Execution Version
ASSET PURCHASE AGREEMENT
by and among
BAYWOOD INTERNATIONAL, INC.,
BAYWOOD ACQUISITION, INC.,
NUTRITIONAL SPECIALTIES, INC.
D/B/A LIFETIME(R) OR LIFETIME(R) VITAMINS
and
THE LIFETIME REPRESENTATIVES
(as defined herein)
Dated as of March 30, 2007
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ARTICLE I Certain Definitions . . . . . . . . . . . . . . . . . . .
. .
1
ARTICLE II Purchase and Sale. . . . . . . . . . . . . . . . . . . .
. .
8
2.1
Purchase
and Sale . . . . . . . . . . . . . . . . . . . . 8
2.2
Excluded
Assets.. . . . . . . . . . . . . . . . . . . . . 10
2.3
Assumed
Liabilities . . . . . . . . . . . . . . . . . . . 10
2.4
Excluded
Liabilities. . . . . . . . . . . . . . . . . . . 11
2.5
Purchase
Price; Warrants. . . . . . . . . . . . . . . . . 12
2.6
Post-Closing Purchase Price Adjustments.. . . . . . . . .
13
2.7
Closing..
. . . . . . . . . . . . . . . . . . . . . . . . 15
2.8
Instruments of Transfer . . . . . . . . . . . . . . . . .
16
ARTICLE III Representations and Warranties of LifeTime and the
LifeTime
Representatives . . . . . . . . . . . . . . . . . . . . .
17
3.1
Organization and Good Standing. . . . . . . . . . . . . .
17
3.2
Authorization . . . . . . . . . . . . . . . . . . . . . .
17
3.3
No
Conflicts; Consents. . . . . . . . . . . . . . . . . . 18
3.4
Financial
Statements. . . . . . . . . . . . . . . . . . . 18
3.5
No
Undisclosed Liabilities. . . . . . . . . . . . . . . . 18
3.6
Taxes.. .
. . . . . . . . . . . . . . . . . . . . . . . . 19
3.7
Property.
. . . . . . . . . . . . . . . . . . . . . . . . 19
3.8
Title to
and Sufficiency of Purchased Assets. . . . . . . 20
3.9
Intellectual Property . . . . . . . . . . . . . . . . . .
20
3.10
Contracts and Agreements. . . . . . . . . . . . . . . . .
21
3.11
Insurance.. . . . . . . . . . . . . . . . . . . . . . . .
23
3.12
Litigation. . . . . . . . . . . . . . . . . . . . . . . .
23
3.13
Compliance with Law; Licenses . . . . . . . . . . . . . .
23
3.14
Employees . . . . . . . . . . . . . . . . . . . . . . . .
23
3.15
Employee Benefit Plans. . . . . . . . . . . . . . . . . .
24
3.16
Environmental Matters . . . . . . . . . . . . . . . . . .
25
3.17 Bank Accounts
and Powers of Attorney. . . . . . . . . . . 26
3.18
Absence of Certain Changes. . . . . . . . . . . . . . . .
26
3.19
Books and Records . . . . . . . . . . . . . . . . . . . .
27
3.20
Transactions with Affiliates. . . . . . . . . . . . . . .
28
3.21
Customers and Suppliers . . . . . . . . . . . . . . . . .
28
3.22
Brokers and Finders.. . . . . . . . . . . . . . . . . . .
28
3.23
Restrictions on LifeTime Business Activities. . . . . . .
28
3.24
Accounts Payable. . . . . . . . . . . . . . . . . . . . .
28
3.25
Accounts Receivable . . . . . . . . . . . . . . . . . . .
29
3.26
Full
Disclosure.. . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV Representations and Warranties of Buyer and Baywood. . .
. . 29
4.1
Organization and Good Standing. . . . . . . . . . . . . .
29
4.2
Authorization . . . . . . . . . . . . . . . . . . . . . .
29
4.3
No Conflicts;
Consents. . . . . . . . . . . . . . . . . . 30
4.4
Litigation. . . . . . . . . . . . . . . . . . . . . . . .
30
<PAGE>
4.5
Sufficient
Funds. . . . . . . . . . . . . . . . . . . . . 30
4.6
Brokers
and Finders.. . . . . . . . . . . . . . . . . . . 30
4.7
Public
Filings. . . . . . . . . . . . . . . . . . . . . . 31
4.8
Capital
Stock . . . . . . . . . . . . . . . . . . . . . . 31
4.9
Issuance
of Shares. . . . . . . . . . . . . . . . . . . . 31
ARTICLE V Covenants of LifeTime and the LifeTime Representatives. .
. . 31
5.1
Normal
Course.. . . . . . . . . . . . . . . . . . . . . . 31
5.2
Conduct of
LifeTime Business. . . . . . . . . . . . . . . 32
5.3
Access to
Information.. . . . . . . . . . . . . . . . . . 33
5.4
Efforts to
Satisfy Conditions . . . . . . . . . . . . . . 33
5.5
Notification of Certain Matters . . . . . . . . . . . . .
33
5.6
Confidentiality
. . . . . . . . . . . . . . . . . . . . . 34
5.7
Non-Competition . . . . . . . . . . . . . . . . . . . . .
35
5.8
Non-Solicitation. . . . . . . . . . . . . . . . . . . . .
36
5.9
Non-Disparagement.. . . . . . . . . . . . . . . . . . . .
37
5.10
Enforcement; Injunctive Relief. . . . . . . . . . . . . .
37
5.11
Name
Change . . . . . . . . . . . . . . . . . . . . . . . 38
5.12
Update of Disclosure Schedule . . . . . . . . . . . . . .
38
ARTICLE VI Covenants
of Buyer and Baywood. . . . . . . . . . . . . . . 38
6.1
Efforts to
Satisfy Conditions . . . . . . . . . . . . . . 38
6.2
Notification of Certain Matters. . . . . . . . . . . . .
38
6.3
Confidentiality . . . . . . . . . . . . . . . . . . . . .
39
ARTICLE VII Covenants of all Parties. . . . . . . . . . . . . . . .
. . 39
7.1
Further
Assurances. . . . . . . . . . . . . . . . . . . . 39
7.2
Certain
Filings . . . . . . . . . . . . . . . . . . . . . 40
7.3
Assignment
of Purchased Assets. . . . . . . . . . . . . . 40
7.4
Public
Announcements. . . . . . . . . . . . . . . . . . . 40
7.5
Certain
Tax Matters.. . . . . . . . . . . . . . . . . . . 40
7.6
Transfer
Taxes. . . . . . . . . . . . . . . . . . . . . . 41
7.7
Receipt of
Payments on Accounts Receivable. . . . . . . . 42
7.8
Payment of
Audit Fees . . . . . . . . . . . . . . . . . . 42
7.9
Preparation of 2005 Audited Financial Statements. . . . .
42
ARTICLE VIII Conditions to Closing. . . . . . . . . . . . . . . . .
. . 42
8.1
Conditions
Precedent to Obligations of Each Party . . . . 42
8.2
Conditions
Precedent to Obligations of Buyer and Baywood. 43
8.3
Conditions
Precedent to Obligations of LifeTime and the
LifeTime Representatives. . . . . . . . . . . . . . . . .
44
ARTICLE IX Survival; Indemnification. . . . . . . . . . . . . . . .
. . 46
9.1
Survival.
. . . . . . . . . . . . . . . . . . . . . . . . 46
9.2
Indemnification.. . . . . . . . . . . . . . . . . . . . .
46
9.3
Procedures; No Waiver; Limitations. . . . . . . . . . . .
48
<PAGE>
ARTICLE X Termination of Agreement. . . . . . . . . . . . . . . . .
. . 49
10.1
Conditions for Termination. . . . . . . . . . . . . . . .
49
10.2
Effect of Termination . . . . . . . . . . . . . . . . . .
50
ARTICLE XI Miscellaneous. . . . . . . . . . . . . . . . . . . . . .
. . 50
11.1
Expenses. . . . . . . . . . . . . . . . . . . . . . . . .
