EXHIBIT 2.2(B)
EARNOUT AGREEMENT
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This Earnout Agreement ("Agreement") is entered into this 30th day of
November, 1999, among Seymour Glaser, Joan Mendelson, Trustee, Allan I. Sirkin
and Neil Sirkin (the "Shareholders") and Nutrition For Life International, Inc.
("NFLI"). The Shareholders and NFLI are collectively referred to as the
"Parties".
RECITALS
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A. On October 25, 1999, NFLI, Advanced Nutraceuticals, Inc., AC
Acquisition Company, Ash Corp. ("Ash"), Allan I. Sirkin and Neil Sirkin entered
into an Agreement and Plan of Merger (the "Merger Agreement"). An Amendment to
the Agreement was made November 24, 1999 which, among other things, added
Bactolac Pharmaceutical Inc. ("BPI") as a party to the Merger Agreement. All
references to the Merger Agreement in this Agreement give effect to the
Amendment.
B. A condition to the closing of the merger transaction contemplated by
the Merger Agreement (the "Closing") is the execution and delivery of this
Agreement.
C. The Shareholders are all of the shareholders of Ash. As provided in
the Merger Agreement, the Shareholders, as the shareholders of Ash, shall
receive for the conversion of their shares of Ash, $750,000 in cash, $500,000 in
a Promissory Note, stock in NFLI valued at $1,400,000 and up to $3,000,000 in
NFLI stock as an earnout payment, the determination and payment of which shall
be in accordance with the terms and conditions of this Agreement.
D. Subsequent to the Closing, the business operations of Ash will be
conducted as a division of BPI. For purposes of this Agreement, the operations
of that division will be referred to as operations of "Ash."
STATEMENT OF AGREEMENT
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NOW THEREFORE, in consideration of the premises and of the respective
covenants and provisions herein contained, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
EARNOUT PAYMENT
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1.1 Nature of Earnout Payment.
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(a) NFLI shall reserve for issuance as an earnout payment to the
Shareholders up to 105,634 shares of NFLI's $.001 par value Series A
Preferred Stock (the "Convertible Preferred Stock") and 1,056,340 shares of
NFLI's $.01 par value common stock (the "Common Stock"). The 105,634
shares of Convertible
Preferred Stock are automatically convertible into 1,056,340 shares of the
Common Stock pursuant to the terms of the Statement of Designation for the
Series A Preferred Stock. The value of the 1,056,340 shares of Common Stock
is $3,000,000. The maximum of 1,056,340 shares of Common Stock which may be
received by The Shareholders as an earnout payment pursuant to this
Agreement has been determined by dividing $3,000,000 by the average of the
closing prices per share of the Common Stock on The Nasdaq Stock Market for
the five trading days preceding November 16, 1999.
(b) For purposes of this Agreement, it is assumed that the NFLI
shareholders will approve the conversion of Series A Preferred Stock to
Common Stock prior to the time that The Shareholders would be entitled to
receive their earnout payments pursuant to this Agreement. Accordingly, it
is provided in this Agreement that shares of Common Stock will be issued to
The Shareholders. In the event that the shareholders have not approved the
conversion of Series A Preferred Stock to Common Stock prior to the time
that The Shareholders would be entitled to receive their earnout payments,
then NFLI shall issue Convertible Preferred Stock instead of Common Stock
to The Shareholders. In that event, The Shareholders shall receive one
share of Convertible Preferred Stock for every ten shares of Common Stock
that they would have received pursuant to this Agreement if the
shareholders had approved the conversion.
(c) The Shareholders shall receive from NFLI 1,056 shares of Common
Stock for each $1,000 in Pre-Tax Income in Year One which is in excess of
$500,000. However, in no event, will the Shareholders be entitled to
receive more than 792,000 shares of Common Stock as an earnout payment
based on Year One results.
(d) The Shareholders shall receive from NFLI 1,056 shares of Common
Stock for each $1,000 in Pre-Tax Income in Year Two in excess of $500,000.
In addition, if Year One income exceeded $750,000, then the difference
between Pre-Tax Income for Year One and $750,000, will be applied for
purposes of calculating Pre-Tax Income for Year Two.
(e) Notwithstanding anything herein to the contrary, the maximum
number of shares of Common Stock which may be issued as an earnout payment
pursuant to this Agreement to the Shareholders shall be 1,056,340.
