ASSET PURCHASE AGREEMENT
THIS AGREEMENT (hereinafter "Agreement") is effective as of June 16, 2003
(hereinafter "Effective Date") by and between:
MEDIFAST, INC's subsidiary ▇▇▇▇▇ ENTERPRISES INC. . ("AMEX;MED"), a
corporation organized and existing under the laws of the States of Texas,
located at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (hereinafter "BUYER") and CONSUMER
CHOICE SYSTEMS INC. , a corporation organized and existing under the laws of the
State of Delaware, located at ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ in the United States, (hereinafter "SELLER").
WHEREAS, SELLER is the owner of CONSUMER CHOICE SYSTEMS INC., its
assets to include all inventory, accounts receivable, equipment, patents,
trademarks, copyrights on technical materials supporting the WOMANS WELLBEING
PRODUCTS AND TEST KITS and all intellectual property related to the products and
services, web sites, software, hardware, creative advertising and other
marketing literature and all registrations related to the brand UTI, Menopausal
Relief, Menopausal Relief and words or phrases derived from these marks, which
may be amended and supplemented in writing during the due diligence period.
(Hereinafter the "Assets" and "Marks");
WHEREAS, BUYER desires to obtain all the assets, as listed in the
attached exhibits, of the CONSUMER CHOICE SYSTEMS INC BUSINESS that support
their retail and international business to include the distribution rights in
18,000 Drug Stores and assume limited liabilities such as trade accounts
payable, bank lines of credit on a work out schedule that allows the BUYER to
accrue 10% of Net. Sales on a Monthly Basis of Consumer Choice Systems Inc.
product sales and ▇▇▇▇▇ Pharmaceuticals Products to their retail customers, Take
Shape for Life Health Network Customers who purchase Woman's Wellbeing Products
and Test Kits, under the Take Shape label and pay on a proportional basis these
liabilities over a three year time frame or sooner until the liability is paid
according to the work out agreements. The BUYER may, at its sole discretion
accept a work out schedule of trade creditors as outlined in Exhibit "G". The
SELLER must get written and signed consents from all parties that agree to the
terms of this agreement from all Debt Holders to include short term and long
term note holders to include shareholder and officer loans to the company and
trade creditors to include lawyers, vendors and retailers that are owed over
$5,000.00 as of the day of this agreement. The SELLER and the Officers of
Consumers Choice Systems Inc. both corporately and individually warrant that the
consents have been granted to the company and the officers to transfer the
assets to the BUYER. If a creditor or debtor challenges the transfer of the
Assets to the BUYER, the SELLER, the Officers and Directors, individually and
collectively agree to pay all legal costs and fees associated with defending any
lawsuit challenging the transfer of the assets of Consumer Choice Systems Inc.
to the BUYER. The SELLER, its Officers, Directors and Note holders who are
affiliated with the SELLER agree to pledge their Medifast restricted stock to
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the BUYER as indemnification for the warrants, representations and promises of
the SELLER to the BUYER during the restricted period as determined by SEC Rule
144.
WHEREAS, BUYER AND SELLER pledge its active cooperation in and support
of MEDIFAST'S AND CONSUMER CHOICE SYSTEMS INC. BUSINESS marketing and product
development programs related to the Products, Marks, and formulas and
proprietary product information, the spirit and intent of which are to maintain
and enhance the value and significance of the Products, Brands and Marks of the
company and enhance Shareholder Value of the parent Medifast Inc.. ▇▇▇▇▇
Enterprises desires to enter into two-year NON-COMPETE agreements with one year
renewable terms with ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ and hire selected
other employees important to operating the new business. The BUYER desires to
operate the business in order to preserve the value of the assets during the
period of which the SELLER is obtaining the final consents, and or finalizing
the close of the Agreement. Should the Agreement not close by the set forth date
of June 16, 2003, the SELLER authorizes the BUYER to operate the Business,
including the receipt of all revenues, and control of all assets, until the
closing has been finalized and or all of the consents have been signed. The
BUYER agrees to pay the SELLER a royalty of 1% of net sales during the interim
period prior to the final closing. It is also understood that the BUYER will not
make payments to the trade creditors, until all consents are approved, and the
Agreement is completed.
