UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 10, 2005
Health & Nutrition Systems International, Inc.
(Exact name of registrant as specified in its charter)
Florida | 000-29245 | 65-0452156 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
3750 Investment Lane, Suite 5, West Palm Beach, Florida 33404
(Address of Principal Executive Office) (Zip Code)
(561) 863-8446
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, If Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.03
Bankruptcy of Receivership
(b)
Order Confirming Plan of Reorganization
On January 10, 2005 (the “Confirmation Date”), The United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) entered an order (the “Confirmation Order”) confirming the Debtor’s Amended Plan of Reorganization dated December 3, 2004 (the “Plan”) of Health & Nutrition Systems International, Inc. (the “Company”) under Chapter 11 of Title 11 of the United States Code. A copy of the Plan is attached hereto as Exhibit 2.1.
The following is a summary of the material features of the Plan. This summary only highlights certain of the substantive provisions of the Plan and is not intended to be a complete description of, or a substitute for a full and complete reading of, the Plan. This summary is qualified in its entirety by reference to the full text of the Plan.
The Plan is premised upon consummation of the proposed Asset Purchase Agreement between the Company and TeeZee, Inc., a Florida corporation (“Purchaser”), which provides for the sale of substantially all of the operating assets of the Company (the “Transferred Assets”) to Purchaser (the “Proposed Purchase Agreement”). A copy of the Proposed Asset Purchase Agreement is attached to the Plan. The secured claim of Garden State Nutritionals, a division of Vitaquest International, Inc. (“GSN”) will be assumed by the Purchaser on the effective date of the Plan (the “Effective Date”), and GSN will retain its pre-existing lien on substantially all of the Transferred Assets. The secured claim of SunTrust Bank (“SunTrust”) on the Company’s 2004 Honda Element will be assumed by the Purchaser on the Effective Date and SunTrust will retain its pre-existing lien on the vehicle. Most unsecured claims, includin g those of trade and employee creditors, together with any unsecured deficiency claims of GSN and SunTrust, will be assumed by the Purchaser on the Effective Date. The assumed unsecured claims of the Company will be paid, pro rata, from a fund not to exceed $50,000.
The Plan also provides for the entry of a permanent injunction barring the Company and the Purchaser from violating Window Rock Enterprises, Inc.’s (“Window Rock”) trademarks for “Cortislim” and for the agreement of the Company and the Purchaser not to challenge Window Rock’s trademark for this product.
All holders of the Company’s common stock will retain their shares. In addition, Mr. James Brown, the Company’s Chief Executive Officer and the Chairman of the Board of its Board of Directors will be issued 300,000 shares of common stock of the Company in accordance with the terms of the proposed Employment Agreement between the Company and Mr. Brown, a copy of which is attached to the Plan (the “Proposed Employment Agreement”). The total number of shares of Common Stock of the Company outstanding as of the Confirmation Date, consists of 3,832,813 shares of common stock.
From and after the Confirmation Date, the Company shall be engaged in the business of seeking suitable commercial activities or a strategic alliance with an operating entity, and shall continue to exist as a separate corporate entity, with all the powers of a corporation under the laws of Florida. The present directors of the Company shall continue as directors of the Company. Mr. Brown will continue to serve as CEO and Chairman of the Board of Directors, and will be the sole officer of the Company. Mr. Brown will be compensated pursuant to the Proposed Employment Agreement.
The unaudited balance sheet of the Company as of December 31, 2004 is attached as Exhibit 99.1 to this report.
The Effective Date will not occur unless and until 10 days have passed from the Confirmation Date, the Closing of the transactions contemplated by the Asset Purchase Agreement has occurred, no stay of the Confirmation Order shall be in effect, and no order of a court shall be in effect restraining the consummation of the Plan.
2
Item 9.01
Financial Statements and Exhibits
(c)
Exhibits
Exhibit |
| Description | |
2.1 | Debtor’s Amended Plan of Reorganization | ||
99.1 | Unaudited Balance Sheet of the Company as of December 31, 2004 | ||
99.2 | Press Release dated January 11, 2005 | ||
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
HEALTH & NUTRITION SYSTEMS INTERNATIONAL INC. | ||
Date: January 14, 2005 | By: | /s/ JAMES A. BROWN |
James A. Brown Chief Executive Officer | ||
4
INDEX TO EXHIBITS
Exhibit |
| Description |
2.1 | Debtor’s Amended Plan of Reorganization | |
99.1 | Unaudited Balance Sheet of the Company as of December 31, 2004 | |
99.2 | Press Release dated January 11, 2005 | |
Exhibit 2.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
WWW.FLSB.USCOURTS.GOV
In re: Chapter 11 Case
HEALTH & NUTRITION SYSTEMS Case No. 04-34761-BKC-PGH
INTERNATIONAL, INC.,
Debtor.
- --------------------------------/
DEBTOR'S AMENDED PLAN OF REORGANIZATION
Dated: December 3, 2004 BERGER SINGERMAN, P.A.
Counsel for the Debtor
Arthur J. Spector, Esq.
Paul A. Avron, Esq.
350 E. Las Olas Boulevard
Suite 1000
Ft. Lauderdale, FL 33301
Tel: (954) 525-9900
Fax: (954) 523-2872
TABLE OF CONTENTS
PAGE
INTRODUCTION.....................................................................................................1
ARTICLE 1 RULES OF INTERPRETATION AND EXHIBITS..........................................................2
A. Rules of Interpretation........................................................................2
B. Exhibits.......................................................................................2
ARTICLE 2 TREATMENT OF UNCLASSIFIED, UNIMPAIRED CLAIMS...................................................2
2.1 Allowed Administrative Claims.........................................................2
2.2 Professional Claims...................................................................3
2.3 Allowed Priority Tax Claims...........................................................3
2.4 United States Trustee Fees............................................................3
ARTICLE 3 DESIGNATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS; IDENTIFICATION OF CLASSES OF
CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED PURSUANT TO THE PLAN............................3
A. General........................................................................................3
3.1 Class 1: Priority Claims (Unimpaired).................................................3
3.2 Class 2: Secured Claim of Garden State Nutritionals, (Impaired).......................4
3.3 Class 3: Secured Claim of SunTrust Bank (Impaired)....................................4
3.4 Class 4: Trade and Employee Non-Priority Unsecured Claims (Impaired)..................4
3.5 Class 5: All Other Unsecured Claims (Impaired)........................................4
3.6 Class 6: Window Rock Enterprises, Inc. Claim (Impaired)...............................5
3.7 Class 7: Interests (Common Stock) (Impaired)..........................................5
ARTICLE 4 EXECUTORY CONTRACTS AND UNEXPIRED LEASES.......................................................5
4.1 Assumption; Assignment................................................................5
4.2 Claims Arising From Rejection.........................................................6
ARTICLE 5 POST-CONFIRMATION LITIGATION...................................................................6
5.1 Objections to Claims and Interests....................................................6
5.2 Causes of Action and Preserved Claims.................................................6
ARTICLE 6 MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN.............................................6
6.1 General Overview......................................................................6
6.2 Post-Confirmation Operations of the Reorganized Debtor................................7
-i-
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE 7 DISTRIBUTIONS..................................................................................7
7.1 General...............................................................................7
7.2 Delivery of Distributions.............................................................8
7.3 Effective Date Distributions..........................................................8
7.4 Cash Payments.........................................................................8
7.5 Interest on Claims....................................................................8
7.6 Failure to Negotiate Checks...........................................................8
ARTICLE 8 EFFECTIVE DATE.................................................................................8
8.1 Conditions to Effective Date..........................................................8
8.2 Notice of Effective Date..............................................................9
ARTICLE 9 EFFECT OF CONFIRMATION OF THE PLAN.............................................................9
9.1 Jurisdiction of Bankruptcy Court......................................................9
9.2 Binding Effect........................................................................9
9.3 Stay..................................................................................9
9.4 Injunction...........................................................................10
ARTICLE 10 ACCEPTANCE OR REJECTION OF THIS PLAN..........................................................10
10.1 Persons Entitled to Vote.............................................................10
10.2 Vote Required for Acceptance and Confirmation........................................10
13.1 Exclusive Jurisdiction of Bankruptcy Court...........................................11
13.2 Failure of Bankruptcy Court to Exercise Jurisdiction.................................13
ARTICLE 14 MISCELLANEOUS PROVISIONS......................................................................13
14.1 Binding Effect of Plan...............................................................13
14.2 Withdrawal of this Plan..............................................................14
14.3 Modification of this Plan............................................................14
14.4 Business Days........................................................................14
14.5 Severability of Plan Provisions......................................................14
14.6 Governing Law........................................................................14
14.7 Notices..............................................................................15
14.8 Filing of Additional Documents.......................................................15
14.9 Time.................................................................................15
14.10 Saturday, Sunday or Legal Holiday....................................................15
14.11 No Attorneys' Fees...................................................................15
14.12 Successors and Assigns...............................................................16
14.13 Exemption from Certain Transfer Taxes................................................16
14.14 Preservation of Rights of Setoff.....................................................16
14.15 Defenses with Respect to Unimpaired Claims...........................................16
14.16 No Injunctive Relief.................................................................16
14.17 No Admissions........................................................................16
14.18 Entire Agreement.....................................................................16
ARTICLE 15 CONFIRMATION REQUEST..........................................................................17
-ii-
December 3, 2004
Page 1
AMENDED PLAN OF REORGANIZATION OF THE DEBTOR
INTRODUCTION
------------
This Debtor's Amended Plan of Reorganization (the "Plan") is proposed
by Health & Nutrition Systems International, Inc. ("HNS," the "Debtor," or the
"Proponent") pursuant to chapter 11, title, 11, United States Code, 11 U.S.C.
ss. 101 et seq. (the "Bankruptcy Code"). Capitalized terms used herein shall
have the meanings ascribed to them in the attached Glossary of Terms (the
"Glossary") attached hereto as EXHIBIT "1" unless otherwise defined herein.
Reference is made to the Disclosure Statement in Connection with
Debtor's Amended Plan of Reorganization (the "Disclosure Statement")
accompanying this Plan for a discussion of, among other things, the background,
history, business, historical financial information and the events leading up to
the Chapter 11 Case, as well as a summary and analysis of this Plan and certain
related matters.
ALL HOLDERS OF CLAIMS AND INTERESTS ARE ENCOURAGED TO READ THIS PLAN
AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT
THIS PLAN. SUBJECT TO CERTAIN RESTRICTIONS AND REQUIREMENTS SET FORTH IN SECTION
1127 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 3018 AND IN THIS PLAN, THE
PROPONENT RESERVES THE RIGHT TO ALTER, AMEND, MODIFY, REVOKE OR WITHDRAW THIS
PLAN UNTIL ITS SUBSTANTIAL CONSUMMATION AS DEFINED IN SECTION 1101(2) OF THE
BANKRUPTCY CODE.
CLASS 1 IS UNIMPAIRED AND, THEREFORE, IS DEEMED TO HAVE ACCEPTED THIS
PLAN. THE PROPONENT WILL NOT SOLICIT VOTES FROM HOLDERS OF CLAIMS IN CLASS 1.
CLAIMS IN CLASSES 2, 3, 4, 5 AND 6 AND INTERESTS IN CLASS 7 ARE IMPAIRED AND,
THEREFORE, THE DEBTOR WILL SOLICIT THE VOTES OF HOLDERS OF ALLOWED CLAIMS OR
INTERESTS IN THESE CLASSES.
December 3, 2004
Page 2
ARTICLE 1
RULES OF INTERPRETATION AND EXHIBITS
------------------------------------
A. RULES OF INTERPRETATION. All references herein to "this Plan" shall
be construed, where applicable, to include references to this document and all
its exhibits, appendices, schedules and annexes, if any (and any amendments
thereto made in accordance with the Bankruptcy Code and the Bankruptcy Rules).
Whenever from the context it appears appropriate, pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
the neuter. The words "herein," "hereof," "hereto," "hereunder," and other words
of similar import refer to this Plan as a whole and not to any particular
paragraph, subparagraph, or clause contained in this Plan. The words "includes"
and "including" are not limiting and mean that the things specifically
identified are set forth for purposes of illustration, clarity or specificity
and do not in any respect qualify, characterize or limit the generality of the
class within which such things are included. The captions and headings in this
Plan are for convenience of reference only and shall not limit or otherwise
affect the provisions hereof. Any term used in this Plan that is not defined in
the Glossary affixed to this Plan, or elsewhere, but that is used in the
Bankruptcy Code or the Bankruptcy Rules, shall have the meaning assigned to that
term in (and shall be construed in accordance with the rules of construction
under) the Bankruptcy Code or the Bankruptcy Rules (with the Bankruptcy Code
controlling in the case of a conflict or ambiguity). Without limiting the
preceding sentence, the rules of construction set forth in section 102 of the
Bankruptcy Code shall apply to this Plan, unless superseded herein. In computing
any period of time prescribed or allowed by this Plan, the provisions of
Bankruptcy Rule 9006(a) shall apply. Unless the context indicates otherwise, all
references to "Section" and "Article" shall refer to Sections and Articles,
respectively, under this Plan. To the extent that the Disclosure Statement is
inconsistent with any provisions contained in this Plan, the provisions in this
Plan shall control.
B. EXHIBITS. All Exhibits to this Plan are incorporated into and are a
part of this Plan as if set forth in full herein, regardless of when filed.
ARTICLE 2
TREATMENT OF UNCLASSIFIED, UNIMPAIRED CLAIMS
--------------------------------------------
2.1 ALLOWED ADMINISTRATIVE CLAIMS. Subject to the allowance procedures
and deadlines provided in the Plan, on the Effective Date or as soon thereafter
as is practicable, the holder of an Allowed Administrative Claim shall receive
on account of such Allowed Administrative Claim and in full satisfaction,
settlement, release and discharge of and in exchange for such Allowed
Administrative Claim, (a) Cash equal to the unpaid portion of such Allowed
Administrative Claim or (b) such other treatment as to which the Debtor and the
holder of such Allowed Administrative Claim have agreed upon in writing.
However, (i) Allowed Administrative Claims with respect to liabilities incurred
by the Debtor in the ordinary course of business during the Chapter 11 Case
shall be paid in the ordinary course of business in accordance with the terms
and conditions of any agreement or course of dealing relating thereto, and (ii)
Professional Claims shall be paid in accordance with the terms in this Section
of the Plan.
December 3, 2004
Page 3
2.2 PROFESSIONAL CLAIMS. Each Professional in the Chapter 11 Case shall
file with the Bankruptcy Court its final fee application seeking final approval
of all fees and expenses from the Petition Date through the Confirmation Date.
2.3 ALLOWED PRIORITY TAX CLAIMS. With respect to each Allowed Priority
Tax Claim, at the sole option of the Debtor, the holder of an Allowed Priority
Tax Claim shall be entitled to receive on account of such Allowed Priority Tax
Claim, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Priority Tax Claim, (a) payment in full in Cash on the
Effective Date or (b) such other treatment agreed to by the holder of such
Allowed Priority Tax Claim and the Debtor.
2.4 UNITED STATES TRUSTEE FEES. The Debtor or Reorganized Debtor will
pay the United States trustee the appropriate sum required pursuant to 28 U.S.C.
ss. 1930(a)(6) within ten days from the entry of an order confirming the Plan
for pre-confirmation periods and simultaneously provide to the United States
trustee an appropriate affidavit indicating the disbursements for the relevant
period. In addition, the Debtor or Reorganized Debtor will pay the United States
trustee the appropriate sum required pursuant to 28 U.S.C. ss. 1930(a)(6) for
post-confirmation periods within the time period set forth in 28 U.S.C. ss.
1930(a)(6), based upon all post-confirmation disbursements made by the Debtor,
until the earlier of the closing of this case by the issuance of a final decree
by the Bankruptcy Court, or upon the entry of an order by the Bankruptcy Court
dismissing the Chapter 11 Case or converting the case to another chapter under
the Bankruptcy Code, and the Debtor or Reorganized Debtor will provide to the
United States trustee upon the payment of each post-confirmation payment an
appropriate affidavit indicating all the disbursements for the relevant period.
ARTICLE 3
DESIGNATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS;
IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED
AND NOT IMPAIRED PURSUANT TO THE PLAN
-------------------------------------
A. GENERAL. Pursuant to section 1122 of the Bankruptcy Code, a
designation of the Classes of Claims and Interests regarding the Debtor are
listed below. A Claim or Interest is designated in a particular Class only to
the extent that such Claim or Interest is an Allowed Claim or Interest and such
Claim or Interest has not been paid, released or otherwise settled prior to the
Effective Date. The treatment of and consideration to be received by holders of
Allowed Claims and the treatment of Interests pursuant to this Article of the
Plan will be in full satisfaction, settlement, release and extinguishment of
their respective Allowed Claims against, or Interests in the Debtor and the
Debtor's Estate, except as otherwise expressly provided in this Plan or the
Confirmation Order.
December 3, 2004
Page 4
3.1 CLASS 1: PRIORITY CLAIMS (UNIMPAIRED). Class 1 consists of all
Allowed Claims given priority in payment pursuant to section 507 of the
Bankruptcy Code, but not including Priority Tax Claims and Administrative
Claims. Each Holder of an Allowed Class 1 Claim shall receive, at the option of
the Debtor, either (A) a Cash payment, in an amount equal to the unpaid amount
of the Allowed Class 1 Claim, on the later of: (i) the Effective Date, (ii) the
date that is ten Business Days after the date on which such Claim becomes an
Allowed Class 1 Claim, after entry of a Final Order or (iii) a date agreed to by
the Debtor and the Holder of such Class 1 Claim; or (B) such other treatment on
such other terms and conditions as may be agreed upon in writing by the Holder
of such Claim and the Debtor, or as the Bankruptcy Court has ordered or may
order. All payments and treatment under this section will be made in accordance
with the priority provided under the Bankruptcy Code, or as may be otherwise
ordered by the Bankruptcy Court. Class 1 is unimpaired.
3.2 CLASS 2: SECURED CLAIM OF GARDEN STATE NUTRITIONALS (IMPAIRED).
Class 2 consists of the Secured Claim of Garden State Nutritionals, a division
of Vitaquest International, Inc. ("GSN"). The obligation to pay GSN's Secured
Claim will be assumed by the Purchaser on the Effective Date. GSN will retain
its pre-existing lien on substantially all of the Debtor's assets. The holder of
the Claim in this Class must look solely to Purchaser for payment of its Claim,
as the Claim against the Debtor will be discharged as to the Debtor.
3.3 CLASS 3: SECURED CLAIM OF SUNTRUST BANK (IMPAIRED). Class 3
consists of the Secured Claim of SunTrust Bank on the Debtor's 2004 Honda
Element (the "Vehicle"). The obligation to pay SunTrust Bank's Secured Claim
will be assumed by the Purchaser on the Effective Date. SunTrust Bank will
retain its pre-existing lien on the Vehicle. The holder of the Claim in this
Class must look solely to Purchaser for payment of its Claim, as the Claim
against the Debtor will be discharged as to the Debtor.
