EXHIBIT 10.13
EXECUTION COPY
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (together with all Exhibits and amendments
hereto and thereto, the "Agreement") made as of October 8, 1999 by and between
Omni Nutraceuticals, Inc. (formerly known as Xxxxx Naturals/4Health, Inc.), a
Utah corporation (the "Company") and Xxxx Xxxxx, an individual residing at 0000
Xxxxxxx Xxxxx, Xxxxx xxx Xxx, Xxxxxxxxxx 00000 ("Xxxxx").
W I T N E S S E T H:
WHEREAS, pursuant to an Employment Agreement dated June 3, 1998 by and
between the Company and Xxxxx (the "Employment Agreement"), Xxxxx was employed
as President and Chief Executive Officer of the Company; and
WHEREAS, by mutual agreement effective the close of business on April 20,
1999, Xxxxx resigned as Chief Executive Officer without Good Reason (as defined
in the Employment Agreement), thereby terminating his Employment Agreement; and
WHEREAS, effective April 21, 1999, Xxxxx was elected Chief Executive
Officer of XxxxxxXxxx.xxx, a California corporation wholly owned by the Company
("HealthZone"); and
WHEREAS, the Company and Xxxxx have each asserted claims against each
other in connection with Xxxxx'x resignation as Chief Executive Officer of the
Company; and
WHEREAS, in order to avoid costly and time consuming litigation the
Company and Xxxxx are prepared to settle their respective claims on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged and confirmed, the parties hereto hereby agree as follows:
1. SEVERANCE BENEFITS. The Company hereby agrees to pay as severance
benefits to Xxxxx solely the amount of Xxxxx'x salary as Chief Executive Officer
of HealthZone, the cost of his automobile (until it is sold or the lease thereof
is terminated which Xxxxx agrees to use his best efforts to effect as soon as
possible, but by no later than 45 days after the date hereof) and to continue to
provide health insurance coverage for Xxxxx and his immediate family under the
Company's health insurance plan, retroactive to October 1, 1999, all such
benefits to be paid at the same rate and on the same basis as were provided to
him under the Employment Agreement, until the earlier of (A) April 16, 2000 or
(B) the completion of an initial public offering by HealthZone which results in
offering proceeds of at least $1,700,000 or (C) a merger, consolidation, or
reorganization of HealthZone which results in an increase in HealthZone's net
working capital (determined in accordance with generally accepted accounting
principles
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consistently applied with prior periods ("GAAP")) by at least $1,700,000 or
(D) the sale of HealthZone or all or substantially all of its assets in one
or more transactions for consideration valued in excess of $1,700,000 or (E)
the receipt by HealthZone of at least $1,700,000 in additional capital in the
form of cash, cash equivalents or liquid current assets or (F) the bankruptcy
of HealthZone. Any such capital infusion may be in form of cash, securities,
or other form of equity infusion in accordance with the provisions of Section
3(c) below.
2. ASSUMPTION OF OBLIGATIONS AND REIMBURSEMENT OF CERTAIN COSTS AND
EXPENSES. Xxxxx hereby agrees to assume the following obligations of the
Company and reimburse the following expenses incurred or which may be incurred
by the Company upon the following terms and conditions:
2.1 HVE/HEALTHZONE. (a) Xxxxx hereby indemnifies and agrees to hold the
Company harmless, without limitation in scope or amount, from any and all
uninsured Losses (as defined in Section 6(a) hereof) incurred by the
Company attributable to any claims asserted by any HVE Stockholders (as
hereinafter defined) and any of their respective heirs, executors, legal
representatives and assigns arising out of, attributable to, or in
connection with the acquisition of Health & Vitamin Express, Inc.
("HVE"), pursuant to the provisions of that certain Agreement and Plan of
Merger dated February 15, 1999 ("Merger Agreement") by and among the
Company, HVE, and Xxxxx Xxxxxx ("Xxxxxx"), Xxxxxxx X. Xxxxx and Xxxxxx
Xxxxxx (collectively, the "HVE Stockholders") and the performance by the
Company of its obligations thereunder, including, without limitation,
pursuant to the provisions of Sections 2.02, 6.02, 6.03(d), 8.05, 9.03
and 10.11 of the Merger Agreement, and agrees to assume the defense of
any claims related thereto in accordance with the provisions of Section
6(c) hereof; provided, however, that at the written direction of Xxxxx
the Company agrees to issue up to 363,636 additional shares of the
Company's common stock, par value $.01 per share ("Common Stock"), in
connection with the settlement in full of the claims by the HVE
Stockholders.
(b) Xxxxx hereby assumes all of the Company's obligations to issue
additional shares of Common Stock under the Employment Agreement with
Xxxxxx from his own and his wife's, Xxxxxxxxx Xxxxx ("Xxx. Xxxxx"),
shares of Common Stock to enable the Company to fulfill its obligation to
Xxxxxx under his Employment Agreement.