50
11.2
Entire of Agreement . . . . . . . . . . . . . . . . . . .
51
11.3
Notices . . . . . . . . . . . . . . . . . . . . . . . . .
51
11.4
Amendment . . . . . . . . . . . . . . . . . . . . . . . .
52
11.5
Waiver. . . . . . . . . . . . . . . . . . . . . . . . . .
52
11.6
Counterparts; Facsimile.. . . . . . . . . . . . . . . . .
52
11.7
Assignment; Binding Nature; No Beneficiaries. . . . . . .
53
11.8
Headings. . . . . . . . . . . . . . . . . . . . . . . . .
53
11.9
Governing Law . . . . . . . . . . . . . . . . . . . . . .
53
11.10
Dispute Resolution. . . . . . . . . . . . . . . . . . . .
53
11.11
Construction. . . . . . . . . . . . . . . . . . . . . . .
53
11.12
Agreement . . . . . . . . . . . . . . . . . . . . . . . .
54
11.13 Remedies Cumulative..
. . . . . . . . . . . . . . . . . . 54
11.14
Severability. . . . . . . . . . . . . . . . . . . . . . .
54
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET
PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of March
30, 2007, is by and among Baywood International, Inc.,
a Nevada corporation
("BAYWOOD"), Baywood
Acquisition, Inc., a Nevada corporation and a wholly owned
subsidiary of Baywood ("BUYER"), Nutritional Specialties, Inc.
d/b/a Lifetime(R)
or Lifetime(R) Vitamins, a California corporation ("LIFETIME"), and
the LifeTime
Representatives (as
defined below).
WHEREAS, LifeTime
currently operates a business consisting of
arranging for
the manufacture of, marketing, distributing and selling of
neutraceutical
products, including dietary supplements and pharmaceuticals;
and
WHEREAS, Buyer wishes to purchase from LifeTime and LifeTime wishes
to
sell to Buyer substantially all of the rights and assets of the LifeTime
Business (as
defined below) other
than the Excluded Assets (as defined below).
NOW, THEREFORE,
in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto,
intending to
be legally
bound, hereby agree as follows:
ARTICLE I
Certain Definitions
-------------------
"Accounts Receivable"
has the meaning set forth in Section
2.1(c).
"Affiliate" shall
mean a Person that
directly, or indirectly through
one or more intermediaries, controls or is controlled by, or
is under common
control with, the
Person specified. For
purposes of this definition, the terms
"control," "controlled
by" and "under common control with" shall mean the
possession, directly
or indirectly, of the power to direct or cause the
direction of
the management or policies of such
Person and, in the case of an
entity, shall require
(a) in the case of corporate entities, direct or indirect
ownership of at least a majority of the stock or shares having the
right to vote
for the election of directors, and (b) in the case
of non-corporate entities,
direct or indirect
ownership of at least a majority of the equity interest with
the power to direct
the management and policies of such non-corporate entities.
"Assumed Contracts"
shall mean the specific contracts,
licenses and
agreements listed
in Exhibit 2.1(j).
---------------
"Assumed Liabilities"
has the meaning set forth in Section 2.3.
"Agreement" has
the meaning set forth in the preamble.
"Balance Sheets"
has the meaning set forth in Section 3.4.
1
<PAGE>
"Baywood" has
the meaning set forth in the preamble.
"Best Formulations"
means Ultimate Formulations, Inc. d/b/a Best
Formulations, a
California
corporation.
"Business Day"
means any day that is not a Saturday or
Sunday or a
legal holiday
on which banks are
authorized or required by law to be closed in
New York, New York.
"Buyer" has
the meaning set forth in the preamble.
"Buyer Indemnified
Parties" has the meaning set forth in Section
9.2(a).
"California Health
International"
means California
Health Food Inc.
d/b/a California
Health International, a California corporation.
"Cash" has
the meaning set forth in Section 2.1(c).
"Cash Flow
Statements"
has the meaning set forth in Section 3.4.
"Claim Dispute
Notice" has the meaning set forth in
Section 9.3(a).
"Claim Notice"
has the meaning set forth in Section 9.3(a).
"Closing" has
the meaning set forth in Section 2.7(a).
"Closing Balance
Sheet" means the balance sheet of LifeTime as of the
opening of
business on the Closing Date.
"Closing Date"
has the meaning set forth in Section 2.7(a).
"COBRA" has
the meaning set forth in Section 3.15(g).
"Code" means
the Internal Revenue Code of 1986, as amended.
"Confidential
Information" means
any and all information, whether
technical, business,
proprietary,
financial or
otherwise, of or relating to a
party, its Affiliates
or its business that reasonably appears to be proprietary
or confidential
in nature because of legends or other
markings, the nature of
the information
itself or the circumstances of disclosure, whether such
information is
disclosed in writing, through electronic media, orally,
visually
or in any other form.
"Contracts" has
the meaning set forth in Section 3.10(a).
"Convertible
Promissory Notes"
means those certain convertible
promissory notes,
dated as of the
Closing Date, in the aggregate amount of Six
Hundred Thousand
Dollars ($600,000), payable to the LifeTime Representatives by
Buyer and Baywood, in the form attached hereto as Appendix F.
-----------
"Damages" has
the meaning set forth in Section 9.2(a).
2
<PAGE>
"Disclosure Schedule" means the disclosure schedules accompanying
this
Agreement.
"Distributor List"
means a list of all Persons who have been
authorized by LifeTime
to sell products as a distributor since January 1, 2005.
"Earnings" means
the previously taxed
earnings of LifeTime that have
not yet been distributed to the LifeTime Representatives,
which the parties
agree equals
[$1,060,000.00].
"Employee Benefit
Plan" has the meaning set forth in Section 3.15(a).
"Employment Agreement"
means the employment
agreement by and between
Baywood and
Pinkowski,
which has been or will
be executed and delivered on or
after the execution and delivery of this Agreement and which shall
become
effective as
of the Closing, in the form attached hereto as Appendix A.
----------
"Encumbrance" means
any lien (other than a lien for Taxes not yet due
and payable
for which an adequate reserve has been established), pledge,
mortgage, security interest, charge, restriction, adverse claim
against specific
property or
other encumbrance of any kind or nature whatsoever.
"Environmental Laws"
has the meaning set forth in Section 3.16.
"Environmental Liabilities" has the meaning set forth in Section
3.16.
"Equipment" has
the meaning set forth in Section 2.1(a).
"ERISA" has
the meaning set forth in Section 3.15(a).
"ERISA Affiliate"
has the meaning set forth in Section 3.15(a).
"Escrow Agent"
means Meltzer, Lippe, Goldstein &
Breitstone, LLP or
any other Person designated as such pursuant to the Escrow Agreement.
"Escrow Agreement"
means the Escrow Agreement by and among Buyer,
Baywood, LifeTime, the
LifeTime Representatives and the Escrow Agent, which has
been or will be executed and delivered on or after the execution
and delivery of
this Agreement
and which shall become
effective as of the Closing, in the form
attached hereto
as Appendix B.
-----------
"Excluded Assets" means all the assets described in Section 2.2 as
not
being transferred
to Buyer.
"Excluded Contracts"
has the meaning set forth in Section 2.2(c).
"Excluded Liabilities"
has the meaning set forth in Section 2.4.
"Final Closing
Balance Sheet" has the meaning set forth in
Section
2.6(c).
"Financing" has
the meaning set forth in Section 8.2(l).
3
<PAGE>
"Financial
Statements"
has the meaning set forth in Section 3.4.
"401(k) Plan" means the 401(k) retirement plan of LifeTime provided
by
DST Systems,
Inc.
"GAAP" means
U.S. generally accepted accounting principles, as in
effect on the date of this Agreement, consistently applied.
"Governmental Body"
means any governmental or regulatory body,
agency, authority,
commission,
department, bureau, court, tribunal, arbitrator
or arbitral
body public or
private, or political subdivision, whether federal,
state, local
or foreign.
