RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
NU SKIN ENTERPRISES, INC.,
SAGE ACQUISITION CORPORATION
and
GENERATION HEALTH HOLDINGS, INC.
Dated as of October 16, 1998
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(continued)
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms...........................................1
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.....................................................16
SECTION 2.02. Effective Time.................................................16
SECTION 2.03. Effect of the Merger...........................................16
SECTION 2.04. Articles of Incorporation; Bylaws..............................16
SECTION 2.05. Directors and Officers.........................................16
SECTION 2.06. Effect on Capital Stock........................................17
SECTION 2.07. Dissenting Shares..............................................18
SECTION 2.08. Adjustment of Consideration....................................19
SECTION 2.09. Exchange of Certificates.......................................22
SECTION 2.10. No Further Ownership Rights in Company Securities..............24
SECTION 2.11. Lost, Stolen or Destroyed Certificates.........................24
SECTION 2.12. Taking of Necessary Action; Further Action.....................25
SECTION 2.13. Tax-Free Reorganization........................................25
SECTION 2.14. Options to Purchase Company Common Stock.......................25
SECTION 2.15. Agreement of Nu Skin to Make True-Up Payment...................26
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization, Authority and Qualification of the Company.......30
SECTION 3.02. Capital Stock of the Company; Ownership of the Capital Stock...31
SECTION 3.03. Subsidiaries...................................................32
SECTION 3.04. Books and Records..............................................33
SECTION 3.05. No Conflict....................................................34
SECTION 3.06. Governmental Consents and Approvals............................34
SECTION 3.07. Financial Information, Books and Records.......................34
SECTION 3.08. No Undisclosed Liabilities.....................................35
SECTION 3.09. Receivables....................................................35
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Page
SECTION 3.10. Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions.......................................36
SECTION 3.11. Litigation.....................................................38
SECTION 3.12. Certain Interests..............................................39
SECTION 3.13. Compliance with Laws...........................................40
SECTION 3.14. Environmental Matters..........................................41
SECTION 3.15. Material Contracts.............................................41
SECTION 3.16. Intellectual Property..........................................43
SECTION 3.17. Real Property..................................................47
SECTION 3.18. Tangible Personal Property.....................................49
SECTION 3.19. Assets.........................................................51
SECTION 3.20. Customers......................................................51
SECTION 3.21. Employee Benefit Matters.......................................52
SECTION 3.22. Labor Matters..................................................54
SECTION 3.23. Key Employees..................................................55
SECTION 3.24. Taxes..........................................................55
SECTION 3.25. Insurance......................................................56
SECTION 3.26. Full Disclosure................................................57
SECTION 3.27. Stockholder Approval Requirements..............................57
SECTION 3.28. Products and Product Claims....................................57
SECTION 3.30. Brokers........................................................59
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NU SKIN AND MERGER SUB
SECTION 4.01. Organization and Authority of Merger Sub.......................59
SECTION 4.02. No Conflict....................................................60
SECTION 4.03. Governmental Consents and Approvals............................60
SECTION 4.04. Litigation.....................................................60
SECTION 4.05. SEC Documents: Undisclosed Liabilities........................60
SECTION 4.06. Absence of Certain Changes or Events...........................61
SECTION 4.07. Stockholder Approval Requirements..............................61
SECTION 4.08. Brokers........................................................61
SECTION 4.09. Capital Stock of Nu Skin and Merger Sub........................61
SECTION 4.10. Opinion of Financial Advisor....................................62
SECTION 4.11. Tax-Free Transaction...........................................62
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Page
SECTION 4.12. Information Statement..........................................62
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Effective Time................62
SECTION 5.02. Access to Information..........................................63
SECTION 5.03. Confidentiality................................................63
SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents......64
SECTION 5.05. Notice of Developments.........................................64
SECTION 5.06. Securities Filings.............................................65
SECTION 5.07. Registration Rights Agreement, Escrow Agreement and Cholestin
Escrow Agreement............................................65
SECTION 5.08. Employee Benefits..............................................65
SECTION 5.09. Tax-Free Reorganization........................................65
SECTION 5.10. Company Stockholders Meeting...................................66
SECTION 5.11. Repayment of Liabilities; Redemption of Preferred Stock........66
SECTION 5.12. Directors' and Officers' Insurance.............................66
SECTION 5.13. New York Stock Exchange Listing................................66
SECTION 5.14. Registration Statement on Form S-8.............................66
SECTION 5.15. Stock Transfers................................................67
SECTION 5.16. Cholestin......................................................67
SECTION 5.17. Agreement to Pursue Registered Transaction in Certain Events...68
SECTION 5.18. SECTION RESERVED................................................68
SECTION 5.19. Further Action.................................................68
SECTION 5.20. SECTION RESERVED................................................68
SECTION 5.21. Amendment of Certain Agreements................................68
SECTION 5.22. Cooperation and Exchange of Information........................68
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ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Mutual Conditions to the Obligations to Effect the Merger......69
SECTION 6.02. Conditions to Obligations of the Company.......................69
SECTION 6.03. Conditions to Obligations of Nu Skin and Merger Sub............70
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties.....................72
SECTION 7.02. Indemnification................................................72
SECTION 7.03. Satisfaction of Indemnification Claims.........................75
SECTION 7.04. Tax Characterization...........................................76
ARTICLE VIII
TERMINATION AND WAIVER
SECTION 8.01. Termination....................................................76
SECTION 8.02. Effect of Termination..........................................77
SECTION 8.03. Waiver.........................................................77
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Expenses.......................................................78
SECTION 9.02. Notices........................................................78
SECTION 9.03. Public Announcements...........................................78
SECTION 9.04. Headings.......................................................79
SECTION 9.05. Severability...................................................79
SECTION 9.06. Entire Agreement...............................................79
SECTION 9.07. Assignment.....................................................79
SECTION 9.08. No Third Party Beneficiaries...................................79
SECTION 9.09. Amendment......................................................79
SECTION 9.10. Governing Law..................................................80
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SECTION 9.11. Counterparts...................................................80
SECTION 9.12. Specific Performance...........................................80
vi
EXHIBITS
Exhibit A Form of Cholestin Escrow Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Stockholders' Letter
Exhibit E Form of Exchange Agent Agreement
Exhibit F Form of Opinion of Shearman & Sterling
Exhibit G Form of Opinion of Pillsbury Madison & Sutro LLP
Exhibit H Employment Agreements
SCHEDULES
Company Disclosure Schedule
Nu Skin Disclosure Schedule
Schedule I Assumed Options
Schedule II Company Warrants
Schedule III Expenses of the Company
Schedule IV Consent and Estoppel Certificates
Schedule V Amendment of Certain Agreements
Schedule VI Validity of Certain Agreements
1
RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION,
dated as of October 16, 1998 (as amended, restated, supplemented or otherwise
modified from time to time, this "Agreement"), among NU SKIN ENTERPRISES, INC.,
a Delaware corporation ("Nu Skin"), SAGE ACQUISITION CORPORATION, a Delaware
corporation and a direct wholly owned subsidiary of Nu Skin ("Merger Sub"), and
GENERATION HEALTH HOLDINGS, INC., a Delaware corporation (the "Company");
W I T N E S S E T H:
WHEREAS, the boards of directors of Nu Skin, Merger Sub and the Company
have each determined that it is in the best interests of their respective
stockholders for Nu Skin to acquire the Company upon the terms and subject to
the conditions set forth herein;
WHEREAS, for United States Federal income tax purposes, it is intended
that the Merger qualify as a tax-free reorganization under Section 368(a) of the
Code; and
WHEREAS, in furtherance of such acquisition, the boards of directors of
Nu Skin, Merger Sub and the Company have each approved the merger (the "Merger")
of the Company with and into Merger Sub, with Merger Sub continuing as the
surviving corporation, in accordance with the General Corporation Law of the
State of Delaware and upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements, covenants, representations and warranties hereinafter set forth and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. Unless the context otherwise
requires, the following terms, when used in this Agreement, shall have the
respective meanings specified below:
"Accounts Payable" shall mean accounts payable shown on any specified
consolidated balance sheet of the Company and the Subsidiaries prepared in
accordance with U.S. GAAP ,with the classification between accounts payable and
accrued liabilities being made in a manner consistent with the historical
practice of the Company.
2
"Acquisition Documents" shall mean this Agreement, the exhibits to this
Agreement, the Company Disclosure Schedule, the Nu Skin Disclosure Schedule and
any certificate, Audited Financial Statement, Interim Financial Statement,
report or other document delivered pursuant to this Agreement or in connection
with the transactions contemplated hereby.
"Action" shall mean any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Adjusted Nu Skin Class A Shares" shall mean the Nu Skin Class A Shares,
minus the Downward Share Adjustment or plus the Upward Share Adjustment, if any.
"Adjustment Date" shall have the meaning specified in Section 2.08(c).
"affiliate" shall mean, with respect to any specified person, any other
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
person.
"Agreement" shall have the meaning specified in the preamble to this
Agreement.
"Agreement of Merger" shall mean the agreement of merger, in form and
substance reasonably satisfactory to Nu Skin and the Company, to be filed with
the Secretary of State of the State of Delaware in order to effect the Merger.
"Assets" shall have the meaning specified in Section 3.19.
"Assumed Options" shall mean the Company Stock Options granted under the
Company Stock Option Plans and identified on Schedule I hereto.
"Audited Balance Sheet" shall mean the audited consolidated balance
sheet of the Company and the Subsidiaries (including the related notes and
schedules thereto), dated as of March 31, 1998.
"Audited Financial Statements" shall have the meaning specified in
Section 3.07.
"Average Class A Common Stock Price at Effective Date" shall mean the
average of the closing prices per share of the Class A Common Stock on the New
York Stock Exchange for the twenty consecutive trading days ending on the
trading day that is five trading days prior to the Effective Date.
"Bridge Notes" shall mean the 13% senior secured bridge notes due 1999
issued pursuant to the Note Purchase Agreement dated as of January 13, 1998
among Pharmanex,
3
Inc., as issuer, the Company and Generation Health, Inc., as guarantors, the
purchasers named therein and Post Holdings, L.L.C., as agent.
"Business" shall mean the business of researching, developing,
manufacturing, producing, marketing and distributing dietary supplements and all
other business of the Company and the Subsidiaries as such business is currently
conducted.
"Business Day" shall mean any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by Law to be closed in New
York, New York.
"Certificate of Merger" shall mean the certificate of merger, in form
and substance reasonably satisfactory to Nu Skin and the Company, to be filed
with the Secretary of State of the State of Delaware in order to effect the
Merger.
"Cholestin" shall mean the dietary supplement product of the Company
made from one or more strains of Monascus Purpureus Went yeast fermented on
rice.
"Cholestin Escrow Agent" shall mean LaSalle National Bank.
"Cholestin Escrow Agreement" shall mean the Cholestin Escrow Agreement
among Nu Skin, the Stockholders' Representative and the Cholestin Escrow Agent,
substantially in the form of Exhibit A hereto.
"Cholestin Escrow Shares" shall have the meaning specified in Section
2.09(c).
"Class A Common Stock" shall mean the class A common stock, par value
$0.001 per share, of Nu Skin.
"Closing Balance Sheet" shall mean the audited consolidated balance
sheet (including the notes and schedules thereto) of the Company and the
Subsidiaries, dated as of the Effective Date and reflecting the financial
position of the Company and the Subsidiaries immediately prior to the Effective
Time, prepared pursuant to Section 2.08.
"Closing Balance Sheet Book Value" shall mean the excess of the total
consolidated assets (less cash) over the total consolidated liabilities
(excluding the Expenses deducted from the Exchange Value) of the Company and the
Subsidiaries shown on the Closing Balance Sheet of the Company and the
Subsidiaries.
"Code" shall mean the Internal Revenue Code of 1986, as amended through
the date hereof.
4
"Company" shall have the meaning specified in the preamble to this
Agreement.
"Company Capital Stock" shall mean the Company Common Stock and the
Company Preferred Stock.
"Company Certificates" shall have the meaning specified in Section
2.09(b).
"Company Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company.
"Company Convertible Preferred Stock" shall mean the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock, the
Series C Convertible Preferred Stock and the Series D Convertible Preferred
Stock.
"Company Disclosure Schedule" shall mean the Disclosure Schedule of the
Company attached hereto, dated as of the date hereof, and forming a part of this
Agreement.
"Company Preferred Stock" shall mean the Company Convertible Preferred
Stock and the Company Redeemable Preferred Stock.
"Company Redeemable Preferred Stock" shall mean the Series B Redeemable
Preferred Stock and the Series D Redeemable Preferred Stock.
"Company Securities" shall mean the Company Capital Stock, the Company
Stock Options and the Company Warrants.
"Company Stock Option Plans" shall mean the Generation Health Holdings
1996 Stock Plan and the Generation Health Holdings, Inc. Scientific Advisory
Board Stock Option Plan.
"Company Stock Options" shall mean all options to purchase Company
Common Stock issued and outstanding at the Effective Time.
"Company Warrants" shall mean all warrants to purchase Company Common
Stock outstanding at the Effective Time, all of which are set forth on Schedule
II hereto.
"control" (including the terms "controlled by" and "under common control
with") shall mean, with respect to the relationship between or among two or more
persons, the possession, directly or indirectly, or as trustee, personal
representative or executor, of the power to direct or cause the direction of the
affairs or management of a person, whether through the ownership of voting
securities, as trustee, personal representative or executor, by contract or
otherwise, including, without limitation, the ownership, directly or indirectly,
of securities
5
having the power to elect a majority of the board of directors or similar body
governing the affairs of such person.
"Credit Agreement" the Credit Agreement among Nu Skin Enterprises, Inc.,
Nu Skin Japan Co., Ltd., the lenders named therein, ABN Amro Bank N.V., as
agent, and Bank of America National Trust and Savings Association and
NationsBank, N.A., as co-agents, dated May 8, 1998.
"Designated Amount" shall mean $325,000.
"Dissenting Shares" shall mean any shares of capital stock of the
Company held by a holder who has exercised dissenters' rights for such shares in
accordance with the General Corporation Law of the State of Delaware and who, as
of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights.
"Downward Adjustment" has the meaning specified in Section 2.08(c).
"Downward Share Adjustment" has the meaning specified in Section
2.08(c).
"Effective Date" shall mean the later of the date on which the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
shall occur, or such later mutually agreed date as may be set forth in the
Certificate of Merger and the Agreement of Merger, on which date the Merger
shall be consummated.
"Effective Time" shall mean the later of the time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, or
such later mutually agreed time as may be set forth in the Certificate of Merger
and the Agreement of Merger, at which time the Merger shall be consummated.
"Encumbrance" shall mean any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership; provided,
however, that Encumbrance shall not be deemed to include restrictions or rights
arising pursuant to a written agreement in connection with the transfer of
materials or information solely for the purpose of (a) potentially entering into
a business relationship with the Company, (b) providing goods to the Company or
(c) providing services to the Company.
"Environmental Claims" shall mean any action, suit, demand, demand
letter, claim, lien, notice of non-compliance or violation, notice of liability
or potential liability,
6
investigation, proceeding, consent order or consent agreement relating in any
way to any Environmental Law, Environmental Permit or Hazardous Materials.
"Environmental Law" shall mean any Law, now or hereafter in effect and
as amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
pollution or protection of the environment, occupational health and safety, or
natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" shall mean any permit, approval, identification
number, license or other authorization required under any Environmental Law
applicable to the Company and its operations or any Subsidiary and its
operations, as the case may be.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" shall mean LaSalle National Bank.
"Escrow Agreement" shall mean the Escrow Agreement among Nu Skin, the
Stockholders' Representative and the Escrow Agent, substantially in the form of
Exhibit B hereto.
"Escrow Fund" shall have the meaning specified in the Escrow Agreement.
"Escrow Shares" shall have the meaning specified in Section 2.09(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean American Stock Transfer.
"Exchange Ratio" shall mean the quotient of the Per Share Exchange Value
divided by $23.00.
"Exchange Value" shall mean $125,000,000 minus (i) the total
consolidated liabilities (excluding Accounts Payable incurred in the ordinary
course of business) of the Company and the Subsidiaries as reflected in the
Reference Balance Sheet, minus (ii) prepayment premiums and penalties, if any,
paid or payable pursuant to the terms of the Bridge Notes and the 1997 Notes,
minus (iii) all amounts paid or payable in connection with the redemption of the
Company Redeemable Preferred Stock, excluding from such redemption amounts, any
cash up to $3,000,000 spent by the Company in connection therewith prior to
Closing, minus (iv) the
7
Company's Expenses (excluding up to $375,000 of the professional fees payable by
the Company to its advisors in connection with the Merger), which such Expenses
shall be estimated on Schedule III hereto and finalized on a schedule delivered
at the Closing, minus (v) $236,250 which shall be deposited by Nu Skin into the
Escrow Fund at the Effective Time for the payment of the expenses of the
Stockholders' Representative pursuant to Section 9.01 and plus (vi) the
aggregate exercise price of the Assumed Options and the Company Warrants.
"Expenses" shall mean, with respect to any party hereto, all reasonable
costs and expenses, including, without limitation, all fees and disbursements of
counsel, financial advisors, financing sources, accountants, experts and
consultants to such party and its affiliates, incurred by such party or on its
behalf in connection with or related to the authorization, preparation,
negotiation and execution of, and performance of its obligations pursuant to,
this Agreement, and the transactions contemplated hereby.
"Fully Diluted Shares" shall mean the sum of (i) the aggregate number of
shares of Company Common Stock issued and outstanding at the Effective Time,
(ii) the aggregate number of shares of Company Common Stock issuable upon
conversion of the shares of Company Convertible Preferred Stock issued and
outstanding at the Effective Time, and (iii) the aggregate number of shares of
Company Common Stock issuable upon exercise of all Company Warrants and Assumed
Options issued and outstanding at the Effective Time.
"Governmental Authority"shall mean any domestic or foreign national,
federal, state, municipal or local or other government, governmental, regulatory
or administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"Hazardous Materials" shall mean (i) petroleum and petroleum products,
by products or breakdown products, radioactive materials, asbestos containing
materials and polychlorinated biphenyls, and (ii) any other chemicals, materials
or substances defined or regulated as toxic or hazardous or as a pollutant or
contaminant or as a waste under any applicable Environmental Law.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" shall mean, with respect to any person (i) all
indebtedness of such person, whether or not contingent, for borrowed money; (ii)
all obligations of such person for the deferred purchase price of property or
services; (iii) all obligations of such person evidenced by notes, bonds,
debentures or other similar instruments; (iv) all indebtedness
8
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property); (v) all obligations of
such person as lessee under leases that have been or should be, in accordance
with U.S. GAAP, recorded as capital leases; (vi) all obligations, contingent or
otherwise, of such person under acceptance, letter of credit or similar
facilities; (vii) all obligations of such person to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of such person or any
warrants, rights or options to acquire such capital stock, valued, in the case
of redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends; (viii) all
Indebtedness of others referred to in clauses (i) through (vi) above guaranteed
directly or indirectly in any manner by such person, or in effect guaranteed
directly or indirectly by such person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (C) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are rendered)
or (D) otherwise to assure a creditor against loss; and (ix) all Indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Encumbrance on property (including, without limitation,
accounts and contract rights) owned by such person, even though such person has
not assumed or become liable for the payment of such Indebtedness.
"Indemnified Party" shall mean Nu Skin, Merger Sub and each of their
respective affiliates and each officer, director, employee, agent, successor and
assign of each such person.
"Independent Accounting Firm" shall have the meaning specified in
Section 2.08(b).
"Information Statement" shall mean the Information Statement relating to
the Merger and the issuance of the shares of Class A Common Stock in the Merger,
and delivered to the Stockholders pursuant to the requirements of Regulation D
or Section 4.2 under the Securities Act of 1933, as amended.
"Intellectual Property" shall mean (i) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (ii) national
(including the United States) and multinational statutory invention
registrations, patents and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and reexaminations)
and all rights
9
therein provided by international treaties or conventions and all improvements
to the inventions disclosed in each such registration, patent or application,
(iii) trademarks, service marks, trade dress, logos, trade names and corporate
names, whether or not registered, including all common law rights, and
registrations and applications for registration thereof, including, without
limitation, all marks registered in the United States Patent and Trademark
Office, the trademark offices of the states and territories of the United
States, and the trademark offices of other nations throughout the world, and all
rights therein provided by international treaties or conventions, (iv)
copyrights (registered or common law) and registrations and applications for
registration thereof, and all rights therein provided by international treaties
or conventions, (v) computer software, including, without limitation, source
code, operating systems and specifications, data, data bases, files,
documentation and other materials related thereto, data and documentation, (vi)
trade secrets and confidential, technical and business information (including
inventions, whether patentable or unpatentable and whether or not reduced to
practice), (vii) whether or not confidential, technology (including know-how),
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing and
cost information, business and marketing plans and customer and supplier lists
and information, (viii) copies and tangible embodiments of all of the foregoing,
in whatever form or medium, (ix) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (x) all rights to xxx or
recover and retain damages and costs and attorneys' fees for past, present and
future infringement of any of the foregoing.
"Interim Financial Statements" shall have the meaning specified in
Section 3.07.
"IRS" shall mean the Internal Revenue Service of the United States.
"Law" shall mean any domestic or foreign national, federal, state,
municipal or local or other statute, law, ordinance, regulation, rule, code,
order, other requirement or rule of law.
