Earnout Agreement

EXHIBIT 2.2


EARNOUT AGREEMENT
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This Earnout Agreement ("Agreement") is entered into this 17th day of November, 1999, by and between Pailla M. Reddy ("Reddy") and Nutrition For Life International, Inc. ("NFLI"). Reddy and NFLI are collectively referred to as the "parties".


RECITALS
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A. On November 5, 1999, NFLI, Advanced Nutraceuticals, Inc., BPI Acquisition Company, Bactolac Pharmaceutical Inc. ("BPI") and Reddy entered into an Agreement and Plan of Merger (the "Merger Agreement").


B. A condition to the closing of the merger transaction contemplated by the Merger Agreement (the "Closing") is the execution and delivery of this Agreement.


C. Reddy is the sole shareholder of BPI. As provided in the Merger Agreement, Reddy, as the sole shareholder of BPI, shall receive for the conversion of his shares of BPI, $2,500,000 in cash, a $2,500,000 subordinated note, stock in NFLI valued at $2,750,000 and up to $500,000 in NFLI stock as an earnout payment, the determination and payment of which shall be in accordance with the terms and conditions of this Agreement.


STATEMENT OF AGREEMENT
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NOW THEREFORE, in consideration of the premises and of the respective covenants and provisions herein contained, and intending to be legally bound hereby, the parties agree as follows:


ARTICLE I


EARNOUT PAYMENT
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1.1 Nature of Earnout Payment.
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(a) NFLI shall reserve for issuance as an earnout payment to Reddy up
to 17,605.6 shares of NFLI's $.001 par value Series A Preferred Stock (the
"Convertible Preferred Stock") and 176,056 shares of NFLI's $.01 par value
common stock (the "Common Stock"). The 17,605.6 shares of Convertible
Preferred Stock are automatically convertible into 176,056 shares of the
Common Stock pursuant to the terms of the Statement of Designation for the
Series A Preferred Stock. The value of the 176,056 shares of Common Stock
is $500,000. The maximum of 176,056 shares of Common Stock which may be
received by Reddy as an earnout payment pursuant to this Agreement has been
determined by dividing $500,000 by the average of the closing prices per
share


-1-


of the Common Stock on The Nasdaq Stock Market for the five trading days
preceding the trading day immediately preceding the Closing.


(b) For purposes of this Agreement, it is assumed that the NFLI
shareholders will approve the conversion of Series A Preferred Stock to
Common Stock prior to the time that Reddy would be entitled to receive his
earnout payment(s) pursuant to this Agreement. Accordingly, it is provided
in this Agreement that shares of Common Stock will be issued to Reddy. In
the event that the shareholders have not approved the conversion of Series
A Preferred Stock to Common Stock prior to the time that Reddy would be
entitled to receive his earnout payment(s), then NFLI shall issue
Convertible Preferred Stock instead of Common Stock to Reddy. In that
event, Reddy shall receive one share of Convertible Preferred Stock for
every ten shares of Common Stock that he would have received pursuant to
this Agreement if the shareholders had approved the conversion.


(c) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year One which is in excess of $1,500,000.
However, in no event, will Reddy be entitled to receive more than 88,000
shares of Common Stock as an earnout payment based on Year One results.


(d) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year Two in excess of $1,600,000. In addition,
if Year One income exceeded $1,750,000, then the difference between Pre-Tax
Income for Year One and $1,750,000, will be applied for purposes of
calculating Pre-Tax Income for Year Two.


(e) Reddy shall receive from NFLI 352 shares of Common Stock for each
$1,000 in Pre-Tax Income in Year Three in excess of $1,700,000. In
addition, if Year Two income exceeded $1,850,000, then the difference
between Pre-Tax Income for Year Two and $1,850,000, will be applied for
purposes of calculating Pre-Tax Income for Year Three.


(f) Notwithstanding anything herein to the contrary, the maximum
number of shares of Common Stock which may be issued as an earnout payment
pursuant to this Agreement to Reddy shall be 176,056.


1.2 Period for Payment. For purposes of calculation of the earnout
------------------- payment, Year One will begin on December 1, 1999 and end on November 30, 2000, Year Two will begin on December 1, 2000 and end on November 30, 2001 and Year Three will begin on December 1, 2001 and end on December 30, 2002.


1.3 Registration Obligation. Prior to the issuance of shares of Common
----------------------- Stock to Reddy as an earnout payment pursuant to this Agreement, the Company shall prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respe ...