"Hazardous Materials"
has the meaning set forth in Section 3.16.
"Income Statements"
has the meaning set forth in Section 3.4.
"Indemnified Party"
has the meaning set forth in Section 9.3(a).
"Indemnifying Party"
has the meaning set forth in Section 9.3(a).
"Indemnity Threshold"
has the meaning set forth in Section
9.3(d).
"Independent
Accounting Firm"
has the meaning set forth in
Section
2.6(b).
"Intellectual Property" means all intellectual property owned, used
or
licensed (as
licensor or licensee)
by LifeTime for use, or that has been used,
or that may be used,
in the LifeTime Business, or in any product, technology or
process currently
or formerly offered by LifeTime, or currently under
development or
planned by LifeTime, including:
(i)
all copyright
interests in any original work of
authorship,
whether registered
or unregistered,
including but not limited to all copyright
registrations, all
applications
for registration, all moral rights, all
common-law rights, and all rights to register and obtain renewals
and extensions
of copyright registrations, together with all other copyright
interests accruing
by reason of international copyright convention ("COPYRIGHTS");
(ii)
all patents
(including
certificates of
invention and other
patent equivalents),
provisional
applications, patent applications and patents
issuing therefrom as well as any division, continuation or
continuation in part,
reissue, extension,
reexamination,
certification,
revival or renewal of any
patent, all
Inventions
and subject matter
related to such patents, in any and
all forms ("PATENTS");
(iii) all trademarks, trade dress, service marks, trade names,
icons, logos,
slogans, and any other
indicia of source or sponsorship of goods
and services, designs
and logotypes related to the above, in any and all forms,
all trademark
registrations
and applications for
registration related to such
trademarks (including,
but not limited to
intent to use applications), and all
goodwill related
to the foregoing ("TRADEMARKS");
(iv)
all domain
name registrations ("DOMAIN NAMES");
4
<PAGE>
(v)
any formula,
design, device or compilation, or other
information which is
used or held for use by a business, which gives the holder
thereof an advantage
or opportunity for advantage over competitors which do not
have or use the same, and which is not generally
known by the public ("TRADE
SECRETS"). Trade
Secrets can include,
by way of example, formulas, algorithms,
market surveys,
market research
studies, information contained on drawings and
other documents,
and information
relating to research, development or testing,
but, for purposes of this Agreement, shall not
include formulations where the
ingredients for
such formulations are listed in the name of the product or
otherwise on
the product's packaging;
(vi)
novel devices,
processes,
compositions of
matter, methods,
techniques,
observations,
discoveries,
apparatuses, machines,
designs,
expressions, theories
and ideas, whether or not patentable;
(vii) scientific,
financial,
marketing or practical
knowledge or
experience useful
in the operation of the LifeTime Business;
(viii) any and all computer programs and/or software programs
(including all
source code, object code, firmware, programming tools
and/or
documentation) and
all content contained on Internet site(s);
(ix) all machine readable databases and
compilations and any and
all data and collections of data, wherever contained;
(x)
all documentation
and media constituting, describing or
relating to
the above, including memoranda,
manuals, technical specifications
and other records wherever created throughout the world; and
(xi)
the right to sue for past, present, or future
infringement
and to collect and retain all damages and profits related to
the foregoing.
"IRS" means
the U.S. Internal Revenue Service.
"Karim" means
M. Amirul Karim, an individual.
"Law" means any federal, state, local or foreign law (including
common
law), statute,
code, ordinance, rule, regulation, permit, order or other
requirement or
guideline.
"Licenses" has
the meaning set forth in Section 3.13(b).
"LifeTime" has
the meaning set forth in the preamble.
"LifeTime Business" means the research, design, development,
creation,
marketing,
distribution and
sale of any of the products of
LifeTime, and the
business, operations
and assets associated with LifeTime.
"LifeTime Indemnified
Parties" has the meaning set forth in
Section
9.2(b).
5
<PAGE>
"LifeTime Persons"
means those employees, consultants and advisers of
LifeTime who
have in the past been or are engaged in, or
otherwise involved
with, the LifeTime Business.
"LifeTime Representatives" means the shareholders of LifeTime, who
are
Pinkowski, Ung
and Karim, jointly and severally, unless expressly stated
otherwise.
"Manufacturing
Agreement - Best Formulations" means the Manufacturing
Agreement by and
between Buyer and Best Formulations, which has been or will be
executed and delivered
on or after the execution and delivery of this Agreement
and which shall become
effective as of the Closing, in the form attached hereto
as Appendix
C.
-----------
"Manufacturing
Agreement - NHK" means
the Manufacturing Agreement by
and between
Buyer and NHK, which
has been or will be executed and delivered on
or after the execution and delivery of this Agreement and
which shall become
effective as
of the Closing, in the form attached hereto as Appendix D.
----------
"Manufacturing
Agreements" means
together, the Manufacturing
Agreement -
NHK and the Manufacturing Agreement - Best Formulations.
"Material Adverse
Effect" means any material adverse effect on
the
business, operations,
assets, condition
(financial or otherwise), liabilities,
results of
operations
or prospects of LifeTime, on the one
hand, or Buyer or
Baywood, on
the other hand.
"Nature's Value" means Nature's Value, Inc., a California
corporation.
"Net Working
Capital" means the
current assets of LifeTime minus the
current liabilities of LifeTime (excluding the current and
long-term liabilities
of LifeTime in
connection with payments to be made by LifeTime to the estate
or
heirs of Thomas Krech
in connection with the purchase of his shares of stock of
LifeTime), in each case such terms having the meanings assigned to
them by GAAP.
"NHK" means
NHK Laboratories, Inc., a California corporation.
"NHKCC" means
NHK Chemical Corporation, a California corporation.
"Notes"
means collectively, the Promissory Notes
and the Convertible
Promissory Notes.
"Parason" means
Parason Health Products, Inc., a California
corporation.
"Person" means
an individual, partnership, venture,
unincorporated
association, organization, syndicate, corporation, limited
liability company, or
other entity,
trust and trustee, executor, administrator or other legal
or
personal representative or any government or any agency or
political subdivision
thereof.
"Pinkowski" means
Thomas Pinkowski, an individual.
6
<PAGE>
"Pre-Closing Accounts Receivable" has the meaning set forth in
Section
7.7.
"Pre-Closing Tax
Period" means (i) all taxable periods
ending on or
before the
Closing Date and (ii)
the portion ending on the Closing Date of any
taxable period
that includes (but does not begin or
end on) the Closing Date.
"Promissory Notes"
means those certain
promissory notes, dated as of
the Closing
Date, in the aggregate amount of Seven Hundred
Thousand Dollars
($700,000), payable to the LifeTime Representatives by Buyer and
Baywood, in the
form attached
hereto as Appendix E.
-----------
"Purchase Price"
has the meaning set forth in Section 2.5.
"Purchased Assets"
means all those assets, both tangible and
intangible, to
be transferred pursuant to this Agreement, as set forth in
Section 2.1.
"Representatives" of a Person means such Person's directors,
officers,
employees, agents,
consultants
and other representatives.
"Required Consents"
has the meaning set forth in Section 7.3.
"Restriction Period"
has the meaning set forth in Section 5.7(a).
"Returns" means
returns, reports, and information statements with
respect to
Taxes required to be filed with the IRS or any
other Governmental
Body, domestic
or foreign, including consolidated, combined and unitary
tax
returns, and
returns required in connection with any Employee
Benefit Plan.
"Revenues" means bona
fide revenues that are recognized in accordance
with Buyer's
revenue recognition policies under GAAP.
"Revised Closing
Balance Sheet" has the
meaning set forth in Section
2.6(b).
"SEC" means
the U.S. Securities and Exchange Commission.
"SEC Documents"
has the meaning set forth in Section 4.7.
"Shares" means the
shares of common stock, par value $.001 per share,
of Baywood.
"Straddle Period"
has the meaning set forth in Section 7.5(c).
