UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________

FORM 10-Q

  x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

OR

   o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from        to
 
Commission File Number 001-31668
 

INTEGRATED BIOPHARMA, INC.
(Exact name of registrant, as specified in its charter)
 
 
  Delaware   22-2407475
  (State or other jurisdiction of   (I.R.S. Employer
  incorporation or organization)   Identification No.)
 
 
225 Long Ave., Hillside, New Jersey
07205
(Address of principal executive offices)
(Zip Code)

(888) 319-6962
(Registrant’s telephone number, including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer  o
 
Accelerated filer  o
 
Non-accelerated filer    o
 
Smaller reporting company  x

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes x   No o
 
Applicable only to Corporate Issuers:

The number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date:
 
 
  Class Outstanding at May 21, 2012
  Common Stock, $0.002 par value         21,030,174 Shares  
 
 
 
 
 

 
                                                                                                      
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT
For the Three and Nine Months Ended March 31, 2012
INDEX


   
Page
 
Part I. Financial Information
 
 
Item 1.
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2012 and 2011 (unaudited)
2
 
Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011 (unaudited)
3
 
Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the Nine Months Ended March 31, 2012 (unaudited)
4
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2012 and 2011 (unaudited)
5
 
Notes to Condensed Consolidated Statements (unaudited)
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 15
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
23
     
Item 4.
Controls and Procedures
23
     
 
Part II. Other Information
 
     
Item 1.
Legal Proceedings
23
     
Item 1A.
Risk Factors
23
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
     
Item 3.
Defaults Upon Senior Securities
23
     
Item 5.
Other Information
24
     
Item 6.
Exhibits
24
 
 
Other
 
Signatures
 
25
     
     
     
 
 
 
 

 
 
 
 
Disclosure Regarding Forward-Looking Statements
 
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission, all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Integrated BioPharma, Inc. (the “Company”) or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words, “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, the risks and uncertainties affecting its businesses described in Items 1 and 1A of the Company’s Annual Report filed on Form 10-K for the year ended June 30, 2011 and in registration statements and other securities filings by the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of the forward-looking statements and are subject to change due inherent risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof and the Company does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
 
1

 
 

 

ITEM 1. FINANCIAL STATEMENTS
 
 
 
2
 
 
 

 
 
 
 
3

 
 
 

 

 
 
4
 
 
 
 

 
 
 
 
5
 
 
 
 

 
 
Note 1. Principles of Consolidation and Basis of Presentation
 
Basis of Presentation of Interim Financial Statements

The accompanying condensed financial statements for the interim periods are unaudited and include the accounts of Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, the “Company”). The interim condensed financial statements have been prepared in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented have been included. These condensed financial statements should be read in conjunction with the financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (“Form 10-K”), as filed with the SEC. The June 30, 2011 balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the three and nine months ended March 31, 2012 are not necessarily indicative of the results for the full fiscal year ending June 30, 2012 or for any other period.

These condensed consolidated financial statements reflect the reclassification of AgroLabs, Inc. as a continuing operation in the prior periods presented to conform with the current period presentation of our branded proprietary nutraceutical business as a continuing operation.  During the three months ended March 31, 2012, the Company determined that it was no longer feasible to sell the branded proprietary nutraceutical business to raise cash flows sufficient to satisfy a significant payment under the Notes Payable due to the recent decline in sales and operating results in the branded proprietary nutraceutical business.

Nature of Operations

The Company is engaged primarily in manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products.  The Company’s customers are located primarily in the United States. The Company was previously known as Integrated Health Technologies, Inc. and, prior to that, as Chem International, Inc. The Company was reincorporated in its current form in Delaware in 1995. The Company continues to do business as Chem International, Inc. with certain of its customers and certain vendors.

The Company’s nutraceutical business includes: InB:Manhattan Drug Company, Inc. (“Manhattan Drug”), which manufactures vitamins and nutritional supplements for sale to distributors, multilevel marketers and specialized health-care providers; AgroLabs, Inc. (“AgroLabs”), which distributes healthful nutritional products for sale through major mass market, grocery, drug and vitamin retailers, under the following brands: Naturally Noni, Naturally Pomegranate, Pomegranate with ACAI and Reservatrol, Coconut Water, Naturally Aloe, Aloe Pure, Naturally Thai Mangosteen, Peaceful Sleep, Green Envy, ACAI Extra, Superfruit Immune, ACAI Cleanse, Wheatgrass and other products which are being introduced into the market (these are referred to as our branded proprietary nutraceutical business and/or products); and The Vitamin Factory, which sells private label Manhattan Drug products, as well as our AgroLabs products, through the Internet.

The Company also distributes fine natural chemicals through its wholly-owned subsidiary IHT Health Products, Inc. and is a distributor of certain raw materials for DSM Nutritional Products, Inc.

Significant Accounting Policies

There have been no material changes during fiscal year 2012 in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
 
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INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

 
Investment in iBio, Inc. - Restricted. The Company accounts for its investment in iBio, Inc. (“iBio”) on the cost basis as it retained approximately 6% of its interest in iBio (1,266,706 shares of common stock) (the “iBio Stock”) at the time of the spin-off of this subsidiary in August 2008.  The Company reviews its investment in iBio for impairment and records a loss when there is deemed to be an impairment of the investment.  There was no impairment charge recorded in the nine months ended March 31, 2012 and 2011.  Pursuant to the Forbearance Agreement with respect to the Notes Payable, proceeds from any sales of the iBio Stock were to be used to repay a portion of the outstanding principal of the Notes Payable. (See Note 2. Liquidity and Going Concern and Note 6. Debt).  No shares of iBio were sold pursuant to the Forbearance Agreement prior to the expiration thereof (See Note 2. Liquidity and Going Concern and Note 6. Debt).

Earnings Per Share . Basic earnings per common share amounts are based on the weighted average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options, warrants and convertible preferred stock, subject to anti-dilution limitations using the treasury stock method.

Stock options and warrants to purchase or otherwise obtain shares of common stock were not included in the fully diluted computation for earnings per share as their exercise prices were greater than the market price of the common shares as of March 31, 2012 and 2011.

Note 2. Liquidity and Going Concern

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern. The Company has cumulative historical net losses and cash outflows from operations.  As of March 31, 2012, the Company had cash of $649 and a working capital deficit of $11,545 which is primarily attributable to the Notes Payable in the outstanding principal amount of $7,805, which matured on November 15, 2009 and are currently in default (See Note 6. Debt), the Convertible Note Payable in the outstanding principal amount of $4,500, which matured on February 21, 2011, which are secured by pledges of substantially all the Company’s assets (See Note 6. Debt).  These factors raise substantial doubt as to the Company’s ability to continue as a going concern.  The accompanying condensed consolidated financial statements do not include any adjustments that might result from these uncertainties.

The Company has defaulted on all of its outstanding debt instruments in the aggregate amount of $12,605 (see Note 6. Debt) by failing to repay them on their respective scheduled maturity dates. The Notes Payable and Convertible Note Payable are secured by pledges of substantially all of the Company’s assets.

The Company defaulted on the $7,805 outstanding principal amount of its Notes Payable, issued by the Company under that certain Securities Purchase Agreement, dated as of February 21, 2008, by failing to repay the Notes Payable on the scheduled maturity date of November 15, 2009.  The Company’s failure to repay the Notes Payable on the scheduled maturity date constituted an Event of Default under the Notes Payable and triggered the right of the holders of the Notes Payable (the “Note Payable Holders”) to give the Company a notice (an “Acceleration Notice”) to accelerate the payment of all unpaid principal and accrued and unpaid interest (including interest accruing at the default rate).  The Notes Payable are secured by a pledge of substantially all of the Company’s assets.  As of May 21, 2012, the Company has not repaid the Notes Payable.

On October 4, 2011, the Company and the Collateral Agent for the holders of the Notes Payable entered into a Forbearance Agreement (the “Forbearance Agreement”) extending, among other things, the due date until March 31, 2012 (See Note 6. Debt).  Several extensions of the Forbearance Agreement were granted from December 31, 2011 through February 8, 2012; however, on February 8, 2012, the forbearance period under the Forbearance Agreement expired.  As of May 21, 2012, the Company remains in default under the Notes Payable (See Note 6. Debt).  In addition, pursuant to the Forbearance Agreement, a $1.0 million forbearance fee is due and payable at the end of the forbearance period under the Forbearance Agreement.  Such fee is included in accrued expenses and other liabilities in the condensed consolidated balance sheets as of March 31, 2012.  The Company is negotiating with the Collateral Agent regarding a further forbearance, however, there can be no assurance that any further forbearance will be granted.  The Company is also currently negotiating with a third party financial institution to obtain debt financing on terms favorable to the Company in order to repay in full the Notes Payable, as well as to provide for the ongoing working capital and capital expenditure needs of the Company.  However, there can be no assurance that the Company will be able to secure such debt financing on terms acceptable to the Company.
 
7
 
 
 
 

 
 
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)
The Company defaulted on the $4.5 million outstanding principal amount of its Convertible Note Payable, issued by the Company under that certain Securities Purchase Agreement, dated as of February 21, 2008, by failing to repay the Convertible Note Payable on the scheduled maturity date of February 21, 2011.  The Company’s failure to repay the Convertible Note Payable on the scheduled maturity date constituted an Event of Default under the Convertible Note Payable and triggered the right of the holder of the Convertible Note Payable to give the Company a notice (“CD Acceleration Notice”) to accelerate the payment of all unpaid principal and accrued and unpaid interest (including interest accruing at the default rate, if any).  The Convertible Note Payable is secured by a pledge of substantially all of the Company’s assets, which pledge is subordinated to the security interest held by the Note Payable Holders.  As of May 21, 2012, the Company has not repaid the Convertible Note Payable or the default interest on the Convertible Note Payable.  The holder of the Convertible Note Payable, CD Financial, LLC (“CD Financial”) is a significant shareholder of the Company and has not made any payment demands on the Company with respect to the Convertible Note Payable, nor has it converted the Convertible Note Payable into common shares of the Company.  The Company is currently negotiating, in connection with its third party financial institution negotiations referenced in the above paragraph, the refinancing of the Convertible Note Payable with CD Financial.  However, there can be no assurance that the Company will be able to secure such refinancing on terms acceptable to the Company and the third party financial institution.

There can be no assurance that the Company will be able to repay, restructure or amend the Notes Payable prior to the receipt of an Acceleration Notice or the Convertible Note Payable prior to receipt by the Company of a CD Acceleration Notice.  In the interim, the Company has continued to make timely interest payments to the Note Payable Holders at the non default rate of 8% per annum and is exploring its strategic alternatives, which may include business divestitures, developing business and sales strategies to increase operating income, the sale of some or all of the Company’s assets or operating subsidiaries and/or capital restructuring plans.

As a result of the events of default that arose based upon the Company’s failure to pay each of the Notes Payable at maturity, the Note Payable Holders have the right to give the Company an Acceleration Notice. As a result of the event of default that arose based upon the Company’s failure to repay the Convertible Note Payable at maturity, CD Financial has the right to give the Company a CD Acceleration Notice.  Each acceleration notice would (i) accelerate the payment of all unpaid principal and accrued and unpaid interest (including default interest (if any); and (ii) require the Company to pay an amount equal to the sum of all of the respective amounts described in the preceding clause (i) in same day funds on the payment date specified in such notice. If the Company is unable to raise additional capital, sell certain assets or successfully refinance the full outstanding amount of the Notes Payable and the Convertible Note Payable upon acceptable terms, it would have a material adverse effect on the Company, including the possible foreclosure by the holders of the Notes Payable and/or the Convertible Note Payable of all or some of the Company’s assets, which would impact the Company’s ability to continue as a going concern.

On May 15, 2012, Cedarburg Pharmaceuticals, Inc. (“Cedarburg”) sent the Company a letter (the “Demand Letter”) setting forth a demand for indemnification under the Stock Purchase Agreement, dated March 17, 2009 (the “Cedarburg SPA”), by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demands payment by the Company of $600,000 in respect of the Company’s indemnification obligations under the Cedarburg SPA.  In addition, in the Demand Letter, Cedarburg informed the Company that there are also environmental issues pending which may lead to additional costs to Cedarburg which will likely be in excess of $300,000.  The Company intends to vigorously contest Cedarburg’s demands for payment as set forth in the Demand Letter.
 
8
 
 
 
 

 
 
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

 
Note 3. Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method and consist of the following as of:
 
 
Note 4. Property and Equipment, net

Property and equipment, net consists of the following as of:

 
Depreciation and amortization expense was $98 and $87 for the three months ended March 31, 2012 and 2011, respectively and $269 and $256 for the nine months ended March 31, 2012 and 2011, respectively.  In the nine months ended March 31, 2012 and 2011, the Company disposed of machinery and equipment in the amount of $76 and $137, respectively, for a loss of $1 and a gain of $30, respectively.


9
 

 
 
 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)
 
Note 5. Intangible Assets, net

Intangible assets consist of trade names, license fees, and unpatented technology. The carrying amount of other intangible assets, net is as follows as of:
 
 
Amortization expense from continuing operations recorded on the intangible assets for the three and nine months ended March 31, 2012 and 2011 was $37 and $106 and $34 and $103, respectively. Amortization expense is recorded on the straight-line method over periods ranging from 2 years to 20 years based on contractual or estimated lives of the intangible assets and is included in selling and administrative expenses.

The estimated annual amortization expense for intangible assets for the five succeeding fiscal years is as follows:


Note 6. Debt

Notes Payable

On February 21, 2008, the Company entered into a Securities Purchase Agreement with Imperium Master Fund, LTD. and three other parties (collectively “Imperium”), which Securities Purchase Agreement was amended on October 14, 2008 (as so amended, the “SPA”), pursuant to which the Company issued, and Imperium purchased from the Company, an aggregate $7,000 in principal of senior secured notes (“Notes Payable”). The Notes Payable matured on November 15, 2009 and bear interest at the rate of 8.0%.  Interest is payable monthly.  As of March 31, 2012 and June 30, 2011, accrued interest of $54 and $47, respectively, is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

An additional premium of $805 was granted due to the amendment noted above.  The initial additional premium of $805 was subject to interest payments commencing October 1, 2011.  In addition, pursuant to the Forbearance Agreement, a $1.0 million forbearance fee is due and payable at the end of the forbearance period under the Forbearance Agreement.  Such fee is included in accrued expenses and other liabilities in the condensed consolidated balance sheets as of March 31, 2012.
 
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INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

 
The Notes Payable are secured by a pledge of substantially all of the Company’s assets.

On October 4, 2011, the Company and the Collateral Agent for the Note Payable Holders, entered into a Forbearance Agreement.  The Forbearance Agreement provided that the Collateral Agent shall forbear from exercising rights and remedies arising from the occurrence of Specified Defaults (as defined in the Forbearance Agreement), including the Company’s failure to repay the Notes Payable which are due and payable.   Several extensions of the Forbearance Agreement were granted from December 31, 2011 through February 8, 2012; however, on February 8, 2012, the forbearance period under the Forbearance Agreement expired.  As of May 21, 2012, the Company remains in default under the Notes Payable.

The Company is negotiating with the Collateral Agent regarding a further forbearance, however, there can be no assurance that any further forbearance will be granted.  In addition, the Company and the Collateral Agent continue to discuss the options available to the Company to repay the Notes Payable among other strategic options to repay the Notes Payable under agreeable terms. 

The Company is also currently negotiating with a third party financial institution to obtain debt financing on terms favorable to the Company in order to repay in full the Notes Payable, as well as to provide for the ongoing working capital and capital expenditure needs of the Company.  However, there can be no assurance that the Company will be able to secure such debt financing on terms acceptable to the Company.

Convertible Note Payable – CD Financial, LLC

On February 21, 2008, the Company entered into a Securities Purchase Agreement (the “CD SPA”) with CD Financial, a significant shareholder of the Company, pursuant to which the Company issued and CD Financial purchased from the Company, a Convertible Senior Secured Note in the principal amount of $4,500 (the “Convertible Note Payable”).  The Convertible Note Payable matured on February 21, 2011 and bears interest at the rate of 9.5%.  Interest is payable monthly.  The Convertible Note Payable is secured by a pledge of substantially all of the Company’s assets.

In March 2009, the Company and CD Financial entered into an oral agreement to suspend the cash interest payments on the Convertible Note Payable until the Company returned to positive cash flows in its operations.  In this oral agreement, CD Financial agreed not to give any default notices or increase interest rates due to such default (the default interest rate as defined in the Convertible Note Payable is 18%).  The Company resumed interest payments on the Convertible Note Payable in August of 2009.  In March 2010, CD Financial orally agreed to defer the interest owed for April 2010, in the amount of $36, until the Company returned to positive cash flows to assist the Company in meeting its short term cash flow requirements.  The Company has made timely monthly interest payments, beginning with the May 2010 monthly interest obligation.  As of May 21, 2012, the Company is in default under the Convertible Note Payable for the nonpayment of the principal balance due on February 21, 2011.  The Company is currently negotiating, in connection with its third party financial institution negotiations (see Note 6. Debt – Notes Payable), the refinancing of the Convertible Note Payable with CD Financial.  However, there can be no assurance that the Company will be able to secure such refinancing on terms acceptable to the Company and the third party financial institution.

As of March 31, 2012 and June 30, 2011, accrued interest of $289 and $254 with respect to the Convertible Note Payable is included in accrued expenses and other current liabilities, respectively, in the condensed consolidated balance sheets, including interest in arrears of $217 in each period.
 
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INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

The Convertible Note Payable may be converted, at any time and at the holder’s option, into shares of the Company’s common stock under the terms and conditions set forth in the CD SPA.  The conversion price is a formula that bases the conversion price on the greater of (i) 90% of the average Volume Weighted Average Price (the "VWAP") market price of the Company’s common stock for 20 trading days immediately preceding the conversion date and (ii) $2.00, subject to adjustment in the event of a stock dividend, stock split or combination, reclassification or similar event and upon certain issuances below the conversion price.

Also, in accordance with the CD SPA, the Company will issue and deliver to CD Financial, for no additional consideration, 50,000 shares of common stock, on a quarterly basis in arrears, until the Convertible Note Payable has been repaid in full.  The Company recognizes additional interest expense for the shares issued in connection with the Convertible Note Payable.

Debt discount of $197 and $837, respectively, in the three and nine months ended March 31, 2011 was recorded in interest expense in condensed consolidated statement of operations.

Notes Payable, CD Financial LLC

On November 24, 2009, Manhattan Drug, a wholly owned subsidiary of the Company, entered into a $300 promissory note (the “CD Note”) with CD Financial.  The CD Note matured on November 24, 2010 and bears interest at the rate of 5%, which interest is payable quarterly.  As of May 21, 2012, the Company is in default under the CD Note as a result of the Company’s failure to repay the CD Note on its scheduled maturity date.  Interest is paid quarterly.  The CD Note is expected to remain outstanding until the Company satisfies the Company’s obligations under the Notes Payable. (See Note 6. Debt – Notes Payable).

On July 29, 2010, Manhattan Drug entered into a second promissory note in the amount of $40 (the “CD $40 Note”) with CD Financial.  The CD $40 Note matured on October 29, 2010 and bore interest at the rate of 5%.  Manhattan Drug repaid the CD $40 Note on October 29, 2010.  Interest was accrued monthly and was paid on maturity.

The weighted average interest rate paid on the Company’s outstanding debt was 8.46% and 8.49% in the three months ended March 31, 2012 and 2011, respectively and 8.48% and 8.49% for the nine months ended March 31, 2012 and 2011, respectively.

Note 7. Significant Risks and Uncertainties

(a) Major Customers. For the three and nine months ended March 31, 2012, approximately 77% and 79%, respectively, of total net sales were derived from two customers as compared to approximately 74% and 80% of total net sales derived from two customers in the three and nine months ended March 31, 2011, respectively.   Accounts receivable as of March 31, 2012 from these customers represented approximately 33% of total accounts receivable. The loss of these customers would have an adverse affect on the Company’s operations.  Major customers are those customers who account for more than 10% of net sales.

(b) Other Business Risks. Approximately 57% the Company’s employees, located in its New Jersey facility, are covered by a union contract. The contract was renewed in August 2010 for an additional one year term, and was extended in August 2011 to December 31, 2011.  In December 2011, the union verbally agreed to continue operating under the terms of the existing contract until the Company completes the refinancing of its material debt (see Note 6. Debt).