"Leased Real Property" shall mean all real property leased by the
Company or any Subsidiary, as tenant, together with, to the extent leased by the
Company or any Subsidiary, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or any Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Leased Tangible Personal Property" shall mean all machinery, equipment,
tools, dies, molds, parts, supplies, furniture, furnishings, fixtures,
personalty, vehicles, rolling stock and other tangible personal property leased
by the Company or any Subsidiary, as lessee.
10
"Liabilities" shall mean any and all debts, liabilities and obligations
of any nature whatsoever, whether accrued or fixed, absolute or contingent,
matured or unmatured, known or unknown or determined or determinable, including,
without limitation, those arising under any Law (including, without limitation,
any Environmental Law), Action or Governmental Order and those arising under any
contract, agreement, arrangement, commitment or undertaking.
"Licensed Intellectual Property" shall mean all Intellectual Property
licensed or sublicensed to the Company or any Subsidiary from any third party.
"LifePak" shall mean all current comprehensive multi-vitamin and mineral
supplement products of Nu Skin in the LifePak product line marketed under the
LifePak trademark or variations thereof.
"Losses" shall have the meaning specified in Section 7.02.
"Material Adverse Effect" shall mean any change in or effect on the
Business, the Company or any Subsidiary that, individually or in the aggregate
with any other changes in or effects on the Business, the Company or any
Subsidiary (i) is, or could be, materially adverse to the business, operations,
assets or Liabilities, employee relationships, prospects, results of operations
or condition (financial or otherwise) of the Business (as such business is
currently conducted and as such business is proposed to be conducted following
the Merger), the Company or any material Subsidiary or (ii) could adversely
affect the ability of the Surviving Corporation to operate or conduct the
Business in the manner in which it is currently operated or conducted by the
Company and the Subsidiaries, excluding therefrom, in each case, any change or
effect on the Business, the Company or any Subsidiary that is attributable to
the announcement of the proposed Merger.
"Material Contracts" shall have the meaning specified in Section
3.15(a).
"Material Stockholder" shall mean any Stockholder, or group of
Stockholders acting together, holding as of the date hereof more than 2% of the
Company Capital Stock on a fully diluted basis.
"Merger" shall have the meaning specified in the recitals to this
Agreement.
"Merger Sub" shall have the meaning specified in the preamble to this
Agreement.
"Multiemployer Plan" shall mean a multiemployer plan within the meaning
of Section 3(37) or 4001(a)(3) of ERISA.
11
"Multiple Employer Plan" shall mean a single employer pension plan
within the meaning of Section 4001(a)(15) of ERISA for which the Company could
incur liability under Section 4063 or 4064 of ERISA.
"Net Exercise Adjustment Factor" shall mean, with respect to any Company
Warrant, the quotient of (A) the Per Share Exchange Value less the exercise
price per share of Company Common Stock issuable upon exercise of such Company
Warrant divided by (B) the Per Share Exchange Value.
"1997 Notes" shall mean the 13% Notes due January 28, 2002 issued
pursuant to the Note Purchase Agreement dated as of January 28, 1997 among
Pharmanex, Inc., the Company and the purchasers named therein.
"Nu Skin" shall have the meaning specified in the preamble to this
Agreement.
"Nu Skin Class A Shares" shall mean the aggregate number of shares of
Class A Common Stock into which the Company Capital Stock and Company Warrants
shall be converted at the Effective Time pursuant to Section 2.06.
"Nu Skin Disclosure Schedule" shall mean the Disclosure Schedule of Nu
Skin attached hereto, dated as of the date hereof, and forming a part of this
Agreement.
"Nu Skin SEC Documents" shall mean all reports, schedules, forms,
statements and other documents required to be filed with the SEC by Nu Skin.
"Nu Skin's Accountants" shall mean PricewaterhouseCoopers LLP,
independent accountants of Nu Skin.
"Option True-Up" shall have the meaning specified in Section 2.15(k).
"Owned Intellectual Property" shall mean all Intellectual Property owned
by the Company or any Subsidiary.
"Owned Tangible Personal Property" shall mean all machinery, equipment,
tools, dies, molds, parts, supplies, furniture, furnishings, fixtures,
personalty, vehicles, rolling stock and other tangible personal property owned
by the Company or any Subsidiary.
"Per Share Exchange Value" shall mean the quotient of (i) the Exchange
Value divided by (ii) the Fully Diluted Shares.
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"Permitted Encumbrances" shall mean such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (i) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of the amount accrued
therefor on the Reference Balance Sheet; (ii) Encumbrances imposed by Law, such
as materialmen's, mechanics', carriers', workmen's and repairmen's liens and
other similar liens arising in the ordinary course of business securing
obligations that (A) are not overdue for a period of more than 30 days and (B)
are not in excess of US$5,000 in the case of a single property or US$50,000 in
the aggregate at any time; (iii) pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure public or
statutory obligations; and (iv) minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (A)
were not incurred in connection with any Indebtedness, (B) do not render title
to the property encumbered thereby unmarketable and (C) do not, individually or
in the aggregate, materially adversely affect the value or use of such property
for its current and anticipated purposes.
"person" shall mean any individual, partnership, firm, corporation,
joint venture, association, trust, unincorporated organization or other entity,
as well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.
"Plans" shall mean (i) all employee benefit plans (as defined in Section
3(3) of ERISA) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements, whether legally enforceable or not, to which the Company or any
Subsidiary is a party, with respect to which the Company or any Subsidiary has
any obligation or which is or was at any time maintained for the benefit of, or
relating to any employee or former employee of the Company, any Subsidiary or
any trade or business (whether or not incorporated) which is a member of a
controlled group including the Company and its Subsidiaries or which is or was
at the time under common control with the Company or any of its Subsidiaries
within the meaning of Section 414 of the Code; (ii) each employee benefit plan
for which the Company or any Subsidiary could incur liability under Section 4069
of ERISA in the event such plan has been or were to be terminated; (iii) any
plan in respect of which the Company or any Subsidiary could incur liability
under Section 4212(c) of ERISA; and (iv) any contracts, arrangements or
understandings between the Company or any of its affiliates and any employee of
the Company or of any Subsidiary, including, without limitation, any contracts,
arrangements or understandings relating to the sale of the Company.
"Receivables" shall mean any and all accounts receivable, notes and
other amounts receivable by the Company or any Subsidiary from third parties,
including, without limitation, customers and employees, arising from the conduct
of the Business or otherwise prior to the
13
Effective Time, whether or not in the ordinary course, together with all unpaid
financing charges accrued thereon.
"Reference Balance Sheet" shall mean the unaudited consolidated balance
sheet (including the related notes and schedules thereto) of the Company and the
Subsidiaries, dated as of August 22, 1998, a copy of which has been delivered to
Nu Skin pursuant to Section 3.07.
"Reference Balance Sheet Book Value" for purposes of this Agreement is
stipulated to be $7.8 million minus the total consolidated liabilities
(excluding Accounts Payable incurred in the ordinary course of business) of the
Company and the Subsidiaries as reflected in the Reference Balance Sheet, which
amount shall be reduced if the Effective Time shall not have occurred on or
prior to October 1, 1998 by $20,000 for each Business Day until the Effective
Time, up to a maximum reduction of $400,000.
"Registration Rights Agreement" shall mean a Registration Rights
Agreement between Nu Skin and the Stockholders' Representative on behalf of the
Stockholders, substantially in the form attached hereto as Exhibit C, relating
to the shares of Class A Common Stock received by the Stockholders pursuant to
this Agreement.
"Regulations" shall mean the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"Returns" shall have the meaning specified in Section 5.22.
"Sales" shall mean any consideration received from the sale of
Cholestin. In the event Cholestin or a product containing Cholestin (the
"Product") is sold in a combination product with other components, Sales shall
be calculated by multiplying the sales of that combination product by the
fraction A/(A + B), where A is the gross selling price of the Product sold
separately and B is the gross selling price of the other products in the
combination product sold separately. In the event that no such separate sales
are made by Nu Skin or its Affiliates, Sales shall be calculated by multiplying
sales of the combination product by the fraction C/(C+D), where C is the fully
allocated cost of the Product and D is the fully allocated cost of such other
components. Nu Skin shall, in its sole discretion, have the ability to determine
whether or not Cholestin or a product containing Cholestin may be included in
LifePak at any time after the Effective Time.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
14
"Series A Convertible Preferred Stock" means the series A preferred
stock, par value $0.01 per share, of the Company.
"Series B Convertible Preferred Stock" means the series B convertible
preferred stock, par value $0.01 per share, of the Company.
"Series B Redeemable Preferred Stock" means the series B redeemable
preferred stock, par value $0.01 per share, of the Company.
"Series C Convertible Preferred Stock" means the series C convertible
preferred stock, par value $0.01 per share, of the Company.
"Series D Convertible Preferred Stock" means the series D convertible
preferred stock, par value $0.01 per share, of the Company.
"Stock Consideration" shall have the meaning specified in Section 2.15.
"Series D Redeemable Preferred Stock" means the series D redeemable
preferred stock, par value $0.01 per share, of the Company.
"Stockholders" shall mean the holders of the Company Capital Stock and
holders of the Company Warrants entitled to receive shares of Class A Common
Stock pursuant to Article II of this Agreement.
"Stockholders' Accountants" shall mean PricewaterhouseCoopers LLP, or
such other Big Four accounting firm as shall be appointed by the Stockholders'
Representative.
"Stockholders' Letter" shall mean a letter, substantially in the form
attached hereto as Exhibit D.
"Stockholders' Representative" shall mean a committee of five persons,
initially consisting of Xxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxx Xxxxxxx, Xxxxx
Xxxxxxxxx and Xxxxxxx XxXxxxxxx, Xx., acting pursuant to the direction of at
least four of such persons, as the legal representative and Attorney-in Fact of
each of the Stockholders, duly appointed pursuant the Stockholders' Letters.
"Subsidiaries" shall mean any and all corporations, partnerships, joint
ventures, associations and other entities controlled by the Company directly or
indirectly through one or more intermediaries, as more particularly described in
the Company Disclosure Schedule.
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"Surviving Corporation" shall mean Merger Sub, as the surviving
corporation of the Merger.
"Tangible Personal Property" shall mean the Leased Tangible Personal
Property and the Owned Tangible Personal Property.
"Tax" or "Taxes" shall mean any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, expense, additions to tax and additional amounts incurred
or imposed with respect thereto) imposed by any taxing authority, including,
without limitation, (i) taxes or other charges on or with respect to income,
franchises, concessions, windfall or other profits, gross receipts, property,
sales, use, capital, gains, capital stock or shares, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth; (ii)
taxes or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; (iii) license, registration and
documentation fees; and (iv) customs duties, tariffs, and similar charges.
"Total Cholestin Escrow Shares" shall mean 434,783 shares of Class A
Common Stock, determined by dividing $10,000,000 by $23.00.
"Total Escrow Shares" shall mean 1,413,044 shares of Class A Common
Stock, determined by dividing $32,500,000 by $23.00, plus such additional shares
of Class A Common Stock as may be issued as the result of an Upward Share
Adjustment.
"Third Party Claims" shall have the meaning specified in Section
7.02(c).
"True-Up Amount" shall have the meaning specified in Section 2.15.
"True-Up Imputed Interest" shall have the meaning specified in Section
2.15.
"True-Up Share Price" shall mean the average of the closing prices per
share of the Class A Common Stock on the New York Stock Exchange for the 76
consecutive trading days ending on the trading day prior to the date of this
Agreement.
"U.S. GAAP" shall mean United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"Upward Adjustment" has the meaning specified in Section 2.08(c).
"Upward Share Adjustment" has the meaning specified in Section 2.08(c).
16
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. At the Effective Time, and upon the terms and
subject to the conditions of this Agreement and the General Corporation Law of
the State of Delaware, the Company shall be merged with and into Merger Sub, the
separate corporate existence of the Company shall cease, and Merger Sub shall
continue as the surviving corporation.
SECTION 2.02. Effective Time. The closing of the Merger (the "Closing")
shall take place at 9:00 a.m. San Francisco time, on a date specified by the
parties which (subject to satisfaction or waiver of the conditions set forth in
Article VI) shall be no later than the fifth Business Day following the
satisfaction or waiver of the conditions (excluding conditions that, by their
terms, cannot be satisfied until the Effective Date) set forth in Article VI,
unless another date is agreed to in writing by the parties. As promptly as
practicable following the Closing, the parties hereto shall cause the Merger to
be consummated by filing the Certificate of Merger with the Secretary of State
of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, the General Corporation Law of the
State of Delaware. The Closing shall be held at the offices of Shearman &
Sterling, 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx, unless another place
is agreed to in writing by the parties.
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) Unless otherwise
determined by Nu Skin prior to the Effective Time, at the Effective Time the
articles of incorporation of Merger Sub shall be the articles of incorporation
of the Surviving Corporation until thereafter amended as provided by applicable
law and such articles of incorporation.
(b) The bylaws of Merger Sub shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by applicable law, the articles
of incorporation of the Surviving Corporation and such bylaws.
SECTION 2.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to
17
hold office in accordance with the articles of incorporation and bylaws of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 2.06. Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of Nu Skin, Merger Sub or the
Company or the holders of any of the Company Securities:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares to be
canceled pursuant to Section 2.06(d) or constituting Dissenting Shares) and all
rights in respect thereof shall be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 2.09, the number of shares of Class A Common Stock equal to the Exchange
Ratio.
(b) Each Company Warrant and all rights in respect thereof shall be
canceled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate or agreement representing such
Company Warrant in the manner provided in Section 2.09, the number of shares of
Class A Common Stock (rounded down to the nearest whole share of Class A Common
Stock) equal to the product of (A) the product of (1) number of shares of
Company Common Stock issuable upon exercise of such Company Warrant multiplied
by (2) the Net Exercise Adjustment Factor multiplied by (B) the Exchange Ratio.
(c) Each share of Series A Convertible Preferred Stock, and all rights
in respect thereof, shall be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate or
agreement representing such Company Convertible Preferred Stock in the manner
provided in Section 2.09, the number of shares of Class A Common Stock (rounded
down to the nearest whole share of Class A Common Stock) equal to the product of
the number of shares of Company Common Stock issuable upon the conversion of
such Series A Convertible Preferred Stock multiplied by the Exchange Ratio.
(d) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Nu Skin or any direct or
indirect wholly owned subsidiary of Nu Skin or of the Company immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) The Exchange Ratio shall be appropriately adjusted to reflect fully
the effect of any stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into Class A Common Stock
or Company Common Stock),
18
reorganization, recapitalization or other like change with respect to Class A
Common Stock occurring (or having a record date) after the date hereof and prior
to the Effective Time.
(f) No fraction of a share of Class A Common Stock shall be issued, but
in lieu thereof each holder of shares of Company Securities who would otherwise
be entitled to a fraction of a share of Class A Common Stock (after aggregating
all fractional shares of Class A Common Stock to be received by such holder)
shall receive from Nu Skin an amount of cash (rounded to the nearest whole cent)
equal to the product of such fraction multiplied by $23.00.
(g) Each share of common stock, par value $0.001 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall remain
outstanding and each certificate evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of Merger Sub, as
the Surviving Corporation.
(h) Each of the Surviving Corporation and Nu Skin shall, after making
reasonable efforts to request from the holders of Company Securities immediately
prior to the Effective Time such certificates or information as may permit
avoidance of withholding, be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Company Securities such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or under any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Surviving Corporation or Nu Skin, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Company Securities in respect of which such deduction and
withholding was made by the Surviving Corporation or Nu Skin, as the case may
be.
SECTION 2.07. Dissenting Shares. (a) Notwithstanding any provision of
this Agreement to the contrary, Dissenting Shares shall not be converted into or
represent a right to receive shares of Class A Common Stock pursuant to Section
2.06, but the holder thereof shall only be entitled to such rights as are
granted by the General Corporation Law of the State of Delaware.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder's dissenters' rights, then, as of the later of
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
applicable shares of Class A Common Stock, without interest thereon, upon
surrender of the certificate or certificates representing such Dissenting
Shares.
19
(c) The Company shall give Nu Skin (i) prompt notice of any written
demands received by the Company to require the Company to purchase shares of
capital stock of the Company, withdrawals of such demands, and any other
instruments served pursuant to the dissenters' rights provisions of the General
Corporation Law of the State of Delaware and received by the Company and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Nu Skin, voluntarily make any payment with respect to any such demands or offer
to settle or settle any such demands.
SECTION 2.08. Adjustment of Consideration. (a) As promptly as
practicable, but in any event within ninety (90) calendar days following the
Effective Date, Nu Skin shall deliver to the Stockholders' Representative the
Closing Balance Sheet, together with an unqualified report thereon of Nu Skin's
Accountants stating that the Closing Balance Sheet fairly presents the
consolidated financial position of the Company at the Effective Date in
conformity with U.S. GAAP applied on a basis consistent with the preparation of
the Reference Balance Sheet.
(b) (i) Subject to clause (ii) of this Section 2.08(b), the Closing
Balance Sheet delivered by Nu Skin to the Stockholders' Representative
shall be deemed to be and shall be final, binding and conclusive on the
parties hereto.
(ii) The Stockholders' Representative may dispute the amount of
the Closing Balance Sheet Book Value to the extent the net effect of
such disputed amounts in the aggregate would affect the Closing Balance
Sheet Book Value by more than the Designated Amount, but only on the
basis that the amounts reflected on the Closing Balance Sheet were not
arrived at in accordance with U.S. GAAP applied on a basis consistent
with the preparation of the Reference Balance Sheet; provided, however,
that the Stockholders' Representative shall have notified Nu Skin and Nu
Skin's Accountants in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable detail, the
basis for such dispute, within thirty (30) Business Days of Nu Skin's
delivery of the Closing Balance Sheet to the Stockholders'
Representative. In the event of such a dispute, the Stockholders'
Accountants and Nu Skin's Accountants shall attempt to reconcile their
differences, and any resolution by them as to any disputed amounts shall
be final, binding and conclusive on the parties hereto. If any such
resolution by Nu Skin's Accountants and the Stockholders' Accountants
leaves in dispute amounts the net effect of which in the aggregate would
not affect the Closing Balance Sheet Book Value by more than the
Designated Amount, all such amounts remaining in dispute shall then be
deemed to have been resolved in favor of the Closing Balance Sheet
delivered by Nu Skin to the Stockholders' Representative. If the
Stockholders' Accountants and Nu Skin's Accountants are unable to reach
a resolution with such effect within twenty (20) Business Days after
receipt by Nu Skin and Nu Skin's Accountants of the Stockholders'
Representative
20
written notice of dispute, the Stockholders' Accountants and Nu Skin's
Accountants shall submit the items remaining in dispute for resolution
to Deloitte & Touche (or, if such firm shall decline to act or is not,
at the time of such submission, independent of the Company or Nu Skin,
to another independent accounting firm of international reputation
mutually acceptable to Nu Skin and the Stockholders' Representative)
(the "Independent Accounting Firm"), which shall, within thirty (30)
Business Days after such submission, determine and report to Nu Skin and
the Stockholders' Representative upon such remaining disputed items, and
such report shall be final, binding and conclusive on the Stockholders'
Representative and Nu Skin. The fees and disbursements of the
Independent Accounting Firm shall be allocated between the Stockholders
and Nu Skin in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm
that is unsuccessfully disputed by each such party (as finally
determined by the Independent Accounting Firm) bears to the total amount
of such remaining disputed items so submitted.
(iii) In acting under this Agreement, Nu Skin's Accountants, the
Stockholders' Accountants and the Independent Accounting Firm shall be
entitled to the privileges and immunities of arbitrators.
(iv) No adjustment pursuant to Section 2.08(c) shall be made with
respect to amounts disputed by the Stockholders' Representative pursuant
to this Section 2.08(b) unless the net effect of the amounts
successfully disputed by the Stockholders' Representative in the
aggregate is to increase the Closing Balance Sheet Book Value by at
least the Designated Amount.
(c) The Closing Balance Sheet shall be deemed final for the purposes of
this Section 2.08 upon the earliest of (A) the failure of the Stockholders'
Representative to notify Nu Skin of a dispute within thirty (30) Business Days
of Nu Skin's delivery of the Closing Balance Sheet to the Stockholders'
Representative, (B) the resolution of all disputes pursuant to Section
2.08(b)(ii) by Nu Skin's Accountants and the Stockholders' Accountants and (C)
the resolution of all disputes, pursuant to Section 2.08(b)(ii) by the
Independent Accounting Firm. The date the Closing Balance Sheet is deemed final
is the "Adjustment Date". Subject to the limitation set forth in Section
2.08(b)(iv), on the Adjustment Date, an adjustment to the consideration given to
the Stockholders pursuant to this Agreement shall be made as follows:
(i) In the event that the Reference Balance Sheet Book Value
exceeds the Closing Balance Sheet Book Value, by at least the Designated
Amount, then the consideration given to the Stockholders shall be
adjusted downward in an amount equal to such excess (the "Downward
Adjustment"); provided, however, that in the event Nu Skin has taken
actions in connection with the Merger which the parties mutually
21
agree have adversely affected the Company's accounts receivable or
inventory as reflected on the Closing Balance Sheet, the incremental
dollar value of such effect will be added back to the Closing Balance
Sheet Book Value for purposes determining the Downward Adjustment. The
number of shares of Class A Common Stock that each Stockholder is
entitled to receive pursuant to Section 2.06 shall be reduced by such
Stockholder's proportionate interest (rounded up to the nearest whole
share) in the Downward Share Adjustment, which shall be equal to the
product of (x) the Downward Share Adjustment multiplied by (y) the
quotient of (1) the number of shares of Class A Common Stock that such
Stockholder has the right to receive pursuant to Section 2.06 divided by
(2) the total number of shares of Class A Common Stock issuable with
respect to all Company Securities pursuant to Section 2.06. The term
"Downward Share Adjustment" shall mean that number of shares of Class A
Common Stock equal to the quotient of the Downward Adjustment divided by
$23.00. Notwithstanding anything to the contrary contained in this
Agreement, all claims by Nu Skin against the Stockholders relating to a
Downward Share Adjustment shall be made against, and be received
exclusively from, the Total Escrow Shares pursuant to the provisions of
Section 7.02.
