ASSET PURCHASE AGREEMENT

 

 

Exhibit 10.1

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “ Agreement ”) is entered into as of July 24,  2009 (the “ Effective Date ”), by and among Nutritional Specialties, Inc., a Nevada corporation (“ Company ”) and Baywood International, Inc., a Nevada corporation and the sole shareholder (the “ Shareholder ”) (Company and Shareholder are collectively the “ Sellers ”) and Nutra, Inc., a Delaware corporation (the “ Buyer ”).

WHEREAS , the Company is, among other things, in the business of manufacturing, marketing and distributing dietary supplements under the “LifeTIME” and “Baywood” brand names (such business is defined more specifically below under Section 1.1 as the “ Business ”) and owns certain tangible and intangible assets associated therewith; and

WHEREAS , on the terms and subject to the conditions set forth in this Agreement, Buyer desires to acquire from the Sellers, and the Sellers desire to sell to Buyer, substantially all of the assets and properties related to the Business.

NOW, THEREFORE , the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

1.1

Definitions .  For purposes of this Agreement, the following terms shall have the meanings set forth below:

(a)

“ Affiliate ” shall mean, with respect to any Person, any Person which, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.  As used in this definition, the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct the management policies of such Person, whether through the voting power of outstanding securities, by contract or otherwise.

(b)

“ Affiliated Group ” means an affiliated group as defined in Section 1504 of the Code (or any similar combined, consolidated or unitary group defined under state, local or foreign income Tax law).

(c)

“ Business ” means the business of manufacturing, marketing and distributing dietary supplements and similar products under the “LifeTIME” and “Baywood” brand names, but specifically excludes the Skae Beverage Business (as defined in Section 10.11(d) below) or any tangible or intangible assets associated with the Skae Beverage Business.

(d)

“ Claims ” shall mean the written notice from the Buyer to any of the Sellers, describing in reasonable detail the nature of any claim made by the Buyer against any Indemnifying Party (as defined in Section 8.2(c) below) pursuant to this Agreement and the amount of the Loss (as defined in Section 8.2(a) below) with respect thereto, if then known.

(e)

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

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(f)

“ Contracts ” shall mean any contracts, agreements and commitments, whether oral or written.

(g)

“ Environmental, Health and Safety Requirements ” shall mean all federal, state and local statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

(h)

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.  

(i)

“ GAAP ” shall mean United States generally accepted accounting principles as promulgated in effect from time to time, consistently applied.

(j)

“ Indebtedness ” shall mean collectively all obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known, whether due or to become due and regardless of when asserted) arising out of transactions entered into at or prior to the Closing (as defined in Section 2.6 ), or any state of facts existing at or prior to the Closing, including (i) Taxes with respect to or based upon transactions or events occurring on or before the Closing and (ii) liabilities with respect to or based upon loans, indebtedness, promissory notes, debentures, deferred purchase price for property or services, capital lease obligations or similar obligations (or any guaranties of any of the foregoing).

(k)

“ Knowledge ,” or any similar term or knowledge qualification contained herein, shall mean (i) with respect to any individual, the actual knowledge of such Person after reasonable investigation, and (ii) in the case of any Person other than an individual, the actual knowledge of such Person after the reasonable investigation of all key employees, officers and directors of such Person.

(l)

“ Lease ” means that certain real property lease dated May 13, 2005, as amended and assigned for Company’s existing facility located at 1967 North Glassell Street, Orange, California, comprising approximately 10,381 square feet of office space.  A copy of the Lease is attached as Exhibit A .

(m)

 “ LifeTIME Mark and Goodwill ” shall mean U.S. Trademark Registration No. 1,649,254 and the goodwill associated with the LifeTIME mark associated with that United States registration.

(n)

“ Lien ” shall mean any mortgage, pledge, conditional sale or other title retention agreement, encumbrance, lien, easement, option, debt, charge, claim, restriction, or other security interest of any kind.

 

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(o)

“ Non-Competition Period ” shall mean the period beginning on the Closing Date (as defined in Section 2.6) and ending on the third anniversary of the Closing Date.  

(p)

“ Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a trust, a joint stock company, a joint venture, an unincorporated organization, any other business entity or a governmental entity (whether federal, state, county, city or otherwise and including, without limitation, any instrumentality, division, agency or department thereof).

