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)
3117 Cabaniss Parkway
Corpus Christi, Texas 78415
--------------------------------------------------
(Address of principal executive offices)
Issuer's Telephone Number: (800) 856-7040
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 24, 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.
On August 12, 1996, the Company acquired three privately held companies
located in Harlingen, Texas. The three companies, Benson's Aloe Farms, Inc.;
Aloe Pharmaceuticals, Inc.; and Aloe Laboratories, Inc., are all Texas
corporations and all are wholly-owned subsidiaries of the Company.
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
over one hundred (100) additional products.
PRODUCTS & SALES
The Sublingual Liquid Solutions
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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 avoiding the problem of vitamin
pills which may not be dissolved in the stomach. In order for vitamins to be
absorbed by the cells of the body, they must enter the bloodstream.
Unfortunately, when taken in the form of pills, there are numerous factors that
prevent the vitamin from being totally effective. Factors that influence the
ineffectiveness of the vitamin pill include: dissolving too slowly, containing
binders and fillers, being too large, and containing yeast and other allergenic
products. As a result, many of the active ingredients of the vitamin pill pass
through the body without being absorbed.
In sublingual application, the vitamins and minerals are absorbed by the
surface capillaries under the tongue, much like some traditional prescriptive
medications. 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 are 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 almost immediate relief, which is due to the drug's
fast absorption into the body's system.
In 1997, the Company began focusing on developing its own brand name
recognition. There was a concerted effort toward developing a line of products
to be marketed through all accounts, thus increasing brand-name awareness.
The B-Total Solution - This B-12 vitamin is easy to take. It has the
essential, water-soluble B vitamins with extra B-12 and Vitamin C, in a great-
tasting, under the tongue dosage form. The B-Total Solution is a great
alternative for sometimes ineffective pills and capsules.
The Chromium Solution - For the first time, Chromax, the most
readily absorbed and biologically active form of chromium picolinate is now
available in liquid sublingual dosage form. Chromium is an essential trace
mineral that is reported to be deficient in 9 out of 10 American diets and is
required for normal protein, fat and carbohydrate metabolism.
The Melatonin Solution - This sublingual formula allows fast, effective
absorption of melatonin. The 1 mg per 1 cc dose allows one to take only the
amount of melatonin needed 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 Vitamin E Solution - The Vitamin E Solution is the easy and delicious
way to get 200 IU of this powerful antioxidant every day. This liquid Vitamin E
solution is mycellized for increased bioavailability. (Mycellized is the
process by which the fat soluble Vitamin E is broken down into minute
particles.)
The Herbal Liquid Solutions
- ---------------------------
This entire line of products is scheduled for introduction in the first
quarter of 1998. This means that distribution will get under way in early 1998
and be on the shelves in the first quarter.
Recent publicity about Herbal products such as St. John's Wort for
depression, and Ginkgo Biloba for memory loss, have exploded the demand for
these specific products as well as brought increased credibility to the entire
nutritional supplement industry.
Each of these products allow the customer to select one of their favorites
in a fast acting liquid that tastes great. The better absorption of liquids
ensures these quality products are a great value.
Ginkgo Biloba Solution - One of ginkgo's most important benefits is its
ability to increase vasoldilation (expansion of blood vessels) and thereby
improve blood flow in capillaries and arteries, especially in peripheral areas
such as the lower extremities of the brain.
Ginseng Solution - Research indicates that ginseng nutritionally supports
healthy adaptogenic action. Adaptogenic action increases the body's overall
resistance to stress. In many countries, Siberian Ginseng is used as a tonic to
invigorate and fortify the body during fatigue, weakness and times of stress.
The Ginseng Solution contains only standardized ginseng extract for guaranteed
potency.
Kava Kava Solution - Kava Kava is a member of the pepper family. Kava Kava
has been traditionally used for its relaxing effects. Due to its diuretic
effect, it has also been used to treat gout and rheumatism.
St. John's Wort Solution - Herbalists now know that the flowers of the
plant called St. John's Wort, used for centuries to heal wounds, contain
hypercin, a substance with germicidal, anti-inflammatory and antidepressant
properties.
The Special Formula Liquid Solutions
- ------------------------------------
The Calcium Solution - Every delicious dose of 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 part of this unique formula. Regular exercise and a healthy diet
with enough calcium may help women maintain good bone health and reduce their
risk of osteoporosis later in life.
The Vitamin C Solution - The Vitamin C Solution is the easy and delicious
way to get 500mg of this powerful antioxidant every day. Just one teaspoon of
this 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 Cold Solution - The Cold Solution combines the best cold and flu
fighting nutritionals in an easy to use liquid. This product has it all: zinc,
one of the most effective minerals used today; echinacea and goldenseal, the
most popular herbs used in cold weather; and Vitamin C and bioflavonoids, which
are also important cold season nutrients.
The Glucosamine Solution - Like all body tissues, joints require a
constant supply of nutrients to maintain their vital function. Glucosamine is
a simple sugar component of glucosaminoglycans, a gel-like substance found in
connective tissue and joint cartilage. It is milder than conventional anti-
inflammatories.
The Multi-Vitamin Solution - There are many reasons why virtually everyone
should make multiple vitamin supplementation a part of their daily routine.
Even if we do our very best to eat right, there is still the question of how
much of the nutritional content of food is lost in the processing or
preparation of these foods. With the introduction of The Multiple Vitamin
Solution, there is no longer the need to wonder. You can be certain of the
efficacy when using this liquid multi-vitamin formula. There are no fillers or
binders that could inhibit the nutrients from being effectively utilized.
The Super-Strength Aloe Vera Liquid Solutions
- ---------------------------------------------
Super-Strength Aloe Vera - Aloe's use for medicinal purposes goes back
thousands of years. Aloe vera has been highly recommended for internal use
to relieve gastrointestinal disorders, and studies show that the ingestion
of aloe vera may also be beneficial by lowering serum cholesterol and enhancing
immune cell function.
Super-Strenght Aloe Vera with Echinacea - All the benefits of Aloe plus
Echinacea. One component of echinacea activates a part of the immune system
that actually enhances the movement of certain types of white blood cells into
areas of infection; and bacteria, viruses and other microorganisms are
destroyed. For those with impaired immune function, long-term use may provide
benefit. Echinacea strengthens the immune system against cold viruses and
possesses antivirul activity against influenza, herpes, and other viruses.
Super-Strengh Aloe Vera with Ginger - All the benefits of Aloe plus
ginger. Ginger is used as a safe, inexpensive alternative for motion sickness.
Far superior to Dramamine (100 mg) in relieving symptoms of nausea and
vomiting. Ginger doesn't cause tiredness and has no known side effects. It's
known to reduce dyspepsia and stomach pains, aids digestion, and ginger
contains 11 compounds that have demonstrated anti-ulcer effects.
The introduction of selected new products to the existing account base has
already begun. Initial response has been very positive and distribution is
expected in early 1998. The Company is prepared to introduce these new products
in phase one of its plan to increase the brand-name product line. The entire
product line is known as Liquid Solutions. The line of products features
attractive new packaging with a consistent theme and can be readily identified
by its golden-drop logo.
In addition to the increased distribution of the Company's Liquid
Solutions brand-name product line, the Company continues to develop its
private-label division. Prestigious new accounts in this division indicate
virtually unlimited potential.
Research and Development
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. 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.
The Company employs three registered chemists, headed by Hugh D. Bryan,
R.Ph., M.S., who are responsible for R & D, product blending, and all areas
of Quality Control. Mr. Bryan has been with the Company for over eight years
and received his Master's Degree in Pharmaceutical Chemistry from the
University of Nebraska. He 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. Mr. Bryan is currently acting as a consultant to the Company in
the area of research and development.
In 1996 the Company increased the emphasis in the research and development
of new products. As a result, products will be introduced into all areas of
marketing with the introductions carefully timed in order to maximize their
impact. Over one hundred new products have been developed over the past twelve
months and many more are in various states of completion. The Company retains
ownership of every formula developed. A continuous effort is planned in
Research & Development that will keep the Company on the leading edge of liquid
nutritional technology.
Pharmaceutical Laboratories, Inc. is recognized internationally for its
ability to develop liquid and liquid sublingual products that are on the
leading edge of nutritional technology.
Over one hundred new products have been developed over the past twenty
four months and Company plans call for a continued commitment to its Research
and Development department.
Quality Control
Major emphasis has been placed on quality control. State-of-the-art
laboratories and equipment are a major reason why the Company has developed its
reputation as a leader in developing and producing quality products. These
allow the Company to do their own testing in:
HPLC - (product potency assurance)
Micro-Biological - (yeast & mold, salmonella, and other contaminants)
Stability - (shelf life)
Few manufacturing companies make this kind of investment to have in-house
capabilities in these areas due to the extreme cost of equipment and qualified
scientific personnel. Some results of this attention to quality are the recent
certifications of twenty-nine Aloe products by the International Aloe Science
Council.
Governmental Regulation
The Company's processing and packaging operations are subject to various
Federal and state laws and regulations. The manufacturing formulation, labeling
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 agencies of the states into which the Company's
products are shipped and/or sold.
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 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 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.
State of the art equipment make it possible for the Company to maintain
its commitment to producing only products of the highest quality.
Areas of Business
At the end of 1997 the Company had two production facilities with each
specializing in their respective areas.
Corpus Christi Facilities
The Company's brand name Liquid Solutions and private label products are
manufactured in the facility located in Corpus Christi, Texas. This plant
consists of approximately 30,000 square feet and is situated on two acres.
There are four lines of production equipment that are semi-automated. Future
plans call for bringing each line into complete automation. This will
dramatically increase production and lower cost.
An additional 15,000 square feet is available on four acres near the main
manufacturing facility. This property was acquired in anticipation of future
expansion.
Four automated production lines make it possible for the Company to work
on four different products at the same time, or all lines can be devoted to a
single product if the size of the order justifies. This flexibility enhances
the Company's ability to maximize manufacturing efficiencies.
Production Mixing Lab
Batch sizes from two hundred gallons to over one thousand gallons can be
produced in this area, thus giving the Company unparalleled flexibility to
accommodate small or large orders. The design of the work area allows multiple
products to be produced simultaneously.
Aloe Laboratories Facility
Located in Harlingen, Texas, this 1996 acquisition of a twenty-year-old
company positions Pharmaceutical Laboratories to become a true leader in the
aloe industry. In Harlingen, the Company maintains several fields where aloe
plants are both organically and inorganically grown. A processing facility
converts the plants to concentrates where it is then made into finished
products, both ingestible and topical. This area of business holds great
promise as has been proven by the receipt of orders from major customers. The
entire complex consists of approximately 20,000 square feet of buildings and
100 acres of aloe fields.
Distribution
The Company has achieved a national and international distribution base
which includes chain drug stores and health food stores, independently-owned
drug stores, as well as drug wholesale companies, health food distributors and
grocery stores. Stores are allocating more shelf space to vitamins and
supplements as sales continue to increase. With a potential distribution base
of over 100,000 retail outlets, and with the current distribution base of
approximately 15,000 to 20,000 outlets, the Company's focus is to increase
sales on a per store basis as well as adding new accounts.
Acquisitions
There have been two acquisitions since the beginning of 1995. Each has
helped to move the Company forward. Due to the positive impact realized as a
result of these deals, the Company plans on actively pursuing additional
companies that will integrate well with the current structure. Several factors
will be considered such as products, personnel, facilities, and the potential
of each prospect. With two very positive acquisitions completed, management is
confident that there are many excellent candidates available and will put forth
considerable effort in this area.
Private Label
In the past, Pharmaceutical Laboratories devoted a great deal of time and
money to developing the relationship with its largest account, General
Nutrition Corporation. The Company was required to keep a significant inventory
of GNC's brand name products (which could not be sold to any other customer).
This inventory was required due to GNC's insistence that products be shipped
within a few days of receipt of their purchase orders. Obviously, due to lead
times required on component parts and raw materials, these inventories had to
be prepared well in advance of anticipated orders. In 1996, the Company
received orders from GNC on approximately 100 new products. Some of these new
products sold as GNC anticipated they would and consequently repeat orders were
received. On the other hand, others did not sell for GNC and little or no
orders were received. It is with these products that the Company began to
experience inventory problems. The dollar amount of GNC inventory is well in
excess of one million dollars. Obviously, this has negatively affected the
Company's cash flow. As of this date the Company no longer sells to General
Nutrition Corporation and has made demand that this problem be resolved. The
Company has not received a satisfactory reply and is contemplating further
action.
New contracts are already in place on an international scale with other
customers. Purchase orders have been received and production is on-going.
Because of the strength of the companies the Company is doing business with,
and the nature of the agreements, management feels confident that a solid
foundation is in place.
Catalog
For several years the Company has gathered valuable marketing information
from its most loyal customers by placing a survey card inside each box of
product. The customer can join The Ambassador Club by completing the
information card and mailing it to the Company. At this time over 65,000 people
have joined this club.
In late 1996 the Company began a test marketing project through a
newsletter that offered only a few of the products. This test was expanded to a
small catalog in 1997. The results have been very impressive and the Company is
in the process of preparing a complete catalog including the new "Liquid
Solutions" line.
The catalog is scheduled for mailing in the first quarter of 1998. Due to
the results achieved from the test marketing, management believes there is
considerable potential in this area of business.
MARKET & MEDIA
Market
The Company was founded in 1986 upon the belief that the awareness of the
many benefits that are found in vitamin, mineral and herbal products would
spread, not only throughout the industry that sells them but, more importantly,
among the end-users. Even though management anticipated this would occur, the
popularity has exceeded all expectations. Until recently, only health food
stores featured these products. Today, the huge mass-marketers such as chain
drug stores and discount retailers have become believers. In the past, these
stores have limited sales to the most popular vitamins and minerals. Today,
their shelves are full of herbal remedies and specialty products. In fact,
chain store buyers predict that these new categories will be their biggest
producers.
Market Potential
There is a vast number of potential outlets through which the products can be
sold:
o chain drug stores
o grocery stores
o independent drug stores
o independent health stores
o health care professionals
Management also believes there is a market for specialty products through
gyms, salons and a variety of other outlets. In addition, a line of products is
being considered for veterinarian and pet stores. One such product is already
being produced for private label.
Competition
While the nutritional product business, as well as the pharmaceutical
industry in general, are acutely competitive in the traditional vitamin "pill"
business, management of the Company believes that there is little competition
in the liquid and liquid sublingual category.
Marketing Program
It is customary for most stores to display vitamins in categories. As an
example: all Vitamin C would be placed together on the shelf with no
distinction made for various brand names or forms: pill, liquid, or capsule.
It is very confusing for the consumer and makes it difficult, if not
impossible, for them to find liquids. Until now, there were simply not enough
liquids to warrant a sub-category. This is now possible due to the extensive
R & D work done in the Company's own labs that has produced approximately one
hundred products in vitamin, mineral, herbal, aloe vera and special combination
formulas.
A new concept was developed for a totally separate liquid category to be
marketed in a free-standing display. Now customers can easily locate their
favorite product. By consolidating the entire line in a single presentation
piece, the following is accomplished:
o the integrity of the line is maintained
o synergistic effect of in-store and media advertising
o brand name recognition ensured
Marketing Program
We are presently in the time of the year when stores re-set' the shelves.
We continue to do business with the chain stores as before but are still
awaiting word on the number of products that each of the chain stores will be
adding to the line. Due to the fact that our accounts only have a minimum
number of products currently on their shelves, the potential volume that could
be developed from the addition of all the new products is very high.
Advertising
In today's competitive market it becomes more and more difficult to create
an impression on the general public. The liquids story and their added benefits
offer a definite advertising edge. Also, a single commercial can promote the
entire product line. The focal point will be the advantages of liquid. This
differs from commercials that feature a single product and allows for more
effective use of advertising dollars. When the customer is driven to the stores
as a result of the advertising they will be exposed to the entire line.
Over the years the Company has gained valuable knowledge about how
effective advertising can be for our products. Some products respond better
than others, but it seems that once the public is made aware of these liquids,
they buy.
In one co-operative venture with a major retailer featuring the B-Total
product, sales rose from an average of one unit per-week-per-store to over
twenty units per-week-per-store. While it is unlikely that all products will
enjoy this type of increase, it is just as likely that a significant increase
will occur.