3.4 CLASS 4: TRADE AND EMPLOYEE NON-PRIORITY UNSECURED CLAIMS
(IMPAIRED). Class 4 consists of Unsecured non-priority Claims of trade and
employee creditors, including any unsecured deficiency Claim otherwise owed to
creditors within Classes 2 and 3, whose debts will be assumed by Purchaser on
the Effective Date. Holders of Claims in this Class must look solely to
Purchaser for payment of their respective Claims, as the Claims against the
Debtor will be discharged as to the Debtor.
3.5 CLASS 5: ALL OTHER UNSECURED CLAIMS (IMPAIRED). Class 5 consists of
the holders of the Unsecured Claims of creditors that will not be assumed by the
Purchaser on the Effective Date. The holders of Claims within this Class shall
be paid from a fund not exceeding $50,000. To the extent that the total amount
of Allowed Class 5 Claims exceed $50,000, the holders of such Claims shall share
in this fund on a pro rata basis. The sole recourse of the holder of a Class 5
Claim shall be the $50,000 set-aside, and such holder shall have no right
whatsoever at any time to assert its Claim against the Debtor, Reorganized
Debtor, Purchaser or their respective assets. WITHOUT LIMITING THE FOREGOING, ON
December 3, 2004
Page 5
THE EFFECTIVE DATE, ALL ENTITIES SHALL BE PERMANENTLY AND FOREVER STAYED,
RESTRAINED, AND ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS FOR THE
PURPOSE OF, DIRECTLY OR INDIRECTLY, COLLECTING, RECOVERING, OR RECEIVING PAYMENT
OF, ON, OR WITH RESPECT TO ANY CLASS 5 CLAIM (OTHER THAN ACTIONS BROUGHT TO
ENFORCE ANY RIGHT OR OBLIGATION UNDER THE PLAN):
3.5.1 COMMENCING, CONDUCTING, OR CONTINUING IN ANY MANNER,
DIRECTLY OR INDIRECTLY, ANY SUIT, ACTION, OR OTHER
PROCEEDING (INCLUDING, WITHOUT EXPRESS OR IMPLIED
LIMITATION, A JUDICIAL, ARBITRAL, ADMINISTRATIVE, OR
OTHER PROCEEDING) IN ANY FORUM AGAINST OR AFFECTING
THE DEBTOR, REORGANIZED DEBTOR AND PURCHASER OR AN
PROPERTY OR INTERESTS IN PROPERTY OF ANY OF THEM;
3.5.2 ENFORCING, LEVYING, ATTACHING (INCLUDING, WITHOUT
EXPRESS OR IMPLIED LIMITATION, ANY PREJUDGMENT
ATTACHMENT), COLLECTING, OR OTHERWISE RECOVERING BY
ANY MEANS OR IN ANY MANNER, WHETHER DIRECTLY OR
INDIRECTLY, ANY JUDGMENT, AWARD, DECREE, OR OTHER
ORDER AGAINST THE DEBTOR, REORGANIZED DEBTOR AND
PURCHASER OR ANY PROPERTY OR INTERESTS IN PROPERTY OF
ANY OF THEM;
3.5.3 CREATING, PERFECTING, OR OTHERWISE ENFORCING IN ANY
MANNER, DIRECTLY OR INDIRECTLY, ANY ENCUMBRANCE
AGAINST THE DEBTOR, REORGANIZED DEBTOR AND PURCHASER
OR ANY PROPERTY OR INTERESTS IN PROPERTY OF ANY OF
THEM; AND
3.5.4 SETTING OFF, SEEKING REIMBURSEMENT OF, CONTRIBUTION
FROM, OR SUBROGATION AGAINST, OR OTHERWISE RECOUPING
IN ANY MANNER, DIRECTLY OR INDIRECTLY, ANY AMOUNT
AGAINST ANY LIABILITY OWED TO THE DEBTOR, REORGANIZED
DEBTOR AND PURCHASER OR ANY PROPERTY OR INTERESTS IN
PROPERTY OF ANY OF THEM.
3.6 CLASS 6: WINDOW ROCK ENTERPRISES, INC. CLAIM (IMPAIRED). Class 6
consists of the Disputed Claim of Window Rock Enterprises, Inc. The holder of
the Claim in this Class will receive a consent to the entry of a permanent
injunction barring the Debtor and Reorganized Debtor from violating the
trademarks for CORTISLIM and an agreement that the Debtor and Reorganized Debtor
will not challenge Window Rock's trademark as to this product.
3.7 CLASS 7: INTERESTS (COMMON STOCK) (IMPAIRED). Class 7 consists of
the Interests of Holders of the common stock in the Debtor. Holders of Class 7
Interests will retain their shares.
ARTICLE 4
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
4.1 ASSUMPTION; ASSIGNMENT. At the Closing, the Debtor shall assume or
reject, as applicable, each of the executory contracts and unexpired leases of
the Debtor pursuant to the Asset Purchase Agreement (the "APA"), attached hereto
as EXHIBIT "2", that were not previously assumed or rejected or that have not
expired under their own terms prior to the Confirmation Date.
December 3, 2004
Page 6
4.2 CLAIMS ARISING FROM REJECTION. The act of Closing shall constitute
rejection of all executory contracts and unexpired leases not previously assumed
or assumed pursuant to the provisions of this Plan or rejected pursuant to this
Plan. Pursuant to Bankruptcy Rule 3002(4) and Local Rule 6006-1, any Claim for
damages arising from any such rejection must be filed within 30 days after
Closing, or such Claim will be forever barred and will not be enforceable
against the Debtor, Reorganized Debtor or their respective assets, and will not
receive any distribution pursuant to the Plan or otherwise on account of such
Claim.
ARTICLE 5
POST-CONFIRMATION LITIGATION
----------------------------
5.1 OBJECTIONS TO CLAIMS AND INTERESTS. The Debtor has the authority to
file, settle, compromise, withdraw, arbitrate, mediate or litigate objections to
Claims and Interests pursuant to the Bankruptcy Code, the Bankruptcy Rules, the
Local Rules and this Plan. Unless otherwise ordered by the Bankruptcy Court, the
Debtor shall file and prosecute objections to claims and interests filed as of
the Confirmation Hearing. To the extent that an objection to a claim is not
resolved as of the Confirmation Hearing, the Reorganized Debtor will be
authorized to prosecute it. The Reorganized Debtor may also file and prosecute
such objections filed on or after the Confirmation Hearing.
An objection to the allowance of a Claim or Interest will be made in
writing and may be filed with the Bankruptcy Court by the Debtor or other
interested party, at any time on or before the Claim Objection Deadline to be
established by the Bankruptcy Court, which will be a date after the Confirmation
Hearing.
5.2 CAUSES OF ACTION AND PRESERVED CLAIMS. The Debtor has the authority
to file, settle, compromise, withdraw, arbitrate, mediate or litigate any and
all Preserved Claims and Causes of Action and rights it has against any Person
that arose before or after the Petition Date.
ARTICLE 6
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
--------------------------------------------------
6.1 GENERAL OVERVIEW. The Plan is premised upon consummation of the
APA, or a variant thereof with another Person that has submitted a higher and
better offer as determined by the Bankruptcy Court. In summary, the APA provides
for the sale of substantially all of the operating assets of the Debtor to
TeeZee, Inc., subject to higher and better offers. The Debtor will conduct an
auction at which it will consider qualified competing bids consistent with bid
procedures which are the subject of a motion, filed contemporaneously herewith,
seeking approval of same by the Bankruptcy Court. Once approved, the Debtor
December 3, 2004
Page 7
shall advertise the auction in the Miami Herald and Drugstore News. THE AUCTION
WILL BE HELD AT DEBTOR'S COUNSEL'S LAW OFFICES LOCATED AT BERGER SINGERMAN,
P.A., 350 EAST LAS OLAS BLVD., SUITE 1000, FORT LAUDERDALE, FLORIDA ON DECEMBER
27, 2004 AT 10:00 A.M.. The APA provides, among other things, that the Purchaser
shall assume all of the Debtor's secured debt owed to GSN, and SunTrust Bank,
all of the unsecured debt owed to trade vendors and employees, including
unsecured deficiency claims of GSN and SunTrust Bank, if any, and some of the
pre-petition claims of professionals that provided services to the Debtor prior
to the Petition Date. To the extent that debt is not being assumed, it will be
the subject of the claims estimation and/or allowance process under the
supervision of the Bankruptcy Court. Parties-in-interest are directed to the
APA, attached to this Plan as Exhibit 2, and urged to review it carefully,
preferably with counsel. The cash portion of the purchase price shall fund the
payment of administrative costs, to the extent not previously paid, and any
Allowed Claims not assumed by the Purchaser.
6.2 POST-CONFIRMATION OPERATIONS OF THE REORGANIZED DEBTOR. From and
after the Confirmation Date, the Reorganized Debtor shall be engaged in the
business of seeking suitable commercial activities or a strategic alliance with
an operating entity, and shall continue to exist as a separate corporate entity,
with all of the powers of a corporation under the laws of Florida. The present
directors of the Debtor, James A. Brown, Ted Alflen and Steven Pomerantz, shall
serve as directors of the Reorganized Debtor. The sole officer, as that term is
understood under Florida law, will be James A. Brown, who shall serve as Chief
Executive Officer and Chairman of the Board of Directors of the Reorganized
Debtor. Mr. Brown shall be compensated pursuant to a one year Employment
Agreement, a true and correct copy of which is attached hereto as EXHIBIT "3."
The material terms of the Employment Agreement are: (i) annual salary of
$110,400.00, (ii) typical medical benefits and expense reimbursement, and (iii)
a grant of 300,000 shares of the Debtor's authorized but unissued common stock
(valued at a share price as of the closing on November 18, 2004 for $12,000).
The shares are subject to repurchase by HNS for $12,000 for a one-year period if
Mr. Brown voluntarily leaves HNS or is terminated for cause. Thirty days after
consummation of the Plan, Mr. Brown's annual compensation shall be reduced to
$84,000.
ARTICLE 7
DISTRIBUTIONS
-------------
7.1 GENERAL. The Debtor believes that there will be no distributions to
anyone other than administrative claimants, most particularly Professionals,
(Class 1). The Secured Claims of GSN and SunTrust Bank, (Class 2 and 3), will be
assumed by Purchaser and payment of these Claims will, therefore, come from
Purchaser. All trade and employee non-priority Unsecured Claims, (Class 4),
including any Unsecured deficiency Claims of GSN and SunTrust Bank, will be
assumed by Purchaser and payment of these claims will, therefore, come from
Purchaser. All other Unsecured Claims, if any are filed and Allowed (Class 5),
shall be paid from a fund not to exceed $50,000. If the Allowed Class 5 Claims
exceed $50,000, the holders thereof will share this $50,000 fund on a pro rata
basis, AND BE SUBJECT TO THE CHANNELING INJUNCTION DETAILED IN SECTION 3.5 OF
December 3, 2004
Page 8
THIS PLAN. There will be no distribution to Window Rock Enterprises (Class 6),
as the Plan provides only that the Debtor will consent to entry of a permanent
injunction barring the Debtor and Reorganized Debtor from violating the
trademarks for CORTISLIM(R) and an agreement that the Debtor and Reorganized
Debtor will not challenge Window Rock Enterprises' trademark as to this product.
There will be no distributions to Holders of Interests, (Class 7); these
individuals will retain their Interests.
7.2 DELIVERY OF DISTRIBUTIONS. If any Unsecured Claim within Class 5 is
Allowed, the above-referenced $50,000 fund should be adequate to fully pay it.
If not, the Holders of Allowed Class 5 Claims shall share pro rata in the
$50,000 fund. Payment of each such Allowed Claim will occur on or after the
Effective Date and within 10 days after either (i) the date the Claim is settled
by the Debtor or Reorganized Debtor and the claimant or (ii) the date an order
allowing the Claim, after all appeals, become final, unless the claimant and the
Debtor or Reorganized Debtor agree otherwise. MOREOVER, THE CLAIMS IN THIS CLASS
WILL BE SUBJECT TO THE CHANNELING INJUNCTION DETAILED IN SECTION 3.5 OF THIS
PLAN.
7.3 EFFECTIVE DATE DISTRIBUTIONS. On the Effective Date, or as soon
thereafter as practicable, the holders of Allowed Administrative Expense Claims
and Allowed Priority Tax Claims shall be paid, in cash, the amounts of their
respective Allowed Claims.
7.4 CASH PAYMENTS. Cash payments to be made pursuant to this Plan shall
be made by checks drawn on a U.S. financial institution.
7.5 INTEREST ON CLAIMS. With the exception of holders of Allowed Claims
in Class 2 and 3, unless otherwise specifically provided for in this Plan, the
Confirmation Order, the APA (or any documents in connection therewith) or
required by applicable bankruptcy law, interest shall not accrue or be paid on
Claims or Interests on a Post-Petition basis, nor will the holder of an Allowed
Claim or Interest be entitled to Post-Petition interest on such Claim or
Interest.
7.6 FAILURE TO NEGOTIATE CHECKS. Checks issued with respect to
distributions made to holders of Class 5 Allowed Claims shall be null and void
if not negotiated within 90 days after the date of issuance and the Reorganized
Debtor shall have no obligation to pay thereafter.
ARTICLE 8
EFFECTIVE DATE
--------------
8.1 CONDITIONS TO EFFECTIVE DATE. This Plan shall not become effective
and the Effective Date shall not occur unless and until:
|_| Ten days shall have passed from the Confirmation Date;
December 3, 2004
Page 9
|_| The Bankruptcy Court shall have entered the Confirmation Order
in form and substance satisfactory to the Proponent,
authorizing and directing the Debtor to take all actions
necessary or appropriate to enter into, implement, and
consummate the contracts, instruments, releases, indentures
and other agreements or documents created, amended,
supplemented, modified, or adopted in connection with this
Plan;
|_| The Bankruptcy Court shall have approved the information
contained-in the Disclosure Statement as adequate pursuant to
section 1125 of the Bankruptcy Code;
|_| No stay of the Confirmation Order shall be in effect at the
time the other conditions set forth in this Section 8.1 are
satisfied, or, if permitted, waived;
|_| All documents, instruments and agreements, in form and
substance satisfactory to the Debtor, provided for under this
Plan or necessary to implement this Plan shall have been
executed and delivered by the parties thereto, unless such
execution or delivery has been waived by the parties benefited
thereby;
|_| There shall exist sufficient Available Cash of the Debtor to
pay all Allowed Administrative Expense Claims, Allowed
Professional Claims, and Allowed Priority Tax Claims;
|_| The Closing shall have occurred; and
|_| No order of a court shall have been entered and shall remain
in effect restraining the Debtor from consummating this Plan.
8.2 NOTICE OF EFFECTIVE DATE. On the Effective Date, or as soon
thereafter as is practicable, the Reorganized Debtor shall file with the
Bankruptcy Court a "Notice of Effective Date," which shall constitute
appropriate and adequate notice that this Plan has become effective. This Plan
shall be deemed to be effective as of 12:01 a.m., prevailing Eastern Standard
Time, on the date of such filing. A courtesy copy of the Notice of Effective
Date may be sent by first class mail, postage prepaid (or at the Reorganized
Debtor's option, by courier or facsimile) to all persons on the Court Matrix,
the Master Service List and those Persons who have filed with the Bankruptcy
Court requests for notices pursuant to Bankruptcy Rule 2002.
ARTICLE 9
EFFECT OF CONFIRMATION OF THE PLAN
----------------------------------
9.1 JURISDICTION OF BANKRUPTCY COURT. Until the Final Distribution
Date, the Bankruptcy Court shall retain jurisdiction over the Debtor, its Assets
and its Estate. Thereafter, jurisdiction of the Bankruptcy Court over the
Debtor, its Assets and its Estate shall be limited to the subject matters set
forth in Article 13 of this Plan.
December 3, 2004
Page 10
9.2 BINDING EFFECT. Except as otherwise provided in section 1141(d) of
the Bankruptcy Code, on and after the Confirmation Date, the provisions of this
Plan shall forever bind any holder of a Claim against or Interest in the Debtor
and such holder's respective successors and assigns, whether or not the Claim or
Interest of such holder is Impaired under this Plan and whether or not such
holder has accepted this Plan.
9.3 STAY. Unless otherwise provided herein, all injunctions or stays
provided for in the Chapter 11 Case pursuant to section 105 or 362 of the
Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall
remain in full force and effect until the Final Distribution Date.
9.4 INJUNCTION. Except as otherwise specifically provided in this Plan
or the Confirmation Order, all Persons who have held, hold or may hold claims,
rights, causes of action, liabilities or any equity interests with respect to or
Interests in the Debtor or its assets based upon any act or omission,
transaction or other activity of any kind or nature that occurred or arose prior
to the Effective Date, other than as expressly provided in this Plan or the
Confirmation Order, regardless of the filing, lack of filing, allowance or
disallowance of such a Claim or Interest and regardless of whether such Person
has voted to accept this Plan, and any successors, assigns or representatives of
the foregoing shall be precluded and permanently enjoined on and after the
Effective Date from: (a) commencing or continuing in any manner any claim,
action or other proceeding of any kind with respect to any Claim, Interest or
any other right, cause of action or claim against the Debtor and the Reorganized
Debtor (the "Protected Parties") or any assets of the Protected Parties that
they possessed or may possess prior to the Effective Date; (b) seeking the
enforcement, attachment, collection or recovery by any manner or means of any
judgment, award, decree or order with respect to any Claim, Interest or any
other right, cause of action or Claim against the Protected Parties or any
assets of the Protected Parties that they possessed or may possess prior to the
Effective Date, and (c) creating, perfecting or enforcing any encumbrance of any
kind with respect to any Claim, Interest or any other right, cause of action or
Claim against the Protected parties or any assets of the Protected Parties that
they possessed or may possess prior to the Effective Date. Notwithstanding the
foregoing, neither the Debtor nor the Purchaser shall be enjoined from asserting
claims under the APA. This section does not apply to the Preserved Claims.
ARTICLE 10
ACCEPTANCE OR REJECTION OF THIS PLAN
------------------------------------
10.1 PERSONS ENTITLED TO VOTE. Class 1 is deemed to have accepted this
Plan. Votes from holders of Claims in Class 1 will not be solicited. Votes from
holders of Allowed Claims in Classes 2, 3, 4, 5 and 6 and of Interests in Class
7 will be solicited.
10.2 VOTE REQUIRED FOR ACCEPTANCE AND CONFIRMATION. Your vote is
important to the Chapter 11 Case. Your failure to vote will leave to the other
holders of Allowed Claims, whose interests may not be the same as yours, the
decision to accept or reject the Plan. To have your vote count, you must
complete properly and return your Ballot by the Voting Deadline.
December 3, 2004
Page 11
ARTICLE 11
FINAL REPORT
------------
At such time as all of the distributions provided for in Article 7 have
been made, the Reorganized Debtor shall file a final accounting with the
Bankruptcy Court, together with the Final Report.
