Document:

Exhibit 10.15

 

EXECUTION VERSION

 

STOCK PURCHASE AGREEMENT

 

by and between

 

NBTY, INC.

 

and

 

ZILA, INC.

 

with respects to all of the
outstanding capital stock

 

of

 

ZILA NUTRACEUTICALS, INC.

 

August 13, 2006

 

 

TABLE OF
CONTENTS

 

 

	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  THE TRANSACTION

  	
   

  	
  1

  	
   

  
	
  1.1

  	
  Purchase and Sale of
  Shares

  	
   

  	
  1

  	
   

  
	
  1.2

  	
  Purchase Price Closing
  Adjustment

  	
   

  	
  2

  	
   

  
	
  1.3

  	
  Contingent Purchase Price

  	
   

  	
  3

  	
   

  
	
  1.4

  	
  Transfer Fees; Recording
  Fees; Taxes

  	
   

  	
  4

  	
   

  
	
  ARTICLE 2

  	
  THE PARTIES’ OBLIGATIONS
  AT THE CLOSING

  	
   

  	
  4

  	
   

  
	
  2.1

  	
  The Closing

  	
   

  	
  4

  	
   

  
	
  2.2

  	
  Seller’s Obligations

  	
   

  	
  5

  	
   

  
	
  2.3

  	
  Buyer’s Obligations

  	
   

  	
  6

  	
   

  
	
  ARTICLE 3

  	
  REPRESENTATIONS,
  WARRANTIES AND INDEMNIFICATION

  	
   

  	
  6

  	
   

  
	
  3.1

  	
  Representations of Seller
  Relating to the Company and the Company Business

  	
   

  	
  6

  	
   

  
	
  3.2

  	
  Representations of Buyer

  	
   

  	
  6

  	
   

  
	
  3.3

  	
  Survival

  	
   

  	
  6

  	
   

  
	
  3.4

  	
  Indemnification by Seller

  	
   

  	
  7

  	
   

  
	
  3.5

  	
  Indemnification by Buyer

  	
   

  	
  9

  	
   

  
	
  3.6

  	
  Time Limitations

  	
   

  	
  9

  	
   

  
	
  ARTICLE 4

  	
  COVENANTS OF SELLER PRIOR
  TO CLOSING DATE

  	
   

  	
  10

  	
   

  
	
  4.1

  	
  Access And Investigation

  	
   

  	
  10

  	
   

  
	
  4.2

  	
  Regulatory and Other
  Approvals

  	
   

  	
  10

  	
   

  
	
  4.3

  	
  Stockholder Meeting; Proxy

  	
   

  	
  10

  	
   

  
	
  4.4

  	
  No Solicitations

  	
   

  	
  11

  	
   

  
	
  4.5

  	
  Conduct of Business

  	
   

  	
  11

  	
   

  
	
  4.6

  	
  Employee Matters

  	
   

  	
  12

  	
   

  
	
  4.7

  	
  Certain Restrictions

  	
   

  	
  13

  	
   

  
	
  4.8

  	
  Affiliate Transactions

  	
   

  	
  14

  	
   

  
	
  4.9

  	
  Books and Records

  	
   

  	
  14

  	
   

  
	
  4.10

  	
  Notice and Cure

  	
   

  	
  15

  	
   

  
	
  4.11

  	
  Fulfillment of Conditions

  	
   

  	
  15

  	
   

  
	
  4.12

  	
  Best Efforts

  	
   

  	
  15

  	
   

  
	
  ARTICLE 5

  	
  COVENANTS OF BUYER PRIOR
  TO CLOSING DATE

  	
   

  	
  16

  	
   

  
	
  5.1

  	
  Approvals of Governmental
  Bodies

  	
   

  	
  16

  	
   

  
	
  5.2

  	
  Best Efforts

  	
   

  	
  16

  	
   

  
	
  ARTICLE 6

  	
  TAX MATTERS

  	
   

  	
  16

  	
   

  
	
  6.1

  	
  Straddle Period

  	
   

  	
  16

  	
   

  
	
  6.2

  	
  Responsibility for Filing
  Tax Returns

  	
   

  	
  16

  	
   

  
	
  6.3

  	
  Refunds and Tax Benefits

  	
   

  	
  17

  	
   

  
	
  6.4

  	
  Contests

  	
   

  	
  17

  	
   

  
	
  6.5

  	
  Cooperation on Tax Matters

  	
   

  	
  18

  	
   

  
	
  6.6

  	
  Tax Sharing Agreements

  	
   

  	
  19

  	
   

  
	
  6.7

  	
  Tax Treatment of
  Indemnification Payments

  	
   

  	
  19

  	
   

  
	
  6.8

  	
  Section 338(h)(10)
  Election

  	
   

  	
  19

  	
   

  
	
  ARTICLE 7

  	
  TERMINATION; ADDITIONAL
  AGREEMENTS

  	
   

  	
  19

  	
   

  
	
  7.1

  	
  Termination

  	
   

  	
  19

  	
   

  
	
  7.2

  	
  Effect of Termination

  	
   

  	
  20

  	
   

  

 

 

	
  7.3

  	
  Fiduciary Duties

  	
   

  	
  20

  	
   

  
	
  7.4

  	
  Books and Records; Post
  Closing

  	
   

  	
  21

  	
   

  
	
  7.5

  	
  Use of Business Name

  	
   

  	
  21

  	
   

  
	
  7.6

  	
  Transaction Expenses

  	
   

  	
  21

  	
   

  
	
  7.7

  	
  Notices

  	
   

  	
  21

  	
   

  
	
  7.8

  	
  Governing Law

  	
   

  	
  22

  	
   

  
	
  7.9

  	
  Assignment

  	
   

  	
  22

  	
   

  
	
  7.10

  	
  Intent to be Binding;
  Entire Agreement

  	
   

  	
  22

  	
   

  
	
  7.11

  	
  Waiver of Provisions

  	
   

  	
  23

  	
   

  
	
  7.12

  	
  Jurisdiction

  	
   

  	
  23

  	
   

  
	
  7.13

  	
  Confidentiality

  	
   

  	
  23

  	
   

  
	
  7.14

  	
  Public Announcements

  	
   

  	
  23

  	
   

  
	
  7.15

  	
  Third Party Beneficiaries

  	
   

  	
  24

  	
   

  

 

	
  EXHIBIT A

  	
  DEFINITIONS

  	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
  REPRESENTATIONS AND WARRANTIES
  OF SELLER

  	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
  REPRESENTATIONS AND
  WARRANTIES OF BUYER

  	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
  PROCEDURE FOR
  INDEMNIFICATION

  	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
  FORM OF SELLER OPINION
  LETTER

  	
   

  	
   

  	
   

  
	
  EXHIBIT F

  	
  FORM OF BUYER OPINION
  LETTER

  	
   

  	
   

  	
   

  
	
  EXHIBIT G

  	
  FORM OF NON-COMPETITION
  AGREEMENT

  	
   

  	
   

  	
   

  

 

 

ii

 

STOCK
PURCHASE AGREEMENT (this “Agreement”) dated as of August 13, 2006 (the “Effective
Date”), by and
between the following parties:

 

•      NBTY, Inc., a Delaware corporation (“Buyer”); and

 

•      Zila, Inc., a Delaware corporation (“Seller”).

 

For purposes of this Agreement, certain capitalized
terms have the meanings ascribed to them in Exhibit A. Other terms are
defined in the body of this Agreement.

 

OVERVIEW

 

WHEREAS,
Seller owns all the issued and outstanding shares of common stock (the “Shares”) of Zila Nutraceuticals, Inc., an
Arizona corporation (the “Company”), constituting all issued and outstanding shares of capital
stock of the Company; and

 

WHEREAS,
the Company engages in the business of manufacturing and marketing nutritional
supplements and cosmetics (collectively, the “Products”), including, without limitation,
Ester-C and Ester-E forms of Products (the “Company Business”); and

 

WHEREAS,
Ester-C and Ester-E are trademarks owned by the Company in certain
jurisdictions and such Ester-C and Ester-E forms of Products are subject to
patents owned or exclusively licensed by the Company in certain jurisdictions
and are manufactured by the Company in accordance with applicable patents
and/or trade secrets and distributed and sold pursuant to trademarks owned or
exclusively licensed by the Company; and

 

WHEREAS,
Seller conducted an extensive auction process for the Company Business, and
Buyer was the highest bidder in such process; and

 

WHEREAS,
by this Agreement Seller desires to sell to the Buyer, and Buyer desires to
purchase from Seller, the Shares in return for cash, in each case upon all the
terms and subject to the conditions set forth herein.

 

NOW,
THEREFORE, in consideration of the promises and mutual agreements and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, Seller and Buyer hereby agree as follows:

 

ARTICLE 1

THE TRANSACTION

 

1.1           Purchase and Sale of Shares.
At the Closing, upon the terms and subject to the conditions of this Agreement,
Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all
of the right, title and interest of Seller in and to the Shares.

 

 

1.2           Purchase Price
Closing Adjustment.

 

(a)           The aggregate
purchase price for the Shares and agreement of the Seller not to compete with
Buyer shall consist of (i) Thirty Seven Million Five Hundred Thousand Dollars
($37,500,000), subject to a working capital adjustment as described in Section
1.2(e) below (the “Closing Date Purchase Price”) and (ii) up to Three Million
Dollars ($3,000,000) payable in accordance with Section 1.3 (the “Contingent
Purchase Price,” and
together with the Closing Date Purchase Price, the “Purchase Price”).

 

(b)           Within ninety (90)
days after the Closing Date, the Company under the direction of the Buyer shall
prepare a balance sheet of the Company as at the close of business on the
Closing Date (the “Closing Date Balance Sheet”). The
Closing Date Balance Sheet shall be prepared in accordance with GAAP applied on
a basis consistent with the Financial Statements.

 

(c)           Within ninety (90)
days after the Closing Date, Buyer shall deliver to the Seller the Closing Date
Balance Sheet, as well as a statement (the “Closing Date Working Capital Statement”), setting forth the Closing Working
Capital and including a detailed computation thereof. The Closing Date Working
Capital Statement shall be prepared in accordance with GAAP applied on a basis
consistent with the Financial Statements. At the request of Seller, Buyer shall
deliver to Seller with its delivery of the Closing Date Working Capital
Statement copies of all working papers in Buyer’s possession relevant to Buyer’s
determination of Closing Working Capital.

 

(d)           Unless the Seller,
within thirty (30) days after receipt of the Closing Date Balance Sheet and
Closing Date Working Capital Statement, gives the Buyer a written notice
objecting thereto and specifying, in detail, the basis for such objection and
the amount in dispute (“Notice of Objection”), such Closing Date Balance Sheet and
Closing Date Working Capital Statement shall be considered accepted and binding
upon the Buyer and the Seller. If, within thirty (30) days after the receipt of
the Closing Date Balance Sheet and Closing Date Working Capital Statement, the
Seller gives a Notice of Objection to the Buyer and all matters set forth
therein are not resolved within twenty-one (21) days after the Buyer’s actual
receipt of such notice, the disputed items shall be submitted to arbitration
under the Commercial Arbitration Rules of the American Arbitration Association
(the “AAA
Rules”). The arbitration shall be held in Dallas, Texas
before a single arbitrator, who shall be a certified public accountant,
selected in accordance with the AAA Rules (the arbitrator being hereinafter
referred to as the “Arbitrating Accountant”). The Arbitrating Accountant shall
afford each of the Buyer and its representatives and the Seller and its
representatives up to 30 days in the aggregate to present their positions as to
the disputed items. The Arbitrating Accountant shall resolve all disputed items
in a written determination to be delivered within 15 days following the end of
the submission period. Such resolution shall be final and binding upon the
parties and shall be reflected in any necessary revisions to the Closing Date
Balance Sheet. The fees, costs and expenses of the Arbitrating Accountant shall
be paid by the Buyer and the Seller in inverse proportion to the results of the
prevailing party on the disputed items resolved by the Arbitrating Accountant.
Such proportional allocations

 

2

 

shall
be determined by the Arbitrating Accountant at the time its determination is
rendered on the disputed items.

 

(e)           If the Closing
Working Capital, as agreed upon by the parties or as finally determined by the
Arbitrating Accountant is greater or less than the Target Working Capital, then
the Purchase Price shall be increased by the amount of the excess or decreased
by the amount of the shortfall, as the case may be. Any excess shall be paid by
the Buyer to the Seller within seven (7) days of the final determination of the
Closing Working Capital by wire transfer of immediately available funds. Any
shortfall shall be paid by the Seller to the Buyer within seven (7) days of the
final determination of the Closing Working Capital by wire transfer of
immediately available funds.

 

1.3           Contingent Purchase Price.

 

(a)           In addition to the
Closing Date Purchase Price and subject to the terms, conditions, and
limitations set forth in this Section 1.3, Seller shall be entitled to
the Contingent Purchase Price, provided that during the one-year period
following the Closing Date (the “Measurement Period”), the Company generates the EBITDA
Target (as defined below) during the Measurement Period. Within 90 days of the
first anniversary of the Closing Date, Buyer shall prepare and deliver to
Seller a statement (the “Earn Out Closing Statement”) showing the EBITDA calculation
during the Measurement Period with respect to Buyer’s operation of the Company
Business (without regard to any revenue generated or losses incurred as a
result of subsequent acquisitions or dispositions by Buyer relating to or in
connection with the on-going operations of the Company Business following the
Closing Date) as determined by Buyer in accordance with GAAP. At the request of
Seller, Buyer shall deliver to Seller with its delivery of the Earn Out Closing
Statement copies of all working papers in Buyer’s possession relevant to Buyer’s
determination of the Company Business’ EBITDA for the Measurement Period.

 

(b)           If EBITDA during the
Measurement Period as reflected on the Earn Out Closing Statement is less than
or equal to Fourteen Million Dollars $14,000,000 (the “EBITDA Target”), Seller shall not be entitled to any
of the Contingent Purchase Price. If EBITDA during the Measurement Period as
reflected on the Earn Out Closing Statement exceeds the EBITDA Target, Seller
shall be entitled to Contingent Purchase Price in the amount based on the
calculation set forth in the table below, subject to a maximum of $3,000,000 in
Contingent Purchase Price; it being understood and agreed that the Contingent Purchase
Price shall not exceed $3,000,000 in the aggregate regardless of EBITDA level:

 

	
  EBITDA

  	
   

  	
  Contingent Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  $14,000,001 to $15,000,000

  	
   

  	
  10% of the difference between EBITDA and $14,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  $15,000,001 to $16,000,000

  	
   

  	
  20% of the difference between EBITDA and $15,000,000

  	
   

  

 

3

 

	
  $16,000,001 to
  $17,000,000

  	
   

  	
  30% of the difference
  between EBITDA and $16,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  $17,000,001 to
  $18,000,000

  	
   

  	
  40% of the difference
  between EBITDA and $17,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  $18,000,001 to
  $20,000,000

  	
   

  	
  100% of the difference
  between EBITDA and $18,000,000.

  	
   

  

 

In the event Buyer does not receive written notice from Seller
disputing its calculation of the amount set forth on the Earn Out Closing
Statement within thirty (30) days following Buyer’s delivery of the same to
Seller, Seller shall be deemed to have agreed to such calculation and to the
resulting Contingent Purchase Price payment (if any).

 

(c)           Buyer shall pay
Seller the Contingent Purchase Price by wire transfer in immediately available
funds within seven (7) days following the final determination of the Contingent
Purchase Price, to an account specified in writing by Seller.

 

(d)           During the
Measurement Period, unless otherwise agreed to by Buyer and Seller, Buyer
agrees (i) to use reasonable commercial efforts to cause the Company to operate
consistent with Buyer’s other subsidiaries; (ii) not impose any “home office,”
overhead or other similar charge on the Company that is not generally imposed on
Buyer’s other subsidiaries and (iii) that if the Company is combined,
consolidated, merged or liquidated, that Buyer will create and maintain books
and records sufficient to enable Buyer and Seller to determine the Contingent
Purchase Price.

 

(e)           Any disputes arising
with respect to the application of this Section 1.3 shall be resolved in
the same manner as set forth in Section 1.2(d).

 

1.4           Transfer Fees; Recording Fees;
Taxes. Seller will pay all transfer and assumption fees and expenses and
all sales, use, value added or similar taxes, if any, arising out of the
transfer of the Shares. Seller will, at its own expense, file all necessary Tax
Returns and other documentation with respect to all such taxes and fees with
respect to such transfer of Shares and, if required by Applicable Law, Buyer
will and will cause its Affiliates or any Related Party to, join in the
execution of any such Tax Returns and other documentation. Seller shall cause
to be recorded, and shall pay for all fees and expenses necessary to record,
all recordable Intellectual Property Assets currently in the name of any
predecessor of the Company to be recorded in the name of Zila Nutraceuticals,
Inc. All fees and expenses necessary to record any further changes in title or
name of the Intellectual Property Assets shall be borne by Buyer.

 

ARTICLE 2

THE PARTIES’ OBLIGATIONS AT THE CLOSING

 

2.1           The Closing. Subject to the
terms and conditions of this Agreement, the sale and purchase of the Shares
contemplated by this Agreement shall take place at a closing (“Closing”)
at the offices of the Seller at 9:00 a.m., Arizona time, on the third
business day after Stockholder Approval is received and all other conditions to
Closing are met or waived (the “Closing Date”),

 

4

 

or at such other place or at such other time or date as the Seller and
Buyer may mutually agree upon in writing.