(q)

“ Proprietary Rights ” means all of the following owned by, issued to, used by or licensed to any of the Sellers and used in the Business (whether pursuant to a written license or not)(but for purposes of clarity, excluding those used in or associated with the Skae Beverage Business), along with all associated income, royalties, damages and payments due from or payable by any third party (including, without limitation, damages and payments for past, present, or future infringements or misappropriations thereof), all other associated rights (including, without limitation, the right to sue and recover for past, present, or future infringements or misappropriations thereof), and any and all corresponding rights that, now or hereafter, may be secured throughout the world: (i) trademarks, service marks, trade dress, logos, slogans, UPC codes, trade names and corporate names and all registrations and applications for registration thereof, together with all goodwill associated therewith; (ii) copyrights and works of authorship, and all registrations and applications for registration thereof; (iii) computer software (including, without limitation, data, data bases and related documentation); (iv) trade secrets, confidential information, and proprietary data and information (including, without limitation, compilations of data (whether or not copyrighted or copyrightable), ideas, know how, marketing, information, financial and accounting data, business and marketing plans, and customer and supplier lists and related information); (v) internet sites and related code, graphics, assets and other properties related thereto as well as all rights associated therewith, including the Website located at www.lifetimevitamins.com and www.baywoodproducts.com ; (vi) all items set forth in Schedule 5.13 ; (vii) all other intellectual property rights; and (viii) all copies and tangible embodiments of the foregoing (in whatever form or medium).

(r)

“ Right of First Refusal ” means the right of first refusal granted by Company to a certain third party (the “ Third Party ”) and referenced in a Confidential Agreement dated November 3, 2003, to purchase the LifeTIME Mark and Goodwill.

(s)

“ Tax ” or “ Taxes ” means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to such tax or additional amounts in respect of the foregoing.

(t)

“ Tax Returns ” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination,

 

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assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

ARTICLE II
PURCHASE AND SALE OF ASSETS

2.1

Purchase and Sale of Assets .  

(a)

Purchased Assets .  Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 2.6 ), the Buyer agrees to purchase from the Sellers, and the Sellers agree to sell, convey, assign, transfer and deliver to the Buyer by appropriate instruments reasonably satisfactory to the Buyer and its counsel, free and clear of all Liens, all of the assets, properties, rights, titles and interests of every kind and nature owned, licensed or leased by Sellers and used in or related to the Business (including indirect and other forms of beneficial ownership) as of the Closing Date, whether tangible, intangible or personal and wherever located and by whomever possessed, including the Proprietary Rights, including, without limitation, all of the following assets, but excluding all of the Excluded Assets and, for avoidance of doubt, excluding the Skae Beverage Business (collectively, the “ Purchased Assets ”):  

(i)

all Company accounts, notes receivable and other receivables (including accounts receivable), including any prepayments and prepaid expenses;

(ii)

all inventory and related supplies of the Seller and all inventory in transit that has been purchased, including but not limited to those items identified as Inventory in the NAV Schedule attached hereto as Schedule 2.1(a)(ii) (the “ NAV Schedule ”) (collectively, “ Inventory ”);

(iii)

all tangible assets of any kind, including all Fixed Assets identified in the NAV Schedule , together with the Accumulated Depreciation associated therewith (as such terms are set forth in the NAV Schedule ), and including those assets listed in Schedule 5.4 ;

(iv)

all claims, deposits, prepayments, warranties, guarantees, refunds, causes of action, rights of recovery, rights of set off and rights of recoupment of every kind and nature;

(v)

all rights existing under those purchase orders to purchase goods or products relating to the Business as listed on the attached “ Schedule 2.1(a)(v) ” (collectively, the “ Assigned Purchase Orders ”);

(vi)

all rights under any warranties and indemnification obligations (whether implied or express) received from suppliers to the extent they pertain to the Purchased Assets;

(vii)

the right (but not the obligation) to hire any of the Company’s employees, consultants, independent contractors and brokers;

 

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(viii)

all Proprietary Rights, including electronic and hard copies of any custom software programs, data, web pages and all related underlying software and documentation;

(ix)

all permits, licenses, franchises, and other authorizations obtained from federal, state or local governments or governmental agencies or other similar rights, and all data and records pertaining thereto related to the Business (collectively, “ Government Licenses ”);

(x)

all insurance, warranty, litigation, class action and condemnation proceeds received after the date hereof with respect to damage, non conformance of or loss to the Purchased Assets, or which otherwise pertain to the Business or the activities conducted therefrom or in connection therewith, and all rights and proceeds under insurance policies to the extent related to or payable in connection with any of the Purchased Assets or the Assumed Liabilities, including those that arise under any certificates of insurance from suppliers or their insurers;

(xi)

all rights to receive mail and other communications addressed to  any of the Sellers related to the Business, except for communications related to the Excluded Assets;

(xii)

all telephone and facsimile numbers related to the Business;

(xiii)

customer lists, price lists and vendor lists and similar items related to the Business;

(xiv)

copies of books, financial and other corporate records to the extent related to the Business;

(xv)

all historical records, images, commercials, advertisements, brochures and similar items;

(xvi)

all goodwill of the Sellers associated with the Business, including the goodwill associated with existing customer relationships of the Business; and

(xvii)

any Contract that, within a reasonable period of time after the disclosure of such Contract to the Buyer, the Buyer elects in writing to assume (the “ Assumed Contracts ”).

