SEC Info - Naturade Inc - ‘10-Q’ for 6/30/99

SEC Info℠

Home

Help

Please Sign In

Naturade Inc – ‘10-Q’ for 6/30/99 – EX-10.3

On: Monday, 8/16/99 · For: 6/30/99 · Accession #: 1047469-99-32378 · File #: 33-07106-A

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/16/99  Naturade Inc                      10-Q        6/30/99    5:99K                                    Merrill Corp/New/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      14     65K 
 2: EX-10.1     Material Contract                                      7     20K 
 3: EX-10.2     Material Contract                                     19     55K 
 4: EX-10.3     Material Contract                                     12     32K 
 5: EX-27       Financial Data Schedule (Pre-XBRL)                     2      6K

EX-10.3 — Material Contract

EX-10.3 1st Page of 12 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SETTLEMENT AGREEMENT    

This Settlement Agreement is entered into by and between the parties  
undersigned below (the "Parties") for the consideration stated.                 

1.     PARTIES:                                                                 

       The Parties to this Settlement Agreement are the following:

      1.1   JEFFREY H. MIMS, Trustee for the Chapter 7 Estate of
Performance Nutrition, Inc.;            

1.2   NATURADE, INC., a Delaware corporation; and   

    1.3   HEALTH HOLDINGS AND BOTANICALS, INC., a California
corporation.                            

2.     DEFINED TERMS USED IN THIS AGREEMENT:                                    

            2.1   ADVERSARY PROCEEDING shall mean the lawsuit styled JEFFREY
H. MIMS. TRUSTEE V. KENNEDY CAPITAL MANAGEMENT, INC., ANTHONY ROTH, DAVID       
WYNNE, AND NATURADE, INC. - Adversary Proceeding No. 397-3452 pending in the    
United States Bankruptcy Court for the Northern District of Texas, Dallas       
Division, including without limitation the Counterclaim filed by Naturade,      
Inc. against the Trustee and the Estate.                                        

2.2   DEBTOR shall mean Performance Nutrition, Inc. 

            2.3   CHAPTER 7 CASE shall mean the bankruptcy case styled IN RE
PERFORMANCE NUTRITION, INC. - Case No. 97-30566-HCA-7 pending in the United     
States Bankruptcy Court for the Northern District of Texas, Dallas Division.    

         2.4   PROOFS OF CLAIM shall mean any and all proofs of claims
filed by Naturade, Inc. in the Chapter 7 Case, including, without limitation,   
Proofs of Claim No. 3 and 64.                                                   

        2.5   ESTATE shall mean the bankruptcy estate of the Debtor.

SETTLEMENT AGREEMENT                                               Page 1       

EX-10.3 2nd Page of 12 TOC 1st Previous Next ↓Bottom Just 2nd
   2.6   NATURADE shall mean Naturade, Inc., its officers,
directors, employees, agents, attorneys, accountants and other professionals    
who have appeared on its behalf in the Adversary Proceeding, excluding          
Anthony Roth, William Hatamyar, CFO Associates, Inc., and Trinity Capital,      
Inc.                                                                            

            2.7   HEALTH HOLDINGS shall mean Health Holdings and Botanicals,
Inc., its officers, directors, employees, agents, attorneys, accountants, and   
other professionals, including Doyle & Boissier, LLC, a shareholder thereof,    
but excluding Anthony Roth.                                                     

     2.8   TRUSTEE shall mean Jeffrey H. Mims, Trustee for the
Estate, and his agents, attorneys, accountants and other professionals who      
have appeared on his behalf in the Adversary Proceeding.                        

            2.9   SETTLEMENT AGREEMENT shall mean this Settlement Agreement.

        2.10  JUDGMENT shall mean the Amended Final Judgment entered
by the United States Bankruptcy Court for the Northern District of Texas,       
Dallas Division in the Adversary Proceeding on March 22, 1999, a copy of        
which is attached hereto as Exhibit "A," including without limitation, any      
obligation for payment of costs arising therefrom.                              