WHEREAS, BUYER desires to purchase the assets of CONSUMER CHOICE
SYSTEMS INC. For Seventy Five Thousand (76,120) shares of restricted Medifast
Inc. Stock and provide working capital and the business opportunity to improve
the operating performance of the products, brands and people of the SELLER. The
BUYER will grant the SELLER 50,000 three year warrants priced at Ten Dollars
($10.00) per share which represents more than 100% of the closing price of the
AMEX: MED stock on the day of the letter of intent that initiated this
transaction. The BUYER will have fifteen business days from the execution of the
complete document to produce the actual stock and warrant certificates. The
BUYER will grant piggyback registration rights to these warrants only, and grant
the SELLER the right to a cashless exercise of the warrants as attached in
Exhibit "D".
NOW, THEREFORE, in consideration of their mutual covenants,
undertakings and promises contained herein, and other good and valuable
consideration, the receipt and adequacy of which the parties hereby acknowledge,
the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set
forth below:
1.1 "COMPETITOR" shall mean those trademarks, trade names or other
identifying words or symbols which are used on products which are similar to the
SELLER AND BUYERS products in category, image, quality and price points, and
which are sold through distribution channels of the same like and kind AS THE
SELLER AND BUYER.
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1.2 "INVENTORY" shall be any and all remaining (i.e. on hand or in
stock) Products and tangible items bearing the Marks, including but not limited
to, raw material, work in process, labels, tags, etc.
1.3 "NET SALES" shall mean the gross dollar amount of all sales by
SELLER (hereinafter "Gross Sales") less the following items insofar as they are
separately stated but included in the amounts invoiced to customers: usual trade
discounts actually taken, returns and sales allowances. No costs incurred in the
manufacture, sale, distribution, advertisement, promotion of the Products or in
the payment by SELLER of any local, State or Federal, taxes of any nature
whatsoever shall be deducted from Gross Sales when calculating Net Sales.
1.4 "NOTICE ADDRESS" shall be the addresses set forth for the parties
at the beginning of this Agreement, or such other addresses as a party may
hereafter designate to the other party in writing from time to time.
2. PAYMENT AND CLOSING
2.1 Seventy Five (76,120) Shares of restricted Medifast Stock and Fifty
Thousand (50,000) restricted three year Medifast Warrants to purchase stock at
$10.00 per share, which represents at least 100% of the Market Value of the
stock at the execution of the letter of intent that initiated this transaction,
as attached in Exhibit "D", will be issued to CONSUMER CHOICE SYSTEMS INC. or
their designees at the time the tangible and intangible assets are transferred
to the BUYER as follows: Customer Lists, Web Sites, Accounts Receivable, ▇▇▇▇▇
Cash, Finished Goods and Parts Inventory as listed in Exhibit "A", Patents,
Trademarks and Intellectual Property listed in Exhibit "B", the Equipment,
Software, Hardware, Manufacturing or Assembly Equipment, Desks , Chairs and
Common Property that support the business operations listed in Exhibit "C" and
any other miscellaneous items to be listed in Exhibit "D". In addition the
SELLER will provide legal consents of this transaction as required in this
agreement and attached in Exhibit "F" and "G". Upon the transfer of the Assets
which should take place no later that fifteen business days after the agreement
is executed, Medifast will have American Stock Transfer issue 76,120 shares of
Medifast Stock and 50,000 Medifast Warrants to the SELLER or the designees as
listed in Exhibit "E"
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3. DUE DILIGENCE, ACCOUNTING AND AUDITING
3.1 PROPER BOOKS AND RECORDS: The SELLER shall present to the BUYER all
the appropriate books of account or computer records relating to the SELLERS
Marketing Programs, Cost of Goods, Assembly and Finished Goods Products, in
accordance with generally accepted accounting principles (including, without
limitation, a sales journal, sales return journal, cash receipt book, general
ledger, and to the extent reasonably available, purchase orders and Inventory
records) SELLER shall transfer all books and records of the BUYER as part of the
Asset Purchase Agreement.
3.2 ANNUAL FINANCIAL STATEMENTS: The SELLER shall present to the BUYER
within 7 days of this agreement the SELLERS Year to Date Financial Results and
their fiscal year-end, with the latest commercial credit report which is based
on monthly, quarterly and annual financial statements prepared in accordance
with generally accepted accounting principles consistently applied.
