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
Page
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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
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
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
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
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"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).
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"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.
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"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.
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"Damages" has the meaning set forth in Section 9.2(a).
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"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 ▇▇▇▇▇▇▇▇▇, 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.
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"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, ▇▇▇▇▇▇▇▇▇ & 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.
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"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).
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"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");
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(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 ▇▇▇ 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. ▇▇▇▇▇▇ ▇▇▇▇▇, 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).
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"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
▇▇▇▇▇▇▇▇▇, ▇▇▇ 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.
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"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.
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"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 ▇▇▇▇▇▇ ▇▇▇▇▇ 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.
"▇▇▇▇▇▇▇▇▇" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, an individual.
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"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.
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"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,
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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 ▇▇▇▇▇▇▇ ▇▇▇, 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.
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"Working Capital Dispute Notice" has the meaning set forth in Section
2.6(b).
ARTICLE II
Purchase and Sale
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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);
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(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
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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 ▇▇▇▇-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
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
(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
(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
▇▇▇▇▇▇▇▇▇, ▇▇▇ and Karim as follows:
(A) One Million Eight Hundred Eighty Three Thousand
Three Hundred Thirty Three Dollars ($1,883,333), payable to
▇▇▇▇▇▇▇▇▇;
(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 ▇▇▇▇▇▇▇▇▇;
(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
(A) One Hundred Thousand Dollars ($100,000),
payable to ▇▇▇▇▇▇▇▇▇;
(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
▇▇▇▇▇▇▇▇▇; 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 ▇▇▇▇▇▇▇▇▇ 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
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
(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 ▇▇▇▇▇▇▇▇▇, ▇▇▇ 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 ▇▇▇▇▇▇▇▇▇'▇, 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 ▇▇▇▇▇▇▇▇▇, ▇▇▇ 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, ▇▇▇▇▇▇▇▇▇ & Breitstone, LLP, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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
▇▇▇▇▇▇▇▇▇, ▇▇▇ 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
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 ▇▇▇▇▇▇▇▇▇ and
Ung, as set forth in Section 2.5(a)(iv), and deliver to
▇▇▇▇▇▇▇▇▇ and ▇▇▇ 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 ▇▇▇▇ 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
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
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
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
(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
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
(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
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 expiration date) all insurance
policies currently maintained by LifeTime. Each such insurance policy is in
full force and effect (free from any presently exercisable right of termination
on the part of the insurance company issuing such policy prior to the expiration
of the term of such policy) and all premiums due and payable in respect thereof
have been paid. LifeTime has not received notice of cancellation or non-renewal
of any such policy. The transactions contemplated by this Agreement and the
other Transaction Documents will not give rise to a right of termination of any
such policy by the insurance company issuing the same prior to the expiration of
the term of such policy.
3.12 Litigation.
----------
Except as set forth in Section 3.12 of the Disclosure Schedule,
there is no lawsuit, governmental investigation or legal, administrative or
arbitration action or proceeding pending or, to the knowledge of LifeTime and
the LifeTime Representatives, threatened against LifeTime or any of its
properties or assets, or any director, officer or employee of LifeTime, in his
or her capacity as such.
3.13 Compliance with Law; Licenses.
--------------------------------
(a) LifeTime is and has been in compliance in all respects
with all applicable Laws, orders and decrees governing the conduct or operation
of its business, and all of its Licenses. LifeTime has not received any written
notice of any violation of any such Law, order, decree or License, and to the
knowledge of LifeTime and the LifeTime Representatives, no such violation has
been threatened.
(b) Section 3.13(b) of the Disclosure Schedule lists all
governmental licenses, approvals, authorizations, registrations, consents,
orders, certificates, decrees, franchises and permits (collectively, "LICENSES")
of LifeTime. The Licenses are all of the Licenses necessary for the conduct and
operation of the LifeTime Business in the manner as conducted prior to the
Closing. Such Licenses are in full force and effect; and no proceeding is
pending or, to the knowledge of LifeTime and the LifeTime Representatives,
threatened seeking the revocation or limitation of any such License. To the
knowledge of LifeTime and the LifeTime Representatives, there exists no state of
facts which could cause any Governmental Body to limit, revoke or fail to renew
any License related to or in connection with the LifeTime Business as currently
conducted or operated by LifeTime.
3.14 Employees.
---------
Section 3.14 of the Disclosure Schedule sets forth a true and
complete list of (i) the names, titles, annual salaries and other compensations
of all employees of LifeTime;
23
and (ii) the wage rates for non-salaried employees of LifeTime (by
classification), in each case who are engaged directly or indirectly with the
LifeTime Business. With respect to the employees listed on Section 3.14 of the
Disclosure Schedule, none of such employees has indicated to LifeTime that he or
she intends to resign or retire as a result of the transactions contemplated by
this Agreement or otherwise. LifeTime generally has good relationships with
such employees.
3.15 Employee Benefit Plans.
------------------------
(a) Section 3.15(a) of the Disclosure Schedule lists all
Employee Benefit Plans. "EMPLOYEE BENEFIT PLAN" means any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended from time to time ("ERISA"), and any other plan, policy,
program, practice, agreement, understanding or arrangement (whether written or
oral) providing compensation or other benefits to any current or former officer,
employee or consultant (or to any dependent or beneficiary thereof), of LifeTime
or any ERISA Affiliate (as defined below), which are maintained by LifeTime or
any ERISA Affiliate, or under which LifeTime or any ERISA Affiliate has or may
have any obligation to contribute, including all employee pension,
profit-sharing, savings, retirement, incentive, bonus, deferred compensation,
employment, severance, vacation, holiday, cafeteria, medical, disability, life,
accident or other insurance, equity or equity-based compensation plans, and any
other plans, policies, programs, practices, agreements or arrangements. "ERISA
AFFILIATE" means any entity (whether or not incorporated) other than LifeTime
that, together with LifeTime, is or was a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code, of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code, or in the case of any Employee Benefit Plan subject to Part 3 of
Subtitle B of Title I of ERISA, of an affiliated service group within the
meaning of Section 414(m) of the Code.
(b) With respect to each Employee Benefit Plan, LifeTime has
delivered or made available to Buyer true, complete and accurate copies (and
written summaries of any unwritten documents) of (i) the Employee Benefit Plan
and any amendment thereto, including all employment or severance agreements and
any procedures and policies relating to the employment of employees of LifeTime
and the use of temporary employees and independent contractors by LifeTime, (ii)
the plan's summary plan description, summaries of material modifications and
material communications distributed to participants, and (iii) where applicable,
the most recent opinion or determination letter issued by the IRS.
(c) No Employee Benefit Plan is subject to Title IV of ERISA
or is a multiemployer plan (within the meaning of Section 3(37) of ERISA);
neither LifeTime nor any ERISA Affiliate has ever contributed to such a plan and
no facts exist as a result of which LifeTime could have any liability under
Title IV of ERISA.
(d) Each Employee Benefit Plan which is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination or opinion letter from the IRS covering all amendments required by
the General Agreement on Tariff and Trade of 1994 and subsequent legislation
which constitute what is generally referred to as "GUST amendments," and nothing
has occurred and no circumstances exist that adversely affect any such favorable
determination letter. Each Employee Benefit Plan is and has been maintained in
24
form and operation in all material respects in compliance with its terms and all
applicable Laws, including, without limitation, ERISA and the Code.
(e) There are no actions, claims (other than routine claims
for benefits), lawsuits or arbitrations, including investigations by any
Governmental Body, pending or, to the knowledge of LifeTime and the LifeTime
Representatives, threatened with respect to any Employee Benefit Plan or against
any fiduciary of any Employee Benefit Plan, and to the knowledge of LifeTime and
the LifeTime Representatives, there are no facts that could reasonably be
expected to give rise to any such actions, claims, lawsuits or arbitrations.
(f) As of and including the date of the Closing, LifeTime
shall have made all contributions, including matching contributions and premiums
and other insurance policy fees, required to be made by it up to and including
the date of the Closing with respect to each Employee Benefit Plan.
(g) No Employee Benefit Plan provides welfare benefits for
any participant or any dependent or beneficiary of any participant after such
participant's retirement or other termination of employment, except as may be
required by Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the
Code ("COBRA") or applicable continuation of coverage requirements under other
Law. There has been no communication to any person that could reasonably be
expected to promise or grant any such retiree health or life insurance or any
retiree death benefits, except as required by COBRA or applicable continuation
of coverage requirements under other Law.
(h) LifeTime has not proposed, announced or agreed to create
any additional Employee Benefit Plans or to amend or modify any Employee Benefit
Plan in a manner that would (i) cause an increase in benefits under such
Employee Benefit Plan, (ii) cause the creation of new benefits or (iii) change
any employee coverage that would cause an increase in the expense of maintaining
such Plan.
(i) No individual performs services for LifeTime that
LifeTime treats as an independent contractor or as an employee of a third party,
including any "leased employee" (within the meaning of Section 414(n) or (o) of
the Code).
(j) The consummation of the transactions contemplated by this
Agreement, either alone or in combination with any other event, will not result
in (i) any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus payments or otherwise) becoming due to any
employee of LifeTime who accepts Buyer's offer of employment, (ii) any increase
in the compensation or benefits payable in respect of any such employee, or
(iii) any acceleration of the vesting or timing of payment of any benefits or
compensation payable in respect of any such employee.
