valid and binding obligation of Seller, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other rights affecting creditors’ rights generally, and general equitable principles, except as set forth in Schedule 2.3 (a) , the execution, delivery and performance by Seller of this Agreement and each other agreement, document and instrument contemplated hereby:

(i)             do not and will not violate any provision of the certificate of incorporation or by-laws of Seller, each as amended or restated to date;

(ii)            do not and will not violate any law or regulation applicable to Seller or require Seller to obtain any approval, authorization, declaration, consent or waiver of, or make any filing with or give notice to, any person, entity or public or governmental authority that has not been obtained, made or given; and

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(iii)           do not and will not result in a breach of, constitute a default under, accelerate any obligation under, require a consent under or give rise to a right of termination of any material indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, license, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Seller is a party or by which Seller or its property is bound or affected, or result in the creation or imposition of any Lien on any of the Subject Assets.

(b)            Founder has the full right, authority, power and capacity to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of him or it pursuant to or contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby.  This Agreement and each agreement, document and instrument executed and delivered by Founder pursuant to or contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of Founder, enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency or reorganization laws, or other laws relating to or affecting the availability of the remedy of specific performance or equitable principles of general application.  The execution, delivery and performance by Founder of this Agreement and each such agreement, document and instrument:

(i)             do not and will not violate any laws of the United States or any state or other jurisdiction applicable to Founder, or require Founder to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained, made or given; and

(ii)            do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any material indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Founder, is a party or by which the property of Founder is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the Subject Assets.

2.4            Title to Properties; Liens; Condition of Properties . Except as set forth in Schedule 2.4 :

(a)            The Subject Assets do not include any real property.  Schedule 2.4 sets forth the addresses and uses of all real property that Seller leases or subleases.  Seller owns all of the Subject Assets and Seller has and is conveying to Buyer hereunder good title to all of its personal property, tangible and intangible, included in the Subject Assets.  None of the Subject Assets are subject to any Lien.  No financing statement under the Uniform Commercial Code with respect to any of the Subject Assets is active in any jurisdiction, and Seller has not signed any such active financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement.  The Subject Assets and the Excluded Assets are all of the assets used in the operation of the Nu Hair and Shen Min Brands as the same has been operated prior to the date hereof.  The Subject Assets, conform with all applicable material state and federal statutes, ordinances, regulations and laws, except where the failure to so comply would not be reasonably likely to result in a Material Adverse Effect.

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(b)            Upon delivery to Buyer of the instruments of transfer referred to in Section 1.6 hereof, Buyer will receive good and valid title to all of the Subject Assets, free and clear of all Liens other than Permitted Liens.  When used herein, the phrase “Permitted Liens” shall mean liens for taxes, assessments or charges and other claims of any Governmental Authority for claims not yet delinquent and liens of carriers and warehousemen imposed by law and created in the ordinary course of business.

2.5            Financial Statements .  Seller has delivered to Buyer the following unaudited financial statements, copies of which are attached hereto as Schedule 2.5 :

(a)            balance sheets of Seller reflecting the entire business of Seller as a whole (which includes the Nu Hair and Shen Min Brands) for annual periods ending on December 31, 2004 and December 31, 2005 and statements of income, retained earnings and cash flows of Seller for the same periods, with appropriate footnotes.

(b)            balance sheet of Seller reflecting the entire business of Seller as a whole (which includes the Nu Hair and Shen Min Brands) as of August 31, 2006 (herein the “Base Balance Sheet”) and statements of income and cash flows of Seller for the period from January 1, 2006 to August 31, 2006, certified by Seller’s chief financial officer in such officer’s capacity as an officer on behalf of Seller, and not individually.

Such financial statements referred to in this Section 2.5 were prepared in conformity with United States generally accepted accounting principles (subject to normal and recurring year end adjustments and the absence of notes) applied on a consistent basis, are in all material respects complete, correct and consistent with the books and records of Seller and fairly and accurately present the financial position of Seller as of the dates thereof and the results of operations and cash flows of Seller for the periods shown therein.

