SETTLEMENT AGREEMENT
This Settlement Agreement is entered into by and between the parties
undersigned below (the "Parties") for the consideration stated.
1. PARTIES:
The Parties to this Settlement Agreement are the following:
1.1 XXXXXXX X. XXXX, Trustee for the Chapter 7 Estate of
Performance Nutrition, Inc.;
1.2 NATURADE, INC., a Delaware corporation; and
1.3 HEALTH HOLDINGS AND BOTANICALS, INC., a California
corporation.
2. DEFINED TERMS USED IN THIS AGREEMENT:
2.1 ADVERSARY PROCEEDING shall mean the lawsuit styled XXXXXXX
X. XXXX. TRUSTEE X. XXXXXXX CAPITAL MANAGEMENT, INC., XXXXXXX XXXX, XXXXX
XXXXX, AND NATURADE, INC. - Adversary Proceeding No. 397-3452 pending in the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division, including without limitation the Counterclaim filed by Naturade,
Inc. against the Trustee and the Estate.
2.2 DEBTOR shall mean Performance Nutrition, Inc.
2.3 CHAPTER 7 CASE shall mean the bankruptcy case styled IN RE
PERFORMANCE NUTRITION, INC. - Case No. 97-30566-HCA-7 pending in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division.
2.4 PROOFS OF CLAIM shall mean any and all proofs of claims
filed by Naturade, Inc. in the Chapter 7 Case, including, without limitation,
Proofs of Claim No. 3 and 64.
2.5 ESTATE shall mean the bankruptcy estate of the Debtor.
SETTLEMENT AGREEMENT Page 1
2.6 NATURADE shall mean Naturade, Inc., its officers,
directors, employees, agents, attorneys, accountants and other professionals
who have appeared on its behalf in the Adversary Proceeding, excluding
Xxxxxxx Xxxx, Xxxxxxx Hatamyar, CFO Associates, Inc., and Trinity Capital,
Inc.
2.7 HEALTH HOLDINGS shall mean Health Holdings and Botanicals,
Inc., its officers, directors, employees, agents, attorneys, accountants, and
other professionals, including Xxxxx & Boissier, LLC, a shareholder thereof,
but excluding Xxxxxxx Xxxx.
2.8 TRUSTEE shall mean Xxxxxxx X. Xxxx, Trustee for the
Estate, and his agents, attorneys, accountants and other professionals who
have appeared on his behalf in the Adversary Proceeding.
2.9 SETTLEMENT AGREEMENT shall mean this Settlement Agreement.
2.10 JUDGMENT shall mean the Amended Final Judgment entered
by the United States Bankruptcy Court for the Northern District of Texas,
Dallas Division in the Adversary Proceeding on March 22, 1999, a copy of
which is attached hereto as Exhibit "A," including without limitation, any
obligation for payment of costs arising therefrom.
2.11 THE INCIDENTS shall mean all allegations made by the
Trustee against Naturade in the Adversary Proceeding and all facts related to
same, including, but not limited to, Naturade's alleged: 1) wrongful
interference with PNI's management, tortious interference with the management
contracts of PNI's management; 2) unjust enrichment at the expense of the
Estate; 3) conspiracy with PNI's management to breach fiduciary duties; and
4) aiding and abetting the breach of fiduciary duties by PNI's management.
SETTLEMENT AGREEMENT Page 2
3. RECITALS:
3.1 On January 21, 1997, the Debtor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.
3.2 On February 19, 1997, the Court ordered the appointment
of a Chapter 11 trustee for the Debtor's Estate. On February 28, 1997, the
Trustee was appointed trustee for the Chapter 11 estate. On March 14, 1997,
this case was converted to a case under Chapter 7. The Trustee is now
serving as trustee for the Chapter 7 Estate.
3.3 In October 1997, the Trustee filed the Adversary
Proceeding against Naturade and three other Defendants who are not parties to
this Settlement Agreement.
3.4 Trial of the Adversary Proceeding, with the exception of
certain of the Trustee's equitable claims and the defendants' counterclaims,
was held over non-consecutive days from July 27, 1998 to October 30, 1998.
After hearing the evidence and arguments of the parties, the Court entered
the Judgment on March 22, 1999. In support of the Judgment, the Court
entered its Amended Findings of Facts and Conclusions of Law on March 22,
1999 (the "Findings").
4. CONSIDERATION AND PAYMENTS:
4.1 The purpose of this Settlement Agreement is to provide for
the payments, undertakings and releases set forth herein. By signing the
Settlement Agreement, the Parties do not admit the truthfulness of any of the
claims made by any opposing party in the Adversary Proceeding and/or Proofs
of Claim; to the contrary, all such claims and allegations are expressly
denied. Naturade further denies and contests each and every finding and
conclusion by the Court in the Findings or in the Judgment that Naturade
engaged in any wrongful conduct or that it damaged PNI in any way.