It must be pointed out that the Company has maintained shelf space in
thousands of retail outlets without adequate advertising support. This can only
be attributed to the loyal customers who have spread their enthusiastic support
through word-of-mouth advertising. Over sixty-five thousand customers have
taken time to complete a survey card and return it to the Company with their
positive comments. The timing is right for an all-out advertising campaign that
should push the Company toward the top of the industry.
Recent media coverage of herbal products included St. John's Wort for
depression, and Ginkgo for memory support. Clinical results also show that
Ginkgo appears to be beneficial in fighting Alzheimer's. There are many other
good news stories about the alternative medicines and the trend is expected
to continue. The medical profession is now acknowledging the importance of
nutritional supplementation and even recommending them to their patients.
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 Calendar year
ending 12/31/94, 12/31/95, and 12/31/96.
1994 and 1995 results showed an increase in both sales and net profits.
The majority of sales in both years were developed from the sale of one of the
Company's brand name products, Sublingual B-Total. In these years only a small
number of products were being produced under private label for other customers.
In 1996 the Company had a request from a major retailer to develop over
one hundred new product formulations that could be sold under their brand name.
Although management realized that such a move would cause the Company to incur
great expense, the decision was made to take on the project.
As a result of successfully developing the long list of products, orders
were received. This placed increased demands on the production department
leading to the acquisition of additional equipment and facilities. Labor costs
dramatically increased due to overtime and added shifts required to meet the
customer's demands. The customer insisted that a sufficient inventory for each
product be kept on hand in order to meet their shipping schedules. This was
done with the understanding that they were responsible for all finished goods
and component parts.
In the first quarter of 1997 Pharmaceutical Laboratories, Inc.'s
management began to express concerns over the inventory of certain products
produced under private label for the customer. Due to the uncertainty created
over the inventory dispute, the Company's auditors elected to write off
$371,000 of the private label inventory in 1996.
At this time, the Company is working with legal counsel in an effort to
resolve the problem.
Even though sales for 1996 were $8,222,231 representing a 80% increase
over 1995 sales of $4,578,815, the Company showed a significant loss. Listed
below are several of the factors contributing to the loss:
$525,000 R & D of approximately 100 new products
$41,896 Stock adjustment from 1995 acquisition in Corpus Christi
$117,395 Inventory adjustment - from 1995 acquisition
$371,000 Inventory adjustment - finished goods inventory of major,
private label account
$77,264 Deferred taxes
$176,638 Costs attributed to acquisition of the three Harlingen
companies
__________
$1,309,193 Total
Note: The Company no longer does business with the private label
customer in question. In mid-year 1997 a decision was made to focus on building
the Company's "Liquid Solutions [trademark]" brand name of products. The new
line was expanded to include over thirty products, carefully selected to meet
the needs of the customer base. The line is being introduced in the first
quarter of 1998. Early results are very positive.
Income Statement Data
1997<F1> 1996 1995 1994 1993
_________ _________ _________ _________ _________
Net Sales 5,259,153 8,222,231 4,578,815 3,312,352 2,807,146
Gross Profit 2,576,173 3,119,422 2,594,578 1,987,834 1,834,614
Net Income (Loss) (987,264) (1,050,025) 446,421 422,647 (894,709)
____________________________________________________________________________
<F1> Unaudited
Financial Condition
The Company currently has a line of credit 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.
3) A $400,000 advance-type loan.
The Company was also extended a $1,200,000 line of credit in July of 1997
by Cindy Lagasse, an officer and director of the Company.
On April 19, 1995, the Company purchased 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.
In May of 1996 the Company purchased 2.25 acres of property in Corpus
Christi, Texas with two, 5,000 square foot facilities on the property which
will be used for additional production capacity and storage of finished goods.
The Company purchased the property and buildings for $175,000. The down payment
of $35,000 was made in the form of 11,667 shares of the Company's restricted
stock, with the remaining balance of $140,000 financed over fifteen years at an
interest rate of 9.5% APR, and monthly payments of $1,461.91.
In August of 1996, the Company acquired three aloe vera companies in
Harlingen, Texas, which is located approximately 130 miles south of Corpus
Christi. The Company purchased the three aloe companies for 350,000 shares of
restricted common stock. The acquisition brought with it approximately $1.6
million in assets, $300,000 in liabilities, as well as a full line of aloe vera
juices and topical products.
The Company added semi-automated filling equipment in 1995 on a lease-
purchase basis. The lease-purchase option was chosen in order to conserve cash
flow while increasing the production capacity.
In 1993 the Company made a decision to participate in a cooperative
advertising venture with one of its largest customers, General Nutrition
Corporation (GNC). The cost of this campaign accounted for approximately two-
thirds of the total advertising budget of 1993. This increased the Company's
advertising expenses to the point that significant losses for the year were
recorded. However, due to this advertising campaign, the Company experienced
notable sales increases and profitability for the fiscal year ending December
31, 1994. GNC related that the increase sales achieved during this campaign set
all time records for a single product line.
Management believes that the financial condition of the Company will
continue to improve in 1998. Significant growth and accelerated product
movement are anticipated as a result of the first quarter 1998 advertising
effort, the hiring of new sales personnel, the acquisition of the 20,000 square
foot production facility in Corpus Christi, Texas, the acquisition of the two
5,000 square foot production facilities and the acquisition of three aloe vera
companies in Harlingen, Texas.
YEAR 2000
The Company has conducted a comprehensive review of its computer,
telephone and alarm systems to identify the systems that could be affected by
the Year 2000 issue and is developing an implementation plan to resolve the
issue.
The issue is whether computer systems will properly recognize date-
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The company is heavily dependent on computer processing in the
conduct of its business activities.
1. The Company's general plans to address the Year 2000 issues
Pharmaceutical Laboratories, Inc. has identified three areas which could be
affected by the Year 2000 issue: computer systems, telephone systems, and
security/alarm systems.
A. Computer Systems
The Company uses various computer software packages to operate the
business, the majority of which are small "canned" programs which
are used in day-to-day operations. The Company has inquired of
Microsoft Corporation as to the related Year 2000 issues and their
respective software (i.e., Microsoft Office and related programs)
and has been assured that the software versions the Company has are
new enough to not be affected by any Year 2000 issues. The Company
also uses a UPS shipping software system which is a 1998 version and
will not be affected adversely by any Year 2000 concerns.
The Company's accounting software system is a DOS based system
developed by an independent computer programmer. The software is
CMS software, and according to the developer of the software, the
program has three main issues for the Company to consider. The first
is that both accounts payable and accounts receivable aging reports
will show '97, '98, and '99 dates to be current and '00 dates to be
over 90 days old. If the Company does nothing this problem will go
away after the '97, '98 and '99 dated invoices are paid and purged
from the system. Invoices paid after 1/1/00 automatically purge.
The second issue is the open-order-file and the manner in which the
orders are selected to be filled to assure the older order dates or
due dates will be shipped first. The system will attempt to select
order dated 01/10/00 instead of orders dated 12/01/99. The Company
system is written with override capabilities for shipping functions
so that manual corrections may be made for corrections in the short-
term for the first three months of 2000.
The third involves the selection of data. The CMS software is date
sensitive in that it can select reports using dates. The flexibility
is useful for re-creating older reports, what if reports, and end of
month reports. To keep this option in tack several programs must be
changed to recognize that "FROM 12/01/99 TO 01/31/00" is a valid
date range.
The developer of the CMS software has tested the corrections for the
past six months for another customer that uses this same software
feels confident with the changes made. However, due to the
uniqueness of each customer, the programmer will review the
Company's system for system consistency.
B. Telephone Systems
The Company uses three telephone systems in the Company's three
locations as follows:
i. The Corpus Christi, Texas location uses an AT&T MLS-12D system
which will accommodate Y2K issues.
ii. The Arlington, Texas location uses a ProStar 56ex/120mx system
which will accommodate Y2K issues.
iii. The Harlingen, Texas location uses an IWATSU Omega ZT-D system
which will accommodate Y2K issues.
The Company will experience no additional costs to upgrade or modify
the phone systems to accommodate any Year 2000 issues.
C. Security/Alarm Systems
The Company has alarm systems in all three locations, Corpus
Christi, Arlington and Harlingen. All three systems have been
evaluated for Year 2000 concerns and all are in compliance with Y2K
and have been found free of negative ramifications.
Based on the review of the computer systems, management does not believe
the cost of remediation will be material to the Company's financial position
and result of operations.
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 September 10,
1998, 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.
Title of Class Name and Address Amount & Nature Percent of
of Beneficial Owner of Beneficial Owner Class
- -------------------------------------------------------------------------------
Common Jerry McClure<F1><F2> 1,972,500 20.0%
1212 Horizon Trail
Apt. #3614
Arlington, TX 76011
Common Bobby McClure 805,000 8.0%
1232 Sweepy Hollow
Waco, TX 76712
Common Cynthia Lagasse<F1><F2> 943,000 9.3%
420 Hammond Hwy #325
Metairie, LA 70005
Common Dona Efflandt<F2> 10,200 <F3>
1500 Plantation Oaks Dr.
Apt. #2704
Trophy Club, TX 76262
Common Elisa Miller 870,938 8.6%
Rt. 1, Box 45
Sperryville, VA 22740
Common George Baucom<F2> 11,500 <F3>
118 Melba Drive
Portland, TX 78374
Common All Officers and 2,937,200 29.1%
Directors as a Group
(4 persons)
[FN]
<F1> A Director of the Company
<F2> An Officer of the Company
<F3> Less than 1%
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.
Name Age Position
_______________________________________________________________________
Jerry McClure 62 President, Chief Executive
3614 Horizon Trail Officer and a Director
Arlington, Texas 76011
Dona Efflandt 40 Secretary/Treasurer
1500 Plantation Oaks Drive
Apt # 2704
Trophy Club, TX 76262
Cynthia Lagasse 43 Director
420 Hammond Hwy #325
Metairie, LA 70005
George E. Baucom 40 Chief Financial Officer
118 Melba Drive
Portland, Texas 78374
Officers, Directors, Promoters and Control Persons
JERRY McCLURE, age 60, 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
marketplace. 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 development of new liquid sublingual products, as well as the continued
growth in sales of existing products.
DONA EFFLANDT, age 40, 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. In
early 1997, Ms. Lagasse assumed a more active role in the Company and became
Executive Vice President. 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. She spent twenty years at Lagasse Brothers, the family business in
New Orleans engaged primarily in the wholesale and distribution aspects of
industrial maintenance supplies, which was sold in October of 1996.
GEORGE E. BAUCOM, age 40, 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 1996, 1997
and 1998. No officers received remuneration totaling $100,000 per year or more.
Long-Term Compensation
-------------------------
Annual Compensation Awards Payouts
----------------------- ---------------- -------
Name Year Salary Bonus Other Res. Sec. LTIP All
and Annual Stock Under- Payouts Other
Principal Compen- Award(s) Lying Compen-
Position sation Options/ sation
SARs
- -----------------------------------------------------------------------------
Jerry McClure 1998 $40,000 -0- -0- -0- -0- -0- -0-
CEO, President 1997 $60,000 -0- -0- -0- -0- -0- -0-
and a Director 1996 $60,000 -0- -0- -0- -0- -0- -0-
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors of the Company may hold other positions outside of
the employment 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.
High Bid Low Bid
__________________________
Fiscal Year Ending December 31, 1998
Fourth Quarter Ending 12/31/98 .875 .59375
Third Quarter Ending 9/30/98 3.125 .75
Second Quarter Ending 6/30/98 1.875 1.125
First Quarter Ending 3/31/98 1.50 .31
Fiscal Year Ending December 31, 1997
Fourth Quarter Ending 12/31/97 1.00 .50
Third Quarter Ending 9/30/97 1.875 .75
Second Quarter Ending 6/30/97 1.75 1.25
First Quarter Ending 3/31/97 2.19 1.63
Stockholders
There approximately 850 shareholders of record for the Company as of
the date of this submission.
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 a party to a pending legal proceeding with the former
owners of the Company's subsidiaries, Aloe Pharmaceuticals, Inc., Aloe
Laboratories, Inc., and Benson's Aloe Farms, Inc. The former owners allege,
among other things, certain misrepresentations or omissions by the Company in
the negotiations of these acquisitions. The outcome of this pending legal
proceeding is uncertain at this time; however, management of the Company
believes it will be favorable to the Company. The Company is not a party to
any other pending legal proceedings, which would have a material affect upon
their operations or financial statements.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In 1998 the Company changed accounting firms to Fields, Nemec & Company
in Corpus Christi, Texas. This firm is part of the McGladrey Network. During
the two most recent fiscal years, the Company 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.
Date Type of Number of Number of Consideration
Security Securities Investors
Issued
______________________________________________________________________________
4/30/96 Common 197,500 11 Issued pursuant to a
Stock Confidential Private
Placement Offering Memorandum
dated March 20, 1996 pursuant
to which the Company offered
500,000 shares of common
stock at $2.00 per share
pursuant to an exemption
under Regulation D and
Section 4(2) of the
Securities Act of 1933.
5/16/96 Common 4,000 1 These securities were issued
to Ira Ritter for services
rendered valued at $2.875 per
share for an aggregate of
$33,062.50.
5/16/96 Common 22,000 4 These securities were issued
to Tamara Tribe, Zhong L.
Shu, Karen Fry, and Dona
Efflandt for services
rendered, valued at $1.00 per
share for an aggregate of
$22,000.00.
6/13/96 Common 11,667 1 These securities were issued
to Sons of Herman for a down
payment on the purchase of
two properties located in
Corpus Christi, Texas, which
shares were valued at $3.00
per share for an aggregate of
$35,001.00.
6/13/96 Common 50,000 2 Issued pursuant to a
Confidential Private
Placement Offering Memorandum
dated March 20, 1996 pursuant
to which the Company offered
500,000 shares of common
stock at $2.00 per share
pursuant to an exemption
under Regulation D and
Section 4(2) of the
Securities Act of 1933.
7/3/96 Common 85,949 1 These securities were issued
to Clint & Marie Lagasse for
the conversion of a loan due
to Clint & Marie Lagasse from
the Company, valued at $1.00
per share for an aggregate of
$85,949.00.
7/16/96 Common 35,000 3 These securities were issued
to High Growth Capital,
Northeast Securities and
Joseph H. Popolow for
services rendered,
valued at $3.00 per share for
an aggregate of $105,000.00.
7/26/96 Common 34,250 7 Issued pursuant to a
Confidential Private
Placement Offering Memorandum
dated March 20, 1996 pursuant
to which the Company offered
500,000 shares of common
stock at $2.00 per share
pursuant to an exemption
under Regulation D and
Section 4(2) of the
Securities Act of 1933.
8/20/96 Common 350,000 5 These securities were issued
to R.C. Benson, Anthony
Benson, Todd Benson, James T.
Lewis and Great Plains
Financial for the purchase of
Aloe Pharmaceuticals, Inc.,
Benson's Aloe Farms, Inc.,
and Aloe Laboratories, Inc.,
valued at $3.00 per share for
an aggregate of $1,050,000.
10/24/96 Common 12,000 3 These securities were issued
to Northeast Securities,
Joseph H. Popolow and Raymond
W. Harding for services
rendered, valued at $2.375
per share for an aggregate of
$28,500.
11/4/96 Common 2,500 1 Issued pursuant to a
Confidential Private
Placement Offering Memorandum
dated March 20, 1996 pursuant
to which the Company offered
500,000 shares of common
stock at $2.00 per share
pursuant to an exemption
under Regulation D and
Section 4(2) of the
Securities Act of 1933.
1/30/97 Common 2,000 1 These securities were issued
to Warren for services
rendered, valued at $1 per
share for an aggregate of
$2,000.
1/30/97 Common 1,500 1 These securities were issued
upon a debenture conversion
and are valued at $2 per
share for and aggregate of
$3,000.
1/30/97 Common 8,600 43 These securities were issued
to employees of the Company
as an employee bonus in
increments of 200 shares per
employee, valued at $1.00
per share or $200 per
employee.
2/25/97 Common 2,500 1 These securities were issued
to Callaway for an
appraisal service, valued at
$2,500 or $1.00 per share.
2/25/97 Common 650 4 These securities were issued
to 4 individuals as a
conference prize, valued at
$1.00 per share for an
aggregate of $650.00.
2/28/97 Common 26,712 2 These securities were issued
to two firms for broker
relations, valued at $1.00
per share for an aggregate
of $26,712.00.