(ii) In the event that the Closing Balance Sheet Book Value
exceeds the Reference Balance Sheet Book Value by at least the
Designated Amount, then the consideration given to the Stockholders
shall be adjusted upward in an amount equal to such excess (the "Upward
Adjustment"); provided, however, that in the event Nu Skin has taken
actions in connection with the Merger which the parties mutually agree
have adversely affected the Company's accounts receivable or inventory
as reflected on the Closing Balance Sheet, the incremental dollar value
of such effect will be added back to the Closing Balance Sheet Book
Value for purposes determining the Upward Adjustment. The number of
shares of Class A Common Stock that each Stockholder is entitled to
receive pursuant to Section 2.06 shall be increased by such
Stockholder's proportionate interest (rounded up to the nearest whole
share) in the Upward Share Adjustment, which shall be equal to the
product of (x) the Upward Share Adjustment multiplied by (y) the
quotient of (1) the number of shares of Class A Common Stock that such
holder has the right to receive pursuant to Section 2.06 divided by (2)
the total number of shares of Class A Common Stock issuable with respect
to all Company Securities pursuant to Section 2.06. The term "Upward
Share Adjustment" shall mean that number of shares of Class A Common
Stock equal to the quotient of the Upward Adjustment divided by $23.00.
The full amount of any increase in the number of shares of Class A
Common Stock issued to the Stockholders pursuant to Section 2.06 as the
result of an Upward Share Adjustment shall be delivered to the Escrow
Agent to be held as Total Escrow Shares.
22
SECTION 2.09. Exchange of Certificates. (a) On the Effective Date, Nu
Skin shall deliver instructions to the Exchange Agent to hold in trust for the
benefit of the holders of Company Securities (other than Dissenting Shares),
pursuant to the terms of the Exchange Agent Agreement attached hereto as Exhibit
E, for exchange and payment in accordance with this Section 2.09 the number of
shares of Class A Common Stock issuable pursuant to Article II and the cash
payable in lieu of fractional shares, if any, in each case in exchange for
outstanding Company Securities.
(b) The Surviving Corporation shall, promptly after the Effective Date,
cause to be mailed to each holder of record of a certificate or certificates
(each, a "Company Certificate") which, immediately prior to the Effective Time,
represented outstanding Company Securities whose shares were converted into the
right to receive Class A Common Stock pursuant to this Article II (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to Company Certificates shall pass, only upon delivery of such
Company Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Nu Skin may reasonably specify) and (ii) instructions
for effecting the surrender of the Company Certificates in exchange for Class A
Common Stock pursuant to this Article II and the cash payable in lieu of
fractional shares, if any.
(c) At any time on or after the Effective Date, a holder of Company
Certificates may surrender such certificates to the Exchange Agent. Upon
surrender of Company Certificates for cancellation to the Exchange Agent,
together with the letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto:
(i) the holder of such Company Certificates shall be entitled to
receive in exchange therefor:
(A) one or more certificates representing, in the
aggregate, that whole number of shares of Class A Common Stock
that such holder has the right to receive pursuant to the
provisions of Section 2.06 in respect of the Company Securities
represented by such Company Certificates,
(1) minus such holder's proportionate interest in the
Total Escrow Shares (rounded up to the nearest whole share) (the
"Escrow Shares"), which shall be equal to the product of (x) the
Total Escrow Shares multiplied by (y) the quotient of (a) the
number of shares of Class A Common Stock that such holder has the
right to receive pursuant to the provisions of Section 2.06
divided by (b) the Nu Skin Class A Shares, and
(2) minus such holder's proportionate interest in the
Total Cholestin Escrow Shares (rounded up to the nearest whole
share) (the "Cholestin Escrow
23
Shares"), which shall be equal to the product of (x) the Total
Cholestin Escrow Shares multiplied by (y) the quotient of (a) the
number of shares of Class A Common Stock that such holder has the
right to receive pursuant to the provisions of Section 2.06
divided by (b) the Nu Skin Class A Shares; and
(B) an amount of cash by check or wire transfer equal to
the amount of cash that such holder has the right to receive
pursuant to Section 2.06(f); and
(C) the right to receive a pro rata portion of the True Up
Amount, if any;
(ii) Nu Skin shall deliver (A) to the Escrow Agent one or more
certificates registered in the name of the Escrow Agent, on behalf of
and as nominee for the holders of the Company Certificates, representing
the Total Escrow Shares, which will be held in escrow by the Escrow
Agent and distributed in accordance with the Escrow Agreement and (B) to
the Cholestin Escrow Agent one or more certificates registered in the
name of the Cholestin Escrow Agent, on behalf of and as nominee for the
holders of the Company Certificates, representing, in the aggregate, the
Cholestin Escrow Shares, which will be held in escrow by the Cholestin
Escrow Agent and distributed in accordance with Section 5.16 and the
Cholestin Escrow Agreement; and
(iii) the Company Certificate so surrendered shall forthwith be
canceled.
Until so surrendered, each Company Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
surrender the applicable number of shares of Class A Common Stock with respect
to the Company Securities formerly represented thereby to which such holder is
entitled pursuant to this Article II, the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 2.06(f)
and the right to receive a pro rata portion of the True-Up Amount, if any.
(d) No dividends or other distributions declared or made after the
Effective Time with respect to Class A Common Stock with a record date after the
Effective Date shall be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of Class A Common Stock represented
thereby until the holder of record of such Company Certificate shall surrender
such Company Certificate. Subject to applicable law, following surrender of any
such Company Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Class A Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Date theretofore paid with respect to such whole shares of Class A
Common Stock and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Date but prior to
such
24
surrender and a payment date subsequent to such surrender payable with respect
to such shares of Class A Common Stock.
(e) At the Effective Time, the stock transfer books of the Company with
respect to shares of Company Capital Stock will each be closed, and there will
be no further registration of transfers of shares of Company Capital Stock
thereafter on the records of any such stock transfer books. If any certificate
for shares of Class A Common Stock is to be issued in a name other than that in
which the Company Certificate surrendered in exchange therefor is registered, it
will be a condition of the issuance thereof that the certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Nu Skin or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for shares of Class A Common Stock in any name other than that
of the registered holder of the certificate surrendered, or established to the
satisfaction of Nu Skin or any agent designated by it that such tax has been
paid or is not payable.
(f) Notwithstanding anything to the contrary in this Section 2.09, none
of the Surviving Corporation or any party hereto shall be liable to a holder of
Company Securities for any amount properly paid to a public official pursuant to
and in accordance with any applicable abandoned property, escheat or similar
law.
SECTION 2.10. No Further Ownership Rights in Company Securities. All
consideration issued in respect of Company Securities in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Company Securities, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Company
Securities which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Company Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
SECTION 2.11. Lost, Stolen or Destroyed Certificates. In the event any
Company Certificates shall have been lost, stolen or destroyed, Nu Skin shall
issue in exchange for such lost, stolen or destroyed certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Class
A Common Stock issuable pursuant to this Article II and the cash payable in lieu
of fractional shares, if any; provided, however, that Nu Skin may, in its
discretion and as a condition precedent to the issuance and payment thereof,
require the owner of such lost, stolen or destroyed certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Nu Skin with respect to the certificates alleged to have
been lost, stolen or destroyed.
25
SECTION 2.12. Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any such further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Nu Skin, the
officers and directors of the Company and Nu Skin are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
SECTION 2.13. Tax-Free Reorganization. The parties hereto intend that
the Merger qualify and be treated as a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement constitute a "plan of
reorganization".
SECTION 2.14. Options to Purchase Company Common Stock. (a) At the
Effective Time, each Assumed Option which is outstanding and unexercised
immediately prior to the Effective Time shall be assumed by Nu Skin and
converted into an option to purchase Class A Common Stock in such number and at
such exercise price as provided below and otherwise having the same terms and
conditions as in effect immediately prior to the Effective Time (except to the
extent that such terms and conditions may be altered in accordance with their
terms as a result of the Merger):
(i) the number of shares of Class A Common Stock to be subject to
the new option shall be equal to the product of (A) the number of shares
of Company Common Stock issuable upon the exercise of such Assumed
Option as of the Effective Time multiplied by (B) the Exchange Ratio,
adjusted to reflect any Downward Share Adjustment or any Upward Share
Adjustment (rounded down, if necessary, to the nearest whole number of
shares of Class A Common Stock); and
(ii) the exercise price per share of Class A Common Stock under
the new option shall be equal to the quotient of (A) the exercise price
per share of Company Common Stock under the original option divided by
(B) the Exchange Ratio, adjusted to reflect any Downward Share
Adjustment or any Upward Share Adjustment (rounded up, if necessary, to
the nearest cent).
(b) The outstanding Assumed Options shall be assumed by Nu Skin in such
manner that Nu Skin (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applied" within the meaning of Section 424
of the Code or (ii) to the extent that Section 424 of the Code does not apply to
any such Assumed Options, would be such a corporation were Section 424 of the
Code applicable to such Assumed Options.
(c) Nu Skin shall (i) on or prior to the Effective Time, reserve for
issuance the number of shares of Class A Common Stock that will become issuable
upon the exercise of the
26
Assumed Options, (ii) promptly after the Effective Time issue to each holder of
an Assumed Option a document evidencing the assumption by Nu Skin of the
Company's obligations with respect thereto under this Section 2.14 and (iii)
from and after the Effective Time, upon exercise of these options in accordance
with the terms thereof, make available for issuance all shares of Class A Common
Stock covered thereby.
(d) It is the intention of the parties that the Assumed Options qualify
following the Effective Time of the Merger as incentive stock options as defined
in Section 422 of the Code to the extent that the Assumed Options qualified as
incentive stock options prior to the Effective Time.
(e) Each Company Stock Option other than the Assumed Options, and all
rights in respect thereof, shall be canceled and extinguished as of the
Effective Time.
SECTION 2.15. Agreement of Nu Skin to Make True-Up Payment. (a) If (i)
the True-Up Share Price is less than $23.00 and (ii) the average of the closing
prices per share of the Class A Common Stock on the New York Stock Exchange for
at least two periods of thirty consecutive trading days (which two periods do
not include any common trading day) occurring during the period beginning on the
date of this Agreement and ending on the date that is five trading days prior to
the first anniversary of the Effective Date has not equaled or exceeded $23.00,
then the consideration to which the Stockholders are entitled pursuant to this
Agreement shall increase by an amount (the "True-Up Amount") equal to the
product of:
(A) the number of Adjusted Nu Skin Class A Shares minus
the sum of (i) the number of shares of Class A Common Stock
distributed or distributable to Nu Skin by the Escrow Agent on or
prior to the first anniversary of the Effective Date in
accordance with the terms of Article VII hereof and the Escrow
Agreement plus (ii) the number of shares of Class A Common Stock
distributed or distributable to Nu Skin by the Cholestin Escrow
Agent pursuant to the terms of Section 5.16 hereof and the
Cholestin Escrow Agreement, multiplied by
(B) $23.00 minus the greater of (x) the highest of the
average closing prices per share of the Class A Common Stock on
the New York Stock Exchange for any period of forty consecutive
trading days occurring during the period beginning on the date of
this Agreement and ending on the trading day that is five trading
days prior to the first anniversary of the Effective Date and (y)
the True-Up Share Price;
provided, however, that any Stockholder who, prior to the first
anniversary of the Effective Date, has sold any portion of the shares of
Class A Common Stock issued to
27
such Stockholder in connection with the Merger shall only be entitled to
a True-Up Amount on the shares of Class A Common Stock so sold equal to
$23 less the price at which the shares were so sold, but in no event
less than $0 or more than the True-Up Amount they would otherwise have
been entitled to receive had such shares not been sold.
(b) The True-Up Amount payable to Stockholders (other than holders of
Series A Convertible Preferred Stock) shall be made in accordance with the
following three separate rights: the Fixed Stock Right, the Variable Stock Right
and the Residual Right (as such terms are defined below). The True-Up Amount
payable to the holders of the Series A Convertible Preferred Stock shall be paid
solely in Class A Common Stock.
(c) The "Fixed Stock Right" shall be an amount equal to the lesser of
(i) the True-Up Amount and (ii) the Fixed Stock Amount. The "Fixed Stock Amount"
shall be determined as of the Effective Date and shall be the difference (but in
no event less than zero) between (A) 45% of the Stockholders' Consideration (as
defined below) and (B) the Stock Consideration (as defined below).
"Stockholders' Consideration" shall mean the sum of (1) the fair market value of
the Class A Common Stock issuable to Stockholders (other than holders of Series
A Convertible Preferred Stock) pursuant to Section 2.06 (which fair market value
shall be based on the average of the high and low trading prices of the Class A
Common Stock on the New York Stock Exchange on the Effective Date (the "Closing
Price")), (2) all amounts paid or payable in connection with the redemption of
the Company Redeemable Preferred Stock, (3) cash paid in lieu of fractional
shares, (4) all amounts paid or payable in respect of Dissenting Shares, (5) any
other cash paid by Nu Skin in connection with the Merger other than cash used to
repay the Bridge Notes and the 1997 Notes and cash paid to employees or
otherwise as compensation, and (6) the maximum amount payable in respect of the
True-Up Amount assuming that the True-Up Amount will be computed based upon the
difference between $23.00 and the True-Up Share Price. "Stock Consideration"
shall mean the fair market value (which fair market value shall be based on the
Closing Price) of the Class A Common Stock issuable to holders of Company
Capital Stock as of the Effective Date pursuant to clause (a) of Section 2.06
("Capital Stockholders"). The amount payable by Nu Skin pursuant to the Fixed
Stock Right shall be paid solely in shares of Class A Common Stock.
(d) The "Variable Stock Right" shall be an amount equal to the lesser of
(i) the difference (but in no event less than zero) between the True-Up Amount
and the Fixed Stock Amount and (ii) the Variable Stock Amount. The "Variable
Stock Amount" shall be determined as of the first anniversary of the Effective
Date and shall be equal to the sum of (i) the difference (but in no event less
than zero) between (A) 45% of the Adjusted Stockholders' Consideration (as
defined below) and (B) the Adjusted Stock Consideration (as defined below) and
(ii) the amount of stock designated as imputed interest under Section 2.15(f) on
such Variable Stock Amount. "Adjusted Stockholders' Consideration" shall
28
mean the sum of (1) the fair market value (which fair market value shall be
based upon the Closing Price) of the difference between (A) the Class A Common
Stock issued to Stockholders (other than holders of Series A Convertible
Preferred Stock) pursuant to Section 2.06 (determined after taking into account
any Upward Share Adjustment to such shares) and (B) the Class A Common Stock
that was not ultimately delivered to Stockholders (other than holders of Series
A Convertible Preferred Stock) after release of the Cholestin Escrow Shares and
the Escrow Shares, (2) the fair market value (which fair market value shall be
based upon the Closing Price) of the Class A Common Stock issued to holders of
Company Stock Options prior to the first anniversary of the Effective Date, (3)
all amounts paid or payable in connection with the redemption of the Company
Redeemable Preferred Stock, (4) cash paid in lieu of fractional shares, (5) all
amounts paid or payable in respect of Dissenting Shares, (6) any other cash paid
by Nu Skin in connection with the Merger other than cash used to repay the
Bridge Notes and the 1997 Notes and cash paid to employees or otherwise as
compensation, and (7) the aggregate True-Up Amount as determined pursuant to
this Section 2.15. "Adjusted Stock Consideration" shall mean the sum of (i) the
fair market value (which fair market value shall be based upon the lesser of (1)
the Closing Price and (2) the average of the high and low trading prices of the
Class A Common Stock on the first anniversary of the Effective Date) of the
difference between (A) the Class A Common Stock issued to Capital Stockholders
(determined after taking into account any Upward Share Adjustment to the shares
issued to such Capital Stockholders) and (B) the Class A Common Stock that was
not ultimately delivered to Capital Stockholders after release of the Cholestin
Escrow Shares and the Escrow Shares, and (ii) the difference between (Y) the
fair market value of the Class A Common Stock issued to Capital Stockholders
pursuant to the Fixed Stock Right (which fair market value shall be based on the
lesser of (1) the Closing Price and (2) the high and low trading prices of the
Class A Common Stock on the date that the True-Up Amount is paid) and (Z) the
amount treated as imputed interest (as described below in subsection (f)) with
respect to the stock issued to Capital Stockholders pursuant to the Fixed Stock
Right. The amount payable by Nu Skin pursuant to the Variable Stock Right shall
be paid solely in shares of Class A Common Stock.
(e) The "Residual Right" shall be an amount equal to the difference (but
in no event less than zero) between (i) the True-Up Amount and (ii) the sum of
(x) the Fixed Stock Amount, (y) the Variable Stock Amount, and (z) the value of
the Class A Common Stock issued to holders of Series A Convertible Preferred
Stock pursuant to clause (b) of Section 2.15. The amount payable by Nu Skin
pursuant to the Residual Right may be paid by Nu Skin, in its sole discretion,
in cash or in shares of Class A Common Stock or a combination of cash and shares
of Class A Common Stock.
(f) A portion of all payments in respect of the True-Up Amount payable
to the holders of the Series A Convertible Preferred Stock, the Fixed Stock
Right, the Variable Stock Right and the Residual Right shall be treated as
imputed interest. The amount treated as
29
imputed interest shall be the "total unstated interest" as determined under
Section 483(b) of the Code. The amount treated as imputed interest shall not be
treated as paid in Class A Common Stock for purposes of computing the amount of
the Fixed Stock Right and the Variable Stock Right. To the extent that the
True-up Payment is made in shares of Class A Common Stock, the imputed interest
shall be represented by separate stock certificates (the number of which stock
certificates shall be rounded up so as to not have fractional shares). Nu Skin
shall withhold and pay over Taxes on amounts treated as imputed interest paid to
a Stockholder that is a foreign persons within the meaning of Section 7701 of
the Code unless, within 30 calendar days prior to the first anniversary of the
Effective Date, such Stockholder provides an Internal Revenue Service Form 1001
certifying that such Stockholder is exempt from or entitled to a reduced rate of
United States withholding tax, in which case United States withholding tax shall
be withheld at the rate specified on such Form 1001.
(g) Any shares of Class A Common Stock that are issued in payment of the
Fixed Stock Right, the Variable Stock Right or the Residual Right shall be
valued at the average of the closing prices per share of the Class A Common
Stock on the New York Stock Exchange for the twenty consecutive trading days
ending on the trading day that is five trading days prior to the first
anniversary of the Effective Date.
(h) Within ten (10) Business Days after the first anniversary of the
Effective Date, Nu Skin shall deliver to the Stockholders' Representative a
written notice indicating the True-Up Amount, if any, and, within five (5)
Business Days after its delivery of such notice, Nu Skin shall deliver the
True-Up Amount, if any, to the Stockholders; provided, however, that the pro
rata portion of the True-Up Amount that is attributable to the shares of Class A
Common Stock, if any, remaining in the Indemnity Escrow Fund (as defined in the
Escrow Agreement) to cover the Reserved Amount (as defined in the Escrow
Agreement) shall be delivered by Nu Skin to the Escrow Agent and distributed by
the Escrow Agent in accordance with the Escrow Agreement.
(i) Any shares of Class A Common Stock issued by Nu Skin in satisfaction
of its obligation to pay the True-Up Amount shall be issued to the Stockholders'
Representative registered in such names and denominations as shall be specified
by the Stockholder's Representative, and any cash paid by Nu Skin in
satisfaction of its obligation to pay the True-Up Amount shall be paid by wire
transfer to an account designated in writing by the Stockholders' Representative
on behalf of the Stockholders, in each case to be held by the Stockholders'
Representative in trust for the benefit of the Stockholders entitled thereto.
(j) Notwithstanding anything contained in this Section 2.15 to the
contrary, in the event that the average of the closing values of the Xxxxxxx
2000 Index for at least two periods of thirty consecutive trading days (which
two periods do not include any common trading day) occurring during the period
beginning on the date of this Agreement and ending on the date
30
that is five trading days prior to the first anniversary of the Effective Date
does not equal or exceed 440, then the True-Up Amount shall be reduced by
multiplying the True-Up Amount otherwise payable to the Stockholders pursuant to
this Section 2.15 by the quotient of (A) the greater of (i) the highest average
of the closing values of the Xxxxxxx 2000 Index for any period of forty
consecutive trading days occurring during the period beginning on the date of
this Agreement and ending on the date that is five trading days prior to the
first anniversary of the Effective Date and (ii) 310, divided by (B) 440;
provided, however, that in no event shall the quotient applied pursuant to this
Section 2.15(j) exceed 1.0.