(b)

Excluded Assets .  The Sellers shall retain all of their right, title and interest in and to, and shall not transfer to the Buyer the following assets (collectively, the “ Excluded Assets ”):

(i)

cash, cash equivalents and marketable securities;

(ii)

the rights of Sellers pursuant to this Agreement;

 

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(iii)

the originals of books, financial and other corporate records related to the Business, including Tax Returns, stock and minute books, corporate seal and corporate records of Company (although Buyer shall have the right to request and receive copies of any of these);

(iv)

all Contracts, except to the extent that such Contract is or becomes an Assumed Contract;

(v)

the LifeTIME Mark and Goodwill, except that the same shall be transferred to Buyer at the Second Closing Date (defined below) if the Third Party fails to exercise or affirmatively waives its Right of First Refusal with regard to the same; and

(vi)

the Skae Beverage Business.

2.2

Limited Assumption of Liabilities .  Subject to the conditions specified in this Agreement, from and after the Closing, the Buyer shall assume and agree to pay, perform, discharge and satisfy, as and when due in accordance with their terms, only those liabilities and obligations of the Company associated with any Assumed Contracts; and then only to the extent such liabilities and obligations relate to goods, products, or services to be furnished to the Buyer after the Closing and to the extent, and only to the extent, arising out of obligations of performance thereunder which obligations are to be performed solely after the Closing (the “ Assumed Liabilities ”).  

2.3

Excluded Liabilities .  Except for the Assumed Liabilities, the Buyer shall not assume, and shall have no liability or obligation for any liabilities of any of the Sellers (collectively, the “ Excluded Liabilities ”), including liabilities or obligations of any of the Sellers arising out of or related to: (A) any other obligation required to be recorded on a balance sheet of the Sellers prepared in accordance with GAAP, (B) Taxes, (C) Indebtedness for borrowed money or deferred purchase price for property or services (including, without limitation, pursuant to any capital lease), (D) any amounts due to Affiliates or any intercompany or interbranch or interstore liabilities, (E) Excluded Assets, (F) any trade accounts payable of the Sellers, whether related to the Business or otherwise, including but not limited to co-op advertising commitments and claims, liabilities or obligations for sales returns, allowances and chargebacks, all with respect to periods prior to the Closing Date, (G) any accrued liabilities (including employee benefits, employee payroll taxes, vacation and sick leave payable, holiday pay, etc.), whether related to the Business or otherwise, including the remaining payments under the settlement with Farmatek IC VE DIS TIC, LTD, STJ entered into in June 2009, (H) any present or former employees of the Company (including, without limitation, any Plan (as defined in Section 5.18 below) (I) any contract or arrangement with any Affiliates, (J) any default or breach of contract, breach of warranty, tort, infringement, violation of law or environmental matter (in each case, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) and (K) the existing litigation ongoing in California with respect to a purported violation of Proposition 65 regarding multivitamin products (it being understood that Sellers may not settle or resolve such litigation in any manner that involves any future compliance commitments, changes to labeling or change in marketing or labeling without first obtaining the consent of Buyer, which will not be unreasonably withheld).  

 

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2.4

Purchase Price for Purchased Assets .  In consideration for the Purchased Assets, the Buyer shall pay to the Sellers a total purchase price of $8,250,000 (“ Purchase Price ”) comprised of $7,250,000 for the Purchased Assets plus $1,000,000 for the LifeTIME Mark and Goodwill (the “ LifeTIME Mark and Goodwill Consideration ”), subject to adjustment pursuant to Section 2.5 and Section 8.2 below and subject to the retention of $250,000 as a holdback (the “ Holdback Amount ”) pursuant to Section 2.7 below.  Other than the Holdback Amount and Third Party Disbursements (defined in Section 2.4(b) below), the Purchase Price shall be payable on the Closing Date by wire transfer of immediately available funds to an account or accounts owned by Company.  Notwithstanding the foregoing, Buyer and Sellers agree as follows:

(a)

on the Effective Date (or within five (5) business days thereafter), Buyer shall deposit Two Hundred Fifty Thousand Dollars ($250,000) of the Purchase Price as a deposit (the “ Deposit ”) into an escrow account established with a third-party that is mutually acceptable to Buyer and Sellers, said Deposit to be disbursable to Buyer or Sellers according to the terms and conditions of the separate escrow agreement between the parties of even date herewith (the “ Escrow Agreement ”); and

(b)

at Closing, Sellers shall cooperate with Buyer in providing wiring or mailing instructions such that all amounts owing to trade creditors, vendors and service providers to the Business (including for products or services delivered or in transit but not yet paid for), employees (employees obligations such as accrued vacation), brokers for broker commissions and holders of secured debt instruments that need to be paid off or released at Closing in connection with the transfer of the Business so that the Business can continue to operate without interruption or disruption, specifically including all parties who hold liens on the Purchased Assets, can be paid directly by Buyer or otherwise out of the Closing proceeds, in such amounts as Sellers shall have negotiated with such parties, and all such amounts shall be considered part of the Purchase Price (all such payments are hereafter the “ Third Party Disbursements ”).  