2.2 OTHER COSTS AND EXPENSES AND LIABILITIES. Xxxxx hereby agrees to
reimburse the Company for all amounts distributed to him since October
13, 1997 (other than for amounts distributed to Xxxxx in respect of his
regular salary, Company expense reimbursement in accordance with Company
policy, or other regular business expenses or benefits that may have been
paid to Xxxxx in accordance with regular Company policy since such date),
in excess of his income tax liability attributable to all periods prior
to the merger of Xxxxx Naturals with and into 4Health, Inc., as
determined by Xxxxxx Xxxxxxxx LLP, whose determination shall be final and
binding on the parties hereto.
3. SPIN-OFF OF HEALTHZONE. (a) Subject to compliance with all applicable
laws, as soon as practicable upon receipt of an acceptable tax opinion
from a nationally recognized accounting firm designated by Xxxxx, the
Company and Xxxxx (in his capacity as a principal shareholder and
director of the Company) will use their best efforts to distribute to the
Company's stockholders on a pro-rata basis as a tax-free stock dividend
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto, 100% of the issued and
outstanding shares of voting capital
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stock of HealthZone registered in the Company's name (the "Spin-Off");
provided that no suit, action, governmental investigation, or other legal
or administrative proceeding is pending or threatened which seeks to
enjoin, delay or otherwise impair the Company's ability to effect the
Spin-Off as contemplated hereby.
(b) Any tax liability arising from a disallowance by the Internal Revenue
Service of the Spin-Off as a tax-free distribution under Section 355 of
the Code or any successor provision thereto shall be allocated to and
borne by HealthZone which shall indemnify and hold the Company harmless
from any such tax liability pursuant to the terms and conditions of a Tax
Allocation and Indemnification Agreement in substantially the form of
Exhibit A attached hereto and made a part hereof to be executed and
delivered by HealthZone, Xxxxx and the Company contemporaneously
herewith.
(c) Commencing forty-five (45) days after the date hereof (the "Funding
Termination Date"), Xxxxx agrees to assume and fund all net operating costs and
expenses (determined in accordance with GAAP) attributable to all HealthZone
operations (other than the payment of his salary and the costs of immediate
family health insurance coverage to be provided by the Company). Until the
expiration of such forty five (45) day period, however, the Company shall
continue to advance funds to HealthZone to maintain its operations at current
levels (but not in excess of $75,000 in the aggregate); provided, however,
thereafter, the Company shall be under no further obligation to advance any
funds to maintain HealthZone operations nor shall it be liable directly or
indirectly for any HealthZone obligations. Any funds advanced by the Company
during such initial forty-five day period shall be repaid within thirty days of
the closing of said forty-five day period. Each such advance by the Company
shall be evidenced by a promissory note issued by HealthZone (a "Note") in the
principal amount of the advance, maturing thirty days after the close of the
said forty-five day period and bearing interest at the same rate of interest
being charged the Company on the date of each such advance for outstanding loans
under its Secured Credit Agreement with First Source Financial, Inc., (or other
principal lender to the Company) as amended from time to time. The principal
amount of each Note may be prepaid at any time and from time to time in whole or
in part, together with all accrued interest to the date of prepayment, in a
minimum amount of $5,000 or multiples thereof without premium or penalty. Each
Note shall be endorsed and its payment unconditionally guaranteed by Xxxxx. Any
capital provided to HealthZone by Xxxxx directly or otherwise pursuant to this
Section 3(c) shall be provided by way of the purchase of shares of HealthZone
common stock on a basis that values HealthZone at not less than $3,500,000
dollars (the "HZ Base Value") for any initial purchase of shares and thereafter
at the greater of HZ Base Value (as adjusted as provided below) or the
HealthZone Market Value (as defined in Section 3(d) below); provided, however,
until the HZ Base Value is required to be adjusted as hereinafter provided, all
such purchases shall be made at the HZ Base Value. Prior to any sale of the
HealthZone common stock, HealthZone shall obtain a determination of the HZ Base
Value and the HealthZone Market Value. Accordingly, Xxxxx (or any such other
HealthZone common stock purchaser) shall acquire no more of the percentage of
the total issued and outstanding shares of HealthZone common stock as the ratio
(expressed as a percentage) of the net proceeds from such purchase of HealthZone
common stock received by HealthZone (net of all offering and issuance costs of
such shares of HealthZone common stock) bears to the HZ Base Value (as
adjusted) or the HealthZone Market Value (as the case may be).
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The HZ Base Value shall remain at $3,500,000 and shall not be adjusted until
HealthZone has received an aggregate of $280,000 in net proceeds from the
sale of its common stock. Thereafter, upon the next sale of its common stock
the HZ Base Value shall be increased by $280,000 and by the amount of the net
proceeds of such sale and each time thereafter that HealthZone issues common
stock as contemplated hereby the net proceeds of such sale shall be added to
the HZ Base Value. The capital to be provided to HealthZone pursuant to the
provisions of this Agreement may be provided in the form of stock, cash or
other property; provided, however, that if such capital shall be in any form
other than cash it shall have a readily ascertainable value, it shall be
saleable without restriction (other than for any restrictions under any
applicable securities laws) and shall be valued at its then fair market value
as determined by an independent appraisal rendered by a third party appraiser
mutually agreeable to Xxxxx and the Company; provided, further, however, that
if such stok consists of shares of Common Stock then it shall be valued at
the Current Market Price (as hereinafter defined in Section 6(d)) of the
Common Stock on the effective date of any such transfer to HealthZone.