(k) To the extent the holders of the Assumed Options are disadvantaged
as a result of having been option holders as opposed to holders of Company
Capital Stock immediately prior to the Effective Time, such holders of the
Assumed Options shall become entitled to receive upon exercise of their options
a True-Up Amount similar to that to be received by the Stockholders pursuant to
this Section 2.15 (the "Option True-Up"). To the extent the Assumed Options are
exercised between the Effective Time and the first anniversary of the Effective
Time, the Option True-Up shall be payable at the first anniversary of the
Effective Time in the same amount, in the same manner and subject to the same
limitations as are otherwise provided in this Section 2.15. To the extent the
Assumed Options are exercised subsequent to the first anniversary of the
Effective Time, the Option True-Up shall be payable at the time of such exercise
and in the same amount as would have been paid had such Assumed Options been
exercised prior to the first anniversary of the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Nu Skin and Merger Sub to enter into this Agreement,
the Company hereby represents and warrants to Nu Skin and Merger Sub, except as
set forth on the Company Disclosure Schedule, as follows:
SECTION 3.01. Organization, Authority and Qualification of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby,
subject in the case of the consummation of the Merger to the receipt of the
stockholder approvals set forth in Section 3.27. The Company is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of its business makes such
licensing or qualification necessary, except where the failure to be so licensed
or qualified and in good standing would not have a Material Adverse Effect. The
execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder and the consummation by the
31
Company of the transactions contemplated hereby have been duly authorized and
approved by all requisite action on the part of the Company, subject in the case
of the consummation of the Merger to the receipt of the stockholder approvals
set forth in Section 3.27. This Agreement has been duly executed and delivered
by the Company, and (assuming due authorization, execution and delivery by Nu
Skin and Merger Sub) this Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
SECTION 3.02. Capital Stock of the Company; Ownership of the Capital
Stock. (a) The authorized capital stock of the Company consists of 60,000,000
shares of Company Common Stock and 41,578,571 shares of Preferred Stock. There
is no other capital stock authorized for issuance. As of the date hereof, (i)
11,816,210 shares of Company Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) no shares of Series
A Convertible Preferred Stock are issued and outstanding, (iii) no shares of
Series B Redeemable Preferred Stock are issued and outstanding, (iv) 10,050,000
shares of Series B Convertible Preferred Stock are issued and outstanding, all
of which are validly issued, fully paid and nonassessable, (v) 3,428,571 shares
of Series C Convertible Preferred Stock are issued and outstanding, all of which
are validly issued, fully paid and nonassessable, (vi) 4,668,242 shares of
Series D Redeemable Preferred Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (vii) 4,668,242 shares of Series D
Convertible Preferred Stock are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (viii) 2,757,736 shares of Company Common
Stock are reserved for issuance upon exercise of Company Warrants which are
issued and outstanding as of the date hereof as more particularly described in
Section 3.02 of the Company Disclosure Schedule (ix) 7,929,962 shares of Company
Common Stock are reserved for issuance upon exercise of the Company Stock
Options which are issued and outstanding as of the date hereof, (x) 10,050,000
shares of Company Common Stock are reserved for issuance upon conversion of the
shares of Series B Convertible Preferred Stock which are issued and outstanding
as of the date hereof, (xi) 3,428,571 shares of Company Common Stock are
reserved for issuance upon conversion of the shares of Series C Convertible
Preferred Stock which are issued and outstanding as of the date hereof, and
(xii) 4,668,242 shares of Company Common Stock are reserved for issuance upon
conversion of the shares of Series D Convertible Preferred Stock which are
issued and outstanding as of the date hereof. None of the issued and outstanding
shares of Company Capital Stock was issued in violation of any preemptive
rights. Except as set forth in this Section 3.02(a), there are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments of any character to which the Company or any Subsidiary is a party
relating to the capital stock of the Company or any Subsidiary or obligating the
Company or any Subsidiary to issue or sell any shares of capital stock of, or
any other interest in, the Company. Except as set forth in Section 3.02(a) of
the Company Disclosure Schedule, there are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any shares
of
32
Company Common Stock or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any other person.
(b) Except as set forth in Section 3.02(b) of the Company Disclosure
Schedule, there are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect to which the Company or any Subsidiary is
a party or of which the Company or any Subsidiary has knowledge with respect to
the voting or transfer of any shares of capital stock of or any other interest
in the Company.
(c) The stock register of the Company accurately records (i) the name of
each registered owner of shares of capital stock of the Company and (ii) the
certificate number of each certificate evidencing shares of capital stock issued
by the Company, the number of shares evidenced by each such certificate, the
date of issuance thereof and, in the case of cancellation, the date of
cancellation.
(d) Section 3.02(d) of the Company Disclosure Schedule sets forth the
names of all participants in the Company Stock Option Plans holding Assumed
Options, the number of Assumed Options held by each such participant as of the
date hereof and the vesting schedule for unvested Assumed Options held by each
such participant.
SECTION 3.03. Subsidiaries. (a) Section 3.03(a) of the Company
Disclosure Schedule sets forth a true, complete and correct list of all
Subsidiaries, listing for each Subsidiary its name, type of entity, the
jurisdiction and date of its incorporation or organization, its authorized
capital stock, partnership capital or equivalent, the number and type of its
issued and outstanding shares of capital stock, partnership interests or similar
ownership interests and the current ownership of such shares, partnership
interests or similar ownership interests.
(b) Other than the Subsidiaries, the Company does not own, beneficially
or of record, any direct or indirect equity or other interest or any right
(contingent or otherwise) to acquire the same in any person. Other than the
Subsidiaries, the Company is not a member of, nor is any part of the Business
conducted through, any partnership. Except as set forth in Section 3.03(b) of
the Company Disclosure Schedule, the Company is not a participant in any joint
venture or similar arrangement.
(c) Each Subsidiary (i) is duly organized and validly existing under the
laws of its jurisdiction of organization, (ii) has all necessary power and
authority to own, operate or lease the properties and assets owned, operated or
leased by such Subsidiary and to carry on its business as it has been and is
currently conducted by such Subsidiary and (iii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which the
properties owned or leased by it or the operation of its business makes such
licensing or qualification
33
necessary, except where the failure to be so duly licensed or qualified and in
good standing would not have a Material Adverse Effect.
(d) All of the outstanding shares of capital stock of each Subsidiary
that is a corporation are validly issued, fully paid, nonassessable and, except
as set forth in Section 3.03(d) of the Company Disclosure Schedule, are owned by
the Company, whether directly or indirectly, free and clear of all Encumbrances
and, except with respect to wholly owned Subsidiaries, are free of preemptive
rights.
(e) There are no options, warrants, convertible securities, or other
rights, agreements, arrangements or commitments of any character to which the
Company or any Subsidiary is a party relating to the capital stock of any
Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or any other interest in, any Subsidiary.
(f) All actions taken by each Subsidiary have been duly authorized and
no Subsidiary has taken any action that in any respect conflicts with,
constitutes a default under or results in a violation of any provision of its
charter or bylaws (or similar organizational documents). True, complete and
correct copies of the charter and bylaws (or similar organizational documents),
in each case as in effect on the date hereof, of each Subsidiary have been
delivered by the Company to Nu Skin.
(g) Except as set forth in Section 3.03(g) of the Company Disclosure
Schedule, no Subsidiary is a member of, nor is any part of its business
conducted through, any partnership, nor is any Subsidiary a participant in any
joint venture or similar arrangement.
(h) Except as set forth in Section 3.03(h) of the Company Disclosure
Schedule, there are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect to which the Company or any Subsidiary is
a party or of which the Company or any Subsidiary has knowledge with respect to
the voting or transfer of any shares of capital stock of or any other interests
in any Subsidiary.
(i) The stock register of each Subsidiary accurately records (i) the
name of each registered owner of shares of capital stock of such Subsidiary and
(ii) the certificate number of each certificate evidencing shares of capital
stock issued by such Subsidiary, the number of shares evidenced each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
SECTION 3.04. Books and Records. The minute books of the Company and the
Subsidiaries contain true, complete and correct in all material respects records
of all meetings of, and completely and correctly in all material respects
reflect all other corporate actions
34
taken by, the stockholders, boards of directors and all committees of the boards
of directors of the Company and the Subsidiaries. True, complete and correct
copies of all such minute books and of the stock register (or equivalent
document) of the Company and each Subsidiary have been provided by the Company
to Nu Skin.
SECTION 3.05. No Conflict. (a) Assuming that all consents, approvals,
authorizations and other actions described in Section 3.06 of the Company
Disclosure Schedule and Section 3.27 have been obtained and all filings and
notifications listed in Section 3.06 of the Company Disclosure Schedule have
been made, the execution, delivery and performance of this Agreement by the
Company, except as may result from any facts or circumstances relating solely to
Nu Skin or Merger Sub, do not and will not (i) violate, conflict with or result
in the breach of any provision of the charter or bylaws (or similar
organizational documents) of the Company or any Subsidiary, (ii) conflict with
or violate any Law or Governmental Order applicable to the Company, any
Subsidiary or any of their respective assets, properties or businesses,
including, without limitation, the Business, except, in the case of this clause
(ii), for such conflicts or violations as would not, individually or in the
aggregate, have a Material Adverse Effect, or (iii) except as set forth in
Section 3.05 of the Company Disclosure Schedule, conflict with, result in any
breach of, constitute a default (or event which with the giving of notice or
lapse of time or both would become a default) under, require any consent under,
or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any
Encumbrance on any shares of capital stock of the Company or on any of the
assets or properties of the Company or any Subsidiary pursuant to, any note,
bond, mortgage, deed of trust, indenture, contract, agreement, lease, sublease,
license, sublicense, permit, franchise or other instrument or arrangement to
which the Company, or any Subsidiary is a party or by which any shares of
capital stock of the Company or any of such assets or properties is bound or
affected.
(b) The Company has no knowledge of any reason why all of the consents,
approvals and authorizations necessary for the consummation of the transactions
contemplated hereby will not be received.
SECTION 3.06. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Company do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to any Governmental Authority, except as described
in Section 3.06 of the Company Disclosure Schedule.
SECTION 3.07. Financial Information, Books and Records. (a) The Company
has delivered to Nu Skin true, complete and correct copies of its audited
consolidated financial statements as of and for each year ended March 31, 1996,
1997 and 1998 (the "Audited Financial Statements") and its unaudited
consolidated financial Statements for the four-month
35
period ended July 31, 1998 (the "Interim Financial Statements"). The Audited
Financial Statements and the Interim Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the Company,
(ii) present fairly the consolidated financial condition and results of
operations of the Company and the Subsidiaries as of the dates thereof or for
the periods covered thereby, (iii) have been prepared in accordance with U.S.
GAAP (except that the Interim Financial Statements do not contain any footnotes
required by U.S. GAAP that, if presented, would not differ materially from those
provided in the Audited Financial Statements) and (iv) include all adjustments
(consisting only of normal recurring accruals) that are necessary for a fair
presentation of the consolidated financial condition of the Company and the
Subsidiaries and the results of the operations of the Company and the
Subsidiaries as of the dates thereof or for the periods covered thereby.
(b) The books of account and other financial records of the Company (i)
reflect all items of income and expense and all assets and Liabilities required
to be reflected therein in accordance with U.S. GAAP, (ii) are in all material
respects true, complete and correct, and do not contain or reflect any material
inaccuracies or discrepancies and (iii) have been maintained in accordance with
good business and accounting practices.
SECTION 3.08. No Undisclosed Liabilities. Except as set forth in Section
3.08 of the Company Disclosure Schedule, there are no Liabilities of the Company
or any Subsidiary, other than Liabilities adequately reflected or reserved
against on the Audited Balance Sheet. To the extent required in accordance with
U.S. GAAP, reserves are reflected on the Audited Balance Sheet against all
Liabilities of the Company and the Subsidiaries in amounts that have been
established in accordance with U.S. GAAP.
SECTION 3.09. Receivables. Except to the extent, if any, reserved for on
the Audited Balance Sheet, all Receivables reflected on the Audited Balance
Sheet arose from, and the Receivables existing at the Effective Time will have
arisen from, the bona fide sale of inventory or services to persons not
affiliated with the Company or any Subsidiary and in the ordinary course of
business and, except as reserved against on the Audited Balance Sheet,
constitute or will constitute, as the case may be, only valid, undisputed claims
of the Company or a Subsidiary not subject to valid claims of set-off or other
defenses or counterclaims other than normal cash discounts accrued, and co-op
advertising expenses either accrued on the Reference Balance Sheet or set forth
in Section 3.09 of the Company Disclosure Schedule incurred, in the ordinary
course of business consistent with past practice. All Receivables reflected on
the Audited Balance Sheet or arising from the date thereof until the Effective
Date (subject to the reserve for bad debts, if any, reflected on the Audited
Balance Sheet) are or will be good and have been collected or are or will be
collectible, without resort to litigation or extraordinary collection activity,
within 90 calendar days of the Effective Date.
36
SECTION 3.10. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since March 31, 1998, except as set forth in
Section 3.10 of the Company Disclosure Schedule, the Business has been conducted
in the ordinary course and consistent with past practice. As amplification and
not limitation of the foregoing, except as set forth in Section 3.10 of the
Company Disclosure Schedule and except for changes made with the written
approval of Nu Skin in anticipation of the Merger, since March 31, 1998, neither
the Company nor any Subsidiary has:
(i) permitted or allowed any of its properties or assets, real,
personal or mixed (including, without limitation, leasehold interests
and intangible property) to be subjected to any Encumbrance, other than
Permitted Encumbrances and Encumbrances that will be released at or
prior to the Effective Time;
(ii) discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Audited Balance Sheet and current
liabilities incurred in the ordinary course of business consistent with
past practice since March 31, 1998;
(iii) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any person;
(iv) failed to pay or otherwise discharge when due any Liability
thereof;
(v) redeemed, purchased or otherwise acquired any of its capital
stock or declared, set aside, made or paid any dividends or
distributions (whether in cash, securities or other property) to the
holders of its capital stock or otherwise, other than dividends,
distributions and redemptions declared, made or paid by any Subsidiary
solely to the Company;
(vi) made any material changes in its customary methods of
operations or the customary methods of operations of the Business,
including, without limitation, practices and policies relating to
research and development, licensing, manufacturing, purchasing,
inventories, marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired
an interest of five percent or more in any person or acquired a
substantial portion of the assets or business of any person or any
division or line of business thereof, or otherwise acquired any material
assets;
(viii) made any capital expenditure or commitment for any capital
expenditure in excess of US$25,000 individually or US$100,000 in the
aggregate;
37
(ix) sold, transferred, leased, subleased, licensed, sublicensed
or otherwise disposed of any properties or assets, real, personal or
mixed (including, without limitation, leasehold interests and intangible
property), other than the sale of inventories in the ordinary course of
business consistent with past practice;
(x) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same,
of, or any other interest in, the Company or any Subsidiary;
(xi) entered into any agreement, arrangement or transaction with,
or made any commitments or promises to, any of its directors, officers,
employees, stockholders or affiliates, or with any relative,
beneficiary, spouse or affiliate of any such person;
(xii) (A) granted or announced any increase in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits
payable by it to any of its employees, including, without limitation,
any increase or change pursuant to any Plan or (B) established or
increased or promised to increase any benefits under any Plan, in either
case, except as required by Law;
(xiii) written down or written up (or failed to write down or
write up in accordance with U.S. GAAP) the value of any Receivables or
revalued any of its assets;
(xiv) amended, terminated, canceled or compromised any material
claims or waived any material rights;
(xv) made any change in any method of accounting or accounting
practice or policy, other than such changes required by U.S. GAAP or set
forth in Section 3.10 of the Company Disclosure Schedule;
(xvi) failed to maintain the Assets in accordance with good
business practice and in good operating condition and repair (ordinary
wear and tear excepted) for the requirements of the Business as
currently conducted;
(xvii) allowed any Permit or Environmental Permit that was issued
or relates to it or otherwise relates to any Asset or the Business to
lapse or terminate or failed to renew any such Permit or Environmental
Permit or any insurance policy that is scheduled to terminate or expire
within 45 calendar days of the Effective Date;
(xviii) incurred any Indebtedness, in excess of US$25,000
individually or US$100,000 in the aggregate;
38
(xix) amended, modified or consented to the termination of any
Material Contract or its rights thereunder;
(xx) amended or restated its charter or bylaws or the charter or
bylaws of any Subsidiary;
(xxi) terminated, discontinued, closed or disposed of any plant,
facility or other business operation, or laid off any employees (other
than layoffs of fewer than 10 employees in any six-month period in the
ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the Regulations or announced or planned any such action or program for
the future;
(xxii) made charitable contributions which aggregate more than
$25,000;
(xxiii)disclosed any secret or confidential Intellectual Property
(except by way of issuance of a patent or in the ordinary course of
business pursuant to customary non-disclosure agreements) or permitted
to lapse or go abandoned any Intellectual Property (or any registration
or grant thereof or any application relating thereto) to or under which
it has any material right, title, interest or license;
(xxiv) made any express or deemed election or settled or
compromised any liability, with respect to Taxes;
(xxv) suffered any damage, destruction or loss with respect to
any of the Assets which in the aggregate have a replacement cost of more
than US$25,000, whether or not any such damage, destruction or loss
shall have been covered by insurance;
(xxvi) suffered any Material Adverse Effect or suffered any
occurrence which could reasonably be expected to have a Material Adverse
Effect; or
(xxvii)agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.10 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 3.10, except as expressly contemplated by this
Agreement.
SECTION 3.11. Litigation. (a) Except as set forth in Section 3.11(a) of
the Company Disclosure Schedule (which, with respect to each Action listed
therein, sets forth (i) the parties, (ii) the nature of the proceeding, (iii)
the date and method commenced, and (iv) the
39
amount of damages or other relief sought and, if applicable, paid or granted),
there are no Actions by or against the Company or any Subsidiary (or, to the
knowledge of the Company, any affiliate thereof and relating to the Business,
the Company or any Subsidiary), or affecting any of the Assets or the Business,
pending before, or, to the knowledge of the Company, threatened to be brought by
or before, any Governmental Authority.
(b) None of the matters set forth in Section 3.11(a) of the Company
Disclosure Schedule has had or could reasonably be expected to have a Material
Adverse Effect or could reasonably be expected to affect the legality, validity
or enforceability of this Agreement or the consummation of the transactions
contemplated hereby.
(c) Except as set forth in Section 3.11(c) of the Company Disclosure
Schedule, none of the Company or any Subsidiary or any of their respective
assets or properties, including, without limitation, the Assets, is subject to
any Governmental Order, nor, to the knowledge of the Company, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority.
SECTION 3.12. Certain Interests. (a) Except as set forth in Section
3.12(a) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary nor, to the knowledge of the Company, any stockholder, officer or
director of the Company or any Subsidiary (excluding, in all cases, venture
capital funds or institutional investors and their affiliates), any relative or
spouse (or relative of such spouse) who resides with, or is a dependent of, any
such stockholder, officer or director, or any affiliate of any such person:
(i) has any direct or indirect financial interest in any
competitor, material supplier or material customer of the Company or any
Subsidiary, or any other person with which the Company or any Subsidiary
has, or has had, during the last three years, a material business
arrangement or relationship; provided, however, that the ownership of
equity securities representing no more than five percent of the
outstanding voting power of any competitor, supplier or customer, and
which are listed on any national securities exchange or traded actively
in the national over-the-counter market, shall not be deemed to be a
"financial interest" so long as the person owning such securities has no
other material connection or relationship with such competitor, supplier
or customer; or
(ii) owns, directly or indirectly, in whole or in part, or has
any other material interest in any material tangible or intangible
property belonging to or used, held for use or intended to be used by
the Company or any Subsidiary or forming a part of or used, held for use
or intended to be used in connection with, necessary for, or otherwise
material to the conduct of, the business and operations of the Business.
40
(b) Except as set forth in Section 3.12(b) of the Company Disclosure
Schedule, no officer, director or stockholder of the Company or any Subsidiary,
no relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer, director or stockholder, and no affiliate of any
such person has outstanding any Indebtedness to the Company or any Subsidiary.
(c) Except for the Bridge Notes and the 1997 Notes and except as set
forth in Section 3.12(c) of the Company Disclosure Schedule, neither the Company
nor any Subsidiary has any Liability or any other obligation of any nature
whatsoever to any officer, director or stockholder of the Company or any
Subsidiary, to any relative or spouse (or relative of such spouse) who resides
with, or is a dependent of, any such officer, director or stockholder, or to any
affiliate of any such person.
SECTION 3.13. Compliance with Laws. Except as disclosed in Section 3.13
of the Company Disclosure Schedule, the Company and its Subsidiaries have
received approval of all registrations, applications, licenses, requests for
exemptions, permits and other regulatory authorizations necessary to the conduct
of the business of the Company and its Subsidiaries and the marketing and
distribution of all of their products, as such business, marketing and
distribution are now conducted with the United States Food and Drug
Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer
Product Safety Commission and any other Governmental Authority. Except as set
forth in Section 3.13 of the Company Disclosure Schedule, the Company has
substantiation that all statements of nutritional support filed by the Company
pursuant to Section 6 of the Dietary Supplement Health and Education Act of 1994
("DSHEA") are truthful and non-misleading and comply in all respects with the
requirements of Section 6 of DSHEA.
Except as set forth in Section 3.13 of the Company Disclosure Schedule,
neither the Company nor any Subsidiary, or any of their officers, employees or
agents, have received any communication or notice of any kind, whether formal or
informal, from any Governmental Authority indicating or alleging that the
Company, or any of its Subsidiaries, have violated any Laws or Governmental
Orders, or that the Company's or the Subsidiary's products, marketing practices
or claims, or distribution methods, violate any Laws or Governmental Order.