(f) Any earnout payments made to the Shareholders pursuant to this
Agreement shall be in accordance with the percentage of stock the
Shareholders held in Ash prior to the Closing as provided in Schedule 2.1
to the Merger Agreement.
1.2 Period for Payment. For purposes of calculation of the earnout
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payment, Year One will begin on December 1, 1999 and end on November 30, 2000,
Year Two will
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begin on December 1, 2000 and end on November 30, 2001 and Year Three will begin
on December 1, 2001 and end on November 30, 2002.
1.3 Registration Obligation. Prior to the issuance of shares of Common
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Stock to The Shareholders as an earnout payment pursuant to this Agreement, the
Company shall prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such Common Stock. The Company
shall use its best efforts to cause such registration statement to become
effective, and, upon the request of The Shareholders, keep such registration
statement effective for a period of up to one year. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
registration obligation that The Shareholders shall furnish to the Company such
information regarding themselves and the intended method of disposition of the
Common Stock as shall be required to effect the registration for resale by The
Shareholders of the Common Stock received by them pursuant to this Agreement.
NFLI shall be entitled to postpone for a reasonable period of time (not to
exceed 180 days) the filing of any registration statement if, in the good faith
judgment of NFLI's Board of Directors, such registration would materially
interfere with NFLI's own impending financing.
1.4 Withholding Taxes. NFLI or its affiliates may take such steps as they
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deem necessary or appropriate for the withholding of any taxes which they may be
required by law or regulation or any governmental authority, whether federal,
state or local, domestic or foreign, to withhold in connection with the earnout
payment, including, but not limited to, the withholding of all or any portion of
any payment owed by them to any of The Shareholders, or the withholding of the
issuance of NFLI stock to be issued in connection with the earnout payment.
ARTICLE II
COMPUTATION OF PRE-TAX INCOME
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2.1 Manner of Computation. For purposes of this Agreement, "Pre-Tax
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Income" of Ash for each of Year One, Year Two and Year Three shall mean Ash's
aggregate earnings net of losses from operations, calculated as if it were being
operated as a separate and independent corporation, after deduction of all
appropriate expenses, charges, and reserves, but before adjustment for federal,
state, and local income or franchise taxes. Pre-Tax Income shall be determined
in accordance with generally accepted accounting principles (GAAP") consistently
applied by NFLI after consultation with the firm of independent certified public
accountants engaged by NFLI for purposes of its own audit ("NFLI's
Accountants"); provided, however, that in determining such Pre-Tax Income:
(a) Pre-Tax Income shall be computed without regard to "extraordinary
items" of gain or loss as that term shall be defined in GAAP;
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(b) Pre-Tax Income shall not include any gains, losses or profits
realized from the sale of any assets other than in the ordinary
course of business;
(c) No deduction shall be made for any management fees, general
overhead expenses or other intercompany or divisional charges, of
whatever kind or nature, charged by NFLI to Ash, except (i) for a
fixed charge of $10,000 per month and (ii) NFLI may charge
interest on any loans or advances made by NFLI to Ash or to BPI
in connection with the business operations of Ash at a rate of
9%;
(d) No deduction shall be made for legal or accounting fees and
expenses arising out of this Agreement or the Merger Agreement;
(e) The purchase and sales prices of goods and services sold by Ash
to NFLI or its affiliates or purchased by Ash from NFLI or its
affiliates shall be adjusted to reflect the amounts that Ash
would have realized or paid if dealing with an independent party
in an arm's length commercial transaction; however, it is
understood that NFLI or its affiliates may offer special
arrangements to Ash. Any such arrangements which modify this
Agreement shall be in writing and signed by both NFLI and either
or both Allan I. Sirkin or Neil Sirkin; and
(f) Depreciation and amortization of assets acquired from Ash shall
be computed under the straight-line method, using the carrying
value of depreciable assets less applicable reserves, as shown on
the books and records of Ash, and the useful lives for such
assets, or categories thereof as though the merger of Ash and
NFLI had not been effected.