Immediately after the date hereof and until the earlier of (i) the Spin-Off,
or (ii) such date on which the Company ceases to own a majority of the voting
capital stock of HealthZone (the "Control Termination Date"), the Board of
Directors shall be comprised of two directors, one being the Chairman of the
Board of Directors of the Company and the other being Xxxxx, and Xxxxx agrees
that without the prior unanimous written consent of the Board of Directors of
HealthZone he shall not engage in any of the activities enumerated on Exhibit
B attached hereto during period from the date hereof until the Control
Termination Date and he shall be dismissed as Chief Executive Officer of
HealthZone in the event he breaches any such restrictions in compliance with
the provisions of Exhibit B attached hereto. The Chairman of the Board of the
Company shall tender his resignation from the HealthZone Board of Directors
effective upon the Control Termination Date. After the Control Termination
Date and for a period of six years thereafter, Xxxxx agrees not to cause
HealthZone to amend or otherwise limit the officer and director
indemnification and exculpation provisions of the HealthZone Charter and
Bylaws and agrees to secure and to continue in effect all policies of
director and officer liability insurance, the provisions of which shall
extend to cover the Chairman of the Board of the Company in his capacity as a
director of HealthZone, in order that the Chairman of the Board of the
Company shall not forfeit his rights to any such indemnification, exculpation
or insurance coverage.
(d) Concurrently with the execution and delivery of this Agreement, Xxxxx
agrees to execute and deliver and to cause his wife to execute and
deliver an Escrow Agreement in the form of Exhibit C attached hereto (the
"Escrow Agreement") and concurrently with the filing by the Company with
the Securities and Exchange Commission of a registration statement on
Form 10 (or other applicable Form) relating to the Spin-Off, Xxxxx shall
deposit with the escrow agent named therein (the "Escrow Agent") one or
more certificates registered in his or his and Xxx. Xxxxx'x joint name,
free and clear of all liens, charges and encumbrances, together with
appropriate stock powers executed in blank with medallion signature
guarantees affixed thereto, representing one million twenty two thousand
two hundred twenty two (1,022,222) shares of Common Stock, each valued
for purposes of this Agreement at $2.25 (the "Spin-Off Guarantee
Shares"). If the HealthZone Market Value is less than two million three
hundred thousand dollars ($2,300,000) on the earlier to occur of (i) the
first anniversary of the Spin-Off or (ii) the
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second anniversary of the date hereof, then the Escrow Agent shall
deliver to the Company that number of Spin-Off Guarantee shares as
shall equal the difference in value between $2,300,000 and the
HealthZone Market Value determined on such dates. Any Spin-Off
Guarantee Shares so delivered by the Escrow Agent to the Company
shall be valued at the greater of (i) their then Current Market
Price or (ii) $2.25 per share.
(i) If at any time after the Spin-Off but prior to the
exercise of the Company's "put" referred to in
Section 3(d)(ii), the HealthZone Market Value shall
be equal to or more than $2,300,000, then the
Spin-Off Guarantee Shares shall be immediately
returned to Xxxxx; provided that the shares of
HealthZone Common Stock registered in the name of
the Company or its nominee or its stockholders on
the record date for the Spin-Off ("Company
Stockholders") shall be registered under the
Securities Act of 1933, as amended, (or exempt
from such registration) and shall be freely
transferable without restriction of any kind by
each Company Stockholder (other than Xxxxx or any
other affiliate of HealthZone) immediately prior
to any such release of such Shares to Xxxxx.
(ii) If, for any reason, neither the Spin-Off nor the
sale of the shares of HealthZone registered in
the Company's name for at least two million three
hundred thousand dollars ($2,300,000) is effected
on or prior to June 1, 2000, then the Company
shall have the option to sell and Xxxxx shall be
obligated to buy (the "Put Option") all (but not
part) of its shares of HealthZone common stock to
Xxxxx in consideration of the delivery to the
Company, at Xxxxx'x election of either $2.3
million in cash in immediately available funds
wire transferred for deposit in an account
designated in writing to Xxxxx by the Company or
Spin-Off Guarantee Shares valued at the greater
of (i) $2.25 per share or (ii) the then Current
Market Price per share for such Shares. In order
to exercise its Put Option, the Company shall
deliver a written notice of exercise (the "Put
Exercise Notice") to Xxxxx and the Escrow Agent
at least five (5) business days prior to the
closing date designated in such Notice for the
exercise of its Option. Within three (3)
business days after receipt of the Put Exercise
Notice Xxxxx shall notify the Company and the
Escrow Agent in writing as to his election
whether to pay the exercise price in cash in
immediately available funds or in shares of
Common Stock. The closing under the Put Option
shall take place at the Company's offices (or
such other place as the parties may mutually
agree) on the closing date specified in the Put
Exercise Notice at a time to be mutually agreed
upon.