ARTICLE 12
ABANDONMENT
-----------
The Debtor may abandon any property deemed to be burdensome to the
Debtor's Estate or of inconsequential value to the Debtor by filing a Notice of
Abandonment with the Bankruptcy Court and serving it on the United States
trustee and affected parties. No property shall be deemed abandoned unless the
Debtor files and serves a Notice of Abandonment. Such abandonment shall be
effective ten Business Days after the Notice of Abandonment is filed and served.
Any party in interest may oppose such abandonment by filing an Objection or
response thereto with the Bankruptcy Court, in which case abandonment will not
be effected until ordered by the Court.
ARTICLE 13
RETENTION OF JURISDICTION
-------------------------
13.1 EXCLUSIVE JURISDICTION OF BANKRUPTCY COURT. Notwithstanding the
entry of the Confirmation Order and the occurrence of the Effective Date, the
Bankruptcy Court shall retain after the Effective Date exclusive jurisdiction of
all matters arising out of, arising in or related to, the Chapter 11 Case to the
fullest extent permitted by applicable law including, without limitation,
jurisdiction to:
|_| enforce the provisions of the Confirmation Order and the APA;
|_| allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any
Claim or Interest (whether filed before or after the Effective
Date and whether or not contingent, disputed or unliquidated),
including the compromise, settlement and resolution of any
request for payment of any Administrative Expense Claim or
Priority Claim, the resolution of any objections to the
allowance or priority of Claims or Interests and the
resolution of any dispute as to the treatment necessary to
reinstate a Claim or Interest pursuant to this Plan, and to
hear and determine any other issue presented hereby or arising
hereunder, including during the pendency of any appeal
relating to any objection to such Claim or Interest (to the
extent permitted under applicable law);
December 3, 2004
Page 12
|_| grant or deny any applications for allowance of compensation
or reimbursement of expenses authorized pursuant to the
Bankruptcy Code or this Plan, for periods ending on or before
the Effective Date;
|_| hear and determine motions, applications, adversary
proceedings, contested matters and other litigated matters
pending on, filed or commenced after the Effective Date,
including proceedings with respect to the rights and claims of
the Debtor to recover property under sections 542, 543 or 553
of the Bankruptcy Code;
|_| determine and resolve any matters related to the assumption,
assignment, or rejection of any executory contract or
unexpired lease to which the Debtor is a party or with respect
to which the Debtor may be liable, and to hear, determine and,
if necessary, liquidate any Claims arising therefrom;
|_| ensure that all payments due under this Plan and performance
of the provisions of this Plan and Plan Documents are
accomplished as provided herein, and resolve any issues
relating to distributions to holders of Allowed Claims and
Allowed Interests pursuant to the provisions of this Plan and
the Plan Documents;
|_| construe, take any action and issue such orders consistent
with section 1142 of the Bankruptcy Code, as may be necessary
for the enforcement, implementation, execution and
consummation of this Plan and all contracts, instruments,
releases, indentures and other agreements or documents created
in connection with this Plan, including, without limitation,
the Disclosure Statement and the Confirmation Order, for the
maintenance of the integrity of this Plan and the Plan
Documents;
|_| determine and resolve any cases, controversies, suits or
disputes that may arise in connection with the consummation,
interpretation, implementation or enforcement of this Plan
(and all Exhibits to this Plan including the APA and Plan
Documents) or the Confirmation Order, including the
indemnification and injunction provisions set forth in and
contemplated by this Plan, the Plan Documents or the
Confirmation Order, or any Person's rights arising under or
obligations incurred in connection therewith;
December 3, 2004
Page 13
|_| entertain, approve and confirm modifications of this Plan
before or after the Effective Date pursuant to section 1127 of
the Bankruptcy Code, or modify the Disclosure Statement, the
Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection
with this Plan, the Disclosure Statement or the Confirmation
Order, or remedy any defect or omission, or reconcile any
inconsistency in any Court order, this Plan, the Plan
Documents, the Disclosure Statement, the Confirmation Order or
any contract, instrument, release, indenture or other
agreement or document created in connection with this Plan,
the Plan Documents, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or
appropriate to consummate this Plan, to the extent authorized
by the Bankruptcy Code, this Plan, and the Plan Documents;
|_| issue injunctions, enter, implement and enforce orders, or
take such other actions as may be necessary or appropriate to
restrain interference by any Entity with consummation,
implementation or enforcement of this Plan, the Plan Documents
or the Confirmation Order;
|_| enter, implement and enforce such orders as are necessary or
appropriate if the Confirmation Order is for any reason
modified, stayed, reversed, revoked or vacated;
|_| determine any other matters that may arise in connection with
or relating to this Plan, the Disclosure Statement, the
Confirmation Order, or any contract, instrument, release,
indenture or other agreement or document created in connection
with this Plan, the Plan Documents, the Disclosure Statement
or the Confirmation Order, except as otherwise provided in
this Plan;
|_| hear and determine any other matters related hereto and not
inconsistent with chapter 11 of the Bankruptcy Code;
|_| continue to enforce the automatic stay through the Final
Distribution Date;
|_| hear and determine (A) disputes arising in connection with the
interpretation, implementation or enforcement of this Plan,
the Confirmation Order and the Plan Documents, or (B) issues
presented or arising under this Plan, the Confirmation Order
and Plan Documents, including disputes among holders and
arising under agreements, documents or instruments executed in
connection with this Plan, the Confirmation Order and the Plan
Documents;
|_| shorten or extend, for cause, the time fixed for performance
of any act or thing under this Plan, the Confirmation Order
and the Plan Documents, on notice or ex-parte, as the
Bankruptcy Court shall determine to be appropriate;
|_| enter any order, including injunctions, necessary to enforce
the title, rights and powers of the Reorganized Debtor, and to
impose such limitations, restrictions, terms and conditions on
such title, rights and powers as the Bankruptcy Court may deem
necessary;
|_| adjudicate any settlements pursuant to Bankruptcy Rule 9019,
if required under this Plan, the Confirmation Order, the Plan
Documents and all other matters contained herein; and
|_| enter a final decree closing the Chapter 11 Case.
13.2 FAILURE OF BANKRUPTCY COURT TO EXERCISE JURISDICTION. If the
Bankruptcy Court abstains from exercising or declines to exercise jurisdiction
over any matter arising under, arising in or related to the Debtor's Estate,
including with respect to the matters set forth in Section 13.1, this Article 13
shall not prohibit or limit the exercise of jurisdiction by any other court
having competent jurisdiction with respect to such subject matter.
December 3, 2004
Page 14
ARTICLE 14
MISCELLANEOUS PROVISIONS
------------------------
14.1 BINDING EFFECT OF PLAN. The provisions of this Plan, Confirmation
Order and Plan Documents shall be binding upon and inure to the benefit of the
Debtor, the Estate, any holder of any Claim or Interest treated herein or any
Person named or referred to in this Plan, and each of their respective heirs,
executors, administrators, representatives, predecessors, successors, assigns,
agents, officers and directors, and, as to the binding effect, to the fullest
extent permitted under the Bankruptcy Code and other applicable law, each other
Person affected by this Plan, Confirmation Order, or Plan Documents.
14.2 WITHDRAWAL OF THIS PLAN. The Proponent reserves the right, at any
time prior to the substantial consummation (as that term is defined in section
1101(2) of the Bankruptcy Code) of this Plan, to revoke or withdraw this Plan.
If this Plan is revoked or withdrawn or if the Confirmation Date does not occur,
this Plan shall be null and void and have no force and effect. In such event,
nothing contained herein shall be deemed to constitute a waiver or release of
any claims or interests by or against the Proponent or any other Person,
constitute an admission of any fact or legal conclusion by the Debtor or any
other Person or to prejudice in any manner the rights of the Debtor or any
Person in any further proceedings involving the Debtor.
14.3 MODIFICATION OF THIS PLAN. The Debtor may alter, amend, or modify
this Plan or Plan Documents under section 1127 of the Bankruptcy Code or as
otherwise permitted at any time before the Confirmation Date. After the
Confirmation Date and before the substantial consummation of this Plan, and in
accordance with the provisions of section 1127(b) of the Bankruptcy Code and the
Bankruptcy Rules, the Debtor and any party in interest may, so long as the
treatment of holders of Claims and Interests under this Plan is not adversely
affected, institute proceedings in the Bankruptcy Court to remedy any defect or
omission or to reconcile any inconsistencies in this Plan, the Plan Documents,
the Disclosure Statement, or the Confirmation Order and any other matters as may
be necessary to carry out the purposes and effects of this Plan and the Plan
Documents. However, prior notice of such proceedings shall be served in
accordance with Bankruptcy Rule 2002.
14.4 BUSINESS DAYS. If any payment or act under this Plan or any Plan
Documents is required to be made or performed on a date that is not a Business
Day, then the making of such payment or the performance of such act may be
completed on the next succeeding Business Day, but shall be deemed to have been
completed as of the required date.
December 3, 2004
Page 15
14.5 SEVERABILITY OF PLAN PROVISIONS. If any term or provision of this
Plan is held by the Bankruptcy Court to be invalid, void or unenforceable, the
Bankruptcy Court shall have the power to alter and interpret such term or
provision to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held to be
invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of this
Plan shall remain in full force and effect and shall in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order shall constitute a judicial determination and shall provide
that each term and provision of this Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
14.6 GOVERNING LAW. Except to the extent that the Bankruptcy Code or
Bankruptcy Rules or other federal laws are applicable, and subject to the
provisions of any contract, instrument, release, indenture or other agreement or
document entered into in connection with this plan, including, without
limitation, the plan documents, the construction, implementation and enforcement
of this Plan and all rights and obligations arising under this plan shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Florida, without giving effect to conflicts of law principles that
would apply the law of a jurisdiction other than the State of Florida or the
United States of America.
14.7 NOTICES. Any notice required or permitted to be provided under
this Plan shall be in writing and served by either (a) certified mail, return
receipt requested, postage prepaid, (b) hand delivery, or (c) reputable
overnight delivery service, freight prepaid, to be addressed as follows:
To the Debtor: Arthur J. Spector, Esq.
BERGER SINGERMAN, P.A.
350 E. Las Olas Boulevard, Suite 1000
Fort Lauderdale, FL 33301
To the U.S. Trustee: Heidi A. Feinman, Esq.
Office of the United States Trustee
Southern District of Florida
51 S.W. First Ave., Room 1204
Miami, FL 33130
14.8 FILING OF ADDITIONAL DOCUMENTS. On or before substantial
consummation of this Plan, the Debtor may issue, execute, deliver, and file with
the Bankruptcy Court or record any agreements and other documents, and take any
action as may be necessary or appropriate to effectuate, consummate and further
evidence the terms and conditions of this Plan or any Plan Document, including
by making such supplemental disclosures or notices as the Proponent deems
useful.
December 3, 2004
Page 16
14.9 TIME. Unless otherwise specified herein, in computing any period
of time prescribed or allowed by this Plan, the day of the act or event from
which the designated period begins to run shall not be included. The last day of
the period so computed shall be included, unless it is not a Business Day, in
which event the period runs until the end of next succeeding day that is a
Business Day. Otherwise, the provisions of Bankruptcy Rule 9006 shall apply.
14.10 SATURDAY, SUNDAY OR LEGAL HOLIDAY. If any payment or act under
this Plan is required to be made or performed on a date that is not a Business
Day, then the making of such payment or the performance of such act may be
completed on the next succeeding Business Day, but shall be deemed to have been
completed as of the required date.
14.11 NO ATTORNEYS' FEES. No attorneys' fees will be paid by the Debtor
with respect to any Claim or Interest, except as expressly specified herein or
allowed by a Final Order of the Bankruptcy Court.
14.12 SUCCESSORS AND ASSIGNS. The rights, benefits and obligations of
any Person named or referred to in this Plan shall be binding on, and shall
inure to the benefit of, any heir, executor, administrator, successor or assign
of such Person.
14.13 EXEMPTION FROM CERTAIN TRANSFER TAXES. Pursuant to section
1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of any
security or the making or delivery of any instrument of transfer under this Plan
may not be taxed under any law imposing a stamp tax, use tax, sales tax or
similar tax. Any sale of any Asset occurring after or upon the Confirmation Date
(including the Sale) shall be deemed to be in furtherance of this Plan.
Specifically, as discussed above, the APA forms the basis of this Plan.
Accordingly, the Closing of the transaction contemplated by the APA is an
integral component of this Plan as it is the primary means by which this Plan is
being implemented, and the Closing is one which is occurring under this Plan.
14.14 PRESERVATION OF RIGHTS OF SETOFF. The Debtor may, but shall not
be required to, set off against any Claim, and the payments or other
distributions to be made pursuant to this Plan in respect of such Claim, claims
of any nature whatsoever that the Debtor may have against the holder of such
Claims; but neither the failure to do so nor the Allowance of any Claim
hereunder shall constitute a waiver or release by the Debtor of any such claim
that the Debtor may have against such holder.
14.15 DEFENSES WITH RESPECT TO UNIMPAIRED CLAIMS. Except as otherwise
provided in this Plan, nothing shall affect the rights and legal and equitable
defenses of the Debtor with respect to any Unimpaired Claim or Unimpaired
Interest, including all rights in respect of legal and equitable defenses to
setoffs or recoupments against Unimpaired Claims and Unimpaired Interests.
December 3, 2004
Page 17
14.16 NO INJUNCTIVE RELIEF. No Claim or Interest shall under any
circumstances be entitled to specific performance or other injunctive,
equitable, or other prospective relief.
14.17 NO ADMISSIONS. Notwithstanding anything herein to the contrary,
nothing contained in this Plan shall be deemed an admission by the Proponent
with respect to any matter set forth herein, including, without limitation,
liability on any Claim or Interest or the propriety of any classification of any
Claim or Interest.
14.18 ENTIRE AGREEMENT. This Plan (including the Plan Documents), sets
forth the entire agreement and undertaking relating to the subject matter hereof
and supersedes all prior discussions and documents. The Debtor's Estate shall
not be bound by any terms, conditions, definitions, warranties, understandings,
or representations with respect to the subject matter hereof, other than as
expressly provided for herein or as may hereafter be agreed to by the parties in
writing.
REST OF PAGE INTENTIONALLY BLANK
December 3, 2004
Page 18
ARTICLE 15
CONFIRMATION REQUEST
--------------------
For all of the reasons set forth in this Plan and the Disclosure
Statement, the Debtor requests that the Bankruptcy Court confirm this Plan under
the cramdown provisions of section 1129(b) of the Bankruptcy Code, if necessary,
on the basis that this Plan is fair and equitable, and does not discriminate
unfairly, with respect to each Class of Claims or Interests that is Impaired
under, and has not accepted, this Plan.
Dated: December 3, 2004
HEALTH & NUTRITION SYSTEMS
INTERNATIONAL, INC. by
BERGER SINGERMAN, P.A.
Counsel to the Debtor
350 E. Las Olas Boulevard
Suite 1000
Fort Lauderdale, FL 33301
Tel: (954) 525-9900
Fax: (954) 523-2872
By: /s/Arthur J. Spector
--------------------
Arthur J. Spector
Florida Bar No. 620777
aspector@bergersingerman.com
Paul A. Avron
Florida Bar No. 0050814
pavron@bergersingerman.com
Exhibit 1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
www.flsb.uscourts.gov
In re: Chapter 11 Case
HEALTH & NUTRITION SYSTEMS Case No. 04-34761-BKC-PGH
INTERNATIONAL, INC.,
Debtor.
- --------------------------------/
GLOSSARY OF TERMS FOR DEBTOR'S PLAN OF REORGANIZATION
-----------------------------------------------------
AND DISCLOSURE STATEMENT IN CONNECTION WITH
-------------------------------------------
DEBTOR'S PLAN OF REORGANIZATION
-------------------------------
A. SCOPE OF DEFINITIONS. For purposes of the Debtor's Plan of
Reorganization and the Disclosure Statement in Connection with the Debtor's Plan
of Reorganization, and to the extent not otherwise provided therein, the terms
below shall have the respective meanings hereinafter set forth and designated
with the initial letter of each word being capitalized and, unless otherwise
indicated, the singular shall include the plural, the plural shall include the
singular and capitalized terms shall refer to the terms as defined herein.
1.1 "Acquired Assets" means all assets conveyed to the Purchaser at the
Closing.
1.2 "Administrative Claim" means a Claim for any cost or expense of
administration (including Professional Claims) of the Chapter 11 Case asserted
or arising under sections 503, 507(a)(1), or 507(b) of the Bankruptcy Code,
including (i) any actual and necessary Post-Petition Date cost or expense of
preserving the Debtor's Estate or operating the business of the Debtor, (ii) any
payment to be made under this Plan to cure a default on an executory contract or
unexpired lease that is assumed pursuant to section 365 of the Bankruptcy Code,
(iii) any Post-Petition Date cost, indebtedness or contractual obligation duly
and validly incurred or assumed by the Debtor in the ordinary course of
business, and (iv) compensation or reimbursement of expenses of Professionals to
the extent allowed by the Bankruptcy Court under sections 330(a) or 331 of the
Bankruptcy Code.
1.3 "Allowed Administrative Claim" means all or that portion of any
Administrative Claim that is or has become an Allowed Claim.
1.4 "Allowed Claim" means a Claim:
(a)(i) proof of which was timely and properly filed on or before
the Bar Date or the Administrative Claims Bar Date, as applicable, and unless
otherwise set by the Bankruptcy Court, (ii) proof of which was deemed filed
pursuant to section1111(a) of the Bankruptcy Code, or (iii) if no such proof was
filed or deemed filed, such Claim has been or hereafter is listed by the Debtor
on its Schedules filed under section 521(1) of the Bankruptcy Code as liquidated
in amount and not disputed or contingent and, in any case, as to which (A) no
objection to the allowance thereof has been or is interposed or (B) any such
objection has been settled, withdrawn or determined by a Final Order, to the
extent the objection has been or is determined in favor of the claimant in such
Final Order;
(b) based on an application of a professional person under
sections 330, 331, or 503 of the Bankruptcy Code for allowance of compensation
and reimbursement of expenses in the Chapter 11 Case, to the extent such
application is approved by a Final Order; or
(c) expressly allowed under this Plan or the Confirmation Order.
Unless otherwise specified herein or by order of the Bankruptcy Court, "Allowed
Claim" shall not include interest on such Claim for the period from and after
the Petition Date.
1.5 "Allowed Priority Claim" means all or that portion of any Priority
Claim that is or has become an Allowed Claim.
1.6 "Allowed Priority Tax Claim" means all or that portion of any
Priority Tax Claim that is or has become an Allowed Claim.
1.7 "Asset Purchase Agreement" means that certain Asset Purchase
Agreement dated October 15, 2004, as amended, by and between TeeZee, Inc. and
the Debtor, for the purchase of the Acquired Assets.
1.8 "Assets" means all legal or equitable interests of the Debtor in
any and all real or personal property of any nature, including any real estate
leases, subleases, licenses, goods, materials, supplies, furniture, fixtures,
equipment, work in process, accounts, chattel paper, cash, deposit accounts,
reserves, deposits, contractual rights, intellectual property rights, Claims,
Causes of Action and any other general intangibles, and the proceeds, product,
offspring, rents or profits thereof, excluding, however, the Acquired Assets.