(c)

Company agrees that in connection with their receipt of and distribution of the Purchase Price, and prior to any distribution to its shareholder (the Shareholder) of any part of the Purchase Price (other than reimbursement of expenses), the Company will proceed in a manner and according to a process that it devises and believes is fair and reasonable to creditors and potential claimants of the Company, in particular treating those who are similarly situated consistently and offering to such parties similar options with regard to satisfaction of debt instruments or other obligations owing by the Company to such parties, such that similarly situated parties receive similar opportunities to be paid some or part or their claims, whether in exchange for cash consideration, through the offer of common stock, through the assumption by the parent of the Company of the obligation, or otherwise in some similar manner.  Sellers also agree not to treat employees, officers or insiders of Sellers vis. a vis. other creditors differently merely by virtue of their affiliation with Sellers.  

2.5

Adjustments to Purchase Price .

(a)

Minimum NAV .  Sellers and Buyer have agreed that the Company should have a Net Asset Value as of the Closing Date, after giving effect to normal GAAP adjustments for reserves and except for routine reductions related to normal amortization and depreciation,

 

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equal to $1,848,604 (the “ Minimum NAV ”), which is the Net Asset Value derived from the Company’s balance sheet as of December 31, 2008, as follows:

 

(b)

Estimated NAV .  The parties hereto agree that in determining the estimated net asset value at Closing (the “ Estimated NAV ”), adjustments will be made to the extent that the Latest Financial Statements of the Company fail to conform in all respects to GAAP, including all required reserves and accruals for relevant items, such as:

(A)

accounts receivable (with 100% reserves for all receivables in excess of 120 days or that relate to accounts that are known or suspected to be uncollectible in Buyer’s discretion), and reserves for coop advertising and reserves for sales returns, allowances and chargebacks, it being understood that an accounts receivable aging review shall be completed the day prior to Closing and used in the calculation of the Estimated NAV;

(B)

inventory, which shall be treated as follows:

(a)

as to inventory comprised of raw materials, bulk pills (including bulk powders), liquids, creams, labels and packaging components, such inventory must (and any raw material that does not meet this criteria must be fully reserved):

·

be good and saleable (valued at standard cost under FIFO);

·

be fully reserved with respect to overstock or obsolete items, as well as any supplies or items normally expensed; and

·

be fully reserved as to all items in excess of the last twelve (12) months historical sales on hand;

(b)

as to finished goods inventory, all items must (and any finished goods that do not meet this criteria must be fully reserved):

·

be good and saleable (valued at standard cost under FIFO);  

·

be fully reserved with respect to overstock or obsolete items, as well as any supplies or items normally expensed;

 

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·

be fully reserved as to all items in excess of the last twelve (12) months historical sales on hand; and

·

all finished goods items must have a shelf-life on the label or bottle based on historical prices and must meet the following criteria (with any items not meeting such criteria being fully reserved):

 

(c)

As to inventory comprised of “promotional items,” such as marketing materials, brochures and similar items, such inventory shall be fully reserved.

IT BEING UNDERSTOOD that an inventory audit shall be completed the day prior to Closing and used in the calculation of the Estimated NAV;

(C)

proper reserves for consumer returns and product warranties; and

(D)

on the day prior to Closing, for all Purchased Assets, the parties will undertake and complete a review of accumulated depreciation on all fixed assets through Closing.

If any item on the Company’s historical financial statements is not reflected in accordance with GAAP, or if any item which should be reflected on the Company’s historical financial statements is missing therefrom, in determining the Estimated NAV such items shall nonetheless be included and determined in accordance with GAAP, and all accounting entries will be taken into account regardless of their amount, all known errors and omissions will be corrected and all known proper adjustments will be made.  In the absence of reaching a mutual agreement on the Estimated NAV, the Estimated NAV shall equal the mean average of Buyer’s good faith proposal and Seller’s good faith proposal.  If the Estimated NAV is greater or less than the Minimum NAV, the Purchase Price payable at Closing shall be increased or decreased by the amount of such difference on a dollar-for-dollar basis.  

(c)

Post-Closing Adjustment .  No later than six (6) months after the Closing Date, if Buyer determines that there is a material difference between the actual NAV and the Estimated NAV, then Buyer shall prepare and deliver to the Company, on behalf of all the Sellers, a written statement (the “ Proposed Statement ”) setting forth a calculation of the actual

 