(iii) If, the Spin-Off is not effected by March 31, 2000
for any reason whatsoever, then Xxxxx shall have the
right to purchase and the Company shall be obligated
to sell (a "Call Option") all (but not a part) of
the shares of HealthZone registered in the Company's
name for a purchase price equal to the greater of
$2.3 million or the HealthZone Market Value as of
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the date of the Call Exercise Notice (as hereinafter
defined). In order to exercise his Call Option,
Xxxxx shall deliver a written notice of exercise
(the "Call Exercise Notice") to the Company and the
Escrow Agent at least five (5) business days prior
to the closing date designated in such Notice for
the exercise of his Option. The Call Exercise
Notice Xxxxx shall also notify the Company and the
Escrow Agent as to Xxxxx'x election whether to pay
the exercise price in cash in immediately available
funds or in shares of Common Stock. The Call
Exercise Notice shall specify the exercise price and
shall be accompanied by a determination of the
HealthZone Market Value. The closing under the Call
Option shall take place at the Company's offices (or
any such other place as the parties may mutually
agree) on the closing date specified in the Call
Exercise Notice at a time to be mutually agreed
upon. The consideration for HealthZone shares to be
purchased upon exercise of the Call Option may be
payable at Xxxxx'x election in either cash in
immediately available funds wire transferred for
deposit in an account designated in writing to Xxxxx
by the Company or Spin-Off Guarantee Shares valued
at the greater of $2.25 per share or their then
Current Market Price per share; provided, that, the
aggregate value of the Spin-Off Guarantee Shares
shall not be less than the greater of $2.3 million
or the then HealthZone Market Value.
As used in this Section 3(d) the term "HealthZone Market Value" shall
mean the aggregate market value of the issued and outstanding securities
of HealthZone registered in the name of the Company or the Company's
nominee or the Company's Stockholders determined based upon the average
of the daily closing "bid" prices for the twenty (20) consecutive trading
days ending on the last full trading day on the exchange or market
specified in the second succeeding sentence prior to the Time of
Determination (as defined below), or as otherwise provided in the third
succeeding sentence. The term "Time of Determination" as used herein
shall be the time and date as of which the HealthZone Market Value is to
be computed. The closing "bid" price for any day shall be the last
reported sale price regular way or, in case no such reported sale takes
place on such day, the closing bid prices regular way for such day, or if
no closing bid prices are reported the average of the bid and asked
prices for such day, in each case (1) on the principal national
securities exchange on which shares of HealthZone common stock are listed
or to which such shares are admitted to trading or (2) if the HealthZone
common stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter market as reported on the
NASDAQ National Market System ("NASDAQ NMS") or any comparable system or
(3) if the HealthZone common stock is not listed on the NASDAQ NMS or a
comparable system, on the NASDAQ Bulletin Board or (4) if the HealthZone
common stock is not listed on the NASDAQ Bulletin Board, as furnished by
two members of the National Association of Securities Dealers, Inc.
selected from time to time in good faith by the Company and by Xxxxx for
that purpose. Notwithstanding anything in the foregoing to the contrary,
if, at the Time of Determination, no public market for the HealthZone
common stock exists, then for the purposes of determining the HealthZone
Market Value, Xxxxx, Xxxxxxxx & Xxxx shall make such determination after
first consulting with the Company and Xxxxx and its decision shall be
final and binding upon the parties hereto.
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(e) The Company and Xxxxx agree that the Company will bear the first
$100,000 in expenses incurred by the Company attributable to the Spin-Off
(which shall not be reimbursable by HealthZone or Xxxxx pursuant to the
provisions of Section 3(c) hereof) and HealthZone shall bear all
documented and reasonable costs and expenses incurred by the Company in
excess of such $100,000 ("Excess Costs"), which the Company will advance
on HealthZone's behalf. The amount of all Excess Costs advanced by the
Company shall be evidenced by one or more promissory notes issued by
HealthZone (collectively, the "Excess Costs Notes") each in the
principal amount of each advance, maturing thirty days after the date of
each advance and bearing interest at the same rate of interest being
charged the Company on the date of each such advance for outstanding
loans under its Secured Credit Agreement with First Source Financial,
Inc., (or other principal lender to the Company) as amended from time to
time. The principal amount of each Excess Costs Note may be prepaid at
any time and from time to time in whole or in part, together with all
accrued interest to the date of prepayment, in a minimum amount of $5,000
or multiples thereof without premium or penalty. Each Excess Costs Note
shall be endorsed and its payment unconditionally guaranteed by Xxxxx.