"2006 Balance
Sheet" has the meaning set forth in Section 3.5.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts
and governmental impositions or charges of any kind in the
nature of (or similar to) taxes, payable to any federal, state,
local or foreign
Governmental Body,
including,
without limitation, (i) income, franchise,
profits, gross
receipts, ad valorem, net worth, value added, sales, use,
service, real or personal property, special assessments, capital
stock, license,
payroll, withholding,
employment,
social security, workers' compensation,
unemployment
compensation, utility,
severance,
7
<PAGE>
production, excise,
stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, additional taxes and
additions to tax
imposed with
respect thereto.
"Third Party
Claim" has the meaning set forth in Section 9.3(b).
"Transaction
Documents" means
this Agreement, the Employment
Agreement, the
Escrow Agreement and the Manufacturing Agreements.
"Transfer Taxes"
has the meaning set forth in Section 7.6.
"Ung" means
Charles Ung, an individual.
"U.S." means
the United States of America.
"Warrants" means
the warrants issued at the Closing to
the LifeTime
Representatives to
purchase, in the aggregate, Seven Hundred
Thousand Dollars
($700,000) in
Shares at $0.05 per Share, in the form attached hereto as
Appendix G.
----------
"Working Capital
Dispute Notice" has the meaning set forth in Section
2.6(b).
ARTICLE II
Purchase and Sale
-----------------
2.1
Purchase and
Sale.
-------------------
Upon and subject to the terms and conditions hereof, at the
Closing, LifeTime
shall sell, transfer and assign to Buyer, and Buyer
shall
purchase and acquire
from LifeTime, all of LifeTime's right, title and interest
in and to the assets and rights of every kind,
nature and description, real,
personal and mixed, tangible and intangible, wherever located,
owned, held, used
or licensed
by LifeTime or in
which LifeTime has an interest as of the Closing
Date (other than the
Excluded Assets, which are being retained by LifeTime), in
each case free and clear of all Encumbrances except for the Assumed
Liabilities.
Without limiting
the generality of the
foregoing, the Purchased Assets include
the following
as of the Closing:
(a)
all furnishings,
furniture,
office and other
supplies,
vehicles, spare
parts, tools,
machinery, equipment and other tangible personal
property of
any kind (collectively, the "EQUIPMENT"), including, without
limitation, all
of the Equipment listed on Exhibit 2.1(a);
---------------
(b)
all items of inventory
notwithstanding how classified in
the financial records of LifeTime, including, without limitation,
raw materials,
work-in-process,
finished goods,
supplies, packaging, spare parts and samples;
(c)
all (i) accounts, accounts receivable and notes
receivable (whether
short-term or long-term) from unaffiliated third parties or
Affiliates of
LifeTime and all deposits with unaffiliated third parties
or
Affiliates, together
with any unpaid interest, finance charges and fees accrued
thereon from
the respective obligors and any
security or collateral therefor,
including recoverable
deposits and advances, so long as such accounts, accounts
receivable or
8
<PAGE>
notes receivable from
or deposit with an Affiliate resulted from trade activity
between the
Affiliate and Buyer (collectively, the
"ACCOUNTS RECEIVABLE") and
(ii) cash and cash equivalents (together, the "CASH"), except to
the extent that
such Accounts
Receivable
and Cash are required to distribute
Earnings to the
LifeTime Representatives, including, without limitation those
receivables listed
on Exhibit
2.1(c);
---------------
(d)
all Intellectual Property, including, without limitation,
the items listed on Exhibit 2.1(d);
---------------
(e)
the right to defend against claims made that
any of the
Intellectual Property
infringes the intellectual property rights
of any third
party;
(f)
the
right to prosecute all patent applications and
maintain all
patent rights included in the Intellectual Property;
(g)
all LifeTime
Business records, risk
management records,
accounting statements
and records, customer records and sales history with
respect to
customers, sales and
marketing records, lists of data providers and
component
manufacturers,
documents,
correspondence, studies, reports, and all
other books,
ledgers, files, and
records of every kind (other than Returns and
related work
papers), tangible data, Distributor Lists, e-mail
lists, vendor
lists, service provider lists, promotional literature and
advertising materials,
catalogs, research
material, technical information, (in each case, whether such
materials are
evidenced in writing, electronically, or otherwise);
(h)
all goodwill associated with the name and the business of
LifeTime and
all of LifeTime's rights (both legal and equitable),
claims or
causes of action to
protect its rights and interest with respect to its assets,
properties, customers
and former customers;
(i)
to the extent transferable, all Licenses, including,
without limitation,
the items listed on Exhibit 2.1(i);
---------------
(j)
all rights,
title and interest in
and to the contracts,
licenses and
agreements
listed on Exhibit 2.1(j) (collectively,
the "ASSUMED
--------------
CONTRACTS");
(k)
all rights of recovery
and rights of set-off of any kind
(except to
the extent related to Excluded Liabilities);
(l)
all prepaid
expenses and deposits;
(m)
telephone numbers
(including
all rights in customer
service telephone lines), websites and domain names associated with
the LifeTime
Business, all
as listed on Exhibit 2.1(m);
---------------
(n)
all computer
code and database technology (including
source code,
html or other mark-up language, embedded programs or
graphics
related to
the LifeTime Business, including,
without limitation, all computer
code related to the LifeTime web page(s) and databases, which code
shall in each
case be transferred in a format reasonably acceptable to
9
<PAGE>
Buyer, and in a manner capable of reproducing on another website
all source code
and all web pages utilized in the LifeTime Business or owned by
LifeTime);
(o)
all data provided from
third parties or clients and used
in the LifeTime Business;
(p)
the names "LifeTime", "Nutritional Specialties" or
any
variant thereof;
and
(q)
all other assets of LifeTime (whether real
or personal,
tangible or
intangible,
absolute or contingent) relating to the LifeTime
Business, other
than the Excluded Assets.
2.2
Excluded Assets.
----------------
The Excluded
Assets shall include the following:
(a)
those items
listed on Exhibit 2.2(a) and all books
and
--------------
records exclusively
related thereto;
(b)
any minute books, stock records or other data relating to
LifeTime's ownership
or operation of the LifeTime Business which are
part of
LifeTime's general
corporate books and records or required by applicable Law to
be retained
by LifeTime;
(c)
all rights
of LifeTime arising under those contracts
listed on Exhibit 2.2(c) (the "EXCLUDED CONTRACTS");
---------------
(d)
such books and records that relate to the negotiation and
consummation of
the transactions provided for in this
Agreement and all books
and records
prepared in connection with the sale of the Purchased Assets,
including, without
limitation,
bids received from third parties and
analyses
relating to
the LifeTime Business and confidential
communications with legal
counsel and
other advisors to LifeTime; and
(e)
any Contracts,
licenses or permits which may not be
transferred without
the consent, novation,
waiver or approval of a third party
or entity,
unless such consent, novation, waiver or approval has been
duly
obtained or
receipt of which has been waived by Buyer.
2.3
Assumed
Liabilities.
--------------------
Buyer shall assume and
agree to perform the Assumed Liabilities,
effective as
of the Closing Date set forth below.
The "ASSUMED
LIABILITIES"
shall mean:
(a)
all liabilities
of LifeTime arising under the Assumed
Contracts (other than
liabilities or obligations attributable to any failure by
LifeTime to
comply with the terms
thereof or liabilities of, and any omissions
or negligence
on the part of, LifeTime prior to the Closing Date);
10
<PAGE>
(b)
Buyer's portion of any Taxes pursuant to Sections 7.5 and
7.6;
(c)
all current liabilities which are included on the Closing
Balance Sheet
or in the calculation of Net Working Capital; and
(d)
all other liabilities relating to the
LifeTime Business
listed on Exhibit 2.3(d).
---------------
2.4
Excluded
Liabilities.