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NAV (“ Actual NAV ”).  The Company shall respond on behalf of (and are hereby empowered to respond on behalf of) all Sellers and, if it has any objections to the Proposed Statement, it shall deliver a detailed statement describing the objections to Buyer within thirty (30) days after receiving the Proposed Statement, and in the absence of providing any such objection, the Proposed Statement shall be deemed the final statement (the “ Final Statement ”) and the calculation of the Actual NAV set forth on the Final Statement shall be conclusive and binding upon the parties hereto.  The Buyer and the Company shall use commercially reasonable efforts to resolve any such objections.  If the Buyer and the Company fail to obtain a final resolution within thirty (30) days after the Buyer receives the Company’s written objections to the Proposed Statement, the Buyer and the Company shall select a single accounting firm mutually acceptable to the Buyer and the Company, and such accounting firm shall resolve any objections.  If the Buyer and the Company are unable to select a mutually acceptable accounting firm, they will select a nationally-recognized “Big-4” accounting firm by lot (after excluding their respective regular outside accounting firms), and such accounting firm shall resolve any objections.  The determination of any accounting firm so selected shall be set forth in writing and shall be conclusive and binding upon the Buyer and the Company.  The Buyer shall thereafter revise the Proposed Statement to reflect the determination of the accounting firm and the final revised Proposed Statement shall become the Final Statement.  Buyer and Company shall equally share the costs, fees and expenses associated with retaining any such accounting firm. In any case, if Buyer delivers a Proposed Statement, then once the Actual NAV is determined, if the Actual NAV (as finally determined pursuant to this Section 2.5(c) ) is less than the Estimated NAV, Company will pay to Buyer an amount equal to the full amount of such difference by wire transfer or delivery of other immediately available funds within three (3) business days after the date on which the Actual NAV is finally determined.  If Buyer delivers a Proposed Statement and the Actual NAV (as finally determined pursuant to this Section 2.5(c) ) is more than the Estimated NAV, Buyer will pay to Company an amount equal to the full amount of the difference between the Actual NAV and the Estimated NAV by wire transfer or delivery of other immediately available funds within three (3) business days after the date on which the Actual NAV is finally determined.  

2.6

Closing of Transactions .  The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place according to the following schedule and in the following steps:

(a)

Promptly after the Effective Date, Sellers will seek to obtain the approval of this Agreement and the transactions contemplated by this Agreement by a majority vote of the shares of the Shareholder entitled to vote for such a transaction under applicable law (the date on which such approval is obtained is hereafter the “ Shareholder Approval Date ”) and will provide a copy of the evidence of such approval to Buyer, but if no such approval is obtained and provided to Buyer by August 30, 2009, then at Buyer’s option, upon written notification from Buyer, this Agreement shall be deemed terminated and the Deposit shall be promptly returned to Buyer and all parties hereto shall be deemed released from all obligations hereunder (other than their obligations of confidentiality under the separate confidentiality agreement between the parties);

(b)

Promptly after the Effective Date, and in any case within ten (10) business days of the Effective Date, Sellers will file an information statement (the “ Information

 

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Statement ” or “ Form 14C ”) on Form 14C with the Securities and Exchange Commission (“ SEC ”) and shall wait for the applicable waiting period, which shall last until the earlier to occur of the date on which the SEC provides a waiver or the expiration of the ten (10) business day period (hereafter the “ SEC Review Deadline ”); provided, that if the SEC provides notification of its intent to review the Form 14C, then Sellers will cooperate in all respects with providing the SEC with such documents and information as SEC may request;

(c)

If the SEC does not provide notification of its intent to review the Form 14C prior to the SEC Review Deadline, or otherwise waives the applicable waiting period, then promptly thereafter, Sellers shall mail to the shareholders as of the record date the Form 14C filed with the SEC and initiate the minimum twenty-one (21) day waiting period prior to Closing (such mailing date is hereafter the “ Information Statement Mailing Date ”);

(d)

Notwithstanding anything herein to the contrary, if Closing has not occurred on or prior to October 15, 2009 due to any failure of any of the Conditions to Closing set forth in Section 3.1 below (unless Buyer elects in writing to extend for one or more successive periods of thirty (30) days), then at that time or any time thereafter, Buyer at its option may terminate this Agreement upon written notification to Sellers and Buyer’s Deposit shall be promptly returned to Buyer and all parties hereto shall be deemed released from all obligations hereunder (other than their obligations of confidentiality under the separate confidentiality agreement between the parties hereto);

(e)

the Closing for all Purchased Assets as well as the LifeTIME Mark and Goodwill will take place at the corporate offices of Shareholder at 9380 East Bahia Dr., Suite A201, Scottsdale, AZ or at another mutually agreeable place at 10:00 a.m., Mountain Time on the later to occur of: (i) twenty-first (21 ^st ) business day after the Information Statement Mailing Date, or (ii) the first business day that is at least forty five (45) calendar days after Company has delivered the Notice of Right of First Refusal in the form attached hereto as Exhibit B to the Third Party  (which delivery shall take place as soon as practicable after the Effective Date, but in no event shall such document be mailed occur more than three (3) business days after the Effective Date), or the date on which Sellers have received a written waiver from the Third Party of the Right of First Refusal, or such other date as may be mutually agreed to by Buyer and Sellers (the “Closing Date”); it being understood, that if the Third Party exercises its Right of First Refusal, then at the Closing Date, the LifeTIME Mark and Goodwill will be conveyed by Sellers to the Third Party in exchange for the LifeTIME Mark and Goodwill Consideration using a Trademark Assignment in substantially the form attached hereto as Exhibit C (the “ LifeTIME Trademark and Goodwill Assignment ”) except that the Assignee shall be changed from NutraMarks, Inc to the Third Party; and the LifeTIME Mark and Goodwill Consideration will be paid by the Third Party to Sellers and the Purchase Price owing by Buyer shall be reduced by the amount of the LifeTIME Mark and Goodwill Consideration; provided further, that if the Third Party does not exercise its Right of First Refusal, then on the Closing Date, Company shall convey the LifeTIME Mark and Goodwill to Buyer pursuant to the LifeTIME Trademark and Goodwill Assignment in exchange for the LifeTIME Mark and Goodwill Consideration to be paid by Buyer to Company. For all purposes under this Agreement, the Closing shall be deemed effective as of the close of business on the Closing Date.