Failure to pay the Excess Costs Notes or the Notes referred to in Section
3(c) when due shall not be deemed a breach of this Agreement unless the
aggregate amount of all such unpaid Notes equals or exceeds $350,000,
such Notes being deemed independent obligations of HealthZone and Xxxxx
as their guarantor; provided, however, nothing in this Agreement or the
foregoing shall prevent the Company from commencing a legal proceeding to
enforce payment of any overdue Note or any guarantee thereof.
(f) During the time that any shares of Common Stock deposited with the
Escrow Agent by Xxxxx may be so held, Xxxxx shall maintain all his rights
to receive dividends (either cash or stock) and, subject to the
provisions of that certain Voting Agreement of even date herewith among
X. Xxxxxxx Xxxxxx, Xxxxx and his wife, all his and his wife's voting
rights, with regard to such deposited shares.
(g) In the event that the Company is sold, then all shares of Common
Stock deposited with the Escrow Agent by Xxxxx (except for the shares for
which the Escrow Agent has received a Notice pursuant to the Escrow
Agreement) shall be immediately returned to Xxxxx.
(h) Xxxxx shall have the right to prepare and issue press releases on
behalf of HealthZone updating the status of HealthZone, relating to and
announcing the Spin-Off, and such other matters as may relate to the
business of HealthZone, subject to the prior receipt of written approval
by the Chairman of the Board of the Company and review and approval by
Company counsel, which approvals shall not be unreasonably withheld.
4. XXXXX COVENANTS. Xxxxx hereby covenants to and agrees with the Company
as follows:
(a) He will cooperate, at his expense, with the Company and its auditors
and counsel in connection with any claim, action, suit, investigation or
other proceeding asserted or commenced by any court, governmental agency
or body or other third party relating to any of the matters which
comprise this Agreement or any other matters related or attributable to
Xxxxx'x management of the affairs of the Company or his ownership of
Common Stock; including, without limitation, making himself available
during normal business hours to meet with and respond to questions of
representatives of the Company and others, including, without limitation,
the Company's auditors and counsel; and
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preserving and making available to the Company and its counsel copies of
all personal correspondence, memoranda, files, agreements or other
documents (whether in written or electronic form) in his possession or
control which in any way relate to his management of the Company's
affairs, the performance of his duties and the ownership of his shares
of Common Stock, and, in connection therewith, Xxxxx hereby waives any
right to assert the attorney-client privilege, as to any Company
attorneys, in respect of any such correspondence, memoranda, files,
agreements or other documents to the extent any such correspondence,
memoranda, files, agreements or other documents will assist the
Company in the defense of any such claim, action, suit, investigation
or other proceeding.
(b) Prior to communicating orally, in writing or by electronic means, to
other shareholders, investment bankers, brokers, finders, investment
advisors, representatives of financial institutions or other financial
intermediaries, members of the press or other public media, or any other
third parties (other than family members and legal advisors) concerning
any matter relating to this Agreement, the Company and its affairs and
its management, he will consult with the Chairman of Board or the Chief
Executive Officer of the Company, and, until the sale of HealthZone or
the Spin-Off is consummated, with the Board of Directors of HealthZone
concerning any matter relating to HealthZone and its affairs and
management unless required so to communicate by subpoena or other legal
order; provided that Xxxxx shall comply with all applicable securities
laws, rules and regulations in connection with all such communications
and shall promptly notify the Company and the Board of HealthZone, as the
case may be, in the event he receives any such subpoenas or other legal
orders. Notwithstanding anything to the contrary herein provided, the
provisions of Section 5(a) of the Employment Agreement are incorporated
by reference herein as if fully set forth herein. Xxxxx agrees not to
make any statements (whether orally, in writing or in electronic form) in
any manner disparaging the reputation of the Company, its products, its
directors, or its management.
(c) The provisions of Sections 5(b), 5(c), 5(d), 5(e), 5(f) and 5(g) of
the Employment Agreement are incorporated by reference as if they were stated in
full herein; provided, however, that for purposes of Sections 5(e) and (f), none
of HealthZone, Cobe Inc., a California corporation with offices at 0000 Xxxxxxx
Xxxxxx, Xxxx Xxxxxx, XX 00000 and the business of AromaVera Inc., a New York
corporation shall be deemed to constitute a "Competing Business" so long as
neither Cobe Inc. nor the business of AromaVera engages in the manufacture,
marketing or sale of nutritional supplements or products that compete with
products that are currently sold by the Company, and the restrictions of
Sections 5(e), 5(f) and 5(g) shall lapse on April 16, 2000; provided, further,
that the "Term of the Agreement" as used in Section 5(c) means the period ending
on April 20,1999.
