ASSET PURCHASE AGREEMENT
by and among
GATEWAY DISTRIBUTORS, LTD.
a Nevada corporation,
AMERICAN OUTBACK, INC.
an Oklahoma corporation
and
THE STOCKHOLDERS OF
AMERICAN OUTBACK, INC.
Dated as of Xxxxx 0, 0000
XXXXX PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of the 1st day
of April, 1999 among Gateway Distributors, Ltd., a Nevada corporation (the
"Buyer"), American Outback, Inc., an Oklahoma corporation (the "Seller") and the
stockholders of the Seller listed on the signature page of this Agreement
(individually a "Stockholder" and collectively the "Stockholders").
RECITALS
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A. The Buyer is in the business of network marketing of nutritional,
health and dietary supplements and products throughout North America and Japan
(the "Business").
B. The Buyer desires to acquire certain assets of the Seller heretofore
developed including, but not limited to, the assets listed on Schedule 1 hereto
(the "Acquired Assets").
NOW, THEREFORE, in consideration of the premises and mutual covenants,
warranties and agreements herein contained, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. PURCHASE OF ASSETS
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1.1. PURCHASE. The Seller hereby agrees to transfer to the Buyer and
the Buyer agrees to accept the Acquired Assets.
1.2. PURCHASE PRICE. As consideration for the transfer of the Acquired
Assets, the Buyer shall issue and deliver to the Seller 67,400 shares (the
"Shares") of the Buyer's common stock, par value $.001 per share (the "Common
Stock").
1.3. PURCHASE PRICE ADJUSTMENT. If, between April 1, 1999 and December
31, 1999, the average market price of the Common Stock does not exceed $1.00 per
share for any consecutive ten (10) day period, then Buyer shall pay the Seller
the difference of (a) Sixty-Seven Thousand Four Hundred Dollars ($67,400) and
(b) the product of (i) the average of the daily closing prices of the Common
Stock during the ten (10) trading days preceding October 1, 1999 and (ii)
$67,400. In the event that the Common Stock is not publicly trading by November
1, 1999, Seller has the option to require the Buyer to repurchase up to 67,400
shares of Common Stock at a price of $1.00 per share, on terms to be determined
by the parties by mutual agreement; provided, however, that the Buyer must make
a minimum payment of $5,000 per month with a balloon payment on the twelfth
month, and provided, further, that any unpaid portion of the repurchase price
shall accrue interest at a rate of 10% per annum should this option be
exercised.
2. REPRESENTATIONS AND WARRANTIES
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As a material inducement to each party to enter into this Agreement,
the Seller makes to the Buyer the following representations and warranties:
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2.1. AUTHORIZATION. This Agreement is the legal, valid, binding
obligation of the Seller, enforceable in accordance with its terms, subject to
judicial discretion regarding specific performance or other equitable remedies
and except as may be limited by bankruptcy or other similar laws.
2.2. NO VIOLATIONS. Neither the sale of the Acquired Assets nor the
execution, delivery or consummation of this Agreement will violate, be in
conflict with or constitute a default by the Seller any other agreement or
instrument to which the Seller may be bound.
2.3. GOOD TITLE. The Seller is the owner of, and has the right to
transfer all of the Acquired Assets to the Buyer, free and clear from any lien,
encumbrance, security agreement, title retention or other device.
2.4. INVENTORIES. Schedule A lists all inventory of the Seller (the
"Inventory"). Except as set forth in Schedule A, the Inventory, whether
reflected in the financial statements of the Seller or otherwise, consists of a
quality and quantity usable and salable in the ordinary course of business, and
the present quantities of all inventory of the Company are reasonable in the
present circumstances of the businesses as currently conducted or as proposed to
be conducted. On or before the execution of this Agreement, the Seller shall
deliver to the Buyer (a) the Inventory and (b) a cost evaluation price list (the
"Price List"). The Price List shall be true and accurate and shall reflect the
actual manufacturing cost of the Inventory. Buyer will then be given the
opportunity to perform an audit of the Inventory to determine the Inventory's
cost basis. Schedule 2.4 lists all products and inventory being manufactured as
of the date hereof (the "Work-In-Progress"). Upon completion of the
Work-In-Progress, the Seller shall immediately deliver the Work-In-Progress to
the Buyer.