---------------------
LifeTime shall be responsible for payment and performance of,
and
agrees to pay and perform, and be solely
responsible for all (and Buyer shall
not have any responsibility with respect to any) obligations other
than the
Assumed Liabilities
(the "EXCLUDED LIABILITIES"). Without limiting the
generality of
the foregoing, LifeTime shall be responsible for payment and
performance of, and agrees to pay and perform, and be solely
responsible for all
of (and Buyer shall not have any responsibility with
respect to any of) the
following:
(a)
all liabilities related to the payment of wages, salaries
and the provision of benefits, including severance,
accrued vacation and sick
leave (unless
included as current
liabilities on the Closing Balance Sheet and
in the calculation of Net Working Capital), to LifeTime
Persons who are not
retained as
employees of Baywood or Buyer immediately following the
Closing
Date;
(b)
all liabilities
arising under any Environmental Law
(excluding any
such liabilities to the extent created
by Buyer's operation of
the LifeTime
Business after the Closing);
(c)
all current
liabilities
including, without
limitation,
all accounts
payable and wages and
salaries payable, which are not included on
the Closing
Balance Sheet or in the calculation of Net Working Capital;
(d)
all liabilities
in any way relating to Excluded
Contracts;
(e)
except as set forth in Section 7.5, any Tax
liabilities
for any Pre-Closing Tax Period;
(f)
any liabilities
arising from any
work-related injury to
any employee or former
employee of LifeTime who were at any time engaged in the
LifeTime Business
(excluding any such
liabilities created by Buyer's operation
of the LifeTime Business after the Closing); and
(g)
all
current liabilities related to the payment of
premiums and other
payments with respect to the insurance policies set forth in
Section 3.11 of the Disclosure Schedule and the Employee Benefit
Plans set forth
in Section
3.15(a) of the Disclosure Schedule
(including, with respect to the
401(k) Plan,
liability for underfunding of contributions related to
service
prior to the Closing, if any) which are not included on the
Closing Balance
Sheet or in the calculation of Net Working Capital;
11
<PAGE>
(h)
all other liabilities
that arise up to and including the
Closing Date
which are not Assumed Liabilities.
2.5
Purchase Price;
Warrants.
--------------------------
The consideration
for the transfer of the Purchased
Assets and
the LifeTime
Business to Buyer by LifeTime shall be (i)
Buyer's assumption of
the Assumed
Liabilities
as provided in Section 2.3, plus (ii)
the payment to
LifeTime of Ten Million Dollars ($10,000,000) (the "PURCHASE
PRICE"), subject to
adjustment as provided in Section 2.6, plus (iii) the issuance by
Baywood of the
Warrants.
(a)
Payment of
the Purchase Price shall be made on the
Closing Date
as follows:
(i)
An aggregate
of Seven Million Six
Hundred Thousand
Dollars ($7,600,000),
by wire transfer of immediately
available funds
to the account(s) designated by each of
Pinkowski, Ung
and Karim as follows:
(A)
One Million Eight Hundred Eighty Three Thousand
Three Hundred
Thirty Three Dollars ($1,883,333), payable to
Pinkowski;
(B)
Two Million Eight
Hundred Eight Thousand Three
Hundred Thirty
Three Dollars ($2,808,333), payable to Ung;
and
(C)
Two Million
Nine Hundred Eight
Thousand Three
Hundred Thirty
Three Dollars ($2,908,333), payable to Karim;
(ii)
Seven Hundred
Thousand Dollars ($700,000), by
delivery to
the Escrow Agent of the Promissory Notes,
payable in
the principal amounts as follows:
(A)
Three Hundred
Fifty Thousand Dollars
($350,000), payable
to Pinkowski;
(B)
One Hundred
Seventy Five Thousand Dollars
($175,000), payable
to Ung; and
(C)
One Hundred
Seventy Five Thousand Dollars
($175,000), payable
to Karim;
(iii) Six Hundred Thousand Dollars ($600,000), by
delivery to
the LifeTime Representatives of the Convertible
Promissory Notes,
payable in the principal amounts as
follows:
12
<PAGE>
(A)
One Hundred
Thousand Dollars ($100,000),
payable to
Pinkowski;
(B)
Two Hundred Fifty
Thousand Dollars ($250,000),
payable to
Ung; and
(C)
Two
Hundred Fifty Thousand
Dollars ($250,000),
payable to
Karim; and
(iv)
One Million
One Hundred Thousand Dollars
($1,100,000), by
delivery of Shares as follows:
(A)
Twenty million
(20,000,000)
Shares to
Pinkowski; and
(B)
Two million
(2,000,000)
Shares to Ung.
(b)
The Warrants
shall be issued and delivered to the
LifeTime
Representatives as
follows:
(i)
Warrant issued
to Pinkowski to
purchase three
hundred fifty
thousand Shares at an exercise price of $0.05
per Share;
(ii) Warrant
issued to Ung to
purchase one hundred
seventy-five thousand
Shares at an exercise price of $0.05
per Share;
and
(iii) Warrant
issued to Karim to purchase one
hundred seventy-five
thousand Shares at an exercise price of
$0.05 per Share.
(c)
The amounts
of the cash payments to the LifeTime
Representatives
pursuant to
Section 2.5(a)(i)
shall be adjusted in accordance
with the flow of funds chart attached hereto as Appendix J.
-----------
2.6
Post-Closing Purchase
Price Adjustments.
------------------------------------------
(a)
Closing Balance
Sheet. As promptly as practicable,
but
-----------------------
in any event within
sixty (60) days after the Closing Date, Buyer shall prepare
and deliver
to the LifeTime Representatives the
Closing Balance Sheet, which
Closing Balance
Sheet shall be prepared in accordance with
GAAP applied on a
basis consistent
with the preparation of the Balance Sheet.
(b)
Disputes. The
LifeTime Representatives may dispute
the
--------
amount of the Net Working Capital reflected on the Closing
Balance Sheet by
sending a written notice (a "WORKING CAPITAL DISPUTE NOTICE") to Buyer
and
Baywood within
thirty (30) days of Buyer's delivery of the Closing
Balance
Sheet. The
Working Capital
Dispute Notice shall identify each disputed item on
the Closing Balance
Sheet, specify the amount of such dispute and set forth the
basis for such
dispute. In the event
of such a dispute, Buyer and the LifeTime
Representatives
13
<PAGE>
shall attempt
in good faith to
reconcile their differences, and any resolution
by them as to any disputed items shall be
final, binding and conclusive on the
parties and
shall be evidenced by a writing signed by
Buyer and the LifeTime
Representatives,
including a
revised Closing Balance Sheet reflecting such
resolution (a
"REVISED CLOSING BALANCE SHEET"). If Buyer and the LifeTime
Representatives are
unable to reach such resolution within twenty (20)
days
after the LifeTime Representatives' delivery of the Working Capital Dispute
Notice to Buyer and Baywood, then Buyer and
the LifeTime Representatives shall
promptly submit any remaining disputed items for final binding
resolution to any
independent accounting
firm mutually acceptable to Buyer and the LifeTime
Representatives (which
accounting
firm has not, within the prior 24
months,
provided services
to any of Buyer, Baywood or LifeTime). If Buyer and the
LifeTime
Representatives are unable to agree on an independent accounting
firm,
an independent accounting firm selected by Buyer (which accounting
firm has not,
within the
prior 24 months, provided services to Buyer or Baywood) and an
independent accounting
firm selected by the LifeTime Representatives
(which
accounting firm
has not, within the prior 24 months, provided services
to
LifeTime) shall
select an independent
accounting firm that has not, within the
prior 24 months, provided services to any
of Buyer, Baywood or LifeTime. Such
independent accounting
firm mutually agreed upon by Buyer and the LifeTime
Representatives or
by the procedure referenced in the immediately
preceding
sentence, as
the case may be, is hereinafter referred to
as the "INDEPENDENT
ACCOUNTING FIRM."