1.9 "Auction" means the auction to be conducted by the Debtor pursuant
to the Bid Procedures Order.
1.10 "Available Cash" means Cash available to make payments pursuant to
this Plan.
1.11 "Ballot" means the ballot accompanying the Disclosure Statement
upon which holders of Impaired Claims entitled to vote on this Plan shall
indicate their acceptance or rejection of this Plan in accordance with the
instructions regarding voting.
1.12 "Bankruptcy Code" means title 11 of the United States Code, 11
U.S.C. ss.ss.101-1330, as in effect on the Petition Date, together with all
amendments and modifications thereto to the extent applicable to the Chapter 11
Case.
1.13 "Bankruptcy Court" means the United States Bankruptcy Court for
the Southern District of Florida, which has jurisdiction over the Chapter 11
Case, or such other court exercising bankruptcy jurisdiction.
1.14 "Bankruptcy Rules" means (a) the Federal Rules of Bankruptcy
Procedure and the Official Bankruptcy Forms, as amended and promulgated under
section 2075 of title 28 of the United States Code, (b) the Federal Rules of
Civil Procedure, as amended and promulgated under section 2072 of title 28 of
the United States Code, (c) the Local Rules of Civil Practice and Procedure of
the United States District Court for the Southern District of Florida as
amended, and (d) any standing orders governing practice and procedure issued by
the Bankruptcy Court, each as in effect on the Petition Date, together with all
amendments and modifications thereto to the extent applicable to this Chapter 11
Case or proceedings therein, as the case may be.
1.15 "Bar Date" means the date established by the Bankruptcy Court as
the deadline by which proofs of Claims (other than Administrative Claims) are
required to be filed.
1.16 "Bid Procedures Order" means the Order (I) Establishing Bidding
Procedures; (II) Approving Form of Purchase Agreement; (III) Approving Form and
Manner of Notices; (IV) Scheduling Auction Date and Date to Consider Final
Approval of Sale; and (V) Authorizing the Sale of Substantially All of the
Estate's Assets Pursuant to 11 U.S.C. ss. 363 Subject to Pre-Existing Liens.
1.17 "Business Day" means any day other than a Saturday, Sunday or
"legal holiday" as such term is defined in Bankruptcy Rule 9006(a).
1.18 "Cash" means money, currency and coins, negotiable checks,
balances in bank accounts and other lawful currency of the United States of
America and its equivalents.
1.19 "Cash Collateral" means cash, negotiable instruments, documents of
title, securities, deposit accounts, or other cash equivalents whenever acquired
in which the Estate and an entity other than the Estate have an interest and
includes the proceeds, products, offspring, rents, or profits of property
subject to a security interest as provided in section 552(b) of the Code,
whether existing before or after the commencement of a case under the Code.
1.20 "Causes of Action" means any and all actions, claims, rights,
defenses, impleader claims, damages, executions, demands, crossclaims,
counterclaims, suits, causes of action, choses in action, controversies,
agreements, promises, rights to legal remedies, rights to equitable remedies,
rights to payment and claims whatsoever, whether known, unknown, reduced to
judgment, not reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured and whether
asserted or assertable directly, indirectly or derivatively, at law, in equity
or otherwise, accruing to the Debtor.
1.21 "Chapter 11 Case" means the instant case under chapter 11 of the
Bankruptcy Code commenced by the Debtor on the Petition Date.
1.22 "Claim" has the meaning assigned to such term in section 101(5) of
the Bankruptcy Code.
1.23 "Claim Objection Deadline" means the date set by order of the
Bankruptcy Court (without notice or a hearing) for objecting to Claims or
Interests against the Estate.
1.24 "Class" means a group of Claims or Interests as classified in a
particular class under this Plan pursuant to section 1122 of the Bankruptcy
Code.
1.25 "Closing" means the consummation of the purchase and Sale and
assignment of Acquired Assets in accordance with the Asset Purchase Agreement.
1.26 "Closing Date" means the date on which the Closing occurs.
1.27 "Confirmation" means the entry of an order confirming this Plan in
accordance with section 1129 of the Bankruptcy Code.
1.28 "Confirmation Date" means the date on which the Confirmation Order
is entered on the docket maintained by the Clerk of the Bankruptcy Court.
1.29 "Confirmation Hearing" means the hearing held before the
Bankruptcy Court to consider Confirmation of this Plan pursuant to section 1128
of the Bankruptcy Code, as it may be continued from time to time.
1.30 "Confirmation Order" means the order issued and entered confirming
this Plan pursuant to section 1129 of the Bankruptcy Code.
1.31 "Debtor" means Health & Nutrition Systems International, Inc., a
Florida corporation, including in its capacity as debtor-in-possession pursuant
to sections 1107 and 1108 of the Bankruptcy Code.
1.32 "Disallowed Claim" means any Claim against the Debtor which (i)
has been disallowed, in whole or part, by a Final Order of the Bankruptcy Court,
(ii) has been withdrawn by agreement of the Debtor and the creditor thereof, in
whole or in part, (iii) has been withdrawn, in whole or in part, by the Creditor
thereof, (iv) if listed in the Schedules as zero or as Disputed, contingent or
unliquidated and in respect of which a proof of claim has not been timely filed
or deemed timely filed pursuant to the Plan, the Bankruptcy Code or any Final
Order of the Bankruptcy Court or other applicable bankruptcy law, (v) has been
reclassified, expunged, subordinated or estimated to the extent that such
reclassification, expungement, subordination or estimation results in a
reduction in the filed amount of any proof of claim or (vi) is evidenced by a
proof of claim which has been filed, or which has been deemed to be filed under
applicable law or order of the Bankruptcy Court or which is required to be filed
by order of the Bankruptcy Court but as to which such proof of claim was not
timely or properly filed. In each case a Disallowed Claim is disallowed only to
the extent of disallowance, withdrawal, reclassification, expungement,
subordination or estimation.
1.33 "Disclosure Statement" means the document entitled "Disclosure
Statement in Connection with Debtor's Plan of Reorganization," dated November
16, 2004, and filed in connection with this Plan and the Chapter 11 Case
pursuant to section 1125 of the Bankruptcy Code, including any exhibits annexed
thereto and any documents delivered in connection therewith, as the same may be
amended or modified from time to time.
1.34 "Disputed Claims" means all Claims that are listed in the
Schedules as disputed, contingent or unliquidated. Without limiting the above, a
Claim that is the subject of a pending objection, motion, complaint,
counterclaim, setoff, Avoidance Action or other defense, or any other proceeding
seeking to disallow, subordinate or estimate such Claim, shall be deemed to
constitute a Disputed Claim.
1.35 "Effective Date" means the Business Day following the date upon
which all conditions set forth in Section 9.1 of the Plan shall have occurred or
have been satisfied.
1.36 "Estate" means the Debtor's bankruptcy estate created in the
Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.
1.37 "Final Distribution" means the payment by the Reorganized Debtor
of the Allowed Claims in Class 5.
1.38 "Final Distribution Date" means the date upon that the Final
Distribution is made. The Final Distribution Date shall be determined by the
Reorganized Debtor, and shall be the date on or after which (a) all Assets of
the Debtor (other than those Assets abandoned by the Debtor or Reorganized
Debtor) are liquidated into Cash and all other sums due are collected by, or
otherwise remitted or returned to, the Debtor's Estate, and (b) any and all
remaining amounts in the Disputed Claims Reserve shall have become Available
Cash.
1.39 "Final Order" means an order or judgment entered by the Bankruptcy
Court, or another court of competent jurisdiction, in connection with the
Chapter 11 Case, which has not been reversed, stayed, modified or amended, and
as to which the time to appeal or to seek certiorari, review or rehearing has
expired and as to which no appeal or petition for certiorari, review or
rehearing is pending or as to which any right to appeal or to seek certiorari,
review or rehearing has been waived in writing in a manner satisfactory to the
Debtor.
1.40 "Impaired" when used in this Plan with reference to a Claim or an
Interest, has the meaning assigned to such term in section 1124 of the
Bankruptcy Code.
1.41 "Interest" means any "equity security" interest in the Debtor, as
the term is defined in section 101(16) of the Bankruptcy Code, exclusive of any
such interests held in treasury by the Debtor, which Interests are identified in
the Lists of Equity Security Holders filed by the Debtor in connection with the
Chapter 11 Case and/or registered in the stock registers maintained by or on
behalf of the Debtor, and as to which Interest no objection has been made or
which Interest has been allowed by a Final Order. In this case, the term refers
to the common stock of the Debtor.
1.42 "Liquidation Value" means the aggregate dollar amount that would
be generated from the Assets if the Chapter 11 Case were converted to a chapter
7 case under the Bankruptcy Code, and the Assets were liquidated by a trustee in
bankruptcy.
1.43 "Objection" means any objection, application, motion, complaint or
any other legal proceeding, including, with respect to the terms of this Plan,
seeking, in whole or in part, to disallow, determine, liquidate, classify,
reclassify or establish the priority, expunge, subordinate or estimate any Claim
(including the resolution of any request for payment of any Administrative
Claim) or Interest other than an Allowed Claim or an Allowed Interest.
1.44 "Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, estate, unincorporated association,
unincorporated organization, governmental entity, or political subdivision
thereof, or any other entity.
1.45 "Petition Date" means October 15, 2004.
1.46 "Plan" means the Debtor's Plan of Reorganization.
1.47 "Plan Documents" means any contracts, instruments, securities,
releases, indentures, and any other agreements or documents delivered pursuant
to, or related to, or implementing this Plan or such other documents, including
those documents attached as exhibits to this Plan.
1.48 "Post-Petition" means a date on or after the Petition Date.
1.49 "Prepetition" means a date prior to the Petition Date.
1.50 "Priority Non-Tax Claim" means any Claim given priority in payment
pursuant to Section 507 of the Bankruptcy Code, but not including Priority Tax
Claims and Administrative Claims.
1.51 "Priority Tax Claim" means any Claim given priority in payment
pursuant to Section 507(a)(8) of the Bankruptcy Code.
1.52 "Professional" means a Person (a) employed in the Chapter 11 Case
pursuant to a Final Order in accordance with sections 327 and 1103 of the
Bankruptcy Code and to be compensated for services rendered prior to the
Confirmation Date, pursuant to sections 327 - 331 the Bankruptcy Code or (b) for
which compensation and reimbursement has been allowed by the Bankruptcy Court
pursuant to section 503(b)(4) of the Bankruptcy Code.
1.53 "Professional Fees" means Claims by Professionals retained by the
Debtor for compensation and reimbursement of expenses pursuant to sections 330
and 331 of the Bankruptcy Code for compensation or reimbursement of costs and
expenses relating to services incurred after the Petition Date and prior to and
including the Confirmation Date.
1.54 "Property of the Estate" means all property of the Debtor and its
Estate of every type and nature pursuant to section 541 of the Bankruptcy Code.
1.55 "Purchaser" means TeeZee, Inc. a Florida corporation.
1.56 "Reorganized Debtor" means the company that emerges from this
Chapter 11 Case after confirmation of the Plan.
1.57 "Sale" means the sale of the Acquired Assets to the Debtor,
pursuant to the Asset Purchase Agreement.
1.58 "Sale Order" means the order approving the Sale to be incorporated
in the Confirmation Order entered by the Bankruptcy Court.
1.59 "Sale Proceeds" means the proceeds of the Sale.
1.60 "Schedules" means the Debtor's Schedules of Assets and Liabilities
and Statement of Financial Affairs, as amended from time to time, filed by the
Debtor with the Bankruptcy Court pursuant to Bankruptcy Rule 1007.
1.61 "Secured Claim" means a Claim that is secured by a security
interest in or lien upon any Property of the Debtor's Estate that is not void or
avoidable under the Bankruptcy Code or other applicable law to the extent of the
value, as of the Effective Date or such other date as is established by the
Bankruptcy Court, of such security interest or lien as determined by a Final
Order of the Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code.
1.62 "Unclaimed Property" means any distribution of Cash or any other
property made to the holder of an Allowed Claim pursuant to this Plan that (a)
is returned to the Debtor as undeliverable and no appropriate forwarding address
is received within the later of (i) 90 days after the Effective Date and (ii) 90
days after such distribution is made to such holder or (b) in the case of a
distribution made in the form of a check, is not negotiated within 90 days and
no request for re-issuance is made. Unclaimed Property shall become Cash for
distribution to holders of Allowed Claims in accordance with the terms of this
Plan.
1.63 "Unimpaired" means any Claim that is not Impaired.
1.64 "Unsecured Claim" means a Claim that is not a Secured Claim.
Exhibit 2
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT is dated this 15th day of October, 2004
by and between Health & Nutrition Systems International, Inc., a Florida
corporation ("Seller") and TeeZee, Inc., a Florida corporation ("Purchaser").
WHEREAS, Seller contemplates voluntarily filing a petition to commence
a case ("Bankruptcy Case") under Chapter 11 of Title 11 of the United States
Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of Florida ("Bankruptcy Court");
WHEREAS, in the event that Seller files the Bankruptcy Case, Purchaser
desires to purchase from Seller, and Seller desires to sell to Purchaser,
substantially all of Seller's assets and assume substantially all of Seller's
known liabilities, pursuant to ss. 363 and other applicable provisions of the
Bankruptcy Code, subject to higher or better bids, all upon the terms and
subject to the conditions set forth herein upon approval of this Agreement by
the Bankruptcy Court in the Bankruptcy Case;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements hereinafter set forth, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Seller do hereby
represent, warrant, covenant and agree as follows:
AGREEMENT
---------
SECTION 1. DEFINITIONS
1.1. Defined Terms. In addition to terms defined elsewhere in this
Agreement, the following terms when utilized in this Agreement, unless the
context otherwise requires, shall have the meanings indicated, which meanings
shall be equally applicable to both the singular and plural forms of such terms:
"Accounting Standards" means the accounting policies and procedures of
Seller as described in Seller's 2003 Annual Report on Form 10-K, which policies
and procedures comply with GAAP.
"Accounts Receivable" means (a) all trade accounts receivable and other
rights to payment from customers of Seller and the full benefit of all security
for such accounts or rights to payment, including all trade accounts receivable
representing amounts receivable in respect of goods shipped or products sold to
customers of Seller, (b) all other accounts or notes receivables of Seller and
the full benefit of all security for such accounts or notes, and (c) any claim,
remedy or other right related to any of the foregoing.
"Acquired Assets" is defined in Section 2.1 of this Agreement
"Affiliate" with respect to any Person means any Person which, directly
or indirectly, through one or more intermediaries, controls the subject Person
or any Person which is controlled by or is under common control with a
Controlling Person. For purposes of this definition, "control" (including the
correlative terms "controlling", "controlled by" and "under common control
with"), with respect to any Person, means possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agreement" means this Asset Purchase Agreement together with all
exhibits and schedules contemplated hereby.
"Assumed Obligations" is defined in Section 2.1(c) of this Agreement
"Business Day" means any day other than (a) Saturday or Sunday or (b)
any other day on which banks in Palm Beach County, Florida are permitted or
required to be closed.
"Cash Cap" is defined in Section 3.1 of this Agreement.
"Closing" is defined in Section 4.1 of this Agreement.
"Closing Date" is defined in Section 4.1 of this Agreement.
"Contracts" means any agreement, contract, lease, license, right to
use, promise or undertaking (whether written or oral and whether express or
implied), whether or not legally binding.
"Conveyance Documents" is defined in Section 2.1(b) of this Agreement.
"Drop Dead Date" means January 15, 2005.
"Excess Cash" means any and all cash not used by Seller during the
Bankruptcy Case for either (i) the payment of Seller's operating expenses in the
ordinary course of its business; or (ii) the payment of Seller's costs, expenses
or professional fees incurred in connection with the Bankruptcy Case; or (iii)
the settlement of any claims arising from or related to litigation pending as of
the date of the Bankruptcy Case.
"Excluded Assets" is defined in Section 2.1(a) of this Agreement.
"Excluded Obligations" is defined in Section 2.1(d) of this Agreement.
"Governmental Authorization" means any consent, license, registration
or permit issued, granted, given or otherwise made available by or under the
authority of any government, court, regulatory or administrative agency or
commission, or other governmental authority, agency or instrumentality, whether
federal, state or local (domestic or foreign) pursuant to any federal, state or
local law or ordinance.
"Intangible Rights" means (i) any and all foreign and domestic patents,
patent rights, trademarks, service marks, trade names, brands and copyrights
(whether or not registered and, if applicable, including pending applications
for registration) owned, Used, licensed or controlled by Seller and all goodwill
associated therewith; and (ii) any and all information, know-how, trade secrets,
software, formulae, methods, processes and other intangible properties that are
necessary or customarily Used by Seller in its business.
"Intellectual Property Assets" is defined in Section 5.10 of this
Agreement.
"Lien" means any lien, charge, claim, restriction, encumbrance,
security interest or pledge of any kind whatsoever.
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"Material Adverse Change" means (i) Wal-Mart's and/or GNC's decision to
discontinue the sale of any one or more of the Seller's products, or the loss of
Wal-Mart or GNC as a customer of Seller; (ii) the occurrence of a product
liability claim (whether initiated by demand or by commencement of suit)
reasonably likely to result in a recovery in excess of the policy limits; (iii)
the occurrence of any of the following; (A) any new material outbreak of
hostilities, including, but not limited to, an escalation of hostilities which
existed prior to the date of this Agreement, any other national or international
calamity or crisis, including an act of terrorism, or any material adverse
change in financial, political or economic conditions affecting the United
States; (B) any material interruption in the Seller's operations due to an act
of God, or (C) the issuance of any formal inquiry or investigation of Seller by
the Federal Trade Commission, the Food and Drug Administration or any other
applicable government agency; (iv) a material change in the policy limits, or
policy terms, of any of Seller's current insurance (including but not limited to
products liability, worker's compensation, property and crime, umbrella and
D&O); (v) an increase in the aggregate premiums on Seller's current insurance
policies to an amount equal to or greater than 105% of the aggregate premiums as
of the date of this Agreement; or (vi) Seller's monthly sales decrease to less
than $250,000.
"Material Adverse Effect" means that effect that flows from a Material
Adverse Change.
"Officer's Certificate" means a certificate executed by an officer of
the party as to the accuracy of the party's representations and warranties as of
the Closing Date and as to such party's compliance with and performance of its
covenants and obligations to be performed or complied with at or before the
Closing.
"Permitted Liens" means (i) Liens for taxes not yet due and payable,
(ii) easements, covenants, conditions and restrictions of record, (iii)
easements, covenants, conditions and restrictions not of record as to which no
material violation or encroachment exists or, if such violation or encroachment
exists, as to which the cure of such violation or encroachment would not
materially interfere with the conduct of Seller's operations, (iv) any zoning or
other governmentally established restrictions or encumbrances, (v) workers or
unemployment compensation Liens arising in the ordinary course of business
securing amounts which are not delinquent, (vi) mechanic's, material man's,
supplier's, vendor's, landlord's or similar Liens arising in the ordinary course
of business securing amounts which are not delinquent, (vii) railroad trackage
agreements, utility, slope and drainage easements, right-of-way easements and
leases regarding signs which are not material to Seller's operations, (viii)
other immaterial imperfections of title, easements, covenants, conditions,
restrictions or encumbrances; and (ix) all liens existing on the Acquired Assets
as of the date hereof (but expressly excluding any liens in favor of any person
existing on any Excluded Assets, whether existing on the date hereof or arising
hereafter).