3.16 Environmental Matters.
----------------------
Except as set forth in Schedule 3.16 of the Disclosure Schedule,
(a) LifeTime is not in violation of any Laws (including without limitation,
case law, rules, regulations, orders, judgments, decrees, permits, licenses and
governmental approvals) which are intended to protect the environment and/or
human health or safety (collectively,
25
"ENVIRONMENTAL LAWS"); (b) LifeTime has not handled, generated, used, stored,
transported or disposed of any material, substance or waste which is regulated
by Environmental Laws ("HAZARDOUS MATERIALS"), except for reasonable amounts of
ordinary office and/or office-cleaning supplies; (c) LifeTime has not
conducted, nor are LifeTime or the LifeTime Representatives aware of, any
environmental investigations, studies, audits, tests, reviews or analyses, the
purpose of which was to discover, identify or otherwise characterize the
condition of the soil, groundwater, air or the presence of Hazardous Materials
in any real property owned, operated or leased by LifeTime; and (d) there are no
Environmental Liabilities. As used herein, "ENVIRONMENTAL LIABILITIES" are any
claims, demands or liabilities under Environmental Laws which (i) arise out of
LifeTime's operations or activities, or any real property at any time owned,
operated or leased by LifeTime (whether such agreement with respect to real
property is in writing or otherwise) and (ii) arise from or relate to actions
occurring (including any failure to act) or conditions existing on or before the
Closing Date.
3.17 Bank Accounts and Powers of Attorney.
-----------------------------------------
Section 3.17 of the Disclosure Schedule sets forth the name of
each bank in which LifeTime has an account, lock box or safe deposit box, the
number of each such account, lock box and safe deposit box and the names of all
Persons authorized to draw thereon or have access thereto. Except as set forth
in Section 3.17 of the Disclosure Schedule, no Person holds any power of
attorney from LifeTime.
3.18 Absence of Certain Changes.
-----------------------------
Since the date of the 2006 Balance Sheet, the LifeTime Business
has been operated in the ordinary course consistent with past practice. Without
limiting the generality of the immediately preceding sentence and except as set
forth in Section 3.18 of the Disclosure Schedule, since the date of the 2006
Balance Sheet, LifeTime and the LifeTime Representatives have not:
(a) amended or otherwise modified the LifeTime charter
documents or bylaws;
(b) mortgaged, pledged or granted any security interest in
any of the LifeTime assets;
(c) increased the compensation, bonus or other benefits
payable or potentially payable to of any of the employees or executive officers
of the LifeTime Business, except in the ordinary course of business consistent
with past practice;
(d) terminated or modified any Contract, or received any
written notice of termination of any Contract, except for terminations of
Contracts upon their expiration during such period in accordance with their
terms;
(e) incurred or assumed any indebtedness for borrowed money
or guaranteed any obligation or the net worth of any Person;
26
(f) discharged or satisfied any Encumbrance other than those
then required to be discharged or satisfied during such period in accordance
with their original terms;
(g) paid any material obligation or liability (absolute,
accrued, contingent or otherwise), whether due or to become due, except for any
current liabilities, and the current portion of any long term liabilities, shown
on the Financial Statements or incurred since the date of the 2006 Balance Sheet
in the ordinary course of business consistent with past practice;
(h) sold, transferred, leased to others or otherwise disposed
of any assets having a fair market value in excess of $10,000, except in the
ordinary course of business consistent with past practice;
(i) cancelled, waived or compromised any material debt or
claim;
(j) suffered any damage or destruction to or loss of any of
the LifeTime tangible properties or assets (whether or not covered by
insurance);
(k) lost the employment services of any employee whose annual
salary exceeded $50,000;
(l) made any loan or advance to any Person other than travel
and other similar routine advances to employees in the ordinary course of
business consistent with past practice;
(m) purchased or acquired any capital stock or other
securities of any other corporation or any ownership interest in any other
business enterprise;
(n) made any capital expenditures or capital additions or
betterments in amounts which exceeded $10,000 in the aggregate;
(o) changed the LifeTime method of accounting or its
accounting principles or practices;
(p) instituted or settled any litigation or any legal,
administrative or arbitration action or proceeding before any court or
Governmental Body relating to LifeTime or any of its properties or assets;
(q) made or revoked any Tax elections or settled or
compromised any Tax liability with any Governmental Body; or
(r) entered into any agreement or commitment to do any of the
foregoing.
3.19 Books and Records
-------------------
The books and records of LifeTime with respect to its operations,
employees and properties have been maintained in the usual, regular and ordinary
manner, all
27
entries with respect thereto have been accurately made, and all transactions
have been accurately accounted for. The matters contained in such books and
records are appropriately and accurately reflected in the Financial Statements.
3.20 Transactions with Affiliates
------------------------------
Except as set forth in Section 3.20 of the Disclosure Schedule,
there are no loans, leases, royalty agreements or other continuing transactions
between LifeTime and any of LifeTime's officers or directors or any member of
any officer's or director's family. None of the officers or directors of
LifeTime (a) has any material direct or indirect interest in any entity that
does business with LifeTime; (b) has any direct or indirect interest in any
property, asset or right that is used by LifeTime in the conduct of its
business; or (c) has any contractual relationship with LifeTime other than such
relationships that result solely from being an officer, director or shareholder
of LifeTime.
3.21 Customers and Suppliers.
-------------------------
Section 3.21 of the Disclosure Schedule lists the ten (10)
largest customers and the ten (10) largest suppliers of LifeTime, together with
the amount of sales or purchases attributable to such customers and suppliers
expressed in dollars and as a percentage of total sales or purchases, as the
case may be, for each of the fiscal years ended August 31, 2005 and August 31,
2006. LifeTime generally has good commercial relationships with its ten (10)
largest customers and suppliers.
3.22 Brokers and Finders.
---------------------
LifeTime and the LifeTime Representatives have not engaged any
broker, finder or investment advisor in connection with the transactions
contemplated by this Agreement except that ▇▇▇▇▇▇▇▇▇ has been so engaged by
Karim and Ung.
3.23 Restrictions on LifeTime Business Activities.
------------------------------------------------
There is no judgment, injunction, order or decree binding upon
LifeTime or any of its shareholders, officers or directors, or, to the knowledge
of LifeTime and the LifeTime Representatives, threatened that has or could
reasonably be expected to have the effect of prohibiting or impairing the
conduct of the LifeTime Business by LifeTime as currently conducted.
3.24 Accounts Payable.
-----------------
All accounts payable of LifeTime arose in the ordinary course of
business. All items which are required by GAAP to be reflected as payables on
the Financial Statements and on the books and records of LifeTime are so
reflected or set forth in Section 3.24 of the Disclosure Schedule. There has
been no material adverse change since the date of the 2006 Balance Sheet in the
amount or delinquency of accounts payable of LifeTime, either individually or in
the aggregate.
28
3.25 Accounts Receivable.
--------------------
All Accounts Receivable of LifeTime have arisen in the ordinary
course of business, represent valid obligations to LifeTime arising from bona
fide transactions in the ordinary course of business, are not subject to claims
or set-off or other defenses or counterclaims, and, except as set forth in
Section 3.25 of the Disclosure Schedule, are believed by LifeTime and the
LifeTime Representatives to be fully collectible in the ordinary course of
business within ninety (90) days after the applicable due date. All of such
Accounts Receivable are free and clear of any liens or other charges. All items
which are required by GAAP to be reflected as receivables on the Financial
Statements and on the books and records of LifeTime are so reflected or set
forth in Section 3.25 of the Disclosure Schedule. Section 3.25 of the
Disclosure Schedule also sets forth the aggregate amount of receivables which
relate to services which will not yet be performed by LifeTime as of the Closing
Date.
3.26 Full Disclosure.
----------------
No representation, warranty or statement of LifeTime and the
LifeTime Representatives made in this Agreement or the Schedules or Exhibits
hereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
made, in light of the circumstances under which they were made, not false or
misleading.
ARTICLE IV
Representations and Warranties of Buyer and Baywood
---------------------------------------------------
Buyer and Baywood, jointly and severally, hereby represent and warrant
to LifeTime and the LifeTime Representatives as follows:
4.1 Organization and Good Standing.
---------------------------------
Each of Buyer and Baywood is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has full corporate power and authority to enter into and carry out its
obligations under this Agreement.
4.2 Authorization.
-------------
Buyer and Baywood have 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 Buyer and Baywood of this Agreement and the other
Transaction Documents to which Buyer and Baywood are each a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly and validly authorized and approved by all necessary corporate action
on the part of Buyer and Baywood. This Agreement has been duly executed and
delivered by Buyer and Baywood and constitutes, and the other Transaction
Documents to which Buyer and Baywood are each a party, at the Closing, will be
duly executed and delivered by Buyer and Baywood and will each then
29
constitute, a legal, valid and binding obligation of Buyer and Baywood,
enforceable against Buyer and Baywood 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.
4.3 No Conflicts; Consents.
------------------------
Neither the execution and delivery by Buyer and Baywood of this
Agreement or any of the Transaction Documents to which each is a party, nor the
consummation by it of the transactions contemplated hereby or thereby, will (i)
conflict with or violate the charter documents or bylaws of Buyer or Baywood, or
(ii) conflict with, violate, result in the breach of any term of, constitute a
default under or require the consent or approval of or any notice to or filing
with any Person under, any note, mortgage, deed of trust or other agreement or
instrument to which Buyer or Baywood is a party or by which Buyer or Baywood is
bound, or any Law, decree, writ or injunction of any Governmental Body having
jurisdiction over Buyer or Baywood.
4.4 Litigation.
----------
There is no lawsuit, governmental investigation or legal,
administrative, or arbitration action or proceeding pending or, to the knowledge
of Buyer or Baywood, threatened against Buyer or Baywood, or any director,
officer or employee of Buyer or Baywood in his or her capacity as such, which
questions the validity of this Agreement or seeks to prohibit, enjoin or
otherwise challenge the consummation of the transactions contemplated hereby or
which would reasonably be expected to have a material adverse effect on the
ability of Buyer or Baywood to consummate the transactions contemplated hereby.
4.5 Sufficient Funds.
-----------------
Buyer will have all funds necessary and sufficient to enable it
to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. As of the Closing and immediately after
consummating the transactions contemplated by this Agreement, neither Buyer nor
Baywood shall (i) be insolvent (either because its financial condition is such
that the sum of its debts is greater than the fair value of its assets or
because the present fair salable value of its assets will be less than the
amount required to pay its probable liability on its debts as they become
absolute and mature), (ii) have unreasonably small capital with which to engage
in its businesses, or (iii) have incurred or plan to incur debts beyond its
ability to repay such debts as they become absolute and matured.