3. FURTHER DELIVERIES AND ASSURANCES
---------------------------------
3.1. FURTHER DELIVERIES AND ASSURANCES. The Seller agrees to deliver or
cause to be delivered any and all assignments, documents or instruments
reasonably required to give effect to the transactions contemplated by this
Agreement, including, but not limited to, the Xxxx of Sale attached hereto as
Exhibit "B" and the License Agreement attached hereto as Exhibit "C."
3.2. NOMINATION OF XXXX XXXXX TO THE BUYER'S MEDICAL ADVISORY BOARD. As
soon as practicable, the Buyer shall take all steps necessary to appoint Xxxx
Xxxxx to the Buyer's Medical Advisory Board.
3.3. EXCLUSIVE MANUFACTURER. The Buyer agrees that it will use Xxxx
Recipe(R) Emu Oil ("Xxxx Oil") in all its products which contain Emu oil, that
it will engage the Seller as the exclusive manufacturer of Xxxx Oil and that it
will purchase all of its Xxxx Oil requirements from the Seller at a price of
$150 per gallon or less, subject to the following terms and conditions:
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3.3.1. The Buyer shall not have any obligation to engage the
Seller as the exclusive manufacturer if the prices of manufacturing
which the Seller charges for manufacture of Xxxx Oil are higher than
those at which other manufacturers can competently manufacture Emu oil.
3.3.2. The Buyer shall not have any obligation to engage the
Seller as the exclusive manufacturer if the Seller is unable to
manufacture Xxxx Oil in a timely manner, as determined by the Buyer's
needs.
3.3.3. Price increase on cost per gallon will consistently be
maintained and always 25% below the average of all buyers of the Xxxx
Recipe. The Japanese market will be any exception to this pricing. In
Japan, all bulk will be priced jointly by Buyer and Seller. Profits
will be split 60% for Seller and 40% for Buyer after all costs are
recovered by both parties.
3.4. BUYER'S FINANCIAL STATEMENTS. The Buyer agrees to deliver or cause
to be delivered to Seller the "Financial Statements with Additional Information
and Independent Auditors' Report" of the Buyer for the year ended on December
31, 1998.
3.5. SELLER'S FINANCIAL STATEMENTS. The Seller agrees to deliver or
cause to be delivered to the Buyer unaudited balance sheets of the Seller as of
January 31, 1999, February 28, 1999 and March 31, 1999 and the related
statements of income and cash flows for the one-month periods then ended (the
"Month-End Financial Statements"). The Month-End Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition and the results
of the operations of the Seller as of the relevant dates thereof and for the
periods covered thereby.
3.6. RIGHT OF FIRST REFUSAL. The Seller further grants to the Buyer a
right of first refusal to purchase any products or formulations (the "Future
Products") (including, but not limited to, any inventory of the Future Products
and any licensing rights associated with the Future Products) developed by the
Seller after the date of this Agreement. The Buyer shall have thirty (30) days
from receipt of notice from the Seller to exercise such right of first refusal.
If the Buyer exercises its right of first refusal with respect to any licensing
rights in connection with any Future Products, the Buyer shall enter into a
three year license agreement with the Seller, whereby the Buyer will pay a
royalty of $0.25 per unit sold to the Seller.