4. QUALITY STANDARDS
4.1 QUALITY STANDARDS: SELLER acknowledges that the continued
maintenance of the great significance and value of the Marks and their
associated goodwill, the continued maintenance of SELLERS quality standards, and
the PROPER EXECUTION OF THE MEDICAL PROTOCOLS IN ACCORDANCE WITH FDA STANDARDS
and the merchandising and coordination of the products associated with the Marks
are all essential elements of this Asset Purchase by the BUYER. SELLER agrees
that the nature and quality of all Uses of the Marks and Protocols by the SELLER
shall be under the reasonable control of SELLER UNTIL CLOSING and shall conform
to reasonable industry standards and be consistent with the quality level of
competitive products of other companies.
5. THE MARKS
5.1 OWNERSHIP RIGHTS DEFINED: SELLER acknowledges the ownership of the
Marks and will do nothing inconsistent with such ownership, and that all Use
(and any other use thereof) of the Marks by SELLER and all good will developed
there from shall inure to the benefit of and be on behalf of BUYER upon closing
of this transaction. BUYER agrees that nothing in this Agreement shall give
SELLER any right, title, or interest in the Marks in accordance with this
Agreement and SELLER agrees that it will not attack the title of BUYER to the
Marks, the validity of the Marks, any rights of BUYER that may have arisen from
this Agreement, or the validity of this Agreement.
5.2 CONFIRMATION OF OWNERSHIP: Whenever requested by BUYER, SELLER
shall execute such documents or applications BUYER may deem necessary to confirm
SELLER'S ownership of all its rights, to maintain the validity of the Patents or
Marks, and to obtain, or maintain any registration thereof.
5.3 LABELS/PACKAGING: All of SELLERS Products shall contain a label,
hangtag and/or packaging (hereinafter collectively "labeling" or "label(s)").
SELLER understands the importance of maintaining the security and integrity of
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all trademarked labeling used on the Products, and SELLER agrees to use its
reasonable best efforts to maintain, and to require any subcontractors to
maintain, a strict, accurate and current inventory of all labels throughout the
manufacturing process of the Products so as to preclude any diversion of the
labels, and, if any such diversion occurs, SELLER agrees to notify BUYER in
writing immediately upon discovery thereof.
5.4 TRADEMARK REGISTRATION: The SELLER agrees to provide all copies of
Patent, Trademark, Copyright or Patent Pending applications or legal documents
related to registration to the BUYER prior to closing.
6. MARKETING AND DISTRIBUTION
6.1 PARTICIPATION PLEDGED: SELLER acknowledges that the marketing
programs that may be developed by or for THE COMPANY are for the benefit of the
Marks, and SELLERS cooperation and support thereof are an integral part of such
program and this Agreement. Therefore, SELLER pledges its direct and active
support of the programs that support the reputation of the brand and the
integrity of the distribution system.
6.2 MARKETING, WHOLESALE & SHIPMENT POLICY: SELLER acknowledges that
the availability and selection of product, formulas, and functions (i.e. the
intended purpose of the Product such as DETECTION OF URINARY TRACT INFECTION)
are an integral part of the high reputation and value which the trade and
consumers have come to associate with the Marks. To further protect that
reputation and value, SELLER agrees that its policy of sale, distribution, and
exploitation shall be of the high standard established by COMPANY. The COMPANY
WARRANTS that from time to time in its sole discretion reasonably applied, and
any variance from such standards will be to comply with any applicable law, rule
or regulation. The company also warrants that its retail distribution system is
in place and offers the BUYER an opportunity to grow the business in the United
States.
7. INFRINGEMENT
7.1 The parties shall notify each other promptly of any actual or
threatened infringements, imitations, or unauthorized use of the Marks by third
parties of which they may become aware. BUYER shall have the sole right, at its
expense, to bring any action on account of any such infringements, imitations or
unauthorized use, and SELLER shall cooperate with BUYER, as BUYER may reasonably
request, in connection with any such action brought by BUYER.