3/18/97 Common 167,200 1 These shares were issued
to Continental Capital
Corporation for investor
relations services, valued
at $1.75 per share or an
aggregate of $292,600.00.
4/29/97 Common 5,000 4 These shares were issued to
4 employees as an employee
bonus, valued at $1.9375
per share or an aggregate
of $9,687.50.
4/29/97 Common 100 1 These shares were issued to
Eddie Villareal for
mechanic services rendered,
valued at $1.9375 per share
or an aggregate of $193.75.
6/4/97 Common 600 5 These shares were issued to
4 individuals as a conference
prize, valued at $1.4375
per share or an aggregate
of $862.51.
8/15/97 Common 19,360 44 These shares were issued to
44 individuals for
conversion of an
aggregate of $21,780 in
debentures at a conversion
price of $1.125 per share.
9/24/97 Common 50,000 1 These shares were issued to
the Company's legal counsel,
Max C. Tanner, for legal
services rendered, valued at
$1.00 per share or an
aggregate of $50,000.00.
9/24/97 Common 600 5 These shares were issued to 4
individuals as a conference
prize, valued at $1 per
share or an aggregate of
$600.00.
11/24/97 Common 500 1 These shares were issued to
one individual for
conversion of $437.50
in a debenture at a
conversion price of $.875
per share.
2/9/98 Common 20,000 2 These shares were issued to
companies for broker
relations services valued at
$1.00 per share or an
aggregate of $20,000.00.
3/25/98 Common 2,000 1 These shares were issued to
William Ward as a real estate
commission valued at $1.00
per share or an aggregate of
$2,000.00.
7/23/98 Common 300,000 2 These shares were issued to
Ontario Ltd. and Rolling
Capital Corp. for broker
relations services valued
at $1.00 per share or an
aggregate of $300,000.
7/23/98 Common 515,800 33 These shares were issued to
33 individuals pursuant to a
Regulation D, Rule 504
offering at $1.00 per share,
or an aggregate of
$515,800.00.
7/23/98 Common 5,000 1 These shares were issued to
Sydney G. Baucom for legal
services rendered valued at
$1.00 per share or an
aggregate of $5,000.00.
7/23/98 Common 20,000 1 These shares were issued to
Capital Alliance Corporation
for broker relations
services valued at $1.00 per
share or an aggregate of
$20,000.00.
7/23/98 Common 3,000 1 These shares were issued to
David Cundick for legal
services rendered valued at
$1.00 per share or an
aggregate of $3,000.00.
7/29/98 Common 434,200 32 These shares were issued to
32 individuals pursuant to a
Regulation D, Rule 504
offering at $1.00 per share
or an aggregate of
$434,200.00.
7/29/98 Common 276,200 Broker & investor relations
at $1.00 per share.
7/31/98 Common 2,750 1 These shares were issued to
Paul Ingles for equipment
repair services valued at
$1.00 per share or an
aggregate of $2,750.00.
8/7/98 Common 53,000 2 These shares were issued to
2 individuals for broker
relations and legal services
valued at $1.00 per share
or an aggregate of $53,000.
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>
PART F/S
<PAGE>
PHARMACEUTICAL LABORATORIES, INC.
Year Ended December 31, 1998
Consolidated
BALANCE SHEET
ASSETS 1998 1997
------------ ----------
CURRENT ASSETS
Cash $ 65,652 $ 11,265
Accounts receivable 834,405 444,011
Accounts receivable - other 190,648 280,758
Investment in subsidiary 413,144 413,144
Inventory 1,804,996 2,092,358
Prepaid expenses 48,569 117,255
Other assets 37,500 37,500
____________ __________
Total Current Assets 3,394,915 3,396,291
FIXED ASSETS
Building & property 734,620 684,620
Furniture and equipment 1,452,252 1,426,788
Vehicles 43,351 43,351
Building/leasehold improvements 805,421 760,421
____________ __________
Total Fixed Assets 3,035,644 2,915,180
ACCUMULATED DEPRECIATION (418,335) (423,848)
____________ __________
Total Fixed Assets 2,617,309 2,491,332
____________ _________
TOTAL ASSETS 6,012,223 5,887,622
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses (1,284,520) (1,440,860)
Notes payable (1,584,845) (1,903,970)
Note payable - investors (73,000) (73,000)
Due to related parties (1,614,506) (779,506)
____________ __________
Total current liabilities (4,556,871) (4,197,336)
LONG TERM LIABILITIES
Notes payable - long term (202,565) (204,396)
____________ __________
TOTAL LIABILITIES (4,759,436) (4,401,732)
STOCKHOLDERS' EQUITY
Common Stock (10,098) (8,416)
Treasury Stock 804 804
Preferred Stock (2,183) (1,003)
Declared dividends 42,695 91,965
Unearned stock 45,659 42,854
Additional paid-in capital (2,905,488) (4,784,309)
Accumulated deficit 1,778,516 2,184,951
Current year (profit) loss (202,692) 987,264
____________ __________
TOTAL STOCKHOLDERS' EQUITY (1,252,787) (1,485,891)
TOTAL LIAB/STOCKHOLDERS' EQUITY (6,012,223) (5,887,622)
============ ==========
(unaudited)
<PAGE>
PHARMACEUTICAL LABORATORIES, INC.
Year Ended December 31, 1998
Consolidated
INCOME STATEMENT
1998
1998 1997 % of Sales
___________ _____________ __________
SALES
Gross sales 5,128,796 6,097,682 100.00%
Returns, allowances, discounts (425,362) (612,486) -8.29%
Freight (114,309) (226,043) -2.23%
_________ _________
Net Sales 4,589,125 5,259,153 89.48%
Cost of goods (1,692,354) (2,682,980) -33.00%
_________ _________
Gross Profit Margin 2,896,772 2,576,173 56.48%
EXPENSES
Audit expense 24,486 118,321 0.48%
Aloe G&A expense 185,564 --- 3.62%
Aloe manufacturing expense 242,841 --- 4.73%
Advertising 214,173 171,158 4.18%
Advertising sales materials 23,409 19,343 0.46%
Auto expense 8,986 27,003 0.18%
Building maintenance 17,205 38,541 0.34%
Consultation fees 22,739 58,386 0.44%
Contract labor 114,251 58,250 2.23%
Depr/amort. expense 191,121 192,587 3.73%
Dues & subscriptions 920 7,622 0.02%
Equipment maintenance 14,305 10,103 0.28%
Equipment rental 14,121 49,536 0.28%
Insurance 220,319 257,628 4.30%
Interest 140,625 263,969 2.74%
License & fees 17,508 57,490 0.34%
Legal & professional 100,102 309,746 1.95%
Miscellaneous 8,249 10,040 0.16%
Office supplies 26,554 26,123 0.52%
Postage 20,086 39,135 0.39%
Research & analysis 34,875 108,707 0.68%
Rent/lease 22,663 57,416 0.44%
Salaries - office 179,629 237,632 3.50%
Salaries - warehouse 101,025 531,499 1.97%
Salaries - executive 36,563 166,549 0.71%
Salaries - sales 179,989 77,220 3.51%
Production labor 191,694 146,288 3.74%
Sales commissions 5,820 48,960 0.11%
Show & demo expense 39,783 20,524 0.78%
Shipping supplies 3,639 6,111 0.07%
Telephone expense 63,395 70,682 1.24%
Travel expense 84,366 131,546 1.64%
Utilities 47,333 96,283 0.92%
Warehouse supplies 35,178 62,740 0.69%
Taxes - payroll 109,648 94,895 2.14%
Taxes - other 27,571 26,843 0.54%
_________ __________
Total Operating Expenses 2,770,731 3,598,879 54.02%
Other Income 76,651 35,441 1.49%
Net Profit (Loss) 202,692 (987,264) 3.95%
_________ __________
(unaudited)
<PAGE>
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
1997 1996
------------ ----------
ASSETS
CURRENT ASSETS
Cash $ 11,265 $ 408,675
Accounts receivable 724,769 813,824
Due from related party 77,090 77,090
Inventory 2,386,262 2,587,526
Prepaid expenses 117,255 57,742
Income tax receivable - 1,851
Deferred tax asset - -
____________ __________
Total Current Assets 3,316,641 3,946,708
PROPERTY AND EQUIPMENT
Land 85,500 85,500
Building and improvements 760,421 562,470
Leasehold improvements 722,120 504,768
Furniture and equipment 1,426,788 1,248,639
Vehicles 43,351 83,201
Aloe plants 223,772 223,772
____________ __________
Total Fixed Assets 2,994,829 2,708,350
Less accumulated depreciation (423,848) (312,944)
Total Fixed Assets 2,570,981 2,395,406
____________ _________
OTHER ASSETS
Assets held for sale 212,325
Deferred debt issuance cost 35,833
Deposits 27,950
Deferred tax asset -
________
276,108
________
TOTAL ASSETS 5,887,622 6,618,222
<PAGE>
1997 1996
__________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft - 35,429
Notes Payable 1,903,970 1,262,079
Due to related parties 779,506 -
Current maturities of long-term debt 115,623 134,183
Mortgage note payable - -
Debentures payable - 1,003,000
Current obligation under capital leases 118,654 120,590
Trade accounts payable 1,175,408 1,714,553
Accrued expenses 265,452 470,525
Deferred revenues 115,877 136,127
__________ __________
Total current liabilities 4,474,490 4,876,486
LONG TERM LIABILITIES
Debentures payable -
Long-term debt 140,733
Obligation under capital leases 204,396 247,915
_________ __________
204,396 388,648
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
Authorized shares - 25,000,000;
Issued and oustanding shares - 300,000 in 1997 300
Common Stock, $.001 par value;
Authorized shares - 25,000,000
Issued shares - 8,416,288 in 1997;
8,940,966 in 1996 8,416 8,941
Additional paid-in capital 3,688,575 2,956,467
Accumulated deficit (2,184,951) (1,265,862)
__________ __________
1,512,340 1,699,546
__________ __________
Treasury stock (303,604) (303,604)
__________ __________
Deferred compensation and consulting - (42,854)
__________ __________
1,208,736 1,353,088
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,887,622 6,618,222
========== ==========
(unaudited)
<PAGE>
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
DECEMBER 31, 1996 AND 1997
1997 1996
__________ __________
Net sales $5,259,153 $8,222,231
Cost of sales 2,682,980 5,102,809
__________ __________
Gross Profit 2,576,173 3,119,422
Selling, general and administrative expenses 3,290,917 3,825,620
__________ __________
Operating income (loss) (714,744) (706,198)
Other income (expense)
Interest expense (263,969) (239,432)
Interest income 8,642 9,085
Other income/expense 35,441 (3,822)
Amortization expense (52,635) (48,082)
__________ __________
Income (loss) before taxes (987,265) (988,449)
Income tax (provision) benefit 0 (61,576)
__________ __________
Net income (loss) ($987,265) ($1,050,025)
Net income (loss) per common share ($0.12) ($0.12)
Weighted average number of common shares 8,416,288 8,904,302
<PAGE>
PHARMACEUTICAL
LABORATORIES, INC.
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
<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 Operations.................................3
Consolidated Statements of Changes
in Stockholders' Equity...........................................4
Consolidated Statements of Cash Flows.................................5
Notes to Consolidated Financial Statements............................8
<PAGE>
[letterhead]
To the Board of Directors
Pharmaceutical Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of
Pharmaceutical Laboratories, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, 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 subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, certain conditions exist which raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also decribed in Note 2. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ WEAVER AND TIDWELL, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 25, 1997
2931
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1996 AND 1995
1996 1995
___________ __________
ASSETS
CURRENT ASSETS
Cash $ 408,675 $ 62,951
Accounts receivable, net of allowance for
uncollectible accounts - 1996 $105,656;
1995 $55,944 813,824 1,701,946
Due from related party 77,090 7,600
Inventory 2,587,526 718,978
Prepaid expenses 57,742 38,126
Income tax receivable 1,851 1,851
Deferred tax asset - 35,430
____________ __________
Total current assets 3,946,708 2,566,882
____________ __________
PROPERTY AND EQUIPMENT
Land 85,500 85,500
Building and improvements 562,470 364,500
Leasehold improvements 504,768 16,912
Furniture and equipment 1,248,639 588,707
Vehicles 83,201 43,351
Aloe plants 223,772 -
____________ __________
2,708,350 1,098,970
Less accumulated depreciation 312,944 137,052
____________ __________
2,395,406 961,918
____________ __________
OTHER ASSETS
Assets held for sale 212,325 -
Deferred debt issuance cost 35,833 44,015
Deposits 27,950 11,250
Deferred tax asset - 39,983
____________ __________
276,108 95,248
____________ __________
TOTAL ASSETS $6,618,222 $3,624,048
============ ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
<PAGE>
Page 2
1996 1995
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 35,429 $ 25,503
Notes payable 1,262,079 265,000
Current maturities of long-term debt 134,183 40,000
Mortgage note payable - 198,588
Debentures payable 1,003,000 -
Current obligation under capital leases 120,590 13,298
Trade accounts payable 1,714,553 654,586
Accrued expenses 470,525 330,494
Deferred revenues 136,127 14,377
___________ __________
Total current liabilities 4,876,486 1,541,846
___________ __________
LONG-TERM LIABILITIES
Debentures payable - 592,000
Long-term debt 140,733 -
Obligation under capital lease 247,915 11,917
___________ __________
388,648 603,917
STOCKHOLDERS' EQUITY
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 - 8,940,966 in 1996,
8,106,100 in 1995 8,941 8,106
Additional paid-in capital 2,956,467 1,716,516
Accumulated deficit (1,265,862) (215,837)
___________ __________
1,699,546 1,508,785
Treasury stock (303,604) (30,500)
Deferred compensation and consulting (42,854) -
___________ __________
1,353,088 1,478,285
___________ __________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,618,222 $3,624,048
============ ==========
<PAGE>
Page 3
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
_____________ ____________
Net sales $8,222,231 $4,578,815
Cost of sales, including 1996 inventory
valuation allowance of $406,940 5,102,809 1,984,237
__________ __________
Gross profit 3,119,422 2,594,578
Selling, general and
administrative expenses 3,825,620 2,071,683
__________ __________
Operating income (loss) (706,198) 522,895
Other income (expense)
Interest expense (239,432) (151,238)
Interest income 9,085 -
Other income/expense (3,822) -
Amortization expense (48,082) -
__________ __________
Income (loss) before taxes (988,449) 371,657
Income tax (provision) benefit (61,576) 74,764
__________ __________
Net income (loss) ($1,050,025) $ 446,421
=========== ===========
Net income (loss) per common share $ .12 $ .06
=========== ===========
Weighted average number of common shares $8,904,302 $7,856,368
=========== ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements
<PAGE>
Page 4
Accumulated Treasury
Deficit Stock Other Total
_______________ _______________ _______________ _______________
($ 662,258) ($ 500) $ - ($ 29,050)
- - - 430,000
- - - 660,914
- ( 30,000) - ( 30,000)
446,421 - - 446,421
_______________ _______________ _______________ _______________
( 215,837) ( 30,500) - 1,478,285
- - - 143,755
- - - 104,887
- - - 544,000
- - - 448,144
- ( 45,000) - ( 45,000)
- - ( 42,854) ( 42,854)
- ( 228,104) - ( 228,104)
( 1,050,025) - - ( 1,050,025)
_______________ ______________ ______________ ______________
($ 1,265,862) ($ 303,604) ($ 42,854) $ 1,353,088
<PAGE>
Page 5
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) ($ 1,050,025) $ 446,421
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Noncash interest on notes payable - 12,925
Depreciation 175,892 54,423
Amortization 48,082 6,735
Provision for losses on accounts receivable 49,712 49,895
Inventory valution allowance 406,940 -
Deferred tax 61,576 ( 75,413)
Change in assets and liabilities net of effects
from acquisitions:
(Increase) decrease in accounts receivable 1,005,822 ( 1,174,294)
Increase in income tax receivable - ( 1,851)
Increase in inventory ( 1,857,933) ( 444,350)
Increase in prepaid expenses ( 14,703) ( 8,441)
Increase in trade accounts payable 782,029 404,936
Increase in accrued expenses 103,378 45,154
Increase in bank overdraft 9,926 25,503
Increase in deferred revenue 17,577 14,377
Other, net ( 1,928) 10,413
___________ ____________
Net cash used in operating activities ( 263,655) ( 633,567)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 816,804) ( 42,368)
Deposits for investment purchases ( 15,000) ( 11,250)
____________ ____________
Net cash used in investing activities ( 831,804) ( 53,618)
The Notes to Consolidated Financial Statements
are an integral part of these statements.