 

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2.7

Disposition of Holdback Amount .  In addition to any other rights and remedies available to Buyer and without limiting Buyer’s ability to recover for any claims made pursuant to this Agreement, the Holdback Amount will be available to satisfy any other amounts owed by any of the Sellers to the Buyer pursuant to this Agreement, including, at Buyer’s option, any post-closing adjustments to the Purchase Price under Section 2.5 .  More specifically, on the first anniversary of the Closing Date (or, if not on a business day then the next following business day) (the “ Disbursement Date ”), the Buyer shall release and deliver to the Company the Holdback Amount (after deducting the amount, if any, as to which Claims shall theretofore have been made by the Buyer subject to the indemnification provisions contained in Section 8.2 ).  If the amount of any Claims exceeds the amount of the Holdback Amount, the entire remaining balance of the Holdback Amount shall be set aside and retained by the Buyer until the final disposition of such Claims.

ARTICLE III
CONDITIONS TO CLOSING

3.1

Seller’s Conditions .  The obligation of the Buyer to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions by the Sellers on or before the Closing Date:

(a)

Representations and Warranties .  Without duplication of any "materiality" qualifiers contained therein, each of the representations and warranties set forth in Article V hereof will be true and correct in all material respects when made and shall be true and correct in all material respects at and as of the Closing Date (except to such extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

(b)

Performance .   The Shareholders and the Company shall have each performed and complied in all material respects with the covenants and obligations required by this Agreement to be performed by them at or prior to the Closing Date, including without limitation those described in Section 2.6 (a), (b) and (c) above;

(c)

Consents and Releases .  All consents by third parties that are required for the transfer of the Purchased Assets to the Buyer, or that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of, a default under or a termination or material modification of any material agreement to which the Company is a party or to which any material portion of the property of the Company is subject will have been obtained, and releases of any and all security interests held by third parties for which the underlying indebtedness has been, or will be, repaid by the Company on the Closing Date will have been obtained, all on terms reasonably satisfactory to the Buyer, including without limitation all of the following:

(i)

A consent from the landlord for the Lease for an assignment of the Lease to Buyer or one of Buyer’s Affiliates (the “ Lease Assignment ”), or a sublease to Buyer, or some other arrangement acceptable to Buyer and Sellers regarding the Lease; and

(ii)

A consent and/or release, as required by Buyer, from or involving:

 

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(A)

 All creditors and parties holding Liens against the Purchased Assets; and

(B)

Any parties referred to in Section 2.4(b) above who are not otherwise paid in full; and

(C)

An approval of the transactions contemplated by this Agreement by the shareholders of the Company and the shareholders of Shareholder, following all notices required by law (or a waiver therefrom), signed or representing such percentage of the shareholders of the Company and of Shareholder, as may be required by such entity’s Certificate of Incorporation or Articles of Incorporation, Bylaws and applicable law, including a copy of the Information Statement on Form 14C filed by Sellers and referenced herein.

(iii)

Prior to the Second Closing Date, and with respect to the Second Closing Date and the LifeTIME Mark and Goodwill only, the Third Party shall have failed to exercise, or affirmatively waived, its Right of First Refusal, or if it shall have exercised said Right of First Refusal, it shall have paid the LifeTIME Mark and Goodwill Consideration to Buyer as a reimbursement to Buyer for amounts it previously deposited with Sellers regarding the LifeTIME Mark and Goodwill, or if such Third Party did not pay the LifeTIME Mark and Goodwill Consideration to Buyer directly, then Sellers shall have paid the LifeTIME Mark and Goodwill Consideration to Buyer.