2.6            Absence of Undisclosed Liabilities .  Except as and to the extent reflected or reserved against in the Base Balance Sheet or in Schedule 2.6 attached hereto, Seller has no and is not subject to any material liability or obligation of any nature, whether accrued, absolute, contingent or otherwise that relates to the Nu Hair and Shen Min Brands, other than liabilities or obligations arising in the ordinary course of business of the Nu Hair or Shen Min Brands since the date of the Base Balance Sheet.

2.7            Absence of Certain Developments .  Except as set forth in Schedule 2. 7 attached hereto, since the date of the Base Balance Sheet, there has not been any:  (i) material adverse change in the financial condition of Seller or in the assets, liabilities, condition (financial or other), business, results of operations or prospects of Seller, (ii) declaration, setting aside or payment of any dividend or other distribution with respect to, or any direct or indirect redemption or acquisition of, any of the capital stock of Seller, (iii) waiver of any material right of Seller or cancellation of any material debt or claim held by Seller, (iv) loss, destruction or damage to any property which is material to the assets, liabilities, properties, business or prospects of the Nu Hair and Shen Min Brands or the Subject Assets, whether or not insured, (v) acquisition or disposition of any assets or other transaction by Seller other than in the ordinary course of business, (vi) transaction or agreement involving Seller and any officer, director, employee or shareholder of Seller, (vii) arrangements relating to any royalty, dividend or similar payment based on the sales volume of the Nu Hair and Shen Min Brands, whether as part of the terms of Seller’s capital stock or by any separate agreement, (viii) material agreement with respect to the endorsement of the products of the Nu Hair and Shen Min Brands, (ix) material

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loss or any development that could result in a loss of any significant customer, account or employee of Seller, (x) transaction not occurring in the ordinary course of business, or (xi) any agreement with respect to any of the foregoing actions.

2.8            Ordinary Course .  Since the date of the Base Balance Sheet, Seller has conducted the business of the Nu Hair and Shen Min Brands only in the ordinary course and consistent with prior practices except as set forth in Schedule 2.8 .

2.9            Inventories .  The Inventory items set forth on Schedule 1.1(a)(iv) are of a quality and quantity salable in the ordinary course of its business and have at least 18 months of shelf life.  The inventories stated in the Base Balance Sheet reflect the normal inventory valuation policies of Seller and are based on and consistent with Seller’s inventory records and in the reasonable judgment of Seller are properly valued.  Since the date of the Base Balance Sheet, no Inventory items have been sold or disposed of except through sales in the ordinary course of business.  The average monthly dollar value of inventory held during the twelve full calendar months prior to the month in which the Closing Date occurs is not less than $195,072 (exclusive of labels and boxes), subject to adjustment pursuant to Section 1.3(c).

2.10          Tax Matters .  Seller has filed all federal, state, local and foreign income, excise and franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns required to be filed by it where the failure to file such returns would have a Material Adverse Effect (as hereinafter defined), except taxes which have not yet accrued or otherwise become due, for which adequate provision has been made in the pertinent financial statements referred to in Section 2.5 above or which will not have a material adverse effect on the assets, liabilities, financial condition, business, results of operations or prospects of Seller. All taxes and other assessments and levies which Seller is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities except where the failure to withhold or collect and pay over would not have a material adverse effect on the assets, liabilities, financial condition, business, results of operations or prospects of Seller.  With regard to the federal income tax returns of Seller, Seller has never received notice of any audit or of any proposed deficiencies from the Internal Revenue Service (the “IRS”) which is currently outstanding.  There are in effect no waivers of applicable statutes of limitations with respect to any taxes owed by Seller for any year.  Neither the IRS nor any other taxing authority is now asserting or, to the knowledge of Seller, threatening to assert against Seller any deficiency or claim for additional taxes or interest thereon or penalties in connection therewith which could reasonably result in a Material Adverse Effect.