 

2.2           Seller’s Obligations. At the
Closing, Seller will deliver to Buyer or accomplish the following:

 

•                                          Seller will assign and transfer to Buyer good
and valid title in and to the Shares, free and clear of all Encumbrances, by
delivery to Buyer stock certificates evidencing the Shares, in genuine and
unaltered form, duly endorsed in blank, or accompanied by stock powers duly executed
in blank;

 

•                                          all required third-party and governmental
consents that if not obtained would result in a Material Adverse Effect;

 

•                                          a true and complete copy, certified by the
Secretary of Seller, of the resolutions duly and validly adopted by the Board
of Directors and stockholders of Seller evidencing their authorization of the
execution and delivery of this Agreement, the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby;

 

•                                          a certificate of a duly authorized officer of
Seller certifying as to the accuracy in all respects of the matters set forth
in Exhibit B, as if made on the Closing Date (such certificate shall be
deemed to become a part of this Agreement);

 

•                                          the Transaction Documents (as applicable),
duly executed by an authorized officer of Seller and/or the Company, as
applicable;

 

•                                          evidence of payment in full of all third
party indebtedness (other than Capital Leases) of the Company and all
intercompany indebtedness of the Company;

 

•                                          resignation letters for those officers and
directors of the Company that are set forth on Schedule 1 of the Disclosure
Letter;

 

•                                          opinion of counsel to the Seller,
substantially in the form attached hereto as Exhibit E;

 

•                                          either (i) a properly executed statement satisfying
the requirements of Treas. Reg. Sees. 1.897-2(h) and 1.1445-2(c)(3) in a form
reasonably acceptable to Buyer or (ii) a certificate of non-foreign status
satisfying the requirements of Treas. Reg. Sec. 1.1445-2(b) in a form
reasonably acceptable to Buyer; and

 

•                                          a properly executed IRS Form 8023.

 

5

 

2.3           Buyer’s Obligations. At the
Closing, Buyer will deliver to Seller the following:

 

•                                          Thirty Seven Million Five Hundred Thousand
Dollars ($37,500,000) by wire transfer in immediately available funds. Seller
shall designate the bank account or accounts for such payment at least two (2)
business days prior to the Closing;

 

•                                          all required third-party and governmental
consents;

 

•                                          a true and complete copy, certified by the
Secretary of the Buyer, of the resolutions duly and validly adopted by the
Board of Directors of the Buyer evidencing its authorization of the execution
and delivery of this Agreement, the Transaction Documents and the consummation
of the transactions contemplated hereby and thereby;

 

•                                          a certificate of a duly authorized officer of
the Buyer certifying as to the accuracy in all respects of the matters set
forth in Exhibit C, as if made as of the Closing Date (such certificate
shall be deemed to become a part of this Agreement);

 

•                                          the Transaction Documents (as applicable),
duly executed by an authorized officer of Buyer; and

 

•                                          opinion of counsel to Buyer, substantially in
the form attached hereto as Exhibit F.

 

ARTICLE 3

REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION

 

3.1           Representations of Seller Relating
to the Company and the Company Business. Concurrently with the signing of
this Agreement, Seller has prepared a Disclosure Letter that discloses certain
information to Buyer (the “Disclosure Letter”). Seller
acknowledges that Buyer is relying on the accuracy of the representations and
warranties contained in Exhibit B. Accordingly, Seller warrants to Buyer
that each of the representations and warranties contained in Exhibit B,
as modified by the Disclosure Letter, are true and correct as of the date
hereof and the Closing Date.

 

3.2           Representations of Buyer.
Buyer acknowledges that Seller is relying on the accuracy of the
representations and warranties contained in Exhibit C. Accordingly, Buyer
warrants to Seller that each of the representations and warranties contained in
Exhibit C are true and correct as of the date hereof and the Closing
Date.

 

3.3           Survival. All representations,
warranties, covenants, and obligations in this Agreement, the certificates
delivered pursuant to Sections 2.2 and 2.3, and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing, subject to Section 3.6 hereof. The right of either party hereto
to indemnification, payment for Losses or other remedy based on such
representations, warranties, covenants, and obligations will not be

 

6

 

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 or before or after 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 for Losses, or other remedy based on such
representations, warranties, covenants, and obligations.

 

3.4           Indemnification by Seller.

 

(a)             Seller
agrees to indemnify and hold Buyer and its representatives, stockholders,
officers, directors and Affiliates (the “Buyer Parties”) harmless from and against
any Loss (excluding any Loss Buyer may suffer after the end of any applicable survival
period) arising directly or indirectly from or in connection with:

 

(i)            a breach by Seller
of any representation or warranty made by Seller in this Agreement, the Disclosure
Letter or other document or certificate delivered pursuant to this Agreement or
the Transaction Documents; or

 

(ii)           a breach by Seller
of any of its other obligations or covenants contained in this Agreement, any
Transaction Document or other document delivered in connection herewith or
therewith; or

 

(iii)          any claim by any
Person for brokerage or finder’s fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any such
Person with Seller or the Company (or any Person acting on their behalf) in
connection with any of the transactions contemplated herein.

 

(b)           In addition to the
provisions of Section 3.4(a), Seller will indemnify and hold harmless
the Buyer Parties for, and will pay to the Buyer Parties the amount of, any Losses
(including costs of cleanup, containment, or other remediation) arising,
directly or indirectly, from or in connection with:

 

(i)            any Environmental,
Health, and Safety Liabilities arising out of or relating to: (i) (A) the ownership,
operation, or condition at any time on or prior to the Closing Date of the
Facility or any of the Environmental Properties, or (B) any Hazardous Materials
or other contaminants that were present at the Facility or any of the
Environmental Properties at any time on or prior to the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by the Seller on behalf of the Company or in connection with
Company Business, the Company or by any other Person for whose conduct they are
responsible or are alleged to be responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by the Seller on behalf of the Company or in connection with

 

7

 

Company
Business, the Company or by any other Person for whose conduct they are or may
be held responsible; or

 

(ii)           any bodily injury
(including illness, disability, and death, and regardless of when any such
bodily injury occurred, was incurred, or manifested itself), personal injury,
property damage (including trespass, nuisance, wrongful eviction, and
deprivation of the use of real property), or other damage of or to any Person,
including any employee or former employee of the Company or any other Person
for whose conduct the Seller or the Company is responsible, in any way arising
from or allegedly arising from any Hazardous Activity conducted or allegedly
conducted with respect to the Facility or the operation of the Company Business
prior to the Closing Date, or from Hazardous Material that was (i) present or
suspected to be present on or before the Closing Date on or at the Facility (or
present or suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from the Facility and was present or
suspected to be present on the Facility on or prior to the Closing Date) or
(ii) Released or allegedly Released by Seller or the Company or any other
Person for whose conduct they are or may be held responsible, at any time on or
prior to the Closing Date.

 

Buyer will be entitled to control any
Cleanup, any related Proceeding, and, except as provided in Section 3.4(c),
any other Proceeding with respect to which indemnity may be sought under this Section
3.4(b); provided, however, that Buyer shall obtain the prior written
consent of Seller prior to expending any amount in excess of $25,000 on such
Cleanup, with such consent not to be unreasonably withheld.

 

(c)           Notwithstanding the
foregoing, but subject to the last sentence of this Section 3.4(c),
Seller shall not have any obligation to indemnify Buyer Parties until Buyer
Parties have suffered Losses (in the aggregate) in excess of Five Hundred
Thousand Dollars ($500,000) (the “Threshold Amount”) and then Seller
shall indemnify Buyer Parties for all amounts by which the Losses exceed the
Threshold Amount. The aggregate amount of payments made by Seller in
satisfaction of Losses shall not exceed 50% of the Purchase Price (the “Cap”). Notwithstanding the foregoing, Losses resulting from
a breach of any of paragraph 6 of Exhibit B (relating to Title to the
Company Business; Encumbrances; Sufficiency of Assets), paragraph 8 of Exhibit
B (relating to Tax Matters), paragraph 11 of Exhibit B (relating to
Capitalization; Ownership of Shares; Subsidiaries), paragraph 19 of Exhibit
B (relating to Employee Benefits), paragraph 22 of Exhibit B
(relating to Environmental Matters) or paragraph 25 of Exhibit B
(relating to Intellectual Property; Licenses) shall not be subject to the Cap
or Threshold Amount, and Seller shall indemnify Buyer Parties for any such
Losses from the first dollar of such Loss up to the amount of the Purchase
Price.

 

(d)           Notwithstanding
anything to the contrary in this Agreement, Seller will indemnify and hold
harmless the Buyer Parties for any Loss relating to or arising out of the
Landes matter described on Schedule 9 of the Disclosure Letter and such matter
shall not be subject to the Threshold Amount or the Cap; provided, however,
that Seller shall

 

8

 

be
entitled to retain control of any suits, claims, actions, arbitrations,
investigations, or proceedings entered against the Company or Seller relating
to such matter.

 

(e)           The procedures for
bringing an indemnity claim are set forth in Exhibit D.

 

3.5           Indemnification by Buyer.

 

(a)           Buyer agrees to
indemnify and hold Seller and its representatives harmless from and against any
Loss incurred by Seller in connection with or alleged to result from the
following:

 

(i)            a breach by Buyer
of any representation or warranty made pursuant to Section 3.2 above or
otherwise in this Agreement or other document or certificate delivered pursuant
to this Agreement or the Transaction Documents; or

 

(ii)           a breach by Buyer
of any of its obligations or covenants contained in this Agreement, any
Transaction Document or other document delivered in connection herewith or
therewith; or

 

(iii)          any claim by any
Person for brokerage or finder’s fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any such
Person with Buyer (or any Person acting on their behalf) in connection with any
of the transactions contemplated herein.

 

(b)           Buyer shall not have
any obligation to indemnify Seller until Seller has suffered Losses (in the
aggregate) in excess of the Threshold Amount.

 

3.6           Time
Limitations.

 

(a)           If the Closing occurs,
Seller will have liability (for indemnification and otherwise) with respect to
any breach of (i) a covenant or obligation to be performed or complied with
prior to the Closing Date, for which a claim may be made at any time prior to
the date of expiration of the statue of limitations applicable to such claim;
or (ii) a representation or warranty (other than those in Exhibit B
paragraphs 6, 8, 11, 19, 22 and 25, as to which a claim may be made at any time
prior to the date of expiration of the statue of limitations applicable to the
statute, regulation or other authority which gave rise to such Loss), only if,
with regards to subsection (ii) of this Section 3.6, on or before the
second anniversary of the Closing Date, Buyer notifies Seller in writing of a claim
specifying the factual basis of the claim in reasonable detail to the extent
then known by Buyer.

 

(b)           If the Closing
occurs, Buyer will have liability (for indemnification and otherwise) with
respect to any breach of (i) a covenant or obligation to be performed or
complied with prior to the Closing Date, for which a claim may be made at any
time prior to the date of expiration of the statue of limitations applicable to
such claim; or (ii) a representation or warranty only if on or before the
second anniversary of the Closing Date, Seller notifies Buyer in writing of a
claim specifying the factual basis of the claim in reasonable detail to the
extent then known by Seller.

 

9

 

(c)           Absent fraud or
malicious intent, the sole and exclusive remedies for breach of this Agreement
are specified in Section 3.4, Section 3.5, and Section 3.6.

 

ARTICLE 4

COVENANTS OF SELLER PRIOR TO CLOSING DATE

 

4.1           Access
and Investigation. Between the Effective Date and the Closing Date, Seller
will, and will cause the Company and its representatives to, (a) afford Buyer
and its officers, directors, employees, agents, counsel, accountants, financial
advisors, consultants and other representatives (collectively, “Buyer’s
Advisors”) full and free access to the Company’s personnel,
properties, contracts, books and records, and other documents and data
pertaining to the Company Business, provided, however, that any such access
cannot unreasonably interfere with Company Business, (b) furnish Buyer and
Buyer’s Advisors with copies of all such contracts, books and records, and
other existing documents and data pertaining to the Company Business as Buyer
may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such
additional financial, operating, and other data and information as Buyer may
reasonably request.

 

4.2           Regulatory
and Other Approvals. Seller will, and will cause the Company to, (a) take
all commercially reasonable steps necessary and proceed diligently and in good
faith and use all commercially reasonable efforts, as promptly as practicable
to obtain all consents, approvals or actions of, to make all filings with and
to give all notices to any Governmental Body or any other Person required of
Seller or the Company to consummate the transactions contemplated hereby and by
the Transaction Documents, including, without limitation, those described in
the Disclosure Letter, (b) provide such other information and communications to
such Governmental Body or other Person as Buyer or such Governmental Body or
other Person may reasonably request in connection therewith and (c) cooperate
with Buyer as promptly as practicable in obtaining all consents, approvals or
actions of, making all filings with and giving all notices to the appropriate
Governmental Body or other Person required of Buyer to consummate the
transactions contemplated hereby and by the Transaction Documents. Seller will
provide prompt notification to Buyer when any such consent, approval, action,
filing or notice referred to in clause (a) above is obtained, taken, made or
given, as applicable, and will advise Buyer of any communications (and, unless
precluded by law, provide copies of any such communications that are in
writing) with any Governmental Body or other Person regarding any of the
transactions contemplated by this Agreement or the Transaction Documents.
Seller shall not agree to participate in any meeting with any Governmental Body
in respect of any filings, investigation or other inquiry unless it consults
with Buyer in advance and, to the extent permitted by such Governmental Body,
gives Buyer the opportunity to attend and participate in such meeting.

 

4.3           Stockholder
Meeting; Proxy.

 

(a)  As promptly as practicable
following the Effective Date, the Seller, acting through its Board of
Directors, shall, in accordance with Applicable Law and the Seller’s current
certificate of incorporation and by-laws:

 

10

 

(i)            duly call, give
notice of, convene and hold an annual or special meeting of the Seller’s
stockholders for the purposes of obtaining the Stockholder Approval (the “Seller
Stockholders Meeting”); and

 

(ii)           in consultation
with Buyer, prepare and file with the SEC a preliminary proxy or information
statement relating to this Agreement and obtain and furnish the information
required by the SEC to be included in the definitive proxy statement and, after
consultation with Buyer, respond promptly to any comments made by the SEC with
respect to the preliminary proxy or information statement and cause a
definitive proxy or information statement (together with all amendments,
supplements and exhibits thereto, the “Proxy Statement”)
to be mailed to the Seller’s stockholders of record at the earliest practicable
date; provided that no amendments or supplements to the Proxy Statement shall
be made by the Seller without consultation with Buyer. Buyer shall provide the
Seller with such information with respect to Buyer and its Affiliates as shall
be required to be included in the Proxy Statement.

 

(b) Without limiting any other provision of this Agreement, whenever
any party hereto becomes aware of any event or change which is required to be
set forth in an amendment or supplement to the Proxy Statement, such party
shall promptly inform the other parties thereof and each of the parties shall
cooperate in the preparation, filing with the SEC and (as and to the extent
required by applicable federal securities laws) dissemination to the Seller’s
stockholders of such amendment or supplement.

 

4.4           No
Solicitations. Subject to Section 7.3, Seller will not take, nor
will it permit the Company, or any Affiliate of Seller or the Company (or
authorize or permit any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of Seller,
the Company or any such Affiliate) to take, directly or indirectly, any action
to initiate, assist, solicit, receive, negotiate, encourage or accept any offer
or inquiry from any Person (a) to engage in any Business Combination with the
Company, (b) to reach any agreement or understanding (whether or not such
agreement or understanding is absolute, binding, revocable, contingent or
conditional) for, or otherwise attempt to consummate, any Business Combination
with the Company or (c) to furnish or cause to be furnished any information
with respect to the Company to any Person (other than as contemplated by Section 4.1)
who Seller, the Company, or such Affiliate (or any such Person acting for or on
their behalf) knows or has reason to believe is in the process of considering
any Business Combination with the Company. If Seller, the Company or any such
Affiliate (or any such Person acting for or on their behalf) receives from any
Person (other than Buyer or any other Person referred to in Section 4.1)
any offer, inquiry or informational request referred to above, Seller will
promptly advise such Person, by written notice, of the terms of this Section 4.4,
and will promptly, orally and in writing, advise Buyer of such offer, inquiry
or request and delivery of a copy of such notice to Buyer.

 

4.5           Conduct
of Business. Seller will cause the Company to conduct the Company Business
only in the ordinary course consistent with past practice. Without limiting the
generality of the foregoing, Seller will:

 

11

 

(a)           cause the Company to
use commercially reasonable efforts to (i) preserve intact the present business
organization and reputation of the Company and the Company Business, (ii) keep
available (subject to dismissals and retirements in the ordinary course of
business consistent with past practice) the services of the present officers,
employees and consultants of the Company, (iii) maintain the assets and
properties of the Company Business in good working order and condition,
ordinary wear and tear excepted, (iv) maintain the good will of customers,
suppliers, lenders and other Persons to whom the Company sells goods or
provides services or with whom the Company otherwise has significant business
relationships, (v) continue all current sales, marketing and promotional
activities relating to the Company Business, (vi) confer with Buyer concerning
operational matters of a material nature involving the Company Business, (vii)
maintain the Intellectual Property Assets in the ordinary course of Company
Business, and (viii) otherwise periodically report to Buyer concerning the
status of the business, operations and finances of the Company and the Company
Business;

 

(b)           except to the extent
required by Applicable Law, (i) cause the books and records to be maintained in
the usual, regular and ordinary manner consistent with past practice, (ii) not
permit any material change in (A) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy of
the Company pertaining to the Company Business, or (B) any method of
calculating any bad debt, contingency or other reserve of the Company for
accounting, financial reporting or Tax purposes and (iii) not permit any change
in the fiscal year of the Company;

 

(c)           (i) use, and will
cause the Company to use, commercially reasonable efforts to maintain in full
force and effect until the Closing substantially the same levels of insurance
coverage relating to the Company Business and (ii) cause any and all benefits
paid or payable (whether before or after the date of this Agreement) with
respect to the Company Business, employees or assets and properties of the
Company and the Company Business to be paid to the Company; and

 

(d)           cause the Company to
comply, in all material respects, with all Applicable Laws and orders
applicable to the Company Business and promptly following receipt thereof to
give Buyer copies of any notice received from any Governmental Body, or other
Person alleging any violation of any such law or order.