<PAGE>
Page 6
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable and loans from related parties $ 987,596 592,000
Increase in revolving line of credit, net 270,000 140,000
Proceeds from issuance of common stock 568,500 -
Principal payments on notes payable
and amounts due to related parties ( 92,409) ( 48,334)
Stock issue costs ( 24,500) ( 1,818)
Debt issue costs ( 39,900) ( 50,750)
Payments to repurchase stock ( 228,104) ( 30,000)
____________ ___________
Net cash provided by financing activities 1,441,183 601,098
Net increase (decrease) in cash 345,724 ( 86,087)
Cash at the beginning of the year 62,951 149,038
____________ _____________
Cash at the end of the year $ 408,675 $ 62,951
============ =============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash payments for interest $ 207,966 $ 89,290
=========== ===========
Cash payments for taxes $ - $ 2,500
=========== ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
<PAGE>
Page 7
PHARMACEUTICAL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
_____________ ____________
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
financed through issuance of common stock
Property and equipment $ 35,000 $ 835,223
Mortgage payable assumed - ( 201,779)
____________ _____________
Common stock issued $ 35,000 $ 633,444
=========== =============
Purchase of property and equipment
financed through capital lease: $ 449,334 $ 19,532
=========== ===========
Conversion of shareholder debt to equity $ 85,949 $ 430,000
=========== ============
Acquisitions by issuance of common stock:
Current assets $ 535,208 $ -
Property and equipment 374,233 -
Noncurrent assets 4,905
Current liabilities ( 471,098)
Noncurrent liabilities ( 30,104) -
___________ ____________
Common stock issued $ 413,144 $ -
=========== ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
<PAGE>
Page 8
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include Pharmaceutical Laboratories,
Inc. and its wholly-owned subsidiaries, Aloe Pharmaceuticals, Inc., Aloe
Laboratories, Inc. and Benson Aloe Farms, Inc. (the Aloe Companies). All
intercompany transactions and balances have been eliminated.
Nature of Operations
Pharmaceutical Laboratories, Inc. 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 Aloe Companies grow aloe plants
and process, develop and sell aloe based skin care and consumable aloe
products. The Company grants credit to customers, substantially all of whom
operate within the nutritional and pharmaceutical retail industry.
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 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, 1996 and 1995 is approximately $110,000 and $84,000 respectively, 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, trade receivables and payables approximate fair values due
to short maturities of the instruments.
<PAGE>
Page 8
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments - continued
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.
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.
Amortization
Costs of obtaining financing are amortized over the term of the related
debt.
Property and Equipment
Maintenance and repair expenditures which do not enhance the value or
increase the basic productive capacity fo the assets are charged to expense
as incurred.
Property and equipment are stated at cots [sic]. Aloe plants are carried
at accumulated costs from planting until they mature and become productive.
Depreciation is provided over the estimated useful lives of the assets
primarily by the straight-line method as follows:
Building and improvements 39 years
Leasehold improvements 3 years
Furniture and equipment 3-10 years
Vehicles 5 years
Aloe plants 3 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.
<PAGE>
Page 10
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment - continued
During the year ended December 31, 1996, production equipment was
identified that has not been in use and is not expected to provide future
service potential to the Company. As a result the equipment has been
reported as assets held for sale. No impairment loss has been recognized
because the assets' fair values approximate their carrying values. An
expected disposal date has not been determined.
Reclassification
Certain reclassifications have been made to 1995 current liabilities to
conform to classifications adopted in 1996. The classification had no
effect on total current liabilities at December 31, 1995.
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 (Loss) Per Common Share
Net income (loss) 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 are not included in the
computation of net income (loss) per common share because their effect is
antidilutive.
Stock-based Employee Compensation
The Company accounts for the issuance of equity instruments to employees
under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", which requires compensation
cost to be measured at the date of grant based on intrinsic value for
stock options granted. The intrinsic value of an option is equal to the
difference between the market price of the common stock on the date of
grant and the exercise price of the option.
<PAGE>
Page 11
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Stock-based Employee Compensation - continued
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which provides for an alternative measure of compensation
cost based on the fair value of the options granted. The fair value of an
option is based on the intrinsic value as well as the time value of an
option. See Note 16 for the additional disclosures required by SFAS No.
123.
NOTE 2. UNCERTAINTY
As shown in the accompanying financial statements, the Company generated
a net loss during the year ended December 31, 1996 of $1,050,025, used
cash in operations of $263,655and as of December 31, 1996, has an
accumulated deficit of $1,265,862. In addition, the notes payable and line
of credit have become due and the Company has no firm commitments from
lenders to renew them. These matters raise substantial doubts about the
Company's ability to continue as a going concern. Management has identified
means to raise additional capital including, but not limited to, converting
debentures to stock and has obtained a line of credit from a major
stockholder for $500,000 (see Note 17). In addition, management believes
that current negotiations for the sale of inventory, efforts to extend
payment terms with vendors and renew existing debt agreements will enable
the Company to meet future obligations and continue as a going concern.
NOTE 3. ACQUISITIONS
In August 1996, the Company issued 350,000 shares of restricted common
stock valued at $413,144 to acquire all the capital stock of Aloe
Pharmaceuticals, Inc., Aloe Laboratories, Inc., and Benson Aloe Farms, Inc.
(The Aloe Companies). The Aloe Companies grow aloe plants and manufacture
aloe based topical skin care products. These products are used in the
health and beauty industry and the pharmaceutical industry. The
acquisitions have been accounted for under the purchase method of
accounting and the operating results of the Aloe Companies have been
included in the consolidated results of operations since August 12, 1996.
There was no goodwill recorded related to the acqusitions. Had the
acquisition been made at the beginning of 1995, the Company's proforma
unaudited results would have been:
<PAGE>
Page 12
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITIONS - continued
1996 1995
___________ ___________
Proforma net sales $9,449,140 $6,089,822
Proforma net income (loss) ( 975,179) 175,465
Proforma earnings (loss) per share ( 0.11) 0.02
Subsequent to the acquisition date, the Company obtained an appraisal of
the acquired companies' assets. Gross assets were appraised at $1,231,522.
NOTE 4. 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 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 concentrated 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 $5,957,000 and $2,101,000 for the
years ended December 31, 1996 and 1995, respectively. Included in accounts
receivable at December 31, 1996 and 1995 is $640,096 and $1,091,000 due
from this customer.
NOTE 5. 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:
1996 1995
----------- ------------
Raw materials $1,792,771 $ 364,512
Finished goods 1,201,695 354,466
---------- -----------
2,994,466 718,978
Less valuation allowance 406,940 -
__________ ___________
$2,587,526 $ 718,976
========== ===========
<PAGE>
Page 13
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVENTORY - continued
Management has provided an inventory valuation allowance based on estimates
to reduce the inventory to lower of cost or market. It is reasonably
possible that these estimates may change in the near term based on proposed
sales agreements with the major customer.
NOTE 6. RELATED PARTY TRANSACTIONS
Amount due from related party at December 31, 1996 and 1995 is a note
receivable due from an officer of $77,090 and $7,600, respectively,
evidenced by a note agreement. The note is unsecured, bears interest at a
rate of 6% and matures in September 1997.
Included in accounts payable at December 31, 1996 is $5,908 due to related
parties. Also during 1996, compensation to one shareholder for construction
services provided was approximately $134,000. Compensation of $64,400 was
paid to two shareholders for issue costs related to the debenture and
private placement offering.
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. During the year ended December 31,
1996, the accrued interest of $85,949 was converted to stock at the rate of
$1 per share. Included in interest expense for the years ended December 31,
1996 and 1995 is approximately $4,800 and $77,0000, respectively of
interest charged on all shareholder notes.
NOTE 7. NOTES PAYABLE
Notes payable consist of the following at December 31:
1996 1995
--------- ---------
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, retired. $ - $265,000
<PAGE>
Page 14
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NOTES PAYABLE - continued
1996 1995
__________ __________
Revolving line of credit with a bank for
maximum borrowing of $1,150,000, payable
on demand but no later than May 1, 1997,
bearing interest at bank's base rate plus
1% ( 9.25% at December 31, 1996),
collateralized by accounts receivable,
inventory, equipment, real estate and
500,000 shares of common stock held in
treasury (see Notes 8 and 17) 535,000 -
Note payable to bank, payable on demand
but no later than May 1, 1997, bearing
interest at institution's base rate plus
1% (9.25% at December 31, 1996),
collateralized with bank lending agreement
on revolving line of credit (see Note 17) 727,079 -
_________ __________
$1,262,079 $ 265,000
NOTE 8. LONG-TERM DEBT
1996 1995
__________ __________
Notes payable to shareholders (see Note 9) $ 40,000 $ 40,000
Note payable to an organization, due in
monthly installments of $1,462 including
interest at 9.5%, final payment due May
2011, secured by real estate, includes
$35,000 obligation to repurchase 11,667
shares of stock issued as a security
deposit. The Company was obligated to
repurchase stock on December 31, 1996 172,856 -
<PAGE>
Page 15
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT - continued
1996 1995
_________ __________
Note payable to vendor in monthly
installments of $292 including interest
at 10%, due November 1998, secured by
equipment $ 6,094 $ -
Note payable to bank, due October 24,
1996, interest at bank's prime plus 1%
(9.25% at December 31, 1996), note is in
default and currently accrues interest at
18%, secured by shareholder's guarantee
(see Note 17) 42,952 -
Note payable to bank in monthly
installments of $255 including interest at
9%, due July 1999, secured by automobile 7,014 -
Note payable to bank, accruing interest at
bank's prime plus 2% (10.25% at December
31, 1996), due June 1997, secured by
receivables and inventory 6,000 -
________ ________
274,916 40,000
Less current maturities 134,183 40,000
__________ ________
$140,733 $ -
========== ========
Maturities of long-term notes payable for the respective years ending
December 31 are as follows:
Year Ending
December 31
____________
1997 $ 134,183
1998 10,957
1999 7,285
2000 6,170
2001 6,783
thereafter 109,538
___________
$ 274,916
===========
<PAGE>
Page 16
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT - continued
The notes payable to shareholders are unsecured and bear interest at 12%.
As additional compensation for extending the notes as they matured 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, 1995.
In 1995, $430,000 in note payables were converted to 430,000 shares of
common stock at $1 per share pursuant to the note agreement. In 1996, no
notes were converted or paid out.
NOTE 9. DEBENTURES PAYABLE
At December 31, debentures payable are as follows:
1996 1995
---------- ---------
Debentures $5,000 or more each, bearing
interest at 12.5% payable monthly,
unsecured, and mature July 31, 1997 $1,003,000 $ 592,000
=========== ==========
The Company issued a debenture offering dated September 1, 1995 for up to
$1,003,000 of $5,000 or more debentures. Principal is due on maturity but
may be prepaid at the Company's option any time after September 30, 1995.
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. As of December 31, 1996, the Company's revolving line of credit
has designated $400,000 for the repayment of debentures maturing July 31,
1997 (see Note 17).
According to the debenture agreement, if all notes payable to shareholders
are not converted to common stock by January31, 1996 a 1% simple interest
rate is assessed in payment to each debenture holder as a penalty. As of
December 31, 1996, te Company has accrued $8,622.
<PAGE>
Page 17
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. DEBENTURES PAYABLE - continued
During the year ended December 31, 1996 and 1995, the Company incurred
$39,900 and $50,750, respectively, of debt issue costs related to the
debenture offering. These costs have been capitalized and are being
amortized over the debenture term. Included in other assets at December 31,
1996 and 1995 is unamortized debt issue costs of $35,833 and $44,015,
repsectively.
NOTE 10. 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 obligation of $201,779.
At December 31, 1995 the mortgage obligation is as follows:
1996 1995
--------- ---------
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, retired. $ - $ 198,588
========= =========
NOTE 11. 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 minimum lease payments or the fair value of the assets. The
assets are amortized over their estimated lives. Total cost, accumulated
depreciation, and depreciation expense of property under capital lease as
of December 31 were as follows:
1996 1995
----------- ----------
Cost $427,277 $ 40,286
Accumulated depreciation 40,753 10,044
Depreciation expense 54,218 5,916
<PAGE>
Page 18
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CAPITAL LEASES - continued
At December 31, future minimum lease payments by year and the present value
of future minimum lease payments are:
Year Ending
December 31
------------
1997 $ 150,532
1998 131,011
1999 83,149
2000 41,761
2001 and thereafter 46,601
-----------
Total minimum lease payments 453,054
Less amount representing interest 84,549
-----------
Present value of minimum lease payments 368,505
Less current portion 120,590
----------
$ 247,915
==========
NOTE 12. OPERATING LEASES
The Company leases office equipment under noncancelable operating lease
agreements expiring through fiscal year 1997. Rent expense on these leases
was $136,360 and $20,033 for the years ended December 31, 1996 and 1995,
respectively.
The related future minimum lease payments on the operating leases at
December 31, 1996 are as follows:
1997 $37,403
1998 1,539
The Company has a non-cancelable lease agreement through April 1997 for its
headquarters building. This lease is payable in monthly installments of
$4,771. During 1997 the Company arranged for month-to-month payment terms
and a thirty day cancellation provision. Rent expense for the years ended
December 31, 1996 and 1995 was $57,252, respectively.
<PAGE>
Page 19
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. OPERATING LEASES - continued
In addition, the Company leases fields for growing aloe vera plants and a
production facility which processes the plants. Agreements are cancelable
with written notice. Lease expense for the period ended December 31, 1996
for the fields and facility were approximately $6,900 and $27,000
respectively.
NOTE 13. ADVERTISING COSTS
The Company expenses indirect advertising costs when incurred. Included in
selling, general and administrative expenses are advertising costs of
approximately $906,000 and $409,500 for the years ended December 31, 1996
and 1995, respectively.
NOTE 14. INCOME TAXES
The Company's deferred tax assets and liabilities consisted of the
following at December 31:
1996 1995
--------- ---------
Deferred tax assets $ 749,774 $ 80,163
Deferred tax liabilities ( 118,636 ( 4,750)
--------- ----------
Net deferred tax asset 631,138 75,413
Valuation allowance ( 631,138) -
--------- ----------
Net deferred tax asset $ - $ 75,413
========= ===========
The significant components of the Company's deferred tax assets relate
primarily to net operating loss carryforwards, deferred compensation, bad
debt reserves, and inventory reserves. The deferred tax liabilities are due
to the election to expense certain capital assets for federal tax purposes.
<PAGE>
Page 20
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES - continued
Components of the Company's benefit (provision) for income tax are as
follows:
1996 1995
--------- ---------
Current taxes - federal $ - ($ 649)
Deferred - federal ( 61,576) ( 131,342)
Adjustment of prior valuation allowance - 52,965
Benefit of net operating losses - 153,790
--------- ----------
($ 61,576) $ 74,764
========= ==========
The income tax (provision) benefit for the years ended December 31, 1996 and
1995 differs from the income tax expense that would result from applying
statutory tax rates to pretax income primarily because of the deferred tax
asset valuation allowance for 1996 and 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, 1996, the Company had a federal loss carryforward of
approximately $1,210,000 that may be used to offset future taxable income,
including approximately $539,000 which can be used only to offset future
taxable income generated from the Aloe Companies. The loss carryforwards
will begin to expire in 2006.
NOTE 15. 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. During the year ended December 31, 1996,
the Company purchased the 300,000 shares for a total cost of $258,104.
Treasury stock at December 31, 1996 also includes obligations to
shareholders to buy back 10,000 shares of stock issued for conversion of a
$10,000 note and repurchase of 11,667 shares of stock for $35,000 issued as
a security deposit on the purchase of real estate.
<PAGE>
Page 21
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCK OPTION PLAN
Effective November 8,1995, the Company established a stock option plan
available to certain officers, directors, 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.
