-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZ02iACqw9BlHSGgC9gpLI88EfQxYaLb4R2LrcudWerJX2x1wWH1SehtAlEdicYq ChkdgPLHPZ5E46SpH28zQw== 0001047469-99-033244.txt : 19990823 0001047469-99-033244.hdr.sgml : 19990823 ACCESSION NUMBER: 0001047469-99-033244 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNI NUTRACEUTICALS CENTRAL INDEX KEY: 0000857353 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 870468225 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-18160 FILM NUMBER: 99696891 BUSINESS ADDRESS: STREET 1: 10549 W JEFFERSON BLVD CITY: CULVER CITY STATE: CA ZIP: 90232 BUSINESS PHONE: 3102535305 MAIL ADDRESS: STREET 1: 5485 CONESTOGA COURT CITY: BOULDER STATE: CO ZIP: 80301 FORMER COMPANY: FORMER CONFORMED NAME: IRWIN NATURALS 4 HEALTH DATE OF NAME CHANGE: 19980903 FORMER COMPANY: FORMER CONFORMED NAME: IRWIN NATURALS/4HEALTH INC DATE OF NAME CHANGE: 19980715 FORMER COMPANY: FORMER CONFORMED NAME: 4HEALTH INC DATE OF NAME CHANGE: 19970813 10-K/A 1 10-K/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 0-18160 ------------------------ IRWIN NATURALS/4HEALTH, INC. (Exact name of registrant as specified in its charter) UTAH 87-0468225 (State of incorporation) (I.R.S. Employer Identification No.)
10549 WEST JEFFERSON BLVD. CULVER CITY, CALIFORNIA 90232 (Address of principal executive offices) Registrant's telephone number: (310) 253-5305 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: /X/ No: / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of April 9, 1999, 27,766,249 shares of the registrant's Common Stock, par value $0.01, were outstanding. The aggregate market value of the Common Stock held by non-affiliates of the registrant (i.e., excluding shares held by executive officers, directors, and control persons as defined in Rule 405) on that date was $20,766,380 (computed based upon the closing price for the Common Stock on the Nasdaq National Market on that date.) DOCUMENTS INCORPORATED BY REFERENCE None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT INDEX
SEC EXHIBIT REFERENCE NUMBER NUMBER TITLE OF DOCUMENT LOCATION - ---------- ----------- ---------------------------------------------------------------------- -------------------- Item 2. Plan of Acquisition, Reorganization, Liquidation, or Succession 2.01 2 Agreement and Plan of Merger dated April 10, 1996, by and between Incorporated by 4health, Inc., and Surgical Technologies, Inc. as amended June 4, 1996 Reference (4) 2.04 2 Amended and Restated Agreement and Plan of Merger dated December 24, Incorporated by 1997, signed January 7, 1998, by and between 4Health, Inc. and Irwin Reference (7) Naturals as amended April 2, 1998. 2.05 2 Agreement to Purchase Asset of Inholtra Naturals Limited This filing (9) 2.06 2 Agreement & Plan of Merger with Health Vitamin Express Inc. ("HVE") This filing (9) Item 3. Articles of Incorporation and Bylaws 3.01 3 Articles of Incorporation of Surgical Subsidiary, Inc., a Utah Incorporated by Corporation now known as Surgical Technologies, Inc. Irwin Reference (5) Naturals/4Health, Inc. 3.02 3 Articles of Merger and related Plan of Merger Incorporated by Reference (5) 3.03 3 Bylaws Incorporated by Reference (5) 3.04 3 Articles of Merger and related Plan of Merger Incorporated by Reference (4) 3.05 3 Form of Articles of Merger and related Plan of Merger Incorporated by Reference (7) Item 4. Instruments Defining the Rights of Security Holders 4.01 4 Form of Warrant Agreement between 4Health, Inc. and Zions First Incorporated by National Bank with related form of Warrant Reference (4) 4.02 4 Form of Sale Restriction Agreement respecting shareholders of both Incorporated by Surgical Technologies, Inc., and 4Health, Inc. Reference (4) 4.03 4 Form of Consent, Approval, and Irrevocable Proxy respecting certain Incorporated by Surgical stockholders with related schedule Reference (4) 4.04 4 Form of Consent, Approval, and Irrevocable Proxy respecting certain Incorporated by 4Health stockholders with related schedule Reference (4) 4.05 4 Specimen Common Stock Certificate Incorporated by Reference (4) 4.06 4 Specimen Warrant Certificate Incorporated by Reference (4) 4.07 4 Warrant certificates between 4Health and Allen & Company Incorporated Incorporated by dated April 15, 1997 Reference (6) Item 5. Other Items 5.01 5 Summary of Revolving Line of Credit Agreement between 4Health and Incorporated by Norwest Business Credit, Inc. Reference (1) 5.02 5 Summary of Revolving Line of Credit Agreement between 4Health and This filing (9) Wells Fargo Bank.
SEC EXHIBIT REFERENCE NUMBER NUMBER TITLE OF DOCUMENT LOCATION - ---------- ----------- ---------------------------------------------------------------------- -------------------- Item 10. Material Contracts 10.01 10 1996 Long-Term Stock Incentive Plan Incorporated by Reference (4) 10.02 10 Form of Option granted to Rockwell D. Schutjer Incorporated by Reference (4) 10.03 10 Form of Proprietary Information, Inventions, and Non-Competition Incorporated by Agreement between 4Health and R. Lindsey Duncan Reference (4) 10.04 10 Form of Employment Agreement between the Surviving Corporation and Incorporated by Rockwell Schutjer Reference (4) 10.05 10 Deed of Trust Note and related Deed of Trust, Assignment of Rents, Incorporated by Security Agreement, and Fixture Filing, dated February 20, 1997, in Reference (3) the principal amount of $1,350,000 due Standard Insurance Company 10.06 10 Form of Non-Negotiable Promissory Note Incorporated by Reference (7) 10.07 10 Promissory Note to issued into Inholtra Naturals Limited This filing (9) 10.08 10 Consulting Agreement with Michael Driver This filing (9) 10.09 10 Employment Agreement with Louis Mancini, Lindsey Duncan & Klee Irwin This filing (9) Item 20. Other Documents or Statements to Security Holders 20.01 20 Notice of change of transfer and warrant agent. Incorporated by Reference (2) Item 23. 23 23 Consent of Independent Public Accountant Incorporated by reference (8) Item 27. Financial Data Schedule 27.01 27 Financial Data Schedule Incorporated by reference (8)
- ------------------------ (1) Incorporated by reference from 4Health's report on Form 10-Q for the quarter ended September 30, 1997. (2) Incorporated by reference from 4Health's report on Form 10-Q for the quarter ended March 31, 1997. (3) Incorporated by reference from 4Health's report on Form 10-K for the year ended December 31, 1996. (4) Incorporate by reference from Surgical's registration statement on Form S-4 filed with the Commission, SEC file number 33-03243. (5) Incorporated by reference from Surgical's report on Form 10-K for the year ended March 31, 1994. (6) Incorporated by reference from Schedule 13D filed with the Commission by Allen & Company Incorporated on April 18, 1997. (7) Proxy Statement of 4Health, Inc. dated June, 1998. (8) Incorporated by reference from Irwin Naturals/4/Health Annual Report on Form 10-K for the year ended December 31, 1998. (9) Filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 19, 1999 IRWIN NATURALS/4HEALTH, INC. By: /s/ R. LINDSEY DUNCAN ----------------------------------------- R. Lindsey Duncan CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ R. LINDSEY DUNCAN - ------------------------------ Chairman of the Board August 19, 1999 R. Lindsey Duncan /s/ LOU MANCINI - ------------------------------ Chief Executive Officer August 19, 1999 Lou Mancini and Director - ------------------------------ Director August 19, 1999 Jonathan Diamond /s/ KLEE IRWIN - ------------------------------ Director August 19, 1999 Klee Irwin /s/ COREY FISCHER - ------------------------------ Chief Financial Officer August 19, 1999 Corey Fischer
EX-2.05 2 EXHIBIT 2.05 Exhibit 2.05 CLOSING MEMORANDUM Asset Purchase Agreement dated as of March 10, 1999 by and between Inholtra Investment Holdings and Trading, N.V. ("Holdings") Inholtra, Inc. ("Inc.") Inholtra Natural, Ltd. ("INL") for itself and on behalf of Vito V. Florio ("Vito") (the "Sellers") and Irwin Naturals/4Health, Inc. ("Buyer") The signing of the Asset Purchase Agreement and the closing thereunder occurred simultaneously on March 10, 1999 at 1:00 p.m. at the offices of Satterlee Stephens Burke & Burke LLP, located at 230 Park Avenue, New York, New York. Upon execution of all documents, Buyer delivered the Note and paid the purchase price to INL, on behalf of the Sellers. The following documents were delivered at the closing, in each case signed by the parties indicated. AGREEMENTS 1. Asset Purchase Agreement (Buyer; Sellers) 2. Promissory Note (Buyer) 3. Transitional Services Agreement (Buyer; INL) 4. Non-Compete Agreement (Buyer; Sellers) 5. Indemnity Escrow Agreement (Buyer; INL; Escrow Agent) 6. Consulting Agreement (Buyer; Ronald J. C. Gerard) 7. Security Escrow Agreement (Buyer; INL; Escrow Agent) ASSIGNMENTS 8. Assignment and Assumption Agreement (Buyer; Sellers) 9. General Assignment of Intangibles (Sellers) 10. U.S. Trademark Assignment - encumbered (Buyer; Inc.) 11. Trademark Assignment-Swiss - encumbered (Buyer; Holdings) 12. Community Trademark Assignment - encumbered (Buyer; Holdings) 13. Patent Assignment - encumbered (Buyer; Inc.) 14. Patent Assignment - encumbered (Buyer; Holdings) 15. Patent Assignment - encumbered (Buyer; Vito) SECURITY ESCROW DOCUMENTS 16. U.S. Trademark Assignment (Buyer; Inc.) 17. Trademark Assignment-Swiss (Buyer; Holdings) 18. Community Trademark Assignment (Buyer; Holdings) 19. General Reassignment of Intangibles (Buyer) 20. U.S. Trademark Reassignment (Buyer; Holdings) 21. Trademark Reassignment (Buyer; Holdings) 22. Community Trademark Reassignment (Buyer; Holdings) 23. Patent Reassignment (Buyer; Vito) 24. Patent Reassignment (Buyer; Holdings) 25. Patent Reassignment (Buyer; Holdings) 26. U.S. Patent Assignment (Buyer; Holdings) 27. PCT Patent Assignment (Buyer; Inc.; Vito) 28. EPO Patent Assignment (Buyer; Inc.; Vito) 29. Australian Patent Assignment (Buyer; Inc.) 30. Canadian Patent Assignment (Buyer; Vito) -2- OTHER CLOSING DOCUMENTS 31. Opinion of Seller's counsel (Faro & Associates) 32. Bill of Sale and Assignment (Sellers) 33. Resolutions of INL 34. Powers of Attorney A. Vito B. Holdings 35. Director's Certificates -3- ------------------------------------------------------------------- ASSET PURCHASE AGREEMENT BY AND BETWEEN IRWIN NATURALS/4HEALTH, INC. AND INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V., INHOLTRA, INC., AND INHOLTRA NATURAL, LTD., FOR ITSELF AND AS ATTORNEY-IN-FACT ON BEHALF OF VITO V. FLORIO ------------------------------------------------------------------- Dated: March 10, 1999 TABLE OF CONTENTS
PAGE 1. PURCHASE AND SALE AGREEMENT . . . . . . . . . . . . . . . . . . . . 1 1.1 AGREEMENT OF PURCHASED AND SALE . . . . . . . . . . . . . . . 1 1.2 PURCHASED ASSETS . . . . . . . . . . . . . . . . . . . . . . 2 1.3 ADDITIONAL PURCHASED ASSETS . . . . . . . . . . . . . . . . . 4 1.4 ASSUMED LIABILITIES . . . . . . . . . . . . . . . . . . . . . 4 1.5 PURCHASE PRICE, NOTE AND SECURITY ESCROW. . . . . . . . . . . 6 2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 ACTION BY BUYER . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 ACTION BY SELLER. . . . . . . . . . . . . . . . . . . . . . . 7 3. ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 FURTHER ASSURANCES/COOPERATION. . . . . . . . . . . . . . . . 8 3.2 NON-ASSIGNABLE CONTRACTS. . . . . . . . . . . . . . . . . . . 8 3.3 PAYMENT OF TAXES AND CHARGES UPON TRANSFER OF PURCHASED ASSETS . . . . . . . . . . . . . . . . . . . . . . 9 3.4 RETAINED LIABILITIES. . . . . . . . . . . . . . . . . . . . . 9 3.5 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . 9 3.6 PREPARATION OF FINANCIAL INFORMATION. . . . . . . . . . . . . 10 3.7 TRANSITIONAL SERVICES AGREEMENT . . . . . . . . . . . . . . . 10 3.8 CONSULTING AGREEMENT. . . . . . . . . . . . . . . . . . . . . 10 3.9 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.10 WAIVER OF COMPLIANCE WITH BULK TRANSFER LAWS. . . . . . . . . 10 3.11 NON-COMPETE AGREEMENT . . . . . . . . . . . . . . . . . . . . 11 3.12 REIMBURSEMENT OF BUYER . . . . . . . . . . . . . . . . . . . 11 3.13 NOTICE OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . 11 3.14 CHANGE OF NAME. . . . . . . . . . . . . . . . . . . . . . . . 11 3.15 OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 11 4. REPRESENTATIONS AND WARRANTIES AS TO SELLER . . . . . . . . . . . . 12 4.1 ORGANIZATION, STANDING AND POWER. . . . . . . . . . . . . . . 12 4.2 INTEREST IN OTHER ENTITIES. . . . . . . . . . . . . . . . . . 12 4.3 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.4 NONCONTRAVENTION. . . . . . . . . . . . . . . . . . . . . . . 13 4.5 PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.6 INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.7 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . 14 4.8 ABSENCE OF CHANGES. . . . . . . . . . . . . . . . . . . . . . 16 4.9 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 17 -i- 4.10 NO VIOLATION OF LAW . . . . . . . . . . . . . . . . . . . . . 18 4.11 GOVERNMENT AND THIRD-PARTY CONSENTS/ APPROVALS. . . . . . . . 18 4.12 PRODUCTS LIABILITY. . . . . . . . . . . . . . . . . . . . . . 18 4.13 MATERIAL AND OTHER CONTRACTS. . . . . . . . . . . . . . . . . 19 4.14 BUSINESS FINANCIAL STATEMENTS; 1998 REVENUES. . . . . . . . . 20 4.15 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . 20 4.16 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.17 INFORMATION AS TO SELLER. . . . . . . . . . . . . . . . . . . 21 5. REPRESENTATIONS AND WARRANTIES AS TO BUYER. . . . . . . . . . . . . 21 5.1 ORGANIZATION, STANDING AND POWER. . . . . . . . . . . . . . . 21 5.2 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.3 NONCONTRAVENTION. . . . . . . . . . . . . . . . . . . . . . . 21 5.4 INFORMATION AS TO BUYER . . . . . . . . . . . . . . . . . . . 22 6. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.1 INDEMNIFICATION BY SELLER . . . . . . . . . . . . . . . . . . 22 6.2 INDEMNIFICATION BY BUYER. . . . . . . . . . . . . . . . . . . 23 6.3 THIRD PARTY CLAIMS. . . . . . . . . . . . . . . . . . . . . . 23 6.4 PENDING LITIGATIONS . . . . . . . . . . . . . . . . . . . . . 24 7. NONDISCLOSURE/ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . 25 7.1 NONDISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 25 7.2 NO DISPARAGEMENT . . . . . . . . . . . . . . . . . . . . . . 25 7.3 INJUNCTIVE RELIEF, ETC. . . . . . . . . . . . . . . . . . . . 25 7.4 SCOPE OF RESTRICTION. . . . . . . . . . . . . . . . . . . . . 25 7.5 ADDITIONAL UNDERTAKINGS . . . . . . . . . . . . . . . . . . . 25 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 26 9. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 26 9.1 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.3 APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . . . 27 9.4 WAIVER, ETC . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.5 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.6 BINDING EFFECT; BENEFITS . . . . . . . . . . . . . . . . . . 28 9.7 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.8 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 28 9.9 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 28 9.10 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.11 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.12 EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . 28 9.13 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . 29
-ii- SCHEDULES 1.2(iii) Assumed Contracts 1.3 Other Excluded Assets 3.2 Non-Assignable Contracts 4.7 Intellectual Property 4.9 Litigation 4.12 Product Liability Claims 4.13(a) Material Contracts 4.13(b) Other Agreements 4.14 Financials -iii- EXHIBITS 1 Bill of Sale and Assignment 2 Transitional Services Agreement 3 Non-Compete Agreement 4 Indemnity Escrow Agreement 5 Seller's Opinion of Counsel 6 Promissory Note 7 Consulting Agreement 8 Security Escrow Agreement -iv- ASSET PURCHASE AGREEMENT AGREEMENT (this "Agreement"), dated as of the 10th day of March 1999, by and between Inholtra Natural, Ltd., a Maine corporation ("INL"), for itself and as attorney-in-fact on behalf of Vito V. Florio, a resident of Florida ("Vito's"), and Inholtra, Inc., a Florida corporation ("Inc.") and Inholtra Investment Holdings and Trading, N.V., a Netherlands Antilles company ("Holdings"; INL, Vito's, Inc., and Holdings being sometimes referred to herein individually and collectively as "Seller"), and Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation. W I T N E S S E T H: WHEREAS, Seller is engaged in the business of manufacturing, marketing, distributing and selling certain nutritional supplements and related products throughout the United States and in certain other countries (the "Business") and owns or has rights to use, among other assets, certain data bases, licenses, inventory, tradenames and goodwill relating thereto, all as more particularly set forth in this Agreement; and WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, as a going concern, the Business and all of the assets and rights relating thereto, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of and in reliance upon the covenants, conditions, representations and warranties herein contained, the parties hereto hereby agree as follows: 1. PURCHASE AND SALE AGREEMENT. 1.1 AGREEMENT OF PURCHASE AND SALE. Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations, warranties, covenants are conditions herein contained, on the Closing Date (as defined in Section 2.1 hereof) Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase from Seller, the Purchased Assets (as defined in Section 1.2 hereof), free and clear of any and all liens, pledges, security interests, claims, charges or encumbrances of any nature whatsoever. 1.2 PURCHASED ASSETS. As used in this Agreement the term "Purchased Assets" means all rights, interest and title to the properties and assets owned by Seller and otherwise employed, used or available for use in the Business, real and personal, tangible and intangible, of every kind and nature, wherever located, as the same shall exist on the Closing Date, including, without limitation: (i) the Intellectual Property Rights (as defined in Section 4.7 hereof), including, without limitation the "INHOLTRA", "QUICKSORB" and "ALGONOT" marks, and all goodwill associated therewith and with the Business; (ii) the Inventory (so defined in Section 4.6 hereof); (iii) all contracts, licenses, arrangements, leases, agreements and commitments, written or oral, that are listed on SCHEDULE 1.2(iii) (the "Assumed Contracts"); (iv) all brochures, sales literature, catalogues, price lists, mailing lists, distribution lists, photographs, advertising materials, media materials and plates, art work and copy files (for all media), promotional and other selling material used in the Business, and masters thereof, wherever situated, in hard copy and electronic format, including, but not limited to, all web sites owned or developed by Seller, together with all elements thereof, including, without limitation, domain names, text, audio, video and graphics, and all intellectual property rights related thereto (all such items being hereinafter collectively referred to as the "Promotional Materials"); (v) all papers, documents (including information stored in electronic forms such as computer disks, CD Rom, computer tape, computer hard drive and the like), instruments, books and records, correspondence, files, books of account, data and laboratory books, and other records by which any of the Purchased Assets might be 2 identified or rights with respect thereto enforced, or otherwise pertaining to the Purchased Assets or the Business that are located at the Seller's offices or other locations used in connection with the Business (including without limitation, customer invoices, customer lists, vendor and supplier lists, drafts and other documents and materials relating to customer transactions); (vi) all analytical and testing reports, files and production data relating to the Business, in hard copy and electronic format; (vii) all back order files and collections files relating to the Business; (viii) all credits, prepaid expenses, deferred charges, advance payments, security charges, and other prepaid items, deposits and advances (including royalty advances as set forth in SCHEDULE 4.7) relating to the Business; (ix) all rights of Seller to the computer software programs (including source and object codes to the extent Seller owns the rights, data and related documentation) and the licenses or other agreements conferring rights related thereto used in connection with the Business; (x) all office supplies and equipment used in connection with the Business; (xi) all rights to receive payment, including promissory notes and all balances, credits, deposits, accounts or monies of Seller held by third parties (other than accounts receivable generated by the Business prior to the Closing Date); and (xii) all other assets and properties of Seller that are used in connection with the Business other than Excluded Assets. 3 1.3 ADDITIONAL PURCHASED ASSETS. In the event that Buyer shall establish and notify Seller at any time or from time to time following the Closing Date that any of the Schedules describing the Purchased Assets failed to include assets or properties of Seller used by Seller in the Business (other than Excluded Assets), then: (a) with respect to any such assets or properties used in the Business, Seller shall, at its own expense, promptly convey, transfer, assign and deliver to Buyer or other such person as may be designated by Buyer, and Buyer or such designee shall acquire from Seller, without additional consideration, all such assets and properties, which shall be deemed for all purposes to be included in the definition of Purchased Assets hereunder as provided in Section 1.2 hereof and (b) with respect to any such assets or properties used primarily, but not exclusively, in the Business, Seller shall grant to Buyer an irrevocable, royalty-free license or otherwise convey to Buyer the unlimited right to use any such assets or property, without additional consideration. Excluded Assets shall mean (a) accounts receivable and other receivables related to merchandise shipped prior to the Closing Date, (b) contracts, agreements or commitments which are not Assumed Contracts, and (c) those assets listed on SCHEDULE 1.3. 1.4 ASSUMED LIABILITIES. (a) Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations, warranties, covenants and conditions herein contained, on the Closing Date Buyer shall assume, and shall only assume Seller's executory obligations under the Assumed Contracts (but not any obligations thereunder arising from any breach or alleged breach by Seller thereof), in each case only to the extent that the foregoing represent obligations which are by their stated terms to be performed, in the ordinary course, subsequent to the Closing Date ("Assumed Liabilities"). (b) Anything herein contained to the contrary notwithstanding, the following liabilities of Seller are specifically excluded from the Assumed Liabilities and shall constitute "Retained Liabilities": (i) any and all income, franchise, sales, use, property, payroll, employment, transfer and any other taxes, charges, fees, levies, imports, duties, licenses or other assessments, together with 4 interest, penalties and any other additions to tax or additional amounts imposed by any governmental or taxing authority, or liability for such amounts as a result of Seller being a member of an affiliated, consolidated, combined or unitary group or being a party to any agreement or arrangement whereby Seller may be liable for taxes or any other person for any period prior to (or up to and including) the close of business on the day prior to the Closing Date; (ii) any and all liabilities to any employees of Seller for services performed for Seller, or for any severance or other benefits, and any and all employment or consulting arrangements, executive compensation plans, collective bargaining agreements, bonus plans, guaranteed bonus agreements, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and stock option plans, group life insurance, hospitalization insurance or other plans or arrangements providing for benefits to employees of Seller; (iii) any liabilities and obligations of Seller, the existence of which constitutes a breach of any of the representations, warranties or covenants made by Seller in this Agreement or in any document delivered by it pursuant hereto; (iv) any liabilities and obligations arising out of or in connection with any defect in any product manufactured or sold by Seller prior to the Closing Date, or any litigation, investigation or proceeding to which Seller is a party, or which is based upon events occurring or circumstances existing prior to the Closing Date; (v) any accounts payable of the Business; (vi) any liabilities and obligations of Seller for any breach or violation, prior to the Closing Date, of any of the Assumed Contracts; and 5 (vii) any other liability or obligation which is not an Assumed Liability. (c) For purposes of clarification, notwithstanding the assignment of any contract or other rights included in the Purchased Assets, except as otherwise provided herein Seller has not assigned and Buyer has not assumed and Seller retains its rights and obligations, including all rights and remedies of enforcement, with respect to receivables or other amounts owed or obligations to or from Seller on sales made prior to the Closing Date. 1.5 PURCHASE PRICE, NOTE AND SECURITY ESCROW. The purchase price for the Purchased Assets shall be $13,250,000.00 (the "Purchase Price"), of which $250,000.00 has been paid to Seller in cash as a non-refundable down payment, the sum of $3,000,000.00 shall be paid in cash to Seller at the Closing (the "Cash Purchase Price"), and the balance of which shall be paid by a promissory note of Buyer issued to Seller at the Closing, in the form annexed hereto as EXHIBIT 6 (the "Note"). It is acknowledged and agreed that upon maturity of the Note, and as provided therein, $1,000,000.00 of the principal amount due thereunder shall be paid to Satterlee Stephens Burke & Burke LLP, as escrow agent (the "Indemnity Escrow Agent") pursuant to the terms and conditions of the Indemnity Escrow Agreement (the "Indemnity Escrow Agreement") to be executed and delivered at the Closing pursuant to Section 3.15 below. As security for Buyer's obligations under the Note, the parties agree that the Reassignments (as defined herein) shall be deposited in escrow (the "Security Escrow") pending the payment in full of the Note, and the Clean Assignments thereof (as defined in the Note) of the Intellectual Property Rights shall also be deposited in the Security Escrow Agreement to be delivered to Buyer for recording upon payment in full of the Note, all as provided in the Security Escrow Agreement to be entered into by the parties at the Closing in substantially the form attached hereto as EXHIBIT 8 (the "Security Escrow Agreement"). As a further inducement to Buyer to enter into this Agreement, Seller has agreed to enter into the Non-Compete Agreement and the Transitional Services Agreement, and has caused Ronald J.C. Gerard to enter into the Consulting Agreement (as such terms are defined in Section 3). The Purchase Price shall be allocated as determined by Buyer, in its discretion (Seller hereby agreeing to report the transaction for tax purposes on a basis consistent therewith). 6 2. CLOSING. 2.1 CLOSING DATE. The closing of the sale and purchase provided for herein (the "Closing") shall take place at 10:00 A.M., New York time, at the offices of Satterlee Stephens Burke & Burke, 230 Park Avenue, New York, New York 10169 on March 10, 1999 or at such other place, time and date as may hereafter be mutually agreed upon by the parties (such time and date of Closing being hereinafter called the "Closing Date"). 2.2 ACTION BY BUYER. Subject to the terms and conditions herein contained, on the Closing Date, Buyer shall pay to Seller the Cash Purchase Price and shall execute and deliver to Seller this Agreement, the Note, the Indemnity Escrow Agreement, the Consulting Agreement, the Non-Compete Agreement, the Security Escrow Agreement, the Transitional Services Agreement and the other agreements contemplated hereby, and shall execute and deliver to John H. Faro, Esq., as escrow agent (the "Security Escrow Agent"), the Reassignments. 2.3 ACTION BY SELLER. Subject to the terms and conditions herein contained, on the Closing Date, Seller shall execute and deliver to Buyer this Agreement, the Indemnity Escrow Agreement, the Non-Compete Agreement, the Transitional Service Agreement, the Security Escrow Agreement, and the other agreements contemplated hereby, shall cause Ronald J.C. Gerard to execute and deliver the Consulting Agreement, and shall also execute and deliver to Buyer the following: (a) a duly executed Bill of Sale and Assignment in substantially the form of EXHIBIT 1 attached hereto and made a part hereof; (b) assignments with respect to the Intellectual Property Rights (in forms suitable for recording in the United States Patent and Trademark Office and in the comparable offices of all relevant foreign jurisdictions) other instruments of transfer, including without limitation any assignments with respect to all Assumed Contracts including License Agreements; (c) all third-party consents and governmental and administrative approvals, as shall be, 7 in the opinion of Buyer, necessary or appropriate in order to convey, transfer and assign to and vest in Buyer good and marketable right, title and interest in and to the Purchased Assets, free and clear of all liens, pledges, security interests, claims, charges and encumbrances of any nature whatsoever; (d) an opinion of John H. Faro, Esq., counsel for Seller, dated the Closing Date, in substantially the form of EXHIBIT 5 attached hereto and made a part hereof; and (e) duly executed powers of attorney, in form and substance satisfactory to Buyer, authorizing the parties named therein to act on behalf of Vito's, Inc. and Holdings, as the case may be, in all capacities and in respect of all actions contemplated hereunder and under any document contemplated hereby. 3. ADDITIONAL COVENANTS. 3.1 FURTHER ASSURANCES/COOPERATION. (a) Seller hereby agrees that it shall from time to time after the Closing Date, at its sole cost and expense, take any and all actions, and execute, acknowledge, deliver, file and/or record any and all documents and instruments, as Buyer may reasonably request in order to more fully perfect the rights which are intended to be granted to Buyer hereunder. (b) Each of the parties hereto hereby agrees to fully cooperate with the other parties hereto in preparing and filing any notices, applications, reports and other instruments and documents which are required by, or which are desirable in the opinion of any of the parties hereto in respect of, any statute, rule, regulation or order of any governmental or administrative body in connection with the transactions contemplated hereby. 3.1 NON-ASSIGNABLE CONTRACTS. Anything in this Agreement contained to the contrary notwithstanding, nothing in this Agreement shall be construed as an attempt to assign (a) any contract or agreement that is at law non-assignable without the 8 consent of the other party thereto and as to which such consent shall not have been given, or (b) any contract or agreement as to which all the remedies for the enforcement thereof and the rights thereunder enjoyed by Seller would not, as a matter of law, pass to Buyer as an incident of the assignments provided for by this Agreement. Attached hereto as SCHEDULE 3.2 is a list of all such non-assignable contracts. In order, however, that the full value of every contract and agreement of the character described in clauses (a) and (b) of the immediately preceding sentence and all claims and demands relating to such contracts and agreements may be realized, Seller hereby agrees with Buyer that it will, at its sole cost and expense, at the request and under the direction of Buyer, in the name of Seller or otherwise, as Buyer shall specify and as shall be permitted by law, take all such action and do or cause to be done all such things as shall be, in the opinion of Buyer, necessary or desirable (1) in order that the rights and benefits of Seller under such contracts and agreements shall be preserved and (2) for, and to facilitate, the collection of the monies due and payable, and to become due and payable, to Seller in and under every such contract and agreement, and Seller will hold the same for the benefit of and will pay the same, when received, to Buyer. 3.3 PAYMENT OF TAXES AND CHARGES UPON TRANSFER OF PURCHASED ASSETS. Seller shall be responsible for, and shall pay, any and all filing, recording, registration and similar fees, arising out of the transactions contemplated by this Agreement. Buyer shall be responsible for, and shall pay, any and all sales, use, purchase, transfer and similar taxes arising therefrom. 3.4 RETAINED LIABILITIES. Subsequent to the Closing Date, Seller shall pay, discharge and perform the Retained Liabilities as and when due. 3.5 BOOKS AND RECORDS. Seller shall, for a period of at least four (4) years following the Closing Date, maintain and make available to Buyer and its representatives for inspection and reproduction, during regular business hours, all books and records relating to the Purchased Assets, the Business or the Assumed Liabilities which are not included among the Purchased Assets. Buyer shall, for a period of at least four (4) years following the Closing Date, maintain and make available to seller and its representatives for inspection and reproduction, during regular business hours, all books and records relating to 9 the Purchased Assets, the Business or the Assumed Liabilities which are included among the Purchased Assets, but only insofar as said books and records relate to periods ending on or prior to the Closing Date. 3.6 PREPARATION OF FINANCIAL INFORMATION. (a) In contemplation of and in order to comply with the rules and regulations of the Securities and Exchange Commission, Buyer shall cause its independent accountants to prepare, as promptly as possible after the Closing Date, audited financial statements for the Business for the years ended December 31, 1997 and December 31, 1998 (collectively, the "Financial Statements") and to Seller shall provide all necessary assistance with respect thereto, it being understood and agreed by Seller that such assistance shall include, without limitation, (i) providing Buyer and its representatives with all necessary financial information and data relating to the Business for such periods, (ii) making available to Buyer all employees or any of its affiliates deemed necessary by Buyer to assist in the preparation of such financial statements, and (iii) if requested by Buyer, delivering a management representation letter. (b) The fees and expenses of such accountants in preparing Financial Statements for the Business as provided in this Section shall be borne equally by Buyer and Seller; provided that Seller's share thereof shall not exceed $25,000.00 in the aggregate. 3.7 TRANSITIONAL SERVICES AGREEMENT. At the Closing, Buyer shall enter into a transitional services agreement, in the form attached hereto as EXHIBIT 2 (the "Transitional Services Agreement"). 3.8 CONSULTING AGREEMENT. At the Closing, Buyer shall enter into a consulting agreement with Ronald J.C. Gerard in the form attached hereto as EXHIBIT 7 (the "Consulting Agreement"). 3.9 EMPLOYEES. Buyer shall have no obligation to employ any employees of Seller. 3.10 WAIVER OF COMPLIANCE WITH BULK TRANSFER LAWS. Subject to the provisions of Section 6.1, with respect to the transactions contemplated by this Agreement, Buyer hereby 10 waives compliance with any applicable provisions of the bulk transfer laws (Section 6 of the Uniform Commercial Code). 3.11 NON-COMPETE AGREEMENT. At the Closing, the Seller shall enter into a non-compete agreement, in the form attached hereto as EXHIBIT 3 (the "Non-Compete Agreement"). 3.12 REIMBURSEMENT OF BUYER. Seller shall, no later than June 10, 1999, reimburse Buyer for any refunds, credits, returns, replacements, repairs and warranty costs and expenses made by Buyer with respect to sales of merchandise by Seller prior to the Closing. 3.13 NOTICE OF CERTAIN MATTERS. Each of the parties hereto shall give written notice to the other party promptly upon becoming aware of (i) the occurrence of a material adverse change in the condition of the Purchased Assets or the Business, (ii) any occurrence, or failure to occur, of any event, which occurrence or failure to occur has caused or could reasonably be expected to cause any representation or warranty in this Agreement to be untrue or inaccurate in any material respect at any time after the date hereof and prior to the Closing Date or (iii) any material failure on the part of either party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such party hereunder; provided that the delivery of any notice pursuant to this Section 3.18 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. 3.14 CHANGE OF NAME. Effective from and after the Closing Date, each of Seller, Inc., Vito's and Holdings shall (and shall cause each of their respective subsidiaries and affiliates to) change its name to a name not containing the words "Inholtra" or "Vito" or any combination, permutation or derivative thereof (except for Vito's with respect to the name Vito V. Florio) and shall within 15 days after the Closing Date furnish Buyer with certificates or other written evidence satisfactory to Buyer from the appropriate regulatory authorities confirming that such changes of name have been effected. 3.15 OTHER AGREEMENTS. At the Closing, the Buyer and Seller shall enter into the Indemnity Escrow Agreement, in the form attached hereto as EXHIBIT 4, and the Security Escrow Agreement, in the form attached hereto as EXHIBIT 8, pursuant to which Buyer shall deliver to the Security Escrow Agent 11 reassignments to Seller, Vito's, Inc., or Holdings, as the case may be, of all rights assigned to Buyer under Section 2.3(b) hereof, as security for repayment of the Note (the "Reassignments"). 4. REPRESENTATIONS AND WARRANTIES AS TO SELLER. Seller hereby, represents and warrants to Buyer as follows: 4.1 ORGANIZATION, STANDING AND POWER. Each of INL, Inc. and Holdings is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation shown in the introductory paragraph of this Agreement, with full corporate power and authority to own, lease and operate its properties and to carry on the Business as presently conducted by it. There are no states or jurisdictions in which the character and location of any of the properties owned or leased by Seller, or the conduct of its business, makes it necessary for it to qualify to do business as a foreign corporation. 4.2 INTERESTS IN OTHER ENTITIES. Seller does not (i) own, directly or indirectly, of record or beneficially, any shares of voting stock or other equity securities of any other corporation engaged in the same or similar business to the Business; (ii) have any ownership interest, direct or indirect of record or beneficially, in any unincorporated entity engaged in the same or similar business to the Business; or (iii) have any obligation, direct or indirect, present or contingent, (A) to purchase or subscribe for any interest in, advance or loan monies to, or in any way make investments in, any other person or entity engaged in the same or similar business to the Business, or (B) to share any profits or capital investments or both from a entity engaged in the same or similar business to the Business. 4.3 AUTHORITY. The execution and delivery by of this Agreement and of all of the agreements to be executed and delivered by them pursuant hereto, the performance by them of their respective obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of each such party and each such party has all necessary power with respect thereto. This Agreement is, and when executed and delivered by the parties thereto, each of the other agreements to be delivered pursuant hereto will be, the valid and binding obligation of them, Vito's, Inc. and Holdings enforceable 12 against each such party in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors generally and subject to the rules of law governing (and all limitations on) specific performance, injunctive relief, and other equitable remedies. 4.4 NONCONTRAVENTION. Neither the execution and delivery of this Agreement or of any agreement to be executed and delivered pursuant hereto, nor the consummation of any transactions contemplated hereby or thereby, nor the performance by INL, Vito's, Inc. and Holdings of its obligations hereunder or thereunder, will (nor with the giving of notice or the lapse of time or both would) (A) conflict with or result in a breach of any provision of the Certificate of Incorporation or By-laws of any of such parties or (B) give rise to a default or any right of termination, cancellation or acceleration, or otherwise be in conflict with or result in a loss of contractual benefits to Seller, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which it is a party or by which Seller or any of the Purchased Assets may be bound, or require any consent, approval or notice under the terms of any such document or instrument, or (C) violate any order, writ, injunction, decree, law, statute, rule or regulation of any Court or governmental authority which is applicable to Seller or any of the Purchased Assets, or (D) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon any of the Purchased Assets, or (E) interfere with or otherwise adversely affect the ability of Buyer to carry on the Business after the Closing Date on substantially the same basis as is now conducted by Seller. 4.5 PROPERTIES. Except for the Excluded Assets, the Purchased Assets comprise all of the properties and assets which are necessary in order for Buyer to carry on the Business on and after the Closing Date on substantially the same basis as is now conducted by Seller. INL, Vito's, Inc. and Holdings have good and valid title to all of the Purchased Assets, free and clear of all liens, pledges, security interests, claims, charges or encumbrances of any nature whatsoever. 4.6 INVENTORY. The inventory of the Seller consists of all finished goods (including packaging), wherever located, related to the business (all such items being 13 hereinafter collectively referred to as the Inventory"), all of which is merchantable and fit for the purpose of which it was procured or manufactured, and none of which is damaged, defective or obsolete. No single SKU of product included in the Inventory exceeds in volume the amount of such SKU that is necessary for the conduct of the Business, based upon historical sales, by Seller of such SKU. Seller has, and on the Closing Date will have, on hand sufficient quantities of each SKU of Inventory, based upon historical sales by Seller of such SKU, or binding commitments from suppliers, third-party manufacturers and packers and fulfillment houses to supply sufficient quantities thereof, to enable Buyer to satisfy all commitments to customers for at least an eight (8) week period after the Closing Date. 4.7 INTELLECTUAL PROPERTY. (a) SCHEDULE 4.7 is a complete and correct list of all (i) United States and foreign patents, trademark and trade name registrations, trademarks and trade names, brandmarks and brand name registrations, servicemarks and servicemark registrations, assumed names and copyrights and copyright registrations, owned in whole or in part and used by INL, Vito's, Inc. or Holdings with respect to the Business as presently conducted by Seller, and all applications therefor, including without limitation, the "INHOLTRA" name, in each case indicating the party owning such rights, (ii) inventions, discoveries, improvement's, processes, formulae, proprietary rights and trade secrets relating to the Business as presently conducted by Seller (including customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (iii) domain name, fictitious and d.b.a. name, proprietary "800" and "888" prefix telephone numbers, Internet URL's, web site text, audio, video and graphics, and other identifier and proprietary rights owned or used by INL, Vito's, Inc. or Holdings in connection with the Business as presently conducted by Seller (and with respect to such "800" and "888" prefix telephone numbers, Seller will use commercially reasonable efforts to obtain from its long distance carrier consent to the assignment and transfer of all such telephone numbers and related rights), and (iv) licenses, sublicenses and similar agreements (active or pending) between INL, Vito's, Inc. or Holdings and the respective copyright owners of all labels currently distributed by the Business as presently conducted by Seller (the "License Agreements") (all such items listed in (i) through (iv) above being hereinafter referred to as "Intellectual Property Rights"). 14 SCHEDULE 4.7 also identifies, with respect to the License Agreements, the copyright owners and the royalty rate, the advance and the amount of the advance, if any, which has not been recouped. (b) Except as expressly set forth in said SCHEDULE 4.7 or in SCHEDULE 4.9, (i) INL, Vito's, Inc. and Holdings own or have the right to use all of the Intellectual Property Rights; (ii) no proceedings have been instituted, are pending, or, to the best of the knowledge of INL, Vito's, Inc. and Holdings are threatened, which challenge the rights of INL, Vito's, Inc. and Holdings in respect thereto or the validity thereof and, to the best knowledge of INL, Vito's, Inc. and Holdings there is no valid basis for any such proceedings; (iii) none of the aforesaid violates any laws, statutes, ordinances or regulations, or has at any time infringed upon or violated any rights of others, or is being infringed by others; and (iv) none of the aforesaid is subject to any outstanding order, decree, judgment, stipulation or charge. (c) The Intellectual Property Rights include all patents, trademarks, servicemarks, brandmarks, trade names, copyrights and similar rights that are used in or are necessary for the operation of the Business as presently conducted by Seller. (d) All patents, trademarks, servicemarks and brandmarks that are included in the Intellectual Property Rights have been duly registered in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights and the appropriate offices of the other countries shown on SCHEDULE 4.7, have been renewed in accordance with all applicable provisions of law and administrative regulations in the United States and in each such country, are valid, enforceable and subsisting, and all necessary actions have been taken to maintain the same. All patent applications and applications for registration of trademarks, servicemarks or brandmarks listed on SCHEDULE 4.7 have been duly filed with the United States Patent and Trademark Office, the United States Register of Copyrights and the appropriate offices of the other countries identified therein, and are pending, except as otherwise shown in SCHEDULE 4.7. (e) All licenses or other agreements included in the Intellectual Property Rights are in full force and effect, 15 there is no default by INL, Vito's, Inc. or Holdings or any other party thereto, and all rights of each such party thereunder are freely assignable to Buyer. The licensors under such licenses and other agreements have and had all requisite power and authority to grant the rights purported to be conferred thereby. True and complete copies of all such licenses and other agreements have been provided to Buyer. (f) All licenses or other agreements under which Seller has granted rights to others in any of the Intellectual Property Rights are listed in SCHEDULE 4.7. All of such licenses and other agreements are in full force and effect, there is no default by Seller or any other party thereto, and all of Seller's rights thereunder are freely assignable to Buyer. True and complete copies of all such licenses and other agreements have been provided to Buyer. 4.8 ABSENCE OF CHANGES. Since November 30, 1998, (a) Seller has conducted the Business (and during the transition period contemplated by the Transitional Services Agreement will conduct the Business) only in the ordinary course of business and in a manner consistent with existing policies and practices, with a view toward maximizing sales and profits, and in compliance with applicable law; and Seller has used (and, during such transition period, shall use) its best efforts to preserve intact the Business, to maintain and preserve the Purchased Assets, to keep available the services of key management personnel and to preserve the present goodwill of Seller and its relationships with customers, suppliers and other persons with whom it has business relations; (b) there has not been (i) any material adverse change in the condition (financial or otherwise), assets, liabilities, business, prospects, or results of operations of the Business (including, without limitation, any such adverse change resulting from damage, destruction or other casualty, loss, whether or not covered by insurance), (ii) any waiver by Seller of any right, or cancellation of any debt or claim, related to the Business, or (iii) any change in the accounting principles or methods which are utilized by Seller; and (c) Seller has not (i) agreed or undertaken to sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of the Purchased Assets, except the sale of the Inventory in the ordinary course of business; 16 (ii) agreed or undertaken to sell, assign or transfer any patents, trademarks, trade names, copyrights, licenses or other intangible assets related to the Business or the Purchased Assets; (iii) caused Seller to suffer any event or condition of any character that has or could materially and adversely affect the Business or the Purchased Assets; (iv) altered the price lists relating to the Business, other than in the ordinary course of business; (v) waived or accelerated any rights of value or entered into any transactions with respect to the Business not in the ordinary course of business; (vi) maintained the books of account and records relating to the Purchased Assets in the usual, regular and ordinary manner, on a basis consistent with past practice, and complied with all material laws applicable to the conduct of the Business with respect to the Purchased Assets and performed its material obligations relating to the Business with respect to the Purchased Assets without default; (vii) not authorized or permitted its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative to sell, agree to sell or enter into any arrangements or negotiations or authorized any third party to enter into negotiations or solicit offers of any type or to provide information, cooperate in any way or assist, facilitate or encourage acquisitions relating to the transfer or other disposition of any of the Purchased Assets or the Business (including any merger or consolidation involving the Seller or any other similar transaction); or (viii) authorized any of, or committed or agreed to take, any of the foregoing actions. 4.9 LITIGATION. Except as set forth in SCHEDULE 4.9, there are no claims, suits, actions, arbitrations, investigations, inquiries or other proceedings before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, pending or, to the best of the knowledge of Seller, threatened, against or relating to 17 Seller, the Business or any of the Purchased Assets; nor, is there any basis for any such claim, suit, action, arbitration, investigation, inquiry or other proceeding. There are no judgments, orders, stipulations, injunctions, decrees or awards in effect which relate to Seller, the Business or any of the Purchased Assets, the effect of which is (a) to limit, restrict, regulate, enjoin or prohibit any business practice in any area, or the acquisition of any properties, assets or businesses, or (b) otherwise materially adverse to the Business or any of the Purchased Assets. 4.10 NO VIOLATION OF LAW. Seller is not engaging in any activity or omitting to take any action as a result of which (a) it is in violation of any law, rule, regulation, zoning or other ordinance, statute, order, injunction or decree, or any other requirement of any court or governmental or administrative, body or agency, applicable to Seller, the Business or any of the Purchased Assets, including, but not limited to, those relating to truth-in-advertising, occupational safety and health, consumer health and safety, environmental and ecological protection, business practices and operations, labor practices, and employee benefits, and (b) Seller, the Business and/or any of the Purchased Assets have been or may be materially and adversely affected. 4.11 GOVERNMENT AND THIRD-PARTY CONSENTS/APPROVALS. No approval, authorization, consent or order or action of, or filing with, any third party or court, administrative agency or governmental authority (a) is required for the execution and delivery by INL, for itself and on behalf of Vito's, Inc. and Holdings, of this Agreement and of all of the agreements to be executed and delivered by Seller pursuant hereto, or the consummation by Seller of the transactions contemplated hereby or thereby or (b) is necessary in order that the Business may be conducted immediately following the Closing Date substantially in the same manner as heretofore conducted. 4.12 PRODUCTS LIABILITY. SCHEDULE 4.12 lists all product liability claims made or to the knowledge of Seller threatened in Seller's last three (3) fiscal years with respect to the Business. 18 4.13 MATERIAL AND OTHER CONTRACTS. (a) SCHEDULE 4.13(a) lists all pending or executory contracts, agreements or commitments relating to the Business, including, without limitation license agreement, product supplier agreements, distribution agreements, marketing agreements, non-competition agreements, confidentiality agreements and vendor agreements, and other agreements relating to the Intellectual Property Rights (all such items being hereinafter collectively referred to as the "Material Agreements"). True and complete copies of all such documents and complete descriptions of all oral contracts (if any) referred to in SCHEDULE 4.13(a) have been provided or made available to Buyer and its counsel. Each of the Assumed Contracts is (i) in full force and effect, no person or entity which is a party thereto or otherwise bound thereby is in default thereunder, and, to the best of the knowledge of Seller, no event, occurrence, condition or act exists which does (or which with the giving of notice or the lapse of time or both would) give rise to a default or right of cancellation, acceleration or loss of contractual benefits thereunder; (ii) there has been no threatened cancellations thereof, and there are no outstanding disputes thereunder; and (iii) none of them is materially burdensome to Seller. (b) SCHEDULE 4.13(b) contains a complete and correct list of all contract, commitments, obligations and understandings which are not set forth in any other Schedule delivered hereunder and to which Seller is party or otherwise bound, and which relate to the Business, except for each of those which (i) was made in the ordinary course of business, and (ii) either (A) is terminable by Seller (and will be terminable by Buyer) without liability, expense or other obligation on thirty (30) days' notice or less, or (B) may be anticipated to involve aggregate payments to or by Seller of $5,000 (or the equivalent) or less calculated over the full term thereof, and (iii) is not otherwise material to the Business or any of the Purchased Assets. Complete and correct copies of all contracts, commitments, obligations and undertakings set forth on any of the Schedules delivered pursuant to this Agreement have been furnished by Seller to Buyer, and except as expressly stated on the Schedule on which they are set forth, (x) each of them is in full force and effect, no person or entity which is a party thereto or otherwise bound thereby is in default thereunder, and, to the best of the knowledge of Seller, no event, occurrence, 19 condition or act exists which does (or which with the giving of notice or the lapse of time or both would) give rise to a default or right of cancellation, acceleration or loss of contractual benefits thereunder; (y) there has been no threatened cancellations thereof, and there are no outstanding disputes thereunder; and (z) none of them is materially burdensome to Seller. 