 

4.6           Employee
Matters. Except as may be required by Applicable Law, Seller will refrain,
and will cause the Company to refrain, from directly or indirectly:

 

(a)           making any representation
or promise, oral or written, to any officer, employee or consultant of the
Company concerning any Employee Plan, except for the statements as to the
rights or accrued benefits of any officer, employee or consultant under the
terms of any Employee Plan;

 

(b)           making any increase
in the salary, wages or other compensation of any officer, employee or
consultant of the Company whose annual salary is or, after giving effect to
such change, would be $75,000 or more without the prior written consent of Buyer;

 

12

 

(c)           adopting, entering
into or becoming bound by any Employee Plan, employment-related contract or
collective bargaining agreement covering employees or consultants of the
Company, or amending, modifying or terminating (partially or completely) any
Employee Plan, employment-related contract or collective bargaining agreement
impacting employees or consultants of the Company, except to the extent
required by Applicable Law and, in the event compliance with legal requirements
presents options, only to the extent that the options which the Company
reasonably believes to be the least costly is chosen; or

 

(d)           establishing or
modifying any (i) targets, goals, pools or similar provisions in respect of any
fiscal year under any Employee Plan, employment-related contract or other
employee compensation arrangement covering employees or consultants of the
Company or (ii) salary ranges, increase guidelines or similar provisions in
respect of any Employee Plan, employment-related contract or other employee
compensation arrangement covering employees or consultants of the Company.

 

Seller will cause the Company to administer
each Employee Plan, or cause the same to be so administered, in all material
respects in accordance with the applicable provisions of the Code, ERISA and
all other Applicable Laws. Seller will promptly notify Buyer in writing of each
receipt by Seller or the Company (and furnish Buyer with copies) of any notice
of investigation or administrative proceeding by the IRS, Department of Labor,
Pension Benefit Guaranty Corporation or other Person involving any Employee
Plan.

 

4.7           Certain
Restrictions. Seller will cause the Company to refrain from:

 

(a)           amending its
certificates or articles of incorporation or by-laws (or other comparable
corporate charter documents) or taking any action with respect to any such
amendment or any recapitalization, reorganization, liquidation or dissolution;

 

(b)           authorizing,
issuing, selling or otherwise disposing of any shares of capital stock of or
any options with respect to the Company, or modifying or amending any right of
any holder of outstanding shares of capital stock of or options with respect to
the Company;

 

(c)           declaring, setting
aside or paying any dividend or other distribution in respect of the capital
stock of the Company except in the ordinary course of business and consistent
with past practice or in connection with the transactions contemplated by this
Agreement, or directly or indirectly redeeming, purchasing or otherwise
acquiring any capital stock of or any options with respect to the Company;

 

(d)           acquiring or
disposing of, or incurring any Encumbrance (other than a Permitted Encumbrance)
on, any assets and properties of the Company Business having a fair market
value, individually or in the aggregate, in excess of $25,000, except with
respect to the disposition of inventory in the ordinary course of business;

 

(e)           (i) except in the
ordinary course of business and consistent with past practice or as may be
required to consummate the transactions contemplated by this Agreement,
entering into, amending, modifying, terminating (partially or completely),

 

13

 

granting
any waiver under or giving any consent with respect to (A) any contract that
would, if in existence on the date of this Agreement, be required to be
disclosed in the Disclosure Letter or (B) any license, provided, however, that
Seller and Company must consult with Buyer before taking any definitive action
with respect to any of the matters described in Section 4.7(e)(i)(A) or Section
4.7(e)(i)(B), or (ii) granting any irrevocable powers of attorney;

 

(f)            violating,
breaching or defaulting under, or taking or failing to take any action that
(with or without notice or lapse of time or both) would constitute a material
violation or breach of, or default under, any term or provision of any license
held or used by the Company or used in the Company Business or any contract to
which the Company is a party or by which any of the assets and properties of
the Company Business are bound;

 

(g)           (i) incurring
indebtedness in an aggregate principal amount exceeding $10,000 (net of any
amounts of indebtedness discharged during such period), or (ii) other than as
required in connection with the transactions contemplated hereby, purchasing,
canceling, prepaying or otherwise providing for a complete or partial discharge
in advance of a scheduled payment date with respect to, or waiving any right of
the Company under, any indebtedness owing to the Company;

 

(h)           engaging with any
Person in any Business Combination, except as permitted by Section 7.3;

 

(i)            making capital
expenditures or commitments for additions to property, plant or equipment
constituting capital assets in an aggregate amount exceeding $50,000;

 

(j)            making any material
change in the Company Business;

 

(k)           writing off or
writing down any of its assets and properties relating to the Company Business
outside the ordinary course of business consistent with past practice; or

 

(l)            entering into any
contract to do or engage in any of the foregoing.

 

4.8           Affiliate
Transactions. Except as set forth in the Disclosure Letter, immediately
prior to the Closing, all indebtedness and other amounts owing under contracts
between Seller, any officer, director, Affiliate (other than the Company) on
the one hand, and the Company, on the other, will be paid in full, and Seller
will terminate and will cause any such officer, director, or Affiliate to
terminate each such contract with the Company. Except as may be required in
connection with the transactions contemplated by this Agreement, prior to the
Closing, the Company will not enter into any contract or amend or modify any
existing contract, and will not engage in any transaction outside the ordinary
course of business consistent with past practice or not on an arm’s-length
basis (other than pursuant to contracts disclosed pursuant to the Disclosure
Letter), with Seller or any such officer, director, or Affiliate.

 

4.9           Books
and Records. On the Closing Date, Seller will deliver or make available to
Buyer at the offices of the Company all of the books and records pertaining to
the Company

 

14

 

Business, and if at any time after the Closing, Seller discovers in its
possession or under its control any other books and records pertaining to the
Company Business, it will forthwith deliver such books and records to Buyer.

 

4.10         Notice
and Cure. Seller will notify Buyer in writing (where appropriate, through
updates to the Disclosure Letter) of, and contemporaneously will provide Buyer
with true and complete copies of any and all information or documents relating
to, and will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance, as soon as practicable after it becomes
known to Seller, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of Seller or the Company under this Agreement
to be breached or that renders or will render untrue any representation or
warranty of Seller contained in this Agreement as if the same were made on or
as of the date of such event, transaction or circumstance. Seller also will
notify Buyer in writing (where appropriate, through updates to the Disclosure
Letter) of, and will use all commercially reasonable efforts to cure, before
the Closing, any violation or breach, as soon as practicable after it becomes
known to Seller, of any representation, warranty, covenant or agreement made by
Seller in this Agreement, whether occurring or arising before, on or after the
date of this Agreement. No notice given pursuant to this Section 4.10
shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein or shall in any way limit Buyer’s right to
seek indemnity under Article 3.

 

4.11         Fulfillment
of Conditions. Seller will execute and deliver at the Closing each Transaction
Document that Seller is required hereby to execute and deliver as a condition
to the Closing, will take all commercially reasonable steps necessary or
desirable and proceed diligently and in good faith to satisfy each condition to
the obligations of Buyer contained in this Agreement and will not, and will not
permit the Company to take or fail to take any action that could reasonably be
expected to result in the nonfulfillment of any such condition.

 

4.12         Best
Efforts. Subject to Section 7.3, between the Effective Date and the
Closing Date, Seller will use its reasonable best efforts to cause the
conditions in Article 2 to be satisfied.

 

4.13         Employee
Stock Purchase Plan. Pursuant to Section 8.3 of the Seller’s Employee Stock
Purchase Plan (the “ESPP”), because
the Company will no longer be a subsidiary or affiliate of Seller, Company
employees will not be eligible to participate in the ESPP on and after the
Closing Date. Accordingly, Seller will return to the employees of the Company
who participated in the ESPP at any time prior to the Closing Date all funds
that such participating employees contributed prior to the Closing Date to the
ESPP to the extent that such funds were not used as of the Closing Date to
purchase shares of common stock of Seller. Seller shall return such funds to
such employees as soon as administratively practicable through its existing
payroll processes. Seller covenants and agrees that by purchasing the Shares,
Buyer is not assuming any obligations under the ESPP.

 

15

 

ARTICLE 5

COVENANTS OF BUYER PRIOR TO CLOSING DATE

 

5.1           Approvals
of Governmental Bodies. As promptly as practicable after the Effective
Date, Buyer will, and will cause each of its Related Persons to, (a) make all
filings required by legal requirements to be made by them to consummate the
transactions contemplated hereunder. Buyer will cooperate with Seller with
respect to all filings that Seller is required by legal requirements to make in
connection with the transactions contemplated hereunder, and (b) cooperate with
Seller in obtaining all consents identified in the Disclosure Letter; provided
that this Agreement will not require Buyer to dispose of or make any change in
any portion of its business or to incur any other burden to obtain a
Governmental Authorization.

 

5.2           Best
Efforts. Except as set forth in the proviso to Section 5.1, between
the Effective Date and the Closing Date, Buyer will use its reasonable best
efforts to cause the conditions in Article 2 to be satisfied.

 

ARTICLE 6

TAX MATTERS

 

6.1           Tax
Indemnification.

 

(a)           Seller shall be liabile
to Buyer for, and shall indemnify and hold Buyer and the Company harmless from
and against, any and all Taxes due or payable by the Company or imposed on the
Company for any Pre-Closing Tax Period, (as defined below) and any Straddle
Period, (as defined below) except to the extent that accruals for such Taxes
are reflected in the Closing Balance Sheet.

 

(b)           In the case of any
taxable period that includes (but does not end on) the Closing Date (a “Straddle
Period”), the
amount of any Income Taxes for all taxable periods ending on or before the
Closing Date and the portion through the end of the Closing Date for any
taxable period that includes (but does not end on) the Closing Date (“Pre-Closing
Tax Period”) shall be determined based on an interim closing
of the books as of the close of business on the Closing Date and the amount of
other Taxes of the Company for a Straddle Period that relates to the
Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in such Straddle Period.

 

6.2           Responsibility
for Filing Tax Returns. Buyer shall prepare or cause to be prepared and
file or cause to be filed all Tax Returns for the Company that are filed after
the Closing Date other than Income Tax Returns with respect to periods for
which a consolidated, unitary or combined Income Tax Return of Seller will
include the operations of the Company. Buyer shall permit Seller to review and
comment on each such Income Tax Return described in the preceding sentence
prior to filing and shall make revisions to such Income Tax Returns as are reasonably
requested by Seller. Seller shall permit Buyer to review and comment on each consolidated,
unitary or combined Income Tax Return filed by the Company after the Closing

 

16

 

Date with respect to the
Pre-Closing Period, but only to the extent such consolidated, unitary, or
combined Income Tax Return applies to the Company. Seller shall reimburse Buyer
for Taxes of the Company with respect to the Pre-Closing Tax Period within
fifteen (15) days after payment by Buyer or the Company of such Taxes to the
extent such Taxes were not reflected as a liability in determining the Purchase
Price pursuant to Section 1.2 of this Agreement.

 

6.3           Refunds
and Tax Benefits. Any Tax refunds that are received by Buyer or the
Company, and any amounts credited against Taxes to which Buyer or the Company
become entitled, that relate to the Pre-Closing Tax Period shall be for the
account of Seller, and Buyer shall pay over to Seller any such refund or the
amount of any such credit within 15 days after receipt or entitlement thereto.
In addition, to the extent that a claim for refund or a proceeding results in a
payment or credit against Tax by a taxing authority to Buyer or the Company of
any amount accrued on the Closing Balance Sheet, Buyer shall pay such amount to
Seller within 15 days after receipt or entitlement thereto. Notwithstanding the
foregoing, Seller shall not be entitled to any refund, or portion thereof, if such
refund, or portion thereof, (i) is the result of the carryback of any operating
losses, net operating losses, capital losses, Tax credits or similar items
arising in a taxable period (or portion thereof) beginning after the Closing
Date, or (ii) is taken into account in determining the Purchase Price pursuant
to Section 1.2 of this Agreement. To the extent any refund from one
jurisdiction is treated as income to another jurisdiction, any Tax owed to such
other jurisdiction on account of such refund shall reduce the amount paid to
the Seller under this Section 6.3.

 

6.4           Contests.

 

(a)           After the Closing,
Buyer shall promptly notify the Seller in writing of any written notice of a
proposed assessment or claim in an audit or administrative or judicial proceeding
of Buyer or the Company which, if determined adversely to the Company, would be
grounds for indemnification under this Agreement.

 

(b)           In the case of an
audit or administrative or judicial proceeding that relates to taxable periods
ending on or before the date of the Closing, the Seller shall have the right at
its expense to participate in and control the conduct of such audit or
proceeding; Buyer also may participate in any such audit or proceeding and, if
the Seller does not assume the defense of any such audit or proceeding, Buyer
may defend the same in such manner as it may deem appropriate, including
settling such audit or proceeding after five days prior written notice to the
Seller setting forth the terms and conditions of settlement; provided, however,
if Buyer gives notice to Seller of the commencement of any audit or
administrative or judicial proceedings and the Seller does not, within twenty
(20) business days, after Buyer’s notice is given to Seller, give notice to
Buyer or Company, as applicable, of its election to assume the defense thereof,
then the Seller shall be bound by any determination made in such audit or
administrative or judicial proceeding or any compromise or settlement thereof
effected by Buyer. The failure of Buyer to give reasonably prompt notice of any
audit or administrative or judicial proceeding shall not release, waive or
otherwise affect Seller’s obligations with respect thereto except to the extent
that the Seller can demonstrate actual loss as a result of such failure. In the
event that issues relating to a potential adjustment are required to be
contested in the same audit or proceeding as separate issues relating to a
potential adjustment for which Buyer would

 

17

 

be liable, Buyer shall have the right, at its expense,
to control the audit or proceeding with respect to the latter issues.

 

(c)           With respect to
issues relating to a potential adjustment for which both the Seller and Buyer
or the Company could be liable, (i) both the Seller and Buyer may participate
in the audit or proceeding, and (ii) the audit or proceeding shall be
controlled by that party which would bear the burden of the greater portion of
the sum of the adjustment and any corresponding adjustments that may reasonably
be anticipated for future taxable periods; provided, however, neither Buyer nor
the Seller shall enter into any compromise or agree to settle any such matter
without the written consent of the other party, which consent may not be
unreasonably withheld. The principle set forth in this Section 6.4(c)
also shall govern for purposes of deciding any issue that must be decided
jointly (including choice of judicial forum) in situations in which separate
issues are otherwise controlled under this Article 6 by Buyer and the Seller;
provided, however, neither Buyer nor Seller shall enter into any compromise or
agree to settle any such matter without the written consent of the other party,
which consent may not be unreasonably withheld.

 

(d)           With respect to any
audit or administrative or judicial proceeding for a taxable period that begins
before the Closing Date, neither Buyer nor the Seller shall enter into any
compromise or agree to settle any claim pursuant to such audit or proceeding
which would adversely affect the other party for such taxable period or a
subsequent taxable period without the written consent of the other party, which
consent may not be unreasonably withheld. Buyer and the Seller agree to
cooperate, and Buyer agrees to cause the Company to cooperate, in the defense
against or compromise of any claim in any such audit or proceeding.

 

6.5           Cooperation
on Tax Matters.

 

(a)           Buyer, the Company
and Seller shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this Section
6.5 and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party’s
request) the provision of records and information that are reasonably relevant
to any such audit, litigation or other proceeding and making employees
reasonably available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Company and
Seller agree (i) to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (ii) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Seller, as the case
may be, shall allow the other party to take possession of such books and
records.

 

18

 

(b)           Buyer and Seller
further agree, upon request, to use their best efforts to obtain any
certificate or other document from any governmental authority or any other
Person as may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the transactions
contemplated hereby).

 

6.6           Tax
Sharing Agreements. All Tax sharing agreements or similar agreements with
respect to or involving the Company shall be either terminated or amended as of
the Closing Date so that, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.

 

6.7           Tax
Treatment of Indemnification Payments. Buyer and Seller agree to treat any
indemnification payment made pursuant to this Agreement as an adjustment to the
Purchase Price for all Tax purposes, unless otherwise required by Applicable
Law.