The following schedule summarizes pertinent information with regard to the
1995 Plan for the years ended December 31, 1996 and 1995:
1996 1995
______________________ _______________________
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Outstanding Price Outstanding Price
__________ __________ __________ __________
Beginning of year 1,750,000 $ .70 - $ -
Granted - - 1,750,000 .70
Exercised - - - -
Forfeited - - - -
Expired - - - -
__________ __________ __________ __________
End of year 1,750,000 $ .70 1,750,000 $ .70
========== ========== =========== ==========
Exercisable 1,750,000 $ .70 1,750,000 $ 0.70
========== ========== =========== ==========
Weighted average
fair value of
options granted: $ - $ 0.36
========== ==========
Stock options outstanding under the 1995 Plan are all exercisable at $0.70
per share and weighted average remaining contractual life is 3.83 years.
During the years ended December 31, 1996 and 1995, the Company recorded no
compensation expense for options granted under the plan.
The fair value of each option grant is estimated on the date of grant using
a Black-Sholes option pricing model and the following assumptions: a risk-
free rate of return of 6.0%; an expected life of 3 years; expected
volatility of 71.68%; and no expected dividends.
<PAGE>
Page 22
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCK OPTION PLAN - continued
If the Company had elected to record compensation expense using the fair
value method prescribed by SFAS No. 123, the compensation cost related to
options would have been $0 and $630,000 for 1996 and 1995, respectively.
Pro forma net loss and net loss per share would have been:
1996 1995
___________ ___________
Pro forma net loss ($1,050,025) ($ 183,579)
Pro forma net loss per share ($ .12) ($ 0.02)
During the years ended December 31, 1996 and 1995, the Company issued
493,000 and 321,000 shares, respectively, of restricted stock for
acquisitions, consulting services and employees bonuses. The restricted
stock was valued using a discount factor of 45%. The weighted average fair
value of restricted stock on the dates granted for the years ending
December 31, 1996 and 1995 are as follows:
1996 1995
___________ ___________
Issued in acquisitions $ 1.18 $ 2.11
Issued for services and employee
bonuses 1.64 0.78
NOTE 17. SUBSEQUENT EVENTS
On May 12, 1997, a shareholder and former director, filed a lawsuit on
behalf of herself and Pharmaceutical Laboratories, Inc., as plaintiffs,
naming the president of the Company and other individual stockholders as
defendents. The Plaintiff has alleged mismanagement, breach of fiduciary
duty, misrepresentation and misappropriation by the defendents and seeks
to be appointed as a receiver for the Corporation. The President intends
to vigorously defend the action and has filed a counterclaim against
the plaintiff. The Company is not a defendent in this litigation.
In May of 1997 the President of the Aloe Companies and its former
shareholders filed a petition as plaintiffs against Pharmaceutical
Laboratories, Inc. and its president as defendents. The plaintiffs allege
various misrepresentations and omissions were made by the defendents during
negotiations for the acquisition of the Aloe Companies. Plaintiffs are
petitioning for rescission of the contracts and for payment of damages.
The parties have entered into a confidentiality agreement with plaintiffs
to negotiate a resolution. If a resolution cannot be reached, management
intends to vigorously defend the action and believes that the likelihood
of an unfavorable outcome is remote.
<PAGE>
Page 23
PHARMACEUTICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. SUBSEQUENT EVENTS - continued
Subsequent to year end, the revolving line of credit and note payable with
the bank became due. Management is currently negotiating with the bank to
extend or restructure the lending agreements, however, no agreements have
been finalized to date. Management is confident a financing agreement will
be consummated in the near future.
As of December 31, 1996, the Company was in default on a bank note for
$42,952. Subsequent to year end, the bank has filed a lawsuit naming Aloe
Pharmaceuticals, Inc., and it's president as defendents. Management is
currently negotiating with the bank to work out payment terms.
In April 1997, the Company designated 1,000,000 shares of $0.001 par value
preferred stock as Series A convertible preferred stock in conjunction with
an offer to debenture holders to convert debentures to preferred stock.
Pursuant to the conversion agreements, debenture holders receive 334 shares
of preferred stock for each $1,000 of debentures. To date, $968,000 of
debentures have been converted to preferred stock. In addition, debenture
holders received restricted common stock at the rate of 100 shares for
every $5,000 invested in debentures. Dividends on the Series A convertible
preferred stock accrue at 12.5%, cumulative, from the date of first
issuance.. The preferred shares may at any time be redeemed by the Company
by paying in cash the sum of $3 per share, plus all dividends accrued,
unpaid, and accumulated as defined in the agreement. These shares are
convertible into common stock at the option of the holder at a rate of one
share of Series A preferred stock to one share of common stock.
Subsequent to year end, the Company obtained a line of credit from a major
shareholder for up to $500,000. The note bears interest at 9%, matures in
July 1998, and is secured by assets of the Aloe Companies.
<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)
2.1 Contract for Sale of Stock, between Pharmaceutical Laboratories, Inc. and
each of R.C. Benson, Anthony Benson, Todd Benson, James T. Lewis and Great
Plains Financial, Inc., by and through R.C. Benson, as its attorney-in-
fact, dated August 12, 1996 for the purchase of Aloe Pharmaceuticals,
Inc., a Texas corporation, which exhibits and schedules are not attached
but are listed at the end of the document. Any unattached exhibit or
schedule is available to the Securities and Exchange Commission upon
request (Filed with SEC on Form 10-SB, in this Registration Statement)
2.2 Contract for Sale of Stock, between Pharmaceutical Laboratories, Inc., and
each of R.C. Benson, Anthony Benson, and Todd Benson, dated August 12,
1996 for the purchase of Benson's Aloe Farms, Inc., a Texas corporation,
which exhibits and schedules are not attached but are listed at the end of
the document. Any unattached exhibit or schedule is available to the
Securities and Exchange Commission upon request (Filed with SEC on Form
10-SB, in this Registration Statement)
2.3 Contract for Sale of Stock, between Pharmaceutical Laboratories, Inc., and
each of R.C. Benson, Anthony Benson, Todd Benson, and Great Plains
Financial, Inc., by and through R.C. Benson, as its attorney-in-fact,
dated August 12, 1996 for the purchase of Aloe Laboratories, Inc., a Texas
corporation, which exhibits and schedules are not attached but are listed
at the end of the document. Any unattached exhibit or schedule is
available to the Securities and Exchange Commission upon request (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)
10.2 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, which exhibits
are not attached but are listed at the end of the document. Any
unattached exhibit is available to the Securities and Exchange Commission
upon request (Filed with SEC on Form 10-SB, in this Registration
Statement)
10.3 Letter dated March 8, 1996 from Texas Commerce Bank, National Association,
500 East Border, P.O. Box 250, Arlington, TX 76004-0250 to the Issuer
regarding a $750,000 revolving line of credit (Filed with SEC on Form
10-SB, in this Registration Statement)
10.4 Revolving Promissory Note between Texas Commerce Bank and the Issuer dated
3/29/96 (Filed with SEC on Form10-SB, in this Registration Statement)
10.5 Real Estate Sale and Purchase Agreement with Lease between Summit
Enterprises Ltd. and Benson Laboratories Inc. dated 6/7/89 (Filed with SEC
on Form 10-SB, in this Registration Statement)
10.6 Temporary Loan Agreement between the Registrant and Cindy Lagasse, dated
July 11, 1997 for a maximum amount of $1,200,000 (Filed with the SEC
on Form 10-SB, in this Registration Statement)
21.0 Subsidiaries of the Registrant (Filed with SEC on Form 10-SB, in this
Registration Statement)
27.0 Financial Data Schedule for the period ended December 31, 1996. (Filed
with the 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: April 20, 1999
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 Sublingual 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 desirable 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
NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements 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
consideration 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 surviving
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 existing 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
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, absolute, contingent or otherwise) of a nature
customarily reflected in a corporate financial statement or
the notes thereto, prepared in accordance
3
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 disclosed 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 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 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,
contingent or otherwise) of a nature customarily reflected
in a corporate financial statement or the notes thereto,
prepared in accordance with generally accepted
4
accounting principles. Each of such statements of earnings
and retained earnings 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 statements 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 transacted, 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
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 Agreement, 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
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 holders 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
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
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, respectively, with all requisite
power and authority to consummate the terms and conditions
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
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
SECTION EIGHTEEN
SUBMISSION TO STOCKHOLDERS
This Agreement has been approved by the directors and stock-
holders 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 Sublingual, by written consent in lieu of a
special meeting, in the manner provided 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 commitment.
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
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 modifica-
tion of this Agreement 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
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 hereunder 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
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
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
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 Sublingual 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)
CONTRACT FOR SALE OF STOCK
THIS AGREEMENT, made and entered into this 12th day of August, 1996, by
and between Pharmaceutical Laboratories, Inc. ("PHLB") and each of R.C. Benson,
Anthony Benson, Todd Benson, James T. Lewis and Great Plains Financial, Inc.,
by and through R. C. Benson, as its attorney-in-fact (each, a "Shareholder" and
collectively, the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders are collectively the owners of all of the issued
and outstanding shares of common stock, $ 1.00 par value per share (the
"Stock"), of Aloe Pharmaceuticals, Inc., a Texas corporation (the
"Corporation") with its principal place of business at 6908 West Expressway 83,
Harlingen, Texas 78552,
WHEREAS, PHLB, a Nevada corporation with its principal place of business
being 1229 Corporate Drive, Arlington, Texas 76006, is desirous of purchasing
the aforementioned Stock so that it may operate the Corporation as a wholly-
owned subsidiary of PHLB, and,
WHEREAS, the Shareholders desire to sell the Stock to PHLB,
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants hereinafter set forth, the parties hereby agree as follows:
Article I - Agreement to Sell and Purchase
Upon the terms and subject to the conditions contained in this Agreement,
and in reliance upon the representations, warranties, and covenants set forth
herein, at the Closing (as hereinafter defined) the Shareholders will sell the
Stock to PHLB and PHLB will acquire the Stock from the Shareholders, free and
clear of any liens or encumbrances.
Article II - Purchase Price
At the Closing, PHLB will transfer Fifty Thousand (50,000) shares of its
restricted common stock, $.001 par value per share (the "PHLB Stock"), to the
Shareholders as follows:
R. C. Benson 12,000 shares
Anthony Benson 1,000 shares
Todd Benson 1,000 shares
James T. Lewis 20,000 shares
Great Plains Financial, Inc. 16,000 shares
The PHLB Stock shall be represented by certificates issued in the names of
the Shareholders in the denominations listed above.
<PAGE>
Article III - Closing
As used herein, the term "Closing" shall mean the consummation of the
transactions contemplated herein. The Closing shall take place on or before
August 15, 1996. If the Closing does not take place by such time, this
Agreement shall be terminated unless extended by the parties hereto in writing.
Article IV -- Shareholder's Conditions to Closing
The obligations of the Shareholders to consummate the transactions
contemplated by this Agreement will be subject to the fulfillment of the
following conditions at or prior to Closing, unless the Shareholders waive any
of such conditions in writing.
a. PHLB will issue to the Shareholders all of the PHLB Stock described
in Article II hereof and deliver to the Shareholders certificates representing
such stock.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties, including but not
limited to the board of directors of PHLB and the shareholders of PHLB (if
required under applicable laws).
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
d. The board of directors shall have taken all necessary corporate
action to provide for the issuance of the PHLB Stock.
Article V -- PHLB's Conditions to Closing
The obligations of PHLB to consummate the transactions contemplated by
this Agreement will be subject to the fulfillment of the following conditions
at or prior to Closing, unless PHLB waives any of such conditions in writing:
a. Each Shareholder will deliver to PHLB the original certificates
representing that portion of the Stock owned by such Shareholder, duly endorsed
for transfer.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties.
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
2
<PAGE>
d. The Corporation shall have received duly executed resignation letters
from all directors and officers of the Corporation pursuant to which such
individuals resign as officers and directors of the Corporation concurrently
with the Closing.
e. R. C. Benson shall deliver to PHLB a binding non-competition
agreement in the form of Exhibit A.
Article VI -- Shareholders' Representations,
Warranties and Covenants
Each of the Shareholders represents, warrants, and covenants to PHLB that:
a. Each Shareholder owns the number of shares of the Stock set forth
opposite his name, and no other shares of the common stock of the Corporation
have been issued as of the date hereof:
R. C. Benson 1,600,000 shares
Anthony Benson 200,000 shares
Todd Benson 200,000 shares
James T. Lewis 350,000 shares
Great Plains Financial, Inc. 300,000 shares
b. This Agreement has been duly and validly executed and delivered by
each Shareholder and constitutes a valid and binding agreement of each
Shareholder enforceable in accordance with its terms, except as such
enforcement may be limited by certain debtor relief laws.
c. To the best of their knowledge, the execution, delivery and
performance of this Agreement will not result in any violation of any federal,
state or local statute, ordinance or regulation.
d. Any and all consents required from third parties with respect to the
Shareholders' consummation of the transactions contemplated hereby have been
obtained and shall be in full force and effect at Closing except as described
in Schedule I.
e. Each Shareholder is the lawful owner of record, has good and
marketable title, and is the sole beneficial owner of the shares of the Stock
being described as owned by such Shareholder, free and clear of any liens.
f. The Corporation has all governmental licenses and permits necessary
to conduct business and all such licenses and permits are in full force and
effect except as described in Schedule II.
g. To the best of their knowledge, there is no pending or threatened
litigation, claim, proceeding or investigation against the Corporation.
3
<PAGE>
h. Attached hereto as Schedule III are the financial statements of the
Corporation as of April 30, 1996. To the best of their knowledge, such
statements are true and correct as of such date and accurately reflect the
accounts receivable and the accounts payable of the Corporation as of such
date. Such financial statements reflect a note payable to Great Plains
Financial in the amount of $175,270.82. As of April 30, 1996, such
indebtedness was converted into 300,000 shares of the Stock.
i. Since April 30, 1996, the Corporation has not incurred any
indebtedness outside of the regular course of its business and has not made any
payments to a Shareholder outside of the regular course of its business.
j. Attached hereto as Schedule IV is a list of material assets of the
Corporation, identifying which assets are owned by the Corporation and which
assets are leased by the Corporation.
k. All representations and warranties of the Shareholders contained in
this Article VI that are stated "to the best of their knowledge" are so stated
based upon the Shareholders' actual knowledge without further inquiry.
Article VII - Purchaser's Representations
Warranties and Covenants
PHLB represents, warrants, and covenants to each of the Shareholders that:
a. PHLB is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada, is qualified to transact
business in each jurisdiction where the nature and extent of its business and
properties require qualification, and possesses all requisite power and
authority to own, lease, and operate its properties and to conduct its business
as it is now being conducted.
b. PHLB possesses all requisite authority to execute, deliver, and
comply with the terms of this Agreement. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of PHLB. This Agreement constitutes
a valid and binding agreement of PHLB, enforceable in accordance with its
terms.
c. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate or conflict with
any provision of the charter documents of PHLB or any material agreement to
which PHLB is a party or, to the best of their knowledge, violate or conflict
with any federal, state, or local statute, ordinance, or regulation..
d. No filing or registration with, or authorization or consent or
approval of, any governmental entity or any third party is required by or with
respect to PHLB in connection with
4
<PAGE>
the execution and delivery of this Agreement by PHLB or the consummation by
PHLB of the transactions contemplated hereby except for such authorizations,
consents, or approvals as have been obtained and are in full force and effect
at Closing.
e. Attached hereto as Schedule V is a description of the authorized
capital stock of PHLB and the number of shares of such capital stock that are
issued and outstanding, and the number of treasury shares held, as of June 30,
1996. All shares of such capital stock which are outstanding as of such date
are duly authorized, fully paid, and nonassessable, and have not been issued in
violation of any preemptive rights.
f. Upon its acquisition of the Stock, PHLB will cause the Corporation to
be managed in such a way as to comply with the terms of that certain Supply
Agreement dated as of January 1, 1996 by and between Aloe Care International,
L.L.C., R. C. Benson, and the Corporation. PHLB will indemnify and hold
harmless each of the Shareholders from and against any liability he may incur
as a result of PHLB's breach of such Supply Agreement.
g. PHLB has reviewed the financial statements attached hereto as
Schedule III and has agreed to issue the PHLB Stock to the Shareholders in
consideration for the Stock. PHLB recognizes that the financial statements are
unaudited and do not constitute an absolute appraised or market value with
respect to the Corporation or the Stock.
h. Upon Closing, PHLB will cause the Corporation to cancel and forgive
the indebtedness of $50,000 owed by James T. Lewis to the Corporation pursuant
to his Stock Subscription Agreement dated as of November 29, 1993.
i. Upon Closing, PHLB will indemnify and hold harmless each of the
Shareholders from any liabilities he may incur as a result of any personal
guaranty of the Corporation's indebtedness such Shareholder may have executed
prior to the Closing.
j. Within twenty-four months after the Closing, PHLB will use its best
efforts to cause the PHLB Stock to be registered for sale under the Securities
Act of 1933, as amended, and other applicable federal and state securities
laws.