5. RELEASE. (a) For and in consideration of the sum of $10.00 and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confirmed, each of the parties hereto and their
respective heirs, legal representatives, successors in interest and
assigns (collectively, the "Releasor") hereby releases and forever
discharges the other party hereto and its, his or its heirs, legal
representatives, agents, attorneys, directors, officers, shareholders,
successors, and assigns (collectively, the "Releasee") of and from any
and all actions, causes of action, claims, charges, demands, remedies,
obligations, liabilities, losses, damages, penalties, assessments,
diminution of value, costs and expenses (including reasonable attorney's
fees and
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expenses), known or unknown, foreseeable or unforeseeable,
present or contingent, arising at law or in equity (collectively,
"Claims") which the Releasor has or may in the future have against the
Releasee in any manner on account of any matter, cause or thing arising
prior to the date of this Agreement, including, without limitation,
Claims arising under Xxxxx'x Employment Agreement. This Agreement shall
not be construed more strictly against either the Releasee or the
Releasor merely by virtue of the fact that the same has been prepared by
the Releasee or the Releasor or their respective counsel, it being
recognized that the Releasor and the Releasee have contributed
substantially and materially to the preparation of this instrument. THE
RELEASOR ACKNOWLEDGES THAT HE AND IT HAS THOROUGHLY READ AND REVIEWED THE
TERMS AND PROVISIONS OF THIS AGREEMENT AND IS FAMILIAR WITH SAME, THAT
THE TERMS AND PROVISIONS CONTAINED HEREIN ARE CLEARLY UNDERSTOOD BY HIM
AND IT AND HAVE BEEN FULLY AND UNCONDITIONALLY CONSENTED TO BY HIM AND
IT, AND THAT HE AND IT HAS HAD FULL BENEFIT ADVICE OF COUNSEL OF HIS AND
ITS OWN SELECTION IN REGARD TO UNDERSTANDING THE TERMS, MEANING AND
EFFECT OF THIS AGREEMENT.
(b) The parties hereto hereby expressly waive and relinquish all rights
and benefits that they may hold against each other, afforded by Section
1542 of the Civil Code of California or any other state laws, and they
expressly understand and acknowledge the significance and consequences of
such specific waiver of Section 1542, which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
Thus, notwithstanding the provisions of Section 1542, and for the purpose
of implementing a full and complete release and discharge of all their
claims, the parties expressly acknowledge that this Agreement is also
intended to include in its effect, without limitation, all claims which
they do not know or expect to exist in their favor, that the Company may
hold against Xxxxx, or that Xxxxx may hold against the Company, at the
time of execution hereof, and that this Agreement contemplates the
extinguishment of any such claim or claims. The parties hereto
understand and agree that this is a waiver of rights and benefits that
they may hold against each other under Section 1542, and that this is a
material term of this Agreement, without which the parties hereto would
not have given the consideration to each other stated herein.
6. INDEMNIFICATION. (a) Xxxxx, his heirs, legal representatives and assigns
(collectively, the "Xxxxx Indemnifying Party") shall indemnify and
hold the Company, its officers, directors, shareholders, agents,
attorneys and assigns (collectively, the "Company Indemnified Party")
harmless (except as limited herein) from and against any and all
uninsured losses, obligations, deficiencies, liabilities, claims,
damages, fines, penalties, costs and expenses including, without
limitation, the amount of any settlement entered into pursuant hereto,
and all reasonable legal and other expenses incurred in connection
with the investigation, prosecution or defense of any matter
indemnified pursuant hereto (a "Loss") which Loss the Company
Indemnified Party may sustain, suffer or incur and
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which arises out of, is caused by, relates to, or results or occurs
from, or in connection with a claim asserted by one or more
stockholders of the Company arising out of or related to (i) an
alleged breach by Xxxxx of a fiduciary duty owed to the Company or its
stockholders or (ii) the management of the Company's business by Xxxxx
while Chief Executive Officer or (iii) any public announcement or
other public or private communications with Company shareholders,
prospective investors in the Company and representatives of financial
institutions or intermediaries by Xxxxx or the Company while Xxxxx was
its Chief Executive Officer (regardless of whether any claim is
brought prior to or subsequent to the date hereof); provided, however,
the Xxxxx Indemnifying Party's liability under this Section 6(a) shall
be limited solely to and shall be paid from the amount of
Indemnification Shares (as hereinafter defined) deposited with the
Escrow Agent.
(b) Each of the parties hereto and their respective heirs, legal
representatives, successors, and assigns (the "Party of the First Part")
hereby agrees to indemnify and hold the other party and its heirs, legal
representatives, successors and assigns (the "Party of the Second Part")
harmless from any and all Losses incurred by the Party of the Second Part
arising out of, connected with or which may be attributable to a breach
of any representation, warranty, agreement or covenant made by the Party
of the First Part in this Agreement or in any agreement or instrument
executed and delivered pursuant hereto.