4.14 BUSINESS FINANCIAL STATEMENTS; 1998 REVENUES. SCHEDULE 4.14 is a true and correct copy of the balance sheet with respect to the Business as at October 31 and November 30, 1998 and the related statements of operations for the periods then ended (collectively, the "Business Financials"). The Business Financials have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may otherwise be indicated therein) and each presents fairly, in all material respects, the financial position of the Business as at the date thereof and the results of its operations and cash flow position for the period indicated. Seller represents and warrants that the revenues of Seller (net of refunds, credits, returns, replacements, repairs, warranty costs and expenses and bad debt expenses) for the year ended December 31, 1998 is no less than $5,000,000.00. 4.15 BOOKS AND RECORDS. The books and records of Seller are complete and correct, have been maintained in accordance with good business practices, and accurately reflect the basis for the financial condition, results of operations and cash flow of Seller as set forth in the Business Financials. 4.16 TAXES. Seller has filed all tax returns that it was required to file. All such tax returns were correct and complete in all material respects. All taxes owed by Seller (whether or not shown on any tax return) have been paid or adequate provision for the payment thereof has been made by Seller. Seller currently is not the beneficiary of, or subject to, any extension of time within which to file any tax return. Seller has reported and duly paid state and local sales and use taxes in all states in which it is required to report and pay such taxes, including sales and/or use taxes on sales of merchandise and on promotional materials. There is no material dispute or claim concerning any tax liability of Seller either formally asserted or raised, or, to the knowledge of Seller, threatened by any governmental or administrative entity. 20 4.17 INFORMATION AS TO SELLER. None of the representations or warranties made by INL, Vito's, Inc. or Holdings, in this Agreement or in any agreement executed and delivered by it pursuant hereto are false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein contained not misleading. 5. REPRESENTATIONS AND WARRANTIES AS TO BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah, with full corporate power and authority to own, lease and operate its properties and to carry on its business as presently conducted by it. 5.2 AUTHORITY. The execution and delivery by Buyer of this Agreement and of each agreement to be executed and delivered by it pursuant hereto, the compliance by Buyer with the provisions hereof and thereof, the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Buyer, and Buyer has all necessary corporate power with respect thereto. This Agreement is, and when executed and delivered by Buyer each other agreement to be executed and delivered by it pursuant hereto will be, the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors generally and subject to the rules of law governing (and all limitations on) specific performance, injunctive relief, and other equitable remedies. 5.3 NONCONTRAVENTION. Neither the execution and delivery by Buyer of this Agreement or of any of the aforementioned other agreements, nor the consummation of the transactions contemplated hereby or thereby, nor the compliance by Buyer with the provisions hereof and thereof, will (nor with the giving of notice or the lapse of time or both, would) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws of Buyer, or in the breach of any material agreement to which Buyer is a party or otherwise bound. 21 5.4 INFORMATION AS TO BUYER. None of the representations or warranties made by Buyer in this Agreement or in any agreement executed and delivered by or on behalf of it pursuant hereto are false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein contained not misleading. 6. INDEMNIFICATION. 6.1 INDEMNIFICATION BY SELLER. Seller shall indemnify and hold Buyer harmless from and against any and all losses, obligations, deficiencies, liabilities, claims, damages, 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 Buyer may sustain, suffer or incur and which arises out of, is caused by, relates to, or results or occurs from or in connection with (a) liabilities (other than the Assumed Liabilities) arising in connection with the Business, this Agreement or the transactions contemplated hereby, (b) the noncompliance with any applicable bulk transfer laws of any jurisdiction, (c) the breach by Seller of any representation, warranty or covenant by it in this Agreement or in any agreement or instrument executed and delivered pursuant hereto, (d) the operation of the Business by Seller prior to the Closing Date (regardless of whether any claim is brought prior to or subsequent to the Closing), (e) any willful misconduct or negligence by Seller which interferes with the transactions contemplated by this Agreement, (f) any refunds, credits or replacements issued or made after the Closing Date relating to sales made by Seller prior to the Closing Date, or (g) liabilities relating to any fees, brokerage commissions, or other like payments owed to any agent, broker, person or firm acting on behalf of Seller, or under its authority, in connection with any of the transactions contemplated hereby. Furthermore, Seller will indemnify and hold Buyer harmless against all liabilities, loss, expense, cost or obligations of any nature, known or unknown, fixed or contingent, matured or unmatured, to any party which Buyer might incur relating to the transactions contemplated hereunder and the transfer of the Business to Buyer regardless of whether said claim is instituted prior to or subsequent to the Closing and regardless of whether the transactions contemplated hereby are consummated. Seller will indemnify Buyer for any 22 willful or negligent act by Seller interfering with the intent and/or terms of this Agreement and the transactions contemplated hereunder. This indemnification obligation shall also apply to claims directly by Buyer against the Seller as well as to third party claims. In addition to any other rights and remedies to which Buyer may be entitled hereunder or under applicable law, upon notice to Seller specifying in reasonable detail the basis for a set-off, Buyer may set-off any amount to which it may be entitled under this Article 6 against amounts otherwise payable by it under the Note. Notwithstanding the foregoing, Seller's obligations to indemnify Buyer hereunder, insofar as they relate to Losses arising out of any litigation described in SCHEDULE 4.9 hereto, shall not exceed One Million Dollars ($1,000,000.00) in the aggregate. 6.2 INDEMNIFICATION BY BUYER. Buyer indemnifies and holds Seller harmless from and against any Loss, which Loss Seller may sustain, suffer or incur and which arise out of, are caused by, relate to, or result or occur from or in connection with (a) the Assumed Liabilities, (b) the breach by Buyer of any representation, warranty or covenant made by it in this Agreement or in any agreement or instrument executed and delivered pursuant hereto, (c) liabilities relating to the merchandise sold by Buyer (other than claims caused by a breach of a representation or warranty by Seller or negligent acts or omissions of Seller), or the operation of the Business by Buyer after the Closing Date, or (d) liabilities relating to any fees, brokerage commissions, or other like payments owed to any agent, broker, person or firm acting on behalf of Buyer, or under its authority, in connection with any of the transactions contemplated hereby. This indemnification obligation shall also apply to claims directly by Seller against Buyer as well as to third party claims. 6.3 THIRD PARTY CLAIMS. If a claim by a third party is made against any party or parties hereto and 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 shall promptly notify the indemnifying party or parties, in writing, of such claim; provided, however, that the failure to give such notice shall not affect the rights of the indemnified party or parties hereunder unless such failure materially and adversely affects the indemnifying party or parties. The indemnifying party or parties shall have ten (10) days after said notice is given to 23 elect, by written notice given to the indemnified party or parties, to undertake, conduct and control, through counsel of their own choosing (subject to the consent of the indemnified party or parties, such consent not to be unreasonably withheld) and at their sole risk and expense, the good faith settlement or defense of such claim, and the indemnified party or parties shall cooperate with the indemnifying parties in connection therewith; provided: (i) in the case of Seller as the indemnifying party, it shall not thereby permit to exist any lien, encumbrance or other adverse change upon any of the Purchased Assets, Buyer or the Business, and (ii) the indemnified party or parties shall be entitled to participate in such settlement or defense through counsel chosen by the indemnified party or parties, provided that the fees and expenses of such counsel shall be borne by the indemnified party or parties. So long as the indemnifying party or parties are contesting any such claim in good faith, the indemnified party or parties shall not pay or settle any such claim; provided, however, that notwithstanding the foregoing, the indemnified party or parties shall have the right to pay or settle any such claim at any time, provided that in such event they shall waive any right of indemnification therefor by the indemnifying party or parties. If the indemnifying parties do not make a timely election to undertake the good faith defense or settlement of the claim as aforesaid, or if the indemnifying parties fail to proceed with the good faith defense or settlement of the matter after making such election, then, in either such event, the indemnified party or parties shall have the right to contest, settle or compromise the claim at their exclusive discretion, at the risk and expense of the indemnifying parties to the full extent set forth in Sections 6.1 or 6.2 hereof, as the case may be. 6.4 PENDING LITIGATIONS. The parties agree that Buyer shall have the rights of an indemnified party under Section 6.3 above with respect to each of the pending litigations described on SCHEDULE 4.9, provided that with respect to the NUTRIMAX/REXALL action described therein, any award received by Buyer or Seller thereunder shall first be applied to the payment or reimbursement of Seller's reasonable legal fees and expenses incurred in such action prior to the Closing, then to the payment or reimbursement of Seller's and Buyer's reasonable legal fees and expenses incurred in such action after the Closing, and the balance shall be divided equally between Buyer and Seller. 24 7. NONDISCLOSURE/ANNOUNCEMENTS. 7.1 NONDISCLOSURE. Following the Closing, the parties shall mutually agree on and issue a press release regarding the relationship contemplated in this Agreement, provided that under no circumstances shall the Purchase Price or any other financial terms of this Agreement be disclosed except as otherwise required by law. 7.2 NO DISPARAGEMENT. At no time during the period commencing on the date hereof and continuing for five (5) years after the Closing Date shall INL, or any subsidiary or affiliate thereof, including, without limitation, Vito's, Inc. or Holdings, disparage the commercial, business or financial reputation of Buyer or any of its officers, directors, employees, agents or affiliates. 7.3 INJUNCTIVE RELIEF, ETC. The parties hereto hereby acknowledge and agree that (i) Buyer would be irreparably injured in the event of a breach by INL, Vito's, Inc. or Holdings of any of their respective obligations under this Section 7, (ii) monetary damages would not be an adequate remedy for any such breach, and (iii) Buyer shall be entitled to injunctive relief, in addition to any other remedy which it may have, in the event of any such breach. It is hereby also agreed that the existence of any claims which Seller may have against Buyer, whether under this Agreement or otherwise, shall not be a defense to the enforcement by Buyer of any of its rights under this Section 7. 7.4 SCOPE OF RESTRICTION. It is the intent of the parties hereto that the covenants contained in this Section 7 shall be enforced to the fullest extent permissible under the laws of and public policies of each jurisdiction in which enforcement is sought (Seller hereby acknowledging that said restrictions are reasonably necessary for the protection of Buyer). Accordingly, it is hereby agreed that if any one or more of the provisions of this Section 7 shall be adjudicated to be invalid or unenforceable for any reason whatsoever, said provision shall be (only with respect to the operation thereof in the particular jurisdiction in which such adjudication is made) construed by limiting and reducing it so as to be enforceable to the extent permissible. 7.5 ADDITIONAL UNDERTAKINGS. The provisions of this Section 7 shall be in addition to, and not in lieu of, any 25 other obligations with respect to the subject matter hereof, whether arising as a matter of contract, by law or otherwise, including, but not limited to, any obligations which may be contained in any employment or consulting agreements to which Buyer is a party. 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the parties hereto hereby agrees that all representations and warranties made by or on behalf of it in this Agreement or in any document or instrument delivered pursuant hereto shall survive the Closing Date and the consummation of the transactions contemplated hereby. 9. MISCELLANEOUS PROVISIONS. 9.1 EXPENSES. Except as otherwise provided in this Agreement, each of the parties hereto shall pay his or its own costs and expenses in connection with this Agreement and the transactions contemplated hereby. 9.2 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) business day after having been deposited with 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 Buyer, to: Irwin Naturals/4Health, Inc. 10549 W. Jefferson Boulevard Culver City, CA 90232 Attn: Klee Irwin Copy to: Satterlee Stephens Burke & Burke LLP 230 Park Avenue New York, NY 10169 Attn: Peter A. Basilevsky 26 If to INL, Vito's, Inc. or Holdings, to: Inholtra Natural, Ltd. 21 Oceanview Road Kennebunk, ME 04043 Attn: Ronald J.C. Gerard President and CEO Copy to: Faro & Associates P.O. Box 4904 Miami, Fl 33149-4904 Attn: John H. Faro 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). 9.3 APPLICABLE LAW. This Agreement shall be governed by, and construed in accordance with, the law of the State of Utah without regard to its choice of law principles. 9.4 WAIVER, ETC. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the 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 a instrument executed by the party or parties against whom enforcement of such waiver is sought; and no waiver of breach shall be construed or deemed to be a waiver of or subsequent breach. 9.5 ASSIGNMENT. Prior to the Closing Date, 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 Buyer 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 thereof, and (b) grant a security interest in its rights under this Agreement to Buyer's lender, as administrative agent (the 27 "Agent"), in connection with the financing of the transactions contemplated by this Agreement. 9.6 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. 9.7 AMENDMENT. This Agreement may only be amended by a written instrument executed by each of the parties hereto. 9.8 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. 9.9 ENTIRE AGREEMENT. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) and the Confidentiality Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 9.10 SCHEDULES. The Schedules delivered pursuant to this Agreement are an integral part hereof. Each such Schedule shall be in writing, shall indicate the Section pursuant to which it is being delivered, and shall be initialed by the delivering party. 9.11 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. 9.12 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 28 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. 9.13 ARBITRATION. All disputes under this Agreement shall be resolved by binding arbitration in the City of New York, NY, before a single arbitrator in accordance with the rules of the American Arbitration Association. 29 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. Attest: IRWIN NATURALS/4HEALTH, INC. /s/ [Illegible] By: /s/ KLEE IRWIN - ----------------------------- ------------------------------------- Secretary Name: KLEE IRWIN Title: CHIEF EXECUTIVE OFFICER Attest: INHOLTRA NATURAL, LTD. By: /s/ RONALD J.C. GERARD - ----------------------------- ------------------------------------- Secretary Name: RONALD J.C. GERARD Title: President Attest: VITO V. FLORIO by Inholtra Natural, Ltd., as attorney-in-fact By: /s/ RONALD J.C. GERARD - ----------------------------- ------------------------------------- Secretary Name: RONALD J.C. GERARD Title: President Attest: INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V., by Herm Jan van Asselt, as attorney-in-fact By: - ----------------------------- ------------------------------------- Secretary Name: Title: President Attest: INHOLTRA, INC. By: - ----------------------------- ------------------------------------- Secretary Name: Title: President IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. Attest: IRWIN NATURALS/4HEALTH, INC. By: - ----------------------------- ------------------------------------- Secretary Name: Title: President Attest: INHOLTRA NATURAL, LTD. By: - ----------------------------- ------------------------------------- Secretary Name: Title: President Attest: VITO V. FLORIO by Inholtra Natural, Ltd., as attorney-in-fact By: - ----------------------------- ------------------------------------- Secretary Name: Title: President Attest: INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V., by Herm Jan van Asselt, as attorney-in-fact /s/ [Illegible] By: /s/ [Illegible] - ----------------------------- ------------------------------------- Secretary Name: Title: President Attest: INHOLTRA, INC. /s/ [Illegible] By: /s/ [Illegible] - ----------------------------- ------------------------------------- Secretary Name: Title: President [SEAL] Schedule 1.2 (iii) ------------------ ASSUMED CONTRACTS 1. Unfilled purchase order from GNC for 32,000 bottles of INHOLTRA Natural Pain Relief Formula 2. Letter Agreement between Inholtra Natural, Ltd. and PDS Worldwide dated August 3, 1998 (copy attached) 3. Letter Agreement between Inholtra Natural, Ltd. and Bottomline Marketing Services dated February 10, 1999 (copy attached) 4. Post-Closing Promotional Commitments to Bill Frank, Active TV and Joe Tobin in a total amount up to $46,000.00 in the aggregate 5. Co-Op Advertising Commitments and Charge Back obligations in the total amount of up to $7,500.00 in the aggregate [LOGO] [LETTERHEAD] Proposal To: INHOLTRA Natural, Ltd. Attention: Mr. Ron Gerard By: PDS Worldwide August 3, 1998 DESCRIPTION OF PROJECT: PDS will accept customer calls to order product, make medical inquires or request literature; warehouse product and collateral material and ship same on demand; and provide all necessary activity and financial reports. Additionally PDS, based on your marketing decisions, will provide ALL of the following services: - Outgoing telemarketing - Direct mail solicitation - Website construction/interface for internet sales FULFILLMENT PRICING: 1. INITIAL SET-UP - $200.00....includes: a) Loading up to 20 SKU's into order processing database: i) Item code, wholesale cost (2 price levels) retail cost (2 price levels) ii) Short item description b) Prepare warehouse pick locations with separate locations for wholesale, retail and collateral material orders. c) Establish order handling and shipment procedures. d) Initial receipt of inventory. 2. ORDER PROCESSING - (Product) Approx. 800/month a) $2.25 per order./ 3/1/99 $10.00 i) Covers computer entry for inventory control, printing label and packing slip, picking product, packing item(s) for shipment. ii) Fee covers shipment to ONE location. 4. SHIPPING CARTONS/ENVELOPES - a) NO CHARGE for orders shipped via USPS Priority Mail (provided in selected sizes only). b) BOXES - i) [ILLEGIBLE] $0.53 per box ii) 11 L X 5 2/3 H x 8 3/4 W - $0.38 per box c) Via other delivery methods, $0.25 - $0.75 depending on order size 5. FREIGHT/POSTAGE - Fulfillment shipping is billed as published rates, with no markup above this published rate. For bulk shipments, PDS will use its strategic freight partners according to the needs of each shipment. PDS charges a surcharge on freight for these services. Freight charges to our client will be comparable to published rates for said carriers. 6. STORAGE - $18.00 per pallet per month in CLIMATE CONTROLLED (perfect for food supplements) warehouse. 7. RETURNS - Cost is the same as processing an order. 8. REPORTING - a) Standard Reports - $25.00 each includes inventory, low levels, backorders, and product profit. b) Custom Report - $75.00 per hour for development, $40.00 per report. 9. RECEIVING OF INVENTORY- Receiving, counting, adding to stock - $12.00 per pallet, less than a pallet - $6.00 per delivery 10. ACCOUNT MANAGEMENT - a) Billed for time devoted to provide overall administrative services such as program start-up, changes, database management and customer service coordination. Based on current understanding of program, one (1) hour of account management per week should be the norm.... $35.00 per hour. TELEMARKETING PRICING: 1. PROJECT SET-UP - $1,500.00....Includes: a) Customized scripts, operators screens, initial programming for maximum of eight (8) screens. b) Deposit of $1,000.00 required. 2. SHARED INBOUND TELEMARKETING AGENTS - $1.10 per minute.... Includes: a) Phone bill b) Telephone agents c) Supervision d) Calls billed at 30 seconds initially and in six (6) second increments after that... 3. DEDICATED OUTBOUND TELEMARKETING AGENTS - $35.00 per hour Set-up $600.00...Includes: a) Phone bill b) Telephone agents c) Up to EIGHT (8) HOURS of specialized training. 4. STANDARD REPORTING SET-UP - $125.00....Includes: a) Standard and customized reports on a regular schedule and faxed or down-loaded to a single destination. 5. 800 NUMBER MAINTENANCE - $50.00 6. MONTHLY MINIMUM - $1,000.00 (Three month minimum) 7. CREDIT CARD SET-UP - $325.00 8. CREDIT CARD VERIFICATION PROGRAM - $150.00 a) $0.35 per transaction (100.00 monthly minimum). 9. CHECK/MONEY ORDER - Set-up - $25.00 a) $0.35 per transaction ($100.00 monthly minimum) BOTTOMLINE MARKETING SERVICES FULFILLMENT PROMOTION TELEMARKETING e-COMMERCE 751 NW 33RD ST. POMPANO BEACH, FLORIDA 33064 PHONE: 954/781-5559 FAX: 954/781-7301 February 10, 1999 Mr. Ron Garard INHOLTRA Natural, Ltd. Subject: Amendment to contract dated August 3, 1998 Re: TELEMARKETING SERVICE BMS will provide 24-hour telemarketing services DIRECTLY as soon as possible (3/1/99) with the following cost ramifications: I. COST PER ORDER - $10.00 flat fee, a. NO CHARGES based on minutes consumed per order, customer service calls, hang ups, etc. b. Reports will mirror credit card transaction reports, shipping reports. II. CREDIT CARD TRANSACTIONS - $0.35 each a. Cost to I.C. Verify, process, report. b. INHOLTRA to provide Merchant ID Number. c. Set up charge - (To be determined) (not to exceed $100)R III. TELEMARKETING SET UP CHARGE - $300.00 a. Training of operators, initial programming, script adjustments. b. Deposit - $250.00 (There is a $1,000 - deposit with lease) All aspects of fulfillment project (including pricing) remain in place. Submitted By: Accepted By: /s/ Ron Garard, Pres. - -------------------------------- ------------------------------ Date: Date: 2/9/99 -------------------------- ------------------------ TERMS: INHOLTRA Natural, Ltd. will be invoiced one a month. Terms are net 10 days, subject to PDS Worldwide credit application. Also subject to PDS Worldwide Standard Terms and Conditions. Advance payment is expected at the inception of the agreement. The advance includes the estimated freight for the first period of activity, based on client's projection. Note: This quotation is based on the above specifications. Any changes to these specifications may alter the price. It does not include postage, customer changes, courier expense, outbound freight, cartons/packaging materials (unless otherwise specified) or skids provided by PDS Worldwide. Submitted By: Accepted By: /s/ Ian D. MacLennan /s/ Ronald Garard Ian D. MacLennan ------------------------------------ INHOLTRA Natural, Ltd. Date: August 3, 1998 Date: 8/10/98 ------------------------------- Read and agree to Terms & Conditions /s/ R. Garard ------------------------------------ INHOLTRA Natural, Ltd. Date: 8/10/98 ------------------------------- [LOGO] SCHEDULE 1.3 OTHER EXCLUDED ASSETS 1. The family crest of HJ van Asselt (which appears on Inholtra's stationary and certain promotional items). 2. A certain life insurance policy (#[_______________]) owned by Inholtra Natural, Ltd. on the life of HJ van Asselt. 3. All furnishings, fixtures and equipment currently in the home office located at 21 Oceanview Road, Kennebunk, ME 04043 maintained by Ronald Gerard for conducting the Inholtra business. SCHEDULE 3.2 NON-ASSIGNABLE CONTRACTS None SCHEDULE 4.7 (i) United States and foreign patents, trademark and trade name registrations, trademarks and trade names, brandmarks and brand name registrations, servicemarks and servicemark registrations, owned in whole or in part and used by Seller with respect to the Business, as presently conducted by Seller, and all applications therefor, including without limitation, the "INHOLTRA" name, and more specifically, 1. all right, title, and interest in and to U.S. Trademark INHOLTRA, and all goodwill associated therewith in connection with Seller's business, as presently conducted by Seller, and registration thereof in the U.S. under registration number 2,135,818, 2. all right, title, and interest in and to European Trademark INHOLTRA, and all goodwill associated therewith in connection with Seller's business, as presently conducted by Seller, and application for registration and registration thereof with the Office for Harmonization in the Internal Market under Community Trademark application number CTM 000598870, 3. all right, title, and interest in and to Switzerland Trademark INHOLTRA, and all goodwill associated therewith in connection with Seller's business, as presently conducted by Seller, and registration thereof with the Swiss Trademark Office under registration number 451,523, 4. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the U.S. patent number 5,840,715, issued November 24, 1998 and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis, 5. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the U.S. patent application serial number 09/193,474, filed November 18, 1998 as a continuation from U.S. application serial number 952,272, and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis, 6. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the Canadian patent number CA 2,240,165, Filed June 10, 1998, and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis, SCHEDULE 4.7 Page 2 7. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the Australian patent number AU 9,726,237, Filed July 3, 1997, and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis, 8. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the Patent Cooperation Treaty patent application number WO 9721434, Filed December 11, 1995, from PCT/95US/16722, and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis, 9. all right, title, and interest in and to any and all inventions and improvements which are disclosed in or associated with the European patent number EP 855,908, Filed November 28, 1997, and entitled: Dietary Regimen of Nutritional Supplements for Relief of Symptoms of Arthritis; (ii) inventions, discoveries, improvements, processes, formulae, proprietary rights and trade secrets relating to the Business, as presently conducted by Seller (including customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (iii) domain name, fictitious and d.b.a. name, proprietary "800" and "888" prefix telephone numbers, Internet URLs, web site text, audio, video and graphics, and other identifier and proprietary rights owned or used by Seller in connection with the Business, as presently conducted by Seller (and with respect to such "800" and "888" prefix telephone numbers, Seller will use commercially reasonable efforts to obtain from its long distance carrier consent to the assignment and transfer of all such telephone numbers and related rights), and (iv) licenses, sublicenses and similar agreements (active or pending) between Seller and the respective copyright owners of all labels currently distributed by the Business, as presently conducted by Seller (the "license Agreements") (all such items listed in (i) through (iv) above being hereinafter referred to as "Intellectual Property Rights"). Schedule 4.9 ------------ LITIGATION Nutramax Laboratories, Inc. v. Twin Laboratories, Inc., et al., CVB-97-1010, pending in the Federal District Court for the District of Maryland. Inholtra Natural, Ltd. and Inholtra, Inc. v. NBTY, Inc., et al., CV 98-6366 (LDW), pending in Federal District Court for the Eastern District of New York. Vitamin World, Inc. and Puritan Pride, Inc. v. Inholtra Natural, Ltd. and Inholtra, Inc., CV 980871 (LDW), pending in Federal District Court for the Eastern District of New York. Inholtra Natural, Ltd. v. Rexall/Sundown, Inc., et al., Case No. 97-7443 CIV ZLOCH, pending in the Federal District Court for the Southern District of Florida DiMaggio v. Inholtra Natural Ltd. v. Traco Labs and SoftGel Technologies, Case No. pending in Federal District Court for the Eastern District of New York. SCHEDULE 4.12 ------------- PRODUCT LIABILITY CLAIMS None Schedule 4.13 (a) ----------------- MATERIAL CONTRACTS None SCHEDULE 4.13 (b) ----------------- OTHER AGREEMENTS None SCHEDULE 4.14 ------------- FINANCIALS INHOLTRA NATURAL, LTD FINANCIAL STATEMENTS NOVEMBER 30, 1998 THAW, GOPMAN & ASSOCIATES, P.A. --------------- CERTIFIED PUBLIC ACCOUNTANTS RONALD L. THAW, C.P.A. MARK R. THAW, C.P.A., C.V.A. GLENN H. GOPMAN, C.P.A. STEVEN M. SAMUELS, C.P.A. ACCOUNTANTS' COMPILATION REPORT The Board of Directors Inholtra Natural, Ltd 21 Ocean View Road Kennebunk, ME 04043 We have compiled the accompanying statement of assets and liabilities - income tax basis of Inholtra Natural, Ltd (S Corporation) as of November 30, 1998, and the related statement of revenues and expenses income tax basis, for the one month and eleven days then ended, and the accompanying supplementary schedules - income tax basis, which are presented only for supplementary analysis purposes, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The financial statements and accompanying supplementary schedules have been prepared on the accounting basis used by the Company for income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. Compilation is limited to presenting in the form of financial statements and supplementary schedules information that is the representation of management. We have not audited or reviewed the accompanying financial statements and supplementary schedules and, accordingly, do not express an opinion or any other form of assurance on them. The Company, with the consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Before, no provision or liability for federal income taxes has been included in these financial statements. Management has elected to omit substantially all of the disclosures ordinarily included in financial statements prepared on the income tax basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Company's assets, liabilities, equity, revenues and expenses. Accordingly, these financial statements are not designed for those who are not informed about such matters. Thaw, Gopman & Associates, P.A. Certified Public Accountants December 30, 1998 Direct all correspondence to: Thaw Gopman & Associates, P.O. Box 9075, Miami, Florida 33269 20451 Northwest 2nd Avenue, Miami, Florida 33169 / Dade: (305) 651-3020 / Outside Dade: 903-3020 Fax: (305) 652-9938 / E-mail: faxcpa@miamlepa.com Inholtra Natural, Ltd (S Corporation) Supporting Schedule of Revenues and Expenses - Income Tax Basis For the Periods Ending November 30, 1998
Current Month Eleven Months Amount Percent Amount Percent Schedule of Cost of Sales $ 0.00 0.00 % $ 12,687.05 0.26 % Freight-In 0.00 0.00 9,175.00 0.19 Purchases 55,821.25 (350.18) 2,408,708.40 49.93 Royalties 113,000.00 (146.61) 978,367.64 20.28 ------------- -------- -------------- -------- Total Cost of Sales $ 168,821.25 (496.79)% $ 3,408,938.09 70.66 % ------------- -------- -------------- -------- ------------- -------- -------------- -------- Schedule of Selling Expenses Advertising & Promotion $ 27,741.37 (119.45) $ 213,804.08 4.43 % Commissions 20,776.04 (829.73) 99,471.41 2.06 Delivery 28,731.10 (444.81) 39,411.63 0.82 ------------- -------- -------------- -------- Total Selling Expenses $ 77,248.51 (393.99)% $ 352,687.12 7.31 % ------------- -------- -------------- -------- ------------- -------- -------------- -------- Schedule of Administrative Expenses Accounting and Legal $ 14,712.91 (836.59)% $ 116,468.57 2.41 % Automotive Expense 479.96 (157.78) 5,318.94 0.11 Bad Debt Expense 42,910.00 (105.85) 42,910.00 0.89 Bank Charges 4,796.65 (576.81) 5,021.50 0.10 Consulting Fees 1,924.85 (632.76) 17,004.62 0.35 Donations 0.00 0.00 180.00 0.00 Dues & Subscriptions 0.00 0.00 2,355.10 0.05 Insurance - Group 0.00 0.00 1,132.80 0.02 Insurace - Other (1,483.10) 487.54 14,156.47 0.29 Interest 0.00 0.00 290.28 0.01 Licenses 0.00 0.00 60.00 0.00 Office Expense 1,643.50 (540.27) 13,206.05 0.27 Postage 64.00 (21.04) 3,398.00 0.07 Rent 0.00 0.00 9,000.00 0.19 Repairs and Maintenance 0.00 0.00 610.50 0.01 Salaries - Officer 5,000.00 (643.66) 55,000.00 1.14 Taxes - General 0.00 0.00 57.35 0.00 Taxes - Payroll 382.50 (125.74) 4,529.50 0.09 Telephone 367.45 (120.79) 23,445.75 0.49 Travel 2,795.85 (919.08) 103,450.78 2.14 ------------- -------- -------------- -------- Total Administrative Expenses $ 73,594.57 (192.82)% $ 417,596.21 8.66 % ------------- -------- -------------- -------- ------------- -------- -------------- --------
See Accountant's Report Inholtra Natural, Ltd (S Corporation) Statement of Assets and Liabilities- Income Tax Basis November 30, 1998 ASSETS Current Assets Cash in Bank $ 368,216.98 Accounts Receivable-Trade 1,385,492.58 Less: Allowance for Doubtful Account (42,910.00) --------------- Total Current Assets $ 1,710,799.56 Property and Equipment Office Furniture 8,500.00 Computer Equipment 2,943.97 Less: Accumulated Depreciation (8,443.97) --------------- Net Property and Equipment 3,000.00 Other Assets License Costs 35,000.00 [Illegible] License Costs (1,166.67) Organization Costs 500.00 [Illegible] Organization Costs (99.96) --------------- Total Other Assets 34,233.37 -------------- Total Assets $ 1,748,032.93 -------------- --------------
See Accountants' Report Inholtra Natural, Ltd (S Corporation) Statement of Assets and Liabilities- Income Tax Basis November 30, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 1,239,261.41 --------------- Total Current Liabilities $ 1,239,261.41 Noncurrent Liabilities _______________ Total Noncurrent Liabilities ______________ Total Liabilities 1,239,261.41 Stockholders' Equity Capital Stock 100.00 Dividend Distributions (143,367.73) Current Year Income (Loss) 652,039.25 --------------- Total Stockholders' Equity 508,771.52 -------------- Total Liabilities and Stockholders' Equity $ 1,758,032.93 -------------- --------------
See Accountants' Report Inholtra Natural, Ltd (S Corporation) Statement of Revenues and Expenses- Income Tax Basis For the Periods Ending November 30, 1998
Current Month Eleven Months Amount Percent Amount Percent [Illegible] Sales $ (304.20) 100.00% $ 4,824,560.77 100.00% [Illegible] of Sales 168,821.25 (496.79) 3,408,938.09 70.66 --------------- ------- --------------- ------ Gross Profit (169,125.45) 596.79 1,415,622.68 29.34 Selling & Administrative Expenses Selling - See Schedule 77,248.51 (393.99) 352,687.12 7.31 Administrative - See Schedule 73,594.57 (192.82) 417,596.21 8.66 --------------- ------- --------------- ------ Total Selling & Administrative 150,843.08 (586.81) 770,283.33 15.97 --------------- ------- --------------- ------ Income From Operations (319,968.53) 183.61 645,339.35 13.38 [Illegible] Revenues (Expenses) Interest Income 1,391.39 (457.39) 6,699.90 0.14 --------------- ------- --------------- ------ Total Other Revenues (Expenses) 1,391.39 (457.39) 6,699.90 0.14 --------------- ------- --------------- ------ Income Before Tax Provision (318,577.14) 726.21 652,039.25 13.51 --------------- ------- --------------- ------ Net Income (Loss) $ (318,577.14) 726.21% $ 652,039.25 13.51% --------------- ------- --------------- ------ --------------- ------- --------------- ------
See Accountants' Report INHOLTRA NATURAL, LTD FINANCIAL STATEMENTS OCTOBER 31, 1998 THAW, GOPMAN & ASSOCIATES, P.A. --------------- CERTIFIED PUBLIC ACCOUNTANTS RONALD L. THAW, C.P.A. MARK R. THAW, C.P.A., C.V.A. GLENN H. GOPMAN, C.P.A. STEVEN M. SAMUELS, C.P.A. ACCOUNTANTS' COMPILATION REPORT The Board of Directors Inholtra Natural, Ltd Inholtra View Road Kennebunk, ME 04043 I have compiled the accompanying statement of assets and liabilities - income tax basis of Inholtra Natural, Ltd (S Corporation) as of October 31, 1998, and the related statement of revenues and expenses income tax basis, for the one month and ten months then ended, and the accompanying supplementary schedules - income tax basis, which are presented only for supplementary analysis purposes, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The financial statements and accompanying supplementary schedules have been prepared on the accounting basis used by the Company for income tax purposes, which on a comprehensive basis of accounting other than generally accepted accounting principles. Compilation is limited to presenting in the form of financial statements and supplementary schedules information that is the represenation of management. We have not audited or reviewed the accompanying financial statements and supplementary schedules and, assurance on them. The Company, with the consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of Corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. Management has elected to omit substantially all of the disclosures ordinarily included in financial statements prepared on the income tax basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Company's assets, liabilities, equity, revenues and exenses. Accordingly, these financial statements are not designed for those who are not informed about such matters. Thaw, Gopman & Associates, P.A. Certified Public Accountants December 16, 1998 Inholtra Natural, Ltd. (S Corporation) Statement of Assets and Liabilities - Income Tax Basis October 31, 1998
ASSETS Current Assets Cash in Bank $ 405,740.56 Accounts Receivable - Trade 1,920,800.22 --------------- Total Current Assets $ 2,326,540.78 Property and Equipment Office Furniture 8,500.00 Computer Equipment 2,943.97 Less: Accumulated Depreciation (8,443.97) --------------- Net Property and Equipment 3,000.00 Other Assets License Costs 35,000.00 A/A - License Costs (1,166.67) Organization Costs 500.00 A/A - Organization Costs (99.96) --------------- Total Other Assets 34,233.37 ------------ Total Assets $ 2,363,774.15 ------------ ------------
Inholtra Natural, Ltd (S Corporation) Statement of Assets and Liabilities - Income Tax Basis October 31, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Amounts Payable $1,010,194.58 ------------- Total Current Liabilities $1,010,194.58 Noncurrent Liabilities ------------- Total Noncurrent Liabilities ------------- Total Liabilities 1,010,194.58 Stockholder's Equity Capital Stock 100.00 Dividend Distributions (123,367.73) Current Year Income (Loss) 1,476,847.30 ------------- Total Stockholders' Equity 1,353,579.57 ------------- Total Liabilities and Stockholders' Equity $2,363,774.15 ------------- -------------
See Accountant's Report Inholtra Natural, Ltd (S Corporation) Statement of Revenues and Expenses - Income Tax Basis For the Periods Ending October 31, 1998
Current Month Ten Months Amount Percent Amount Percent Gross Sales $1,817,067.67 100.00% $4,881,095.88 100.00% Cost of Sales 745,818.94 41.05 2,790,116.84 57.16 ------------- ------ ------------- ------ Gross Profit 1,071,248.73 58.95 2,090,979.04 42.84 Selling & Administrative Expense Selling - See Schedule 28,919.03 1.59 275,438.61 5.64 Administrative - See Schedule 46,536.95 2.56 344,001.64 7.05 ------------- ------ ------------- ------ Total Selling & Administrative 75,455.98 4.15 619,440.25 12.69 ------------- ------ ------------- ------ Income From Operations 995,792.75 54.80 1,471,538.79 30.15 Other Revenues (Expenses) Interest Income 238.52 0.01 5,308.51 0.11 ------------- ------ ------------- ------ Total Other Revenues (Expenses) 238.52 0.01 5,308.51 0.11 ------------- ------ ------------- ------ Income Before Tax Provision 996,031.27 54.82 1,476,847.30 30.26 ------------- ------ ------------- ------ Net Income (Loss) $ 996,031.27 54.82% $1,476,847.30 30.26% ------------- ------ ------------- ------ ------------- ------ ------------- ------
See Accountant's Report INHOLTRA NATURAL, LTD (S CORPORATION) SUPPORTING SCHEDULE OF REVENUES AND EXPENSES INCOME TAX BASIS FOR THE PERIODS ENDING OCTOBER 31, 1998
Current Month Ten Months ------------------------ ------------------------ Amount Percent Amount Percent ----------- ------- ------------- ------- Schedule of Cost of Sales Freight-In $ 0.00 0.00% $ 12,687.05 0.26% Labeling 0.00 0.00 9,175.00 0.19 Purchases 629,651.20 34.65 1,902,887.15 39.98 Royalties 116,167.74 6.39 865,367.64 17.73 ----------- ------- ------------- ------- Total Cost of Sales $745,818.94 41.05% $2,790,116.84 57.16% ----------- ------- ------------- ------- ----------- ------- ------------- ------- Schedule of Selling Expenses Advertising & Promotion $ 4,805.86 0.26% $ 186,062.71 3.81% Commissions 13,432.64 0.74 78,695.37 1.61 Delivery 10,680.53 0.59 10,680.53 0.22 ----------- ------- ------------- ------- Total Selling Expenses $ 28,919.03 1.59% 275,438.61 5.64% ----------- ------- ------------- ------- ----------- ------- ------------- ------- Schedule of Administrative Expenses Accounting and Legal $ 23,697.10 1.30% $ 101,755.66 2.08 Automotive Expense 479.96 0.03 4,838.98 0.10 Bank Charges 15.75 0.00 224.85 0.00 Consulting Fees 0.00 0.00 15,079.77 0.31 Donations 130.00 0.01 180.00 0.00 Dues & Subscriptions 0.00 0.00 2,355.10 0.05 Insurance - Group 0.00 0.00 1,132.80 0.02 Insurance - Other 5,981.90 0.33 15,639.57 0.32 Interest 0.00 0.00 290.28 0.01 Licenses 0.00 0.00 60.00 0.00 Office Expense 2,149.34 0.12 11,562.55 0.24 Postage 264.45 0.01 3,334.00 0.07 Rent 0.00 0.00 9,000.00 0.18 Repairs and Maintenance 0.00 0.00 610.50 0.01 Salaries - Officer 5,000.00 0.28 50,000.00 1.02 Taxes - General 0.00 0.00 57.35 0.00 Taxes - Payroll 382.50 0.02 4,147.00 0.08 Telephone 3,989.60 0.22 23,078.30 0.47 Travel 4,446.35 0.24 100,654.93 2.06 ----------- ------- ------------- ------- Total Administrative Expenses $ 46,536.95 2.56% $ 344,001.64 7.05% ----------- ------- ------------- ------- ----------- ------- ------------- -------
See Accountant's Report INHOLTRA NATURAL, LTD (S CORPORATION) SUPPORTING SCHEDULE OF ASSETS AND LIABILITIES INCOME TAX BASIS OCTOBER 31, 1998
Schedule of Cash in Bank $ Cash in Operating Account 238.52 Cash in Operating Account 305,702.44 Cash in Investment Account 54,296.74 Cash in Money Market Account 45,502.86 ----------- Total Cash in Bank $405,740.56 ----------- ----------- Schedule of Notes Payable ----------- Total Notes Payable 0.00 ----------- Noncurrent Portion of Notes Payable $ 0.00 ----------- -----------
See Accountants' Report EXHIBIT 1 BILL OF SALE AND ASSIGNMENT BILL OF SALE AND ASSIGNMENT dated this __ day of March, 1999 (the "Bill of Sale") from Inholtra Natural, Ltd., a Maine corporation ("INL"), Vito V. Florio, a resident of Florida ("Vito's"), Inholtra, Inc., a Florida corporation ("Inc."), Inholtra Investment Holdings and Trading, N.V., a Netherlands Antilles company ("Holdings"; INL, Vito's, Inc. and Holdings being referred to herein individually and collectively as "Seller"), to Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation. This Bill of Sale is delivered by Seller to Buyer pursuant to the Asset Purchase Agreement, dated as of March __, 1999 (the "Purchase Agreement"), by and between Seller and Buyer. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Purchase Agreement. NOW, THEREFORE, for and in consideration of the consideration set forth in the Purchase Agreement, the receipt and sufficiency of which are hereby acknowledged, on the terms and conditions contained in the Purchase Agreement, Seller does hereby sell, convey, assign, transfer and deliver to Buyer all of its right, title and interest in and to the business of manufacturing, marketing, distributing and selling nutritional supplements and related products throughout the United States and in certain other countries (the "Business") and all rights, interest and title to the properties and assets owned by Seller and otherwise employed, used or available for use in the Business, real and personal, tangible and intangible, of every kind and nature, wherever located, as the same shall exist on the Closing Date (but excluding all Excluded Assets, as defined below) (the "Purchased Assets"), including without limitation, the following: (A) the Intellectual Property Rights; (B) the Inventory; (C) the Assumed Contracts; 1 (D) the Promotional Materials; (E) all papers, documents (including information stored in electronic forms such as computer disks, CD Rom, computer tape, computer hard drive and the like), instruments, books and records, correspondence, files, books of account, data and laboratory books, and other records by which any of the Purchased Assets might be identified or rights with respect thereto enforced, or otherwise pertaining to the Purchased Assets or the Business that are located in the Seller's offices or other locations used in connection with the Business (including without limitation, customer invoices, customer lists, vendor and supplier lists, drafts and other documents and materials relating to customer transactions); (F) all analytical and testing reports, files and production data relating to the Business, in hard copy and electronic format; (G) all back order files and collections files relating to the Business; (H) all credits, prepaid expenses, deferred charges, advance payments, security charges, and other prepaid items, deposits and advances (including royalty advances as set forth in SCHEDULE 4.7 to the Purchase Agreement) relating to the Business; (I) all rights of Seller to the computer software programs (including source and object codes to the extent Seller owns the rights, data and related documentation) and the licenses or other agreements conferring rights related thereto used in connection with the Business; (J) all office supplies and equipment used in connection with the Business; (K) all rights to receive payment, including promissory notes and all balances, credits, deposits, accounts or monies of Seller held by third parties (other than accounts receivable generated by the Business prior to the Closing Date); and 2 (L) all other assets and properties of Seller that are used in connection with the Business other than Excluded Assets. To have and to hold the Purchased Assets hereby sold, conveyed, assigned and transferred by Seller to Buyer forever upon the terms and subject to the conditions of the Purchase Agreement. Anything herein to the contrary notwithstanding, there shall be excluded from the Purchased Assets, properties, rights and business to be transferred to Buyer hereunder (a) accounts receivable and other receivables related to merchandise shipped prior to the Closing Date, (b) contracts, agreements or commitments which are not Assumed Contracts and (c) those assets listed on SCHEDULE 1.3 to the Purchase Agreement. Notwithstanding the foregoing, Buyer hereby assumes Seller's executory obligations under the Assumed Contracts (but not any obligations thereunder arising from any breach or alleged breach by Seller thereof), in each case only to the extent that the foregoing represent obligations which are by their stated terms to be performed, in the ordinary course, subsequent to the Closing Date. Except as specifically set forth to the contrary in the preceding sentence, the Seller shall be responsible for all liabilities and obligations not hereby expressly assumed by Buyer. 3 IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of the day and year first above written. INHOLTRA NATURAL, LTD. By: ------------------------------------ Name: Title: President VITO V. FLORIO, by Inholtra Natural, Ltd. as attorney-in-fact By: ------------------------------------ Name: Title: President INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V. by Herm Jan Van Asselt, as attorney-in-fact --------------------------------------- INHOLTRA, INC. By: ------------------------------------ Name: Title: 4 EXHIBIT 2 TRANSITIONAL SERVICES AGREEMENT This Transitional Services Agreement dated as of March [illegible], 1999 is made by and between Inholtra Natural, Ltd., a Maine Corporation ("Seller") and Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation. The parties hereto agree that the Seller will provide to Buyer during a transition period as defined in Section illegible thereof (the "Transition Period"), the Following services in connection with Buyer's purchase of Seller's business of manufacturing, marketing, distributing and selling nutritional supplements and related products pursuant to the Asset Purchase Agreement dated as of March , 1999, by and between Seller and Buyer (the "Purchase Agreement"; capitalization terms used herein and not otherwise defined shall have the meanings ascribed to them in the Purchase Agreement). Subject to the terms and conditions herein set forth, Seller will perform the following services under this Agreement in a manner that is customary, commercially reasonable and based on Seller's past business practice: 1. SALES AND MARKETING 1.1 Seller will continue to receive orders for the Products identified in EXHIBIT 1 hereto (the "Products") during the Transition Period. Seller will separate all commingled orders so as to designate the Products with a form code indicating that the sale is on behalf of Buyer. 1.2 Seller will invoice customers based upon Seller's terms and conditions in effect at time of closing uder the Purchase Agreement ("Closing"). Each invoice will contain only those Products included in the sale and will reflect a notation to the effect that such sale is "on behalf of Irwin Naturals/4Health, Inc." 1.3 Seller will act as collection agent for Buyer for those sales invoiced during the transition Period. It is understood that all risk of loss on such sales is for the account of Buyer. 1.4 Buyer shall promptly following the termination of the Transition Period notify all customers of the Business in writing of the consummation of the transactions contemplated by the Purchase Agreement and request that all such customers change their respective billing and invoicing codes as appropriate to reflect the change in ownership of the Business, and Seller shall cooperate in a reasonable manner with Buyer regarding such notifications to such customers. 1.5 To the extent not otherwise provided for in the Assumed Contracts (including co-packing agreements), Seller shall during the Transition Period arrange for and supervise the manufacture and packaging of Products to meet Buyer's requirements, warehousing finished Products, supplies and materials, receiving and unloading supplies and materials, inspecting incoming supplies and materials for quality, and loading and shipping Products. 1.6 Seller shall arrange for all legal and related services required for the diligent prosecution of all registrations illegible the Intellectual Property Rights (as difined in the Purchase Agreement) during the Transition Period. 1.7 Seller shall provide all necessary labor, administrative, quality control, maintenance and supervisory staff necessary to fulfill the commitments it has made herein. 2. CONSUMER SERVICES 2.1 Seller will continue to handle and record consumer contracts relevant to the Products in accordance with existing practices of the Seller. 3. TERM 3.1 The Transition Period will be the ninety (90) day period commencing on the first business day after the date first illegible written and will be automatically renewed at the end of such initial ninety (90) day period for an additional ninety (90) day period unless either party advises the other, in writing at least ten (10) days prior to expiration, of its intention not to renew another such term. -2- 3.2 Notwithstanding the foregoing, Buyer may, on ten (10) days prior written notice to Seller, terminate any or all of the Seller's services hereunder. Such termination shall not relieve Buyer from its obligation to make the payments required under Section 4.1. 3.3 Promptly following the termination of this Agreement, Seller shall deliver to Buyer all of its records relating to the Products produced during the Transition Period, provided that Seller shall have the same right of access to such records for a period of three (3) years from the date hereof as it has with respect to its other books and records delivered to Buyer under the Purchase Agreement. 4. COMPENSATION FOR SERVICES PROVIDED 4.1 Buyer shall pay Seller a fee of $45,000.00 for its services hereunder payable in three (3) monthly installments of $15,000.00 each on April 2, May 3 and June 28, 1999. In addition, buyer shall reimburse Seller for its reasonable and customary out-of-pocket expenses incurred by it in the performance of its duties hereunder. All payments shall be made in United States Dollars at the address shown therefor in the Purchase Agreement. 5. INDEMNIFICATION 5.1 Seller hereby agrees to indemnify and hold Buyer harmless at all times after the date of this Agreement against any and all damages, losses, obligations, liabilities of any nature (whether accrued, absolute, contingent, matured or unmatured, known or unknown, or otherwise), judgments, penalties, interest, encumbrances and reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) (collectively, "Losses") suffered, sustained, incurred or required to be paid because of the untruth, inaccuracy or breach of any representation, warranty, covenant or agreement of Seller contained in or made in this Agreement. 5.2 Buyer hereby agrees to indemnify and hold Seller harmless at all times after the date of this Agreement, against any and all Losses suffered, sustained, incurred or required to be paid because of the untruth, inaccuracy or breach of any representation, warranty, covenant or agreement of Buyer contained in or made in this Agreement. 3 6. MISCELLANEOUS 6.1 For a period of thirty (30) days after termination or expiration of the Transition Period, in the event of customer returns of Products to Seller facilities, Seller shall accept such returns for Buyer's account and, in each case will promptly notify Buyer as to the amount of Products so returned. Buyer shall issue any credit associated with such returns. All Product returns received by Seller within such thirty (30) day period shall be disposed of by Seller at Buyer's sole expense, in accordance with Buyer's written instructions, or in the absence of such instructions, at Seller's reasonable discretion. 6.2 This Agreement shall not apply to or otherwise effect in any way any settlements for contract manufacturing services (co-packing agreements) or inventory or equipment valuation issues under the Purchase Agreement. 6.3 The terms and conditions of this Agreement shall be construed and shall be enforceable in accordance with the laws of the State of New York. 6.4 This Agreement sets forth the complete understanding between the parties hereto relating to the subject matter hereof and neither party is relying on any statement or representation of the other party not specifically contained herein. Amendments to this Agreement will not be effective unless agreed to in writing and signed by authorized representatives of both parties. 6.5 No waiver by either party of any breach of this Agreement will operate to relieve the other party of responsibility for any prior or subsequent breach thereof. 