       2.11   THE INCIDENTS shall mean all allegations made by the
Trustee against Naturade in the Adversary Proceeding and all facts related to   
same, including, but not limited to, Naturade's alleged:  1) wrongful           
interference with PNI's management, tortious interference with the management   
contracts of PNI's management; 2) unjust enrichment at the expense of the       
Estate; 3) conspiracy with PNI's management to breach fiduciary duties; and     
4) aiding and abetting the breach of fiduciary duties by PNI's management.      

SETTLEMENT AGREEMENT                                               Page 2       

EX-10.3 3rd Page of 12 TOC 1st Previous Next ↓Bottom Just 3rd
3.     RECITALS:                                                                

   3.1   On January 21, 1997, the Debtor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.                    

         3.2   On February 19, 1997, the Court ordered the appointment
of a Chapter 11 trustee for the Debtor's Estate.  On February 28, 1997, the     
Trustee was appointed trustee for the Chapter 11 estate. On March 14, 1997,     
this case was converted to a case under Chapter 7.  The Trustee is now          
serving as trustee for the Chapter 7 Estate.                                    

  3.3   In October 1997, the Trustee filed the Adversary
Proceeding against Naturade and three other Defendants who are not parties to   
this Settlement Agreement.                                                      

         3.4  Trial of the Adversary Proceeding, with the exception of
certain of the Trustee's equitable claims and the defendants' counterclaims,    
was held over non-consecutive days from July 27, 1998 to October 30, 1998.      
After hearing the evidence and arguments of the parties, the Court entered      
the Judgment on March 22, 1999.  In support of the Judgment, the Court          
entered its Amended Findings of Facts and Conclusions of Law on March 22,       
1999 (the "Findings").                                                          

4.    CONSIDERATION AND PAYMENTS:                                               

           4.1  The purpose of this Settlement Agreement is to provide for
the payments, undertakings and releases set forth herein.  By signing the       
Settlement Agreement, the Parties do not admit the truthfulness of any of the   
claims made by any opposing party in the Adversary Proceeding and/or Proofs     
of Claim; to the contrary, all such claims and allegations are expressly        
denied.  Naturade further denies and contests each and every finding and        
conclusion by the Court in the Findings or in the Judgment that Naturade        
engaged in any wrongful conduct or that it damaged PNI in any way.              

SETTLEMENT AGREEMENT                                               Page 3       

EX-10.3 4th Page of 12 TOC 1st Previous Next ↓Bottom Just 4th
          4.2   The consideration for this Settlement Agreement consists
of the mutual covenants, representations and releases contained herein, and     
the payments and notes from Naturade to the Estate described in this            
Settlement Agreement.                                                           

         4.3  Naturade agrees to pay the Estate, in good and collected
funds, the sum of One Million Three Hundred Fifty Thousand and No/100 Dollars   
($1,350,000.00)(the "Cash Payment").  This sum shall be paid by Naturade, as    
provided below, upon the Bankruptcy Court's approval of the Settlement          
Agreement by causing The South Bay Bank to deliver to the Trustee's             
litigation counsel an irrevocable clean non-documentary letter of credit in     
the form of Exhibit B hereto (the "Letter of Credit"), on the second business   
day following the date the Bankruptcy Court's order approving the Settlement    
Agreement becomes final and non-appealable (the "Effective Date").  The Letter  
of Credit must be payable to the Trustee on the Effective Date and must not     
expire for a period of ninety days (90) days following the Effective Date.      
The Letter of Credit must not require the presentation of any document other    
than a sight draft and payment must not be conditioned upon any event other     
than the presentation of a sight draft.                                         