SETTLEMENT AGREEMENT Page 3
4.2 The consideration for this Settlement Agreement consists
of the mutual covenants, representations and releases contained herein, and
the payments and notes from Naturade to the Estate described in this
Settlement Agreement.
4.3 Naturade agrees to pay the Estate, in good and collected
funds, the sum of One Million Three Hundred Fifty Thousand and No/100 Dollars
($1,350,000.00)(the "Cash Payment"). This sum shall be paid by Naturade, as
provided below, upon the Bankruptcy Court's approval of the Settlement
Agreement by causing The South Bay Bank to deliver to the Trustee's
litigation counsel an irrevocable clean non-documentary letter of credit in
the form of Exhibit B hereto (the "Letter of Credit"), on the second business
day following the date the Bankruptcy Court's order approving the Settlement
Agreement becomes final and non-appealable (the "Effective Date"). The Letter
of Credit must be payable to the Trustee on the Effective Date and must not
expire for a period of ninety days (90) days following the Effective Date.
The Letter of Credit must not require the presentation of any document other
than a sight draft and payment must not be conditioned upon any event other
than the presentation of a sight draft.
4.4 Naturade also agrees to execute and deliver to the
Trustee on the Effective Date a secured promissory note in the principal
amount of $424,000 payable to the Estate (the "Secured Note") and Security
Agreement, which are attached hereto as Exhibits "C-1 and C-2" respectively,
and incorporated by reference as if fully set forth herein. Naturade will
fully perform pursuant to the terms of the Secured Note, provided that the
first monthly payment thereunder shall not be due until the first day of the
calendar month immediately following the Effective Date. The Secured Note
will be subject to all
SETTLEMENT AGREEMENT Page 4
currently existing, validly-perfected liens against Naturade's real and
personal property. The Trustee agrees that Health Holdings' future debt
advances to Naturade, if any, shall have lien priority over the security
interest granted hereunder to the Trustee, provided that nothing herein shall
prevent the Trustee from bringing an action for recharacterization or
subordination of Naturade's now existing debt to Health Holdings. The
parties presently contemplate that Naturade will obtain a loan or line of
credit from a non-insider, third party lender in replacement of its current
loans from South Bay Bank. In such event, the Trustee agrees to promptly
execute and deliver to Naturade, in form satisfactory to Naturade's new
lender and the Trustee, a written confirmation that the Trustee's security
interest in Naturade's property shall be subordinate in priority to the
security interests granted to such new lender by Naturade. The Trustee shall
not unreasonably withhold such written confirmation of subordination upon
request therefore by Naturade.
4.5 Naturade also agrees to execute and deliver to the
Trustee on the Effective Date a promissory note in the principal amount of
$226,000 payable to the Estate, which is attached hereto as Exhibit "D," and
incorporated by reference as if fully set forth herein (the "Revenue Note").
Naturade will fully perform pursuant to the terms of the Revenue Note.
Naturade hereby further agrees to maintain accounting practices consistent
with GAAP and with those used prior to March 29, 1999 until such time as the
Revenue Note is paid in full. Naturade hereby grants to the Trustee and his
agents reasonable access to its books and records, upon five days calendar
(5) written notice, to confirm the accuracy of Naturade's total net sales as
reported in its 10-Q or 10-K reports.
4.6 This Settlement Agreement, Letter of Credit, Secured
Note, Revenue Note and any and all security agreements, UCC-1 financing
statements, releases and any
SETTLEMENT AGREEMENT Page 5
and all other documents executed in connection with or related to the
settlement proposed herein shall be referred to herein as the "Settlement
Documents." Naturade agrees to execute and deliver the Settlement Documents
to the Trustee on the Effective Date.
4.7 Effective as of the Effective Date, and upon delivery of
the instruments to Trustee identified in Paragraphs 4.3, 4.4, and 4.5 above,
the Trustee hereby assigns to Naturade, without representation or warranty of
any kind, all right, title, and interest of the Estate in all of the Estate's
claims and causes of action which may exist against Xxxxx Xxxxxxxx, Xxxxxxx
Xxxxxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxx and
Dr. Lenny Xxxxxx Xxxxx arising out of the Incidents. A copy of the
assignment instrument is attached hereto as Exhibit "E." As stated therein,
the claims are assigned to Naturade "as is," and without any representations
or warranties by the Trustee, Debtor, or the Estate including whether such
claims are valid, barred by statutes of limitations or other legal or
equitable defenses, legally enforceable or in existence. In determining to
accept the assignment, and in all matters addressed herein, Naturade has
relied on the advice of its own counsel, and expressly disclaims reliance on
any statements made by the Trustee, Debtor, or the Estate regarding the
assigned claims.