Article VIII - Due Diligence
Until the date and time of Closing, PHLB and/or its authorized agents
shall have the right to inspect the Corporation's premises, the property and
the inventory owned by the Corporation, and any and all records of the
Corporation's, including but not limited to, financial records, sales, property
and income tax records, at reasonable times upon reasonable notice.
5
<PAGE>
Article IX - Further Assurances
The parties hereto agree to expeditiously execute and deliver any
instrument or document required to carry out the provisions of this Agreement
as time is of the essence.
Article X - Entire Agreement/Amendment
This Agreement and the other documents to be delivered prior to or at
closing set forth the entire understanding of the parties and supersede all
prior agreements, whether written or oral, between them. This Agreement may be
amended, modified, or supplemented only by a written agreement between the
parties hereto.
Article XI - Exhibits and Schedules
All exhibits and schedules referenced in this Agreement are incorporated
by reference and shall constitute a part of this Agreement.
Article XII - Binding Effect
This Agreement shall be binding on the heirs, assigns, personal
representatives and successors in interest of the parties hereto.
Article XIII - Severability
This Agreement is 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 unenforceable, 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.
Article XIV - Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
Article XV - Counterparts
This Agreement is executed in several counterparts, all of which taken
together shall constitute one instrument.
6
<PAGE>
Article XVI - Tax-Free Exchange
PHLB agrees to take such steps as may be necessary to enable the
transaction contemplated hereby to qualify as a tax-free or tax-deferred
transaction under Section 368 of the Internal Revenue Code of 1986, as amended.
[Remainder of this page intentionally left blank.]
7
<PAGE>
Witness the following signatures:
Pharmaceutical Laboratories, Inc.
By: /s/ JERRY MCCLURE
Jerry McClure, President
/s/ R.C. BENSON
R.C. Benson
/s/ ANTHONY BENSON
Anthony Benson
/s/ TODD BENSON
Todd Benson
/s/ JAMES T. LEWIS
James T. Lewis
Great Plains Financial, Inc.
By: /s/ R.C. BENSON
R.C. Benson, its attorney-in-fact
8
<PAGE>
STATE OF TEXAS )
COUNTY OF _______ )
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 a
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 purpose and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 21 day of August,
1996.
/s/ DEBRA HUDSON
Notary Public, State of Texas
Debra Hudson
Notary's Printed Name
My Commission Expires: 10/19/96
[Notary seal as follows: Debra Hudson, Notary Public, State of Texas, My Comm.
Exp. Oct. 19, 1996]
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared R. C. Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
9
<PAGE>
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Anthony Benson, known to me to be a
person whose name is subscribed to the foregoing instrument, and acknowledged
to me the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
STATE OF TEXAS )
COUNTY OF HARRIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Todd Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th day of August,
1996.
/s/ VERONICA Q. SALINAS
Notary Public, State of Texas
Veronica Q. Salinas
Notary's Printed Name
My Commission Expires 11-15-99
[Notary seal as follows: Veronica Q. Salinas, Notary Public, State of Texas, My
Commission Expires 11-15-99]
10
<PAGE>
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared James T. Lewis, known to me to be a
person whose name is subscribed to the foregoing instrument and acknowledged to
me the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 9 day of August, 1996.
/s/ GLADYS HOPKINS
Notary Public, State of Texas
_____________________________
Notary's Printed Name
My Commission Expires _____________
[Notary seal as follows: Gladys Hopkins, My Commission Expires March 25, 1998]
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared R. C. Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof as attorney-in-fact for Great Plains Financial.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
11
<PAGE>
The following exhibits and schedules are not attached but are available to
the Securities and Exchange Commission for review upon request.
Exhibit A
Non-Competition Agreement between R.C. Benson and Pharmaceutical
Laboratories, Inc. (a Nevada corporation)
Schedule I
Third-Party Consents
Schedule II
Licenses and Permits
Schedule III
Financial Statements of Aloe Pharmaceuticals, Inc. dated April 30,
1996
Schedule IV
List of Assets
Schedule V
Capital Stock of PHLB
CONTRACT FOR SALE OF STOCK
THIS AGREEMENT, made and entered into this 12th day of August, 1996, by
and between Pharmaceutical Laboratories, Inc. ("PHLB") and each of R.C. Benson,
Anthony Benson, and Todd Benson (each, a "Shareholder" and collectively, the
"Shareholders").
WITNESSETH:
WHEREAS, the Shareholders are collectively the owners of all of the issued
and outstanding shares of common stock, $ 1.00 par value per share (the
"Stock"), of Benson's Aloe Farms, Inc., a Texas corporation (the "Corporation")
with its principal place of business at 6908 West Expressway 83, Harlingen,
Texas 78552,
WHEREAS, PHLB, a Nevada corporation with its principal place of business
being 1229 Corporate Drive, Arlington, Texas 76006, is desirous of purchasing
the aforementioned Stock so that it may operate the Corporation as a wholly-
Owned subsidiary of PHLB, and,
WHEREAS, the Shareholders desire to sell the Stock to PHLB,
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants hereinafter set forth, the parties hereby agree as follows:
Article I - Agreement to Sell and Purchase
Upon the terms and subject to the conditions contained in this Agreement,
and in reliance upon the representations, warranties, and covenants set forth
herein, at the Closing (as hereinafter defined) the Shareholders will sell the
Stock to PHLB and PHLB will acquire the Stock from the Shareholders, free and
clear of any liens or encumbrances.
Article II - Purchase Price
At the Closing, PHLB will transfer Two Hundred Five Thousand (205,000)
shares of its restricted common stock, $.001 par value per share (the "PHLB
Stock"), to the Shareholders as follows:
R. C. Benson 181,000 shares
Anthony Benson 12,000 shares
Todd Benson 12,000 shares
The PHLB Stock shall be represented by certificates issued in the names of
the Shareholders in the denominations listed above.
<PAGE>
Article III - Closing
As used herein, the term "Closing" shall mean the consummation of the
transactions contemplated herein. The Closing shall take place on or before
August 15, 1996. If the Closing does not take place by such time, this
Agreement shall be terminated unless extended by the parties hereto in writing.
Article IV -- Shareholder's Conditions to Closing
The obligations of the Shareholders to consummate the transactions
contemplated by this Agreement will be subject to the fulfillment of the
following conditions at or prior to Closing, unless the Shareholders waive any
of such conditions in writing.
a. PHLB will issue to the Shareholders all of the PHLB Stock described
in Article II hereof and deliver to the Shareholders certificates representing
such stock.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties, including but not
limited to the board of directors of PHLB and the shareholders of PHLB (if
required under applicable laws).
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
d. The board of directors shall have taken all necessary corporate
action to provide for the issuance of the PHLB Stock.
Article V -- PHLB's Conditions to Closing
The obligations of PHLB to consummate the transactions contemplated by
this Agreement will be subject to the fulfillment of the following conditions
at or prior to Closing, unless PHLB waives any of such conditions in writing:
a. Each Shareholder will deliver to PHLB the original certificates
representing that portion of the Stock owned by such Shareholder, duly endorsed
for transfer.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties.
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
2
<PAGE>
d. The Corporation shall have received duly executed resignation letters
from all directors and officers of the Corporation pursuant to which such
individuals resign as officers and directors of the Corporation concurrently
with the Closing.
e. R. C. Benson shall deliver to PHLB a binding non-competition
agreement in the form of Exhibit A.
Article VI -- Shareholders' Representations,
Warranties and Covenants
Each of the Shareholders represents, warrants, and covenants to PHLB that:
a. Each Shareholder owns the number of shares of the Stock set forth
opposite his name, and no other shares of the common stock of the Corporation
have been issued as of the date hereof:
R. C. Benson 200 shares
Anthony Benson 100 shares
Todd Benson 100 shares
b. This Agreement has been duly and validly executed and delivered by
each Shareholder and constitutes a valid and binding agreement of each
Shareholder enforceable in accordance with its terms, except as such
enforcement may be limited by certain debtor relief laws.
c. To the best of their knowledge, the execution, delivery and
performance of this Agreement will not result in any violation of any federal,
state or local statute, ordinance or regulation.
d. Any and all consents required from third parties with respect to the
Shareholders' consummation of the transactions contemplated hereby have been
obtained and shall be in full force and effect at Closing except as described
in Schedule I.
e. Each Shareholder is the lawful owner of record, has good and
marketable title, and is the sole beneficial owner of the shares of the Stock
being described as owned by such Shareholder, free and clear of any liens.
f. The Corporation has all governmental licenses and permits necessary
to conduct business and all such licenses and permits are in full force and
effect except as described in Schedule II.
g. To the best of their knowledge, there is no pending or threatened
litigation, claim, proceeding or investigation against the Corporation.
h. Attached hereto as Schedule III are the financial statements of the
Corporation as of April 30, 1996. To the best of their knowledge, such
statements are true and correct as of such
3
<PAGE>
date and accurately reflect the accounts receivable and the accounts payable of
the Corporation as of such date.
i. Since April 30, 1996, the Corporation has not incurred any
indebtedness outside of the regular course of its business and has not made any
payments to a Shareholder outside of the regular course of its business.
j. Attached hereto as Schedule IV is a list of material assets of the
Corporation, identifying which assets are owned by the Corporation and which
assets are leased by the Corporation.
k. All representations and warranties of the Shareholders contained in
this Article VI that are stated "to the best of their knowledge" are so stated
based upon the Shareholders' actual knowledge without further inquiry.
Article VII - Purchaser's Representations
Warranties and Covenants
PHLB represents, warrants, and covenants to each of the Shareholders that:
a. PHLB is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada, is qualified to transact
business in each jurisdiction where the nature and extent of its business and
properties require qualification, and possesses all requisite power and
authority to own, lease, and operate its properties and to conduct its business
as it is now being conducted.
b. PHLB possesses all requisite authority to execute, deliver, and
comply with the terms of this Agreement. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of PHLB. This Agreement constitutes
a valid and binding agreement of PHLB, enforceable in accordance with its
terms.
c. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate or conflict with
any provision of the charter documents of PHLB or any material agreement to
which PHLB is a party or, to the best of their knowledge, violate or conflict
with any federal, state, or local statute, ordinance, or regulation..
d. No filing or registration with, or authorization or consent or
approval of, any governmental entity or any third party is required by or with
respect to PHLB in connection with the execution and delivery of this Agreement
by PHLB or the consummation by PHLB of the transactions contemplated hereby
except for such authorizations, consents, or approvals as have been obtained
and are in full force and effect at Closing.
4
<PAGE>
e. Attached hereto as Schedule V is a description of the authorized
capital stock of PHLB and the number of shares of such capital stock that are
issued and outstanding, and the number of treasury shares held, as of June 30,
1996. All shares of such capital stock which are outstanding as of such date
are duly authorized, fully paid, and nonassessable, and have not been issued in
violation of any preemptive rights.
f. PHLB has reviewed the financial statements attached hereto as Schedule
III and has agreed to issue the PHLB Stock to the Shareholders in consideration
for the Stock. PHLB recognizes that the financial statements are unaudited and
do not constitute an absolute appraised or market value with respect to the
Corporation or the Stock.
g. Upon Closing, PHLB will indemnify and hold harmless each of the
Shareholders from any liabilities he may incur as a result of any personal
guaranty of the Corporation's indebtedness such Shareholder may have executed
prior to the Closing.
h. Within twenty-four months after the Closing, PHLB will use its best
efforts to cause the PHLB Stock to be registered for sale under the Securities
Act of 1933, as amended, and other applicable federal and state securities
laws.
Article VIII - Due Diligence
Until the date and time of Closing, PHLB and/or its authorized agents
shall have the right to inspect the Corporation's premises, the property and
the inventory owned by the Corporation, and any and all records of the
Corporation's, including but not limited to, financial records, sales, property
and income tax records, at reasonable times upon reasonable notice.
Article IX - Further Assurances
The parties hereto agree to expeditiously execute and deliver any
instrument or document required to carry out the provisions of this Agreement
as time is of the essence.
Article X - Entire Agreement/Amendment
This Agreement and the other documents to be delivered prior to or at
closing set forth the entire understanding of the parties and supersede all
prior agreements, whether written or oral, between them. This Agreement may be
amended, modified, or supplemented only by a written agreement between the
parties hereto.
Article XI - Exhibits and Schedules
All exhibits and schedules referenced in this Agreement are incorporated
by reference and shall constitute a part of this Agreement.
5
<PAGE>
Article XII - Binding Effect
This Agreement shall be binding on the heirs, assigns, personal
representatives and successors in interest of the parties hereto.
Article XIII - Severability
This Agreement is 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 unenforceable, 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.
Article XIV - Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
Article XV - Counterparts
This Agreement is executed in several counterparts, all of which taken
together shall constitute one instrument.
Article XVI - Tax-Free Exchange
PHLB agrees to take such steps as may be necessary to enable the
transaction contemplated hereby to qualify as a tax-free or tax-deferred
transaction under Section 368 of the Internal Revenue Code of 1986, as amended.
[Remainder of this page intentionally left blank.]
6
<PAGE>
Witness the following signatures:
Pharmaceutical Laboratories, Inc.
By: /s/ JERRY MCCLURE
Jerry McClure, President
/s/ R.C. BENSON
R.C. Benson
/s/ ANTHONY BENSON
Anthony Benson
/s/ TODD BENSON
Todd Benson
7
<PAGE>
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 a
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 purpose and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 21 day of August,
1996.
/s/ DEBRA HUDSON
Notary Public, State of Texas
Debra Hudson
Notary's Printed Name
My Commission Expires: 10/19/96
[Notary seal as follows: Debra Hudson, Notary Public, State of Texas, My Comm.
Exp. Oct. 19, 1996]
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared R. C. Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
8
<PAGE>
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Anthony Benson, known to me to be a
person whose name is subscribed to the foregoing instrument, and acknowledged
to me the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas,
Comm. Exp. 12-16-99]
STATE OF TEXAS )
COUNTY OF HARRIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Todd Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th day of August,
1996.
/s/ VERONICA Q. SALINAS
Notary Public, State of Texas
Veronica Q. Salinas
Notary's Printed Name
My Commission Expires 11-15-99
[Notary seal as follows: Veronica Q. Salinas, Notary Public, State of Texas, My
Commission Expires 11-15-99]
9
<PAGE>
The following exhibits and schedules are not attached but are available to the
Securities and Exchange Commission for review upon request.
Exhibit A
Non-Competition Agreement between R.C. Benson and Pharmaceutical
Laboratories, Inc., a Nevada corporation
Schedule I
Third-Party Consents
Schedule II
Licenses and Permits
Schedule III
Financial Statements of Benson's Aloe Farms, Inc. dated April 30,
1996
Schedule IV
List of Assets
Schedule V
Capital Stock of PHLB
CONTRACT FOR SALE OF STOCK
THIS AGREEMENT, made and entered into this 12th day of August, 1996, by
and between Pharmaceutical Laboratories, Inc. ("PHLB") and each of R.C. Benson,
Anthony Benson, Todd Benson, and Great Plains Financial, Inc., by and through
R. C. Benson, as its attorney-in-fact (each, a "Shareholder" and collectively,
the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders are collectively the owners of all of the issued
and outstanding shares of common stock, $1.00 par value per share (the
"Stock"), of Aloe Laboratories, Inc., a Texas corporation (the "Corporation")
with its principal place of business at 6908 West Expressway 83, Harlingen,
Texas 78552,
WHEREAS, PHLB, a Nevada corporation with its principal place of business
being 1229 Corporate Drive, Arlington, Texas 76006, is desirous of purchasing
the aforementioned Stock so that it may operate the Corporation as a wholly-
owned subsidiary of PHLB, and,
WHEREAS, the Shareholders desire to sell the Stock to PHLB,
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants hereinafter set forth, the parties hereby agree as follows:
Article I - Agreement to Sell and Purchase
Upon the terms and subject to the conditions contained in this Agreement,
and in reliance upon the representations, warranties, and covenants set forth
herein, at the Closing (as hereinafter defined) the Shareholders will sell the
Stock to PHLB and PHLB will acquire the Stock from the Shareholders, free and
clear of any liens or encumbrances.