4.6 Brokers and Finders.
---------------------
Except for the services of Northeast Securities, Inc., Buyer and
Baywood have not engaged any broker, finder or investment advisor in connection
with the transactions contemplated by this Agreement. Buyer and Baywood shall
be responsible and shall pay all fees, commissions and costs of Northeast
Securities, Inc.
30
4.7 Public Filings.
---------------
Baywood has made available to the LifeTime Representatives true
and complete copies of all reports filed by Baywood with the SEC (collectively,
the "SEC DOCUMENTS") as of the date of this Agreement and shall make available
to the LifeTime Representatives any additional SEC Documents filed with the SEC
prior to the Closing. As of their respective filing dates, (i) each SEC
Document complied, or shall comply, in all material respects, with the
requirements of the Securities Exchange Act of 1934, as amended, and (ii) none
of the SEC Documents contained, or shall contain, any untrue statement of a
material fact or omitted, or shall omit, to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.8 Capital Stock.
--------------
The authorized capital stock of Baywood consists of two hundred
million (200,000,000) shares of Common Stock, of which forty-two million six
hundred sixty-seven thousand two hundred eighty-eight (42,667,288) shares are
issued and outstanding, and ten million (10,000,000) shares of preferred stock,
par value $1.00 per share, of which five hundred ninety-six thousand seven
hundred ten (596,710) shares are issued and outstanding. All presently
outstanding shares of Baywood's capital stock have been duly authorized and
validly issued, and are fully paid and non-assessable.
4.9 Issuance of Shares.
--------------------
The Shares to be issued to the LifeTime Representatives at the
Closing, upon conversion of the Convertible Promissory Notes and upon exercise
of the Warrants, have been duly authorized and, when issued and paid for in
accordance with the terms of this Agreement, the Convertible Promissory Notes
and the Warrants, as applicable, will be validly issued, fully paid and
non-assessable. Baywood has reserved (i) twelve million (12,000,000) Shares for
issuance upon conversion of the Convertible Promissory Notes and (ii) seven
hundred thousand (700,000) Shares for issuance upon exercise of the Warrants
and, when issued upon conversion of the Convertible Promissory Notes or upon
exercise of the Warrants, as applicable, such Shares will be validly issued,
fully paid and non-assessable.
ARTICLE V
Covenants of LifeTime and the LifeTime Representatives
------------------------------------------------------
LifeTime and the LifeTime Representatives, jointly and severally,
hereby covenant and agree as follows:
5.1 Normal Course.
--------------
From the date hereof until the Closing, LifeTime and the LifeTime
Representatives will use their good faith commercially reasonable efforts to (a)
maintain LifeTime's corporate existence in good standing; (b) maintain in effect
all of LifeTime's
31
presently existing insurance coverage (or substantially equivalent insurance
coverage); (c) preserve LifeTime's business organization substantially intact,
keep the services of its present principal employees and preserve its present
business relationships with its customers and suppliers; and (d) in all respects
conduct the LifeTime Business in the usual and ordinary manner consistent with
past practice and perform in all material respects all Contracts.
5.2 Conduct of LifeTime Business.
--------------------------------
Without limiting the provisions of Section 5.1, LifeTime and the
LifeTime Representatives will not, without the prior written consent of Buyer or
Baywood, cause LifeTime to:
(a) amend or otherwise modify its charter documents or
bylaws;
(b) mortgage, pledge or grant any security interest in any of
its assets;
(c) increase the compensation, bonus or other benefits
payable or potentially payable to any of the employees or executive officers of
LifeTime except in the ordinary course of business consistent with past
practice;
(d) terminate or modify any Contract, except for terminations
of Contracts upon their expiration during such period in accordance with their
terms;
(e) incur or assume any indebtedness for borrowed money or
guaranty any obligation or the net worth of any Person;
(f) discharge or satisfy any Encumbrance other than those
which are required to be discharged or satisfied during such period in
accordance with their original terms;
(g) pay any material obligation or liability (absolute,
accrued, contingent or otherwise), whether due or to become due, except for any
current liabilities, and the current portion of any long term liabilities, shown
on the Financial Statements or incurred since the date of the 2006 Balance Sheet
in the ordinary course of business consistent with past practice;
(h) sell, transfer, lease to others or otherwise dispose of
any assets having a fair market value in excess of $10,000, except in the
ordinary course of business consistent with past practice;
(i) cancel, waive or compromise any material debt or claim;
(j) make any loan or advance to any Person other than travel
and other similar routine advances to employees in the ordinary course of
business consistent with past practice;
(k) hire or discharge any employee or consultant whose annual
compensation exceeds $50,000 per year;
32
(l) purchase or acquire any capital stock or other securities
of any other corporation or any ownership interest in any other business
enterprise;
(m) make any capital expenditures or capital additions or
betterments in amounts which exceed $10,000 in the aggregate;
(n) change its method of accounting or its accounting
principles or practices;
(o) institute or settle any litigation or any legal,
administrative or arbitration action or proceeding before any court or
Governmental Body relating to it or any of its properties or assets;
(p) make or revoke any Tax elections or settle or compromise
any Tax liability with any Governmental Body; or
(q) enter into any agreement or commitment to do any of the
foregoing.
5.3 Access to Information.
-----------------------
Prior to and for a period of five (5) years from the Closing Date
(or such longer period as may be required by any Governmental Body or ongoing
litigation proceeding), LifeTime and the LifeTime Representatives will (a) give
Buyer and its Representatives full access during normal business hours to the
offices, properties, books and records of LifeTime; (b) furnish Buyer and its
Representatives such financial and operating data and other information relating
to LifeTime as such Persons may reasonably request; and (c) instruct the
employees, counsel and financial advisors of LifeTime to cooperate with the
reasonable requests of Buyer and its Representatives in their investigation of
LifeTime. Buyer or Baywood, as applicable, shall reimburse LifeTime or the
LifeTime Representatives, as applicable, for all reasonable out-of-pocket
expenses incurred by them after the Closing Date in connection with the actions
contemplated by this Section 5.3.
5.4 Efforts to Satisfy Conditions.
--------------------------------
LifeTime and the LifeTime Representatives shall use their good
faith commercially reasonable efforts to satisfy the conditions set forth in
Article VIII that are within their respective control.
5.5 Notification of Certain Matters.
-----------------------------------
Promptly after obtaining knowledge thereof, LifeTime and the
LifeTime Representatives shall notify Buyer in writing of (a) the occurrence or
non-occurrence of any fact or event which causes or would reasonably be likely
to cause (i) any representation or warranty of LifeTime or the LifeTime
Representatives contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Closing Date or (ii)
any covenant, condition or agreement of LifeTime or the LifeTime Representatives
in this Agreement not to be complied with or satisfied in any material respect,
and (b) any failure of
33
LifeTime or the LifeTime Representatives to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by any of them in any
material respect; provided, however, that no such notification shall affect the
--------
representations or warranties of LifeTime or the LifeTime Representatives, or
the right of Buyer and Baywood to rely thereon, or the conditions to the
obligations of Buyer and Baywood except to the extent and solely in cases where
the notification discloses matters which arose after the date hereof and of
which LifeTime and the LifeTime Representatives do not have knowledge of such
matters as of the date hereof, in which case such notification shall not be
deemed to constitute a breach of the representations and warranties of LifeTime
and the LifeTime Representatives under this Agreement; provided, that any such
--------
notification by LifeTime and the LifeTime Representatives shall not affect the
ability of Buyer and Baywood to terminate this Agreement pursuant to Section
8.2. LifeTime and the LifeTime Representatives shall give prompt notice in
writing to Buyer and Baywood of any notice or other communication from any third
party alleging that the consent of such third party is or may be required to be
obtained by LifeTime or the LifeTime Representatives in connection with the
transactions contemplated by this Agreement.
5.6 Confidentiality.
---------------
(a) LifeTime and its Affiliates and the LifeTime
Representatives will hold, and will use their commercially reasonable efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of Law,
all Confidential Information concerning Buyer or Baywood, and after the Closing
Date, all Confidential Information concerning LifeTime, except to the extent
that such Confidential Information can be shown to have been (i) previously
known on a non-confidential basis by LifeTime or the LifeTime Representatives;
(ii) in the public domain through no fault of LifeTime or the LifeTime
Representatives; (iii) independently developed by LifeTime or the LifeTime
Representatives without reliance on such Confidential Information or (iv)
received from a third party without breach of any duty of confidentiality by
such third party; provided, however, that LifeTime may disclose such
--------
Confidential Information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such Persons are informed by LifeTime
of the confidential nature of such Confidential Information and are directed by
LifeTime to treat such Confidential Information confidentially.
(b) In the event LifeTime or its Affiliates or the LifeTime
Representatives are required by judicial or administrative process or by other
requirements of Law to disclose the Confidential Information, LifeTime and its
Affiliates and the LifeTime Representatives shall, before making such
disclosure, give prompt notice thereof to Buyer and Baywood and, to the extent
reasonably practicable, provide such reasonable cooperation and assistance as
Buyer or Baywood may reasonably request (at Buyer's or Baywood's expense) to
obtain an appropriate protective order or other appropriate remedy. In the
event that no such protective order or other remedy is obtained, LifeTime and
its Affiliates and the LifeTime Representatives shall furnish only that portion
of the Confidential Information which they are advised by counsel is legally
required to be furnished.
34
(c) The obligation of LifeTime and its Affiliates and the
LifeTime Representatives to hold the Confidential Information shall be satisfied
if they exercise the same care with respect to such Confidential Information as
they would take to preserve the confidentiality of their own similar
information, but in no event less than a reasonable degree of care.