    4.4   Naturade also agrees to execute and deliver to the
Trustee on the Effective Date a secured promissory note in the principal        
amount of $424,000 payable to the Estate (the "Secured Note") and Security      
Agreement, which are attached hereto as Exhibits "C-1 and C-2" respectively,    
and incorporated by reference as if fully set forth herein.  Naturade will      
fully perform pursuant to the terms of the Secured Note, provided that the      
first monthly payment thereunder shall not be due until the first day of the    
calendar month immediately following the Effective Date.  The Secured Note      
will be subject to all                                                          

SETTLEMENT AGREEMENT                                               Page 4       

EX-10.3 5th Page of 12 TOC 1st Previous Next ↓Bottom Just 5th
currently existing, validly-perfected liens against Naturade's real and         
personal property.  The Trustee agrees that Health Holdings' future debt        
advances to Naturade, if any, shall have lien priority over the security        
interest granted hereunder to the Trustee, provided that nothing herein shall   
prevent the Trustee from bringing an action for recharacterization or           
subordination of Naturade's now existing debt to Health Holdings.  The          
parties presently contemplate that Naturade will obtain a loan or line of       
credit from a non-insider, third party lender in replacement of its current     
loans from South Bay Bank.  In such event, the Trustee agrees to promptly       
execute and deliver to Naturade, in form satisfactory to Naturade's new         
lender and the Trustee, a written confirmation that the Trustee's security      
interest in Naturade's property shall be subordinate in priority to the         
security interests granted to such new lender by Naturade.  The Trustee shall   
not unreasonably withhold such written confirmation of subordination upon       
request therefore by Naturade.                                                  

    4.5   Naturade also agrees to execute and deliver to the
Trustee on the Effective Date a promissory note in the principal amount of      
$226,000 payable to the Estate, which is attached hereto as Exhibit "D," and    
incorporated by reference as if fully set forth herein (the "Revenue Note").    
Naturade will fully perform pursuant to the terms of the Revenue Note.          
Naturade hereby further agrees to maintain accounting practices consistent      
with GAAP and with those used prior to March 29, 1999 until such time as the    
Revenue Note is paid in full.  Naturade hereby grants to the Trustee and his    
agents reasonable access to its books and records, upon five days calendar      
(5) written notice, to confirm the accuracy of Naturade's total net sales as    
reported in its 10-Q or 10-K reports.                                           

      4.6   This Settlement Agreement, Letter of Credit, Secured
Note, Revenue Note and any and all security agreements, UCC-1 financing         
statements, releases and any                                                    

SETTLEMENT AGREEMENT                                               Page 5       

EX-10.3 6th Page of 12 TOC 1st Previous Next ↓Bottom Just 6th
and all other documents executed in connection with or related to the           
settlement proposed herein shall be referred to herein as the "Settlement       
Documents."  Naturade agrees to execute and deliver the Settlement Documents    
to the Trustee on the Effective Date.                                           

          4.7   Effective as of the Effective Date, and upon delivery of
the instruments to Trustee identified in Paragraphs 4.3, 4.4, and 4.5 above,    
the Trustee hereby assigns to Naturade, without representation or warranty of   
any kind, all right, title, and interest of the Estate in all of the Estate's   
claims and causes of action which may exist against Allan Schulman, Michael     
Fernicola, Robert Bearson, William Cordeiro, Robert Zuber, Barry Zwick and      
Dr. Lenny Steven Smith arising out of the Incidents.  A copy of the             
assignment instrument is attached hereto as Exhibit "E."  As stated therein,    
the claims are assigned to Naturade "as is," and without any representations    
or warranties by the Trustee, Debtor, or the Estate including whether such      
claims are valid, barred by statutes of limitations or other legal or           
equitable defenses, legally enforceable or in existence.  In determining to     
accept the assignment, and in all matters addressed herein, Naturade has        
relied on the advice of its own counsel, and expressly disclaims reliance on    
any statements made by the Trustee, Debtor, or the Estate regarding the         
assigned claims.                                                                