Except as set forth in Section 3.13 of the Company Disclosure Schedule,
the Company and the Subsidiaries have each conducted and continue to conduct the
Business in accordance in all material respects with all Laws and Governmental
Orders applicable to the Company or any Subsidiary or any of the Assets or the
Business, and neither the Company nor any Subsidiary is in material violation of
any such Law or Governmental Order.
41
SECTION 3.14. Environmental Matters. (a) Except as set forth in Section
3.14(a)(i) of the Company Disclosure Schedule, (i) the Company and each
Subsidiary is and has been in material compliance with all applicable
Environmental Laws; (ii) the Company and each Subsidiary has obtained all
material Environmental Permits and is and has been in material compliance with
their requirements; (iii) to the knowledge of the Company there are no
underground or aboveground storage tanks or any surface impoundments, pits,
sumps or lagoons in which Hazardous Materials are being or have been treated,
stored or disposed on any of the Leased Real Property or, to the knowledge of
the Company, on any real property formerly owned, leased or occupied by the
Company or any Subsidiary at the time the Company or Subsidiary owned, leased or
occupied such property; (iv) to the knowledge of the Company there is no friable
asbestos or friable asbestos-containing material on any of the Leased Real
Property; (v) except as would not reasonably be expected to result in material
liability, neither the Company nor any Subsidiary has released, discharged or
disposed of Hazardous Materials on any of the Leased Real Property or on any
real property formerly owned, leased or occupied by the Company or the
Subsidiaries and, to the knowledge of the Company, none of such property is
contaminated with any Hazardous Materials; (vi) neither the Company nor any
Subsidiary is undertaking, or has completed, any investigation or assessment or
remedial or response action relating to any such release, discharge or disposal
of Hazardous Materials at any of the Leased Real Property or on any real
property formerly owned, leased or occupied by the Company or any Subsidiary,
either voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law; and (vii) there are no material past or,
to the knowledge of the Company, pending threats of Environmental Claims against
the Company or any Subsidiary or any of the Leased Real Property, and, to the
knowledge of the Company, there are no circumstances that can reasonably be
expected to form the basis of any such Environmental Claim, including, without
limitation with respect to any off-site disposal location presently or formerly
used by the Company or any Subsidiary or any of their predecessors.
(b) The Company has provided Nu Skin with copies of any environmental
reports, studies or analyses in its possession or under its control relating to
the Leased Real Property or the operations of the Company and the Subsidiaries.
SECTION 3.15. Material Contracts. (a) Section 3.15(a) of the Company
Disclosure Schedule contains a true, complete and correct list of each of the
following contracts, agreements and commitments (including, without limitation,
oral and informal arrangements to the extent the same are material to the
Business) to which the Company or any Subsidiary is a party (such contracts and
agreements, together with all contracts, agreements, leases and subleases
concerning the management or operation of any Leased Real Property (including,
without limitation, brokerage contracts) listed in Section 3.17(a) or 3.17(b) of
the Company Disclosure Schedule, and all agreements set forth in Section 3.16(a)
of the Company Disclosure Schedule, the "Material Contracts"):
42
(i) each contract, agreement, invoice, purchase order and other
arrangement for the purchase of inventory, spare parts, other materials
or personal property with any supplier or for the furnishing of services
to the Company, any Subsidiary or otherwise related to the Business
under the terms of which the Company or any Subsidiary could reasonably
be expected to pay or otherwise give consideration of more than
US$25,000 in the aggregate during the fiscal year ending March 31, 1999
or US$250,000 over the remaining term of such contract, and which cannot
be canceled by the Company or such Subsidiary without penalty or further
payment and without more than 30 days' notice;
(ii) each contract, agreement, invoice, sales order and other
arrangement for the sale of inventory or other personal property or for
the furnishing of services by the Company or any Subsidiary or otherwise
related to the Business under the terms of which the Company or any
Subsidiary could reasonably be expected to receive consideration of more
than US$25,000 in the aggregate during the fiscal year ending March 31,
1999 or US$250,000 over the remaining term of the contract, and which
cannot be canceled by the Company or such Subsidiary without penalty or
further payment and without more than 30 days' notice;
(iii) each broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contract, agreement or commitment;
(iv) each contract, agreement or commitment with any present or
former employee, independent contractor or consultant (excluding routine
engagement letters with individual attorneys or law firms);
(v) each contract, agreement or commitment relating to
Indebtedness of the Company or any Subsidiary;
(vi) each contract, agreement or commitment with any Governmental
Authority;
(vii) each contract, agreement or commitment limiting or
purporting to limit the ability of the Company, any Subsidiary, the
Business or any successor thereto to compete in any line of business or
with any person or in any geographic area or during any period of time;
(viii) each contract, agreement or commitment between or among
the Company or any Subsidiary and the Company or any affiliate of the
Company;
43
(ix) each contract, agreement or commitment providing for
benefits under any Plan;
(x) each contract, agreement or commitment under which the
Company has obtained or will obtain any Intellectual Property;
(xi) each contract, agreement or commitment that materially
limits or restricts, or could reasonably be expected to materially limit
and restrict, the ability of the Company or any Subsidiary or,
immediately after the Effective Time, Nu Skin or any subsidiary thereof,
to use, modify, display, reproduce, distribute, license, sell or provide
the Company's or any Subsidiaries' products or services;
(xii) each contract, agreement or commitment, whether or not made
in the ordinary course of business, which is material to the Company,
any Subsidiary or the conduct of the Business or the absence of which
could reasonably be expected to have a Material Adverse Effect; and
(xiii) each research and collaboration contract.
For purposes of this Section 3.15 and Sections 3.16, 3.17 and 3.18, the
term "lease" shall include any and all leases, subleases, sale/leaseback
agreements or similar arrangements.
(b) Except as set forth in Section 3.15(b) of the Company Disclosure
Schedule, each Material Contract (i) is legal, valid and binding on the Company
or Subsidiary party thereto and is in full force and effect, (ii) to the
knowledge of the Company is legal, valid and binding on the counterparty to such
Material Contract and (iii) upon consummation of the transactions contemplated
by this Agreement, except to the extent that any consents set forth in Sections
3.05 and 3.06 of the Company Disclosure Schedule are not obtained, shall
continue in full force and effect without penalty or other adverse consequence.
Neither the Company nor any Subsidiary is in material breach of, or material
default under, any Material Contract.
(c) Except as set forth in Section 3.15(c) of the Company Disclosure
Schedule, to the knowledge of the Company no other party to any Material
Contract is in breach thereof or default thereunder.
(d) Except as set forth in Section 3.15(d) of the Company Disclosure
Schedule, there is no contract, agreement or other arrangement granting any
person any preferential right to purchase any of the properties or assets of the
Company or any Subsidiary.
SECTION 3.16. Intellectual Property. (a) Section 3.16(a)(i) of the
Company Disclosure Schedule contains a true, complete and correct list of each
patent and patent
44
application, trademark registration and trademark application, service xxxx
registration and service xxxx application, copyright registration and copyright
application and other material Intellectual Property of the Owned Intellectual
Property and Section 3.16(a)(ii) of the Company Disclosure Schedule contains a
true, complete and correct list of all Licensed Intellectual Property (excluding
software that may be purchased over-the-counter for less than $25,000). Except
as otherwise described in Section 3.16(a)(i) of the Company Disclosure Schedule,
in each case where a patent or patent application, trademark registration or
trademark application, service xxxx registration or service xxxx application, or
copyright registration or copyright application listed in Section 3.16(a)(i) of
the Company Disclosure Schedule is held by assignment, the assignment has been
duly recorded with the Governmental Authority from which the patent or
registration issued or before which the application for registration is pending.
Except as set forth in Section 3.16(a)(iii) of the Company Disclosure Schedule,
and except with respect to any patent, trademark, copyright, and other
proprietary right licensed to the Company or any Subsidiary in the Licensed
Intellectual Property, the rights of the Company or any Subsidiary in or to the
Owned Intellectual Property do not conflict with, misappropriate, or infringe
upon the patent, trademark, copyright, or other proprietary right of any third
party within the United States of America, Japan, Hong Kong, Taiwan, the
People's Republic of China, South Korea or Europe.
(b) Except as set forth in Section 3.16(b)(i) of the Company Disclosure
Schedule, all of the Owned Intellectual Property is exclusively owned by the
Company free and clear of any Encumbrance, and the Company is entitled to use
all such Intellectual Property in the continued business or operations of the
Company and the Subsidiaries in a manner consistent with past practice. Neither
the Company nor any Subsidiary has granted any license, sublicense or other
right to any other person with respect to the Owned Intellectual Property or the
Licensed Intellectual Property. Except as set forth in Section 3.16(b)(ii) of
the Company Disclosure Schedule, and except with respect to any patent,
trademark, copyright, and other proprietary rights licensed to the Company or
any Subsidiary in the Licensed Intellectual Property, no Actions have been made
or asserted or are pending, nor, to the knowledge of the Company, has any such
Action been threatened, against the Company or any Subsidiary either i) based
upon or challenging or seeking to deny or restrict the use by the Company or any
Subsidiary of any of the Owned Intellectual Property or ii) alleging that the
use of the Owned Intellectual Property or that any services provided by,
processes used by, or products manufactured or sold by the Company or any
Subsidiary does or may conflict with, misappropriate or infringe upon the
patent, trademark, copyright, or other proprietary right of any third party.
Except as set forth in Section 3.16(b)(ii) of the Company Disclosure Schedule,
to the knowledge of the Company, no Person is engaging in any activity or using
any Intellectual Property that infringes upon the Owned Intellectual Property or
the Licensed Intellectual Property or upon the rights of the Company or any
Subsidiary therein. The consummation of the transactions contemplated by this
Agreement will not result in the termination or impairment of any of the Owned
Intellectual Property.
45
(c) With respect to all trademarks of the Licensed Intellectual Property
and Owned Intellectual Property, the registered user provisions (applicable as
of the date hereof) of all nations requiring such registrations by the Company
and its Subsidiaries have been complied with.
(d) The Company has, or has caused to be, delivered to Nu Skin and
Merger Sub true, complete and correct copies of all of the licenses and
sublicenses for Licensed Intellectual Property listed in Section 3.16(a)(ii) of
the Company Disclosure Schedule (including, without limitation, all amendments,
consents and evidence of commencement dates and expiration dates). With respect
to each such license and sublicense (together with all amendments, consents and
evidence of commencement dates and expiration dates pertaining thereto):
(i) such license or sublicense is legal, valid, binding and
enforceable and in full force and effect and represents the entire
agreement between the respective licensor and licensee with respect to
the subject matter of such license or sublicense;
(ii) except as otherwise set forth in Section 3.16(d)(ii) of the
Company Disclosure Schedule, such license or sublicense will not cease
to be legal, valid binding and enforceable and in full force and effect
on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor
will the consummation of the transactions contemplated by this Agreement
constitute a breach or default under such license or sublicense or
otherwise give the licensor or sublicensor a right to terminate such
license or sublicense;
(iii) except as set forth in Section 3.16(d)(iii) of the Company
Disclosure Schedule, with respect to each such license or sublicense: A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such license or sublicense and no
licensor or sublicensor has any right of termination or cancellation
under such license or sublicense except in accordance with its terms, B)
neither the Company nor any Subsidiary has received any notice of a
breach or default under such license or sublicense, which breach or
default has not been cured, and C) neither the Company nor any
Subsidiary has granted to any other person any rights, adverse or
otherwise, under such license or sublicense;
(iv) except as set forth in Section 3.16(d)(iv) of the Company
Disclosure Schedule, none of the Company, any Subsidiary nor, to the
knowledge of the Company, any other party to such license or sublicense
is in breach or default in any material respect, and, to the knowledge
of the Company, no event has occurred that, with notice or lapse of time
would constitute such a breach or default or permit termination,
modification or acceleration under such license or sublicense; and
46
(v) no Actions have been made or asserted in a writing received
by the Company or any Subsidiary or are pending, nor, to the knowledge
of the Company, has any such Action been threatened, against the Company
or any Subsidiary either based upon or challenging or seeking to deny or
restrict the use by the Company or any Subsidiary of any of the Licensed
Intellectual Property or alleging that any Licensed Intellectual
Property is being licensed, sublicensed or used in violation of any
patent, trademark, copyright, or other proprietary right of any third
party, and to the knowledge of the Company, no such Actions have been
made, asserted, are pending, or threatened against any third party
licensor or licensee of any Licensed Intellectual Property.
(e) With respect to pending applications of the Owned Intellectual
Property and the Licensed Intellectual Property that are material to the
business or operation of the Company or any Subsidiary, the Company is not aware
of any reason that could reasonably be expected to prevent any such application
from being granted. The Owned Intellectual Property has not been adjudged
invalid or unenforceable in whole or part, and to the knowledge of the Company,
is valid and enforceable
(f) The Intellectual Property listed in Sections 3.16(a)(i) and (ii) of
the Company Disclosure Schedule includes all of the identifiable Owned
Intellectual Property and Licensed Intellectual Property belonging to or used,
held for use or presently intended to be used by the Company or any Subsidiary,
and all Owned Intellectual Property and Licensed Intellectual Property material
to the continued operation of the business of the Company and all Subsidiaries
in a manner consistent with past practice. Except as set forth on Section
3.16(b)(ii) of the Company Disclosure Schedule, to the knowledge of the Company,
there are no other items of Intellectual Property material to the continued
operation of the business of the Company and all Subsidiaries in a manner
consistent with past practice.
(g) The Company and its Subsidiaries have taken reasonable steps in
accordance with normal industry practice to maintain the confidentiality of its
trade secrets and other confidential Intellectual Property, and to the knowledge
of the Company, there has been no misappropriation of any material trade secrets
or other material confidential Intellectual Property of the Company or any
Subsidiary by any person.
(h) Section 3.16(h) of the Company Disclosure Schedule identifies each
person to whom the Company or any of its Subsidiaries has sold or otherwise
transferred any interest or rights to any Intellectual Property (other than in
the ordinary course of business) or purchased rights in any Intellectual
Property, and the date, if applicable, of each such sale, transfer or purchase
(other than interests or rights arising pursuant to a written agreement in
connection with the transfer of materials or information solely for the purpose
of (a) potentially entering
47
into a business relationship with the Company, (b) providing goods to the
Company or (c) providing services to the Company).
(i) The Company and each Subsidiary have taken reasonable steps in
accordance with normal industry practice to preserve and maintain reasonably
complete notes and records relating to its know-how, inventions, processes,
procedures, drawings, specifications, designs, plans, written proposals,
technical data, works of authorship and other proprietary information.
SECTION 3.17. Real Property. (a) Neither the Company nor any Subsidiary
owns or has owned any real property.
(b) Section 3.17(b) of the Company Disclosure Schedule contains a true,
complete and correct list of (i) the street address of each parcel of Leased
Real Property, (ii) the identity of the lessor, lessee and current occupant (if
different from lessee) of each such parcel of Leased Real Property, (iii) the
term (referencing applicable renewal periods) and rental payment terms of the
leases (and any subleases) pertaining to each such parcel of Leased Real
Property and (iv) the current use of each such parcel of Leased Real Property.
The Company has made available to Nu Skin true, complete and correct copies of
each lease or sublease for each parcel of Leased Real Property listed in Section
3.17(b) of the Company Disclosure Schedule (including, without limitation, all
amendments, consents for alterations and documents recording variations and
evidence of commencement dates and expiration dates).
(c) Except as described in Section 3.17(c) of the Company Disclosure
Schedule, to the knowledge of the Company, there is no material violation of any
Law (including, without limitation, any building, planning or zoning Law)
relating to any of the Leased Real Property. The Company has made available to
Nu Skin all of the title insurance policies, title reports, surveys,
certificates of occupancy, environmental reports and audits, appraisals,
permits, other title documents and other documents in possession of the Company
and relating to or otherwise affecting the Leased Real Property, the operations
of the Company or any Subsidiary thereon or any other uses thereof. Either the
Company or a Subsidiary, as the case may be, is in peaceful and undisturbed
possession of each parcel of Leased Real Property and, to the knowledge of the
Company, there are no contractual or legal restrictions that preclude or
restrict the ability to use the premises for the purposes for which they are
currently being used. All existing water, sewer, steam, gas, electricity,
telephone and other utilities required for the construction, use, occupancy,
operation and maintenance of the Leased Real Property are adequate for the
conduct of the Business as it has been and currently is conducted. To the
knowledge of the Company, there are no material latent defects or material
adverse physical conditions affecting the Leased Real Property or any of the
facilities, buildings, structures, erections, improvements, fixtures, fixed
assets and personalty of a permanent nature annexed, affixed or attached to,
located on or forming part of the Leased Real Property. Except as set
48
forth in Section 3.17(c) of the Company Disclosure Schedule, neither the Company
nor any Subsidiary has leased or subleased any parcel or any portion of any
parcel of Leased Real Property to any other person, nor has the Company or any
Subsidiary assigned its interest under any lease or sublease listed in Section
3.17(b) of the Company Disclosure Schedule to any third party.
(d) With respect to each lease and sublease delivered to Nu Skin
pursuant to Section 3.17(b):
(i) such lease or sublease, together with all ancillary documents
delivered pursuant to Section 3.17(b), is legal, valid, binding and
enforceable on the Company and, to the Company's knowledge, on the other
party thereto and in full force and effect and represents the entire
agreement between the respective landlord and tenant with respect to
such property;
(ii) except as otherwise set forth in Section 3.17(d)(ii) of the
Company Disclosure Schedule, such lease or sublease will not cease to be
legal, valid, binding and enforceable and in full force and effect on
terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor
will the consummation of the transactions contemplated by this Agreement
constitute a breach or default under such lease or sublease or otherwise
give the landlord a right to terminate such lease or sublease;
(iii) except as set forth in Section 3.17(d)(iii) of the Company
Disclosure Schedule, with respect to each such lease or sublease (A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except in connection with the default of the Company or any
Subsidiary thereunder, (B) neither the Company nor any Subsidiary has
received any notice of a breach or default under such lease or sublease,
which breach or default has not been cured, and (C) neither the Company
nor any Subsidiary has granted to any other person any rights, adverse
or otherwise, under such lease or sublease; and
(iv) none of the Company, any Subsidiary nor, to the knowledge of
the Company, any other party to such lease or sublease, is in breach or
default in any material respect, and no event has occurred that, with
notice or lapse of time would constitute such a breach or default or
permit termination, modification or acceleration under such lease or
sublease.
49
(e) To the knowledge of the Company, there are no condemnation
proceedings or eminent domain proceedings of any kind pending or threatened
against the Leased Real Property.
(f) To the knowledge of the Company, all of the Leased Real Property is
occupied under a valid and current certificate of occupancy or similar permit,
the transactions contemplated by this Agreement will not require the issuance of
any new or amended certificate of occupancy and there are no facts that could
reasonably be expected to prevent the Leased Real Property from being occupied
by the Company or any Subsidiary, as the case may be, after the Effective Time
in the same manner as occupied by the Company or such Subsidiary immediately
prior to the Effective Time.
(g) To the knowledge of the Company, no improvements on the Leased Real
Property and none of the current uses and conditions thereof violate any
applicable deed restrictions or other applicable covenants, restrictions,
agreements, existing site plan approvals, zoning or subdivision regulations or
urban redevelopment plans as modified by any duly issued variances, and no
permits, licenses or certificates pertaining to the ownership or operation of
all improvements on the Leased Real Property, other than those which are
transferable with the Leased Real Property, are required by any Governmental
Authority having jurisdiction over the Leased Real Property.
(h) Except as otherwise set forth in Section 3.17(h) of the Company
Disclosure Schedule, there have been no improvements of a value in excess of
US$10,000 in the aggregate made to or construction on any Leased Real Property
within the applicable period for the filing of mechanics' liens.
(i) The rental set forth in each lease or sublease of the Leased Real
Property is the actual rental being paid, and there are no separate agreements
or understandings with respect to the same.
(j) Either the Company or a Subsidiary, as the case may be, has the full
right to exercise any renewal options contained in the leases and subleases
pertaining to the Leased Real Property on the terms and conditions contained
therein and upon due exercise would be entitled to enjoy the use of each Leased
Real Property for the full term of such renewal options.
SECTION 3.18. Tangible Personal Property. (a) Section 3.18(a) of the
Company Disclosure Schedule contains a true, complete and correct list of each
item or distinct group of Tangible Personal Property having a book value (as of
the date of the Interim Financial Statements) of in excess of $10,000 or that is
otherwise material to the business or operations of the Company or any
Subsidiary.