6.6 If any provision of this Agreement shall contravene or be held invalid under any State or Federal law or municipal ordinance, such contravention or invalidity shall not affect the remainder of this Agreement, which thereafter shall be construed as not containing the particular term or provisions held to be invalid, and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 4 6.7 All notices, disclosures and communications provided for hereunder will be sent by certified mail, return receipt requested, to the following addresses or such other addresses as may be specified in writing: If to Buyer, to: Irwin Naturals/4Health, Inc. 10549 W. Jefferson Boulevard Culver City, CA 90232 Attn: Klee Irwin Copy to: Satterlee Stephens Burke & Burke LLP 230 Park Avenue New York, NY 10169 Attn: Peter A. Basilevsky If to Seller, to: Inholtra Natural, Ltd. 21 Oceanview Road Kennebunk, ME 04043 Attn: Ronald J.C. Gerard President and CEO with a copy to: Faro & Associates P.O. Box 4904 Miami, Fl 33149-4904 Attention: John H. Faro, Esq. 6.8 All disputes arising under this Agreement shall be resolved by binding arbitration in the City of New York, NY, before a single arbitrator in accordance with the rules of the American Arbitration Association. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first written above. IRWIN NATURALS/4HEALTH, INC. By:_________________________________ Name: Title: President INHOLTRA NATURAL, LTD. By:_________________________________ Name: Title: President 5 EXHIBIT 1 LIST OF PRODUCTS 1. Inholtra Natural Pain Relief Formula (the "Formula") 2. Proposed juvenile dosage of the Formula 3. Proposed veterinary dosage of the Formula EXHIBIT 3 NON-COMPETE AGREEMENT NON-COMPETE AGREEMENT (this "Agreement"), dated as of March __, 1999, by and between IRWIN NATURALS/4HEALTH, INC., a Utah corporation ("Buyer"), and INHOLTRA NATURAL, LTD., a Maine corporation, VITO V. FLORIO, a resident of Florida, INHOLTRA, INC., a Florida corporation and INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V., a Netherlands Antilles company (each individually, a "Seller" and collectively, the "Sellers"). W I T N E S S E T H: WHEREAS, Buyer and Sellers have entered into an Asset Purchase Agreement, dated as of March ___, 1999 (the "Asset Purchase Agreement"), pursuant to which Buyer is acquiring certain assets used by Seller in its business of manufacturing, marketing, distribution, and selling nutritional supplements and related products (including, without limitation, arthritis pain relief products) throughout the United States and in certain other countries (the "Business"); and WHEREAS, Seller has heretofore operated the Business and possesses intimate knowledge of the Business, its policies, procedures, customers, sources of products, methods, personnel and operations; and WHEREAS, Seller recognizes that the application of Seller's experience, expertise and services in a manner competitive with the Business would cause irreparable damage to Buyer; and WHEREAS, in order to induce Buyer to enter into the Asset Purchase Agreement and to consummate the transactions contemplated thereby, Seller is willing to agree, on the terms and conditions hereinafter set forth, to refrain from engaging in certain activities specified herein; and WHEREAS, the parties hereto agree that the consideration for Seller's performance of its obligations hereunder is included in the Purchase Price to be paid by Buyer under the Asset Purchase Agreement; and WHEREAS, the execution and delivery of this Agreement by Seller is a condition to the obligations of Buyer under the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and in the Asset Purchase Agreement, the parties hereto hereby agree as follows: 1. INCORPORATION OF RECITALS/REFERENCES. (a) The above recitals are incorporated herein and are an integral part of this Agreement. (b) Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Asset Purchase Agreement. 2. SELLER NON-COMPETE. During the term hereof, neither Seller nor its officers, directors, related parties, affiliates and subsidiaries (other than Ronald J.C. Gerard, who is bound by the terms of that certain Consulting Agreement dated the date hereof between Mr. Gerard and the Buyer), shall, directly or indirectly (as an owner, manager, licensor, licensee, lender, partner, stockholder, joint venturer, operator, consultant (other than for Buyer), independent contractor, advisor or otherwise): (a) engage in, or own any interest in any business that engages in, the manufacturing, marketing, distribution or sale of arthritis, joint or other pain relief products (collectively, "Competitive Products") anywhere in the United States or in any of the countries listed on SCHEDULE 4.7 to the Asset Purchase Agreement; or (b) provide any person, other than Buyer, with the names of Seller's customers, or any other information concerning Seller's Business for use in the manufacturing, marketing, distribution or selling of Competitive Products. In connection with the foregoing provisions of this Section 2, Seller represents that the limitations set forth herein are reasonable and properly required for the adequate protection of the Business acquired by Buyer pursuant to the Asset Purchase Agreement. 2 3. CONFIDENTIAL INFORMATION. Seller shall protect, guard and keep secret and confidential all Confidential Information of Buyer that has come or, in the future, may come into its possession. Confidential Information shall mean any confidential or proprietary information, methods, processes or trade secrets of Buyer, except for any such information that is or becomes publicly available or readily ascertainable through no breach of this Agreement. 4. REMEDIES. (a) The parties agree and acknowledge that the rights and obligations set forth under this Agreement are of a unique and special nature and that a party hereto may be, therefore, without an adequate legal remedy in the event of any violation of the covenants set forth in this Agreement by the other parties hereto. Accordingly, if any party hereto breaches its or their obligations under this Agreement, the other party shall be entitled to seek enforcement of its remedies by an injunction, a restraining order, or a decree of specific performance requiring the breaching party to fulfill its obligations under this Agreement, in addition to all other rights and remedies, at law or in equity, that may be available to such party under this Agreement. Moreover, to facilitate the foregoing, each of the parties hereby expressly waives any requirement for the posting of a bond or similar security in connection with seeking of equitable remedies. (b) Notwithstanding the foregoing, no right, power or remedy herein conferred upon or reserved to any party hereto is intended to be exclusive of any other right, power or remedy or remedies, and each and every right, power and remedy of such party pursuant to this Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall, to the extent permitted by law, be cumulative and concurrent and shall be in addition to every other right, power or remedy pursuant to this Agreement or now or hereafter existing at law or in equity or by statute or otherwise) and the exercise by such party of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by such party of any or all such other rights, powers or remedies. (c) All disputes arising under this Agreement shall be resolved by binding arbitration in the City of New York, NY, 3 before a single arbitrator in accordance with the rules of the American Arbitration Association. 5. TERM. The term of this Agreement shall be the period from the Closing Date through the fifth (5th) anniversary of the Closing Date. 6. ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements among them concerning such subject matter and may be modified only by a written instrument duly executed by each party hereto. 7. 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) business day after having been deposited with courier, if set 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 Seller: Inholtra Natural, Ltd. 21 Oceanview Road Kennebunk, ME 04043 Attention: Ronald J.C. Gerard President and CEO with a copy to: Faro & Associates P.O. Box 4904 Miami, Fl 33149-4904 Attention: John H. Faro, Esq. If to Buyer: Irwin Naturals/4Health, Inc. 10549 W. Jefferson Blvd. Culver City, CA 90232 Attention: Klee Irwin, CEO with a copy to: Satterlee Stephens Burke & Burke LLP 230 Park Avenue New York, New York 10169 Attention: Peter A. Basilevsky, Esq. 4 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). 8. WAIVER. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the 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 of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach shall be construed or deemed to be a waiver of any other or subsequent breach. 9. BINDING EFFECT; ASSIGNMENT. (a) Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (by operation of law or otherwise) by either of the parties hereto without the prior written consent of the other party, except Buyer may assign any and all of its rights and remedies and delegate any and all of its obligations under this Agreement to an 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. (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. 10. SEVERABILITY. If any provisions of this Agreement is invalid, illegal or unenforceable, such provision shall be ineffective to the extent, but only to the extent of, such invalidity, illegality or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement, unless such a construction would be unreasonable. 11. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and shall become effective when one or more 5 counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. 12. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to its choice of law principles. 13. HEADINGS. The headings contained herein are for the sole purpose or 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. IRWIN NATURALS/4HEALTH, INC. By: -------------------------------- Name: Title: President INHOLTRA NATURAL, LTD. By: -------------------------------- Name: Title: President VITO V. FLORIO, by Inholtra Natural, Ltd., as attorney-in-fact By: -------------------------------- Name: Title: President INHOLTRA INVESTMENT HOLDINGS AND TRADING, N.V., by Herm Jan Van Asselt, as attorney-in-fact By: -------------------------------- Name: Title: President 6 INHOLTRA, INC. By: -------------------------------- Name: Title: President 7 EXHIBIT 4 INDEMNITY ESCROW AGREEMENT THIS INDEMNITY ESCROW AGREEMENT (the "Agreement"), made this ____ day of March 1999 by and among Inholtra Natural, Ltd., a Maine corporation ("Seller"), Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation, and Satterlee Stephens Burke & Burke LLP (the "Escrow Agent"). W I T N E S S E T H: WHEREAS, Seller and Buyer have entered into an Asset Purchase Agreement dated as of March __, 1999 (the "Purchase Agreement") pursuant to which Seller has agreed (on its own behalf and on behalf of certain of its affiliates as therein provided) to sell and Buyer has agreed to acquire certain assets owned and used by Seller in its business of manufacturing, marketing, distributing and selling nutritional supplements and related products, as more particularly provided in the Purchase Agreement (terms used herein and not defined having the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Purchase Agreement requires, among other things, the deposit by Buyer with an escrow agent of One Million Dollars ($1,000,000.00) from the proceeds of the repayment of the Note, such deposit to be held as an indemnity escrow to fund the payment of any obligations of Seller to Buyer arising under the Agreement; and WHEREAS, Seller and Buyer desire that the Escrow Agent serve as escrowee under this Agreement and the Escrow Agent is willing to do so, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, it is hereby agreed as follows: SECTION 1. ESCROW 1.1 Upon maturity of the Note, Buyer shall deliver to the Escrow Agent a sum of One Million Dollars ($1,000,000.00), which sum the Escrow Agent hereby agrees to accept and to hold as escrow agent in accordance with the terms of this Agreement. Such amount is referred to herein as the "Escrow Deposit". 1.2 The Escrow Agent shall hold and maintain the Escrow Deposit in direct obligations of the United States Government, commercial paper obligations rated "A-1" by Standard & Poors or "P-1" by Moody's Investor Services (provided that such obligations mature within one(1) month after purchase by the Escrow Agent and in any event prior to the Termination Date), money market instruments, or certificates of deposit or variable rate notes issued by any federally insured bank, all as Seller shall direct in writing to the Escrow Agent. 1.3 The Escrow Agent shall hold and maintain the Escrow Deposit through the period ending on the ninetieth (90th) day after the date when the Escrow Deposit is established pursuant to Section 1.1 above (the "Termination Date"). Upon the expiration of such period, the Escrow Agent shall pay over to Seller, from the Escrow Deposit, an amount equal to the principal amount of the Escrow Deposit, as of such date, plus accrued interest thereon, minus the aggregate amount of compensatory money damages claimed in all Indemnity Escrow Claims (as defined below) commenced prior to such date, as certified to the Escrow Agent in writing signed by Buyer as of such date. 1.4 From time to time on or before the Termination Date, Buyer may give notice (a "Notice") to Seller and to the Escrow Agent specifying in reasonable detail the nature and dollar amount of any claim (an "Indemnity Escrow Claim") it may have under Section 6.1 of the Purchase Agreement. Buyer may make more than one Indemnity Escrow Claim with respect to any underlying circumstance or series of events. (a) If, within thirty (30) days following receipt by the Escrow Agent of a Notice regarding an Indemnity Escrow Claim, Seller gives notice to Buyer and the Escrow Agent disputing such Indemnity Escrow Claim (a "Counternotice"), such Indemnity Escrow Claim shall be resolved as provided in paragraph (b) below. If no such Counternotice is received by the Escrow Agent within such thirty-day period, then the dollar amount of damages claimed by Buyer as set forth in its Notice shall be deemed fixed for purposes of this Agreement and the Purchase Agreement and, within three (3) days after expiration of such thirty-day period, the Escrow Agent 2 shall pay to Buyer in good funds out of the Escrow Deposit an amount equal the amount claimed in the Notice. The Escrow Agent shall not inquire into or consider whether an Indemnity Escrow claim complies with the requirements of the Purchase Agreement. (b) If a Counternotice is given with respect to an Indemnity Escrow Claim, the Escrow Agent shall make a distribution from the Escrow Deposit with respect thereto only in accordance with (i) joint written instructions of Buyer and Seller, or (ii) final non-appealable order of an arbitral tribunal of competent jurisdiction. The Escrow Agent shall act on such arbitral tribunal order without further question. 1.5 Notwithstanding anything in this Section 1 to the contrary, the Escrow Agent shall make or withhold disbursements from the Escrow Deposit in accordance with any written instructions signed by both the Seller and Buyer. Section 2. GENERAL PROVISIONS. 2.1 This Agreement shall become effective as of the date hereof and shall continue in force until the final distribution of all amounts held by the Escrow Agent hereunder, or until terminated by order of an arbitral tribunal of competent jurisdiction. 2.2 Buyer and Seller agree to reimburse the Escrow Agent for all reasonable expenses, disbursements and advances incurred or made by the Escrow Agent in performance of its duties hereunder including reasonable fees, expenses and disbursements of its counsel). Any fees or expenses of the Escrow Agent or its counsel which are not paid as provided for herein may be taken from any property held by the Escrow Agent hereunder. 2.3 The obligations of the Escrow Agent under this Agreement are subject to the following terms and conditions: (a) The Escrow Agent shall not be under any duty to give the Escrow Deposit held by it hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any funds held hereunder except as directed in or pursuant to this Agreement. Uninvested funds held hereunder shall not earn or accrue interest. 3 (b) This Agreement expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement between the Buyer and the Seller except this Agreement. (c) The Escrow Agent shall not be liable, except for its own gross negligence or willful misconduct and, except with respect to claims based upon such gross negligence or willful misconduct that are successfully asserted against the Escrow Agent, the Buyer and the Seller shall jointly and severally indemnify and hold harmless the Escrow Agent (and any successor escrow agent) from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys' fees and disbursements, arising out of and in connection with this Agreement. Without limiting the foregoing, the Escrow Agent shall in no event be liable in connection with its investment or reinvestment of any cash held by it hereunder in good faith, in accordance with the terms hereof, including without limitation any liability for any delays (not resulting from its gross negligence or willful misconduct) in the investment or reinvestment of the Escrow Deposit, or any loss of interest incident to any such delays. (d) The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the proprietary or validity or the service thereof. The Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and may assume that any person purporting to give receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. (e) [RESERVED] (f) The Escrow Agent does not have any interest in the Escrow Deposit deposited hereunder but is serving as escrow holder only and having only possession thereof. Any payments of income from this Escrow Deposit shall be subject to withholding regulations then in force with respect to United States taxes. The 4 parties hereto will provide the Escrow Agent with appropriate W-9 forms for tax I.D., number certifications, or W-8 forms for non-resident alien certifications. It is understood that the Escrow Agent shall be responsible for income reporting only with respect to income earned on investment of funds which are a part of the Escrow Deposit and is not responsible for any other reporting. This paragraph and paragraph (c) shall survive not withstanding any termination of this Agreement or the resignation of the Escrow Agent. (g) The Escrow Agent makes no representation as to the validity, value, genuineness or the collectibility of any security or other document or instrument held by or delivered to it. (h) The Escrow Agent shall not be called upon to advise any party as to the wisdom in selling or retaining or taking or refraining from any action with respect to any securities or other property deposited hereunder. (i) The Escrow Agent (and any successor escrow agent) may at any time resign as such by delivering the Escrow Deposit to any successor escrow agent jointly designated by the Buyer and the Seller in writing, or to any court of competent jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. The resignation of the Escrow Agent will take effect on the earlier of (a) the appointment of a successor (including a court of competent jurisdiction) or (b) the day which is 30 days after the date of delivery of its written notice of resignation to the Buyer and the Seller. If at that time, the Escrow Agent has not received a designation of a successor escrow agent, the Escrow Agent's sole responsibility after that time shall be to safekeep the Escrow Deposit until receipt of a designation of a successor escrow agent or a joint written disposition instruction by the Buyer and the Seller or a final order of an arbitral tribunal of competent jurisdiction. (j) The Escrow Agent shall have no responsibility for the contents of any writing of the arbitrators or any third party contemplated herein as a means to resolve disputes and may rely without any liability upon the contents thereof. 5 (k) Except in the event of an Indemnity Escrow Claim, in the event of any disagreement between the Buyer and the Seller resulting in adverse claims or demands being made in connection with the Escrow Deposit, or in the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to retain the Escrow Deposit until the Escrow Agent shall have received (i) a final non-appealable order of an arbitral tribunal of competent jurisdiction directing delivery of the Escrow Deposit or (ii) a written agreement executed by the Buyer and the Seller directing delivery of the Escrow Deposit, in which event the Escrow Agent shall disburse the Escrow Deposit in accordance with such order or agreement. The Escrow Agent shall act on such arbitral tribunal order without further question. 2.4 The Escrow Agent agrees that Seller and Buyer may, by mutual agreement at any time, remove the Escrow Agent as escrow agent hereunder, and substitute another person or entity or escrow agent hereunder. In such event the Escrow Agent shall, upon receipt of written notice of such removal, account for and deliver to such substituted escrow agent all amounts then constituting the Escrow Deposit, less any amounts then due and unpaid to it for fees as herein provided for, and the Escrow Agent shall thereafter be discharged of all liability hereunder. 2.5 Any notice, authorization, request or demand required or permitted to be given hereunder shall be in writing, shall refer specifically to this Agreement and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: If to Buyer, to: Irwin Naturals/4Health, Inc. 10549 W. Jefferson Boulevard Culver City, CA 90232 Attn: Klee Irwin Copy to: Satterlee Stephens Burke & Burke LLP 230 Park Avenue New York, NY 10169 Attn: Peter A. Basilevsky 6 If to Seller, to: Inholtra Natural, Ltd. 21 Oceanview Road Kennebunk, ME 04043 Attn: Ronald J.C. Gerard President and CEO Copy to: Faro & Associates P.O. Box 4904 Miami, FL 33149-4904 Attn: John H. Faro To the Escrow Agent: Satterlee Stephens Burke & Burke LLP 230 Park Avenue New York, NY 10169 Attn: Peter A. Basilevsky Any party hereto may change the address to which notices are to be delivered to it by giving prior written notice thereof as provided herein to the other parties hereto. 2.6 All disputes arising under this Agreement shall be resolved by binding arbitration in the City of New York, NY, before a single arbitrator in accordance with the rules of the American Arbitration Association. 2.7 No printed or other matter in any language (including without limitation prospectuses, notices, reports and promotional material) which mentions the Escrow Agent's name or the rights, powers, or duties of the Escrow Agent shall be issued by the Buyer or the Seller or on such parties' behalf unless the Escrow Agent shall first have given its specific written consent thereto. 2.8 This Agreement shall be binding upon and inure solely to the benefit of the Buyer and the Seller and their respective successors and assigns, heirs, administrators and representatives and shall not be enforceable by or inure to the benefit of any third party except as provided in Section 2.3(i) with respect to a resignation by the Escrow Agent. No party may assign any of its rights or obligations under this Agreement without the written consent of the other parties. This Agreement shall be construed in accordance with and governed by the internal law of the State of New York (without reference to its rule as to 7 conflicts of law). To the best knowledge of the principals to this transactions, neither the underlying transaction/purpose nor the Agreement violate any law or regulation. 2.9 This Agreement may only be modified by a writing signed by all of the parties hereto, and no waiver hereunder shall be effective unless in a writing signed by the party to be charged. 2.10 The Buyer and the Seller authorize the Escrow Agent, for any securities held hereunder, to use the services of any United States central securities depository it deems appropriate, including, but not limited to, the Depositary Trust Company and the Federal Reserve Book Entry System. 2.11 This Agreement may be executed in one or more counterparts, each of which shall be considered an original and all of which taken together shall be considered one and the same instrument binding on all of the parties. WITNESS the due execution hereof as of the date set forth in the first paragraph. Attest: IRWIN NATURALS/4HEALTH, INC. By: - ---------------------- ------------------------------------------ Secretary Name: Title: President Attest: INHOLTRA NATURAL, LTD. By: - ---------------------- ------------------------------------------ Secretary Name: Title: President Attest: SATTERLEE STEPHENS BURKE & BURKE LLP, as Escrow Agent By: - ---------------------- ------------------------------------------ Secretary Name: Title: 8 EXHIBIT 5 March __, 1999 Irwin Naturals/4Health, Inc. 10549 W. Jefferson Boulevard Culver City, CA 90232 Attn: Klee Irwin Re: ACQUISITION BY IRWIN NATURALS/4HEALTH, INC. OF INHOLTRA Ladies and Gentlemen: We have acted as counsel for Inholtra Natural, Ltd., a Maine corporation ("INL"), Vito V. Florio, a resident of Florida, ("Vito's"), Inholtra, Inc., a Florida corporation ("Inc.") and Inholtra Investment Holdings and Trading, N.V., a Netherlands Antilles company ("Holdings"; INL, Vito's, Inc., and Holdings being sometimes referred to herein individually and collectively as "Seller"), with respect to the negotiation and execution of the Asset Purchase Agreement, dated as of March __, 1999 (the "Agreement"), between Seller and Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation. This opinion is rendered pursuant to Section 2.3(d) of the Agreement. Capitalized terms used herein but not defined shall have the meanings ascribed thereto in the Agreement. In this regard, we have examined originals or copies of, and the other documents contemplated by, the Agreement, the Indemnity Escrow Agreement, the Non-Compete Agreement, the Transitional Services Agreement, the Security Escrow Agreement, the Consulting Agreement, Bill of Sale and Assignment, the assignments with respect to the Intellectual Property Rights delivered pursuant to Section 2.3(b) of the Agreement and all other instruments of transfer in connection therewith, the assignments with respect to all Assumed Contracts, and the powers of attorney authorizing the parties named therein to act on behalf of INL, Vito's, Inc. and Holdings, as the case may be (the "Powers of Attorney"). The foregoing agreements and documents are collectively referred to herein as the "Purchase Documents". We have also examined such other documents and certificates of public officials and representatives of Seller as we have deemed necessary as a basis for the opinions expressed herein. It is our opinion that: 1. Each of INL, Vito's, Inc. and Holdings is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation shown in the introductory paragraph of the Agreement, with full corporate power and Irwin Naturals/4Health, Inc. Page 2 March __, 1999 authority to own, lease and operate its properties and to carry on the Business as presently conducted by it. There are no states or jurisdictions in which the character and location of any of the properties owned or leased by Seller, or the conduct of its business, makes it necessary for it to qualify to do business as a foreign corporation. 2. The execution and delivery by each of INL, Vito's, Inc. and Holdings of the Purchase Documents to which it is a party, the performance by it of its obligations thereunder, and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all necessary corporate action on the part of such party and such party has all necessary power with respect thereto. The Powers of Attorney have been duly executed and delivered by each of the parties thereto, have not been revoked, and duly and validly authorize the parties named therein to act for and on behalf of INL, Vito's, Inc. and Holdings, as the case may be in all capacities and in respect of all transactions contemplated under the Purchase Documents. 3. Neither the execution and delivery by INL, Vito's, Inc. or Holdings of the Purchase Documents to which it is a party, nor the consummation of any transactions contemplated thereby, nor the performance by it or its obligations thereunder, will (nor with the giving of notice or the lapse of time or both would) (A) conflict with or result in a breach of any provision of the Certificate of Incorporation or By-laws of INL, Inc. or Holdings or (B) give rise to a default or any right of termination, cancellation or acceleration, or otherwise be in conflict with or result in a loss of contractual benefits to Seller, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which it is a party or by which Seller or any of the Purchased Assets may be bound, or require any consent, approval or notice under the terms of any such document or instrument, except as disclosed in the Agreement or the Schedules thereto, or (C) violate any order, writ, injunction, decree, law, statute, rule or regulation of any Court or governmental authority which is applicable to Seller or any of the Purchased Assets, or (D) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon any of the Purchased Assets, or (E) interfere with or otherwise adversely affect the ability of Buyer to carry on the Business after the Closing Date on substantially the same basis as is now conducted by Seller. Irwin Naturals/4Health, Inc. Page 3 March __, 1999 4. Each of the Purchase Documents to which INL, Vito's, Inc. or Holdings is a party constitutes valid and legally binding obligations of INL, Vito's, Inc. or Holdings, as the case may be, enforceable against it in accordance with its respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 5. Except as expressly set forth in Schedules 4.7 and 4.9 of the Agreement, (i) Seller owns or has the right to use all of the Intellectual Property Rights; (ii) we know of no proceedings that have been instituted, or are pending or threatened, which challenge the rights of Seller in respect thereto or the validity thereof and we know of no valid basis for any such proceedings; (iii) none of the aforesaid violates any laws, statutes, ordinances or regulations, or has at any time infringed upon or violated any rights of others, or is being infringed by others; and (iv) none of the aforesaid is subject to any outstanding order, decree, judgment, stipulation or charge. 6. All patents, trademarks, servicemarks and brandmarks that are included in the Intellectual Property Rights have been duly registered in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights and the appropriate offices of the other countries shown on Schedule 4.7 to the Agreement, are valid, enforceable and subsisting, and all necessary actions have been taken to maintain the same. All patent applications and applications for registration of trademarks, servicemarks or brandmarks listed on Schedule 4.7 to the Agreement have been duly filed with the United States Patent and Trademark Office, the United States Register of Copyrights and the appropriate offices of the other countries identified therein, and are pending. 7. All licenses or other agreements included in the Intellectual Property Rights are in full force and effect, we know of no default by Seller or any other party thereto, and all of Seller's rights thereunder are freely assignable to Buyer. To the best of our knowledge, the licensors under such licenses and other agreements have and had all requisite power and authority to grant the rights purported to be conferred thereby. Irwin Naturals/4Health, Inc. Page 4 March __, 1999 8. Except as set forth in Schedules 4.7 and 4.9 to the Agreement, we know of no claims, suits, actions, arbitrations, investigations, inquiries or other proceedings before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, pending or threatened, against or relating to Seller, the Business or any of the Purchased Assets; nor, do we know of any basis for any such claim, suit, action, arbitration, investigation, inquiry or other proceeding. We know of no judgments, orders, stipulations, injunctions, decrees or awards in effect which relate to Seller, the Business or any of the Purchased Assets, the effect of which is (a) to limit, restrict, regulate, enjoin or prohibit any business practice in any area, or the acquisition of any properties, assets or businesses, or (b) otherwise materially adverse to the Business or any of the Purchased Assets. 9. No approval, authorization, consent or order or action of, or filing with, any third party or court, administrative agency or governmental authority (a) is required for the execution and delivery by INL, Vito's, Inc. or Holdings or any of the Purchase Documents to which it is a party, or the consummation by any such party of the transactions contemplated thereby or (b) is necessary in order that the Business may be conducted immediately following the Closing Date substantially in the same manner as heretofore conducted. Very truly yours, EXHIBIT 6 NON-RECOURSE PROMISSORY NOTE $10,000,000.00 March 10, 1999 FOR VALUE RECEIVED, the undersigned Irwin Naturals/4Health, Inc., a Utah corporation (the "Debtor"), with its principal place of business located at 10549 W. Jefferson Boulevard, Culver City, CA 90232, hereby promises to pay to Inholtra Natural, Ltd., a Maine corporation (the "Creditor"), at 21 Oceanview Road, Kennebunk, ME 04043, or at such other place as the Creditor shall designate to the Debtor in writing, the principal amount of Ten Million Dollars ($10,000,000.00) lawful money of the United States of America, with interest thereon at the rate of eight percent (8%) per annum calculated on the basis of 365-day year and the number of days elapsed. This Promissory Note evidences the obligation of the Debtor, subject to the terms and conditions set forth below, to pay a portion of the balance of the purchase price (the "Purchase Price") for certain assets purchased by it from the Creditor pursuant to that certain Asset Purchase Agreement between the Debtor, the Creditor and certain other parties dated as of March 10, 1999 (the "Agreement"). 1. The principal amount hereof shall be payable on or before the close of business on June 10, 1999 (the "Maturity Date") and shall be repaid by Debtor as follows: (i) the principal amount of One Million Dollars ($1,000,000.00) shall be paid to the Indemnity Escrow Agent (as defined in Section 1.5 of the Agreement) to be held by it pursuant to the terms of the Indemnity Escrow Agreement (as also defined in Section 1.5 of the Agreement); and (ii) the remaining principal balance hereof, together with all accrued interest as herein provided, shall be paid to Creditor. 2. In addition to its other rights hereunder and under the Agreement, Debtor shall have the right upon notice to Creditor specifying in reasonable detail the basis for a set-off hereunder, to set-off and apply against its obligations to Creditor hereunder any and all amounts to which it may be entitled from Creditor under the Agreement and the other documents executed in connection with the transactions contemplated thereby. The exercise of such right of set-off by Debtor in good faith shall not constitute default hereunder. 3. The principal amount of this Note may be prepaid, in whole or in part, along with accrued interest without premium or penalty. 4. Upon notice to the Debtor of the loss, theft, destruction or mutilation of this Note, and in the case of any such mutilation upon surrender and cancellation of the mutilated document, and in the case of such loss, theft or destruction, upon delivery by the Creditor of an indemnity agreement satisfactory to the Debtor, the Debtor will execute and deliver to the Creditor a new Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note. 5. Except as otherwise expressly provided herein, the terms of this Note may be amended only by a written instrument executed by the Debtor and the Creditor. No course of dealing with the Debtor and the Creditor nor any delay in executing any rights hereof shall operate as a waiver of any rights of the Creditor. 6. All notices, requests, demands and other communications which are required to be given hereunder shall be deemed to have been duly given only if in writing and delivered by first class mail, return receipt requested, to the other party at its address appearing on the first page hereof or to such other address as such party shall have specified by notice in writing to the other party. 7. The rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the local laws of the State of New York without regard to the principles of conflicts of law thereof. 8. If (a) Debtor shall fail to pay any amount due under this Note when due; or (b) Debtor shall commit any other material breach or event of default under the Agreement which shall continue 2 uncured for a period of ten (10) days after notice thereof to Debtor; or (c) Debtor shall be dissolved or become insolvent, or shall merge with or into another entity; or (d) there shall be an assignment for the benefit of creditors of Debtor or appointment of a receiver or similar official for Debtor or its assets, or Debtor shall apply for, or be the subject of any voluntary or involuntary application or petition for protection or relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law; or (e) Debtor shall take any action for the purpose of effecting any of the foregoing; then and in any such event, all amounts of unpaid principal and all other amounts due to Creditor hereunder shall upon demand be due and payable in full. 9. Except as otherwise set forth herein, the Debtor hereby waives presentment, demand for payment, notice of dishonor, notice of protest and protest, and all other notices or demands in connection with the delivery, acceptance, performance, default, endorsement or guarantee of this instrument. 10. This is a nonrecourse note and, anything herein to the contrary notwithstanding, Creditor agrees for itself, its representatives, successor, endorsees, and assigns that (a) neither Debtor nor its representatives, successors or assignees shall be personally liable on this Note, it being intended that Debtor's obligation to pay the principal of this Note with interest thereon is included for the sole purpose of establishing the existence of the indebtedness represented hereby and (b) in the event of default, Creditor (and any such representative, successor, endorsee, or assign) shall look for payment solely to the Reassignments (as defined in the Agreement) and the rights and remedies set forth in the Security Escrow Agreement (as defined in the Agreement) and will not make any claim or institute any action or proceeding against Debtor (or any representative, successor or assign of Debtor) for payment of this Note (or for any deficiency remaining after application of the property which is the subject of the Reassignments); provided, however, that nothing herein contained shall be construed to release or impair the indebtedness evidence by this Note, or of the lien upon the property securing it, or preclude the application of said property to the payment hereof in accordance with the terms of the Security Escrow Agreement. 11. All disputes arising hereunder shall be resolved by binding arbitration in the City of New York, New York before a 3 single arbitrator in accordance with the rules of the American Arbitration Association. IN WITNESS WHEREOF, this Note has been signed by the Debtor on the date first above written. IRWIN NATURALS/4HEALTH, INC. By: ---------------------------------------- Klee Irwin, Chief Executive Officer 4 EXHIBIT 7 CONSULTING AGREEMENT CONSULTING AGREEMENT made this ___ day of March 1999, between IRWIN NATURALS/4HEALTH, INC., a Utah corporation with offices at 10549 W. Jefferson Boulevard, Culver City, CA 90232 (the "Company"), and RONALD J.C. GERARD, an individual residing at 21 Oceanview Road, Kennebunk, Maine 04043, USA ("Consultant"). W I T N E S S E T H: WHEREAS, under an Asset Purchase Agreement dated March __, 1999 (the "Purchase Agreement"), the Company is purchasing certain assets of Inholtra Natural, Ltd., a Maine corporation ("Inholtra") and its affiliates, Vito V. Florio (an individual) and Inholtra Investment Holdings and Trading, N.V., a Netherlands Antilles company (Inholtra and such affiliates being collectively referred to herein as ("Inholtra") that is operated and managed by Consultant; and WHEREAS, in connection with the Purchase Agreement, Consultant has agreed to be retained by the Company in order to assist the Company in becoming familiar with the operations of the Business (as defined in the Purchase Agreement) and to assist the Company in developing good working relationships with Inholtra's customers and suppliers. NOW THEREFORE, the parties agree as follows: 1. RETENTION AND TERM. The Company hereby retains Consultant for the period of one year from the date hereof, at which time this Agreement shall be automatically renewed for an additional one (1) year period unless either party shall have advised the other in writing thirty (30) days before expiration of the current term, of his or its intention not to renew. 2. DUTIES. Consultant shall provide advice and consultation to officers of the Company with respect to the operations of the Business, including business development, marketing, customers and financial matters. Consultant may be required to take business trips from time to time as requested by the Company. Consultant shall provide such number of days of consulting service as he and the Company shall reasonably determine to be appropriate for the smooth transition of the Business from Inholtra to the Company and the maximization of the Business' earnings and growth during such transition period, but in no event shall Consultant be required to provide more than fifteen (15) days of consulting service hereunder during any calendar month. 3. CONFIDENTIALITY; NON-COMPETITION. (a) Consultant agrees that he will not at any time, either during the term of this agreement or thereafter, divulge to any person, firm or corporation any confidential information received by him during the course of his consulting, or prior to the date hereof, with regard to the financial, business or other affairs of the Company or the Business, and all such information shall be kept confidential and shall not, in any manner, be revealed to anyone, except as may be otherwise required by law; PROVIDED THAT nothing herein shall be construed to prohibit Consultant from divulging information in the ordinary course of the business of the Company or information which has become or hereafter becomes generally available to the public other than because it was divulged by Consultant in violation of this Agreement. (b) During the term hereof, and for a period of five (5) years thereafter, Consultant shall not, directly or indirectly (as an owner, manager, licensor, licensee, lender, partner, stockholder, joint venturer, operator, consultant (other than for the Company), independent contractor, advisor or otherwise): (1) engage in, or own any interest in any business that engages in, the manufacturing, marketing, distribution or sale of any arthritis pain relief products, including, without limitation, products containing glucosamine and chondratin or any derivatives thereof (collectively, "Competitive Products") anywhere in the United States or in any of the countries listed on Schedule 4.7 to the Purchase Agreement; or (2) provide any person, other than the Company, with the names of Inholtra's customers, or any other information concerning Inholtra's business for use in the manufacturing, marketing, distribution or selling of Competitive Products. 2 (c) In connection with the foregoing provisions of this Section 3, Consultant represents that the limitations set forth herein are reasonable and properly required for the adequate protection of the business acquired by the Company pursuant to the Purchase Agreement. 4. COMPENSATION. The Company shall pay Consultant for his services hereunder a retainer of SIXTY THOUSAND DOLLARS ($60,000.00) per year payable in twelve (12) equal monthly installments of $5,000,000 each. Payment of the retainer shall be made on the 5th day of each month for services performed in the prior month. In addition, Consultant shall be entitled to receive a bonus in an amount equal to Five Percent (5%) of all cash collections (net of shipping charges and returns) from sales generated by Consultant from new customers introduced to the Business by Consultant during the term hereof, such bonus to be payable on the 5th day of June, September, December and March for collections received by the Company during the three pervious calendar months. 5. EXPENSES. The Consultant shall be entitled to be reimbursed by the Company for all ordinary and necessary business expenditures made by him in connection with or in furtherance of the performance of his services hereunder (other than automobile expenses, which are included in the retainer amount described in paragraph 4), up to an aggregate amount of not to exceed audited expenses for the twelve (12) months preceding the Closing, upon presentation and approval of expense statements or vouchers and such other supporting information as may from time to time be requested by the Company. 6. EXPIRATION, DEATH. In the event of the Consultant's death during the term of this Agreement, this Agreement shall terminate and no further amounts shall be payable hereunder by the Company. 7. AMENDMENT AND MODIFICATION. This Agreement may not be amended, modified or changed except in a writing signed by the party against whom such amendment, modification or the like is sought to be enforced. 3 EXHIBIT 8 SECURITY ESCROW AGREEMENT THIS SECURITY ESCROW AGREEMENT ( the "Agreement"), made this ____ day of March 1999 by and among Inholtra Natural, Ltd., a Maine corporation ("Seller"), Irwin Naturals/4Health, Inc. ("Buyer"), a Utah corporation, and John H. Faro, Esq. (the "Escrow Agent"). W I T N E S S E T H: WHEREAS, Seller and Buyer have entered into an Asset Purchase Agreement dated as of March __, 1999 (the "Purchase Agreement") pursuant to which Seller has agreed (on its behalf and the behalf of certain of its affiliates, as therein provided) to sell and Buyer has agreed to acquire certain assets owned and used by Seller in its business of manufacturing, marketing, distributing and selling nutritional supplements and related products, as more particularly provided in the Purchase Agreement (terms used herein and not defined having the meaning ascribed to them in the Purchase Agreement); and WHEREAS, Buyer has delivered to Seller a Note in partial payment of the purchase price under the Purchase Agreement; and WHEREAS, the Purchased Assets include the assignment of all Intellectual Property Rights to Buyer pursuant to Section 113(b) of the Purchase Agreement (the "Assignments"); and WHEREAS, to secure its obligations under the Note, Buyer has agreed to execute reassignments of the Intellectual Property Rights to Seller (the "Reassignments" and "Deposits") and to deposit the Reassignments with the Escrow Agent pending payment in full of the Note, such deposit to be maintained pursuant to the terms and conditions of this Agreement; and WHEREAS, the Assignments are by their terms subject to the foregoing security interest in favor of the Seller in the Intellectual Property Rights, and Seller has agreed to execute and deliver to the Escrow Agent hereunder clean assignments of the Intellectual Property Rights, with no reference to any security interest therein, in favor of Seller ("Clean Assignments") such Clean Assignments also to be held by the Escrow Agent hereunder providing payment in full of the Note; and WHEREAS, Seller and buyer desire that the Escrow Agent serve as escrowee under this Agreement and the Escrow Agent is willing to do so, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, it is hereby agreed as follows: SECTION 1. ESCROW 1.1 Simultaneously with the execution hereof, Buyer has delivered to the Escrow Agent the Reassignments fully executed by Buyer, and Seller has delivered to the Escrow Agent the Clean Assignments fully executed by Seller, and receipt of such assignments and Clean Assignments is hereby acknowledged by the Escrow Agent. The Escrow Agent hereby agrees to accept and to hold the Reassignments and Clean Assignments as escrow agent in accordance with the terms of this Agreement. The Reassignments (to the extent that they relate to recordable patent or trademark interests) and Clean Assignments shall be in form acceptable for recording with the U.S. Patent and Trademark Office. 1.2 The Escrow Agent shall hold and maintain the Reassignments and Clean Assignments in escrow hereunder until the first to occur of the following: (a) Receipt by the Escrow Agent either of written notice signed by Seller that the Note has been paid in full (a "Payment Notice"), or a copy of the Note marked "Paid-in-Full" and signed by Seller; or (b) the expiration of thirty (30) days after receipt by the Escrow Agent of written notice (a "Default Notice") signed by Seller to the effect that the Buyer has defaulted in payment of the Note as and when due, that such default is continuing, and requesting the delivery of the Reassignments to Seller. 2 If any of the events described in clause (a) above is the first to occur, the Escrow Agent shall deliver the Reassignments and Clean Assignments to Buyer forthwith. If the event described in clause (b) shall be the first to occur, the Escrow agent shall, within three (3) days thereafter, furnish a copy of the Default Notice to Buyer. If, within ten (10) days after Buyer's receipt of the Default Notice, the Escrow Agent shall receive notice from Buyer either disputing the Default Notice or alleging an event of default or breach by Seller or its affiliates under the terms and conditions of the Purchase Agreement, the Escrow Agreement shall release the Reassignments and Clean Assignments only in accordance with Section 2.3(g) hereof. If no such notice from the Buyer is received by the Escrow Agent within such ten (10) day period, however, the Escrow Agent shall deliver the Reassignments and Clean Assignments to Seller forthwith. 1.3 Notwithstanding anything in this Section 1 to the contrary, the Escrow Agent shall make or withhold delivery of the Reassignments and Clean Assignments in accordance with any written instructions signed by both the Seller and the Buyer. 1.4 In the event of the delivery of the Reassignments by the Escrow Agent to the Seller hereunder, the Escrow Agent shall first date such Reassignments to be effective as of the date of their delivery to Seller. SECTION 2. GENERAL PROVISIONS. 2.1 This Agreement shall become effective as of the date hereof and shall continue in force until the final distribution of the Reassignments and Clean Assignments held by the Escrow Agent hereunder, or until terminated by order of a court or arbitral tribunal of competent jurisdiction. 2.2 Seller shall reimburse the Escrow Agent for all reasonable expenses, disbursements and advances incurred or made by the Escrow Agent in performance of its duties hereunder (including reasonable fees, expenses and disbursements of its counsel). 2.3 The obligations of the Escrow Agent under this Agreement are subject to the following terms and conditions: 3 (a) The Escrow Agent shall not be under any duty to give the Reassignments and Clean Assignments held by it hereunder any greater degree of care than it gives its own similar property. (b) This Agreement expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement between the Buyer and the Seller except this Agreement. (c) The Escrow Agent shall not be liable, except for its own gross negligence or willful misconduct and, except with respect to claims based upon such gross negligence or willful misconduct that are successfully asserted against the Escrow Agent, the Buyer and the Seller shall jointly and severally indemnify and hold harmless the Escrow Agent (and any successor escrow agent) from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys' fees and disbursements, arising out of and in connection with this Agreement. (d) The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity or the service thereof. The Escrow Agent may act in reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. (e) [RESERVED] (f) The Escrow Agent (and any successor escrow agent) may at any time resign as such by delivering the Deposits to any successor escrow agent jointly designated 4 by the Buyer and the Seller in writing, or to any court or arbitral tribunal of competent jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. The resignation of the Escrow Agent will take effect on the earlier of (a) the appointment of a successor (including by an arbitral tribunal) or (b) the day which is 30 days after the date of delivery of its written notice of resignation to the Buyer and the Seller. If at that time, the Escrow Agent has not received a designation of a successor escrow agent, the Escrow Agent's sole responsibility after that time shall be to safekeep the Deposits until receipt of a designation of a successor escrow agent or a joint written disposition instruction by the Buyer and the Seller or a final order of an arbitral tribunal of competent jurisdiction. (g) In the event of any disagreement between the Buyer and the Seller resulting in adverse claims or demands being made in connection with the Reassignments and Clean Assignments, or in the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall retain the Reassignments and Clean Assignments until the Escrow Agent shall have received (i) a final non-appealable order of an arbitral tribunal of competent jurisdiction directing delivery of the Reassignments and Clean Assignments or (ii) a written agreement executed by the Buyer and the Seller directing delivery of the Reassignments and Clean Assignments in accordance with such order or agreement. The Escrow Agent shall act on such arbitral tribunal order without further question. 2.4 The Escrow Agent agrees that Seller and Buyer may, by mutual agreement at any time, remove the Escrow Agent as escrow agent hereunder, and substitute another person or entity or escrow agent hereunder. In such event the Escrow Agent shall, upon receipt of written notice of such removal, account for and deliver to such substituted escrow agent the Reassignments and Clean 5 Assignments and the Escrow Agent shall thereafter be discharged of all liability hereunder. 2.5 Any notice, authorization, request or demand required or permitted to be given hereunder shall be in writing, shall refer specifically to this Agreement and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: If to Buyer, to: Irwin Naturals/4Health, Inc. 10549 W. Jefferson Boulevard Culver City, CA 90232 Attn: Klee Irwin If to Seller, to: Inholtra Natural, Ltd. 21 Oceanview Road Kennebunk, ME 04043 Attn: Ronald J.C. Gerard President and CEO To the Escrow Agent: John H. Faro, Esq. P.O. Box 4904 Miami, FL 33149-4904 Any party hereto may change the address to which notices are to be delivered to it by giving prior written notice thereof as provided herein to the other parties hereto. 2.6 This Agreement shall be binding upon and inure solely to the benefit of the Buyer and the Seller and their respective successors and assigns, heirs, administrators and representatives and shall not be enforceable by or inure to the benefit of any third party except as provided in Section 2.3(g) in respect to a resignation by the Escrow Agent. No party may assign any of its rights or obligations under this Agreement without the written consent of the other parties. This Agreement shall be construed in accordance with and governed by the internal law of the State of Florida (without reference to its rule as to conflicts of law). 6 2.7 This Agreement may only be modified by a writing by all of the parties hereto, and no waiver hereunder shall be effective unless in a writing signed by the party to be charged. 2.8 This Agreement may be executed in one or more counterparts, each of which shall be considered an original and all of which taken together shall be considered one and the same instrument binding on all of the parties. 2.9 All disputes arising under this Agreement shall be resolved by binding arbitration in the City of Miami, Florida before a single arbitrator in accordance with the rules of the American Arbitration Association. 2.10 Upon any delivery of the Reassignments and Clean Assignments to Seller in accordance with Section 1.2 hereof, Buyer agrees to cease and desist using or exploiting the Intellectual Property Rights underlying such Reassignments and Clean Assignments. WITNESS the due execution hereof as of the date set forth in the first paragraph. Attest: IRWIN NATURALS/4HEALTH, INC. ________________________ By: ________________________________ Secretary Name: Title: President Attest: INHOLTRA NATURAL, LTD. ________________________ By: ________________________________ Secretary Name: Title: President John H. Faro, Esq., as Escrow Agent Attest: ________________________ ____________________________________ 7 EX-2.06 3 EXHIBIT 2.06 Exhibit 2.06 - ------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER AMONG IRWIN NATURALS / 4HEALTH, INC. HEALTH & VITAMIN EXPRESS, INC. DAVID MANDEL JEFFREY D. SEGAL AND GORDON D. BARKER FEBRUARY 15, 1999 - ------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I MERGER ARTICLE I THE MERGER ................................................................ -3- SECTION 1.01. The Merger ........................................... -3- SECTION 1.02. Closing; Closing Date; Effective Time ................ -3- SECTION 1.03. Effect the Merger .................................... -3- SECTION 1.04. Articles of Incorporation; Bylaws .................... -4- SECTION 1.05. Directors and Officers ............................... -4- ARTICLE II CONVERSION OF SECURITIES; CONSIDERATION; REPURCHASE OPTION ......................................................... -4- SECTION 2.01. Merger Consideration; Conversion and Cancellation of Securities ........................... -4- SECTION 2.02. Merger Consideration ................................. -5- SECTION 2.03. Right of Repurchase .................................. -6- SECTION 2.04. Exchange and Surrender of Certificates ............... -7- ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS SECTION 3.01. Organization and Qualification; Subsidiaries ......... -8- SECTION 3.02. Articles of Incorporation and Bylaws ................. -8- SECTION 3.03. Capitalization ....................................... -9- SECTION 3.04. Authority ............................................ -10- SECTION 3.05. No Conflict; Required Filings and Consents ........... -10- SECTION 3.06. Permits; Compliance .................................. -11- SECTION 3.07. Financial Statements; Financial Results .............. -11- SECTION 3.08. Absence of Certain Changes or Events ................. -12- SECTION 3.09. Absence of Litigation ................................ -13- SECTION 3.10. Employee Benefit Plans; Labor Matters ................ -13- SECTION 3.11. Taxes ................................................ -14- SECTION 3.12. Tax and Accounting Matters ........................... -18- SECTION 3.13. Certain Business Practices ........................... -19- -i- SECTION 3.14. Environmental Matters ................................ -19- SECTION 3.15. Vote Required ........................................ -22- SECTION 3.16. Brokers .............................................. -22- SECTION 3.17. Insurance ............................................ -22- SECTION 3.18. Properties ........................................... -22- SECTION 3.19. Certain Contracts and Restrictions ................... -22- SECTION 3.20. Futures Trading and Fixed Price Exposure ............. -23- SECTION 3.21. Information Supplied ................................. -23- SECTION 3.22. Securities Laws Representations ...................... -23- SECTION 3.23. Intellectual Property ................................ -24- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF IN ...................................... -25- SECTION 4.01. Organization and Qualifications; Subsidiaries ........ -25- SECTION 4.02. Articles of Incorporation and Bylaws ................. -26- SECTION 4.03. Capitalization ....................................... -26- SECTION 4.04. Authority ............................................ -26- SECTION 4.05. No Conflict: Required Filings and Consents ........... -27- SECTION 4.06. Permits; Compliance .................................. -27- SECTION 4.07. Financial Statements ................................. -27- SECTION 4.08. Absence of Certain Changes or Events ................. -28- SECTION 4.09. Absence of Litigation ................................ -29- SECTION 4.10. Taxes ................................................ -29- SECTION 4.11. Tax Matters .......................................... -30- SECTION 4.12. NSM Listing .......................................... -31- SECTION 4.13. Certain Business Practices ........................... -31- SECTION 4.14. Environmental Matters ................................ -31- SECTION 4.15. Brokers .............................................. -32- SECTION 4.16. Properties ........................................... -32- SECTION 4.17. Certain Contracts and Restrictions ................... -32- SECTION 4.18. Information Supplied ................................. -33- SECTION 4.19. Exempt Transaction ................................... -33- SECTION 4.20. No Violation of Securities Laws ...................... -33- SECTION 4.21. No Investigation ..................................... -33- SECTION 4.22. No Convictions ....................................... -33- SECTION 4.23. No Restraint ......................................... -33- ii