(d)

Governmental Approvals .  All governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby will have been duly made and obtained on terms reasonably satisfactory to Buyer, and the SEC shall not have opened a review or investigation into the proposed transaction nor issued any comments on the Form 14C filed by Sellers, or the same shall have been resolved;

(e)

No Actions .   No action or proceeding before any court or governmental body will be pending or threatened wherein an unfavorable judgment, decree, injunction or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause such transactions to be rescinded;

(f)

Financial Statements .  Copies of the Company’s (i) unaudited financial statements for the period ended as of December 31, 2008, and (ii) unaudited financial statements, as soon as they become available, for the periods ending as of March 31, 2009, June 30, 2009 and for the period ending as of the Closing Date, as soon as they are available but no later than twenty (20) calendar days after the Closing Date (which financial statements shall be referred to herein as the “ Interim Financial Statements ”).  The Interim Financial Statements shall be prepared according to GAAP, consistently applied;

(g)

Due Diligence .   Buyer shall have completed, and shall be satisfied (in Buyer's sole discretion) with the results of, all due diligence Buyer may elect to perform regarding the Company or its Business;

(h)

Tax Returns .  Company shall have filed (whether on a separate or consolidated basis with Shareholder) all relevant and required state and federal tax returns for the

 

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fiscal year ending December 31, 2007, and shall have paid all applicable taxes for any such periods;

(i)

Other Deliverables .   On or prior to the Closing Date, the Sellers shall have delivered to the Buyer each of the following:

(i)

certificate from each of the Sellers, dated as of the Closing Date, stating that the preconditions specified in this Section 3.1 have been satisfied;

(ii)

certified copies of the resolutions of each of the Sellers’ boards of directors approving the transactions contemplated by this Agreement;

(iii)

copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions contemplated herein, including but not limited to a consent from the landlord for the assignment of the Lease or a sublease under the Lease (if and to the extent required or requested by Buyer);

(iv)

complete customer and vendor lists of the Company, including all relevant contact information, such as addresses, phone numbers, fax numbers, principal contact persons, all of which shall preferably be provided in both hard copy and in electronic format;

(v)

unless the Second Closing Date occurs simultaneously with the First Closing Date and the Third Party waived or failed to exercise its Right of First Refusal, a non-exclusive, perpetual, irrevocable, fully paid-up and fully transferable license and right to use the LifeTIME Mark and Goodwill in connection with the manufacture, distribution, sale and marketing of nutritional supplement and similar products, in such form as Buyer may request (the “ Trademark License ”);

(vi)

a fairness opinion, in form and substance satisfactory to the Buyer, issued by a qualified firm that the Purchase Price and other terms and conditions of this Agreement are fair to the shareholders of Sellers from a financial point of view (which shall be provided to Buyer within ten (10) business days of the Effective Date); and

(vii)

such other documents or instruments as Buyer reasonably requests to effect the transactions contemplated hereby; and

(j)

No Material Change .   There shall have been no material adverse change from the Effective Date in the business, assets, financial condition, operating results, earnings, the customer, supplier, employee and sales representative relations, the business condition, the financing arrangements or any business prospects of the Company;

(k)

No Adverse Actions or Claims .  There shall have been no lawsuit, petition, filing, claim, proceeding or credible threat of any of the foregoing from or involving the Company or Shareholder or from or involving shareholders, creditors, warrant-holders, distributors of Company or of Shareholder that relate to or are with respect to any of the transactions contemplated herein or any of the Purchased Assets and name Buyer or allege any claim against Buyer, and or that seek to force Company or Shareholder into, or that petition for

 

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any sort of relief that involves, voluntary or involuntary bankruptcy proceedings or any similar proceedings.

(l)

Satisfaction of Covenants .   The covenants set forth in Section 4.1 hereunder shall have been completed to the satisfaction of the Buyer; and

(m)

All Other Actions .   All actions to be taken by the Company or Shareholders in connection with the consummation of Closing and the other transactions contemplated hereby and all certificates, opinions, instruments and other documents required to be delivered by such parties to effect the transactions contemplated hereby reasonably requested by Buyer will be reasonably satisfactory in form and substance to Buyer.

Any condition specified in this Section 3.1 may be waived by the Buyer, provided that no such waiver will be effective unless it is set forth in a writing executed by the Buyer and delivered to the Company and the Shareholder or unless the Buyer agrees to consummate the transactions contemplated by this Agreement without satisfaction of such condition.

3.2

Buyer Conditions .  The obligation of each of the Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions on or before the Closing Date:

(a)

Representations and Warranties .   Each of the representations and warranties set forth in Article VI hereof will be true and correct in all material respects when made and shall be true and correct in all material respects at and as of the Closing Date (except to such extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

(b)

Performance .   The Buyer will have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement prior to the Closing;

(c)

Governmental Approvals .   All governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby will have been duly made and obtained;

(d)

No Actions .   No action or proceeding before any court or governmental body will be pending or threatened wherein an unfavorable judgment, decree, injunction or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause such transactions to be rescinded;

(e)

Lease Assignment .   The Buyer shall have executed and delivered to the other signature parties thereto the counterpart to the Lease Assignment, and the Lease Assignment shall be in full force and effect;

(f)

Other Deliverables .   On or prior to the Closing Date, the Buyer shall have delivered or caused to be delivered to Company and Shareholder all of the following:

 

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(i)

a certificate from the Buyer, dated the Closing Date, stating that the preconditions specified in this Section 3.2 have been satisfied;

(ii)

certified copies of the resolutions of the Buyer’s board of directors approving the transactions contemplated by this Agreement;

(iii)

the Purchase Price, less the Holdback Amount, for the Purchased Assets (it being understood that the Deposit shall be shown as a credit and distributed directly to Sellers on the Closing Date); and

(iv)

such other documents or instruments as Sellers reasonably request to effect the transactions contemplated hereby.