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INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

 
Note 8. Commitments and Contingencies

(a) Leases

Related Party Leases. Warehouse and office facilities are leased from Vitamin Realty, which is 90% owned by the Chairman of the Company’s Board of Directors, a director and majority shareholder and certain of his family members.  On January 5, 2012, InB: Manhattan Drug Company, Inc., a wholly-owned subsidiary of the Company, entered into a second amendment of lease (the “Second Amendment”) with Vitamin Realty for its office and warehouse space in New Jersey increasing its rentable square footage from an aggregate of 74,898 square feet to 76,161 square feet and extending the expiration date to January 31, 2026.  This Second Amendment provides for minimum annual rental payments of $533, plus increases in real estate taxes and building operating expenses.  Also on January 5, 2012, AgroLabs entered into a lease agreement with Vitamin Realty for an additional 2,700 square feet of warehouse space in New Jersey, the term of which expires on January 31, 2019.  This additional lease provides for minimum lease payments of $27 with annual increases plus the proportionate share of operating expenses.

Rent expense for the three months ended March 31, 2012 and 2011 on these leases were $194 and $202, respectively, and $549 and $570 for the nine months ended March 31, 2012 and 2011, respectively, and are included in cost of sales in the accompanying Condensed Consolidated Statements of Operations. As of March 31, 2012 and June 30, 2011, the Company had an outstanding obligation of $706 and $738, respectively, included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheet.  In accordance with the Company’s negotiations with the Note Payable Holders, the Company is not permitted to pay Vitamin Realty past due rent payments owed in the aggregate amount of $686.

Other Lease Commitments. The Company has entered into certain non-cancelable operating lease agreements expiring up through January 31, 2026, related to office and warehouse space, equipment and vehicles.

The minimum rental commitment for long-term non-cancelable leases is as follows:
 

Total rent expense, including real estate taxes and maintenance charges, was approximately $288 and $295 for the three months ended March 31, 2012 and 2011, respectively, and $833 and $851 for the nine months ended March 31, 2012 and 2011, respectively.  Rent expense is included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

13
 

 
 
 

 
 
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012 AND JUNE 30, 2011 AND FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands, except share and per share amounts)
(Unaudited)

 
(b) Legal Proceedings.

The Company is subject, from time to time, to claims by third parties under various legal theories.  The defense of such claims, or any adverse outcome of any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.  The Company believes that there are no significant legal matters pending that would have a material effect on the Company’s liquidity, financial condition or cash flows.

Note 9. Related Party Transactions

See Note 6. Debt, for related party securities transactions.

See Note 8(a). Leases for related party lease transactions.

Note 10.  Subsequent Events

On May 15, 2012, Cedarburg sent the Company the Demand Letter setting forth a demand for indemnification under the Cedarburg SPA, by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demands payment by the Company of $600,000 in respect of the Company’s indemnification obligations under the Cedarburg SPA.  In addition, in the Demand Letter, Cedarburg informed the Company that there are also environmental issues pending which may lead to additional costs to Cedarburg which will likely be in excess of $300,000.  The Company intends to vigorously contest Cedarburg’s demands for payment as set forth in the Demand Letter.
 
14

 
 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION

Certain statements set forth under this caption constitute “forward-looking statements.” See “Disclosure Regarding Forward-Looking Statements” on page 1 of this Quarterly Report on Form 10-Q for additional factors relating to such statements. The following discussion should also be read in conjunction with the condensed consolidated financial statements of the Company and Notes thereto included herein and the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

The Company is engaged primarily in the manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily throughout the United States.

Business Outlook

Our future results of operations and the other forward-looking statements contained in this Quarterly Report on Form 10-Q, including this MD&A, involve a number of risks and uncertainties—in particular, the statements regarding our goals and strategies, new product introductions, plans to cultivate new businesses, pending divestitures, future economic conditions, revenue, pricing, gross margin and costs, the tax rate, and potential legal proceedings. We are focusing our efforts to improve operational efficiency and reduce spending that may have an impact on expense levels and gross margin. In addition to the various important factors discussed above, a number of other important factors could cause actual results to differ significantly from our expectations. See the risks described in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

In the third quarter of our fiscal year ended June 30, 2011, as a result of our ongoing negotiations with the Note Payable Holders (See Note 6 to Condensed Consolidated Financial Statements – Debt), we determined, in order to repay the Notes Payable, which matured on November 15, 2009, and to effect the Company’s strategic business plan to revert to our original core business of solid dosage manufacturing, to seek to sell the assets of AgroLabs, Inc., (“AgroLabs”), a wholly owned subsidiary of the Company, in order to repay a portion of the defaulted balance of the Notes Payable with the proceeds of such sale.  Accordingly, we classified the business assets, liabilities and results of operations of our branded proprietary nutraceutical business as discontinued operations.  As such, the operations of AgroLabs were presented in prior period financial statements as discontinued operations.  In the quarter ended March 31, 2012, we have determined that after a year of seeking to sell the assets of AgroLabs and the inability to obtain proceeds in sufficient amounts to satisfy the Collateral Agent for the majority Note Holders, the financial statements contained in this Quarterly Report on Form 10-Q and the associated results of operations, financial position and cash flows have been reclassified to reflect AgroLabs as part of our ongoing operations for all periods presented.

Our financial results are substantially dependent on net sales.  Net sales are partly dependent on the mix of contract manufactured products and other nutraceutical sales, which are difficult to forecast.  The varied sales pricing among our products and promotional support in the form of consumer coupons and other sales price allowances, along with the mix of products sold, affects the average selling price that we will realize and has a large impact on our revenue and gross margins in the operations of AgroLabs. Net sales in our operations of AgroLabs, is also affected by: the timing of new product introductions and the demand for and market acceptance of our products; actions taken by our competitors, including new product offerings and introductions, marketing programs and pricing pressures, and our response to such actions; our ability to respond quickly to consumer tastes and needs; and the availability of sufficient raw materials and production lead-time from suppliers to meet demand. Factors that could cause demand to be different from our expectations include: customer acceptance of our products and our competitors products; changes in customer order patterns, including order returns; changes in the level of inventory at customers; and changes in business and economic conditions, including conditions in the credit market that could affect consumer confidence and result in lower than expected demand for our products.

We believe that we have the product offerings, established and developing business relationships, facilities, personnel, and competitive and financial resources in place for business success; however, future revenue, costs, gross margins, and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast.
 
15
 
 
 
 

 

For the three months ended March 31, 2012, our net sales decreased by $1.5 million or 16.0% to $7.9 million from $9.4 million for the three months ended March 31, 2011 and for the nine months ended March 31, 2012, our net sales decreased by $1.8 million or 5.8% to $29.0 million from $30.8 million for the nine months ended March 31, 2011.  Our operating loss was substantially the same for the three months ended March 31, 2012 and 2011 respectively and our operating income increased to $0.7 million for the nine months ended March 31, 2012 from $0.4 million for the comparable prior nine month period.  Also, in the three and nine months ended March 31, 2012, our gross profit decreased by approximately $0.7 million and $1.2 million from the three and nine months ended March 31, 2011, respectively, and we cut selling and administrative expenses by approximately $0.6 million and $1.5 million, respectively.  We continue to focus on our core businesses and on maintaining our cost structure in line with our sales.

Critical Accounting Policies and Estimates
 
There have been no changes to our critical accounting policies in the nine months ended March 31, 2012. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed by management with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2011.
 
Results of Operations

Our results from operations in the following table, sets forth the income statement data of our results as a percentage of net sales for the periods indicated:
 
 
 
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For the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011

Sales, net. Sales, net, for the nine months ended March 31, 2012 and 2011 were $29.0   million and $30.8 million, respectively, a decrease of 5.8%, and are comprised of the following:
 
 
For the nine months ended March 31, 2012, approximately 79% of total net sales were derived from two customers and as compared to approximately 80% of total net sales derived from the same two customers in the nine months ended March 31, 2011.  The loss of these customers would have an adverse affect on our operations.

The decrease in our net sales of approximately $1.8 million is the result of a decrease of approximately $5.0 million in our branded proprietary nutraceutical business offset by an increase in our contract manufacturing product sales of approximately $2.7 million (this increase was primarily from an increase in sales to our major customer in the amount of $2.9 million). The remaining nutraceutical product lines had net sales increases of approximately $0.4 million compared to the prior period.  The decrease of approximately $5.0 million in our branded proprietary nutraceutical net sales from the nine months ended March 31, 2011 to the nine months ended March 31, 2012 is primarily the result of decreased sales of approximately $5.1 million to the three major club stores where our products are sold.  We expect this trend to continue in the near term while we expand into other mass marketing channels with our new packaging and product size.

Cost of sales .  Cost of sales decreased by $0.6 million to $22.4 million for the nine months ended March 31, 2012 as compared to $23.0 million for the nine months ended March 31, 2011. Cost of sales increased as a percentage of sales to 77.3% for the nine months ended March 31, 2012 as compared to 74.7% for the nine months ended March 31, 2011.  The decrease in cost of sales was primarily the result of decreased sales.  The cost of sales as a percentage of sales increased as the product mix contribution in our net sales shifted from 55.0% derived from our contract manufacturing (which sales have fixed manufacturing costs and higher cost of sales than the sales derived from the branded proprietary nutraceutical products) in the nine months ended March 31, 2011 to 67.9% in the nine months ended March 31, 2012.  This change in product mix resulted in the increase in the weighted cost of sales in the contract manufacturing business from 48.0% for the nine months ended March 31, 2011 to 57.8% in the nine months ended March 31, 2012 and contributed to the resulting increase of 2.6% in the consolidated cost of sales as a percentage of sales.
 
Selling and Administrative Expenses.   Selling and administrative expenses were $5.9 million for the nine months ended March 31, 2012, as compared to $7.4 million for the nine months ended March 31, 2011, a decrease of $1.5 million or 20.0%. As a percentage of sales, net, selling and administrative expenses were 20.3% for the nine months ended March 31, 2012 and 24.0% for the prior comparable period.

The net decrease in selling and administrative expenses of $1.5 million is mainly due to decreases aggregating approximately $1.7 million in (offset by an increase in professional fees of $0.2 million):

·  
advertising and marketing ($0.7 million),
·  
compensation and employee benefits ($0.3 million),
·  
stock compensation expenses ($0.4 million),
·  
commissions ($0.2 million), and
·  
travel and entertainment ($0.1 million).
 
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Our advertising and marketing costs decreased by approximately $0.7 million in the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011 primarily as a result of a decrease in in-store demonstrations (“demos”) of our products at one of our customers store locations.  The decrease in marketing and advertising expenses is a direct result of the decreases in sales of approximately $5.0 million in our branded proprietary nutraceutical products as well as a move away from performing in store demos on our products and to instead offering promotional discounts to the consumer to increase our pull through rates off our customer shelves.

Our compensation and employee benefits decreased by $0.3 million as a result of reducing the staff in our Texas facility by four persons and, to a lesser extent by replacing the management and sales support of our branded propriety nutraceutical products with lower compensated personnel.

Our stock compensation expense decreased by $0.4 million primarily due to the significant decrease in the market value of our common stock at the measurement date of the stock option grants (the market value of our common stock is one of several factors used in determining the fair value of the stock compensation at the time of the award and ultimate expense to our consolidated financial statements), and also due to no stock options being granted in the past two fiscal years ended June 30, 2011 and the nine months ended March 31, 2012.

Commissions decreased by $0.2 million as a direct result of the decreases in sales of approximately $5.0 million in our branded proprietary nutraceutical products and the conversion of one of our club store customers from a brokered account to being managed by our own personnel.  As a percentage of sales, commissions decreased from 3.0% of net sales subject to commissions in the nine month period ended March 31, 2012 to 2.7% in the nine month period ended March 31, 2011.

Travel and entertainment decreased by $0.1 million as a result of the replacement of the management and sales support of our propriety branded nutraceutical products.

Professional fees increased by $0.2 million due to increased legal costs incurred in connection with our ongoing negotiations with our Note Payable Holders.

Other expense, net.   Other expense, net was approximately $1.8 million for the nine months ended March 31, 2012 compared to $1.7 million for the nine months ended March 31, 2011, an increase of $0.1 million.  The forbearance fee of $1.0 million payable incurred under the Forbearance Agreement represents substantially all of the other expense, net in the nine months ended March 31, 2012 (see Note 6 to the Condensed Consolidated Financial Statements – Debt) and interest expense of $1.7 million represents substantially all of the other expense, net in the nine months ended March 31, 2011.  The decrease in interest expense of approximately $0.8 million is primarily attributable to the lack of any accretion on our Convertible Note Payable in the nine months ended March 31, 2012, compared to approximately $0.6 million of accretion of our Convertible Note Payable in the nine months ended March 31, 2011 and the increase of $1.0 million in other expense, net is attributable to the forbearance fee incurred pursuant to the Forbearance Agreement in the nine months ended March 31, 2012 compared to no such fee in the nine months ended March 31, 2011.

Federal and state income tax, net. For the nine months ended March 31, 2012 and March 31, 2011, we had minimal amounts of state tax expenses. We continue to provide and maintain a full reserve on our deferred tax assets as it has been determined that based upon past losses, the Company’s liquidity concerns and the current economic environment, that it is “more likely than not” that the Company’s deferred tax assets may not be realized.

Net loss. Although we had a net loss of approximately $1.2 million and $1.3 million in the nine month periods ended March 31, 2012 and 2011, respectively, our operating income increased by $0.3 million which was offset by increases in other expense, net of $0.1 million.
 
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For the three months ended March 31, 2012 compared to the three months ended March 31, 2011
 

Sales, net. Sales, net, for the three months ended March 31, 2012 and 2011 were $7.9 million and $9.4 million, respectively, a decrease of 16%, and are comprised of the following:
 
For the three months ended March 31, 2012 and 2011, approximately 77% and 74%, respectively, of total net sales were derived from two customers.  The loss of these customers would have an adverse affect on our operations.

The decrease in our net sales is the result of a decrease of approximately $1.5 million in sales of our branded proprietary nutraceutical products.  The decrease of approximately $1.5 million in our net sales from the three months ended March 31, 2011 to the three months ended March 31, 2012 is primarily the result of decreased sales of approximately $1.4 million to the three major club stores where our products are sold.  We expect this trend to continue in the near term while we expand into other mass marketing channels with our new packaging and product size.

Cost of sales .  Cost of sales decreased by $0.8 million to $6.5 million for the three months ended March 31, 2012 as compared to $7.3 million for the three months ended March 31, 2011. Cost of sales increased as a percentage of sales to 82.9% for the three months ended March 31, 2012 as compared to 78.0% for the three months ended March 31, 2011.  The decrease in cost of sales was primarily the result of decreased sales.  The cost of sales as a percentage of sales increased as the product mix contribution in our net sales shifted from 61.4% derived from our contract manufacturing (which sales have fixed manufacturing costs and higher cost of sales than the sales derived from the branded proprietary nutraceutical products) in the three months ended March 31, 2011 to 71.4% in the three months ended March 31, 2012.  This change in product mix resulted in the increase in the weighted cost of sales in the contract manufacturing business from 54.1% for the three months ended March 31, 2011 to 63.7% in the three months ended March 31, 2012 and was the primary contribution to the resulting increase of 4.9% in the consolidated cost of sales as a percentage of sales.
 
Selling and Administrative Expenses.   Selling and administrative expenses were $1.8 million for the three months ended March 31, 2012, as compared to $2.4 million for the three months ended March 31, 2011, a decrease of $0.6 million or 25.0%. As a percentage of sales, net, selling and administrative expenses were 22.5% for the three months ended March 31, 2012 and 25.8% for the prior comparable period.

The net decrease in selling and administrative expenses of $0.6 million was mainly due to (i) a decrease in our advertising and marketing costs of approximately $0.8 million in the three months ended March 31, 2012 compared to the three months ended March 31, 2011, primarily as a result of a decrease in in-store demonstrations (“demos”) of our products at one of our customers store locations.  The decrease in marketing and advertising expenses is a direct result of the decreases in sales of approximately $0.9 million in our branded proprietary nutraceutical products as well as a move away from performing in store demos on our products and to instead offering promotional discounts to the consumer to increase our pull through rates off our customer shelves; and (ii) an increase in professional fees of $0.2 million in the three months ended March 31, 2012 compared to the three months ended March 31, 2011, due to increased legal costs incurred in connection with our ongoing negotiations with our Note Payable Holders.
 
 
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Other expense, net.   Other expense, net was approximately $0.3 million for the three months ended March 31, 2012 compared to $0.5 million for the three months ended March 31, 2011, a decrease of $0.2 million.  Interest expense represents substantially all of the other expense, net in each of the three month periods ended March 31, 2012 and 2011.  The decrease in interest expense of approximately $0.2 million is the result of accretion on the Convertible Note Payable of approximately $0.2 million in the three months ended March 31, 2011 with no such accretion charge in the three months ended March 31, 2012.

Federal and state income tax, net. For the three months ended March 31, 2012 and March 31, 2011, we had minimal amounts of state tax expenses. We continue to provide and maintain a full reserve on our deferred tax assets as it has been determined that based upon past losses, the Company’s liquidity concerns and the current economic environment, that it is “more likely than not” that the Company’s deferred tax assets may not be realized.

Net loss. We had a net loss of approximately $0.7 million for the three months ended March 31, 2012 compared to a net loss of approximately $0.9 million for the three months ended March 31, 2011. The decrease in the net loss of approximately $0.2 million is primarily the result of the decreased other expenses, net of $0.2 million which is primarily interest expense.

Seasonality

The nutraceutical business tends to be seasonal. We have found that in our first fiscal quarter ending on September 30 th of each year, orders for our branded proprietary nutraceutical products usually slow (absent the addition of new customers or a new product launch with a significant first time order), as buyers in various markets may have purchased sufficient inventory to carry them through the summer months. Conversely, in our second fiscal quarter, ending on December 31 st of each year, orders for our products increase as the demand for our branded nutraceutical products seems to increase in late December to early January as consumers become health conscious as they enter the new year.

The Company believes that there are other non-seasonal factors that also may influence the variability of quarterly results including, but not limited to, general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements. In addition, our recent growth has caused additional variability in our quarterly results. Accordingly, a comparison of the Company’s results of operations from consecutive periods is not necessarily meaningful, and the Company’s results of operations for any period are not necessarily indicative of future periods.

Liquidity, Going Concern and Capital Resources

The following table sets forth, for the periods indicated, the Company’s net cash flows used in operating, investing and financing activities, its period end cash and cash equivalents and other operating measures:
 
 
At March 31, 2012, our working capital deficit was approximately $11.5 million, an increase of approximately $0.8 million in our working capital deficit of approximately $10.7 million at June 30, 2011. Our current assets decreased by $2.6 million and our current liabilities decreased by $1.8 million, as we were able to pay our suppliers quicker as a result of our increased sales in our contract manufacturing business.
 
 
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Net cash provided by operating activities of $14,000 in the nine months ended March 31, 2012, includes our net loss of $1.2 million. After excluding the effects of non-cash expenses, including depreciation and amortization, compensation expense for employee stock options and consultants and changes in the fair value of derivative liabilities, the adjusted cash provided from operations before the effect of the changes in working capital components was $223,000. Cash was used in operations from our working capital assets and liabilities in the amount of approximately $209,000 and was primarily the result of an increase in accounts payable of $2.7 million and an increase in prepaid expenses and other assets of $0.2 million, which was offset by a decrease in inventory of $2.7 million.

Net cash provided by operating activities of $0.4 million in the nine months ended March 31, 2011, includes a net loss of $1.3 million. After excluding the effects of non-cash expenses, including, depreciation and amortization, compensation expense for employee stock options and consultants and changes in the fair value of derivative liabilities, the adjusted cash used in operations before the effect of the changes in working capital components was $0.4 million. Cash was provided by operations from our working capital assets and liabilities in the amount of approximately $15,000, was primarily the result of an increase in accounts receivable of $0.2 million and increases in accounts payable, accrued expenses and other liabilities of $0.4 million, offset by a decrease in inventory of $0.7 million.

Cash used in investing activities of $70,000 was from the purchase of machinery and equipment of $82,000, offset by proceeds from the sale of depreciated machinery and equipment of $12,000 in the nine months ended March 31, 2012, compared to the use of approximately $0.2 million in the nine months ended March 31, 2011 for the purchase of machinery and equipment of approximately $0.2 million offset by a gain on the sale of machinery and equipment of $30,000.