"Person" means any natural person, corporation, limited liability
company, unincorporated organization, partnership, association, joint-stock
company, joint venture, trust or government, or any agency or political
subdivision of any government.
"Purchase Price" is defined in Section 3.1 of this Agreement.
"Purchase Price Assumed Obligation Component" is defined in Section 3.1
of this Agreement.
"Purchase Price Cash Component" is defined in Section 3.1 of this
Agreement.
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"Purchaser's Knowledge" means the actual knowledge, after reasonable
inquiry, of Tisi.
"Seller's Knowledge" means the actual knowledge, after reasonable
inquiry, of one or more of the members of the Board of Directors of Seller
serving on the Board as of the date hereof.
"Taxes" shall mean all taxes, assessments, charges, duties, fees,
levies or other governmental charges (including interest, penalties or additions
associated therewith) including federal, state, city, county, foreign or other,
franchise, capital stock, real property, personal property, tangible,
withholding, FICA, unemployment compensation, disability, transfer, sales, use,
excise, gross receipts and all other taxes of any kind for which any Seller may
have any liability imposed by the United States or any state, county, city,
country or foreign government or subdivision or agency thereof, whether disputed
or not.
"Used" shall mean, with respect to the properties, contracts, permits
or licenses of Seller, those owned, leased, licensed or otherwise held by Seller
which were acquired for use or held for use by Seller in connection with
Seller's operations, whether or not reflected on Seller's books of account.
1.2. Other Definitional Provisions. Unless otherwise defined herein,
all terms defined in this Agreement shall have the defined meanings when used in
any certificate, schedule, report or other document made or delivered pursuant
hereto.
SECTION 2. SALE AND PURCHASE OF ASSETS; OTHER COVENANTS
2.1. Sale and Purchase of Assets.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 4.1 hereof, Seller shall sell,
convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase,
acquire and accept delivery of, all assets and properties owned or Used by
Seller in its operations free and clear of all liens, claims and encumbrances
other than Permitted Liens, except for (i) cash and cash equivalents, the
Purchase Price, other rights of Seller under this Agreement, and Seller's
corporate minute book and stock records, and (ii) those assets specifically
listed on Schedule 2.1(a) (such specifically listed assets in clauses (i) and
(ii) being referred to as the "Excluded Assets"), including without limiting the
generality of the foregoing:
(i) all Accounts Receivable net of offsets due
customers;
(ii) all inventories of Seller, wherever located,
including all finished goods, raw materials, works-in-process, spare parts and
other materials and supplies of Seller to be used by Seller in the production of
finished goods, and including all inventory in transit or on order and not yet
delivered, and all rights with respect to the processing and completion of any
orders of Seller, including the right to collect and receive charges for such
orders;
(iiii) all supplies, equipment, vehicles, machinery,
furniture, fixtures, leasehold improvements, computer equipment and peripherals,
and other tangible property Used by Seller in connection with its operations,
and Seller's interest as lessee in any leases with respect to any of the
foregoing;
(iv) all of Seller's right, title and interest in and
to its Contracts, including the Material Contracts listed or required to be
listed on Schedule 5.6 hereto;
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(v) all proprietary knowledge, Trade Secrets,
Confidential Information, computer software and licenses, formulae, designs and
drawings, quality control data, processes (whether secret or not), methods,
inventions and other similar know-how or rights Used in the conduct of Seller's
operations, including, but not limited to, the areas of manufacturing,
marketing, advertising and personnel training and recruitment, together with all
other Intangible Rights used in connection with Seller's operations, including
all files, data, back-up tapes, manuals, documentation and source and object
codes related thereto;
(vi) all utility, security and other deposits and
prepaid expenses;
(ivii) Seller's operations as a going concern and its
licenses, telephone numbers, telecopy numbers, email addresses, URL, internet
web sites, internet domain names, customer lists, vendor lists, referral lists
and contracts, advertising materials and data, restrictive covenants, choses in
action and similar obligations owing to Seller from its present and former
customers, together with all books, operating data and records (including
financial, accounting and credit records), files, papers, records and other data
of Seller;
(viii) all rights of Seller in and to, Seller's name,
all assumed fictional business names, and all Intellectual Property Assets;
(ix) all rights to real property Used by Seller;
(x) all claims of Seller against third parties
relating to the Acquired Assets or Seller's operations, whether choate or
inchoate, known or unknown, contingent or noncontingent;
(xi) all tax credits, including but not limited to,
Seller's federal income tax loss carryforward, to the extent transferable;
(xii) all of Seller's insurance benefits relating to
the Acquired Assets or the Assumed Obligations prior to the Closing Date;
however, except for proceeds of claims made prior to Closing, Seller shall
retain its rights to all liability insurance with respect to events prior to
Closing; and
(xiii) all other property and rights of every kind or
nature Used by Seller in its operations.
It is specifically understood and agreed by the parties hereto that
Purchaser is acquiring, and Seller is selling, all of the tangible and
intangible assets attributable to or Used by Seller in its operations, except
the Excluded Assets. The aforesaid assets and properties to be transferred to
Purchaser hereunder are hereinafter collectively referred to as the "Acquired
Assets." Notwithstanding anything to the contrary contained herein, the transfer
of the Acquired Assets pursuant to this Agreement shall not include the
assumption of any liability relating to the Acquired Assets except those
liabilities assumed pursuant to Section 2.1(c) of this Agreement.
(b) Method of Conveyance. The sale, transfer, conveyance,
assignment and delivery by Seller of the Acquired Assets to Purchaser in
accordance with Section 2.1 hereof shall be effected on the Closing Date by
Seller's execution and delivery to Purchaser of one or more bills of sale,
assignments and other conveyance instruments with respect to Seller's transfer
of the Acquired Assets in form and scope reasonably satisfactory to Purchaser
(collectively the "Conveyance Documents"). At the Closing, all of Seller's
right, title or interest in and to all of the Acquired Assets shall be
transferred, conveyed, assigned and delivered by Seller to Purchaser pursuant to
the Conveyance Documents.
5
(c) Assumed Obligations. Except for professional fees, costs
and other expenses incurred by the Seller in connection with the negotiation,
execution and delivery of this Agreement, the Bankruptcy Case, and the
consummation of the transactions contemplated hereby, all of which shall be
governed by Section 13.4 hereof, at the Closing, Purchaser shall assume:
(i) trade accounts payable and accrued expenses with the
vendors and other service providers of Seller, whether such payables or expenses
are incurred before or after the commencement of the Bankruptcy Case, other than
the Excluded Obligations and those vendors or service providers listed on
Schedule 2.1(c)(1);
(ii) trade accounts payable and accrued expenses with the
vendors of Seller who are listed on Schedule 2.1(c)(1) but with respect to each
such vendor, only up to the amount set forth opposite the name of such vendor on
Schedule 2.1(c)(1);
(iii) Seller's liabilities for accrued and unpaid vacation
days, sick days, personal days, bonuses, and damages for rejection of employment
executory Contracts to the employees of Seller employed as of the date of the
Bankruptcy Case, other than Excluded Obligations;
(iv) all ongoing obligations of payment and performance under
all leases and Contracts assumed by Seller and assigned to Purchaser; and
(v) Seller's liabilities and other obligations arising
subsequent to the Closing under the other obligations listed on Schedule
2.1(c)(2) hereto (collectively the "Assumed Obligations").
Notwithstanding anything to the contrary contained herein, in
no event shall any Assumed Obligation include.
(d) Excluded Obligations. Except as expressly set forth in
Section 2.1(c), Purchaser shall not assume or be responsible at any time for any
liability, obligation, debt or commitment of Seller, whether absolute or
contingent, accrued or unaccrued, asserted or unasserted, or otherwise,
including but not limited to any liabilities, obligations, debts or commitments
of Seller incident to, arising out of or incurred with respect to this Agreement
and the transactions contemplated hereby (except to the extent contemplated by
Section 12.5 hereof). Without limiting the generality of the foregoing, Seller
expressly acknowledges and agrees that Seller shall retain, and that Purchaser
shall not assume or otherwise be obligated to pay, perform, defend or discharge:
(i) any liability of Seller for Taxes, whether measured by
income or otherwise,
(ii) any product liability pertaining to products sold by
Seller prior to the Closing Date,
(iii) any liability or obligation of Seller relating to any
default taking place before the Closing Date under any of the Assumed
Obligations to the extent such default created or increased the liability or
obligation,
6
(iv) any obligation of Seller to its shareholders, any
Affiliate of Seller or its shareholders, or any Person claiming to have a right
to acquire any capital stock or other securities of Seller,
(v) any and all accrued liabilities for professional fees
(including but not limited to brokers, attorneys, financial advisors or
accountants), costs and other expenses incurred by the Seller in connection with
the negotiation, execution and delivery of this Agreement, the Bankruptcy Case,
and the consummation of the transactions contemplated hereby;
(vi) any liabilities or obligations of Seller relating to the
Excluded Assets; and
(viii) those liabilities, debts, or obligations listed on
Schedule 2.1(d) hereto.
All obligations that are not Assumed Obligations, including but not
limited to the foregoing, are hereinafter referred to as the "Excluded
Obligations."
2.2. Other Covenants.
(a) Employee Relationships. Purchaser shall offer to employ
all of the "at will" employees of Seller, other than officers and/or directors
of Seller, that were employees of Seller as of the date hereof through the
Closing Date as "at will" employees of Purchaser at their respective rates of
pay as of the date hereof. Nothing herein is intended or should be construed (i)
to create an employment contract with such employees, (ii) to obligate Purchaser
to retain such employee other than as an "at will" employee for any period of
time after the Closing Date, or (iii) to obligate Purchaser to provide any
particular level of benefits or perquisites to such employees whether or not
such benefits or perquisites were offered or provided to such employees by
Seller prior to the Closing Date.
(b) Excess Cash. Seller agrees that, on the Closing Date, it
shall pay to Garden State Nutritionals, a division of Vitaquest International,
Inc. ("Garden State") all of its Excess Cash to be applied by Garden State
against the debt owed Garden State by Seller secured by a lien on the Seller's
assets.
SECTION 3. PURCHASE PRICE
3.1. Purchase Price. The total consideration for the Acquired Assets
will be $2,285,000.00 plus the unliquidated damages resulting from the potential
rejection of the Employment Contract between Seller and Christopher Tisi (the
"Tisi Obligation" and collectively, the "Purchase Price") which shall consist of
(a) the assumption of the Assumed Obligations (the value of which as of the
Closing Date is hereinafter referred to as the "Purchase Price Assumed
Obligation Component") and (b) an amount in cash equal to the difference between
the Purchase Price and the Purchase Price Assumed Obligation Component
("Purchase Price Cash Component"); provided, however, (i) in no event shall the
Purchase Price Cash Component exceed Three Hundred and Fifty Thousand Dollars
($350,000) (the "Cash Cap"), and (ii) if the Purchase Price Cash Component
would, but for the limitation in Section 3.1(i), exceed the Cash Cap (because
the Assumed Obligations (other than the Tisi Unliquidated Obligation) as of the
Closing Date are less than $1,935,000), then the Purchase Price shall be reduced
accordingly. Purchaser shall make payment of the Purchase Price as follows:
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(a) On the date of execution of this Agreement, Purchaser
shall deliver to Berger Singerman LLP as escrow agent (the "Escrow Agent'), One
Hundred Thousand Dollars ($100,000), in next day funds (the "Escrow Amount").
The Escrow Amount shall be held in an interest bearing account by the Escrow
Agent pursuant to the terms and conditions of an Escrow Agreement containing
terms reasonably satisfactory to Seller and Purchaser (the "Escrow Agreement");
and
(b) On the Closing Date, Purchaser shall deliver to Seller, by
official bank check or wire transfer (to an account specified by Seller in
writing at least three Business Days prior to Closing), in next day funds, the
remaining amount of the Purchase Price Cash Component.
SECTION 4. CLOSING
4.1. Closing. Subject to the conditions stated in Section 7 and Section
8 of this Agreement, the closing of the transactions contemplated herein (the
"Closing") shall be held no later than the next succeeding Monday following the
satisfaction of all of the conditions set forth in Section 7 and 8, at the
offices of Berger Singerman, 350 East Las Olas Boulevard, Suite 1000, Fort
Lauderdale, Florida, unless the parties agree to another time, date or place.
Notwithstanding the foregoing, unless this Agreement has been previously
terminated pursuant to the provisions of Section 12, the Closing may be delayed
up to the 15th Business Day after all of the conditions set forth in Section 7
and Section 8 have been satisfied. The term "Closing Date" shall mean the date
on which the Closing occurs. The Closing shall be deemed effective as of 11:59
p.m. West Palm Beach time on the Closing Date. Except as otherwise provided
herein, all proceedings to be taken and all documents to be executed at the
Closing shall be deemed to have been taken, delivered and executed
simultaneously, and no proceeding shall be deemed taken nor documents deemed
executed or delivered until all have been taken, delivered and executed.
4.2 Deliveries at Closing by Seller. On the Closing Date, Seller shall
deliver (or cause delivery) to Purchaser all of the following:
(a) the Conveyance Documents;
(b) Seller's Officer's Certificate;
(c) a certified copy of the resolutions adopted by Seller's
Board of Directors authorizing the execution, delivery and performance of this
Agreement and the consummation of all of the transactions contemplated by this
Agreement;
(d) a certificate of good standing of Seller from the Florida
Secretary of State;
(e) an incumbency certificate of Seller;
(f) the books and records of Seller's business, other than
those which constitute Excluded Assets pursuant to the terms of this Agreement
or those relating to an Excluded Obligation;
(g) an affidavit of Seller stating that, effective as of the
Closing Date, Seller will no longer use the name "Health & Nutrition Systems
International, Inc." for any purpose and that, effective as of the Closing Date,
Seller relinquishes the exclusive use of that name to Purchaser for Purchaser's
sole use and benefit;
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(h) evidence reasonably satisfactory to Purchaser that
Purchaser has been named as an additional named insured and loss payee on all of
the Seller's insurance policies listed on Schedule 5.11(a) hereto; and
(i) such other documents as Seller or its counsel may
reasonably request.
4.3 Deliveries at Closing by Purchaser. On the Closing Date,
Purchaser shall deliver an allocation (the "Allocation") of the Purchase Price
in accordance with Section 1060 of the Internal Revenue Code, which shall be
reasonably acceptable to Seller. Purchaser and Seller shall (i) be bound by the
Allocation, (for tax purposes only, and not for any other purpose), (ii) timely
file any information that may be required to be filed pursuant to Treasury
Regulations promulgated under Section 1060(b) of the Code (including Form 8594),
(iii) act in a manner consistent with the Allocation in the preparation of
financial statements and filing of all United States federal income tax returns
(including, without limitation, Form 8594) and in the course of any Tax audit,
Tax review or Tax litigation relating thereto, and (iv) take no position and
cause their Affiliates to take no position inconsistent with the Allocation for
any Tax purposes, except as may be adjusted by subsequent agreement following an
audit by the Internal Revenue Service or by court decision. Notwithstanding any
conflicting or inconsistent provisions hereof, no Allocation hereunder shall
supersede, usurp or otherwise affect the jurisdiction and authority of the
Bankruptcy Court to value the Acquired Assets for purposes of distributions to
Seller's estate under the Bankruptcy Code. In addition, Purchaser shall deliver
(or cause delivery) to Seller all of the following:
(a) the Purchase Price Cash Component;
(b) Purchaser's Officer's Certificate;
(c) a certified copy of the resolutions adopted by Purchaser's
Board of Directors and sole shareholder authorizing the execution, delivery and
performance of this Agreement and the consummation of all of the transactions
contemplated by this Agreement;
(d) a certificate of good standing of Purchaser from the
Florida Secretary of State; and
(e) such other documents as Seller or its counsel may
reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as otherwise disclosed to Purchaser in the schedules to this
Agreement, Seller hereby represents and warrants the following to Purchaser:
5.1. Organization, Power and Qualification. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida. Seller has the power and authority to own, lease, and operate
its properties and assets and to carry on its business and Seller has, subject
to approval of the Bankruptcy Court in the Bankruptcy Case, the corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
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5.2. Corporate Action. All corporate action necessary on the part of
Seller to authorize the execution and delivery to Purchaser of this Agreement
and the performance or satisfaction of the obligations of Seller in connection
with the transactions contemplated by this Agreement has been or will have been
duly taken prior to the Closing. Subject to approval of the Bankruptcy Court in
the Bankruptcy Case, this Agreement constitutes the valid and binding obligation
of Seller and is enforceable against Seller in accordance with its terms.
5.3. Consents; No Breach. Except for the approval of the Bankruptcy
Court and as set forth on Schedule 5.3, no material consent, approval or
authorization of, or designation, declaration or filing with, any Governmental
Authority on the part of Seller is required in connection with the valid
execution and delivery of this Agreement (collectively, the "Required
Consents"). Except as set forth on Schedule 5.3, the execution, delivery and
performance of this Agreement by Seller and the consummation of the transactions
contemplated hereby will not: (i) violate any provision of its articles of
incorporation, bylaws or any amendment thereto of Seller; (ii) violate in any
material manner any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, Seller;
or (iii) violate any statute, law or regulation of any jurisdiction, applicable
to the transactions contemplated herein including without limitation, the
Florida Business Corporation Act and all applicable federal and state securities
laws.
5.4. No Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or claim
against or upon Seller for any commission, fee or other compensation as a finder
or broker as a result of the consummation of this Agreement.
5.5. Litigation. Except as disclosed on Schedule 5.5 there is no
outstanding order, judgment, injunction, award or decree of any court,
governmental or regulatory body or arbitration tribunal against or involving
Seller which could have a Material Adverse Effect. Except as disclosed on
Schedule 5.5, there is no action, suit, or claim or legal, administrative or
arbitration proceeding or any investigation (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance) pending, or to
Seller's Knowledge threatened against or involving Seller which could have a
Material Adverse Effect.
5.6. Material Contracts. Schedule 5.6 sets forth all material Contracts
of Seller (the "Material Contracts"). The Material Contracts are valid, binding,
enforceable and existing agreements, in full force and effect against Seller. To
Seller's Knowledge, Seller is not in default in any material respect under any
of the Material Contracts (nor to Seller's Knowledge, has it received notice of
the default of any other party to any Material Contracts), and to Seller's
Knowledge, no condition exists which with notice or lapse of time or both would
constitute default thereunder.