ARTICLE V COVENANTS................................................................... 34 SECTION 5.01. Affirmative Covenants of HVE......................... 34 SECTION 5.02. Negative Covenants of HVE............................ 34 SECTION 5.03. Covenants and Consent of the Selling Shareholders.... 38 SECTION 5.04. Affirmative Covenants of IN.......................... 38 SECTION 5.05. Access and Information............................... 39 ARTICLE VI ADDITIONAL AGREEMENTS....................................................... 40 SECTION 6.01. Stockholder Approval................................. 40 SECTION 6.02. Registration Statement; Information.................. 40 SECTION 6.03. Appropriate Action; Consents; filings; Indemnification ................................... 42 SECTION 6.04. Tax and Accounting Treatment......................... 44 SECTION 6.05. Public Announcements................................. 44 SECTION 6.06. No Interference...................................... 40 SECTION 6.07. Form D Filing........................................ 41 ARTICLE VII CLOSING CONDITIONS.......................................................... 44 SECTION 7.01. Conditions to Obligations of Each Party Under This Agreement..................................... 44 SECTION 7.02. Additional conditions to Obligations of IN........... 45 SECTION 7.03. Additional Conditions to Obligations of Sellers...... 46 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER........................................... 47 SECTION 8.01. Termination.......................................... 47 SECTION 8.02. Effect of Termination................................ 48 SECTION 8.03. Amendment............................................ 48 SECTION 8.04. Waiver............................................... 49 SECTION 8.05. Fees, Expenses and Other Payments.................... 49 ARTICLE IX INDEMNIFICATION............................................................. 50 SECTION 9.02. Indemnification of IN................................ 50 SECTION 9.04. Notice to Indemnifying Party......................... 51
iii
SECTION 9.05. Compromise of Claims................................. 52 SECTION 9.06. Right of Set-Off..................................... 53 ARTICLE X GENERAL PROVISIONS.......................................................... 53 SECTION 10.01. Notices.............................................. 53 SECTION 10.02. Certain Definitions.................................. 54 SECTION 10.03. Headings............................................. 55 SECTION 10.04. Severability......................................... 55 SECTION 10.05. Entire Agreement..................................... 55 SECTION 10.06. Assignment........................................... 55 SECTION 10.07. Parties in Interest.................................. 55 SECTION 10.08. Failure or Indulgence Not Waiver; Remedies Cumulative ........................................ 55 SECTION 10.09. Governing Law........................................ 55 SECTION 10.10. Counterparts......................................... 56 SCHEDULES Schedule 1.05 Directors and Officers of Surviving Corporation Schedule 2.02(a) Allocation of Consideration SELLERS DISCLOSURE SCHEDULE Schedule 3.03(a) Reservation of HVE Common Stock Schedule 3.03(b) Options, Warrants, etc. Schedule 3.03(b)(iii) Investments Schedule 3.03(b)(iv) Revenue Sharing Agreements Schedule 3.03(c) Outstanding Stock Awards Schedule 3.05 Conflicts Schedule 3.06 Notifications from Governmental Entities Schedule 3.07 Contingent Liabilities Schedule 3.08 Certain Changes Schedule 3.09 Litigation Schedule 3.10(d) Severance Agreements Schedule 3.11(a) Tax Exceptions Schedule 3.11(b) Tax Proceedings Schedule 3.11(c) Tax Elections and Consents, etc. Schedule 3.14 Environmental Matters Schedule 3.16 Brokers Schedule 3.17 Insurance Schedule 3.18 Properties
iv AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, effective as of February 15, 1999 (this "Agreement"), by and among Irwin Naturals/4Health, Inc., a Utah corporation (together with HZ (as defined below), "IN"), Health & Vitamin Express, Inc., a California corporation ("HVE") and Mr. David Mandel ("Mandel"), Mr. Jeffrey D. Segal ("Segal") and Mr. Gordon D. Barker ("Barker", and together with Mandel and Segal, the "Selling Shareholders"; the Selling Shareholders and HVE are hereinafter collectively referred to as the "Sellers"). RECITALS 1) HVE, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of California ("California Law"), will merge (the "Merger"), with and into HealthZone.com, a California corporation and wholly-owned subsidiary of IN ("HZ") and pursuant thereto, the shares (the "HVE Shares") of common stock, no par value per share of HVE ("HVE Common Stock"), issued and outstanding immediately prior to the Effective Time (as defined herein) of the Merger, not owned directly or indirectly by IN or HVE, will be converted at the Effective Time into the right to receive the Merger Consideration (as defined below). 2) For federal income tax purposes, it is intended that the Merger qualify as a tax-free reorganization under the provisions of Section 368(a) of the United States International Revenue Code on 1986 as amended (the "Code"). NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confirmed, the parties hereto agree as follows: ARTICLE 1 THE MERGER SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with California Law, at the Effective Time, HVE shall be merged with and into HZ (each a "Constituent Corporation"). As a result of the Merger, the separate corporate existence of HVE shall cease and HZ shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). Certain terms used in this Agreement are defined in Section 10.02 hereof. SECTION 1.02. CLOSING; CLOSING DATE; EFFECTIVE TIME. Unless this Agreement shall have been terminated pursuant to Section 8.01, and subject to the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, the consummation of the Merger and the closing -1- of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of IN at 10549 West Jefferson Boulevard, Culver City, CA 90232 as soon as practicable (but in any event within five business days) after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, or at such other date, time and place as HVE and IN may agree. The date on which the Closing takes place is referred to herein as the "Closing Date". As promptly as practicable on the Closing Date, the parties hereto shall cause the Merger to be consummated by executing and filing Agreement of Merger, in substantially the form of Exhibit A attached hereto, with the Secretary of State of the State of California (the date and time of such filing, or such later date or time agreed upon by HVE and IN and set forth therein, being the "Effective Time"). For all tax purposes, the Closing shall be effective at the end of the day on the Closing Date. SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, to the full extent provided under California Law, the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; and any and all rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account, as well as stock subscriptions and all other things in action belonging to each of the Constituent Corporations, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise, in either of the Constituent Corporations, shall not revert or be in any way impaired; but all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. SECTION 1.04. ARTICLES OF INCORPORATION: BYLAWS. At the Effective Time, the articles of incorporation of HZ shall be the articles of incorporation of the Surviving Corporation and thereafter shall continue to be its articles of incorporation until amended as provided therein and pursuant to California Law. The bylaws of HZ shall be the bylaws of the Surviving Corporation and thereafter shall continue to be its bylaws until amended as provided therein and in the articles of incorporation and pursuant to California Law. SECTION 1.05. DIRECTORS AND OFFICERS. Immediately after the Effective Time, the officers and directors of the Surviving Corporation shall be the individuals identified as such in Schedule 1.05, each of such directors and officers to hold office in accordance with the articles of incorporation and bylaws of the Surviving Corporation, in each case until his successor is duly elected or appointed and qualified. -2- ARTICLE II CONVERSION OF SECURITIES; CONSIDERATION; REPURCHASE OPTION SECTION 2.01. MERGER CONSIDERATION: CONVERSION AND CANCELLATION OF SEECURITIES. At the Effective Time, by virtue of the Merger and without any action on the part of HVE, HZ or their respective stockholders: (a) Subject to the other provisions of this Article II, each share of HVE Common Stock issued and outstanding immediately prior to the Effective Time (excluding any HVE Common Stock described in Section 2.01(c) of this Agreement) shall be converted into the right to receive the Merger Consideration. (b) Notwithstanding any provision of this Agreement to the contrary, each share of HVE Common Stock held in the treasury of HVE, and each share of HVE Common Stock owned by IN or any direct or indirect wholly owned subsidiary of IN immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto. (c) All shares of HVE Common Stock shall cease to be outstanding and shall automatically be canceled and retired, and each certificate previously evidencing HVE Common Stock, immediately prior to the Effective Time (other than HVE Common Stock described in Section 2.01(b) of this Agreement) (the "Converted Shares" or "Converted Share Certificates," as the case may be) shall thereafter represent the right to receive, subject to Section 2.02(d) of this Agreement, (the Merger Consideration). The holders of Converted Share Certificates shall cease to have any rights with respect to such Converted Shares except as otherwise provided herein or by law. (d) All shares of IN Common Stock issued to holders of HVE Common Stock in the Merger shall be issued in a transaction intended to qualify for the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Regulation D promulgated thereunder ("Regulation D") and shall be deemed "restricted securities" as defined in Rule 144 promulgated under the Securities Act. SECTION 2.02. MERGER CONSIDERATION. (a) In consideration for the HVE Shares: (i) at the Closing, IN shall issue to the Selling Shareholders and aggregate of 363,636 shares (the "Initial HVE Shares") of IN Common Stock, to be allocated among the Selling Shareholders as set forth in Schedule 2.02(a) hereto; (ii) for each $1,000,000.00 of Net Revenues (as defined below) from -3- Internet sales received by the Internet Division (as defined below) during any period of twelve consecutive months during the first forty-two consecutive months after the Closing Date, IN shall issue up to the Selling Shareholders 90,909 shares (the "Revenues Earn-Out Shares"), of IN Common Stock up to a maximum aggregate amount of 272,727 shares of IN Common Stock, such shares to be allocated among the Selling Shareholders as set forth on Schedule 2.02(a) hereto; as used herein, the "Internet Division" shall mean the division of IN making sales of products out of IN or Internet Division Inventory on-line or in e-commerce, and "Net Revenues" shall mean the gross revenues (including, without limitation, advertising revenues) of the Internet Division less returns; and (iii) if the Division Pre-Tax Profits (as defined below) for any calendar year after the Closing Date during the first seven (7) years after the Closing Date shall equal or exceed $2,000,000.00, IN shall, once and only once, issue to the Selling Shareholders an aggregate of 90,909 shares (the "Profits Earn-Out Shares") of IN Common Stock, to be allocated among the Selling Shareholders as set forth on Schedule 2.02(a) hereto; as used herein, "Division Pre-Tax Profits" shall mean the net income of the Internet Division, including only those expenses properly attributable to the activities of the Internet Division, as computed without deduction for any federal, state or other income taxes, as determined by IN's accountants in accordance with GAAP (as defined below). The Initial HVE Shares, the Revenues Earn-Out Shares and the Profits Earn-Out Shares are collectively referred to herein as the "Merger Consideration." (b) Notwithstanding the provisions of subsection (a) of Section 2.02, if IN does not invest or contribute to the Internet Division at least (A) $4,000,000.00 during the eighteen month period following the Closing Date and (B) $10,000,000.00 (inclusive of the $4,000,000.00 provided in clause (A) above) during the thirty six months period following the Closing Date(each, a "Funding Failure"), then the Selling Shareholders shall automatically be entitled to receive at the time of such Funding Failure the maximum allowable number of Revenues Earn-Out Shares and the Profits Earn-Out Shares without regard to the revenue or profits of the Internet Division. (c) Any revenue and income of IN attributable to on-line or e-commerce sales generated as a result of the purchase by IN of any mail direct to consumer catalog order wholesale vitamin or health related companies after the Closing and the conversion of telephone orders from such companies to on-line or e-commerce orders, shall be included in the calculation of Net Revenues and Division Pre-Tax Profits, respectively. (d) In the event that IN acquires any company with on-line and e-commerce sales, IN shall provide the Internet Division with access to the customer database of such company. (e) In the event that a third-party (i) acquires all or substantially all of the assets of IN or (ii) acquires more than 50% of the issued and outstanding capital stock of IN, or that IN -4- is merged or consoliated with a third-party and the holders of IN Common Stock immediately prior to such merger or consolidation do not own more than 50% of the capital stock of the surviving corporation of such merger or consolidation, then the Selling Shareholders shall automatically be entitled to receive the maximum allowable number of Revenues Earn-Out Shares and Profits Earn-Out Shares without regard to the revenues or profits of the Internet Division. SECTION 2.03. RIGHT OF REPURCHASE. (a) Subject to subsections (b), (c), (d), (e) and (f) of this Section 2.03, IN shall have the right (the "Repurchase Option"), in its sole discretion, to repurchase from the Selling Shareholders pro-rata all or any portion, up to 65%, of the Merger Consideration that has been issued to the Selling Shareholders, for a period of one (1) year following the date of issuance (the "Repurchase Period"), at a purchase price of $13.75 per share (the "Repurchase Price"); PROVIDED, HOWEVER, that for the purpose of determining the termination of the Repurchase Period with respect to the Initial HVE Shares, the Initial HVE Shares shall be deemed to have been issued contemporaneously with the issuance of an equivalent number of Revenues Earn-Out Shares and the Profits Earn-Out Shares. For example, if the first 90,909 Revenues Earn-Out shares are issued to the Selling Shareholders on August 1, 2000 and the second 90,909 Revenues Earn-Out Shares are issued to the Selling Shareholders on November 15, 2001 and no Profits Earn-Out Shares have been issued prior to November 15, 2001, then the Repurchase Period for the first 90,909 Initial HVE Shares will terminate on July 31, 2001 and the Repurchase Period for the second 90,909 Initial HVE Shares will terminate on November 14, 2002. In all cases, the Repurchase Period with respect to the Initial HVE Shares shall begin on the Closing Date. As used in this Agreement, pro-rata with respect to the Selling shareholders shall mean in proportion to their respective percentage allocations of the Merger Consideration as set forth in Schedule 2.02(a). In the event that no Profits Earn-Out Shares and/or no Revenues Earn-Out Shares are issued pursuant to this Agreement, the Repurchase Period with respect to Mandel's portion of the Initial HVE Shares shall expire thirty-six months following the Closing Date. (b) Notwithstanding the provisions of subsection (a) of this Section 2.03 and subject to the provisions of subsection (c) of this Section 2.03, (i) if IN exercisers the Repurchase Option during the first twelve months following the Closing Date, the Repurchase Option shall be applied pro-rata among the Selling Shareholders and (ii) at any time that IN shall exercise the Repurchase Option after twelve months from the Closing Date, the Repurchase Option shall be exercisable as to Mandel only with respect up to a maximum of 73% of his Merger Consideration. (c) Notwithstanding the provisions of subsection (a) of this Section 2.03, the maximum number of Initial HVE Shares subject to the Repurchase Option shall be 213,636 shares and the other 150,000 Initial HVE Shares shall not be subject to the Repurchase Option and such 150,000 Initial HVE Shares which are not subject to the Repurchase Option and shall be allocated among the Selling Shareholders in the same proportions as are set forth in Schedule 2.02(a). -5- (d) Notwithstanding the provisions of subsection (a) of this Section 2.03, the Repurchase Period with respect to the Initial HVE Shares, the Revenues Earn-Out Shares and the Profits Earn-Out Shares allocated to Segal or Barker shall, in all cases, expire one year from the Closing Date notwithstanding the fact that some or all of the Revenues Earn-Out Shares or the Profits Earn-Out Shares may not have been issued by such date. (e) If on date that IN shall exercise the Repurchase Option, the closing bid price of IN Common Stock on a national securities exchange or the NASDAQ National Market System (the "Market Price") shall be greater than $20.00 per share, then IN shall pay to the Selling Shareholders pro-rata an amount (the "Market Profit") equal to fifty percent (50%) of the product of (x) the difference of the Market Price less $20.00 multiplied by (y) the number of shares repurchased by IN pursuant to the Repurchase Option. (f) Notwithstanding the provisions of subsection (a) of this Section 2.03, in the event that the Selling Shareholders receive their Revenues Earn-Out Shares and Profits Earn-Out Shares because of a Funding Failure and the Net Revenues and Division Pre-Tax Profits thresholds set forth in clauses (ii) and (iii) of Section 2.02 have not been met, then the Repurchase Price with respect to such shares and the equivalent amount of Initial HVE Shares shall be reduced from $13.75 per share to $9.63 per share. (g) At any time that IN shall be entitled to exercise the Repurchase Option, it may do so by sending a written notice (the "Repurchase Notice") to each Selling Shareholder setting forth (i) the number of shares with respect to which IN is exercising the Repurchase Option, (ii) the purchase price therefor, (iii) the closing date on which the Selling Shareholders shall deliver share certificates evidencing the indicated number of shares together with stock powers duly executed in blank and IN shall deliver the purchase price and (iv) if applicable, the amount of Market Profit payable by IN to such Selling Shareholder at the closing of the repurchase. The closing date for any exercise of the Repurchase Option shall be no more than five business days and no less than three business days after IN shall have sent the Repurchase Notice to the Selling Shareholders; PROVIDED that notwithstanding anything to the contrary contained herein, in no event shall IN be entitled, to designate a closing date for the exercise of the Repurchase Option with respect to any Merger Consideration that is after the expiration of the related Repurchase Period. SECTION 2.04. EXCHANGE AND SURRENDER OF CERTIFICATES. (a) At the Closing, IN shall deliver to each registered holder of a Converted Share Certificate against delivery by such holder of all of his Converted Share Certificates representing issued and outstanding shares of HVE Common Stock a certificate representing that number of whole shares of IN Common Stock which such holder has the right to receive in exchange for the Converted Share Certificates surrendered pursuant to the provisions of this Article II (after taking into account all Converted Shares then held by such holder), and the -6- Converted Share Certificates so surrendered shall forthwith be canceled. The certificate representing the IN Common Stock shall bear a restrictive legend in the form set forth in Exhibit B. Until surrendered as contemplated by this Section 2.04, each Converted Share Certificate shall be deemed at any time after the Effective Time to represent only the IN Common Stock into which the Converted Shares represented by such Converted Share Certificate have been converted as provided in this Article II. (b) After the Effective Time, there shall be no further registration of transfers of HVE Common Stock. If, after the Effective Time, certificates representing shares of HVE Common Stock are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for in this Agreement in accordance with the procedures set forth herein. (c) Any portion of the Merger Consideration that remains unclaimed by the holders of shares of HVE Common Stock, one year after the Effective Time shall be returned to the Surviving Corporation, upon demand, and any such holder who has not exchanged his shares of HVE Common Stock in accordance with this Section 2.04 prior to that time shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration in respect of his shares of HVE Common Stock. Notwithstanding the foregoing, the Surviving Corporation shall not be liable to any holder of Converted Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar laws. (d) No dividends, interest or other distributions with respect to shares of IN Common Stock shall be paid to the holder of any unsurrendered Converted Share Certificates unless and until such Converted Share Certificates are surrendered as provided in this Section 2.04. Upon such surrender, IN shall pay, without interest, all dividends and other distributions payable in respect of such shares of IN Common Stock on a date subsequent to, and in respect of a record date after, the Effective Time. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS Each of the Sellers (other than Barker, whose representations hereunder are limited to the last sentence of Section 3.03(a)), individually with respect to the representations with respect to the Selling Shareholders set forth in Sections 3.03(c), 3.04, 3.05 and 3.22, and jointly and severally with respect to all other representations, hereby represent and warrant to IN that: SECTION 3.01. ORGANIZATION AND QUALIFICATION. HVE has no subsidiaries. HVE is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of the -7- business conducted by it or the ownership or leasing of its properties makes such qualification necessary, other than where the failure to be so duly qualified and in good standing would not have an HVE Material Adverse Effect. The term "HVE Material Adverse Effect" as used in this Agreement shall mean any change or effect that, individually or when taken together with all other such changes or effects, would be reasonably likely to be materially adverse to the assets, liabilities, financial condition, results of operations or current or future business of HVE. SECTION 3.02. ARTICLES OF INCORPORATION AND BYLAWS. HVE has heretofore furnished to IN complete and correct copies of the articles of incorporation and the bylaws or the equivalent organizational documents as presently in effect of HVE. HVE is not in violation of any of the provisions of its articles or any material provision of its bylaws (or equivalent organizational documents). SECTION 3.03. CAPITALIZATION. (a) The authorized capital stock of HVE consists of 100,000,000 shares of HVE Common Stock, of which 10,250,000 shares are issued and outstanding and 10,000,000 shares of preferred stock, no par value, none of which are issued and outstanding. No shares of capital stock of HVE are reserved for any purpose. Each of the outstanding shares of capital stock of, or other equity interests in, HVE is duly authorized, validly issued, and, in the case of shares of capital stock, fully paid and nonassessable, and has not been issued in violation of (nor are any of the authorized shares of capital stock of, or other equity interests in, such entities subject to) any preemptive or similar rights created by statute, the charter or bylaws (or the equivalent organizational documents) of HVE or any agreement to which HVE or any Selling Shareholder is a party or bound, and such outstanding shares or other equity interests owned by HVE or any Selling Shareholder are owned free and clear of all security interests, liens, claims, pledges, agreements, limitations on HVE's or any Selling Shareholder's voting rights, charges or other encumbrances of any nature whatsoever. (b) Except as disclosed in Schedule 3.03(b), there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments of any character to which HVE or any Selling Shareholder is a party relating to the issued or unissued capital stock of HVE or any of its subsidiaries or obligating HVE or any Selling Shareholder to grant, issue or sell any shares of the capital stock of HVE, by sale, lease, license or otherwise. There are no obligations, contingent or otherwise, of HVE or any Selling Shareholder to repurchase, redeem or otherwise acquire any shares of HVE Common Stock or other capital stock of HVE; or provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, or any other person. No 5 percent or more owned affiliate of any of the Selling Shareholders has been involved in any business arrangement with HVE within the past 12 months. Except as set forth in Schedule 3.03(b)(iv) to the HVE Disclosure Schedule, there are no agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any person is or may be entitled to receive any payment based on the revenues or earnings, or calculated in accordance therewith, of HVE. Except as contemplated hereby, there are no voting -8- trusts, proxies or other agreements or understandings to which HVE or any Selling Shareholder is a party or by which HVE or any Selling Shareholder is or will be bound with respect to the voting of any shares of capital stock of HVE. (c) Each Selling Shareholder is the record and beneficial owner of the number of shares of HVE Common Stock set forth opposite such Selling Shareholder's name below, and each Selling Shareholder has full power and legal right to sell, assign, transfer and deliver such shares to IN in accordance with the terms of this Agreement and all such shares, together, constitute all of the issued and outstanding shares of voting capital stock of HVE:
Name Number of Shares ---- ---------------- David Mandel 7,500,000 Jeffrey Segal 2,500,000 Gordon Barker 250,000
SECTION 3.04. AUTHORITY. HVE and each Selling Shareholder have all requisite corporate power and authority and legal capacity, respectively, to execute and deliver this Agreement, to perform its and their obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by HVE and the consummation by HVE of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of HVE are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by each Seller, and, assuming the due authorization, execution and delivery thereof by IN constitutes the legal, valid and binding obligation of each Seller enforceable against each Seller in accordance with its terms, except that such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. SECTION 3.05. NO CONFLICT; REQUIRED FILINGS. (a) The execution and delivery of this Agreement by the Sellers does not, and the consummation of the transactions contemplated hereby in accordance with its terms will not conflict with or violate the articles of incorporation or bylaws, or the equivalent organizational documents, in each case as amended or restated, of HVE, or conflict with or violate any federal, state, foreign or local law, statute, ordinance, rule, regulation, order, judgement or decree (collectively, "Laws") applicable to HVE or any Selling Shareholder or by or to which any of their respective properties is bound or subject or except as described in Schedule 3.05 to the HVE Disclosure Schedule. (b) The execution and delivery of this Agreement by Sellers does not, and -9- consummation of the transactions contemplated hereby will not, require any Seller to obtain any consent, license, permit, approval, waiver, authorization or order of, or to make any filing with or notification to, any governmental or regulatory authority, domestic or foreign (collectively, "Governmental Entities"), except for filing appropriate merger documents as required by California Law; and where the failure to obtain such consents, licenses, permits, approvals, waivers, authorizations or orders, or to make such filings or notifications, would not, either individually or in the aggregate, materially interfere with HVE's performance of its obligations under this Agreement and would not have an HVE Material Adverse Effect. SECTION 3.06. PERMITS; COMPLIANCE. Each of HVE and, to each Seller's knowledge, each third party operator of any of HVE's properties, is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "HVE Permits"), and there is no action, proceeding or investigation pending or, to the knowledge of any Seller, threatened regarding suspension or cancellation of any of the HVE Permits, except where the failure to possess, or the suspension or cancellation of, such HVE permits would not have an HVE Material Adverse Effect. HVE is not in conflict with, or in default or violation of any Law applicable to HVE or by or to which any of its properties is bound or subject, including, without limitation, the provisions of the Dietary Supplemental Health Education Act of 1994, all consumer product safety Laws, all product labeling Laws and all truth in advertising Laws, or any of the HVE Permits, except for any such conflicts, defaults or violations that would not have a HVE Material Adverse Effect. HVE has not received from any Governmental Entity any written notification with respect to possible conflicts, defaults or violations of Laws, except as set forth in Schedule 3.06 of the HVE Disclosure Schedule and except for written notices relating to possible conflicts, defaults or violations that would not have an HVE Material Adverse Effect. SECTION 3.07. Financial Statements; Financial Results. (a) HVE's audited financial statements (including the related notes thereto) for the fiscal years ended December 31, 1996, and December 31, 1997 and unaudited financial statements for the fiscal year ended December 31, 1998 (the "HVE Financial Statements") to be furnished to IN pursuant to Section 5.01(d) will (i) (x) in the case of the audited Financial Statements, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved ("GAAP")(except(A) to the extent required by changes in generally accepted accounting principles and (B) as may be indicated in the notes thereto) and (y) in the case of the unaudited Financial Statements, in conformity with past practice consistently applied and (ii) fairly present the financial position of HVE as of the respective dates thereof and the result of operations and cash flows for the periods indicated (including reasonable estimates of normal and recurring year-end adjustments), expect that any pro forma financial information contained in such financial statements will not necessarily be indicative of the financial position of HVE as of the respective dates thereof and the results of operations and cash flows for the periods indicated. Except as set forth in Schedule 3.07 of the HVE Disclosure Schedule, HVE has no liabilities or obligations of any nature (whether known or unknown and whether accrued or contingent) except for liabilities or obligations reflected or reserved against in the unaudited balance sheet dated as of December -10- 31, 1998 including the notes thereto (the "HVE Balance Sheet") to be furnished to IN pursuant to Section 5.01(d) and current liabilities incurred in the ordinary course of business consistent with past practice since the date of the HVE Balance Sheet. SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by this Agreement or as set forth in Schedule 3.08 to the HVE Disclosure Schedule, since December 31, 1998 HVE has conducted its business only in the ordinary course and in a manner consistent with past practice and there has not been: any material damage, destruction or loss (whether or not covered by insurance) with respect to any material assets of HVE; any material change by HVE in its accounting methods, principles or practices; any declaration, setting aside or payment of any dividends or distributions in respect of shares of HVE Common Stock, or any redemption, purchase or other acquisition by HVE of any of HVE's securities; any increase in the benefits under, or the establishment or amendment of, any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any increase in the compensation payable or to become payable to directors, officers or employees of HVE; any revaluation by HVE of any of its assets, including the writing down of the value of inventory or the writing down or off of notes or accounts receivable, other than in the ordinary course of business and consistent with past practices; any entry by HVE into any commitment or transaction material to HVE (other than this Agreement and the transactions contemplated hereby); any material increase in indebtedness for borrowed money; or an HVE Material Adverse Effect. SECTION 3.09. ABSENCE OF LITIGATION. Except as disclosed on Schedule 3.09, there is no claim, action, suit, litigation, proceeding, arbitration or, to the knowledge of any Seller, investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief), pending or, to the knowledge of any Seller, threatened against HVE or any properties or rights of HVE (except for claims, actions, suits, litigation, proceedings, arbitrations or investigations which in the aggregate would not have an HVE Material Adverse Effect), and HVE is not subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of any Seller continuing investigation by, any Governmental Entity, or any judgement, order, writ, injunction, decree or award of any Government Entity or arbitrator, including, without limitation, cease-and-desist or other orders, except for matters that would not have an HVE Material Adverse Effect. SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS. (a) Neither HVE nor any member of any ERISA Group has maintained or contributed to any employee benefit plan (as such term is defined in ERISA Section 3(3)) during the past five years and neither HVE nor any member of its ERISA Group has any liability under Sections 4063, 4069, 4212(c) or 4204 of ERISA with respect to any such employee benefit plan, and HVE does not maintain and has not contributed to any other retirement, pension, stock option, stock appreciation rights, profit sharing, incentive compensation, deferred compensation, savings, -11- thrift, vacation pay, severance pay, insurance, health, welfare or other employee compensation or benefit plan, agreement, practice, or arrangement, whether written or unwritten, whether or not legally binding (collectively, the "HVE Benefit Plans"). For purposes of the Agreement, "ERISA Group" means a controlled or affiliated group within the meaning of Code Section 414(b), (c), (m), or (o) of which HVE is or may be a member. (b) No event has occurred and, to the knowledge of any Seller, there exists no condition or set of circumstances, in connection with which HVE or any member of its ERISA Group could be subject to any liability under the terms of any HVE Benefit Plans, ERISA, the Code or any other applicable Law which would have an HVE Material Adverse Effect. (c) Neither HVE nor any member of its ERISA Group, including, without limitation, any of its subsidiaries, is or has ever been a party to any collective bargaining or other labor union contracts. No collective bargaining agreement is being negotitated by HVE. There is no pending or threatened labor dispute, strike or work stoppage against HVE which may interfere with the respective business activities of HVE. None of HVE or any of its representatives or employees has committed any unfair labor practices in connection witht he operation of the busineeses of HVE, and there is no pending or threatened charge or complaint against HVE by the National Labor Relations Board or any comparable state agency. HVE is are in compliance with all applicable wage and hours Laws, age, race, religious and gender anti-discrimination laws, employee health and saftey Laws and all immigration Laws as regards their respective employees and, there is no pending or, to any Seller's knowledge, threatended clain, investigations or proceeding involving any alleged violation of any such Law. (d) HVE is not a party to nor is it bound by any severance agreements, programs or policies. Schedule 3.10(d) to the HVE Disclosure Schedule sets forth, and HVE has made available to IN true and correct copies of, all employment agreements with officers or HVE; all agreements with consultants of HVE obligating HVE to make annual cash payments in an amount exceeding $25,000; all non-competition agreements with HVE executed by officers of HVE; and all plans, programs, agreements and other arrangements of HVE with or relating to its directors. (e) Neither HVE nor any member of its ERISA Group provides retiree medical or retiree life insurance benefits to any person and (y) HVE is not contractually or otherwise obligated (whether or not in writing) to provide any person with life insurance or medical benefits upon retirement or termination of employement, other than as required by the provisions of Sectons 601 through 608 ERISA and Section 4980B of the Code and each such HVE Benefit Plan or arrangment may be amended or terminated by HVE at any time without liability. (f) Neither HVE nor any member of its ERISA Group including, without limitation, any of its subsidiaries, contributes to or has an obligation to contribute to, and has not within six years prior to the date of this Agreement contributed to or had an obligation to contribute to or has any secondary liability under ERISA Section 4204 to, a multiemployer plan within the meaning of Section 3(37) of ERISA. -12- SECTION 3.11 TAXES. Except when a failure of any representation made in this Section 3.11 to be true and correct would not result in a liability to HVE in excess of $10,000 in the case of representation known to any Seller to be untrue or incorrect or $25,000 in the case of a representation not known to any Seller to be untrue or incorrect. (a) Except as set forth in Schedule 3.11(a) of the HVE Disclosure Scheudle: (i) Except to the extent that the applicable statue of limitations has expired, all Returns required to be filed by or on behalf of HVE have been duly filed on a timely basis with the appropriate Governmental Entities and such Returns (including all attached statements and schedules) are ture, correct and complete. Except tot he extent that the applicable statue of limitations with respect thereto has expired, all Taxes (as defined in (f) below) have been paid in full on a timely basis, and no other Returns (whether or not shown on or reportable on such Returns) or with respect to any period prior to the Effective Time; (ii) HVE has complied in all respects with all applicable Laws relating to the payment and withholding of Taxes (including any estimated Taxes and withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under foreign laws) and has, within the time and in the manner prescribed by Law, withheld from employee wages and paid over all amound withheld under applicable Laws; (iii) HVE has disclosed on its income tax returns all positions taken therin that could rise to a substantial understatement penalty within the meaning of COde Section 6662; (iv) There are no liens on any of the assets of HVE with respect to Taxes, other than liens for Taxes not yet due and payable for Taxes that are being contested in good faith through appropriate proceedings and for which appropriate reserves have been established; (v) HVE does not have any liability under Treasury Regulation SECTION 1.1502-6 or any analogous stae, local or foreign law by reason of having been a member of any consolidated, combined or unitary group, other than in the current affiliated group of which HVE is the common parent corporation; (vi) Except to the extent that the applicable statue of limitations has expired, HVE has made available tot IN complete copies of: (i) all federal, state and local, as well as any other taxing authority, income tax, sales and use tax, employment tax and franchise tax returns of HVE for all periods since the formation of HVE and (ii) all tax audit reports, work papers statements of deficiencies, closing or other agreements received by HVE or on its behalf or relating to Taxes; -13- (vii) HVE does not do business in or derive income from any state, local, territorial or foreign taxing jurisdiction so as to be subject to Return filing requirments of such jurisdiction, other that those for which Returns have been furnished to IN; and (viii) HVE has neven been a subchapter S corporation; the business of HVE has always been conducted by HVE as subchapter C corporation and the Selling Shareholders have not conducted the business of HVE as an unicorporated entity. (b) Except as disclosed in Schedule 3.11(b) of the HVE Disclosure Schedule: (i) There is no audit of any Returns of HVE by a governmental or taxing authority in process, pending or, to the knowledge of any Seller, threatened (formally or informally) and no Governmental Entity of any jurisdiction in which HVE does not file a Return has claimed that HVE is or may be subject to tax in that jurisdiction; (ii) Except to the extent that the applicable statue of limitations has expired and except as to matters that have been resolved, no deficiencies exist or have been asserted (either formally or informally) or are expected to be asserted with respect to Taxes of HVE, and no notice (either formally or informally) has been received by HVE that HVE has not filed a Return or paid Taxes required to be filed or paid by it; (iii) HVE is not a pary to any pending action or proceeding for assessment or collection of Taxes, nor has such action or proceeding been asserted or threatened (either formally or informally) against it or any of its assets, except to the extent that the applicable statue of limitations has expired and except as to matters that been resolved; (iv) No waiver or extension of any statue of limitations is in effect with respect to Taxes or Returns of HVE; (v) No action has been taken taht would have the effect of deferring any liability for Taxes for IN from any period prior to the Effective Time to any period after the Effective Time; (vi) There are no requests for rulings, subpoenas or requests for information pending with respect to the Taxes of HVE; (vii) No power of attorney has been granted by HVE, with respect to any matter relating to Taxes; (viii) HVE is not and has never been included in an affiliated group of corporation, within the meaning of Section 1504 of the Code; (ix) HVE is not (nor has it ever been) a party to any tax allocation or sharing agreement between affiliated corporations; and -14 (x) The amount of liability for unpaid Taxes of HVE for all periods ending on or before the Effective Time will not, in the aggregate, materially exceed the amount of the liability accruals for Taxes reflected on the HVE Balance Sheet. (c) Except as disclosed on Schedule 3.11(c) of the HVE Disclosure Schedule: (i) HVE is not required to treat any of its assets as owned by another person for federal income tax purposes or as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code; (ii) HVE has not issued or assumed any corporate acquisition indebtedness that is subject to Sections 279(a) and (b) of the Code; (iii) HVE has not entered into any compensatory agreements with respect to the performance of services under which payment would result in a nondeductible expense pursuant Section 280G of the Code or an excise tax to the recipient of such payment pursuant to Section 4999 of the Code; (iv) No election has been made under Section 338 of the Code with respect to HVE and no action has been taken that would result in any income tax liability to HVE as a result of a deemed election within the meaning of Section 338 of the Code; (v) No consent under Section 341(t) of the Code has been filed with respect to HVE; (vi) HVE has not agreed, nor is it required to make, any adjustment under Code Section 481(a) by reason of a change in accounting method or otherwise; (vii) HVE has not disposed of any property that is presently being accounted for under the installment method; (viii)HVE is not a party to any interest rate swap or currency swap; (ix) HVE has not participated in any international boycott as defined in Code Section 999; (x) HVE is not subject to any joint venture, partnership or other arrangement or contract that is treated as a partnership for federal income tax purposes; (xi) HVE has not made any of the foregoing elections and is not required to apply any of the foregoing rules under any comparable state, local or foreign income tax provisions; and (xii) HVE does not have and has never had a permanent establishment in -15- any foreign country, as defined in any applicable tax treaty or conventions between the United States and such foreign country, (d) The books and records of HVE, including the Returns of HVE made available to IN contain accurate and complete information with respect to: (i) All material tax elections in effect with respect to HVE; (ii) The current tax basis of the assets for HVE; (iii) The current and accumulated earnings and profits of HVE, if any; (iv) The net operating losses of HVE by taxable year, if any; (v) The capital losses of HVE by taxable year, if any; (vi) The tax credit carry overs of HVE, if any; and (vii) The overall foreign losses of HVE under Section 904(f) of the Code that are subject to recapture, if any. (e) The Returns provided by HVE to IN contain accurate and complete information with respect to any net operating losses and net operating loss carry forwards, if any, and other tax attributes of HVE, and the extent to which they are subject to any limitation under Code Sections 381, 382, 383, or 384, or any other provision of the Code or the federal consolidated return regulations (or any predecessor provision of any Code Section or the regulations) and, apart from any such limitations and apart from any limitation that would be imposed as a result of the Merger, there is nothing that would prevent HVE from utilizing these net operating losses, net operating loss carry forwards or other tax attributes, if any, as so limited if it has sufficient income. (f) (i) For purposes of this Agreement the term "Taxes" shall mean all taxes, however, denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profit taxes, payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, worker's compensation, Pension Benefit Guaranty Corporation premiums and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, required to be paid, withheld or collected. (ii) For the purposes of this Agreement, the term "Returns" shall mean -16- all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. SECTION 3.12 TAX AND ACCOUNTING MATTERS. (a) Neither HVE nor, to the knowledge of any Seller, any of its affiliates has taken or agreed to take any action, other than any action taken in accordance with the terms of this Agreement, that would prevent the Merger from constituting a tax-free reorganization qualifying under the provisions of Section 368(a) of the Code. (b) HVE has no plan or intention to acquire the IN Common Stock issued in the Merger, (c) Subject to Section 8.05(a), HVE and the holders of HVE Common Stock will each pay their respective expenses, if any, incurred in connection with the Merger. (d) There is no intercorporate indebtedness existing between HVE and IN that was issued, acquired or will be settled at a discount. (e) HVE is not an investment company as defined in section 368(a)(2)(F)(iii) and (iv) of the Code. (f) Except as contemplated by this Agreement, HVE will take no action prior to the Effective Time to cease operations or, except in the ordinary course of business, dispose of any of its assets of any of its subsidiaries or current lines of business. SECTION 3.13. CERTAIN BUSINESS PRACTICES. To the best of its knowledge, none of HVE, or any directors, officers, agents or employees of HVE has used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any other unlawful payment. SECTION 3.14 ENVIRONMENTAL MATTERS. (a) Except for matters disclosed in Schedule 3.14 to the HVE Disclosure Schedule and except for matters that would not have or are reasonably not likely to have an HVE Material Adverse Effect, to the best knowledge of Sellers: (i) The properties, operations and activities of HVE are in compliance with all applicable Environmental Laws and there are no circumstances which could reasonably be expected to prevent or interfere with their continued compliance with applicable Environmental Laws. -17- (i) HVE and the properties and operations of HVE are not subject to any existing, pending, or, to any Seller's knowledge, threatened civil, criminal or administrative action suit, claim, notice of violation, investigation, notice of potential liability, request for information, inquiry, demand or proceeding under applicable Environmental Laws. (ii) HVE has not agreed, whether by contract or by consent agreement with Governmental Entities or private persons, to undertake investigation, clean up, or remedial activities. (iii) All notices, permits, licenses, or similar authorizations required to be obtained or filed by HVE under any Environmental Laws in connection with any aspect of the business of HVE, including without limitation those relating to the treatment, storage, disposal or discharge of Hazardous Materials, have been duly obtained or filed and will remain valid and in effect after the Merger, and HVE is in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations. (iv) HVE has not received any notice of noncompliance with respect to any financial responsibility requirements applicable to their operations and imposed by any Governmental Entity under any Environmental Laws. (v) There are no physical or environmental conditions existing on any leased property of HVE or resulting from HVE's operations or activities, past or present, at any location, including without limitation, releases and disposal of Hazardous Materials, that would give rise to any on-site or off-site investigation, reporting, or remedial obligations or other Environmental Liability. (vi) To the extent required by applicable Environmental Laws, all Hazardous Materials generated by HVE have been transported only by persons authorized under applicable Environmental Laws to transport such materials, and disposed of only at treatment, storage and disposal facilities authorized under applicable Environmental Laws to treat, store or dispose of such Hazardous Materials. (vii) There has been no exposure of any person or property to Hazardous Materials or any release of Hazardous Materials into the environment by HVE or in connection with its present or prior properties or operations that could reasonably be expected to give rise to any Environmental Liability. (viii) No release or cleanup of Hazardous Materials has occurred at HVE leased properties which could reasonably be expected to result in the assertion or creation of any lien on the properties by any governmental body or agency or other Governmental Entity with respect thereto, nor has any such lien been asserted or made by any governmental body, agency or entity with respect thereto. -18- (ix) The operations of each third party operator of any of HVE properties are in compliance with the terms of this Section 3.14. (b) HVE has made