50
(b) The Company has, or has caused to be, delivered to Nu Skin and
Merger Sub true, complete and correct copies of all leases and subleases for the
Leased Tangible Personal Property listed in Section 3.18(a) of the Company
Disclosure Schedule and any and all material ancillary documents pertaining
thereto (including, without limitation, all amendments, consents and evidence of
commencement dates and expiration dates). With respect to each of such leases
and subleases:
(i) such lease or sublease, together with all ancillary documents
delivered pursuant to the first sentence of this Section 3.18(b), is
legal, valid, binding and enforceable and in full force and effect and
represents the entire agreement between the respective lessor and lessee
with respect to such property;
(ii) except as set forth in Section 3.18(b)(ii) of the Company
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding and enforceable and in full force and effect on terms
identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement
constitute a breach or default under such lease or sublease or otherwise
give the lessor a right to terminate such lease or sublease;
(iii) except as set forth in Section 3.18(b)(iii) of the Company
Disclosure Schedule, with respect to each such lease or sublease (A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except in connection with the default of the Company or any
Subsidiary thereunder, (B) neither the Company nor any Subsidiary has
received any notice of a breach or default under such lease or sublease,
which breach or default has not been cured, and (C) neither the Company
nor any Subsidiary has granted to any other person any rights, adverse
or otherwise, under such lease or sublease; and
(iv) none of the Company, any Subsidiary nor, to the knowledge of
the Company, any other party to such lease or sublease, is in breach or
default in any material respect, and no event has occurred that, with
notice or lapse of time would constitute such a breach or default or
permit termination, modification or acceleration under such lease or
sublease.
(c) Either the Company or a Subsidiary, as the case may be, has the full
right to exercise any renewal options contained in the leases and subleases
pertaining to the Leased Tangible Personal Property on the terms and conditions
contained therein and upon due exercise would be entitled to enjoy the use of
each item of Leased Tangible Personal Property for the full term of such renewal
options.
51
SECTION 3.19. Assets. (a) Except as set forth in Section 3.19(a) of the
Company Disclosure Schedule, either the Company or a Subsidiary, as the case may
be, owns, leases or has the legal right to use all of the properties and assets
forming a part of or used or held for use in connection with, necessary for, or
otherwise material to the conduct of, the business and operations of the
Business or otherwise belonging to or used by the Company or any Subsidiary and,
with respect to contract rights, is a party to and enjoys the right to the
benefits of all contracts, agreements and other arrangements belonging to or
used, held for use or intended to be used by the Company or any Subsidiary or
necessary for, or otherwise material to the conduct of, the business and
operations of the Business (all such properties, assets and rights being the
"Assets"). Either the Company or a Subsidiary, as the case may be, has good and
marketable title to, or, in the case of leased or subleased Assets, valid and
subsisting leasehold interests in, all of the Assets, free and clear of all
Encumbrances, except (i) as set forth in Section 3.16, 3.17(a), 3.17(b), 3.18 or
3.19(a) of the Company Disclosure Schedule and (ii) Permitted Encumbrances.
(b) The Assets are in good operating condition and repair and are
suitable for the purposes for which they are used and intended.
(c) Following the consummation of the transactions contemplated by this
Agreement, either the Surviving Corporation or one of its subsidiaries will
continue to own, with good and marketable title, or lease, under valid and
subsisting leases, or otherwise retain its respective interest in the Assets,
free and clear of any and all Encumbrances, other than Permitted Encumbrances,
and without incurring any penalty or other adverse consequence, including,
without limitation, any increase in rentals, royalties, or license or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement. Immediately after the Effective Time, either the
Surviving Corporation or one of its subsidiaries shall own and possess all
documents, books, records, agreements and financial data of any sort belonging
to or used by the Company or any Subsidiary or necessary for, or otherwise
material to the conduct of, the business and operations of the Business.
SECTION 3.20. Customers. Section 3.20 of the Company Disclosure Schedule
contains a true, complete and correct list of the names and addresses of each of
the 20 most significant customers (by revenue) of the Company and the
Subsidiaries for the 12-month period ended March 31, 1998 and the amount for
which each such customer was invoiced during such period. Except as set forth in
Section 3.20 of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has received any notice or has any reason to believe that any
significant customer of the Company or any Subsidiary has ceased, or will cease,
to use the products, equipment, goods or services of the Company or any
Subsidiary, or has substantially reduced, or will substantially reduce, the use
of such products, equipment, goods or services at any time.
52
SECTION 3.21. Employee Benefit Matters. (a) Section 3.21(a) of the
Company Disclosure Schedule contains a true, complete and correct list of each
Plan. Each Plan is in writing and the Company has furnished Nu Skin and Merger
Sub with a true, complete and correct copy of each Plan and a true, complete and
correct copy of each material document prepared in connection with each such
Plan including, without limitation, (i) a copy of each trust or other funding
arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared actuarial report and financial statement in connection with
each such Plan. Except as set forth in Section 3.21(a) of the Company Disclosure
Schedule, there are no other employee benefit plans, programs, arrangements or
agreements, whether formal or informal, whether in writing or not, to which the
Company or any Subsidiary is a party, with respect to which the Company or any
Subsidiary has any obligation or which are maintained, contributed to or
sponsored by the Company or any Subsidiary for the benefit of any current or
former employee, officer or director of the Company or any Subsidiary. Except as
set forth in Section 3.21(a) of the Company Disclosure Schedule, neither the
Company nor any Subsidiary has any express or implied commitment, whether
legally enforceable or not, (i) to create or incur liability with respect to or
cause to exist any other employee benefit plan, program or arrangement, (ii) to
enter into any contract or agreement to provide compensation or benefits to any
individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) None of the Plans is a Multiemployer Plan or a Multiple Employer
Plan. Except as set forth in Section 3.21(b)(i) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due under any Plan or (ii) materially
increase any benefits otherwise payable under any Plan. Neither the Company nor
any affiliate is a party to any agreement or arrangement that would result,
separately or in the aggregate, in the actual or deemed payment by the Company
or a Subsidiary of any "excess parachute payments" within the meaning of section
280G of the Code (without regard to section 280G(b)(4) of the Code); and no
acceleration of the vesting schedule for any property that is substantially
unvested within the meaning of the regulations under Section 83 of the Code will
occur in connection with the transactions contemplated by this Agreement.
Except as set forth in Section 3.21(b)(ii) of the Company Disclosure
Schedule, none of the Company, its Subsidiaries nor any other person which
together with the Company or any of its Subsidiaries would be treated as a
single employer under the Code maintains or has at any time maintained, or
contributes to or has at any time within the last six years contributed to or
been obligated to contribute to, any "pension plan" (within the meaning of
Section 3(3) of ERISA).
53
None of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Company or any Subsidiary except as required by Section 4980B(f)
of the Code. Except as set forth in Section 3.21(b)(iii) of the Company
Disclosure Schedule, each of the Plans is subject only to the laws of the United
States or a political subdivision thereof.
(c) Each Plan is now and always has been operated in accordance with the
requirements of all applicable Laws, including, without limitation, ERISA and
the Code, and all persons who participate in the operation of such Plans and all
Plan "fiduciaries" (within the meaning of Section 3(21) of ERISA) have always
acted in accordance with the provisions of all applicable Laws, including,
without limitation, ERISA and the Code. Each of the Company and each Subsidiary
has performed all obligations required to be performed by it under, is not in
any respect in default under or in violation of, and has no knowledge of any
default or violation by any party to, any Plan. No Action is pending or
threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of the Company, no fact or event exists
that could give rise to any such Action.
(d) Each Plan which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS that it is
so qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination or opinion letter from the IRS that it is so
exempt, and no fact or event has occurred since the date of such determination
letter from the IRS to adversely affect the qualified status of any such Plan or
the exempt status of any such trust. Each trust maintained or contributed to by
the Company or any Subsidiary which is intended to be qualified as a voluntary
employees' beneficiary association and which is intended to be exempt from
federal income taxation under Section 501(c)(9) of the Code has received a
favorable determination letter from the IRS that it is so qualified and so
exempt, and no fact or event has occurred since the date of such determination
by the IRS to adversely affect such qualified or exempt status.
(e) There has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor any Subsidiary has incurred any liability for any
penalty or excise tax arising under Section 4971, 4972, 4980, 4980B or 6652 of
the Code or any material liability under Section 502 of ERISA, and no fact or
event exists which could give rise to any such material liability.
(f) All contributions, premiums or payments required to be made with
respect to any Plan have been made on or before their due dates. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Governmental Authority and no
fact or event exists which could give rise to any such challenge or
disallowance.
54
(g) Each of the guaranteed investment contracts and other funding
contracts with any insurance company that are held by any of the Plans and any
annuity contracts purchased by (i) any of the Plans or (ii) any pension benefit
plans (as defined in Section 3(2) of ERISA) that provided benefits to any
current or former employees of the Company or any Subsidiary was issued by an
insurance company which received the highest rating from each of Duff & Xxxxxx
Credit Rating Co., Standard & Poor's Insurance Rating Services, A.M. Best
Company and Xxxxx'x Investors Service, as of the date such contract was issued,
the date hereof and the Effective Date.
(h) Except as set forth in Section 3.21(h) of the Company Disclosure
Schedule, each of the Company and each Subsidiary is in compliance with the
applicable requirements of the Americans with Disabilities Act.
(i) Except as set forth on Section 3.21(i) of the Company Disclosure
Schedule, each Plan provides that it may be amended or terminated at any time
and, except for benefits protected under ERISA or the Code, all benefits payable
to current, terminated or retired employees or any beneficiary, including,
without limitation, post-employment health care or insurance benefits, may be
amended or terminated by the Company or its Subsidiaries at any time without
liability.
(j) All material expenses and liabilities relating to all of the Plans
have been, and will on the Closing Date be, fully and properly accrued on the
Company's books and records and disclosed in accordance with U.S. GAAP and in
Plan financial statements.
SECTION 3.22. Labor Matters. Except as set forth in Section 3.22 of the
Company Disclosure Schedule, (a) neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or any Subsidiary and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company or any Subsidiary; (b) there are no controversies, strikes,
slowdowns or work stoppages pending or, to the knowledge of the Company,
threatened between the Company or any Subsidiary and any of their respective
employees, and neither the Company nor any Subsidiary has experienced any such
controversy, strike, slowdown or work stoppage within the past three years; (c)
neither the Company nor any Subsidiary has breached or otherwise failed to
comply with the provisions of any collective bargaining or union contract and
there are no grievances outstanding against the Company or any Subsidiary under
any such agreement or contract; (d) there are no unfair labor practice
complaints or any Actions pending against the Company or any Subsidiary before
the National Labor Relations Board or any other Governmental Authority or any
current union representation questions involving employees of the Company or any
Subsidiary; (e) each of the Company and each Subsidiary is currently in
compliance with all applicable Laws relating to the employment of labor,
including those
55
related to wages, hours, collective bargaining and the payment and withholding
of taxes and other sums as required by the appropriate Governmental Authority
and has withheld and paid to the appropriate Governmental Authority or is
holding for payment not yet due to such Governmental Authority all amounts
required to be withheld from employees of the Company or any Subsidiary and is
not liable for any arrears of wages, taxes, penalties or other sums for failure
to comply with any of the foregoing; (f) each of the Company and each Subsidiary
has paid in full to all of their respective employees or adequately accrued for
in accordance with U.S. GAAP all wages, salaries, commissions, bonuses, benefits
and other compensation due to or on behalf of such employees; (g) there is no
claim with respect to payment of wages, salary or overtime pay that has been
asserted or is now pending or threatened before any Governmental Authority with
respect to any persons currently or formerly employed by the Company or any
Subsidiary; (h) neither the Company nor any Subsidiary is a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Authority relating to employees or employment practices; (i) there is no charge
or proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect to
the Company or any Subsidiary; and (j) there is no charge of discrimination in
employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or threatened before the United States
Equal Employment Opportunity Commission, or any other Governmental Authority in
any jurisdiction in which the Company or any Subsidiary has employed or
currently employs any person.
SECTION 3.23. Key Employees. (a) Section 3.23 of the Company Disclosure
Schedule contains a true, complete and correct list of the name, the place of
employment, the current annual salary rates, bonuses, deferred or contingent
compensation, pension, accrued vacation, "golden parachute" and other like
benefits paid or payable (in cash or otherwise) in 1996, 1997 and 1998, the date
of employment and a description of the position and job function of each current
salaried employee, officer, director, consultant or agent of the Company or any
Subsidiary employed by the Company whose annual compensation exceeded (or, in
1998, is expected to exceed) US$75,000.
(b) The Company has not been advised that any member of its Scientific
Advisory Board or its Medical Advisory Board will resign from, or otherwise
cease to participate on, such boards following the Merger.
SECTION 3.24. Taxes. (a) (i) Except as disclosed in Section 3.24 of the
Company Disclosure Schedule, all returns and reports in respect of Taxes
required to be filed with respect to the Company and each Subsidiary have been
timely filed or requests for extensions have been timely filed and any such
extensions have been granted and have not expired; (ii) all Taxes required to be
shown on such returns and reports or otherwise due have been timely paid; (iii)
all such returns and reports (insofar as they relate to the activities or income
of the
56
Company or any Subsidiary) are true, correct and complete in all material
respects; (iv) no adjustment relating to such returns has been proposed in
writing by any Tax authority (insofar as it relates to the activities or income
of the Company or any Subsidiary or could result in liability of the Company or
any Subsidiary on the basis of joint and/or several liability); (v) there are no
actions or proceedings for the assessment or collection of Taxes pending or
threatened in writing against the Company or any Subsidiary; (vi) no consent
under section 341(f) of the Code has been filed with respect to the Company or
any Subsidiary; (vii) there are no tax liens on any assets of the Company or any
Subsidiary other than statutory liens for Taxes not yet due; (viii) from and
after March 31, 1993, neither the Company or any Subsidiary has been includible
in any consolidated return for Federal income tax purposes (other than the
Federal income tax consolidated return for which the Company is the common
parent) for any taxable period for which the statute of limitations has not
expired and (ix) none of the Company or Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(b) Except as disclosed with reasonable specificity in Section 3.24 of
the Company Disclosure Schedule, there are no outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax to
which the Company or any Subsidiary may be subject.
(c) On the Reference Balance Sheet, reserves and allowances have been
provided that are adequate to satisfy all Liabilities for Taxes relating to the
Company and Subsidiaries for periods through August 22, 1998.
(d) Neither the Company nor any Subsidiary has taken or agreed to take
any action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(e) Prior to December 13, 1996 Generation Health, Inc., a California
corporation, did not transfer any assets to the Company or any other Subsidiary.
SECTION 3.25. Insurance. Section 3.25 of the Company Disclosure Schedule
lists (i) each insurance policy (including policies providing property,
casualty, liability, workers' compensation, and bond and surety arrangements)
under which the Company or any Subsidiary has been an insured, a named insured
or otherwise the principal beneficiary of coverage at any time within the past
five years, and (ii) any claims made by the Company or any Subsidiary under any
such policies at any time within the past five years. With respect to each such
insurance policy (i) the policy is legal, valid, binding and enforceable in
accordance with its terms and, except for policies that have expired under their
terms in the ordinary course, is in full force and effect; (ii) neither the
Company nor any Subsidiary is in breach or
57
default (including any breach or default with respect to the payment of premiums
or the giving of notice), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination
or modification, under the policy; and (iii) no party to the policy has
repudiated, or given notice of an intent to repudiate, any provision thereof. At
the Effective Time, all insurance policies currently in effect will be
outstanding and in full force and effect, and all premiums due thereon will have
been paid in full.
SECTION 3.26. Full Disclosure. The Company is not aware of any facts
which pertain specifically to the Company, any Subsidiary or the Business (as
opposed to facts that pertain generally to companies in the Company's or any
Subsidiary's industry) which could reasonably be expected to have a Material
Adverse Effect on the Company, any Subsidiary or the Business or which are
likely in the future to have a Material Adverse Effect on the Company, any
Subsidiary or the Business and which have not been disclosed in this Agreement,
the Company Disclosure Schedule, the Audited Financial Statements, the Interim
Financial Statements or otherwise disclosed to Nu Skin or Merger Sub by the
Company in writing. No representation or warranty of the Company in this
Agreement, nor any written statement or certificate furnished or to be furnished
to Nu Skin or Merger Sub pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein, taken as a whole
and in light of the circumstances under which they were made, not misleading.
SECTION 3.27. Stockholder Approval Requirements. The only actions by the
stockholders of the Company required to approve this Agreement, the Merger and
the other transactions contemplated hereby are the consents of (a) the holders
of a majority of the outstanding shares of Company Common Stock, (b) the holders
of a majority of the outstanding shares of Series A Convertible Preferred Stock,
voting as a separate class, (c) the holders of a majority of the outstanding
shares of Series B Convertible Preferred Stock, voting as a separate class, (d)
the holders of a majority of the outstanding shares of Series C Convertible
Preferred Stock, voting as a separate class, and (e) the holders of a majority
of the outstanding shares of Series D Convertible Preferred Stock, voting as a
separate class.
SECTION 3.28. Products and Product Claims. (a) Section 3.28(a) of the
Company Disclosure Schedule identifies each of the products of the Company and
its Subsidiaries that are currently being marketed and distributed by the
Company together with the date such product was first marketed or distributed
and any royalties that are payable in connection with the sale and distribution
of such product. All labels or marketing materials prepared or distributed by
the Company with respect to each product of the Company have been provided to Nu
Skin. To the best of the Company's knowledge, all current claims made by the
Company or any Subsidiary on any label or marketing materials do not violate any
Law or Governmental Order (based upon current interpretations and current
regulations), and the
58
Company has sufficient substantiation documentation, including scientific
substantiation, to support the claims being made with respect to each product in
compliance with all Laws or Governmental Orders (based upon current
interpretations and current regulations) where the products are currently
marketed and distributed.
(b) Section 3.28(b) of the Company Disclosure Schedule identifies each
of the products currently under development by the Company, a brief description
of the product, the current status of the development of such product and any
royalty arrangements (including the amount of any royalties payable) with
respect to such product.
(c) Except as set forth in Section 3.28(c) of the Company Disclosure
Schedule, no Actions have been made or asserted against the Company or any
Subsidiary, and, to the knowledge of the Company and each Subsidiary, no
complaints (other than consumer complaints made in the ordinary course of
business that, individually or in the aggregate, could not have a Material
Adverse Effect) have been made or asserted against the Company or any Subsidiary
regarding the safety or efficacy of the Company's products (whether or not
currently being produced or sold) nor is the Company aware of any side effects
or adverse health consequences associated with such products that are not
disclosed on the label or labeling of such products. There is no pending or, to
the knowledge of the Company, threatened recall or investigation of any product
sold by the Company.
(d) Except as set forth in Section 3.28(d) of the Company Disclosure
Schedule, (i) the Company owns or has a valid license to use all rights to the
Intellectual Property currently known by the Company to be applicable to or
necessary for the manufacture or distribution of the products identified in
Section 3.28(b) of the Company Disclosure Schedule, and (ii) to the knowledge of
the Company, the Company will not be required to purchase or obtain a license
for any additional Intellectual Property in order to distribute such products.
(e) *****************************************************************
******************************************************************************
******************************************************************************
****************************************************************************.1
(f) The Company is able to manufacture a TeGreen product with a caffeine
level less than 2.5 milligrams per capsule without substantially increasing its
costs to produce TeGreen products.
--------
1 Nu Skin has applied for confidential treatment of this Section of this
Agreement. Accordingly, portions thereof have been omitted and filed separately.
59
(g) To the best knowledge of the Company, all current claims made by the
Company or any Subsidiary on any product label with respect to the level or
percentage of active ingredients contained in such product are accurate.
SECTION 3.29. Information Statement. The information relating to the
Company and its Subsidiaries contained in the Information Statement does not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall only apply to information relating
to the Company or any Stockholder furnished in writing by the Company to Nu Skin
expressly for use in the Information Statement.
SECTION 3.30. Brokers. Except for Bay City Capital LLC and Xxxxxxxxx &
Xxxxx LLC, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon any agreement, arrangement or
understanding, written or oral, made by or on behalf of the Company or any
Subsidiary. The Company shall be solely responsible for the fees and expenses of
Xxxxxxxxx & Xxxxx LLC.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NU SKIN AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Nu Skin
and Merger Sub hereby represent and warrant to the Company, except as set forth
on the Nu Skin Disclosure Schedule, as follows:
SECTION 4.01. Organization and Authority of Merger Sub. Each of Nu Skin
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement by
Nu Skin and Merger Sub, the performance by Nu Skin and Merger Sub of their
respective obligations hereunder and the consummation by Nu Skin and Merger Sub
of the transactions contemplated hereby have been duly authorized and approved
by all requisite action on the part of Nu Skin and Merger Sub, respectively.
This Agreement has been duly executed and delivered by Nu Skin and Merger Sub,
and (assuming due authorization, execution and delivery by the Company) this
Agreement constitutes a legal, valid and binding obligation of Nu Skin and
Merger Sub, enforceable against Nu Skin and Merger Sub, respectively, in
accordance with its terms.
60
SECTION 4.02. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 4.03 have been obtained
and all filings and notifications listed in Section 4.03 of the Nu Skin
Disclosure Schedule have been made, the execution, delivery and performance of
this Agreement by Nu Skin and Merger Sub, except as may result from any facts or
circumstances relating solely to the Company, do not and will not (i) violate,
conflict with or result in the breach of any provision of the charter or bylaws
(or similar organizational documents) of Nu Skin or Merger Sub, (ii) conflict
with or violate any Law or Governmental Order applicable to Nu Skin or Merger
Sub or (iii) conflict with, or result in any breach of, constitute a default (or
event which with the giving of notice or lapse of time or both would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Encumbrance on any of the assets or properties
of Nu Skin or Merger Sub pursuant to, any note, bond, mortgage, deed of trust,
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which Nu Skin or Merger Sub is a party or by
which any of such assets or properties is bound or affected which could
reasonably be expected to have a material adverse effect on the ability of Nu
Skin or Merger Sub to consummate the transactions contemplated by this
Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by Nu Skin and Merger Sub do not and
will not require any consent, approval, authorization or other order of, action
by, filing with, or notification to, any Governmental Authority, except as set
forth in Section 4.03 of the Nu Skin Disclosure Schedule.