5.7. Financial Statements. Attached to this Agreement as Schedule 5.7
are the unaudited consolidated balance sheets of Seller as of October 8, 2004
(the "Balance Sheet") and statements of earnings of Seller for the six month
period ended June 30, 2004 and the two month period ended August 31, 2004
(collectively, the "Financial Statements"). To Seller's Knowledge, the Financial
Statements (i) present fairly in all material respects the financial condition
of Seller and its results of operations for such period in accordance with the
Accounting Standards, and (ii) have been prepared in accordance with the
Accounting Standards (other than the absence of notes to the Financial
Statements) for the periods covered by such statements.
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5.8. Undisclosed Liabilities. Except as and to the extent reflected in
the Financial Statements, to Seller's Knowledge, there are no material
liabilities, commitments or obligations of any nature, whether absolute,
accrued, contingent or otherwise, other than those incurred in the ordinary
course of Seller's business since September 24, 2004 which, (i) under the
Accounting Standards, are required to be disclosed in the Financial Statements,
and (ii) would materially and negatively affect Seller's operations or financial
condition.
5.9. Taxes. All federal, state and other tax returns relating to Seller
or its operations required by law to be filed have been duly filed, and except
as set forth on Schedule 5.9, all such tax returns were correct and complete in
all material respects. Except as set forth on Schedule 5.9, all such federal,
state and other taxes, assessments, fees and other federal governmental charges
shown to be due and payable on such returns have been paid, except such taxes
which are being contested in good faith or for which the dates for payment have
been extended, which contests and extensions are identified on Schedule 5.9
hereto.
5.10. Intellectual Property Assets. Set forth on Schedule 5.10 is a
list and description of all material foreign and domestic patents, patent
rights, trademarks, service marks, trade names, brands and copyrights in both
published works and unpublished works (whether or not registered and, if
applicable, including pending applications for registration), and all rights in
mask works owned, Used, licensed or controlled by Seller and all going concern
value and goodwill associated therewith. To Seller's Knowledge, Seller has the
right to Use and shall as of the Closing Date own or have the right to Use any
and all information (whether confidential, proprietary or technical), know-how,
trade secrets, patents, copyrights, trademarks, trade names, slogans software,
formulae, methods, processes and other intangible properties that are necessary
or customarily Used by Seller for the ownership, management or operation of its
Properties (collectively, the "Intellectual Property Assets") including, but not
limited to, the Intellectual Property Assets listed on Schedule 5.10.
5.11. Insurance.
(a) Insurance Policies. Schedule 5.11(a) hereto is a complete and
correct list of all insurance policies (including, without limitation, fire,
liability, product liability, workers' compensation and vehicular) presently in
effect that relate to Seller, its properties or operations (collectively, the
"Insurance Policies"), including the amounts of such insurance and annual
premiums with respect thereto, all of which have been in full force and effect
from and after the date(s) set forth on Schedule 5.11(a). To Seller's Knowledge,
none of the insurance carriers has indicated to Seller an intention to cancel
any such Insurance Policy or to materially increase any insurance premiums, or
that any insurance required to be listed on Schedule 5.11(a) will not be
available in the future on substantially the same terms as currently in effect.
(b) Insurance Claims. Except as set forth in Schedule 5.11(b), Seller
has no claim pending or anticipated against any of its insurance carriers under
any of such policies and, to Seller's Knowledge, there has been no actual or
alleged occurrence of any kind which could reasonably be expected to give rise
to any such claim.
5.12. Title to Property. At the Closing, to Seller's Knowledge,
Purchaser will have good title to all of the Acquired Assets, free and clear of
all Liens, subject only to (i) the Permitted Liens and (ii) those Liens set
forth on Schedule 5.12, which Liens are the sole Liens being assumed or taken
subject to by Purchaser pursuant to the terms of this Agreement.
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5.13. Disclaimer of Other Warranties. Purchaser hereby acknowledges and
agrees that, except as otherwise expressly provided in this Agreement, Seller
makes no representations or warranties whatsoever, express or implied, with
respect to any matter relating to the Acquired Assets, or otherwise relating to
any of the transactions contemplated hereby, including without limitation any
income to be derived or expenses to be incurred in connection with the Acquired
Assets, the physical condition of any personal Acquired Assets comprising a part
of the Acquired Assets or which is the subject of any other acquired real
property lease or acquired Contract, the environmental condition or other matter
relating to the physical condition of any real Acquired Assets or improvements
which are the subject of any real Acquired Assets lease to be assumed by
Purchaser at the Closing, the zoning of any such real Acquired Assets or
improvements, the value of the Acquired Assets (or any portion thereof), the
terms, amount, validity or enforceability of any Assumed Liabilities, the
merchantability or fitness of the personal Acquired Assets or any other portion
of the Acquired Assets for any particular purpose. Seller makes no warranties or
representations, in connection with this transaction, other than as set forth in
this Agreement. Without in any way limiting the foregoing, subject to the
representations, warranties and covenants expressly set forth in this Agreement,
Seller hereby disclaims any warranty, express or implied, of merchantability or
fitness for any particular purpose as to all or any portion of the Acquired
Assets. Accordingly, subject to the representations, warranties and covenants
expressly set forth in this Agreement, Purchaser will accept the Acquired Assets
at the Closing "AS IS," "WHERE IS" AND "WITH ALL FAULTS."
SECTION 6. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller the following:
6.1. Binding Obligation. This Agreement constitutes the valid and
binding obligation of Purchaser and is enforceable against Purchaser in
accordance with its terms, except as such enforcement may be affected by
bankruptcy, moratorium and other laws relating to creditor's rights generally or
general principles of equity.
6.2. Consents; No Breach. No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority on the part
of Purchaser is required in connection with the valid execution and delivery of
this Agreement. Purchaser shall have on or before the Closing all necessary or
appropriate licenses, permits or others approvals from all applicable
Governmental Authorities which allow Purchaser to acquire the Acquired Assets
and to assume the Assumed Obligations. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not: (i) violate, conflict with or result in the breach of any of the
material terms of, result in a material modification of, otherwise give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any material Contract or
other agreement to which Purchaser is a party; (ii) violate in any material
manner any order, judgment, injunction, award or decree of any court, arbitrator
or governmental or regulatory body against, or binding upon, Purchaser; or (iii)
violate any statute, law or regulation of any jurisdiction applicable to the
transactions contemplated herein.
6.3. Litigation. There is no outstanding order, judgment, injunction,
award or decree of any court, governmental or regulatory body or arbitration
tribunal against or involving Purchaser. There is no action, suit or claim or
legal, administrative or arbitration proceeding or any investigation (whether or
not the defense thereof or liabilities in respect thereof are covered by
insurance) pending, or to Purchaser's Knowledge, threatened, against or
involving Purchaser.
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6.4. No Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or claim
against or upon Purchaser for any commission, fee or other compensation as a
finder or broker as a result of the consummation of this Agreement.
6.5. Organization, Power and Qualifications. Purchaser is a
corporation, duly organized, validly existing and in good standing under the
laws of its state of formation. Purchaser has full power to enter into this
Agreement and to consummate the transactions contemplated hereby.
6.6. Capitalization. As of the date hereof, (i) the authorized capital
stock of Purchaser consists of One Hundred Thousand (100,000) shares of common
stock, Ninety Thousand (90,000) of which are issued and outstanding. All of the
issued and outstanding shares of common stock are owned by Christopher Tisi.
There are no outstanding (a) securities convertible into or exchangeable for
such capital stock and membership interest; (b) options, warrants, or other
rights to purchase or subscribe to such capital stock or securities convertible
or exchangeable for such capital stock and membership interest; or (c)
Contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of such capital stock and membership interest.
6.7. Corporate Action. All action necessary on the part of Purchaser to
execute and deliver to Seller this Agreement and the performance or satisfaction
of the obligations of Purchaser in connection with the transactions contemplated
by this Agreement has been or will have been duly taken prior to the Closing.
This Agreement constitutes the valid and binding obligation of Purchaser and is
enforceable against Purchaser in accordance with its terms, except as such
enforcement may be affected by bankruptcy, moratorium and other laws relating to
creditors' rights generally or general principles of equity.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF
PURCHASER TO CLOSE
The obligation of Purchaser to consummate this Agreement and the
transactions contemplated hereby is subject to the satisfaction at or before the
Closing of each and every one of the following conditions, any of which
Purchaser may, in its sole discretion, waive.
7.1. Representations and Warranties True. Each of the representations
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects as of the Closing, as though made on and as of the
Closing.
7.2. Performance of Obligations of Seller. Seller shall have performed
in all material respects all obligations and covenants required to be performed
by it under this Agreement prior to or as of the Closing Date.
7.3. No Obstructive Proceedings. No action or proceedings shall have
been instituted against, and no order, decree or judgment of any court, agency,
commission or Governmental Authority shall be existing against Purchaser or an
Affiliate of Purchaser which seeks to or would render it unlawful as of the
Closing to effect the sale of the Acquired Assets in accordance with the terms
hereof, and no such action shall seek damages against Purchaser or an Affiliate
of Purchaser in a material amount by reason of the transactions contemplated
hereby.
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7.4. No Adverse Change. Between the date hereof and the Closing Date,
there shall have not been any Material Adverse Change.
7.5. Insurance Matters. Seller shall have complied with the covenants
set forth in Section 11.6.
7.6. Employee Retention. As of the Closing Date, Al Dugan, Mona Lalla,
Rafeek Baig, Steve Sarafian and Jamie Heithoff (each a "Manager" and
collectively "Managers") shall continued to be employed by Seller in the
capacity each was employed by Seller as of the date hereof, unless a Resignation
Event (as defined below) occurs with respect to a particular Manager. A
"Resignation Event" occurs when a Manager dies, becomes disabled, resigns
employment with Seller due to relocation of residence or health issues, is fired
for cause, or resigns after committing conduct that would have been grounds for
firing for cause.
7.7 Bankruptcy Court Auction Procedures. Seller shall have filed and
obtained approval by the Bankruptcy Court in the Bankruptcy Case of the
bankruptcy auction procedures which shall, at a minimum, include the criteria
set forth on Exhibit 7.8 attached hereto and which shall otherwise be mutually
agreeable to Seller and Purchaser.
7.8. Bankruptcy Court Plan Confirmation/Approval. The Bankruptcy Court
in the Bankruptcy Case shall have approved this Agreement, the purchase and sale
of the Acquired Assets free and clear of all liens, claims and encumbrances
other than the Permitted Liens, the assignment and assumption of the Assumed
Obligations, and all other transactions contemplated herein by entering an order
(which may be accomplished by confirmation of a Chapter 11 plan), that includes
a finding that Purchaser acted, and the sale of the Acquired Assets was
conducted, in good faith within the meaning of 11 U.S.C. ss. 363(m) and that is
otherwise in a form reasonably satisfactory to Purchaser, which order shall
become final and non-appealable no later than ten calendar days prior to the
Drop Dead Date.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to consummate this Agreement and the
transactions contemplated hereby are subject to the satisfaction at or before
the Closing of each and every one of the following conditions, any of which
Seller may, in its sole discretion, waive.
8.1. Representations and Warranties True. Each of the representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all material respects as of the Closing, as though made on and as of
the Closing.
8.2. Performance of Obligations of Purchaser. Purchaser shall have
performed in all material respects all obligations and covenants required to be
performed by Purchaser under this Agreement prior to or as of the Closing Date.
8.3. No Obstructive Proceeding. No action or proceeding shall have been
instituted or threatened against and no order, decree or judgment of any court,
agency, commission or Governmental Authority shall be existing against Seller or
its business which seeks to or would render it unlawful as of the Closing to
effect the sale of the Acquired Assets in accordance with the terms hereof, and
no such action whether instituted or threatened shall seek damages against
Seller or its business in a material amount by reason of the transactions
contemplated hereby.
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8.4. Bankruptcy Court Plan Confirmation/Approval. The Bankruptcy Court
in the Bankruptcy Case shall have approved this Agreement, the purchase and sale
of the Acquired Assets free and clear of all liens, claims and encumbrances
other than the Permitted Liens, the assignment and assumption of the Assumed
Obligations, and all other transactions contemplated herein by entering an order
(which may be accomplished by confirmation of a Chapter 11 plan), that includes
a finding that Purchaser acted, and the sale of the Acquired Assets was
conducted, in good faith within the meaning of 11 U.S.C. ss. 363(m) and that is
otherwise in a form reasonably satisfactory to Purchaser, which order shall
become final and non-appealable no later than ten calendar days prior to the
Drop Dead Date.
SECTION 9. TAX MATTERS
9.1. Filing of Returns. Seller shall properly and timely prepare, file
and deliver to the appropriate authorities or other persons all tax returns,
reports and forms with respect to Seller's operations required to be filed and
delivered, for any taxable period ending on or before the Closing Date, and
shall ensure that all Charges (as hereinafter defined) and other impositions
shown thereon to be due and payable have been paid prior to the date on which
any fine, penalty, interest, late charge or loss may be added thereto for the
nonpayment thereof, unless any such amounts are being contested in good faith by
appropriate proceedings, or any such fine, penalty, interest, late charge or
loss has been paid. For purposes of this Agreement, "Charges" shall mean all
federal, state, county, city, municipal, local, foreign or other governmental
taxes, levies, assessments and charges, liens, claims or encumbrances upon or
relating to Seller's employees, payroll, income, or gross receipts, Seller's
ownership or use of any of its assets, or any other aspect of Seller's business,
in each case including any and all interest and penalties. For any period not
ending prior to or on the Closing Date, Purchaser shall timely prepare and file
with or deliver to the appropriate authorities or other persons all tax returns,
reports and forms required to be filed or delivered.
9.2. Ad Valorem and Similar Taxes. Ad valorem, property and similar
taxes and assessments (other than taxes on income, gain or receipts, or transfer
taxes in respect of the Acquired Assets) based upon or measured by the value of
the Acquired Assets shall be divided or prorated between Purchaser and Seller as
of the Closing Date based on the amount of such taxes paid for the previous
year, unless a new tax statement is received prior to the Closing Date, in which
event the tax apportionment made as of the Closing Date shall be adjusted in
accordance with such new tax statement or as otherwise mutually agreed. In this
regard, Seller shall assume responsibility for such taxes attributable to the
period of time prior to the Closing Date and Purchaser shall assume
responsibility for the periods of time thereafter. A period not ending on the
Closing Date shall be referred to as a "Straddle Period". Real, personal and
intangible personal property Taxes allocable to Seller shall be equal to the
amount of such Taxes for the entire taxable period multiplied by a fraction, the
numerator of which is a number of days in a Straddle Period prior to and
including the Closing Date and the denominator of which is the number of days in
the Straddle Period. All other Taxes for the portion of the Straddle Period
ending on the Closing Date shall be computed as if such taxable period ended as
of the close of business on the Closing Date. Not later than 30 days after the
Closing Date, Purchaser and Seller shall determine and shall pay all amounts
required to be paid pursuant to such allocation.
9.3. Audits. In the event of an audit by a taxing authority involving
Seller, the consent of Purchaser shall not be required unless Taxes are being
assessed against Purchaser and Seller has not provided funds to pay any such
Taxes.
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SECTION 10. PRE-CLOSING COVENANTS
10.1. Efforts to Consummate Subject to the terms and conditions of this
Agreement, each party hereto shall use commercially reasonable efforts to take
or cause to be taken all actions and do or cause to be done all things required
under applicable law in order to consummate the transactions contemplated
hereby, including, without limitation, (i) obtaining all Governmental
Authorizations and other permits, authorizations, consents and approvals of any
other Person that are required for or in connection with the consummation of the
transactions contemplated hereby and by the other documents contemplated hereby,
(ii) taking any and all reasonable actions necessary to satisfy all of the
conditions to such party's obligations hereunder, and (iii) executing and
delivering all agreements and documents required by the terms hereof to be
executed and delivered by such party on or prior to the Closing. With regard to
all dates and time period set forth or referred to in this Agreement, time is of
the essence.
10. 2 Name Change.
(a) Seller hereby represents, warrants and covenants to
Purchaser that the corporate name of Seller is as set forth on the signature
page hereof and further agrees and acknowledges that such name is included with
the Acquired Assets and that the exclusive right to use such name will be
transferred to Purchaser on the Closing Date. Seller shall, prior to or
simultaneously with the Closing Date, (i) file an appropriate amendment to
Seller's Articles of Incorporation and take all other actions necessary to
change its name to a name which is in no way similar to the corporate name set
forth on the signature page hereof, in Purchaser's judgment; (ii) shall furnish
any written consents and assignments as Purchaser shall hereafter reasonably
request in connection with such name change. Seller further agrees to take all
actions, after the Closing, which are requested by Purchaser to enable Purchaser
to immediately change its name to Seller's present name.
(b) In connection with the same, Seller shall remove or cover,
or shall have caused to be removed or covered, no later than 30 days after the
Closing Date, the trademarks and/or trade names transferred pursuant to this
Agreement, or any derivative of such names or marks, from any letterhead,
envelopes, labels, containers, signs, panels, signage and other material or
matter (regardless of medium) not otherwise included in the Acquired Assets.
SECTION 11. POST-CLOSING COVENANTS
11.1. Further Assurances. Following the Closing, Seller and Purchaser
shall execute and deliver such documents, and take such other action, as shall
be reasonably requested by the other party hereto to carry out the transactions
contemplated by this Agreement.
11.2. Access to Records. For a period of three years after the Closing
Date, Seller shall have the right, at its expense, and during normal business
hours upon prior written notification, to inspect and copy any of the records
relating to the operation of Seller's business delivered to Purchaser in
connection with this transaction, for the purposes of (a) preparing and/or
defending tax returns for the period prior to the Closing Date, (b) obtaining
information relating to claims arising from the operation of Seller's business
prior to the Closing Date or (c) any other commercially reasonable purpose.
During such seven year period, Purchaser shall not destroy or discard such
records. After such seven year period, Purchaser may destroy or discard such
records, but must provide Seller with at least 90 days' prior written notice of
its intentions and shall give Seller the right, at its expense, to remove from
Purchaser's premises any such records within such 90 day period.
16
11.3. Non-Competition. Seller hereby agrees that it shall, for a period
from the Closing Date until the fifth anniversary thereof, refrain from,
anywhere within the continental United States, directly or indirectly, owning,
managing, operating, controlling or financing, any business that is engaged in
the business of the research, development, manufacturing, marketing or sale of
dietary or nutritional supplements, drinks, bars, or other similar products
whether web-based or otherwise; provided, however, that the foregoing shall not
apply to the ownership of not more than five percent of the outstanding capital
stock of any company listed by a national securities exchange or an
over-the-counter stock listed by the National Association of Securities Dealers.
11.4 Insurance Matters.
(a) Purchaser as "Additional Insured." Effective as of the Closing
Date, Seller shall have included Purchaser as an additional named insured on
Seller's Insurance Policies, including but not limited to, Seller's products
liability insurance with respect to Seller's products, and Seller shall assure
that such policies provide coverage to Purchaser for products sold by Seller
prior to the Closing Date.
