U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Pharmaceutical Laboratories, Inc.
- -----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2114289
- ------------------------------ -----------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification
number)
1229 West Corporate Drive, Arlington, Texas 76006
- --------------------------------------------------
(Address of principal executive offices)
Issuer's Telephone Number: (817) 633-1461
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered: n/a
Name of exchange on which each class is to be registered: n/a
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
Pharmaceutical Laboratories, Inc., formerly Sublingual Products
International, Inc., formerly CST, Inc. (the "Company") was incorporated
under the laws of the State of Nevada on January 3, 1989 as CST, Inc. for the
purpose of acquiring Sublingual Products International, Inc., a Texas
corporation ("Sublingual Texas"). Sublingual Texas was organized on May
21, 1986 and has been actively engaged in business operations since that time.
On April 17, 1989, Sublingual Texas merged with CST, Inc., with CST
becoming the surviving corporation. On April 4, 1989 CST, Inc. changed
its name to Sublingual Products International, Inc. On March 27, 1992
Sublingual Products International, Inc. changed its name to Pharmaceutical
Laboratories, Inc. The Company has been engaged in the development,
production, marketing, and sales of liquid and liquid sublingual (under the
tongue) vitamin and nutritional products since 1986. The Company markets
its current product line on a national basis through five separate divisions
each specializing in their selected products.
The Company was formed in 1986 with only one product, a liquid
sublingual B complex with the brand name Sublingual B-Total. This product
is still the #1 seller in the Company's line of products. However, the Company
has developed, markets and produces several other liquid and liquid sublingual
products.
The Company specializes in liquid and liquid sublingual products as
there is increasing general public concern as to the potency of vitamin
supplements. Recent findings indicate that some vitamin and mineral
supplements simply do not disintegrate quickly enough for the body to utilize
the nutrients. Disintegration of vitamins and minerals generally ranges from
24 minutes to 4 hours. Researchers agree that if a vitamin pill takes more than
60 minutes to disintegrate, it was likely that the body would fail to absorb
the nutrients. Sublingual application of vitamins and minerals is different, in
that they can be absorbed by the surface capillaries under the tongue for
faster absorption.
In addition, millions of people simply do not enjoy taking pills due to
difficulties in swallowing the different pill forms. The Company, having
specialized in sublingual applications, is considered a leader in liquid and
liquid sublingual technology. The Company enjoys strong support from the
pharmacists who readily endorse the purchase of the Company's products
because of the advantages found in liquid employment of vitamin supplements
as opposed to the traditional pill forms.
The development and production of liquids is much more complex
than pills. There are numerous factors that must be considered, potency and
taste are the foremost. All of the Company's products are pleasant tasting.
The Company's experienced research and development team has
pioneered innovative, meaningful, consumer-driven products with many more
in development. At least one-half of all adults in the United States take some
type of vitamins, to counteract poor eating habits, strict dieting, ill health
or just for general health purposes.
Liquid and Liquid Sublingual Vitamins are an alternative to hard-to-
swallow, and sometimes ineffective, vitamin pills and capsules. Sublingual
application is different than swallowing a pill because the liquid is placed
under the tongue for fast absorption, thereby alleviating the problem of
vitamin pills which may not be dissolved in the stomach. In sublingual
application, the vitamins and minerals are absorbed by the surface capillaries
under the tongue, much like some traditional prescriptive medication. Such
medication is taken in liquid form because of the necessity of getting the
medication into the blood stream as quickly as possible. Nitroglycerin tablets,
is a good example of one such drug, which is widely prescribed when a patient
is experiencing angina (chest pain). When Nitroglycerin tablets are placed
under the tongue during an episode of angina or chest pain, there is relief,
which is due to the drug's fast absorption into the body's system.
Product Lines
The B-Total Solution - The B-Complex vitamins are factors in
providing energy by converting carbohydrates to glucose. It is common
knowledge that the B-Complex vitamins are considered to be of benefit in
combating the effects of stress.
While all the "B" vitamins are needed for optimum health, getting your
adequate supply of B-12 can be difficult as it is not absorbed well in the
stomach. Studies have indicated that certain stomach cells produce a
substance called the Intrinsic Factor. Until recently, because of the
Intrinsic Factor, the only way to obtain an adequate level of B-12 in the body
was to get the vitamin into the system by avoiding the stomach. Before the
sublingual application, injections were the only reliable way of getting
adequate B-12 levels. With the use of the sublingual route, B-12 is now easily
and effectively used as a supplement.
The Zinc Solution - Zinc is one of the most important immune system
nutrients and is crucial to the bacteria-killing activity of T and B cells.
Zinc, found in every cell in your body, is a vital spark that is essential in
keeping your body functioning normally. Today many of the processed foods we
eat are deficient in Zinc. Our bodies need this vital mineral for cell
production, protection and healing. Unfortunately, supplementing with Zinc
tablets can be upsetting to the stomach; however, an application sublingually
avoids these complications and produces faster results. In addition, scientific
studies indicate that sublingual absorption of Zinc may decrease one's
susceptibility to viral and bacterial infections. When used at the first sign
of a cold, studies have shown Zinc to reduce the severity of a cold. For men,
Zinc may help assure the normal functioning of the prostate gland.
The Ginseng Solution - The Ginseng Solution not only offers the
liquid sublingual advantage, but is priced well below the competition. The
Company has developed this energizing herbal supplement to be sold in its
retail division in order to take advantage of the tremendous consumer interest
in Ginseng. The Ginseng Solution tastes great and provides an alternative for
those consumers who find it difficult to swallow pills and tablets. This safe,
potent formula represents a breakthrough in herbal nutrition.
Ginseng is one of the oldest and most highly regarded herbs known to
man. It has been referred to as the "root of life." For thousands of years the
Chinese have revered Ginseng for its regenerative effects. Modern research
tends to verify that Ginseng protects the body and nervous system from stress,
stimulates and increases metabolic function and increases physical and mental
efficiency.
The Chinese believe regular use of Ginseng, serving as a preventative
medicine general tonic, helps to restore vigor, improve general health, restore
memory and increase longevity.
The Multi-Vitamin Solution - Due to the overwhelming demand for a liquid
multi-vitamin, the Company has developed a nutritionally complete liquid
multi-vitamin. The Company's new multi-vitamin is an easy-to-take source of
16 vitamins and minerals with a very pleasant taste.
The Multi-Vitamin Solution, in its pleasant-tasting liquid formula,
offers the perfect vitamin solution to all those looking for an alternative to
vitamin pills or tablets which may or may not dissolve fast enough to provide
optimum results for the body.
The Chromium Picolinate Solution - The Company has developed Chromium
Complex which is one of the 14 essential minerals and trace elements the body
needs to keep healthy and fit. The U.S. Department of Agriculture reports
that most Americans consume less than the amount of Chromium recommended by
the National Academy of Sciences. In fact, nine out of ten adult Americans
do not consume the minimum amount recommended by the National Academy of
Sciences. Chromium has been processed out of many of our foods. And even
where it is present, Chromium is not easy to assimilate. Chromium is a key
part of the complex called the Glucose Tolerance Factor (GTF) that helps
the body make more efficient use of insulin, which regulates blood sugar
levels. Chromium influences many body conditions over and above blood sugar
levels such as cholesterol levels, muscle-to-fat ratios, weight control,
condition of the arteries and energy level.
The Melatonin Solution - This sublingual formula allows fast, effective
absorption of melatonin, so the user can rest - assured. The 1 mg per 1 cc
dose allows the user to take only the amount of melatonin he or she needs for
the desired result (from 1/2 to 3 mg).
Melatonin is a "sleep cycle" hormone naturally secreted by the brain
in cycles that correspond with day and night. Early studies reveal that our
ability to naturally produce melatonin may decrease as we age.
The Energy Solution - Proper nutrition and regular exercise are essential
for maintaining consistent levels of energy. To enhance the natural energy
level, The Energy Solution contains the perfect blend of energizing herbs and
vitamins. Each ingredient in this formula offers its own unique source of
energy. The Energy Solution will give the user a pick up and that "burst" of
energy he or she needs for an active lifestyle.
The Calcium Solution - The Calcium Solution is a balanced 2:1 ratio of
calcium to magnesium. In addition, boron (the absorption-enhancing mineral)
and silica (the beauty-enhancing mineral for hair, skin and nails) are a part
of this unique formula.
Studies show that Caucasian and Asian women have a higher risk of
osteoporosis later in life than do other races. Regular exercise and a healthy
diet with enough calcium will help teen and young adult women maintain
good health and may reduce the risk of osteoporosis later in life.
The Men's Solution - The Men's Solution is designed exclusively for a
man's needs. This formula contains the herb saw palmetto, the mineral zinc
and other nutrients to support healthy prostrate function. The Men's Solution
contains a unique blend of vitamins, minerals and herbs.
The Women's Solution - The Women's Solution contains a synergistic blend
of herbal extracts. This unique formula provides phytonutrients for healthy
female function, including menstrual, premenstrual and menopausal cycles.
The Vitamin C Solution - The Vitamin C Solution is the easy and
delicious way to get 500 mg of this powerful antioxidant every day. Just one
teaspoon of this great-tasting formula contains more vitamin C than three 8
ounce glasses of orange juice. The Vitamin C Solution is formulated with
niacin and citrus bioflavonoids (from the pulp and rind of the fruit) for
complete Vitamin C absorption.
The Vitamin E Solution - The Vitamin E Solution is the easy and
delicious way to get 200 IU of this powerful antioxidant every day. This
revolutionary liquid vitamin E solution is mycellized for increased
bioavailability. (Mycellization is the process by which the fat soluble
vitamin E is absorbed into minute particles.)
The CoQ-10 Solution - Coenzyme Q10 (CoQ-10) has become the subject of
intense study around the world. Major health and science publications have
featured articles about CoQ-10. Studies show that CoQ-10, the enzyme, is a
vital catalyst to the creation of energy on a cellular level and it decreases
with age.
The Memory Solution - The Memory Solution provides a full range of
neuro-nutritional support, a highly-potent, state-of-the-art mixture of
choline, synergistically combined with ginkgo biloba, gotu extract and key
vitamins, minerals and amino acids. The Memory Solution includes a full 30
mg per dose of standardized 24% ginkgo biloba extract.
The Diet Solution - The Diet Solution is the perfect weight loss
solution, as it is a thermogenic formula with no caffeine. This all-natural
appetite suppressant is in a great-tasting, fast-acting liquid formula. This
unique formula contains Citrimax (a rare compound similar to the citric acid
in oranges), Chromax (the patented form of the essential mineral chromium)
to reduce sugar cravings, and L-Carnitine (the thermogenic, energy burning,
amino acid).
The Children's Vitamin Solution - The Children's Vitamin Solution is
a balanced blend of vitamins for infants and young children, with a convenient
dropper applicator. The Children's Vitamin Solution has a delicious fruit
flavor children love. Each dose contains 100% of 8 essential vitamins for
infants, plus over 25% of the U.S. Recommended Daily Allowance of iron for
infants.
Product Research and Development
In 1995, the Company increased the emphasis in the research and
development of new products. As a result, several new products will be
introduced into all areas of marketing, not only in 1996 but also in years to
come. These introductions will be carefully timed to maximize the impact.
In order to accomplish such a task, three chemists were added to the staff
headed by Hugh D. Bryan, R.Ph., M.S.
Mr. Bryan has been with the company for over eight years and received
his Master's Degree in Pharmaceutical Chemistry from University of Nebraska.
Mr. Bryan has an extensive background in the pharmaceutical industry. He was
with Mead Johnson for fourteen years as Director of Pharmaceutical Development
and six years as Senior Vice President over Quality Control and Research &
Development for Viobin Corporation, a subsidiary of A.H. Robbins.
The increased emphasis in research and development places the Company in
a prime position to remain a leader in liquid nutritional technology.
Quality Control
Along with the increased efforts in research and development, the Company
has taken a giant step forward in the area of quality control. Additional
sophisticated laboratory equipment was obtained that will allow the Company to
assay raw materials as well as finished product. Although this type of
laboratory analysis is not required, management feels it elevates the Company's
reputation in the industry.
Production
Modification to the Corpus Christi facility has significantly increased
the Company's output capacity. Several new production lines have been added
along with enhanced blending and mixing equipment. During 1996, the Company
intends to purchase additional automated production line equipment which will
increase volume output and decrease overhead costs.
Distribution
The Company has achieved a national and international distribution base
which includes chain drug stores and health food stores, independently-owned
drug stores and health food stores, as well as, drug wholesale companies and
health food distributors. Stores are allocating more shelf space to vitamins
and supplements as sales continue to increase. With a solid distribution base
of approximately twenty thousand retail outlets, the Company's focus is to
increase sales on a per store basis through media advertising (see "Advertis-
ing").
Marketing
The Company markets its current product line on a national basis through
five separate divisions each specializing in their selected products. The
Company has four separate methods of marketing, each of which contributes to
the overall success of the Company.
Retail - The retail division specializes in developing the chain store
business. There are now approximately 20,000 chain stores that stock The
B-Total Solution. Two new products LiquiGinseng and Citric-Slim have already
been assigned shelf space in several thousand stores this year. Approximately
twenty additional new products have been developed and are being introduced
in 1996.
The Company distributes its products to virtually all of the national as
well as regional drug wholesaler companies. McKesson Drug Company, Bergen
Brunswig Drug Company and Fox-Meyer Drug are the three largest in the United
States. In addition, the Company also sells to approximately thirty (30)
independent drug wholesalers. Chain drug stores and drug wholesale companies
provide a significant source of revenue for the Company, as well as a built
in system to introduce new products.
Private Label - In March of 1994 the Company introduced a private label
product line for a major health food chain consisting of five products. Those
products are Sublingual B-Complex with Extra B-12 and Vitamin C, Sublingual
Zinc, Liquid Children's Multiple Vitamin with Iron, Liquid Multiple Vitamin
Formula with Iron and Liquid Protector Antioxidant. Negotiations are under way
to introduce several more private label products. The Company expects this
line to soon exceed fifty products. Management plans an aggressive approach
to gain more private label customers in 1996.
Mail Order Catalog - The Company has developed a catalog featuring the
products most requested in a consumer survey conducted by the Company. The
Company currently has interest from over fifty thousand of its end-user
customers in ordering through its direct mail catalog.
The Company's Ambassador Club now has in excess of 50,000 members and
expects continued growth. The new mail order division is in the process of
being launched that will feature a catalog of the Company's products being
sent to each Ambassador Club member. Management believes there is great
potential in this new division due to the loyalty factor exhibited by these
people.
Export - The Company currently sells products in Canada and is
continuously working towards expanding its export customer base.
Advertising
General - The use of vitamins by the consumer continues to increase.
Recently, industry studies revealed that one out of every two people in the
United States uses vitamins. Management is fully aware of the important role
that advertising plays in the successful marketing of its products. Management
believes that consistent advertising is essential in order to achieve maximum
growth. In the past the Company has utilized television, radio, and print. Of
special interest is a cooperative television advertising campaign with one of
the Company's largest customers. This advertising campaign resulted in a sales
increase of approximately 25 times the volume achieved prior to advertising.
This advertising campaign was for only one product and one customer (approx-
imately 2,000 stores). The results provide a valuable insight into what the
Company could accomplish with an advertising program that would feature all of
the Company's accounts (approximately 20,000 stores). While the results
achieved in the cooperative venture indicated an across-the-board increase of
twenty-five times the volume moved prior to advertising, management does not
know what the increased movement would be when all accounts are featured. Due
to this cooperative venture, management has gained knowledge as to the effect-
iveness of national advertising. The Company enjoys consistent growth through
the popularity and word-of-mouth advertising of its products. Management also
feels that due to its wide base of distribution, increased advertising would
generate virtually immediate results. During a recent local promotion with a
major chain store, sales increased over 100% in approximately three weeks. A
relatively small radio advertising campaign was utilized during this promotion.
Competition
While the nutritional product business, as well as the pharmaceutical
industry in general, are acutely competitive in the traditional vitamin "pill"
business, management believes there is little competition in the liquid
sublingual category. The Company does, however, remain at a disadvantage
with many other companies having larger technical staffs, established market
shares and greater financial and operational resources than the Company. There
can be no assurance that the Company will be able to successfully compete.
Employees
The Company currently employs approximately 30 persons, 20 of which are
full-time and 10 of which are part-time. The Company has no contractual
obligations with any labor unions nor are its employees represented by
organized labor. The Company currently has no employment contracts with any
of its employees, but may consider such contracts in the future if it becomes
beneficial for the Company to do so. The Company recognizes that its
continued success will depend in large measure on its ability to attract and
retain qualified personnel. Management believes that its employee relations
are very good.
Governmental Regulation
The Company's processing and packaging operations are subject to various
federal and state laws and regulations. The manufacturing formulation, label-
ing and advertising of the Company's products are regulated by the Food and
Drug Administration ("FDA"), the Federal Trade Commission, the Consumer Product
Safety Commission, and various state agencies.
The Company is subject to the provisions of the Food, Drug & Cosmetics
Act, which is administered by the FDA. The FDA monitors the Company through
scheduled and nonscheduled inspections. The purpose of these inspections is
to review the Company's product formulas, labels and consumer literature to
ensure compliance with the Food, Drug & Cosmetics Act. The FDA also inspects
the Company for product lot control, good packaging practices, sanitation and
adequate product storage conditions. Vitamins are regulated as food products
under the Food, Drug & Cosmetics Act and do not need pre-market approval from
the FDA. The FDA does have the authority to cause the removal of products from
the market.
The Company believes that it is currently in compliance with and plans
to make every effort to continue to comply with all of the above rules and
regulations. Compliance with federal, state and local regulations pertaining
to the discharge of materials into the environment or otherwise relating to the
protection of the environment have no impact on the Company's capital
expenditures, earnings and competitive position.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the year ended
December 31, 1994, compared to the year ended December 31, 1995.
Sales
Net sales for the twelve month periods ending December 31, 1994 and 1995
were $3,312,352 and $4,578,815 respectively. The increase achieved in 1995
represents an increase of approximately 38% and is due to the increased product
sales in 1995 over the prior year. The additional expense in advertising
heightened customer awareness which translated directly to an increase in
sales.
The Company raised sufficient funds through a debenture offering to
provide necessary capital for advertising to emulate the sales effect in 1995.
The Company believes increases in advertising have a direct impact on gross
sales.
In May 1991, the Company entered into a noncancelable capital lease
for its corporate headquarters. The present value of minimum lease payments
and the capitalized cost of the building of $442,348 were recorded on the
balance sheet assuming the purchase option would be exercised at the end of
the original three year lease term. Depreciation on the building was included
in depreciation expense using the straight-line method over its estimated
useful life of 30 years.
On the expiration date of May 1, 1994, the purchase option was not exer-
cised. On that date, the Company entered into a Modification and Ratification
of the lease agreement which provides for an additional thirty-six month term
with an increased monthly rental rate of $4,771, with no bargain purchase
option. All other terms and conditions of the original lease agreement
remained the same. Because a bargain purchase option is no longer in effect,
the net book value of the building and the capital lease obligation of
$403,028 and $455,822, respectively were removed from the Company's balance
sheet resulting in a gain on termination of capital lease of $52,794. Rent
expense under the modified lease for the year ended December 31, 1994 was
$38,168.
Cost of Goods
Cost of goods increased over the past year from $1,324,518 at December
31, 1994, to $1,984,237 at December 31, 1995, an increase of 49%. The cost of
goods increase was due to the substantial increase in 1995 sales. The Company
simply purchased more raw material to meet the new product demand.
Cost of Goods for year-end 1995 was 43% of sales and 40% of sales for
year-end 1994. Cost of Goods will remain constant throughout the five-year
plan for the following reasons:
1) Past experience has shown the Company's Cost of Goods to
average 40% of Sales;
2) Increased automation in production will decrease the Cost of
Goods;
3) Any costs in excess of 40% will be passed on to the Company's
customers; and
4) Volume purchasing will net the Company lower raw material
prices.
Selling Expenses
Selling expenses remained consistent in all areas other than advertising.
In the fourth quarter of 1994, the Company substantially increased media adver-
tising. The results were evident in 1995 as seen in the increase in sales.
The selling expenses as a percentage of net sales, should decrease in
1996 due to the projected increase in sales, the addition of new products and
the additional stores added in each region. This gives economies of scales to
the Company in that more stores will benefit from each of the media advertising
promotions planned by the Company. For example, in the Houston market area,
the number of stores more than doubled with the addition of one new chain. The
same advertising will now benefit more stores from the use of approximately
the same expenditure, thus increasing overall sales in the territory.
Selling, General and Administrative Expenses
General and administrative expenses for the years of 1994 and 1995 were
$1,461,781 and $2,071,683 respectively, an increase of 42%. This category is
not expected to increase dramatically in 1996 due to the addition of computer
hardware and software that will allow the Company to manage the increase in
sales without a significant increase in personnel. The Company has the room to
grow in its present facility and management believes that the current staff can
effectively handle much of the expected growth.
Operating Loss
The Company's operating loss in 1993 is attributable to significant
increase in media advertising and print advertising. The results of the
increased advertising is evident through increased sales and increased
distribution. The Company's operating loss in 1993 is also attributable to
unusually high product returns during 1993, principally related to the
Company's Sublingual C with NIACIN and Sublingual ZINC products. The
Company now feels the introduction was premature in that advertising monies
were not available to properly support these products. This resulted in
unusually high returns from both chain stores and drug wholesalers. The
Company continues to feel the products have great potential when they can be
supported with adequate advertising. The 1993 operating loss can be
attributable to various unusual non-cash charges during 1993 including
incentive stock awards, long-term capital lease obligation, allowance for
uncollectible accounts receivable and reserve for future product returns.
Financial Condition
The Company has seen an increase in current assets from $1,308,498 as of
December 31, 1994 to $2,566,882 as of December 31, 1995. The increase is due
to the acquisition of a production facility and equipment in Corpus Christi,
Texas in 1995.
Working capital at December 31, 1994 was $(132,099) as compared to
$1,025,036 at December 31, 1995. The working capital ratio (current assets
divided by current liabilities) was .89 to 1 at December 31, 1994 and 1.66 to
1 at December 31, 1995.
The Company has established a banking relationship with Texas Commerce
Bank in Arlington, Texas that provides the following:
1) A $750,000 revolving line of credit with a $100,000 letter of
credit sublimit;
2) An $800,000 amortizing term loan; and
3) A $400,000 advance-type loan.
Subsequent to year end of 1994, the Company issued a letter of intent
to purchase certain assets of Artesian Group, Inc. Pursuant to the agreement,
the Company issued 300,000 Shares of Restricted Common Stock to purchase land,
building, manufacturing equipment and inventory. The assets acquired were
valued at their fair market value on the date of transfer as the Company's
stock is traded in limited numbers and is subject to fluctuations.
The Company added semi-automated filling equipment in 1994 on a lease-
purchase basis. The lease-purchase option was chosen in order to conserve
cash flow while increasing the production capacity.
Management believes that the financial condition of the Company will
continue to improve in 1996. Significant growth and accelerated product
movement are anticipated as a result of the first quarter advertising effort,
the new investor relations program and the acquisition of the 20,000 square
foot production facility in Corpus Christi, Texas.
ITEM 3 - DESCRIPTION OF PROPERTY
Facilities
The Company's corporate executive offices are located at 1229 West
Corporate Drive, Arlington, Texas 76006. The Company has occupied this
approximate 8,500 square foot facility since May 1991. The facilities are in
excellent condition and more than double the size of the Company's prior
facilities allowing for all phases of operations, including the laboratory and
research and development to be consolidated under one roof. Rent on the
facility is $4,771.00 per month.
In March of 1995, the Company acquired a pharmaceutical production
facility in Corpus Christi, Texas with a 15 year mortgage through Texas
Commerce Bank. As of June 1, 1996 the balance owing on the mortgage of
this facility was approximately $240,000. This acquisition added valuable
equipment that has enhanced production capabilities. The Corpus Christi
facility consists of approximately 20,000 square feet of office, manufacturing
and warehouse space which could be expanded if necessary.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders
The following table sets forth the name and address, as of June 1, 1996,
and the approximate number of Shares of Common Stock of the Company owned of
record or beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than 5% of the Company's Common Stock, and
the name and shareholdings of each Officer and Director, and all Officers and
Directors as a group.