3.7. RESTRICTIVE COVENANTS. - (section 3.7 is applicable to both
parties)
3.7.1. NON-COMPETITION. The Seller and the Stockholders recognize
that the covenants of the Seller and each Stockholder contained in this
Section 3.7.1 (the "Covenant Not to Compete") are an essential part of
this Agreement and that, but for the agreement of the Seller and each
Stockholder to comply with such covenants, the Buyer would not enter
into this Agreement or the other Transaction Documents. The Seller and
the Stockholders acknowledge and agree that the Covenant Not to Compete
is necessary to protect the Acquired Assets acquired by Buyer,
including without limitation, goodwill, and that irreparable harm and
damage will be done to the Buyer if the Seller or any Stockholder
competes with the Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Seller and the Stockholders acknowledge that
the Shares are consideration for professional relationships and market
place reputation developed by the Seller and the Stockholders and the
Seller and the Covenant Not to Compete is necessary for the Buyer to
receive the full benefit of this Agreement. The Seller and each
Stockholder shall not individually, or in concert, directly or
indirectly, do any of the following:
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(a) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce,
interfere with, or endeavor to cause (in each case in such a
manner that could have a material adverse effect on the financial
condition, prospects or operation of the Acquired Assets or the
Business) any customer, which has utilized the services of the
Seller at any time during the two (2) year period preceding the
date of this Agreement or was being pursued as a prospect by the
Seller as of the date of this Agreement (each, a "Customer"), to
modify, amend, terminate or otherwise alter the terms upon which
it acquires services from the Buyer, nor to acquire from any party
other than the Buyer any services of the kind available from the
Buyer;
(b) engage or become interested in, as owner, employee,
partner, through equity ownership (not including up to a 1%
passive equity interest in a public company), investment of
capital, lending of money or property, rendering of services, or
otherwise, either alone or in association with others, any
business competitive with the Business (including within the
definition of the Business, without limitation, any business of
the type or types conducted by the Seller at any time during the
two (2) year period preceding the date of this Agreement or under
development by the Seller on the date of this Agreement);
(c) perform any material act intended to advance an interest
of any competitor of the Business, or encourage any other person
to make any such statement or to perform any such act; or
(d) perform any material act intended to cause any Customer
or prospective customer to use the services or purchase the
products of any competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any
other political subdivision of any state of the United States of
America or of any other country in the world where the Seller
conducted the Business any time during the two (2) year period
preceding the date of this Agreement including, but not limited
to, Japan. This Covenant Not to Compete shall bind the Seller and
each Stockholder until the fifth anniversary of the date of this
Agreement. The parties hereto agree that the duration and area for
which the Covenant Not to Compete set forth in this Section 3.7.1
is to be effective are reasonable. Buyer agrees not to compete in
the manufacturing of Emu Oil for the same time periods required of
Seller. All conditions and terms of no compete required of the
Seller will apply to the Buyer as it relates to manufacturing of
Emu Oil.
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3.7.2. CONFIDENTIALITY. The Seller and each Stockholder
acknowledge their intent that the Seller shall fully and effectively
convey to the Buyer all proprietary rights to be transferred or
licensed to the Buyer pursuant hereto. Accordingly, notwithstanding the
expiration of the Covenant Not to Compete set forth in Section 3.7.1,
the Seller and each Stockholder shall at all times keep confidential
and shall not disclose to others any proprietary rights and shall not
use or permit to be used any proprietary rights for any purpose other
than performance of obligations to the Buyer.
3.7.3. NON-DIVERSION. For the period during which the Covenant Not
to Compete binds the Seller and the Stockholders pursuant to Section
3.7.1, the Seller and each of the Stockholders shall not, and shall
cause their affiliates not to, divert or attempt to divert or take
advantage of or attempt to take advantage of any actual or potential
business or opportunities of the Buyer of which Seller or any of the
Stockholders become aware as the result of their affiliation with the
Business or their relationship with the Buyer and which relate
specifically to the Business, or any part thereof. This Section 3.7.3
is an addition to and not by way of limitation of any other duties the
Stockholders may have to the Buyer.
3.7.4. NON-RECRUITMENT. For the respective periods during which
the Covenant Not to Compete binds the Seller and the Stockholders
pursuant to Section 3.7.1, neither the Seller nor the Stockholders
shall hire away, or cause any other person to hire away, any employee
of or consultant to the Buyer (including, without limitation, persons
employed or engaged by the Seller before the date of this Agreement),
or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their
employment or engagement with the Buyer.