(b) D&O Insurance. Seller shall maintain its existing director and
officer liability insurance, shall maintain the availability of such coverage to
Christopher Tisi for a period of time that is not less than the statute of
limitations for state and federal liability claims, and shall use reasonable
efforts to preserve the existing scope and terms of such coverage during such
period of time; provided, however, Seller's obligation to maintain such coverage
for Christopher Tisi will terminate if and when Seller's director and officer
liability insurance (including any tail coverage and whether pursuant to its
director and officer liability policy in effect as of the date hereof or any
subsequent or replacement policy) for all of its directors and officers lapses
because Seller's Board of Directors has determined that the premiums therefor
are not, in the reasonable opinion of Seller's board of directors, commercially
reasonable. Seller agrees that, effective as of the Closing Date, it will cause
its director and officer liability insurer to, from time to time, timely deliver
directly to Christopher Tisi copies of all notices and other communications
relating to Seller's director and officer liability policy.
11.5. Confidentiality.
(a) Definition of Confidential Information. As used in this
Section 11.5, the term "Confidential Information" includes any and all of the
following information of Seller or Purchaser that has been or may hereafter be
disclosed in any form, whether in writing, orally, electronically or otherwise,
or otherwise made available by observation, inspection or otherwise by either
party (Purchaser on the one hand or Seller on the other hand) or its
Representatives (collectively, a "Disclosing Party") to the other party or its
Representatives (collectively, a "Receiving Party"):
(i) all information that is a trade secret under
applicable trade secret or other law;
(ii) all information concerning product specifications,
data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current and
planned research and development, current and planned
manufacturing or distribution methods and processes,
customer lists, current and anticipated customer
requirements, price lists, market studies, business
plans, computer hardware, Software and computer
software and database technologies, systems,
structures and architectures;
17
(iii) all information concerning the business and affairs
of the Disclosing Party (which includes historical
and current financial statements, financial
projections and budgets, tax returns and accountants'
materials, historical, current and projected sales,
capital spending budgets and plans, business plans,
strategic plans, marketing and advertising plans,
publications, client and customer lists and files,
contracts, the names and backgrounds of key personnel
and personnel training techniques and materials,
however documented), and all information obtained
from review of the Disclosing Party's documents or
property or discussions with the Disclosing Party
regardless of the form of the communication;
provided, however, all such information relating to
Seller's operations after the Closing Date (whether
such information was prepared before or after the
Closing Date) shall be excluded form the definition
of "Confidential Information"; and
(iv) all notes, analyses, compilations, studies, summaries
and other material prepared by the Receiving Party to
the extent containing or based, in whole or in part,
upon any information included in the foregoing.
Any trade secrets of a Disclosing Party shall also be entitled
to all of the protections and benefits under applicable trade secret law and any
other applicable law. If any information that a Disclosing Party deems to be a
trade secret is found by a court of competent jurisdiction not to be a trade
secret for purposes of this Section 11.5, such information shall still be
considered Confidential Information of that Disclosing Party for purposes of
this Section 11.5 to the extent included within the definition. In the case of
trade secrets, each of Purchaser and Seller hereby waives any requirement that
the other party submit proof of the economic value of any trade secret or post a
bond or other security.
(b) Restricted Use of Confidential Information. Each Receiving
Party acknowledges the confidential and proprietary nature of the Confidential
Information of the Disclosing Party and agrees that such Confidential
Information (i) shall be kept confidential by the Receiving Party; (ii) shall
not be used for any reason or purpose other than to evaluate and consummate the
Contemplated Transactions; and (iii) without limiting the foregoing, shall not
be disclosed by the Receiving Party to any Person, except in each case as
otherwise expressly permitted by the terms of this Agreement or with the prior
written consent of an authorized representative of Seller with respect to
Confidential Information of Seller ("Seller Contact") or an authorized
representative of Purchaser with respect to Confidential Information of
Purchaser ("Purchaser Contact"). Each of Purchaser and Seller shall disclose the
Confidential Information of the other party only to its Representatives who
require such material for the purpose of evaluating the transactions
contemplated hereby and are informed by Purchaser or Seller, as the case may be,
of the obligations of this Section 11.5 with respect to such information. Each
of Purchaser and Seller shall (i) enforce the terms of this Section 11.5 as to
its respective Representatives; (v) take such action to the extent necessary to
cause its Representatives to comply with the terms and conditions of this
Section 11.5; and (vi) be responsible and liable for any breach of the
provisions of this Section 11.5 by it or its Representatives.
(c) Unless and until this Agreement is terminated, Seller
shall maintain as confidential any Confidential Information relating to any of
the Acquired Assets or the Assumed Obligations. From and after the Closing Date,
(i) the provisions of Section 11.5(b) above shall not apply to or restrict in
any manner Purchaser's use of any Confidential Information of the Seller
relating to any of the Acquired Assets or the Assumed Obligations; and (ii) the
provisions of Section 11.5(b) shall apply to and restrict Seller's use of any
Confidential Information relating to the Acquired Assets and the Assumed
Obligations.
18
(d) Exceptions. Sections 11.5(b) and (c) do not apply to that
part of the Confidential Information of a Disclosing Party that a Receiving
Party demonstrates (a) was, is or becomes generally available to the public
other than as a result of a breach of this Section 11.5 by the Receiving Party
or its Representatives; (b) was or is developed by the Receiving Party
independently of and without reference to any Confidential Information of the
Disclosing Party; or (c) was, is or becomes available to the Receiving Party on
a nonconfidential basis from a Third Party not bound by a confidentiality
agreement or any legal, fiduciary or other obligation restricting disclosure.
Seller shall not disclose any Confidential Information of Seller relating to any
of the Acquired Assets or the Assumed Obligations in reliance on the exceptions
in clauses (b) or (c) above.
(e) Legal Proceedings. If a Receiving Party becomes compelled
in any action, arbitration, audit, hearing, investigation, litigation or suit
(whether civil, criminal, administrative, judicial or investigative) by any
governmental body, court or administrative agency to make any disclosure that is
prohibited or otherwise constrained by this Section 11.5, that Receiving Party
shall provide the Disclosing Party with prompt notice of such compulsion or
request so that it may seek an appropriate protective order or other appropriate
remedy or waive compliance with the provisions of this Section 11.5. In the
absence of a protective order or other remedy, the Receiving Party may disclose
that portion (and only that portion) of the Confidential Information of the
Disclosing Party that, based upon advice of the Receiving Party's counsel, the
Receiving Party is legally compelled to disclose or that has been requested by
such court or governmental body, provided, however, that the Receiving Party
shall use reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded by any Person to whom any Confidential Information is
so disclosed. The provisions of this Section 11.5(e) do not apply to any
Proceedings between the parties to this Agreement.
(f) Return or Destruction of Confidential Information. If this
Agreement is terminated, each Receiving Party shall (a) destroy all Confidential
Information of the Disclosing Party prepared or generated by the Receiving Party
without retaining a copy of any such material; (b) promptly deliver to the
Disclosing Party all other Confidential Information of the Disclosing Party,
together with all copies thereof, in the possession, custody or control of the
Receiving Party or, alternatively, with the written consent of a Seller Contact
or a Purchaser Contact (whichever represents the Disclosing Party) destroy all
such Confidential Information; and (c) certify all such destruction in writing
to the Disclosing Party, provided, however, that the Receiving Party may retain
a list that contains general descriptions of the information it has returned or
destroyed to facilitate the resolution of any controversies after the Disclosing
Party's Confidential Information is returned.
(g) Attorney-Client Privilege. The Disclosing Party is not
waiving, and will not be deemed to have waived or diminished, any of its
attorney work product protections, attorney-client privileges or similar
protections and privileges as a result of disclosing its Confidential
Information (including Confidential Information related to pending or threatened
litigation) to the Receiving Party, regardless of whether the Disclosing Party
has asserted, or is or may be entitled to assert, such privileges and
protections. The parties (a) share a common legal and commercial interest in all
of the Disclosing Party's Confidential Information that is subject to such
privileges and protections; (b) are or may become joint defendants in
Proceedings to which the Disclosing Party's Confidential Information covered by
such protections and privileges relates; (c) intend that such privileges and
protections remain intact should either party become subject to any actual or
threatened proceeding to which the Disclosing Party's Confidential Information
covered by such protections and privileges relates; and (d) intend that after
19
the Closing Date, the Receiving Party shall have the right to assert such
protections and privileges. No Receiving Party shall admit, claim or contend, in
Proceedings involving either party or otherwise, that any Disclosing Party
waived any of its attorney work-product protections, attorney-client privileges
or similar protections and privileges with respect to any information, documents
or other material not disclosed to a Receiving Party due to the Disclosing Party
disclosing its Confidential Information (including Confidential Information
related to pending or threatened litigation) to the Receiving Party.
11.6. Survival. All representations and warranties of the parties
contained in this Agreement shall survive the Closing for 90 days following the
Closing Date. The covenants and agreements contained in this Agreement shall
survive the execution and delivery hereof and the completion of the transactions
contemplated herein.
SECTION 12. TERMINATION
12.1. Termination Events.
(a) Seller may terminate this Agreement by delivery of notice
of termination to Purchaser if:
(i) at any time prior to the Closing Date, Purchaser
fails or refuses to perform in any material respect any obligation or covenant
to be performed by it pursuant to this Agreement prior to the Closing Date and
the breach has not been cured within ten Business Days following the receipt of
notice by Purchaser of the breach; or
(ii) at any time prior to the Closing Date, any
of the conditions in Section 8 of this Agreement has not been satisfied as of
the Drop Dead Date or, if satisfaction of such a condition is or becomes
impossible (other than through the failure of such Seller to comply with its
obligations under this Agreement), Seller have not waived such condition on or
before Drop Dead Date.
(b) Purchaser may terminate this Agreement by delivery of
notice of termination to Seller if any time prior to the Closing Date:
(i) Seller does not file the Bankruptcy Case within
20 calendar days after the date Purchaser executes (as reflected in Purchaser's
signature block) and delivers this signed Agreement to Seller; or
(ii) Seller fails to obtain either (i) a confirmed
plan of reorganization approving this Agreement and the transactions
contemplated hereby; or (ii) an order approving the sale contemplated hereby
outside of a plan of reorganization, by the Drop Dead Date; or
(iii) Any of the conditions set forth in Section 7 of
this Agreement has not been satisfied as of the Closing Date or, if satisfaction
of such a condition is or becomes impossible (other than through the failure of
Purchaser to comply with its obligations under this Agreement), Purchaser has
not waived such condition on or before the Drop Dead Date; or
(iv) Seller fails or refuses to perform in any
material respect any obligation or covenant to be performed by it pursuant to
this Agreement prior to the Closing Date that has not been cured within ten
Business Days following receipt of notice of the breach; or
20
(v) It shall become impossible for Seller to make the
representations otherwise required to be made by Seller at Closing.
(c) The parties may terminate this Agreement at any time
prior to the Closing Date by mutual written consent; or
(c) Any party may terminate this Agreement by delivery of
notice of termination to the other party if the Closing has not occurred on or
before the Drop Dead Date, or such later date as the parties may agree upon in
writing.
12.2. Effect of Termination. Each party's right of termination under
Section 12 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination shall not be an
election of remedies. If this Agreement is terminated pursuant to this Section,
all further obligations of the parties under this Agreement shall terminate,
except that the rights and obligations in Sections 13.4 (Expenses), and 13.6
(Governing Law), of this Agreement shall survive.
12.3. Liquidated Damages; Refund of Escrow Amount. Purchaser and Seller
agree that damages to Seller for a breach by Purchaser of this Agreement would
be difficult or impossible to calculate with any certainty.
Accordingly, as liquidated damages, and not as a penalty, in the event Seller
terminates this Agreement because of the breach of the Agreement by Purchaser or
because one or more of the conditions of the Seller's obligations under this
Agreement are not satisfied as a result of the Purchaser's failure to comply
with its obligations under this Agreement, then Seller shall retain the Escrow
Amount. If this Agreement is terminated for any reason other than the breach by
Purchaser of any of the terms and conditions hereof, Seller agrees to cause the
Escrow Amount to be distributed from escrow to Purchaser.
SECTION 13. MISCELLANEOUS
13.1. Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated and
it is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including thereon any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
13.2. Counterparts; Facsimile. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one Agreement. The exchange of copies of this
Agreement and of signature pages by facsimile transmission shall constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original for all purposes. Signatures of the parties
transmitted by facsimile shall be deemed to be their original signatures for all
purposes.
13.3. Headings. Section headings used in this Agreement have no legal
significance and are used solely for convenience of reference.
21
13.4. Expenses. Except as otherwise specifically provided herein, each
party shall pay its own expenses, including, without limitation, accountants'
and attorneys' fees incurred in connection with the negotiation and consummation
of the transactions contemplated by this Agreement, whether or not such
transactions are consummated.
13.5. Transfer Taxes; Recording Fees. Any income, sales, transfer, use
or excise taxes payable in connection with these transactions shall be paid by
the party responsible therefor under applicable local law.
13.6. Law Governing. This Agreement shall be deemed to have been
entered into under the laws of the State of Florida, and the rights and
obligations of the parties hereunder shall be governed and determined according
to the laws of said state without giving any effect to conflict of laws.
13.7. Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by Seller without the prior written consent of Purchaser which may
be withheld in its sole discretion. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
hereto and to a limited extent, Christopher Tisi, and their respective permitted
successors and assigns, any rights, benefits or obligations hereunder.
13.8. Entire Agreement. This Agreement and the schedules and documents
delivered pursuant hereto constitute the entire contract between the parties
hereto pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether written or oral (including any letter of intent and any confidentiality
agreement between Seller and Purchaser). No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party or
parties to be bound thereby. No delay in the exercise of any rights by any party
hereunder shall operate as a waiver of any rights of such party.
13.9. Notices. All notices, demands and other communications required
or permitted by this Agreement shall be in writing and shall be deemed to have
been duly given to a party when (a) delivered to the appropriate address by hand
or by nationally recognized overnight courier service (costs prepaid); (b) sent
by facsimile with confirmation of transmission by the transmitting equipment; or
(c) received or rejected by the addressee, if sent by certified mail, return
receipt requested, in each case to the following addresses and marked to the
attention of the person (by name or title) designated below (or to such other
address, facsimile or person as a party may designate by notice to the other
parties):
If to Purchaser: With a copy to:
TeeZee, Inc. Astigarraga Davis Mullins & Grossman
________________ 701 Brickell Avenue, 18th Floor
________________ Miami, Florida 33131
Attn: Christopher Tisi, President Attn: Gregory S. Grossman
Facsimile: Facsimile:
If to Seller: With a copy to:
Health & Nutrition Systems Berger Singerman
International, Inc. [new name] 350 East Las Olas Boulevard
[insert address] Suite 1000
Attn: James A. Brown, Chief Fort Lauderdale, Florida 33301
Executive Officer Attn: Arthur J. Spector
Facsimile: 561-892-3171 Facsimile: 954-523-2872
22
or to such other address as Seller or Purchaser may designate by notice to the
other.
13.10 Attorneys' Fees. In the event that a suit for the collection of
any damages resulting from, or for the injunction of any action constituting, a
breach of any of the terms or provisions of this Agreement, then the
non-prevailing party shall pay all reasonable costs, fees (including reasonable
attorneys' fees) and expenses of the prevailing party.
13.12 Enforcement of Agreement. Seller acknowledges and agrees that
Purchaser would be irreparably damaged if any of the provisions of this
Agreement are not performed in accordance with their specific terms and that any
breach of this Agreement by Seller could not be adequately compensated in all
cases by monetary damages alone. Accordingly, in addition to any other right or
remedy to which Purchaser may be entitled, at law or in equity, it shall be
entitled to enforce any provision of this Agreement by a decree of specific
performance and to temporary, preliminary and permanent injunctive relief to
prevent breaches or threatened breaches of any of the provisions of this
Agreement, without posting any bond or other undertaking. Notwithstanding the
foregoing, (a) Purchaser shall not be entitled to any remedy hereunder unless
and until the Bankruptcy Court enters an order authorizing the sale of the
Seller's Assets pursuant to the Bankruptcy Auction Procedures set forth in
Exhibit 7.8 (the "Sale Order"), (b) after entry of the Sale Order and before
Closing, Purchaser shall not be entitled to damages (other than the breakup fee
described in Exhibit 7.8) and its remedy hereunder shall be limited to specific
performance, and (c) after Closing, should Purchaser seek damages in lieu of or
in addition to specific performance for the inaccuracy or breach of Seller's
representations or warranties under this Agreement, Purchaser shall make claim
therefor not later than 90 days after the Closing Date. If a claim is not timely
made, all remedies thereafter are barred.
13.13 Waiver; Remedies Cumulative. With the exceptions noted above, the
rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither any failure nor any delay by any party in exercising any
right, power or privilege under this Agreement or any of the documents referred
to in this Agreement will operate as a waiver of such right, power or privilege,
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. To the maximum extent permitted
by applicable law, (a) no claim or right arising out of this Agreement or any of
the documents referred to in this Agreement can be discharged by one party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of that party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
23
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, all as of the day and year first above written.
PURCHASER:
TeeZee, Inc.
/s/Christopher Tisi
-------------------
By: Christopher Tisi,
Title: President
Date: 10/15/04
SELLER:
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
/s/James A. Brown
--------------------
By: James A. Brown,
Title: Chief Executive Officer
Date: 10/15/04
24
SCHEDULES
---------
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.
Schedule 2.1(a) Excluded Assets
Schedule 2.1(c)(1) Limited Assumed Obligations
Schedule 2.1(c)(2) Other Assumed Obligations
Schedule 2.1(d) Excluded Obligations
[To be Completed by Seller]
Schedule 5.3 Required Consents
Schedule 5.5 Litigation
Schedule 5.6 Material Contracts
Schedule 5.7 Balance Sheet
Schedule 5.9 Taxes
Schedule 5.10 Intellectual Property Assets
Schedule 5.11(a) Insurance Policies
Schedule 5.11(b) Insurance Claims
Schedule 5.12 Liens
EXHIBITS
Exhibit 7.8 Bankruptcy Auction Procedures
25
Exhibit 7.8 - Bankruptcy Auction Procedures
1. Auction Will Be Subject To Higher And Better Bids By Qualifying
Bidders
2. Qualifying Bidders
a. Must make written bid and execute a non-disclosure agreement
b. Not subject to financing or due diligence contingencies
c. Purchaser entitled to copies of any due diligence materials
provided to other potential bidders
d. Substantially similar to Asset Purchase Agreement proposed by
Purchaser
e. Must provide counsel for Purchaser will copy of written bid
f. Bid must be received no later than three Business Days before
auction
g. Must be a higher and better bid (see below) than Purchaser's bid
h. Must put up good faith deposit equal to the Estimated Expense
Reimbursement (see below) plus the Escrow Amount
i. This deposit is refundable if bid is not accepted
ii. If bid accepted, this deposit is used to pay the Estimated
Expense Reimbursement (see below) and remaining deposit is used
to fund the Escrow Amount.
3. Higher and Better Bids
a. The first overbid must be at least $30,000 more than the Purchase
Price of Purchaser.
b. Except as provided below, higher bids must be for no less than
$10,000 over the previous highest bid.