<TABLE>
<CAPTION>
Title of Class Name and Address Amount & Nature Percent of Class
of Beneficial Owner of Beneficial Owner
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Bobby McClure<F1> 2,880,000 37.75%
3614 Horizon Trail
Arlington, TX 76011
Common Cynthia Lagasse<F2> 960,000 12.58%
1525 Kubel Street
Harahan, LA 70123
Common Dona Efflandt<F3> 2,700 <F4>
RR 1, Box 860
Rhome, TX 76078
Common Elisa Miller 960,000 12.58%
2603 North Hughes
Fort Worth, TX 76103
Common Delta Financial 415,000 5.44%
Resources, Inc.
P.O. Box 2097
George Town
Grand Cayman, Cayman
Islands, BWI
Common All Officers and 3,842,700 50.37%
Directors as a Group
(3 persons)
<FN>
<F1> Wife of Jerry McClure, who is President and a Director of the Company
<F2> Director of the Company
<F3> An Officer of the Company, but not a Director
<F4> Less than 1%
</FN>
</TABLE>
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEES AND CONTROL
PERSONS
The following table sets forth certain information with respect to each
of the Directors, executive Officers, key employees and control persons of the
Company.
[CAPTION]
Name Age Position
_______________________________________________________________________
Jerry McClure 58 President, Chief Executive
3614 Horizon Trail Officer and a Director
Arlington, Texas 76011
Dona Efflandt 37 Secretary/Treasurer
RR 1, Box 860
Rhome, Texas 76078
Cynthia Lagasse 43 Director
1525 Kubel Street
Harahan, Louisiana 70123
George E. Baucom 37 In charge of Investor Relations
118 Melba Drive
Portland, Texas 78374
Officers, Directors, Promoters and Control Persons
JERRY McCLURE, age 58, is Director, President, Chief Executive Officer
and a principal shareholder of the Company which positions he has held since
prior to the merger of the Company with Sublingual Texas on April 17, 1989. He
was elected to the positions of executive officer and a director on March 22,
1989. In 1986, Mr. McClure helped organize Pharmaceutical Laboratories, Inc.'s
predecessor operations and became President of the organization. Mr. McClure's
time has been dedicated to introducing the Company's products into the market-
place. As a result of Mr. McClure's efforts, the Company's products have been
placed in most of the major national and regional chain stores, as well as drug
wholesale companies and health food distributors who distribute products to
thousands of retail outlets. Mr. McClure supervises the research and develop-
ment of new liquid sublingual products, as well as the continued growth in
sales of existing products.
DONA EFFLANDT, age 37, has been Secretary/Treasurer of the Company since
October, 1994. Ms. Efflandt attended Northwood Institute of Texas where she
acquired her Associates Degree in Business Administration, graduating with
honors in 1977. In 1977 Ms. Efflandt was then hired by Northwood Institute of
Texas as the administrative secretary for the admissions office. Later, from
1978 to 1981 Ms. Efflandt worked for the Controller of Montgomery Ward's
Catalog Division. For over seven years, from 1982 to 1989 Ms. Efflandt worked
for an independent CPA firm in Forth Worth, Texas, working on personal and
business income tax returns and financial statements for its clientele. From
1989 to 1992 Ms. Efflandt was employed as a secretary of Wareham & Associates,
Inc., a company specializing in the structure of annuities. As Secretary of
the Company, Ms. Efflandt works with Mr. McClure, President, on investor
relations, product line development, advertising and office administration.
CYNTHIA LAGASSE, age 43, has been a Director of the Company since 1989.
Ms. Lagasse spent four years studying a general business curriculum at
Louisiana State University from 1971 to 1975 at both the New Orleans and Baton
Rouge campuses. Ms. Lagasse has an extensive background in the management of
all types of sales operations and general service oriented businesses. As
Executive Vice-President for Lagasse Brothers, the family business in New
Orleans engaged primarily in the wholesale and distribution aspects of
industrial maintenance supplies, Ms. Lagasse is involved in all phases of
business for Lagasse Brothers.
GEORGE E. BAUCOM, age 37, is responsible for investor relations. He began
his employment with the Company in January of 1995. Mr. Baucom has been the
Controller of the Corpus Christi facility since December, 1994. From January,
1994 to December, 1994, he was employed by Preferred Reduction Services, Inc.
as Controller and Director of Investor Relations. From November, 1992 to
January, 1994 he was Chief Financial Officer of Metalclad Corporation. From
January, 1992 to November, 1992 he was employed by Salt Lake City as the City's
Budget Administrator. From May, 1980 to March, 1991, he was employed by Utah
Power and Light as a Controller and then as Project Manager of the merger with
PacificCorp. Mr. Baucom received a Bachelor of Arts degree in Accounting from
the University of Utah in Salt Lake City.
ITEM 6 - EXECUTIVE COMPENSATION
The Executive Officers of the Company received remuneration in 1995 and
are expected to receive the same in 1996 in the following amounts, which
amounts may be adjusted from time to time as determined by the Company's Board
of Directors.
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
----------------------------- ------------------------ --------
Name Year Salary Bonus Other Restricted Securities LTIP All
and Annual Stock Underlying Payouts Other
Principal Compen- Award(s) Options/ Compen-
Position sation SARs sation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry McClure 1995 $60,000 -0- -0- <F1> -0- -0- -0-
CEO, President 1994 $60,000 -0- -0- -0- -0- -0- -0-
and a Director 1993 $60,000 -0- -0- -0- -0- -0- -0-
Dona Efflandt 1995 $30,000 -0- -0- -0- -0- -0- -0-
Secretary and 1994 $30,000 -0- -0- <F4> -0- -0- -0-
Treasurer 1993 $30,000 -0- -0- -0- -0- -0- -0-
Cynthia Lagasse 1995 -0- -0- -0- <F2> -0- -0- -0-
Director 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0- -0-
George Baucom 1995 $40,000 -0- -0- <F3> -0- -0- -0-
In Charge of 1994 -0- -0- -0- -0- -0- -0- -0-
Investor 1993 -0- -0- -0- -0- -0- -0- -0-
Relations
<FN>
<F1> On November 8, 1995, Mr. McClure was awarded options to purchase 900,000
Shares of Restricted Common Stock at $.70 per Share, expiring November 8,
2000.
<F2> On November 8, 1995, Ms. Lagasse was awarded options to purchase 300,000
Shares of Restricted Common Stock at $.70 per Share, expiring November 8,
2000.
<F3> On June 30, 1995, Mr. Baucom was issued 3,000 shares of restricted common
stock for services rendered, valued at $3,000.
<F4> On January 12, 1994, Ms. Efflandt was issued 3,600 shares of restricted
common stock as a bonus for services rendered, valued at $3,600.
</FN>
</TABLE>
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions between the Company and Management
Bobby McClure, a major shareholder of the Company, is using 500,000
Shares of her own stock to collateralize a $450,000 line of credit for the
Company with Fidelity Bank, 100 Main St., Fort Worth, Texas. Mrs. McClure is
the wife of Jerry McClure, President of the Company.
Management is unaware of any other interests of its Officers and
Directors that may create a potential conflict of interest with the Company.
ITEM 8 - DESCRIPTION OF SECURITIES
General
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of Directors, with the result
that the holders of more than 50% of the Shares voted for the election of
Directors can elect all of the Directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of Shares of Common Stock as such, have no conversion,
preemptive or other subscription rights, and there are no redemption
provisions applicable to the Common Stock. The Company has not issued any
Preferred Stock. However, the Preferred Stock, if issued, may contain
special preferences as determined by the Board of Directors of the Company,
including, but not limited to, the bearing of interest and convertibility
into Shares of Common Stock of the Company.
The Company's Debentures are unsecured general obligations of the
Company. These Debentures are senior to any subsequent Debenture offering
that may be undertaken by the Company. The Company will pay the investor
interest only, 12.5% simple interest which accrues starting the first full
month following the month in which the investment was received by the Company.
The debenture will pay interest only on a monthly basis with principle due and
payable in lump sum on July 31, 1997. The Debentures may be redeemed at
face value of $10,000.00 per debenture upon 90 days notice to the holders at
any time after September 30, 1996. The Company will set up a Sinking Fund
for the purposes of retiring the principle amount of the Debentures when due.
Under the Sinking Fund arrangement, commencing 14 months from the close
of the Debenture offering, which commenced August 31, 1995, the Company
will set aside sufficient funds such that 21 months from the close of the
offering the Sinking Fund will have 60% of the total offering proceeds. The
Sinking Fund will be established as an interest bearing account. If interest
payments are in arrears to the debenture holders, the interest earned from the
Sinking Fund will be distributed to the debenture holders to reduce any
amounts in arrears. The Sinking Fund will be an asset securing payment of the
debentures. In the event the principle on the Debentures is not paid within 24
months from the original close of the offering, the Company will pay to each
Debenture holder 8% annual penalty on the principle balance of the
Debenture.
Transfer Agent
The Company's transfer agent is Progressive Transfer Company, P.O. Box
17561, Salt Lake City, Utah 84117.
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
Principal Market
The Company's securities are traded on the NASD electronic bulletin
board, quotations for which are under the symbol "PHLB." The market
makers are:
Wagner, Scott, Mercator Partners in New York
Northeast Securities in Westbury, NY
Allen & Company in New York
ACAP Financial in Salt Lake City, UT
Hill, Thompson, Magid & Company in Jersey City, NJ
William Frankel & Company in New Jersey
Paragon in Boca Raton, FL
Bid Information
The high and low bid price for the Company's common stock for each
quarter within the last two fiscal years, as received from OTC Bulletin Board
follows. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
[CAPTION]
High Bid Low Bid
__________________________
Fiscal Year Ending December 31, 1996
Second Quarter Ending 6/30/96 $3.5 $2.625
First Quarter Ending 3/31/96 3.875 1.5625
Fiscal Year Ended December 31, 1995
Fourth Quarter Ending 12/31/95 2.00 1.25
Third Quarter Ending 9/30/95 2.01 1.25
Second Quarter Ending 6/30/95 1.50 1.375
First Quarter Ending 3/31/95 1.00 .75
Fiscal Year Ended December 31, 1994
Fourth Quarter Ending 12/31/94 1.125 .375
Third Quarter Ending 9/30/94 1.375 .875
Stockholders
The Company's transfer agent, Progressive Transfer Company, confirms
that, as of July 8, 1996, there are 252 shareholders of record for the Company
and that with information provided to the transfer agent from various brokerage
firms there are 137 beneficial owners, thereby making the total shareholder
count 389.
Dividends
To date, the Company has not paid any dividends on its Common Stock. The
payment of dividends, if any, in the future, rests within the discretion of its
Board of Directors and will depend, among other things, upon the Company's
earnings, its capital requirements and its financial condition, as well as
other relevant factors. The Board does not intend to declare any dividends in
the foreseeable future, but instead intends to retain all earnings, if any, for
use in the Company's business operations. Under Nevada corporate law,
dividends may be paid out of surplus or, in case there is no surplus, out of
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
ITEM 2 - LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, which
would have a material affect upon their operations or financial statements.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the two most recent fiscal years, the Company has used the same
principal independent accountant and has not had any disagreements with said
independent accountant.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
The following tables outlines all securities the Company sold or issued
within the past three years without registering the securities under the
Securities Act.
<TABLE>
<CAPTION>
Date Type of Number of Number of Consideration
Security Securities Investors
Issued
______________________________________________________________________________
<S> <C> <C> <C> <C>
1/29/93 Common 15,000 3 These securities were issued
Stock to David E. Clemens, Jr.,
Richard A. Cooper and Allied
Marketing Group in exchange
for office furniture. The
shares were valued at $1.00
per share for an aggregate of
15,000 shares or $15,000
5/4/93 Common 4,000 1 These securities were issued
Stock to Judy Hanna in exchange for
a 1993 GMC Sonoma truck
valued at approximately $2.70
per share.
5/5/93 Common 1,500 1 These securities were issued
Stock to Dan Dipert for business
promotional services rendered
valued at $1.00 per share for
an aggregate of $1,500.
7/13/93 Common 5,000 1 These securities were issued
Stock to Hugh Bryan for product
development services rendered
valued at $1.00 per share for
an aggregate of $5,000.
1/12/94 Common 3,600 2 These securities were issued
Stock to Dona Efflandt as a bonus
for administrative and
financial services rendered
and to Larry Avants as a
bonus for computer graphics
work, valued at $1.00 per
share for an aggregate of
$3,600.
7/14/94 Common 6,000 1 These securities were issued
Stock to Dan Depert for business
promotional services rendered
valued at $1.00 per share for
an aggregate of $6,000.
1/3/95 Common 2,000 1 These restricted securities
Stock were issued to Raymond
Lagasse in partial consid-
eration for the holder of a
promissory note in the amount
of $10,000, paying interest
at a rate of 12% per annum,
dated 10/20/93 to renew the
note for one additional year.
3/7/95 Common 1,000 1 These securities were issued
Stock to Rhonda Spear for new
account sales work, valued at
$1.00 per share for an
aggregate of $1,000.
3/14/95 Common 300,000 1 These restricted securities
Stock were issued in exchange for
assets and selected liabil-
ities of Artesian Group, Inc.
a Texas corporation, valued
at $1.00 per share, for an
aggregate of $300,000.
3/23/95 Common 22,000 5 These restricted securities
Stock were issued to Douglas T.
Breckon, Judy Hanna, Richard
A. & Mary B. Owen, W.K. Penn
III, and R.L. & Rita Rausch
as the holders of 5
promissory notes in the
aggregate amount of $100,000
to renew the notes for one
additional twelve months.
6/30/95 Common 3,000 1 These securities were issued
Stock to George Baucom for investor
relations and financial
services rendered, valued at
$1.00 per share for an
aggregate of $3,000.
8/31/95 Debentures 56 56 Ranging from $5,000 to
$50,000 each, 12.5% interest,
due 7/31/97 for an aggregate
total of $908,000.
11/8/95 Options to 1,750,000 7 Options to purchase the
Purchase Company's restricted common
Common Stock stock were issued to Jerry
McClure for services as CEO,
officer & director, to Cindy
Lagasse for services as
director, to Elisa Miller for
services in sales & marketing
to Max C. Tanner for legal
services, to Clinton Lagasse
for management consulting, to
David Klausmeyer for invest-
ment consulting and to David
E. Clemens, Sr. for manage-
ment consulting services,
exercisable at $.70 per share
until 11/8/00.
11/16/95 Common 17,000 4 These securities were issued
Stock to Rick Cooper for direct
mail order development work,
to Hugh Bryan and Kathy
Biediger, individually, for
research & development/new
product development and to
David E. Clemens Sr. for
management consulting
services, valued at $1.38 per
share for an aggregate of
$16,560.
12/28/95 Common 180,000 9 These securities were issued
Stock to Douglas Breckon, Judy
Hanna, H.G. Hausman, Raymond
Lagasse, Mr. & Mrs. George
Maxon, W.K. Penn III, Mr. &
Mrs. David Rausch, Mr. & Mrs.
R. L. Rausch and Mr. Woodrow
Yamini as the holders of 9
promissory notes in the
aggregate amount of $180,000
for the conversion of the
notes into the Company's
restricted common stock at
$1.00 per share for an
aggregate of 180,000 shares.
12/29/95 Common 250,000 2 These securities were issued
Stock to Clinton W. & Marie T.
Lagasse Irrevocable
Educational Trust and to
Clinton W. & Marie T. Lagasse
personally as the holder of
two promissory notes in the
aggregate amount of $250,000
for the conversion of the
notes into the Company's
restricted common stock at
$1.00 per share for an
aggregate of 250,000 shares.
1/12/96 Common 5,000 1 These securities were issued
Stock to Ray De Mott for management
consulting & broker relation
services, valued at $3.50 per
share for an aggregate of
$17,500.00.
3/20/96 Common 250,000 14 $2.00 per share.
Stock
</TABLE>
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company and its affiliates may not be liable to its shareholders for
errors in judgment or other acts or omissions not amounting to intentional
misconduct, fraud or a knowing violation of the law, since provisions have
been made in the Articles of Incorporation and By-laws limiting such liability.
The Articles of Incorporation and By-laws also provide for indemnification of
the Officers and Directors of the Company in most cases for any liability
suffered by them or arising out of their activities as Officers and Directors of
the Company if they were not engaged in intentional misconduct, fraud or a
knowing violation of the law.
<PAGE>
<TABLE>
PART F/S
Pharmaceutical Laboratories, Inc.
First Quarter 1995 Compared to First Quarter 1996
CONSOLIDATED BALANCE SHEET
Unaudited
<CAPTION>
March 31, 1996 March 31, 1995
---------------- ----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $520,471 $87,860
Accounts receivable, net 1,358,951 699,587
Inventory 984,846 395,920
Prepaid expenses 115,225 40,737
Other assets 135,413 5,000
Total Current Assets 3,114,906 1,229,104
LONG-TERM ASSETS
Building & property 422,969 560,000
Furniture & equipment 615,212 590,519
Vehicles 43,351 43,351
Building & leasehold improvements 124,676 16,912
Less accumulated depreciation (155,819) (90,390)
Total Long-Term Assets 1,050,389 1,120,392
TOTAL ASSETS $4,165,295 $2,349,496
CURRENT LIABILITIES
Accounts payable & accrued expenses $873,490 $432,918
Due to related parties 85,949 52,738
Notes payable 427,412 273,038
Lease payable 11,477 6,618
Note payable - investors 938,000 488,000
Total Current Liabilities 2,336,328 1,253,312
LONG-TERM DEBT Preferred Stock:
Obligation under capital lease 0 0 25,000,000 shares
TOTAL LIABILITIES $2,336,328 $1,253,312 authorized $.001 par
STOCKHOLDERS' EQUITY
Preferred stock - - Common Stock:
Common stock 8,106 12,331 25,000,000 shares
Additional paid-in capital 1,716,515 1,562,326 authorized at $.001 par
Accumulated deficit (215,838) (667,259)
Current year profit (loss) 320,684 189,286
Less treasury stock (500) (500) 7,303,967 & 7,628,600
TOTAL STOCKHOLDERS' EQUITY $1,828,967 $1,096,184 shares issued &
---------- -----------
TOTAL LIAB/STOCKHOLDERS' EQUITY $4,165,295 $2,349,496 outstanding
============ ===========
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
March 31, 1996 March 31, 1995
_________________ ________________
REVENUE
Net sales $2,110,061 $939,724
Cost of sales 865,105 294,383
---------- ---------
Gross Profit 1,244,956 645,341
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 931,537 456,657
NET INCOME/LOSS FROM OPERATIONS $313,419 $188,684
OTHER INCOME (EXPENSE)
Other income 7,266 602
NET INCOME (LOSS) $320,685 $189,286
---------- ----------
EARNINGS (LOSS) PER SHARE $0.04 $0.03
---------- ----------
WEIGHTED AVERAGE SHARES OUT 7,628,600 7,303,967
========== =========
*Unaudited Financial Statements
<PAGE>
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
C O N T E N T S
Page
Independent Auditor's Report............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets...........................................2
Consolidated Statements of Income.....................................3
Consolidated Statements of Changes
in Stockholders' Equity...........................................4
Consolidated Statements of Cash Flows.................................5
Notes to Consolidated Financial Statements............................7
<PAGE>
To the Board of Directors
Pharmaceutical Laboratories, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of
Pharmaceutical Laboratories, Inc. and subsidiary as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pharmaceutical Laboratories, Inc. and subsidiary at December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ WEAVER AND TIDWELL, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
March 4, 1996, except as to information presented
in Note 15, for which the date is May 15, 1996.
2696
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
</TABLE>
<TABLE>
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1995 AND 1994
<CAPTION>
1995 1994
___________ __________
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash (Note 2) $ 62,951 $ 149,038
Accounts receivable, net of allowance for
uncollectible accounts 1995 $55,944;
1994 $6,049 (Notes 2 and 5) 1,701,946 585,147
Due from related party (Note 4) 7,600 -
Inventory (Notes 3 and 5) 718,978 274,628
Prepaid expenses 38,126 29,685
Income tax receivable 1,851 -
Deferred tax asset (Note 11) 35,430 -
____________ ___________
Total current assets 2,566,882 1,038,498
____________ ____________
PROPERTY AND EQUIPMENT, at cost
Land (Note 7) 85,500 -
Building and improvements (Notes 7 and 14) 364,500 -
Leasehold improvements (Note 14) 16,912 16,912
Furniture and equipment (Notes 7 and 8) 588,707 135,634
Vehicles 43,351 43,351
_____________ ____________
1,098,970 195,897
Less accumulated depreciation 137,052 82,629
_____________ ____________
961,918 113,268
_____________ ____________
OTHER ASSETS
Deferred debt issuance cost (Note 6) 44,015 -
Deposits 11,250 -
Deferred tax asset (Note 11) 39,983 -
_____________ ____________
95,248 -
_____________ ____________
TOTAL ASSETS $3,624,048 $1,151,766
============ ============
</TABLE>
<PAGE>
<TABLE>
Page 2
<CAPTION>
1995 1994
________________ ______________
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 25,503 $ -
Notes payable (Note 5) 305,000 625,000
Mortgage note payable (Note 7) 198,588 -
Current obligation under capital leases (Note 8) 13,298 4,751
Trade accounts payable 654,586 249,650
Accrued expenses (Note 4) 330,494 285,340
Deferred revenues 14,377 -
Due to related party (Note 4) - 5,856
____________ ____________
Total current liabilities 1,541,846 1,170,597
____________ ____________
LONG-TERM DEBT
Debentures payable (Note 6) 592,000 -
Obligation under capital lease (Note 8) 11,917 10,219
____________ ____________
603,917 10,219
------------ ------------
STOCKHOLDERS' EQUITY (Note 5)
Preferred stock, $.001 par value;
Authorized shares - 25,000,000;
Issued and outstanding shares - none - -
Common stock, $.001 par value;
Authorized shares - 25,000,000;
Issued shares - 8,106,100 in 1995,
7,331,100 in 1994 8,106 7,331
Additional paid-in capital 1,716,516 626,377
Accumulated deficit (215,837) (662,258)
______________ _____________
1,508,785 (28,550)
Treasury stock - (Notes 5 and 12) (30,500) (500)
______________ _____________
1,478,285 (29,050)
______________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,624,048 $1,151,766
============== =============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Page 3
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
_____________ ____________
<S> <C> <C>
Net sales $4,578,815 $3,312,352
Cost of sales 1,984,237 1,324,518
Gross profit 2,594,578 1,987,834
Selling, general and
administrative expenses 2,071,683 1,461,781
__________ __________
Operating income 522,895 526,053
Other income (expense)
Interest (Note 4) ( 151,238) ( 156,200)
Gain on termination
of capital lease (Note 14) - 52,794
__________ __________
Income before taxes 371,657 422,647
Income tax benefit (Note 11) 74,764 -
__________ __________
Net income $ 446,421 $ 422,647
=========== ===========
Net income per common share $ .06 $ .06
=========== ===========
Weighted average number of common shares 7,856,368 7,303,967
=========== ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Page 4
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
_________ ________ __________ ___________ _________
__________
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 7,256,500 $ 7,257 $ 564,796 ($1,084,905) ($ 500) ($513,352)
Conversion of shareholder
notes payable to common
stock 10,000 10 9,990 - - 10,000
Issuance of 64,600 shares
of common stock 64,600 64 51,591 - - 51,655
Net income - - - 422,647 - 422,647
__________ ________ __________ ___________ ________ ___________
Balance,
December 31, 1994 7,331,100 7,331 626,377 ( 662,258) ( 500) ( 29,050)
Conversion of shareholder
notes payable to common
stock 430,000 430 429,570 - - 430,000
Issuance of 345,000 shares
of common stock 345,000 345 660,569 - - 660,914
Deposits to repurchase
stock (Note 12) - - - - ( 30,000) ( 30,000)
Net income - - - 446,421 - 446,421
__________ ________ ___________ ___________ _________ ____________
Balance,
December 31, 1995 8,106,100 $ 8,106 $1,716,516 ($ 215,837) ($30,500) $1,478,285
========== ======== =========== =========== ========= ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Page 5
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
____________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 446,421 $ 422,647
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Noncash interest on notes payable 12,925 38,840
Depreciation 54,423 31,946
Amortization 6,735 -
Gain on termination of lease - ( 52,794)
Provision for losses on accounts receivable 49,895 ( 28,129)
Deferred tax benefit ( 75,413) -
Increase accounts receivable ( 1,174,294) ( 181,319)
Increase in income tax receivable ( 1,851) -
Increase in inventory ( 444,350) ( 144,382)
Increase in prepaid expenses ( 8,441) ( 18,585)
Increase (decrease) in trade accounts payable 404,936 ( 11,439)
Increase in accrued expenses 45,154 87,375
Bank overdraft 25,503 -
Deferred revenue 14,377 -
Other, net 10,413 13,125
___________ ____________
Net cash provided by (used in) operating activities ( 633,567) 157,285
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 42,368) ( 52,274)
Deposits for investment purchases ( 11,250) -
____________ ____________
Net cash used in investing activities ( 53,618) ( 52,274)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable and loans from related parties 592,000 150,000
Increase (decrease) in revolving line of credit, net 140,000 ( 159,869)
Principal payments on notes payable
and amounts due to related parties ( 48,334) ( 20,879)
Stock issue costs ( 1,818) -
Debt issue costs ( 50,750) -
Payments to repurchase stock ( 30,000) -
____________ ____________
Net cash provided by (used in) financing activities 601,098 ( 30,748)
Net increase (decrease) in cash ( 86,087) 74,263
Cash at the beginning of the year 149,038 74,775
____________ _____________
Cash at the end of the year $ 62,951 $ 149,038
============ =============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Page 6
PHARMACEUTICAL LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
_____________ ____________
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash payments for interest $ 89,290 $ 69,043
============= ============
Cash payments for tax $ 2,500 $ -
============= ============
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
financed through issuance of common stock
Increase in property and equipment $ 835,223 $ -
Increase in mortgage payable ( 201,779) -
____________ _____________
Increase in common stock and paid-in capital $ 633,444 $ -
============ =============
Purchase of property and equipment
financed through capital lease:
Increase in property and equipment $ 19,532 $ 7,413
============ =============
Increase in capital lease obligations ($ 19,532) ($ 7,413)
============ =============
Gain from termination of capital lease on building:
Decrease in capital lease obligations $ - $ 455,822
Decrease in building, net of
accumulated depreciation - ( 403,028)
___________ ____________
Gain on termination of lease $ - $ 52,794
=========== ============
Conversion of shareholder debt to equity $ 430,000 $ 10,000
=========== ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
Page 7
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policy relative to the carrying value of property and equip-
ment is indicated in the caption on the balance sheets. The accounting
policy for inventories is included in other notes to the financial state-
ments. Nature of operations and other significant accounting policies are as
follows:
Nature of Operations
Pharmaceutical Laboratories, Inc. (the Company) develops, produces and
markets sublingual (under the tongue) vitamin and nutritional products in
liquid form. The Company is developing new vitamin and nutritional
products for national retail and private label distribution. The Company
grants credit to customers, substantially all of whom operate within the
nutritional and pharmaceutical retail industry.