 

6.8           Section
338(h)(10) Election. Buyer and Seller shall join in making an election
under Code §338(h)(10) (and any corresponding elections under state, local, or
foreign tax law) (collectively a “Section 338(h)(10) Election”) with
respect to the purchase and sale of the Company hereunder. Buyer shall prepare
an allocation of the applicable portion of the Purchase Price (and all other
capitalized costs), to be jointly updated by Buyer and Seller for any
adjustments to the Purchase Price pursuant to Sections 1.2 and 1.3,
among the assets of the Company in accordance with Section 338(h)(10) of the
Code and Treasury Regulations thereunder (and any similar provision of state,
local or non-U.S. law, as appropriate). Buyer shall deliver its proposed
allocation to Seller in writing within thirty (30) days following the final
determination of the Closing Date Purchase Price pursuant to Section 1.2
(but in no event later than four (4) months following the Closing Date) and, to
the extent that the Seller does not agree with such proposed allocations, it
shall so notify Buyer in writing within thirty (30) days of receipt of the
proposed allocations. Seller and Buyer shall in good faith cooperate with the
other to resolve any issues with Buyer’s proposed allocations; provided,
however, that if Seller and Buyer are unable to agree on the proposed
allocations within twenty (20) days after the Seller’s delivery of its notice
of disagreement with such proposed allocations, then resolution of any such
disagreement shall be determined by a nationally recognized accounting firm
agreeable to both Seller and Buyer and the determination by such accounting
firm shall be binding on Buyer and Seller. If the parties elect to make a
Section 338(h)(10) Election, Buyer, Seller the Company and their Related
Persons and Affiliates shall report, act and file Tax Returns (including, but
not limited to IRS Form 8023 and 8883) in all respects and for all purposes
consistent with the allocation finally determined pursuant to this Section 6.8.
If the parties elect to make a Section 338(h)(10) Election, none of Buyer,
Seller, the Company nor their Related Persons and Affiliates shall take any
position (whether in audits, Tax Returns, or otherwise) which is inconsistent
with such final allocation unless required to do so by law.

 

ARTICLE 7

TERMINATION; ADDITIONAL AGREEMENTS

 

7.1           Termination.
This Agreement may be terminated at any time prior to the Closing Date, whether
before or after Stockholder Approval:

 

19

 

(a)           by mutual written
consent of Buyer and Seller; or

 

(b)           by either Buyer or
Seller by giving written notice to the other party if the other party breaches
any of its covenants contained in this Agreement and, if the breach is curable,
the breach is not cured within ten (10) business days after such notice; or

 

(c)           by either Buyer or
Seller by giving written notice to the other party if the other party breaches
any of its representations or warranties contained in this Agreement that would
result in a Material Adverse Effect and, if the breach is curable, the breach
is not cured within ten (10) business days after such notice; or

 

(d)           by either Buyer or Seller
if the Closing does not occur on or before October 31, 2006 (except that no
party shall have the right to terminate this Agreement unilaterally if the
event giving rise to the non-occurrence of the Closing is primarily
attributable to that party or to any affiliated party); or

 

(e)           by Buyer if any of
the conditions in Section 2.2 have not been satisfied as of the Closing
Date or if satisfaction of such a condition is or becomes impossible (other
than through the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or before the Closing
Date; or by Seller if any of the conditions in Section 2.3 have not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Seller to comply with its
obligations under this Agreement) and Seller has not waived such condition on
or before the Closing Date;

 

(f)            by Seller if Seller
receives a Superior Proposal pursuant to Section 7.3; or

 

(g)           by Seller if Seller
does not receive Stockholder Approval.

 

7.2           Effect
of Termination. Each party’s right of termination under Section 7.1
is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 7.1,
all further obligations of the parties under this Agreement will terminate,
except that the obligations in Section 7.13 will survive; provided, however,
that if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party’s obligations under this Agreement is not satisfied as a
result of the other party’s failure to comply with its obligations under this
Agreement, the terminating party’s right to pursue all legal remedies will
survive such termination unimpaired.

 

7.3           Fiduciary
Duties.

 

(a)           Notwithstanding
anything in this Agreement to the contrary, Seller may, in response to a bona
fide unsolicited proposal that constitutes an Acquisition Proposal, participate
in discussions or negotiations with, or furnish or disclose any non-public
information to, any Person that makes such Acquisition Proposal if (i) Seller
reasonably determines in good faith that such Acquisition Proposal is, or may
reasonably be expected to lead to, a Superior Proposal, (ii) Seller shall have
provided prompt notice to

 

20

 

the
Buyer of its intent to take such action, the identity of the Person making the
Acquisition Proposal and the material terms and conditions of such Acquisition
Proposal and (iii) Seller received from such Person an executed confidentiality
agreement in reasonably customary form. If such an Acquisition Proposal results
in a Superior Proposal, Seller may terminate this Agreement pursuant to Section
7.1; provided, however, that if Seller terminates this Agreement as a
result of a Superior Proposal, Seller shall reimburse Buyer for all of its
costs and expenses up to $750,000 incurred in connection with this Agreement
and the transactions contemplated hereby.

 

(b)           Nothing in this
Agreement shall prohibit the Seller from making any disclosure to Seller’s
stockholders as, in the good faith judgment of Seller’s Board of Directors, is
required under Applicable Law or where the failure to make such disclosure is
reasonably likely to cause the members of the Board of Directors of the Seller
to violate their fiduciary duties.

 

7.4           Books
and Records; Post Closing. The parties will make reasonably available to
one another any records or documents that they maintain with respect to the
Company or the Company Business for purposes of compliance with applicable laws
or in defending any third-party litigation arising in respect of this
Agreement. Seller will make available to Buyer, at Buyer’s request and expense,
all books and records of Seller relating to the Company Business which are
reasonably necessary with respect to Buyer’s ongoing operations for inspection
or copying by Buyer at any reasonable time for a five (5) year period after the
Closing Date. Buyer will make available to Seller, at Seller’s request and
expense, all books and records of Buyer relating to the Company Business which
are reasonably necessary with respect to any governmental investigation or
third-party litigation or claim for inspection or copying by Seller at any
reasonable time for a five (5) year period after the Closing Date.

 

7.5           Use
of Business Name. After the Closing, the Buyer will not, directly or
indirectly, use or do business, or allow any Affiliate to use or do business,
or assist any third party in using or doing business, under or using the name
containing or similar to the word “Zila”; provided, however, that (a) Buyer
shall have 30 days following the Closing Date to change the Company’s name to
remove the word “Zila” and provide Seller with evidence of such change and (b)
Buyer shall have the right to sell the Company’s inventory and all packaging
materials existing as of the Closing. Buyer must use its commercially
reasonable best efforts to dispose of any such inventory and packaging
materials as soon as is commercially practicable after the Closing Date.

 

7.6           Transaction
Expenses. Subject to Section 7.3(a), Seller shall be responsible for
all of the legal fees and expenses relating to the proposed transactions
incurred by Seller or the Company. Buyer shall be responsible for all of the
legal fees and expenses relating to the proposed transaction incurred by Buyer.

 

7.7           Notices.
All notices, and other communications hereunder will be in writing and deemed
to have been given when (i) delivered by hand, (ii) sent by telecopier (with
receipt confirmed), (iii) sent by email, or (iv) when actually received by the
addressee, in each case to the following:

 

21

 

	
   

  	
  If
  to Buyer:

  	
  NBTY,
  Inc.

  
	
   

  	
   

  	
  90
  Orville Drive

  Bohemia, NY 11716

  Phone: 631-218-2020

  Fax No.: 631-567-7148

  Attention: President

  
	
   

  	
   

  	
   

  
	
   

  	
  With
  a copy to:

  	
  Edwards
  Angell Palmer & Dodge LLP

  
	
   

  	
   

  	
  2800
  Financial Plaza

  Providence RI, 02903

  Phone: 401-276-6658

  Fax No.: 401-276-6611

  Attn.: Susan A. Keller, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  If
  to Seller:

  	
  Zila,
  Inc.

  
	
   

  	
   

  	
  5227
  N. 7th Street

  Phoenix, AZ 84014

  Phone: (602) 266-6700

  Fax No.: (602) 234-2264

  Attn: Gary V. Klinefelter

  
	
   

  	
   

  	
   

  
	
   

  	
  With
  a copy to:

  	
  Snell
  & Wilmer L.L.P.

  
	
   

  	
   

  	
  400
  East Van Buren Street

  
	
   

  	
   

  	
  Phoenix,
  AZ 85004

  
	
   

  	
   

  	
  Phone:
  (602) 382-6381

  
	
   

  	
   

  	
  Fax
  No.: (602) 382-6070

  
	
   

  	
   

  	
  Attn: Michael M. Donahey, Esq.

  

 

7.8           Governing Law. The validity, construction, and
enforceability of this Agreement shall be governed in all respects by the laws
of the State of Arizona, including, without limitation, its laws regarding
choice of law.

 

7.9           Assignment. This Agreement will not be assigned by
operation of law or otherwise, except that Buyer may assign all or any portion
of its rights under this Agreement to any of its wholly-owned subsidiaries, but
no such assignment will relieve Buyer of its obligations hereunder, and except
that this Agreement may be assigned by operation of law to any corporation or
entity with or into which Buyer may be merged or consolidated or to which Buyer
transfers all or substantially all of its assets, and such corporation or
entity assumes this Agreement and all obligations and undertakings of Buyer
hereunder.

 

7.10         Intent to be Binding: Entire Agreement. The
Disclosure Letter, the Transaction Documents and Exhibits referred to herein
are incorporated herein by this reference as if fully set forth in the text of
this Agreement. This Agreement may be executed in any number of counterparts,
and each counterpart constitutes an original instrument, but all such separate
counterparts constitute one and the same agreement. This Agreement (including
the Disclosure Letter) and the Confidentiality Agreement contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations

 

22

 

or warranties other than those set forth or referred to herein. This
Agreement may not be amended except by an instrument in writing approved by
Buyer and Seller. If any term, provision, covenant, or restriction of this
Agreement is held by a court to be invalid or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions of this Agreement will
remain in full force and effect and will in no way be affected or invalidated
and the court will modify this Agreement or, in the absence thereof, the
parties agree to negotiate in good faith to modify this Agreement to preserve
each party’s anticipated benefits under this Agreement.

 

7.11         Waiver
of Provisions. The terms, covenants, representations, warranties, and
conditions of this Agreement may be waived only by a written instrument
executed by the party waiving compliance. The rights and remedies of the
parties to this Agreement are cumulated and not alternative. The failure of any
party at any time to require performance of any provisions hereof will, in no
manner, affect the right at a later date to enforce the same. No waiver by any
party of any condition, or breach of any provision, term, covenant,
representation, or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, will be deemed to be or construed as a
further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation, or warranty of this Agreement.

 

7.12         Jurisdiction.
Any Proceeding arising out of or relating to this Agreement, the Transaction
Documents or any transaction contemplated hereunder or thereunder may be
brought in the courts of the State of Delaware and each of the parties
irrevocably submits to the exclusive jurisdiction of each such court in any such
Proceeding, waives any objection it may now or hereafter have to venue or to
convenience of forum, agrees that all claims in respect of the Proceeding shall
be heard and determined only in any such court and agrees not to bring any
Proceeding arising out of or relating to this Agreement, the Transaction
Documents or any transaction contemplated hereunder or thereunder in any other
court. The parties agree that either or both of them may file a copy of this
paragraph with any court as written evidence of the knowing, voluntary and
bargained agreement between the parties irrevocably to waive any objections to
venue or to convenience of forum. Process in any Proceeding referred to in the
first sentence of this section may be served on any party anywhere in the world.

 

7.13         Confidentiality.
The terms of the mutual nondisclosure agreement dated as of March 30, 2006 (the
“Confidentiality
Agreement”) between Seller and Buyer are hereby incorporated
herein by reference and shall continue in full force and effect until the
Closing Date, at which time such Confidentiality Agreement and the obligations
of Buyer under this Section 7.13 shall terminate.

 

7.14         Public
Announcements. Neither party to this Agreement shall make, or cause to be
made, any press release or public announcement in respect of this Agreement or
the transactions contemplated by this Agreement or otherwise communicate with
any news media without the prior written consent of the other party unless
otherwise required by law or applicable stock exchange regulation, and the
parties to this Agreement shall cooperate as to the timing and contents of any
such press release, public announcement or communication.

 

23

 

7.15         Third
Party Beneficiaries. Except as specifically provided in Article 7 of
this Agreement, neither this Agreement nor the transactions contemplated hereby
is intended to, and none of them shall, create any rights in any other person
other than the parties to this Agreement.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

24

 

IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement on
the date first written above by their duly authorized officers.

 

	
   

  	
  “Buyer”

  
	
   

  	
   

  
	
   

  	
  NBTY, INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Irene Fisher

  	
   

  
	
   

  	
  Name:

  	
  Irene Fisher

  	
   

  
	
   

  	
  Title:

  	
  General Counsel

  	
   

  
	
   

  	
   

  
	
   

  	
  “Seller”

  
	
   

  	
   

  
	
   

  	
  ZILA, INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary K. Klinefelter 

  	
   

  
	
   

  	
  Name:

  	
  Gary K. Klinefelter 

  
	
   

  	
  Title:

  	
  Vice-President, General Counsel &

  Secretary

  

 

 

[Signature Page to
Stock Purchase Agreement]

 

 

EXHIBIT A

 

DEFINITIONS

 

For
purposes of this Agreement, the Disclosure Letter and Exhibits thereto, the
following terms have the following meanings.

 

“AAA Rules” has the meaning set forth in Section 1.2(d).

 

“Accounts
Receivable” has the meaning set forth in paragraph 13 of Exhibit
B.

 

“Acquisition
Proposal” means (i) any proposal or offer from any
Person relating to any direct or indirect acquisition of all or substantially
all of the assets, or all of the shares of capital stock, of the Company, taken
as a whole or (ii) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by the Agreement.

 

“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act of 1934, as amended.

 

“Agreement” has the meaning set forth in the preface of this Agreement.

 

“Applicable Laws” means all laws, regulations, ordinances and other restrictions of foreign,
federal, state, and local governments and agencies regulating or otherwise
affecting Seller, the Company or the Company Business, including, without
limitation, employee health and safety, the discharge of pollutants or wastes,
and employee benefit plans.

 

“Arbitrating
Accountant” has the meaning set forth in Section
1.2(d).

 

“Business
Combination” means any merger, consolidation or
combination to which the Company is a party, any sale, dividend, split or other
disposition of capital stock or other equity interest of the Company or any
sale, dividend or other disposition of all or substantially all of the assets
and properties of the Company.

 

“Buyer” has the meaning set forth in the preface of this Agreement.

 

“Buyer Parties” has the meaning set forth in Section 3.4.

 

“Buyer’s Advisors” has the meaning set forth in Section 4.1.

 

“Cap” has the meaning set forth in Section 3.4(c).

 

“Capital Leases” means (a) that certain Commercial Master Lease Agreement No. 834867,
effective as of January 25, 2006, by and between the Company and Trinity, A
Division of Bank of the West; (b) that certain Master Lease Agreement,
effective March 5, 2003, by and between the Company and General Electric
Capital Corporation; and (c) that certain Master Lease Agreement, dated as of
October 30, 2003, by and between the Company and Agilent Financial Services,
Inc.

 

A-1

 

“Cleanup” has the meaning set forth within the definition of Environmental,
Health, and Safety Liabilities.

 

“Closing” has the meaning set forth in Section 2.1.

 

“Closing Date” has the meaning set forth in Section 2.1.

 

“Closing Date
Balance Sheet” has the meaning set forth in Section
1.2(b).

 

“Closing Date
Working Capital Statement” has the meaning set forth in Section
1.2(c).

 

“Closing Date
Purchase Price” has the meaning set forth in Section 1.2(a).

 

“Closing Working
Capital” means the current assets of the Company as of
the Closing Date (excluding all prepaid insurance amounts and similar amounts)
less all current liabilities (including without limitation the current portion
of the Capital Leases) of the Company as of the Closing Date, determined on a
basis consistent with the Financial Statements, which, in each case were
prepared in accordance with GAAP.

 

“Code” means the Internal Revenue Code of 1986 as amended, and any reference
to any particular Code section shall be interpreted to include any revision of
or successor to that section regardless of how numbered or classified.

 

“Company” has the meaning set forth in the recitals.

 

“Company Business” has the meaning set forth in the recitals.

 

“Confidentiality
Agreement” has the meaning set forth in Section 7.13.

 

“Contingent
Purchase Price” has the meaning set forth in Section
1.2(a).

 

“Copyright” has the meaning set forth in paragraph 25(a) of Exhibit B.

 

“Disclosure Letter” has the meaning set forth in Section 3.1.

 

“Earn Out Closing
Statement” has the meaning set forth in Section
1.3(a).

 

“EBITDA” shall mean, for any time period with respect to the Company Business,
an amount equal to the sum of each of the following, in each case for such
period, as determined in accordance with GAAP: (a) net income (or net loss),
excluding the aggregate amount of all non-cash losses reducing such net income,
plus (b) interest expense, plus (c) depreciation, plus (d) amortization, plus
(e) income taxes paid or accrued.

 

“EBITDA Target” has the meaning set forth in Section 1.3.

 

“Effective  Date” has
the meaning set forth in the preface of this Agreement.

 

“Employee Plans” has the meaning set forth in paragraph 19(a) of Exhibit B.

 

A-2

 

“Encumbrance” means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.

 

“Environment” means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), ground waters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.

 

“Environmental
Properties” has the meaning set forth in paragraph 22 of Exhibit
B.

 

“Environmental,
Health, and Safety Liabilities” means any cost, damages, expense, liability,
obligation, or other responsibility arising from or under any Environmental Law
or Occupational Safety and Health Law including, without limitation, the
following:

 

(a)                                  any environmental, health, or safety matters
or conditions (including on-site or off-site contamination, occupational safely
and health, and regulation of chemical substances or products); or

 

(b)                                 fines, penalties, judgments, awards,
settlements, legal or administrative proceedings, damages, losses, claims,
demands and response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law; or

 

(c)                                  financial responsibility under Environmental
Law or Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or other
remediation or response actions (“Cleanup”) required by applicable
Environmental Law or Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or

 

(d)                                 any other compliance, corrective,
investigative, or remedial measures required under Environmental Law or
Occupational Safety and Health Law.

