Master Formation Agreement

MASTER FORMATION AGREEMENT


FOR


INCON PROCESSING, L.L.C.


AMONG


AC HUMKO CORP.,


INCON TECHNOLOGIES, INC.,


INCON INTERNATIONAL, INC.,


NUTRITION TECHNOLOGY CORPORATION,


AND


BIONUTRICS, INC.,


JUNE 25, 1999


The notation [*] herein indicates information omitted pursuant to a request for confidential treatment filed with the Commission. The confidential information has been filed separately with the Commission. 2
TABLE OF CONTENTS


PAGE
---- ARTICLE 1


Definitions ..................................................................................... 1
1.1 Definitions ............................................................................ 1


ARTICLE 2


The Company ..................................................................................... 7
2.1 New Business Structure ................................................................. 7
2.2 Contributions .......................................................................... 7
2.3 Contributions and Commitments to the Company ........................................... 7
2.4 Pre-Closing Actions to Create Company .................................................. 8


ARTICLE 3


Closing ......................................................................................... 9
3.1 Closing: Effective Date ............................................................... 9
3.2 Activation of the Company .............................................................. 9
3.3 Contributions and Commitments to the Company ........................................... 9
3.4 Transfer of Various Assets of InCon .................................................... 9
3.5 Execution of Transition Services Agreement. ............................................ 10
3.6 Execution of Amendment to Agreement for Purchase and Sale of Assets .................... 10
3.7 Execution of Related Agreements ........................................................ 10
3.8 Transfer of Construction Contract. ..................................................... 10
3.9 Notification of Assignment of Rights in Construction Contract. ......................... 10
3.10 Transfer of Representation Agreement. .................................................. 10
3.11 Notification of Assignment of Rights in Representation Agreement. ...................... 11
3.12 Transfer of Sales Representative Agreements. ........................................... 11
3.13 Notification of Assignment of Rights in Sales Representative Agreements. ............... 11
3.14 Escrow Agreement. ...................................................................... 11
3.15 Payment of Debts. ...................................................................... 11
3.16 Transfer of Golden Hope Instrument. .................................................... 11
3.17 Notification of Assignment of Rights in Golden Hope Instrument. ........................ 11
3.18 Guaranty. .............................................................................. 12


ARTICLE 4


Representations and Warranties by InCon ......................................................... 12
4.1 Organization and Authority ............................................................. 12
4.2 Validity: Enforceability. ............................................................. 12
4.3 No Violation. .......................................................................... 12
4.4 Litigation and Proceedings. ............................................................ 13
4.5 Third-Party Consents ................................................................... 13


ii 3
4.6 InCon Contracts. ....................................................................... 13
4.7 Environmental Matters .................................................................. 13
4.8 Intellectual Property Matters .......................................................... 14
4.9 Product Claims ......................................................................... 14
4.10 No Grant of Manufacturing Rights. ...................................................... 15
4.11 Title to Tangible Assets ............................................................... 15
4.12 Leased Real and Personal Property ...................................................... 15
4.13 Taxes .................................................................................. 15
4.14 Employee Matters ....................................................................... 16
4.15 Compliance with Laws ................................................................... 17
4.16 Ongoing Capital Expenditures ........................................................... 17
4.17 Ownership of Stock ..................................................................... 17
4.18 Identity of Subsidiaries ............................................................... 17
4.19 Employee Benefit Plans ................................................................. 17
4.20 Proprietary Information. ............................................................... 19
4.21 Brokers. ............................................................................... 20
4.22 Code. .................................................................................. 20
4.23 Insurance. ............................................................................. 20
4.24 Construction Contract. ................................................................. 20
4.25 Year 2000 Ready. ....................................................................... 20
4.26 Sales Representative Agreements. ....................................................... 20
4.27 State of Equipment ..................................................................... 20
4.28 Payments to Officials. ................................................................. 20
4.29 Accounts Payable. ...................................................................... 21
4.30 Accounts Receivable. ................................................................... 21


ARTICLE 4A


Representations and Warranties by Bionutrics .................................................... 21
4A.1 Organization and Authority. ............................................................ 21
4A.2 Validity: Enforceability. ............................................................. 21
4A.3 No Violation. .......................................................................... 21
4A.4 Litigation and Proceedings. ............................................................ 22
4A.5 Third-Party Consents. .................................................................. 22
4A.6 InCon Contracts. ....................................................................... 22
4A.7 Brokers. ............................................................................... 22
4A.8 Code. .................................................................................. 22
4A.9 Proprietary Information. ............................................................... 23
4A.10 Ownership of Stock. .................................................................... 23
4A.11 Matter Having Biological Activity. ..................................................... 23