3.7.5. REMEDIES. The covenants contained in this Section 3.7.5
impose a reasonable restraint on the Seller and the Stockholders in
light of the activities and business of the Seller and future plans of
the Buyer. The Seller and each Stockholder acknowledge that if they
violate any of the covenants contained in this Section 3.7
(collectively, the "Restrictive Covenants"), it will be difficult to
determine the resulting damages to the Buyer and, in addition to any
other remedies the Buyer may have, the Buyer shall be entitled to
temporary injunctive relief without being required to post a bond and
permanent injunctive relief without the necessity of proving actual
damages. The Seller and the Stockholders shall be liable to pay all
costs, including reasonable attorneys' fees and expenses, that the
Buyer may incur in enforcing or defending, to any extent, any of the
Restrictive Covenants, whether or not litigation is actually commenced
and including litigation of any appeal defended by the Buyer where such
party succeeds in enforcing any of the Restrictive Covenants. The Buyer
may elect to seek one or more remedies at its discretion on a case by
case basis. Failure to seek any or all remedies in one case shall not
restrict the Buyer from seeking any remedies in another situation. Such
action by the Buyer shall not constitute a waiver of any of its rights.
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3.7.6. SEVERABILITY AND MODIFICATION OF ANY UNENFORCEABLE
COVENANT. Each of the Restrictive Covenants will be read and
interpreted with every reasonable inference given to its
enforceability. However, if any term, provision or condition of the
Restrictive Covenants is held by a court or arbitrator to be invalid,
void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated. If a court or arbitrator should determine any
of the Restrictive Covenants are unenforceable because of over-breadth,
then the court or arbitrator shall modify such covenant so as to make
it enforceable to the fullest extent the court or arbitrator deems
reasonable and enforceable under the prevailing circumstances. The
Covenant Not to Compete shall be deemed to be a series of separate
covenants, one for each and every county of each and every state of the
United States of America and each and every political subdivision of
each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
3.8. CONFIDENTIALITY. Each of the parties hereto agrees that it will
not use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions contemplated
herein ("Information") in a manner or for a purpose detrimental to such other
party or otherwise than in connection with the transaction, and that they will
not disclose, divulge, provide or make accessible (collectively, "Disclose"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their responsible directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's regular counsel, by other requirements of law; PROVIDED, HOWEVER, that
prior to any Disclosure of any Information permitted hereunder, the disclosing
party shall first obtain the recipients' undertaking to comply with the
provisions of this subsection with respect to such information. The term
"Information" as used herein shall not include any information relating to a
party which the party disclosing such information can show: (i) to have been in
its possession prior to its receipt from another party hereto; (ii) to be now or
to later become generally available to the public through no fault of the
disclosing party; (iii) to have been available to the public at the time of its
receipt by the disclosing party; (iv) to have been received separately by the
disclosing party in an unrestricted manner from a person entitled to disclose
such information; or (v) to have been developed independently by the disclosing
party without regard to any information received in connection with this
transaction. Each party hereto also agrees to promptly return to the party from
whom originally received all original and duplicate copies of written materials
containing Information should the transactions contemplated herein not occur. A
party hereto shall be deemed to have satisfied its obligations to hold the
Information confidential if it exercises the same care as it takes with respect
to its own similar information.
3.9. PUBLIC ANNOUNCEMENTS. None of the parties hereto shall make any
public announcement with respect to the transactions contemplated herein without
the prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements which are deemed by its counsel to
be required by applicable law so long as the party so required to make an
announcement promptly upon learning of such requirement notifies the other
parties of such requirement and discusses with the other parties in good faith
the exact proposed wording of any such announcement.