Principles of Consolidation
The consolidated financial statements include Pharmaceutical Laboratories,
Inc. and its wholly-owned subsidiary, Synergy Health Systems International.
All intercompany transactions and balances have been eliminated.
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Research and Development Costs
The Company has recently implemented extensive research and development
efforts in order to produce new vitamin and nutritional products. Included
in selling, general and administrative expenses for the year ended December
31, 1995 is approximately $84,000 of research and development costs.
Financial Instruments
Financial instruments of the Company consist of cash, accounts receivable,
notes receivable, trade accounts payable and notes payable. Recorded
values of cash,
<PAGE>
Page 8
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Financial Instruments - continued
trade receivables and payables approximate fair values due to short
maturities of the instruments.
Carrying amount for the revolving line of credit approximates fair value
due to short term maturity. Notes to shareholders and debenture notes also
approximate fair value for unsecured debt of similar risk and short term
maturities. The fair value of mortgage debt is estimated as the discounted
amount of future cash flows using a current incremental borrowing rate of
10.25% for liabilities with similar maturities.
Carrying Fair
Amount Value
____________ ___________
Mortgage debt $198,588 $201,750
========== ==========
Cash Flows Presentation
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of less than three
months to be cash equivalents.
Depreciation
Property and equipment is depreciated using the straight-line method.
Estimated useful lives of the major categories of property and equipment
are as follows:
Building and improvements 39 years
Leasehold improvements 3 years
Furniture and equipment 3-10 years
Vehicles 5 years
Useful lives of leasehold improvements are the shorter of the estimated
useful life of the asset or the remaining term of the lease, including
anticipated renewals.
Amortization
Costs of obtaining financing are amortized over the term of the related
debt.
<PAGE>
Page 9
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment
Maintenance and repair expenditures which do not enhance the value or
increase the basic productive capacity of the assets are charged to expense
as incurred.
The costs and accumulated depreciation for assets retired or sold are
removed from the assets and related accumulated depreciation accounts and
gains or losses thereon are included in income.
Revenue Recognition
Sales are recorded when products are shipped. Provisions for estimated
returns and allowances are made at the time of sale. Deferred sales are
recorded when payment is received for product which is not shipped prior to
the end of the period.
Net Income Per Common Share
Net income per common share is computed by using the weighted average number
of common shares outstanding during the year. Common stock equivalents and
other convertible securities (Note 5) are not included in the computation
of net income per common share because their effect is antidilutive.
Stock-based Employee Compensation
The Company recognizes compensation costs for stock-based compensation
plans based on difference, if any, between the quoted market price of the
stock and the amount an employee must pay to acquire the stock.
The Financial Accounting Standards Board has issued Statement No. 123
establishing a fair value based method of accounting for stock-based
compensation plans. As permitted under Statement No. 123, the Company does
not intend to adopt the recognition or accounting requirements of the
statement at this time.
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash, cash equivalents and trade
receivables. The
<PAGE>
Page 10
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. CONCENTRATIONS OF CREDIT RISK - continued
Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables is limited
due to the Company's credit granting policies and their continuous evaluation
of the credit worthiness of its customers. The Company's sales are concen-
trated in the wholesale and retail drug store markets. The Company produces
a private label product line for one particular customer. Sales to this
customer were approximately $2,101,000 and $1,397,000 for the years ended
December 31, 1995 and 1994, respectively. Included in accounts receivable
at December 31, 1995 and 1994 is $1,091,000 and $313,000 due from this
customer.
NOTE 3. INVENTORY
Inventory is valued at the lower of cost (using the first-in, first-out
method) or market. At December 31, inventory is comprised of:
1995 1994
----------- ------------
Raw materials $364,512 $188,499
Finished goods 354,466 86,129
-------- ---------
$718,978 $274,628
======== ========
NOTE 4. RELATED PARTY TRANSACTIONS
Amount due from related party at December 31, 1995 is a note receivable due
from an officer of $7,600, evidenced by a note agreement. Note is unsecured,
bears no interest and matures December 1996.
Amount due to related party at December 31, 1994 is an advance payable of
$5,856 due on demand, not evidenced by a written agreement, bearing no
interest and unsecured. Note was paid off during 1995.
<PAGE>
Page 11
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. RELATED PARTY TRANSACTIONS - continued
Included in accrued expenses at December 31, 1995, is $85,949 of accrued
interest incurred on a note to a shareholder. The related note was converted to
stock in December 1995. Included in interest expense for the years ended Decem-
ber 31,1995 and 1994 is approximately $77,000 and $64,000, respectively of
interest charred on shareholder notes.
Selling, general and administrative costs for 1995, include approximately
$26,100 of consulting fees paid to two major shareholders, one of whom is re-
lated to the president of the company.
NOTE 5. NOTES PAYABLE
Notes payable consist of the following at December 31:
1995 1994
--------- ---------
Revolving line of credit with a bank for
maximum borrowing of $265,000, payable
on demand but no later than December 4,
1995 bearing interest at bank's base rate
plus 1% (10.25% at December 31, 1995),
collateralized by accounts receivable, inventory,
and 500,000 shares of common stock held in
treasury. Line of credit was renegotiated
January 4, 1996 (see Note 15) $265,000 $ 125,000
Notes payable to shareholders 40,000 500,000
--------- ----------
$305,000 $625,000
========= =========
The notes payable to shareholders are unsecured and bear interest at 12% (15%
on one note). As additional compensation for extending the notes as they matur-
ed during 1995 and 1994, the Company issued 2,000 shares of common stock for
each $10,000 of notes payable and gave an option to convert the outstanding
balance of the notes to common stock at the rate of $1.00 per share. The fair
value of the common stock issued with these notes is recognized as additional
interest expense ratably over the term of the notes. The extended maturity
dates on the notes range from January 25 through August 18, 1996.
<PAGE>
Page 12
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. NOTES PAYABLE - continued
In 1994, one $10,000 note payable was converted to 10,000 shares of common
stock at $1 per share pursuant to the note agreement. In 1995, the following
notes payable were converted to shares of common stock at $ 1 per share pur-
suant to the note agreement:
Number Value of Number
of Notes Each Note of Shares
---------- ------------- -----------
8 $10,000 80,000
1 20,000 20,000
2 40,000 80,000
1 50,000 50,000
1 200,000 200,000
----------
430,000
=========
NOTE 6. DEBENTURES PAYABLE
At December 31, debentures payable are as follows:
1995 1994
---------- ---------
Debentures $10,000 or more each,
bearing interest at 12.5% payable
monthly, unsecured, and mature
July 31, 1997 $592,000 $ -
========= ===========
The Company issued a debenture offering dated September 1, 1995 for up to
$1,000,000 of $10,000 or more debentures. Principal is due on maturity but may
be prepaid at the Company's option any time after September 30, 1996. The
debenture agreement provides for a sinking fund beginning fourteen months from
the close of the offering. The sinking fund arrangement requires the Company to
set aside sufficient funds such that twenty-one months from the close of the
offering 60% of the principal balance will be funded.
During the year ended December 31, 1995, the Company incurred $50,750 of debt
issue costs related to the debenture offering. These costs have been capitaliz-
ed and will be amortized over the debenture term. Included in other assets at
December 31, 1995 is unamortized debt issue costs of $44,015.
<PAGE>
Page 13
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. MORTGAGE PAYABLE
In 1995 the Company acquired real estate and equipment valued at $835,223 by
issuing 300,000 shares of restricted common stock and assuming a mortgage obli-
gation of $201,779.
At December 31, 1995, approximately $335,000 of the equipment acquired was not
placed in service and no depreciation has been taken for the year then ended.
Management intends to place this equipment in service as product demand neces-
sitates increased production capacity.
At December 31, 1995 the mortgage obligation is as follows:
1995 1994
--------- ---------
Mortgage payable to bank assumed by the
Company payable in monthly installments of
$2,500 plus annual installments of $20,000
including interest at 11 %, secured by real
property. The note is in default at December 31,
1995 and included in current liabilities. $198,588 $ -
========= =========
The real estate acquired is subject to a vendor's lien and superior title is
retained by the bank mortgagor until the assumed mortgage obligation is fully
paid. At the date of the assumption and at December 31, 1995 the mortgage obli-
gation is in default because the annual installments of $20,000 due December
1995 and 1994 were not made and because the prior owner has transferred his in-
terest in the property without obtaining prior approval of the bank mortgagor.
The Company is currently negotiating with another lender to obtain the neces-
sary financing to liquidate the mortgage obligation (see Note 15).
NOTE 8. CAPITAL LEASES
The Company leases equipment under capital leases. The assets and liabilities
under capital leases are recorded at the lower of the present value of the min-
imum lease payments or the fair value of the assets. The assets are amortized
over their estimated lives. Total cost, accumulated depreciation, and deprec-
iation expense of property under capital lease as of December 31 were as
follows:
<PAGE>
Page 14
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. CAPITAL LEASES - continued
1995 1994
----------- ----------
Cost $ 40,286 $ 20,754
Accumulated depreciation 10,044 4,119
Depreciation expense 5,916 3,533
At December 31, future minimum lease payments by year and the present value of
future minimum lease payments were as follows:
Year Ending
December 31
------------
1996 $ 17,456
1997 10,413
1998 3,394
1999 1,131
2000 and thereafter -
---------
Total minimum lease payments 32,394
Less amount representing interest 7,179
---------
Present value of minimum lease payments 25,215
Less current portion 13,298
---------
$ 11,917
=========
NOTE 9. OPERATING LEASES
The Company leases office equipment under noncancelable operating lease agree-
ments expiring through fiscal year 1997. Rent expense on these leases was
$20,033 and $8,693 for the years ended December 31, 1995 and 1994, respective-
ly.
The related future minimum lease payments on the operating leases at December
31. 1995 are as follows:
1996 $9,769
1997 1,572
<PAGE>
Page 15
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OPERATING LEASES - continued
During 1994, the Company leased a condominium from a stockholder on a month to
month basis. The lease included a thirty day cancellation clause and granted
the Company an option to purchase the condominium for a fixed amount. The Com-
pany cancelled the lease during 1994 under the thirty day cancellation pro-
vision. Rental expense under this lease for the year ended December 31,1994 was
approximately $4,700.
NOTE 10. ADVERTISING COSTS
The Company expenses nondirect advertising costs when incurred. Included in
selling, general and administrative expenses are advertising costs of approx-
imately $409,500 and $231,000 for the years ended December 31, 1995 and 1994,
respectively.
NOTE 11. INCOME TAXES
The Company's deferred tax assets and liabilities consisted of the following at
December 31:
1995 1994
--------- ---------
Deferred tax assets $ 80,163 $211,255
Deferred tax liabilities ( 4,750) ( 4,500)
--------- ----------
Net deferred tax asset 75,413 206,755
Valuation allowance - ( 206,755)
--------- ----------
Net deferred tax asset $ 75,413 $ -
========= ===========
The significant components of the Company's deferred tax assets relate primar-
ily to net operating loss carryforwards, deferred compensation and bad debt
reserves. The deferred tax liabilities are due to the election to expense cer-
tain capital assets for federal tax purposes.
For 1995, no valuation allowance has been recorded for the deferred tax asset
because the recent earnings trend of the Company indicates that it is more
likely than not that the future tax benefits will be realized.
<PAGE>
Page 16
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES - continued
Components of the Company's (benefit) provision for income tax are as follows:
1995 1994
--------- ---------
Current taxes - federal $ 649 $ 117,560
Deferred - federal 131,342 -
Adjustment of prior valuation allowance ( 52,965) -
Benefit of net operating losses (153,790) (117,560)
--------- ----------
($ 74,764) $ -
========= ==========
The income tax benefit for the year ended December 31, 1995 differs from the
income tax expense that would result from applying statutory tax rates to pre-
tax income primarily because of recognition of operating loss carryforwards in
1995 and a change in judgment about the realizability of deferred tax assets in
future years.
As of December 31, 1995, the Company had a federal loss carryforward of approx-
imately $108,000 that may be used to offset future taxable income. The loss
carryforwards will begin to expire in 2006.
NOTE 12. TREASURY STOCK
Treasury stock at December 31, 1995 consists of 500,000 shares recorded at a
cost of $500 and deposits of $30,000 to be applied to the repurchase of 300,000
shares from an individual. At December 31,1995, the Company and the individual
were in preliminary negotiations for the Company to repurchase the 300,000
shares of stock. Subsequent to December 31,1995, the Company reached an agree-
ment to buy back the 300,000 shares for a total of approximately $246,000.
NOTE 13. STOCK OPTION PLAN
Effective November 8,1995, the Company established a stock option plan avail-
able to certain officers, directors, employees and consultants of the Company.
The total number of shares that can be purchased under the plan is 1,750,000
shares. Participants may purchase the shares of restricted common stock for
$0.70 per share commencing on the agreement date through November 8, 2000. No
shares were purchased under the plan during the year ended December 31, 1995.
Because the option price approximated market value on the agreement date, no
<PAGE>
Page 17
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK OPTION PLAN - continued
compensation expense has been provided for in these financial statements.
NOTE 14. MODIFICATION OF BUILDING LEASE
In May 1991, the Company entered into a noncancelable capital lease for its
headquarters building. The present value of minimum lease payments and the cap-
italized cost of the building of $442,348 were recorded on the balance sheet
assuming the purchase option would be exercised at the end of the original
three year lease term. Depreciation on the building was included in deprecia-
tion expense using the straight-line method over its estimated useful life of
30 years.
On the expiration date of May 1,1994, the purchase option was not exercised. On
that date, the Company entered into a Modification and Ratification of the
lease agreement which provides for an additional thirty-six month term with an
increased monthly rental rate of $4,771, with no bargain purchase option. All
other terms and conditions of the original lease agreement remained the same.
Because a bargain purchase option is no longer in effect, the net book value of
the building and the capital lease obligation of $403,028 and $455,822, re-
spectively were removed from the Company's balance sheet resulting in a gain on
termination of capital lease of $52,794. Rent expense under the modified lease
for the years ended December 31, 1995 and 1994 was $57,252 and $38,168,
respectively.
NOTE 15. SUBSEQUENT EVENTS
During December 1995, the Company was in negotiations with its bank to re-
structure its line of credit which resulted in a new note agreement dated Jan-
uary 4,1996. The note is payable in eighteen monthly installments of $ 15,946
including interest at 10.25%. Annual maturities of the note as of January 4,
1996 for the years ended December 31, 1996 and 1997 are $157,099 and $107,901,
respectively.
Subsequent to the restructure, the Company negotiated a financing package with
a new bank. Pursuant to the closing, the existing revolving line of credit and
mortgage note with balances of $265,000 and $ 198,588 respectively at December
31, 1995, were liquidated. The new financing arrangement consists of a
$1,150,000 revolving line of credit and a $800,000 term loan. The line of
credit, dated March 29, 1996 accrues interest, payable monthly, at the bank's
prime rate plus 1% and matures on May 7, 1997. The term loan accrues interest,
payable monthly at the bank's prime rate plus 1 %; principle is due on demand,
or, if no
<PAGE>
Page 18
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENTS - continued
demand is made on maturity date of May 7, 1997. Notes are secured by a deed of
trust on real property and security interests in equipment, accounts receiv-
able, intangibles and inventory.
In March 1996, the Company made a private placement offering of 500,000 shares
of restricted common stock at $2 per share. As of April 30, 1996, the Company
has sold approximately $480,000 of stock through this offering. Proceeds are to
be used for advertising and raw material purchases.
Subsequent to year end, the Company entered into an agreement with a financial
consulting firm. Under the agreement, the consulting firm will provide pro-
fessional services in exchange for 10,000 shares of unrestricted common stock
and options to purchase 10,000 shares of restricted common stock for $2 per
share each quarter over a three year term. The Company may terminate the agree-
ment with a three month advance notice.
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
2.0 Agreement of Merger between Sublingual Products International, Inc., a
Nevada corporation, and Sublingual Products International, Inc., a Texas
corporation, dated March 22, 1989 (Filed with SEC on Form 10-SB, in this
Registration Statement)
3.0 Articles of Incorporation of CST, Inc. filed with the Nevada Secretary
of State on December 21, 1988 (Filed with SEC on Form 10-SB, in this
Registration Statement)
3.1 Certificate of Amendment to the Articles of Incorporation of CST, Inc.
filed with the Nevada Secretary of State on April 4, 1989 (Filed with
SEC on Form 10-SB, in this Registration Statement)
3.2 Certificate of Amendment to the Articles of Incorporation of Sublingual
Products International, Inc. filed with the Nevada Secretary of State on
March 27, 1992 (Filed with SEC on Form 10-SB, in this Registration
Statement)
3.3 Certificate of Incorporation of Sublingual Products International, Inc.
filed with the Texas Secretary of State on May 21, 1986 (Filed with
SEC on Form 10-SB, in this Registration Statement)
3.4 By Laws of CST, Inc. (Filed with SEC on Form 10-SB, in this Registration
Statement)
4.0 Form of Common Stock certificate (Filed with SEC on Form 10-SB, in this
Registration Statement)
4.1 Form of 12.5% Debenture Note (Filed with SEC on Form 10-SB, in this
Registration Statement)
10.0 Lease Agreement between Hargis Investments and Sublingual Products
International, Inc., dated May 1, 1991 (Filed with SEC on Form 10-SB, in
this Registration Statement)
10.1 Modification and Ratification of Lease between Hargis Investments and
Sublingual Products International, Inc., dated March 29, 1994 (Filed with
SEC on Form 10-SB, in this Registration Statement)
10.3 Contractual Agreement between Dr. Michel Hegi and Pharmaceutical
Laboratories, Inc., a Nevada corporation, dated April 15, 1995 for the
purchase of the Company's Corpus Christi, Texas facility, exhibits to
which are available upon request (Filed with SEC on Form 10-SB, in this
Registration Statement)
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Pharmaceutical Laboratories, Inc.
Date: 6/29/96
By: /s/ JERRY MCCLURE
Jerry McClure, President
(File stamped as follows: FILED, In the office of the Secretary of State of the
State of Nevada, APR 17 1989, Frankie Sue Del Papa, Secretary of State,
/s/ FRANKIE SUE DEL PAPA, 10151-88)
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is made by and between Sublingual
Products International, Inc., formerly CST, Inc. (hereinafter referred to as
"CST"), a Nevada corporation, principally located at 2950 East Flamingo Rd,
Suite G, Las Vegas, NV 89119, and Sublingual Products International, Inc.
("Sublingual"), a Texas corporation, principally located at 1230 Brown Trail,
Bedford, TX 76022.
W I T N E S S E T H:
WHEREAS, the Board of Directors and a majority of the shareholders of Sub-
lingual deem it desirable and in the best interests of the corporation and its
shareholders that it merge into CST; and
WHEREAS, the Board of Directors and majority shareholders of CST deem it de-
sirable and in the best interests of the corporation and its shareholders that
Sublingual merge into CST; and
WHEREAS, the total number of shares of common stock which CST is authorized
to issue is Twenty Five Million (25,000,000) shares of common stock, $.001 par
value per share; and
WHEREAS, the total number of shares of common stock which Sublingual is
authorized to issue is 100,000 shares of common stock, $.10 par value per
share; and
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual covenants and agree-
ments hereinafter set forth, in consideration of the representations and
warranties of the Certificates of the President and Secretary of the parties
hereto (attached hereto as Exhibits A, B, C and D and made a part hereof) and
in consideration of the financial statements of the parties hereto (attached
hereto as Exhibits E and F and made a part hereof), and other valid consider-
ation deemed by the parties to be sufficient, the parties hereto hereby agree
that Sublingual shall be merged into CST and that CST shall be a single surviv-
ing corporation; and the parties hereto hereby agree to and prescribe the terms
and conditions of such merger, the method of carrying it into effect, and the
manner of converting the shares of Sublingual into shares of other securities
of CST, as follows:
SECTION ONE
SURVIVING CORPORATION
CST, a Nevada corporation, represents and warrants that it is validly exist-
ing and in good standing under the laws of Nevada.
Sublingual, a privately held Texas corporation, represents and warrants that
it is validly existing and in good standing under the laws of Texas.
Sublingual shall be merged into CST and the corporate existence of Sublingual
shall cease and the corporate existence of CST shall continue under the name
"Sublingual Products
2
<PAGE>
International, Inc.," a Nevada corporation, following a corporate name change
as filed with the Secretary of State, State of Nevada, and CST shall become the
owner, without other transfer, of all rights, title, interests and property
of the consituent corporations, and CST shall become subject to all the debts
and liabilities of the constituent corporation in the same manner as if CST had
itself incurred them.
SECTION TWO
FINANCIAL STATEMENTS
A. Sublingual has delivered to CST copies of its audited financial statements
as of December 31, 1988, all certified by Joseph F. Zerga, Ltd., independent
certified public accountants including the notes thereto. All of such financial
statements are true and complete and have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated, except as otherwise indicated in the notes thereto. Each of
such financial statements presents a true and complete statement as of its date
of the financial condition and assets and liabilities of Sublingual, as the
case may be. Except as and to the extent reflected or reserved against therein
(including the notes thereto), Sublingual did not have, as of the date of each
such financial statement, any liabilities or obligations (whether accrued, ab-
solute, contingent or otherwise) of a nature customarily reflected in a
corporate financial statement or the notes thereto, prepared in accordance
3
<PAGE>
with generally accepted accounting principles. Each of such statements of
operations and stockholders' deficit presents a true and complete statement of
the operations of Sublingual for the period indicated. There have been no
material changes since the date of such financial statements other than those
occurring in the ordinary course of doing business that are not otherwise dis-
closed in the notes of the financial statements or in this Agreement.