Article II - Purchase Price
At the Closing, PHLB will transfer Ninety-Five Thousand (95,000) shares of
its restricted common stock, $.001 par value per share (the "PHLB Stock"), to
the Shareholders as follows:
R. C. Benson 67,000 shares
Anthony Benson 2,000 shares
Todd Benson 2,000 shares
Great Plains Financial, Inc. 24,000 shares
The PHLB Stock shall be represented by certificates issued in the names of
the Shareholders in the denominations listed above.
<PAGE>
Article III - Closing
As used herein, the term "Closing" shall mean the consummation of the
transactions contemplated herein. The Closing shall take place on or before
August 15, 1996. If the Closing does not take place by such time, this
Agreement shall be terminated unless extended by the parties hereto in writing.
Article IV -- Shareholder's Conditions to Closing
The obligations of the Shareholders to consummate the transactions
contemplated by this Agreement will be subject to the fulfillment of the
following conditions at or prior to Closing, unless the Shareholders waive any
of such conditions in writing.
a. PHLB will issue to the Shareholders all of the PHLB Stock described
in Article II hereof and deliver to the Shareholders certificates representing
such stock.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties, including but not
limited to the board of directors of PHLB and the shareholders of PHLB (if
required under applicable laws).
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
d. The board of directors shall have taken all necessary corporate
action to provide for the issuance of the PHLB Stock.
Article V -- PHLB's Conditions to Closing
The obligations of PHLB to consummate the transactions contemplated by
this Agreement will be subject to the fulfillment of the following conditions
at or prior to Closing, unless PHLB waives any of such conditions in writing:
a. Each Shareholder will deliver to PHLB the original certificates
representing that portion of the Stock owned by such Shareholder, duly endorsed
for transfer.
b. The transactions contemplated hereby shall have received all consents
necessary from any governmental entities or third parties.
c. The representations and warranties of PHLB set forth herein shall be
true as of the date of Closing, and all covenants required to be performed by
PHLB prior to Closing shall have been performed.
2
<PAGE>
d. The Corporation shall have received duly executed resignation letters
from all directors and officers of the Corporation pursuant to which such
individuals resign as officers and directors of the Corporation concurrently
with the Closing.
e. R. C. Benson shall deliver to PHLB a binding non-competition
agreement in the form of Exhibit A.
Article VI -- Shareholders' Representations,
Warranties and Covenants
Each of the Shareholders represents, warrants, and covenants to PHLB that:
a. Each Shareholder owns the number of shares of the Stock set forth
opposite his name, and no other shares of the common stock of the Corporation
have been issued as of the date hereof:
R. C. Benson 200 shares
Anthony Benson 100 shares
Todd Benson 100 shares
Great Plains Financial, Inc. 125 shares
b. This Agreement has been duly and validly executed and delivered by
each Shareholder and constitutes a valid and binding agreement of each
Shareholder enforceable in accordance with its terms, except as such
enforcement may be limited by certain debtor relief laws.
c. To the best of their knowledge, the execution, delivery and
performance of this Agreement will not result in any violation of any federal,
state or local statute, ordinance or regulation.
d. Any and all consents required from third parties with respect to the
Shareholders' consummation of the transactions contemplated hereby have been
obtained and shall be in full force and effect at Closing except as described
in Schedule I.
e. Each Shareholder is the lawful owner of record, has good and
marketable title, and is the sole beneficial owner of the shares of the Stock
being described as owned by such Shareholder, free and clear of any liens.
f. The Corporation has all governmental licenses and permits necessary
to conduct business and all such licenses and permits are in full force and
effect except as described in Schedule II.
g. To the best of their knowledge, there is no pending or threatened
litigation, claim, proceeding or investigation against the Corporation.
3
<PAGE>
h. Attached hereto as Schedule III are the financial statements of the
Corporation as of April 30, 1996. To the best of their knowledge, such
statements are true and correct as of such date and accurately reflect the
accounts receivable and the accounts payable of the Corporation as of such
date. Such financial statements reflect a note payable to Great Plains
Financial in the amount of $175,270.82. As of April 30, 1996, such
indebtedness was converted into 300,000 shares of the Stock.
i. Since April 30, 1996, the Corporation has not incurred any
indebtedness outside of the regular course of its business and has not made any
payments to a Shareholder outside of the regular course of its business.
j. Attached hereto as Schedule IV is a list of material assets of the
Corporation, identifying which assets are owned by the Corporation and which
assets are leased by the Corporation.
k. All representations and warranties of the Shareholders contained in
this Article VI that are stated "to the best of their knowledge" are so stated
based upon the Shareholders' actual knowledge without further inquiry.
Article VII - Purchaser's Representations
Warranties and Covenants
PHLB represents, warrants, and covenants to each of the Shareholders that:
a. PHLB is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada, is qualified to transact
business in each jurisdiction where the nature and extent of its business and
properties require qualification, and possesses all requisite power and
authority to own, lease, and operate its properties and to conduct its business
as it is now being conducted.
b. PHLB possesses all requisite authority to execute, deliver, and
comply with the terms of this Agreement. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of PHLB. This Agreement constitutes
a valid and binding agreement of PHLB, enforceable in accordance with its
terms.
c. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate or conflict with
any provision of the charter documents of PHLB or any material agreement to
which PHLB is a party or, to the best of their knowledge, violate or conflict
with any federal, state, or local statute, ordinance, or regulation..
d. No filing or registration with, or authorization or consent or
approval of, any governmental entity or any third party is required by or with
respect to PHLB in connection with
4
<PAGE>
the execution and delivery of this Agreement by PHLB or the consummation by
PHLB of the transactions contemplated hereby except for such authorizations,
consents, or approvals as have been obtained and are in full force and effect
at Closing.
e. Attached hereto as Schedule V is a description of the authorized
capital stock of PHLB and the number of shares of such capital stock that are
issued and outstanding, and the number of treasury shares held, as of June 30,
1996. All shares of such capital stock which are outstanding as of such date
are duly authorized, fully paid, and nonassessable, and have not been issued in
violation of any preemptive rights.
f. PHLB has reviewed the financial statements attached hereto as
Schedule III and has agreed to issue the PHLB Stock to the Shareholders in
consideration for the Stock. PHLB recognizes that the financial statements are
unaudited and do not constitute an absolute appraised or market value with
respect to the Corporation or the Stock.
g. Upon Closing, PHLB will indemnify and hold harmless each of the
Shareholders from any liabilities he may incur as a result of any personal
guaranty of the Corporation's indebtedness such Shareholder may have executed
prior to the Closing.
h. Within twenty-four months after the Closing, PHLB will use its best
efforts to cause the PHLB Stock to be registered for sale under the Securities
Act of 1933, as amended, and other applicable federal and state securities
laws.
i. Upon Closing, PHLB will do all things necessary to cause the
Corporation to transfer the following assets to R.C. Benson:
Account Receivable from the WEST Company valued at $8,493.36 as
as of the date hereof;
Account Receivable from Nature's Perfect Product valued at
$76,645.70 as of the date hereof;
Account Receivable from Dr. Outdoors valued at $19,109.72 as of
the date hereof; and
Art Neiman print valued at approximately $3,600.00 as of the date
hereof.
Article VIII - Due Diligence
Until the date and time of Closing, PHLB and/or its authorized agents
shall have the right to inspect the Corporation's premises, the property and
the inventory owned by the Corporation,
5
<PAGE>
and any and all records of the Corporation's, including but not limited to,
financial records, sales, property and income tax records, at reasonable
times upon reasonable notice.
Article IX - Further Assurances
The parties hereto agree to expeditiously execute and deliver any
instrument or document required to carry out the provisions of this Agreement
as time is of the essence.
Article X - Entire Agreement/Amendment
This Agreement and the other documents to be delivered prior to or at
closing set forth the entire understanding of the parties and supersede all
prior agreements, whether written or oral, between them. This Agreement may be
amended, modified, or supplemented only by a written agreement between the
parties hereto.
Article XI - Exhibits and Schedules
All exhibits and schedules referenced in this Agreement are incorporated
by reference and shall constitute a part of this Agreement.
Article XII - Binding Effect
This Agreement shall be binding on the heirs, assigns, personal
representatives and successors in interest of the parties hereto.
Article XIII - Severability
This Agreement is 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 unenforceable, 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.
Article XIV - Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
Article XV - Counterparts
This Agreement is executed in several counterparts, all of which taken
together shall constitute one instrument.
6
<PAGE>
Article XVI - Tax-Free Exchange
PHLB agrees to take such steps as may be necessary to enable the
transaction contemplated hereby to qualify as a tax-free or tax-deferred
transaction under Section 368 of the Internal Revenue Code of 1986, as amended.
[Remainder of this page intentionally left blank.]
7
<PAGE>
Witness the following signatures:
Pharmaceutical Laboratories, Inc.
By: /s/ JERRY MCCLURE
Jerry McClure, President
/s/ R.C. BENSON
R.C. Benson
/s/ ANTHONY BENSON
Anthony Benson
/s/ TODD BENSON
Todd Benson
Great Plains Financial, Inc.
By: /s/ R.C. BENSON
R.C. Benson, its attorney-in-fact
7
<PAGE>
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 a
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 purpose and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 21 day of August,
1996.
/s/ DEBRA HUDSON
Notary Public, State of Texas
Debra Hudson
Notary's Printed Name
My Commission Expires: 10/19/96
[Notary seal as follows: Debra Hudson, Notary Public, State of Texas, My Comm.
Exp. Oct. 19, 1996]
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared R. C. Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
8
<PAGE>
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Anthony Benson, known to me to be a
person whose name is subscribed to the foregoing instrument, and acknowledged
to me the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
STATE OF TEXAS )
COUNTY OF HARRIS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Todd Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th day of August,
1996.
/s/ VERONICA Q. SALINAS
Notary Public, State of Texas
Veronica Q. Salinas
Notary's Printed Name
My Commission Expires 11-15-99
[Notary seal as follows: Veronica Q. Salinas, Notary Public, State of Texas, My
Commission Expires 11-15-99]
9
<PAGE>
STATE OF TEXAS )
COUNTY OF CAMERON )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared R. C. Benson, known to me to be a person
whose name is subscribed to the foregoing instrument, and acknowledged to me
the execution thereof as attorney-in-fact for Great Plains Financial.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of August,
1996.
/s/ FRANCINE L. KOHL
Notary Public, State of Texas
Francine L. Kohl
Notary's Printed Name
My Commission Expires 12/16/99
[Notary seal as follows: Francine L. Kohl, Notary Public, State of Texas, Comm.
Exp. 12-16-99]
10
<PAGE>
The following exhibits and schedules are not attached but are available to the
Securities and Exchange Commission for review upon request.
Exhibit A
Non-Competition Agreement between R.C. Benson and Pharmaceutical
Laboratories, Inc., a Nevada corporation
Schedule I
Third Party Consents
Schedule II
Licenses and Permits
Schedule III
Financial Statements for Aloe Laboratories, Inc., dated April 30,
1996
Schedule IV
List of Assets
Schedule V
Capital Stock of PHLB
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 associ-
ated 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 Stat-
utes 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, partner-
ship, 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,
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
<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 as-
sessed. 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 prescribed 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 shareholders 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
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;
(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
compensation 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
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 disinterested 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 corpora-
tion 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 miscon-
duct, 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 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 completed 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. 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 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
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
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 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.
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 sharehold-
ers 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 undersigned officers of CST, 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 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 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")
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 International, 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 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")
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 undersigned 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, partner-
ship, 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 interests in, or obliga-
tions 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 educa-
tional 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.
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<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 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.
(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 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
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 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 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 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 compensation 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
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 disinterested 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 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 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 completed action or suit by or in
the right of the corporation, to procure 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 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 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
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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
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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-
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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.
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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
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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.
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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.
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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
Certificate 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
registered 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 con-stitute 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 alteration
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 starting
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
Debenture.
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
condition 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
liability, 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, Brookhollow,
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] $2,300
1.08. Permitted Use (see Section 6.01). Officing, warehousing, and
manufacturing of vitamin supplements and related products.
1.09. Principal REALTOR (if none, so state): CB Commercial Real
Estate Group, Inc.
Address: 2000 E. Lamar Boulevard, Suite 500
Arlington, Texas 76006-7308
1.10. Cooperating REALTOR (if none, so state): None
Address:
1.11. REALTORS Commissions (See Article Fourteen):
A. Commissions due to the undersigned Principal REALTOR shall be
calculated and paid in accordance with paragraph (a) or (b) or Section
14.01 (Strike out inapplicable letter).
B. The percentage applicable in Sections 14.01 and 14.02 shall be four
percent (4%).
1.12. Base Year for Taxes (see Section 4.02): 1990
1.13. Party to Receive Payments from Tenant Hereunder:
Landlord ["Principal REALTOR" struck out] (strike one)
1.14. Daily Late Charge (See Section 3.03): None
Dollars ($______) 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
Landlord 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 delayed. Landlord and Tenant
shall, upon such delivery, execute an amendment 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
Commencement 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 payments 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
constitute 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 installment 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 restore the Security Deposit to its full
amount within ten (10) days after Landlord'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
improvements 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 casualty 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 therefor, without the prior written consent of
Landlord. If Tenant's use and occupancy of the Property causes an
increase in the premiums for any fire and extended 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,
insuring 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 inflation, 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 hereunder. 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 expense, 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
employees, 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 employees, 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 arising out of any
breach or default by Tenant in the performance of its obligations
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 indemnify 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 preclude the assignment
of any aforesaid claim by way of subrogation of otherwise to an
insurance company (or any other person), each party hereby agrees
immediately 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 Property, 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 fixtures 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 improvements thereon, or paint or otherwise deface
said exterior walls. Any signs installed by Tenant shall conform with
applicable laws and deed and other restrictions. 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 rect 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 building 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. Landlord 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 foundations, 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 extent 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 plumbing and the interior
of the building in general, and including care of landscaping 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 maintain
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 incurred 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 Landlord 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 restore
the property to its prior condition, all at Tenant's expense. All
alterations, 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 Landlord 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
improvements 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 tenantable 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 subletting shall be expressly subject to all terms and provisions of this
lese, 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 obtaining 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 hereunder.
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
commence 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 business 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, Landlord may, without prejudice to any other remedy which it
may have for possession 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 occupying 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 Landlord 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, Landlord 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
Landlord 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 arrearage 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,
equipment, 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. Unless 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 aforementioned
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, consolidations, replacements or extension thereof,
whenever made or recorded. However, 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 subordination 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 cancelled 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
denying the truth of such facts.
13.05. Tenant's Financial Condition. Within ten (10) days after written
request 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
commission 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 execution 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 amendment, 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 commissions 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 contained 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, Landlord 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 preceding 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 Assumption 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, condition 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 hindered.
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 singular. 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, successors or others using the property
with Tenant's expressed or implied permission.
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 payment 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 unenforceable 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 possession of the property, the property shall be
Tenant's address for notice purposes. 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 payable 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
expiration 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
inserted 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 respectively. Tenant will have ten (10) days from the date
of written notification 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 existing 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
prorated to April 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 following, 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
aforementioned 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,
heretofore 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
unenforceable, 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
Agreement.
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]
<PAGE>
Listing of Exhibits not included but which are available upon request
"A" Legal description of the building and land located at 3117 Cabaniss
Pkwy., Corpus Christi, Texas 78415
"B" Asset Listing
"C" Dunn & Bradstreet Receivable Management Services Collection Activity
Report for Phytolab, Inc. for the Reporting Period of 10/1/94 -
12/31/94
"D" Fixed Asset Inventory Listing, Consolidated Company, 1/1/95
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
500 East Border
P.O. Box 250
Arlington, TX 76004-0250
(817) 856-3363
Fax (817) 856-3159
Brian E. Happel
Senior Vice President, Manager
Commercial and Community Banking
March 8, 1996
Mr. Jerry McClure
Pharmaceutical Laboratories, Inc.