Cash used in financing activities was approximately $20,000 for the nine months ended March 31, 2012 for payments under our capitalized lease obligation.  Cash used by financing activities was approximately $34,000 for the nine months ended March 31, 2011 which included a $40,000 repayment of funds borrowed in the same nine months period under a short term promissory note entered into with CD Financial, a related party and the holder of our Convertible Note Payable, and the repayment of $34,000 under our capitalized lease obligations (See Note 6 to the Condensed Consolidated Financial Statements – Debt).

Our condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. We have cumulative historical losses and cash outflows from operations.  As of March 31, 2012, we had cash of $0.6 million and a working capital deficit of $11.5 million, which is primarily attributable to the Notes Payable in the amount of $7.8 million which matured on November 15, 2009, the Convertible Note Payable in the amount of $4.5 million, which matured on February 21, 2011, with respect to each of which we are in default.  These factors raise substantial doubt as to our ability to continue as a going concern.  The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q do not include any adjustments that might result from this uncertainty.

As stated above, we have defaulted on substantially all of our outstanding debt instruments in the aggregate amount of $12.6 million by failing to repay them on their respective scheduled maturity dates. The Notes Payable and the Convertible Note Payable are secured by pledges of substantially all of the Company’s assets.

On October 4, 2011, we entered into a Forbearance Agreement (the “Forbearance Agreement”) with the Collateral Agent for the Note Payable Holders. The Forbearance Agreement provided that the Collateral Agent shall forbear from exercising rights and remedies arising from the occurrence of Specified Defaults (as defined in the Forbearance Agreement) including our failure to repay the Notes Payable which are due and payable.  Several extensions of the Forbearance Agreement were granted from December 31, 2011 through February 8, 2012; however, on February 8, 2012, the forbearance period under the Forbearance Agreement expired.  As of May 21, 2012, the Company remains in default under the Notes Payable and the forbearance fee of $1.0 million is payable under the Forbearance Agreement and has not yet been paid by the Company. The Company is negotiating with the Collateral Agent regarding a further forbearance, however, there can be no assurance that any further forbearance will be granted.  In addition, the Company and the Collateral Agent continue to discuss the options available to the Company to repay the Notes Payable, among other strategic options, including refinancing, to repay the Notes Payable under agreeable terms. 
 
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The Company is also currently negotiating with a third party financial institution to obtain debt financing on terms favorable to the Company in order to repay in full the Notes Payable, as well as to provide for the ongoing working capital and capital expenditure needs of the Company and renegotiating its Convertible Note Payable with CD Financial.  However, there can be no assurance that the Company will be able to secure such debt financing or refinancing on terms acceptable to the Company.

There can be no assurance that we will be able to repay, restructure or amend the Notes Payable prior to the receipt of an Acceleration Notice or the Convertible Note Payable prior to the receipt of a CD Acceleration Notice.  In the interim, we have continued to make timely interest payments to the Note Payable Holders at the non default rate of 8% per annum and are exploring our strategic alternatives, which may include business divestitures, developing business and sales strategies to increase operating income, the sale of some or all of our assets or operating subsidiaries and/or capital restructuring plans.

As a result of the events of default that arose based upon our failure to pay each of the Notes Payable at maturity, the Note Payable Holders have the right to give us an Acceleration Notice. As a result of the event of default that arose based upon our failure to repay the Convertible Note Payable at maturity, CD Financial has the right to give us a CD Acceleration Notice.  Each of the Acceleration Notice and the CD Acceleration Notice would (i) accelerate the payment of all unpaid principal, accrued and unpaid interest (including default interest (if any) on the Notes Payable and the Convertible Note Payable) and any other payment obligations (including the forbearance fee payable under the Forbearance Agreement) and (ii) require us to pay an amount equal to the sum of all of the respective amounts described in the preceding clause (i) in same day funds on the payment date specified in such notice. If we are unable to raise additional capital, sell certain assets or successfully refinance the full outstanding amount of the Notes Payable and the Convertible Note Payable upon acceptable terms, it would have a material adverse effect on us, including the possible foreclosure by the Note Payable Holders, and/or the Convertible Note Payable of all or some of our assets, and would impact our ability to continue as a going concern.

As of May 21, 2012, we have not repaid the holder of the Convertible Note Payable, CD Financial.  CD Financial is a significant shareholder of the Company and has not made any payment demands on us with respect to the Convertible Note Payable, nor has it converted the Note Payable into common shares of the Company.  In March 2009, we entered into an oral agreement with CD Financial to suspend the cash interest payments on the Convertible Note Payable until we return to positive cash flows in our operations.  In this oral agreement, CD Financial agreed not to give any default notices and that default interest does not have to be accrued at the default interest rate.

Our total annual commitments at March 31, 2012 for long term non-cancelable leases of approximately $575,000 consists of obligations under operating leases for facilities and operating lease agreements for the rental of warehouse equipment, office equipment and automobiles.

On May 15, 2012, Cedarburg Pharmaceuticals, Inc. (“Cedarburg”) sent the Company a letter (the “ Demand Letter ”) setting forth a demand for indemnification under the Stock Purchase Agreement, dated March 17, 2009 (the “ Cedarburg SPA ”), by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demands payment by the Company of $600,000 in respect of the Company’s indemnification obligations under the Cedarburg SPA.  In addition, in the Demand Letter, Cedarburg informed the Company that there are also environmental issues pending which may lead to additional costs to Cedarburg which will likely be in excess of $300,000.  The Company intends to vigorously contest Cedarburg’s demands for payment as set forth in the Demand Letter..
 
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Capital Expenditures
The Company's capital expenditures for the nine months ended March 31, 2012 and 2011 were approximately $82,000 and $0.2 million, respectively. The Company has budgeted approximately $0.5 million for capital expenditures for fiscal 2012. The total amount is expected to be funded from cash provided from its operations and from lease financing.

Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.

Recent Accounting Pronouncement
None.
 
Impact of Inflation
The Company does not believe that inflation has significantly affected its results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.

Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the three and nine months ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. Risk Factors

The risks described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2011, could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes to our risk factors from those disclosed in our Form 10-K for the year ended June 30, 2011.
 
 
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Effective February 21, 2012, the Company issued 50,000 shares of common stock to CD Financial.  See Note 6 to the Condensed Consolidated Financial Statements – Debt.

Item 3. DEFAULTS UPON SENIOR SECURITIES

The Company is in default with respect to its $7.8 million outstanding principal amount of Notes Payable and its $4.5 million outstanding principal amount of Convertible Note Payable, as a result of the Company failing to repay the Notes Payable and Convertible Note Payable on their scheduled maturity dates. See Note 6 to the Condensed Consolidated Financial Statements – Debt.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

(a)           Exhibits

Exhibit
Number
31.1
Certification of pursuant to Section 302 of Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
31.2
Certification of pursuant to Section 302 of Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
32.1
Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
  32.2   Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
  10.1   Second Amendment of Lease, dated as of January 5, 2012, between Vitamin Realty Associates, L.L.C. and InB: Manhattan Drug Company, Inc.
10.2   Lease Agreement, dated as of January 5, 2012, between Vitamin Realty Associates, L.L.C. and AgroLabs, Inc.
10.3  Stock Purchase Agreement, dated as of March 17, 2009, by and among Cedarburg Pharmaceuticals, Inc., Purchaser, INB: Hauser Pharmaceutical Services, Inc., Company, INB: Paxis Pharmaceuticals, Inc., and Integrated BioPharma, Inc., Seller
101
The following financial information from Integrated Biopharma, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2012 and 2011, (ii) Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the nine months ended March 31, 2012 (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and 2011, and (v) the Notes to Condensed Consolidated Statements.
 
24
 
 
 
 
 

 

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


INTEGRATED BIOPHARMA, INC.

 
 
 Date:  May 21, 2012  By: /s/ E. Gerald Kay
   E. Gerald Kay,
   President and Chief Executive Officer
 
 
Date:  May 21, 2012 By: /s/ Dina L. Masi
  Dina L. Masi,
  Chief Financial Officer & Senior Vice President

 

 
 
25

Exhibit 31.1
 
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, E. Gerald Kay certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q of Integrated BioPharma, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)  
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date:  May 21, 2012  By: /s/ E. Gerald Kay
   Name:  E. Gerald Kay,
    Title: President and Chief Executive Officer

 
Exhibit 31.2
 
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Dina L. Masi, certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q of Integrated BioPharma, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)  
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date:  May 21, 2012 By: /s/ Dina L. Masi
  Name:  Dina L. Masi,
  Title:  Chief Financial Officer & Senior Vice President

 
Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT
As adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q for the second quarter ended March 31, 2012 of Integrated BioPharma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), E. Gerald Kay, the President and Chief Executive Officer of Integrated BioPharma, Inc.   certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to his knowledge:

(1)  
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)  
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies the Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
Dated:  May 21, 2012  By: /s/ E. Gerald Kay
   E. Gerald Kay,
   President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF PERIODIC REPORT
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q for the second quarter ended March 31, 2012 of Integrated BioPharma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Dina L. Masi, the Senior Vice President and Chief Financial Officer of Integrated BioPharma, Inc.   certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to her knowledge:

(1)  
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)  
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies the Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
 
Dated:  May 21, 2012 By: /s/ Dina L. Masi
  Dina L. Masi,
  Chief Financial Officer & Senior Vice President

Exhibit 10.1
 
SECOND AMENDMENT OF LEASE


This SECOND AMENDMENT OF LEASE (this “Amendment”) is made as of the 5 th day of January, 2012, between VITAMIN REALTY ASSOCIATES LLC (the LESSOR”), a New Jersey limited liability company, and MANHATTAN DRUG COMPANY ( the LESSEE”), a New Jersey corporation, having an address at 225 Long Avenue, Hillside, New Jersey  07205.


W I T N E S S E T H

WHEREAS, pursuant to that certain Lease dated January 10, 1997, ( the “Lease”) by and between Vitamin Realty Associates LLC, (LESSOR) and LESSEE,  LESSOR leased to LESSEE certain premises consisting of approximately 58,521 rentable square feet of warehouse space on the first floor of the building known as 225 Long Avenue, Hillside, New Jersey (the “Building”, approximately 14,563 rentable square feet of office space on the second floor of the Building and approximately 10,800 rentable square feet of space on the third floor of the Building (collectively the “Demised Premises”) ; and

WHEREAS, LESSOR and LESSEE have previously agreed orally to substitute space on the second floor of the Building to replace equivalent space on the first floor of the Building that was leased to other tenants; and

WHEREAS, LESSOR and LESSEE in the AMENDMENT OF LEASE dated April 28, 2000 agreed to amend the Lease to provide that LESSOR will lease to LESSEE a total of approximately 40,471 rentable square feet of warehouse space on the first floor of the Building, approximately 23,627 rentable square feet of office space on the second floor of the Building, and Approximately 10,800 rentable square feet of space on the third floor of the Building; and

WHEREAS, LESSOR and LESSEE have agreed to amend the Lease to provide that LESSOR will lease to LESSEE a total of approximately 40,471 rentable square feet of warehouse space on the first floor of the Building, approximately 24,890 rentable square feet of office space on the second floor of the Building, and Approximately 10,800 rentable square feet of space on the third floor of the Building; and

WHEREAS LESSOR and LESSEE have agreed to amend the Lease to increase the Term thereof to a term of approximately fifteen (15) years from the date hereof; and

WHEREAS all capitalized terms defined in the Lease and not otherwise defined herein shall have their respective meanings set forth in the Lease.
 
 
 
 

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration; the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree that the Lease is hereby amended as follows:
 
     1.     (a)      Commencing as of February 1, 2012 (the “Amendment Commencement Date”), LESSOR shall demise to LESSEE and LESSEE shall lease from LESSOR, the space depicted in Schedule A, attached hereto (the “Amended Space”).  For all purposes of the Lease, and this Amendment, the term “Demised Premises” shall, as of the Amendment Commencement Date, mean the Amended Space.
 
                           (b)           LESSOR and LESSEE each hereby agrees that the Demised Premises shall, as of the Amended Commencement Date, consist of a total of 40,471 rentable square feet of warehouse space on the first floor of the Building, a total of 24,890 rentable square feet of space on the second floor of the Building, and a total of 10,800 rentable square feet of space on the third floor of the Building.
 
     2.           The Termination Date is hereby amended to be January 31, 2026.
 
     3.      (a)           Schedule B of the Lease is hereby superseded and replaced with Schedule B annexed hereto.
 
                           (b)           LESSEE’s Proportionate Share with respect to the Demised Premises shall be 48.51% as of the Amendment Commencement Date.
 
     4.           LESSEE agrees that it has inspected the Demised Premises, and agrees to occupy any additional portions thereof in their “AS IS” condition.
 
     5.           LESSOR and LESSEE each represents to each other that it has not dealt with any broker or agent with respect to the Demised Premises or this Lease and each shall indemnify and hold harmless the other from and against any and all liabilities, claims, suits, demands, judgments, costs, interests and expenses to which it may be subject or suffer by reason of any claim made by the other person, firm or corporation for any commission, expense or other compensation as a result of the execution and delivery of this Lease and based on alleged conversations or negotiations by said person, firm or corporation with either LESSOR or LESSEE as the case may be.
 
     6.           As hereby modified and amended, the Lease shall remain in full force and effect.
 
     7.           This Amendment and the Lease embody and constitute the entire understanding between the parties with respect to the subject matter hereof, and all prior agreements, representations and statements, oral or written, relating to the subject matter hereof are merged into this Amendment.
 
 
 
 

 
 
     8.           Neither this Amendment nor any provision contained herein may be amended, modified or extended except by an instrument signed by the party against whom enforcement of such amendment, modification or extension is sought.
 
     9.           This amendment may be executed in counterparts, each of which shall be deemed a duplicate original hereof.

IN WITNESS WHEREOF, this SECOND AMENDMENT has been executed by LESSOR and LESSEE as of the day and year first written above.

 

 
  VITAMIN REALTY ASSOCIATES LLC
   
  By:  /s/ Christina Kay
  Name:  Christina Kay
  Title:
   
   
  MANHATTAN DRUG COMPANY
   
  By:  /s/ E. Gerald Kay
  Name:  E. Gerald Kay
  Title:
 


 
 

 

SCHEDULE B

BASIC RENT

The Basic Rent shall be payable in equal monthly installments, in advance, on the Basic Rent Payment Dates.  The Basic Rent for the Term shall be as follows:

(a)           (i)           for the period from the Commencement Date to, but not including, the Second Amendment Commencement Date, the Basic Rent shall be $533,127 per annum, payable in equal monthly installments of $44,427.25; and

(ii)           for the period from the Second Amendment Commencement Date to, but not including the fifth anniversary of the Second Amendment Commencement Date, the Basic Rent shall be $533,127.00 per annum, payable in monthly installments of $44,427.25; and

(b)           for the period from the fifth anniversary of the Second Amendment Commencement Date to, but not including, the tenth anniversary of the Second Amendment Commencement Date, the Basic Rent shall be adapted by multiplying the Basic Rent set forth in subsection  (a) (ii)  above by a fraction, the numerator of which is the CPI for all wage earners for the month immediately preceding the fifth anniversary of the Second Amendment Commencement Date, and the denominator of which is the CPI for all wage earners for the month immediately preceding the Second Amendment Commencement Date, provided that such fraction shall never be less than one.  In no case shall the escalation herein calculated be less than 15%.

(c)           for the period from the tenth anniversary of the Second Amendment Commencement Date to, but not including, the Termination Date of the Second Amendment Commencement Date, the Basic Rent shall be adapted by multiplying the Basic Rent set forth in subsection  (b)  above by a fraction, the numerator of which is the CPI for all wage earners for the month immediately preceding the tenth anniversary of the Second Amendment Commencement Date, and the denominator of which is the CPI for all wage earners for the month immediately preceding the fifth anniversary of the Second Amendment Commencement Date, provided that such fraction shall never be less than one.  In no case shall the escalation herein calculated be less than 15%.

Exhibit 10.2
 
LEASE AGREEMENT
 
This Agreement is made on January 5, 2012
 
BETWEEN
 
VITAMIN REALTY ASSOCIATES, LLC
 
located at 225 Long Avenue, Building 15, Hillside, NJ 07205
 
herein designated as the "Landlord",
 
AND
 
AGRO LABS, INC
 
Located at 225 Long Avenue, Building 15 (2 nd Floor), Hillside, NJ 07205
 
herein designated as the "Tenant."
 
1.             Premises . The Landlord does hereby lease to the Tenant and the Tenant does hereby rent from the Landlord, the following described premises:
 
Approximately 2,700 square feet of warehouse space (and Storage Space located on the 1st floor of Building 15 at 225 Long Avenue, Hillside, New Jersey, and as depicted on Exhibit “A” hereto (the “Leased Premises”),
 
2.             Term . The term of this lease is for seven years commencing on February 1, 2012 (the “Effective Date”) and ending on January 31, 2019. Tenant agrees to accept the premises in its “as is” condition.
 
3.             Use . The Leased Premises are to be used and occupied only and for no other purpose than a general storage.
 
4.             Rent . The Tenant agrees to pay $27,000.00 (Twenty Seven Thousand Dollars) as rent for the term of the lease to be paid in twelve equal monthly installments of $2,250.00 (Two thousand two hundred fifty Dollars).
 
All rental payments are due on the first day of each month. The first payment of rent and any security deposit is due upon the signing of the Lease by the Tenant. The Tenant must pay a late charge of five percent (5%) of the monthly rental as additional rent for each payment that is more than 10 days late. This late charge is due with the monthly rent payment. The Tenant must also pay a fee of $250.00 as additional rent for any dishonored check.
 
The base rent shall escalate increase as follows:
 
Year 1   $27,000     per annum
 Year 1   $27,810.00     per annum
 Year 1   $28,644.30      per annum
 Year 1  $29,503.63        per annum
 Year 1  $30,388.74     per annum
 Year 1  $31,300.40       per annum
 Year 1  $32,239.41       per annum
 
All rent shall be paid in twelve equal monthly installments.
 
 
 
 
 

 
 
 
5.             Repairs and Care . The Tenant has examined the Leased Premises and has entered into this lease without any representation on the part of the Landlord as to the condition thereof. The Tenant shall take good care of the Leased Premises and shall at the Tenant's own cost and expense, make all repairs, including painting and decorating, and shall maintain the Leased Premises in good condition and state of repair, and at the end or other expiration of the term hereof, shall deliver up the Leased Premises in good order and condition, wear and tear from a reasonable use thereof, and damage by the elements not resulting from the neglect or fault of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the sidewalks, driveways, yards, entrances, hallways and stairs, but shall keep and maintain the same in a clean condition, free from debris, trash, and refuse.
 
6.             Compliance with Laws etc . The Tenant shall promptly comply with all laws, ordinances, rules, regulations, requirements and directives of the Federal, State and Municipal Governments or Public Authorities and of all their departments, bureaus and subdivisions, applicable to and affecting the said Leased Premises, their use and occupancy, for the correction, prevention and abatement of nuisances, violations or other grievances in, upon or connected with the said Leased Premises, during the term hereof; and shall promptly comply with all orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the said Leased Premises and its contents, for the prevention of fire or other casualty, damage or injury, at the Tenant's own cost and expense.
 
7.             Assignment . The Tenant shall not assign, mortgage or hypothecate this lease, nor sublet or sublease the Leased Premises or any part thereof; nor occupy or use the Leased Premises or any part thereof, nor permit or suffer the same to be occupied or used for any purposes other than as herein limited, nor for any purpose deemed unlawful, disreputable, or extra hazardous, on account of fire or other casualty, without the express written consent of Landlord, which shall not be unreasonably withheld.
 
8.             Fire and Other Casualty . In case of fire or other casualty, the Tenant shall give immediate notice to the Landlord. If the Leased Premises shall be partially damaged by fire, the elements or other casualty, the Landlord shall repair the same as speedily as practicable, but the Tenant's obligation to pay the rent hereunder shall not cease. If, in the opinion of the Landlord, the Leased Premises be so extensively and substantially damaged as to render them untenantable, then the rent shall cease until such time as the Leased Premises shall be made tenantable by the Landlord. However, if, in the opinion of the Landlord, the Leased Premises be totally destroyed or so extensively and substantially damaged as to require practically a rebuilding thereof, then the rent shall be paid up to the time of such destruction and then and from thenceforth this lease shall come to an end. In no event however, shall the provisions of this clause become effective or be applicable, if the fire or other casualty and damage shall be the result of the carelessness, negligence or improper conduct of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors. In such case, the Tenant's liability for the payment of the rent and the performance of all the covenants, conditions and terms hereof on the Tenant's part to be performed shall continue and the Tenant shall be liable to the Landlord for the damage and loss suffered by the Landlord. If the Tenant shall have been insured against any of the risks herein covered, then the proceeds of such insurance shall be paid over to the Landlord to the extent of the Landlord's costs and expenses to make the repairs hereunder, and such insurance carriers shall have no recourse against the Landlord for reimbursement.
 