4. Expense Reimbursement/Breakup Fee: If Purchaser is unsuccessful
bidder, it is entitled to reimbursement of (a) its actually incurred
professional fees and costs, plus (b) $75 per hour for each hour spent
by Tisi in connection with the process; but in no event shall the
breakup fee exceed $30,000.
26
EXHIBIT 3
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 19th day
of November, 2004, by and between James A. Brown (the "Executive") and Health &
Nutrition Systems International Inc. (the "Company" or "Employer").
PRELIMINARY STATEMENT
---------------------
The Executive is currently employed as the chief executive officer of
the Company.
The parties desire to enter into a written agreement pursuant to which
the Executive will continue to render services as the chief executive officer of
Employer.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are conclusively acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
ARTICLE I
DEFINED TERMS
-------------
For purposes of this Agreement, the following capitalized terms shall
have the meanings set forth herein:
"Affiliate" any "person" (as such term is utilized in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended and in
effect on the date of this Agreement (the "Exchange Act"), who or which,
directly and/or indirectly, controls, is controlled by or is under common
control with another person. For purposes of this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of management and policies, whether through ownership of voting
securities, by contract, or otherwise.
"Cause" shall mean (i) Employee's conviction of, or plea of nolo
contendere (or similar plea) to, a felony or other crime which adversely
affects, or may adversely affect, the reputation, goodwill or business position
of the Company or which involves Company funds or assets, (ii) Employee's
intentional material damage to any property or business of the Company, (iii)
Employee's conviction of theft, embezzlement, fraud or misappropriation of
Company property, (iv) the willful failure of Employee to carry out his duties
as an employee for a reason other than mental or physical disability, or (v)
Employee's willful commission of material mismanagement in the conduct of his
duties as assigned to him by the Board or his supervising officers, if any.
"Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons as determined pursuant to
Section 13(d) of the Exchange Act and the regulations and interpretations
thereunder (a "Group"), except for a sale or purchase approved by the relevant
court in connection with the Company's currently pending reorganization under
Chapter 11 of the Bankruptcy Code; or (ii) the acquisition by any Person or
Group of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of the Company.
1
"Common Stock" means the common stock, par value $0.001 per share, of
the Company;
"November FMV" means the closing bid price of the Common Stock on
November 18, 2004 multiplied by the number of Signing Bonus Shares.
"Person" means any individual, firm, company, corporation, partnership,
trust, or other entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Transfer" means any disposition of any Security or any interest
therein that would constitute a "sale" thereof within the meaning of the
Securities Act.
ARTICLE II
EMPLOYMENT
----------
2.1 Position.
Effective as of the date hereof (the "Effective Date"), Employer hereby
employs the Executive as President and Chief Executive Officer of the Company,
and the Executive accepts such employment and agrees to perform diligently and
to the best of his ability during the term of this Agreement all of the duties
and functions attendant upon such offices and such other executive duties and
functions appropriate to such offices as may be assigned to him by the Company's
Board of Directors, including, without limitation, seeking strategic partners
for the Company. During the Employment Term (as defined below), the Company
shall continuously cause the Executive to be elected to a seat on the Company's
Board of Directors having the longest term in office, and to a seat on the
Executive Committee of the Board of Directors of the Company if one is formed
(or to any other committee having functions similar to that of an executive
committee). The Executive shall report solely to the Board of Directors of the
Company. In the performance of his services hereunder, the Executive agrees that
he shall devote all the time and effort that is reasonably necessary to fulfill
his responsibilities as an executive officer of Employer and that he shall use
his best efforts to promote the best interests of Employer. Employer shall
provide, pay for, and maintain such facilities, equipment and supplies as are
necessary for the Executive's performance of his duties under this Agreement.
2.2 Term.
The initial term of the Executive's employment under this Agreement
(the "Initial Term") shall be for a period commencing on the Effective Date and
ending on the first anniversary thereof, unless sooner terminated pursuant to
this Section 2.2 or Section 2.7 hereof. The Initial Term of the Executive's
employment, as it may be renewed from time to time in a writing executed by
Employer and the Executive, is referred to herein as the "Employment Term". In
the event of the death of the Executive, the Employment Term shall terminate,
without notice, on the date of the happening of such event, and Employer shall
have no further obligations hereunder other than for payment of Salary accrued
through the date of death.
2
2.3 Compensation.
In consideration of the services rendered by the Executive pursuant to
this Agreement, Employer agrees to provide the Executive compensation as
follows:
a. During the Employment Term, Employer shall pay the
Executive a monthly salary at the current rate of
$9,200 per month until the 30th calendar day
following the date on which the Company's plan of
reorganization is confirmed, and thereafter at a rate
of $7,000 per month (the "Salary"). Appropriate pro
rata adjustments shall be made. Salary shall be paid
not less frequently than once a month.
b. Employer shall also pay the Executive such bonus
compensation ("Additional Bonus") as the Board of
Directors may deem appropriate in its reasonable
discretion.
2.4 Benefits.
The Executive shall be accorded the right to participate in any and all
stock option, pension or profit sharing plans, group insurance, accident,
sickness, disability and hospitalization insurance plans and all other employee
benefit plans for the benefit of Employer's executive officers which may be in
effect during the Employment Term. The Executive shall be entitled to the same
types of additional fringe benefits as the Executive has been entitled to
receive in his capacity as President and Chief Executive Officer of the Company.
Any other fringe benefits shall be as approved by the Board of Directors of the
Company.
2.5 Expenses.
The Executive is authorized to incur reasonable expenses incident to
the performance of his duties under this Agreement, including without limitation
travel and entertainment expenses. Employer will reimburse the Executive for all
such expenses upon presentation by the Executive, from time to time, of an
itemized account of such expenses as well as supporting evidence thereof, to the
extent required of other executive officers of the Company.
2.6 Vacation.
The Executive shall be entitled to four weeks of vacation during each
fiscal year of Employer, and to reasonable absences by reasons of incapacity.
For purposes of this Agreement, "incapacity" shall mean a disability to perform
the duties and functions assigned to the Executive pursuant to Section 1 of this
Agreement by reason of the Executive's then physical or mental condition.
3
2.7 Termination for Cause.
Except as provided in Section 2.2 of this Agreement, Employer shall not
have the right to terminate this Agreement or to cease making or reduce payments
due to the Executive hereunder under any circumstances, except for Cause. A
determination that Executive is subject to dismissal for "Cause" can only be
made at a meeting of the Company's Board of Directors of which Executive has at
least ten (10) days' prior written notice and at which Executive shall have the
opportunity to be heard.
ARTICLE III
ISSUANCE OF SHARES
3.1 Issuance of Shares.
Upon the confirmation of the Company's Chapter 11 Plan of
Reorganization (or if such day is not a business day, on the first business day
thereafter), the Company shall issue to the Employee 300,000 shares of Common
Stock (the "Signing Bonus Shares"). The parties agree that the fair market value
of the Signing Bonus Shares is the November FMV.
ARTICLE IV
PURCHASE OPTION
4.1 Purchase Option.
(a) If at any time prior to the first anniversary of this
Agreement (i) Employee terminates his employment with the Company for any
reason, except on account of the Company's breach of this Agreement, which
breach the Company has failed to cure after reasonable notice, or (ii)
Employee's employment with the Company is terminated by the Company with Cause,
then the Company and/or its designee(s) shall have the option (the "Purchase
Option") to purchase, and Employee (or Employee's assignee, or Employee's
executor or the administrator of Employee's estate, in the event of Employee's
death, or Employee's legal representative in the event of Employee's incapacity
(hereinafter, collectively with Employee, the "Grantor")) shall sell to the
Company and/or its assignee(s), all of the Signing Bonus Shares held by the
Grantor.
(b) The Company shall give notice in writing to the Grantor of
the exercise of the Purchase Option within thirty (30) days after the date of
the termination of Employee's employment (the "Exercise Notice").
(c) The purchase price to be paid for the Signing Bonus Shares
purchased pursuant to the Purchase Option shall be the November FMV. The
purchase price shall be paid in cash. The closing of such purchase shall take
place at the Company's principal executive offices within ten days after the
delivery by the Company of the Exercise Notice. At such closing, the Grantor
shall deliver to the purchaser(s) the certificates or instruments evidencing the
Signing Bonus Shares being purchased, duly endorsed (or accompanied by duly
4
executed stock powers) and otherwise in good form for delivery, against payment
of the purchase price by check of the purchaser(s). In the event that,
notwithstanding the foregoing or the prohibitions contained in Section 5.1, the
Grantor shall have failed to obtain the release of any pledge or other
encumbrance on any Signing Bonus Shares by the scheduled closing date, at the
option of the purchaser(s) the closing shall nevertheless occur on such
scheduled closing date, with the cash purchase price being reduced to the extent
of, and paid to the holder of, all unpaid indebtedness for which such Signing
Bonus Shares are then pledged or encumbered.
ARTICLE V
LIMITATION ON TRANSFERS
5.1 Prohibited Transfers.
Except as provided in Section 4.1, the Signing Bonus Shares shall not
be Transferred or otherwise conveyed, assigned, or hypothecated during the
Initial Term. Any purported Transfer in violation of this Article V, shall be
void ab initio and of no force or effect.
5.2 Other Restrictions on Transfer.
Subject to Section 5.1, the Signing Bonus Shares shall not be
Transferred or otherwise conveyed, assigned, or hypothecated before satisfaction
of the conditions specified in this Section 5.2 and Sections 5.3 and 5.4, which
conditions are intended to ensure compliance with the provisions of the
securities laws. Any purported Transfer in violation of this Article V shall be
void ab initio and of no force or effect. Other than Transfers to the public
pursuant to an effective registration statement or sales to the public pursuant
to Rule 144 promulgated under the Securities Act otherwise permitted hereunder,
Employee will cause any proposed transferee of any Signing Bonus Shares or any
interest therein held by him to agree to take and hold such Signing Bonus Shares
subject to the provisions and upon the conditions specified in this Agreement
5.3 Restrictive Legends.
Each certificate representing Signing Bonus Shares issued to Employee
shall include legends (in addition to any other legends required by laws or
other agreements to which Employee is bound) in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE
SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION. SUCH SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933; AS AMENDED, (II) RULE 144 PROMULGATED
UNDER SUCH ACT, OR (III) ANY OTHER APPLICABLE EXEMPTION FROM
REGISTRATION UNDER SUCH ACT. THIS SECURITY IS SUBJECT TO AN OPTION TO
REPURCHASE AND RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS
SET FORTH IN THE EMPLOYMENT AGREEMENT DATED AS OF NOVEMBER __, 2004, A
COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES.
5
5.4 Notice of Proposed Transfers.
Prior to any Transfer or attempted Transfer of any Signing Bonus
Shares, the holder of such Shares shall (i) give written notice (a "Transfer
Notice") to the Company, of such holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and (ii) if
requested by the Company, provide to the Company an opinion reasonably
satisfactory to the Company, from counsel who shall be reasonably satisfactory
to the Company (or supply such other evidence reasonably satisfactory to the
Company), that the proposed Transfer of such Signing Bonus Shares may be
effected without registration under the Securities Act After receipt of the
Transfer Notice and opinion (if required), the Company shall, within five days
thereafter, so notify the holder of such Shares and such holder shall thereupon
be entitled to Transfer such Signing Bonus Shares in accordance with the terms
of the Transfer Notice. The holder of the Signing Bonus Shares giving the
Transfer Notice shall not be entitled to Transfer such Shares until receipt of
the notice from the Company, under this Section 5.4.
5.5 Termination of Certain Restrictions.
Notwithstanding the foregoing provisions of this Article V the
restrictions imposed by Section 5.2 upon the transferability of the Shares and
the legend requirements of Section 5.3 shall terminate as to any Signing Bonus
Shares (i) as to any Transfer effected pursuant to an effective registration
statement under the Securities Act, when and so long as the Transfer of such
Signing Bonus Shares is effectively registered under the Securities Act or (ii)
when the Company shall be reasonably satisfied (including, if so requested by
the Company, when it shall have received an opinion of counsel reasonably
satisfactory to it) that such Signing Bonus Shares may be transferred under the
Securities Act and that such legend may be removed. Whenever the restrictions
imposed by Section 5.2 shall terminate as to any Signing Bonus Shares, the
holder thereof shall be entitled to receive from the Company, at the Company's
expense, a new certificate representing Signing Bonus Shares not bearing the
restrictive legend set forth in Section 5.3.
ARTICLE VI
TERMINATION
6.1 Termination.
The provisions of Sections 4.1 and 5.1 of this Agreement shall
terminate upon a Change of Control.
6
ARTICLE VII
MISCELLANEOUS
7.1 Confidentiality. The Executive acknowledges that, during and as a
result of his employment hereunder, he may have access to trade secrets and
other confidential information of Employer, including, but not limited to, the
nature and material terms of business opportunities and proposals available to
Employer, Employer's methods and systems, the names and addresses of Employer's
customers and suppliers, technical memoranda, research reports, designs and
specifications, operating procedures, ledgers, and other information, data and
documents relating to Employer's present or future operations, regardless of
whether any such information, data or documents qualify as a "trade secret"
under applicable federal or state law (collectively, the "Confidential
Information"). The Executive covenants and agrees that he shall not at any time
during or following any termination of the Employment Term, without the consent
of Employer, use or disclose (except for the sole and exclusive benefit of
Employer or as required to perform his duties under this Agreement or as
required by law or as is already in the public domain) any Confidential
Information which has been obtained by or disclosed to him as a result of his
employment with Employer. The Executive agrees that Employer would be
irreparably harmed by any breach of the Executive's agreements set forth in this
Section 8, that such injury would not be adequately compensated by monetary
damages, and that, accordingly, Employer may specifically enforce the provisions
of this Section by injunction without thereby affecting any claim for damages.
7.2. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, and shall be given by hand-delivery to the
addressee or by deposit in the U.S. mail, postage prepaid, certified mail,
return receipt requested, as follows:
If to Employer, to:
c/o Greenberg Traurig, P.A.
777 South Flagler Drive, Suite 300 East
West Palm Beach, Florida 33401
Attention: Morris C. Brown
Facsimile: (561) 655-6222
If to the Executive, to such address as the Executive may
specify in writing to the Company;
or such other address as either party may specify by notice hereunder to the
other. Any notice sent in accordance with the foregoing provisions shall be
deemed given on the date of receipt if personally delivered, or on the date
three (3) days after being deposited in the mail, if mailed.
7.3. Entire Agreement. This Agreement incorporates the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions of the parties, whether oral or written, and there
are no warranties, representations and other agreements between the parties in
7
connection with the subject matter hereof, except as specifically set forth
herein. No amendment, supplement, modification or waiver of this Agreement shall
be binding upon a party hereto unless in writing and executed by such party.
7.4 Governing Law. The domestic internal laws of the State of Florida
shall govern the validity, construction and effect of this Agreement, without
regard to Florida's conflicts of laws principles.
7.5. Severability. Each of the provisions of this Agreement shall be
independent of all other provisions, and if any provision of this Agreement is
declared void or invalid by any court or other governmental agency of competent
jurisdiction, each other provision of this Agreement shall remain in full force
and effect and shall be construed to the extent possible as consistent with all
other valid provisions in order to carry out the intent of the parties hereto.
7.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective heirs, executors, administrators,
successors and assigns of Employer and the Executive. If Employer shall, at any
time, be merged with or consolidated into or with any other corporation or
person or if all or substantially all of the assets of Employer are transferred
to another corporation or person, the provisions of this Agreement shall be
binding upon and inure to the benefit of the entity resulting from such merger
or consolidation or the corporation or person to which or to whom such assets
shall be transferred, and this provision shall apply in the event of any
subsequent mergers, consolidations or transfers of assets.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first above written.
THE COMPANY:
HEALTH & NUTRITION
SYSTEMS INTERNATIONAL INC.
By: /s/Ted Alflen
----------------------
Name: Ted Alflen
Title: Director, HNS
EXECUTIVE:
/s/James A. Brown
---------------------------
James A. Brown
During the Employment Term, Employer shall pay the Executive a monthly salary at
the current rate of $9,200 per month until the 30th calendar day following the
date on which the Company's plan of reorganization is confirmed.
9
EXHIBIT 99.1
HEALTH & NUTRITION SYSTEMS
INTERNATIONAL, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 (UNAUDITED)
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
YEAR ENDED DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
------
UNAUDITED
2004
-----------
Current assets:
Cash $ 127,296
Accounts receivable, net 899,791
Inventory, net 691,737
Prepaids and other current assets 73,124
-----------
Total current assets 1,791,947
-----------
Property and equipment, net 75,475
-----------
Other assets:
Trademarks, net 120
Security deposits 8,019
-----------
Total other assets 8,140
-----------
Total assets $ 1,875,562
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 1,522,013
Accrued expenses 1,329,096
Capital leases --
Notes payable, current portion 268,656
-----------
Total current liabilities 3,119,765
-----------
Notes payable, less current portion 14,711
-----------
Total liabilities 3,134,475
-----------
Commitments and contingencies
Stockholders' deficit:
Common stock, $ 0.001 par value, authorized 30,000,000
shares; 3,829,813 and 3,629,813 shares issued and
outstanding at December 31, 2003 and 2002, respectively 3,830
Additional paid-in capital 858,612
Accumulated deficit (2,121,355)
-----------
Total stockholders' deficit (1,258,914)
-----------
Total liabilities and stockholders' deficit $ 1,875,562
===========
- 1 -
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
UNAUDITED
2004
-----------
Net revenue $ 6,342,588
Cost of sales 2,753,729
-----------
Gross profit 3,588,859
-----------
Operating expense:
General and administrative expense 2,621,158
Advertising and promotion 2,121,575
Depreciation and amortization 30,140
-----------
Total operating expense 4,772,873
-----------
Income from operations (1,184,015)
-----------
Other income (expense):
Gain on sale of trademark --
Interest expense (25,353)
Other income (expense) --
Prior Year Adjustments 4,515
-----------
Total other income (expense) (20,838)
-----------
Income before income taxes (1,204,853)
-----------
Benefit (provision) for income taxes --
-----------
Net income $(1,204,853)
===========
- 2 -
Exhibit 99.2 Press Release THE REORGANIZATION OF HEALTH & NUTRITION SYSTEMS IS APPROVED WEST PALM BEACH, FL, JANUARY 11, 2005 - Health & Nutrition Systems International Inc. (OTC Bulletin Board: HNNSQ - News) announced that, on January 10, 2005, the Company's Amended Plan of Reorganization was approved by the U.S. Bankruptcy Court, Southern District of Florida, in Fort Lauderdale, Florida. HNS filed its Chapter 11 case on October 15, 2004. The Plan provides for the sale by HNS of substantially all of its operating assets to TeeZee, Inc. The order confirming the Amended Plan of Reorganization is subject to appeal for a 10-day period following entry of the order on the docket of the Bankruptcy Court by parties in interest, that is, by those who hold a financial interest in the HNS bankruptcy estate. For more information, contact: At the Company: Mona Lalla, Director of Operations Telephone: (561) 863-8446 Email: lallam@hnsglobal.com ___________________________________________ Source: Health & Nutrition Systems International, Inc.