If any remaining disputed items are submitted to the
Independent Accounting
Firm for resolution (A) each party will
furnish to the
Independent Accounting
Firm such workpapers and other documents and information
relating to the
remaining disputed items as the Independent Accounting Firm may
request and
are available to such party, and each party will
be afforded the
opportunity to present
to the Independent Accounting Firm any material relating
to the disputed items
with the Independent Accounting Firm; (B) each party will
use its good faith commercially reasonable efforts to cooperate with the
arbitration process so that the disputed items can be resolved
within forty-five
(45) days of submission of the disputed items to the
Independent Accounting
Firm; (C) the
determination by the Independent Accounting Firm, as set forth
in
a written notice to Buyer and the LifeTime Representatives (which
written notice
shall include
a Revised Closing Balance Sheet), shall be final,
binding and
conclusive on the parties; and (D) the fees and disbursements of
the Independent
Accounting Firm
shall be allocated between Buyer and the LifeTime
Representatives in the same proportion that the aggregate amount of
the disputed
items submitted
to the Independent Accounting Firm that are unsuccessfully
disputed by
each party (as finally determined by the
Independent Accounting
Firm) bears
to the total amount of all disputed items submitted to the
Independent Accounting
Firm.
(c)
Working Capital
Adjustment.
The Closing Balance Sheet
----------------------------
or, if one has been adopted pursuant to Section
2.6(b), the Revised Closing
Balance Sheet, shall
be deemed final, binding and conclusive on Buyer, Baywood,
LifeTime and
the LifeTime Representatives (the
"FINAL CLOSING BALANCE SHEET")
upon the earliest of
(A) the failure of the LifeTime Representatives to deliver
to Buyer and Baywood
the Working Capital Dispute Notice within thirty (30) days
of Buyer's
delivery of the Closing Balance Sheet to the LifeTime
Representatives; (B)
the resolution of all disputes by
Buyer and the LifeTime
Representatives, as
evidenced by a Revised Closing Balance
Sheet; and (C) the
resolution of
all disputes by the
Independent Accounting Firm, as evidenced by
the Revised
Closing Balance Sheet. Within three (3) Business Days
after the
Final Closing
Balance Sheet is deemed final, binding and conclusive, an
adjustment to
the cash portion of
the Purchase Price shall be made as follows:
14
<PAGE>
(i)
In the event that the
Net Working Capital reflected
on the Final Closing Balance Sheet, as adjusted in
accordance with
clause (iii) below, exceeds One Million
Seven
Hundred Thousand
Dollars ($1,700,000), then, within three (3)
Business Days
of delivery of the Final Closing Balance
Sheet,
Buyer shall pay to
each of Pinkowski, Ung and Karim, on an equal
basis or as otherwise directed in writing by the LifeTime
Representatives, the
amount by which the Net Working Capital
reflected on the Final
Closing Balance Sheet exceeds $1,700,000,
in immediately available funds, at each of Pinkowski's, Ung's
and
Karim's option,
by certified or official bank check
or by wire
transfer to
an account or accounts specified by each of
them.
(ii)
In the event that the Net Working Capital reflected
on the Final Closing Balance Sheet, as adjusted in
accordance with
clause (iii) below, is less than One Million
Seven Hundred
Thousand Dollars
($1,700,000), then, within three
(3) Business Days of delivery of the Final Closing Balance
Sheet,
each of Pinkowski, Ung and Karim shall pay Buyer, on an
equal
basis, the
amount by which the
Net Working Capital on the Final
Closing Balance Sheet is less than $1,700,000, in
immediately
available funds, at Buyer's option, by certified or official
bank
check or by wire transfer to an account specified by Buyer.
(iii) It is understood and agreed that all amounts of
Cash and Accounts Receivable which are used to distribute
Earnings shall cause or result in corresponding reductions in
Net
Working Capital.
(d)
Adjustment of
Notes. The Promissory Notes and
---------------------
Convertible Promissory Notes shall be subject to Buyer's rights of
offset in the
manner and
to the extent set forth in the Notes and the Escrow
Agreement.
2.7
Closing.
-------
(a)
The closing
(the "CLOSING") of the transactions
contemplated by
this Agreement shall take place at the offices of
Meltzer,
Lippe, Goldstein
& Breitstone, LLP,
190 Willis Avenue, Mineola, New York 11501
as soon as possible, but in no event later
than three (3) Business Days after
satisfaction of
the conditions set
forth in Article VIII (the "CLOSING DATE"),
or at such other time or place as Buyer, Baywood and the LifeTime
Representatives may
agree.
(b)
At the Closing:
(i)
Buyer shall
deliver, or cause to be delivered, to
Pinkowski, Ung
and Karim, the cash portion of the Purchase
Price, as set forth in Section 2.5(a)(i);
(ii)
Buyer and Baywood
shall execute and deliver to the
Escrow Agent
the Promissory Notes, as set forth in Section
2.5(a)(ii),
15
<PAGE>
which Promissory
Notes shall be held by the Escrow Agent in
accordance with the terms and conditions of the Escrow
Agreement;
(iii) Buyer and
Baywood shall execute and deliver to the
LifeTime
Representatives the
Convertible
Promissory
Notes,
as set forth in Section 2.5(a)(iii);
(iv)
Baywood shall
issue the Shares to Pinkowski and
Ung, as set forth in Section 2.5(a)(iv), and deliver to
Pinkowski and
Ung stock certificates representing the
Shares;
(v)
Baywood shall issue
and deliver the Warrants to the
LifeTime
Representatives, as
set forth in Section 2.5(b);
(vi)
to the extent not previously executed and/or
delivered, LifeTime
and the LifeTime Representatives shall
execute and/or deliver, or cause to be executed and/or
delivered,
to Buyer and Baywood each Transaction Document and any
other
document, certificate or other instrument required to be
executed
and/or delivered
by LifeTime and the LifeTime
Representatives
under this
Agreement at or prior to the Closing; and
(vii) to
the extent not previously executed and/or
delivered, Buyer
and Baywood shall each execute and/or
deliver, or
cause to be executed and/or delivered,
to LifeTime
and the LifeTime Representatives each Transaction
Document and
any other document, certificate or other
instrument required to
be executed
and/or delivered by Buyer and Baywood under this
Agreement at
or prior to the Closing.
2.8
Instruments of
Transfer.
-------------------------
(a)
The transfer
of the Purchased Assets to Buyer and
assumption of the
Assumed Liabilities by Buyer at the Closing shall be effected
by the delivery of a Bill of Sale,
Assumption Agreement and Patent Assignments
(in recordable
form), as well as copyright, trademark and domain name
assignments in
recordable
form, all in forms
prepared by Buyer and reasonably
acceptable to
LifeTime.
(b)
All tangible Purchased Assets transferred to Buyer at the
Closing, including,
without limitation, all books, papers,
ledgers, documents
and records
(including,
where available, electronic versions thereof)
constituting part
of the Purchased Assets, will be
retained in the offices of
LifeTime in
existence as of the Closing Date.
16
<PAGE>
ARTICLE III
Representations
and Warranties of LifeTime and the LifeTime Representatives
---------------------------------------------------------------------------
Except as disclosed in the Disclosure Schedule, LifeTime and the
LifeTime Representatives, jointly and severally, hereby represent
and warrant to
Buyer and Baywood as follows:
3.1
Organization and
Good Standing.
---------------------------------
LifeTime is a corporation duly organized, validly existing and
in
good standing
under the laws of the
State of California and has full corporate
power and authority to own its properties, to carry on its business
as it is now
being conducted and to carry out its obligations under this
Agreement.
LifeTime
is duly qualified to transact business and is in good standing in each
jurisdiction wherein
the nature of the business done or the property
owned,
leased or operated by it requires such
qualification, except where the failure
to be so qualified would not have a Material Adverse
Effect. Copies of
the
charter documents
and bylaws of LifeTime and all
amendments thereto have been
delivered to
Buyer and are true, complete and accurate in
all respects. The
company minutes
and company records of LifeTime have been made
available to
Buyer and are all of
the company minutes and records of LifeTime. Lifetime has
duly filed all
necessary documents to authorize it to operate under the
assumed
names Lifetime(R)
or Lifetime(R) Vitamins, and such authorization
is in full
force and effect. To the extent that any
material transactions of LifeTime are
not documented
in its minutes, such transactions
have been duly authorized by
all necessary
corporate action on the part of LifeTime and are otherwise
disclosed to
the extent so required by other
portions of this Agreement. The
list of shareholders and transfer records
of LifeTime have been made available
to Buyer and are true, complete and accurate in all respects.