9.             Alterations and/or Improvements . The Tenant acknowledges that the Leased Premises are being delivered in “AS IS” condition.  All fit-ups and build-outs thereafter shall be at the Tenant’s sole expense. No alterations, additions or improvements shall be made, and no climate regulating, air conditioning, cooling, heating or sprinkler systems, television or radio antennas, heavy equipment, apparatus and fixtures, shall be installed in or attached to the Leased Premises without the written consent of the Landlord. Unless otherwise provided herein, all such alterations, additions or improvements and systems, when made, installed in or attached to the said Leased Premises, shall belong to and become the property of the Landlord and shall be surrendered with the Leased Premises and as part thereof upon the expiration or sooner termination of this lease, without hindrance, molestation or injury.
 
10.             Inspection and Repair . The Tenant agrees that the Landlord and the Landlord's agents, employees or other representatives, shall have the right to enter into and upon the said Leased Premises or any part thereof, at all reasonable hours, for the purpose of examining the same or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. This clause shall not be deemed to be a covenant by the Landlord nor be construed to create an obligation on the part of the Landlord to make such inspection or repairs.
 
11.             Right to Exhibit . The Tenant agrees to permit the Landlord and the Landlord's agents, employees or other representatives to show the Leased Premises to persons wishing to rent or purchase the same, and Tenant agrees that on and after the FOURTH MONTH next preceding the expiration of the term hereof, the Landlord or the Landlord's agents, employees or other representatives shall have the right to place notices on the front of said Leased Premises or any part thereof, offering the Leased Premises for rent or for sale; and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation.
 
2
 
 
 

 
 
12.             Glass, etc. Damage, Repairs . In case of the destruction of or any damage to the glass in the Leased Premises, or the destruction of or damage of any kind whatsoever to the said Leased Premises, caused by the carelessness, negligence or improper conduct on the part of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors, the Tenant shall repair the said damage or replace or restore any destroyed parts of the Leased Premises, as speedily as possible, at the Tenant's own cost and expense.
 
13.             Signs .   INTENTIONALLY OMITTED
 
14.             Non-Liability of Landlord . The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, down-spouts or the like or of the electrical, gas, power, conveyor, refrigeration, sprinkler, air-conditioning or heating systems, elevators or hoisting equipment; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct on the part of any other Tenant or of the Landlord or the Landlord's or this or any other Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors; or attributable to any interference with, interruption of or failure, beyond the control of the Landlord, of any services to be furnished or supplied by the Landlord.
 
15.             Mortgage Priority . This lease shall not be a lien against the said Leased Premises in respect to any mortgages that may hereafter be placed upon said Leased Premises. The recording of such mortgage or mortgages shall have preference and precedence and be superior and-prior in lien to this lease, irrespective of the date of recording and the Tenant agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to further effect the subordination of this lease to any such mortgage or mortgages. A refusal by the Tenant to execute such instruments shall entitle the Landlord to the option of canceling this lease, and the term hereof is hereby expressly limited accordingly.  This cancellation of the term shall not relieve Tenant of its obligation to pay the rent hereunder.
 
16.             Security . The Tenant has this day deposited with the Landlord the sum equating to TWO MONTHS RENT ($5,400.00) as security for the payment of the rent hereunder and the full and faithful performance by the Tenant of the covenants and conditions on the part of the Tenant to be performed. Said sum shall be returned to the Tenant, without interest, after the expiration of the term hereof, provided that the Tenant has fully and faithfully performed all such covenants and conditions and is not in arrears in rent. During the term hereof, the Landlord may, if the Landlord so elects, have recourse to such security, to make good any default by the Tenant, in which event the Tenant shall, on demand, promptly restore said security to its original amount. Liability to repay said security to the Tenant shall run with the reversion and title to said Leased Premises, whether any change in ownership thereof be by voluntary alienation or as the result of judicial sale, foreclosure or other proceedings, or the exercise of a right of taking or entry by any mortgagee. The Landlord shall assign or transfer said security, for the benefit of the Tenant, to any subsequent owner or holder of the reversion or title to said Leased Premises, in which case the assignee shall become liable for the repayment thereof as herein provided, and the assignor shall be deemed to be released by the Tenant from all liability to return such security. This provision shall be applicable to every alienation or change in title and shall in no wise be deemed to permit the Landlord to retain the security after termination of the Landlord's ownership of the reversion or title. The Tenant shall not mortgage, encumber or assign said security without the written consent of the Landlord.
 
17.             Increase of Insurance Rates . If for any reason it shall be impossible to obtain fire and other hazard insurance on the buildings and improvements on the Leased Premises, in an amount and in the form and in insurance companies acceptable to the Landlord, the Landlord may, if the Landlord so elects at any time thereafter, terminate this lease and the term hereof, upon giving to the Tenant fifteen days notice in writing of the Landlord's intention so to do, and upon the giving of such notice, this lease and the term thereof shall terminate. If by any reason of the use to which the Leased Premises are put by the Tenant or character of or the manner in which the Tenant's business is carried on, the insurance rates for fire and other hazards shall be increased, the Tenant shall upon demand, pay to the Landlord, as additional rent, the amounts by which the premiums for such insurance are increased. Such payment shall be paid with the next installment of rent but in no case later than one month after such demand, whichever occurs sooner.
 
18.             Utilities . The Tenant shall pay when due all the rents or charges for water or other utilities used by the Tenant, which are or may be assessed or imposed upon the Leased Premises or which are or may be charged to the Landlord by the suppliers thereof during the term hereof, and if not paid, such rents or charges shall be added to and become payable as additional rent with the installment of rent next due or within 30 days of demand therefor, whichever occurs sooner.  Specifically, Tenant shall pay electricity the equivalent of $1.25 per square foot per annum; $3,375.00 per year, or $281.25 per month.
 
19.             Condemnation Eminent Domain . If the land and Leased Premises leased herein, or of which the Leased Premises are a part, or any portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation thereof, or if in lieu of any formal condemnation proceedings or actions, the Landlord shall grant an option to purchase and or shall sell and convey the said Leased Premises or any portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and Leased Premises or any portion thereof, then this lease, at the option of the Landlord, shall terminate, and the term hereof shall end as of such date as the Landlord shall fix by notice in writing; and the Tenant shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages or paid as the result of such condemnation proceedings or paid as the purchase price for such option, sale or conveyance in lieu of formal condemnation proceedings; and all rights of the Tenant to damages, if any, are hereby assigned to the Landlord. The Tenant agrees to execute and deliver any instruments, at the expense of the Landlord, as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the said lands and Leased Premises or any portion thereof. The Tenant covenants and agrees to vacate the said Leased Premises, remove all of the Tenant's personal property therefrom and deliver up peaceable possession thereof to the Landlord or to such other party designated by the Landlord in the aforementioned notice. Failure by the Tenant to comply with any provisions in this clause shall subject the Tenant to such costs, expenses, damages and losses as the Landlord may incur by reason of the Tenant's breach hereof.
 
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20.             Remedies Upon Tenant's Default . If there should occur any default on the part of the Tenant in the performance of any conditions and covenants herein contained, or if during the term hereof the Leased Premises or any part thereof shall be or become abandoned or deserted, vacated or vacant, or should the Tenant be evicted by summary proceedings or otherwise, the Landlord, in addition to any other remedies herein contained or as may be permitted by law, may either by force or otherwise, without being liable for prosecution therefor, or for damages, re-enter the said Leased Premises and the same have and again possess and enjoy; and as agent for the Tenant or otherwise, re-let the Leased Premises and receive the rents therefor and apply the same, first to the payment of such expenses, reasonable attorney fees and costs, as the Landlord may have been put to in re-entering and repossessing the same and in making such repairs and alterations as may be necessary; and second to the payment of the rents due hereunder. The Tenant shall remain liable for such rents as may be in arrears and also the rents as may accrue subsequent to the re-entry by the Landlord, to the extent of the difference between the rents reserved, hereunder and the rents, if any, received by the Landlord during the remainder of the unexpired term hereof, after deducting the aforementioned expenses, fees and costs; the same to be paid as such deficiencies arise and are ascertained each month.
 
21.             Termination on Default . Upon the occurrence of any of the contingencies set forth in the preceding clause, or should the Tenant be adjudicated as bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against the Tenant for bankruptcy, insolvency, receivership, agreement of composition or assignment for the benefit of creditors, or if this lease or the estate of the Tenant hereunder shall pass to another by virtue of any court proceedings, writ of execution, levy, sale, or by operation of law, the Landlord may, if the Landlord so elects, at any time thereafter, terminate this lease and the term hereof, upon giving to the Tenant or to any trustee, receiver, assignee or other person in charge of or acting as custodian of the assets or property of the Tenant, five days notice in writing, of the Landlord's intention to do so. Upon the giving of such notice, this lease and the term hereof shall end on the date fixed in such notice as if the said date was the date originally fixed in this lease for the expiration hereof; and the Landlord shall have the right to remove all persons, goods, fixtures and chattels therefrom, by force or otherwise, without liability for damages.
 
22.             Removal of Tenant's Property . Any equipment, fixtures, goods or other property of the Tenant, not removed by the Tenant upon the termination of this lease, or upon any quitting, vacating or abandonment of the Leased Premises by the Tenant, or upon the Tenant's eviction, shall be considered as abandoned and the Landlord shall have the right, without any notice to the Tenant, to sell or otherwise dispose of the same, at the expense of the Tenant, and shall not be accountable to the Tenant for any part of the proceeds of such sale, if any.
 
23.             Reimbursement of Landlord . If the Tenant shall fail or refuse to comply with and perform any conditions and covenants of the within lease, the Landlord, may, if the Landlord so elects, carry out and perform such conditions and covenants, at the cost and expense of the Tenant, and the said cost and expense shall be payable on demand as additional rent, or at the option of the Landlord shall be added to the installment of rent, due immediately thereafter but in no case later than one month after such demand, whichever occurs sooner, and shall be due and payable as such. This remedy shall be in addition to such other remedies as the Landlord may have hereunder by reason of the breach by the Tenant of any of the covenants and conditions in this lease contained herein.
 
24.             Non-Performance by Landlord . This lease and the obligation of the Tenant to pay the rent hereunder and to comply with the covenants and conditions hereof, shall not be affected, curtailed, impaired or excused because of the Landlord's inability to supply any service or material called for herein, by reason of any rule, order regulation or preemption by any governmental entity, authority, department, agency or subdivision or for any delay which may arise by reason of negotiations for the adjustment of any fire or other casualty loss or because of strikes or other labor trouble or for any cause beyond the control of the Landlord.
 
25.             Validity of Lease . The terms, conditions, covenants and provisions of this lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect.
 
26.             Non-Waiver by Landlord . The various rights, remedies, options and elections of the Landlord, expressed herein, are cumulative, and the failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this lease or to exercise any election or option or to resort or have recourse to any remedy herein conferred or the acceptance by the Landlord of any installment of rent after any breach by the Tenant, in any one or more instances, shall not be construed or deemed to be a waiver or a relinquishment for the future by the Landlord of any such conditions and covenants, options, elections or remedies, but the same shall continue in full force and effect.
 
27.             Notices . All notices required under the terms of this lease shall be given and shall be complete by mailing such notices by certified or registered mail, return receipt requested, to the address of the parties as shown at the head of this lease, or to such other address as may be designated in writing, which notice of change of address shall be given in the same manner.
 
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28.             Title and Quiet Enjoyment . The Landlord covenants and represents that the Landlord is the owner of the Leased Premises herein leased and has the right and authority to enter into, execute and deliver this lease; and does further covenant that the Tenant on paying the rent and performing the conditions and covenants herein contained, shall and may peaceably and quietly have, hold and enjoy the Leased Premises for the term aforementioned.
 
29.             Entire Contract . This lease contains the entire contract between the parties. No representative, agent or employee of the Landlord has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the terms hereof. No additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Landlord and the Tenant.
 
30.             Conformity with Laws and Regulations . The Landlord may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statutes or regulations were set forth herein at length.
 
31.             Number and Gender . In all references herein to any parties, persons, entities or corporations the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of the within instrument may require. All the terms, covenants and conditions herein contained shall be for and shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assigns.
 
32.             Additional Agreements . Any additional agreements between the Landlord and the Tenant are set forth in a Rider attached to this Lease. The terms of such Rider are hereby incorporated by reference as if fully set forth at length.
 
In Witness Whereof, the parties hereto have hereunto set their hands and seal, or caused these presents to be signed by their proper corporate officers and their proper corporate seal to be hereto affixed, the day and year first above written.
 
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  Witness or Attest:    Vitamin Realty Associates, LLC, Landlord  
     
 By:  /s/ Christina Kay  By:  /s/ E. Gerald Kay  
 Christina Kay  E. Gerald Kay  
 Dated:  May 4, 2012    
 
 
 
 
  AGRO LABS, INC  
     
 By:  /s/ Christina Kay  By:  /s/ Dina Masi  
 Christina Kay  Dina Masi  
 Dated:  May 4, 2012    
   
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RIDER TO LEASE AGREEMENT
BETWEEN
VITAMIN REALTY ASSOCIATES, LLC
AND
AGRO LABS, INC
 
 
a) REPAIRS.
 
Notwithstanding anything to the contrary contained herein, it is agreed that the Tenant shall be responsible to maintain and for the making of necessary interior nonstructural repairs to the Leased Premises, including all costs and expenses relating to the repair and replacement of heating facilities, plumbing facilities, sewer facilities, air-conditioning facilities, electric facilities and other facilities necessary for the maintenance of the Leased Premises, and that the Landlord shall be responsible for the making of necessary structural repairs, interior and exterior, exterior repairs and roof repairs; provided, however, that Tenant shall be responsible for any necessary structural, exterior, and roof repairs if required by reason of the negligence or misconduct of the Tenant, its agents, employees, contractors, or invitees.  Landlord shall be responsible for maintaining the parking areas.
 
b) WAIVER OF SUBROGATION.
 
Each party shall cause endorsements to be added to their respective policies of insurance covering any insurable interest it may have with respect to the Leased Premises or any Property thereon, which will provide that the insurers waive all rights to subrogation to the rights of the insured party against the other party to this Lease in connection with any loss or damage covered by said policies. If any such waiver of subrogation is obtained only upon such payment of an additional premium, then the obligation to obtain such waiver of subrogation shall be conditioned upon payment of such additional premium by the party for whose benefit such waiver is sought.
 
c) MUNICIPAL REAL ESTATE TAXES.
 
i) Landlord shall be responsible for the payment of all municipal real estate taxes, assessments, water and sewer rents, and governmental impositions, duties and charges of every kind in nature whatsoever, extraordinary as well as ordinary, and whether now within the contemplation of the parties or not and each and every installment of each of them, which shall or may during the term of the Lease be charged, laid, levied, assessed or imposed upon the Leased Premises of which the Leased Premises form a part or upon any sidewalks or streets in front of or adjoining the said Leased Premises, or which may become due and payable with respect thereto, and any and all taxes charged, laid, levied, assessed or imposed in lieu of the foregoing, under or by virtue of any present or future laws, rules, requirements, orders, directions, ordinances, or regulations of the United States of America or of the state, county, municipal, governmental or lawful authority whatsoever; all to the extent applicable to the term of this Lease.
 
ii) Nothing herein contained shall require or be construed to obligate Tenant to pay any franchise, corporation, capital stock, capital levies, transfer, estate or inheritance, income or excess profits tax imposed upon Landlord or upon its successors or assigns of any of them. If, however, after the date hereof, the method of real estate taxation shall be altered so as to cause the whole or any part of the real estate taxes, assessments, levies, impositions or other charges now or hereafter levied, assessed or imposed on the Leased Premises or any interest therein or portion thereof to be levied, assessed or imposed, wholly or partially, as a capital levy, or otherwise on the Landlord or its assigns, or on any rents or other charge received under this Lease, or out of sales from or use of the Leased Premises, or any portion thereof of interest therein, or if any such tax, assessment, levy (including but not limited to any municipal, county, state or federal levy), imposition or charge, or any part thereof, shall be measured by or be based in whole or in part upon the Leased Premises or any portion thereof or interest therein, and/or upon any other taxable interest, the portion of the sums which Tenant is required to pay hereunder in lieu of the methods of taxation prevailing on the date hereof shall be Tenant's proportionate share of all such taxes, assessments, levies, impositions or charges, to the extent that they are so measured or based, and the same shall be deemed to be included with the term real estate taxes for the purposes hereof to the extent the same would be payable if the Leased Premises were the only property of Landlord subject thereto, and if the income from the Leased Premises were the only taxable income of Landlord during the year in question.
 
iii) All real estate taxes, assessments and other charges and installments thereof which shall become payable for the period falling within shall be paid by Landlord.
 
iv) Tenant's proportionate share of all taxes, special assessments, levies, impositions and charges for any tax year beyond 2011/2012 shall be determined by multiplying the same by the following fraction:
 
1.72 of the Commercial Space totals
 
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d) EXCULPATION.
 
Notwithstanding anything to the contrary contained herein, it is agreed (a) that if Landlord or any successor in interest is a corporation, there shall be no personal liability on the part of any stockholder, officer or director of such corporation or any subsidiary, affiliate, joint venturer, or partner of such corporation with respect to any obligation of the Landlord hereunder or in connection herewith, and (b) that if Landlord is a firm, partnership, joint venture or association, there shall be no personal liability on the part of any partner, general or limited, or member thereof with respect to any obligations hereunder or in connection herewith. If Landlord shall be in breach or default with respect to its obligations under this Lease, Tenant agrees (a) that it shall look solely to the estate, equity and interest of Landlord in the land and building of which the Leased Premises forms a part for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord hereunder and (b) that there shall be no personal liability on the part of Landlord or its stockholders, officers, directors, subsidiaries, affiliates, joint venturers, partners or members for the collection of any such judgment or other judicial process beyond their respective interests in the land and building of which the Leased Premises form a part. The provisions hereof shall not, however, be deemed a waiver or modification of Tenant's rights or Landlord's obligations under this Lease, nor shall it prevent Tenant from obtaining judgment against the Landlord in case of such breach or default to the extent that the same shall be a lien against Landlord's equity or interest therein, nor from asserting any setoff or deduction against the rents payable under this Lease to which Tenant may be entitled under this Lease, or by judgment in its favor.
 
e) FIRE AND EXTENDED COVERAGE INSURANCE.
 
Landlord shall be obligated to insure the Leased Premises to its full insurable replacement value including Landlord's loss of rent, against the perils covered by standard fire and extended coverage policies, and Tenant shall be responsible for payment of premiums for same as provided in Paragraph 8 hereof.
 
In the event that it shall be impossible to obtain fire, and extended coverage insurance on the buildings and improvements on the Leased Premises in an amount, in the form and with fire insurance companies reasonably acceptable to Landlord, because of any reason due to or connected with the occupancy of Tenant, the Landlord may at its option, at any time thereafter, terminate this Lease and the term thereof by giving the Tenant ten (10) days notice in writing of its intention to do so, provided, however, that this Lease shall not terminate if Tenant shall procure the insurance required hereunder prior to the expiration of the 10-day notice period set out above. Landlord represents that all Tenants have a similar clause in their Lease Agreement.
 
f) PUBLIC LIABILITY.
 
Tenant shall maintain during the term of this Lease comprehensive general public liability and property damage with an insurance company licensed to do business in the State of New Jersey with a single limit of no less than Two Million Dollars ($2,000,000.00) for personal injury or death, and said policy shall include property damage limit of One Hundred Thousand Dollars ($100,000.00) with an insurer of Tenant's selection reasonably satisfactory to Landlord. Landlord shall be named as an additional insured.
 
g) ENDORSEMENTS & NON-CANCELABLE PROVISIONS.
 
The original of all insurance policies or certificates of insurance shall be furnished to Landlord and shall carry endorsements thereon for the benefit of the Landlord and Tenant, and Landlord's mortgagees, agents, servants, and employees and all persons claiming against the Landlord and/or Tenant as their respective interest may appear. Each policy shall contain an endorsement to the effect that said policy shall not be canceled or modified without ten (10) days' prior notice to Landlord. If required, Tenant shall supply to the Landlord the original policy and paid receipt.
 
h) INSURANCE RENEWALS.
 