          4.8   The parties agree that the settlement payments described
in this Settlement Agreement will be allocated to satisfy the Judgment as       
follows:  first to satisfy the punitive damages portion of the Judgment         
against Naturade, next to satisfy costs allowed against Naturade, next to       
satisfy interest accrued on the judgment as of the Effective Date, and next     
to satisfy in part, the actual damages awarded in the Judgment for which        
Naturade is jointly and severally liable with Defendant Anthony Roth.  This     
allocation does not reflect Naturade's liability to the Estate and does not     
affect in any way                                                               

SETTLEMENT AGREEMENT                                               Page 6       

EX-10.3 7th Page of 12 TOC 1st Previous Next ↓Bottom Just 7th
the release of the Judgment against Naturade by the Trustee, the Debtor, and    
its Estate.  The allocation merely seeks to preserve the greatest possible      
recovery by the Trustee, Debtor, and its Estate of the Judgment against         
Defendant Anthony Roth.                                                         

5.     COURT APPROVAL:                                                          

   5.1   Conditions precedent to the effectiveness of this
Settlement Agreement are:  (a) approval of this Settlement Agreement by the     
Bankruptcy Court, after notice to creditors and shareholders, by a final,       
non-appealable order providing, in part, for Naturade's standing as             
representative of the PNI estate for the limited purpose of asserting claims    
for violations of the automatic stay under 11 U.S.C. Section 362 related to     
any claims asserted against Naturade that Naturade believes are the subject     
of this Settlement Agreement with the Trustee; (b) proper and timely delivery   
of the Cash Payment to the Trustee; and (c) binding execution and timely        
delivery of the Settlement Documents required by this Settlement Agreement.     

6.     RELEASES:                                                                

      6.1   The Trustee, the Debtor and its Estate are executing
effective as of the Effective Date a release of Naturade and Health Holdings    
(the "Trustee's Release") from:  (i) the Judgment, including costs;  (ii)       
the Trustee's claims against Naturade under 11 U.S.C. Section 547 pending in    
Adversary No. 399-3084 or otherwise;  and (iii) any and all claims, demands,    
actions, rights, remedies, causes of action, debts, liens, sums, suits and/or   
accountings the Debtor and/or its Estate now has or hereafter may have or       
claim to have arising before the Effective Date, including but not limited to   
the matters made the subject of the Adversary Proceeding, including the         
Incidents and Proofs of Claim.  Defendant Anthony Roth, Lenny Steven Smith,     
Allan Schulman, Michael Fernicola, Robert Bearson,                              

SETTLEMENT AGREEMENT                                               Page 7       

EX-10.3 8th Page of 12 TOC 1st Previous Next ↓Bottom Just 8th
William Cordeiro, Robert Zuber, and Barry Zwick will be specifically excluded   
from the Trustee's Release.  Additionally, all claims or causes of action of    
the Estate which arise from the breach of this Settlement Agreement or the      
Settlement Documents with regard to misrepresentations or fraud in the          
inducement of this Settlement Agreement will not be released.  Further, any     
recharacterization and subordination claims against Health Holdings as to       
existing debt will not be released.  The Trustee shall deliver the Trustee's    
Release to Naturade on the Effective Date.  The Trustee's Release shall         
conform substantially to Exhibit "F" hereto.  Within five (5) days of the       
Effective Date, the Trustee shall file (a) a release of Judgment in the         
Adversary Proceeding, and (b) a dismissal of his claims against Naturade in     
Adversary Proceeding No. 399-3084 (the preference suit).  At such time,         
Naturade shall file a dismissal of its Notice of Appeal in the Adversary        
Proceeding.                                                                     

         6.2   Naturade and Health Holdings are executing effective as
of the Effective Date releases (collectively, the "Naturade Release") of the    
Trustee, Debtor, and its Estate from any and all claims, demands, actions,      
rights, remedies, causes of action, debts, liens, sums, suits and/or            
accountings Naturade and/or Health Holdings now has or hereafter may have or    
claim to have arising before the Effective Date, including but not limited to   
the matters made the subject of the Adversary Proceeding, including the         
Incidents and Proofs of Claim or otherwise.  The Naturade Release will be       
delivered to the Trustee on the Effective Date.  Such releases of the Trustee   
by Naturade and Health Holdings shall conform substantially to Exhibits G-1     
and G-2 hereto.                                                                 