B. CST has delivered to Sublingual copies of its audited financial statements
as of January 10, 1989, all certified by Joseph E. Zerga, Ltd., independent
certified public accountants including the notes thereto. All of such financial
statements are true and complete and have been prepared in accordance with gen-
erally accepted accounting principles consistently followed throughout the
periods indicated, except as otherwise indicated in the notes thereto. Each of
such financial statements presents a true and complete statement as of its date
of the financial condition and assets and liabilities of CST.
Except as and to the extent reflected or reserved against therein including
the notes thereto), CST, did not have, as of the date of each such financial
statement, any liabilities or obligations (whether accrued, absolute, conting-
ent or otherwise) of a nature customarily reflected in a corporate financial
statement or the notes thereto, prepared in accordance with generally accepted
4
<PAGE>
accounting principles. Each of such statements of earnings and retained earn-
ings presents a true and complete statement of the operations of CST for the
period indicated. There have been no material changes since the date of such
financial statements other than those occurring in the ordinary course of doing
business that are not otherwise disclosed in the notes to the financial state-
ments or in this Agreement.
SECTION THREE
PRINCIPAL OFFICE
The principal executive offices of CST shall be changed to the principal
executive offices of Sublingual following this merger.
SECTION FOUR
OBJECTS AND PURPOSES
The nature of the business and the objects and purposes proposed to be trans-
acted, promoted and carried on by the corporation following the merger, are
generally as follows: to engage in the manufacturing, marketing and sales of
vitamin, nutritional and pharmaceutical products.
SECTION FIVE
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of CST, as amended, shall on the effective
date of the merger, remain in full force and effect under its orginal terms and
conditions.
5
<PAGE>
SECTION SIX
BYLAWS
The present Bylaws of CST, insofar as not inconsistent with this Agreement of
Merger, shall be the Bylaws of the surviving corporation following the merger
until altered, amended or repealed as therein provided.
SECTION SEVEN
DIRECTORS; OFFICERS; REGISTRATION RIGHTS
The members who consitiute the Board of Directors and Officers of CST,
following the merger, and who shall hold office until the first annual or
special meeting of the shareholders of CST following the merger, are as
follows:
Jerry McClure, Arlington, Texas
Director, President and Chief Executive Officer
Elisa Miller, Bedford, Texas
Director, Vice President and Secretary
and
Cynthia LaGasse
Director and Vice President Sales
CST and Sublingual hereby agree that upon the effective date of this Agree-
ment, CST will immediately change its corporate name to "Sublingua1 Products
International, Inc.". The surviving corporation shall have no fewer than the
three (3) directors.
6
<PAGE>
SECTION EIGHT
METHOD OF CONVERTING SHARES
Immediately upon execution of this Agreement, the shares of common stock of
Sublingual shall, without any other action on the part of the respective hold-
ers thereof, become and be converted into shares of common stock of CST, as
follows:
Sublingual will be acquired by CST, Inc., a Nevada corporation, in a common
stock exchange whereby the shareholders in Sublingual will receive on a pro
rata basis 5,000,000 restricted shares of common stock for all of the issued
and outstanding common stock of Sublingual, to wit:
Shareholder Common Stock
----------- ------------
Elisa A. Miller 1,000,000
Cindy LaGasse 1,000,000
Bobby McClure 3,000,000
---------
Total 5,000,000
=========
SECTION NINE
DIVIDENDS PRIOR TO MERGER
Until this Agreement of Merger becomes effective or is otherwise abandoned,
the consitutent corporations may not pay dividends on their shares of common
stock of any class or series.
7
<PAGE>
SECTION TEN
LITIGATION AND CLAIMS
CST and Sublingual, individually and collectively, are not a party to any
legal proceedings and, to the best of their information, knowledge and belief,
none is presently contemplated or has been threatened.
SECTION ELEVEN
AUTHORITY TO MERGE
CST and Sublingual have all requisite power and authority to execute, deliver
and perform this Agreement. All necessary corporate proceedings have been duly
taken to authorize the execution, delivery and performance of this Agreement.
This Agreement has been duly authorized, executed and delivered by the parties
hereto and is the legal, valid and binding obligation of the parties hereto and
is enforceable in accordance with its terms and conditions.
SECTION TWELVE
DUTY OF FULL DISCLOSURE
No representation or warranty in this Agreement contains on the date of this
Agreement any untrue statement of material fact, or omits to state a material
fact necessary to make the statements made herein not misleading. This duty of
full disclosure shall continue through the date of merger.
8
<PAGE>
SECTION THIRTEEN
ORGANIZATION
CST and Sublingual are each corporations duly organized, validly existing and
in good standing under the laws of the States of Nevada and Texas, respective-
ly, with all requisite power and authority to consummate the terms and con-
ditions of this Agreement.
SECTION FOURTEEN
VALIDITY OF SECURITIES; AUTHORIZED AND ISSUED SECURITIES
The securities to be delivered to the shareholders of Sublingual pursuant to
this Agreement, when issued in accordance with the terms and conditions of this
Agreement, will be validly authorized and issued, fully paid and nonassessable.
The total number of shares of common stock which CST is authorized to issue
is Twenty Five Million (25,000,000) shares of common stock, $.001 par value.
The total number of shares of common stock which CST has issued and outstanding
is One Million (1,000,000) shares, which are validly authorized and issued,
fully paid and nonassessable. No other securities or rights to securities are
issued and/or outstanding.
The total number of shares of common stock which Sublingual is authorized to
issue is One Hundred Thousand (100,000) shares of common stock, $.10 par value
per share. The total number of shares of common stock which Sublingual has
issued and outstanding is Ten Thousand (10,000) shares, which are validly
9
<PAGE>
authorized and issued, fully paid and nonassessable. No other securities or
rights to securities are issued and/or outstanding.
SECTION FIFTEEN
INDEMNIFICATION
CST and Sublingual agree to indemnify and hold harmless each other, and their
respective officers, directors, auditors and legal representatives, against and
in respect of any and all claims, suits, actions, proceedings, investigations,
judgments, deficiencies, damages, settlements and other related expenses as and
when incurred arising out of or based upon this Agreement.
SECTION SIXTEEN
CLOSING
The closing of this Agreement shall be held at 2950 East Flamingo Road, Suite
G, Las Vegas, Nevada 89121 on March _, 1989, at _: _ p.m., Pacific Standard
Time (PST).
SECTION SEVENTEEN
EXTRAORDINARY TRANSACTIONS
Neither corporation shall, prior to the effective date of the merger, engage
in any activity or transaction other than in the ordinary course of business,
except as contemplated by this Agreement of Merger.
10
<PAGE>
SECTION EIGHTEEN
SUBMISSION TO STOCKHOLDERS
This Agreement has been approved by the directors and stockholders of CST, by
written consent in lieu of a special meeting, in the manner provided by Nevada
Revised Statutes, and at least a majority of the directors and stockholders of
CST have voted in favor of the adoption of the terms and conditions of this
Agreement.
This Agreement has been approved by the directors and stockholders of Sub-
lingual, by written consent in lieu of a special meeting, in the manner provid-
ed by the Revised Civil Statutes of Texas, and at least a majority of the
directors and stockholders of Sublingual have voted in favor of the adoption of
the terms and conditions of this Agreement.
SECTION NINETEEN
MATERIAL CONTRACTS
Neither CST nor Sublingual is in default in any material respect under the
terms of any material outstanding contract, agreement, lease or other commit-
ment.
SECTION TWENTY
NO CONFLICT WITH OTHER INSTRUMENTS
At the effective time of the Merger, the consummation of the transactions
contemplated by the Merger Agreement will not result
11
<PAGE>
in the breach of any term or provision of or constitute a default under any
indenture, mortgage, deed of trust or other material agreement or instrument to
which CST is a party.
SECTION TWENTY-ONE
AGREEMENT TO SURVIVE CLOSING
The parties hereto agree that the terms, covenants and conditions of this
Agreement shall survive closing.
SECTION TWENTY-TWO
NO WAIVER OR MODIFICATION
The parties hereto hereby agree that no waiver or modification of this Agree-
ment or of any covenant, condition or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
SECTION TWENTY-THREE
SUPERSEDES ALL PREVIOUS AGREEMENTS; WAIVERS
This Agreement supersedes all previous agreements, written or oral, and shall
inure to the benefit of and be binding upon the parties hereto, their heirs,
representatives, successors and assigns. The waiver by either party hereto of
a breach or violation of any provision of this Agremeent shall not operate as,
or be construed to be, a waiver of any subsequent breach hereof.
12
<PAGE>
SECTION TWENTY-FOUR
DUPLICATE COUNTERPARTS
This Agreement is executed in duplicate counterparts, each of which shall be
deemed an original and together shall constitute one and the same Agreement,
with one counterpart being delivered to each party hereto.
SECTION TWENTY-FIVE
CONTROLLING LAW; CONTINGENCIES
The parties hereto hereby agree that this Agreement and the performance here-
under and all proceedings hereunder be construed in accordance with and under
and pursuant to the laws of the State of Nevada and that in any action or other
proceeding that may be brought arising out of, in connection with or by reason
of this Agreement, the laws of the State of Nevada shall be applicable and
shall govern to the exclusion of the law of any other forum, without regard to
the jurisdiction in which any action or proceeding may be instituted.
The terms and conditions of this Agreement are contingent upon obtaining any
and all necessary consents, approvals and authorizations from governmental
authorities and otherwise complying with all applicable federal and state laws.
13
<PAGE>
SECTION TWENTY-SIX
SERVICE OF PROCESS
CST, Inc and Sublingual hereby agree that the surviving corporation, CST,
Inc., may be served with process in the State of Texas in any proceeding for
the enforcement of any obligation of any domestic corporation of the State of
Texas which is a party to this Merger and in any proceeding for the enforcement
of the rights of a dissenting shareholder of any such domestic corporation
against the surviving or new corporation.
SECTION TWENTY-SEVEN
APPOINTMENT OF SECRETARY OF STATE
CST, Inc. and Sublingual hereby appoint the Secretary of State of the State
of Texas as its agent in the State of Texas to accept service of process in any
such proceeding as contemplated in Section Twenty-Six, above.
SECTION TWENTY-EIGHT
DISSENTING SHAREHOLDERS
CST, Inc., and Sublingual hereby agree that the surviving corporation, CST,
Inc. will promptly pay to the dissenting shareholders of any domestic
corporation of the State of Texas the amount, if any, to which they shall be
entitled under the provisions of the Business Corporation Act of the State of
Texas with respect to the rights of dissenting shareholders.
14
<PAGE>
IN WITNESS WHEREOF, the directors, or a majority thereof, of CST, and the
directors, or a majority therof, of Sublingual, have executed this Agreement,
under proper authority, on the 22nd day of March, 1989.
Sublingual Products
International, Inc.,
formerly,
ATTEST: CST, INC.,
a Nevada corporation
/s/ MAX C. TANNER /s/ GARY EKINS
Max C. Tanner, Secretary Gary Ekins, President
ATTEST Sublingual Products
International, Inc.,
a Texas corporation
______________________ ____________________
Elisa Miller, Secretary Jerry McClure, President
15
<PAGE>
IN WITNESS WHEREOF, the directors, or a majority thereof, of CST, and the
directors, or a majority therof, of Sublingual, have executed this Agreement,
under proper authority, on the 22nd day of March, 1989.
Sublingual Products
International, Inc.,
formerly,
ATTEST: CST, INC.,
a Nevada corporation
_____________________ ____________________
Max C. Tanner, Secretary Gary Ekins, President
ATTEST Sublingual Products
International, Inc.,
a Texas corporation
/s/ ELISA MILLER /s/ JERRY MCCLURE, PRESIDENT
Elisa Miller, Secretary Jerry McClure, President
(stamped as follows: Received, April 17, 1989, Secretary of State)
15
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss.
COUNTY OF TARRANT )
On this the 22 day of March, 1989, before me the undersigned Notary Public,
personally appeared Jerry McClure, known to me to be the President of Sub-
lingual Products International, Inc., a Texas corporation, the corporation
which executed the attached instrument, and who executed same on behalf of
said corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ JOHN R. COFFEY
Notary Public
(notary stamp as follows: Notary Public, State of Texas, John R. Coffey,
Commission expires September 23, 1992)
ACKNOWLEDGMENT
STATE OF NV )
) ss.
COUNTY OF CLARK )
On this the 22 day of March, 1989, before me, the undersigned Notary Public,
personally appeared Gary Ekins, known to me to be the President of CST, Inc. a
Nevada corporation, the corporation which executed the attached instrument, and
who executed same on behalf of said corporation, freely and voluntarily and for
the uses and purposes therein mentioned.
/s/ MAX C. TANNER
Notary Public
(Notary stamp as follows: Notary Public-State of Nevada, County of Clark, Max
C. Tanner, My Appointment Expires Sept. 10, 1991)
(stamped as follows: Received, April 17, 1989, Secretary of State)
CERTIFICATE
State of Nevada
Department of State
I, FRANKIE SUE DEL PAPA, Secretary of State of the State of Nevada, do hereby
certify that CST, Inc. did on the twenty-first day of December, 1988, file in
this office the original Articles of Incorporation; that said Articles are now
on file and of record in the office of the Secretary of State of the State of
Nevada, and further, that said Articles contain all the statements of facts
required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of
State, at my office in Carson City, Nevada, this twenty-first day of December,
A.D., 1988.
/s/ FRANKIE SUE DEL PAPA
Secretary of State
By /s/ MARY C. PURITTI
Deputy
<PAGE>
(File stamped as follows: "FILED in the Office of the Secretary of State of the
State of Nevada, December 21, 1988, Frankie Sue Del Papa, Secretary of State,
/s/ FRANKIE SUE DEL PAPA No. 10151-88")
(Filed stamped as follows: "FILED, Jan 3, 9:43 A.M., 89, /s/ LORETTA LOEHMAN
Clerk")
ARTICLES OF INCORPORATION
OF
CST, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
CST, INC.
ARTICLE II - PRINCIPAL OFFICE AND REGISTERED AGENT:
The principal office and place of business in the State of Nevada of this
Corporation shall be located at 2950 E. Flamingo Road, Suite G, Las Vegas,
Clark County, Nevada, 89121. The resident agent of the Corporation is Law
Offices of Max C. Tanner, 2950 E. Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which
this Corporation is organized are:
(a) To engage in any lawful activity; (b) To carry on such business as
may be necessary, convenient, or desirable to accomplish the above
purposes, and to do all other things incidental thereto which are not
forbidden by law or by these Articles of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted
by 78.060 and 78.070 of the Nevada Revised Statutes under which this corp-
oration is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation; (b) To act as an agent for any individual,
association, partnership, corporation or other legal entity; (c) To
receive, acquire, hold, exercise rights arising out of the ownership or
possession thereof, sell, or otherwise dispose of, shares or other
interests in, or obligations of, individuals, associations, partner-
ships, corporations, or governments; (d) To receive, acquire, hold,
pledge, transfer, or otherwise dispose of shares of the corporation,
but such shares may only be
<PAGE>
purchased, directly or indirectly, out of earned surplus; (e) To
make gifts or contributions for the public welfare or for charitable,
scientific or educational purposes, and in time of war, to make
donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock at
$.001 par value per share.
Section 2. Voting Rights of Shareholders. Each holder of the Common Stock
shall be entitled to one vote for each share of stock standing in his name
on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued for
such consideration, as shall be fixed from time to time by the Board of
Directors. In the absence of fraud, the judgment of the Directors as to the
value of any property for shares shall be conclusive. When shares are issued
upon payment of the consideration fixed by the Board of Directors, such
shares shall be taken to be fully paid stock and shall be non-assessable.
The Articles shall not be amended in this particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by the
Board of Directors, no holder of any shares of the stock of the Corporation,
shall have any preemptive right to purchase, subscribe for, or otherwise
acquire any shares of stock of the Corporation of any class now or hereafter
authorized, or any securities exchangeable for or convertible into such
shares, or any warrants or other instruments evidencing rights or options
to subscribe for, purchase, or otherwise acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the power to
create and issue rights, warrants, or options entitling the holders thereof
to purchase from the corporation any shares of its capital stock of any
class or classes, upon such terms and conditions and at such times and
prices as the Board of Directors may provide, which terms and conditions
shall be incorporated in an instrument or instruments evidencing such
rights. In the absence of fraud, the judgment of the Directors as to the
adequacy of consideration for the issuance of such rights or options and the
sufficiency thereof shall be conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after
the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the
2
<PAGE>
Corporation and shall not be liable for assessments to restore impairments in
the capital of the Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are pre-
scribed by statute and in the by-laws of the Corporation. The initial number
of shareholders will be less than three. The name and post office address of
the directors constituting the first board of directors, which shall be one
(1) in number, are:
NAME ADDRESS
Max C. Tanner 2950 E. Flamingo Road
Suite G
Las Vegas, Nevada 89121
Section 2. Powers of Board. In furtherance and not in limitation of the
powers conferred by the laws of the State of Nevada, the Board of Directors
is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power
of the shareholders to alter or repeal the By-Laws made by the Board of
Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect,
to determine, from time to time, whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
shareholder inspection. No shareholder shall have any right to inspect
any of the accounts, books or documents of the Corporation, except as
permitted by law, unless and until authorized to do so by resolution of
the Board of Directors or of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with the
action of the board of directors without vote or consent of the share-
holders and the judgment of the board of directors as to value received
and in return therefore
3
<PAGE>
shall be conclusive and said stock, when issued, shall be fully-paid
and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of
the Corporation, secured and unsecured, under such terms and conditions
as the Board, in its sole discretion, may determine, and to pledge or
mortgage, as security therefore, any real or personal property of the
Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned sur-
plus of the Corporation shall be paid in dividends to the shareholders,
and to direct and determine other use and disposition of any such
earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers and
directors, of the Corporation, and to fix the amount of profits to be
shared or distributed, and to determine the persons to participate in
any such plans and the amount of their respective participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or more
directors, which, to the extent permitted by law and authorized by the
resolution or the By-Laws, shall have and may exercise the powers of
the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such compen-
sation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may exer-
cise all such powers and do all such acts and things as may be exer-
cised or done by the corporation, subject, nevertheless, to the
provisions of the laws of the State of Nevada, of these Articles of
Incorporation, and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between this
Corporation and any of its directors, or between this Corporation and any
other corporation, firm, association, or other legal entity shall be inval-
idated by reason of the fact that the director of the Corporation has a
direct or indirect interest, pecuniary or otherwise, in
4
<PAGE>
such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or because
he participated in such action, provided that: (1) the interest of each such
director shall have been disclosed to or known by the Board and a dis-
interested majority of the Board shall have nonetheless ratified and
approved such contract or transaction (such interested director or directors
may be counted in determining whether a quorum is present for the meeting at
which such ratification or approval is given); or (2) the conditions of
N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS. The personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION. Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with the
action, suit or proceeding, if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suite or proceeding, by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, does not of itself create
a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests
of the corporation, and that, with respect to any criminal action or proceed-
ing, he had reasonable cause to believe that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or com-
pleted action or suit by or in the right of the corporation, to procure
a
5
<PAGE>
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit, if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation. Indemni-
fication may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to
the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that
in view of all the circumstances of the case the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b)
of this Article, or in defense of any claim, issue or matter therein, he
must be indemnified by the corporation against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by
a court or advanced pursuant to subsection (e), must be made by the
corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is
proper in the circumstances. The determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum consist-
ing of directors who were not parties to the act, suit or
proceeding;
(iii) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by inde-
pendent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to
the act suit or proceeding cannot
6
<PAGE>
be obtained, by independent legal counsel in a written opinion.
(e) Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ulti-
mately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled
under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the certificate or articles of incorporation or any bylaw, agree-
ment, vote of stockholders or disinterested directors or otherwise,
for either an action in his official capacity or an action in
another capacity while holding his office, except that indemni-
fication, unless ordered by a court pursuant to subsection (b) or
for the advancement of expenses made pursuant to subsection (e) may
not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and
was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING: CORPORATE BOOKS. Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or offices
and to maintain the books of the Corporation outside the State of Nevada, at
such place or places as may from time to time be designated in the By-Laws or
by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES. The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions
7
<PAGE>
authorized by such laws as are then in force may be added. All rights herein
conferred on the directors, officers and shareholders are granted subject to
this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 14th day of December, 1988.
/s/ MAX C. TANNER
Max C. Tanner
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
On December 14, 1988, personally appeared before me, a Notary Public, Max
C. Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for CST, Inc.
/s/ RUTH A. COSTA
Notary Public
(Notary stamp as follows: "Notary Public, State of Nevada, County of Clark,
Ruth A. Costa, My Appointment expires Sept. 10, 1991")
(File stamped as follows: "FILED in the office of the Secretary of State of the
State of Nevada, April 4, 1989, Frankie Sue Del Papa, Secretary of State,
/s/ FRANKIE SUE DEL PAPA 10151-88")
(File stamped as follows: "FILED, April 10, 2:45 pm, 89, /s/ LORETTA LOEHMAN,
Clerk")
CERTIFICATE OF AMENDMENT
OF
THE ARTICLES OF INCORPORATION
OF
CST, INC.
Pursuant to Section 78.390 of the Nevada Revised Statutes, we, the under-
signed officers of CST, Inc. (the "Corporation"), do hereby certify the follow-
ing:
1. That we are the duly-elected President and Secretary, respectively, of
the Corporation;
2. That the date of filing of the original Articles of Incorporation of
the Corporation with the Nevada Secretary of State was December 21, 1988, and
the date of the filing with the Clark County Clerk was January 3, 1989;
3. That the amendment to the Articles of Incorporation was approved by a
majority of the issued and outstanding shares of the Corporation; and
4. That the amendment to the Articles of Incorporation shall be as set
forth in Exhibit A attached hereto.
/s/ GARY EKINS
Gary Ekins, President
/s/ MAX C. TANNER
Max C. Tanner, Secretary
<PAGE>
ACKNOWLEDGMENT
STATE OF NV )
)ss.
COUNTY OF CLARK )
On this the 20th day of March, 1989, before me, the undersigned Notary
Public, personally appeared Gary Ekins, known to me to be the President of CST,
Inc., a Nevada Corporation, the corporation which executed the attached instru-
ment, and who executed same on behalf of said corporation, freely and volun-
tarily and for the uses and purposes therein mentioned.
/s/ MAX C. TANNER
Notary Public
(Notary stamp as follows: "Notary Public-State of Nevada, County of Clark, Max
C. Tanner, My Appointment Expires Sept. 10, 1991")
ACKNOWLEDGMENT
STATE OF NEVADA )
)ss.
COUNTY OF CLARK )
On this the 20th day of March, 1989, before me, the undersigned Notary
Public, personally appeared Max C. Tanner, known to me to be the Secretary of
CST, Inc., a Nevada corporation, the corporation which executed the attached
instrument, and who executed same on behalf of said corporation, freely and
voluntarily and for the uses and purposes therein mentioned.
/s/ LINDA N. EKINS
Notary Public
(Notary stamp as follows: "Linda N. Ekins, Notary Public - State of Nevada,
Appointment Recorded in Clark County, My Appointment Expires Jan. 4, 1993")
<PAGE>
EXHIBIT A
Amendment to Articles of Incorporation
<PAGE>
CST, Inc.
Amended Articles of Incorporation
The Articles of Incorporation for CST, Inc., a Nevada corporation, are
hereby amended with the change of Article FIRST to read as follows:
FIRST. The Articles of Incorporation are hereby amended by striking out
the existing Article First in its entirety and substituting therefor a new
Article FIRST, to wit:
FIRST. The name of the Corporation is Sublingual Products Inter-
national, Inc.
IN WITNESS WHEREOF, the undersigned Board of Directors has executed these
Amended Articles of Incorporation this 30th day of March, 1989.
/s/ GARY EKINS
Gary Ekins, Director, President
/s/ RONALD DRAKE
Ronald Drake, Director, V. President
/s/ MAX C. TANNER
Max C. Tanner, Director, Secretary
<PAGE>
ACKNOWLEDGMENT
STATE OF NV )
)ss.
COUNTY OF CLARK )
On this the 20th day of March, 1989, before me, the undersigned Notary
Public, personally appeared Gary Ekins, known to me to be the President of CST,
Inc., a Nevada Corporation, the corporation which executed the attached instru-
ment, and who executed same on behalf of said corporation, freely and volun-
tarily and for the uses and purposes therein mentioned.