At least fifteen (15) days prior to the expiration or termination date of any of the insurance policies, Tenant shall deliver to Landlord a copy of the renewal or replacement policy with proof of payment of the premium therefore. Certificates of Insurance shall be permitted under this Article as they are permitted in Article 37.
 
i) PREMIUM PAYMENT AND OTHER INSURANCE.
 
Tenant shall pay all insurance premiums for insurance coverages required to be obtained by Landlord and/or Tenant as herein provided. In addition, Tenant shall obtain at its cost and expense such other insurance and in such amounts as may from time to time be reasonably required by Landlord or the fee mortgage.
 
j) DUAL RELEASE OF LIABILITY TO EXTENT OF RECOVERY OF INSURANCE PROCEEDS.
 
Neither the Landlord nor the Tenant shall be liable to the other for any business interruption or any loss or damage to property or injury to or death of persons occurring on the Leased Premises or the adjoining property, or in any manner growing out of or connected with the Tenant's use and occupation of the Leased Premises, or the condition thereof, or of the adjoining property, whether or not caused by the negligence or other fault of the Landlord or the Tenant or of their respective agents, employees, subtenants, licensees, or assigns. This release shall apply only to the extent that such business interruption, loss or damage to property, or injury to or death of persons covered by insurance, regardless of whether such insurance is payable to or protects the Landlord or the Tenant or both. Nothing in this paragraph shall be construed to impose any other or greater liability upon either the Landlord or the Tenant than would have existed in the absence of this paragraph. This release shall be in effect only so long as the applicable insurance policies contain a clause incorporating the foregoing and to the effect that this release shall not affect the right of the insured to recover under such policies. Such clauses shall be obtained by the parties whenever possible. Landlord and/or Tenant shall obtain appropriate clauses pursuant to which their respective insurance carriers waive rights of subrogation.
 
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k) REIMBURSEMENT OF LANDLORD'S EXPENSES.
 
Landlord or its agents, at Landlord's expense, subject to the reimbursement formula hereinafter set forth in this paragraph may incur expenditures in connection with the building of which the Leased Premises form a part. All costs and expenditures reasonably required in connection with the operation and maintenance of the building and the Surrounding Leased Premises shall be reimbursed by the Tenant to the Landlord in accordance with said formula provided that each other Tenant or occupant of the building within which the Leased Premises are located shall be required to reimburse Landlord for such costs and expenses on a proportionate basis for any such expenses beyond the Base Year of 2012.. Without limiting in any manner whatsoever the generality of the foregoing, such costs and expenditures shall include the following:
 
i) Cost and expenditures relating to the removal of snow, ice, debris; and
 
ii) Cost and expenditures relating to maintenance of landscaping, planting and shrubbery; and
 
iii) All cost and expenditures such as insurance premiums required by Landlord in connection with the protection of the Landlord and the Tenant; and
 
iv) All costs and expenditures relating to the repair and replacement of common areas, plumbing facilities excluding other toilet areas, sewage facilities, and all other facilities necessary for the maintenance of the building, and related to the operation of the Leased Premises.
 
v) All cost and expenditures reasonably incurred by Landlord pertaining to or related with Landlord's maintenance of the building and adjoining area.
 
In each rental year, Tenant shall pay Landlord, as additional rent, Tenant's proportionate share of Landlord's costs and expenditures as specified above in accordance with a fractional share computed as follows:
 
1.71% of the Commercial Space totals
 
Said fractional share shall then be applied to Landlord's costs and expenditures to determine Tenant's proportionate share of same. The charge required hereunder shall be paid by Tenant in quarterly installments and in such amounts as are actually incurred by the Landlord during the term of this Lease Agreement each quarterly payment shall be due and payable within thirty (30) days after receipt of said bill.
 
Within SIXTY (60) DAYS after the end of Landlord's fiscal year or calendar year, whichever is applicable, inclusive of the year during which the term of this Lease is terminated, Landlord shall make available for Tenant's inspection Landlord's records relating to the operating expenses for such preceding 12-month period.
 
All quarterly invoices to the Tenant related to expense reimbursement to the Landlord shall include copies of the bills or invoices for each expense billed to the Tenant during the past year, and which is included in the annual summary.
 
l) ARBITRATION.
 
Arbitration, where specifically provided under this Lease Agreement, shall be conducted as follows: On ten (10) days' written notice by either party to the other, each of them shall designate an arbitrator, and a third arbitrator shall be appointed pursuant to the laws of the State of New Jersey with respect to arbitration, as set forth in N.J.S.A. 2A:24-l et. seq., or any amendment thereto, or substitution thereof, or subsequent and legally opposite legislation.
 
m) BROKERS.
 
Tenant and Landlord represent to one another that there are no brokers involved with or entitled to any commission or other compensation in connection with the execution of this Lease Agreement.
 
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n) LATE AND ADDITIONAL CHARGES.
 
Tenant understands that all rent set forth herein is due and payable on the first day of each month. In the event the rent is not received by the Landlord by the tenth day of the month, there shall be a late charge imposed on and payable by Tenant, which late charge shall be Five (5%) percent of the rent payment for each month that the rent is outstanding. Tenant agrees that late charge as set forth above is fair and reasonable to reimburse Landlord for Landlord's expenses with regard to bookkeeping and collection of said rents and for late penalties due under Landlord's mortgage, and said late charge shall be due and payable as additional rent, immediately, together with the rent payment.
 
Should Tenant require overtime security guard services on Tuesday and Thursday evenings until 9pm EST, same shall be provided at an additional charge to Tenant of $0.50 per square foot.
 
o) NOTICES.
 
Any notice, consent, approval, request, communication, bill, demand or statement provided for hereunder by either party to the other party shall be in writing and shall be deemed to have been duly given if delivered personally to such other party or mailed in a postpaid envelope (registered, certified or otherwise, with or without return receipt) addressed to such other party, which address for the Landlord shall be as above set forth and for the Tenant shall be the Leased Premises (or the Tenant's address as above mailed prior to the occupancy of the Leased Premises), or if the address of such other party for notices shall have been duly changed as hereinafter provided, if so mailed to such other party at such changed address. Either party may at any time change the address for such notices, consents, approvals, requests, communications, bills, demands or statements by delivering or mailing, as aforesaid, to the other party a notice stating the change and setting forth the changed address. If the term "Tenant" as used in this Lease refers to more than one person, any notice, consent, approval, request, communication, bill, demand or statement given as aforesaid to any one of such persons shall be deemed to have been duly given to Tenant. All notices, to be valid, must be receipted, or have proof of delivery to the other party.  Additionally, if an notice sent to Landlord, a copy of same must be sent to the building’s manager, Gary Sheppard, c/o Sheppard Hale & Associates, Inc., 225 Long Avenue, Building 15, Hillside, NJ 07205 and emailed to gsheppard@sheppardhale.com.
 
p) COMPLIANCE WITH RULES AND REGULATIONS.
 
Landlord and Tenant shall comply with any and all requirements of the New Jersey Economic Development Authority in order that Landlord may comply with rules and regulations of the aforesaid Authority, as well as the New Jersey Economic Development Authority act and the Internal Revenue Code of 1954 as amended.
 
This lease may be signed in counterparts.
 
 
  Witness or Attest:    Vitamin Realty Associates, LLC, Landlord  
     
 By:  /s/ Christina Kay  By:  /s/ E. Gerald Kay  
 Christina Kay  E. Gerald Kay  
 Dated:  May 4, 2012    
 
 
 
   AGRO LABS, INC, Tenant  
     
 By:  /s/ Christina Kay  By:  /s/ Dina Masi  
 Christina Kay  Dina Masi  
 Dated:  May 4, 2012    
 
 
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 STATE OF NEW JERSEY  )
   )ss.:
 COUNTY OF UNION   )
 
On May 4th, 2012, before me, the undersigned, a Notary Public in and for said State, appeared E. Gerald Kay , Managing Member of VITAMIN REALTY ASSOCIATES, LLC, as well as individually, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
 
     
     
   By:  /s/ Mireille Antinozzi  
   Mireille Antinozzi  
   Notary Public  
 
 
 
 
 
STATE OF NEW JERSEY  )
   )ss.:
 COUNTY OF UNION  )
 
On May 4th, 2012, before me, the undersigned, a Notary Public in and for said State, appeared Dina Masi , CFO of AGRO LABS, INC. personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
 
     
     
   By:  /s/ Mireille Antinozzi  
   Mireille Antinozzi  
   Notary Public  
 
 
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Exhibit 10.3

STOCK PURCHASE AGREEMENT
 
BY
 
AND
 
AMONG
 
CEDARBURG PHARMACEUTICALS, INC.,
 
PURCHASER,
 
INB: HAUSER PHARMACEUTICAL SERVICES, INC.,
 
COMPANY,
 
INB: PAXIS PHARMACEUTICALS, INC.,
 
AND
 
INTEGRATED BIOPHARMA, INC.,
 
SELLER,
 
 
DATED: March 17, 2009
 
 
i
 




 
 

 

 
 
  EXHIBITS
   
Exhibit A Capitalization Table
Exhibit B Secretary's Certificate for the Company
Exhibit C Secretary's Certificate for the Purchaser
Exhibit 2.01(a)(ii) Promissory Note
   
  SCHEDULES  
   
 Schedule 5.01 Jurisdictions
 Schedule 5.04(b) No Conflicts - Company
 Schedule 5.05(a) Financial Statements
 Schedule 5.06(a) Absence of Certain Changes
 Schedule 5.07(b) Encumbrances and Location of Assets
  Schedule 5.07(c) Location of Inventory
 Schedule 5.07(d) Intellectual Property
 Schedule 5.07(e)(ii) Leased Real Property
 Schedule 5.08(a) Validity of Accounts Receivable
 Schedule 5.09(a) Tax Matters
 Schedule 5.10(a) Permits
  Schedule 5.11 Employees
 Schedule 5.12(a) Pending or Settled Employment Claims
 Schedule 5.12(b) Collective Bargaining Agreements
 Schedule 5.12(c) Labor Matters
 Schedule 5.13(a) Employee Plans
  Schedule 5.13(b) Pension Plans and Multiemployer Plans
 Schedule 5.13(d) Acceleration or Creation of Rights
 Schedule 5.14 Material Contracts
 Schedule 5.15 Validity and Breaches of Material Contracts
 Schedule 5.16(a) Compliance with Legal Requirements
 Schedule 5.16(b) Lawsuits
 Schedule 5.16(c) Injunctions and Orders
 Schedule 5.17 Insurance Policies
 Schedule 5.18 Environmental Matters
 Schedule 5.19 Brokers, Finders, Investment Bankers
 Schedule 5.20(a) Acquisitions and Divestitures
 Schedule 5.21 Officers, Directors and Bank Accounts
  Schedule 5.23 Liabilities
 
 
 
 

 

STOCK PURCHASE AGREEMENT
 
 
     THIS STOCK PURCHASE AGREEMENT (the " Agreement " ) is made and entered into this 17th day of March, 2009 (the " Effective Date "), by and among CEDARBURG PHARMACEUTICALS, INC ., a Delaware corporation (" Purchaser "), INB: HAUSER PHARMACEUTICAL SERVICES, INC. (" the "Company "), a Delaware corporation, and INTEGRATED BIOPHARMA, INC ., the sole stockholder of the Company and a Delaware corporation (the "Seller") and INB: PAXIS PHARMACEUTICALS, INC., a Delaware corporation and a wholly owned subsidiary of the Company ("Paxis").


RECITALS

WHEREAS, the Seller owns all of the shares of capital stock of the Company issued and outstanding as of the Effective Date, as further set forth on Exhibit A attached hereto (the " Shares "); and

WHEREAS , the Company operates a business which (i) engages in the extraction, isolation, purification and synthetic modification of natural products from plant, marine, and microbial sources, and (ii) provides research, process development, analytical, manufacturing, compliance and consulting services for the production of compounds from natural raw materials for the pharmaceutical, dietary supplement and fine chemical industries, and (iii) manufactures and markets the generic active pharmaceutical ingredient Paclitaxel (collectively, the " Business "); and

WHEREAS, the Company, as of January 31, 2009, acquired substantially all of the assets which comprise the operating businesses of Paxis and certain liabilities of Paxis, as more fully set forth in the Purchase Agreement dated January 31, 2009 among Seller, Paxis and the Company (the "Purchase Agreement"); and

WHEREAS , the Purchaser desires to purchase from the Seller, and the Seller desires to sell to the Purchaser, all of the Shares on the terms and conditions set forth in this Agreement (the " Acquisition ").

NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, agree as follows:
 

 
 

 

ARTICLE I
TERMS OF PURCHASE AND SALE
 
Section 1.01 Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, at the Closing and for the Purchase Price, as defined in Section 2.01, the Seller shall sell, transfer, assign and deliver to the Purchaser, and the Purchaser shall purchase from the Seller, the Shares owned by the Seller, free and clear of all Encumbrances.
 
ARTICLE II
PURCHASE PRICE
Section 2.01 Purchase Price.
 
(a)           For purposes of this Agreement, the " Purchase Price " shall be $1,500,000.00 (the " Purchase Price "). The Purchase Price shall be paid as follows:
 
(i)           $1,160,000.00 shall be paid by wire transfer of immediately available funds to such account or accounts as specified by the Seller.
 
(ii)           $340,000.00 payable in accordance with the terms and conditions of a Promissory Note, attached hereto as Exhibit 2.01 (a) (ii).
 
ARTICLE III
CLOSING
Section 3.01 Closing Date and Deliveries.
 
(a) The closing of the transactions contemplated hereby (the " Closing ") shall take place at the offices of Herrick, Feinstein LLP, 1 Gateway Center, Newark, New Jersey 17102, on March 17, 2009, or on such other date as the Purchaser and the Seller may mutually agree (the on which the Closing actually occurs referred to herein as the " Closing Date "). The Closing shall be deemed to be effective as of the close of business on the Closing Date.
 
(b)          At the Closing, in exchange for the Shares, the Purchaser shall cause:
 
(i)             the Purchase Price to be paid to the Seller and such other Persons as designated by the Seller; and
 
(ii)            the Secretary's Certificate specified in Section 9.02.
 
(c)           At the Closing, the Seller shall deliver, or cause to be delivered, to the Purchaser:
 
(i)       the certificates (the " Certificates ") representing the Shares, duly endorsed in blank by the Seller, or accompanied by blank stock powers duly executed by the Seller;
 

 
 

 

(ii)            all minute books, stock record books, books of account, corporate seals and other documents, instruments and papers belonging to the Company;

(iii)    resignations, effective as of the Closing, of each director and officer of the Company, except for any officers who will remain employees of Company, at the sole discretion of the Purchaser; and

    (iv)          the Secretary's Certificate specified in Section 9.01
 
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER

As an inducement to the Purchaser to enter into this Agreement, the Seller, hereby represents and warrants to the Purchaser as follows:

Section 4.01 Authority to Execute and Perform Agreement. The Seller has all requisite right, power and authority and full legal capacity to enter into this Agreement to be executed by the Seller, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been, and upon execution, will be, duly executed and delivered by the Seller and, assuming due authorization, execution and delivery by the Purchaser and the other parties hereto this Agreement constitutes, legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with its respective terms.

Section 4.02 Due Authorization. The execution, delivery, and performance by the Seller of this Agreement and the consummation by the Seller of the transactions contemplated hereunder have been duly authorized by all necessary action on the part of the Seller. The Seller has the full right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby.

Section 4.03 Ownership of the Shares.

(a)      The Seller owns beneficially and of record the number of Shares set forth next to such Seller's name on Exhibit A and such Seller has good and marketable title to such Shares, free and clear of all Encumbrances.

(b)      Except for the number of Shares set forth next to the Seller's name on Exhibit A, the Seller does not own any shares of stock of, or other equity interests in, the Company and does not have any options, warrants or other rights to acquire shares of stock of, or other equity interests in, the Company, nor do any options, warrants or other rights to acquire share of stock of, of other equity interests in, the Company exist.
 
Section 4.04 No Conflict. The execution, delivery and performance of this Agreement by the Seller, does not and will not:

(a)            conflict with or violate, in any material respects, any Legal Requirement to which the Seller or its properties or assets is subject or bound; or
 

 
 

 

(b)      result in any material violation, breach of, or default under (or an event that with notice, or of the passage of time, or both, would constitute a material default), create any rights of acceleration, termination or cancellation or cause any material loss of rights under or result in the creation or imposition of any material Encumbrance on any properties or assets of the Seller, including the Shares owned by the Seller, under (A) any agreement, mortgage, franchise, permit or other authorization, right, restriction or obligation of any kind to which the Seller is a party, beneficiary or designee or by which such Seller is bound or to which any properties of the Seller may be subject, or (B) any Legal Requirement affecting the Seller or by which any properties or assets of the Seller may be bound.

Section 4.05 No Finder. Except as set forth on Schedule 5.19, neither the Seller, the Company, nor any party acting on the behalf of the Seller has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, consultant or intermediary for or on account of the transactions contemplated by this Agreement.

Section 4.06 SEC Filings. Seller has filed with the Securities and Exchange Commission all reports or documents required to be filed under the Securities Exchange Act of 1934, as amended, as it relates to the Company. Such reports and documents do not contain any material false statements or any misstatements of any material fact as it relates to the Company, Paxis or the general financial condition of the Seller.


ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLER

As an inducement for the Purchaser to enter into this Agreement, the Company and the Seller, jointly and severally, and Paxis, with respect to the Sections below in which it is referenced represent and warrant to the Purchaser as follows:

Section 5.01 Corporate Organization. The Company is duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has full corporate power and authority to own or lease and operate and use its properties and assets and to carry on its business as now conducted. The Company is duly licensed or qualified to do business and in good standing in each jurisdiction in which the properties leased by it or the operation of its business makes such licensing or qualification necessary, except to the extent that the failure to be so licensed or to so qualify would not have a Material Adverse Effect, and all such jurisdictions are set forth on Schedule 5.01.

Section 5.02 Capitalization.

(a)      The Company's authorized capital stock consists exclusively of 100 shares, consisting of 100 shares of common stock, $0.01 par value per share ("Common Stock"). As of the date hereof, 100 shares of Common Stock are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and owned directly by the Seller. None of the Shares has been issued in violation of: (i) any preemptive or subscription rights, rights of first refusal or other rights, and none of the Shares is subject to any such rights; or (ii) any agreement or instrument to which the Company or the Seller is a party or by which any of
 

 
 

 

them are bound. All of the issued and outstanding shares of the capital stock of the Company were offered, issued, sold and delivered by the Company in compliance with the Company's Certificate of Incorporation and By-Laws and all applicable state and federal laws. Except for this Agreement, there are no agreements, arrangements, options, warrants, puts, calls, rights or commitments of any character relating to the issuance, sale, purchase, reservation, redemption, registration, voting or transfer of any shares or other securities of the Company and no stock appreciation, phantom stock, profit participation or other similar rights with respect thereto. All voting rights in the Company are vested exclusively in the Shares and there are no voting trusts, proxies or other similar agreements or understandings with respect thereto.

Section 5.03 Equity Investments.

(a)      The Company does not own, beneficially or of record, and is not obligated to acquire, directly or indirectly, voting securities or other equity interests in any Person or other business organization. The Company does not directly or indirectly control any Person or other business organization.

Section 5.04 Corporate Power; Authority; No Conflict.

(a)      The execution, delivery, and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereunder have been duly authorized by all necessary corporate action on the part of the Seller and the Company. The Company has the full right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement constitutes, and upon execution, will constitute, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms.

(b)           Except as set forth on Schedule 5.04(b), the execution, delivery and performance of this Agreement, does not and will not:

(i)              violate or conflict with the Certificate of Incorporation or By-Laws of the Company or the Seller;

(ii)             conflict with or violate, in any material respects, any Legal Requirement applicable to the Company, the Seller or their properties or assets; or

(iii)      result in any material violation, breach of, or default under (or an event that with notice, or the passage of time, or both, would constitute a material default), create any rights of acceleration, termination or cancellation under, cause any material loss of rights under, or result in the creation or imposition of any material Encumbrance on any properties or assets of the Company under, (A) any agreement, mortgage, franchise, permit or other authorization, right, restriction or obligation of any kind to which the Company is a party, beneficiary or designee or by which the Company is bound or to which any properties or assets of the Company may be subject, or (B) any Legal Requirement affecting the Company or by which any properties or assets of the Company may be bound.
 