           6.3   The Trustee agrees to forbear from any efforts to collect
or enforce the Judgment from or against Naturade until the Effective Date,      
unless the Court signs an                                                       

SETTLEMENT AGREEMENT                                               Page 8       

EX-10.3 9th Page of 12 TOC 1st Previous Next ↓Bottom Just 9th
order denying approval of the Settlement Agreement, in which case such          
forbearance shall terminate five (5) days thereafter.  Also on the Effective    
Date, Naturade will file pleadings dismissing its appeal of the Judgment,       
and Naturade's Proofs of Claim or any proof of claim filed in the Debtor's      
bankruptcy case shall be deemed withdrawn.                                      

7.     REPRESENTATIONS:                                                         

           7.1   Naturade represents and warrants that it is the owner and
holder of all claims held or asserted by Naturade including, without            
limitation, those evidenced by the Proofs of Claims, and Naturade has not       
transferred any such claims as of the effective date of this Settlement         
Agreement.                                                                      

    7.2   The parties hereto are not relying upon any facts,
promises, undertakings, or representations made by any other party or its       
attorneys except for the representations specifically set forth in the          
Settlement Agreement.  The parties hereto have relied solely and completely     
upon their own judgment, and the judgment of their attorneys, in executing      
the Settlement Agreement.                                                       

         7.3   The parties hereto understand that by entering into the
Settlement Agreement they are giving a full, complete, and final release of     
any and all claims, demands, affirmative defenses, defenses and causes of       
action which they have asserted or could have asserted against the other in     
the Adversary Proceeding or otherwise, excepting only the obligations           
contained in the Settlement Agreement.                                          

  7.4   Naturade represents that it is not entering this
Settlement Agreement with the intention or contemplation of filing bankruptcy   
thereafter.  Health Holdings represents that it is not entering this            
Settlement Agreement with the intention or contemplation of causing Naturade    
to file bankruptcy thereafter.                                                  

SETTLEMENT AGREEMENT                                               Page 9       

EX-10.3 10th Page of 12 TOC 1st Previous Next ↓Bottom Just 10th
         7.5   Health Holdings is a party to this Settlement Agreement
only for the purpose of effectuating Sections 4.3, 4.4, 4.5, 4.6, 4.7, 6.1,     
6.2, and 7.4.                                                                   

8.     MISCELLANEOUS PROVISIONS:                                                

           8.1   This Settlement Agreement may be modified only by written
agreement executed by all parties.                                              

   8.2   THE SETTLEMENT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.  THE SETTLEMENT    
AGREEMENT HAS BEEN ENTERED INTO IN WHOLE OR IN PART IN DALLAS COUNTY, TEXAS.    
IT IS PERFORMABLE, IN PART, IN DALLAS COUNTY, TEXAS.  ANY FEDERAL OR STATE      
COURT IN DALLAS COUNTY, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER ANY AND    
ALL DISPUTES ARISING UNDER OR PERTAINING TO THE SETTLEMENT AGREEMENT, AND       
VENUE IN ANY SUCH DISPUTES SHALL LIE EXCLUSIVELY IN DALLAS COUNTY, TEXAS.       