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4. SECURITIES RESTRICTIONS
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The Seller and each of the Stockholders acknowledge and represent as
follows:
4.1. The Seller and the Stockholders are each residents of, are
domiciled in and received the offer and made the decision to invest in the
Shares in the State of Oklahoma.
4.2. The Buyer has made available to the Seller and the Stockholders or
the Seller's and the Stockholder's advisors the opportunity to obtain
information to evaluate the merits and risks of the investment in the Shares,
and the Seller and the Stockholders have received all information requested from
the Buyer. The Seller and the Stockholders have had an opportunity to ask
questions and receive answers from the Buyer regarding the terms and conditions
of the offering of the Shares and the business, properties, plans, prospects and
financial condition of the Buyer and to obtain additional information as the
Seller and the Stockholders have deemed appropriate for purposes of investing in
the Shares pursuant to the Agreement.
4.3. The Seller and the Stockholders recognize that the Buyer has a
limited operating history and that the Shares as an investment involve a high
degree of risk, including, but not limited to, the risk of economic losses from
operations of the Company.
4.4. The Seller and the Stockholders realize that the Shares have not
been registered under the Securities Act of 1933 ("1933 Act") or under the
securities laws of any other jurisdiction and, therefore, the Shares cannot be
resold unless they are subsequently registered under said laws or exemptions
from such registrations are available.
4.5. The Seller and the Stockholders are purchasing the Shares in the
name of the Seller solely for the Seller's and the Stockholders' own beneficial
interest and not as nominee for, or on behalf of, or for the beneficial interest
of, or with the intention to transfer to, any other person, trust or
organization. The Seller and the Stockholders are acquiring these securities for
investment and not with a view towards resale or distribution.
4.6. The Seller and the Stockholders acknowledge that the offering of
the Shares is subject to the Federal securities laws of the United States and
state securities laws of those states in which the Shares are offered, that the
offering of the Shares is exempt from registration and qualification under
Section 3(b) of the 1933 Act and Rule 504 of Regulation D promulgated
thereunder.
4.7. The Seller, and each Stockholder who is not an individual, make
the following additional representations:
4.7.1. The Seller and each such Stockholder was not organized for
the specific purpose of acquiring the Shares; and
4.7.2. This Agreement has been duly authorized by all necessary
action on the part of the Seller and each such Stockholder, has been
duly executed by an authorized representative of the Seller and each
such Stockholder, and is legal, valid and binding obligations of the
Seller and each such Stockholder enforceable in accordance with its
terms.
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5. MISCELLANEOUS
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5.1. EFFECT OF HEADINGS. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for convenience only and shall not
affect the construction or interpretation of any of its provisions.
5.2. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
5.3. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5.4. SCHEDULES. All Schedules attached hereto or referred to herein are
hereby incorporated by reference in this Agreement and are made a part hereof.
5.5. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
5.6. ASSIGNMENT. This Agreement shall be binding on, and shall inure to
the benefit of, the parties to it and their respective heirs, legal
representatives, successors, and assigns; provided, however, that the Buyer may
assign any of its rights under this Agreement, to an affiliate of the Buyer.
5.7. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Nevada.
5.8. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of final jurisdiction, it is the intent of the
parties that all other provisions of this Agreement be construed to remain fully
valid, enforceable, and binding on the parties.
5.9. ATTORNEYS' FEES. In the event of any action arising out of or
pertaining to this Agreement or the rights and duties of any person in relation
thereto, in addition to such other relief that may be granted, the prevailing
party shall be entitled to receive a reasonable sum as and for his attorneys'
fees as the court may award.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
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The "Buyer"
GATEWAY DISTRIBUTORS, LTD.
By:/s/ Xxxxxxx X. Xxxxxx
--------------------------------
Xxxxxxx X. Xxxxxx, President
The "Seller"
AMERICAN OUTBACK, INC.
By:/s/ Xxxx Xxxxx
--------------------------------
Xxxx Xxxxx, President
"Stockholders"
By:/s/ Xxxx Xxxxx
--------------------------------
Xxxx Xxxxx
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