4.8 The parties agree that the settlement payments described
in this Settlement Agreement will be allocated to satisfy the Judgment as
follows: first to satisfy the punitive damages portion of the Judgment
against Naturade, next to satisfy costs allowed against Naturade, next to
satisfy interest accrued on the judgment as of the Effective Date, and next
to satisfy in part, the actual damages awarded in the Judgment for which
Naturade is jointly and severally liable with Defendant Xxxxxxx Xxxx. This
allocation does not reflect Naturade's liability to the Estate and does not
affect in any way
SETTLEMENT AGREEMENT Page 6
the release of the Judgment against Naturade by the Trustee, the Debtor, and
its Estate. The allocation merely seeks to preserve the greatest possible
recovery by the Trustee, Debtor, and its Estate of the Judgment against
Defendant Xxxxxxx Xxxx.
5. COURT APPROVAL:
5.1 Conditions precedent to the effectiveness of this
Settlement Agreement are: (a) approval of this Settlement Agreement by the
Bankruptcy Court, after notice to creditors and shareholders, by a final,
non-appealable order providing, in part, for Naturade's standing as
representative of the PNI estate for the limited purpose of asserting claims
for violations of the automatic stay under 11 U.S.C. Section 362 related to
any claims asserted against Naturade that Naturade believes are the subject
of this Settlement Agreement with the Trustee; (b) proper and timely delivery
of the Cash Payment to the Trustee; and (c) binding execution and timely
delivery of the Settlement Documents required by this Settlement Agreement.
6. RELEASES:
6.1 The Trustee, the Debtor and its Estate are executing
effective as of the Effective Date a release of Naturade and Health Holdings
(the "Trustee's Release") from: (i) the Judgment, including costs; (ii)
the Trustee's claims against Naturade under 11 U.S.C. Section 547 pending in
Adversary No. 399-3084 or otherwise; and (iii) any and all claims, demands,
actions, rights, remedies, causes of action, debts, liens, sums, suits and/or
accountings the Debtor and/or its Estate now has or hereafter may have or
claim to have arising before the Effective Date, including but not limited to
the matters made the subject of the Adversary Proceeding, including the
Incidents and Proofs of Claim. Defendant Xxxxxxx Xxxx, Lenny Xxxxxx Xxxxx,
Xxxxx Xxxxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxxx Xxxxxxx,
SETTLEMENT AGREEMENT Page 7
Xxxxxxx Xxxxxxxx, Xxxxxx Xxxxx, and Xxxxx Xxxxx will be specifically excluded
from the Trustee's Release. Additionally, all claims or causes of action of
the Estate which arise from the breach of this Settlement Agreement or the
Settlement Documents with regard to misrepresentations or fraud in the
inducement of this Settlement Agreement will not be released. Further, any
recharacterization and subordination claims against Health Holdings as to
existing debt will not be released. The Trustee shall deliver the Trustee's
Release to Naturade on the Effective Date. The Trustee's Release shall
conform substantially to Exhibit "F" hereto. Within five (5) days of the
Effective Date, the Trustee shall file (a) a release of Judgment in the
Adversary Proceeding, and (b) a dismissal of his claims against Naturade in
Adversary Proceeding No. 399-3084 (the preference suit). At such time,
Naturade shall file a dismissal of its Notice of Appeal in the Adversary
Proceeding.
6.2 Naturade and Health Holdings are executing effective as
of the Effective Date releases (collectively, the "Naturade Release") of the
Trustee, Debtor, and its Estate from any and all claims, demands, actions,
rights, remedies, causes of action, debts, liens, sums, suits and/or
accountings Naturade and/or Health Holdings now has or hereafter may have or
claim to have arising before the Effective Date, including but not limited to
the matters made the subject of the Adversary Proceeding, including the
Incidents and Proofs of Claim or otherwise. The Naturade Release will be
delivered to the Trustee on the Effective Date. Such releases of the Trustee
by Naturade and Health Holdings shall conform substantially to Exhibits G-1
and G-2 hereto.
6.3 The Trustee agrees to forbear from any efforts to collect
or enforce the Judgment from or against Naturade until the Effective Date,
unless the Court signs an
SETTLEMENT AGREEMENT Page 8
order denying approval of the Settlement Agreement, in which case such
forbearance shall terminate five (5) days thereafter. Also on the Effective
Date, Naturade will file pleadings dismissing its appeal of the Judgment,
and Naturade's Proofs of Claim or any proof of claim filed in the Debtor's
bankruptcy case shall be deemed withdrawn.