          8.3  It is acknowledged and understood that the Parties do not
admit the truthfulness of any of the claims or allegations made against them    
by the opposing party, and the provisions of this Settlement Agreement shall    
not constitute an admission by any of the Parties with regard to the            
truthfulness of any of the claims or allegations made against them by the       
opposing party.                                                                 

   8.4   This Settlement Agreement, including the Settlement
Documents, contains the entire understanding between the Parties concerning     
the matters herein contained.  There are no representations, agreements,        
arrangements, or understandings, oral or written, between or among the          
Parties, relating to the subject matter of this Settlement Agreement that are   
not fully expressed herein.  To the extent this Settlement                      

SETTLEMENT AGREEMENT                                               Page 10      

EX-10.3 11th Page of 12 TOC 1st Previous Next ↓Bottom Just 11th
Agreement is inconsistent with any other Settlement Document including the      
motion to Approve this Settlement Agreement, this Settlement Agreement shall    
control.                                                                        

        8.5   The Parties acknowledge that they and their designated
representatives have read all of this Settlement Agreement, and acknowledge     
that the parties hereto are entering this Settlement Agreement after            
consulting with counsel.                                                        

         8.6   This Settlement Agreement may be executed in any number
of identical counterparts, each of which shall be deemed to be an original      
for all purposes.                                                               

          8.7   The Settlement Agreement shall be binding upon and inure
to the benefit of parties and their respective heirs, survivors, executors,     
successors, and assigns including a bankruptcy trustee for any Party.           

         8.8   In the event that any terms of the Settlement Agreement
become subject to construction by any court, the terms of the Settlement        
Agreement shall be construed reasonably, equally and fairly with regard to      
both Trustee and Naturade, and shall not be strictly construed against any      
party.                                                                          

       8.9   Each of the Parties agrees to execute such additional
documents as may be reasonably necessary to effectuate the terms of this        
Settlement Agreement.                                                           

SETTLEMENT AGREEMENT                                               Page 11      

EX-10.3 Last Page of 12 TOC 1st Previous Next ↓Bottom Just 12th
Signed this 24 day of June 1999.                                                

JEFFREY H. MIMS, CHAPTER 7 TRUSTEE                                              
FOR THE ESTATE OF PERFORMANCE                                                   
NUTRITION, INC.                                                                 

/s/ Jeffrey H. Mims                                                             
----------------------------                                                    
Jeffrey H. Mims, Trustee                                                        

NATURADE, INC.                                                                  

By:    /s/ Lawrence J. Batina                                                   
----------------------------                                      
Title: CHIEF FINANCIAL OFFICER                                                  
----------------------------                                      

HEALTH HOLDINGS AND BOTANICALS, INC.                                            

By:    /s/ Lionel P. Boisseire, Jr.                                             
----------------------------                                      
Title: /s/ PRESIDENT                                                            
----------------------------                                      

SETTLEMENT AGREEMENT                                               Page 12

EX-10.3	1st Page of 12	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

EX-10.3	2nd Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 2nd

EX-10.3	3rd Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 3rd

EX-10.3	4th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 4th

EX-10.3	5th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 5th

EX-10.3	6th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 6th

EX-10.3	7th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 7th

EX-10.3	8th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 8th

EX-10.3	9th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 9th

EX-10.3	10th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 10th

EX-10.3	11th Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 11th

EX-10.3	Last Page of 12	TOC	1st	Previous	Next	↓Bottom	Just 12th

Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

Filed on:	8/16/99			None on these Dates
For Period End:	6/30/99
	3/29/99	5
	3/22/99	2	3
	10/30/98	3
	7/27/98	3
	3/14/97	3
	2/28/97	3
	2/19/97	3
	1/21/97	3
				List all Filings

↑Top

Filing Submission 0001047469-99-032378 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Naturade Inc – ‘10-Q’ for 6/30/99 – EX-10.3

On: Monday, 8/16/99 · For: 6/30/99 · Accession #: 1047469-99-32378 · File #: 33-07106-A

Previous ‘10-Q’: ‘10-Q’ on 5/17/99 for 3/31/99 · Next: ‘10-Q’ on 11/22/99 for 9/30/99 · Latest: ‘10-Q’ on 8/19/08 for 6/30/08

Quarterly Report — Form 10-QFiling Table of Contents

EX-10.3 — Material Contract

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
Filing Table of Contents