(d) If this Agreement is terminated for any reason, LifeTime
and the LifeTime Representatives will, and will use their best efforts to cause
LifeTime's officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to Buyer, upon request, all documents
and other materials, and all copies thereof, obtained by LifeTime, or on its
behalf from Buyer or its Affiliates in connection with this Agreement that are
subject to such confidence. The obligations of LifeTime under this Section 5.6
shall continue for a period of five (5) years following the date of disclosure
of the Confidential Information.
5.7 Non-Competition.
---------------
(a) From and after the Closing Date and for a period of three
(3) years thereafter (the "RESTRICTION PERIOD"), neither LifeTime nor any of the
LifeTime Representatives, anywhere in the world, either directly or indirectly,
shall engage in, or own, have an interest in, manage, be employed by, connected
with or work for, any Person engaged in, any activity involving the development,
marketing, distribution or sale of neutraceutical products, including, but not
limited to, dietary supplements and pharmaceuticals, the same as or similar to
those sold by LifeTime prior to the Closing Date, except for (i) the employment
----------
of ▇▇▇▇▇▇▇▇▇ under the Employment Agreement, (ii) the items set forth in Section
5.7 of the Disclosure Schedule, (iii) the performance by Karim under the
Manufacturing Agreement - NHK or other agreements providing for Karim or his
Affiliates to perform contract manufacturing similar to that performed under the
Manufacturing Agreement - NHK, (iv) the performance by Ung under the
Manufacturing Agreement - Best Formulations or other agreements providing for
Ung or his Affiliates to perform contract manufacturing similar to that
performed under the Manufacturing Agreement - Best Formulations, (v) the
ownership by Karim, directly or indirectly, of any interest in NHK, Parason,
NHKCC, or their respective successors in interest, provided that such entities
do not engage in any activities otherwise prohibited by this Section 5.7, (vi)
the ownership by Ung, directly or indirectly, of any interest in Best
Formulations, Nature's Value, or California Health International or their
respective successors in interest, provided that such entities do not engage in
any activities otherwise prohibited by this Section 5.7, (vii) the sale and
distribution by Parason or Nature's Value or any successor in interest to
Parason or Nature's Value of dietary supplements, neutraceutical and
pharmaceutical products, including products the same as or similar to the
products of LifeTime, (viii) the research, discovery, manufacture, marketing,
distribution and sale of bulk food ingredients, dietary supplement ingredients
and pharmaceutical ingredients by NHKCC, Best Formulations or California Health
International or any successor in interest of NHKCC, Best Formulations or
California Health International, (ix) the performance of services, including as
an executive, consultant or otherwise, by Karim for NHK, Parason or NHKCC or
their respective successors in interest, provided that such entities do not
engage in any activities otherwise prohibited by this Section 5.7, (x) the
performance of services, including as an executive, consultant or otherwise, by
Ung for Best Formulations, Nature's Value or California Health International or
their respective successors in interest, provided that such entities do not
engage in any activities otherwise prohibited by this Section
35
5.7, (xi) ownership of equity or debt interests in Baywood or Buyer, (xii)
passive investments in Persons whose stock is publicly traded, not to exceed
ownership of three percent (3%) of the outstanding capital stock of such Person,
(xiii) the performance of services for or at the direction of Baywood or Buyer,
as an employee, consultant or otherwise, (xiv) Best Formulations or any
successor in interest to Best Formulations continuing to operate, maintain and
conduct the type of business that Best Formulations is engaged in as of the
Closing Date, and (xv) NHK or any successor in interest to NHK continuing to
operate, maintain and conduct the type of business that NHK is engaged in as of
the Closing Date. For purposes of this Section 5.7, "engage" will include,
without limitation rendering service or assistance, directly or indirectly, to
any Person that will, or can reasonably be expected to, compete with Buyer or
Baywood with respect to the activities set forth in the preceding sentence.
(b) Notwithstanding anything to the contrary contained in
Section 5.7(a), except as provided in clause (i) thereof and except for the
performance by Karim, directly or indirectly, under the Manufacturing Agreement
- NHK and the performance by Ung, directly or indirectly, under the
Manufacturing Agreement - Best Formulations, neither LifeTime nor any of the
LifeTime Representatives, anywhere in the world, either directly or indirectly,
at any time during or after the Restriction Period, shall engage in, or own,
have an interest in, manage, be employed by, connected with or work for, any
Person engaged in, any activity involving the development, marketing,
distribution or sale of neutraceutical products, including, but not limited to,
dietary supplements and pharmaceuticals the same as or similar to those sold by
LifeTime prior to the Closing Date, that use, include, are marketed, distributed
or sold under or otherwise are based or rely upon any of the Intellectual
Property (as defined in Article I) of LifeTime, Baywood or Buyer; provided,
--------
however, that during the Restriction Period it shall not be a defense to a claim
by Buyer or Baywood that LifeTime or the LifeTime Representatives have breached
or violated the terms of this Section 5.7, that Buyer or Baywood does not have
the right under applicable law to prevent third parties from using, including,
marketing, distributing, selling or relying on its Intellectual Property. By
way of illustration of the purposes and intent of the foregoing proviso, during
the Restriction Period neither LifeTime nor the LifeTime Representatives may
sell a neutraceutical product utilizing the LifeTime name, whether or not
similar to a product of LifeTime as of the Closing Date or of Baywood or Buyer
after the Closing Date, notwithstanding that Baywood then does not have the
right under applicable law to prevent third parties from using the LifeTime
name. For the avoidance of doubt, the formulations currently manufactured by
NHK and associated with the following LifeTime products shall not be deemed the
Intellectual Property of LifeTime: (1) 5-Billion & Milk Free Acidophilus
(30001), (2) Acidophilus 500 Million (30065/30066), (3) Hi-Pro 95 Soy Protein
(90000/90001), (4) Yeast 500 (90010), (5) Hi-Pro 95 Soy Protein Non-GMO
(90020/90021), (6) Mega-Green Hi-Pro 95 Soy Protein (90030/90031), (7)
Professional Muscle Building Formula, Vanilla (50010/50011), (8) Professional
Muscle Building Formula, Chocolate (50020/50021).
5.8 Non-Solicitation.
----------------
From and after the Closing Date and for a period of three (3)
years thereafter, except as permitted in Section 5.7, LifeTime and the LifeTime
Representatives shall not:
36
(a) directly or indirectly, contact or solicit (other than by
general advertising) for the purpose of offering employment or hiring, induce or
attempt to induce to accept employment, or actually hire (in each case, whether
as an employee, consultant, agent, independent contractor or otherwise), any
employee of, Buyer, Baywood or any of their respective Affiliates (including
former employees of LifeTime); or
(b) (A) solicit business of the type conducted by LifeTime,
Baywood or Buyer from (i) any customer or former customer (within the prior
year) of Baywood or Buyer that is known to LifeTime or the LifeTime
Representatives, (ii) any customer as of the Closing Date or former customer
(within the prior year) of LifeTime or (iii) any customer of LifeTime after the
Closing Date that is known to LifeTime or the LifeTime Representatives, or (B)
induce or attempt to induce any such customer or former customer to cease or
reduce its or his/her business or other relationship with Baywood or Buyer, or
otherwise interfere with the relationship between Buyer, Baywood or any of their
Affiliates with any such Person.
(c) Notwithstanding Section 5.8(b), each of Ung and Karim and
their respective related entities shall not be restricted from soliciting
business from each of such parties' respective current customers or former
customers (within the prior year) even if such parties would otherwise be
restricted from doing so pursuant to Section 5.8(b).
5.9 Non-Disparagement.
-----------------
From and after the Closing Date and for a period of three (3)
years thereafter, none of the parties hereto nor any of LifeTime's, Buyer's or
Baywood's officers, directors or agents shall make any statements or take any
action that would be injurious to any of the parties' business reputation in any
material respect.
5.10 Enforcement; Injunctive Relief
--------------------------------
(a) The parties desire that the provisions of Sections 5.7,
5.8 and 5.9 be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought. If
a court of competent jurisdiction or arbitrator, however, determines that any
restrictions imposed on any of the parties in such Sections are unreasonable or
unenforceable because of duration, area of restriction, or otherwise, the
parties agree and intend that the court or arbitrator shall enforce such
Sections to whatever extent the court or the arbitrator deems reasonable. The
parties intend that the court or arbitrator shall have the right to strike or
change any provision of such Sections and substitute therefor different
provisions to effect the intent of this Subsection (a).
(b) It is specifically understood, acknowledged and agreed by
LifeTime and the LifeTime Representatives that (i) the restrictions contained in
Sections 5.7 and 5.8 represent a reasonable and necessary protection of the
legitimate interests of Baywood and Buyer and that the failure of LifeTime or
the LifeTime Representatives to observe and comply with these covenants and
agreements will cause irreparable harm to Baywood and Buyer; (ii) it is and will
continue to be difficult to ascertain the nature, scope and extent of the harm;
and (iii) a remedy at law for such failure by LifeTime or the LifeTime
Representatives will be inadequate. Accordingly, it is the intention of the
parties that, in addition to any other rights and remedies
37
which Baywood and Buyer may have in the event of any breach of Sections 5.7 and
5.8, Baywood and Buyer shall be entitled, and is expressly and irrevocably
authorized by LifeTime and the LifeTime Representatives, to demand and obtain
specific performance, including, without limitation, temporary or permanent
injunctive relief, and all other appropriate equitable relief against LifeTime
and the LifeTime Representatives in order to enforce against them, or in order
to prevent any breach or any threatened breach by them of, the covenants and
agreements contained in Sections 5.7 and 5.8.
5.11 Name Change.
------------
As soon as commercially reasonable following the Closing Date,
LifeTime and the LifeTime Representatives shall take all necessary action to
change, effective as of the Closing Date, the LifeTime name, including any
assumed name, and the name of any entity owned by LifeTime which includes the
term "LifeTime", "LifeTime Vitamins", "Nutritional Specialties" or any variant
thereof, to a name that does not contain the terms "LifeTime", "LifeTime
Vitamins", "Nutritional Specialties" or any variant thereof, and thereafter
shall no longer use for any business purpose any name containing any such term
or variant thereof.