3.2
Authorization.
-------------
(a)
LifeTime has the full legal right, power and authority to
enter into and perform
the transactions contemplated by this Agreement, without
need for any consent, approval, authorization, license or order of,
or notice or
filing with, any Governmental Body or other Person. The execution, delivery and
performance by LifeTime of this Agreement and the other Transaction
Documents to
which LifeTime
is a party, and the consummation by it of the
transactions
contemplated hereby
and thereby, are and
have been duly and validly authorized
and approved
by all necessary corporate and
shareholder action on the part of
LifeTime. This
Agreement has been duly executed and
delivered by LifeTime and
constitutes, and
the other Transaction
Documents to which LifeTime is a party,
at the Closing, will be duly executed and
delivered by LifeTime and will each
then constitute, a
legal, valid and binding obligation of LifeTime, enforceable
against LifeTime
in accordance with their respective terms, except as
such
enforceability may
be limited by
applicable bankruptcy, insolvency, moratorium
or similar
laws affecting the rights of creditors generally and by
general
principles of
equity.
(b)
Severally, but not
jointly, each LifeTime Representative
represents that
he has the full legal capacity to enter
into and perform the
transactions contemplated by this Agreement, and is not under any
prohibition or
restriction,
contractual, statutory
or otherwise,
17
<PAGE>
against doing
so. Severally, but not jointly, each LifeTime
Representative
represents that
this Agreement has been duly executed and delivered
by such
LifeTime
Representative and constitutes, and the other Transaction Documents
to
which such
LifeTime Representative is a party, at the Closing, will be
duly
executed and
delivered by such LifeTime Representative and will each then
constitute, a
legal, valid and binding obligation of such LifeTime
Representative,
enforceable against
such LifeTime Representative in accordance
with their
respective
terms, except as such enforceability may
be limited by
applicable bankruptcy,
insolvency,
moratorium
or similar laws affecting the
rights of creditors generally and by general principles of equity.
3.3
No Conflicts;
Consents.
------------------------
Neither the
execution and delivery by LifeTime or the
LifeTime
Representatives of
this Agreement or any
of the Transaction Documents to which
LifeTime or
the LifeTime Representatives is or will be a party, nor the
consummation by
LifeTime or the LifeTime Representatives of
the transactions
contemplated hereby
or thereby, will (i) conflict with or
violate the charter
documents or bylaws or
resolutions of the directors or shareholders of LifeTime
or (ii) conflict with, violate, result in
the breach of any term of, result in
the acceleration
of performance of any obligation
under, constitute a default
under, require
the consent or approval of or any
notice to or filing with any
Person, or create an
Encumbrance on any of the properties or assets of LifeTime
or the LifeTime
Representatives under, (x) any material note, mortgage, deed of
trust, real
property lease or other material agreement
or instrument to which
LifeTime or the
LifeTime Representatives is a party or by which LifeTime or the
LifeTime
Representatives or
any of their respective properties or
assets are
bound, (y) any material Law or License, or (z) any material order,
decree, writ,
or injunction
of any Governmental Body having
jurisdiction over LifeTime, the
LifeTime
Representatives or
any of their respective properties or assets.
3.4
Financial
Statements.
---------------------
LifeTime has
delivered to Buyer an unaudited balance sheet
of
LifeTime for the
fiscal year ended August 31, 2005 and an audited balance sheet
of LifeTime for the fiscal year ended August 31, 2006 (the "BALANCE
SHEETS") and
the related
income statements (the "INCOME STATEMENTS") and statements of
shareholders' equity and cash flow for each of such fiscal years
then ended (the
"CASH FLOW
STATEMENTS",
and together with the Balance Sheets and Income
Statements, including
the notes thereto, the "FINANCIAL STATEMENTS"), copies of
which are attached hereto as Section 3.4 of the Disclosure Schedule.
The
Financial Statements
have been prepared in accordance with GAAP,
and present
fairly, in all
material respects, the financial position, results of
operations
and cash flow of LifeTime as at the respective dates of and
for the periods
referred to
in such Financial Statements (subject, in the case
of unaudited
financial statements,
to normal year-end adjustments).
3.5
No Undisclosed
Liabilities.
----------------------------
As of the date of the more recent of the Balance
Sheets (the
"2006 BALANCE
SHEET"), other than those set forth in Section 3.5 of the
Disclosure Schedule
or which are reflected or reserved against on the
2006
Balance Sheet,
LifeTime had no liabilities, debts or obligations (whether
absolute, accrued,
contingent
or otherwise).
18
<PAGE>
3.6
Taxes.
-----
(a)
LifeTime has
timely filed with the appropriate
Governmental Bodies all material Returns required to be filed by it
and has paid
on a timely basis all
material Taxes (whether or not shown on any Return). The
information on
such Returns is
complete and accurate in all material respects.
There are no liens for Taxes (other than for current Taxes not
yet due and
payable for
which an adequate
reserve has been established) upon the Purchased
Assets.
(b)
No unpaid deficiencies for Taxes have been claimed,
proposed or
assessed by any Governmental Body in writing with respect to
LifeTime that are still pending and there are no pending or, to the
knowledge of
LifeTime and the LifeTime Representatives, threatened, audits,
investigations or
claims or issued and outstanding assessments for Taxes
of or with respect to
LifeTime. LifeTime has
not requested any extension of time within which to file
any currently
unfiled Returns and no extension of a statute of
limitations
relating to
any Taxes is in effect with respect to LifeTime.
(c)
(i) LifeTime
has made or will make provision for all
material Taxes
payable by it with respect to any
Pre-Closing Tax Period which
have not been paid prior to the Closing Date; (ii) such provision
(excluding any
reserve for
deferred Taxes established to reflect timing
differences between
book and Tax income) is adequate to cover
all unpaid Taxes of LifeTime for all
Pre-Closing Tax Periods; (iii) LifeTime has withheld and paid all
material Taxes
required to
have been withheld and paid in connection with amounts
paid or
allocable to any employee, member, independent contractor,
creditor, shareholder
or other third party; and (iv) to the knowledge of
LifeTime and the LifeTime
Representatives,
LifeTime is
required to file Returns only in the State of
California and
with the Federal
Internal Revenue Service, and no written claim
has ever been made by
a Governmental Body in a jurisdiction where LifeTime does
not currently
file Returns that LifeTime is or may be subject
to taxation by
that jurisdiction.
(d)
LifeTime is not liable
for Taxes of any other Person and
is not currently under any contractual obligation to or a party to any
tax
sharing agreement or
any other agreement providing for payments with respect to
Taxes.
(e)
LifeTime has
not entered into any
sale leaseback or any
leveraged lease
transaction
with respect to the Purchased Assets.
3.7
Property.
--------
LifeTime has good and marketable title to, or in the case of
leased property,
has valid leasehold interests in, all property and assets
(whether real or personal, tangible or intangible) reflected on the
2006 Balance
Sheet or acquired after the date of the
2006 Balance Sheet, except property or
assets disposed of in the ordinary course of business after the
date of the 2006
Balance Sheet.
None of such properties or assets is subject to any
Encumbrances,
except:
(i) Encumbrances
disclosed on the 2006 Balance Sheet;
19
<PAGE>
(ii) liens for Taxes
not yet due or being contested in good
faith (and
for which adequate accruals or reserves have been
established on
the 2006 Balance Sheet); or
(iii) such imperfections of title, liens and easements as do
not and will not materially detract from or
interfere with the
use
of the properties subject thereto or affected thereby or
otherwise impair
business operations involving such
properties
(such items
listed in (i) through (iii) being referred to
as
"PERMITTED
ENCUMBRANCES").