/s/ MAX C. TANNER
Notary Public
(Notary stamp as follows: "Notary Public-State of Nevada, County of Clark, Max
C. Tanner, My Appointment Expires Sept. 10, 1991")
ACKNOWLEDGMENT
STATE OF NEVADA )
)ss.
COUNTY OF CLARK )
On this the 20th day of March, 1989, before me, the undersigned Notary
Public, personally appeared Max C. Tanner, known to me to be the Secretary of
CST, Inc., a Nevada corporation, the corporation which executed the attached
instrument, and who executed same on behalf of said corporation, freely and
voluntarily and for the uses and purposes therein mentioned.
/s/ LINDA N. EKINS
Notary Public
(Notary stamp as follows: "Linda N. Ekins, Notary Public - State of Nevada,
Appointment Recorded in Clark County, My Appointment Expires Jan. 4, 1993")
(Filed stamped as follows: "FILED, By the Office of the Secretary of State of
the State of Nevada, Mar 27, 1992, Cheryl A Lau, Secretary of State,
/s/ CHERYL A LAU, No. 10151-88)
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
SUBLINGUAL PRODUCTS INTERNATIONAL, INC.
Pursuant to Sections 78.390 of the Nevada Revised Statutes, we the under-
signed officers of Sublingual Products International, Inc. (the "Corporation"),
do hereby certify the following:
1. That we are the duly-elected President and Secretary, respectively,
of the Corporation;
2. That the amendments to the Articles of Incorporation was approved by
a majority of the issued and outstanding shares of the Corporation; and
3. That the Articles of Incorporation as Amended in their entirety are
set forth in Exhibit "A" attached hereto.
/s/ JERRY MCCLURE
Jerry McClure, President
/s/ ELISA MILLER
Elisa Miller, Secretary
<PAGE>
ACKNOWLEDGMENT
STATE OF TEXAS )
)SS.
COUNTY OF TARRANT )
On this the 12th day of February, 1992, before me, the undersigned Notary
Public, personally appeared Jerry McClure, known to me to be the President of
Sublingual Products International, Inc., a Nevada Corporation, the corporation
which executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ DORIS MARIE HESTER
Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
)SS.
COUNTY OF TARRANT )
On this the 12th day of February, 1992, before me, the undersigned Notary
Public, personally appeared Elisa Miller, known to me to be the Secretary of
Sublingual Products International, Inc., a Nevada Corporation, the corporation
which executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ DORIS MARIE HESTER
Notary Public
<PAGE>
EXHIBIT A
Articles of Incorporation
PHARMACEUTICAL LABORATORIES, INC.
(Formerly SUBLINGUAL PRODUCTS INTERNATIONAL, INC.)
As Amended
(Pursuant to Nevada Revised Statutes Section 78.390)
<PAGE>
ARTICLES OF INCORPORATION
OF
PHARMACEUTICAL LABORATORIES, INC.
(Formerly Sublingual Products International, Inc.)
AS AMENDED
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
PHARMACEUTICAL LABORATORIES, INC.
(Amended by this Certificate)
ARTICLE II - PRINCIPAL OFFICE AND REGISTERED AGENT:
The principal office and place of business in the State of Nevada of this
Corporation shall be located at 2950 East Flamingo Road, Suite G, Las Vegas,
County of Clark, Nevada 89121. The resident agent of the Corporation is The
Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas,
Nevada 89121.
(Unamended)
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
(Unamended)
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity; (b) To carry on such
business as may be necessary, convenient, or desirable to accomplish
the above purposes, and to do all other things incidental thereto
which are not forbidden by law or by these Articles of Incorporation.
(Unamended)
<PAGE>
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to fix
their compensation; (b) To act as an agent for any individual,
association, partnership, corporation or other legal entity; (c) To re-
ceive, acquire, hold, exercise rights arising out of the ownership or
possession thereof, sell, or otherwise dispose of, shares or other in-
terests in, or obligations of, individuals, associations, partnerships,
corporations, or governments; (d) To receive, acquire, hold, pledge,
transfer, or otherwise dispose of shares of the corporation, but such
shares may only be purchased, directly or indirectly, out of earned
surplus; (e) To make gifts or contributions for the public welfare or
for charitable, scientific or educational purposes, and in time of war, to
make donations in aid of war activities.
(Unamended)
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares of Common Stock
which this Corporation is authorized to issue is 25,000,000 shares, $.001
par value per share. The total number of shares of Preferred Stock which
this Corporation is authorized to issue is 25,000,000 shares at $.001 par
value per share, which Preferred Stock may contain special preferences as
determined by the Board of Directors of the Corporation, including, but
not limited to, the bearing of interest and convertibility into Shares of
Common Stock of the Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued
for such consideration, as shall be fixed from time to time by the Board
of Directors. In the absence of fraud, the judgment of the Directors as
to the value of any property for shares shall be conclusive. When shares
are issued upon payment of the consideration fixed by the Board of
Directors, such shares shall be taken to be fully paid stock and shall be
non-assessable. The Articles shall not be amended in this particular.
2
<PAGE>
Section 4. Pre-emptive Rights. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or con-
vertible into such shares, or any warrants or other instruments evidencing
rights or options to subscribe for, purchase, or otherwise acquire such
shares.
Section 5. Stock Rights and Options. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its capital
stock of any class or classes, upon such terms and conditions and at such
times and prices as the Board of Directors may provide, which terms and
conditions shall be incorporated in an instrument or instruments evidenc-
ing such rights. In the absence of fraud, the judgment of the Directors
as to the adequacy of consideration for the issuance of such rights or
options and the sufficiency thereof shall be conclusive.
(Section 1 Amended by this Certificate
Sections 2,3,4, and 5 Unamended)
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation,
after the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of
the Corporation.
(Unamended)
ARTICLE VIII - DIRECTORS: For the management of the business,and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name and
post office address of the directors constituting the first board of
directors, which shall be one (1) in number are:
3
<PAGE>
NAME ADDRESS
Max C. Tanner 2950 E. Flamingo Road
Suite G
Las Vegas, Nevada 89121
Section 2. Powers of Board. In furtherance and not in limitation of the
powers conferred by the laws of the State of Nevada, the Board of Direct-
ors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power of
the shareholders to alter or repeal the By-Laws made by the Board of
Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect, to
determine, from time to time, whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open
to shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books or documents of the Corporation,
except as permitted by law, unless and until authorized to do so by
resolution of the Board of Directors or of the Shareholders of the
Corporation;
(c) To issue stock of the Corporation for money, property,services rend-
ered, labor performed, cash advanced, acquisitions for other corpor-
ations or for any other assets of value in accordance with the action
of the board of directors without vote or consent of the shareholders
and the judgment of the board of directors as to value received and
in return therefore shall be conclusive and said stock, when issued,
shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of
the Corporation, secured and unsecured, under such terms and condit-
ions as the Board, in its sole discretion, may determine, and to
pledge or mortgage, as security therefore, any real or personal
property of the Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned surplus
of the Corporation shall be paid in dividends to the shareholders,
and to direct and determine other use and disposition of any such
earned surplus;
4
<PAGE>
(f) To fix, from time to time, the amount of the profits of the Corporat-
ion to be reserved as working capital or for any other lawful pur-
pose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers
and directors, of the Corporation, and to fix the amount of profits
to be shared or distributed, and to determine the persons to partic-
ipate in any such plans and the amount of their respective partici-
pations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and authorized
by the resolution or the By-Laws, shall have and may exercise the
powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such compen-
sation will be paid;
(j) In addition to the powers and authority herein before, or by statute,
expressly conferred upon it, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or
done by the corporation, subject, nevertheless, to the provisions of
the laws of the State of Nevada, of these Articles of Incorporation,
and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between this
Corporation and any of its directors, or between this Corporation and any
other corporation, firm, association, or other legal entity shall be
invalidated by reason of the fact that the director of the Corporation has
a direct or indirect interest, pecuniary or otherwise, in such corpor-
ation, firm, association, or legal entity, or because the interested
director was present at the meeting of the Board of Directors which acted
upon or in reference to such contract or transaction, or because he par-
ticipated in such action, provided that: (1) the interest of each such
director shall have been disclosed to or known by the Board and a dis-
interested majority of the Board shall have nonetheless ratified and
approved such contract or transaction (such interested director or
directors may be counted in determining whether a quorum is present for
the meeting at which such ratification or approval is given); or (2) the
conditions of N.R.S. 78.140 are met.
(Unamended)
5
<PAGE>
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The
personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law.
(Unamended)
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or com-
pleted action, suit or proceeding, whether civil, criminal, admini-
strative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judg-
ments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit or proceeding, if
he acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation and
with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any
action, suite or proceeding, by judgment, order, settlement, convict-
ion or upon a plea of nolo contendere or its equivalent, does not of
itself create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and that, with respect to
any criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or com-
pleted action or suit by or in the right of the corporation, to pro-
cure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other
6
<PAGE>
enterprise against expenses including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit, if he acted in
good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a
person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals there from, to be liable to the corporation
or for amounts paid in settlement to the corporation, unless and only
to the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon application
that in view of all the circumstances of the case the person is fair-
ly and reasonably entitled to indemnity for such expenses as the
court deems proper.
(c) To the extent that a director, officer, employee or agent of a corp-
oration has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b)
of this Article, or in defense of any claim, issue or matter therein,
he must be indemnified by the corporation against expenses, including
attorney's fees, actually and reasonably incurred by him in connect-
ion with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by a
court or advanced pursuant to subsection (e), must be made by the
corporation only as authorized in the specific case upon a determi-
nation that indemnification of the director, officer, employee or
agent is proper in the circumstances. The determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of
a quorum consisting of directors who were not
parties to the act, suit or proceeding;
(iii) If a majority vote of a quorum consisting of
directors who were not parties to the act,
suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were
not parties to the act, suit or proceeding
cannot be obtained, by independent legal
counsel in a written opinion.
7
<PAGE>
(e) Expenses of officers and directors incurred in defending
a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if
it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by
the corporation. The provisions of this subsection do
not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may
be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to this
section:
(i) Does not exclude any other rights to which a
person seeking indemnification or advancement of
expenses may be entitled under the certificate or
articles of incorporation or any bylaw, agreement,
vote of stockholders or disinterested directors or
otherwise, for either an action in his official
capacity or an action in another capacity while
holding his office, except that indemnification,
unless ordered by a court pursuant to subsection
(b) or for the advancement of expenses made
pursuant to subsection (e) may not be made to or on
behalf of any director or officer if a final
adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause
of action.
(ii) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to
the benefit of the heirs, executors and
administrators of such a person.
(Unamended)
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the
laws of the State of Nevada, the shareholders and the Directors
shall have power to hold their meetings, and the Directors shall
have power to have an office or offices and to maintain the books
of the Corporation outside the State of Nevada, at such place or
places as may from time to time be designated in the By-Laws or by
appropriate resolution.
(Unamended)
8
<PAGE>
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these
Articles of Incorporation may be amended, altered or repealed from
time to time to the extent and in the manner prescribed by the laws
of the State of Nevada, and additional provisions authorized by
such laws as are then in force may be added. All rights herein
conferred on the directors, officers and shareholders are granted
subject to this reservation.
(Unamended)
ARTICLE XIII - INCORPORATOR: The name and address of the sole
incorporator signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
(Unamended)
9
The State of Texas
Secretary of State
Certificate of Incorporation
of
Sublingual Products International, Inc.
Charter No. 797851
The undersigned, as Secretary of State of the State of Texas,
hereby certifies that Articles of Incorporation for the above
corporation duly signed and verified pursuant to the provisions
of the Texas Business Corporation Act, have been received in this
office and are found to conform to law.
ACCORDINGLY the undersigned, as such Secretary of State, and by
virtue of the authority vested in him by law, hereby issues this
Certificate of Incorporation and attaches hereto a copy of the
Articles of Incorporation.
Dated May 21, 1986
/s/ (unable to make out name)
Secretary of State
dlv
<PAGE>
ARTICLES OF INCORPORATION
OF
SUBLINGUAL PRODUCTS INTERNATIONAL, INC.
(A Close Corporation)
_____________________
_____________________
ARTICLE ONE
The name of the Corporation is SUBLINGUAL PRODUCTS INTERNATIONAL,
INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the
transaction of any and all lawful business for which a
corporation may be incorporated under the Texas Business
Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have
authority to issue is One Hundred Thousand (100,000). The shares
shall have a par value of Ten Cents (.10). These shares are
subject to restrictions on transfer as permitted by Article 2.22
and Part Twelve of the Texas Business Corporation Act.
ARTICLE FIVE
The Corporation will not commence business until it has received
consideration equal to or exceeding the value of $1,000.00,
consisting of money, labor done, or property actually received,
for the issuance of its shares.
ARTICLES OF INCORPORATION - Page 1
Page 1 (Inc.#3)
<PAGE>
ARTICLE SIX
The street address of its intitial Registered Office, and the
name of its intitial Registered Agent at this address, is as
follows:
B0BBIE McCLURE
1230 Brown Trail
Bedford, Texas 76022
ARTICLE SEVEN
The number of directors constituting the initial board of
directors is three (3), and the name and address of the persons
who are to serve as directors until the first annual meeting of
the shareholders or until their successor(s) are elected and
qualified is:
BOBBIE McCLURE ELISA MILLER CINDY LaGASSE
211 Yorkshire 1230 Brown Trail 1230 Brown Trail
Euless, Texas 76040 Bedford, Texas 76022 Bedford, Texas 76022
ARTICLE EIGHT
The following provisions are subject to the corporation remaining
a close corporation as defined by the Texas Business Corporation
Act:
This Corporation is a close corporation. No shares and no
securities evidencing the right to acquire shares shall be issued
by means of public offering, solicitation or advertisement. All
such shares and securities shall be subject to restrictions on
transfer as permitted by Article 2.22 and Part Twelve of the
Texas Business Corporation Act. All issued shares, excluding
treasury shares, and all issued securities evidencing the right
to acquire shares of the corporation shall be held of record by
no more than thirty-five (35) persons in the aggregate.
ARTICLE NINE
Shareholder Voting Requirement. The approval of at least 85% of
outstanding voting shares shall be required for election of
directors; determining the number of directors; amendment of
articles; amendment of bylaws; sale of name and/or good will of
corporation; sale of a substantial amount of corporate assets;
sale of authorized but unissued shares of the corporation's
stock; authorization to issue new shares or classes of shares;
ARTICLES OF INCORPORATION - Page 2
Page 2 (Inc.#3)
<PAGE>
and all actions required to have shareholder approval by law and
voluntary dissolution of the corporation.
ARTICLE TEN
Cumulative Voting Prohibited. Cumulative voting by the
shareholders of the corporation at any election for directors is
expressly prohibited. The shareholders entitled to vote for
directors in any election shall be entitled to cast one vote per
directorship for each share held, and no more.
ARTICLE ELEVEN
Denial or Preemptive Rights. The holders of the outstanding
shares of the corporation shall have no preemptive right to
purchase any shares to be issued by the corporation, securities
convertible into shares, or options to acquire shares.
ARTICLE TWELVE
Quorum of Shareholders. A quorum for the transaction of business
at any shareholders' meeting shall consist of 85% of the
outstanding shares entitled to vote, represented at such meeting
either in person or by proxy.
ARTICLE THIRTEEN
Then name and address of the Incorporator is:
BRUCE L. MANSFIELD
1909 Central Drive, Ste. 300
Bedford, Texas 76021
___________________
___________________
ARTICLES OF INCORPORATION - Page 3
Page 3 (Inc.#3)
<PAGE>
IN WITNESS WHEREOF: I have hereunto set my hand this 20th day of
May, 1986.
/s/ BRUCE L. MANSFIELD
BRUCE L. MANSFIELD, Incorporator
SUBSCRIBED, SWORN TO, AND ACKNOWLEDGED before me this the 20th
day of May, 1986, to which witness my hand and seal of office.
/s/ BETTY L. GALLOWAY
Notary Public in and for
The State of Texas
My Commission Expires: 5/26/88
ARTICLES OF INCORPORATION - Page 4
Page 4 (Inc.#3)
BY-LAWS OF
CST, INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the
shareholders shall be held at such date and time as shall be
designated by the board of directors and stated in the notice
of the meeting or in a duly-executed waiver of notice
thereof. If the corporation shall fail to provide notice of
the annual meeting of the shareholders as set forth above,
the annual meeting of the shareholders of the corporation
shall be held during the month of November or December of
each year as determined by the Board of Directors, for the
purpose of electing directors of the corporation to serve
during the ensuing year and for the transaction of such other
business as may properly come before the meeting. If the
election of the directors is not held on the day designated
herein for any annual meeting of the shareholders, or at any
adjournment thereof, the president shall cause the election
to be held at a special meeting of the shareholders as soon
thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the
shareholders may be called by the president or the Board of
Directors and shall be called by the president at the written
request of the holders of not less than 51% of the issued and
outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders
may be transacted at any special meeting at any adjournment
thereof. However, no business shall be acted upon at a
special meeting, except that referred to in the notice
calling the meeting, unless all of the outstanding capital
stock of the corporation is represented either in person or
by proxy. Where all of the capital stock is represented, any
lawful business may be transacted and the meeting shall be
valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the
shareholders of the corporation may be held at its principal
office in the State of Nevada or such other place in or out
of the United States as the Board of Directors may designate.
A waiver of notice signed by the shareholders entitled to
vote may designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders
of record written or printed notice of any meeting at least
ten (10) days, but not more than sixty (60) days, before the
date of such meeting; which notice shall state the place,
date and time of the meeting, the general nature of the
business
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to be transacted, and, in the case of any meeting at which
directors are to be elected, the names of nominees, if any,
to be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall
be valid only if the general nature of the proposal is stated
in the notice or written waiver of notice
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or
another firm, association, or corporation in which one or
more of its directors has a material financial interest;
(2) Adoption of amendments to the Articles of Incorporation;
or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or
dissolution of the corporation.
(c) The notice shall be personally delivered or mailed by
first class mail to each shareholder of record at the last
known address thereof, as the same appears on the books of
the corporation, and the giving of such notice shall be
deemed delivered the date the same is deposited in the United
States mail, postage prepaid. If the address of any
shareholder does not appear upon the books of the
corporation, it will be sufficient to address any notice to
such shareholder at the principal office of the corporation.
(d) The written certificate of the person calling any
meeting, duly sworn, setting forth the substance of the
notice, the time and place the notice was mailed or
personally delivered to the several shareholders, and the
addresses to which the notice was mailed shall be prima facie
evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of
the corporation shall waive notice of a meeting, no notice
shall be required, and, whenever all of the shareholders
shall meet in person or by proxy, such meeting shall be valid
for all purposes without call or notice, and at such meeting
any corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date
as a record date for the determination of the shareholders
entitled to notice of any meeting or to vote or entitled to
receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. The record date so fixed
shall not be more than sixty (60) days prior to the date of
such meeting nor more than sixty (60) days Prior to any other
action.
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When a record date is so fixed, only shareholders of record
on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution or allotment
of rights, or to exercise their rights, as the case may be,
notwithstanding any transfer of any shares on the books of
the corporation after the record date.
(b) If no record date is fixed by the Board of Directors,
then (1) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at
the close of business on the business day next preceding the
day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which
the meeting is held; (2) the record date for determining
shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which written
consent is given; and (3) the record date for determining
shareholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
Section 1.07 Quorum; Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the
issued and outstanding shares of the corporation represented
in person or by proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding
shares are represented, a majority of shares so represented
may adjourn from time to time at the meeting, until holders
of the amount of stock required to constitute a quorum shall
be in attendance. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which
might have been transacted as originally called. When a
shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than
ten (10) days in which event notice thereof shall be given.
Section 1.08 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one
(1) vote for each share of stock standing registered in such
shareholder's name on the books of the corporation on the
record date.
(b) Except as otherwise provided herein, all votes with
respect to shares standing in the name of an individual on
the record date (included pledged shares) shall be cast only
by that individual or such individual's duly authorized proxy
or attorney-in-fact. With respect to shares held by a
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representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the
shares do not stand in the name of such holder. In the case
of shares under the control of a receiver, the receiver may
cast votes carried by such shares even though the shares do
not stand in the name of the receiver provided that the order
of the court of competent jurisdiction which appoints the
receiver contains the authority to cast votes carried by such
shares. If shares stand in the name of a minor, votes may be
cast only by the duly-appointed guardian of the estate of
such minor if such guardian has provided the corporation with
written notice and proof of such appointment.
(c) With respect to shares standing in the name of a
corporation on the record date, votes may be cast by such
officer or agents as the by-laws of such corporation
prescribe or, in the absence of an applicable by-law
provision, by such person as may be appointed by resolution
of the Board of Directors of such corporation. In the event
no person is so appointed, such votes of the corporation may
be cast by any person (including the officer making the
authorization) authorized to do so by the Chairman of the
Board of Directors, President or any Vice President of such
corporation.
(d) Notwithstanding anything to the contrary herein
contained, no votes may be cast by shares owned by this
corporation or its subsidiaries, if any. If shares are held
by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect
thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a
right to vote or to give the corporation holding the same
binding instructions on how to vote.
(e) With respect to shares standing in the name of two or
more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, husband and wife as
community property, tenants by the entirety, voting trustees,
persons entitled to vote under a shareholder voting agreement
or otherwise and shares held by two or more persons
(including proxy holders) having the same fiduciary
relationship respect in the same shares, votes may be cast in
the following manner:
(1) If only one such person votes, the votes of such person
binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be
deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter
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and refrain from casting the remaining votes or cast the
same against the proposal, except in the case of elections of
directors. If such holder entitled to vote fails to specify
the number of affirmative votes, it will be conclusively
presumed that the holder is casting affirmative votes with
respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders
of a majority of the shares represented at the meeting and
entitled to vote on any matter shall be the act of the
shareholders, unless a vote of greater number or voting by
classes is required by the laws of the State of Nevada, the
Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any
holder of shares entitled to vote may authorize another
person or persons to vote by proxy with respect to the shares
held by an instrument in writing and subscribed to by the
holder of such shares entitled to vote. No proxy shall be
valid after the expiration of six (6) months from the date of
execution thereof, unless coupled with an interest or unless
otherwise specified in the proxy. In no event shall the term
of a proxy exceed seven (7) years from the date of its
execution. Every proxy shall continue in full force and
effect until its expiration or revocation. Revocation may be
effected by filing an instrument revoking the same or a duly-
executed proxy bearing a later date with the secretary of the
corporation.
Section 1.10 Order of Business. At the annual shareholders
meeting, the regular order of business shall be as follows:
(1) Determination of shareholders present and existence of
quorum;
(2) Reading and approval of the minutes of the previous
meeting or meetings;
(3) Reports of the Board of Directors, the president,
treasurer and secretary of the corporation, in the order
named;
(4) Reports of committee;
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of
any meeting of the shareholders are as valid as though had at
a meeting duly-held after regular call and notice if a quorum
is present, either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to
vote, not
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present in person or by proxy (and those who, although
present, either object at the beginning of the meeting to the
transaction of any business because the meeting has not been
lawfully called or convened or expressly object at the
meeting to the consideration of matters not included in the
notice which are legally required to be included therein),
signs a written waiver of notice and/or consent to the
holding of the meeting or an approval of the minutes thereof.
All such waivers, consents, and approvals shall be filed with
the corporate records and made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute
a waiver of notice of such meeting, except when the person
objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters
not included in the notice if such objection is expressly
made at the beginning. Neither the business to be transacted
at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of
notice, except as otherwise provided in Section 1.04(b) of
these By-Laws.
Section 1.12 Action Without Meeting. Any action, except the
election of directors, which may be taken by the vote of the
shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares
entitled to vote or such greater proportion as may be
required by the laws of the State of Nevada, the Articles of
Incorporation, or these ByLaws. Whenever action is taken by
written consent, a meeting of shareholders needs not be
called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualifications. Except as
otherwise provided herein, the Board of Directors of the
corporation shall consist of at least one (1) but no more
than seven (7) persons, who shall be elected at the annual
meeting of the shareholders of the corporation and who shall
hold office for one (1) year or until their successors are
elected and qualify. If, at any time, the number of
shareholders of the corporation is less than three (3), the
Board of Directors may consist of fewer persons, but shall
not be less than the number of shareholders. A director need
not be a shareholder of the corporation.