ARTICLE 4B


Representations and Warranties by InCon International Inc. ...................................... 23
4B.1 Organization and Authority. ............................................................ 23
4B.2 Validity: Enforceability. ............................................................. 23


iii 4
4B.3 No Violation. .......................................................................... 24
4B.4 Representation Agreement ............................................................... 24
4B.5 Payments to Officials .................................................................. 24
4B.6 Sole Shareholder ....................................................................... 24
4B.7 Construction Contract. ................................................................. 24


ARTICLE 4C


Representations and Warranties by NTC ........................................................... 24
4C.1 Organization ............................................................................ 24
4C.2 Validity: Enforceability. .............................................................. 25
4C.3 No Violation. .......................................................................... 25
4C.4 Sole Shareholder. ...................................................................... 25


ARTICLE 5


Representations and Warranties by Humko ......................................................... 25
5.1 Organization and Authority ............................................................. 25
5.2 Validity: Enforceability. .............................................................. 26
5.3 No Violation. .......................................................................... 26
5.4 No Limitation. ......................................................................... 26


ARTICLE 6


Covenants Between Execution and Closing and Post-Closing ........................................ 26
6.1 Access to Records ...................................................................... 26
6.2 Conduct of Business Prior to Closing ................................................... 27
6.3 Filings with Governmental Authorities .................................................. 27
6.4 Statement of Finished Goods Inventory .................................................. 27


ARTICLE 7


Covenants of the Parties After the Closing ...................................................... 27
7.1 Indemnification Regarding Pre-existing Liabilities. .................................... 27
7.2 Confidentiality ........................................................................ 28
7.3 Budget ................................................................................. 30
7.4 Guaranteed Payment to Humko. ........................................................... 30
7.5 Restrictions Relating to Certain Products and Materials. ............................... 31
7.6 Adjustment Relating to Receivables and Payables Only. .................................. 31


ARTICLE 8


Conditions to Closing ........................................................................... 32
8.1 Conditions of Humko's Obligations to Close ............................................. 32
8.2 Conditions of InCon's and Bionutrics' Obligations to Close ............................. 33
8.3 Mutual Conditions ...................................................................... 33


iv 5
8.4 Waiver of Conditions to Closing ........................................................ 34


ARTICLE 9


Termination of Agreement ........................................................................ 34
9.1 Termination of this Agreement Prior to the Closing Date ................................ 34


ARTICLE 10


General Provisions .............................................................................. 35
10.1 Binding Nature and Restrictions on Assignment .......................................... 35
10.2 Notices ................................................................................ 35
10.3 Survival of Representations and Warranties ............................................. 36
10.4 Survival of Covenants .................................................................. 36
10.5 Governing Law: Severability ............................................................ 36
10.6 Public Announcement .................................................................... 36
10.7 Expenses ............................................................................... 37
10.8 Covenant of Good Faith ................................................................. 37
10.9 Further Assurances ..................................................................... 37
10.10 Calculation of Days .................................................................... 37
10.11 Headings ............................................................................... 37
10.12 Construction ........................................................................... 37
10.13 Counterparts ........................................................................... 37
10.14 Entire Agreement; Amendment ............................................................ 37
10.15 Submission to Jurisdiction ............................................................. 37


EXHIBITS Exhibit 1.1 Members Agreement Exhibit 3.4(a) General Assignment and Bill of Sale Exhibit 3.4(b) Assignment of Lessee's Interest in Real Property Leases Exhibit 3.4(c) Assignment of Lessee's Interest in Personal Property Exhibit 3.4(d) Form of Opinions of InCon, International, NTC, and Bionutrics Counsel Exhibit 3.4(e) FIRPTA Certificate Exhibit 3.4(g) Technology Assignment Agreement from InCon to Company Exhibit 3.5 Transition Services Agreement Exhibit 3.6 First Amendment to Agreement for Purchase and Sale of Assets Exhibit 3.8 Assignment and Assumption Agreement (International Construction Contract) Exhibit 3.9 [*] Exhibit 3.10 Assignment of Representation Agreement Exhibit 3.11 [*] Exhibit 3.12 Assignment of Sales Representative Agreements Exhibit 3.13 Notification of Assignment of Rights in and to Sales Representative Agreements


v 6 Exhibit 3.14 Escrow Agreement Exhibit 3.16 [*] Exhibit 3.17 [*] Exhibit 3.18 Guaranty of Bionutrics