2.2 Time of Determination.
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(a) The Pre-Tax Income of Ash shall be determined as soon as
reasonably practicable after filing of NFLI's Annual Report on
Form 10-K for the close of Year One, Year Two and Year Three by
NFLI. Copies of the reports setting forth the computation of the
Pre-Tax Income of Ash shall be submitted in writing to The
Shareholders and, unless The Shareholders who own at least a
majority of the NFLI Preferred Stock issued to the Shareholders
at the Closing notify NFLI within 15 business days after receipt
of the report that they object to the computation of Pre-Tax
Income set forth therein, the reports shall be binding and
conclusive for the purposes of this Agreement. The Shareholders
shall have access to the books and records of Ash and to NFLI's
Accountant's workpapers (to the extent that NFLI can facilitate
such access) during regular business hours to verify the
computation of Pre-Tax Income made by NFLI.
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(b) If The Shareholders who own at least a majority of the NFLI
Preferred Stock issued to the Shareholders at the Closing notify
NFLI in writing within 15 business days after receipt of NFLI's
report that they object to the computation of Pre-Tax Income set
forth therein, the amount of Pre-Tax Income for the Year (or
other period) for which such report relates shall be determined
by negotiation between The Shareholders who have provided notice
of objection to NFLI and NFLI. If these persons are unable to
reach agreement within 20 business days after such notification,
the determination of the amount of Pre-Tax Income for the period
in question shall be submitted to a mutually agreeable third
party firm of independent certified public accountants ("Special
Accountants") for determination, whose determination shall be
binding and conclusive on the parties. If the Special Accountants
determine that the Pre-Tax Income has been understated by 10% or
more, then NFLI shall pay the Special Accountants' fees, costs
and expenses. If Pre-Tax Income has not been understated or has
been understated by less than 10%, then The Shareholders shall
pay the Special Accountants' fees, costs and expenses.
ARTICLE III
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MISCELLANEOUS
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3.1 Benefit of Parties. All the terms and provisions of this
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Agreement shall be binding upon and inure to the benefit of the parties and
their respective permitted representatives, successors and assigns.
3.2 Entire Agreement. This Agreement contains the entire
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understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect thereto.
3.3 Counterparts. This Agreement may be executed simultaneously in
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two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Cooperation. During the Term each party will cooperate with and
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assist the other party in taking such acts as may be appropriate to enable all
parties to effect compliance with the terms of this Agreement and to carry out
the true intent and purposes hereof.
3.5 Notices. All notices, elections, request, demands or other
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communications hereunder shall be in writing and shall be deemed given at the
time delivered personally or by fax or upon receipt if deposited in the United
States mail, certified or registered, return receipt requested, postage prepaid
addressed to the parties as follows (or to such other person or place, written
notice of which any party hereto shall have given to the other):
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If to the Shareholders: Allan I. Sirkin
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3600 25th Avenue
Gulfport, MS 39501
Fax: 228-865-0842
Seymour Glaser
c/o Charles W. Wright, Esq.
1208 22nd Avenue
Meridian, MS 39302-1677
Fax: (601) 485-6571
Joan Mendelson, Trustee
c/o Charles W. Wright, Esq.
1208 22nd Avenue
Meridian, MS 39302-1677
Fax: (601) 485-6571
With a Copy to: Alfred R. Koenenn, Esq.
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1109 Hancock Bank Building
Gulfport, MS 39502
Fax: 228-864-9052
Charles W. Wright, Jr.
1208 22nd Avenue
Meridian, MS 39302-1677
Fax: (601) 485-6571
(b) If to NFLI: Nutrition For Life International, Inc.
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9101 Jameel
Houston, TX 77040
Fax: 713-895-8927
Attention: Gregory Pusey, Chairman of the
Board of Directors
With a Copy to: Patton Boggs, LLP
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1660 Lincoln Street, Suite 1900
Denver, CO 80264
Fax: 303-894-9239
Attention: Robert M. Bearman, Esq.
3.6 Waiver of Compliance. The party for whose benefit a warranty,
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representation, covenant or condition is intended may in writing waive any
inaccuracies in the warranties, representations, covenants or conditions
contained in this Agreement or waive compliance with any of the foregoing and so
waive performance of any of the obligations of the other party hereto and any
defaults hereunder; provided however, that
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such waiver shall not affect or impair the waiving party's rights in respect to
any other warranty, representation, covenant, condition or default hereunder.
3.7 Index and Captions The captions of the Articles and Sections of this
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Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any Article or Section hereof.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed in multiple original counterparts as of the date set forth above.
_______________________________________
Seymour Glaser
_______________________________________
Joan Mendelson, Trustee
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Allan I. Sirkin
_______________________________________
Neil Sirkin
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:____________________________________
Authorized Officer
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