Any condition specified in this Section 3.2 may be waived by the Company and the Shareholder, provided that no such waiver shall be effective unless it is set forth in writing executed by the Company and the Shareholder or unless the Company and the Shareholder agree to consummate the transactions contemplated by this Agreement without the satisfaction of such condition.

ARTICLE IV
PRE-CLOSING COVENANTS

4.1

Pre-Closing Covenants .  The parties hereto agree as follows with respect to the period between the Effective Date of this Agreement and the Closing:

(a)

General .  Each of the parties hereto shall use their reasonable best efforts to take all actions and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including the satisfaction, but no waiver, of the closing conditions set forth in Article III above);

(b)

Operation of the Business .  Each of the Sellers shall use their best efforts to carry on the Business of the Company substantially in the same manner as historically conducted and shall refrain from engaging in any practice, taking any action, or entering into any transaction outside the ordinary course of business;

(c)

Preservation of the Business .  Each of the Sellers shall keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, insurance policies and relationships with its employees, lessors, licensors, suppliers, contractors, distributors customers and others having business dealings with the Business, sufficient to enable the Company to operate its Business in accordance with past practices;

(d)

Maintenance of Assets .  Each of the Sellers shall maintain the assets of the Company in customary repair, order and condition consistent with past practice and current needs, replace in accordance with past practice its inoperable, worn out or obsolete assets and, in the event of a casualty, loss or damage to any of such assets or properties prior to the Closing Date for which the Company is insured, either repair or replace such damaged property or use the proceeds of such insurance in such other manner as mutually agreed upon by the Buyer and the Company;

 

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(e)

Books and Records .  Each of the Sellers shall maintain the books, accounts and records of the Company in accordance with past custom and practice as used in the preparation of the Financial Statements (as defined in Section 5.4(a) below);

(f)

Notice of Developments .  The Sellers shall give prompt written notice to the Buyer of any material adverse development causing a breach of any of its own representations and warranties in Article V hereof or any breach of any covenant hereunder by any of the Sellers;

(g)

Maintain Open Communications .  Sellers shall confer on a reasonable basis at the Buyer’s request with representatives of the Buyer to report on operational matters and the general status of ongoing operations;

(h)

Other Negative Covenants .  Each of the Sellers shall refrain from the following:

(i)

making any loans, entering into any insider transactions or making or granting any increase in any employee’s or officer’s compensation or making or granting any increase in any employee benefit plan, incentive arrangement or other benefit covering any of the employees of the Company, other than in the ordinary course of the Company’s business consistent with past practices to or with individuals who are not affiliated with Sellers;

(ii)

establishing or, except in accordance with past practice, contributing to any pension, retirement, profit sharing or stock bonus plan or multiemployer plan covering the employees of the Company;

(iii)

entering into any contract, agreement or transaction other than in the ordinary course of the Company’s business consistent with past practice and at arm’s length with persons or entities that are not affiliated with the Sellers except as it relates to restructuring activities; and

(iv)

making or changing any election, changing any annual accounting period, adopting or changing any accounting method, filing any amended Tax Return, entering into any closing agreement, settling any Tax claim or assessment relating to the Company, surrendering any right to claim a refund of Taxes, consenting to any extension or waiver of the limitation period applicable to any Tax claim or assessment, or taking any other similar action, or omitting to take any action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action or omission would have the effect of increasing the present or future Tax liability or decreasing any present or future Tax asset of the Company.

(i)

Interim Financial Statements .  Sellers shall fully cooperate with Buyer’s financial personnel and outside accountants to cause the Interim Financial Statements to be updated and prepared in conformity with GAAP, consistently applied, by making appropriate and necessary accruals, and shall deliver monthly updated Interim Financial Statements as soon as reasonably possible and available; and

 

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(j)

Access .  Sellers shall provide, and shall cause their respective officers, employees, agents and representatives (including the Company’s independent accountants) to provide to Buyer and its officers, employees, agents and representatives reasonable access to personnel (including the Company’s independent accountants), and financial, accounting and other data and information (including workpapers of the Company’s independent accountants, whether prepared in contemplation of this Section 4.1 or otherwise), to the extent relating to the calculation of any of the amounts described in this Section 4.1 as reasonably requested by the Buyer, its representatives or agents for purposes of evaluating the Sellers’ compliance with the terms and conditions of this Agreement.

ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS

The Sellers jointly and severally represent and warrant to th