 
 

 

Section 5.05 Financial Statements.
 
(a)           Schedule 5.05(a) contains
 
                 (i)      a copy of the balance sheet of the Company and Paxis as of June 30, 2008 and December 31, 2008 and the related statements of operations, for the one year and six month periods, respectively, then ended, (the " Financial Statements "); and

(ii)      a copy of the internally prepared balance sheet of the Company (which includes the assets and liabilities of Paxis acquired under the Purchase Agreement) as of January 31, 2009 (the " Most Recent Balance Sheet " and the date of the Most Recent Balance Sheet being referred to as the " Most Recent Balance Sheet Date ") for the seven (7) month period then ended (the " Most Recent Financial Statement ").

(b)           The Financial Statements and the Most Recent Financial Statement are herein referred to collectively as the " Financial Statements ".

(c)           The Financial Statements, which are attached as Schedule 5.05(a):

(i)              present fairly, in all material respects, the financial position, assets, and Liabilities of the Company and Paxis as of the dates therein indicated;
  
(ii)             present fairly in all material respects, the results of the operations of the Company and Paxis for the periods covered thereby; and

(iii)      have been, in all material respects, prepared in accordance with GAAP applied on a consistent basis, except that the Most Recent Financial Statement does not contain footnotes and is subject to normal year-end adjustments.

Section 5.06 Absence of Certain Changes. Except as set forth on Schedule 5.06(a), since the Most Recent Balance Sheet Date: (a) there has been no change, condition, act, omission, event or occurrence that has resulted in a Material Adverse Effect; and (b) the Company has conducted its business only in the ordinary course and in conformity with past practice.

Section 5.07 Title; Physical Assets; Inventory; Intangible Property.

(a)      All operations of the Business are conducted through the Company.

(b)      The Company has and at the Closing will have good and marketable title to all of its assets free and clear of Encumbrances other than: (i) those Encumbrances set forth on Schedule 5.07(b); (ii) mechanics', carriers, workmen's, repairmen's or other like liens arising or incurred in the ordinary course of business; (iii) liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (iv) liens for Taxes and other governmental charges that are not due and payable or that may thereafter be paid without penalty; and (v) liens that secure debt that is reflected as a liability on the Most Recent Balance Sheet or the existence of which is referred to in the notes to the Most Recent Balance Sheet (" Permitted Encumbrances "). The material items
 

 
 

 

of operating equipment of the Company are in good structural and operating condition and repair, with only ordinary wear, tear and deterioration of such assets excepted, except where the failure to be in such condition and repair would not adversely affect the operation of the Business or the value of the properties of the Company. All of the assets used by the Company in the conduct of the Business are owned, leased or licensed by the Company, and are located at the facilities identified in Schedule 5.07(b).

(c)      All of the Company's inventories, including without limitation finished goods, work in process, raw materials and supplies (collectively, the " Inventories "), are in good and usable condition, are carried on the books and records of the Company at the lower of cost (determined on a first-in-first-out basis) or market value in accordance with GAAP, except for miscellaneous defects in Inventories which neither individually nor in the aggregate will have any significant impact on the Business or financial results of the Company. None of the Inventories has been consigned to others, nor is any inventory of others consigned to the Company. All of the Inventories are of such quality as to be compliant in all material respects with the Company's current quality control standards. All Inventories (other than Inventories in transit) are located at the facilities identified in Schedule 5.07(c).

(d)      Schedule 5.07(d) sets forth all of the Internet domain names owned or possessed by the Company, trade names used by the Company, the grant back licenses as referenced in certain Material Contracts, and the technology related to the Hauser, Inc acquisition in 2004, which are used to conduct the Business. The Company does not own or possess any patents. All trademarks, trade names, Internet domain names, trademark registrations, service marks, service mark registrations, copyrights, inventions, business processes and technologies, software, databases, trade secrets and other unpatented and/or unpatentable proprietary or confidential information (except for the confidential information that the Company maintains through Confidential Disclosure Agreements signed with customers and other third parties), systems or procedures, and other intellectual property (collectively, " Intellectual Property ") owned or possessed by the Company are free and clear of any Encumbrances except for the Permitted Encumbrances. Neither the Seller nor the Company is aware of any claim to the contrary or any challenge by any other person to the rights of the Company with respect to the foregoing. Except for the software licenses listed (along with number of applicable users) set forth on Schedule 5.07(d), the Company is not a party to any other Intellectual Property licenses (" Intellectual Property Licenses "). To the knowledge of Seller, the Company has complied in all material respects with the Intellectual Property Licenses, is not in breach and has not received any asserted or threatened claim of breach of, any Intellectual Property License, and has no knowledge of any existing or pending material breach by any other person to any Intellectual Property License. To the Company's, Paxis' and the Seller's knowledge, the Intellectual Property used in the Business does not infringe with any patents, trademarks, service marks, trade names, copyrights, trade secrets, or other Intellectual Property right of any person. No claim has been made against the Company, Paxis or the Seller alleging the infringement by the Company or the Seller of any trademark, service mark, trade name, copyright, trade secret or other Intellectual Property right of any person. The consummation of the transactions contemplated by the Agreement will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other person in respect of, the Company's right to own, use or hold for use any of the
 

 
 

 

Intellectual Property as owned, used or held for use in the conduct of its business as currently conducted.

(e)           Real Property.

(i)      Owned Real Property.
 
                         (A)              The Company does not own any real property.
 
                 (ii)      Leased Real Property.

     (A)            Schedule 5.07(e)(ii) sets forth all of the real property leased by the Company (the " Leased Real Property ").

     (B)      The Company has a valid and subsisting leasehold estate in, and enjoys peaceful and undisturbed possession in all material respects of, the Leased Real Property, free and clear of all Encumbrances other than Permitted Encumbrances.

     (C)      The Company has delivered to Purchaser complete and accurate copies of all leases for the Leased Real Property, each of which is a Scheduled Agreement (as hereinafter defined).

     (D)      There are no (1) pending or, to the best knowledge of the Company or the Seller, threatened eminent domain, expropriation, or condemnation proceedings relating to the Leased Real Property, or (2) pending or, to the best knowledge of the Company or the Seller, threatened litigation or administrative actions relating to the Leased Real Property.

    (E)      Except as set forth on Schedule 5.07(e)(ii), the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold.

(iii)      The Company has not received any written notice for assessments for public improvements against any of the Leased Real Property which remains unpaid and, to the knowledge of the Seller, no such assessment has been proposed.

(iv)           This Section 5.07(e) does not relate to environmental matters, such items being the subject of Section 5.18.

Section 5.08 Accounts Receivable.
 
(a)       Except as set forth on Schedule 5.08(a), the accounts and notes receivable of the Company are and those acquired from Paxis are valid and genuine; have arisen solely out of bona fide sales, performance of services and other business transactions in the ordinary course of business consistent with past practice; and are not subject to set-offs, counterclaims or valid defenses, subject to allowances for collection losses recorded on the Company's books.
 

 
 

 

Section 5.09 Tax Matters.

(a)      Except as set forth on Schedule 5.09(a): (i) the members of the consolidated group of corporations including the Company and Paxis filing as one entity ("Affiliated Group") have filed all Tax Returns that it was required to file for each taxable period during which the Company and Paxis were members of the group; (ii) all such Tax Returns were true, correct and complete in all material respects; (iii) all Taxes owed by the Affiliated Group (whether or not shown on any Tax Return) have been paid for each taxable period during which the Company and Paxis were members of the group; and (iv) no adjustment relating to such Tax Return has been proposed in writing by any Governmental Body.

(b)           The Company does not have any liability for the taxes of Paxis or any entity other than the Company.

(c)           There are no Tax liens (other than any lien for current Taxes not yet due and payable) on any of the assets or properties of the Company.

(d)           The Company:

(i)      Except as set forth in Section 8.01, the Company is not a party to any agreement relating to the sharing or allocation of Taxes, nor does it have any liability for Taxes of any other Person, including but not limited to Paxis or the Seller;

(ii)           Has not agreed nor is it required to make any adjustment under Section 481(a) of the Code (as a result of any examination by a taxing authority).

(e)      The accruals for all Taxes due by the Company on its Most Recent Balance Sheet are sufficient, and the accruals for all Taxes due by the Company as of the Closing will be sufficient, for all unpaid Taxes, whether or not disputed, in respect of the business and operations for the period then ended and all prior periods.

Section 5.10 Governmental Permits.

(a)      The Company owns, holds or possesses all material governmental licenses, franchises, permits, privileges, immunities, approvals, registrations, easements, rights and other authorizations which are necessary to entitle it to own, lease, operate and use its assets and properties and to carry on and conduct its business as currently conducted (herein collectively called " Permits "). Schedule 5.10(a) sets forth a list and brief description of each such Permit held by the Company as of the date of this Agreement.
 
(b)      The Company is and Paxis was, in compliance in all material respects with each of the Permits owned, held or possessed by it, and no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such Permit. Each of the Company and Paxis has not received any written notice of any cancellation, default, or of any dispute, appeal or inquiry concerning any Permit, or of any event, condition or state of facts set forth in the preceding sentence. This Section 5.10 does not relate to environmental matters, such items being the subject of Section 5.18.
 

 
 

 

Section 5.11 Employees. Schedule 5.11 contains: (i) a list of all employees of the Company as of the date hereof (together with each employee's job title) and (ii) a list any employment contracts with any employees. The employees listed in Schedule 5.11 are leased to the Company by Oasis Outsourcing III, Inc. ("Oasis"), a professional employer organization. Oasis is responsible for paying all payroll withholding taxes for such employees and to the best knowledge of the Seller and the Company, Oasis is current with respect to these payments.
 
Section 5.12 Employee Relations.

(a)      The Company and Paxis have complied in all material respects with all applicable Legal Requirements relating to wages, hours, withholding, discrimination in employment, and other employment matters. Set forth on Schedule 5.12(a) is a list of any employment complaints or actions currently pending in any administrative or judicial tribunals of the State of Colorado and a list of any such complaints or actions that were settled subsequent to January 1, 2006.

(b)      Except as set forth on Schedule 5.12(b), Paxis and the Company are not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company.

(c)           Except as set forth on Schedule 5.12(c):

(i)      there is no unfair labor practice, charge or complaint relating to the Company's or Paxis' business pending before the National Labor Relations Board or any similar Governmental Body;

(ii)      there is no charge relating to the Company's or Paxis' business pending before the Equal Employment Opportunity Commission or any other Governmental Body responsible for the prevention of unlawful employment practices;

(iii)      there is no written grievance arising out of any collective bargaining agreement or other grievance procedure relating to the Company's or Paxis" business pending; and
 
(iv)      the Company and Paxis have not received written notice of the intent of any Governmental Body responsible for the enforcement of labor or employment Legal Requirements to conduct an investigation relating to the Company's Paxis' business and no such investigation is in progress.

Section 5.13 Employee Benefit Plans.
 
(a)           Schedule 5.13(a) contains a complete list of the Employee Plans in which the Company's employees participate or to which the Company or the Seller contributes.

(b)           Except as set forth in Schedule 5.13(b):

(i)            Pension Plans.
 

 
 

 

(A)      The Company, Paxis and the Seller do not maintain or contribute to and have not maintained or contributed to a Pension Plan that is subject to the minimum funding requirements of Section 412 of the Code or Part 3 of Title I of ERISA.

(B)     Multiemployer Plans. Neither the Company, Paxis nor the Seller has contributed to, participated in or otherwise has any liability with respect to, or within the past six (6) years has been obligated to contribute to, or has participated in or had any liability with respect to a Multiemployer Plan. No withdrawal liability to any Multiemployer Plan will be incurred as a result of the transactions contemplated by this Agreement or as a result of any events that have occurred or conditions that exist prior to Closing.

(c)     Litigation. There is no action, order, writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, arbitral action, governmental audit or investigation relating to or seeking benefits (other than a routine claim for benefits pursuant to the terms of the plan) under any Pension Plan that is pending, or to the knowledge of the Seller, Paxis or the Company, threatened, against the Company, Paxis or any Pension Plan,

(d)     No Acceleration or Creation of Rights. Except as set forth on Schedule 5.13(d), neither the execution and delivery of this Agreement by the Company, Paxis or the Seller nor the consummation of the transactions contemplated hereby will result in the acceleration or creation of any rights of any person to benefit under any Employee Plan (including, without limitation, the acceleration of the vesting or exercisability of any stock options, the acceleration of the vesting of any restricted stock or the acceleration or creation of any rights under any severance, parachute or change in control agreement).

(e)            Compliance with Law. Each Employee Plan is in compliance in all material respects with all Legal Requirements.

Section 5.14 Contracts. Schedule 5.14 sets forth a true and complete list of all Material Contracts to which the Company is a party or by which the Company or the Company's assets or business are bound.

Section 5.15 Status of Contracts. Each of the contracts, agreements, instruments, legally binding commitments or understandings listed in Schedule 5.14 and each other Schedule attached to this Agreement (collectively, the " Scheduled Agreements "), except as set forth on Schedule 5.15 or as otherwise specifically set forth in the Schedule in which such Scheduled Agreement is listed, constitutes a legal, valid and binding obligation of the Company, as the case may be, and is in full force and effect and is enforceable against the Company, in accordance with its terms, including but not limited to the Scheduled Agreements transferred to the Company under the Purchase Agreement. Except as set forth on Schedule 5.15 or such other Schedule in which such Scheduled Agreement is listed, the Company and Paxis have performed all material obligations required to be performed by it to date under the Scheduled Agreements, and is not in breach or default thereunder in any material respects.

Section 5.16 No Violation, Litigation or Regulatory Action.

(a)           Except as set forth on Schedule 5.16(a), the Company and Paxis have complied in all material respects with each Legal Requirement to which it or its Business,
 

 
 

 

operations, assets or properties are or have been subject. This Section 5.16(a) does not relate to matters with respect to Taxes, which are the subject of Section 5.09, or to environmental matters, which are the subject of Section 5.18.

(b)      Except as set forth on Schedule 5.16(b), (i) there are no lawsuits, claims, suits, proceedings or investigations pending, or to the knowledge of the Seller or the Company, threatened, against the Company or Paxis or threatened against the Seller but relating to the Company or Paxis and (ii) there are no actions, suits or proceedings pending or contemplated in which the Company or Paxis is the plaintiff or claimant or in which the Seller is a plaintiff or claimant on behalf of or for the benefit of the Company or Paxis, except as described in Section 2.4 of the Purchase Agreement and which were not acquired by the Company under the Purchase Agreement.

(c)      Except as set forth on Schedule 5.16(c), there are no injunctions, orders, awards or decrees of any Governmental Body currently in effect against the Company, or against the Seller or Paxis but relating to the Company.

Section 5.17 Insurance. Schedule 5.17 identifies each insurance policy maintained by or for the benefit of the Company. All such insurance policies are in full force and effect, and the Company is not in material default with respect to any of its obligations under any of such policies. Except as set forth on Schedule 5.17, there are no outstanding unpaid claims under any of such insurance policies. All premiums due and payable under any such insurance policies have been duly paid.

Section 5.18 Environmental Protection. Except as set forth on Schedule 5.18 and to the best knowledge of the Company, Paxis and the Seller:

(a)      The operations of the Company comply, and of Paxis complied, in all material respects with all applicable Environmental, Health or Safety Requirements of Law and there are no substances or conditions existing at any Facility that may support a claim or cause of action against the Company, Paxis or against the Seller but relating to Paxis or the Company under any Environmental, Health or Safety Requirement of Law.

(b)      The Company is in compliance in all material respects with all Permits required by the Company under Environmental, Health, or Safety Requirements of Law and the Seller is in compliance in all material respects with all Permits required by it in connection with the operation of the Business by the Company under Environmental, Health, or Safety Requirements of Law.

(c)       The Facilities and operations at the Facilities are not subject to any judicial or administrative proceeding, order, judgment, decree, settlement, or investigation, alleging or addressing (A) violation of any Environmental, Health or Safety Requirement of Law, or (B) any Remedial Action.

Section 5.19 No Finder. Except as set forth on Schedule 5.19, neither the Company, Paxis, the Seller nor any party acting on the behalf of the Company, Paxis or the Seller has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, consultant or intermediary for or on account of the transactions contemplated by this Agreement.
 

 
 

 

Section 5.20 Acquisitions and Divestitures.

(a)      Schedule 5.20(a) lists and identifies all acquisitions of or investments in the business, assets, capital stock or other equity interests, in any other entity or division thereof conducted at any time during the past five (5) years by the Company whether by purchase, merger, consolidation, or any other form of transaction, as well as all divestitures or sales of any business, subsidiary, division, or material assets of the Company at any time, including but not limited to the non-bankruptcy reorganization of certain assets of Paxis by the Company under the Purchase Agreement, other than sales of inventory and dispositions of personal property in the ordinary course of business (such transactions referred to as " Acquisitions and Divestitures "); and for each Acquisition or Divestiture, sets forth the date of the transaction, the interests acquired or sold, the parties to the transaction and the consideration therefore.

Section 5.21 Officers and Directors; Bank Accounts. Schedule 5.21 lists all officers and directors of the Company; all bank accounts and safe deposit boxes maintained by the Company and Paxis (unless already in the Company's name) and all authorized signatories therefor, specifying their respective authority; and all Company, and to the extent not already in the Company's name, Paxis debit cards under which any employee or officer of the Company may incur liability, and the persons holding such debit cards.

Section 5.22 Product Liability. To the knowledge of Seller, Paxis and the Company, each product that has been manufactured, sold or put into trade inventory by the Company and Paxis since January 1, 2006: (i) conformed and complied in all material respects with the terms and requirements of all applicable contractual commitments and all express and implied warranties, and (ii) was of such quality as to be compliant with the Company's or Paxis' then­existing quality control standards.

Section 5.23 No Undisclosed Liabilities. Except as set forth on Schedule 5.23, the Company does not have any Liabilities except:

(a)           those Liabilities set forth on the Most Recent Balance Sheet and not heretofore paid or discharged; and

(b)      Liabilities of the same nature as those set forth on the Most Recent Balance Sheet and incurred in the ordinary course of business, consistent with past practice, after the Most Recent Balance Sheet Date.

Section 5.24 Books and Records. The books and records of the Company and Paxis have been maintained in all material respects accurately and completely, have been maintained in all material respects with good business practices and applicable legal, regulatory and accounting requirements, reflect only valid transactions and are complete and correct in all material respects.
 
Section 5.25 Restrictions on Business Activities. There is no judgment, injunction, order, decree or proceeding to which the Seller, Paxis or the Company is a party or by which the Company's assets is or may be bound, which prohibits or impairs the conduct of business by the Company as it is currently conducted, which includes the business acquired under the Purchase Agreement.
 

 
 

 

Section 5.26 The Purchase Agreement. The Seller, Paxis and the Company had all requisite right, power and authority and full legal capacity to enter into the Purchase Agreement, to carry out their obligations thereunder and to consummate the transactions contemplated thereby. The Purchase Agreement has been duly authorized, executed and delivered by the Seller, Paxis and the Company and constitutes a legal, valid and binding obligation of the Seller, Paxis and the Company, enforceable against each of them in accordance with its terms. At the time of the Purchase Agreement, (i) Paxis was duly incorporated, validly existing and in good standing under the laws of the State of Delaware. (ii) had full corporate power and authority to own or lease and operate and use its properties and assets and to carry on its business as then conducted, (iii) was duly licensed or qualified to do business and in good standing in each jurisdiction in which the properties leased by it or the operation of its business made such licensing or qualification necessary, except to the extent that the failure to be so licensed or to so qualify would not have a Material Adverse Effect.
 
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
 
As an inducement for the Seller to enter into this Agreement, the Purchaser represents and warrants to the Seller as follows:

Section 6.01 Corporate Organization. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. The Purchaser has full corporate power and authority to own or lease and operate and use its properties and assets and to carry on its business as now conducted.

Section 6.02 Authority; No Violation.

(a)      The execution and delivery of this Agreement to be executed and delivered by the Purchaser and the performance hereof, including the consummation of the transactions contemplated hereby, have been duly and validly authorized by the Purchaser and no other proceedings on the part of the Purchaser are necessary to authorize such execution, delivery and performance. The Purchaser has full right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement has been, and upon execution, will be, duly executed and delivered by the Purchaser and constitutes, and upon execution, will constitute, its legal, valid and binding obligation, enforceable against the Purchaser in accordance with its terms.
 