3.8
Title to and Sufficiency of Purchased Assets.
--------------------------------------------------
Following the
Closing, Buyer will be the lawful owner of,
and
have good and valid title to, the Purchased Assets, free and clear
of all
Encumbrances except
for (i) Permitted Encumbrances and (ii) the Assumed
Liabilities. Except
as disclosed in
Section 3.8 of the Disclosure Schedule and
except for
any Excluded Assets,
the Purchased Assets include all of the assets
and properties
necessary for, and all of the assets and properties used or
held
for use by LifeTime or any other Person in
the LifeTime Business, as LifeTime
has operated
the LifeTime Business (or caused the LifeTime Business to be
operated on
its behalf) prior to and as of the Closing Date.
None of the
Purchased Assets
is in the possession, custody or
control of any Person other
than LifeTime.
The tangible Purchased Assets are in good
operating condition
and repair
(ordinary wear and tear excepted), are not
in need of any material
repair or material
maintenance and will be in the same condition on the date on
which such
Purchased Assets are to be transferred to
Buyer (ordinary wear and
tear excepted).
3.9
Intellectual
Property.
----------------------
(a)
Section 3.9(a)
of the Disclosure
Schedule lists (w) all
issued Patents, and all pending applications for Patents, owned by
LifeTime; (x)
all registered Trademarks, and all pending applications for
Trademarks, owned by
LifeTime; (y)
all registered Copyrights, and all pending applications for
Copyrights, owned
by LifeTime; and (z) all Domain Names owned by
LifeTime.
(b)
LifeTime has
good and valid title to, or otherwise
possesses the rights to use, all Intellectual Property necessary to
permit Buyer
to operate
the LifeTime Business from and after
the Closing Date, in the same
manner as currently conducted by LifeTime. Neither the consummation of
the
transactions contemplated by this Agreement nor LifeTime's
performance hereunder
will result
in the diminution,
license, transfer, termination or forfeiture of
LifeTime's rights
in the Intellectual Property. Except for Intellectual
Property owned
by third parties and licensed to
LifeTime, to the knowledge of
LifeTime and the LifeTime Representatives, no Person other than
LifeTime has any
right or interest of any kind or nature in
or with respect to the Intellectual
Property, or
any portion thereof, or any rights to sell, license, lease,
transfer or
use or otherwise exploit the
Intellectual Property or any portion
thereof. To
the knowledge of LifeTime and the
LifeTime Representatives, there
is no material
infringement by third parties of any Intellectual Property.
All
officers, employees
and contractors of LifeTime who have
created Intellectual
Property, have
executed an agreement with LifeTime pursuant to
20
<PAGE>
which all rights,
title and ownership in and to such Intellectual Property have
been assigned
to LifeTime.
(c)
There: (i)
is no pending or, to the knowledge of
LifeTime and
the LifeTime
Representatives, threatened action, suit, proceeding
or claim against LifeTime challenging LifeTime's rights in or to any
Intellectual Property;
(ii) is no pending or,
to the knowledge of LifeTime and
the LifeTime
Representatives,
threatened action,
suit, proceeding or claim by
others challenging
the validity or scope
of any Intellectual Property owned by
LifeTime; (iii) is no
pending or, to the knowledge of LifeTime and the LifeTime
Representatives,
threatened action,
suit, proceeding or claim by others
that
LifeTime infringed or otherwise violated any patent, trademark,
copyright, trade
secret or other intellectual property rights of others; (iv) is
no patent or
published patent
application
which contains claims that invalidate or may
invalidate (A)
any Patent owned by LifeTime, or, (B) to the knowledge of
LifeTime and the
LifeTime Representatives, any Patents licensed by LifeTime; in
each such case where any such claim would have a
Material Adverse Effect; and
(v) is no prior art of
which LifeTime or the LifeTime Representatives are aware
that may render any Patent held by LifeTime
invalid or any patent application
held by LifeTime unpatentable which has not been
disclosed to the U.S. Patent
and Trademark
Office or a foreign patent authority.
(d)
The Intellectual Property (including, to the knowledge of
LifeTime and
the LifeTime Representatives, the
Intellectual Property of third
parties licensed
to LifeTime), is free and clear of
any and all Encumbrances.
(e)
Section 3.9(e) of the
Disclosure Schedule sets forth all
agreements by which
LifeTime is obligated to make to third parties any payments
related to the
Intellectual Property.
LifeTime is not bound by an agreement by
which it owes any present or future royalties or other payments to
third parties
in respect
of Intellectual Property in excess of $10,000.
3.10
Contracts and
Agreements.
--------------------------
(a)
Section 3.10(a)
of the Disclosure
Schedule sets forth a
true, complete and accurate list of each of the following
contracts, agreements,
arrangements,
instruments or
understandings, whether oral or written, to which
LifeTime is
a party or by which
LifeTime or its assets or properties are bound
(collectively, the
"CONTRACTS"):
(i)
each employment
or other similar agreement;
(ii)
(A) each management,
consulting, retainer or other
similar type
of agreement under which services are provided
by any Person to
LifeTime in excess of $25,000 per annum and (B)
each agreement
or commitment for
services and supplies provided
by any other Person to LifeTime or requiring payments by
LifeTime
of more than $25,000 per annum;
(iii) each
agreement that restricts in any manner the
operation of
the LifeTime Business as presently conducted,
including each
agreement that
restricts the ability of LifeTime
to solicit
customers,
employees or other service providers;
21
<PAGE>
(iv)
each lease
(as lessor, lessee, sublessor or
sublessee) of
any real property;
(v)
each lease
(as lessor, lessee, sublessor or
sublessee) of
any tangible personal property requiring
payment during
its term or any extension or renewal
thereof in
excess of $25,000;
(vi)
each license (as licensor, licensee, sublicensor or
sublicensee) of
any Intellectual Property (other than
customary,
non-negotiated
licenses of
commercially
available,
"packaged, off
the shelf" computer software);
(vii) each
agreement under which any money has been
or
may be borrowed or loaned, or any note, bond, factoring
agreement, indenture
or other evidence of
indebtedness has been
issued or assumed, and each guaranty (including "take-or-pay"
and
"keepwell" agreements)
of any evidence of
indebtedness or other
obligation, or
of the net worth, of any Person;
(viii) each
mortgage agreement,
deed of trust, security
agreement, purchase
money agreement, conditional sales
contract or
capital lease involving in excess of $10,000;
(ix)
each partnership,
joint venture or similar
agreement;
(x)
each agreement or
commitment to make unpaid capital
expenditures in
excess of $10,000;
(xi)
each agreement
providing for registration of the
capital stock
of LifeTime under the U.S. securities laws;
(xii) each
agreement containing a change of control
provision;
(xiii) each
customer contract
providing for payments to
LifeTime in
excess of $10,000 per year;
(xiv) each
other agreement having
an indefinite term or
a fixed term of more than one (1) year or requiring
payments
by LifeTime
of more than $25,000 per year; and
(xv)
any other contract or commitment not made in the
ordinary course
of business that is material to the LifeTime
Business.
(b)
Each Contract is
legal, valid, binding and in full force
and effect
and is enforceable by LifeTime in
accordance with their respective
terms, except
as such enforceability
may be limited by bankruptcy, insolvency,
moratorium and
other similar laws
affecting creditors' rights generally and by
general principles
of equity. LifeTime is not (with or without the lapse
of
time or the giving of notice, or both) in
breach of or in default under any of
the Contracts,
and, to the knowledge of LifeTime and the LifeTime
Representatives, no
other party to any of the Contracts is (with or without the
lapse of time or the giving of notice, or both)
22
<PAGE>
in breach of or in default under any of the
Contracts. None of the
Contracts
has been terminated
and LifeTime and the LifeTime Representatives are not aware
of any intention or right of any party to default
under any of the Contracts.
3.11
Insurance.
---------
Section 3.11
of the Disclosure Schedule accurately lists (by
type, carrier, policy number, limits, premium and ex