available to IN all internal and external environmental audits, studies, documents and correspondence on environmental matters in the possession of HVE, if any, relating to any of the present or prior properties or operations of HVE. (c) For purposes of this Agreement, the following terms shall be defined as follows: (i) "Environmental Laws" shall mean any and all laws, statutes, ordinances, rules, regulations or orders of any Governmental Entity pertaining to pollution, health, safety, or the environment, including, without limitation, the Clean Air Act, the Comprehensive Environmental, Response, Compensation, and Liability Act ("CERCLA"), the Clean Water Act, the Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Solid Waste Disposal Act, the Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Hazardous Materials Transportation Act, the Oil Pollution Act, all as amended, any state laws implementing the foregoing federal laws, any state laws pertaining to, health, safety and waste management including, without limitation, the handling of asbestos, medical waste or disposable products, hydrocarbon products, PCBs or other Hazardous Materials or processing or disposing of wastes or the use, maintenance and closure of pits and impoundments, all other federal, state or local environmental conservation or protection and health and safety laws, and any common law creating liability for environmental conditions. Environmental Laws shall include, without limitation, all restrictions, conditions, standards, limitations, prohibitions, requirements, guidelines, obligations, schedules and timetables contained in Environmental Laws or contained in any regulation, plan, code, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. (ii) "Hazardous Materials" shall mean any materials that are regulated by or form the basis of liability under Environmental Laws, and include, without limitation, asbestos, wastes, including, without limitation, medical wastes or disposable products, hazardous substances, pollutants or contaminants, hazardous or solid wastes, hazardous constituents, hazardous materials, toxic substances, petroleum, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). (iii) "Environmental Liability" shall mean liabilities, fines, penalties, obligations, consequential damages, responsibilities, response costs, natural resource damages, corrective action costs, reclamation costs, and costs and expenses, known or unknown, absolute or contingent, past, present or future, resulting from any requirement, claim or demand under Environmental Laws or contract. SECTION 3.15. VOTE REQUIRED. The only vote or written consent of the holders of -19- any class or series of HVE capital stock necessary to approve the Merger and adopt this Agreement is the affirmative vote or written consents from the Selling Shareholders. SECTION 3.16. BROKERS. Except as set forth in Schedule 3.16 to the HVE Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of HVE. HVE has made or will make available prior to Closing to IN a complete and correct copy of all agreements referenced in Schedule 3.16 to the HVE Disclosure Schedule pursuant to which any such firm or individual will be entitled to any payment relating to the transactions contemplated by this Agreement. SECTION 3.17. INSURANCE. Schedule 3.17 to the HVE Disclosure Schedule will set forth a true and complete listing of all material policies currently in force, and all other policies under which a claim could be made as of the date hereof (I.E., all incurrence-based policies), for fire, products and environmental or pollution control liability, general liability, vehicle, workers' compensation, directors and officers' liability, title and other insurance owned or held by or covering HVE or any of its property, assets, or activities, past or present. As of the date hereof, all of such policies are in full force and effect, and HVE has not received any outstanding notice of cancellation or termination with respect to any policy of fire, products or environmental or pollution control liability, general liability, vehicle, workers' compensation, directors' and officers' liability, title and other insurance owned or held by or covering HVE or any of its property, assets, or activities, past or present. To the knowledge of Sellers, neither the Merger nor any of the transactions contemplated hereby shall cause the termination or may form the basis for terminating any such insurance policies or insurance coverages presently maintained by HVE. SECTION 3.18. PROPERTIES. Except as set forth in Schedule 3.18 to the HVE Disclosure Schedule, except for liens arising in the ordinary course of business after the date hereof and assets disposed of in the ordinary course of business after the date of the HVE Balance Sheet, HVE has good and marketable title free and clear of all liens, the existence of which would have an HVE Material Adverse Effect, to all their material assets, whether tangible or intangible, personal or mixed, reflected in the HVE Balance Sheet as being owned by HVE as of the date thereof or purported to be owned on the date hereof. All buildings, and all fixtures, equipment and other property and assets which are material to its business on a consolidated basis held under leases by HVE are held under valid instruments enforceable by HVE in accordance with their respective terms. Substantially all of HVE's equipment in regular use has been well maintained and is in good and serviceable condition, reasonable wear and tear excepted. HVE owns no real property and all of HVE's interests in real property are subject to valid and binding leases, all of which are in full force and effect, are not in breach by HVE or, to any Seller's knowledge, by the lessor thereunder. SECTION 3.19. CERTAIN CONTRACTS AND RESTRICTIONS. Other than agreements, contracts or commitments listed elsewhere in the HVE Disclosure Schedule, Schedule 3.19 to the HVE Disclosure Schedule lists, as of the date hereof, each agreement, contract or commitment (including any amendments thereto) to which HVE is a party or by which HVE is bound (i) -20- involving consideration during the next twelve months in excess of $10,000 or (ii) which is otherwise material to the assets, liabilities, financial condition, results of operations or current or future business of HVE, taken as a whole. As of the date of this Agreement and except as indicated on the HVE Disclosure Schedule, (i) HVE has fully complied with all material terms and conditions of all agreements, contracts and commitments listed in the HVE Disclosure Schedule and all such agreements, contracts and commitments are in full force and effect, (ii) no Seller has any knowledge of any defaults thereunder or any cancellations or modifications thereof, and (iii) such agreements, contracts and commitments are not subject to any memorandum or other written document or understanding permitting cancellation. HVE has provided IN with a true and complete copy of the Shopping Channel Promotional Agreement dated as of September 1, 1997 (the "AOL Agreement") between HVE and America Online, Inc. ("AOL"). The AOL Agreement is in full force and effect and has not been canceled, amended or modified in any way except pursuant to an Addendum dated July 30, 1998. No party to the AOL Agreement has breached any representation, covenant, term or condition thereof, except that certain payments required to be made by HVE pursuant to the AOL Agreement are presently past due, as disclosed in Schedule 3.19. SECTION 3.20. FUTURE TRADING AND FIXED PRICE EXPOSURE. HVE is not presently engaged in any futures or options trading or is a party to any price, interest rate or currency swaps, hedges, futures or other derivative instruments. SECTION 3.21. INFORMATION SUPPLIED. Without limiting any of the representations and warranties contained herein, the representations and warranties of HVE contained in this Agreement and the information set forth in the HVE Disclosure Schedule is complete and accurate and does not contain any untrue statement of material fact, or omit a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements are or were made, not misleading. SECTION 3.22. SECURITIES LAWS REPRESENTATIONS. Without limiting any of the representations and warranties of Sellers contained herein, each Selling Shareholder hereby acknowledges and agrees with IN that he is familiar with IN assets, business, financial condition, results of operations, and prospects. He is aware of the risks attendant to an investment in the IN Common Stock. He has relied solely upon the independent investigations made by him and his representatives and IN's representations and warranties set forth herein in making a decision to approve the Merger and to acquire the IN Common Stock and has a full understanding and appreciation of the risks inherent in such a speculative investment. In connection with such investigation, he and his advisors, if any, have had the opportunity to ask, to the extent he considered necessary, questions of, and have received answers from, officers of IN concerning the affairs of IN and have had access to reports filed by IN with the Commission (as hereinafter defined), all documents, records, books and additional information which he has deemed necessary to make an informed investment decision to acquire the IN Common Stock. He recognizes that the offer and sale by IN to him of the IN Common Stock has not been registered under the Securities Act or any other domestic or foreign securities laws (the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any such other applicable domestic -21- and foreign securities laws are hereinafter collectively referred to herein as the "Securities Laws") and, except as set forth in 6.02 hereof, will not be registered under any such Securities Laws, in reliance upon exemptions from the registration requirements thereof. He is acquiring the IN Common Stock solely for his own account for investment and not with a view to, or for offer or resale in connection with, a distribution thereof in violation of any Securities Laws. He understands that the effect of such representations and warranties is that such Stock must be held indefinitely unless the sale or transfer thereof is subsequently registered under applicable Securities Laws or an exemption from such registration is available at the time of the proposed sale or transfer thereof. Except as provided in Section 6.02 hereof, IN is under no obligation to file a registration statement under the Securities Act covering the sale or transfer of the IN Common Stock or otherwise to register such Stock for sale under applicable Securities Laws. Each Selling Shareholder represents and warrants that he has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of approving the Merger and investing in the IN Common Stock; he is an "accredited investor" as defined in Rule 501 of Regulation D, in the case of Mandel, based on among other things his ownership of HVE Common Stock; and that the statements contained in this Section 3.22 are true, correct and complete in all material respects and do not omit any material fact necessary to make such statements not misleading. No Selling Shareholder shall make any sale or other disposition of his IN Common Stock unless (a) IN shall have received an opinion of counsel satisfactory in form and substance to it that the sale or other disposition may be made without registration under the then applicable provisions of the Securities Laws and the rules and regulations promulgated thereunder, or (b) such Stock is included in a currently effective registration statement under the Securities Act. No Selling Shareholder has been convicted of any felony or misdemeanor in connection with the purchase and sale of any security or involving the making of any false filing with the Securities and Exchange Commission ("Commission"). No Selling Shareholder nor HVE, nor any officer, director and/or shareholder of HVE, is subject to any order, judgment or decree of any court of competent jurisdiction, permanently restraining or enjoining, such person from engaging in or continuing any conduct or practice in connection with the purchase and sale of any security or involving the making of any false filing with the Commission. Each Selling Shareholder agrees to secure and furnish to IN prior to the Effective Time investment representation letters from any other holder of Converted Shares, if any, addressed to IN containing the same representations and warranties made by each Selling Shareholder in this Section 3.22. SECTION 3.23. INTELLECTUAL PROPERTY. Schedule 3.23 lists all the registered patents, trademarks, service marks, copyrights, trade names and applications for any of the foregoing owned by HVE, as of the date of this Agreement (the "Registered Intellectual Property"). To Sellers' knowledge, HVE has good and marketable title to the Registered Intellectual Property and has good and marketable title to, or valid licenses or rights to use, all patents, copyrights, trademarks, trade names, brand names, proprietary and other technical information, technology and software (collectively, "Intellectual Property") which are used in the operation of its business as presently conducted, free from any liens and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments or conditions or restrictions, -22- whatsoever, except as set forth on Schedule 3.23. Immediately after the Effective Time, the Surviving Corporation will own or will have the right to use all Intellectual Property free from liens and on the same terms and conditions as in effect prior to the Effective Time. Except as set forth in Schedule 3.23, there are no claims or proceedings pending or, to any Seller's knowledge, threatened, against HVE asserting that HVE is infringing or engaging in the unauthorized use of any Intellectual Property of any other person or entity. Schedule 3.23 sets forth all agreements and arrangements (i) pursuant to which HVE has licensed Intellectual Property to, or the use of Intellectual Property in other areas permitted (through non-assertion, settlement or similar agreements or otherwise) by, any other person and (ii) pursuant to which HVE has had Intellectual Property licensed to it, or has otherwise been permitted to use Intellectual Property (through non-assertion, settlement or similar agreements or otherwise). All of the agreements or arrangements to the extent set forth on Schedule 3.23 (w) are in full force and effect in accordance with their terms and no Seller is aware that any default exists thereunder by HVE or by any other party thereto; (x) are free and clear of liens; and (y) do not contain any change of control or other terms or conditions that will become applicable or inapplicable as a result of the consummation of the Merger and the transactions contemplated by this Agreement. HVE has delivered to IN true and complete copies of all agreements and arrangements set forth on Schedule 3.23. There are no royalties, license fees, charges or other amounts payable by, or on behalf of HVE in respect of any Intellectual Property other than as set forth on Schedule 3.23. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF IN IN hereby represents and warrants to each Seller that: SECTION 4.01. ORGANIZATION AND QUALIFICATIONS; SUBSIDIARIES. IN is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, other than where the failure to be so duly qualified and in good standing would not have a IN Material Adverse Effect. The term "IN Material Adverse Effect" as used in this Agreement shall mean any change or effect that, individually or when taken together with all such other changes or effects, would be reasonably likely to be materially adverse to the assets, liabilities, financial condition, results of operations or current or future business of IN and its subsidiaries, taken as a whole. SECTION 4.02. ARTICLES OF INCORPORATION AND BYLAWS. IN has heretofore furnished Sellers with access to a complete and correct copy of the articles of incorporation and bylaws or the equivalent organizational documents as presently in effect of IN. IN is not in violation of any of the provisions of its articles or any material provision of its bylaws. SECTION 4.03. CAPITALIZATION. Except as set forth in Schedule 4.03(a) or as -23- contemplated by this Agreement, the authorized capital stock of IN consists of 50,000,00 shares of IN Common Stock as of the date hereof, of which 27,753,000 shares are issued and outstanding; and (ii) 5,000,000 shares of series preferred stock, par value $1.00 per share, none of which are issued and outstanding. Except as described in this Section 4.03 or Schedule 4.03(a) of the disclosure schedule to be delivered to HVE by IN and which is attached hereto and made a part hereof (the "IN Disclosure Schedule"), no shares of capital stock of IN are reserved for any purpose. Each of the outstanding shares of capital stock of, or other equity interests in IN is duly authorized, validly issued, and, in the case of shares of capital stock, fully paid and nonassessable, and has not been issued in violation of (nor are any of the authorized shares of capital stock of, or other equity interests in, such entities subject to) any preemptive or similar rights created by statute, the charter or bylaws (or the equivalent organizational documents) of IN, or any agreement to which IN is a party or bound, and such outstanding shares or other equity interests owned by IN are owned free and clear of all security interests, liens, claims, pledges, agreements, limitations on IN's voting rights, charges or other encumbrances of any nature whatsoever. SECTION 4.04. AUTHORITY. IN has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by IN and the consummation by IN of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of IN are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by IN and, assuming the due authorization, execution and delivery there of by each Seller constitutes the legal, valid and binding obligation of IN enforceable against IN in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution and delivery of this Agreement by IN does not, and the consummation of the transaction contemplated hereby will not (i) conflict with or violate the articles of incorporation or bylaws, or the equivalent organizational documents, in each case as amended or restated, of IN, (ii) conflict with or violate any Laws applicable to IN or by which any of its properties is bound or subject, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the the creation of a lien or encumbrance on any of the properties or assets of IN pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which IN is a party or by or to which IN or any of its properties is bound or subject, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payments obligations or liens or -24- encumbrances described in clause (iii) that would not have a IN Material Adverse Effect. (b) The execution and delivery of this Agreement by IN does not, and consummation of the Merger will not, require IN to obtain any consent, license, permit, approval, waiver, authorization or order of, or to make any filing with or notification to, any Governmental Entity, except for filing appropriate merger documents as required by California Law; and where the failure to obtain such consents, licenses, permits, approvals, waivers, authorizations or orders, materially interfere with IN's performance of its obligations under this Agreement and would not have a IN Material Adverse Effect. SECTION 4.06. PERMITS; COMPLIANCE. IN and, to IN's knowledge, each third party operator of any of IN's properties, is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "IN Permits"), and there is no action, proceedings or investigation pending or, to the knowledge of IN, threatened regarding suspension or cancellation of any of the IN Permits, except where the failure to possess, or the suspension or cancellation of any of the Permits would not have a IN Material Adverse Effect. Except as set forth in Schedule 4.06 to the IN Disclosure Schedule, IN has not received from any Governmental Entity any written Notification with respect to possible conflicts, defaults or violations of Laws, except for written notices relating to possible conflicts, defaults or violations of Laws, except for written notices relating to possible conflicts, defaults or violations that would not have a IN Material Adverse Effect. SECTION 4.07. FINANCIAL STATEMENTS. (a) since March 31, 1996, IN and its subsidiaries have filed all forms, reports, statements and other documents required to be filed with (A) the Commission including, without limitation, (1) all Registration Statements filed under the Securities Act, (2) all Annual Reports on Form 10-K, (3) all Quarterly Reports on Form 10-Q, (4) all proxy statements relating to meetings of stockholders (whether annual or special), (5) all Current Reports on Form 8-K and (6) all other reports, schedules, registration statements or other documents (collectively referred to as the "IN Commission Reports") and (B) any applicable state securities authorities and all forms, reports, statements and other documents required to be filed with any other applicable federal or state regulatory authorities, except where the failure to file any such forms, reports, statements or other documents would not have an IN Material Adverse Effect (all such forms, reports, statements and other documents in clauses (i) and (ii) of this Section 3.07(a) being referred to herein, collectively, as the "IN Reports"). The IN Reports, including all IN Reports filed after the date of this Agreement and prior to the Effective Time, (x) were or will be prepared in accordance with the requirements of applicable Law (including, with respect to IN Commission Reports, the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the Commission thereunder applicable to such IN Commission Reports) and (y) did not at the time they were filed, or will not at the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order -25- to make the statements therein, in the light of the circumstances under which they are made, not misleading. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in IN Commission Reports filed prior to the Effective Time, have been or will be prepared in accordance with the published rules and regulations of the Commission and generally accepted accounting principles applied on a consistent basis throughout the periods involved (except (a) to the extent required by changes in generally accepted accounting principles; (b) with respect to IN Commission Reports filed prior to the date of this Agreement, as may be indicated in the notes thereto; and (c) with respect to interim financial statements as may be permitted by Article 10 of Regulation S-X) and fairly present or will fairly present the consolidated financial position of IN and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated (including reasonable estimates of normal and recurring year-end adjustments), except that (x) any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments and (y) any pro forma financial statements contained in such consolidated financial statements are not necessarily indicative of the consolidated financial position of IN and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated. SECTION 4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the IN Commission Reports, or in the IN Disclosure Schedule or as contemplated by this Agreement, since September 30, 1998, IN has conducted its business in the ordinary course of business consistent with past practice. Since September 30, 1998, there has not been (i) any event, change, or effect (including the occurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which be reasonably likely to have, individually or in the aggregate, a IN Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the equity interests of IN or any redemption, purchase or other acquisition by IN or any of IN's subsidiaries of any of IN's securities or any of the securities of any subsidiary of IN; (iii) any revaluation by IN of its assets, including the writing down of the value of inventory or the writing down or off of notes or accounts receivable, other than in the ordinary course of business and consistent with past practices; (iv) any change by IN in accounting principles or methods, except insofar as may be required by a change in generally accepted accounting principles; (v) a fundamental change in the nature of IN's business; or (vi) a IN Material Adverse Effect. SECTION 4.09. ABSENCE OF LITIGATION. There is no claim, suit, litigation, proceeding, arbitration or, to the knowledge of IN, investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief) pending or, to the knowledge of IN, threatened against IN or any of its properties or rights (except for claims, actions, suits, litigation, proceedings, arbitrations or investigations which would not have a IN Material Adverse Effect), and IN is not subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of IN, continuing investigation by, any Governmental Entity, or any judgment, order, writ, injunction, decree or award of any -26- Government Entity or arbitrator, including, without limitation, cease-and- desist, or other orders, except for matters that would not have a IN Material Adverse Effect. SECTION 4.10. TAXES. Except as such failure of any representation or warranty made in this Section 4.11 to be true and correct which would not have a IN Material Adverse Effect: (a) Except to the extent that the applicable statute of limitations has expired, all Returns required to be filed by or on behalf of IN have been duly filed on a timely basis with the appropriate Governmental Entities and such Returns are true, correct and complete. Except to the extent that the applicable statute of limitations with respect thereto has expired, all Taxes have been duly paid in full or a provision has been made in accordance with generally accepted accounting principles for the payment of all Taxes for all periods covered by such Returns or with respect to any period prior to the Effective Time. IN has disclosed on its income tax returns all positions taken therein which could give rise to a substantial understatement penalty within the meaning of Code Section 6662. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of IN. (b) IN has complied in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including any estimated Taxes and the withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign laws) and have, within the time and the manner prescribed by law, withheld from employee wages and paid over all amounts withheld under applicable laws. (c) There is no audit of any of the Returns of IN by a Governmental Entity in process or threatened and there is no material dispute or claim concerning any liabilities for Taxes of IN either raised or reasonably expected to be raised by any taxing authority. There are no liens on any assets of IN with respect to Taxes, other than liens set forth in Schedule 4.11 of the IN Disclosure Schedule for Taxes that are being contested in good faith through appropriate proceedings and for which appropriate reserves have been established. (d) IN has made available to HVE complete copies of (i) all federal income tax returns of IN for all periods open under the statute of limitations for assessments and (ii) examination reports, and statements of deficiencies assessed against IN. (e) No consent under Section 341(f) of the Code has been filed with respect to IN. (f) IN has not entered into any compensatory agreements with respect to the performance of services under which payment would result in a nondeductible expense pursuant to Section 280G of the Code. (g) IN has not agreed, nor is it required to make, prior to the Effective Time, any adjustment under Code Section 481(a) by reason of a change in accounting method or -27- otherwise. (h) IN has not issued or assumed any corporate acquisition indebtedness that is subject to Sections 279(a) and (b) of the Code. (i) The amount of liability for unpaid Taxes of IN for all periods ending on or before the Effective Time will not, in the aggregate, materially exceed the amount of the liability accruals for Taxes reflected on the balance sheet of IN filed in it Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998 (the "IN Balance Sheet"). (j) The tax returns provided by IN to HVE contain accurate and complete information with respect to the net operating losses, net operating loss carry forwards and other tax attributes of IN, and the extent to which they are subject to any limitation under Code Sections 381, 382, 383 or 384, or any other provision of the Code or the federal consolidated return regulations (or any predecessor provision of any Code section or the regulations) and, apart from any such limitations and apart from any limitation that would be imposed as a result of the Merger, there is nothing that would prevent IN from utilizing these net operating losses, net operating loss carry forwards or other tax attributes as so limited if sufficient income were realized. (k) IN is not required to treat any of its assets as owned by another person for federal income tax purposes or as tax-exempt bond property or as tax-exempt use property with the meaning of Section 168 of the Code. SECTION 4.11. TAX MATTERS. Neither IN, nor, to the knowledge of IN, any of IN's affiliates, has taken or agreed to take any action, including, without limitation, any action taken or to be taken pursuant to this Agreement, that would prevent the Merger from constituting a tax-free reorganization qualifying under the provisions of Section 368(a) of the Code. All of the Merger Consideration to be delivered by IN to the Selling Shareholders herewith shall constitute stock eligible for non-recognition treatment pursuant to Section 354(a) of the Code. SECTION 4.12. NSM LISTING. The IN Common Stock is traded in the NSM, and, IN has not received any current notice from the NSM or the NASD that it intends to delist the IN Common Stock from the NSM. SECTION 4.13. CERTAIN BUSINESS PRACTICES. To the best of IN's knowledge, none of IN, or any directors, offices, agents or employees of IN has used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any other unlawful payment. SECTION 4.14. ENVIRONMENTAL (a)Except for matters that would not have or are reasonably not likely to have a IN Material Adverse Effect, to the best knowledge of IN: -28- (i) the properties, operations and activities of IN are in compliance with all applicable Environmental Laws and there are no circumstances which could reasonably be expected to prevent or interfere with their continued compliance with applicable Environmental Laws; (ii) IN and the properties and operations of IN are not subject to any existing, pending, or, to IN's knowledge, threatened civil, criminal or administrative action, suit, claim, notice of violation, investigation, notice of potential liability, request for information, inquiry, demand or proceeding under applicable Environmental Laws; (iii) IN has not agreed, whether by contract or by consent agreement with governmental authorities or private persons, to undertaken investigation, clean up, or remedial activities; (iv) All notices, licenses, or similar authorizations required to be obtained or filed by IN under any Environmental Law in connection with any aspect of the business of IN, including without limitation those relating to the treatment, storage, disposal or discharge of Hazardous Materials, have been duly obtained or filed and will remain valid and in effect after the Merger, and IN is in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (v) IN has not received any notice of noncompliance with respect to any financial responsibility requirements applicable to its operations and imposed by any Governmental Entity under any Environmental Laws. (vi) There are no physical or environmental conditions existing on any property of IN or resulting from IN's operations or activities, past or present, at any location including without limitation, releases and disposal of Hazardous Materials, that would give rise to any on-site or off-site investigation, reporting, or remedial obligations or other Environmental Liability; (vii) To the extent required by applicable Environmental Laws, all Hazardous Materials generated by IN have been transported only by persons authorized under applicable Environmental Laws to transport such materials, and disposed of only at treatment, storage and disposal facilities authorized under applicable Environmental Laws to treat, store or dispose of such Hazardous Materials; (viii) There has been no exposure of any person or property to Hazardous Materials or any lease of Hazardous Materials into the environment by IN or in connection with their present or prior properties or operations that could reasonably be expected to give rise to any Environmental Liability; (ix) No release or clean up of Hazardous Materials has occurred at IN's properties which could reasonably be expected to in the assertion or creation of any lien on the -29- properties by any governmental body or agency with respect thereto, no has any such lien been asserted or made by any governmental body or agency with respect thereto; and (x) The operations of each third party operator of any of IN's properties are in compliance with the terms of this Section 4.15. (b) IN has made available to HVE all material internal and external environmental audits, studies, documents and correspondence on environmental matters in the possession of IN relating to any of the present or prior properties or operations of IN. SECTION 4.15. BROKERS. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of IN. SECTION 4.16. PROPERTIES. Except for liens arising in the ordinary course of business after the date hereof and properties and assets disposed of in the ordinary course of business after the date of the IN Balance Sheet, IN has good and marketable title free and clear of all liens, the existence of which would have a IN Material Adverse Effect, to all their material properties and assets, whether tangible or intangible, real, personal or mixed, reflected in the IN Balance Sheet as being owned by IN as of the date thereof or purported to be owned on the date hereof. SECTION 4.17. CERTAIN CONTRACTS AND RESTRICTIONS. As of the date of this Agreement and except as indicated on the IN Disclosure Schedule, IN has fully complied with all material terms and conditions of all of its material agreements, contracts and commitments and all such agreements, contracts and commitments are in full force and effect, IN has no knowledge of any defaults thereunder or any cancellations or modifications thereof, and such agreements, contracts and commitments are not subject to any memorandum or other written document or understanding permitting cancellation. SECTION 4.18. INFORMATION SUPPLIED. Without limiting any of the representations and warranties contained herein, no representation or warranty of IN and no statement by IN or other information contained in or documents referred to in the IN Disclosure Schedule, as of the date of such representation, warranty, statement or document, contains or contained any untrue statement of material fact, or, at the date thereof, omits or omitted to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements are or were made, not misleading. SECTION 4.19. EXEMPT TRANSACTIONS. Assuming the accuracy and completeness of Seller's representations and warranties hereunder, and assuming further that IN and Sellers have not taken and will not take any action that would render unavailable the exemption from registration under the Securities Act provided by Rule 506 of Regulation D and Section 4(2) thereof and applicable state securities laws, the shares of IN Common Stock issued as a result of the Merger will be offered and sold pursuant to the registration exemption provided by Rule 506 -30- of Regulation D and Section 4(2) of the Securities Act as a transaction not involving a public offering and the requirements of the applicable state securities laws of the State of California and respective rules and regulations thereunder. SECTION 4.20. NO VIOLATION OF SECURITIES LAWS. No injunction, stop order, cease and desist order or other judgment, writ, or decree denying, revoking or suspending the registration of shares of IN Common Stock or prohibiting or restricting the offer or sale of shares of IN Common Stock has been issued and, to the knowledge of IN, there are no private or governmental suits, actions, investigations or other proceedings pending or threatened, seeking such a judgment, order, writ or decree or alleging any violation of Federal or state securities laws. SECTION 4.21. NO INVESTIGATION. No formal or informal investigation or examination by the Commission or by the securities administrator of any state is pending, or to the knowledge of IN, threatened against IN, or any director, officer or shareholder of IN, or any of its subsidiaries. SECTION 4.22. NO CONVICTIONS. Neither IN nor any officer, director or shareholder of IN or any of its subsidiaries, has been convicted of any felony or misdemeanor in connection with the purchase and sale of any security or involving the making of any false filing with the Commission. SECTION 4.23. NO RESTRAINT. Neither IN nor any subsidiary of IN, nor any officer, director and/or shareholder of IN or any subsidiary of IN, is subject to any order, judgment or decree of any court of competent jurisdiction, temporarily or preliminarily restraining or enjoining, or subject to any order, judgment or decree of any court of competent jurisdiction, permanently restraining or enjoining, such person from engaging in or continuing any conduct or practice in connection with the purchase and sale of any security or involving the making of any false filing with the Commission. -31- SECTION 4.24. MERGER CONSIDERATION. The Merger Consideration to be issued to the Selling Shareholders will be validly and legally issued shares of IN voting common stock, each of which, when issued pursuant to this Agreement, shall be free and clear of liens and encumbrances other than the Repurchase Option and from preemptive rights and other similar rights, fully-paid and non-assessable and shall possess such voting, dividend and liquidation distribution rights equivalent in all respects to the shares of voting common stock of IN which are issued and outstanding on the date hereof. ARTICLE V COVENANTS SECTION 5.01. AFFIRMATIVE COVENANTS OF HVE. HVE hereby covenants and agrees that, at or prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by IN, HVE will: (a) continue to operate its business in all material respect in the usual and ordinary course, consistent with prior practice and to use all reasonable efforts to preserve substantially intact its business organization, maintain its material rights and franchises, retain the services of its respective officers and employees and maintain its relationships with its material customers and suppliers; (b) maintain and keep its material properties and assets in as good repair and conditions as at present, ordinary wear and tear excepted, and maintain supplies and inventories of products in quantities consistent with its customary business practice; (c) use all reasonable efforts to keep in full force and effect insurance and bonds comparable in amount and scope of coverage to that currently maintained; (d) furnish to IN copies of the HVE Financial Statements and HVE Balance Sheet, in the case of the audited HVE Financial Statements, certified by HVE's independent auditors, and the HVE Disclosure Schedule on or prior to the Closing Date; and (e) prior to the Closing, HVE shall take all necessary steps to ensure that there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments of any character to which HVE or any Selling Shareholder is a party relating to the issued or unissued capital stock of HVE or any of its subsidiaries or obligating HVE or any Selling Shareholder to grant, issue or sell any shares of the capital stock of HVE, by sale, lease, license or otherwise. (f) take all such steps as are commercially reasonable in order to consummate -32- the Merger and all other transactions contemplated hereby. SECTION 5.02. NEGATIVE COVENANTS OF HVE. Except as expressly contemplated by this Agreement or otherwise consented to in writing by IN, from the date of this Agreement until the Effective Time, HVE will not do, and will not permit any of its subsidiaries to do, any of the foregoing: (a) (i) except as set forth on in Schedule 5.02(a) to the HVE Disclosure Schedule, increase the compensation payable to or to become payable to any director or executive officer; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer or employee; (iii) establish, adopt or enter into any employee benefit plan or arrangement; or (iv) except as may be required by applicable law, adopt, amend, or take any other actions with respect to, any HVE Benefit Plans or any of the plans, programs, agreements, policies or other arrangements described in Section 3.10(d) of this Agreement; (b) except as set forth on Schedule 5.02(b) to the HVE Disclosure Schedule, declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock; (c) except as contemplated by this Agreement, (i) redeem, purchase or otherwise acquire any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock or any options, warrants or conversion or other rights to acquire any shares of its or its subsidiaries' capital stock or any such securities or obligations (except in connection with the exercise of outstanding stock options in accordance with their terms); (ii) effect any reorganization or recapitalization; or (iii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock; (d) except as contemplated by this Agreement, issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any security interests, liens, claims, pledges, limitations in voting rights, charges or other encumbrances) of, any shares of any class of its capital stock (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such shares, or any rights, warrants or options to acquire any such shares (except for the issuance of shares upon the exercise of outstanding stock options or the vesting of restricted stock in accordance with the terms of outstanding HVE Stock Awards); amend or otherwise modify the terms of any such rights, warrants or options the effect of which shall be to make such terms more favorable to the holders thereof; or take any action to accelerate the exercisability of stock options; (e) acquire or agree to acquire, by merging or consolidating with, by purchasing any equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or -33- otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets from suppliers or vendors in the ordinary course of business and consistent with past practice); (f) except as disclosed in Schedule 5.02(f) to the HVE Disclosure Schedule, sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its material assets or any except for the sale of inventory or other dispositions in the ordinary course; (g) initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal relating to, or that may reasonably be expected to lead to, any Competing Transaction (as defined below), or enter into discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of HVE or any investment banker, financial advisor, attorney, accountant or other representative retained by HVE to take any such action, and HVE shall promptly notify IN of all relevant terms of any such inquiries and proposals received by HVE or by any such officer, director, investment banker, financial advisor, attorney, accountant or other representative relating to any of such matters and if such inquiry or proposal is in writing, HVE shall promptly deliver or cause to be delivered to IN a copy of such inquiry or proposal. For purposes of this Agreement, "Competing Transaction" shall mean any of the following (other than the transactions contemplated by this Agreement) involving a party hereto or any of its subsidiaries: (i) any merger, consolidation, share exchange, business combination or similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or more of the assets of a party hereto and its subsidiaries, taken as a whole, (iii) any tender offer or exchange offer for 20% or more of the outstanding shares of capital stock of a party hereto or the filing of a registration statement under the Securities Act in connection therewith; (iv) any person (other than stockholders as of the date of this Agreement) having acquired beneficial ownership of, or any group (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) having been formed which beneficially owns or has the right to acquire beneficial ownership of, 20% or more of the outstanding shares of capital stock of a party hereto; or (v) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. (h) release any third party from its obligations, or grant any consent, under any existing standstill provision relating to a Competing Transaction or otherwise under any confidentiality or other agreement, or fail to enforce any such agreement in all material respects; (i) adopt or propose to adopt any amendments to its articles of incorporation or bylaws, which would alter the terms of its capital stock or would have an adverse impact on the consummation of the transactions contemplated by this Agreement; (j) (A) change any of its methods of accounting in effect at December 31, -34- 1998, or (B) make or rescind any express or deemed election relating to Taxes, settle or compromise any claim, action, suit, litigation, audit or controversy relating to Taxes (except where the amount of such settlements or controversies, individually or in the aggregate, does not exceed $10,000), or change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of the federal income tax returns for the taxable year ended December 31, 1998, except in each case, as may be required by Law or generally accepted accounting principles; (k) except as set forth in schedule 5.02(k) of the HVE Disclosure Schedule, incur any obligations for borrowed money or purchase money indebtedness or guarantee, whether or not evidenced by a note, bond, debenture or similar instrument, except in the ordinary course of business consistent with past practice and in no event in excess of $10,000 in the aggregate, other than legal fees which shall not exceed $25,000; (l) enter into any material arrangement, agreement or contract with any third party which provides for an exclusive arrangement with that third party or is substantially more restrictive on HVE or substantially less advantageous to HVE than arrangements, agreements or contracts existing on the date hereof; (m) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of HVE; (n) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, (x) reflected on, or reserved against in, or contemplated by, the HVE Balance Sheet (including the notes thereto) of HVE, (y) incurred in the ordinary course of business consistent with past practice or (z) which are legally required to be paid, discharged or satisfied; (o) knowingly take, or agree to commit to take, any action that would make any representation or warranty of HVE contained herein inaccurate in any respect at, or as of any time prior to, the Effective Time. (p) except to the extent described in Schedule 5.02(p) of the HVE Disclosure Schedule, HVE will not engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of HVE's affiliates, including, without limitation, any transactions, agreements, arrangements or understanding with any affiliate or other person covered under Item 404 of Regulation S-K promulgated under the Securities Act, other than pursuant to such agreement, arrangements or understandings existing on the date of this Agreement (which are set forth on Section 5.02(p) of the HVE Disclosure Schedule) or as disclosed in writing to IN on the date hereof or which are contemplated under this Agreement; provided, that HVE provides IN with all information concerning any such agreement, arrangement or understanding that IN may reasonably request; -35- (q) except as may be set forth in Schedule 5.02(q) to the HVE Disclosure Schedule, agree to or approve any commitment, including any authorization for expenditure or agreement to acquire property, obligating HVE for an amount in excess of $10,000; (r) engage in any futures or options trading or be a party to any price or currency swaps, hedges, futures or derivative instruments; or (s) agree in writing or otherwise to do any of the foregoing. SECTION 5.03. COVENANTS AND CONSENT OF THE SELLING SHAREHOLDERS. In lieu of a meeting of stockholders, the Merger, this Agreement and the transactions contemplated hereby shall be approved upon written consent, without a meeting, in accordance with the provisions of California Law, and the execution and delivery of this Agreement by the Selling Shareholders shall constitute their written consent to the Merger, this Agreement and the consummation of the transactions contemplated hereby for all purposes required by the applicable provisions of California Law in order to approve and effectuate the Merger. Each Selling Shareholder hereby irrevocably waives any and all rights to assert any dissenters' rights and appraisal rights granted under the provisions of any Law with respect to the Merger, this Agreement or the transactions contemplated hereby. HVE hereby agrees to secure similar proxies and written consents from all other HVE stockholders, if any, and deliver them to IN prior to the Effective Time in sufficient time to meet all applicable procedural requirements of California Law regarding stockholder approval of mergers or other business combinations. Prior to the Closing Date, the Selling Shareholders shall not, directly or indirectly, sell, transfer, convey, encumber, pledge, assign, hypothecate, or otherwise dispose of or lose possession of any of their shares of HVE Common Stock. SECTION 5.04. AFFIRMATIVE COVENANTS OF IN. (a) IN hereby covenants and agrees that, at or prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by HVE, IN will: (i) continue to operate its business in all material respects in the usual and ordinary course, consistent with past practice; (ii) use all reasonable efforts to preserve substantially intact its business organization, maintain its material rights and franchises, retain the services of its respective officers and IN employees and maintain its relationships with its material customers and suppliers; (iii) maintain and keep its material properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, and maintain supplies and inventories in quantities consistent with its customary business practice; (iv) use all reasonable efforts to keep in full force and effect insurance 36 and bonds comparable in amount and scope of coverage to that currently maintained; (v) take all such steps as are commercially reasonable in order to consummate the Merger and all other transactions contemplated hereby, including, without limitation, securing all requisite consents thereto. SECTION 5.05. ACCESS AND INFORMATION (a) Except for HVE's proprietary product and customer databases, HVE shall afford IN and its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (collectively, the "IN Representatives") reasonable access at reasonable times, upon reasonable prior notice, to the officers, employees, agents, properties, offices and other facilities of HVE and to the books and records thereof and furnish promptly to IN and the IN Representatives such information concerning the business, properties, contracts, records and personnel of HVE (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by IN or such Representatives. (b) IN shall (i) afford to HVE and its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (collectively, the "HVE Representatives") reasonable access at reasonable times, upon reasonable prior notice, to the officers, employees, accountants, agents, properties, offices and other facilities of IN and to its books and records and (ii) furnish promptly to HVE and HVE Representatives such information concerning the business, properties, contracts, records and personnel of IN (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by HVE or such Representatives. (c) Notwithstanding the foregoing provisions of this Section 5.05, neither party shall be required to grant access or furnish information to the other party to the extent that such access to or the furnishing of such information is prohibited by Law. No investigation by the parties hereto made heretofore or hereafter shall affect the representations and warranties of the parties which are herein contained and each such representation and warranty shall survive such investigation. (d) Each of the parties hereto will treat and hold as confidential any information ("Confidential Information") concerning the business and affairs of IN or HVE that is not already generally available to the public, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the party providing such information or destroy, at the request and option of such party, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession. In the event that any party hereto is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, such person will notify the other parties promptly of the request or requirement so that the other parties may seek an appropriate protective order or waive compliance 37 with the provisions of this Section 5.05(d). If, in the absence of a protective order or the receipt of a waiver hereunder, any party hereto is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such person may disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER, that the disclosing person shall use his or its best efforts to obtain, at the request of the other parties, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the other parties shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.01. STOCKHOLDER APPROVAL. HVE shall, promptly after the date hereof, take all actions necessary in accordance with California Law, and its articles of incorporation and bylaws to solicit written consents of stockholders, to act on this Agreement. HVE shall solicit from stockholders of HVE written consents in favor of the approval and adoption of this Agreement required by California Law and its articles of incorporation and bylaws to approve and adopt this Agreement, the Merger and the consummation of the transactions contemplated hereby. SECTION 6.02. REGISTRATION STATEMENT: INFORMATION (a) If at any time IN proposes to register any of its Common Stock under the Securities Act for sale to the public (such sale being hereinafter referred to as a "Public Offering"), except with respect to registration statements on Forms S-4, S-8 or their then equivalents, until such time as the Merger Consideration shall become transferable under the Securities Act pursuant to Rule 144 promulgated thereunder, IN shall give written notice to each Selling Shareholder of its intention to do so. Upon the written request of any Selling Shareholder, received by IN within thirty (30) days after the giving of any such notice by IN to include in the registration statement with respect to such Public Offering (each, a "Piggyback Registration Statement") any of his Merger Consideration (which request shall state the intended method of disposition thereof), IN shall use its best efforts to cause such shares to be included in the securities to be sold in such Public Offering, all to the extent requisite to permit the sale or other disposition by each requesting Selling Shareholder (in accordance with his written request) of his shares. (b) Once and only once, as promptly as practicable after the receipt of a written demand from a majority in number of the Selling Shareholders (provided they continue to hold beneficially at least 70,000 issued and outstanding shares of IN Common Stock and such shares are not freely transferable under Rule 144 without any discount in price due to the volume or other 38 limitations imposed by such Rule), IN shall prepare and file with the Commission a registration statement on Form S-1, S-2 or S-3, or their then equivalent (the "Demand Registration Statement", and together with any Piggyback Registration Statements, the "Registration Statements") registering the shares of IN Common Stock issued in connection with the Merger. IN shall use its best efforts to cause such Demand Registration Statement to be declared effective by the Commission as promptly as practicable. (c) IN shall furnish each Selling Shareholders whose shares are being registered on any Registration Statement with a reasonable number of copies of the prospectus included in such Registration Statement for use in connection with any sales of his shares as soon as practicable after such Registration Statement is