(b)           The execution, delivery and performance of this Agreement by the Purchaser, do not and will not:
 
     (i)      violate or conflict with the Certificate of Incorporation or By-Laws of the Purchaser;
 
     (ii)      conflict with or violate any Legal Requirement applicable to the Purchaser;
 
 


 
 

 

(iii)      result in any violation, breach of, or default under (or an event that with notice, or the passage of time, or both, would constitute a default), create any rights of acceleration, termination or cancellation or cause any loss of rights under, result in the creation or imposition of any Encumbrance on any properties or assets of the Purchaser under, (A) any agreement, mortgage, franchise, permit or other authorization, right, restriction or obligation of any kind to which the Purchaser is a party, beneficiary or designee or by which the Purchaser is bound or to which any properties of the Purchaser may be subject, or (B) any Legal Requirement affecting the Purchaser or by which any properties or assets of the Purchaser may be bound; or

Section 6.03 No Finder. Neither the Purchaser nor any party acting on its behalf has caused the Company or the Seller to become obligated to pay any fee or commission to any broker, finder, investment banker, consultant or intermediary for or on account of the transactions contemplated by this Agreement.

Section 6.04 No Litigation. There is no action, suit, proceeding or investigation pending or threatened which questions the legality or propriety of the transactions contemplated by this Agreement or which seeks to prevent or materially delay the transactions contemplated by this Agreement.

Section 6.05 Availability of Funds; Solvency. Purchaser will have received as of the Closing Date financing adequate to consummate the Acquisition contemplated by this Agreement.
 

 
ARTICLE VII
ACTION PRIOR TO AND SUBSEQUENT TO THE CLOSING

The respective parties hereto covenant and agree that:

Section 7.01 Investigation of the Company by the Purchaser. The Company has afforded the officers, certain directors and shareholders, employees and authorized representatives of the Purchaser (including, without limitation, attorneys, environmental consultants and engineers) complete access during normal business hours to the offices, properties, employees and business and financial records (including computer files, retrieval programs and similar documentation) of the Company, and allowed Purchaser to conduct such site inspections and investigations that Purchaser deemed appropriate and has furnished to the Purchaser, its officers, certain directors and shareholders, employees and their respective authorized representatives such additional information concerning the Company and its respective properties, assets, business and operations as has been reasonably requested, including, without limitation, all such information as was specifically requested by the Company on the Due Diligence Checklist and to conduct such site inspections and investigations that Purchaser deemed appropriate. Nothing contained in this Agreement shall obligate the Seller, or the Company to breach any duty of confidentiality owed to any person whether such duty arises contractually, statutorily or otherwise, but the Company or the Seller must disclose the existence of such an obligation to Purchaser, if such obligation prevents the disclosure of any information that is material to the decision of the Purchaser to consummate this Agreement.
 

 
 

 

Section 7.02 Further Action. Each party hereto shall execute such documents and other papers and take such further actions as may be reasonably necessary or desirable to carry out the provisions hereof and the transactions contemplated hereby. Upon the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts under the circumstances to take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, the parties hereto shall cooperate in using their reasonable efforts to promptly effect all registrations and filings with, and to obtain all consents, amendments, permits or other actions from, any Person required to be made or obtained by the terms of this Agreement or otherwise necessary or desirable for the due and punctual consummation of the transactions contemplated hereby.

Section 7.03 Publicity. Prior to the Closing Date, no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior consent of the other parties (which consent shall not be unreasonably withheld or delayed), except as such release or announcement may be required by law or the rules or regulations of any United States or foreign securities exchange; provided, however, that each of the parties may make internal announcements to their respective employees that are consistent with the palsies' prior public disclosures regarding the transactions contemplated hereby.

Section 7.04 Post Closing Cooperation. Purchaser shall reasonably cooperate with Seller in its prosecution of any claims retained by Paxis, including but not limited to, promptly forwarding all correspondence, and having employees, designated by Seller, available to assist in prosecution of such claims, provided that Seller reimburse Purchaser for the reasonable costs incurred as a result of such cooperation, including the provision or copying of any information or making employees available to assist Seller. As soon as practical after Closing, Seller will change the corporate name of Paxis to a name that is not confusingly similar. In addition, to the extent that cooperation of the Seller or Paxis is needed in connection with the transfers that have been undertaken in the Purchase Agreement, such as name changes and permit transfer, such cooperation will be rendered at no cost to the Purchaser.


ARTICLE VIII
OTHER COVENANTS AND AGREEMENTS

The Seller, the Company and the Purchaser covenant and agree as follows:

Section 8.01 Tax Matters. The Purchaser and the Seller covenant and agree as follows:
 
(a)      The following provisions shall govern the allocation of responsibility as between the Purchaser and the Company on the one hand, and the Seller, on the other, for certain tax matters following the Closing: (i) The income of the Company (including any deferred items triggered into income by Reg. Section 1.1502-13 and any excess loss account taken into income under Reg. Section 1.1502-19) shall be included on the current consolidated federal Income Tax Returns for all periods through the end of the Closing Date and pay any federal income Taxes attributable to such income. The Company shall furnish Tax information for inclusion in such
 

 
 

 

consolidated Tax Return for the period that includes the Closing Date in accordance with the Company's past custom and practice. The income of the Company shall be apportioned to the period up to an including the Closing Date and the period after the Closing Date by closing the books of the Company as of the end of business on the Closing Date.

(ii)      The Seller shall prepare or cause to be prepared within the time and in the manner provided by Law, all tax returns of The Company ("Returns") for all periods commencing prior to the Closing Date and ending on or before the Closing Date that are due after the Closing Date, subject to the Purchaser's reasonable and prompt review of such Returns. Purchaser shall cooperate with the Seller in connection with such Returns including, without limitation, the signing and filing of such Returns. Such Returns shall be prepared and filed in accordance with applicable law and in a manner consistent with past practices and shall be subject to review and approval by the Purchaser.

(iii)      For purposes of this Section 8.01, in the case of any Taxes that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) the Closing Date, the portion of such Tax which relates to the portion of such Taxable period ending on the Closing Date shall (A) in the case of any Taxes other than Taxes based upon or related to income or receipts, 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 the entire Taxable period, and (B) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant Taxable period ended on the Closing Date. Any credits relating to a Taxable period that begins before and ends after the Closing Date shall be taken into account as though the relevant Taxable period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company and all such Returns shall be prepared and filed in accordance with applicable law and in a manner consistent with past practices.

(iv)      In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, other than Taxes imposed on a periodic basis, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be, in the case of Taxes that are either (A) based upon or related to income or receipts, (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible)(other than conveyances pursuant to this Agreement), or (C) payable with respect to employee compensation, deemed equal to the amount which would be payable if the taxable year ended with the Closing Date.
 
(v)      Any Taxes relating to any event which occurs on the Closing Date, but after the Closing, shall be deemed to be attributable to a period commencing after the Closing Date and shall not be considered a liability on the Statement.

(vi)      The Purchaser and the Company on one hand, and the Seller, on the other hand, shall (A) cooperate fully, as reasonably requested, in connection with the preparation and filing of Returns pursuant to this Section 8.01 and any audit, litigation or other proceeding with respect to Taxes; (B) make available to the other, as reasonably requested, all
 

 
 

 
 
 
information, records or documents with respect to Tax matters pertinent to the Company for all periods ending prior to or including the Closing Date, which information, records and documents shall be held subject to the confidentiality provisions hereof; and (C) preserve information, records or documents relating to Tax matters pertinent to the Company that are in its possession or under their control until the expiration of any applicable statute of limitations or extensions thereof.
 
                 (vii)      The Purchaser shall timely pay all transfer, documentary, sales, use, stamp and other Taxes and fees arising from or relating to the transfer or disposition of the Shares contemplated by this Agreement, and the Purchaser shall, at its own expense, file all necessary Returns and other documentation with respect to all such transfer, documentary, sales, stamp and other Taxes and fees relating to such transfer or disposition of the Shares. If required by applicable law, the Seller and the Company will join in the execution of any such Returns and other documentation.

(viii)      Any refunds or credits of Taxes of the Company relating to any taxable period ending on or before the Closing Date shall be for the account of the Seller. Any refunds or credits of Taxes of the Company for any taxable period beginning after the Closing Date shall be for the account of the Purchaser and the Company. Any refunds or credits of Taxes of the Company for any taxable period that begins before and ends after the Closing Date shall be equitably apportioned between the Seller and the Purchaser. Purchaser shall, if the Seller so requests and at the Seller's expense, cause the Company to file for and obtain any such refunds or credits to which the Seller is entitled under this Section 8.01(a)(vii). Purchaser shall cause the Company to permit the Seller to control the prosecution of any such refund claim, shall promptly forward and shall cause the Company to promptly forward to the Seller all notices or other communications received with respect to any such refund claim, and where deemed appropriate by the Seller, shall cause the Company to authorize by appropriate powers of attorney such Person as the Seller shall designate to represent the Company with respect to such refund claim. Purchaser shall cause the Company to permit Purchaser and the Seller to control jointly the prosecution of any refund or credit claim for any taxable period that begins before and ends after the Closing Date if such refund is to be equitably apportioned between the Purchaser and the Seller. The Purchaser shall cause the Company to forward to the Seller any refund to which the Seller is entitled pursuant to this Section 8.01(a)(vii) within five (5) Business Days after the refund is received (or reimburse the Seller for any such credit within five (5) Business Days after the credit is applied against other tax liabilities).

(ix)      The Seller shall be responsible for preparing any amended Returns for taxable years ending on or prior to the Closing Date which are required as a result of examination adjustments made by the Internal Revenue Service or by the applicable state, local or other taxing authorities for such taxable years as finally determined with respect to the Company. Any required amended returns resulting from such examination adjustments, as finally determined, shall be prepared by the Seller and such federal returns shall be furnished to the Company for approval (which approval shall not be unreasonably withheld or delayed), signature, and filing at least 30 days prior to the due date for filing such amended Returns.

(b)           Notwithstanding the foregoing provisions of this Section 8.01, anything herein to the contrary notwithstanding, with respect to any taxable period that begins before the
 

 
 

 
 
Closing Date and ends on or after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall not include any Taxes which the Company would not have owed or would not have become liable for if the Company had not been acquired by the Purchaser. By way of illustration, if as a result of the acquisition of the Company by the Purchaser, the Company obtains a tax nexus in any jurisdiction in which the Company would not have had a tax nexus had the Company not been acquired by the Purchaser, such tax liability shall be allocated to the Purchaser.
 
Section 8.02 Confidential Nature of Obligations. Purchaser acknowledges that the information being provided to it in connection with the Acquisition and the consummation of the other transactions contemplated hereby is subject to the terms of a confidentiality agreement between the Purchaser, The Company and the Seller dated December 16, 2008 (the " Confidentiality Agreement "), the terms of which are incorporated herein by reference.

Section 8.03 Maintenance of Books and Records. Each of the parties hereto shall preserve until the sixth (6` s ) anniversary of the Closing Date all records possessed or to be possessed by such party relating to the business of The Company prior to the Closing Date. After the Closing Date, any party having legitimate need for such access shall, upon prior reasonable request specifying such need, be provided with access during regular business hours to: (i) the officers and employees of such party; and (ii) the books of account and records of such party, but, in each such case, only to the extent relating to the business of the Company and Paxis prior to the Closing Date; provided, however, that the foregoing right of access shall not be exercised in a manner interfering unreasonably with the normal operations and business of the party required to afford such access.

Section 8.04 Investigations.

(a)      The Purchaser acknowledges and agrees that it: (i) has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Shares, the Company, the assets and liabilities of the Company; (ii) has been furnished with or given adequate access to such information about the Shares, and the Company and the assets and liabilities of the Company, as it has requested, including those documents and materials made available to the Purchaser and its representatives in management presentations.

(b)      In connection with the Purchaser's investigation of the Company, the Purchaser has received from the Seller certain estimates, projections and other forecasts for the Company. The Purchaser acknowledges that there are uncertainties inherent in attempting to make such estimates, projections, forecasts, plans and budgets, that the Purchaser is familiar with such uncertainties, that the Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts, plans and budgets so furnished to it, and that the Purchaser will not assert any claim against any of the Seller or any of their agents, Affiliates, consultants, investment bankers or representatives, or hold any of Seller or any such persons liable with respect thereto.

(c)      Disclosure of any fact or item in any Section of this Agreement, or any Schedule hereto, shall, should the existence of the fact or item be relevant to any other Section of this Agreement or any other Schedule hereto, be deemed disclosed with respect to such other
 

 
 

 

Section of this Agreement and Schedule, but only to the extent such relevance is apparent on the face of such disclosure (without need for investigation or inquiry by Purchaser).

Section 8.05 Non-competition. Seller and Paxis covenant and agree that for a period ending three years from the Closing Date, Seller and Paxis will not, without the consent of Purchaser, directly or indirectly, in the United States of America ("Territory"), own, manage, finance, operate, join, control or participate in the ownership, management, financing, operation or control of, or be employed or connected in any manner with any business that competes with the Business.
 
Section 8.06 Intercompany Indebtedness. At Closing, Seller shall eliminate and forgive any Indebtedness owed to it by the Company.
 
 
ARTICLE IX.
CLOSING DOCUMENTS FOR CORPORATE ACTIONS
 
Section 9.01 Corporate Action by the Seller, Paxis and the Company

The Seller, Paxis and Company shall deliver to the Purchaser Certificates of the Secretaries of the Seller, Paxis and the Company: (i) attaching a unanimous consent of all of the members of the Board of Directors of the Seller, Paxis, and the Company, respectively in connection with the authorization and approval of the execution, delivery and performance by the Seller, Paxis and the Company of this Agreement; and (ii) setting forth the incumbency of the officers of the Seller, Paxis, and Company who have executed and delivered this Agreement, including therein a signature specimen of each such officer or officers, in the form of Exhibit B attached hereto.

Section 9.02 Corporate Action by the Purchaser. The Purchaser shall deliver to the Seller a Certificate of the Secretary of the Purchaser: (i) attaching a duly adopted resolution of the Board of Directors of the Purchaser in connection with the authorization and approval of the execution, delivery and performance by the Purchaser of this Agreement and the other documents executed on the date hereof; and (ii) setting forth the incumbency of the officers of the Purchaser who have executed and delivered this Agreement, including therein a signature specimen of each such officer or officers, in the form of Exhibit C attached hereto.
 

 
 

 

ARTICLE X AND XI
INTENTIONALLY OMITTED

ARTICLE XII
INDEMNIFICATION

Section 12.01 Indemnification by the Seller.
 
(a)      The Seller agree to indemnify the Purchaser against and hold it harmless from Losses and Expenses actually suffered or incurred by the Purchaser arising out of any breach of any warranty or the inaccuracy of any representation of such Seller, contained in Article IV of this Agreement.
 
(b)      The Seller, and Paxis agree to indemnify and hold harmless the Purchaser, its Affiliates (including, without limitation, the Company after the Closing) and each of their respective directors, officers, employees, agents and representatives and each of the heirs, executors, successors and permitted assigns of each of the foregoing (collectively, the " Purchaser   Indemnified Parties " and individually, a " Purchaser Indemnified Party ") from and against any and all Losses and Expenses incurred by any Purchaser Indemnified Party in connection with, resulting from or arising out of:
 
(i)      any breach by the Company, Paxis or the Seller of, or any other failure of the Company, Paxis or the Seller to perform, any of the Company, Paxis' or Seller's covenants, agreements or other obligations contained herein; and

(ii)           any breach of any warranty or the inaccuracy of any representation of the Company, Paxis or Seller contained in Article V of this Agreement;

Section 12.02 Indemnification by the Purchaser.

(a) The Purchaser agrees to indemnify and hold harmless the Seller, Paxis (and the Company, prior to the Closing) and each of the heirs, executors, successors and permitted assigns of the foregoing (collectively, the " Seller   Indemnified Parties " and individually, a " Seller Indemnified Party ") from and against any and all Losses and Expenses incurred by a Seller Indemnified Party in connection with, resulting from or arising out of:

(i)      any breach by the Purchaser of, or any other failure of the Purchaser to perform any of its covenants, agreements or obligations contained in this Agreement; and
 
(ii)           any breach by the Purchaser of any warranty or inaccuracy of any representation contained in Article VI of this Agreement.
 
Section 12.03 Indemnification Procedure. Any Purchaser Indemnified Party or Seller Indemnified Party who shall have a claim for indemnification under this Article XII (the " Indemnified Party ") shall promptly deliver to the party from whom indemnification is requested (the " Indemnifying Party ") a written notice (the " Notice ") which shall: (i) state that Losses and Expenses have occurred or are threatened for which the Indemnified Party is entitled to
 

 
 

 

indemnification pursuant to this Agreement; and (ii) specify in detail, to the extent known, the Losses and Expenses including the amount thereof, and the nature of the representation, warranty, covenant, obligation or conduct to which such Losses and Expenses are related. An Indemnified Party shall provide Notice to the Indemnifying Party in accordance with the preceding sentence promptly after becoming aware of any Losses or Expenses that the Indemnified Party shall have determined have given rise to, or could reasonably be expected to give rise to, a claim for indemnification hereunder. Failure to give prompt notice shall not relieve the Indemnifying Party of its obligation to indemnify the Indemnified Party pursuant to this Article XII, unless such Indemnifying Party is materially prejudiced thereby.

Section 12.04 Procedures Relating to Indemnification of Third Party Claims. If any Indemnified Party receives notice of the commencement of any action or proceeding or the assertion of any claim by a third party or the imposition of any penalty or assessment for which indemnity may be sought under Section 12.01 or Section 12.02 (a " Third Party Claim "), and such Indemnified Party intends to seek indemnity pursuant to this Article XII, the Indemnified Party shall promptly provide the Indemnifying Party with written notice of such Third Party Claim, stating the nature, basis and, to the extent known, the amount thereof, along with copies of the relevant documents in the Indemnified Party's possession evidencing such Third Party Claim and the basis for indemnification sought. Failure to give prompt notice shall not relieve the Indemnifying Party of its obligation to indemnify the Indemnified Party pursuant to this Article XII, unless such Indemnifying Party is prejudiced thereby. The Indemnifying Party will have twenty (20) days from receipt of any such notice of a Third Party Claim to give written notice to the Indemnified Party of its assumption of the defense thereof (an " Indemnification   Acknowledgement "). If an Indemnification Acknowledgement is timely given as provided in the immediately preceding sentence, the Indemnifying Party will have the right to assume the defense of the Indemnified Party against the Third Party Claim with counsel of its choice and at the Indemnifying Party's sole cost and expense; provided, however, that the Indemnified Party is authorized to file any motion, answer or other pleading that may be reasonably necessary or appropriate to protect its interests during such twenty (20) day period at the Indemnifying Party's cost and expense. In the event that (a) an Indemnification Acknowledgement is not timely given as provided herein, (b) the Indemnifying Party does not offer reasonable assurances to the Indemnified Party as to the Indemnifying Party's financial capacity to satisfy any final judgment or settlement or to diligently defend such claim, the Indemnified Party may, upon written notice to the Indemnifying Party, assume the defense (with legal counsel chosen by the Indemnified Party) and dispose of the claim, at the sole cost and expense of the Indemnifying Party. So long as the Indemnifying Party has assumed the defense of the Third Party Claim in accordance herewith: (i) the Indemnified Party may retain separate co-counsel and participate in the defense of the Third Party Claim, which retention and participation (except as provided in the next sentence) shall be at its sole cost and expense; (ii) the Indemnified Party will not file any papers or consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (such written consent will not be withheld or delayed unreasonably); and (iii) the Indemnifying Party will not: (A) admit to any wrongdoing; or (B) consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim, in each case, without the prior written consent of the Indemnified Party (such written consent will not be withheld or delayed unreasonably). Notwithstanding receipt of an Indemnification Acknowledgment, the Indemnified Party shall have the right to employ its own counsel in respect of any Third Party Claim, but the fees and
 

 
 

 

expenses of such counsel shall be at the Indemnified Party's own cost and expense, unless (A) the employment of such counsel and the payment of such fees and expenses shall have been specifically authorized by the Indemnifying Party in connection with the defense of such Third Party Claim, or (B) the Indemnifying Party has failed to diligently defend the Third Party Claim. The parties will use reasonable best efforts to minimize Losses and Expenses from Third Party Claims and will act in good faith in responding to, defending against, settling or otherwise dealing with such claims. The parties will also cooperate in any such defense and give each other reasonable access to all information relevant thereto. Whether or not the Indemnifying Party has assumed the defense, such Indemnifying Party will not be obligated to indemnify the Indemnified Party hereunder for any settlement entered into or any judgment that was consented to without the Indemnifying Party's prior written consent (such written consent will not be withheld or delayed unreasonably).
 