SCHEDULES 3.4 Schedule of InCon Assets to be Conveyed to the Company 3.15 List of Certain Loans of InCon and Its Affiliates 4.4 InCon's Litigation and Proceedings 4.5 InCon's Third-Party Consents 4.6 InCon Contracts 4.7 InCon's Environmental Disclosures 4.8 InCon's Intellectual Property Disclosures 4.9 InCon's Product Claims Disclosures 4.10 Manufacturing Licenses Granted by InCon and Affiliates 4.11(a) List of InCon's Assets to be Conveyed to Company 4.11(b) List of InCon's Assets that will be retained by InCon 4.12 InCon's Leased Real and Personal Property 4.13 InCon's Tax Disclosures 4.16 Capital Expenditures 4.19 Employee Plans 4.23 Insurance 4.29 List of Accounts Payable 4.30 List of Accounts Receivable 5.4 [*]


vi 7
MASTER FORMATION AGREEMENT


This MASTER FORMATION AGREEMENT is entered into as of June 25, 1999, by and among AC HUMKO CORP., a Delaware corporation ("Humko"), having offices at 7171 Goodlett Farms Parkway, Memphis, Tennessee 38018-4909, INCON TECHNOLOGIES, INC., a Delaware corporation ("InCon"), having offices at 970 Douglas Road, Batavia, Illinois 60510, INCON INTERNATIONAL INC., a British Virgin Islands corporation ("International"), having offices at 970 Douglas Road, Batavia, Illinois 60510, NUTRITION TECHNOLOGY CORPORATION, a Nevada corporation ("NTC"), having offices at 2425 E. Camelback Road, Suite 650, Phoenix, Arizona 85016, and BIONUTRICS, INC., a Nevada corporation ("Bionutrics"), having offices at 2425 E. Camelback Road, Suite 650, Phoenix, Arizona 85016.


W I T N E S S E T H:


WHEREAS, InCon and Humko desire to enter into this Agreement in order to form a Delaware limited liability company provisionally named InCon Processing, L.L.C., (the "Company"); and


WHEREAS, NTC, as the sole shareholder of all of the outstanding capital stock of InCon, and Bionutrics, as the sole shareholder of all the outstanding capital stock of NTC, will benefit directly and indirectly from the transactions referred to in this Agreement and, to evidence each of their approvals to this Agreement and the transactions covered hereby, they joined in the execution of this Agreement and additionally have made the respective warranties, representations, indemnities and other agreements contained in this Agreement, and Humko would not have executed this Agreement unless Bionutrics, NTC and InCon all executed this Agreement; and


WHEREAS, the Company intends to engage in the business activities included within the "Scope of Business", defined in Article I; and


WHEREAS, InCon and Humko desire to enter into the arrangements and commitments described herein to create and effectuate the formation of the Company, and Bionutrics joins in the execution of this Agreement for the purposes set forth above.


NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants of the parties hereinafter set forth, the parties hereby agree as follows:


ARTICLE 1


Definitions


1.1 Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings ascribed thereto in this Section 1.1.


1 8
"Affiliate(s)" means an entity controlling, controlled by or under common control with another entity, with majority ownership being deemed necessary for control.


"Agreement" means this Agreement, together with all Appendices, Schedules and Exhibits hereto and any modification or amendment hereto or thereto that is made in accordance with Section 10.14.


"Agreement for Purchase and Sale of Assets" means that certain Agreement for Purchase and Sale of Assets dated as August 14, 1998, by and between Bionutrics and Humko.


"Assets" has the meaning set forth in Section 3.4.


"Bionutrics" has the meaning set forth in the opening paragraph of this Agreement.


"InCon" has the meaning set forth in the opening paragraph of this Agreement.


"Claims and Expenses" has the meaning set forth in Section 7.1.


"Closing" has the meaning set forth in Section 3.1(a).


"Closing Date" has the meaning set forth in Section 3.1(a).


"Code" means the Internal Revenue Code of 1986, as amended.


"Company" has the meaning set forth in the first recital of this Agreement.


"Competitive Activity" has the meaning set forth in the Members Agreement.


"Confidential Information" has the meaning set forth in Section 7.2(a).