 

The
terms “removal,” “remedial,” and “response action,” include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended.

 

“Environmental Law” means any legal requirement that requires
or relates to:

 

(a)                                  advising appropriate authorities, employees,
and the public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other prohibitions
and of the commencements of activities, such as resource extraction or
construction, that could have significant impact on the Environment; or

 

(b)                                 preventing or reducing to acceptable levels
the release of pollutants or hazardous substances or materials into the
Environment; or

 

A-3

 

(c)                                  reducing the quantities, preventing the release,
or minimizing the hazardous characteristics of wastes that are generated; or

 

(d)                                 protecting resources, species, or ecological
amenities; or

 

(e)                                  reducing to acceptable levels the risks
inherent in the transportation of hazardous substances, pollutants, oil, or
other potentially harmful substances; or

 

(f)                                    cleaning up pollutants that have been
released, preventing the threat of release, or paying the costs of such clean
up or prevention; or

 

(g)                                 making responsible parties pay private
parties, or groups of them, for damages done to their health or the
Environment, or permitting self-appointed representatives of the public
interest to recover for injuries done to public assets.

 

“ERISA” means the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor
law.

 

“ERISA Affiliate” has the meaning set forth in paragraph 19(a) of Exhibit B.

 

“ESPP” has the meaning set forth in Section 4.13.

 

“FFDC Act” shall have the meaning set forth in paragraph 14 of Exhibit B.

 

“Facility” means any real property, leaseholds, or other real property interests
currently owned or operated by the Company and any buildings, plants or
structures currently owned or operated by the Company.

 

“Financial
Statements” has the meaning set forth in paragraph 5 of Exhibit
B.

 

“GAAP” means generally accepted United States accounting
principles, applied on a basis consistent with the basis on which the Financial
Statements were prepared and have been prepared in the past.

 

“Governmental
Authorization” means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
legal requirement.

 

“Governmental Body” means any:

 

(i)                                     nation, state, county, city, town, village,
district, or other jurisdiction of any nature; or

 

(ii)                                  federal, state, local, municipal, foreign, or
other government; or

 

(iii)                               governmental or quasi-governmental authority
of any nature (including any governmental agency, branch, department, official,
or entity and any court or other tribunal); or

 

A-4

 

(iv)                              multi-national organization or body; or

 

(v)                                 body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.

 

“Hazardous
Activity” means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facility or any part thereof into the Environment.

 

“Hazardous
Materials” means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.

 

“Income Tax” means any federal, state, local, or foreign income tax, including any
interest, penalty, or addition thereto.

 

“Income Tax Return” means any Tax Return with respect to Income Taxes.

 

“Indemnified Party” has the meaning set forth in Exhibit D.

 

“Indemnifying
Party” has the meaning set forth in Exhibit D.

 

“Intellectual
Property Assets” has the meaning set forth in paragraph 25(a)
of Exhibit B.

 

“IRS” means the United States Internal Revenue Service or any successor
agency, and to the extent relevant, the United States Department of the
Treasury.

 

“Knowledge” An individual will be deemed to have “Knowledge” of a particular fact
or other matter if (a) such individual is actually aware of such fact or other
matter or (b) a prudent individual could reasonably be expected to become aware
of such fact or other matter within the normal scope of such individual’s
responsibilities with the Company, Seller or Buyer, as applicable, which scope
includes due inquiry relative to such individual’s responsibilities.

 

A
Person (other than an individual) will be deemed to have “Knowledge” of a
particular fact or other matter if any individual who is serving or who has
within the last two years served as a director, executive officer, partner,
executor, attorney (but only with respect to the matters set forth in paragraph
25 of Exhibit B) or trustee of such Person (or in any similar capacity)
has, or at any time had, Knowledge of such fact or other matter.

 

“Loss” or “Losses” means
any and all claims, liabilities, obligations, losses, fines, costs, royalties,
proceedings, deficiencies or damages (including incidental and consequential
damages).

 

A-5

 

“Marks” has the meaning set forth in paragraph 25(a) of Exhibit B.

 

“Material Adverse
Effect” or “Material Adverse Change” means any effect or change that
would be materially adverse to the results of operations or the financial
condition of the Company Business, taken as a whole, including without
limitation any insolvency or similar filing by the Seller; provided, however, that none of the following,
either alone or in combination, shall be deemed to constitute, and none of the
following shall be taken into account in determining whether there has been, a
Material Adverse Effect or Material Adverse Change: (a) any adverse change,
event, development, or effect arising from or relating to (1) general business
or economic conditions affecting the industry in which the Company Business
operates, including such conditions related to the Company Business unless the
Company Business is disproportionately affected by such changes, (2) national
or international political or social conditions, including the engagement by
the United States in hostilities, whether or not pursuant to the declaration of
a national emergency or war, or the occurrence of any military or terrorist
attack upon the United States, or any of its territories, possessions, or
diplomatic or consular offices or upon any military installation, equipment or
personnel of the United States, (3) financial, banking, or securities markets
(including any disruption thereof and any decline in the price of any security
or any market index), (4) changes in United States generally accepted
accounting principles, unless the Company Business is disproportionably
affected by such changes, (5) changes in laws, rules, regulations, orders, or
other binding directives issued by any governmental entity, unless the Company
Business is disproportionately affected by such changes or (6) the taking of
any action contemplated by this Agreement and the other agreements contemplated
hereby; (b) any existing event, occurrence, or circumstance that is set forth
in the Disclosure Letter, but only to the extent of such disclosure, it being
understood and agreed that a material adverse change beyond what is set forth
in the Disclosure Letter may constitute either alone or in combination, a
Material Adverse Effect or Material Adverse Change; and (c) any adverse change
in or effect on the Company Business that is cured by Seller or the Company
before the Closing Date.

 

“Material Contract” has the meaning set forth in paragraph 7 of Exhibit B.

 

“Measurement
Period” has the meaning set forth in Section
1.3(a).

 

“Notice of
Objection” has the meaning set forth in Section
1.2(d).

 

“Occupational
Safety and Health Law” means any legal requirement designed to
provide safe and healthy working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance companies),
designed to provide safe and healthy working conditions.

 

“Order” means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.

 

“Patent” has the meaning set forth in paragraph 25(a) of Exhibit B.

 

“Permitted
Encumbrances” has the meaning set forth in paragraph 6 of Exhibit
B.

 

A-6

 

“Person” means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.

 

“Pre-Closing Tax
Period” has the meaning set forth in Section
6.1(b).

 

“Proceeding” means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.

 

“Products” has the meaning set forth in the recitals.

 

“Proprietary
Rights Agreement” has the meaning set forth in paragraph 23(b)
of Exhibit B.

 

“Proxy Statement” has the meaning set forth in Section 4.3.

 

“Purchase Price” has the meaning set forth in Section 1.2(a).

 

“Related Person” (a) with respect to a particular individual:

 

(i)                                     each other member of such individual’s Family
(as defined below);

 

(ii)                                  any Person that is directly or indirectly
controlled by such individual or one or more members of such individual’s
Family;

 

(iii)                               any Person in which such individual or
members of such individual’s Family hold (individually or in the aggregate) a
Material Interest (as defined below); and

 

(iv)                              any Person with respect to which such
individual or one or more members of such individual’s Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity).

 

(b)                                 With respect to a specified Person other than
an individual, an Affiliate.

 

For
purposes of this definition, (a) the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, (iii) any other natural person who is
related to the individual or the individual’s spouse within the second degree,
and (iv) any other natural person who resides with such individual, and (b) “Material
Interest” means direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 5% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 5%
of the outstanding equity securities or equity interests in a Person.

 

“Release” means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.

 

“Rights in Mask
Work” has the meaning set forth in paragraph 25(a)
of Exhibit B.

 

A-7

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Section
338(h)(10) Election” has the meaning set forth in Section 6.8.

 

“Securities Act” means the Securities Act of 1933 or any successor law, and regulations
and rules issued pursuant to that Act or any successor law.

 

“Seller” has the meaning set forth in the preface of this Agreement.

 

“Seller
Stockholders Meeting” has the meaning set forth in Section 4.3.

 

“Shares” has the meaning set forth in the recitals.

 

“Stockholder Approval” means the affirmative vote of the holders of outstanding shares of the
capital stock, and all option and warrant holders, if any, of Seller necessary
for the approval of the transactions contemplated by this Agreement and the
Transaction Documents.

 

“Straddle Period” has the meaning set forth in Section 6.1(b).

 

“Superior Proposal” means any Acquisition Proposal that the Seller’s Board of Directors
determines, in its good faith judgment, to be more favorable to the Seller’s
stockholders than the transactions completed by this Agreement.

 

“Target Working
Capital” shall mean $6,852,171 as set forth in the
Financial Statements dated February 28, 2006.

 

“Tax” any income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental, windfall profit, customs, vehicle, airplane, boat, vessel or
other title or registration, capital stock, franchise, employees’ income
withholding, foreign or domestic withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer, value
added, alternative, add-on minimum and other tax, fee, assessment, levy,
tariff, charge or duty of any kind whatsoever and any interest, penalty,
addition or additional amount thereon imposed, assessed or collected by or
under the authority of any Governmental Body or payable under any tax-sharing
agreement or any other contract or as a successor or a transferee or pursuant
to Treas. Reg. Sec. 1.1502-6.

 

“Tax Return” means any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any legal requirement relating to any Tax.

 

“Threshold Amount” has the meaning set forth in Section 3.4(c).

 

“Threat of Release” means a substantial likelihood of a Release that may require action in
order to prevent or mitigate damage to the Environment that may result from
such Release.

 

“Trade Secrets” has the meaning set forth in paragraph 25(a) of Exhibit B.

 

A-8

 

“Transaction
Documents” shall mean that certain non-compete agreement
with Seller and the Buyer dated as of the Closing Date, substantially in the
form of Exhibit G hereto.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

A-9

 

EXHIBIT B

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

The
Seller represents and warrants to Buyer, as of the date hereof, or if a
representation or warranty is made as of a specific date as of such date and as
of the Closing Date, as follows:

 

1.                                       Organization; Qualification.

 

(a)                                  Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Delaware,
and has the requisite corporate power and authority to own and operate its
properties and to carry on its business as now conducted. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of Arizona, and has full corporate power and authority to own
and operate its properties and to carry on its business (including the Company
Business) and to perform all of its obligations under this Agreement and under
the Transaction Documents. The Disclosure Letter lists all lines of business in
which the Company is participating or engaged. The Company is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
each state or other jurisdiction specified in the Disclosure Letter, which are
the only jurisdictions in which either the ownership or use of the properties
owned or used by the Company, or the nature of the activities conducted by it,
requires such qualification. The name of each director and officer of the
Company on the date hereof and the position with the Company held by each, are
listed in the Disclosure Letter.

 

(b)                                 Seller has delivered to Buyer true and
complete copies of the incorporation documents of the Company, as in effect on
the date hereof.

 

2.                                       Authority Relative to this Agreement. The Seller has the requisite corporate power
and authority to enter into this Agreement and the Transaction Documents and to
carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby including, without limitation, to
own, hold, sell and transfer (pursuant to the Agreement) the Shares. The
execution and delivery of this Agreement and the Transaction Documents by
Seller and the consummation by Seller of the transactions contemplated hereby
and thereby have been duly and validly authorized by the Board of Directors and
stockholders of Seller, and no other proceedings on the part of Seller or its
stockholders are necessary. This Agreement and the Transaction Documents have
been duly and validly executed and delivered by Seller, and constitute the
legal, valid and binding obligations of Seller, enforceable against the Seller
in accordance with their respective terms.

 

3.                                       No Conflicts. Neither the Seller nor the Company is
subject to, or obligated under, any provision of (a) their Certificate or
Articles of Incorporation, Bylaws, or other organizational documents, (b)
except as set forth in the Disclosure Letter, any agreement, arrangement, or
understanding, (c) any license, franchise, or permit, or (d) any Applicable Law
that would be breached, defaulted (with or without notice or lapse of time or
both) or violated or in conflict with, or in respect of which a right of
termination or acceleration or any other right would arise, or pursuant to
which any Encumbrance on any of the Company Business or

 

B-1

 

Company assets would be
created, by its execution, delivery, and performance of this Agreement or the
Transaction Documents and the consummation by either of them of the
transactions contemplated hereby or thereby.

 

4.                                        No Consents. Except (a) as set forth in the Disclosure Letter, (b) for the filing
with the SEC of the Proxy Statement in definitive form, and other filings
required under, and in compliance with the applicable requirements of, the Exchange
Act, and (c) with respect to the Stockholder Approval, no authorization,
notice, consent, action or approval of, or filing with, any Governmental Body
or any Person is necessary on the part of Seller or Company for the execution,
delivery and performance of this Agreement and the Transaction Documents or the
consummation by Seller of the transactions contemplated by this Agreement or
the Transaction Documents.

 

5.                                       Financial Statements. The unaudited balance sheet, income
statement, statement of cash flows and statement of stockholders equity of the
Company as of and for the years ended July 31, 2005, 2004 and 2003 and as of
and for the nine (9) months ended April 30, 2006 (collectively, the “Financial
Statements”) are
attached to the Disclosure Letter. The Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved and fairly present the financial position of the Company as of the
dates thereof and the results of its operations, changes in stockholder’s
equity and cash flow for the periods then ended; provided, however, that such
interim Financial Statements are subject to normal year-end adjustments and
lack footnotes and other presentation items. The Financial Statements were
compiled from books and records of the Company regularly maintained by
management and used to prepare financial statements of the Company in
accordance with principles stated therein. The Company has maintained the books
and records in a manner sufficient to permit the preparation of financial
statements in accordance with GAAP, such books and records fairly reflect, in
all material respects, the income, expenses, assets and liabilities of the
Company and the books and records provided a fair and accurate basis for the
preparation of the Financial Statements.

 

6.                                       Title to the Company Business; Encumbrances;
Sufficiency of Assets.
Except as set forth in the Disclosure Letter, the Company is in possession of
and has good and marketable title to, or has a valid leasehold interest in or
valid rights under a contract to use, and owns all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that it
purports to own, whether located in any Facility or otherwise, that are used in
or are necessary for the conduct of the Company Business, as historically
conducted, reflected as owned in the books and records of the Company,
including all of the properties and assets reflected in the Financial
Statements. All properties and assets reflected in the Financial Statements are
free and clear of all Encumbrances, except for: (a) Encumbrances for current
taxes not yet due, and (b) with respect to real property, except as set forth
on the Disclosure Letter, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto
(collectively, the “Permitted Encumbrances”).

 

B-2

 

 

7.                                       Contracts; No Defaults.

 

(a)                                  The Disclosure Letter sets forth a listing
(including names of parties and date of agreement) of all contracts, agreements
and other verbal arrangements to which the Company is a party or the Seller is
a party and the agreement or arrangement relates to the Company Business and
the performance of which will involve consideration in excess of $50,000 or
cannot be terminated on 60 days or less notice (each, a “Material Contract”). Material Contracts shall include
all distribution agreements, license agreements, partnership, joint venture,
shareholder and non-compete agreements with the Company and a third party or
with the Seller and a third party relating to the Company Business. Seller has
delivered to Buyer a correct and complete copy of each Material Contract listed
in the Disclosure Letter.

 

(b)                                 Except as set forth in the Disclosure Letter:

 

(i)                                     Seller has not acquired any rights under, and
Seller has not become subject to any obligation or liability under, any
Material Contract that relates to the Company Business, or any of the assets
owned or used by, the Company; and

 

(ii)                                  No officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Material Contract that
purports to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct, activity,
or practice relating to the Company Business, or (B) assign to the Company or
to any other Person any rights to any invention, improvement, or discovery or
any other asset of the Company.

 

(c)                                  Except as set forth in the Disclosure Letter,
each Material Contract identified or required to be identified in the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.

 

(d)                                 Except as set forth in the Disclosure Letter:

 

(i)                                     the Seller and the Company are, and at all
times since August 1, 2002 have been, in full compliance with all applicable
terms and requirements of each Material Contract under which the Company has or
had any obligation or liability or by which the Company or any of the assets
owned or used by the Company is or was bound;

 

(ii)                                  each other Person that has or had any
obligation or liability under any Material Contract under which the Company has
or had any rights is, and at times since August 1, 2002 has been, in full
compliance with all applicable terms and requirement of such Material Contract;

 

(iii)                               no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give the Company or other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Material
Contract; and

 

B-3

 

(iv)                              the Company has not given to or received from
any other Person, in writing at any time since December 1, 2004, any written
notice regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Material Contract.

 

(e)                                  The Company is not renegotiating and has not
been requested by any Person to renegotiate any material amounts paid or
payable to the Company under any current Material Contracts and no such Person
has made written demand for such renegotiation.

 

(f)                                    The contracts relating to
the sale, design, manufacture, or provision of products or services by the
Company have been entered into by the Company in the ordinary course of
business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any legal requirement.

 

(g)                                 The Company has no
obligations under or with respect to the ESPP.

 

8.                                       Tax Matters. Except as set forth in the Disclosure Letter:

 

(a)                                  The Company has timely filed all Tax Returns
required to be filed on or before the date hereof and the Closing Date. The
Company has paid all Taxes owed (whether or not shown, or required to be shown,
on Tax Returns) on or before the date hereof and the Closing Date. The Company
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party. All Tax Returns filed by the Company
were complete and correct in all respects, and such Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status and other matters of the Company and any other information
required to be shown thereon. There are no liens for Taxes upon any of the
Company’s assets, other than liens for Taxes not yet due and payable.