declared effective by the Commission. IN agrees to bear all of the costs associated with the preparation and filing of any Registration Statement, including all filing fees, legal, accounting and printing costs but shall not be required to pay the legal or accounting costs or underwriting fees and expenses, if any, incurred by any Selling Shareholder. If a Demand Registration Statement is on Form S-1 or S-2, IN shall prepare and file with the Commission all Post-Effective Amendments necessary to keep such Registration Statement current for the period ending on the earlier of (i) the sale of all the shares of IN Common Stock included in such Registration Statement or (ii) the second anniversary of the Effective Time. The inclusion of any Selling Shareholders shares of IN Common Stock in any Registration Statement shall be contingent upon the receipt from such Selling Shareholder of all such information required to be disclosed in the Registration Statement under the Securities Act by the Selling Shareholder pursuant to applicable rules and regulations promulgated by the Commission. (d) IN hereby represents and warrants to each Selling Shareholder that the information contained in any Registration Statement including Merger Consideration (other than information to be furnished by the Selling Shareholders) shall not, at the time the Registration Statement is declared effective by the Commission mailed to IN stockholders contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that IN is responsible for filing with the Commission in connection with the transactions contemplated herein shall comply as to form in all material respects with the applicable requirements of the Securities Act and the rules and regulations thereunder and the Exchange Act and the rules and regulations thereunder. (e) Each Selling Shareholder represents and warrants to IN that the information to be supplied by such Selling Shareholder for inclusion any Registration Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) If any offering of IN Common Stock pursuant to a Registration Statement is an underwritten public offering and the managing underwriter determines in good faith and advises IN in writing that the number of shares of IN Common Stock which IN proposes to offer -39- under such Registration Statement, together with the Merger Consideration and other shares of Common Stock requested to be included in such Registration Statement by the holders of securities having registration rights similar to those of this Section 6.02, exceeds the number of shares of equity securities it is advisable to offer and sell at such time, then the number of shares to be sold by IN, each Selling Shareholder and such other shareholders shall be reduced pro-rata; provided that the number of shares to be sold by IN, each requesting Selling Shareholder and such other shareholders after such reduction shall be allocated among IN, each requesting Selling Shareholder and such other shareholders such that IN shall have the right to have offered no less than 75% of the original number of shares proposed or requested by IN to be registered. Notwithstanding the foregoing provisions, IN may withdraw any Piggyback Registration Statement referred to in this Section 6.02 without thereby incurring any liability to any Selling Shareholder provided that IN withdraws the entire registration statement to which such Piggyback Registration Statement relates. SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS; INDEMNIFICATION. (a) HVE and IN shall each use all reasonable efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (ii) obtain from any Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by IN or HVE in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the Merger, (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement and the Merger required under (A) the Securities Act and the Exchange Act and the rules and regulations thereunder, and any other applicable federal or state securities laws, and (B) any other applicable Law; provided that IN and HVE shall cooperate with each other in connection with the making of all such filings, including providing copies of all such documents to the nonfiling party and its advisors prior to such filings and, if requested, shall accept all reasonable additions, deletions or changes suggested in connection therewith. HVE and IN shall furnish all information required for any application or other filing to be made pursuant to the rules and regulations of any applicable Law (including, without limitation, all information required to be included in the Registration Statement) in connection with the transactions contemplated by this Agreement. (b) IN and HVE agree to cooperate with respect to, and shall cause each of their respective subsidiaries to cooperate with respect to, and agree to use all reasonable efforts vigorously to contest and resist, any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") of any Governmental Entity that is in effect and that restricts, prevents or prohibits the consummation of the Merger or any other transactions contemplated by this Agreement, including, without limitation, by vigorously pursuing all available avenues of administrative and judicial appeal and all available legislative action. Each of IN and HVE also agree to take any and all actions, including, without limitation, the disposition of assets or the withdrawal from doing business in particular jurisdictions, required -40- by regulatory authorities as a condition to the granting of any approvals required in order to permit the consummation of the Merger or as may be required to avoid, lift, vacate or reverse any legislative or judicial action which would otherwise cause any condition to Closing not to be satisfied; provided, however, that in no event shall IN be required to take any action that would or could reasonably be expected to have a IN Material Adverse Effect, and HVE shall not be required to take any action which would or could reasonably be expected to have an HVE Material Adverse Effect. (c) Each of IN and HVE shall promptly notify the other of (w) any material change in its current or future business, assets, liabilities, financial condition or results of operations, (x) any complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any Governmental Entities with respect to its business or the transactions contemplated hereby, (y) the institution or the threat of material litigation involving it or any of its subsidiaries or (z) any event or condition that might reasonably be expected to cause any of its representations, warranties, covenants or agreements set forth herein not to be true and correct at the Effective Time. As used in the preceding sentence, "material litigation" means any case, arbitration or adversary proceeding or other matter which would have been required to be disclosed on the HVE Disclosure Schedule pursuant to Section 3.09 or the IN Disclosure Schedule pursuant to Section 4.09, as the case may be, if in existence on the date hereof, or in respect of which the legal fees and other costs to HVE might reasonably be expected to exceed $10,000 over the life of the matter or to IN (or its subsidiaries) might reasonably be expected to exceed $10,000 over the life of the matter. (d) In the event of any threatened, pending or completed claim, action, suit, investigation or any legal, administrative or other proceeding ("proceeding") by any governmental entity or other person which questions the validity or legality of the transactions contemplated by this Agreement or seeks to enjoin, restrain or prohibit such transactions, or seeks damages in connection therewith, whether before or after the Effective Time of the Merger, IN and IN agree, to the fullest extent permissible by law, to vigorously defend and respond thereto. SECTION 6.04. TAX AND ACCOUNTING TREATMENT. Each party hereto shall use all reasonable efforts to cause the Merger to qualify, and shall not take, and shall use all reasonable efforts to prevent any affiliate of such party from taking, any actions that could prevent the Merger from qualifying, as a reorganization under the provisions of section 368(a) of the Code or from qualifying for the "pooling of interests" method of accounting as provided in APB 16. SECTION 6.05. PUBLIC ANNOUNCEMENTS. Neither party shall issue any press release or otherwise make any public statements with respect to the Merger without the approval of the other. SECTION 6.06. NO INTERFERENCE. Pending the Closing, neither party shall take any action which would unreasonably be expected to interfere with the business or operations of the other. -41- SECTION 6.07. FORM D FILING. At or immediately after the Closing, IN shall file with the Commission an appropriately completed, dated and executed Form D reflecting the issuance of the Merger Consideration. ARTICLE VII CLOSING CONDITIONS SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT. The respective obligations of each party to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all of which may be waived in writing by the parties hereto, in whole or in part to the extent permitted by applicable Law: (a) NO ORDER. No Governmental Entity or federal or state court of competent jurisdiction shall have enacted, issues, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. (b) GOVERNMENTAL APPROVALS. All approvals, waivers and/or consents required to be issues by any Governmental Entity or otherwise respecting the Merger, this Agreement and the consummations of the transactions contemplated hereby shall have been timely obtained. SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF IN. The obligations of IN to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all of which may be waived in writing by IN, in whole or in part, to the extent permitted by applicable law: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of Sellers contained in this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be ture an correct as of such earlier date). IN shall have received a certificate of the President and the Chief Financial Officer of HVE and each Selling Shareholder, dated the Closing Date, to such effect. (b) AGREEMENTS AND COVENANTS. Sellers shall have performed or compiled with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, including, without limitation, the receipt of the approval and adoption by the requisite vote of the HVE stockholders of the Merger, this Agreement and the consummation of the transactions contemplated thereby. IN shall have received a certificate of the President and Chief Financial Officer of HVE and each Selling Shareholder, dated the -42- Closing Date, to such effect. (c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall have been no change, occurrence or circumstance in the current or future business, assets, liabilities, financial condition or results of operations of HVE having or reasonably likely to have, individually or in the aggregate, an HVE Material Adverse Effect. IN shall have received a certificate of the President and Chief Financial Officer of HVE, and Mandel, dated the Closing Date, to such effect. (d) ABSENCE OF REGULATORY CONDITIONS. There shall not be any action taken, or any statute rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, by any Governmental Entity in connection with the grant of a regulatory approval necessary, in the reasonable business judgment of IN, to the continuing operation of the current or future business of HVE, which imposes any condition or restriction upon IN or the business or operations of HVE which, in the reasonable business judgment of IN, would be materially burdensome in the context of the transactions contemplated by this Agreement. (e) HVE COUNSEL'S OPINION. IN shall have received from Raiskin & Revitz, a favorable opinion dated the Closing Date in form and substance reasonably satisfactory to IN and its counsel. (f) WITHHOLDING. HVE must not have determined to withhold any amount from the Merger Consideration pursuant to the tax withholding provisions of section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other provision of law. (g) DISSENTER' RIGHTS. No dissenters' rights have been asserted by any HVE stockholders. (h) HVE FINANCIAL STATEMENTS AND BALANCE SHEET. HVE shall have furnished IN with the IN Financial Statements and HVE Balance Sheet, each certified by HVE's independent auditors, and the HVE Disclosure Schedule at the Closing Date which shall be reasonably satisfactory in form and substance to IN. (i) STOCKHOLDER APPROVAL. The Merger, this Agreement and the consummation of the transactions contemplated hereby shall have been approved and adopted upon written consent of the stockholders of HVE. (j) RESIGNATIONS. IN shall have received the resignations of Dave Mandel, Jeffrey D. Segal and Gordon D. Barker as directors of HVE, effective on or prior to the Effective Time. SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of Sellers to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all of which may -43- be waived in writing by Sellers, in whole or in part, to the extent permitted by applicable law: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of IN contained in this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties specifically relate to an earlier date, in which such representations and warranties shall be true and correct as of such earlier date). HVE shall have received a certificate of the President and Chief Financial Officer of IN, dated the Closing Date, to such effect. (b) AGREEMENTS AND COVENANTS. IN shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall have been no change, occurrence or circumstance in the current or future business, assets, liabilities, financial condition or results of operations of IN or any of its subsidiaries having or reasonably likely to have, individually or in the aggregate, a IN Material Adverse Effect. (d) ABSENCE OF REGULATORY CONDITIONS. There shall not be any action taken, or any statute rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, by any Governmental Entity in connection with the grant of a regulatory approval necessary, in the reasonable business judgment of HVE, to the continuing operation of the current or future business of IN, which imposes any condition or restriction upon IN or the business or operations of IN which, in the reasonable business judgment of HVE, would be materially burdensome in the context of the transactions contemplated by this Agreement. (e) IN DISCLOSURE SCHEDULE. IN shall have furnished HVE with the IN Disclosure Schedule which shall be reasonably satisfactory in form and substance to HVE. (f) EMPLOYMENT AGREEMENT. IN shall have executed and delivered to Mandel at the Closing an Employment Agreement, dated the Closing Date, in substantially the form of Exhibit D. (g) IN COUNSEL'S OPINION. HVE shall have received from Gay Harwin, Esq. a favorable opinion dated the Closing Date in form and substance reasonably satisfactory to HVE and its counsel. -44 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01. TERMINATION. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual consent of IN and HVE; (b) by IN, upon a material breach of any representation, warranty, covenant or agreement on the part of HVE set forth in this Agreement, or if any representation or warranty of HVE shall have become untrue, in either case such that the conditions set forth in Section 7.02(a) or Section 7.02(b) of this Agreement, as the case may be, would be incapable of being satisfied by February 28, 1999 (or as otherwise extended as described in Section 8.01(e)); provided, that in any case, a wilful breach shall be deemed to case such condition as to be incapable of being satisfied for purposes of this Section 8.01(b); (c) by HVE, upon a material breach of any representation, warranty, covenant or agreement on the part of IN, set forth in this Agreement, or if any representation or warranty of IN shall have become untrue, in either case such that the conditions set forth in Section 7.03, (a) or Section 7.03(b) of this Agreement, as the case may be, would be incapable of being satisfied by February 28, 1999 (or as otherwise extended as described in Section 8.01(e)); provided, that in any case, a wilful breach shall be deemed to cause such conditions to be incapable of being satisfied for purposes of Section 8.01(c); (d) by either IN or HVE, if there shall be any Order which is final and nonappealable preventing the consummation of the Merger, except if the party relying on such Order to terminate this Agreement has not complied with its obligations under Section 6.03(b) of this Agreement; (e) by either IN or HVE, if the Merger shall not have been consummated before February 28, 1999; provided, however, that this Agreement may be extended by written notice of either IN or HVE to a date not later than March 15, 1999, if the Merger shall not have been consummated as a direct result of HVE or IN having failed by February 28, 1999 to receive all required regulatory approvals or consents with respect to the Merger; or (f) by IN, if this Agreement and the Merger shall fail to be approved and adopted by the requisite numbers of stockholders of HVE in accordance with California Law. The right of any party hereto to terminate this Agreement pursuant to this Section 8.01 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, representatives or agents, whether prior to or alter the execution of this Agreement. -45- SECTION 8.02. EFFECT OF TERMINATION. Except as provided in Section 8.05 or Article IX of this Agreement, in the event of the termination of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void, there shall be no liability on the part of IN or HVE to the other and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party of any liability for any material breach of such party's covenants or agreements contained in this Agreement, or any willful breach of such party's representations or warranties contained in this Agreement. SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties hereto at any time prior to the Effective Time; provided, however, that, after approval of the Merger by the stockholders of HVE, no amendment, which under applicable Law may not be made without the approval of the stockholders of HVE, may be made without such approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 8.04. WAIVER. At any time prior to the Effective Time, any party hereto may extend the time for the performance of any of the obligations or other acts of the other party hereto, waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument i9n writing signed by the party or parties to be bound thereby. SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS. (a) Except as provided in Section 8.05(c) of this AGreement, in the event the Merger is not consummated all Expenses (as defined in paragraph (b) of this Section 8.05) incurred by the parties hereto shall be borne solely and entirely by the party that has incurred such Expenses. (b) "Expenses" as used in this Agreement shall include all out-of-pocket expenses (including, without limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, and all other matters related to the consummation of the transactions contemplated hereby. (c) If the Merger is consummated, IN shall pay any sales or transfer taxes payable with respect to the exchange and surrender of the HVE Shares. -46- ARTICLE IX INDEMNIFICATION SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except to the extent otherwise specified herein to the contrary, the rights of the respective parties hereto to enforce or assert a claim for breach of any of the representations, warranties, covenants and agreements herein shall survive the execution and delivery of this Agreement and the Closing hereunder and shall thereafter terminate and expire with respect to any theretofore unasserted claim by IN against any Selling Shareholder for indemnification pursuant to Section 9.02 hereof, or with respect to any theretofore unasserted claim by any Selling Shareholder against IN for indemnification pursuant to Section 9.03 hereof, on the date which is twenty-four (24) months after the Closing Date, except for the representations and warranties contained in Sections 3.01, 3.02, 3.11, 3.12, 3.13, 3.14, 3.22, 4.11 and 4.24 and the provisions of Sections 5.05(d), 6.02, 8.02, 8.05 and this Article IX, which shall survive and continue in full force and effect as provided therein until the expiration of the applicable statute of limitation. Notwithstanding the foregoing, the right to enforce or assert a claim for damages for breach of any representation, warranty, covenant or agreement in respect of which indemnity may be sought under Section 9.02 or 9.03 shall survive the time at which it would otherwise terminate if notice of the inaccuracy or breach thereof giving rise to such right to indemnity shall have been given to the party against whom such indemnity may be sought prior to such time. The right to indemnification, payment of Losses (as defined below) or other remedy based on such representations, warranties, covenants and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement on the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Losses, or other remedy based on such representations, warranties, covenants and obligations. In respect of any matter for which indemnifications may be claimed hereunder, no claim for indemnification hereunder of less than $1,000 shall be made unless and until the aggregate amount of such claims against IN or any Selling Shareholder exceeds $15,000, in which case such aggregate amount, and any subsequent such claims, may be claimed hereunder. SECTION 9.02. INDEMNIFICATION OF IN. (a) Subject to the provisions of Section 9.01, each Selling Shareholder (other than Barker, with respect to whom the Indemnity provisions hereunder are limited to Barker's express representations in this Agreement hereby agrees, individually with respect to the representations with respect to the Selling Shareholders set forth in Sections 3.03(c), 3.04, 3.05 and 3.22, and jointly and severally with respect to all other representations and covenants, to indemnify and hold IN and its officers, directors, employees, agents, attorneys and other representatives (collectively, "Representatives"), stockholders and controlling persons harmless against any and all damages, losses, settlement payments, liabilities, judgments, penalties, interest, and reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements (collectively, "Losses")) suffered, sustained, incurred -47- or required to be paid by IN or its Representatives, stockholders or controlling persons, and affiliates relating to, arising, directly or indirectly, out of, or in connection with: (a) the claims of brokers or finders hired by or claiming to have been hired by any Seller; or (b) the breach of any representation or warranty made by any Seller in this Agreement either when made or as if such representation or warranty were made on and as of the Closing Date (in each case, without giving effect to any supplement to the Schedules made after the date hereof), or breach of any covenant or agreement of any Seller contained in this Agreement. (c) The remedies provided in this Section 9.02 shall not be exclusive of or limit any other remedies that may be available to any Indemnified Party (as defined below in Section 9.04). Notwithstanding any other provision of this Agreement, the Indemnity obligations of each of the Selling Shareholders shall be limited to the amount of Merger Consideration actually received by such Selling Shareholder. SECTION 9.03. INDEMNIFICATION OF SELLERS. Subject to the provisions of Section 9.01, IN hereby agrees to indemnify and hold each Selling Shareholder and its Representatives harmless against any and all Losses suffered, sustained, incurred or required to be paid by such Selling Shareholder and its Representatives relating to, arising, directly or indirectly, out of, or in connection with: (i) the claims of brokers or finders hired by or claiming to have been hired by IN; or (ii) the breach by IN of any of its obligations under this agreement or the breach by IN of any of the representations, warranties or covenants of IN hereunder. SECTION 9.04. NOTICE TO INDEMNIFYING PARTY. Promptly after any Selling Shareholder or IN, as the case may be, (i) receives notice of any claim or the commencement of any investigation, action or proceeding against any of them or (ii) has knowledge of any claim, investigation, action or proceeding brought against them, or of circumstances which are likely to give rise to any such claim, investigation, action or proceeding, or rights to indemnification hereunder, such party (the "Indemnified Party") shall, if a claim for reimbursement or setoff with respect thereto is to be made against a party hereto obligated to provide indemnification (the "Indemnifying Party") under Section 9.02 or 9.03 above or Section 9.06 below, give the Indemnifying Party written notice of such claim, threatened claim or circumstances or of the commencement of such investigation, action or proceeding. Such written notice shall be given within thirty (30) days after receipt of written notice, or a summons and complaint or other legal process, or within sixty (60) days after receipt of knowledge of any other claim, investigation, action or proceeding or of circumstances which are likely to give rise to any such claim, investigation, action or proceeding or rights to indemnification hereunder. The failure to so notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to -48- any Indemnified Party hereunder, except to the extent that the Indemnifying Party demonstrates that the defense of such action is prejudiced by such failure by the Indemnifying Party to give such notice. SECTION 9.05. COMPROMISE OF CLAIMS. (a) If a claim under this Article IX involves a claim by a third party against the Indemnified Party, the Indemnifying Party shall have thirty (30) days after receipt of written notice thereof to decide whether the Indemnifying Party will undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and if it so decides, the Indemnified Party may cooperate with it in connection therewith; PROVIDED, that the Indemnified Party may participate in such settlement or defense through counsel chosen by it; and PROVIDED FURTHER, that the fees and expenses of such counsel shall be borne by the Indemnified Party. If the Indemnifying Party assumes the defense of a proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the Indemnifying Party without the Indemnified Party's consent, which shall not be unreasonably withheld, unless (A) there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnified Party, (B) the sole relief provided is monetary damages and (C) such compromise or settlement does not contemplate or result in any monetary damages that are to be paid by the Indemnified Party; and (iii) the Indemnified Party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an Indemnifying Party of the commencement of any proceeding and the Indemnifying Party does not, within ten days after the Indemnifying Party's notice is given, give notice to the Indemnified Party of its election to assume the defense of such proceeding, the Indemnifying Party will be bound by any determination made in such proceeding or any compromise or settlement effected by the Indemnified Party. (b) The Indemnified Party shall cooperate fully in all aspects of any investigation, defense, pretrial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to this Article IX, including, but not limited to, providing the other party with reasonable access to physical facilities and offices, books and records and employees and officers (including as witnesses) and other information. (c) Notwithstanding the foregoing, if an Indemnified Party determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise or settle such proceeding, but the Indemnifying Party will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which shall not be unreasonably withheld). (d) Each Indemnifying Party hereby consents to the non-exclusive jurisdiction of any court in which a proceeding is brought by a third party against any Indemnified Party for purposes of any claim that an Indemnified Party may have under this Agreement with -49- respect to such proceeding or the matters alleged therein, and agrees that process may be served on such Indemnifying Party with respect to such a claim anywhere in the world. SECTION 9.06. RIGHT OF SET-OFF. Upon notice to the Selling Shareholders specifying in reasonable detail the basis for such set-off, IN may set off any amount to which it may be entitled under this Article IX against amounts otherwise payable to any Selling Shareholder hereunder as Merger Compensation. The exercise of such right of set-off by IN in good faith will not constitute a breach of this Agreement. In the event that IN shall exercise its right of set off hereunder with respect to a portion of the Merger Consideration (the "Set-Off Shares"), and it is finally determined by a court of competent jurisdiction (including all appellate counts) that IN is not, in fact, entitled to the Set-Off Shares under this Article IX, then IN shall issue the Set-Off Shares to the Selling Shareholders, together with additional shares of IN Common Stock in the amount equal to 10% of the amount of the Set-Off Shares, such additional shares to serve as liquidated damages for the delay suffered by the Selling Shareholders in receiving their Set-Off Shares. Neither the exercise of nor the failure to exercise such right of set-off will constitute an election of remedies or limit IN in any manner in the enforcement of any other remedies that may be available to it; nor will the exercise, failure to exercise or existence of IN's right hereunder to exercise such right of set-off prejudice in any way the adjudication of the merits of any claim asserted by IN in any subsequent proceeding. Nothing contained herein shall prevent the Selling Shareholders from seeking or obtaining all of their damages from IN as a result of the wrongful set-off by IN of the Set-Off Shares. ARTICLE X GENERAL PROVISIONS SECTION 10.01. NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given upon receipt, if delivered personally or by air courier, or mailed by registered or certified mail (postage prepaid, return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by facsimile transmission to the telecopier number specified below (to be followed promptly by personal or air courier delivery or mailing as hereinafter provided): If to IN, to: 10549 W. Jefferson Blvd. Culver City, CA 90232 Attn: Mr. Klee Irwin Facsimile Number: (310) 202-9454 -50- with copy to: Satterlee Stephens Burke & Burke LLP 230 Park Avenue, Suite 1130 New York, NY 10169 Attn: Peter A. Basilevsky, Esq. Facsimile Number: (212) 818-9606 If to HVE or Mandel, to: David Mandel 5751 Uplander Way Culver City, CA 90230 Facsimile: (310) 645-9808 If to Segal to: Jeffrey D. Segal, Esq. 10390 Santa Monica Boulevard, 4th Floor Los Angeles, CA 90025 Facsimile (310) 788-3925 If to Barker to: Gordon D. Barker 150 N.W. 86th Avenue Portland, OR 97229 Facsimile (503) 297-7246 with copy of Notices to HVE, or any of the Selling Shareholders to: Law Offices of Raiskin & Revitz 10390 Santa Monica Boulevard 4th Flr. Los Angeles, California 90025-5058 Attn: Dan Raiskin, Esq. Facsimile Number: (310) 556-2100 SECTION 10.02. CERTAIN DEFINITIONS. For the purposes of this Agreement, the term: (a) "affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mention person; -51- (b) a person shall be deemed a "beneficial owner" of or to have "beneficial ownership" of HVE Common Stock or IN Common Stock, as the case may be, in accordance with the interpretation of the term "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act, as in effect on the date hereof; provided that a person shall be deemed to be the beneficial owner of, and to have beneficial ownership of, HVE Common Stock or IN Common Stock, as the case may be, that such person or any affiliate of such person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; (c) "business day" means any day other than a day on which banks in the State of California are authorized or obligated to be closed; (d) "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise; (e) "knowledge" or "known" shall mean, with respect to any matter in question, if an executive officer of IN or HVE, as the case may be, has actual knowledge of such matter; (f) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act). SECTION 10.03. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section references herein are, unless the context otherwise requires, references to sections of this Agreement. SECTION 10.04. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 10.05. ENTIRE AGREEMENT. This Agreement (together with the Exhibits, the IN Disclosure Schedule and the HVE Disclosure Schedule) constitutes the entire agreement of the parties, and supersedes all prior agreements and undertakings, including that certain Letter of Intent dated January 23, 1999, both written and oral, among the parties or between any of them, with -52- respect to the subject matter hereof. SECTION 10.06. ASSIGNMENT. This Assignment shall not be assigned by operation of law or otherwise. SECTION 10.07. PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy or any nature whatsoever under or by reason of this Agreement. SECTION 10.08. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 10.09. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. SECTION 10.10. COUNTERPARTS. This Agreement may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 10.11 LEGAL FEES. In the event of any dispute or disagreement arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court costs. SECTION 10.12 FACSIMILE SIGNATURES. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document will for all purposes be treated as if manually signed by the party whose facsimile signature appears. -53- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. IRWIN NATURALS/4HEALTH, INC. By: /s/ Klee Irwin ------------------------ Name: Klee Irwin Title: President By: /s/ Daniel Martin ------------------------ Name: Daniel Martin Title: Secretary HEALTH & VITAMIN EXPRESS, INC. By: /s/ David Mandel ------------------------ Name: David Mandel Title: President By: /s/ Jeffrey D. Segal ------------------------ Name: Jeffrey D. Segal Title: Secretary /s/ David Mandel ------------------------ David Mandel /s/ Jeffrey D. Segal ------------------------ Jeffrey D. Segal /s/ Gordon D. Barker ------------------------ Gordon D. Barker -54- Schedule 1.05 Director's and Officers of the surviving corporation Sole Director Klee Irwin President, Secretary Klee Irwin and Treasurer -55- [LOGO] SECRETARY OF STATE I, BILL JONES, Secretary of State of the State of California, hereby certify: That the attached transcript of 4 page(s) has been compared with the record on file in this office, of which it purports to be a copy, and that it is full, true and correct. [SEAL] IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this day of MAR - 3 1999 -------------------------------- /s/ Bill Jones Secretary of State AGREEMENT OF MERGER OF HEALTH & VITAMIN EXPRESS, INC. (A California Corporation) WITH AND INTO HEALTHZONE.COM (A California Corporation) This Agreement of Merger is entered into by HEALTH & VITAMIN EXPRESS, INC., a California corporation (hereafter the "Merging Corporation"), and HEALTHZONE.COM, a California corporation (hereafter the "Surviving Corporation"). 1. The Merging Corporation shall be merged into the Surviving Corporation. 2. Each outstanding share of the Merging Corporation shall be converted into the right to receive up to .07095337 shares of common voting stock of IRWIN NATURALS/4 HEALTH, INC., a Utah corporation, which is the parent corporation of the Survivor Corporation, subject to and in accordance with the terms and provisions of that certain Agreement and Plan of Merger dated as of February 15, 1999. 3. The outstanding shares of the Surviving Corporation shall remain outstanding and are not affected by the merger. 4. The Merging Corporation shall from time to time, as and when requested by the Surviving Corporation, execute and deliver all such documents and instruments and take all such action necessary or desirable to evidence or carry out this merger. 5. The effect of the merger and the effective date of the merger are as prescribed by law. CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER KLEE M. IRWIN certifies that: 1. He is the President and the Secretary of HEALTHZONE.COM, a California corporation. 2. The Agreement of Merger in the form attached was duly approved by the board of directors and shareholders of the Corporation. 3. The merger agreement was entitled to be and was approved by the board alone under the provisions of Section 1201 of the California Corporations Code. 4. Equity securities of the parent corporation of the Corporation are to be issued in the merger and no vote of the shareholders of the parent corporation was required. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of my own knowledge. Date: February 15, 1999 /s/ Klee M. Irwin ------------------------------ Klee M. Irwin, President /s/ Klee M. Irwin ------------------------------ Klee M. Irwin, Secretary CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER DAVID MANDEL and JEFFREY D. SEGAL certify that: 1. They are the President and the Secretary, respectively, of HEALTH & VITAMIN EXPRESS, INC., a California corporation. 2. The Agreement of Merger in the form attached was duly approved by the board of directors and shareholders of the Corporation. 3. The shareholder approval was by the holders of 100 percent of the outstanding shares of the Corporation. 4. There is only one class of shares and the number of outstanding shares is 10,250,000. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: February 15, 1999 /s/ David Mandel --------------------------- David Mandel, President /s/ Jeffrey D. Segal ------------------------------ Jeffrey D. Segal, Secretary [SEAL] IN WITNESS WHEREOF, the parties have executed this Agreement. HEALTH & VITAMIN EXPRESS, a California corporation By: /s/ David Mandel --------------------------- David Mandel, President By: /s/ Jeffrey D. Segal ------------------------------ Jeffrey D. Segal, Secretary HEALTHZONE.COM, a California corporation By: /s/ Klee Irwin ------------------------------ Klee Irwin, President By: /s/ Klee Irwin ------------------------------ Klee Irwin, Secretary EX-5.02 4 EXHIBIT 5.02 Exhibit 5.02 WELLS FARGO BANK CORPORATE RESOLUTION: BORROWING - ------------------------------------------------------------------------------- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION RESOLVED: That this corporation, IRWIN NATURALS/4HEALTH, INC., proposes to obtain credit from time to time, or has obtained credit, from Wells Fargo Bank, National Association ("Bank"). BE IT FURTHER RESOLVED, that any ONE of the following officers: PRESIDENT/CHIEF OPERATING OFFICER OR CHIEF EXECUTIVE OFFICER OR CHIEF FINANCIAL OFFICER OR CONTROLLER together with any ONE of the following officers: NONE of this corporation be and they are hereby authorized and empowered for and on behalf of and in the name of this corporation and as its corporate act and deed: (a) To borrow money from Bank and to assume any liabilities of any other person or entity to Bank, in such form and on such terms and conditions as shall be agreed upon by those authorized above and Bank, and to sign and deliver to Bank such promissory notes and other evidences of indebtedness for money borrowed or advanced and/or for indebtedness assumed as Bank shall require; such promissory notes or other evidences of indebtedness may provide that advances be requested by telephone communication and by any officer, employee or agent of this corporation so long as the advances are deposited into any deposit account of this corporation with Bank; this corporation shall be bound to Bank by, and Bank may rely upon, any communication or act, including telephone communications, purporting to be done by any officer, employee or agent of this corporation provided that Bank believes, in good faith, that the same is done by such person. (b) To contract for the issuance by Bank of letters of credit, to discount with Bank notes, acceptances and evidences of indebtedness payable to or due this corporation, to endorse the same and execute such contracts and instruments for repayment thereof to Bank as Bank shall require, and to enter into foreign exchange transactions with or through Bank. (c) To mortgage, encumber, pledge, convey, grant, assign or otherwise transfer all or any part of this corporation's real or personal property for the purpose of securing the payment of any of the promissory notes, contracts, instruments and other evidences of indebtedness authorized hereby, and to execute and deliver to Bank such deeds of trust, mortgages, pledge agreements, security agreements and/or other related documents as Bank shall require. (d) To perform all acts and to execute and deliver all documents described above and all other contracts and instruments which Bank deems necessary or convenient to accomplish the purposes of this resolution and/or to perfect or continue the rights, remedies and security interests to be given to Bank pursuant hereto, including without limitation, any modifications, renewals and/or extensions of any of this corporation's obligations to Bank, however evidenced; provided that the aggregate principal amount of all sums borrowed and credits established pursuant to this resolution shall not at any time exceed the sum of $5,000,000.00 outstanding and unpaid. Loans made pursuant to a special resolution and loans made by offices of Bank other than the office to which this resolution is delivered shall be in addition to foregoing limitation. BE IT FURTHER RESOLVED, that the authority hereby conferred is in addition to that conferred by any other resolution heretofore or hereafter delivered by this corporation to Bank and shall continue in full force and effect until Bank shall have received notice in writing, certified by the Secretary of this corporation, of the revocation hereof by a resolution duly adopted by the Board of Directors of this corporation. Any such CORPORATE RESOLUTION: BORROWING (11/97) PAGE 1 02698, #3817125373 revocation shall be effective only as to credit which is extended or committed by Bank, or actions which are taken by this corporation pursuant to the resolutions contained herein, subsequent to Bank's receipt of such notice. The authority hereby conferred shall be deemed retroactive, and any and all acts authorized herein which were performed prior to the passage of this resolution are hereby approved and ratified. CERTIFICATION I, DAN MARTIN, Secretary of IRWIN NATURALS/4HEALTH, INC., a corporation created and existing under the laws of the state of UTAH, do hereby certify and declare that the foregoing is a full, true and correct copy of the resolutions duly passed and adopted by the Board of Directors of said corporation, by written consent of all Directors of said corporation or at a meeting of said Board duly and regularly called, noticed and held on Feb 1, 1999, at which meeting a quorum of the Board of Directors was present and voted in favor of said resolutions; that said resolutions are now in full force and effect; that there is no provision in the Articles of Incorporation or Bylaws of said corporation, or any shareholder agreement, limiting the power of the Board of Directors of said corporation to pass the foregoing resolutions and that such resolutions are in conformity with the provisions of such Articles of Incorporation and Bylaws; and that no approval by the shareholders of, or of the outstanding shares of, said corporation is required with respect to the matters which are the subject of the foregoing resolutions. IN WITNESS WHEREOF I have hereunto set my hand and, if required by Bank affixed the corporate seal of said corporation, as of Feb 1, 1999. /s/ Dan Martin ---------------------------- DAN MARTIN, Secretary (SEAL) [SEAL] CORPORATE RESOLUTION: BORROWING (11/97) PAGE 2 02698, #3817125373 [WELLS FARGO LOGO] FEBRUARY 5, 1999 MR. DAN MARTIN, CFO IRWIN NATURALS/4 HEALTH 10549 W. JEFFERSON BLVD. CULVER CITY, CA 90232 DEAR DAN, IT IS OUR UNDERSTANDING THAT IRWIN NATURALS/4 HEALTH IS IN THE PROCESS OF AN ACQUISITION OF HEALTH AND VITAMIN EXPRESS, INC. FOR STOCK. AS WE DISCUSSED ON THE PHONE TODAY, THIS TRANSACTION, AS EXPLAINED BY YOU WOULD NOT CREATE A VIOLATION OF THE FINANCIAL COVENANTS OF OUR PROPOSED CREDIT AGREEMENT. IT WOULD, HOWEVER, VIOLATE THE CONDITION REGARDING ACQUISITIONS IN EXCESS OF $1,000,000.00 WITHOUT PRIOR BANK APPROVAL. BASED ON OUR UNDERSTANDING OF THE PROPOSED ACQUISITION, THE BANK WOULD EXCLUDE THE HEALTH AND VITAMIN EXPRESS ACQUISITION WHEN TESTING THIS COVENANT, PROVIDED THERE ARE NO CHANGES IN THE TERMS AS WE UNDERSTAND THEM. THIS LETTER SHOULD NOT BE CONSTRUED AS A WAIVER OF ANY FUTURE VIOLATIONS OF THE CREDIT AGREEMENT OR ANY OF ITS COVENANTS, TERMS AND CONDITIONS. SINCERELY, /s/ DAN MADDOX DAN MADDOX VICE PRESIDENT HALEY, TROY FROM: Maddox, Daniel F. SENT: Friday, February 05, 1999 3:37 PM TO: Haley, Troy SUBJECT: Irwin naturals Here is some language Dear It is our understanding that Irwin Naturals for Health is in the process of an acquisition of Health and Vitamin Express, Inc. for stock. As we discussed on the phone today, this transaction, as explained by you would not create a violation of the financial covenants of our proposed credit agreement. It would, however, violate the condition regarding acquisitions in excess of $1,000,000 without prior bank approval. Based on our understanding of the proposed acquisition, the bank would exclude the Health and Vitamin Express acquisition when testing this covenant, provided there are no changes in the terms as we understand them. This letter should not be construed as a waiver of any future violations of the credit agreement or any of its covenants, terms and conditions. CREDIT AGREEMENT THIS AGREEMENT is entered into as of February 1, 1999, by and between IRWIN NATURALS/4HEALTH, INC. ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodation described below, and Bank has agreed to provide said credit accommodation to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDIT SECTION 1.1. LINE OF CREDIT. (a) LINE OF CREDIT. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including January 31, 2000, not to exceed at any time the aggregate principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the proceeds of which shall be used for Borrower's working capital requirements. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed a borrowing base ("Borrowing Base") which is an aggregate of eighty percent (80%) of Borrower's Eligible Accounts Receivable, plus twenty-five percent (25%) of the value of Borrower's Eligible Finished Goods Inventory, with value defined as the lower of cost or market value; provided however, that outstanding borrowings against Borrower's Eligible Finished Goods Inventory shall not at any time exceed an aggregate of Seven Hundred Fifty Thousand Dollars ($750,000.00). All of the foregoing shall be determined by Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Bank may from time to time require. Borrower acknowledges that said Borrowing Base was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Bank reasonably believes may affect payment of any portion of Borrower's accounts, Bank, in its sole discretion, may reduce the foregoing advance rate against Eligible Accounts Receivable to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against Borrower's Eligible Accounts Receivable. As used herein, "Eligible Accounts Receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include: (i) any account which is more than ninety (90) days past due; (ii) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted or which is subject to any dispute or debit memo; (iii) any account which represents an obligation of any state or municipal government or of the United States government or any political subdivision thereof (except accounts which represent obligations of the United States government and for which the assignment provisions of the Federal Assignment of Claims Act, as amended or recodified from time to time, have been complied with to Bank's satisfaction); (iv) any account which represents an obligation of an account debtor located in a foreign country other than an account debtor located in the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario, Saskatchewan or the Yukon Territory so long as, in Bank's determination, such Canadian jurisdictions recognize Bank's first priority security interest in and right to collect such account as a consequence of any security agreements and UCC filings in favor of Bank, except to the extent any such account, in Bank's determination, is supported by a letter of credit or insured under a policy of foreign credit insurance, in each -2- case in form, substance and issued by a party acceptable to Bank; (v) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower; (vi) that portion of any account which represents interim or progress billings or retention rights on the part of the account debtor; (vii) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above; (viii) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts; (ix) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory; or (x) any account for accrued co-op advertising. As used herein, "Eligible Finished Goods Inventory" shall consist solely of Borrower's inventory of finished goods held by Borrower for sale in the ordinary course of business, which is located within the United States and in which Bank has a perfected security interest of first priority, and shall not include: (i) work in process; (ii) inventory which is obsolete, unsaleable or damaged; (iii) raw materials; (iv) labels, inserts, wrappers, cartons, boxes and other packaging materials; (v) samples; (vi) inventory which is in the possession of any person or entity other than Borrower, except for inventory stored -3- by Borrower in a public warehouse in the ordinary course of business, provided that such inventory is not subject to the claims of creditors of the warehouse and such warehouse is acceptable to Bank, has issued nonnegotiable warehouse receipts acceptable to Bank and has acknowledged Bank's security interest and rights in a manner acceptable to Bank; or (vii) International Inventory. As used herein, "International Inventory" shall mean any of the following inventory: (i) inventory which cannot be sold within the United States; (ii) inventory with a product formula which is different from the product formula of similar inventory sold in the United States; (iii) inventory with a label written in a language other than English or with a label written in English and another language. (c) BORROWING AND REPAYMENT. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. INTEREST/FEES. (a) INTEREST. The outstanding principal balance of the Line of Credit shall bear interest at the rate of interest set forth in the Line of Credit Note (the "Note"). (b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Note. (c) COMMITMENT FEE. Borrower shall pay to Bank a nonrefundable commitment fee for the Line of Credit equal to $12,500.00, of which $5,000.00 has already been paid by Borrower and of which the remaining fee in the amount of $7,500.00 shall be due and payable in full upon execution of this Agreement. (d) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to one hundred twenty-five hundredths percent (.125%) -4- per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears, within thirty (30) days after each billing is sent by Bank. SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest due under the Line of Credit by charging Borrower's demand deposit account number 4801906389 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SECTION 1.4. COLLATERAL. As security for all indebtedness of Borrower to Bank subject hereto, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment, general intangibles, inventory and equipment. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of Utah, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. -5- SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Note, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated September 30, 1998, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in -6- right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. -7- ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) DOCUMENTATION. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Line of Credit Note. (ii) Articles of Incorporation. (iii) Corporate Resolution: Borrowing. (iv) Certificate of Incumbency. (v) Security Agreement: Equipment. (vi) Continuing Security Agreement: Rights to Payment and Inventory. (vii) UCC-1 Financing Statement. (viii) Such other documents as Bank may require under any other Section of this Agreement. (c) FINANCIAL CONDITION. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. (d) INSURANCE. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) COMPLIANCE. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no -8- condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) DOCUMENTATION. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 90 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include a balance sheet, income statement, statement of cash flow and all footnotes; (b) not later than 60 days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower, to include a balance sheet, income statement, statement of cash flow and all footnotes; (c) not later than 15 days after and as of the end of each month, a borrowing base certificate, an inventory collateral report, an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts, and immediately upon -9- each request from Bank, a list of the names and addresses of all Borrower's account debtors; (d) contemporaneously with each annual and monthly financial statement of Borrower required hereby, a certificate of the president, chief financial officer or controller of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; and (e) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $25,000.00. -10- SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): (a) Current Ratio not at any time less than 1.5 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Tangible Net Worth not at any time less than $4,500,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholder's equity plus subordinated debt, less goodwill, less any intangible assets and less any amount owing to any employee, officer, director, stockholder or affiliate. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.5 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" as defined above. (d) Net income after taxes not less than $1.00 on an annual basis, determined as of each fiscal year end, and pre-tax profit not less than $1.00 on a year-to-date basis, determined as of the end of the second fiscal quarter of each fiscal year. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower, or any action, claim, investigation, suit or proceeding pending or asserted by or before any governmental authority, arbitrator, court or administrative agency challenging or denying Borrower's qualification for tax treatment as if it were a partnership for income tax purposes; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $100,000.00. SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary to ensure that (a) Borrower and any business in which Borrower holds a substantial interest, and (b) all customers, suppliers and vendors that are material to Borrower's -11- business, become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of Borrower's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. Borrower shall, immediately upon request, provide to Bank such certifications or other evidence of Borrower's compliance with the terms hereof as Bank may from time to time require. SECTION 4.12. INVENTORY COUNT. Until such time as Bank notifies Borrower that Bank is satisfied with Borrower's perpetual inventory system, Borrower shall provide to Bank on a monthly basis at the same time Borrower provides Bank with a monthly inventory report under Section 4.3(c) above, evidence satisfactory to Bank that Borrower has conducted a monthly physical inventory count for the inventory covered by such inventory report and that Borrower has made any necessary adjustment to its perpetual inventory system. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $500,000.00. SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in any fiscal year in excess of an aggregate of $750,000.00. SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or -12- several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity except for a Permitted Acquisition; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. As used herein, "Permitted Acquisition" shall mean any acquisition by Borrower of the operating assets of any person or entity; provided, however, that all of the following conditions are satisfied: (i) The acquisition shall be consummated in compliance with applicable law. (ii) There shall be no Event of Default, nor any act, condition or event which with the giving of notice or the passage of time or both would constitute an Event of Default, and no such Event of Default or potential Event of Default shall result after giving effect to the acquisition. (iii) The acquired assets shall be located within the United States. (iv) Borrower shall give Bank at least thirty (30) days prior written notice of the acquisition. (v) Borrower shall furnish Bank with copies of such documents and information pertaining to the acquisition as Bank may require. (vi) The acquired assets shall not include any ownership interest in any corporation, limited liability company, partnership or other entity. (vii) The consideration for the acquisition shall consist solely of cash and/or stock issued by Borrower. (viii) Borrower shall not issue any note, assume any liabilities or otherwise incur any indebtedness in connection with the acquisition. (ix) The aggregate amount of any cash consideration for the acquisition shall not exceed $1,000,000.00. -13- SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of -14- any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower; or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower. (f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The dissolution or liquidation of Borrower; or Borrower, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each -15- Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit accommodation from Bank subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: IRWIN NATURALS/4HEALTH, INC. 10549 W. Jefferson Blvd. Culver City, CA 90232 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION 333 South Grand Avenue, 3rd Floor Los Angeles, CA 90071 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full -16- amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit extended by Bank to Borrower, Borrower or its business, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to any extension of credit by Bank subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. -17- SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. SECTION 7.11. ARBITRATION. (a) ARBITRATION. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) GOVERNING RULES. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters -18- directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law. (c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators -19- shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration -20- provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, IRWIN NATURALS/4HEALTH, INC. NATIONAL ASSOCIATION By: [ILLEGIBLE] By: ------------------------- --------------------------------- Jan Macy-Buescher Title: CEO Vice President ------------------------ -21- WELLS FARGO BANK CORPORATE RESOLUTION: BORROWING - ------------------------------------------------------------------------------ TO: WELLS FARGO BANK, NATIONAL ASSOCIATION RESOLVED: That this corporation, IRWIN NATURALS/4HEALTH, INC., proposes to obtain credit from time to time, or has obtained credit, from Wells Fargo Bank, National Association ("Bank"). BE IT FURTHER RESOLVED, that any ONE of the following officers: PRESIDENT/CHIEF OPERATING OFFICER OR CHIEF EXECUTIVE OFFICER OR CHIEF FINANCIAL OFFICER OR CONTROLLER together with any ONE of the following officers: NONE of this corporation be and they are hereby authorized and empowered for and on behalf of and in the name of this corporation and as its corporate act and deed: (a) To borrow money from Bank and to assume any liabilities of any other person or entity to Bank, in such form and on such terms and conditions as shall be agreed upon by those authorized above and Bank, and to sign and deliver to Bank such promissory notes and other evidences of indebtedness for money borrowed or advanced and/or for indebtedness assumed as Bank shall require; such promissory notes or other evidences of indebtedness may provide that advances be requested by telephone communication and by any officer, employee or agent of this corporation so long as the advances are deposited into any deposit account of this corporation with Bank; this corporation shall be bound to Bank by, and Bank may rely upon, any communication or act, including telephone communications, purporting to be done by any officer, employee or agent of this corporation provided that Bank believes, in good faith, that the same is done by such person. (b) To contract for the issuance by Bank of letters of credit, to discount with Bank notes, acceptances and evidences of indebtedness payable to or due this corporation, to endorse the same and execute such contracts and instruments for repayment thereof to Bank as Bank shall require, and to enter into foreign exchange transactions with or through Bank. (c) To mortgage, encumber, pledge, convey, grant, assign or otherwise transfer all or any part of this corporation's real or personal property for the purpose of securing the payment of any of the promissory notes, contracts, instruments and other evidences of indebtedness authorized hereby, and to execute and deliver to Bank such deeds of trust, mortgages, pledge agreements, security agreements and/or other related documents as Bank shall require. (d) To perform all acts and to execute and deliver all documents described above and all other contracts and instruments which Bank deems necessary or convenient to accomplish the purposes of this resolution and/or to perfect or continue the rights, remedies and security interests to be given to Bank pursuant hereto, including without limitation, any modifications, renewals and/or extensions of any of this corporation's obligations to Bank, however evidenced; provided that the aggregate principal amount of all sums borrowed and credits established pursuant to this resolution shall not at any time exceed the sum of $5,000,000.00 outstanding and unpaid. Loans made pursuant to a special resolution and loans made by offices of Bank other than the office to which this resolution is delivered shall be in addition to foregoing limitation. BE IT FURTHER RESOLVED, that the authority hereby conferred is in addition to that conferred by any other resolution heretofore or hereafter delivered by this corporation to Bank and shall continue in full force and effect until Bank shall have received notice in writing, certified by the Secretary of this corporation, of the revocation hereof by a resolution duly adopted by the Board of Directors of this corporation. Any such CORPORATE RESOLUTION: BORROWING (11/97) PAGE 1 02698, #3817125373 WELLS FARGO BANK CERTIFICATE OF INCUMBENCY - -------------------------------------------------------------------------------- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION The undersigned, DAN MARTIN, Secretary of IRWIN NATURALS/4HEALTH, INC., a corporation created and existing under the laws of the state of UTAH, hereby certifies to Wells Fargo Bank, National Association ("Bank") that (a) the following named persons are duly elected officers of this corporation and presently hold the titles specified below, (b) said officers are authorized to act on behalf of this Corporation in transactions with Bank, and (c) the signature opposite each officer's name is his or her true signature: TITLE NAME SIGNATURE Klee Irwin /s/ Klee Irwin - ------------- ------------- ------------------ Controller Sheena Warner /s/ Sheena Warner - ------------- ------------- ------------------ CFO Dan Martin /s/ Dan Martin - ------------- ------------- ------------------ The undersigned further certifies that if any of the above-named officers change, or if, at any time, any of said officers are no longer authorized to act on behalf of this corporation in transactions with Bank, this corporation shall immediately provide to Bank a new Certificate of Incumbency. Bank is hereby authorized to rely on this Certificate of Incumbency until a new Certificate of Incumbency certified by the Secretary of this corporation is received by Bank. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate seal of said corporation as of _____________________ . /s/ Dan Martin ------------------------ DAN MARTIN, Secretary (SEAL) [SEAL] CERTIFICATE OF INCUMBENCY (06/97) PAGE 1 02698, #3817125373 NOTICE TO WAREHOUSE WELLS FARGO BANK OF SECURITY INTEREST - -------------------------------------------------------------------------------- TO: DSS DATE: FEBRUARY 1, 1999 10837 COMMERCE WAY FONTANA, CA 92337 ASSIGNOR: SECURED PARTY: IRWIN NATURALS/4HEALTH, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION 10549 W. JEFFERSON BLVD. 333 SOUTH GRAND AVENUE 3RD FLR CULVER CITY, CA 90232 LOS ANGELES, CA 90071 - -------------------------------------------------------------------------------- Notice is hereby given that Assignor has granted and assigned to Secured Party a security interest in all inventory now or at any time hereafter owned or acquired by Assignor, wherever located, whether in the possession of Assignor, warehousemen, bailees or any other person, together with all proceeds thereof, including without limitation, all rights to payment with respect to any insurance relating to any such inventory (collectively, "Inventory"). Notice is also given that Assignor has assigned to Secured Party, among other rights, the right to take possession of the Inventory and has advised Secured Party that a portion of the Inventory is now, or may from time to time be, located at your place of business described above. Upon receipt of instructions from Secured Party, please make available and deliver to Secured Party or to such carrier as Secured Party shall designate, at your place of business, any Inventory of Assignor then held by you. Secured Party agrees to reimburse you for all unpaid storage and handling charges owing to you from Assignor with respect to any Inventory which you make available and deliver to Secured Party or its designee in accordance with Secured Party's instructions. Except as described in the preceding sentence, Secured Party shall not be liable or responsible, directly or indirectly, for any amounts owing to you from Assignor, whether due or to become due. Please acknowledge your receipt of this Notice by returning a copy to Secured Party, dated and signed by you at the Acknowledgment portion hereof and advise Secured Party if you have received any prior notice of any assignment of, or security interest in, all or any portion of the Inventory, or if you have any reason to refuse to make available and deliver any of the Inventory in accordance with Secured Party's instructions given from time to time. SECURED PARTY: WELLS FARGO BANK, NATIONAL ASSOCIATION By: ---------------------------------------- Title: ------------------------------------ The undersigned Assignor hereby confirms and agrees to all terms and conditions of the foregoing Notice: ASSIGNOR: IRWIN NATURALS/4HEALTH, INC. By /s/ Klee Irwin ---------------------------------------- Title: CEO ------------------------------------ SEE ACKNOWLEDGMENT ON REVERSE NOTICE TO WAREHOUSE OF SECURITY INTEREST (05/97) PAGE 1 02698, #3817125373 NOTICE TO WAREHOUSE WELLS FARGO BANK OF SECURITY INTEREST - ------------------------------------------------------------------------------- TO: DSS DATE: FEBRUARY 1, 1999 10837 COMMERCE WAY FONTANA, CA 92337 ASSIGNOR: SECURED PARTY: IRWIN NATURALS/4HEALTH, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION 10549 W. JEFFERSON BLVD. 333 SOUTH GRAND AVENUE 3RD FLR CULVER CITY, CA 90232 LOS ANGELES, CA 90071 - ------------------------------------------------------------------------------- Notice is hereby given that Assignor has granted and assigned to Secured Party a security interest in all inventory now or at any time hereafter owned or acquired by Assignor, wherever located, whether in the possession of Assignor, warehousemen, bailees or any other person, together with all proceeds thereof, including without limitation, all rights to payment with respect to any insurance relating to any such inventory (collectively, "Inventory"). Notice is also given that Assignor has assigned to Secured Party, among other rights, the right to take possession of the Inventory and has advised Secured Party that a portion of the Inventory is now, or may from time to time be, located at your place of business described above. Upon receipt of instructions from Secured Party, please make available and deliver to Secured Party or to such carrier as Secured Party shall designate, at your place of business, any Inventory of Assignor then held by you. Secured Party agrees to reimburse you for all unpaid storage and handling charges owing to you from Assignor with respect to any Inventory which you make available and deliver to Secured Party or its designee in accordance with Secured Party's instructions. Except as described in the preceding sentence, Secured Party shall not be liable or responsible, directly or indirectly, for any amounts owing to you from Assignor, whether due or to become due. Please acknowledge your receipt of this Notice by returning a copy to Secured Party, dated and signed by you at the Acknowledgment portion hereof and advise Secured Party if you have received any prior notice of any assignment of, or security interest in, all or any portion of the Inventory, or if you have any reason to refuse to make available and deliver any of the Inventory in accordance with Secured Party's instructions given from time to time. SECURED PARTY: WELLS FARGO BANK, NATIONAL ASSOCIATION By: ---------------------------------------- Title: ------------------------------------ The undersigned Assignor hereby confirms and agrees to all terms and conditions of the foregoing Notice: ASSIGNOR: IRWIN NATURALS/4HEALTH, INC. By /s/ Klee Irwin ---------------------------------------- Title: CEO ------------------------------------ SEE ACKNOWLEDGMENT ON REVERSE NOTICE TO WAREHOUSE OF SECURITY INTEREST (05/97) PAGE 1 02698, #3817125373 CONTINUING SECURITY AGREEMENT WELLS FARGO BANK RIGHTS TO PAYMENT AND INVENTORY - ------------------------------------------------------------------------------- 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned IRWIN NATURALS/4HEALTH, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("BANK") a security interest in all accounts, deposit accounts, chattel paper, instruments, documents and general intangibles (collectively called "Rights to Payment"), now existing or at any time hereafter, and prior to the termination hereof, arising (whether they arise from the sale, lease or other disposition of inventory or from performance of contracts for service, manufacture, construction, repair or otherwise or from any other source whatsoever), including all securities, guaranties, warranties, indemnity agreements, insurance policies and other agreements pertaining to the same or the property described therein, and in all goods returned by or repossessed from Debtor's customers, together with a security interest in all inventory, goods held for sale or lease or to be furnished under contracts for service, goods so leased or furnished, raw materials, component parts, work in process or materials used or consumed in Debtor's business and all warehouse receipts, bills of lading and other documents evidencing goods owned or acquired by Debtor, and all goods covered thereby, now or at any time hereafter, and prior to the termination hereof, owned or acquired by Debtor, wherever located, and all products thereof (collectively called "Inventory"), whether in the possession of Debtor, warehousemen, bailees or any other person, or in process of delivery and whether located at Debtor's places of business or elsewhere (with all Rights to Payment and Inventory referred to herein collectively as the "Collateral"), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation, all Rights to Payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and all Rights to Payment with respect to any cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all Indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor is the owner and has possession or control of the Collateral and Proceeds; (b) Debtor has the right to grant a security interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in writing; (d) all statements contained herein and, where applicable, in the Collateral are true and complete in all material respects; (e) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; (f) all persons appearing to be obligated on Rights to Payment and Proceeds have authority and capacity to contract and are bound as they appear to be; (g) all property subject to chattel paper has been properly registered and filed in compliance with law and to perfect the interest of Debtor in such property; and (h) all Rights to Payment and Proceeds comply with all applicable laws concerning form, content and manner of preparation and execution, including where applicable Federal Reserve Regulation Z and any State consumer credit laws. 6. COVENANTS OF DEBTOR. (a) Debtor Agrees in general: (i) to pay Indebtedness secured hereby when due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (iii) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Bank's rights, powers and remedies hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; and (vi) not to change its chief place of business (or personal residence, if applicable) or the places where Debtor keeps any of the Collateral or Debtor's records concerning the Collateral and Proceeds without first giving Bank written notice of the address to which Debtor is moving same. (b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: CONTINUING SECURITY AGREEMENT (06/97) PAGE 1 02698, #3817125373 (i) to insure Inventory and, where applicable, Rights to Payment with Bank as loss payee, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank; (ii) not to use any Inventory for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (iii) not to remove Inventory from Debtor's premises, except for deliveries to buyers in the ordinary course of Debtor's business and except Inventory which consists of mobile goods as defined in the California Uniform Commercial Code, in which case Debtor agrees not to remove or permit the removal of the Inventory from its state of domicile for a period in excess of 30 calendar days; (iv) not to permit any security interest in or lien on the Collateral or Proceeds, including without limitation, liens arising from the storage of Inventory, except in favor of Bank; (v) not to sell, hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein, except sales of Inventory to buyers in the ordinary course of Debtor's business; (vi) to furnish reports to Bank of all acquisitions, returns, sales and other dispositions of the Inventory in such form and detail and at such times as Bank may require; (vii) to permit Bank to inspect the Collateral at any time; (viii) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (ix) if requested by Bank, to receive and use reasonable diligence to collect Rights to Payment and Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Rights to Payment and Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (x) not to commingle Rights to Payment, Proceeds or collections thereunder with other property; (xi) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any Rights to Payment or Proceeds in any material respect; (xii) on demand, to deliver to Bank returned property resulting from, or payment equal to, such allowances or credits on any Rights to Payment or Proceeds or to execute such documents and do such other things as Bank may reasonably request for the purpose of perfecting, preserving and enforcing its security interest in such returned property; (xiii) from time to time, when requested by Bank, to prepare and deliver a schedule of all Collateral and Proceeds subject to this Agreement and to assign in writing and deliver to Bank all accounts, contracts, leases and other chattel paper, instruments, documents and other evidences thereof; (xiv) in the event Bank elects to receive payments of Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (xv) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep all Collateral in good and saleable condition in accordance with the standards and practices adhered to generally by users and manufacturers of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and Proceeds, to enforce the same and make extension agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release security; (e) to resort to security in any order; (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the Indebtedness; (o) to preserve or release the interest evidenced by chattel paper to which Bank is entitled hereunder and to endorse and deliver evidences of title incidental thereto; and (p) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of Section 15 herein, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between any Debtor and Bank, including without limitation any loan agreement, relating to or CONTINUING SECURITY AGREEMENT (06/97) PAGE 2 02698, #3817125373 executed in connection with any Indebtedness; (b) any representation or warranty made by any Debtor herein shall prove to be incorrect in any material respect when made; (c) any Debtor shall fail to observe or perform any obligation or agreement contained herein; (d) any attachment or like levy on any property of any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the California Uniform Commercial Code or otherwise provided by law, including without limitation, the right to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auction, are all commercially reasonable since differences in the sales prices generally realized in the different kinds of sales are ordinarily offset by the differences in the costs and credit risks of such sales. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. With respect to any sale by Bank of any Collateral subject to this Agreement, Debtor hereby expressly grants to Bank the right to sell such Collateral using any or all of Debtor's trademarks, trade names, trade name rights and/or proprietary labels or marks. 11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any part of the Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. Any proceeds of any disposition of any of the Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness in such order of application as Bank may from time to time elect. 12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale and all other rights, powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder. 13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several; (b) Debtor hereby waives any right (i) to require Bank to make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder, (ii) to direct the application of payments or security for Indebtedness of Debtor or indebtedness of customers of Debtor, or (iii) to require proceedings against others or to require exhaustion of security; and (c) Debtor hereby consents to extensions, forbearances or alterations of the terms of Indebtedness, the release or substitution of security, and the release of any guarantors; provided however, that in each instance, Bank believes in good faith that the action in question is commercially reasonable in that it does not unreasonably increase the risk of nonpayment of the Indebtedness to which the action applies. Until all Indebtedness shall have been paid in full, no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or personal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U. S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by CONTINUING SECURITY AGREEMENT (06/97) PAGE 3 02698, #3817125373 Bank in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as Debtor hereby expressly agrees that recourse may be had against his or her separate property for all his or her Indebtedness to Bank secured by the Collateral and Proceeds under this Agreement. 18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 19. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California. Debtor warrants that its chief executive office (or personal residence, if applicable) is located at the following address: 10549 W. JEFFERSON BLVD., CULVER CITY, CA 90232 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: 10837 COMMERCE WAY, FONTANA, CA 92337 IN WITNESS WHEREOF, this Agreement has been duly executed as of FEBRUARY 1, 1999. IRWIN NATURALS/4HEALTH, INC. By: /s/ Klee Irwin ---------------------------- Title: CEO ------------------------- CONTINUING SECURITY AGREEMENT (06/97) PAGE 4 02698, #3817125373 SECURITY AGREEMENT WELLS FARGO BANK EQUIPMENT - ------------------------------------------------------------------------------- 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned IRWIN NATURALS/4HEALTH, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all goods, tools, machinery, furnishings, furniture and other equipment, now or at any time hereafter, and prior to the termination hereof, owned or acquired by Debtor, wherever located, whether in the possession of Debtor or any other person and whether located on Debtor's property or elsewhere, and all improvements, replacements, accessions and additions thereto (collectively called "Collateral"), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation, (a) all accounts, contract rights, chattel paper, instruments, documents, general intangibles and rights to payment of every kind now or at any time hereafter arising from any such sale, lease, collection, exchange or other disposition of any of the foregoing, (b) all rights to payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and (c) all rights to payment with respect to any cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all Indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor is the owner and has possession or control of the Collateral and Proceeds; (b) Debtor has the right to grant a security interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in writing; (d) all statements contained herein are true and complete in all material respects; (e) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; and (f) Debtor is not in the business of selling goods of the kind included within the Collateral subject to this Agreement, and Debtor acknowledges that no sale of any Collateral, including without limitation, any Collateral which Debtor may deem to be surplus, has been or shall be consented to or acquiesced in by Bank, except as specifically set forth in writing by Bank. 6. COVENANTS OF DEBTOR. (a) Debtor Agrees in general: (i) to pay Indebtedness secured hereby when due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (iii) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Bank's rights, powers and remedies hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; and (vi) not to change its chief place of business (or personal residence, if applicable) or the places where Debtor keeps any of the Collateral or Debtor's records concerning the Collateral and Proceeds without first giving Bank written notice of the address to which Debtor is moving same. (b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (i) to insure the Collateral with Bank as loss payee, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank; (ii) to operate the Collateral in accordance with all applicable statutes, rules and regulations relating to the use and control thereof, and not to use the Collateral for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (iii) not to permit any security interest in or lien on the Collateral or Proceeds, including without limitation, liens arising from repairs to or storage of the Collateral, except in favor of Bank; (iv) to pay when due all license fees, registration fees and other charges in connection with any collateral; (v) not to remove the Collateral from Debtor's premises unless the Collateral consists of mobile goods as defined in the California Uniform Commercial Code, in which case Debtor agrees not to remove or permit the removal of the Collateral from its state of domicile for a period in excess of 30 calendar days; (vi) not to sell, SECURITY AGREEMENT (06/97) PAGE 1 02698, #3817125373 hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein; (vii) not to rent, lease or charter the Collateral; (viii) to permit Bank to inspect the Collateral at any time; (ix) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (x) if requested by Bank, to receive and use reasonable diligence to collect Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (xi) not to commingle Proceeds or collections thereunder with other property; (xii) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any Collateral or Proceeds in any material respect; (xiii) in the event Bank elects to receive payments of Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (xiv) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep the Collateral in good and saleable condition and repair, to deal with the Collateral in accordance with the standards and practices adhered to generally by owners of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and Proceeds, to enforce the same and make extension agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release security; (e) to resort to security in any order; (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; and (n) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of Section 15 herein, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between any Debtor and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by any Debtor herein shall prove to be incorrect in any material respect when made; (c) any Debtor shall fail to observe or perform any obligation or agreement contained herein; (d) any attachment or like levy on any property of any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the California Uniform Commercial Code or otherwise provided by law, including without limitation, the right to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auction, SECURITY AGREEMENT (06/97) PAGE 2 02698, #3817125373 are all commercially reasonable since differences in the sales prices generally realized in the different kinds of sales are ordinarily offset by the differences in the costs and credit risks of such sales. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. 11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any part of the Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. Any proceeds of any disposition of any of the Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness in such order of application as Bank may from time to time elect. 12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale and all other rights, powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder. 13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several; (b) Debtor hereby waives any right (i) to require Bank to make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder, (ii) to direct the application of payments or security for Indebtedness of Debtor or indebtedness of customers of Debtor, or (iii) to require proceedings against others or to require exhaustion of security; and (c) Debtor hereby consents to extensions, forbearances or alterations of the terms of Indebtedness, the release or substitution of security, and the release of any guarantors; provided however, that in each instance, Bank believes in good faith that the action in question is commercially reasonable in that it does not unreasonably increase the risk of nonpayment of the Indebtedness to which the action applies. Until all Indebtedness shall have been paid in full, no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or personal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U. S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as Debtor hereby expressly agrees that recourse may be had against his or her separate property for all his or her Indebtedness to Bank secured by the Collateral and Proceeds under this Agreement. 18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 19. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the SECURITY AGREEMENT (06/97) PAGE 3 02698, #3817125373 laws of the state of California. Debtor warrants that its chief executive office (or personal residence, if applicable) is located at the following address: 10549 W. JEFFERSON BLVD., CULVER CITY, CA 90232 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: 10837 COMMERCE WAY, FONTANA, CA 92337 IN WITNESS WHEREOF, this Agreement has been duly executed as of FEBRUARY 1, 1999. IRWIN NATURALS/4HEALTH, INC. By: [ILLEGIBLE] ------------------------------------- Title: CEO ---------------------------------- SECURITY AGREEMENT (06/97) PAGE 4 02698, #3817125373 WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - -------------------------------------------------------------------------------- $5,000,000.00 LOS ANGELES, CA FEBRUARY 1, 1999 FOR VALUE RECEIVED, the undersigned IRWIN NATURALS/4HEALTH, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at LOS ANGELES RCBO, 333 SOUTH GRAND AVENUE 3RD FLR, LOS ANGELES, CA 90071, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $5,000,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2 OR 3 MONTHS, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than $100,000.00; and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage. (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter- Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) INTEREST. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum .25000% above the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 2.00000% above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection option selected hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) SELECTION OF INTEREST RATE OPTIONS. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, REVOLVING LINE OF CREDIT NOTE (08/96) PAGE 1 02698, #3817125373 and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than 3 Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will quote the applicable fixed rate to Borrower at approximately 10:00 a.m., California time, on the first day of the Fixed Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a redetermination by Bank of the applicable fixed rate; provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a LIBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (c) ADDITIONAL LIBOR PROVISIONS. (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on the LAST day of each MONTH, commencing FEBRUARY 28, 1999. (e) DEFAULT INTEREST. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) BORROWING AND REPAYMENT. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and REVOLVING LINE OF CREDIT NOTE (08/96) PAGE 2 02698, #3817125373 conditions of this Note and of the Credit Agreement between Borrower and Bank defined below; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on JANUARY 31, 2000. (b) ADVANCES. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) KLEE IRWIN OR DAN MARTIN OR SHEENA WARNER, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) PRIME RATE. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of $100,000.00; provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) DETERMINE the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) SUBTRACT from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum 2.000% above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of FEBRUARY 1, 1999, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) REMEDIES. Upon the occurrence of any Event of Default as defined in the Credit Agreement, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, REVOLVING LINE OF CREDIT NOTE (08/96) PAGE 3 02698, #3817125373 charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the state of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. IRWIN NATURALS/4HEALTH INC. By: [ILLEGIBLE] ------------------------------------ Title: CEO --------------------------------- REVOLVING LINE OF CREDIT NOTE (08/96) PAGE 4 02698, #3817125373 COMPLIANCE CERTIFICATE TO: Wells Fargo Bank, National Association Reference is made to the Revolving Loan Agreement dated as of February _, 1999, among Irwin Naturals/4 Health, and Wells Fargo Bank, National Association. Terms defined in the Loan Agreement and not other wise defined in this Compliance Certificate shall have the meanings defined for them in the Loan Agreement. Section references herein relate to the Loan Agreement unless stated otherwise. COMPLIANCE WITH FINANCIAL COVENANTS This Certificate is delivered in accordance with the Loan Agreement by the President, Chief Financial Officer or Controller of Irwin Naturals/4 Health on behalf of Irwin Naturals/4 Health. This Certificate relates to the financial statements of Irwin Naturals/4 Health delivered concurrently herewith for the fiscal period ended ____,__. Computations indicating compliance with respect to the covenants specified in Sections __,__, etc. of the Loan Agreement are as follows. All calculations are as determined in accordance with GAAP, consistently applied, except to the extent modified by the terms of the Loan Agreement. PERFORMANCE OF OBLIGATIONS A review of the activities of Irwin Naturals/4 Health during the fiscal period covered by the attached financial statements has been made under the supervision of the undersigned with a view to determining whether during such fiscal period Irwin Naturals/4 Health performed and observed all of their Obligations under the Loan Documents. To the best knowledge of the undersigned, as of the date of this Certificate no Default or Event of Default has occurred and is continuing. The undersigned certifies, on behalf of Irwin Naturals/4 Health, that the calculations made and the information contained herein are derived from the books and records of Irwin Naturals/4 Health, as applicable, and that each and every matter contained herein correctly reflects those books and records. Date: 2/5/99 ----------------------- [ILLEGIBLE] ---------------------------------- XXXXX Printed Name and Title of THIS SPACE FOR USE OF FILING OFFICER FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY This Financing Statement is presented for filing pursuant to the Uniform Commercial Code and will remain effective, with certain exceptions, for 5 years from date of filing. A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional) C. RETURN COPY TO: (Name and Mailing Address) Customer Number #3817125373 Data File Services, Inc. P.O. Box 275 Van Nuys, CA 91408-0275 D. OPTIONAL DESIGNATION (if applicable): / / Lessor/Lessee / / Consignor/Consignee / / Non-UCC Filing - -----------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) 1a. ENTITY'S NAME IRWIN NATURALS/4HEALTH, INC. OR 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 10549 W. Jefferson Blvd. Culver City CA USA 90232 1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.#, 870468225 ADD'L INFO RE OR COUNTRY OF if any ENTITY DEBTOR ORGANIZATION - ----------------------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 2a. ENTITY'S NAME OR 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.#, ADD'L INFO RE OR COUNTRY OF if any ENTITY DEBTOR ORGANIZATION - ----------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b) 3a. ENTITY'S NAME WELLS FARGO BANK, NATIONAL ASSOCIATION OR 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 333 South Grand Avenue 3rd Flr Los Angeles CA USA 90071 - ----------------------------------------------------------------------------------------------------------------------------------- 4. This FINANCING STATEMENT covers the following types or items of property: All accounts, chattel paper, general intangibles, other rights to payment, inventory and equipment of Debtor, and all proceeds thereof, as more particularly described on Schedule 1 attached hereto and incorporated herein by this reference. - ----------------------------------------------------------------------------------------------------------------------------------- 5. CHECK / / This FINANCING STATEMENT is signed by the Secured Party instead of the Debtor to 7. If filed in Florida (check BOX perfect a security interest (a) in collateral already subject to a security one) (if interest in another jurisdiction when it was brought into this state, or when the / / Documentary / / Documentary applicable) debtor's location was changed to this state, or (b) in accordance with other stamp tax stamp tax statuary provisions (additional data may be required). paid not applicable - ----------------------------------------------------------------------------------------------------------------------------------- 6. REQUIRED SIGNATURE(S) 8. / / This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL ESTATE [ILLEGIBLE] RECORDS Attach Addendum (if applicable) - ----------------------------------------------------------------------------------------------------------------------------------- 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s) (ADDITIONAL FEE) (optional) / / All Debtors / / Debtor 1 / / Debtor 2 - ----------------------------------------------------------------------------------------------------------------------------------- ACKNOWLEDGEMENT COPY (FORM UCC1) (TRANS) (REV. 12/18/95) NATIONAL FINANCING STATEMENT
THIS SPACE FOR USE OF FILING OFFICER FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY This Financing Statement is presented for filing pursuant to the Uniform Commercial Code and will remain effective, with certain exceptions, for 5 years from date of filing. A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional) C. RETURN COPY TO: (Name and Mailing Address) Customer Number #3817125373 Data File Services, Inc. P.O. Box 275 Van Nuys, CA 91408-0275 D. OPTIONAL DESIGNATION (if applicable): / / Lessor/Lessee / / Consignor/Consignee / / Non-UCC Filing - -----------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) 1a. ENTITY'S NAME IRWIN NATURALS/4HEALTH, INC. OR 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 10549 W. Jefferson Blvd. Culver City CA USA 90232 1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.#, 870468225 ADD'L INFO RE OR COUNTRY OF if any ENTITY DEBTOR ORGANIZATION - ----------------------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 2a. ENTITY'S NAME OR 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.#, ADD'L INFO RE OR COUNTRY OF if any ENTITY DEBTOR ORGANIZATION - ----------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b) 3a. ENTITY'S NAME WELLS FARGO BANK, NATIONAL ASSOCIATION OR 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 333 South Grand Avenue 3rd Flr Los Angeles CA USA 90071 - ----------------------------------------------------------------------------------------------------------------------------------- 4. This FINANCING STATEMENT covers the following types or items of property: All accounts, chattel paper, general intangibles, other rights to payment, inventory and equipment of Debtor, and all proceeds thereof, as more particularly described on Schedule 1 attached hereto and incorporated herein by this reference. - ----------------------------------------------------------------------------------------------------------------------------------- 5. CHECK / / This FINANCING STATEMENT is signed by the Secured Party instead of the Debtor to 7. If filed in Florida (check BOX perfect a security interest (a) in collateral already subject to a security one) (if interest in another jurisdiction when it was brought into this state, or when the / / Documentary / / Documentary applicable) debtor's location was changed to this state, or (b) in accordance with other stamp tax stamp tax statuary provisions (additional data may be required). paid not applicable - ----------------------------------------------------------------------------------------------------------------------------------- 6. REQUIRED SIGNATURE(S) 8. / / This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL ESTATE [ILLEGIBLE] RECORDS Attach Addendum (if applicable) - ----------------------------------------------------------------------------------------------------------------------------------- 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s) (ADDITIONAL FEE) (optional) / / All Debtors / / Debtor 1 / / Debtor 2 - ----------------------------------------------------------------------------------------------------------------------------------- FILING OFFICER COPY (FORM UCC1) (TRANS) (REV. 12/18/95) NATIONAL FINANCING STATEMENT
-------------- Please Initial SCHEDULE 1 TO UCC FINANCING STATEMENT This Schedule 1 is attached to and made a part of that certain UCC Financing Statement as of FEBRUARY 1, 1999, executed by IRWIN NATURALS/4HEALTH, INC., as Debtor, for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Secured Party. The Following is hereby incorporated into said UCC Financing Statement as the description of the collateral subject thereto: All accounts, chattel paper, instruments, documents, general intangibles and other rights to payment of every kind now or at any time hereafter arising out of the business of Debtor, and all goods returned by or repossessed from Debtor's customers; all inventory, raw materials, component parts, work in process and/or materials now or at any time hereafter used or consumed in Debtor's business, and all warehouse receipts, bills of lading and other documents evidencing goods now owned or hereafter acquired by Debtor, and all goods covered thereby, including all accessions, additions and improvements thereto and products thereof, wherever located, whether in the possession of Debtor or any warehouseman, bailee or any other person, or in the process of delivery; all goods, tools, machinery, furnishings, furniture and other equipment of Debtor now owned or hereafter acquired, wherever located; and all proceeds of any of the foregoing, whether arising from the sale, lease or other use or disposition thereof, including without limitation, all rights to payment with respect to any insurance, including returned premiums, or any cause of action relating to any of the foregoing. EX-10.07 5 EXHIBIT 10.07 Exhibit 10.07 NON-RECOURSE PROMISSORY NOTE $10,000,000.00 March 10, 1999 FOR VALUE RECEIVED, the undersigned Irwin Naturals/4Health, Inc., a Utah corporation (the "Debtor"), with its principal place of business located at 10549 W. Jefferson Boulevard, Culver City, CA 90232, hereby promises to pay to Inholtra Natural, Ltd., a Maine corporation (the "Creditor"), at 21 Oceanview Road, Kennebunk, ME 04043, or at such other place as the Creditor shall designate to the Debtor in writing, the principal amount of Ten Million Dollars ($10,000,000.00) lawful money of the United States of America, with interest thereon at the rate of eight percent (8%) per annum calculated on the basis of 365-day year and the number of days elapsed. This Promissory Note evidences the obligation of the Debtor, subject to the terms and conditions set forth below, to pay a portion of the balance of the purchase price (the "Purchase Price") for certain assets purchased by it from the Creditor pursuant to that certain Asset Purchase Agreement between the Debtor, the Creditor and certain other parties dated as of March 10, 1999 (the "Agreement"). 1. The principal amount hereof shall be payable on or before the close of business on June 10, 1999 (the "Maturity Date") and shall be repaid by Debtor as follows: (i) the principal amount of One Million Dollars ($1,000,000.00) shall be paid to the Indemnity Escrow Agent (as defined in Section 1.5 of the Agreement) to be held by it pursuant to the terms of the Indemnity Escrow Agreement (as also defined in Section 1.5 of the Agreement); and (ii) the remaining principal balance hereof, together with all accrued interest as herein provided, shall be paid to Creditor. 2. In addition to its other rights hereunder and under the Agreement, Debtor shall have the right upon notice to Creditor specifying in reasonable detail the basis for a set-off hereunder, to set-off and apply against its obligations to Creditor hereunder any and all amounts to which it may be entitled from Creditor under the Agreement and the other documents executed in connection with the transactions contemplated thereby. The exercise of such right of set-off by Debtor in good faith shall not constitute default hereunder. 3. The principal amount of this Note may be prepaid, in whole or in part, along with accrued interest without premium or penalty. 4. Upon notice to the Debtor of the loss, theft, destruction or mutilation of this Note, and in the case of any such mutilation upon surrender and cancellation of the mutilated document, and in the case of such loss, theft or destruction, upon delivery by the Creditor of an indemnity agreement satisfactory to the Debtor, the Debtor will execute and deliver to the Creditor a new Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note. 5. Except as otherwise expressly provided herein, the terms of this Note may be amended only by a written instrument executed by the Debtor and the Creditor. No course of dealing with the Debtor and the Creditor nor any delay in executing any rights hereof shall operate as a waiver of any rights of the Creditor. 6. All notices , requests, demands and other communications which are required to be given hereunder shall be deemed to have been duly given only if in writing and delivered by first class mail, return receipt requested, to the other party at its address appearing on the first page hereof or to such other address as such party shall have specified by notice in writing to the other party. 7. The rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the local laws of the State of New York without regard to the principles of conflicts of law thereof. 2 8. If (a) Debtor shall fail to pay any amount due under this Note when due; or (b) Debtor shall commit any other material breach or event of default under the Agreement which shall continue uncured for a period of ten (10) days after notice thereof to Debtor; or (c) Debtor shall be dissolved or become insolvent, or shall merge with or into another entity; or (d) there shall be an assignment for the benefit of creditors of Debtor or appointment of a receiver or similar official for Debtor or its assets, or Debtor shall apply for, or be the subject of any voluntary or involuntary application or petition for protection or relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law; or (e) Debtor shall take any action for the purpose of effecting any of the foregoing; then and in any such event, all amounts of unpaid principal and all other amounts due to Creditor hereunder shall upon demand be due and payable in full. 9. Except as otherwise set forth herein, the Debtor hereby waives presentment, demand for payment, notice of dishonor, notice of protest and protest, and all other notices or demands in connection with the delivery, acceptance, performance, default, endorsement or guarantee of this instrument. 10. This is a nonrecourse note and, anything herein to the contrary notwithstanding, Creditor agrees for itself, its representatives, successor, endorsees, and assigns that (a) neither Debtor nor its representatives, successors or assignees shall be personally liable on this Note, it being intended that Debtor's obligation to pay the principal of this Note with interest thereon is included for the sole purpose of establishing the existence of the indebtedness represented hereby and (b) in the event of default, Creditor (and any such representative, successor, endorsee, or assign) shall look for payment solely to the Reassignments (as defined in the Agreement) and the rights and remedies set forth in the Security Escrow Agreement (as defined in the Agreement) and will not make any claim or institute any action or proceeding against Debtor (or any representative, successor or assign of Debtor) for payment of this Note (or for any deficiency remaining after application of the property which is the subject of the Reassignments); provided, however, that nothing herein contained shall be construed to release or impair the indebtedness evidence by this Note, or of the lien upon the property securing it, or preclude the application of said property to the payment hereof in accordance with the terms of the Security Escrow Agreement. 3 11. All disputes arising hereunder shall be resolved by binding arbitration in the City of New York, New York before a single arbitrator in accordance with the rules of the American Arbitration Association. IN WITNESS WHEREOF, this Note has been signed by the Debtor on the date first above written. IRWIN NATURALS/4HEALTH, INC. By: /s/ Klee Irwin ------------------------------------------ Klee Irwin, Chief Executive Officer EX-10.08 6 EXHIBIT 10.08 Exhibit 10.08 CONSULTING AGREEMENT THIS AGREEMENT is made effective the first day of January, 1999 between Irwin Naturals / 4Health Inc. (hereafter referred to as "the Company"), Klee Irwin (hereafter referred to as "Irwin"), and Michael J. Driver (hereafter referred to as "Driver"), an independent business advisor providing consulting services to the Company. RECITALS The Company is engaged in the business of manufacturing nutritional products and Driver is an independent business person having expertise in providing advice to businesses in dealing with federal, state, local, and international governments, business opportunities, business acquisition strategy, securing investors for new business enterprises, and strategic business planning. The parties desire to enter into a relationship in which Driver will provide advisory services as an independent business consultant to the Company. The Company acknowledges that Driver is a partner in the law firm of Patton Boggs LLP with important and substantial responsibilities to the law firm, and therefore understands that he does not wish to be an employee of the Company, but rather is willing to provide part-time services to the Company in a manner which will not interfere with his responsibilities as a partner of Patton Boggs LLP. The Company further acknowledges that Driver will provide the services contemplated by this Agreement in an individual capacity as a business advisor, rather than as a partner of Patton Boggs LLP. NOW THEREFORE, in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. RESPONSIBILITIES AND DUTIES. Driver will serve as a member of the Company's Advisory Committee, and in such capacity will provide the equivalent of two days of work time per week on a schedule which will not interfere with his responsibilities to Patton Boggs LLP. This schedule will be mutually agreed upon from time to time by the parties. In such capacity, Driver will: a. Provide strategic advice regarding the Company's dealings with federal, state, local, and international governments; b. Establish and facilitate contact with important business leaders and government policy makers, and assist the Company in developing and implementing presentations to such persons; c. Provide strategic advice on the Company's negotiations with other substantial business entities; d. Assist the Company to develop and implement strategies designed to secure additional investors in the Company; e. Assist the Company in resolving problems with employees of, and consultants to, the Company; f. Assist the Company in developing and implementing strategies to recruit talented employees and consultants to the Company; and g. Assist the Company in developing and implementing strategic and tactical business plans. 2. COMPENSATION. For the services to be rendered under this Agreement, Driver will be compensated as follows: a. Upon execution of this Agreement, the Company will issue and deliver to Driver 10,000 shares of the Common Stock of the Company; b. For so long as this Agreement remains in effect, the Company will issue and deliver to Driver 5,000 shares of the Common Stock of the Company on each of the following dates: April 1, 1999; July 1, 1999; October 1, 1999; January 1, 2000; April 1, 2000; July 1, 2000; October 1, 2000; January 1, 2001; April 1, 2001; July 1, 2001; October 1, 2001; January 1, 2002; April 1, 2002; July 1, 2002; October 1, 2002; and December 31, 2002. c. Upon execution of this Agreement, the Company will issue and deliver to Driver 250,000 Warrants of the Company in the form attached hereto as Exhibit A, and exercisable at the common stock price in effect on December 31, 1998. 