Section 2.02 Resignation. Any director may resign effective
upon giving written notice to the chairman of the Board of
Directors, the president, or the secretary of the
corporation, unless the notice specifies a later time for
effectiveness of such resignation. If the Board of Directors
accepts the resignation of a director tendered to take effect
at a future date, the Board or the shareholders may elect a
successor to take office when the resignation becomes
effective.
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Section 2.03 Reduction in Number. No reduction of the number
of directors shall have the effect of removing any director
prior to the expiration of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the
office of a director who has been declared incompetent by an
order of a court of competent jurisdiction or convicted of a
felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or
otherwise may be filled by the shareholders at any regular or
special meeting or any adjourned meeting thereof (but not by
written consent) or the remaining director(s) by the
affirmative vote of a majority thereof. A Board of Directors
consisting of less than the maximum number authorized in
Section 2.01 of ARTICLE II constitutes vacancies on the Board
of Directors for purposes of this paragraph and may be filled
as set forth above including by the election of a majority of
the remaining directors. Each successor so elected shall hold
office until the next annual meeting of shareholders or until
a successor shall have been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors,
the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the
directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the total number of
shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of
Directors. The term of office of any director shall terminate
upon such election of a successor.
Section 2.06 Regular Meetings. Immediately following the
adjournment of, and at the same place as, the annual meeting
of the shareholders, the Board of Directors, including
directors newly elected, shall hold its annual meeting
without notice, other than this provision, to elect officers
of the corporation and to transact such further business as
may be necessary or appropriate. The Board of Directors may
provide by resolution the place, date and hour for holding
additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board
of Directors may be called by the chairman and shall be
called by the chairman upon the request of any two (2)
directors or the President of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors
of the corporation may be held at its principal office in the
State of Nevada, or at such other place in or out of the
United States as the Board of Directors may designate. A
waiver
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or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided
in Section 2.06, the chairman shall deliver to all directors
written or printed notice of any special meeting, at least
three (3) days before the date of such meeting, by delivery
of such notice personally or mailing such notice first class
mail, or by telegram. If mailed, the notice shall be deemed
delivered two (2) business days following the date the same
is deposited in the United States mail, postage prepaid. Any
director may waive notice of any meeting, and the attendance
of a director at a meeting shall constitute a waiver of
notice of such meeting, unless such attendance is for the
express purpose of objecting to the transaction of business
threat because the meeting is not properly called or
convened.
Section 2.10 Quorum; Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum
is not present, a majority of those present may adjourn, from
time to time, until a quorum is present, and no notice of
such adjournment shall be required. At any adjourned meeting
where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally
called.
Section 2.11 Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a
meeting if a written consent thereto is signed by a majority
of the members of the Board of Directors or of such
committee. Such written consent or consents shall be filed
with the minutes of the proceedings of the Board of Directors
or committee. Such action by written consent shall have the
same force and effect as the unanimous vote of the Board of
Directors or committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of
Directors may be held through the use of a conference
telephone or similar communications equipment so long as all
members participating in such meeting can hear one another at
the time of such meeting. Participation in such a meeting
constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a
majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board
of Directors is invested with the complete and unrestrained
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authority to manage the affairs of the corporation, and is
authorized to exercise for such purpose as the general agent
of the corporation, its entire corporate authority in such
manner as it sees fit. The Board of Directors may delegate
any of its authority to manage, control or conduct the
current business of the corporation to any standing or
special committee or to any officer or agent and to appoint
any persons to be agents of the corporation with such powers,
including the power to sub-delegate, and upon such terms as
may be deemed fit.
(b) The Board of Directors shall present to the shareholders
at annual meetings of the shareholders, and when called for
by a majority vote of the shareholders at a special meeting
of the shareholders, a full and clear statement of the
condition of the corporation, and shall, at request, furnish
each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual
meeting of the shareholders or any special meeting properly
called for the purpose of considering any such contract or
act, provided a quorum is present. The contract or act shall
be valid and binding upon the corporation and upon all the
shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such
meeting.
(d) In furtherance and not in limitation of the powers
conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered to issue
stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for
other corporations or for any other assets of value in
accordance with the action of the Board of Directors without
vote or consent of the shareholders and the judgment of the
Board of Directors as to the value received and in return
therefore shall be conclusive and said stock, when issued,
shall be fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and
paid all necessary expenses incurred in attending any
meetings of the Board, but shall not receive any compensation
for their services as directors until such time as the
corporation is able to declare and pay dividends on its
capital stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall
elect, from among its members, a chairman to preside at the
meetings of the Board of Directors. The Board of Directors
may also elect such other board officers and for such term as
it may, from time to time, determine advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board
of Directors for the unexpired portion of the term of such
office.
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Section 2.17 Order of Business. The order of business at any
meeting of the Board of Directors shall be as follows:
(1) Determination of members present and existence of quorum;
(2) Reading and approval of the minutes of any previous
meeting or meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
(6) New business;
(7) Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first
meeting following the annual meeting of shareholders, shall
elect a president, a secretary and a treasurer to hold office
for one (1) year next coming and until their successors are
elected and qualify. Any person may hold two or more offices.
The Board of Directors may, from time to time, by resolution,
appoint one or more vice presidents, assistant secretaries,
assistant treasurers and transfer agents of the corporation
as it may deem advisable; prescribe their duties; and fix
their compensation.
Section 3.02 Removal; Resignation. Any officer or agent
elected or appointed by the Board of Directors may be removed
by it whenever, in its judgment, the best interest of the
corporation would be served thereby. Any officer may resign
at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any
contract to which the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of
death, resignation, removal, or otherwise may be filled by
the Board of Directors for the unexpired portion of the term
of such office.
Section 3.04 President. The president shall be the general
manager and executive officer of the corporation, subject to
the supervision and control of the Board of Directors, and
shall direct the corporate affairs, with full power to
execute all resolutions and orders of the Board of Directors
not especially entrusted to some other officer of the
corporation. The president shall preside at all meetings of
the shareholders and shall sign the certificates of stock
issued by the corporation, and
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shall perform such other duties as shall be prescribed by the
board of Directors.
Unless otherwise ordered by the Board of Directors, the
president shall have full power and authority on behalf of
the corporation to attend and to act and to vote at any
meetings of the shareholders of any corporation in which the
corporation may hold stock and, at any such meetings, shall
possess and may exercise any and all rights and powers
incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like
powers on any person or persons in place of the president to
represent the corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect
one or more vice presidents who shall be vested with all the
powers and perform all the duties of the president whenever
the president is absent or unable to act, including the
signing of the certificates of stock issued by the
corporation, and the vice president shall perform such other
duties as shall be prescribed by the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes
of all meetings of the shareholders and the Board of
Directors in books provided for that purpose. The secretary
shall attend to the giving and service of all notices of the
corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of
Directors or appropriate committee, shall have the custody of
the corporate seal, shall affix the corporate seal to all
certificates of stock duly issued by the corporation, shall
have charge of stock certificate books, transfer books and
stock ledgers, and such other books and papers as the Board
of Directors or appropriate committee may direct, and shall,
in general perform all duties incident to the office of the
secretary. All corporate books kept by the secretary shall be
open for examination by any director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may
appoint an assistant secretary who shall have such powers and
perform such duties as may be prescribed for him by the
secretary of the corporation or by the Board of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief
financial officer of the corporation, subject to the
supervision and control of the Board of Directors, and shall
have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall
endorse on behalf of the corporation for collection checks,
notes and other obligations, and shall deposit all monies to
the credit of the corporation in such bank or banks or other
depository as the Board of Directors may designate, and shall
sign all receipts and vouchers for payments made by the
corporation. Unless otherwise specified by the Board of
Directors, the treasurer shall sign with the president all
bills of exchange and promissory notes of the corporation,
shall also have the care and custody of the stocks, bonds,
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certificates, vouchers, evidence of debts, securities and
such other property belonging to the corporation as the Board
of Directors shall designate, and shall sign all papers
required by law, by these By-laws or by the Board of
Directors to be signed by the treasurer. The treasurer shall
enter regularly in the books of the corporation, to be kept
for that purpose, full and accurate accounts of all monies
received and paid on account of the corporation and whenever
required by the Board of Directors, the treasurer shall
render a statement of any or all accounts. The treasurer
shall at all reasonable times exhibit the books of account to
any directors of the corporation and shall perform all acts
incident to the position of treasurer subject to the control
of the Board of Directors.
The treasurer shall, if required by the Board of Directors,
give a bond to the corporation in such sum and with such
security as shall be approved by the Board of Directors for
the faithful performance of all the duties of the treasurer
and for restoration to the corporation in the event of the
treasurer's death, resignation, retirement, or removal from
office, of all books, records, papers, vouchers, money and
other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may
appoint an assistant treasurer who shall have such powers and
perform such duties as may be prescribed by the treasurer of
the corporation or by the Board of Directors, and the Board
of Directors may require the assistant treasurer to give a
bond to the corporation in such sum and with such security as
it may approve, for the faithful performance of the duties of
assistant treasurer, and for the restoration to the
corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property belonging
to the corporation. The expense of such bond shall be borne
by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the
corporation shall be issued in such manner and at such times
and upon such conditions as shall be prescribed by the Board
of Directors.
Section 4.02 Certificates. Ownership in the corporation shall
be evidenced by certificates for shares of stock in such form
as shall be prescribed by the Board of Directors, shall be
under the seal of the corporation and shall be signed by the
president or the vice president and also by the secretary or
an assistant secretary. Each certificate shall contain the
name of the record holder, the number, designation, if any,
class or series of shares represented, a statement of summary
of any applicable rights, preferences, privileges, or
restrictions
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thereon, and a statement that the shares are assessable, if
applicable. All certificates shall be consecutively numbered.
The name and address of the shareholder, the number of
shares, and the date of issue shall be entered on the stock
transfer books of the corporation.
Section 4.03 Surrender; Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those
representing shares of treasury stock, shall be cancelled and
no new certificates shall be issued until the former
certificate for a like number of shares shall have been
cancelled, except that in case of a lost, stolen, destroyed
or mutilated certificate, a new one may be issued therefor.
However, any shareholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a
replacement, provide the corporation with his, her or its
affidavit of the facts surrounding the loss, theft,
destruction or mutilation and an indemnity bond in an amount
and upon such terms as the treasurer, or the Board of
Directors, shall require. In no case shall the bond be in
amount less than twice the current market value of the stock
and it shall indemnify the corporation against any loss,
damage, cost or inconvenience arising as a consequence of the
issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements
contained in the certificates for outstanding shares of
capital stock of the corporation or it becomes desirable for
any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or
the reorganization of the corporation, to cancel any
outstanding certificate for shares and issue a new
certificate therefor conforming to the rights of the holder,
the Board of Directors may order any holders of outstanding
certificates for shares to surrender and exchange the same
for new certificates within a reasonable time to be fixed by
the Board of Directors. The order may provide that a holder
of any certificate(s) ordered to be surrendered shall not be
entitled to vote, receive dividends or exercise any other
rights of shareholders until the holder has complied with the
order provided that such order operates to suspend such
rights only after notice and until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall
be valid as against the corporation except on surrender and
cancellation by the certificate therefor, accompanied by an
assignment or transfer by the registered owner made either in
person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely,
the collateral nature of the transfer shall be reflected in
the entry of transfer on the books of the corporation.
Section 4.06 Transfer Agent. The Board of Directors may
appoint one or more transfer agents and registrars of
transfer
13
<PAGE>
and may require all certificates for shares of stock to bear
the signature of such transfer agent and such registrar of
transfer.
Section 4.07 Stock Transfer Books. The stock transfer books
shall be closed for a period of ten (10) days prior to all
meetings of the shareholders and shall be closed for the
payment of dividends as provided in Article V hereof and
during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock
shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have
the power and authority to make such rules and regulations
not inconsistent herewith as it may deem expedient concerning
the issue, transfer and registration of certificates for
shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the
provisions of the laws of the State of Nevada and the
Articles of Incorporation, by the Board of Directors at any
regular or special meeting and may be paid in cash, property,
shares of corporate stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in
Section 1.06 of these By-laws, prior to the dividend payment
for the purpose of determining shareholders entitled to
receive payment of any dividend. The Board of Directors may
close the stock transfer books for such purpose for a period
of not more than ten (10) days prior to the payment date of
such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the
corporation in the State of Nevada shall be 2950 East
Flamingo Road, Las Vegas, Nevada 89108 and the corporation
may have an office in any other state or territory as the
Board of Directors may designate.
Section 6.02 Records. The stock transfer books and a
certified copy of the By-laws, Articles of Incorporation, any
amendments thereto, and the minutes of the proceedings of the
shareholders, the Board of Directors, and committees of the
Board of Directors shall be kept at the principal office of
the corporation for the inspection of all who have the right
to see the same and for the transfer of stock. All other
books of the corporation shall be kept at such places as may
be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the out-
14
<PAGE>
standing shares of any class of stock may make a written
request for an income statement of the corporation for the
three (3) month, six (6) month, or nine (9) month period of
the current fiscal year ended more than thirty (30) days
prior to the date of the request and a balance sheet of the
corporation as of the end of such period. In addition, if no
annual report for the last fiscal year has been sent to
shareholders, such shareholder or shareholders may make a
request for a balance sheet as of the end of such fiscal year
and an income statement and statement of changes in financial
position for such fiscal year. The statement shall be
delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of the statements shall
be kept on file in the principal office of the corporation
for twelve (12) months, and such copies shall be exhibited at
all reasonable times to any shareholder demanding an
examination of them or a copy shall be mailed to each
shareholder. Upon request by any shareholder, there shall be
mailed to the shareholder a copy of the last annual,
semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period. The
financial statements referred to in this Section 6.03 shall
be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the
certificate of an authorized officer of the corporation that
such financial statements were prepared without audit from
the books and records of the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors
and committees of the Board of Directors shall be open to
inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related
to such holder's interest as a shareholder or as the holder
of such voting trust certificate. This right of inspection
shall extend to the records of the subsidiaries, if any, of
the corporation. Such inspection may be made in person or by
agent or attorney, and the right of inspection includes the
right to copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical
properties of the corporation and/or its subsidiary
corporations. Such inspection may be made in person or by
agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by
causing it, or a facsimile, to be impressed or affixed or
reproduced or otherwise. Except when otherwise specifically
provided herein, any officer of the corporation shall have
the authority to affix the seal to any document requiring it.
15
<PAGE>
Section 6.06 Fiscal Year. The fiscal year-end of the
corporation shall be the calendar year or such other term as
may be fixed by resolution of the Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such
reserves as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to
equalize dividends or to repair or maintain any property of
the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the
directors may modify or abolish any such reserves in the
manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless
prohibited by Nevada Law, indemnify any person (an
"Indemnitee") who is or was involved in any manner
(including, without limitation, as a party or a witness) or
is threatened to be so involved in any threatened, pending or
completed action suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, including
without limitation, any action, suit or proceeding brought by
or in the right of the corporation to procure a judgment in
its favor (collectively, a "Proceeding") by reason of the
fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise, against
all Expenses and Liabilities actually and reasonably incurred
by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed
to have been relied upon by the directors, officers,
employees and agents of the corporation and shall be
enforceable as a contract right and inure to the benefit of
heirs, executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of
Directors is authorized on behalf of the corporation, to
enter into, deliver and perform agreements or other
arrangements to provide any Indemnitee with specific rights
of indemnification in addition to the rights provided
hereunder to the fullest extent permitted by Nevada Law. Such
agreements or arrangements may provide (i) that the Expenses
of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the
corporation as they are incurred and in advance of the final
disposition of any such action, suit or proceeding provided
that, if required by Nevada Law at the time of such advance,
the officer or director provides an undertaking to repay such
amounts if it is ultimately determined by a court of
competent jurisdiction that such individual is not entitled
to be indemnified against such expenses, (iii) that the
Indemnitee
16
<PAGE>
shall be presumed to be entitled to indemnification under
this Article or such agreement or arrangement and the
corporation shall have the burden of proof to overcome that
presumption, (iii) for procedures to be followed by the
corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and
(iv) for insurance or such other Financial Arrangements
described in Paragraph 7.02 of this Article, all as may be
deemed appropriate by the Board of Directors at the time of
execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The
corporation may, unless prohibited by Nevada Law, purchase
and maintain insurance or make other financial arrangements
("Financial Arrangements") on behalf of any Indemnitee for
any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer,
employee or agent, or arising out of his status as such,
whether or not the corporation has the authority to indemnify
him against such liability and expenses. Such other Financial
Arrangements may include (i) the creation of a trust fund,
(ii) the establishment of a program of self-insurance, (iii)
the securing of the corporation's obligation of
indemnification by granting a security interest or other lien
on any assets of the corporation, or (iv) the establishment
of a letter of credit, guaranty or surety.
Section 7.03 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs
incurred, paid or accrued, (ii) all attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness
fees, travel expenses, food and lodging expenses while
traveling, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service, freight or
other transportation fees and expenses, (iii) all other
disbursements and out-of-pocket expenses, (iv) amounts paid
in settlement, to the extent permitted by Nevada Law, and (v)
reasonable compensation for time spent by the Indemnitee for
which he is otherwise not compensated by the corporation or
any third party, actually and reasonably incurred in
connection with either the appearance at or investigation,
defense, settlement or appeal of a Proceeding or establishing
or enforcing a right to indemnification under any agreement
or arrangement, this Article, the Nevada Law or otherwise;
provided, however, that "Expenses" shall not include any
judgments or fines or excise taxes or penalties imposed under
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any type
whatsoever, including, but not limited to, judgments or
fines, ERISA or other excise taxes and penalties, and amounts
paid in settlement.
17
<PAGE>
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada
Revised Statutes as amended and in effect from time to time
or any successor or other statutes of Nevada having similar
import and effect.
This Article. "This Article" means Paragraphs 7.01 through
7.04 of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04,
including this Paragraph, of these Bylaws may be amended by
the stockholders only by vote of the holders of sixty-six and
two-thirds percent (66 2/3%) of the entire number of shares
of each class, voting separately, of the outstanding capital
stock of the corporation (even though the right of any class
to vote is otherwise restricted or denied); provided,
however, no amendment or repeal of this Article shall
adversely affect any right of any Indemnitee existing at the
time such amendment or repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the
Board of Directors only by vote of eighty percent (80%0 of
the total number of Directors and the holders of sixty-six
and two-thirds percent (66 2/3) of the entire number of
shares of each class, voting separately, of the outstanding
capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied);
provided, however, no amendment or repeal of this Article
shall adversely affect any right of any Indemnitee existing
at the time such amendment or repeal becomes effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws
may be made at any regular or special meeting of the
Board of Directors by a vote of not less than all of the
entire Board, or may be made by a vote of, or a consent in
writing signed by the holders of a majority of the issued and
outstanding capital stock.
Section 8.02 Additional By-laws. Additional by-laws not
inconsistent herewith may be adopted by the Board of
Directors at any meeting of the Board of Directors at which a
quorum is present by an affirmative vote of a majority of the
directors present or by the unanimous consent of the Board of
Directors in accordance with Section 2.11 of these By-laws.
18
<PAGE>
CERTIFICATION
I, the undersigned, being the duly elected secretary of the
corporation, do hereby certify that the foregoing By-laws
were adopted by the Board of Directors on the 3rd day of
January, 1989.
/s/ MAX C. TANNER
Max C. Tanner, Secretary
19
(in form of certificate, two-sided)
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
CUSIP NO. 717121 107
Number _____________
Shares ______________
PHARMACEUTICAL LABORATORIES, INC.
Authorized Common Stock: 25,000,000 Shares
Par Value $.001 Per Share
THIS CERTIFIES THAT ________________________________
IS THE RECORD HOLDER OF __________________________________ Shares of
Common Stock of Pharmaceutical Laboratories, Inc.
transferrable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certifi-
cate is not valid until countersigned by the Transfer Agent and registered by
the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature of
its duly authorized officers.
Dated: __________________
(seal as follows: "Pharmaceutical Laboratories, Inc., Corporate Seal, Nevada")
/s/ DONA EFFLANDT /s/ JERRY MCCLURE
Secretary President
Countersigned & Registered
Progressive Transfer Company
P.O. Box 17561
Salt Lake City, Utah 84117
By:_____________________
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a register-
ed national stock exchange, or by a bank (other than a savings bank), or a
trust company. The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, _________ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
________________
________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
__________________________________________
___________________________________________
_________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated______________________
___________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alter-
ation or enlargement or any change whatever
$10,000
Pharmaceutical Laboratories, Inc.,
Arlington, Texas
12.5% Debenture Note
Pharmaceutical Laboratories, a Nevada corporation, hereinafter called the
Corporation, is indebted and, for value received, hereby promises to pay to the
registered holder hereof (unless this debenture note shall have been duly
called for previous redemption and payment of the redemption price made or
provided for) upon presentation of this debenture note $10,000 in legal tender
of the United States of America on the terms described herein.
The Corporation further agrees to pay interest only on or before the 10th
day of each month, at the rate of 12.5% per annum. Interest will accrue start-
ing the first full month following the month in which the investment proceeds
are received by the Corporation. Principal shall be due and payable on or
before July 31, 1997, (unless this debenture note shall have been duly called
for previous redemption and payment of the redemption price made or provided
for). In the event the principle on the Debentures is not paid within 24 months
from the original close of the offering, the Corporation agrees to pay to each
Debenture holder an 8% annual penalty on the principle balance of the Deben-
ture.
As of September 1, 1995 the Company had outstanding indebtedness of
$470,000 which was borrowed from existing shareholders and others, which the
Company has agreed to repay or convert to equity prior to January 31, 1996. If
this indebtedness is not repaid or converted to equity on or before January 31,
1996, the Company will increase the interest payable on this Debenture Note
from 12.5% to 13.5% until such time as this indebtedness has been repaid or
converted to equity.
The Corporation shall mail a check or draft representing the principal
and interest payments to the registered holder hereof at his address appearing
on the books of registration.
This debenture note is one of an authorized issue of 12.5 % debenture
notes limited in the aggregate to $1,000,000, and issued in denominations of
$10,000, all of like tenor and maturity. This debenture is redeemable by the
corporation at face value $10,000 plus accrued interest if any, at any time
after September 30, 1996. This debenture note is redeemable at the election of
the Corporation, its successors or assigns, upon giving notice of its election
to redeem, by registered mail, directed to the registered holder hereof at
least 90 days prior to the date of redemption. If the registered holder hereof
fails and neglects to present this debenture note for payment at the time and
place in such notice specified, this debenture note shall cease to bear
interest unless payment hereof is refused upon the presentation of the same at
or after the time specified in such notice.
<PAGE>
Books for the registry hereof are kept at the office of the Corporation.
No transfer hereof shall be valid unless made on the Corporation's books at the
office of the Corporation, by the registered holder hereof, in person, or by
attorney duly authorized in writing, and similarly noted hereon.
Payment to the registered holder hereof of principal or interest shall be
complete discharge of the Corporation's liability with respect to such payment,
but the Corporation may, at any time, require the presentation hereof as a con-
dition precedent to such payment.
No recourse shall be had for the payment of the principal of, or interest
upon, this debenture note, or for any claim based thereon, or otherwise,
against any incorporator, shareholder, officer, director, or attorney, past,
present, or future, of the Corporation, whether by virtue of any constitution,
statute, rule of law, enforcement of any assessment, or penalty, or by reason
of any matter prior to the delivery of this note, or otherwise, all such lia-
bility, by the acceptance hereof and as a part of the consideration of the
issue hereof, being expressly waived.
In witness whereof the Corporation has signed and sealed this debenture
note on _______ ___, 1995.
Pharmaceutical Laboratories, Inc.,
By:____________________________
Jerry Mc Clure, President
Corporate Seal
Attest:
___________________________
Dona Efflandt, Secretary
Registration
(No writing on this debenture note except by an
officer or agent of the Corporation)
Date of In Whose Name Registry
Registration Registered Address Officer
............ .................. .................... .............
............ .................. .................... .............
............ .................. .................... .............
............ .................. .................... .............
<PAGE>
Assignment
For value received, I hereby assign to ........................ the 12.5%
debenture note due July 31, 1997 and hereby irrevocably appoint ............
.......... attorney to transfer the debenture note on the books of the within
named Corporation with full power of substitution in the premises.
Dated:
In the presence of
............................