(c) In the event of an alleged breach of this Agreement by either party
hereto or if a claim by a third party is made against any individual,
entity or other person entitled to indemnification under this Section 6,
and the non-breaching party or the party or parties against whom said
claim is made intends to seek indemnification with respect thereto under
this Section 6, the party or parties seeking such indemnification
(individually, the "Indemnified Party") shall promptly notify the party
from whom indemnification pursuant to this Section 6 is claimed (the
"Indemnifying Party"), in writing, of such claim; provided, however, that
the failure to give such notice shall not affect the rights of the
Indemnified Party hereunder unless such failure materially and adversely
affects the Indemnifying Party. With respect to third party claims, the
Indemnifying Party shall have ten (10) days after said notice is given to
elect, by written notice given to the Indemnified Party, to undertake,
conduct and control, through counsel of its own choosing (subject to the
consent of the Indemnified Party, such consent not to be unreasonably
withheld) and at its sole risk and expense, provided that the
Indemnifying Party shall be entitled to claim reimbursement for such
expenses under the Company's insurance policies, subject to any
limitations set forth therein, the good faith settlement or defense of
such claim, and the Indemnified Party shall cooperate with the
Indemnifying Party in connection therewith; provided, however, that the
Indemnifying Party shall not, without (i) the prior written consent of
the Indemnified Party, settle, compromise or offer to settle or
compromise any such claim on a basis which would result in the imposition
of a consent order, injunction or decree which would restrict the future
activity or conduct of the Indemnified Party or any subsidiary or
affiliate thereof and (ii) obtaining an unconditional release of all
Indemnified Parties with respect to such claim. The Indemnified Party
shall be entitled to participate in such settlement or defense through
counsel chosen by the Indemnified Party, provided that the fees and
expenses of such counsel shall be borne by the Indemnified Party. So
long as the Indemnifying Party is contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim;
provided, however, that notwithstanding the foregoing, the Indemnified
Party shall have the right to pay or settle any such claim at any time,
provided that in such event it shall waive any right of indemnification
therefor by the Indemnifying Party. If
10
the Indemnifying Party does not make a timely election to undertake
the good faith defense or settlement of the claim as aforesaid, or if
the Indemnifying Party fails to proceed with the good faith defense or
settlement of the matter after making such election, then, in either
such event, the Indemnified Party, after written notice to the
Indemnifying Party, shall have the right to contest, settle or
compromise the claim at its exclusive discretion, at the risk and
expense of the Indemnifying Party to the full extent set forth in this
Section 6. Notwithstanding anything to the contrary contained in this
Section 6(c), Xxxxx'x liability for damages attributable to any claim
for indemnification made pursuant to Section 6(a) hereof shall be
limited to the value of the shares described and held in escrow
pursuant to Section 6(d) hereof.
(d) As collateral security for his indemnification obligations (but
only with respect to uninsured Losses) set forth in this Section 6,
concurrently with the execution and delivery of this Agreement Xxxxx
shall deposit with the Escrow Agent one or more certificates
registered in his or his and Xxx. Xxxxx'x joint name, free and clear
of all liens, charges and encumbrances, together with appropriate
stock powers executed in blank with medallion signature guarantees
affixed thereto, representing one million (1,000,000) shares of Common
Stock (the "Indemnification Shares") to be held and delivered to the
Company by the Escrow Agent upon presentation to the Escrow Agent
(with a copy to Xxxxx) of a notice of claim ("Notice") which specifies
the amount and nature of the finally determined Loss for which
indemnification is claimed pursuant to Section 6(a) hereof and a
demand for the delivery of that number of Indemnification Shares as
shall equal the quotient of the amount of such finally determined Loss
divided by the greater of (i) $2.25 or (ii) the Current Market Price
of the Company's Common Stock as of the date of the Notice and such
Indemnification Shares will then be delivered to the Company in
accordance with the provisions of the Escrow Agreement; provided,
however, if no Notice has been delivered to Xxxxx on or prior to
December 31, 1999, five hundred thousand (500,000) shares of Common
Stock shall be released from escrow and delivered to Xxxxx, and if no
such Notice has been delivered to Xxxxx by March 31, 2000 the
remainder of the Indemnification Shares shall be released from escrow
and delivered to Xxxxx, in accordance, in each case, with the
provisions of the Escrow Agreement. As used herein, the term "Current
Market Price" shall mean the average of the daily closing "bid" prices
for the twenty (20) consecutive trading days ending on the last full
trading day on the exchange or market specified in the second
succeeding sentence prior to the date of the Notice, or as otherwise
provided in the third succeeding sentence. The closing "bid" price for
any day shall be the last reported sale price regular way or, in case
no such reported sale takes place on such day, the closing bid prices
regular way for such day, or if no closing bid prices are reported the
average of the bid and asked prices for such day, in each case (1) on
the principal national securities exchange on which shares of Common
Stock are listed or to which such shares are admitted to trading or
(2) if the Common Stock is not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as
reported on the NASDAQ NMS or any comparable system or (3) if the
Common Stock is not listed on the NASDAQ NMS or a comparable system,
on the NASDAQ Bulletin Board or (4) if the Common Stock is not listed
on the NASDAQ Bulletin Board, as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to
time in good faith by the Company and by Xxxxx for that purpose.
Notwithstanding anything in the foregoing to the contrary, if, on the
date of the Notice, no public market for the Common Stock exists, then
for the purposes of determining the Current Market Price, Xxxxx
Xxxxxxxx & Hill shall make such determination after first consulting
with the Company and Xxxxx and its decision shall be final and binding
upon the parties hereto.