8. INSURANCE AND INDEMNIFICATION
8.1 INDEMNIFICATION:
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(A) SELLER hereby indemnifies and holds BUYER, its successors
and assigns, and any entity owning or controlling SELLER and its officers,
directors, employees, agents and representatives (hereinafter individually or
collectively referred to as "SELLER Corporate") harmless from and against any
and all liabilities, claims, causes of action, suits, damages, including without
limitation, suits for personal injury or death of third parties, and expenses,
including reasonable attorneys' fees and expenses, for which SELLER or SELER'S
Corporate may become liable or may incur or be compelled to pay as a result of
(i) SELLER'S performance of (or its failure to perform) its obligations or
responsibilities hereunder, or (ii) SELLER'S breach of any of its covenants,
representations and warranties under this Agreement, or (iii) any claim based
upon allegations of negligence or strict liability which are attributable to any
act of SELLER, or (iv) claims of infringement of any intellectual property right
that would not be included under Section B) below. In the event there is a claim
against BUYER for which indemnification from SELLER is sought hereunder, SELLER
shall have the right to defend, settle or contest said claim, at SELLERS sole
discretion, so long as the exercise of such discretion does not adversely affect
BUYER in a substantial manner and does not affect the Marks in any way. This
paragraph shall survive expiration or termination of the agreement.
(B) BUYER hereby indemnifies and holds SELLER, its successors
and assigns, and any entity owning or controlling BUYER and its officers,
directors, employees, agents and representatives (hereinafter individually or
collectively referred to as "BUYER Corporate") harmless from and against any and
all liabilities, claims, causes of action, suits, damages, including without
limitation, suits for personal injury or death of third Parties, and expenses,
including reasonable attorneys' fees and expenses, for which BUYER may become
liable or may incur or be compelled to pay as a result of the sale of BUYERS
products under this agreement. This paragraph shall survive expiration or
termination of the Licensed Term.
8.2 EFFECT OF APPROVAL: The approval by SELLER of any Product shall not
be construed as a consent by BUYER to any infringement or violation of the
rights of third parties occasioned by the approved Product or Use, nor as an
indemnification by or assumption of any responsibility for any such claim beyond
the indemnification set forth in Section 10.1 (B) above.
8.3 INSURANCE: SELLER WARRANTS THAT THE COMPANY HAS procured and has
maintained in full force and effect at all times during their ownership of the
brands, with a responsible insurance carrier or carriers reasonably acceptable
to BUYER, at least one Million Dollars ($1,000,000) coverage through an umbrella
general liability policy or a products liability insurance policy that
specifically includes any and all risks related to the sale or Use of the
Products, and that identifies the SELLER and any other party(ies) set forth in
the Insurance Guidelines within the scope of "additional insured.".
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9. TERMINATION
9.1 TERMINATION: Subject to the continuing obligations arising from a
breach hereof and those terms and obligations that survive cessation of this
Agreement by the clear import of their language, this Agreement and all rights
relevant thereto shall cease upon the earlier of termination, for whatever
reason, or expiration. This agreement will terminate within 30 days of this date
if the transaction is not closed.
10. NOTICES
10.1 NOTICES: Any notice, demand, waiver, consent, approval or
disapproval (collectively referred to as "notice") required or permitted herein
shall be in writing and shall be given personally, by messenger, by air courier,
by telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective Notice Address.
10.2 A notice shall be deemed received on the date of receipt.
11. APPLICABLE LAW. THIS AGREEMENT IS SUBJECT TO THE LAWS OF THE STATE OF
MARYLAND
11.1 WARRANTIES OF CORPORATE FITNESS: The parties each warrant the
following: (1) that the delivery of this Agreement has been duly authorized by
all requisite corporate action of its company; (2) that the execution and
delivery of this Agreement does not violate its Articles of Incorporation or
By-laws, or any contract or commitment to which it is a party or by which it is
bound; and (3) that it is not a party to any suit, action, administrative
proceeding, or investigation which, if successful, would have a material,
adverse effect on its properties, financial conditions or business.
11.2 CONSTRUCTION: This Agreement's terms and conditions were freely
negotiated. BUYER drafted the Agreement for the convenience of the parties only.
IN WITNESS WHEREOF, the parties have first caused this Agreement to be
executed as of the Effective Date.
▇▇▇▇▇ ENTERPRISES, INC.
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, CEO
Date: 6/11/03
BUYER
AND
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CONSUMERS CHOICE SYSTEMS INC.
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: CEO
Date: 6/11/03
SELLER
INDEMNATORS
OFFICERS
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Date: 6/11/03
By: /s/ ▇▇▇▇ ▇▇▇▇▇
---------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Date: 6/11/03
DIRECTORS
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Date: 6/11/03
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Date: 6/11/03
By: __________________________
Name:
Date
By: __________________________
Name:
Date
By: __________________________
Name:
Date
By: __________________________
Name:
Date
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