Section 12.05 Limits on Indemnification. Notwithstanding the foregoing provisions of this Article XII: (i) the Seller and Paxis shall not be responsible, pursuant to Section 12.01, for any indemnifiable Losses or Expenses suffered by any Purchaser Indemnified Party arising out of a breach of any representation, warranty, covenant, agreement or other obligation of the Seller, Paxis or the Company herein unless a claim therefor is asserted in writing during any applicable Survival Period (as provided in Section 13.02), failing which such claim shall be waived and extinguished; (ii) the Seller and Paxis shall not be liable for any Losses or Expenses indemnifiable under Section 12.01 unless the aggregate of all such Losses and Expenses exceeds, on a cumulative basis, an amount equal to $50,000 (the "Basket") in which case Seller and Paxis (as applicable) shall be responsible for all indemnifiable amounts under Section 12.01, and then only to the extent of any such excess above the Basket ; (iii) the aggregate liability of Seller and Paxis for indemnification under Section 12.01 shall in no event exceed $600,000.00 (the "Cap"). Notwithstanding the foregoing provisions of this Article XII: (i) the Purchase shall not be responsible, pursuant to Section 12.02, for any indemnifiable Losses or Expenses suffered by any Seller Indemnified Party arising out of a breach of any representation, warranty, covenant, agreement or other obligation of the Purchaser herein unless a claim therefor is asserted in writing during any applicable Survival Period (as provided in Section 13.02), failing which such claim shall be waived and extinguished; (ii) the Purchase shall not be liable for any Losses or Expenses indemnifiable under Section 12.02 unless the aggregate of all such Losses and Expenses exceeds, on a cumulative basis, an amount equal to the $50,000, in which case Purchaser shall be responsible for all indemnifiable amounts under Section 12.02, and then only to the extent of any such excess above the Basket; (iii) the aggregate liability of the Purchaser for indemnification under Section 12.02 shall in no event exceed $600,000.00.

Section 12.06 Calculation of Indemnity Payments. Payments by the Seller, or Paxis pursuant to Section 12.01 shall be limited to the amount of any liability or damage that remains after deducting therefrom: any insurance proceeds and any indemnity, contribution or other similar payment received (or deemed received) by the Purchaser or any Affiliate thereof from any third party with respect thereto. Payments by the Purchaser pursuant to Section 12.02 shall be limited to the amount of any liability or damage that remains after deducting therefrom: any insurance proceeds and any indemnity, contribution or other similar payment received (or deemed received) by the Purchaser or any Affiliate thereof, from any third party with respect thereto.
 

 
 

 

Section 12.07 Further Limitations on Indemnification.
 
(a)      Except with respect to any fraudulent act or omission of the Seller or Paxis, the Purchaser acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement shall be pursuant to the indemnification provisions set forth in this Article XII. In furtherance of the foregoing, the Purchaser hereby waives, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action it (or, after the Closing, the Company) may have against the Seller arising under or based upon any Federal, state or local statute, law, ordinance, rule or regulation (including, without limitation, any such rights, claims or causes of action arising under or based upon common law or otherwise), except such rights, claims and causes of action it may have for any fraudulent act or omission of the Seller or Paxis. Except with respect to any fraudulent act or omission of the Purchaser, the Seller and Paxis acknowledges and agrees that their sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement shall be pursuant to the indemnification provisions set forth in this Article XII. In furtherance of the foregoing, the Seller and Paxis hereby waive, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action they may have against the Purchaser arising under or based upon any Federal, state or local statute, law, ordinance, rule or regulation (including, without limitation, any such rights, claims or causes of action arising under or based upon common law or otherwise), except such rights, claims and causes of action it may have for any fraudulent act or omission of the Purchaser.
 
(b)      The Seller and Paxis shall have no Liability under any provision of this Agreement for any Losses or Expenses to the extent that such Losses or Expenses relate to actions taken by, or inaction of, the Purchaser or its Affiliates, including, without limitation, the Company after the Closing Date. The Purchaser shall take and shall cause the Company to take all reasonable steps to mitigate all such Losses and Expenses upon and after becoming aware of any event which could reasonably be expected to give rise to such Liabilities. The Purchaser shall have no Liability under any provision of this Agreement for any Losses or Expenses to the extent that such Losses or Expenses relate to actions taken by, or inaction of, the Seller and Paxis or their Affiliates. The Seller and Paxis shall take all reasonable steps to mitigate all such Losses and Expenses upon and after becoming aware of any event which could reasonably be expected to give rise to such Liabilities.

ARTICLE XIII
GENERAL PROVISIONS
 
Section 13.01 Expenses. The Seller and Paxis, on one hand, and the Purchaser on the other hand, shall each pay all of their own costs and expenses incident to their negotiation and preparation of this Agreement and to their performance and compliance with all agreements and conditions contained herein including, without limitation, the fees, expenses and disbursements of counsel and accountants.

Section 13.02 Survival. The following survival periods shall govern for all purposes hereunder (each, a " Survival Period "):
 

 
 

 

(a)           All representations and warranties contained in Article IV, Article V and Article VI of this Agreement, other than the Special Warranties (as hereinafter defined) shall
survive until 18 months after the Closing Date.
 
(b)           The following representations and warranties (the " Special Warranties ") shall survive for the following periods:
 
(i)           The representations and warranties contained in Sections 4.01, 4.02, 4.03, 5.01, 5.02, 5.04(a) and the first sentence of Section 5.07(b) shall survive forever; and
 
(ii)           The representations and warranties contained in Sections 5.09, 5.13, and 5.18 shall survive until expiration of all applicable statutes of limitation.
 
(c)           All the covenants, agreements and obligations contained in this Agreement shall survive in accordance with their terms provided herein.
 
(d)      Notwithstanding anything to the contrary contained herein, a claim based upon a fraudulent act or omission shall survive until expiration of the applicable statute of limitations for such claim.
 
Section 13.03 Governing Law/Jurisdiction.
 
(a)      This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without reference to its choice of law rules.
 
(b)      With respect to any claim or cause of action in connection with the execution or performance of, or arising under, this Agreement or any document executed and delivered pursuant to this Agreement, each party hereto: (a) irrevocably submits to the exclusive jurisdiction of the state or federal courts located in the State of Delaware; (b) irrevocably waives any objection which such party may have to the laying on of venue of any such claim or cause of action brought in any such court; (c) irrevocably waives any claim that any such claim or cause of action brought in any such court has been brought in an inconvenient forum; (d) irrevocably waives the right to object, with respect to such claim or cause of action brought in ay such court, that such court does not have jurisdiction over such party; and (e) irrevocably agrees that service of process sufficient to confer personal jurisdiction in any such action can be made by any party on another via Federal Express (or comparable courier), with a copy by regular mail, with service to be made to the addresses set forth in Section 13.04 hereof, and irrevocably waives any objection which such party may have to such service of process in any such action.
 
Section 13.04 Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given or delivered and received: (a) when delivered, if delivered personally; (b) four days after mailing, if mailed by registered or certified mail, return receipt requested and postage prepaid; (c) on the second business day after delivery to a private courier service with overnight delivery requested, if delivered to a private courier service providing documented overnight service; or (d) on the date received if transmitted by facsimile, in each case addressed as follows:
 
If to the Purchaser, to:
 

 
 

 

Cedarburg Pharmaceuticals, Inc.
 
870 Badger Circle
 
Grafton, WI 53024
 
Attn: Chief Executive Officer
 
 
 
With a copy to:

Karen M. Muller, Esq.
 
420 Exchange, Suite 270
 
Irvine, CA 92602
 
 
 
If to the Seller, to:
 
 
 
Integrated Biopharma, Inc.
 
Attn: CEO

225 Long Avenue, Building 5
 
Hillside, New Jersey 07205
 
 
With a copy to:

Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attn: Daniel A. Swick, Esq.
Facsimile No.: 212-592-1500

or to such other address as the recipient party has specified by prior written notice to the sending party (which change of address notice will be deemed to have been given, delivered and received upon actual receipt thereof by the recipient party).

Section 13.05 Successors and Assigns: Benefit.

(a)           The rights of Seller and Paxis under this Agreement shall not be assignable by any such party without the written consent of the Purchaser and the rights of the
 

 
 

 

Purchaser under this Agreement shall not be assignable by the Purchaser without the written consent of the Seller.
 
(b)      This Agreement shall inure to the benefit of and be enforceable by the parties hereto, the Purchaser Indemnified Parties, the Seller Indemnified Parties and the successors, heirs, administrators, executors and permitted assigns of each of the foregoing.

Section 13.06 Entire Agreement; Amendments; Waiver.

(a)      This Agreement, the Exhibits and Schedules referred to herein, the other agreements and documents delivered pursuant hereto and the Confidentiality Agreement contain the entire understanding of the parties hereto with regard to the subject matter contained herein or therein, and supersede all prior agreements, understandings or intents between or among any of the parties hereto.
 
(b)      No amendment, modification or waiver of this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the parties hereto. Notwithstanding the foregoing, the Seller may, from time to time prior to or at the Closing, by notice in accordance with this Agreement, supplement or amend any Schedule hereto. No course of dealing between the parties to this Agreement shall be deemed to modify, amend or discharge any provision or term of this Agreement. No delay by any party to or beneficiary of this Agreement in the exercise of any of its rights or remedies shall operate as a waiver thereof, and no single or partial exercise by any party to or beneficiary of this Agreement of any such right or remedy shall preclude the other or further exercise thereof. A waiver of any right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion.

Section 13.07 Interpretation.
 
(a)      The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein.

(b)      The terms "herein," "hereof' and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision.
 
(c)      Pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms.
 
Section 13.08 Severability. The parties agree that: (a) the provisions of this Agreement shall be severable in the event that any of the provisions hereof is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable; (b) such invalid, void or otherwise unenforceable provisions shall be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable; and (c) the remaining provisions shall remain enforceable to the fullest extent permitted by law.
 

 
 

 

Section 13.09 Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to each of the other
parties hereto.

Section 13.10 Third Party Beneficiaries. Except as provided in Article XII, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

Section 13.11 Definitions. As used in this Agreement, the following terms shall have the meanings specified or referred to in this Section 13.11.
 
             (a)     " Affiliate " means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlled" and "controlling" have meanings correlative thereto.

(b)     " Business Day " means any day other than a Saturday, a Sunday, or another day on which banks in the State of New York are authorized or required not to be open for conduct of their normal banking operations.
 
             (c)     Intentionally Omitted
 
             (d)            " Code " means the Internal Revenue Code of 1986, as amended.
 
             (e)     " Contaminant " means any pollutant, hazardous substance, toxic substance, radioactive substance, hazardous waste, petroleum or petroleum-derived substance or waste, radioactive waste, asbestos, polychlorinated biphenyls (PCBs), or any hazardous or toxic constituent thereof, and includes, but is not limited to, these terms as defined in Environmental, Health or Safety Requirements of Law.
 
             (f)            " Employee Plans " means all Multiemployer Plans and Pension Plans.
 
             (g)     " Encumbrance " means any lien, claim, charge, security interest, mortgage, pledge, easement, right of use, encroachment, boundary disputes, conditional sale or other title retention agreement, proxy, voting agreement or trust, lease, tenancy, right of occupancy or license or use by another person, defect in title, covenant or other restriction or limitation of any kind.
 
             (h)     " Environmental, Health or Safety Requirements of Law " means all valid and enforceable Legal Requirements derived from federal, state and local laws or regulations relating to or addressing the environment, health or safety, including but not limited to any law, regulation, or order relating to the use, handling, or disposal of any Contaminant, any law, regulation, or order relating to any Remedial Action and any law, regulation, or order relating to
 

 
 

 

 
the work place or worker safety and health, as such Legal Requirements are promulgated and amended by the specifically authorized agency responsible for administering such Legal Requirements.
 
             (i)     " ERISA " means the Employee Retirement Income Security Act of 1974, as amended.
 
             (j)     " Expenses " mean any and all expenses reasonably incurred by any Purchaser Indemnified Party or Seller Indemnified Party in connection with investigating, preparing, defending, bringing or prosecuting any claim, action, suit or proceeding (including without limitation court filing fees, court costs, arbitration fees or costs, witness fees and fees and disbursements of legal counsel, investigators, expert witnesses, accountants and other professionals) or by any other Person and legally required to be paid by any Purchaser Indemnified Party or Seller Indemnified Party (including without limitation pursuant to such an Indemnified Party's obligation to indemnify another Person).
 
             (k)     " Facility " or " Facilities " means any real property, plant, building, facility or structure, currently owned, leased or operated by the Company, Paxis or by the Seller for the Business.
 
             (1)     " GAAP " means United States generally accepted accounting principles.
 
             (m)     " Governmental Body " means any court, government (federal, state, local or foreign), department, commission, board, agency, bureau, official or other regulatory, administrative or governmental authority.
 
             (n)     " Indebtedness " as applied to any Person, means the indebtedness of such Person for borrowed money, whether current or funded, or secured or unsecured, including without limitation, (i) all indebtedness of such Person for the deferred purchase price of property or services represented by a note, earnout or contingent purchase payment, (ii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iii) all indebtedness of such Person secured by a purchase money mortgage or other lien to secure all or part of the purchase price of the property subject to such mortgage or lien, (iv) all obligations under leases which shall have been or must be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable as lessee, excepting therefrom those leases set forth on Schedule 5.07(e)(ii) and the equipment lease set forth in Schedule 5.07(b), (v) any credit extended on behalf of such Person in the nature of banker's acceptances or letters of credit, (vi) any obligations (including, but not limited to, interest, fees, penalties and other expenses) under any interest rate swap agreements or instruments, (vii) all interest, fees and other expenses owed with respect to the indebtedness referred to above, and (viii) all indebtedness referred to above which is directly or indirectly guaranteed by such Person or which such Person has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss; provided, however, in no event shall Indebtedness include any Current Liability.
 

 
 

 
 
 
             (o)      " IRS " means the Internal Revenue Service.
 
             (oo)     " Knowledge of the Company " means the actual knowledge of Rod McKeever.
 
             (ooo)         " Knowledge of Paxis " means the actual knowledge of Jeffrey R. Leach.
             (p)        "Knowledge of the Seller" means the actual knowledge of Jeffrey R. Leach and Dina L. Masi
 
             (q)        " Legal   Requirement " means any law, statute, rule, regulation, governmental permits, judgment, decree, Order, ordinance, variance, directive, code or requirement of any Governmental Body.
 
             (r)         " Liability and Liabilities " means any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility of any nature whatsoever, whether known or unknown, asserted or unasserted, matured or unmatured, liquidated or unliquidated, absolute or contingent, secured or unsecured.
 
             (s)         " Losses " means any and all losses, costs, obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, expenses, deficiencies or other charges, whether incurred by any Purchaser Indemnified Party or Seller Indemnified Party directly or indirectly, including without limitation pursuant to such an indemnified party's obligation to indemnify another Person, but shall not include Expenses.
 
             (t)         " Material Adverse Effect " means a material adverse effect (i)on the financial condition, results of operations or business of the Company as a whole, or (ii) on the ability of Seller to consummate the Acquisition. For purposes of this Agreement, "Material Adverse Effect" shall exclude any effects to the extent resulting from (A) changes in the United States or foreign economies in general, (b) changes, in general, in the industries in which Company engages and not specifically relating to the business of the Company and (C) the execution of this Agreement.
 
             (u)               " Material Contracts " means, with respect to any specified Person, any:

(i)              contract with any employee or consultant;

(ii)             contracts or arrangements providing for bonuses, options, deferred compensation, stock or phantom stock rights;
 
(iii)      executory contract that requires, in accordance with its terms, future payments excess of $25,000, and that is not cancelable for less than ninety (90) days' notice, other than purchase orders in the ordinary course of business;
 
(iv)           guaranties, performance bonds and surety or indemnification agreements;
 
(v)           contract for the future purchase of, or payment for, supplies or products or services in any single instance exceeding $25,000, or in the aggregate $100,000, or
 

 
 

 
 
of a duration of more than twelve (12) months, in any case, other than purchase orders in the ordinary course of business;
 
                 (vi)               contract to sell or supply products in excess of $25,000, or of a duration of more than twelve (12) months, in any case, other than purchase orders in the ordinary course of business;
                 (vii)              confidentiality and non-disclosure agreements and any contract limiting or restraining it from engaging or competing in any lines of business with any Person;
               
                 (viii)       contract with any customer providing for a volume refund, retrospective price adjustment, price guarantee or other promotional program;
 
                 (ix)                leases or subleases, either as lessee or sublessee, lessor or sublessor, of personal property where the lease or sublease provides for an annual rent in excess of $25,000;
 
                 (x)                 mortgage, indenture, note debenture, bond, letter of credit agreement, surety agreement, loan agreement or other commitment for the borrowing or lending of money relating to the Company or agreement for a line of credit or in respect of any Indebtedness of the Company;

(xi)               license, franchise or distributorship agreement, including those which relate in whole or in part to any software, technical assistance or other know-how used in the conduct of the Company's business currently or at any time during the prior twenty-four (24) months;

(xii)               partnership or joint venture agreement;

(xiii)       commitment or agreement for any capital expenditure or leasehold improvement in excess of $100,000 and

(xiv)       any contract or agreement material to the Business of the Company.
 
             (v)     " Multiemployer Plan " means any "Multiemployer Plan," as defined in Section 4001(a)(3) of ERISA, (A) which the Seller, Paxis or the Company maintains, administers, contributes to or is required to contribute to, or, after September 25, 1980, maintained, administered, contributed to or was required to contribute to, or under which the Company may incur any liability and (B) which covers any employee or former employee of the Paxis or Company (with respect to their relationship with such entity).
 
             (w)            " Order " means any order, writ, injunction, ruling, judgment, stipulation or decree by or with any Governmental Body.
 
             (x)     " Pension Plan " means any "employee pension benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Seller, Paxis or the Company maintains, administers, contributes to or is required to contribute to, or, within the
 

 
 

 

three (3) years prior to the date of this Agreement, maintained, administered, contributed to or was required to contribute to, or under which the Company may incur any liability and (B) which covers any employee or former employee of Paxis or the Company (with respect to their relationship with such entities).
 
             (y)               " Person " means and includes an individual, a partnership, a corporation, a trust, a joint venture, a limited liability company, an association, an unincorporated organization and any Governmental Body or other agency or authority.
 
             (z)                " Prime Rate " means the rate of interest quoted or announced by JPMorgan Chase Bank on the Closing Date as its prime rate for commercial loans.
 
             (aa)     " Release " means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Facility, including the movement of Contaminants through or in the air, soil, surface water or groundwater of any Facility.
 
             (bb)     " Remedial Action " means any and all actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment, (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants so they do not migrate or endanger public health or welfare or the indoor or outdoor environment or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care.
 
             (cc)      " Taxes " means any tax or similar governmental charge, impost or levy (including without limitation income taxes, franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes, real and personal property taxes, special assessments, water and sewer charges, withholding taxes, payroll taxes, minimum taxes or windfall profit taxes) together with any related penalties, fines, additions to tax or interest imposed by any Governmental Body.
 
             (dd)     " Tax Return " means any return (including any information return), report, statement, schedule, notice, form, estimate, or declaration of estimated tax relating to or required to be filed with any Governmental Body in connection with the determination, assessment, collection or payment of any Tax.

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
 
 
 
 
    Cedarburg Pharmaceuticals, Inc.
   Purchaser
   
   By:  /s/ R. Anthony Laughrey
   Name:  R. Anthony Laughrey
   Title:  President and CEO
   
   
   INB: HAUSER PHARMACEUTICAL SERVICES, INC.
   Company
   
   By:  /s/ Jeffrey R. Leach
   Name: Jeffrey R. Leach
    Title: President
   
   
    INB: PAXIS PHARMACEUTICALS, INC.
   
   By:  /s/ Jeffrey R. Leach
   Name: Jeffrey R. Leach
   Title: President
   
   
   INTEGRATED BIOPHARMA, INC.
   Seller
   
   By:  /s/ Jeffrey R. Leach
    Name: Jeffrey R. Leach
    Title: Chief Executive Officer