 

(b)                                 None of the Tax Returns filed by the Company
or Taxes payable by the Company have been the subject of an audit, action,
suit, proceeding, claim, examination, deficiency or assessment by any
governmental authority, and no such audit, action, suit, proceeding, claim,
examination, deficiency or assessment is currently pending or, to the knowledge
of the Company, threatened.

 

(c)                                  The Company is not currently the beneficiary
of any extension of time within which to file any Tax Return, and the Company
has not waived any statute of limitation with respect to any Tax or agreed to
any extension of time with respect to a Tax assessment or deficiency. All
material elections with respect to Taxes affecting the Company, as of the date
hereof, are set forth in the Disclosure Letter. The Company is not subject to,
nor has applied for any private letter ruling of the Internal Revenue Service
or comparable rulings of any Taxing Authority. Neither the Company nor any
other Person on its behalf has granted to any Person any power of attorney that
is currently in force with respect to any Company Tax matter.

 

B-4

 

(d)                                 The Company will not be required to include
any item of income in, or exclude any item of deduction from, taxable income
for any taxable period (or portion thereof) ending after the Closing Date as a
result of any (A) change in method of accounting for a taxable period ending on
or prior to the Closing Date, (B) “closing agreement” as described in Section
7121 of the Code (or any corresponding or similar provision of state, local or
foreign Tax law) executed on or prior to the Closing Date, (C) intercompany
transaction or excess loss account described in United States Treasury
Regulations under Section 1502 of the Code (or any corresponding or similar
provision of state, local, or non-U.S. Tax law), (D) installment sale or open
transaction made on or prior to the Closing Date, or (E) prepaid amount
received on or prior to the Closing Date.

 

(e)                                  The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of (i) any “excess parachute payments” within
the meaning of Section 280G of the Code (without regard to the exceptions set
forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for
which a deduction would be disallowed or deferred under Section 162(m) of the
Code.

 

(f)                                    The Company has not filed a consent pursuant
to Section 341(f) of the Code, relating to collapsible corporations and Section
341(f)(2) does not apply to any of the Company’s assets. The Company is not,
and has not been, a U.S. real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(l)(A)(ii), of the Code. The Company does not own, and has not owned, any
assets that it owned prior to August 10, 1993 that are “Section 197 Intangibles”
within the meaning of Section 197 of the Code.

 

(g)                                 The Company did not constitute either a “distributing
corporation” or a “controlled corporation” (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (A) in the two (2) years prior to the date of this Agreement or (B) in a distribution which could
otherwise constitute part of a “plan” or “series of related transactions”
(within the meaning of Section 355(e) of the Code) in conjunction with the
transactions contemplated by this Agreement.

 

(h)                                 The Company does not have any net operating
losses or other tax attributes presently subject to limitation under Sections
382, 383 or 384 of the Code, or the federal consolidated return regulations
(other than limitations imposed as a result of the transactions contemplated by
this Agreement). The Company has never (i) made an election under Section 1362
of the Code to be treated as an S corporation for federal income tax purposes
or (ii) made a similar election under any comparable provision of any state,
local or non-U.S. Tax law.

 

(i)                                     The Company is not a party to any Tax sharing
agreement or similar arrangement (including, but not limited to, an
indemnification agreement or arrangement). Except as set forth in the
Disclosure Letter, the Company has never been a member of a group filing a
consolidated federal income Tax Return or a combined, consolidated, unitary or
other affiliated group Tax Return for state, local or non-U.S. Tax

 

B-5

 

purposes
(other than a group the common parent of which is the Company). The Company
does not have any liability for the Taxes of any Person (other than the Company)
under Treasury Regulation Section 1.1502-6 (or any corresponding provision of
state, local or non-U. S. Tax law), or as a transferee or successor, or by
contract, or otherwise.

 

(j)                                     The unpaid Taxes of the Company does not
exceed the reserve for actual Taxes (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
and will not exceed such reserve as adjusted for the passage of time through
the Closing Date in accordance with the reasonable past custom and practice of
the Company in filing Tax Returns. The Company will not incur any liability for
Taxes from February 28, 2006 through the Closing Date other than in the
ordinary course of business and consistent with reasonable past practice.

 

(k)                                  The Disclosure Letter contains a list of all
jurisdictions (whether foreign or domestic) to which any Tax is properly
payable by the Company. No claim has ever been made by a government authority
in a jurisdiction where the Company does not file Tax Returns that the Company
is or may be subject to Tax in that jurisdiction. The Company does not have,
nor has ever had, a permanent establishment or other taxable presence in any
foreign country, as determined pursuant to applicable foreign law and any applicable
Tax treaty or convention between the United States and such foreign country.

 

(1)                                  The Company has not (i) participated or
engaged in any transaction, or taken any Tax Return position, described in
Treasury Regulation Section 301.6111 -2(b)(2) (or any corresponding or similar
provision of state, local or non-U.S. Tax law) or (ii) participated or engaged
in any “reportable transaction” within the meaning of Treasury Regulation
Section 1.6011-4 (or any corresponding or similar provision of state, local or
non-U.S. Tax law).

 

(m)                               The Company is not and has never been a party
to a transaction or agreement that is in conflict with the Tax rules on
transfer pricing in any relevant jurisdiction and all transactions and
agreements (whether written or oral) between or among the Company and any
Related Person (or any of their Affiliates) and/or the terms thereof have been
conducted in an arm’s length manner consistent with the Company’s transactions
or agreements with unrelated third parties.

 

9.                                         Litigation. Except as set forth in the Disclosure Letter, there are no suits,
claims, actions, arbitrations, investigations, or proceedings entered against,
now pending, or to the Knowledge of Seller threatened against the Company, or
against the Seller relating to the Company Business, before any court,
arbitration, administrative or regulatory body, or any governmental agency.
There are no facts or circumstances known to Seller that could reasonably be
expected to give rise to any Proceeding that would be required to be disclosed
pursuant to this Paragraph 9. Neither Seller nor the Company is subject to any
continuing court or administrative order, writ, injunction, or decree that is
applicable to the Company or the Company Business, or to the Company’s property
or employees, and neither Seller nor the Company is in default with respect to
any order, writ, injunction, or decree of any court or federal, state,
municipal, or other

 

B-6

 

governmental department,
commission, board, agency, or instrumentality relating to the Company or the
Company Business.

 

10.                                 Brokers’ Fees. Neither Seller nor any Affiliate has dealt
with any broker, finder, or other person or entity entitled to any brokerage
commissions, finders’ fees, or similar compensation in connection with the
transactions contemplated by this Agreement that could give rise to liability
on the part of the Company.

 

11.                                 Capitalization; Ownership of Shares;
Subsidiaries. (a) The
authorized capital stock of the Company consists solely of one hundred (100)
shares of Common Stock, $0.01 par value, of which only the Shares have been
issued. The Shares are duly authorized, validly issued and outstanding, fully
paid and nonassessable and were not issued in violation of any preemptive rights.
There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments relating to the Shares or the Company
or obligating either the Seller or the Company to issue or sell any shares of
Common Stock, or any other interest in, the Company. There are no rights to
receive or exercise any benefit or right similar to any right enjoyed by or
accruing to the holder of shares of capital stock of the Company that are held
by anyone other than the Seller, including any rights to participate in the
equity or income of the Company or to participate in or direct the election of
any officers or directors of the Company or the manner in which any shares of
capital stock of the Company are voted. The Shares constitute all the issued
and outstanding capital stock of the Company and are owned of record and
beneficially by the Seller free and clear of all Encumbrances, except as set
forth in the Disclosure Letter. There are no contracts relating to the
issuance, sale, or transfer of any equity securities or other securities of the
Company. The Seller has not caused the Company to issue or sell, and the
Company (or any of its predecessors) has not issued or sold any equity or other
securities in violation of the Securities Act or any other legal requirement.
The Company does not own, or have any contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity
or ownership interest in any other business.

 

(b)                                 The delivery of a certificate or certificates
at the Closing evidencing the Shares in the manner provided in Section 2.2
will transfer to Buyer good and valid title to the Shares, free and clear of
all Encumbrances.

 

(c)                                  The Company has no subsidiaries.

 

12.                                 Condition and Sufficiency of Assets. The buildings, plants, structures, and
equipment of the Company Business are structurally sound, are in good operating
condition and repair, ordinary wear and tear excepted, and are adequate for the
uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company Business after the Closing
in substantially the same manner as conducted prior to the Closing. No assets
of the Seller are used or held for use in the Company Business.

 

13.                                 Accounts Receivable. All accounts receivable of the Company that
are reflected on the Financial Statements or the Closing Date Balance Sheet
(collectively, the “Accounts

 

B-7

 

Receivable”) represent or will represent obligations
arising from sales actually made or services actually performed in the ordinary
course of business. Unless paid prior to the Closing Date, the Accounts
Receivable are or will be as of the Closing Date current and collectible net of
the respective reserves for bad debts, returns and allowances (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the Accounts Receivable as of the Closing Date than the reserve reflected in
Financial Statements represented of the Accounts Receivable reflected therein
and will not represent a Material Adverse Change in the composition of such
Accounts Receivable in terms of aging). Subject to such reserves and except as
set forth in the Disclosure Letter, each of the Accounts Receivable either has
been or will be collected in full, without any set-off, within ninety (90) days
after the day on which it first becomes due and payable. There is no pending,
or to the Seller’s Knowledge, threatened contest, claim, or right of set-off,
other than returns in the ordinary course of business, pending, or to the
Seller’s Knowledge threatened, under any Material Contract with any obligor of
an Accounts Receivable relating to the amount or validity of such Accounts
Receivable.

 

14.                                 Inventory. All inventory of the Company, whether or not reflected in the
Financial Statements, consists of a quality and quantity usable and salable in
the ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Financial Statements or on the accounting records
of the Company as of the Closing Date, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Company Business. To Seller’s
Knowledge, the raw materials, food, herbal and dietary supplements of the
Company (i) are not adulterated or misbranded within the meaning of the Federal
Food, Drug and Cosmetic Act, as amended (“FFDC Act”), or
within the meaning of any Applicable Law within which the definitions of
adulteration or misbranding are substantially the same as those contained in
the FFDC Act; and (ii) are not articles which may not, under the provisions of
Sections 404, 405 and 512 of the FFDC Act, be introduced into interstate
commerce.

 

15.                                 No Undisclosed Liabilities. The Company has no indebtedness or
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or obligations
(a) reflected or reserved against in the Financial Statements or Closing Date
Balance Sheet; (b) incurred in the ordinary course of business consistent with
past practices since the respective dates thereof or (c) set forth in the
Disclosure Letter.

 

16.                                 Books and Records. Except as set forth on the Disclosure
Letter, the books of account, minute books, stock record books, and other
records of the Company, including, without limitation, Seller’s records of its
acquisition of the Company, all of which have been made available to Buyer
prior to the date hereof, are complete and correct, and have been maintained in
accordance with commercially reasonable business practices and reflect the
current ownership of the Shares. The minute books and similar records of the
Company contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholder, the Board of Directors, and
committees of the Board of Directors of the Company, and no meeting of any such
stockholder, Board of Directors, or committee has been held for

 

B-8

 

which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company. The Company
does not have any of its books and records recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether computerized
or not) which (including all means of access thereto and therefrom) are not
under the exclusive ownership and direct control of the Company.

 

17.                                 No Material Adverse Change. Since August 1, 2005, there has not been
any Material Adverse Change in the business, operations, properties, prospects,
assets, or condition of the Company, and no event has occurred or circumstance
exists that may result in such a Material Adverse Change.

 

18.                                 Insurance. The Disclosure Letter contains a true and complete list (including
the names and addresses of the insurers, the names of the Persons to whom such
Policies have been issued, the expiration dates thereof, whether it is a “claims
made” or an “occurrence” policy and a brief description of the interest insured
thereby) of all liability, property, workers’ compensation, directors’ and
officers’ liability and other insurance policies currently in effect that
insure the Company Business, operations or employees of the Company or affect
or relate to the ownership, use or operation of the Company Business and that
have been issued to the Company or any Person (other than the Company) for the
benefit of the Company. Except as set forth on the Disclosure Letter, the
insurance coverage provided by any of the policies described above will not
terminate or lapse prior to the Closing Date by reason of the transactions
contemplated by the Agreement. Each policy listed in the Disclosure Letter is a
valid and binding and in full force and effect, no premiums due thereunder have
not been paid and neither the Company nor the Person to whom such policy has
been issued has received any notice of cancellation or termination in respect
of any such policy or is in default thereunder. The insurance policies listed
in the Disclosure Letter are placed with financially sound and reputable
insurers and, in light of the respective business, operations and the Company
Business, are in amounts and have coverages that are reasonable and customary
for Persons engaged in businesses and operations similar to the Company
Business. Neither the Company nor the Person to whom such policy has been
issued has received notice that any insurer under any policy referred to in
this Section is denying liability with respect to a claim thereunder or
defending under a reservation of rights clause.

 

19.                                 Employee Benefits.

 

(a)                                  Set forth in the Disclosure Letter is a
complete and correct list of all “employee benefit plans” as defined by Section
3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D
of the Code, and all other bonus, incentive-compensation,
deferred-compensation, profit-sharing, stock-option, stock-appreciation-right,
stock-bonus, stock-purchase, employee-stock-ownership, savings, severance,
change-in-control, supplemental-unemployment, layoff, salary-continuation,
retirement, pension, health, life-insurance, disability, accident,
group-insurance, vacation, holiday, sick-leave, fringe-benefit or welfare plan,
and any other employee compensation or benefit plan, agreement, policy, practice,
commitment, contract or understanding (whether qualified or nonqualified,
written or unwritten) and any trust, escrow or other agreement related thereto
that is maintained or contributed to by the Seller with respect to

 

B-9

 

the
Company, the Company or any other corporation or trade or business controlled
by, controlling or under common control with the Company (within the meaning of
Section 414 of the Code or Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA
Affiliate”), or
with respect to which Company or any ERISA Affiliate has or may have any
liability, and provides benefits, or describes policies or procedures
applicable to any current or former director, officer, employee or service
provider of the Company, or the dependents of any thereof, (collectively the “Employee
Plans”).

 

(b)                                 The Company has delivered to Buyer true,
accurate and complete copies of (i) the documents comprising each Employee Plan
(or, with respect to any Employee Plan which is unwritten, a detailed written
description of eligibility, participation, benefits, funding arrangements,
assets and any other matters which relate to the obligations of Company or any
ERISA Affiliate); (ii) all trust agreements, insurance contracts or any other
funding instruments related to the Employee Plans; (iii) the most recent
actuarial and financial reports (audited and/or unaudited) and the annual
reports filed with any Government Body with respect to the Employee Plans
during the current year and each of the three preceding years; (iv) all
collective bargaining agreements pursuant to which contributions to any
Employee Plan(s) have been made or obligations incurred (including both pension
and welfare benefits) by the Company or any ERISA Affiliate, and all collective
bargaining agreements pursuant to which contributions are being made or
obligations are owed by such entities: (v) all securities registration
statements filed with respect to any Employee Plan; (vi) all contracts with
third-party administrators, actuaries, investment managers, consultants and
other independent contractors that relate to any Employee Plan; (vii) all
summary plan descriptions, summaries of material modifications and memoranda,
employee handbooks and other written communications regarding the Employee
Plans; and (viii) the most recent IRS determination letter with respect to each
Employee Plan.

 

(c)                                  No Employee Plan is a plan subject to Title
IV of ERISA or the minimum funding requirements of Section 302 of ERISA or 412
of the Code, nor has the Company or any subsidiary or any ERISA Affiliate
during each year within the six (6) year period preceding the Closing Date,
maintained or contributed to a plan subject to Title IV of ERISA. No Employee
Plan is a multiemployer plan as defined in Section 3(37) of ERISA.

 

(d)                                 The Company has, at all times, complied, and
currently complies, in all material respects with the applicable continuation
requirements for its welfare benefit plans, including (1) Section 4980B of the
Code (as well as its predecessor provision, Section 162(k) of the Code) and
Sections 601 through 608, inclusive, of ERISA, which provisions are hereinafter
referred to collectively as “COBRA” and (2) any applicable state statutes
mandating health insurance continuation coverage for employees.

 

(e)                                  All contributions (including all employer
contributions and employee salary reduction contributions) and other payments
required by and due from the Company under the terms of each Employee Plan have
been made within the time periods prescribed by the Employee Plan, ERISA and
the Code.

 

B-10

 

(f)                                    Neither the Seller nor the Company has filed,
or is considering filing, an application under the Internal Revenue Service’s
Employee Plans Compliance Resolution System or the Department of Labor’s
Voluntary Fiduciary Correction Program with respect to any Employee Plan. No
condition or circumstance exists that would prevent the amendment or
termination of any Employee Plan without liability to the Company. Neither the
Seller nor the Company has announced any plan or made any legally binding
commitment to create any additional Employee Plans or to amend or modify any
existing Employee Plans.

 

(g)                                 The form of all Employee Plans is in
compliance with the applicable terms of ERISA, the Code, and any other
Applicable Laws, including the Americans with Disabilities Act of 1990, the
Family Medical Leave Act of 1993 and the Health Insurance Portability and
Accountability Act of 1996, and such plans have been operated in compliance
with such laws and the written Employee Plan documents. Neither the Company nor
any fiduciary of an Employee Plan has violated the requirements of Section 404
of ERISA. All required reports and descriptions of the Employee Plans
(including Internal Revenue Service Form 5500 Annual Reports, Summary Annual
Reports and Summary Plan Descriptions and Summaries of Material Modifications)
have been (when required) timely filed with the IRS, the U.S. Department of
Labor or other Governmental Body and distributed as required, and all notices
required by ERISA or the Code or any other legal requirement with respect to
the Employee Plans have been appropriately given.