7. REPRESENTATIONS:
7.1 Naturade represents and warrants that it is the owner and
holder of all claims held or asserted by Naturade including, without
limitation, those evidenced by the Proofs of Claims, and Naturade has not
transferred any such claims as of the effective date of this Settlement
Agreement.
7.2 The parties hereto are not relying upon any facts,
promises, undertakings, or representations made by any other party or its
attorneys except for the representations specifically set forth in the
Settlement Agreement. The parties hereto have relied solely and completely
upon their own judgment, and the judgment of their attorneys, in executing
the Settlement Agreement.
7.3 The parties hereto understand that by entering into the
Settlement Agreement they are giving a full, complete, and final release of
any and all claims, demands, affirmative defenses, defenses and causes of
action which they have asserted or could have asserted against the other in
the Adversary Proceeding or otherwise, excepting only the obligations
contained in the Settlement Agreement.
7.4 Naturade represents that it is not entering this
Settlement Agreement with the intention or contemplation of filing bankruptcy
thereafter. Health Holdings represents that it is not entering this
Settlement Agreement with the intention or contemplation of causing Naturade
to file bankruptcy thereafter.
SETTLEMENT AGREEMENT Page 9
7.5 Health Holdings is a party to this Settlement Agreement
only for the purpose of effectuating Sections 4.3, 4.4, 4.5, 4.6, 4.7, 6.1,
6.2, and 7.4.
8. MISCELLANEOUS PROVISIONS:
8.1 This Settlement Agreement may be modified only by written
agreement executed by all parties.
8.2 THE SETTLEMENT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE SETTLEMENT
AGREEMENT HAS BEEN ENTERED INTO IN WHOLE OR IN PART IN DALLAS COUNTY, TEXAS.
IT IS PERFORMABLE, IN PART, IN DALLAS COUNTY, TEXAS. ANY FEDERAL OR STATE
COURT IN DALLAS COUNTY, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER ANY AND
ALL DISPUTES ARISING UNDER OR PERTAINING TO THE SETTLEMENT AGREEMENT, AND
VENUE IN ANY SUCH DISPUTES SHALL LIE EXCLUSIVELY IN DALLAS COUNTY, TEXAS.
8.3 It is acknowledged and understood that the Parties do not
admit the truthfulness of any of the claims or allegations made against them
by the opposing party, and the provisions of this Settlement Agreement shall
not constitute an admission by any of the Parties with regard to the
truthfulness of any of the claims or allegations made against them by the
opposing party.
8.4 This Settlement Agreement, including the Settlement
Documents, contains the entire understanding between the Parties concerning
the matters herein contained. There are no representations, agreements,
arrangements, or understandings, oral or written, between or among the
Parties, relating to the subject matter of this Settlement Agreement that are
not fully expressed herein. To the extent this Settlement
SETTLEMENT AGREEMENT Page 10
Agreement is inconsistent with any other Settlement Document including the
motion to Approve this Settlement Agreement, this Settlement Agreement shall
control.
8.5 The Parties acknowledge that they and their designated
representatives have read all of this Settlement Agreement, and acknowledge
that the parties hereto are entering this Settlement Agreement after
consulting with counsel.
8.6 This Settlement Agreement may be executed in any number
of identical counterparts, each of which shall be deemed to be an original
for all purposes.
8.7 The Settlement Agreement shall be binding upon and inure
to the benefit of parties and their respective heirs, survivors, executors,
successors, and assigns including a bankruptcy trustee for any Party.
8.8 In the event that any terms of the Settlement Agreement
become subject to construction by any court, the terms of the Settlement
Agreement shall be construed reasonably, equally and fairly with regard to
both Trustee and Naturade, and shall not be strictly construed against any
party.
8.9 Each of the Parties agrees to execute such additional
documents as may be reasonably necessary to effectuate the terms of this
Settlement Agreement.
SETTLEMENT AGREEMENT Page 11
Signed this 24 day of June 1999.
XXXXXXX X. XXXX, CHAPTER 7 TRUSTEE
FOR THE ESTATE OF PERFORMANCE
NUTRITION, INC.
/s/ Xxxxxxx X. Xxxx
----------------------------
Xxxxxxx X. Xxxx, Trustee
NATURADE, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
----------------------------
Title: CHIEF FINANCIAL OFFICER
----------------------------
HEALTH HOLDINGS AND BOTANICALS, INC.
By: /s/ Xxxxxx X. Boisseire, Jr.
----------------------------
Title: /s/ PRESIDENT
----------------------------
SETTLEMENT AGREEMENT Page 12