5.12 Update of Disclosure Schedule.
--------------------------------
LifeTime and the LifeTime Representatives shall update the
Disclosure Schedule to this Agreement as of the Closing Date to reflect any
events occurring or matters discovered between the date hereof and the Closing
Date, and any such updates shall not modify the representations and warranties
of LifeTime and the LifeTime Representatives to which such updates relate except
to the extent set forth in Section 5.5.
ARTICLE VI
Covenants of Buyer and Baywood
------------------------------
Buyer and Baywood, jointly and severally, hereby covenant and agree as
follows:
6.1 Efforts to Satisfy Conditions.
--------------------------------
Each of Buyer and Baywood shall use its good faith commercially
reasonable efforts to satisfy the conditions set forth in Article VIII hereof
that are within its control.
6.2 Notification of Certain Matters.
----------------------------------
Promptly after obtaining knowledge thereof, Buyer shall notify
LifeTime and the LifeTime Representatives of (a) the occurrence or
non-occurrence of any fact or event which causes or would reasonably be likely
to cause (i) any representation or warranty of Buyer or Baywood contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Closing Date or (ii) any covenant, condition or
agreement of Buyer or Baywood in this Agreement not to be complied with or
satisfied in any material respect and (b) any failure of Buyer or Baywood to
comply with or satisfy any covenant, condition or
38
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
--------
representations or warranties of Buyer and Baywood or LifeTime's and the
LifeTime Representatives' right to rely thereon, or the conditions to the
obligations of LifeTime and the LifeTime Representatives.
6.3 Confidentiality.
---------------
Buyer and Baywood and their respective Affiliates will hold, and
will use their commercially reasonable efforts to cause their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of Law, all Confidential
Information concerning LifeTime and the LifeTime Representatives, except to the
extent that such Confidential Information can be shown to have been (i)
previously known on a non-confidential basis by Buyer or Baywood; (ii) in the
public domain through no fault of Buyer or Baywood; (iii) independently
developed by Buyer or Baywood without reliance on such Confidential Information;
or (iv) received from a third party without breach of any duty of
confidentiality by such third party; provided, that Buyer or Baywood may
disclose such Confidential Information to their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement so long as such Persons are
informed by Buyer or Baywood of the confidential nature of such Confidential
Information and are directed by Buyer or Baywood to treat such Confidential
Information confidentially. The obligations of Buyer and Baywood to hold the
Confidential Information shall be satisfied if Buyer and Baywood exercise the
same care with respect to such Confidential Information as they would take to
preserve the confidentiality of their own similar information, but in no event
less than a reasonable degree of care. If this Agreement is terminated, Buyer
and Baywood will, and will use commercially reasonable efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to LifeTime, upon request, all
documents and other materials, and all copies thereof, obtained by Buyer or
Baywood, or on their behalf from LifeTime in connection with this Agreement that
are subject to such confidence, except that Buyer and Baywood may retain one
copy solely for legal and archival purposes. The obligations of Buyer, Baywood
and their respective Affiliates under this Section 6.3 shall continue for a
period of five (5) years following the date of disclosure of the Confidential
Information. In the event that the transactions contemplated by this Agreement
are consummated, Buyer's and Baywood's obligations pursuant to this Section 6.3
shall immediately terminate.
ARTICLE VII
Covenants of all Parties
------------------------
7.1 Further Assurances.
-------------------
Subject to the terms and conditions of this Agreement, each party
will use its good faith commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The parties hereto agree that LifeTime and the
LifeTime Representatives shall execute and deliver such other documents,
39
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement, and provide to Buyer any books,
papers, ledgers, documents and records or other data (including, where
available, electronic versions thereof) constituting part of the Purchased
Assets which were not previously delivered to Buyer.
7.2 Certain Filings.
----------------
The parties shall cooperate with each other (i) in determining
whether any action by or in respect of, or filing with, any Governmental Body,
agency, official or authority is required, or any actions, consents, approvals
or waivers are required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions contemplated by this
Agreement and (ii) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers.
7.3 Assignment of Purchased Assets.
----------------------------------
LifeTime and the LifeTime Representatives will use their good
faith commercially reasonable efforts to (i) obtain for Buyer before the Closing
all such third-person consents, licenses, permits and approvals set forth in
Section 7.3 of the Disclosure Schedule ("REQUIRED CONSENTS") and (ii) to the
extent not obtained before the Closing and waived by Buyer at the Closing, any
Required Consents to any Purchased Asset as Buyer may reasonably request. If
such consent is not obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of LifeTime thereunder so that
Buyer would not in fact receive all such rights, Buyer and LifeTime will
cooperate in a mutually agreeable arrangement under which Buyer would obtain the
benefits and assume the obligations thereunder (to the extent that it would have
been responsible for these obligations had the assignment been effective), or
under which LifeTime would enforce for the benefit of Buyer, with Buyer assuming
LifeTime's obligations (to the extent that it would have been responsible for
these obligations had the assignment been effective), any and all rights of
LifeTime against a third party thereto. LifeTime and the LifeTime
Representatives will promptly pay to Buyer when received all monies received by
LifeTime under such Purchased Asset or any claim or right or any benefit arising
thereunder, except to the extent the same represents an Excluded Asset.
7.4 Public Announcements.
---------------------
The parties agree to consult with each other before issuing any
press release or making any public statement with respect to this Agreement or
the transactions contemplated hereby and, except as may be required by
applicable law will not issue any such press release or make any such public
statement prior to such consultation.
7.5 Certain Tax Matters.
---------------------
(a) LifeTime and Buyer agree that the allocation among the
Purchased Assets of the Purchase Price and Assumed Liabilities (as adjusted for
payments made under Section 9.2) shall be made in accordance with Section 1060
of the Code (the "ALLOCATION") and
40
shall be as set forth on Exhibit 7.5. The parties agree to be bound by such
-----------
Allocation for all purposes, including for purposes of U.S. federal, state and
local Tax Returns filed by them subsequent to the Closing Date, the
determination by LifeTime of taxable gain or loss on the sale of the Purchased
Assets and the determination by Buyer of its respective Tax basis in the
Purchased Assets.
(b) LifeTime shall prepare and timely file, in a manner
consistent with past practice, all Returns and amendments thereto related to the
Purchased Assets required to be filed by or for LifeTime for all taxable periods
ending on or before the Closing Date (which specifically excludes filings of
personal Returns to be made by any of the LifeTime Representatives). Buyer will
be given a reasonable opportunity to review and comment upon such Returns and
amendments thereto. Buyer shall prepare and file all other Returns related to
the Purchased Assets. LifeTime shall be given a reasonable opportunity to
review and comment upon Returns and amendments relating to a Straddle Period (as
defined below). Any Returns for Straddle Periods shall be prepared in a manner
consistent with LifeTime's past practices unless such practices are contrary to
law, regulations, administrative rulings or pronouncements or judicial
decisions, or, in Buyer's reasonable belief, would adversely effect Buyer's Tax
reporting or increase Buyer's exposure for Taxes.
(c) In the case of any taxable period that includes (but does
not begin or end on) the Closing Date (a "STRADDLE PERIOD"), the portion of
Taxes for such Straddle Period that are attributable to the Pre-Closing Tax
Period shall be computed (A) in the case of income, franchise, sales, or similar
taxes, pursuant to an interim closing of the books method by assuming that
LifeTime had a taxable year or period which ended on the Closing Date, except
that exemptions, allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be apportioned on a
per-diem basis and (B) in the case of other Taxes, by prorating the Taxes owed
for the Straddle Period on a per-diem basis.
(d) Buyer and LifeTime shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Returns and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. LifeTime shall
(A) retain all books and records with respect to Tax matters pertinent to
LifeTime relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations of the respective taxable periods,
and to abide by all record retention agreements entered into with any
Governmental Body, and (B) give Buyer reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if Buyer
so requests, LifeTime shall allow Buyer to take possession of such books and
records.
7.6 Transfer Taxes.
---------------
Buyer shall be responsible for all sales, use, stamp,
documentary, filing, recording or other similar taxes or fees, including any
interest and penalties thereon (the "TRANSFER TAXES"), relating to or arising
out of the transactions contemplated hereby. In the event LifeTime is required
by law to file any Return with respect to such Transfer Taxes, it shall
41
properly complete and timely file such Return and shall pay the Transfer Taxes
shown to be due thereon, and shall be entitled to reimbursement of one hundred
percent (100%) of such Transfer Taxes within ten (10) days of providing Buyer
with a receipt evidencing such payment. The parties hereto shall cooperate in
good faith to minimize the Transfer Taxes.
7.7 Receipt of Payments on Accounts Receivable.
-----------------------------------------------
From and after the Closing, Buyer shall collect payments on all
Accounts Receivable, including those due and payable to LifeTime as of the
Closing Date (the "PRE-CLOSING ACCOUNTS RECEIVABLE"). Buyer shall first apply
all payments made by customers of LifeTime subsequent to the Closing Date to the
Pre-Closing Accounts Receivable, but only to the extent that such amounts are
needed by LifeTime to distribute the Earnings (as instructed in writing by the
LifeTime Representatives) to the LifeTime Representatives. In the event that
customers of LifeTime make payments on any Pre-Closing Accounts Receivable
directly to LifeTime subsequent to the Closing, LifeTime shall give Buyer
written notice of such payments and such amounts paid shall reduce the total
amount otherwise payable to the LifeTime Representatives on the Pre-Closing
Accounts Receivable. In the event LifeTime receives payments from customers in
excess of the amount otherwise payable to the LifeTime Representatives on the
Pre-Closing Accounts Receivable, LifeTime shall promptly remit all such excess
payments to Buyer.