SECTION 4.04. Litigation. Except as set forth in Section 4.04 of the Nu
Skin Disclosure Schedule, no claim, action, proceeding or investigation is
pending or, to the knowledge of Nu Skin and Merger Sub, threatened, which seeks
to delay or prevent the consummation of, or which could reasonably be expected
to materially adversely affect Nu Skin's or Merger Sub's ability to consummate,
the transactions contemplated by this Agreement.
SECTION 4.05. SEC Documents: Undisclosed Liabilities. Nu Skin has filed
all required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1997 (the "Nu Skin SEC Documents"). As of their respective
dates, the Nu Skin SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Nu Skin SEC Documents, and none of the Nu Skin SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except to
the extent that information contained in any Nu Skin SEC Document has been
revised or superseded by a
61
later Nu Skin SEC Document, none of the Nu Skin SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Nu Skin included in the Nu Skin SEC Documents comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with U.S. GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q under the Exchange Act) and fairly present
the consolidated financial position of Nu Skin and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows (or changes in financial position prior to the approval of Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 95)
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Nu Skin SEC
Documents, neither Nu Skin nor any of its subsidiaries has any Liabilities
required by U.S. GAAP to be set forth on a consolidated balance sheet of Nu Skin
and its consolidated subsidiaries or in the notes thereto and which could
reasonably be expected to have a material adverse effect on Nu Skin and its
subsidiaries taken as a whole.
SECTION 4.06. Absence of Certain Changes or Events. Except as disclosed
in any Nu Skin SEC Document or in Section 4.06 of the Nu Skin Disclosure
Schedule, since December 31, 1997, the business of Nu Skin and its subsidiaries
has been conducted in the ordinary course consistent with past practice and,
since such date, no event or events have occurred which, individually or in the
aggregate, have or would reasonably be expected to have, a material adverse
effect on Nu Skin and it subsidiaries, taken as a whole.
SECTION 4.07. Stockholder Approval Requirements. No action by the
stockholders of Nu Skin is required to approve this Agreement, the Merger or the
other transactions contemplated hereby.
SECTION 4.08. Brokers. Except for Xxxxx, Xxxxxxxx & Xxxx, Inc., no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon any agreement, arrangement or understanding, written or
oral, made by or on behalf of Nu Skin or Merger Sub. Nu Skin shall be solely
responsible for the payment of the fees and expenses of Xxxxx, Xxxxxxxx & Xxxx,
Inc.
SECTION 4.09. Capital Stock of Nu Skin and Merger Sub. All of the
outstanding shares of Nu Skin's and Merger Sub's respective capital stock are
duly authorized, validly issued, fully paid and nonassessable. The shares of
Class A Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued and delivered in accordance with this Agreement,
will be validly issued, fully paid and nonassessable and free
62
and clear of all Encumbrances (except as provided in this Agreement) and
preemptive rights. All corporate action required to be taken for the
authorization, issuance and delivery of such shares of Class A Common Stock has
been, or by the Closing will have been, taken.
SECTION 4.10. Opinion of Financial Advisor. The Board of Directors of Nu
Skin has received an opinion from its financial advisor, Xxxxx, Xxxxxxxx & Xxxx,
Inc., dated the date of this Agreement, to the effect that, as of such date, the
consideration to be paid by Nu Skin for the Company is fair to Nu Skin from a
financial point of view.
SECTION 4.11. Tax-Free Transaction. Neither Nu Skin nor any of its
subsidiaries has taken or agreed to take any action that would prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code. Nu Skin does not have any plan, intention or
arrangement to dispose of any assets of The Company or any of its subsidiaries
in a manner that would cause the Merger to violate the continuity of business
enterprise requirements set forth in Section 1.368-1 of the Treasury
Regulations.
SECTION 4.12. Information Statement. The information relating to Nu Skin
or its affiliates contained in the Information Statement does not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Effective Time. (a)
Except as set forth in Section 5.01(a) of the Company Disclosure Schedule,
between the date hereof and the Effective Time, the Company shall not, and shall
not permit any Subsidiary to, conduct the Business other than in the ordinary
course and consistent with the Company's and the Subsidiaries' past practice,
except as expressly permitted by this Agreement or as agreed to by Nu Skin in
writing. Without limiting the generality of the foregoing, except as described
in Section 5.01(a) of the Company Disclosure Schedule, the Company shall, and
shall cause each Subsidiary to, (i) continue its advertising and promotional
activities, and pricing and purchasing policies, in accordance with past
practice or existing business plans previously disclosed to Nu Skin; (ii) not
shorten or lengthen the customary payment cycles for any of its payables or
receivables; (iii) use commercially reasonable efforts, consistent with past
practices and policies or existing business plans approved in writing by Nu
Skin, to (A) preserve intact its business organization and the business
organization of the Business, (B) keep available to Nu Skin and Merger Sub the
services of its employees, (C) except with respect to the intended purchase of
"tail" director and officer insurance, continue in full force and effect without
material modification all existing policies or binders of insurance currently
maintained thereby for the Company, the Subsidiaries and/or the Business, and
(D) preserve
63
its current relationships with its customers, suppliers and other persons with
which it has significant business relationships; (iv) exercise, but only after
notice to Nu Skin and receipt of Nu Skin's prior written approval, any rights of
renewal pursuant to the terms of any of the leases or subleases listed in
Section 3.17(b) of the Company Disclosure Schedule which by their terms would
otherwise expire prior to the Effective Time; and (v) not engage in any
practice, take any action, fail to take any action or enter into any transaction
which would reasonably be expected to cause any representation or warranty of
the Company to be untrue, incomplete or incorrect in any material respect or
result in a breach in any material respect of any covenant made by the Company
in this Agreement.
(b) Except as set forth in Section 5.01(b) of the Company Disclosure
Schedule, prior to the Effective Time the Company shall not, and shall not
permit any Subsidiary to, without the prior written consent of Nu Skin, do any
of the things enumerated in clauses (i) through (xxiv) and clause (xxvii) of the
second sentence of Section 3.10 of this Agreement or take any action which could
reasonably be expected to result in a Material Adverse Effect.
(c) For the period from the date hereof through the time of the Closing,
the Company covenants and agrees to maintain the level, mix and quality of
inventories consistent with those generally maintained by the Company prior to
the date hereof or with existing business plans previously disclosed to Nu Skin.
SECTION 5.02. Access to Information. From the date hereof until the
earlier of the termination of this Agreement and the Effective Time, upon
reasonable notice, the Company shall, and shall cause each Subsidiary and each
officer, director, employee, agent, representative, accountant and counsel of
the Company and each Subsidiary to, (i) afford the officers, employees and
authorized agents, representatives, accountants and counsel of Nu Skin and
Merger Sub reasonable access, during normal business hours, to the offices,
properties, plants, other facilities, books and records of the Company and each
Subsidiary and to those officers, directors, employees, agents, representatives,
accountants and counsel of the Company and of each Subsidiary who have any
knowledge relating to the Company, any Subsidiary or the Business and (ii)
furnish to the officers, employees and authorized agents, representatives,
accountants and counsel of Nu Skin and Merger Sub such additional financial and
operating data and other information regarding the assets, properties and
goodwill of the Company, the Subsidiaries and the Business (or legible copies
thereof) as Nu Skin or Merger Sub may from time to time reasonably request.
SECTION 5.03. Confidentiality. (a) The Company shall, and shall cause
each officer, employee and consultant of the Company and each Subsidiary to,
enter into the Company's standard form agreement which protects proprietary
information and inventions, a copy of which has been previously provided to Nu
Skin.
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(b) Each of the parties hereto shall comply, and shall cause their
respective officers, employees and authorized agents, representatives,
accountants and counsel to comply, with all of their respective obligations
under the Nondisclosure Agreement between the Company and Nu Skin dated February
23, 1998.
SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents.
Each party shall use commercially reasonable efforts to obtain, or cause the
Subsidiaries to obtain, all authorizations, consents, orders and approvals of
all Governmental Authorities and officials that may be or become necessary for
its execution and delivery of, and the performance of its obligations pursuant
to, this Agreement and shall cooperate fully with the other parties hereto in
promptly seeking to obtain all such authorizations, consents, orders and
approvals.
(a) The Company shall, or shall cause the Subsidiaries to, give promptly
such notices to third parties and shall use, or shall cause the Subsidiaries to
use, commercially reasonable efforts to obtain such third party consents and
estoppel certificates as Nu Skin or Merger Sub may in its reasonable discretion
deem necessary or desirable in connection with the transactions contemplated by
this Agreement or as are identified on Schedule IV hereto.
(b) Nu Skin and Merger Sub shall cooperate and use all reasonable
efforts to assist the Company in giving such notices and obtaining such consents
and estoppel certificates; provided, however, that neither Nu Skin nor Merger
Sub shall have any obligation to give any guarantee or other consideration of
any nature in connection with any such notice, consent or estoppel certificate
or to consent to any change in the terms of any agreement or arrangement which
Merger Sub in its sole and absolute discretion may deem adverse to the interests
of Merger Sub, the Company, any Subsidiary or the Business.
SECTION 5.05. Notice of Developments. (a) Prior to the Effective Time,
the Company shall promptly notify Nu Skin in writing of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of the Company in this Agreement or which
could reasonably be expected to have the effect of making any representation or
warranty of the Company in this Agreement untrue, incomplete or incorrect in any
material respect and (ii) all other material developments affecting the Assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Company, any Subsidiary or the Business.
(b) Prior to the Effective Time, Nu Skin and Merger Sub shall (i)
promptly notify the Company in writing of all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement which could
reasonably be expected to result in any breach of a representation or warranty
or covenant of Nu Skin or Merger Sub in this Agreement or which could reasonably
be expected to have the effect of making any representation or warranty of
65
Nu Skin or Merger Sub in this Agreement untrue, incomplete or incorrect in any
material respect (ii) concurrently notify the Company of all other material
developments disclosed by Nu Skin to its public stockholders affecting the
assets, liabilities, business, results of operations or financial condition of
Nu Skin.
SECTION 5.06. Securities Filings. Except as otherwise provided in
Section 5.17, Nu Skin shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable blue sky or similar securities laws,
rules and regulations and shall use commercially reasonable efforts to obtain
required approvals and clearances with respect thereto. Except as otherwise
provided in Section 5.17, the Company shall use commercially reasonable efforts
to assist Nu Skin with the foregoing.
SECTION 5.07. Registration Rights Agreement, Escrow Agreement and
Cholestin Escrow Agreement. At or prior to the Effective Time, Nu Skin and the
Stockholders' Representative on behalf of the Stockholders holding at least 95%
of the Company Capital Stock shall execute the Registration Rights Agreement,
the Escrow Agreement and the Cholestin Escrow Agreement.
SECTION 5.08. Employee Benefits. Nu Skin shall provide, or cause the
Surviving Corporation, a Subsidiary or another affiliate of Nu Skin to provide,
those persons actively employed by the Company or any Subsidiary immediately
prior to the Effective Time with employee benefits in the aggregate no less
favorable than those provided to similarly situated employees of Nu Skin. It is
the express understanding and intention of the Company and Nu Skin that no
employee of the Company or Nu Skin or any of their subsidiaries or other person
shall be deemed to be a third party beneficiary, or have or acquire any right to
enforce the provisions of this Section 5.08, and that nothing in this Agreement
shall be deemed to constitute an employee benefit plan or arrangement of the
Company, Nu Skin or any of their respective subsidiaries.
SECTION 5.09. Tax-Free Reorganization. (a) The parties intend to adopt
this Agreement and Merger as a tax-free reorganization under Section 368(a) of
the Code. Except as may otherwise be required by law, the parties hereto shall
not take a position on any tax return inconsistent with this Section 5.09 and,
from and after the date of this Agreement, except as otherwise contemplated by
this Agreement, neither Nu Skin, Merger Sub nor the Company nor any Subsidiary
shall take any action or agree to take any action (whether prior to, on or
subsequent to the Effective Date) that could reasonably be expected to cause the
Merger not to be treated as a reorganization within the meaning of Section
368(a) of the Code.
(b) At Closing, the Company, Nu Skin and Merger Sub shall deliver
certificates to Pillsbury Madison & Sutro LLP and Shearman & Sterling, dated the
Effective Date and in the
66
forms reasonably requested by such counsel, for purposes of the tax opinions to
be delivered to the Company and Nu Skin at Closing pursuant to Section 6.02 and
Section 6.03, respectively.
SECTION 5.10. Company Stockholders Meeting. The Company shall, as soon
as practicable following the date of this Agreement, solicit written consents
from stockholders, or duly call, give notice of, convene and hold a meeting of
its stockholders, for the purpose of obtaining the vote of such stockholders
required to consummate the transactions contemplated hereby. The Company,
through its Board of Directors, shall recommend to its stockholders approval of
all matters required to be approved by stockholders with respect to this
Agreement and the Merger.
SECTION 5.11. Repayment of Liabilities; Redemption of Preferred Stock.
At the Effective Time, Nu Skin shall cause the Surviving Corporation to (i),
with respect to each 1997 Note and each Bridge Note, either (A) repay in full
the outstanding principal and accrued interest and prepayment premiums and
penalties due under such 1997 Note and Bridge Note or (B) obtain the consent of
the holders thereof regarding the assumption or guarantee of such indebtedness
by Nu Skin and (ii) pay the redemption price for the Company Redeemable
Preferred Stock and any accrued dividends payable upon the conversion of the
Company Preferred Stock. Any waiver of this Section 5.11 will require the
consent of the holders of the 1997 Notes and the Bridge Notes and the Company
Redeemable Preferred Stock.
SECTION 5.12. Directors' and Officers' Insurance. For a period of three
years after the Effective Time, Nu Skin shall cause the Surviving Corporation to
use its commercially reasonable efforts to maintain, if available, directors'
and officers' liability insurance covering acts and omissions occurring prior to
the Effective Time by those persons who are currently covered by the Company's
directors' and officers' liability insurance policy on terms at least comparable
(with no less than $5,000,000 coverage) to those contained in the Company's
existing directors' and officers' liability insurance policy; provided, however,
that in no event shall the Surviving Corporation be required to expend pursuant
to this Section 5.12, on an annual basis, more than the current annual premiums
paid by the Company for such insurance.
SECTION 5.13. New York Stock Exchange Listing. Nu Skin shall use
commercially reasonable efforts to cause the shares of Class A Common Stock
issued to Stockholders pursuant to this Agreement to be authorized for listing
on the New York Stock Exchange, subject to notice of issuance.
SECTION 5.14. Registration Statement on Form S-8. Promptly after the
Effective Time, Nu Skin shall file a registration statement on Form S-8 for the
shares of Class A Common Stock issuable with respect to the Assumed Options.
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SECTION 5.15. Stock Transfers. For the period from the date hereof
through the Effective Date, the Company shall not register the transfer of any
Company Securities on its stock register or otherwise without the consent of Nu
Skin.
SECTION 5.16. Cholestin.
(a) If (i) (A) total Sales (net of returns) by Nu Skin in the United
States of products containing Cholestin during the period beginning on
the Effective Date and ending on the first anniversary of the Effective
Date equals or exceeds U.S.$12,000,000 and (B) either (x) on the first
anniversary of the Effective Date, products containing Cholestin may be
legally sold by Nu Skin in the United States or (y) Nu Skin has
developed a new or substitute red yeast rice product that may be legally
sold by Nu Skin in the United States and that provides efficacy that is
substantially equivalent to that provided by Cholestin,
or
(ii) total worldwide Sales (net of returns) by Nu Skin of
products containing Cholestin during the period beginning on the
Effective Date and ending on the first anniversary of the Effective Date
equals or exceeds U.S.$75,000,000,
then the Total Cholestin Escrow Shares shall be distributed to the Stockholders
entitled thereto in accordance with the Cholestin Escrow Agreement as promptly
as practicable following the earlier of the first anniversary of the Effective
Date or the satisfaction of the conditions set forth above. If the condition set
forth in the first sentence of this Section 5.16(a) is not satisfied as of the
first anniversary of the Effective Date, then the Total Cholestin Escrow Shares
shall be distributed to Nu Skin in accordance with the Cholestin Escrow
Agreement as promptly as practicable following the first anniversary of the
Effective Date. Notwithstanding the foregoing, in the event of a
misrepresentation or breach of the warranty made by the Company in Section 3.28
(e), the Total Cholestin Escrow Shares shall be distributed to Nu Skin upon such
breach, irrespective of whether the conditions set forth in the first sentence
of this Section 5.16(a) shall have been satisfied.
(b) Nu Skin agrees that, during the period commencing on the Effective
Date and ending on the first anniversary of the Effective Date, it will use its
commercially reasonable best efforts, acting in good faith, (i) to market in the
United States products containing Cholestin and (ii) to develop a new or
substitute red yeast rice product that may be legally sold by Nu Skin in the
United States and that provides efficacy that is substantially equivalent to
that provided by Cholestin; provided, however, that, in the case of clause (ii)
of this paragraph (b), Nu Skin shall not be required to expend more than
$500,000 for such development.
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SECTION 5.17. Agreement to Pursue Registered Transaction in Certain
Events. (a) In the event that the issuance of shares of Class A Common Stock to
the Stockholders pursuant to the Merger cannot be effected in a transaction that
is exempt from registration under the Securities Act because more than
thirty-five of the Stockholders are not "accredited investors" under the
Securities Act, the Company and Nu Skin agree to use all reasonable efforts to
take, or cause to be taken, all appropriate action and do, or cause to be done,
all things necessary or advisable to register under the Securities Act the
issuance of the shares of Class A Common Stock to the Stockholders pursuant to
the Merger.
SECTION 5.18. SECTION RESERVED.
SECTION 5.19. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable Law,
and execute and deliver such documents, certificates, further assurances and
other papers, as may be required to carry out the provisions of this Agreement
and consummate and make effective the transactions contemplated by this
Agreement. In addition, each of the parties hereto agrees to use all reasonable
efforts to obtain the written consent of a majority of the Stockholders of each
class of stock to the Merger within 5 calendar days of the execution of this
Agreement.
SECTION 5.20. SECTION RESERVED
SECTION 5.21. Amendment of Certain Agreements. The Company agrees to use
commercially reasonable efforts to amend, within one year from the Effective
Time, the agreements listed on Schedule V in the manner described on such
schedule. The parties hereby acknowledge and agree that the Company's
obligations under this Section 5.21 shall not be fulfilled if the Company is
only able to obtain the amendments to the agreements as specified on Schedule V
by agreeing to a material increase in the Company's obligations and duties under
such agreements.
SECTION 5.22. Cooperation and Exchange of Information. Following the
Effective Date, the Stockholders' Representative and Nu Skin will provide each
other with such cooperation and information as either of them reasonably may
request of the other in filing any Tax returns, reports and forms ("Returns"),
amended Return or claim for refund, determining a liability for Taxes or a right
to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes or selling the Company or any of its Subsidiaries
or part of their assets subsequent to the sale described herein. Such
cooperation and information shall include providing copies of relevant Returns
or portions thereof, together with accompanying schedules, related work papers
and documents relating to rulings or other determinations by Tax authorities.
Members of management shall be available on a basis mutually convenient to both
parties to provide explanations of any documents or information provided
hereunder. Any
69
information obtained under this Section 5.22 shall be kept confidential except
as may be otherwise necessary in connection with the filing of Returns or claims
for refund or in conducting an audit or other proceeding. This Section 5.22
shall terminate and be of no further force and effect upon the termination of
the applicable statute of limitations for tax purposes to which such Returns or
other matters relate.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Mutual Conditions to the Obligations to Effect the Merger.
The obligations of Nu Skin, Merger Sub and the Company to effect the Merger
shall be subject to the satisfaction or waiver, at or prior to the Effective
Time, of each of the following conditions:
(a) Company Stockholder Approval. The Company shall have obtained all
approvals of holders of shares of capital stock necessary to approve this
Agreement and the Merger;
(b) No Proceeding or Litigation. No Governmental Authority shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and no Action shall have been commenced by a Material Stockholder or
the United States Department of Justice, the United States Federal Trade
Commission or the United States Securities and Exchange Commission before any
Governmental Authority against the Company, Nu Skin or Merger Sub, seeking to
restrain or materially and adversely alter the transactions contemplated by this
Agreement, and the issuance of the Class A Common Stock by Nu Skin pursuant to
the terms of this Agreement shall not violate in any material respect the
securities laws of the United States or any other jurisdiction; provided,
however, that the provisions of this Section 6.01(b) shall not be available to
any party whose failure to fulfill its obligations under this Agreement shall
have been the cause of, or shall have resulted in, directly or indirectly, any
such Action; and
(c) HSR Act and other Antitrust Filings. The waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired and all other waiting periods and approvals
required under applicable competition laws shall have been terminated, expired
or obtained, as the case may be.
SECTION 6.02. Conditions to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Effective Time, of each
of the following conditions:
70
(a) Legal Opinion. The Company shall have received from Shearman &
Sterling, counsel to Nu Skin, a legal opinion letter, addressed to the Company
and dated the Effective Date, as set forth in Exhibit F attached hereto.
(b) Performance of Obligations. Each of Nu Skin and Merger Sub shall
have performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or prior to the
Effective Time, and the Company shall have received from the president and the
chief financial officer of each of Nu Skin and Merger Sub a certificate to such
effect.