11
7. MISCELLANEOUS.
7.1 ADDITIONAL UNDERTAKINGS. (a) Xxxxx shall have the right to draft
a press release describing the terms of this Agreement which shall be
publicly released subject to the prior approval by Company counsel and
the Company's Board of Directors.
(b) Each of the Company, on the one hand, and Xxxxx and Xxx. Xxxxx, on
the other hand, hereby agrees that it or they shall not initiate or
assist in the prosecution of any action, suit or other legal proceeding
against the other party hereto (other than in connection with any breach
of this Agreement by such other party or to enforce any agreement or
covenant by such other party set forth herein).
(c) The Company agrees to duly convene a special meeting in lieu of
annual meeting of stockholders as soon as possible after the date hereof.
7.2 EXPENSES. Except as otherwise provided in this Agreement, each of
the parties hereto agrees to pay his and its own costs and expenses, including,
without limitation, all reasonable attorneys fees and expenses, incurred in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
7.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the date delivered, if delivered personally, or one (1) day (which is
not a Saturday, Sunday, holiday or day on which commercial banks in Culver City,
CA are required or permitted to close (a "Business Day")) after having been
deposited with a courier, if sent by overnight courier or having been sent by
telecopy, if sent by telecopy (receipt confirmed), or three (3) Business Days
after having been mailed, if mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to The Company, to: Omni Nutraceuticals, Inc.
0000 Xxxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Chairman of the Board
Copy to: Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
If to Xxxxx or Xxx. Xxxxx, to Xxxxx'x address first above written, or to such
other address, as any party shall have designated by like notice to the other
parties hereto (except that a notice of change of address shall only be
effective upon receipt).
7.4 APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Utah without regard to its choice
of law principles.
7.5 WAIVERS, ETC. The failure of any of the parties hereto at any
time to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provision hereof or the
12
right of any of the parties hereto to thereafter enforce each and every
provision of this Agreement. No waiver of any breach of any of the provisions
Agreement shall be effective unless set forth in an instrument executed by
the party or parties against whom enforcement of such waiver is sought; and
no waiver or breach shall be construed or deemed to be a waiver of any other
or subsequent breach.
7.6 ASSIGNMENT. Neither this Agreement nor any rights, interests or
obligations hereunder may be assigned (by operation of law or otherwise) by any
party hereto without the prior written consent of all of the parties hereto,
except that the Company may (a) assign any and all of its rights and remedies
and delegate any and all of its obligations under this Agreement to any
affiliate, subsidiary or any entity owned or controlled by it, provided such
affiliate, subsidiary or entity agrees in writing to be bound by the terms
hereof, and (b) grant a security interest in its rights under this Agreement to
the Company's lender.
7.7 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and their respective
successors and permitted assigns. Nothing herein contained, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
7.8 AMENDMENT. This Agreement may only be amended by a written
instrument executed by each of the parties hereto; provided, however, that any
consent to any amendment of this Agreement by the Company shall require the
approval of at least a majority of the directors (which must include the
Chairman of the Board).
7.9 SEVERABILITY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
7.10 ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof, including, without limitation, that certain Letter Agreement
dated April 19, 1999 by and between the Company and Xxxxx.
7.11 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
7.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
7.13 FURTHER ASSURANCES. Xxxxx hereby agrees, at his sole cost and
expense, to execute and deliver, and to cause Xxx. Xxxxx to execute and deliver
to the Company all such further
13
agreements, instruments or other documents as the Company may reasonably
request in order to implement the provisions of this Agreement. The Company
agrees, for its part, and its sole cost and expense, to execute and deliver
to Xxxxx all such further agreements, instruments or other documents as Xxxxx
may reasonably request in order to implement the provisions of this Agreement.
7.14 SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of Xxxxx and/or the Company to perform their respective
agreements and covenants hereunder will cause irreparable injury for which
damages, even if available, will not be an adequate remedy. Accordingly, Xxxxx
and the Company each hereby consent to the issuance of injunctive relief by any
court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of his or its obligations hereunder and in connection therewith
Xxxxx and/or the Company each hereby waive any right to require any bond or
other security to be paid or furnished by Xxxxx and/or the Company in connection
with any application for such relief.
7.15 BOARD APPROVAL. This Agreement shall become effective upon
approval or ratification by the Company's Board of Directors; provided, however,
Xxxxx agrees not to vote against any such approval.
14
IN WITNESS WHEREOF, the Company, by its representative thereunto duly
authorized, and Xxxxx have each executed this Agreement effective as of the date
first above written.
OMNI NUTRACEUTICALS, INC.
By: /s/ R. Xxxxxxx Xxxxxx
-------------------------------
R. Xxxxxxx Xxxxxx
Chairman of the Board
/s/ Xxxx Xxxxx
-------------------------------
Xxxx Xxxxx
The undersigned, Xxxxxxxxx Xxxxx, hereby consents to and agrees to be
bound by the foregoing.
/s/ Xxxxxxxxx Xxxxx
-------------------------------
Xxxxxxxxx Xxxxx
15