7.8 Payment of Audit Fees.
------------------------
The parties agree to share equally all fees and expenses
associated with the audit of LifeTime's books and records in connection with the
preparation of the Financial Statements.
7.9 Preparation of 2005 Audited Financial Statements.
-----------------------------------------------------
The parties shall cooperate with each other and use their
reasonable best efforts to complete, within 75 days of the Closing, audited
statements of income, cash flows and stockholders' equity of LifeTime for the
fiscal year ended August 31, 2005, which shall be prepared in accordance with
GAAP and shall comply with the requirements of Item 310(a) of Regulation S-B of
the SEC.
ARTICLE VIII
Conditions to Closing
---------------------
8.1 Conditions Precedent to Obligations of Each Party.
-------------------------------------------------------
The obligations of Buyer, Baywood, LifeTime and the LifeTime
Representatives to consummate the Closing are subject to the satisfaction of the
following conditions:
42
(a) There shall not have been issued and be in effect any
order, decree or judgment of any Governmental Body enjoining, preventing or
restricting the consummation of the transactions contemplated hereby.
(b) There shall not have been instituted or pending any
action or proceeding (other than any actions or proceedings that are
demonstrably frivolous) by any Governmental Body or any other Person challenging
or seeking to make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the consummation of the transactions
contemplated hereby, or seeking to obtain material damages in connection with
the transactions contemplated hereby.
(c) All necessary approvals, authorizations and consents of
all Governmental Bodies required to consummate the transactions contemplated by
this Agreement shall have been obtained and shall remain in full force and
effect and all waiting periods relating to such approvals, authorizations or
consents shall have expired.
8.2 Conditions Precedent to Obligations of Buyer and Baywood.
-------------------------------------------------------------
The obligations of Buyer and Baywood to consummate the Closing
shall also be subject to the satisfaction of the following conditions, any of
which may be waived by Buyer or Baywood in its sole discretion:
(a) Compliance with Covenants. LifeTime and the LifeTime
---------------------------
Representatives shall have performed and complied in all material respects with
the covenants and obligations required to be performed by them under this
Agreement at or prior to the Closing.
(b) Representations and Warranties. The representations and
-------------------------------
warranties of LifeTime and the LifeTime Representatives contained in this
Agreement which are qualified as to materiality shall be true and correct, and
the representations and warranties of LifeTime and the LifeTime Representatives
which are not qualified as to materiality shall be true and correct in all
material respects, in each case, as of the date of this Agreement and as of the
Closing Date as though made at and as of the Closing Date, except to the extent
any such representation or warranty expressly speaks as of a particular date, in
which case it shall be true and correct as of such date.
(c) No Litigation. There shall not be any pending or
--------------
threatened litigation by or before any court or Governmental Body that shall
affect the right of Buyer to own, use or control any of the Purchased Assets or
Buyer's title therein after the Closing Date in a manner that would have a
Material Adverse Effect.
(d) Lack of Adverse Change. There shall not have been any
-------------------------
Material Adverse Effect (whether or not covered by insurance) nor shall LifeTime
have suffered the loss of any License or any material adverse change to any
Assumed Contract.
(e) Update Certificate. Buyer shall have received from
-------------------
LifeTime and the LifeTime Representatives a certificate, dated the Closing Date,
certifying as to the matters set forth in Sections 8.2(a), (b), (c) and (d) as
of the Closing.
43
(f) Legal Opinion. Buyer shall have received an opinion,
--------------
dated as of the Closing Date, of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel to
LifeTime and the LifeTime Representatives, in substantially the form attached
hereto as Appendix H.
-----------
(g) Employment Agreement. Buyer shall have received the
---------------------
Employment Agreement, duly executed and delivered by the parties thereto, and
the Employment Agreement shall be in full force and effect.
(h) Escrow Agreement. Buyer and Baywood shall have received
-----------------
the Escrow Agreement, duly executed and delivered by the parties thereto, and
the Escrow Agreement shall be in full force and effect.
(i) Manufacturing Agreements. Buyer shall have received the
-------------------------
Manufacturing Agreements, duly executed and delivered by the parties thereto,
and the Manufacturing Agreements shall be in full force and effect.
(j) Bills of Sale. Buyer shall have received such Bills of
---------------
Sale and other instruments of transfer and assignment and other documents
(including any consents thereto by third parties necessary to make the same
valid and effective), in such form and containing such terms and provisions as
Buyer may reasonably request, as shall be necessary to vest in Buyer all right,
title and interest in and to the Purchased Assets, free and clear of any and all
Encumbrances other than Permitted Encumbrances and the Assumed Liabilities.
(k) Consents. Buyer shall have received each of the Required
--------
Consents listed in Section 7.3 of the Disclosure Schedule as being required as a
condition to the Closing.
(l) Financing. Buyer and Baywood shall have obtained no less
---------
than Ten Million Dollars ($10,000,000) in financing through (i) private
placement transactions of shares of convertible preferred stock, par value $1.00
per share, of Baywood, and (ii) term or revolving loan(s) with one or more
individuals or banking institutions (together, the "FINANCING").
(m) Other Closing Matters. LifeTime and the LifeTime
-----------------------
Representatives shall have delivered to Buyer all documents and instruments,
duly executed, required to be delivered by any of them to Buyer under the terms
hereof and all other closing documents that Buyer may reasonably request, all in
form and substance reasonably satisfactory to Buyer.
8.3 Conditions Precedent to Obligations of LifeTime and the
--------------------------------------------------------------
LifeTime Representatives.
-------------------------
The obligations of LifeTime and the LifeTime Representatives to
consummate the Closing shall also be subject to the satisfaction of the
following conditions, any of which may be waived by LifeTime and the LifeTime
Representatives in their sole discretion:
44
(a) Compliance with Covenants. Buyer and Baywood shall have
--------------------------
performed and complied in all material respects with the covenants and
obligations required to be performed by each of them under this Agreement prior
to the Closing.
(b) Representations and Warranties. The representations and
-------------------------------
warranties of Buyer and Baywood contained in this Agreement which are qualified
as to materiality shall be true and correct, and the representations and
warranties of Buyer and Baywood which are not qualified as to materiality shall
be true and correct in all material respects, in each case, as of the date of
this Agreement and as of the Closing Date as though made at and as of the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of a particular date, in which case it shall be true and correct as of
such date.
(c) Update Certificate. LifeTime and the LifeTime
-------------------
Representatives shall have received from Buyer and Baywood a certificate, dated
the Closing Date, certifying as to the matters set forth in Sections 8.3(a) and
(b) hereof as of the Closing.
(d) Employment Agreement. Buyer shall have received the
---------------------
Employment Agreement, duly executed and delivered by the parties thereto, and
the Employment Agreement shall be in full force and effect.
(e) Escrow Agreement. Buyer and Baywood shall have received
-----------------
the Escrow Agreement, duly executed and delivered by the parties thereto, and
the Escrow Agreement shall be in full force and effect.
(f) Manufacturing Agreements. Buyer shall have received the
-------------------------
Manufacturing Agreements, duly executed and delivered by the parties thereto,
and the Manufacturing Agreements shall be in full force and effect.
(g) Other Closing Matters. Buyer and Baywood shall have
-----------------------
delivered to LifeTime and the LifeTime Representatives all documents and
instruments, duly executed, required to be delivered by them to LifeTime and the
LifeTime Representatives under the terms hereof and all other closing documents
that LifeTime may reasonably request, all in form and substance reasonably
satisfactory to LifeTime.
(h) No Litigation. There shall not be any pending or
--------------
threatened litigation by or before any court or Governmental Body that shall
affect the right of the LifeTime Representatives to own, use or control any of
the Shares or such party's title therein after the Closing Date in a manner that
would have a Material Adverse Effect.
(i) Lack of Adverse Change. There shall not have been any
-------------------------
Material Adverse Effect with respect to the operations, business or financial
condition of Buyer or Baywood.
(j) Legal Opinion. The LifeTime Representatives shall have
--------------
received an opinion, dated as of the Closing Date, of Meltzer, Lippe, ▇▇▇▇▇▇▇▇▇
& Breitstone, LLP, counsel to Buyer and Baywood, in substantially the form
attached hereto as Appendix I.
-----------
45
ARTICLE IX
Survival; Indemnification
-------------------------
9.1 Survival.
--------
The covenants and agreements of the parties contained in this
Agreement or in any certificate or writing delivered pursuant hereto or in
connection herewith shall expire in accordance with their respective terms.
The representations and warranties of the parties contained in this Agreement or
in any certificate or other writing delivered pursuant hereto or in connection
herewith shall survive the Closing for a period of eighteen (18) months, except
(i) for warranties pursuant to Sections 3.7, 3.15, 3.16, 4.7, 4.8 and 4.9 and
the indemnification obligations with respect thereto, which shall continue until
the expiration of the applicable statute of limitations relating to the claim or
matter and (ii) to the extent continued for purposes of the Escrow Agreement;
provided, however, that any expiration shall not terminate or limit in any
--------
manner whatsoever any liabilities any Person has or may have hereunder for
criminal activity or for common law fraud. Notwithstanding the time limits set
forth above, any covenant, agreement, representation or warranty in respect of
which indemnity may be sought under Section 9.2 shall survive the time at which
it would otherwise terminate pursuant to the preceding sentence if notice of the
inaccuracy or breach thereof giving rise to such right to indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time and such notice was delivered in accordance with the procedures described
in Section 9.3, provided that any such covenant, agreement, representation or
warranty shall survive until, and only for the purposes of, the resolution of
such claim. The covenants, agreements, representations and warranties of
LifeTime and the LifeTime Representatives and the rights and remedies that may
be exercised by Buyer and Baywood shall not be limited, diminished, or otherwise
affected by or as a result of any information that may have been provided, any
investigation or examination that may have been made by, or any knowledge of,
Buyer or Baywood or any other party on behalf of Buyer or Baywood.