15,625 of such Warrants will become exercisable by Driver for so long as this Agreement remains in effect upon each of the dates set forth in sub-section 2.b. above. Driver shall have the right to exercise his purchase, conversion, and other rights under the terms of such Warrants at any time after such Warrants become exercisable, but no later than December 31, 2005. d. Notwithstanding the provisions of sub-sections 2.b. and 2.c. above: (1) In the event this Agreement is terminated under the provisions of section 3 hereafter by the Company as a result of a material breach of this Agreement by Driver, or is terminated by Driver for his convenience, all stock which has not previously been earned under the provisions of sub-section 2.b. above, and all Warrants which have not previously become exercisable under the provisions of sub-section 2.c. above, will be forfeited by Driver to the Company. Consulting Agreement - Page 2 (2) In the event this Agreement is terminated under the provisions of section 3 hereafter by Driver as a result of a material breach of this Agreement by the Company, or is terminated by the Company for its convenience, or in the event of a change of control of the Company as defined in the Company's Long Term Stock Incentive Plan in effect on the date of this Agreement, all stock which has not previously been earned under the provision of sub-section 2.b. above, and all Warrants which have not previously become exercisable under the provisions of sub-section 2.c. above, will become immediately earned and/or exercisable by Driver. e. In the event that any of the Company's lines of business are spun-off into separate business entities, Driver will have the right to receive Common Stock and Warrants in such separate business entities in the same proportion that his Common Stock and Warrants in the Company bear to the total issued and outstanding Common Stock and Warrants of the Company, at the time that any such business lines are spun-off by the Company. No other compensation or benefits of any kind will be available to Driver under the terms of this Agreement, except as agreed upon in writing by the parties. 3. TERM AND TERMINATION. This agreement shall take effect on January 1, 1999 and conclude on December 31, 2002, unless sooner terminated by Driver or the Company pursuant to the provisions of this section. Subject to the provisions of sub-section 2.d. above, either Driver or the Company may terminate this Agreement, with or without a breach of this Agreement by the other party, upon any of the dates set forth in sub-section 2.b. above, so long as he or it provides a written notice of termination at least 90 prior to such date. All common stock earned by Driver on such termination date will be delivered to him, and he will have the right to exercise all Warrants which become exercisable through such date, in accordance with the provisions of section 2 above. 4. REIMBURSEMENT OF EXPENSES. Driver will be reimbursed by the Company for all legitimate business expenses incurred by him (including but not limited to first-class travel, hotel, rental car, and telephone expenses) so long as such expenses are evidenced by statements, invoices, receipts, per diem reports, or similar documents. Driver will reimburse the Company for any and all payments made by the Company to him for reimbursement of expenses which are ultimately determined by the Internal Revenue Service not to be deductible to the Company. 5. INDEMNIFICATION. a. BY THE COMPANY. In the event that any investigation, claim, action, or proceeding of any nature is undertaken by any person or entity alleging liability against Driver which relates to or arises out of this Agreement, the Company agrees Consulting Agreement - Page 3 to indemnify and hold harmless Driver from all injuries, damages, and losses sustained by Driver, including but not limited to, all reasonable attorney fees and court costs. Such attorney fees and court costs shall be reimbursed by the Company as they are incurred by Driver. The Company further agrees that it will not, without Driver's prior written consent (which will not be unreasonably withheld), settle, compromise, or consent to the entry of judgment, unless such settlement, compromise, or consent includes an unconditional release of Driver from all liability arising out of such investigation, claim, action, or proceeding. Without limiting the generality of the foregoing, the Company expressly agrees that it will indemnify and hold harmless not only Driver, but also Patton Boggs LLP, from all injuries, damages, and losses sustained by it arising out of the services provided by Driver under this Agreement. The Company further covenants that it will never sue Patton Boggs LLP for any injuries, damages, or losses arising out of the services provided by Driver under this Agreement. b. BY DRIVER. Driver agrees that he will indemnify and hold harmless the Company, its officers, directors, and/or other persons having responsibility for withholding of taxes, from all injuries, damages, and losses sustained by such persons as a result of his failure to pay state and federal taxes on the compensation earned by him under this Agreement, including but not limited to all overdue taxes, penalties, interest, attorney fees, and court costs. Such attorney fees and court costs shall be reimbursed by Driver as they are incurred by the Company. Driver further agrees that he will not, without the Company's prior written consent (which will not be unreasonably withheld), settle, compromise, or consent to the entry of judgment, unless such settlement, compromise, or consent includes an unconditional release of the Company and its officers, directors, and/or other persons having responsibility for withholding of taxes from all liability. 6. RELATIONSHIP OF PARTIES. a. Driver will report directly to Irwin or his designee in providing services under this Agreement. b. The Company shall exercise no direction and control over Driver's activities in carrying out his responsibilities under this agreement, and in all regards, Driver will be treated as an independent contractor to the Company. Driver will retain discretion and judgment in determining the means, methods and schedule for providing services under this Agreement, so long as the Company's assigned responsibilities are carried out in a timely and efficient manner. The Company may from time to time establish deadlines, parameters, and specifications with regard to Consulting Agreement - Page 4 services performed for it by Driver, but will not oversee Driver's actual work or instruct Driver about how the work will be performed. c. The Company will not provide any equipment, supplies, or benefits to Driver, other than the use of an office and support services at the Company's corporate offices in Culver City, California. d. DRIVER IS NOT ENTITLED TO ANY UNEMPLOYMENT OR WORKERS' COMPENSATION INSURANCE BENEFITS UNDER THIS AGREEMENT, AND BOTH DRIVER AND THE COMPANY WILL BE SEPARATELY RESPONSIBLE FOR MAINTAINING IN FORCE THEIR OWN INSURANCE, INCLUDING BUT NOT LIMITED TO GENERAL LIABILITY INSURANCE, HEALTH INSURANCE, AND DISABILITY INSURANCE, IN AN AMOUNT REASONABLY NECESSARY TO COVER THE RISKS ASSOCIATED WITH THIS AGREEMENT. FURTHER, DRIVER WILL NOT BE ENTITLED TO PARTICIPATE IN ANY PENSION OR PROFIT SHARING PLANS OR WELFARE BENEFIT PROGRAMS MAINTAINED BY THE COMPANY FOR THE BENEFIT OF ITS EMPLOYEES. e. DRIVER IS OBLIGATED TO PAY ALL LOCAL, STATE AND FEDERAL TAX OBLIGATIONS AS A SELF-EMPLOYED INDIVIDUAL ON ALL COMPENSATION PAID UNDER THIS AGREEMENT. f. This agreement will not be construed as creating any sort of partnership or joint venture relationship between Driver and the Company. In conformity therewith, neither party shall be liable for any obligation made or incurred by the other party, unless made or incurred pursuant to the terms of a separate agreement. Any employees who may be hired by Driver will not be treated as employees of the Company for purposes of federal and state unemployment taxes, federal and state withholding taxes, federal social security, medicare taxes and worker's compensation insurance. 7. SEVERABILITY. If any provision of this Agreement is declared void or otherwise unenforceable, the remainder of the provision of this Agreement shall remain in full force and effect. 8. ASSIGNABILITY. The parties acknowledges that the relationship of the parties is personal in nature among Driver and the existing officers of the Company, and therefore that this Agreement shall not be assigned by Driver or the Company without the express written consent of the other party. 9. CONSTRUCTION. The parties agree that this Agreement will be construed according to the laws of the State of Colorado, and that any court having appropriate subject-matter jurisdiction in the State of Colorado shall have exclusive jurisdiction over any action or proceeding arising under this Agreement. 10. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties relative to services to be provided by Driver to the Company. All previous representations and agreements between Driver and the Company relative to such Consulting Agreement - Page 5 services are hereby merged in and superseded by this Agreement. This Agreement may not be altered or modified except by an express written agreement among the parties. Notwithstanding the foregoing, this Agreement shall have no effect on certain stock options which were previously granted to Driver by the Company on July 16, 1996. 11. ATTORNEY FEES. The parties agree that in the event of any dispute arising out of this Agreement, any court or arbitrator resolving the dispute shall award to the prevailing party his or its costs and reasonable attorney fees incurred in resolving such dispute. 12. NOTICES. Any notices required to be given under this agreement shall be deemed to have been properly given if mailed by certified mail to the party entitled to notice at the following addresses, or to any subsequent address which is communicated by one party to the other under the provisions of this section: Klee Irwin, President and Chief Executive Officer Irwin Naturals / 4Health Inc. 10549 W. Jefferson Boulevard Culver City, California 90232 Michael J. Driver 6500 Whaley Drive Boulder, Colorado 80303. Proof of service of such notice shall be a receipt for certified mail showing the date of mailing. 13. REPRESENTATION AND WARRANTY. As a signatory to this Agreement, Irwin hereby represents and warrants that: a. He has obtained the approval of the Board of Directors and Compensation Committee of Irwin Naturals / 4Health, Inc. for the issuance of Common Stock and granting of Warrants of the Company to Driver as compensation for the services to be provided under this Agreement; and b. He will secure the opinion of securities counsel for the Company that the issuance of Common Stock and granting of Warrants of the Company under this Agreement is in compliance with all applicable requirements of the United States securities laws, as well as all state securities laws which may apply, and that such Common Stock and Warrants have been properly issued and granted by the Company. Consulting Agreement - Page 6 14. PUBLIC ANNOUNCEMENTS. Prior to any press release or other public disclosure relating to the services to be performed by Driver under this Agreement, the parties will confer about whether such public disclosure is appropriate, and if so, will reach an agreement about the contents of any such disclosure. Except as required by any applicable law, rule, or regulation, no party shall make any public announcement regarding the relationship of the parties which arises out of this Agreement without the prior written consent of the other party(ies). IN WITNESS WHEREOF, the parties have executed this Agreement with full knowledge of each and every provision set forth herein. Irwin Naturals / 4Health, Inc.: By: /s/ Klee Irwin /s/ Michael J. Driver -------------------------------- ------------------------------ President Michael J. Driver, Individually /s/ Klee Irwin -------------------------------- Klee Irwin, Individually Subscribed and sworn to before me this 1 day of February, 1999, by Klee Irwin and Michael J. Driver. /s/ Jacqueline Y. Roeder ------------------------------ Notary Public My Commission Expires: April 26, 2002 ------------------ [STAMP] Consulting Agreement - Page 7 EX-10.09 7 EXHIBIT 10.09 Exhibit 10.09 IRWIN NATURALS/4HEALTH MANUFACTURERS OF FINE NUTRITIONAL PRODUCTS 10549 W. Jefferson Blvd. Culver City, California 90232 (310) 253-5305, Fax (310) 202-9454 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DATE: ----------------------------- FACSIMILE COVER SHEET TO: LOU MANCINI ------------------------------------------------ FAX: 412/431-3729 ------------------------------------------------ FROM: KLEE IRWIN ------------------------------------------------ A total of 1 page(s) including this cover letter is being forwarded. If you are missing any pages, please contact us immediately. ---------------------------------------------------------------------- ---------------------------------------------------------------------- Lou, here is the offer that we are pleased to have agreed on: 1. Title: President/COO reporting to CEO. 2. Term: A three year employment contract will be established within the first 45 days or as soon as we agree upon a mutually acceptable set of performance criteria. 3. Base: $250K increasing to $300K after 12 months. 4. Bonus: 50% based on growth targets to be set 5. Loan: $350,000 - terms to be listed on loan agreement given immediately after start date. 6. Stock Options: 1.25 million options vested evenly over 72 months, 50% at $3.50 and 50% at $6.00. 7. Job Description: Running of day to day operations and sales, increasing profitability, involvement and input into all new ventures, expansion of business with GNC and other key accounts, acquisitions, maximizing moral and efficiency of staff. 8. Perks: Insurance allowance will be made for Blue Shield coverage, car allowance will be $600 per month. Sincerely, Klee Irwin, President/CEO 4HEALTH, INC. June 30, 1998 Mr. Klee Irwin Irwin Naturals 10549 W. Jefferson Blvd. Culver City, CA 90232 Dear Mr. Irwin: As you know, as part of the transaction in which you and your wife, as the shareholders of Irwin Naturals ("IN"), will acquire approximately 57% (on a fully diluted basis) of the total issued and outstanding shares of common stock of 4Health, Inc. (the "Company"), as more fully described in that certain Amended and Restated Agreement and Plan of Merger dated as of May 22, 1998 (the "Merger Agreement"), among the Company, IN, and yourself, the Company is to form an Executive Committee of its Board of Directors, of which you are to be a member, to manage and operate the Company. In order to foster its success, the Company has determined that it is in the best interests of the Company to employ you on such terms, and over the time period, as more fully described below. Accordingly, you are hereby being offered the position of President and Chief Executive Officer and membership on the Executive Committee on the terms and conditions set forth below. If you wish to accept this offer, please execute this letter and return it to me. 1. TERM. You will commence employment at the "Effective Time" (as such term is defined in Section 1.02 of the Merger Agreement (the "Commencement Date")). The term ("Term") of this Agreement shall commence on the Commencement Date and shall terminate on the third anniversary thereof. 2. POSITION AND RESPONSIBILITIES. You will be employed as the President and Chief Executive Officer of the Company and serve as a member of the Executive Committee. As such, you shall report to the Board of Directors and your responsibili- ties shall include all duties and responsibilities normally associated with the positions of President and Chief Executive Officer, including, without limitation, line item authority respecting the Company's annual operating budget, manufacturing, sales and distribution of Company products, hiring and termination of all employees (other than R. Lindsey Duncan, Chairman of the Board of the Company) and product packaging; PROVIDED, HOWEVER, that any dispute between you and the Chairman of the Board with respect to management policy shall be resolved, in the first instance, by the Executive Committee of the Board of Directors, which shall be comprised of you, R. Lindsey Duncan and a third non-employee director to be mutually agreed upon by you and Mr. Duncan; PROVIDED, FURTHER, HOWEVER, if the Executive Committee fails to reach a decision or if any such decision is reached and either you or the Chairman of the Board disagree with such decision, either you or the Chairman of the Board can convene a special meeting of the Board of Directors at which meeting the dispute shall be resolved by the Board. In addition, you will be the chief spokesperson for the Company respecting financial and business matters. You shall have your own office at the executive offices of the Company in Culver City, CA and will be expected to travel on Company business consistent with your duties. You agree to devote a majority of your business time, attention, skill and efforts to the faithful performance of your duties hereunder and shall not accept employment elsewhere during the Term. You may (a) serve on corporate, civic or charitable boards or committees; (b) deliver lectures, fulfill speaking engagements or teach at educational institutions; and (c) manage personal investments, so long as such activities do not significantly interfere with the performance of your responsibilities hereunder or are not in connection with organizations whose interests are adverse to the interests of the Company. You agree at all times to conduct yourself in such manner as not to prejudice the reputation of the Company in the fields of business in which it is engaged or with the public at large. 3. COMPENSATION. In consideration for the performance of your services under this Agreement, during the Term you shall be entitled to the following compensation: (a) BASE SALARY. You shall receive a base salary (the "Base Salary"), payable in substantially equal monthly installments, in arrears, for each month of the Term at the annual rate of $350,000. Each year after December 31, 1998 the Base Salary shall be reviewed by the Board of Directors of the Company. The Base Salary level and any increases thereto shall not be decreased during the Term. (b) ANNUAL BONUS. In addition to the Base Salary, you shall be paid, for each fiscal year of the Term, an annual bonus (the "Annual Bonus"), in the form of either cash or stock or some combination thereof, based on an amount equal to 2% 2 of the consolidated earnings before income taxes of the Company in excess of $6,000,000. Each such Annual Bonus shall be paid to you, in the form of cash, stock, or a combination of the two, on or before March 31st of the fiscal year immediately following the fiscal year for which the Annual Bonus is earned. (c) RETIREMENT AND WELFARE AND BENEFIT PLANS. You shall be entitled to participate in all retirement and welfare, benefit, fringe, perquisite and other plans and programs applicable generally to other key executives of the Company in effect at any time. The Company agrees to cause any preexisting condition exception in the medical insurance plan to be waived to insure continuous medical coverage of any member of your family. You shall also be entitled to long-term disability, accidental death and dismemberment, frequent flyer mileage and business travel accident benefits in an amount and upon terms and conditions consistent with your employer-provided coverage as of the date of this Agreement. (d) EXPENSES. You shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in the performance of your duties for the Company, which shall be paid to you in accordance with the policies and procedures of the Company as is then generally in effect. 4. TERMINATION OF EMPLOYMENT. (a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. In the event that the Company terminates this Agreement with Cause (as defined below) or you terminate this Agreement without Good Reason (as defined below), all of your rights and benefits under this Agreement, including your right to salary, bonus payments (except for payment of any Base Salary or Annual Bonus earned prior to the date of termination but not yet paid to you), benefits (except as may required to be continued by law or contract), unvested restricted stock awards and stock options shall cease effective the date of such termination. You shall not be entitled to the payment of any pro rata amount of any bonus if the date of termination occurs before the last day of the quarter of any fiscal year. (b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. In the event the Company terminates this Agreement without Cause or you terminate this Agreement with Good Reason, all of your rights and benefits under this Agreement and all such unvested restricted stock awards and stock options shall continue in full force and effect in accordance with their terms until the expiration date of this Agreement; PROVIDED, HOWEVER, that you shall be required to give written notice to the Company of your intention to terminate your employment for Good Reason and your termination of employment shall be effective only if, during the 30-day period after such notice is delivered to the Company, the Company has not corrected the circumstances constituting Good Reason. In such event, your compensation shall be paid to you 3 during the remainder of the Term at the same time as such amounts would have been paid if you had continued to be employed by the Company. (c) CAUSE. As used herein, the Company shall have "Cause" to terminate this Agreement upon (i) your willful and continued failure to substantially perform your duties under this Agreement (other than any such failure resulting from your death or disability), after written demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes you have not substantially performed your duties, (ii) your embezzlement of funds of the Company, or (iii) your conviction of a felony. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless done or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in or not opposed to the best interests of Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause under any circumstances without (i) reasonable written notice to you setting forth the reasons for the Company's intention to terminate for Cause (the "Initial Notice"), (ii) a thirty (30) day period following your receipt of the notice to cure the alleged reasons described in the Notice, (iii) a written notice to you following the thirty-day cure period referred to in the preceding clause (iv) stating whether the Company continues to intend to terminate for Cause and setting forth the reasons therefor (the "Follow Up Notice"), (v) an opportunity for you, together with your counsel, following your receipt of the Follow Up Notice, to be heard before a committee of three members of the Company's Board of Directors (none of whom are employees of the Company) and (vi) delivery to you of a Notice of Termination from such committee of three non-employee members of Company's Board of Directors finding that in the good faith opinion of such committee, you were guilty of conduct set forth above in clause (i), (ii) or (iii) of the preceding sentence and specifying the particulars thereof in detail. (d) GOOD REASON. As used herein, you shall have "Good Reason" to resign from employment with the Company if (i) a Change in Control (as defined below) of the Company shall occur, (ii) the Company fails to comply with any material provision of this Agreement, (iii) the Company purports to terminate employment other than pursuant to a valid Notice of Termination following the procedure set forth in the definition of "Cause", (iv) your duties, authority or responsibilities are altered from those described in this Agreement, (v) you are required to relocate to a location more than 20 miles from the executive headquarters of the Company in Culver City, CA, (vi) you determine, in good faith, that the policies and/or actions of management are reasonably likely to violate legal requirements or will materially adversely affect the Company or its shareholders, or (vii) your disability. As used herein, you shall be considered disabled if, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties as described in this Agreement for the entire period of ninety (90) consecutive days. 4 (e) CHANGE IN CONTROL. As used herein, a "Change in Control" of the Company shall mean a change of control of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"), provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than any existing officer or director of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities. (f) DEATH BEFORE END OF TERM. If you die prior to the expiration of the Term, your employment shall terminate as of the date of your death and the Company shall be under no obligation to make additional payments of compensation to your estate after the date of termination except, however, for any compensation earned prior to the date of termination but not yet paid and a pro rata portion (based on the number of days in the fiscal year preceding your date of death) of the Annual Bonus payable with respect to the fiscal year of your death. The Company shall also continue to provide any benefits to your survivors as required by law or as required by the terms of any life insurance or other death benefit programs in which you participated at the time of your death. 5. CONFIDENTIALITY, NON COMPETITION AND NON INTERFERENCE. You agree to abide by the following covenants at all times during the Term and, unless this Agreement is terminated without Cause or for Good Reason, for one year thereafter (the "Restricted Period") as regards the covenants set forth in subparagraphs (a), (e), (f) and (g) below: (a) CONFIDENTIALITY OF PROPRIETARY INFORMATION. You acknowledge that the Company possesses and will continue to possess information that has been created, discovered or developed by the Company (including without limitation information created, discovered, developed, or made known by you during the period of or arising out of your employment by the Company) and/or in which property rights have been assigned or otherwise conveyed to the Company, relating to the business of the Company (collectively, "Proprietary Information"). At all times, both during the Term of this Agreement and after its termination, you will keep in confidence and trust all Proprietary Information unless such Proprietary Information enters the public domain not as a result of any breach of your obligations to the Company, and you will not use or disclose any Proprietary Information or anything directly relating to it without the written consent of the Company, except as may be necessary to comply with law or 5 in the ordinary course of performing your duties as an employee of the Company and only for the benefit of the Company. (b) DELIVERY OF DOCUMENTS. In the event of the termination of your employment by you or by the Company for any reason, you will deliver to the Company all documents of any nature pertaining to your work with the Company in your possession or control and you will not take with you or deliver to anyone else any documents of any description or any reproduction of any description containing or pertaining to any Proprietary Information. (c) DISCLOSURE OF INVENTIONS. You will promptly disclose to the Company, or any persons designated by it, all improvements, inventions, designs, discoveries, trademarks, copyrights, formulae, manufacturing technology and other proprietary technical data, whether or not patentable, made or reduced to practice or learned by you, either alone or jointly with others, during the Term of this Agreement (whether or not during normal working hours) that are required for use in the business of the Company, or result from use of premises or equipment owned, leased, or contracted for by the Company (all said improvements, inventions, designs, discoveries, trademarks, copyrights, formulae, manufacturing technology and other proprietary technical data, patent applications, continuation applications, continuation-in-part applications, file wrapper continuation applications and divisional applications shall be collectively hereinafter called "Inventions"). (d) ASSIGNMENT OF AND ASSISTANCE ON INVENTIONS. (i) During the Term of this Agreement, you agree to assign to the Company any rights you may have or acquire in all such inventions and agree that all inventions shall be the sole property of the Company, its successors in interest and its assigns, and the Company, its successors in interest and its assigns shall be the sole owner of all patents, copyrights and other rights in connection therewith. You further agree to assist the Company in every proper and reasonable way (but at the Company's expense) to obtain and from time to time enforce patents, copyrights or other rights in said inventions in any and all countries, and to that end you will execute all documents necessary to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same. (ii) In the event the Company is unable, after reasonable effort, to secure your signature on any patent, copyright or other analogous protection relating to an invention, whether because of your physical or mental incapacity, you hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as your agent and attorney-in-fact, to act for and in your behalf and stead to execute and file any such application or applications and to do all other lawfully 6 permitted acts to further the prosecution and issuance of letters patent, copyright or other analogous protection thereon with the same legal force and effect as if executed by you. Your obligation to assist the Company in obtaining and enforcing patents and copyrights for such inventions in any and all countries shall continue beyond the termination of your employment, but the Company shall compensate you at a reasonable rate after such termination for time actually spent by you at the Company's request on such assistance. (e) NO COMPETING EMPLOYMENT. You shall not, unless you receive the prior written consent of seventy five (75%) of the full Board of Directors (other than yourself), directly or indirectly, manage, own, operate, join, control, or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any Competing Business. This covenant shall apply to the geographical territory of the United States of America. It shall not be a violation of this covenant if you and any member of your immediate family is the beneficial owner of up to 5% (in the aggregate) of any outstanding class of equity security issued by any such company. (f) COMPETING BUSINESS. As used herein, a "Competing Business" shall mean any business that competes with the business of either 4Health, Inc. or Irwin Naturals, as each such business is presently being conducted. Notwithstanding the foregoing, nothing shall prohibit you from; (i) owning less than twenty percent (20%) of the equity or similar financial interest of any entity, that operates a Competing Business so long as you shall not have the ability or right to direct or control the management of such competing entity; (ii) acquiring any entity that owns, acquires or participates in the business of owning and operating a Competing Business, unless not greater than twenty five percent (25%) of the annual revenues of such entity in either (x) the calendar year immediately preceding its acquisition by you or, (y) as a result of a disposition or dispositions of certain portions of such entity's business, in the calendar year immediately succeeding such acquisition, are derived from a Competing Business. (g) NO INTERFERENCE. You shall not, whether for your own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company, intentionally solicit, endeavor to entice away from the Company, or otherwise interfere with the relationship of the Company with, any person who is employed by the Company or to intentionally solicit, endeavor to entice away from the Company any customer of the Company (other than any customer in which you currently have an equity interest). 7 6. MITIGATION OF DAMAGES. If your employment is terminated without Cause or you resign for Good Reason, you shall be under no obligation to make reasonable efforts to mitigate damages by seeking any other employment. 7. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that you shall not be able to assign your obligation to perform services under this Agreement. 8. NOTICE. Any notice hereunder by either party to the other shall be given in writing by personal delivery, telex, telecopy or certified mail, return receipt requested, to the applicable address first set forth below (or such other address as may from time to time be designated by notice by any party hereto for such purpose): If to the Company: 4Health, Inc. 10549 W Jefferson Blvd. Culver City, CA 90232 Attention: Company Secretary If to you: Mr. Klee Irwin 10549 W. Jefferson Blvd. Culver City, CA 90232 Notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by telex or telecopy, on the business day following receipt of answer back or telecopy confirmation or, if by certified mail, on the date shown on the applicable return receipt. 9. AMENDMENT AND WAIVER. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by you and the Chairman of the Board after he has obtained the consent of at least a majority of the members of the full Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8 10. CAPACITY. In your good faith judgment you do not believe that you are subject to any agreement or under any obligation that would conflict with the terms of this Agreement or prevent you from carrying out your responsibilities under this Agreement. 11. MERGER OF PRIOR NEGOTIATIONS. This Agreement sets forth all of the promises, agreements, conditions and understandings between the parties hereto respecting the subject matter hereto and supersedes all prior negotiations, conversations, discussions, correspondence, memoranda and agreements between the parties concerning such subject matter. 12. PARTIAL INVALIDITY. If the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term or provision hereof is invalid or unenforceable, (a) the remaining term and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 13. GOVERNING LAW. This Agreement is to be governed by and interpreted in accordance with the laws of the State of California. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having 9 jurisdiction; PROVIDED, HOWEVER, that you shall be entitled to seek in any court specific performance of your right to be paid until the date of termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 4HEALTH, INC. By: /s/ R. Lindsey Duncan --------------------- R. Lindsey Duncan Chairman of the Board Accepted this 30th day of June, 1998 /s/ Klee Irwin ---------- Klee Irwin 10 4HEALTH, INC. June 30, 1998 Mr. R. Lindsey Duncan 10549 W. Jefferson Blvd. Culver City, CA 90232 Dear Mr. Duncan: As you know, as part of the transaction in which Mr. Klee Irwin and his wife, as the shareholders of Irwin Naturals ("IN"), will acquire approximately 57% (on a fully diluted basis) of the total issued and outstanding shares of common stock of 4Health, Inc. (the "Company"), as more fully described in that certain Amended and Restated Agreement and Plan of Merger dated as of May 22, 1998 (the "Merger Agreement"), among the Company, IN, and Mr. Irwin, the Company is to form an Executive Committee of its Board of Directors, of which you are to be a member, to manage and operate the Company. In order to foster its success, the Company has determined that it is in the best interests of the Company to employ you on such terms, and over the time period, as more fully described below. Accordingly, you are hereby being offered the position of Chairman of the Board and membership on the Executive Committee on the terms and conditions set forth below. If you wish to accept this offer, please execute this letter and return it to me. 1. TERM. You will commence employment at the "Effective Time" (as such term is defined in Section 1.02 of the Merger Agreement (the "Commencement Date")). The term ("Term") of this Agreement shall commence on the Commencement Date and shall terminate on the third anniversary thereof. 2. POSITION AND RESPONSIBILITIES. You will be employed as the Chairman of the Board of the Company and serve as a member of the Executive Committee. As such, you shall report to the Board of Directors and your responsibilities shall include all duties and responsibilities normally associated with the position of Chairman of the Board, and the following specific duties and responsibilities; to direct and supervise public relations, new product concepts, formulations, and research and development and product training, quality control and development of product distribution through health food stores and seminars, including corporate seminars, television, radio and other forms of public media, and to act as the chief spokesperson with respect to all product and marketing matters and co-spokesperson on business matters; PROVIDED, HOWEVER, that any dispute between you and the President and Chief Executive Officer of the Company with respect to management policy shall be resolved, in the first instance, by the Executive Committee of the Board of Directors, which shall be comprised of you, Klee Irwin and a third non-employee director to be mutually agreed upon by you and Mr. Irwin; PROVIDED, FURTHER, HOWEVER, if the Executive Committee fails to reach a decision or if any such decision is reached and either you or the President disagree with such decision, either you or the President can convene a special meeting of the Board of Directors at which meeting the dispute shall be resolved by the Board. You shall have your own office at the executive offices of the Company in Culver City, CA, and will be expected to travel on Company business consistent with your duties and be reimbursed for your travel expenses in accordance with the policies of the Company which shall be no less favorable than the historical policies and practices of the Company prior to the date hereof. You agree to devote a majority of your business time, attention, skill and efforts to the faithful performance of your duties hereunder and shall not accept employment elsewhere during the Term. You may (a) serve on corporate, civic or charitable boards or committees; (b) deliver lectures, fulfill speaking engagements or teach at educational institutions or engage in the activities described in clause (B)(ii) of paragraph 5(f) below; and (c) manage personal investments, including, without limitation, the Home Nutrition Clinics, so long as such activities do not significantly interfere with the performance of your responsibilities hereunder or are not in connection with organizations whose interests are adverse to the interests of the Company (it being acknowledged by the Company that the Home Nutrition Clinics do not pose such an adverse interest). You agree at all times to conduct yourself in such manner as not to prejudice the reputation of the Company in the fields of business in which it is engaged or with the public at large. 3. COMPENSATION. In consideration for the performance of your services under this Agreement, during the Term you shall be entitled to the following compensation: (a) BASE SALARY. You shall receive a base salary (the "Base Salary"), payable in substantially equal monthly installments, in arrears, for each month of the Term at the annual rate of $225,000. Each year after December 31, 1998 the Base Salary shall be reviewed by the Board of Directors of the Company. The Base Salary level and any increases thereto shall not be decreased during the Term. 2 (b) ANNUAL BONUS. In addition to the Base Salary, you shall be paid, for each fiscal year of the Term, an annual bonus (the "Annual Bonus"), in the form of either cash or stock or some combination thereof, based on an amount equal to 2% of the consolidated earnings before income taxes of the Company in excess of $6,000,000. Each such Annual Bonus shall be paid to you, in the form of cash, stock, or a combination of the two, on or before March 31st of the fiscal year immediately following the fiscal year for which the Annual Bonus is earned. (c) RETIREMENT AND WELFARE AND BENEFIT PLANS. You shall be entitled to participate in all retirement and welfare, benefit, fringe, perquisite and other plans and programs applicable generally to other key executives of the Company in effect at any time. The Company agrees to cause any preexisting condition exception in the medical insurance plan to be waived to insure continuous medical coverage of any member of your family. You shall also be entitled to long-term disability, accidental death and dismemberment, frequent flyer mileage and business travel accident benefits in an amount and upon terms and conditions consistent with your employer-provided coverage as of the date of this Agreement. (d) EXPENSES. You shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in the performance of your duties for the Company, which shall be paid to you in accordance with the policies and procedures of the Company as is then generally in effect. 4. TERMINATION OF EMPLOYMENT. (a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. In the event that the Company terminates this Agreement with Cause (as defined below) or you terminate this Agreement without Good Reason (as defined below), all of your rights and benefits under this Agreement, including your right to salary, bonus payments (except for payment of any Base Salary or Annual Bonus earned prior to the date of termination but not yet paid to you), benefits (except as may required to be continued by law or contract), unvested restricted stock awards and stock options shall cease effective the date of such termination. You shall not be entitled to the payment of any pro rata amount of any bonus if the date of termination occurs before the last day of the third quarter of any fiscal year. (b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. In the event the Company terminates this Agreement without Cause or you terminate this Agreement with Good Reason, all of your rights and benefits under this Agreement and all such unvested restricted stock awards and stock options shall continue in full force and effect in accordance with their terms until the expiration date of this Agreement; PROVIDED, HOWEVER, that you shall be required to give written notice to the Company of your intention to terminate your employment for Good Reason and your termination of employment shall be effective only if, during the 30-day period after such notice is 3 delivered to the Company, the Company has not corrected the circumstances constituting Good Reason. In such event, your compensation shall be paid to you during the remainder of the Term at the same time as such amounts would have been paid if you had continued to be employed by the Company. (c) CAUSE. As used herein, the Company shall have "Cause" to terminate this Agreement upon (i) your willful and continued failure to substantially perform your duties under this Agreement (other than any such failure resulting from your death or disability), after written demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes you have not substantially performed your duties, (ii) your embezzlement of funds of the Company, or (iii) your conviction of a felony. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless done or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in or not opposed to the best interests of Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause under any circumstances without (i) reasonable written notice to you setting forth the reasons for the Company's intention to terminate for Cause (the "Initial Notice"), (ii) a thirty (30) day period following your receipt of the notice to cure the alleged reasons described in the Notice, (iii) a written notice to you following the thirty-day cure period referred to in the preceding clause (iv) stating whether the Company continues to intend to terminate for Cause and setting forth the reasons therefor (the "Follow Up Notice"), (v) an opportunity for you, together with your counsel, following your receipt of the Follow Up Notice, to be heard before a committee of three members of the Company's Board of Directors (none of whom are employees of the Company) and (vi) delivery to you of a Notice of Termination from such committee of three non-employee members of Company's Board of Directors finding that in the good faith opinion of such committee, you were guilty of conduct set forth above in clause (i), (ii) or (iii) of the preceding sentence and specifying the particulars thereof in detail. (d) GOOD REASON. As used herein, you shall have "Good Reason" to resign from employment with the Company if (i) a Change in Control (as defined below) of the Company shall occur, (ii) the Company fails to comply with any material provision of this Agreement, (iii) the Company purports to terminate employment other than pursuant to a valid Notice of Termination following the procedure set forth in the definition of "Cause", (iv) your duties, authority or responsibilities are altered from those described in this Agreement, (v) you are required to relocate to a location more than 20 miles from the executive headquarters of the Company in Culver City, CA, (vi) you determine, in good faith, that the policies and/or actions of management are reasonably likely to violate legal requirements or will materially adversely affect the Company or its shareholders, or (vii) your disability. As used herein, you shall be considered disabled if, as a result of your incapacity due to physical or mental illness, 4 you shall have been absent from your duties as described in this Agreement for the entire period of ninety (90) consecutive days. (e) CHANGE IN CONTROL. As used herein, a "Change in Control" of the Company shall mean a change of control of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"), provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than any existing officer or director of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities. (f) DEATH BEFORE END OF TERM. If you die prior to the expiration of the Term, your employment shall terminate as of the date of your death and the Company shall be under no obligation to make additional payments of compensation to your estate after the date of termination except, however, for any compensation earned prior to the date of termination but not yet paid and a pro rata portion (based on the number of days in the fiscal year preceding your date of death) of the Annual Bonus payable with respect to the fiscal year of your death. The Company shall also continue to provide any benefits to your survivors as required by law or as required by the terms of any life insurance or other death benefit programs in which you participated at the time of your death. 5. CONFIDENTIALITY, NON COMPETITION AND NON INTERFERENCE. You agree to abide by the following covenants at all times during the Term and, unless this Agreement is terminated without Cause or for Good Reason, for one year thereafter (the "Restricted Period") as regards the covenants set forth in subparagraphs (a), (e), (f) and (g) below: (a) CONFIDENTIALITY OF PROPRIETARY INFORMATION. You acknowledge that the Company possesses and will continue to possess information that has been created, discovered or developed by the Company (including without limitation information created, discovered, developed, or made known by you during the period of or arising out of your employment by the Company) and/or in which property rights have been assigned or otherwise conveyed to the Company, relating to the business of the Company (collectively, "Proprietary Information"). At all times, both during the Term of this Agreement and after its termination, you will keep in confidence and trust all Proprietary Information unless such Proprietary Information enters the public domain not as a result of any breach of your obligations to the Company, and you will not use 5 or disclose any Proprietary Information or anything directly relating to it without the written consent of the Company, except as may be necessary to comply with law or in the ordinary course of performing your duties as an employee of the Company and only for the benefit of the Company. (b) DELIVERY OF DOCUMENTS. In the event of the termination of your employment by you or by the Company for any reason, you will deliver to the Company all documents of any nature pertaining to your work with the Company in your possession or control and you will not take with you or deliver to anyone else any documents of any description or any reproduction of any description containing or pertaining to any Proprietary Information. (c) DISCLOSURE OF INVENTIONS. You will promptly disclose to the Company, or any persons designated by it, all improvements, inventions, designs, discoveries, trademarks, copyrights, formulae, manufacturing technology and other proprietary technical data, whether or not patentable, made or reduced to practice or learned by you, either alone or jointly with others, during the Term of this Agreement (whether or not during normal working hours) that are required for use in the business of the Company, or result from use of premises or equipment owned, leased, or contracted for by the Company (all said improvements, inventions, designs, discoveries, trademarks, copyrights, formulae, manufacturing technology and other proprietary technical data, patent applications, continuation applications, continuation-in-part applications, file wrapper continuation applications and divisional applications shall be collectively hereinafter called "Inventions"). (d) ASSIGNMENT OF AND ASSISTANCE ON INVENTIONS. (i) During the Term of this Agreement, you agree to assign to the Company any rights you may have or acquire in all such inventions and agree that all inventions shall be the sole property of the Company, its successors in interest and its assigns, and the Company, its successors in interest and its assigns shall be the sole owner of all patents, copyrights and other rights in connection therewith. You further agree to assist the Company in every proper and reasonable way (but at the Company's expense) to obtain and from time to time enforce patents, copyrights or other rights in said inventions in any and all countries, and to that end you will execute all documents necessary to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same. (ii) In the event the Company is unable, after reasonable effort, to secure your signature on any patent, copyright or other analogous protection relating to an invention, whether because of your physical or mental incapacity, you hereby irrevocably designate and appoint the Company and its duly authorized officers and 6 agents as your agent and attorney-in-fact, to act for and in your behalf and stead to execute and file any such application or applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyright or other analogous protection thereon with the same legal force and effect as if executed by you. Your obligation to assist the Company in obtaining and enforcing patents and copyrights for such inventions in any and all countries shall continue beyond the termination of your employment, but the Company shall compensate you at a reasonable rate after such termination for time actually spent by you at the Company's request on such assistance. (e) NO COMPETING EMPLOYMENT. You shall not, unless you receive the prior written consent of seventy five (75%) of the full Board of Directors (other than yourself), directly or indirectly, manage, own, operate, join, control, or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any Competing Business. This covenant shall apply to the geographical territory of the United States of America. It shall not be a violation of this covenant if you and any member of your immediate family is the beneficial owner of up to 5% (in the aggregate) of any outstanding class of equity security issued by any such company. (f) COMPETING BUSINESS. As used herein, a "Competing Business" shall mean any business that competes with the business of either 4Health, Inc. or Irwin Naturals, as each such business is presently being conducted. Notwithstanding the foregoing, (A) nothing shall prohibit you from; (i) owning less than twenty percent (20%) of the equity or similar financial interest of any entity, that operates a Competing Business so long as you shall not have the ability or right to direct or control the management of such competing entity; (ii) acquiring any entity that owns, acquires or participates in the business of owning and operating a Competing Business, unless not greater than twenty five percent (25%) of the annual revenues of such entity in either (x) the calendar year immediately preceding its acquisition by you or, (y) as a result of a disposition or dispositions of certain portions of such entity's business, in the calendar year immediately succeeding such acquisition, are derived from a Competing Business, and (B) neither (i) your Home Nutrition Clinics nor (ii) the production, marketing, distribution, public or private performance (whether on stage or transmitted by means of radio, television or any other means of dissemination, or both) and sale of any books, periodicals and any other publications, video and audio cassettes, CD-ROMS and screen plays and scripts, whether in written, analog, digital, electromagnetic, electronic or in any other medium, format or means or method of transmission, dissemination or performance, and the exploitation of any ancillary rights attributable to any of the foregoing, authored, co-authored, edited, performed in, or in any way produced by you or in which you have an interest, shall be deemed a Competing Business. 7 (g) NO INTERFERENCE. You shall not, whether for your own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), intentionally solicit, endeavor to entice away from the Company, or otherwise interfere with the relationship of the Company with, any person who is employed by the Company or to intentionally solicit, endeavor to entice away from the Company any customer of the Company (other than any customer in which you currently have an equity interest). 6. MITIGATION OF DAMAGES. If your employment is terminated without Cause or you resign for Good Reason, you shall be under no obligation to make reasonable efforts to mitigate damages by seeking any other employment. 7. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that you shall not be able to assign your obligation to perform services under this Agreement. 8. NOTICE. Any notice hereunder by either party to the other shall be given in writing by personal delivery, telex, telecopy or certified mail, return receipt requested, to the applicable address first set forth below (or such other address as may from time to time be designated by notice by any party hereto for such purpose): If to the Company: 4Health, Inc. 10549 W Jefferson Blvd. Culver City, CA 90232 Attention: Company Secretary If to you: Mr. R. Lindsey Duncan 10549 W. Jefferson Blvd. Culver City, CA 90232 Notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by telex or telecopy, on the business day following receipt of answer back or telecopy confirmation or, if by certified mail, on the date shown on the applicable return receipt. 8 9. AMENDMENT AND WAIVER. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by you and the President after he has obtained the consent of at least a majority of the members of the full Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 10. CAPACITY. In your good faith judgment you do not believe that you are subject to any agreement or under any obligation that would conflict with the terms of this Agreement or prevent you from carrying out your responsibilities under this Agreement. 11. MERGER OF PRIOR NEGOTIATIONS. This Agreement sets forth all of the promises, agreements, conditions and understandings between the parties hereto respecting the subject matter hereto and supersedes all prior negotiations, conversations, discussions, correspondence, memoranda and agreements between the parties concerning such subject matter. 12. PARTIAL INVALIDITY. If the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term or provision hereof is invalid or unenforceable, (a) the remaining term and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 13. GOVERNING LAW. This Agreement is to be governed by and interpreted in accordance with the laws of the State of California. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that you shall be entitled to seek in any court specific 9 performance of your right to be paid until the date of termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 4HEALTH, INC. By: /s/ Scott Lusk --------------------- Scott Lusk Director of Finance Accepted this 30th day of June, 1998 /s/ R. Lindsey Duncan ----------------- R. Lindsey Duncan 10 -----END PRIVACY-ENHANCED MESSAGE-----