 

(h)                                 Each Employee Plan that is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS (which determination letter takes into
account the Plan’s amendment for tax law changes commonly known as “GUST”), and
the Company has no Knowledge of any circumstances that will or could result in
revocation of any such favorable determination letter. Each trust created under
any Employee Plan has been determined to be exempt from taxation under Section
501(a) of the Code, and the Company is not aware of any circumstance that will or
could result in a revocation of such exemption and each such Employee Plan has
been timely amended for tax law changes commonly known as “EGTRRA.”

 

(i)                                     There is no material pending or threatened
Proceeding relating to any Employee Plan, nor is there any basis for any such
Proceeding. Neither the Company nor any fiduciary of an Employee Plan has
engaged in a transaction with respect to any Employee Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject
Company or Buyer to a Tax or penalty imposed by either Section 4975 of the Code
or Section 502(1) of ERISA or a violation of Section 406 of ERISA. The
transactions contemplated hereunder will not result in the potential assessment
of a Tax or penalty under Section 4975 of the Code or Section 502(1) of ERISA
nor result in a violation of Section 406 of ERISA.

 

B-11

 

20.                                 Compliance with Legal Requirements; Governmental Authorizations.

 

(a)                                  Except as set forth in the Disclosure Letter:

 

(i)                                     The Company and the Company Business are, and
at all times since August 1, 2002 have been, in full compliance in all material
respects with each legal requirement that is or was applicable to the Company
or to the conduct or operation of the Company Business or the ownership or use
of any of the Company’s assets;

 

(ii)                                  no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) constitutes or results in a
violation by the Company or Seller with respect to the Company Business of, or
a failure on the part of the Company or Seller with respect to the Company
Business to comply with, any legal requirement, or (B) may give rise to any
obligation on the part of the Company or any other Person with respect to the
Company Business to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and

 

(iii)                               neither the Seller nor the Company has
received, at any time since December 1, 2004, any written notice from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any legal
requirement applicable to the Company Business, or (B) any actual, alleged,
possible, or potential obligation on the part of the Company or any other
Person with respect to the Company Business to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.

 

(b)                                 The Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
relates to any of the assets owned or used by, the Company and/or the Company
Business. Each Governmental Authorization listed or required to be listed in
the Disclosure Letter is valid and in full force and effect and will not be
revoked, withdrawn, suspended, cancelled, terminated or modified as a result of
the transactions contemplated by this Agreement. Except as set forth in the
Disclosure Letter:

 

(i)                                     The Company and the Company Business are, and
at all times since August 1, 2002 have been, in full compliance in all material
respects with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in the Disclosure Letter;

 

(ii)                                  no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation by the Company or the Company Business of
or a failure by the Company or the Company Business to comply with any term or
requirement of any Governmental Authorization listed or required to be listed
in the Disclosure Letter, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any

 

B-12

 

Governmental
Authorization listed or required to be listed in the Disclosure Letter;

 

(iii)                               Neither the Seller nor the Company has
received, at any time since December 1, 2004, any written notice from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure by the Company or the Company
Business to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization listed or required to be listed on the Disclosure
Letter; and

 

(iv)                              all applications required to have been filed
for the renewal of the Governmental Authorizations listed or required to be
listed in the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.

 

The
Governmental Authorizations listed in the Disclosure Letter collectively
constitute all of the Governmental Authorizations reasonably necessary to
permit the Company to lawfully conduct and operate the Company Business in the
manner conducted and operated and to permit the Company to own and use its
assets in the manner in which it currently owns and uses such assets.

 

21.                                 Absence of Certain Changes and Events. Except as set forth in the Disclosure
Letter and for the transactions contemplated by this Agreement, since August 1,
2005, the Company has conducted the Company Business only in the ordinary
course of business and consistent with past practice and without limiting the
generality of the foregoing, there has not been any:

 

(a)                                  change in the Company’s authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of the Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in respect
of shares of capital stock; or

 

(b)                                 amendment to the organizational documents of
the Company; or

 

(c)                                  except in the ordinary course of business
consistent with past practice, payment or increase by the Company of any
bonuses, salaries, or other compensation to any stockholder, director, officer,
or (except in the ordinary course of business consistent with past practice)
employee or entry into any employment, severance, or similar contract with any
director, officer, or employee; or

 

B-13

 

(d)                                 adoption of, or increase in the payments to
or benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of the Company; or

 

(e)                                  damage to or destruction or loss of any asset
or property of the Company, whether or not covered by insurance, in excess of
$50,000; or

 

(f)                                    entry into, termination of, or receipt of
notice of termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any
contract or transaction involving a total remaining commitment by or to the
Company of at least $50,000; or

 

(g)                                 sale (other than sales of inventory in the
ordinary course of business consistent with past practice), lease, or other
disposition of any asset or property of the Company or mortgage, pledge, or
imposition of any Encumbrance or other encumbrance on any material asset or
property of the Company, including the sale, lease, or other disposition of any
of the Intellectual Property Assets, in excess of $50,000; or

 

(h)                                 cancellation or waiver of any claims or
rights with a value to the Company in excess of $50,000; or

 

(i)                                     material change in the accounting methods
used by the Company; or

 

(j)                                     any material change in (x) pricing,
discounts, investment or inventory policy of the Company or (y) any method of
calculating bad debt or other reserves of the Company; or

 

(k)                                  any new license agreement for Trademarks or
Patents; or

 

(1)                                  any promotion or credit or similar incentive
granted to customers in excess of $25,000 per customer; or

 

(m)                               capital expenditures in excess of $50,000; or

 

(n)                                 transaction with Affiliates; or

 

(o)                                 agreement, whether oral or written, by the Company
to do any of the foregoing.

 

In
addition, except in connection with the transactions contemplated by this
Agreement, since April 17, 2006 there has not been any material election made
in respect of Taxes or any material change in any existing election, adoption
or change of any accounting method in respect of Taxes or otherwise, entering
into any closing agreement, settlement of any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes.

 

B-14

 

22.                                 Environmental Matters. Except as set forth in the Disclosure
Letter:

 

(a)                                  Each of the Company and the Seller with
respect to the Company Business is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. Neither Seller with respect to the Company Business nor
the Company has any basis to expect, nor has either of them or any other Person
for whose conduct they are or may be held to be responsible received, any
actual or threatened order, notice, or other communication from (i) any Governmental
Body or private citizen acting in the public interest, or (ii) the current or prior
owner or operator of the Facility, of any actual or potential violation or
failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to the Facility or any other properties or
assets (whether real, personal, or mixed) in which Seller or the Company (or
any predecessor) has or had an interest (collectively, the “Environmental
Properties”), or with respect to any property or any of the Environmental
Properties at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by Seller, the Company, or
any other Person for whose conduct they are or may be held responsible, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.

 

(b)                                 There are no pending or, to the Knowledge of
Seller and the Company, threatened claims, Encumbrances, or other restrictions
of any nature, resulting from any Environmental, Health, and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Environmental Properties.

 

(c)                                  Neither Seller nor the Company has any basis
to expect, nor has either of them or any other Person for whose conduct they
are or may be held responsible, received, any citation, directive, inquiry,
notice, Order, summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect any of the Environmental
Properties, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by Seller, the Company, or any other Person for whose conduct they
are or may be held responsible, have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.

 

(d)                                 Neither Seller nor the Company, or any other
Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to any of the
Environmental Properties, or at any property geologically or hydrologically
adjoining the Facility or any such other property or assets.

 

(e)                                  Except as set forth in the Disclosure Letter,
there are no Hazardous Materials present on or in the Environment at any of the
Environmental Properties or at any geologically or hydrologically adjoining
property, including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps,

 

B-15

 

equipment
(whether moveable or fixed) or other containers, either temporary or permanent,
and deposited or located in land, water, sumps, or any other part of any of the
Environmental Properties or such adjoining property, or incorporated into any
structure therein or thereon except in full compliance with all applicable
Environmental Laws. None of Seller, the Company, any other Person for whose
conduct they are or may be held responsible, or any other Person, has permitted
or conducted, or is aware of, any Hazardous Activity conducted with respect to
any of the Environmental Properties except in full compliance with all
applicable Environmental Laws.

 

(f)                                    There has been no Release or, to the Knowledge
of Seller, Threat of Release, of any Hazardous Materials at or from the
Facility or any of the Environmental Properties or at any other locations where
any Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facility or any of the
Environmental Properties, or to the Knowledge of Seller and the Company any
geologically or hydrologically adjoining property, whether by Seller, the
Company, or any other Person.

 

(g)                                 Seller has delivered to Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Seller or the Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the Facility, or
concerning compliance by Seller, the Company, or any other Person for whose
conduct they are or may be held responsible, with Environmental Laws.

 

23.                                 Employees.

 

(a)                                  The Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Company, including each employee on leave of absence or layoff status: name;
job title; current compensation paid or payable and any change in compensation
since August 1, 2005; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under the Company’s pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan or any Director Plan, if any.

 

(b)                                 To the Seller’s Knowledge, no employee or
director of the Company is a party to, or is otherwise bound by, any agreement
or arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person (“Proprietary
Rights Agreement”) that in any way adversely affects or will
affect (i) the performance of his/her duties as an employee or director of the
Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Seller or the Company by any such
employee or director. To Seller’s Knowledge, no director, officer, or other key
employee of the Company intends to terminate his employment with the Company.

 

B-16

 

(c)                                  The Disclosure Letter also contains a
complete and accurate list of the following information for each retired
employee or director of the Company receiving benefits or scheduled to receive
benefits in the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other
benefits.

 

24.                                   Labor Relations; Compliance.

 

Neither
the Seller nor the Company has been or is a party to any collective bargaining
or other labor contract. Since August 1, 2002, there has not been, there is not
presently pending or existing, and to Seller’s Knowledge there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Company or the
Company Business relating to the alleged violation of any legal requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations
Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other labor or employment
dispute against or affecting the Company or the Company Business, or (c) any
application for certification of a collective bargaining agent. To Seller’s Knowledge,
no event has occurred or circumstance exists that could provide the basis for
any work stoppage or other labor dispute. There is no lockout of any employees
by the Company, and no such action is contemplated by the Company. The Company
has complied in all material respects with all legal requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safely and health, and plant closings. The
Company is not liable for the payment of any compensation, damages, taxes,
fines, penalties, or other amounts, however designated, for failure to comply
with any of the foregoing legal requirements.

 

25.                                 Intellectual Property; Licenses.

 

(a)                                  Intellectual Property. The term “Intellectual Property Assets” are the following as relates to the
Company and the Company Business:

 

(i)                                     Except as set forth in the Disclosure Letter,
all rights of Seller to the names “Ester C” and “Ester E”, all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications (collectively, “Marks”);

 

(ii)                                  all patents, patent applications, and
inventions and discoveries that may be patentable, owned by Company or Seller
(collectively, “Patents”);

 

(iii)                               all licenses owned or possessed by Company or
Seller relating to Company’s right to make, use and/or sell the patented
technology of others (collectively, “Patent Licenses”);

 

(iv)                              all registered copyrights in both published
works and unpublished works (collectively, “Copyrights”);

 

B-17

 

(v)                                 all rights in mask works (collectively, “Rights in
Mask Works”);

 

(vi)                              all rights to technical information,
know-how, and inventions, whether patentable or unpatentable, formulations,
confidential information, customer lists, software, data, process technology,
plans, drawings, and blueprints (collectively, “Trade Secrets”) owned
or possessed by the Seller and all rights to Trade Secrets owned, used or
licensed by the Company as licensor or to the Company as licensee.

 

(b)                                 Agreements. The Disclosure Letter contains a complete and accurate list and
summary description, including any royalties paid or received by Seller with
respect to Company Business or by the Company, of all contracts relating to the
Intellectual Property Assets to which the Seller, with respect to Company
Business, or Company, is a party or by which the Company is bound, except for
any license implied by the sale of a product and perpetual, paid-up licenses
for commonly available software programs with a purchase price of less than
$10,000 under which the Company is the licensee. Seller or Company has the
right to cancel any license agreement where Seller, with respect to the Company
Business, or Company, is the licensor on no more than 90 days notice and
without incurring any payments in connection with said termination. Seller or
Company has the right to cancel any of the Patent Licenses on no more than 180
days notice and without incurring any payment in connection with said
termination. There are no outstanding and, to Seller’s Knowledge, no threatened
disputes or disagreements with respect to any such agreements. By acquiring the
Shares, Buyer is acquiring the Intellectual Property Assets free and clear of
all Encumbrances.

 

(c)                                  Know-How Necessary for the Business.

 

(i)                                     The Intellectual Property Assets of the
Company and the Company Business are owned by or licensed to the Seller or
Company, and are all those necessary for the operation of the Company Business
as currently conducted. Except as set forth in the Disclosure Letter, the
Company is the exclusive owner of all right, title, and interest in and/or
licensed to each of the Intellectual Property Assets, free and clear of all
Encumbrances and other adverse claims, and has the right to manufacture, use,
advertise, offer for sale, or sell all of the Products currently sold by the
Company, in any country where the Company, or any licensee of the Company, is
making, having made, using, advertising, offering for sale or selling such
Products.

 

(ii)                                  The Patent Licenses are the only licenses
necessary for the operation of the Company Business as currently conducted. All
milestone payments have been fully paid and all royalties due pursuant to the
Patent Licenses will be paid up to and through the Closing Date. The Patent
Licenses are in full force and effect. The Seller will take all necessary steps
and bear all related costs to affect a transfer, assignment and/or sublicense
of the Patent Licenses to Buyer.

 

B-18

 

(iii)                               Except as set forth in the Disclosure Letter,
all former and current employees of the Company have executed written contracts
with the Company that assign to the Company all rights to any inventions,
improvements, discoveries, or information relating to the Company Business. To
Seller’s Knowledge, no employee of the Company has entered into any contract
that restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Company.

 

(d)                                 Patents.

 

(i)                                     The Disclosure Letter contains a complete and
accurate list and summary description of all Patents, including the Patent
Licenses. Except as set forth in the Disclosure Letter, the Company is the
owner of all right, title, and interest in and to each of the Patents, free and
clear of all Encumbrances and other adverse claims.

 

(ii)                                  All of the issued Patents are in good
standing with respect to the payment of filing, examination, and maintenance
fees and proofs of working or use, are valid and enforceable and are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date, except as set forth in the Disclosure Letter.

 

(iii)                               No Patent is involved in any interference,
reissue, reexamination, or opposition proceeding. There are no interfering or
dominating patents or patent applications of any third party which affect in
any way, the Company’s ability to manufacture, have manufactured, use, sell,
advertise, or offer for sale the Ester-C Products in any country where the
Company, or any licensee of the Company, is making, having made, using,
advertising, offering for sale or selling such Products. There are no
interfering or dominating patents or patent applications of any third party
except for the patents covered by the Patent Licenses which affect, in any way,
the Company’s ability to manufacture, have manufactured, use, advertise, offer
for sale, or sell the ESTER-E Products in any country where the Company, or any
licensee of the Company, is making, having made, using, advertising, offering
for sale or selling such Products.

 

(iv)                              No Patent is infringed by a third party. No
Patent has been challenged or threatened in any way. To Seller’s Knowledge, no
patent licensed under the Patent Licenses is infringed by a third party. To
Seller’s Knowledge, no patent licensed under the Patent Licenses has been
challenged or threatened in any way. None of the current Products manufactured
and sold, nor any process or know-how used, by the Company or in the Company
Business infringes or is alleged to infringe any patent or other proprietary
right of any other Person.

 

(v)                                 All Ester-C products currently made, used,
advertised or sold by the Company are covered by one or more of the issued
Patents

 

B-19

 

(vi)                              All Ester-E products currently made, used,
advertised or sold by the Company are covered by one or more patents licensed
under the Patent Licenses.

 

(e)                                  Trademarks.

 

(i)                                     The Disclosure Letter contains a complete and
accurate list and summary description of all Marks used in the Company Business
and lists all licenses pertaining to such Marks. Except as set forth in the
Disclosure Letter, the Company is the exclusive owner of all right, title, and
interest in and to each of the Marks, free and clear of all Encumbrances.

 

(ii)                                  Except as set forth in the Disclosure Letter,
the Marks are valid wherever the Company or licensees of the Company currently
sell products. The foregoing registrations are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the Closing Date.

 

(iii)                               Except as set forth in the Disclosure Letter,
no Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to Seller’s Knowledge, no such action is threatened with the
respect to any of the Marks.

 

(iv)                              Except as set forth in the Disclosure Letter,
there is no potentially interfering trademark or trademark application of any
third party.

 

(v)                                 Except as set forth in the Disclosure Letter,
no Mark or the use thereof has been challenged or, to Seller’s Knowledge,
threatened in any way by any third party and none of the Marks used by the
Company or in the Company Business is alleged to infringe any trade name,
trademark, or service mark of any third party. Except as set forth in the
Disclosure Letter, no Mark is being infringed by any third party. Except as set
forth in the Disclosure Letter, no Mark infringes any trade name, trademark, or
service mark of any third party.

 

(vi)                              All packaging of products of the Company sold
by the Company to its licensees bearing a Mark include the proper federal
registration notice where permitted by law. All licensees of the Marks are
using the proper federal registration notice on the licensees’ packaging of
products containing an ingredient sold by the Company to the licensees for use
in licensees’ products.

 

(f)                                    Copyrights.

 

(i)                                     The Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights related to the Company
Business. The Company is the owner of all right, title, and interest in and to
each of the Copyrights, free and clear of all Encumbrances and other adverse
claims.