.................................
GREATER DALLAS BOARD OF REALTORS, INC.
LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
1.01. Date of Lease: May 1, 1991
1.02. Landlord: Hargis Investments
Address of Landlord: 2522 109th Street
Grand Prairie, Texas 75050
1.03. Tenant: Sublingual Products International, Inc.
Address of Tenant: 1229 Corporate Drive West
Arlington, Texas 76006
1.04. Property (Include street address, as well as legal description and
approximate square footage):
An approximate 8,482 square foot office/service/warehouse facility situated on
approximately 20,855 square feet of land and known as Site 4A, Block 1, Brook-
hollow, Arlington, Tarrant County, Texas.
1.05. Lease Term: Thirty-six (36) months beginning on May 1, 1991 and ending
on April 30, 1994
1.06. Rent: See Addendum.
Dollars ($_________) per month.
See Addendum
1.07. Security Deposit: [the figure $3,300 is crossed out] $2,300
1.08. Permitted Use (see Section 6.01). Officing, warehousing, and manu-
facturing of vitamin supplements and related products.
1.09. Principal REALTOR (if none, so state): CB Commercial Real Estate Group,
Inc.
Address: 2000 E. Lamar Boulevard, Suite 500
Arlington, Texas 76006-7308
1.10. Cooperating REALTOR (if none, so state): None
Address:
1.11. REALTORS Commissions (See Article Fourteen):
A. Commissions due to the undersigned Principal REALTOR shall be calculated
and paid in accordance with paragraph (a) or (b) or Section 14.01 (Strike out
inapplicable letter).
B. The percentage applicable in Sections 14.01 and 14.02 shall be four percent
(4%).
1.12. Base Year for Taxes (see Section 4.02): 1990
1.13. Party to Receive Payments from Tenant Hereunder:
Landlord ["Principal REALTOR" struck out] (strike one)
1.14. Daily Late Charge (See Section 3.03): None
Dollars ($______) per day.
1.15. Acceptance (see Section 15.13):
The number of days for acceptance shall be one (1) days.
ARTICLE TWO: LEASE AND LEASE TERM
2.01 Lease of Property for Lease Term: Landlord leases the Property to Tenant
and Tenant leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term, unless advanced
or delaying under any provision of this Lease.
2.02 Delay in Commencement. Landlord shall not be liable to Tenant if Land-
lord does not deliver possession of the Property to Tenant on the first date
specified in Section 1.05 above. Landlord's non-delivery of the Property to
Tenant on that date shall not affect this Lease or the obligations of Tenant
under this Lease. However, the Commencement Date shall be delayed until
possession of the Property is delivered to Tenant. The Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If Landlord does not deliver possession of the
Property to Tenant within sixty (60) days after the first date specified in
Section 1.05 above, Tenant may elect to cancel this Lease by giving written
notice to Landlord within ten (10) days after the 60-day period ends. If
Tenant gives such notice, the Lease shall be cancelled effective as of the date
of its execution, and no party hereto shall have any obligations, one to the
other. If Tenant does not give such notice, Tenant's right to cancel the Lease
shall expire and the Lease Term shall commence upon the delivery of possession
of the Property to Tenant. If delivery of possession of the Property to Tenant
is
<PAGE>
delayed. Landlord and Tenant shall, upon such delivery, execute an amend-
ment to this Lease setting forth the Commencement Date and expiration date of
the Lease.
2.03 Early Occupancy. If Tenant occupies the Property prior to the Commence-
ment Date, Tenant's occupancy of the Property shall be subject to all of the
provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the occupancy period.
2.04. Holding Over. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for an
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon
the expiration or earlier termination of the lease, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all of the terms of
this Lease applicable to a month-to-month tenancy, except that the Base Rent
then in effect shall be increased by fifty percent (50%).
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. Manner of Payment. All sums to become due hereunder by Tenant shall be
made to the party named in Section 1.13 above, at the address stated herein for
such party, unless such address is changed as provide herein. Any and all pay-
ments made to the Principal REALTOR for the account of Landlord shall be deemed
made to Landlord when received by the Principal REALTOR. All sums payable by
Tenant hereunder, whether or not expressly denominated as rent, shall consti-
tute rent for the purposes of section 502(b)(7) of the Bankruptcy Code.
3.02. Time of Payment. Upon execution hereof, Tenant shall pay the rent for
the first month of the Lease Term. On or before the first day of the second
month of the Lease Term and of each month thereafter, a like monthly install-
ment shall be due and payable, in advance, without off-set, deduction or prior
demand. If the lease Term commences or ends during a calendar month, the rent
for any fractional calendar month following the Commencement Date or preceding
the end of the Lease Term shall be prorated by days.
3.03. Late Charges. Tenant's failure to pay sums due hereunder promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by an ground lease, deed of trust or mortgage
encumbering the Property. Therefore, if any sum due hereunder is not received
on its due date, Tenant shall pay the party named Section 1.13 above a late
charge equal to the sum stated Section 1.14 above for each day from its due
date until such delinquent sum is received. If any check tendered in payment
of any sum due from Tenant hereunder is returned for any reason. Tenant shall
pay a late charge for each day from said due date until such check is made
good. The parties agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of such late payment or
such returned check.
3.04. Security Deposit. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.13 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. If Landlord uses any part of the Security Deposit, Tenant shall re-
store the Security Deposit to its full amount within ten (10) days after Land-
lord's written request. Tenant's failure to do so shall be a material default
under this Lease. No interest shall be paid on the Security Deposit. Landlord
shall not be required to keep the Security Deposit separate from its other
accounts and no trust relationship is created with respect to the Security
Deposit. Upon any termination of this Lease not resulting from Tenant's
default, and after Tenant has vacated the Property in the manner required by
this Lease, Landlord shall refund the unused portion of the Security Deposit to
Tenant.
ARTICLE FOUR: TAXES
4.01. Payment by Landlord. Landlord shall pay the real estate taxes on the
Property during the Lease Term.
4.02. Payment by Tenant. Tenant shall pay the party named in Section 1.13
above, as additional rental, the excess, if any, of the real estate taxes for
any year during the Lease Term over the real estate taxes for the base year
stated in Section 1.12. Tenant shall make such payment within fifteen (15)
days after receipt of a statement showing the amount and computation of such
increase. Tenant shall be responsible for the pro-rata portion of such
additional rental for any fractional part of a year preceding the end of the
Lease Term, which prorated sum shall be due and payable upon the termination of
this Lease. If the termination of this Lease occurs before the tax rate is
fixed for the particular year, the prorations shall be upon the basis of the
tax rate for the preceding year applied to the latest assessed valuation, and
notwithstanding the termination of this Lease, any difference in the actual
real estate taxes for such year shall be adjusted between the parties upon
receipt of written evidence of the payment thereof.
4.03. Improvements by Tenant. In the event the real estate taxes levied
against the Property for the real estate tax year in which the Lease Term
commences are increased as a result of any alterations, additions or improve-
ments made by Tenant or by Landlord at the request of Tenant, Tenant shall pay
to Landlord upon demand the amount of such increase. For the purposes of the
calculations under Section 4.02, the amount of the real estate taxes during the
real estate tax year in which the Lease Term commences shall not be include any
taxes resulting from any such alterations, additions or improvements made in or
to the property, Landlord shall obtain from the tax assessor or assessors a
written statement of the total amount of such increase.
4.04. Joint Assessment. If the real estate taxes are assessed against the
Property jointly with other property not constituting a part of the Property,
the real estate taxes for such years shall be equal to the amount bearing the
same proportion to the aggregate assessment that the total square feet of
building area in the Property bears to the total square feet of building areas
included in the joint assessment.
4.05. Personal Property Taxes. Tenant shall pay all taxes charged against
trade fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have its personal property taxed separately
from the Property, but in any of Tenant's personal property is taxed with the
Property, Tenant shall pay the taxes for the personal property within fifteen
(15) days after Tenant receives written statement for such personal property
taxes.
ARTICLE FIVE: INSURANCE AND INDEMNITY
5.01. Casualty Insurance. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Property in such amount
or percentage of replacement value as Landlord or its insurance advisor deems
reasonable in relation to the age, location, type of construction and physical
condition of the Property and the availability of such insurance at reasonable
rates. Such policies shall provide protection against all perils included
within the classification of fire and extended coverage and any other perils
which Landlord deems necessary. Landlord may obtain insurance coverage for
Tenant's fixtures, equipment or building improvements installed by Tenant in or
on the Property. Tenant shall, at Tenant's expense maintain such primary or
additional insurance on its fixtures, equipment and building improvements as
Tenant deems necessary to protect its interest. Tenant shall not do or permit
to be done anything which invalidates any such insurance policies. Any casual-
ty insurance which may be carried by Landlord or Tenant shall be for the sole
benefit of the party carrying such insurance and under it sole control.
5.02 Increase in Premiums. Tenant shall not permit any operation or activity
to be conducted or storage or use of any volatile or any other materials on the
Property that would cause suspension or cancellation of any fire and extended
coverage insurance policy carried by Landlord, or increase the premiums there-
for, without the prior written consent of Landlord. If Tenant's use and occu-
pancy of the Property causes an increase in the premiums for any fire and ex-
tended coverage insurance policy carried by Landlord on the day before Tenant
shall have first gone into possession of the Property under this Lease, Tenant
shall pay, as additional rental, the amount of such increase to Landlord upon
demand and presentation of written evidence of the increase by Landlord.
5.03. Liability Insurance. During the Lease term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense, in-
suring Landlord against liability arising out of the ownership, use, occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000, and shall be subject to periodic increase based upon in-
flation, increased liability awards, recommendation of professional insurance
advisors, and other relevant factors. However, the amount of such insurance
shall not limit Tenant's liability nor relive Tenant of any obligation here-
under. The policy shall contain cross-liability endorsements, if applicable,
and shall insure Tenant's performance of the indemnity provisions of Section
5.04. Such policy shall contain a provision which prohibits cancellation or
modification of the policy except upon thirty (30) day's prior written notice
to Landlord. Tenant may discharge its obligations
<PAGE>
under this Section by naming Landlord as an additional insured under a policy
of comprehensive liability insurance maintained by Tenant and containing the
coverage and provisions described in this Section. Tenant shall deliver a copy
of such policy or certificate (or a renewal thereof) to Landlord prior to the
Commencement Date and prior t the expiration of any such policy during the
Lease Term. If Tenant fails to maintain such policy, Landlord may elect to
maintain such insurance at Tenant's expense. Tenant shall, at Tenant's ex-
pense, maintain such other liability insurance as Tenant deems necessary to
protect Tenant.
5.04. Indemnity. Landlord shall not be liable to Tenant or to Tenant's em-
ployees, agents or visitors, or to any other person whomsoever, for any injury
to person or damage to property on or about the Property or any adjacent area
owned by Landlord caused by the negligence or misconduct of Tenant, its employ-
ees, subtenants, licensees or concessionaires or any other person entering the
Property under express or implied invitation of Tenant, or arising out of the
use of the property by Tenant and the conduct of its business therein, or aris-
ing out of any breach or default by Tenant in the performance of its obli-
gations hereunder, and Tenant hereby agrees to indemnify Landlord and hold it
harmless from any loss, expense or claims arising out of such damage or injury.
Tenant shall not be liable for any injury or damage caused by the negligence or
misconduct of Landlord, or its employees or agents, and Landlord agrees to in-
demnify Tenant and hold it harmless from any loss, expense or damage arising
out of such damage or injury.
5.05. Waiver of Subrogation. Each party hereto waives any and every claim
which arises or may arise in its favor against the other party hereto during
the term of this Lease or any renewal or extension thereof for any and all loss
of, or damage to, any of its property located within or upon, or constituting a
part of, the Property, which loss or damage is covered by valid and collectible
fire and extended coverage insurance policies, to the extent that such loss or
damage is recoverable under such insurance policies. Such mutual waivers shall
be in addition to, and not in limitation or derogation of, any other waiver or
release contained in this Lease with respect to any loss of, or damage to,
property of the parties hereto. Inasmuch as such mutual waivers will pre-
clude the assignment of any aforesaid claim by way of subrogation of otherwise
to an insurance company (or any other person), each party hereby agrees im-
mediately to give to each insurance company which has issued to it policies of
fire an extended coverage insurance, written notice of the terms of such mutual
waivers, and to cause such insurance policies to be properly endorsed, if
necessary, to prevent the invalidation of such insurance coverages by reason of
such waivers.
ARTICLE SIX: USE OF PROPERTY
6.01. Permitted Use. Tenant may use the Property only for the permitted use
stated in Section 1.08.
6.02. Compliance with Law. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances in or upon, or connected with the Proper-
ty, all at Tenant's sole expense.
6.03. Certificate of Occupancy. Tenant may, prior to the commencement of the
term of this Lease, apply for a Certificate of Occupancy to be issued by the
municipality in which the Property is located, but this Lease shall not be
contingent upon issuance thereof. Nothing herein contained shall obligate
Landlord to install any additional electrical wiring, plumbing or plumbing fix-
tures which are not presently existing on the property, or which have not been
expressly agreed upon by Landlord in writing.
6.04. Signs. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including
but not limited to the roof or exterior walls of the building or other improve-
ments thereon, or paint or otherwise deface said exterior walls. Any signs in-
stalled by Tenant shall conform with applicable laws and deed and other re-
strictions. Tenant shall remove all signs at the termination of this Lease and
shall repair any damage and close any holes caused or revealed by such removal.
6.05. Utility Services. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water and electricity used on the Property, and for all electric lights, lamps
and tubes.
6.06. Landlord's Access. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the Property (a) to inspect the
general condition and state of repair thereof, (b) to make repairs required or
permitted under this Lease, (c) to show the property to any prospective Tenant
or purchaser or (d) for any other reasonable purpose. During the final 150
days of the lease Term, Landlord and its authorized agents shall have the right
to erect and maintain on or about the Property customary signs advertising the
Property for lease or for sale.
6.07. Quiet Possession. If Tenant pays the rent and complies with all other
terms of this Lease, Tenant may occupy and enjoy the Property for the full
Lease Term, subject to the provision of this Lease.
6.08. Exemptions from Liability. Landlord shall not be liable for any damage
or injury to the person, business (or any loss of income therefrom), goods,
wares, merchandise or the property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Property, whether such damage or
injury is caused by or results from (a) fire, steam, electricity, water, gas
or rain, (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or any other cause, (c) conditions arising on or about the Property or upon
other portions of any building of which the Property is a part, or from other
sources or places; or (d) any act or omission of any other tenant of any build-
ing of which the Property is a part. Landlord shall not be liable for any such
damage or injury even though the cause of our the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
6.08 shall not however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
ARTICLES SEVEN: MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. Acceptance of Premises. Tenant acknowledges that it has fully inspected
the Property and accepts the Property in its condition as of the execution of
this Lease as suitable for the purposes for which it is leased. Tenant
acknowledges that ,except as stated in the following sentence, neither Landlord
nor an agent of Landlord has made any representation as to the condition of the
Property or the suitability of the Property for Tenant's intended use. Land-
lord represents that on the Commencement Date, the plumbing, electrical system
and exterior doors, heating system, air conditioning equipment existing on the
date of this Lease, are in good operating condition.
7.02. Landlord's Obligation to Repair. Subject to the provisions of Article
Eight (Damage or Destruction) and Article Nine (Condemnation) and except for
damage caused by any act or omission of Tenant, Landlord shall keep the foun-
dations, roof and the structural portions of exterior walls of the improvements
of the Property in good order, condition and repair. However, Landlord shall
not be obligated to maintain or repair windows, doors, plate glass or the
surfaces of walls. In addition, Landlord shall not be obligated to make any
repairs under this Section until a reasonable time after receipt of written
notice from Tenant of the need of such repairs. If any repairs are required to
be made by Landlord, Tenant shall, at Tenant's sole cost and expense, promptly
remove Tenant's fixtures, inventory, equipment and other Property, to the ex-
tent required to enable Landlord to make such repairs. Landlord's liability
hereunder shall be limited to the cost of such repairs or corrections. Tenant
waives the benefit of any present or future law which might give Tenant the
right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the property.
7.03. Tenant's Obligation to Repair. Subject to the provisions of the last
sentence of Section 7.01., the pre preceding Section 7.02, Article Eight
(Damage or Destruction) and Article Nine (Condemnation), Tenant shall, at all
times, keep that portion of the Property not required to be maintained by
Landlord in good order, condition and repair, including but not limited to
repairs (including all necessary replacements) of the windows, plate glass,
doors, heating system, air conditioning equipment, interior and exterior plumb-
ing and the interior of the building in general, and including care of land-
scaping and regular mowing of grass. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
exterior walls caused by Tenant's acts or missions. If Tenant fails to main-
tain and repair the property as required by this section, Landlord may, on ten
(10) days prior written notice, enter the Property and perform such maintenance
or repair on behalf of Tenant, except that no notice shall be required in case
of emergency, and Tenant shall reimburse Landlord for all costs incurred in
performing such maintenance or repair immediately upon demand.
7.04. Alterations. Additions and Improvements. Tenant shall not create any
openings in the roof or exterior walls, or make any alterations, additions or
improvements shall not be unreasonably withheld by Landlord. Tenant shall have
the right to erect or install shelves, bins, machinery air conditioning or
heating equipment and trade fixtures, provided that Tenant complies with all
applicable governmental laws, ordinances and regulations. At the expiration or
termination of this lease, Tenant shall, subject to the restrictions of Section
7.05 below, have the right to remove such items so installed by, provided
Tenant is not in default at the time of such removal and provided further that
Tenant shall, at the time of
<PAGE>
removal of such items, repair in a good and workmanlike manner any damage
caused by installation or removal thereof. Tenant shall pay for all costs in-
curred or arising out of alterations, additions or improvements in or to the
Property and shall not permit a mechanic's or materialism's lien to be asserted
against the Property. Upon request by Landlord, Tenant shall deliver to Land-
lord proof of payment reasonably satisfactory to Landlord of all costs incurred
or arising out of any such alterations, additions or improvements.
7.05. Conditions upon Termination. Upon the termination of the lease, Tenant
shall surrender the property to Landlord, broom clean and in the same condition
as received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of the lease. However, Tenants shall
not be obligated to repair any damage which Landlord is required to repair
under article Eight (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not
made with Landlord's consent) prior to the termination of the lease and to re-
store the property to its prior condition, all at Tenant's expense. All alter-
ations, additions and improvements which Landlord has not required Tenant to
remove shall become Landlord's property and shall be surrendered to Landlord
upon the termination of the lease. In no event, however, shall Tenant remove
any of the following materials or equipment without Landlord's prior written
consent: any power wiring or power panels; lighting or lighting fixtures; wall
coverings,; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLES EIGHT: DAMAGE OR DESTRUCTION
8.01. Notice. If the building or other improvements situated on the property
should be damaged or destroyed by fire, tornado or other casualty, Tenant shall
immediately give written notice thereof to Landlord.
8.02. Partial Damage. If the building or other improvements situated on the
property should be damaged by fire, tornado or other casualty but not to such
an extent that rebuilding or repairs cannot reasonably be completed within 120
days from the date Landlord receives written notification by Tenant of the
happening of the damage, this lease shall not terminate, but Landlord shall,
at its sole cost and risk, proceed forthwith and use reasonable diligence to
rebuild or repair such building and other improvements on the property (other
than leasehold improvements made by Tenant or any assignee, subtenant or other
occupant of the property) to substantially the condition in which they existed
prior to such damage; provided, however, if the casualty occurs during the
final 18 months of the lease term, Landlord shall not be required to rebuild or
repair such damage unless Tenant shall exercise its renewal option (if any is
contained herein) within fifteen (15) days after the date of receipt by Land-
lord of the notification of the occurrence of the damage. If Tenant does not
elect to exercise its renewal option or if there is no renewal option contained
herein or previously unexercised at such time, this lease shall terminate at
the option of Landlord and rent shall be abated for the unexpired portion of
this lease, effective from the date of actual receipt by Landlord of the
written notification of the damage. If the building and other improvements are
to be rebuilt or repaired and are untenantable in whole or in part following
such damage, the rent payable hereunder during the period in which they are
untenantable shall be adjusted equitably.
8.03. Substantial or Total Destruction. If the building or other improvements
situated on the Property should be substantially or totally destroyed by fire,
tornado or other casualty, or so damaged that rebuilding or repairs cannot
reasonably be completed within 120 days from the date Landlord receives written
notification by Tenant of the happening of the damage, this lease shall
terminate at the option of Landlord and rent shall be abated for the unexpired
portion of this lease, effective from the date of receipt by Landlord of such
written notification. If this lease is no terminated, the building and the im-
provements shall be rebuilt or repaired and rent abated to the extent provided
under Section 8.02.
ARTICLE NINE: CONDEMNATION
If, during the term of this lease or any extension or renewal thereof, all or a
substantial part of the property should be taken for any public or quasi-public
use under any governmental law, ordinance or regulation or by right of eminent
domain, or should be sold to the condemning authority under threat of
condemnation, this lease shall terminate and the rent shall be abated during
the unexpired portion of this lease, effective from the date of taking of the
property by the condemning authority. If less than a substantial part of the
demised premises is taken for public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, Landlord, at its option, may
be written notice terminate this lease or shall forthwith at its sole expense
restore and reconstruct the buildings and improvements (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
property) situated on the Property in order to make the same reasonably tenant-
able and suitable for the use for which the property is leased as defined in
section 6.01. The rent payable hereunder during the unexpired portion of this
lease shall be adjusted equitably. Landlord and Tenant shall each be entitled
to receive and retain such separate awards and portions of lump sum awards as
may be allocated to their respective interests in any condemnation proceedings.
The termination of this lease shall not affect the rights of the respective
parties to such awards.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, assign this
lease or sublet the property or any portion thereof. Any assignment or sub-
letting shall be expressly subject to all terms and provisions of this lease,
including the provisions of Section 6.01 pertaining to the use of the property.
In the event of any assignment or subletting, Tenant shall remain fully liable
for the full performance of all Tenants obligations under this lease. Tenant
shall no assign its rights hereunder or sublet the property without first ob-
taining a written agreement from the assignee or sublessee whereby the assignee
or sublessee agrees to be bound by the terms of this lease. No such assignment
or subletting shall constitute a novation. In the event of the occurrence of
an event of default while the property is assigned or sublet, Landlord, in
addition to any other remedies provided herein or by law, may at Landlord's
option, collect directly from such assignee or subtenant all rents becoming due
under such assignment or subletting and apply such rent against any sums due to
Landlord hereunder. No direct collection by Landlord from any such assignee or
subtenant shall release Tenant from the performance of its obligations here-
under.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. Default. The following events shall be deemed to be events of default
under this lease:
(a) Failure of Tenant to pay any installment of the rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of ten (10) days;
(b) Failure of Tenant to comply with any term, condition or covenant of
this lease, other than the payment of rent or other sum of money, and such
failure shall not be cured within thirty (3) days after written notice thereof
to Tenant;
(c) Tenant or any guarantor of Tenant's obligations hereunder shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay its debts or shall make a general assignment for the benefit
of creditors.
(d) Tenant or any guarantor of Tenant's obligations hereunder shall com-
mence any case, proceeding or other action seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property.
(d) Any case, proceeding or other action against Tenant or any guarantor of
Tenant's obligations hereunder shall be commenced seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
Tenant (i) fails to obtain a dismissal of such case, proceeding, or other
action within sixty (60) days of its commencement or (ii) converts the case
from one chapter of the Federal Bankruptcy Code to another chapter or (iii) is
the subject of an Order of Relief which is not fully stayed within seven busi-
ness days after the entry thereof.
(f) Abandonment by Tenant of any substantial portion of the Property or
cessation of the Property for the purpose leased.
11.02. Remedies. Upon the occurrence of any of the events of default listed
in Section 11.01, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever;
<PAGE>
(a) Terminate this lease, in which event Tenant shall immediately surrender
the property to Landlord. If Tenant fails to so surrender such premises, Land-
lord may, without prejudice to any other remedy which it may have for posses-
sion of the property or arrearage in rent, enter upon and take possession of
the property and expel or remove Tenant and any other person who may be occupy-
ing such premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor. Tenant shall pay to
Landlord on demand the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the property
on satisfactory terms or otherwise;
(b) Enter upon and take possession of the Property, by force if necessary,
without terminating this lease and without being liable for prosecution or for
any claim for damages therefor, and expel or remove Tenant and any other person
who may be occupying such premises or any part thereof. Landlord may relet the
property and receive the rent therefor. Tenant agrees to pay to Landlord
monthly or on demand from time to time any deficiency that may arise by reason
of any such reletting. In determining the amount of such deficiency, the
brokerage commission, attorneys' fees, remodeling expenses and other costs of
reletting shall be subtracted from the amount of rent received under such
reletting.