[*]


"Covered Systems" shall mean all computer software, computer hardware, firmware, process, production, or other control systems of every kind and description, telecommunications and other information systems, and all other equipment containing microchips or computer code, that are used by InCon in connection with its business, the Facility or any of the Assets that will be acquired by the Company pursuant to this Agreement. A Covered System includes any third-party-manufactured products that have been included by InCon in a Covered System that has been installed by InCon or any of its subcontractors in connection with its business, the Facility or any of the Assets that will be acquired by the Company pursuant to this Agreement.


2 9
"EBITDA" means all Net Earnings before applicable state and federal corporate income Taxes and interest expense.


"Effective Date" has the meaning set forth in Section 3.1(b).


"Employee Plans" has the meaning set forth in Section 4.19(a).


"Environmental Claims and Expenses" has the meaning set forth in Section 7.1.


"Environmental Laws" means any and all laws, statutes, ordinances, rules, regulations, orders, or determinations of any Governmental Authority at the federal, state, and local level pertaining to pollution of the environment and protection of health and the environment including without limitation, the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource and Conservation and Recovery Act of 1976, ("RCRA") as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, all implementing rules and regulations, and any other environmental conservation or protection laws at the federal, state, and local level regarding the Release, Threatened Release, or Disposal of Petroleum Products, Hazardous Substances, Solid Wastes or Materials of Environmental Concern.


"Environmental Permits" has the meaning set forth in Section 4.7(b).


"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.


"Facility" means the facility of InCon located at 970 Douglas Road, Batavia, Illinois 60510.


[*]


"Governmental Authority" means the United States, the state, county, city, and political subdivisions in which the Facility is located or that exercise jurisdiction over the Facility or InCon, and any agency, department, commission, board, bureau, or instrumentality that exercises jurisdiction over the Facility or InCon.


"Gross Revenues" means all revenues received from the business of the Company during the period commencing one (1) calendar year after the date hereof, and ending on the date that is two (2) calendar years after the date hereof. All such items shall be determined in accordance with generally accepted accounting principles applied consistently.


"Guaranty" means the Guaranty of Bionutrics guaranteeing all of the warranties, representations, indemnities, and covenants of InCon, International and NTC under this Agreement and the Related Agreements, in the form attached hereto as Exhibit 3.18.


3 10
"Hazardous Substance" means any material, waste, or substance, that is: (A) included within the definitions of "hazardous substances," "hazardous materials," or "toxic substances," in or pursuant to any Environmental Law, or subject to regulation under any Environmental Law; (B) listed in the United States Department of Transportation Hazardous Materials Table, 49 C.F.R. Section 172.101, as amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as amended; or (C) explosive, radioactive, asbestos, a polychlorinated biphenyl, or a Petroleum Product.


"Humko" has the meaning set forth in the opening paragraph of this Agreement.


"Indemnitor" has the meaning set forth in Section 7.1.


"InCon Contracts" has the meaning set forth in Section 4.6(a).


"Intellectual Property Rights" means any and all intangible rights existing from time to time under state, federal and/or foreign Laws, including patent Law, copyright Law, trade secret Law, unfair competition Law, trademark Law or other similar Laws or principles. As used herein, the term "Intellectual Property Rights" shall not include any and all proprietary compounds and compositions of matter having biological activity and/or utility and products incorporating such compositions of matter, but such term shall include (i) all proprietary information with respect to methods and/or techniques involved in the processing of natural source materials except for coconut oil and (ii) all proprietary information relating to compounds and compositions of matter that are biologically inactive and/or utility and products incorporating such compositions of matter.


"International" has the meaning set forth in the opening paragraph of this Agreement.


[*]


"Law" means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, injunction, arbitral award, decree, ruling, proclamation, resolution, judgment, decision, or declaration, of a Governmental Authority.


"Leased Real and Personal Property" has the meaning set forth in Section 4.12(a).


"Materials of Environmental Concern" includes chemicals, pollutants, contaminants, wastes, toxic substances, Hazardous Substances, hazardous wastes, hazardous materials, hazardous chemical, petroleum and Petroleum Products, regulated materials, radioactive materials, and pesticides.


"Members Agreement" means the Members Agreement for the Company, a copy of which is attached hereto as Exhibit 1.1.


4 11
"Net Earnings" means the difference between Gross Revenues minus all costs (excluding depreciation and amortization) incurred by the Company in connection with the operation of the business of the Company during the period commencing one (1) calendar year after the date hereof, and ending on the date that is two (2) calendar years after the date hereof.


"N ...