(c) Tax Opinion. The Company shall have received an opinion of Pillsbury
Madison and Sutro LLP, counsel to the Company, dated the Effective Date, to the
effect that for federal income tax purposes, (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; (ii) each of Nu
Skin, Merger Sub and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code; and (iii) no gain or loss will be
recognized by the holders of the Company Common Stock to the extent they receive
shares of Class A Common Stock in exchange for their Company Common Stock as a
result of the Merger. In rendering such opinion, such counsel shall receive and
be entitled to rely on the representations contained in the certificates of the
Company, Nu Skin and Merger Sub delivered pursuant to Section 5.09(b).
(d) No Material Adverse Change. No event or events shall have occurred
which, individually or in the aggregate, in the reasonable judgment of the
Company, reduce the value of Nu Skin by $125,000,000 or more (it being agreed
that fluctuations in the market value of the Class A Common Stock or changes
attributable to the economy generally, currency fluctuations or Nu Skin's
industry in particular shall not be considered in determining whether Nu Skin
has suffered such a reduction in its value).
(e) Bank Waiver. Nu Skin shall have received the waivers from the
lenders under the Credit Agreement needed to authorize Nu Skin's repayment of
the 1997 Notes and the Bridge Notes at the Effective Time.
SECTION 6.03. Conditions to Obligations of Nu Skin and Merger Sub. The
obligations of Nu Skin and Merger Sub to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Effective Time, of each of the following conditions:
(a) Performance of Obligations. The Company shall have performed or
complied in all material respects with all agreements and covenants required to
be performed by it under this Agreement at or prior to the Effective Time, and
each of Nu Skin and Merger Such shall
71
have received from the president and the chief financial officer of the Company
a certificate to such effect;
(b) Legal Opinion. Nu Skin and Merger Sub shall have received from
Pillsbury, Madison & Sutro LLP, counsel to the Company, a legal opinion letter,
addressed to Nu Skin and Merger Sub and dated the Effective Date, as set forth
in Exhibit G attached hereto.
(c) Secretary's Certificate. Nu Skin and Merger Sub shall have received
from the secretary of the Company a certificate, dated the Effective Date, in
form and substance reasonably satisfactory to Nu Skin and the Company;
(d) Stockholders' Letters. At least 95% of the Stockholders holding in
excess of 95% of the Company Capital Stock shall have executed and delivered to
Nu Skin a Stockholders' Letter;
(e) No Material Adverse Change. No event or events shall have occurred
which, individually or in the aggregate, in the reasonable judgment of Nu Skin,
reduce the value of the Company and its Subsidiaries by $5,000,000 or more (it
being agreed that an adverse ruling by the U.S. District Court for the District
Utah in the case Pharmanex, Inc. v. Xxxxx Xxxxxxx xx.xx. with respect to
Cholestin reduces the value of the Company and its Subsidiaries by in excess of
$5,000,000);
(f) Management Intact and Employment Agreements. Each of Xxxxx X.
Xxxxxxx, Xxxxxxx X. XxXxxxxxx, Xx., Xxxxx X. Xxxxxxxx and Xxxxxxx Xxxxx shall be
employees of the Company, and no event or events shall have occurred which have
affected, or could be expected to affect, the ability of such persons to
continue to serve as employees in their present capacities of the Surviving
Corporation following the Merger. In addition, each of Xxxxxxx X. XxXxxxxxx,
Xx., Xxxxx X. Xxxxxxxx; Xxxxxxx Xxxxx, Xxxxxx Xxxxx and Keyens Li shall have
signed the employment agreements with Nu Skin, attached hereto as Exhibit H,
containing one-year non-compete provisions;
(g) Tax Opinion. Nu Skin shall have received an opinion of Shearman &
Sterling, counsel to Nu Skin, dated the Effective Date, to the effect that for
federal income tax purposes, (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and (ii) each of Nu Skin,
Merger Sub and the Company will be a party to that reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, such counsel
shall receive and be entitled to rely on the representations contained in the
certificates of the Company, Nu Skin and Merger Sub delivered pursuant to
Section 5.09(b).
(h) Escrow Agreement. The Escrow Agreement shall have been executed by
the Stockholders' Representative and shall be in full force and effect;
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(i) Cholestin Escrow Agreement. The Cholestin Escrow Agreement shall
have been executed by the Stockholders' Representative and shall be in full
force and effect; and
(j) Company Convertible Preferred Stock. Prior to or simultaneously with
the Effective Time, the Company shall have converted or caused to have been
converted all of the issued and outstanding shares of Company Convertible
Preferred Stock (excluding the Series A Convertible Preferred Stock) and shall
have paid to the holders of such shares any and all accrued and unpaid
dividends, and the shares of Company Convertible Preferred Stock shall have been
canceled by the Company.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties. The
representations and warranties of the Company contained in this Agreement and
all statements made by the Company contained in the Acquisition Documents, in
each case as modified by the Company Disclosure Schedule, shall survive the
Effective Time until the first anniversary of the Effective Time. Neither the
period of survival nor the liability of the Company or the Stockholders with
respect to the Company's representations and warranties shall be reduced by any
investigation made at any time by or on behalf of Nu Skin. If Nu Skin shall give
the Stockholders' Representative written notice of a claim prior to the
expiration of the applicable representation or warranty, then the relevant
representation or warranty, as the case may be, shall survive as to such claim
until such claim has been finally resolved.
SECTION 7.02. Indemnification. (a) Each Stockholder shall indemnify each
Indemnified Party with respect to, and hold each of them harmless from and
against, any and all Liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including, without limitation,
attorneys' and consultants' fees and expenses but excluding all amounts
recovered by Nu Skin from any third-party insurer for such Liability, loss,
damage, claim, cost, expense, interest, award, judgment or penalty ) suffered,
incurred or sustained by any of them or to which any of them becomes subject
(including, without limitation, any Action brought or otherwise initiated by any
of them) (collectively, "Losses"), resulting from, arising out of or relating
to:
(i) any misrepresentation or breach of any warranty made by the
Company contained in this Agreement or the Company Disclosure Schedule
(other than a misrepresentation or breach of the warranties contained in
Section 3.28 (e), for which such breach Nu Skin shall seek recovery from
the Total Cholestin Escrow Shares pursuant to Section 5.16);
73
(ii) any breach of any covenant or agreement by the Company
contained in this Agreement or the Company Disclosure Schedule;
(iii) any and all Losses (other than those relating to the case
Pharmanex, Inc. v. Xxxxx Xxxxxxx xx.xx.) suffered or incurred by Nu Skin
or the Company by reason of or in connection with any claim or cause of
action of any third party or Governmental Authority to the extent
arising out of any action, inaction, event, condition, liability or
obligation of the Company or the Stockholders or violation of Law or
Governmental Order occurring or existing prior to the Effective Time;
(iv) any and all claims for a Downward Adjustment pursuant to
Section 2.08(c);
(v) any and all amounts in excess of three months of salary which
become payable to any employee of the Company pursuant to any severance
plan or agreement implemented or executed by the Company prior to the
Effective Time; or
(vi) failure of the amendment or the agreement listed on Schedule
VI to be valid and enforceable; or
(vii) failure to obtain the amendments to the agreements listed
on Schedule V as contemplated by Section 5.21.
To the extent that the Company's or any Stockholder's undertakings set
forth in this Section 7.02 may be unenforceable, each Stockholder shall
contribute the maximum amount that it is permitted to contribute under
applicable Law but in no event greater than its proportionate interest in the
Total Escrow Shares to the payment and satisfaction of all Losses incurred by
the Company, Nu Skin, Merger Sub or any other Indemnified Party. Any Losses
under this Section 7.02 shall be reduced by the amount of any refund of Taxes
paid by the Company or any Subsidiary received by the Surviving Corporation
prior to the first anniversary of the Effective Date relating to the period
prior to the Effective Date. No claim may be made against the Stockholders for
indemnification pursuant to Sections 7.02(a)(i), 7.02(a)(ii) (excluding Section
5.21) or 7.02(a)(iii) with respect to an individual claim of liability or
damage, unless, and then only to the extent that, the aggregate of all such
Losses of the Indemnified Parties exceeds $325,000. The indemnification
obligations under this Section 7.02 shall be effective only to the extent that
the amount paid in respect of Losses indemnified against under this Section 7.02
does not exceed the Total Escrow Shares; provided, however, that such
limitations shall not apply with respect to any claim based on representations
or warranties set forth in Article III which were fraudulently made by the
Company with the intent to deceive or for a breach of any representation or
warranty contained in Section 3.02(a), in which such cases the Stockholders
shall be jointly and severally liable
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for all Losses incurred by any Indemnified Party up to the aggregate
consideration (excluding any payments made with respect to the 1997 Notes and
the Bridge Notes which shall not be deemed to be consideration paid to the
Stockholders for purposes of this Section 7.02) received by each Stockholder
from the sale of their equity interest in the Company pursuant to this Agreement
(it being understood that no individual Stockholder shall be liable for any such
Losses in excess of the Nu Skin Class A Shares, True-Up Amounts and redemption
payments for the Company Redeemable Preferred Stock, or the proceeds therefrom,
received by such Stockholder from the sale of their interest in the Company
pursuant to the Merger); and provided, further, that the parties agree that (i)
the Losses associated with a failure to obtain the amendments contemplated by
Section 5.21 shall be fixed at 130,434 shares of Class A Common Stock and (ii)
immediately upon the fulfillment of the covenants set forth in Section 5.21 Nu
Skin and the Stockholders' Representative shall direct the Escrow Agent to
return to the Stockholders (in proportion to their contribution to the Escrow
Fund) 130,434 shares of Class A Common Stock. Nothing contained in this Section
7.02, however, shall be deemed to prevent an Indemnified Party from seeking to
recover, to the fullest extent permitted under the Law, any Losses arising from
representations or warranties set forth in Article III which were fraudulently
made with the intent to deceive from the individual or individuals who actually
perpetrated the fraud. Except as set forth in the two immediately preceding
sentences, the Escrow Fund shall be the sole remedy of the Indemnified Parties
against the Stockholders under this Agreement.
For purposes of the Stockholders' indemnification obligations pursuant
to this Article VII, the representations and warranties of the Company contained
in Article III shall be deemed to be made as of the date of this Agreement and
as of the Effective Time, other than such representations and warranties as are
made as of another date.
(b) An Indemnified Party shall give the Stockholders' Representative
written notice of any matter which an Indemnified Party has determined has given
or could give rise to a right of indemnification under this Agreement, within 30
calendar days of such determination, stating the amount of the Loss, if known,
and method of computation thereof, and containing a reference to the provisions
of this Agreement in respect of which such right of indemnification is claimed
or arises. The obligations and Liabilities of the Stockholders under this
Article VII with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article VII ("Third
Party Claims") shall be governed by and contingent upon the following additional
terms and conditions: if an Indemnified Party shall receive notice of any Third
Party Claim, the Indemnified Party shall give the Stockholders' Representative
notice of such Third Party Claim within 30 calendar days of the receipt by the
Indemnified Party of such notice; provided, however, that the failure to provide
such notice shall not release the Stockholders from any of their obligations
under this Article VII except to the extent the Stockholders are materially
prejudiced by such failure and shall not relieve the Stockholders from any other
obligation or Liability that they may have to
75
any Indemnified Party otherwise than under this Article VII. If the Stockholders
acknowledge in writing their obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Stockholders shall be entitled to assume and control the defense of such
Third Party Claim at their expense and through counsel of their choice if they
give notice of their intention to do so to the Indemnified Party within five
calendar days of the receipt of such notice from the Indemnified Party;
provided, however, that if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the judgment of the
Indemnified Party, in its sole and absolute discretion, for the same counsel to
represent both the Indemnified Party and the Stockholders, then the Indemnified
Party shall be entitled to retain its own counsel, in each jurisdiction for
which the Indemnified Party determines counsel is required, at the expense of
the Stockholders. In the event the Stockholders exercise the right to undertake
any such defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Stockholders in such defense and make
available to the Stockholders, at the Stockholders' expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Stockholders. Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against any such Third
Party Claim, the Stockholders shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at the Stockholders'
expense, all such witnesses, records, materials and information in the
Stockholders' possession or under the Stockholders' control relating thereto as
is reasonably required by the Indemnified Party. No such Third Party Claim may
be settled by the Stockholders or the Indemnified Party, as the case may be,
without the prior written consent of the Indemnified Party or the Stockholders'
Representative, as applicable, which consent shall not be unreasonably withheld.
SECTION 7.03. Satisfaction of Indemnification Claims. In the event that
(a) the Stockholders' Representative shall not have objected to the amount
claimed by an Indemnified Party for indemnification with respect to any Loss in
accordance with the procedures set forth in the Escrow Agreement or (b) the
Stockholders' Representative shall have delivered notice of its disagreement as
to the amount of any indemnification requested by an Indemnified Party and
either (i) the Stockholders' Representative and the Indemnified Party shall
have, subsequent to the giving of such notice, mutually agreed that the
Stockholders are obligated to indemnify the Indemnified Party for a specified
amount and shall have so jointly notified the Escrow Agent or (ii) a final
nonappealable judgment shall have been rendered by a court having jurisdiction
over the matters relating to such claim by the Indemnified Party for
indemnification from the Stockholders and the Escrow Agent shall have received,
in the case of clause (i) above, written instructions from the Stockholders'
Representative and the Indemnified Party or, in the case of clause (ii) above, a
copy of the final nonappealable judgment of the court, the Escrow Agent shall
deliver to the Indemnified Party from the Escrow Fund (as defined in the Escrow
Agreement) any amount determined to be owed to the
76
Indemnified Party under this Article VII in accordance with the Escrow
Agreement. Each of Nu Skin and each of the Stockholders acknowledge and agree
that with respect to the Escrow Shares held by the Escrow Agent pursuant to the
Escrow Agreement, for purposes of determining the number of Escrow Shares
necessary to satisfy a Loss, each such Escrow Share shall be valued at $23.00.
SECTION 7.04. Tax Characterization. (a) The Stockholders' Representative
and Nu Skin agree to treat all payments made by either to or for the benefit of
the other (including any payments to the Company or any Subsidiary) under this
Article VII and for any misrepresentations or breach of warranties or covenants
as adjustments to the purchase price or as capital contributions for Tax
purposes and that such treatment shall govern for purposes hereof except to the
extent that the laws of a particular jurisdiction provide otherwise.
ARTICLE VIII
TERMINATION AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated by written
notice of termination at any time prior to the Effective Time:
(a) by Nu Skin or Merger Sub if (i) an event or condition shall
occur and, as a result, the conditions set forth in Sections 6.03(e) or
6.03(f) would not then be satisfied; (ii) the Company shall not have
complied in all material respects with any covenant or agreement
contained in this Agreement to be complied with by it; or (iii) the
Company or any Subsidiary shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or
against the Company or any Subsidiary seeking to adjudicate any of them
a bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; provided, that, if any breach of a
covenant or agreement pursuant to subparagraph (ii) above is curable
within 10 Business Days by the Company through the exercise of its best
efforts, Nu Skin shall not have the right to terminate this Agreement if
such breach is cured within such 10 Business Day period;
(b) by the Company if (i) Nu Skin or Merger Sub shall not have
complied in all material respects with any covenant or agreement
contained in this Agreement to be complied with by it; (ii) Nu Skin
shall make a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against Nu Skin seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding
up or reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; (iii) Nu Skin shall
77
not have obtained within 14 calendar days from the date of this
Agreement the waivers from its lenders under the Credit Agreement needed
to authorize Nu Skin's repayment of the 1997 Notes and the Bridge Notes
at the Effective Time; or (iv) an event or condition shall occur and, as
a result, the condition set forth in Section 6.02(d) would not then be
satisfied; provided, that, if any breach of a covenant or agreement
pursuant to subparagraph (i) above is curable within 10 Business Days by
Nu Skin through the exercise of its best efforts, the Company shall not
have the right to terminate this Agreement if such breach is cured
within such 10 Business Day period;
(c) by Nu Skin, Merger Sub or the Company if the Effective Date
shall not have occurred by October 27, 1998; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.01(c) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement shall have been the cause of, or shall have
resulted in, the failure of the Effective Date to occur on or prior to
such date;
(d) by Nu Skin, Merger Sub or the Company if any Governmental
Authority shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or
(e) by the mutual written consent of Nu Skin, Merger Sub and the
Company.
SECTION 8.02. Effect of Termination. In the event of the termination and
abandonment of this Agreement as provided in Section 8.01, this Agreement shall
forthwith become void and there shall be no liability on the part of either
party hereto; provided, however, that Sections 5.03, 8.02, 8.03 and 10.01 shall
remain in full force and effect notwithstanding the termination and abandonment
of this Agreement; and provided further that nothing herein shall relieve either
party from liability for any breach of this Agreement.
SECTION 8.03. Waiver. Any party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant hereto
or (iii) waive compliance with any of the agreements or conditions of the other
party contained herein. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party to be bound thereby. Any
waiver of any term or condition shall not be construed as a waiver of any
subsequent breach or a subsequent waiver of the same term or condition, or a
waiver of any
78
other term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Effective Time shall have
occurred; provided, however, that up to $375,000 of the professional fees
payable by the Company to its advisors in connection with the Merger shall be
paid by Nu Skin; and provided, further, that up to $236,250 in cash and 33,207
shares of Class A Common Stock may be removed from the Escrow Fund to pay the
reasonable fees and expenses of the Stockholders' Representative in connection
with their representation of the Stockholders after the Effective Time (it being
understood that none of $236,250 in cash will be used to pay such fees and
expenses incurred on behalf of the holders of the Series A Convertible Preferred
Stock, which shall be satisfied only with shares of Class A Common Stock ). All
fees and costs of Pillsbury Madison & Sutro LLP, counsel to the Company, payable
in connection with or arising out of the Merger, this Agreement and the
transactions contemplated hereby shall be paid at the Effective Time by wire
transfer to an account designated by Pillsbury Madison & Sutro LLP.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, or by courier service, cable, telecopy, telegram, or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties hereto at their addresses set forth on the signature pages to this
Agreement (or at such other address for a party hereto as shall be specified in
a notice given in accordance with this Section 10.02).
SECTION 9.03. Public Announcements. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media with respect to the subject matter hereof
without the prior written consent of the other party, and the parties shall
cooperate as to the timing and contents of any such press release or public
announcement; provided, however, that such prior written consent (i) shall not
be unreasonably withheld and (ii) shall not be required for releases,
announcements or communications by Nu Skin to the extent obtaining such prior
written consent would prevent the timely and accurate dissemination of
information as required to comply with any applicable Law.
79
SECTION 9.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning, construction or interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement shall be determined by any court of competent jurisdiction to be
invalid, illegal or unenforceable in whole or in part by reason of any
applicable Law or public policy and such determination shall become final and
nonappealable, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 9.06. Entire Agreement. This Agreement (including the Company
Disclosure Schedule, the Nu Skin Disclosure Schedule and the other schedules and
exhibits hereto), and the other agreements referred to herein, constitute the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior agreements, covenants, representations,
warranties, undertakings and understandings, written or oral, among the parties
hereto with respect to the subject matter hereof and thereof.
SECTION 9.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the prior written consent of the other
party (which consent may be granted or withheld in the sole discretion of the
such party); provided, however, that Nu Skin and Merger Sub may assign this
Agreement to any wholly owned subsidiary of Nu Skin without the consent of the
Company.
SECTION 9.08. No Third Party Beneficiaries. Except for the provisions of
Section 5.11 relating to the payment of amounts due under the 1997 Notes and the
Bridge Notes and the payment of the redemption price for the Company Redeemable
Preferred Stock, Section 5.12 relating to directors' and officers' insurance and
Article VII relating to indemnified parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, whether express or implied, is intended to or shall
confer upon any other person any legal or equitable right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Amendment. This Agreement may not be amended, restated,
supplemented or otherwise modified except (i) by an instrument in writing signed
by, or on behalf of, the each party hereto or (ii) by a waiver in accordance
with Section 8.03.
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SECTION 9.10. Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES, THIS AGREEMENT AND THE
OBLIGATIONS OF EACH PARTY ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
SECTION 9.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 9.12. Specific Performance. Irreparable damage would occur, and
the parties' remedies at law would be inadequate, in the event any provision of
this Agreement was not performed in accordance with the terms hereof. Without
posting any bond, any party hereto shall be entitled to obtain, in addition to
any remedy available at law, equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available to it.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by the respective officers thereunto
duly authorized.
NU SKIN ENTERPRISES, INC.
By: /s/ M. Xxxxxx Xxxx
Name: M. Xxxxxx Xxxx
Title: Vice President and General Counsel
Xxx Xx Xxxx Xxxxx
00 Xxxx Xxxxxx Xxxxxx
Xxxxx, Xxxx 00000
Attention: M. Xxxxxx Xxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
SAGE ACQUISITION CORPORATION
By: /s/ M. Xxxxxx Xxxx
Name: M. Xxxxxx Xxxx
Title: President
c/o, Nu Skin Enterprises, Inc.
One Nu Skin Plaza
00 Xxxx Xxxxxx Xxxxxx
Xxxxx, Xxxx 00000
Attention: M. Xxxxxx Xxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
GENERATION HEALTH HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: Chief Financial Officer
c/o Pharmanex, Inc.
000 Xxxxxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
Attention: Xxxxxxx X. XxXxxxxxx, Xx.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