9.2 Indemnification.
---------------
(a) LifeTime'sand the LifeTime RepresentativesIndemnification
---------------------------------------------------------
Obligations. On and after the Closing Date, LifeTime and the LifeTime
------------
Representatives, jointly and severally, hereby agree to indemnify, defend and
hold Buyer, Baywood and their Affiliates, and each of their respective
directors, officers, employees and subsidiaries (collectively, the "BUYER
INDEMNIFIED PARTIES"), harmless from and against and in respect of any and all
claims, losses, damages, costs, expenses, obligations, liabilities, charges,
actions, suits, proceedings, deficiencies, interest, penalties and fines
(including costs of collection, attorney's fees and other costs of defense,
costs of enforcing indemnification provisions, and expenses of investigation)
(collectively, "DAMAGES") imposed on, sustained, incurred or suffered by or
asserted against them directly or indirectly, but only in respect of:
(i) any breach of LifeTime's or the LifeTime
Representatives' representations and warranties, including
representations and warranties of LifeTime and the LifeTime
Representatives contained herein, in any Transaction Document or
any certificate delivered by LifeTime and the LifeTime
46
Representatives pursuant to this Agreement or any
Transaction Document, any such claim to be made by any Buyer
Indemnified Party within the period of survivability set forth in
Section 9.1;
(ii) any failure by LifeTime or the LifeTime
Representatives to perform or otherwise fulfill any of the
agreements, covenants, obligations or undertakings hereunder or
under any of the Transaction Documents, or under any document
delivered by LifeTime or the LifeTime Representatives pursuant to
this Agreement or any Transaction Document; and
(iii) all Excluded Liabilities or any obligation or
liability of the LifeTime Business related to the Excluded
Assets and failure to pay and discharge when due any Excluded
Liability or any claim of causes of action by any party such
indemnities with respect to the Excluded Liabilities.
(b) Buyer's and Baywood's Indemnification Obligations. On
----------------------------------------------------
and after the Closing Date, Buyer and Baywood hereby agree to jointly and
severally indemnify, defend and hold harmless LifeTime and its directors,
officers, and employees and the LifeTime Representatives (collectively, the
"LIFETIME INDEMNIFIED PARTIES") from and against and in respect of any and all
Damages imposed on, sustained, incurred or suffered by or asserted against them,
directly or indirectly, in respect of, but only in respect of:
(i) any breach of Buyer's or Baywood's representations
and warranties, including representations and warranties of
Buyer and Baywood contained herein, in any of the Transaction
Documents, or in any certificate delivered by Buyer or Baywood
pursuant to the terms of this Agreement or any Transaction
Document, any such claim to be made by a LifeTime Indemnified
Party within the period of survivability set forth in Section
9.1;
(ii) Buyer's or Baywood's failure to perform or
otherwise fulfill any of its agreements, covenants,
obligations or undertakings hereunder or under any of the
Transaction Documents, or under any document delivered by Buyer
or Baywood pursuant to this Agreement or any Transaction
Document;
(iii) the Assumed Liabilities or any obligation or
liability of the LifeTime Business relating to the Purchased
Assets and failure to pay and discharge when due any Assumed
Liability, or any claim or cause of action by any party against
such indemnities with respect to the Assumed Liability;
(iv) Buyer's or Baywood's creation, ownership, use or
possession of the Purchased Assets after the Closing Date;
and
(v) Buyer's and Baywood's operation of the LifeTime
Business following the Closing Date.
47
9.3 Procedures; No Waiver; Limitations.
-------------------------------------
(a) Procedures. The party or parties seeking indemnification
----------
under Section 9.2 (the "INDEMNIFIED PARTY") agrees to give prompt written notice
(a "CLAIM NOTICE") to the party or parties against whom indemnity is sought (the
"INDEMNIFYING PARTY") of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought under
Section 9.2, by such party or any third party; provided, however, that the
--------
failure to give such notice shall not affect the Indemnified Party's rights
hereunder except to the extent that the Indemnifying Party is materially
prejudiced by such failure. It is acknowledged that a Claim Notice may be
issued in respect of Damages actually incurred on or prior to the date thereof,
as well as Damages that the Indemnified Party could reasonably be expected to
incur based on the information known to the Indemnified Party as of the date
thereof, but no payment shall be made until such Damages are actually incurred.
The Claim Notice shall state in general terms the circumstances giving rise to
the claim, specify the amount of Damages (or an estimate thereof) and make a
request for any payment then believed due. A Claim Notice shall be conclusive
against the Indemnifying Party in all respects twenty (20) days after receipt by
the Indemnifying Party unless, within such period, the Indemnifying Party sends
the Indemnified Party a notice disputing any statements or assertions in the
Claim Notice (a "CLAIM DISPUTE NOTICE"). Any Claim Dispute Notice shall
describe the basis for such objection and the amount of the claim that the
Indemnifying Party does not believe should be subject to indemnification. Upon
receipt of any Claim Dispute Notice, the Indemnified Party and Indemnifying
Party shall use reasonable efforts to cooperate and arrive at a mutually
acceptable resolution of the dispute within the next thirty (30) days. If a
resolution is not reached within such thirty (30) day period, either party may
commence the dispute resolution procedures set forth in Section 11.10. If it is
finally determined (through either agreement of the parties or arbitration) that
all or a portion of the claim amount is owed to the Indemnified Party, the
Indemnifying Party shall, within ten (10) days of such determination, pay the
Indemnified Party such amount owed, together with interest at the rate of eight
percent (8%) from the date of the Claim Notice until the date of actual payment.
(b) The Indemnifying Party shall have the right to control
the defense of any third party suit, action or proceeding (a "THIRD PARTY
CLAIM") at its own expense, including the employment of counsel reasonably
satisfactory to the Indemnified Party, and the payment of all fees and expenses
of such counsel. The Indemnified Party shall have the right to employ separate
counsel in such Third Party Claim and to participate in such defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party; provided, however, that if the defendants in any Third Party
--------
Claim include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, the Indemnified Party may employ separate
counsel and the Indemnifying Party shall pay all fees and expenses related to
such counsel. The Indemnifying Party shall not, without the Indemnified Party's
prior written consent, settle or compromise any Third Party Claim or consent to
the entry of any judgment with respect to any Third Party Claim which would have
an adverse effect on the Indemnified Party, except that the Indemnifying Party
may, without the Indemnified Party's prior written consent, compromise or settle
any such Third Party Claim or consent to entry of any judgment with respect to
any Third Party Claim which requires solely money damages paid by the
Indemnifying Party, and which includes as an
48
unconditional term thereof the release by the claimant or the plaintiff of the
Indemnified Party from all liability in respect of such Third Party Claim. If
the Indemnifying Party fails to assume the defense of any Third Party Claim
within twenty (20) days after notice thereof, the Indemnified Party shall have
the right to undertake the defense, compromise or settlement of such Third Party
Claim for the account of the Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense of such Third Party Claim with counsel
reasonably satisfactory to the Indemnified Party at any time prior to the
compromise, settlement or final determination thereof, and the Indemnifying
Party shall pay all fees and expenses of such counsel. No Indemnified Party
shall, without the Indemnifying Party's prior written consent, settle or
compromise any Third Party Claim or consent to the entry of any judgment with
respect to any Third Party Claim unless such Indemnified Party has undertaken
the defense, compromise or settlement in accordance with this Section 9.3(b) and
the consent, compromise or settlement of such Third Party Claim requires solely
money Damages to be paid by the Indemnifying Party, and which includes as an
unconditional term thereof the release by the claimant or the plaintiff of the
Indemnifying Party from all liability in respect of such Third Party Claim.
(c) No Waiver. No waiver of a closing condition by either
----------
Buyer, Baywood LifeTime or the LifeTime Representatives shall limit such party's
rights under Section 9.2.
(d) Limitation on Liability. Notwithstanding anything to the
-----------------------
contrary herein, LifeTime or the LifeTime Representatives will not be liable to
Buyer or Baywood for any claim until the total amount of such claims exceeds
Twenty-Five Thousand Dollars ($25,000) (the "INDEMNITY THRESHOLD"); provided,
--------
however, that if the amount of such claims exceeds the Indemnity Threshold, then
the indemnification obligations of LifeTime or the LifeTime Representatives will
include payment only to the extent the claims exceed the Indemnity Threshold.
Further, the aggregate liability of the LifeTime Representatives, on the one
hand, and Buyer and Baywood, on the other hand, shall not exceed the aggregate
consideration actually received by the LifeTime Representatives pursuant to this
Agreement. The remedies set forth in this Article IX are the exclusive remedies
for the matters set forth herein.
ARTICLE X
Termination of Agreement
------------------------
10.1 Conditions for Termination.
----------------------------
This Agreement may be terminated:
(a) At any time prior to the Closing by mutual consent of
Buyer, Baywood, LifeTime and the LifeTime Representatives;
(b) by Buyer or Baywood if the Closing shall not have been
consummated by March 30, 2007, unless such failure of consummation shall be due
to a material breach of any representation or warranty, or the nonfulfillment in
any material respect, and failure to cure such nonfulfillment, of any covenant
or agreement contained herein on the part of Buyer or Baywood;
49
(c) by LifeTime or the LifeTime Representatives if the
Closing shall not have been consummated by March 30, 2007, unless such failure
of consummation shall be due to a material breach of any representation or
warranty, or the nonfulfillment in any material respect, and failure to cure
such nonfulfillment, of any covenant or agreement contained herein on the part
of LifeTime or the LifeTime Representatives;
(d) by Buyer or Baywood, on the one hand, or LifeTime or the
LifeTime Representatives, on the other hand, if the other party fails to cure a
material breach of any representation or warranty, covenant or agreement of this
Agreement within ten (10) days after its receipt of written notice of such
breach from the non-breaching party; provided, however, that a party shall not
--------
be entitled to terminate this Agreement pursuant to this Section 10.1(d) if it
is also in material breach of any provision of this Agreement; or
(e) by Buyer, Baywood, LifeTime or the LifeTime
Representatives if there shall be any Law or regulation that makes consummation
of the transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses
(b), (c), (d) or (e) shall give notice of such termination to the other parties
in accordance with Section 11.3.