2.11          Material Contracts and Arrangements .  Except as set forth in Schedule 2.11 hereto (with true and correct copies delivered to Buyer and all of which are referred to herein as the “Material Contracts”), Seller is not a party or subject to or bound by any of the following contracts, leases or agreements (as they relate directly, and not by implication, to the Nu Hair and Shen Min Brands), whether written or oral:

(a)            any contract, lease or agreement creating any obligation of Seller to pay to any third party $10,000 or more with respect to any single such contract or agreement;

(b)            any contract or agreement for the sale, license, lease or disposition of products in excess of $25,000;

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(c)            any contract containing covenants directly or explicitly limiting the freedom of Seller to compete in any line of business or with any person or entity;

(d)            any material license agreement (as licensor or licensee);

(e)            any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $5,000 or any pledge or security arrangement;

(f)             any material joint venture, partnership, manufacturing, development or supply agreement;

(g)            any material endorsement or any other material advertising, promotional or marketing agreement;

(h)            any material employment contracts, or material agreements with officers, directors, employees or shareholders of Seller or persons or organizations related to or affiliated with any such persons;

(i)             any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of Seller, including without limitation any agreement with any shareholder of Seller which includes without limitation, anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions that would prevent consummation of the transactions contemplated by this Agreement;

(j)             any royalty, dividend or similar arrangement based on the sales volume of Seller;

(k)            any acquisition, merger or similar agreement;

(l)             any material contract with a governmental body under which Seller may have an obligation for renegotiation;

(m)           any agreement with any shareholder of Seller or any affiliate of any shareholder that would prevent consummation of the transactions contemplated by this Agreement; or

(n)            any other material contract not executed in the ordinary course of business.

All of the Material Contracts are in full force and effect and neither Seller, nor to knowledge of Seller, any other party is in default thereunder (or, to the knowledge of Seller, has any event occurred which with notice, lapse of time or both would constitute a default thereunder), except to the extent that any such default would not have a Material Adverse Effect on the Subject Assets, and Seller has not received notice of any alleged default under any such Material Contract.

2.12          Intellectual Property Rights .  Except as set forth in Schedule 2.12 :

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(a)            To its knowledge, Seller has exclusive ownership of, with the exclusive right to use, sell, license, dispose of, and bring actions in the United States for infringement of, the tradenames and trademarks “Nu Hair,” “Shen Min” and “Scalpblock” in connection with the goods recited in the respective U.S. trademark registrations identified in Schedule 1.1(a)(i).

(b)            To its knowledge, Seller has exclusive ownership of, or an enforceable right to use and bring actions for infringement of, in the United States, the following trademarks in connection with the respective goods currently sold by Seller thereunder:

Shen Min Hair Nutrient

Shen Min Topical Solution

Shen Min Activator

Advanced Formula Shen Min for Men

Advanced Formula Shen Min for Women

Shen Min for Women Hair, Skin and Nail Formula

Shen Min Vitalize Shampoo

Shen Min Vitalize Conditioner

Shen Min Volumizing Serum

Shen Min Extra Strength

Shen Min DHT Blocker

Nu Hair Thinning Hair Serum

Nu Hair For Women

Nu Hair For Men

Nu Hair DHT Blocker

Nu Hair Volume Maximizing Shampoo

Ebony Secret Thinning Hair Serum

Ebony Secret Advanced Hair Regrowth Tabs

(c)            To Seller’s knowledge, the use of the Intellectual Property Rights and the business of Seller as presently conducted in connection with the Nu Hair and Shen Min Brands, and the manufacturing and marketing as presently conducted of the Nu Hair and Shen Min Brands, do not violate any agreements which Seller has with any third party or infringe any patent, trademark, copyright or trade secret or, any other Intellectual Property Rights of any third party.

(d)            No claim is pending or, to the knowledge of Seller, threatened against Seller nor has Seller received any notice or claim from any person asserting that any of Seller’s present or contemplated activities in connection with the Nu Hair and Shen Min Brands infringe or may infringe any Intellectual Property Rights of such person, and Seller is not aware of any infringement by any other person of any rights of Seller under any Intellectual Property Rights.

Schedule 1.1(a)(i) contains a list and brief description of all Intellectual Property Rights owned by or registered in the name of Seller or of which Seller is the licensor or a licensee of a material right or in which Seller has any material right.

2.13          Litigation .  Except as set forth in Schedule 2.13 , there is no litigation or governmental proceeding or investigation pending or, to the knowledge of Seller and Founder,

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threatened against Seller or affecting any of its properties or assets or against any officer, director or key employee of Seller in his or her capacity as an officer, director or employee of Seller, which litigation, proceeding or investigation is reasonably likely to have a material adverse effect on the assets, liabilities, financial condition, business, results of operations or prospects of Seller or the Nu Hair and Shen Min Brands, or which may call into question the validity or hinder the enfo