 

(ii)                                  All the Copyrights are valid and enforceable,
and are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the Closing Date.

 

B-20

 

(iii)          No Copyright is infringed, and no
Copyright has been infringed, challenged or, to Seller’s Knowledge, threatened
in any way and none of the subject matter of any of the Copyrights infringes or
is alleged to infringe any copyright of any third party or is a derivative work
based on the work of a third party.

 

(iv)          All works
encompassed by the Copyrights have been marked with the proper copyright
notice.

 

(g)           Trade Secrets.

 

(i)            With respect to
each Trade Secret, Company has taken all commercially reasonable steps to
maintain all documentation relating to such Trade Secret current and accurate.

 

(ii)           Seller and the
Company have taken all commercially reasonable precautions to protect the
secrecy, confidentiality, and value of their Trade Secrets.

 

(iii)          The Company has an
absolute (but not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or literature, and have not
been used, divulged, or appropriated either for the benefit of any Person (other
than the Company) or to the detriment of the Company. No Trade Secret is
subject to any adverse claim or has been challenged or threatened in any way.

 

26.           Related Party. The Disclosure
Letter sets forth in reasonable detail all transactions existing between the
Company and any Affiliate entered into since August 1, 2005 or that are in
existence as of the date hereof. All such transactions will be terminated at or
prior to the Closing with no ongoing liability to the Company following the
Closing. All such transactions between the Company and any Affiliate have been
entered into on an arms-length basis. Except as disclosed in the Disclosure
Letter, since August 1, 2005, all settlements of intercompany liabilities
between the Company, on the one hand, and Seller or any such officer, director
or Affiliate, on the other, have been made, and all allocations of intercompany
expenses have been applied, in the ordinary course of business consistent with
past practice. No Related Person of Seller or the Company owns or has any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the Company Business. No Related
Person of Seller or of the Company has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in, a
Person that has (a) had business dealings or a material financial interest in
any transaction with the Company other than business dealings or transactions
conducted in the ordinary course of business and consistent with past practice
with the Company at substantially prevailing market prices and on substantially
prevailing market terms, or (b) engaged in competition with the Company with
respect to any line of the products or services of the Company Business in any
market presently served by the Company. Except as set forth in the Disclosure
Letter, no Related Person of Seller or of the Company is a party to any
contract with, or has any claim or right against, the Company. There is no
indebtedness owed to the Company by a Related Person or by the

 

B-21

 

Company to a Related Person.
Except as set forth on the Disclosure Letter, neither Seller nor any officer,
director or Affiliate provides or causes to be provided any assets, services or
facilities to the Company or the Company Business nor does the Company provide
or cause to be provided any assets, services or facilities to Seller or any
such officer, director or Affiliate.

 

27.           Real Property.

 

(a)           The Disclosure
Letter contains a true and correct list of (i) each parcel of real property
owned by the Company and used for the Company Business, (ii) each parcel of
real property leased by the Company (as lessor or lessee) and used for the
Company Business and (iii) all Encumbrances (other than Permitted Encumbrances)
relating to or affecting any parcel of real property referred to in clause (i).

 

(b)           Except as disclosed
in the Disclosure Letter, the Company has good and marketable fee simple title
to each parcel of real property owned by it, free and clear of all
Encumbrances, other than Permitted Encumbrances. Except for the real property
leased to others referred to in clause (ii) of paragraph (a) above, the Company
is in possession of each parcel of real property owned by it, together with all
buildings, structures, facilities, fixtures and other improvements thereon. The
Company has adequate rights of ingress and egress with respect to the real
property listed in the Disclosure Letter and all buildings, structures,
facilities, fixtures and other improvements thereon. None of such real
property, buildings, structures, facilities, fixtures or other improvements, or
the use thereof, contravenes or violates any building, zoning, administrative,
occupational safety and health or other Applicable Law in any material respect
(whether or not permitted on the basis of prior nonconforming use, waiver or
variance).

 

(c)           The Company has a
valid and subsisting leasehold estate in and the right to quiet enjoyment of the
real properties leased by it for the full term of the lease thereof. Each lease
referred to in clause (ii) of paragraph (a) above is a legal, valid and binding
agreement, enforceable in accordance with its terms, of the Company and of each
other Person that is a party hereto, and except as set forth in the Disclosure
Letter, there is no, and the Company has not received notice of any, default
(or any condition or event which, after notice or laps of time or both, would
constitute a default) thereunder. The Company does not owe any brokerage
commissions with respect to any such leased space.

 

(d)           Seller has delivered
to Buyer prior to the execution of this Agreement true and complete copies of
(i) all deeds, leases, mortgages, deeds of trust, certificates of
occupancy, title insurance policies, title reports, surveys and similar
documents, and all amendments thereof, with respect to the real property owned
by the Company and used in the Company Business, and (ii) all leases (including
any amendments and renewal letters) and, to the extent reasonably available,
all other documents referred to in clause (i) of this Paragraph (d) with
respect to the real property leased by the Company and used in the Company
Business.

 

B-22

 

(e)           Except as set forth
in the Disclosure Letter, no tenant or other party in possession of any of the
real properties owned by the Company and used in the Company Business, has any
right to purchase, or holds any right of first refusal to purchase, such
properties.

 

(f)            Except as disclosed
in the Disclosure Letter, the improvements on the real property identified in
the Disclosure Letter are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purpose for which they are presently being used and, there are
no condemnation or appropriation proceedings pending or to Seller’s Knowledge,
threatened against any of such real property or the improvements thereon.

 

28.           Substantial Customers and
Suppliers. The Disclosure Letter lists the ten (10) largest customers of
the Company Business, on the basis of revenues for goods sold or services
provided for the most recently completed fiscal year. The Disclosure Letter lists
the ten (10) largest suppliers to the Company Business, on the basis of cost of
goods or services purchased for the most recently completed fiscal year. Except
as disclosed in the Disclosure Letter, no such customer or supplier has ceased
or materially reduced its purchase from, use of the services of, sales to or
provision of services to the Company since, or to the Knowledge of Seller, has
threatened to cease or materially reduce such purchases, use, sales or
provision of services after the date hereof. Except as disclosed in the
Disclosure Letter, to the Knowledge of Seller, no such customer or supplier is
threatened with bankruptcy or insolvency.

 

29.           Bank and Brokerage Accounts;
Investment Assets. The Disclosure Letter sets forth (a) a true and complete
list of the names and locations of all banks, trust companies, securities
brokers and other financial institution at which the Company has an account or
safe deposit box or maintains a banking, custodial, trading or other similar
relationship; (b) a true and complete list and description of each such
account, box and relationship, indicting in each case the account number and
the names of the respective officers, employees, agents or other similar
representatives of the Company having signatory power with respect thereto; and
(c) a list of each investment asset, the name of the record and beneficial
owner thereof, the location of the certificates, if any, therefore, the
maturity date, if any, and any stock or bond powers or other authority for
transfer granted with respect thereto.

 

30.           Disclosure. No representation
or warranty contained in this Agreement, and no statement contained in the
Disclosure Letter or in any certificate, list or other writing furnished to
Buyer pursuant to any provision of this Agreement (including, without
limitation, the Financial Statements), contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which
they were made, not misleading;

 

31.           Proxy Statement. Subject to
the accuracy of the representations and warranties of Buyer set forth in
paragraph 9 of Exhibit C, the Proxy Statement will not, on the date the
Proxy Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Seller, 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 the light of the circumstances under
which they are made, not misleading and will not, at the time of the Seller

 

B-23

 

Stockholders Meeting, omit
to state any material fact necessary to correct any statement in any earlier
communication from the Seller with respect to the solicitation of proxies for
the Seller Stockholders Meeting which shall have become false or misleading in
any material respect. The Proxy Statement will comply as to form in all
respects with the applicable requirements of the Exchange Act. Notwithstanding
the foregoing, the Seller makes no representation or warranty with respect to
information supplied by or on behalf of the Buyer for inclusion in the Proxy
Statement.

 

 

B-24

 

EXHIBIT C 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer
represents and warrants to Seller each of the following:

 

1.             Organization and Qualification.
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of Delaware, and has the requisite corporate power and authority
to own and operate its properties and to carry on its business as now conducted
in each jurisdiction where the failure to do so would have a material adverse
effect on its business, properties, or ability to conduct the business
currently conducted by it.

 

2.             Authority Relative to this
Agreement. Buyer has the requisite corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby has been duly authorized by Buyer, and no
other corporate proceedings on the part of Buyer are necessary to authorize
this Agreement and such transactions entered into. This Agreement has been duly
executed and delivered by Buyer and constitutes a valid and binding obligation
of Buyer, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors’ rights
generally and by general principles of equity.

 

3.             No Conflicts. Buyer is not
subject to, or obligated under, any provision of (a) its Certificate of
Incorporation or Bylaws, (b) any material agreement, arrangement, or
understanding to which the Buyer is a party, (c) any material license,
franchise, or permit, or (d) any law, regulation, order, judgment, or decree to
which the Buyer is subject, which would be breached or violated by its
execution, delivery, and performance of this Agreement and the consummation by
it of the transactions contemplated hereby.

 

4.             No Consents. No
authorization, consent, or approval of, or filing with, any public body, court,
or authority is necessary on the part of Buyer for the consummation by Buyer of
the transactions contemplated by this Agreement.

 

5.             Investment Purposes. Buyer is
acquiring the Shares and not with a view to their distribution with the meaning
of Section 2(i) of the Securities Act.

 

6.             Litigation. As of the date
hereof, no action by or against the Buyer is pending or, to the best Knowledge
of the Buyer, threatened, which could affect the legality, validity or
enforceability of this Agreement, or the consummation of the transactions
contemplated hereby.

 

7.             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 Buyer.

 

8.             Independent Investigation;
Seller’s Representation. Buyer has conducted its own independent
investigation, review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, software, technology and
prospects of the Company Business, which investigation, review and analysis was
done by Buyer and its Affiliates and

 

C-1

 

representatives.
Buyer acknowledges that it and its representatives have been provided adequate
access to the personnel, properties, premises and records of the Company for
such purpose. In entering into this Agreement, Buyer acknowledges that it has
relied solely upon the aforementioned investigation, review and analysis and
not on any factual representations or opinions of the Seller or its
representatives (except the specific representations and warranties of the
Seller set forth in Exhibit B and the Disclosure Letter thereto). Buyer
hereby acknowledges and agrees that (a) other than the representations and
warranties made in Exhibit B, none of the Seller, its Affiliates, or any
of their respective officers, directors, employees or representatives make or
have made any representations or warranty, express or implied, at law or in equity,
with respect to the Company, the Shares or the Company Business, including as
to (i) merchantability or fitness for any particular use or purpose or (ii) the
probable success or profitability of the Company Business after the Closing
Date.

 

9.             Proxy Statement. Subject to
the accuracy of the representations and warranties of the Seller set forth in
paragraph 31 of Exhibit B, the information supplied by Buyer for
inclusion in the Proxy Statement will not, on the date the Proxy Statement (or
any amendment or supplement thereto) is first mailed to stockholders of the
Seller, 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 the light of the circumstances under which they are
made, not misleading, and will not, at the time of the Seller Stockholders
Meeting, omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of proxies for the
Seller Stockholders Meeting which shall have become false or misleading in any
material respect. Notwithstanding the foregoing, Buyer makes no representation
or warranty with respect to any information supplied by or on behalf of the
Seller for inclusion in the Proxy Statement.

 

C-2

 

EXHIBIT D

PROCEDURE FOR INDEMNIFICATION

 

Subject to the limitations set forth in Article 4 of the Agreement, the
party seeking to be indemnified (the “Indemnified Party”) will promptly give written notice
hereunder to the party from which it seeks to be indemnified by (the “Indemnifying
Party”) after
obtaining notice of any claim as to which recovery may be sought against the
Indemnifying Party. However, the right to indemnification hereunder will not be
affected by any delay in or failure of an Indemnified Party to give any notice,
unless, and then only to the extent that, the rights and remedies of the
Indemnifying Party will have been prejudiced as a result of the failure to
give, or delay in giving, notice.

 

If
the indemnity claim arises from the claim of a third-party, the Indemnified
Party will permit the Indemnifying Party to assume the defense of any such
claim and any litigation resulting from such claim at the Indemnifying Party’s
cost and expense. If the Indemnifying Party fails to notify an Indemnified
Party of its election to defend any such claim or action by a third party with
respect to which it has the option to defend within 30 days after the Indemnifying
Party receives notice of such claim or action, then the Indemnifying Party will
be deemed to have waived its right to defend such claim or action. If the
Indemnifying Party assumes the defense of a third-party claim, the obligations
of the Indemnifying Party as to such claim will include taking all steps
necessary in the defense or settlement of such claim or litigation and holding
the Indemnified Party harmless from and against any and all damages caused by
or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation. The Indemnifying Party
shall not, in the defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment (other than a judgment of dismissal on the
merits without costs) except with the written consent of the Indemnified Party,
or enter into any settlement (except with the written consent of the
Indemnified Party) which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party a release from
all liability in respect of such claim or litigation. The non-defending party
may, with counsel of its choice and at its expense, participate in the defense
of any such claim or litigation.

 

If the Indemnifying Party does not assume the defense of any such claim
or litigation by a third-party, the Indemnified Party may defend against such
claim or litigation in such manner as it deems appropriate. The Indemnified
Party may not settle such claim or litigation without the written consent of
Indemnifying Party, which consent may not be unreasonably withheld. The
Indemnifying Party will promptly pay or reimburse the Indemnified Party for all
expenses in defending any claim, for the amount of any settlement, and for all
damages incurred by the Indemnified Party in connection with any such claim or
litigation.

 

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 at the Indemnifying Party’s sole cost and expense, 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

 

D-1

 

Proceeding so defended or
any compromise or settlement effected without its consent (which may not be
unreasonably withheld).

 

Seller and Buyer hereby consent to the non exclusive jurisdiction of
any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the mattes alleged therein, and agree that
process may be served on Seller with respect to such a claim anywhere in the
world.

 

With respect to any third-party claim subject to indemnification under
this Exhibit D: (i) both the Indemnified Party and the Indemnifying
Party, as the case may be, shall keep the other Person reasonably informed of
the status of such third-party claim and any related Proceedings at all stages
thereof where such Person is not represented by its own counsel, and (ii) the
parties agree (each at its own expense) to render to each other such assistance
as they may reasonably require of each other and to cooperate in good faith
with each other in order to ensure the proper and adequate defense of any
third-party claim.

 

With respect to any third-party claim subject to indemnification under
this Exhibit D, the parties agree to cooperate in such a manner as to preserve
in full (to the extent possible) the confidentiality of all confidential
information and the attorney-client and work-product privileges. In connection
therewith, each party agrees that: (i) it will use its best efforts, in respect
of any third-party claim in which it has assumed or participated in the
defense, to avoid production of confidential information (consistent with
Applicable Law and rules of procedure), and (ii) all communications between any
party hereto and counsel responsible for or participating in the defense of any
third-party claim shall, to the extent possible, be made so as to preserve any
applicable attorney-client or work-product privilege.

 

D-2

 

 

EXHIBIT E

 

FORM OF SELLER OPINION LETTER

 

Omitted

 

 

 

EXHIBIT F

 

FORM OF BUYER OPINION LETTER

 

Omitted

 

 

EXHIBIT G

 

FORM OF NON-COMPETITION AGREEMENT

 

OmittedExhibit
10.16

 

FIRST AMENDMENT TO

STOCK PURCHASE
AGREEMENT

 

FIRST AMENDMENT TO STOCK
PURCHASE AGREEMENT dated as of September 28, 2006 by and between Zila, Inc, a
Delaware corporation (“Seller”) and NBTY, Inc., a Delaware corporation (“Buyer”).

 

W I T N E S S E T H:

 

WHEREAS, the above
parties have entered into a Stock Purchase Agreement dated as of August 13,
2006 (“Stock Purchase Agreement”); and

 

WHEREAS, the Stock
Purchase Agreement provides in Section 7.10 that it may be amended by the
written agreement of the Buyer and Seller; and

 

WHEREAS, the undersigned
parties wish to amend the Stock Purchase Agreement in the manner set forth
below;

 

NOW, THEREFORE, the
undersigned parties agree as follows:

 

1. The last sentence of
paragraph 25 (c)(ii) of Exhibit B is hereby amended by deleting it in its
entirety and replacing it with the following:

 

“The Seller will take all
necessary steps and bear all related costs to affect a transfer, assignment
and/or sublicense of the Patent Licenses to the Company.”.

 

2. Paragraph 25 of
Exhibit B is hereby further amended by adding a new subsection to subsection
(a) as follows:

 

“(vii) all domain names
owned or controlled by the Company (the “Domain Names”).”.

 

3. Paragraph 25 of
Exhibit B is hereby further amended by adding a new subsection as follows:

 

“(h)  Domain Names.

 

The Disclosure Letter
contains a complete and accurate list of all Domain Names.”.

 

4. All references to the
Stock Purchase Agreement in the Stock Purchase Agreement or in any documents
delivered in connection therewith, shall be deemed to mean the Stock Purchase
Agreement as amended hereby.

 

5. Except as modified by
this First Amendment, the Stock Purchase Agreement shall remain in full force
and effect.

 

 

IN WITNESS WHEREOF, the
undersigned have executed this First Amendment on the date first written above
by their duly authorized officers.

 

 

	
   

  	
  ZILA, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GARY KLINEFELLER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NBTY, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MICHAEL SLADE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its: 

  	
  Senior Vice President

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