(c) Enter upon the Property, by force, if necessary, without terminating
this lease and without being liable for prosecution or for any claim for
damages therefor, and do whatever Tenant is obligated to do under the terms of
this lease. Tenant agrees to pay Landlord on demand for expenses which Land-
lord may incur in thus effecting compliance with Tenant's obligations under
this lease, together with interest thereon at the rate of twelve percent (12%)
per annum from the date expended until paid. Landlord shall not be liable for
any damages resulting to Tenant from such action, whether caused by negligence
of Landlord or otherwise.
Pursuit of any of the foregoing remedies shall no preclude pursuit of any
of the other remedies herein provided or any other remedies provided by aw, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver
of any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, conditions and covenants herein
contained.
11.03. Notice of Default. Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this lease to Landlord and to
any ground lessor, mortgagee or beneficiary under any deed of trust encumbering
the property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure, Land-
lord shall not be in default if such cure is commenced within such thirty (30)
day period and thereafter diligently pursued to completion.
11.04. Limitation of Landlord's Liability. As used in this lease, the term
"Landlord" means only the current owner or owners of the fee title to the
property or the leasehold estate under a ground lease of the property at the
time in question. Each Landlord is obligated to perform the obligations of
Landlord under this lease only during the time such Landlord owns such interest
or title. Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this lease to be
performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds previously
paid by Tenant if such funds have not yet been applied under the terms of this
lease.
ARTICLE TWELVE: LANDLORD'S LIEN
In addition to the statutory Landlord's lien, Tenant hereby grants to Land-
lord a security interest to secure payment of all rent and other sums of money
becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated in or upon the
property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of Landlord until all arrear-
age in rent and other sums of money then due to Landlord hereunder shall first
have been paid and discharged. Upon the occurrence of an event of default,
Landlord may, in addition to any other remedies provided herein or by law,
enter upon the property and take possession of any and all goods, wares, equip-
ment, fixtures, furniture and other personal property of Tenant situated on the
property without liability for trespass or conversion, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any such sales. Un-
less otherwise required by law, notice to Tenant of such sale shall be deemed
sufficient if given in the manner prescribed in this lease at least ten (10)
days before the time of the sale. Any public sale made under this Article
shall be deemed to have been conducted in a commercially reasonable manner if
held on the Property or where the property is located, after the time, place
and method of sale and general description of the types of property to be sold
have been advertised in a daily newspaper published in Dallas County, Texas,
for five consecutive days before the date of the sale. Landlord or its assigns
may purchase at a public sale and, unless prohibited by law, at a private sale.
The proceeds from any disposition dealt with in this Article, less any and all
expenses connected with the taking of possession, holding and selling of the
property (including reasonable attorneys' fees and legal expenses(), shall be
applied as a credit against the indebtedness secured by the security interest
granted herein. Any surplus shall be paid to Tenant or as otherwise required
by law; Tenant shall pay any deficiencies forthwith. Upon request by Landlord,
Tenant agrees to execute and deliver to Landlord a financing statement in
form sufficient to perfect the security interest of Landlord in the afore-
mentioned property and proceeds thereof under the provision of the Uniform
Commercial Code in force in the State of Texas. The statutory lien for rent
is expressly reserved; the security interest herein granted is in addition and
supplementary thereto.
ARTICLE THIRTEEN: PROTECTION OF LENDERS
13.01. Subordination. Landlord shall have the right to subordinate this lease
to any ground lease, deed of trust or mortgage encumbering the property, and
advances made on the security thereof and any renewals, modifications, consol-
idations, replacements or extension thereof, whenever made or recorded. How-
ever, Tenants right to quiet possession of the property during the lease term
shall not b disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this lease prior to the lien
of its ground lease, deed of trust or mortgage whether this lease is dated
prior or subsequent to the date of said ground lease, deed of trust or mortgage
or the date of recording thereof.
13.02. Attornment. If Landlords interest in the property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgagee or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the property and recognize such transferee or successor
as Landlord under his lease. Tenant waives the protection of any state or rule
of law which gives or purports to give Tenant any right to terminate this lease
or surrender possession of the property upon the transfer of Landlord's
interest.
13.03. Signing of Documents. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or subord-
ination or agreement to do so. If Tenant fails to do so within ten (10) days
after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the attorney-in-
fact of Tenant to execute and deliver any such instrument or document.
13.04. Estoppel Certificates.
(a.) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provision of this lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this lease has not been cancel-
led or terminated; (iii) the last date of payment of the Base Rent and other
charges and the time period covered by such payment; and (iv) that Landlord is
not in default under this lease (or, if Landlord is claimed to be in default,
stating why). Tenant shall deliver such statement to Landlord within ten (10)
days after Landlord's request. Any such statement by Tenant may be given by
Landlord to any prospective purchaser or encumbrancer of the property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provision of this lease have not been changed except as otherwise represented
by Landlord; (ii) that this lease has not been cancelled or terminated except
as otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is note
in default under the lease. In such event, Tenant shall be estopped from deny-
ing the truth of such facts.
13.05. Tenant's Financial Condition. Within ten (10) days after written re-
quest from Landlord, Tenant shall deliver to Landlord such financial statements
as are reasonably required by Landlord to verify the net worth of Tenant, or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement
is a
<PAGE>
true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth herein.
ARTICLE FOURTEEN: REALTORS' COMMISSIONS
14.01. Amount and Manner of Payment of Commissions. Commissions due to the
undersigned Principal REALTOR shall be calculated and paid as follows:
(a) [struck from lease]
(b) Landlord agrees to pay to the undersigned Principal REALTOR a commis-
sion for negotiating this lease equal to the percentage stated in Section 1.11B
of the total rent to become due to Landlord during the term of this lease.
Said commission shall be payable to Principal REALTOR on the date of the exe-
cution of this lease.
14.02. Commissions on Renewal, Expansion or Purchase. If during the term of
this lease (as the same may be renewed or extended) or within ten (10) years
from the date hereof, whichever shall be the greater period of time, Tenant,
its successors or assigns, shall (a) exercise any right or option to renew or
extend the term of this lease (whether contained in this lease or in any amend-
ment, supplement or other agreement pertaining hereto) or enter into a new
lease or rental agreement with Landlord covering the Property, or (b) enter
into any lease, extension, renewal, expansion or other rental agreement with
Landlord demising to Tenant any premises located on or constituting all or part
of any tract or parcel of real property adjoining, adjacent to or contiguous
to the Property and owned by Landlord on the date of this lease. Landlord
shall pay to the Principal REALTOR an additional commission covering the full
period of such renewal, extension, lease, expansion or their rental agreement
which shall be due on the date of exercise, in the case of the exercise of an
option, or the execution, in the case of a lease or other agreement. Such com-
missions shall be computed under Section 14.01(a) or 14.01(b) above (whichever
has been made applicable under Section 1.11A), as if a new lease had been made
for such period of time. In the event Tenant, its successors or assigns,
should purchase the Property at anytime, pursuant to a purchase option contain-
ed in this lease (or any lease, extension, renewal, expansion or other rental
agreement upon which an additional commission would be due under the above
provisions) or, in the absence of any purchase option or exercise thereof,
should purchase the Property within ten (10) years form the date hereof, Land-
lord shall pay to the undersigned Principal REALTOR a sales commission in cash
equal six percent (6%) of the purchase price, payable at closing. Upon closing
of the sale, all lease commissions shall terminate if the lease commissions are
payable monthly.
14.03. Joint Liability of Tenant. Tenant expressly acknowledges and agrees
that if Tenant enters into any new lease, extension, renewal, expansion or
other agreement to rent, occupy or purchase any property described in the pre-
ceding Section 14.02 within the time specified in such preceding Section, such
agreement must be handled by and through the undersigned Principal REALTOR,
otherwise Tenant shall be jointly and severally liable with Landlord for any
commissions due or to become due to Principal REALTOR.
14.04. Sale. In the event of a sale of the Property or the assignment of this
lease by Landlord, Landlord shall obtain from the purchaser or assignee an
Assumption Agreement in recordable from whereby such purchaser or assignee
agrees to pay the undersigned Principal REALTOR all commission payable under
this lease and shall deliver a fully executed counterpart hereof to Principal
REALTOR on the date of closing of the sale of the property or assignment of
this lease. Landlord shall be released from personal liability for subsequent
payments of commissions only upon the delivery of such counterpart of said
Assumption Agreement. Landlord expressly agrees that it will not transfer,
convey or sell the property or assign this lease without first obtaining from
the purchaser or assignee such Assumption Agreement. The form of such Assump-
tion Agreement shall be furnished to the Principal REALTOR at the time Landlord
enters into any contract for the sale of the Property or assignment of this
Lease.
14.05. Termination. The termination of this lease by the mutual agreement of
Landlord and Tenant, Tenant not being in default hereunder, shall not affect
the right of the Principal REALTOR to continue to receive monthly commission
agreed to be paid by Landlord under Section 14.01(a) above, just as if Tenant
had continued to occupy the Property and had paid the monthly rental during
the remaining term of this lease. Termination of this lease under Article
Eight, or Article Nine shall terminate the right to such monthly commission.
14.06. Lien. [section struck from lease]
ARTICLE FIFTEEN. MISCELLANEOUS
15.01. Force Majeure. In the event performance by Landlord of any term, con-
dition or covenant in this lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood, or any other cause not within the control of
Landlord, the period for performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or hinder-
ed.
15.02. Interpretation. The captions of the Articles or Sections of this Lease
are to assist the parties in reading this lease and are not a part of the terms
or provisions of this lease. Whenever required by the context of this lease,
the singular shall include the plural and the plural shall include the sing-
ular. For convenience, each party hereto is referred to in the neuter gender,
but the masculine, feminine and neuter genders shall each include the other.
In any provision relating to the conduct, acts or missions of Tenant, the term
"Tenant" shall include Tenant's agents, employees, contractors, invitees, suc-
cessors or others using the property with Tenant's expressed or implied permis-
sion.
15.03. Waivers. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provisions of this lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this lease in the future.
No statement on a payment check from Tenant or in a letter accompanying a pay-
ment check shall be binding on Landlord. Landlord may, with or without notice
to Tenant, negotiate such check without being bound to the conditions of such
statement.
15.04. Severability. A determination by a court of competent jurisdiction
that any provision of this Lease or any part thereof is illegal or unenforce-
able shall not cancel or invalidate the remainder of such provision or this
lease, which shall remain in full force and effect.
15.05. Joint and Several Liability. All parties signing this lease as Tenant
shall be jointly and severally liable for all obligations of Tenant.
15.06. Incorporation of Prior Agreements; Modifications. This lease is the
only agreement between the parties pertaining to the lease of the Property and
no their agreements are effective. All amendments to this lease shall be in
writing and signed by all parties. Any other attempted amendment shall be
void.
15.07. Notices. All notices required or permitted under this lease shall be
in writing and shall be personally delivered or shall deemed to be delivered,
whether actually received or not, when deposited in the United States mail,
postage pre-paid, registered or certified mail, return receipt requested,
addressed as stated herein. Notices to Tenant shall be delivered to the
address specified in Section 1.03 above, except that, upon Tenant's taking pos-
session of the property, the property shall be Tenant's address for notice pur-
poses. Notices to any other party hereto shall be delivered to the address
specified in Article One as the address for such party. Any party hereto
may change its notice address upon written notice to the other parties.
15.08. Attorney's Fees. If on account of any breach or default by any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal REALTOR), it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
<PAGE>
15.09. Venue. All obligations hereunder, including but not limited to the
payment of commissions to the Principal REALTOR, shall be performable and pay-
able in Dallas, Dallas County, Texas.
15.10. Governing Law. The laws of the State of Texas shall govern this Lease.
15.11. Survival. All obligations of any party hereto not fulfilled at the ex-
piration or the earlier termination of this Lease shall survive such expiration
or earlier termination as continuing obligations of such party.
15.12. Binding Effect. This Lease shall inure to the benefit and be binding
upon each of the parties hereto and their heirs, representatives, successors
and assigns; provided, however, Landlord shall have no obligation to Tenant's
successors or assigns unless the rights or interests of such successors or
assigns are acquired in accordance with the terms of this Lease.
15.13. Execution as Offer. The execution of this lease by the first party to
do so constitutes an offer to lease the Property. Unless within the number of
days stated in Section 1.15 above from the date of its execution by the first
party to do so, this lease is accepted by the other party and a fully executed
copy is delivered to the first party, such offer shall be automatically revoked
and terminated.
ARTICLE SIXTEEN: ADDITIONAL PROVISIONS AND RIDERS
Additional provisions may be set forth in the blank space below, and/or a
rider or riders attached hereto. If no additional provisions are to be insert-
ed in the blank space below, please draw a line through such space. If no
rider or riders are to be attached hereto, please state "no riders" in the
blank space below. If a rider or riders are to be attached hereto, please
state in the blank space below: "See rider or riders attached," and please have
Landlord and Tenant initial all such riders.
See Rider attached.
EXECUTED as of the date stated in Section 1.01 above.
ATTEST:
____________________________ LANDLORD: Hargis Investments
By: /s/ KENNETH HARGIS
Kenneth Hargis
Title: President
Date of Execution by Landlord: 5-2-91
ATTEST:
/s/ ELISA MILLER TENANT: Sublingual Products International
By: /s/ JERRY MCCLURE, PRESIDENT
Jerry McClure
Title: President
Date of Execution by Tenant: 5-1-91
REALTORS
None CB Commercial Real Estate Group, Inc.
______________________ _______________________________
Cooperating REALTOR Principal REALTOR, Member of
The Greater Dallas Board of
REALTORS, Inc.
By:_________________________ By: /s/ STAN MCCLURE
Stan McClure
*NOTE: If this Lease Agreement is negotiated by Principal Realtor in
cooperation with another Realtor, Landlord shall be liable for payment of all
commissions to Principal Realtor only, whereupon it shall be protected from any
claims from said Cooperating Realtor.
<PAGE>
16.01 Rent:
The rent schedule for the term of the Lease is as follows:
Months 1-12 $3,300 month
Months 13-24 $3,900 month
Months 25-36 $4,100 month
16.02. Tenants Right to Purchase:
Tenant will have the option to purchase the property during the first year of
the lease term for $420,000. Landlord will apply a purchase credit of $20,000
in the event the property is purchased during the first year of the lease term.
Provided Tenant has not exercised its option to purchase the property during
the first year of the lease term, they will have the first right of refusal to
purchase the property in second and third year for $450,000 and $460,000 re-
spectively. Tenant will have ten (10) days from the date of written notifi-
cation by Landlord of receipt of an acceptable offer from another party within
which to exercise their right to purchase the property.
Tenant will notify Landlord, in writing, within the specified time period
whether they intend to exercise their right to purchase the property at the
applicable price stated above. In the event Tenant does not notify landlord in
writing within the applicable time period of their intent to purchase the
property, it will be deemed that Tenant forfeits its right to purchase and will
have no further rights of refusal to purchase the property.
MODIFICATION AND RATIFICATION OF LEASE
This Modification and Ratification of Lease Agreement is made and entered
into between Hargis Investments (Lessor) and Sublingual Products International,
Inc. (Lessee) for and in consideration of One Dollar ($1.00) and other good and
valuable consideration, receipt of which is hereby acknowledged.
W I T N E S S E T H :
1. Lessor and Lessee hereby confirm and ratify, except as modified below, all
of the terms, conditions and covenants in that certain written Lease Agreement
dated May 1, 1991, between Lessor and Lessee, for the rental of the following
described property: An approximate 8,482 square foot office/service/warehouse
facility situated on approximately 20,855 square feet of land known as Site 4A,
Block 1, Brookhollow, Arlington, Tarrant County, Texas and commonly as 1229
Corporate Drive West.
2. Lessee's name shall be changed from Sublingual Products International, Inc.
to Pharmaceutical Laboratories, Inc. and will assume all obligations of the
Lease Agreement under this name.
3. Effective May 1, 1994, Lessee's monthly base rental shall increase from
$4,100.00 per month to $4,771.13.
4. All other terms and conditions of the Lease Agreement will remain the same.
5. Effective May 1, 1994 the lease term will be extended for thirty-six (36)
months, expiring April 30, 1997. /i/ JMc
Signed at Fort Worth, Texas, this 29th day of March, 1994.
LESSOR: HARGIS INVESTMENTS
By: /s/ JEFF HARGIS
Jeff Hargis
Title: Vice President
LESSEE: PHARMACEUTICAL LABORATORIES, INC.
Attest: _____________ By: /s/ JERRY MCCLURE
(corporate seal) Jerry McClure
Title: President
STATE OT TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TARRANT )
CONTRACTUAL AGREEMENT
WHEREAS Dr. Michel Hegi, of 321 Artesian Street, Corpus Christi, Texas,
hereinafter known as Dr. Hegi, is the owner of certain real property fully
described in Exhibit "A" which is attached hereto and expressly made a part of
this agreement for all purposes;
WHEREAS Phytolab, Inc. a corporation whose principal place of business is
3117 Cabaniss Parkway, Corpus Christi, Texas 78415, hereinafter referred to as
Phytolab is the owner of certain assets fully described in Exhibits "B" and "D"
which are attached hereto and expressly made a part of this agreement for all
purposes;
WHEREAS Pharmaceutical laboratories, Inc., a corporation whose principal
place of business is 1229 West Corporate Drive, Arlington, Texas 76006, herein-
after referred to as PHLB is desirous of purchasing the real property owned by
Dr. Hegi and the assets owned by Phytolab;
WHEREAS Artesian Group, Inc., is a Texas Corporation solely owned by Dr. Hegi
and a legal entity under which Dr. Hegi chooses to conduct his future business;
NOW THEREFORE FOR THE MUTUAL CONSIDERATION HEREIN EXPRESSED, THE
RECEIPT AND ADEQUACY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES DO HEREBY
ENTER INTO THE FOLLOWING BINDING CONTRACTUAL AGREEMENT:
I.
PHLB will transfer Three Hundred Thousand (300,000.00) shares of restricted
common stock in PHLB to Artesian Group, Inc. a Texas Corporation solely owned
by Dr. Hegi on or before April 15, 1995.
II.
On or before April 15, 1995, Dr. Hegi will execute all documents including a
Warranty Deed necessary to transfer ownership and fee simple title in and to
the real property fully described in Exhibit "A" to PHLB subject to the one
mortgage existinq against it in favor of MBANK Corpus Christi N.A., dated June
26, 1990 in the original principal amount of Two Hundred Forty Two Thousand
Five Hundred Dollars ($242,500.00). This mortgage is to be assumed by PHLB.
Dr. Hegi will be responsible for paying all real property taxes pertaining to
this real property for 1994 and previous years. Taxes for 1995 will be pro-
rated to Apri1 15, 1995.
<PAGE>
III.
On or before April 15, 1995, Dr. Hegi will cause Phytolab to execute a bill of
sale conveying all of the assets listed on Exhibits "B" and "D" to PHLB free
and clear of all indebtedness. It is agreed that PHLB is acquiring all of the
equipment currently located in Phytolab's building and this agreement shall
include any and all equipment therein located in the event it is inadvertently
omitted from Exhibit "D".
IV.
It is agreed and understood that PHLB is acquiring selected assets only of
Phytolab and that it will not be assuming any of Phytolab's liabilities of
whatsoever nature including but not limited to the followinq, to-wit:
1) All accounts payable of every nature in the approximate amount of
$72,922.00 including among others those listed on Exhibit "C" which is
attached hereto for identification purposes.
2) Notes payable in the approximate amount of $5,800.00 specifically including
a January 3, 1995 note payable to Dr. Hegi in the amount of $2,300.00, a
January 3, 1995 note payable to M. Marshall in the amount of $1,000.00 and
a January 6, 1995 note payable to M. Marshall in the amount of $2,500.00.
3) Long-term liability owing officers or stockholders in the approximate
amount of $10,000.00.
4) All personal property taxes for 1994 and previous years pertaining to the
personal property.
Phytolab and Dr. Hegi will remain responsible for the payment of the afore-
mentioned liabilities and they do hereby covenant to indemnify and totally hold
PHLB harmless from all obligations of every nature relating thereto, as well as
any lawsuits, foreseen or unforseen, resulting from any activity of Phytolab
heretofore existing or which may occur in the future.
V.
It is agreed that Phytolab will retain all of it's accounts receivable in the
approximate amount of $72,000.00, and it's note receivable of approximately
$10,000.00 as reflected by it's January 17, 1995 Financial Statement, hereto-
fore presented to PHLB.
VI.
The parties acknowledge that they have heretofore entered into a Letter of
Intent similar in nature to this Agreement on March 1, 1995. That Letter of
Intent expressed the desire of the parties to proceed with a more detailed
agreement and this Agreement is in fact that document. The parties agree that
this Agreement completely supersedes the March 1, 1995 Letter of Intent in all
respects, that it contains the entire agreement between the parties relating
to the subject matter hereof, and all prior agreements relative hereto which
are not contained herein are terminated.
<PAGE>
VII.
This agreement in intended to be performed in accordance with, and only to the
extent permitted by, all applicable laws, ordinances, rules and regulations. If
any provisions of this Agreement or the application thereof to any person or
circumstances shall, for any reason and to any extent, be invalid or unen-
forceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
VIII.
Dr. Hegi acknowledges that he has received full authority to execute this
agreement on behalf of Phytolab, Inc., and to bind them to the terms herein
expressed. Jerry McClure acknowledges that he has received full authority to
execute this agreement on behalf of PHLB and to bind them to the terms herein
expressed.
IX.
Dr. Hegi acknowledges that he has received full authority from Artesian Group,
Inc. to acquire title to the 300,000 shares of PHLB restricted stock in their
name and that this action is one of the important considerations of this Agree-
ment.
X.
This Agreement shall be binding upon and shall inure to the benefit of the
parties to this agreement, and their respective heirs, legal representatives,
successors and assigns.
XI.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Texas.
EXECUTED the __________ day of April, 1995.
/s/ DR. MICHEL HEGI /s/ DR. MICHEL HEGI
Dr. Michel Hegi, Individually Dr. Michel Hegi, President of
Phytolab, Inc.
/s/ JERRY MCCLURE /s/ DR. MICHEL HEGI
Jerry McClure, President Dr. Michel Hegi, President of
Pharmaceutical Laboratories, Artesian Group, Inc.
Inc.
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF NUECES )
This instrument was acknowledged before me on this the 19th day of April,
1995 by Dr. Michel Hegi.
/s/ JANE ROY
Notary Public State of Texas
THE STATE OF TEXAS )
)
COUNTY OF NUECES )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Dr. Michel Hegi, known to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said Phytolab, Inc., a
corporation, and that he executed the same as the act of such corporation
for the purposes and consideration therein expressed, and in the capacity
therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 19th day of April, 1995.
/s/ JANE ROY
My commission expires: Notary Public State of Texas
1-8-96 Jane Roy
Notary's Printed Name
THE STATE OF TEXAS )
)
COUNTY OF NUECES )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Dr. Michel Hegi, known to me to be the
person and officer whose name is subscribed
<PAGE>
to the foregoing instrument, and acknowledged to me that the same was the act
of the said Artesian Group, Inc., a corporation, and that he executed the same
as the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 19th day of April, 1995.
/s/ JANE ROY
My commission expires: Notary Public State of Texas
1-8-96 Jane Roy
Notary's Printed Name
THE STATE OF TEXAS )
)
COUNTY OF TARRANT )
BEFORE ME, the undersigned, a Notary Public in and for said County and State,
on this day personally appeared Jerry McClure, known to me to be the person and
officer whose name is subscribed to the foregoing instrument, and acknowledged
to me that the same was the act of the said Pharmaceutical Laboratories, Inc.,
a corporation, and that he executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 17 day of April, 1995.
/s/ STEVE PLANT
My commission expires: Notary Public State of Texas
06-07-97 Steve Plant
Notary's Printed Name
[notary stamp as follows: Steve Plant, Notary Public, State of Texas, Comm.
Exp. 06-07-97]