10.2 Effect of Termination.
-----------------------
Upon termination of this Agreement for any reason, pursuant to
Section 10.1, Buyer, Baywood, LifeTime and the LifeTime Representatives shall
have no liability or further obligations arising out of this Agreement, except
for any liability resulting from any intentional breach of a representation,
warranty, covenant or agreement contained in this Agreement prior to
termination. Furthermore, the provisions of Sections 3.22, 4.6, this Section
10.2 and Article XI shall survive any termination of this Agreement.
Notwithstanding the foregoing, in the event this Agreement is terminated due to
Baywood's failure to obtain the Financing pursuant to Section 8.2(l), then
Baywood shall promptly reimburse LifeTime and the LifeTime Representatives for
their respective reasonable out-of-pocket expenses in connection with the
negotiation of this Agreement, including reasonable attorneys' and audit fees.
ARTICLE XII
Miscellaneous
-------------
11.1 Expenses.
--------
Except as otherwise set forth herein and in that certain
Extension Agreement, dated as of March 13, 2007, by and between Baywood and
LifeTime, each party hereto shall pay all costs and expenses incurred by such
party in respect of the transactions contemplated hereby, including all
attorneys' and advisors' fees.
50
11.2 Entire of Agreement.
---------------------
This Agreement (including the Disclosure Schedule and all other
Appendices, Schedules and Exhibits hereto) and the other Transaction Documents
and certificates delivered hereunder and thereunder, state the entire agreement
of the parties, merge all prior negotiations, agreements and understandings, if
any, and state in full all representations, warranties, covenants and agreements
which have induced this Agreement. Each party agrees that in dealing with third
parties no contrary representations will be made.
11.3 Notices.
-------
All notices and demands of any kind which any party hereto may be
required or desire to serve upon another party under the terms of this Agreement
shall be in writing and shall be given by: (a) personal service upon such other
party; (b) mailing a copy thereof by certified or registered mail, postage
prepaid, with return receipt requested; (c) sending a copy thereof by Federal
Express or equivalent courier service; or (d) sending a copy thereof by
facsimile, to the parties at the respective addresses and facsimile numbers set
forth below:
If to LifeTime or the LifeTime Representatives (other than Karim):
Nutritional Specialties, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Karim:
NHK Laboratories, Inc.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇, Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Mohajerian Law Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
51
Attention: Al Mohajerian, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Buyer or Baywood:
Baywood International, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, President & CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Meltzer, Lippe, ▇▇▇▇▇▇▇▇▇ & Breitstone, LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
In case of service by Federal Express or equivalent courier service or
by facsimile or by personal service, such service shall be deemed complete upon
delivery or transmission with appropriate confirmation of receipt, as
applicable. In the case of service by mail, such service shall be deemed
complete on the fifth Business Day after mailing. The addresses and facsimile
numbers to which, and persons to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice served as
hereinabove provided by any party upon any other party.
11.4 Amendment.
---------
This Agreement may be modified or amended only by an instrument
in writing, duly executed by each of the parties hereto.
11.5 Waiver.
------
No waiver by any party of any term, provision, condition,
covenant, agreement, representation or warranty contained in this Agreement (or
any breach thereof) shall be effective unless it is in writing executed by the
party against which such waiver is to be enforced. No waiver shall be deemed or
construed as a further or continuing waiver of any such term, provision,
condition, covenant, agreement, representation or warranty (or breach) on any
other occasion or as a waiver of any other term, provision, condition, covenant,
agreement, representation or warranty (or of the breach of any other term,
provision, condition, covenant, agreement, representation or warranty) contained
in this Agreement on the same or any other occasion.
11.6 Counterparts; Facsimile.
------------------------
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same
52
instrument. Facsimile transmission of any signed original counterpart and/or
retransmission of any signed facsimile transmission shall be deemed the same as
the delivery of an original.
11.7 Assignment; Binding Nature; No Beneficiaries.
------------------------------------------------
This Agreement may not be assigned by any party hereto without
the written consent of the other parties. Notwithstanding the foregoing, Buyer
or Baywood may assign this Agreement to an Affiliate. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective heirs, personal representatives, legatees, successors and
permitted assigns. Except as otherwise expressly provided in Article IX, this
Agreement shall not confer any rights or remedies upon any Person other than the
parties hereto and their respective heirs, personal representatives, legatees,
successors and permitted assigns.
11.8 Headings.
--------
The headings in this Agreement are inserted for convenience only
and shall not constitute a part hereof.
11.9 Governing Law.
--------------
This Agreement will be construed, interpreted and enforced in
accordance with the laws of the State of Arizona applicable to agreements made
and to be wholly performed there, excluding its conflict of laws rules.
11.10 Dispute Resolution.
-------------------
The parties will attempt to settle any claim or controversy
arising out of this Agreement through consultation and negotiation in good faith
and a spirit of mutual cooperation. If the parties are not able to resolve the
issues in dispute on a mutually satisfactory basis within thirty (30) days after
commencement of negotiations, the issue or issues in dispute will be submitted
to binding arbitration in the State of Arizona before a single arbitrator chosen
by the parties, which arbitration must be in accordance with the Commercial
Arbitration rules of the American Arbitration Association, as are in effect on
the date of delivery of submission for arbitration. The decision of the
arbitrator shall be rendered within thirty (30) days of the close of the hearing
record, shall be in writing and shall contain findings of fact and conclusions
of law. The award of the arbitrator shall be final and binding on the parties
and may be enforced in any court of competent jurisdiction upon the application
of any party hereto.
11.11 Construction.
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In this Agreement (a) words denoting the singular include the
plural and vice versa, (b) "it" or "its" or words denoting any gender include
all genders, (c) the word "including" shall mean "including without limitation,"
whether or not expressed, (d) any reference to a statute shall mean the statute
and any regulations thereunder in force as of the date of this Agreement or the
Closing Date, as applicable, unless otherwise expressly provided, (e) any
reference herein to a Section, Article, Schedule or Exhibit refers to a Section
or Article of or
53
a Schedule or Exhibit to this Agreement or the Disclosure Schedule, as
applicable, unless otherwise stated, and (f) when calculating the period of time
within or following which any act is to be done or steps taken, the date which
is the reference day in calculating such period shall be excluded and if the
last day of such period is not a Business Day, then the period shall end on the
next day which is a Business Day.
11.12 Agreement.
---------
Buyer, Baywood, LifeTime and the LifeTime Representatives
acknowledge that they have been advised and represented by counsel in the
negotiation, execution and delivery of this Agreement and accordingly agree that
if an ambiguity exists with respect to any provision of this Agreement, such
provision shall not be construed against any party because such party or its
representatives drafted such provision.
11.13 Remedies Cumulative.
--------------------
The remedies provided for or permitted by this Agreement shall be
cumulative and the exercise by any party of any remedy provided for herein shall
not preclude the assertion or exercise by such party of any other right or
remedy provided for herein.
11.14 Severability.
------------
If any provision of this Agreement shall be held to be invalid or
unenforceable, and is not reformed by a court of competent jurisdiction or an
arbitrator, such invalidity or unenforceability shall attach only to such
provision and shall not in any way affect or render invalid or unenforceable any
other provision of this Agreement, and this Agreement shall be carried out as if
such invalid or unenforceable provision were not contained herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first set forth above.
BAYWOOD INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President & C.E.O.
BUYER
BAYWOOD ACQUISITION, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President
NUTRITIONAL SPECIALTIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President
LIFETIME REPRESENTATIVES
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇
/s/ M. ▇▇▇▇▇▇ ▇▇▇▇▇
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M. ▇▇▇▇▇▇ ▇▇▇▇▇
APPENDICES, EXHIBITS AND DISCLOSURE SCHEDULE TO ASSET PURCHASE AGREEMENT
APPENDICES
Appendix A Form of Employment Agreement
Appendix B Form of Escrow Agreement
Appendix C Form of Manufacturing Agreement - Best Formulations
Appendix D Form of Manufacturing Agreement - NHK
Appendix E Form of Promissory Notes
Appendix F Form of Convertible Promissory Notes
Appendix G Form of Warrants
Appendix H Form of Opinion of Counsel to LifeTime and the LifeTime
Representatives
Appendix I Form of Opinion of Counsel to Buyer and Baywood
Appendix J Flow of Funds Chart
EXHIBITS
Exhibit 2.1(a) Equipment
Exhibit 2.1(c) Accounts Receivable
Exhibit 2.1(d) Intellectual Property
Exhibit 2.1(i) Licenses
Exhibit 2.1(j) Assumed Contracts
Exhibit 2.1(m) Telephone Numbers, Websites, Domain Names
Exhibit 2.2(a) Excluded Assets
Exhibit 2.2(c) Excluded Contracts
Exhibit 2.3(d) Assumed Liabilities
Exhibit 7.5 Allocation
DISCLOSURE SCHEDULE
Section 3.4 Financial Statements
Section 3.5 Undisclosed Liabilities
Section 3.8 Necessary Assets
Section 3.9(a) Intellectual Property
Section 3.9(e) Agreements related to Intellectual Property
Section 3.10(a) Contracts
Section 3.11 Insurance Policies
Section 3.12 Litigation
Section 3.13(b) Licenses
Section 3.14 LifeTime Employees
Section 3.15(a) Employee Benefit Plans
Section 3.16 Environmental Matters
Section 3.17 Bank Accounts; Powers of Attorney
Section 3.18 Certain Changes in Operations of LifeTime
Section 3.20 Transactions with Affiliates
Section 3.21 Customers and Suppliers
Section 3.24 Accounts Payable
Section 3.25 Accounts Receivable
Section 7.3 Required Consents