1229 West Corporate Drive West
Arlington, Texas 76006
Dear Jerry:
This will confirm that Texas Commerce Bank National Association ("Bank") is
prepared to make funds (the "Loans") available to you ("Borrower")
substantially according to the terms and conditions outlined below. This
Commitment is conditional upon preparation, execution and delivery of legal
documentation (including assurances, verifications and related agreements
regarding the matters noted below) in form and substance satisfactory to the
Bank and its legal counsel. The terms and conditions of the Bank's commitment
are not limited to the terms and conditions set out below. Those matters,
which are not covered by or made clear in this letter are subject to mutual
agreement of the parties, and all matters are subject to amplification in the
loan documents.
By signing below and accepting the terms of this letter, the Borrower
represents that it is acting for its own account, and not as an agent, trustee
or nominee for any other person. This letter is not intended for the benefit of
any party other than the Borrower and may not be relied on by any other party.
This letter is not assignable.
Borrower: Pharmaceutical Laboratories, Inc.
Credit Facilities: 1) A $750,000 revolving line of credit with a
$100,000 letter of credit sublimit.
2) An $800,000 amortizing term loan.
3) A $400,000 advance-type loan.
Purpose: 1) To provide working capital for support of
outstanding accounts receivable and inventory
purchases.
2) To provide funds to renovate and expand Corpus
Christi manufacturing facility ($286,000),
equipment purchases ($50,000) along with
consolidating existing term debt (i/n/o $199,000)
and funded revolver debt (i/n/o $265,000)
<PAGE>
Pharmaceutical Laboratories, Inc.
March 8, 1996
Page Two
3) Sole purpose to fund debenture debt allowed to be
prepaid beginning September 30, 1996 as more
fully described in the Offering Memorandum dated
September 1, 1995.
Interest Rate: 1&2) Prime Rate of the Bank (as defined in the loan
documents) plus one percent which rate is a
variable rate currently at 9.25% per annum.
1) Letters of Credit will be priced at 2.0% per
annum
2) Prime Rate of the Bank.
Maturity/Term: 1&3) May 1, 1997; interest payable monthly
2) May 1, 1997; monthly principal payments plus
interest based on a blended amortization (Real
Estate: 15 years @ 80% L/V; Equipment: 5 years @
50% L/V); estimated at $6,750 principal plus
interest per month based on a ten year
amortization.
Security: 1&2) First lien security interest in Borrower's
Accounts Receivable, Inventory, Equipment,
Fixtures and Real Estate.
3) First lien security interest in cash and/or
marketable securities (acceptable to Bank) with a
value equal to or greater than 100% of the
committed principal balance of the loan.
Guarantors: 1-3) None
Commitment/
Usage Fee: 1&3) None
2) One percent or $8,000.
Covenants: a. Monthly company-prepared financial statements
b. Annual audited financial statements on Borrower
c. Monthly accounts receivable and accounts payable
aging
d. Monthly borrowing base and compliance certificate
e. Borrowing Base: 75% of eligible accounts
receivable (as defined in the loan documents)
less than 90 days past invoice date plus 30% of
eligible inventory (as defined in the loan
documents) with an inventory availability cap of
$300,000 (subject to Bank asset audit)
<PAGE>
Pharmaceutical Laboratories, inc.
March 8, 1996
Page Three
f. Failure to maintain FDA approval on required PLI
products is an event of default
g. No change in executive management
h. Additional debt/lease/capital expenditure
limitation of $100,000 in the aggregate annually
i. Credit facility #2 is subject to 80% loan/value
on real estate and 50% loan/value on equipment.
j. Compliance with the following financial
covenants:
- Minimum Fixed Charge Coverage of 1.25x
(defined as EBDIT - Cash Taxes/CMLTD +
Interest Expense + Dividends + Sinking Fund
Payments); residual debenture debt i/a/o
$400,000 is not included as CMLTD
- Maximum Debt/Tangible Net Worth of 1.5:1
k. Borrower to provide adequate evidence to Bank
that sinking fund payments have been made
according to the schedule outlined in the
Offering Memorandum dated September 1, 1995
Deed of Trust: The Borrower shall execute and deliver to the Bank at
closing a Deed of Trust granting a first lien in an to
Borrower's (fee simple) interest in and to
approximately 1.9582 acres of land located in Nueces
County, Texas (the "Property") and all appurtenant
rights of Property, including an assignment of leases
and rents and a grant of a security interest in all
fixtures located thereon.
Environmental
Report: The Bank shall receive a phase I environmental report
on the Property, performed by an independent and
qualified engineering firm acceptable to the Bank at
the Borrower's expense, which report must be
acceptable to the Bank in all respects prior to
closing. A phase II environmental report, also at the
expense of the Borrower, may be required if the
initial report shows the presence of environmental
risks of the Property.
Title Insurance: The Borrower, at its expense, will provide the Bank
with a mortgage policy of title insurance insuring
that the Bank has a first and prior perfected vendor's
lien and deed of trust lien against the Property,
subject to no insurance coverage exceptions and no
title encumbrances except only those which are
approved in
<PAGE>
Pharmaceutical Laboratories, Inc.
March 8, 1996
Page Four
writing by the Bank. Such title insurance will be on
the standard form promulgated by the Texas Insurance
Board and may contain such standard exceptions as the
Bank and the Borrower may agree.
Survey: The Borrower, at its expense, will provide the Bank
with a current Class 1A, Condition II Texas Surveyors
Association survey of the Property. The survey shall
certify to the Borrower and the Title Company and the
Bank that: (i) the survey was made and staked on the
ground; (ii) the survey shows the location of all
improvements, highways, streets, roads, railroads,
rivers, creeks, or other waterways, fences, and all
easements, and rights-of-way visible on the ground or
reflected in the commitment for mortgage title
insurance, on or adjacent to the Property, if any,
indicating the number of total acres/square feet
(whichever is applicable) comprising any such highway,
street, road, railroad, river, creek, or other
waterway, fence, easement, or right-of-way; (iii)
there are no visible discrepancies, conflicts, or
encroachments except as shown on the survey; (iv)
whether the Property liens in the 100 year flood plain
as established by the U.S. Army Corp of Engineers or
any other governmental body; (v) there are no
geological faults within the Property; (vi) the survey
is a true, correct, and accurate representation of the
Property, and (vii) the survey sets forth the number
of total acres/square feet (whichever is applicable)
comprising the Property, together with a metes and
bounds description thereof. All easements or rights-
of-way which have been recorded with the County Clerk
of the county in which the Property is located. The
survey shall locate and mark all corners or angles of
the Property's perimeter on the ground with permanent
buried iron surveyor stakes.
Casualty
Insurance: The Borrower shall provide evidence of standard "all
risk" casualty insurance coverage on the Property and
all appurtenances thereto and fixtures thereon, and
customary liability insurance coverage with respect to
the Property in customary amounts, each with a
standard mortgagee loss payable endorsement, prior
notification requirements and issued by a company or
companies acceptable to the Bank.
<PAGE>
Pharmaceutical Laboratories, Inc.
March 8, 1996
Page Five
Flood Insurance: Flood insurance is required if Property and
improvements are located in a flood hazard area.
Appraisal: The Bank shall receive a satisfactory appraisal of the
Property, performed, at the Borrower's expense, by an
independent and qualified appraiser acceptable to the
Bank, which appraisal shall set forth the market value
of the Property and otherwise comply with the
requirements of all applicable laws and regulations,
including, without limitation, 12 C.F.R. part 34, as
it may be amended or otherwise modified form time to
time.
Taxes and
Assessments: The Borrower shall provide evidence that all ad
valorem taxes and other like taxes charged, levied,
assessed or imposed against the Property, together
with any assessments, maintenance charges or other
impositions on the Property have been paid to closing
date.
Additional
Conditions
Precedent: At the time of closing of the Loans, there must not
be; any default under the Loan Documents; any material
change in the business or financial statements dated
December 31, 1995 which the Bank has reviewed just
prior to delivering this Commitment, or any material
adverse changes with respect to the Security or any
other information or document submitted to Bank by
Borrower. Closing is contingent on the following: 1)
receipt of a real estate evaluation with a value of
not less than $450,000; 2) receipt and review of
Bank's asset audit report; 3) receipt and review of
Borrower's audited FYE 12/31/95 financial statements.
Closing Date: If the conditions to the making of the Loan are not
satisfied on or before April 8, 1996, then this
Commitment shall automatically terminate and be of no
further force or effect unless Bank in its sole
discretion chooses to extend such date.
Expenses: Borrower shall be liable for and shall promptly pay
all fees, expenses, and charges incurred in connection
with the issuance, amendment or modification of this
commitment, the negotiation and preparation of the
documents governing or securing the Loans and
enforcement of the obligations of the Borrower under
this
<PAGE>
Pharmaceutical Laboratories, Inc.
March 8, 1996
Page Six
Commitment and the documents governing or securing the
loans, whether or not this Commitment is terminated or
the Loans are advanced.
Loan Documents: The Bank will require among other terms and
conditions, various conditions precedent to each Loan;
financial reporting requirements for Borrower,
covenants, events of default, representations and
warranties; indemnification's and other requirements
which are not specifically outlined but which are,
nevertheless, conditions to closing. All
documentation must be satisfactory to the Bank in its
sole discretion and of its counsel.
Entire Agreement: Not withstanding and discussions or other action or
conduct undertaken by or on behalf of Borrowers or
Bank on or before the date of this letter, this letter
constitutes the only evidence of Bank's consent to
make the loans which consent is subject to the terms
and conditions contained herein.
Please evidence your acceptance of the foregoing by signing and returning to us
the enclosed copy of this letter on or before March 16, 1996. Unless we
receive our executed acceptance hereof by the close of business on March 16,
1996, this Commitment will be null and void. Upon receipt of your acceptance
of this Commitment, the Bank will commence the documentation process and advise
you of those documents which you will need to provide to us in anticipation of
the closing of the Loan.
Very truly yours,
Texas Commerce Bank National Association
by: /s/ BRIAN E. HAPPEL /s/ DON H. KELLY
Brian E. Happel, SVP, Manager Don H. Kelly, Vice President
Commercial Banking Division Commercial Banking Division
Accepted and agreed:
by: _________________________ ___________________
Jerry McClure, President and CEO Dated
REVOLVING PROMISSORY NOTE
(FLOATING RATE)
(this "Note")
THIS NOTE IS SUBJECT TO A CREDIT AGREEMENT
____________________________________________________________________________
NAME(S) AND ADDRESS(ES) OF BORROWER(S)
PHARMACEUTICAL LABORATORIES, INC.
1229 WEST CORPORATE DRIVE WEST
ARLINGTON, TX 76006
____________________________________________________________________________
U.S. (THE "DATE")
$1,150,000.00 MARCH 29, 1996
____________________________________________________________________________
ACCOUNT NUMBER/NOTE NUMBER TRANSACTION CODE TELLER
OFFICER
0080277343-710001 N MFA DHK
____________________________________________________________________________
FOR VALUE RECEIVED, the "Borrower," (jointly and severally if more than one),
promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION
("Bank") on or before May 1, 1997, at its office at 500 East Border, Arlington,
Texas 76006-0250, or at such other location as Bank may designate,
in immediately available funds, ***ONE MILLION ONE HUNDRED FIFTY THOUSAND
AND
NO/100*** UNITED STATES DOLLARS (US $1,150,000.00)(the "Maximum Amount of
Note") or the aggregate unpaid amount of all advances hereunder, whichever is
less. Borrower will also pay interest on the unpaid principal balance
outstanding from time to time at a rate per annum equal to the lesser of (i)
the sum of the Prime Rate (as hereinafter defined) from time to time in effect
plus ****ONE AND NO/1000*** percent (1.000%), (the "Stated Rate") or (ii) the
maximum nonusurious rate of interest from time to time permitted by applicable
law, (the "Highest Lawful Rate"). If the Stated Rate at any time exceeds the
Highest Lawful Rate, the actual rate of interest to accrue on the unpaid
principal amount of this Note will be limited to the Highest Lawful Rate, but
any subsequent reductions in the Stated Rate due to reductions in the Prime
Rate will not reduce the interest rate payable upon the unpaid principal amount
of this Note below the Highest Lawful Rate until the total amount of interest
accrued on this Note equals the amount of interest which would accrued if the
Stated Rate had at all times been in effect.
"Prime Rate" means the rate determined from time to time by Bank as its
prime rate. The Prime Rate shall change automatically from time to time
without notice to Borrower or any other person. THE PRIME RATE IS A
REFERENCE RATE AND MAY NOT BE BANK'S LOWEST RATE.
If Texas law determines the Highest Lawful Rate, Bank has elected the
"Indicated" (weekly) ceiling as defined in the Texas Credit Code or any
successor statute. Bank may from time to time, as to current and future
balances, elect and implement any other ceiling under such Code and/or
revise the index, formula or provisions of law used to compute the rate on
this open-end account by notice to Borrower, if and to the extent permitted
by, and in the manner provided in such Code.
Each advance must be at least N/A United States Dollars (U.S. $N/A)
unless the amount available for borrowing under this Note is less.
Accrued and unpaid interest is due and payable MONTHLY, beginning
on April 25, 1996, and continuing on the 25th day of each month thereafter
and at maturity when all unpaid principal and accrued and unpaid interest is
finally due and payable.
Interest will be computed on the basis of the actual number of days
elapsed and a year comprised of: ____ 365 (or 366 as the case may be) days
_x_ 360 days, unless such calculation would result in a usurious interest rate,
in which case such interest will be calculated on the basis of a 365 or 366 day
year, as the case may be.
All past-due principal and interest on this Note will, at Bank's option,
bear interest at the Highest Lawful Rate, or if applicable law does not provide
for a maximum nonusurious rate of interest, at a rate per annum equal to 18%.
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by Bank and all
owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will ever exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has
been received, Bank will either refund the excess to Borrower or credit the
excess on the unpaid principal amount of this Note. All amounts constituting
interest will be spread throughout the full term of this Note in determining
whether interest exceeds lawful amounts.
The unpaid principal balance of its Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments
of principal. Absent manifest error, the records of Bank will be conclusive as
to amounts owed. Subject to the terms and conditions of this Note and the
Loan Documents, Borrower may use all or any part of the credit provided
for herein at any time before the maturity of this Note and may borrow, repay
and reborrow. There is no limitation on the number of advances made so
long as the total unpaid principal amount of any time outstanding does not
exceed the Maximum Amount of Note.
Borrower may at any time pay the full amount or any part of this Note
without the payment of any premium or fee. Any partial prepayment will be
in the amount of U.S. $N/A (U.S. $N/A), or an integral multiple thereof. All
payments may, at Bank's sole option, be applied to accrued interest, to
principal, or to both.
"Loan Document" means this Note and any document or instrument
evidencing, securing, guaranteeing or given in connection with this Note.
"Obligations" means all principal, interest and other amounts which are or
become owing under this Note or any other Loan Document. "Obligor"
means Borrower and any guarantor, surety, co-signer, general partner or
other person who may now or hereafter be obligated to pay all or any part of
the Obligations. Where appropriate the neuter gender includes the feminine
and the masculine and the singular number includes the plural number.
Each of the following events or conditions is an "Event of Default:" (1)
any Obligor fails to pay any of the Obligations when due; (2) any warranty,
representation or statement now or hereafter contained in or made in
connection with any Loan Document was false or misleading in any respect
when made; (3) any Obligor violates any covenant, condition or agreement
contained in any Loan Document; (4) any Obligor fails or refuses to submit
financial information requested by Bank or to permit Bank to inspect its
books and records on request; (5) any event of default occurs under any
other Loan Document; (6) any Individual Obligor dies, or any Obligor that is
an entity dissolves; (7) a receiver, conservator or similar official is
appointed for any Obligor or any Obligor's assets; (8) any petition is filed by
or against any Obligor under any bankruptcy, insolvency or similar law; (9) any
Obligor makes an assignment for the benefit of creditors; (10) a final judgment
is entered against any Obligor and remains unsatisfied for 30 days after entry,
or any property of any Obligor is attached, garnished or otherwise made
subject to legal process; (11) any material adverse change occurs in the
business, assets, affairs or financial condition of any Obligor; and (12)
Borrower is in default of any other obligation to or any other agreement with
Bank.
If any Event of Default occurs, then Bank may do any or all of the
following: (i) cease making advances hereunder; (ii) declare the Obligations
to be immediately due and payable, without notice or acceleration or of
intention to accelerate, presentment and demand or protest or notice of any
kind, all of which are hereby expressly waived; (iii) set of, in any order,
against the Obligations any debt owing by Bank to any Obliger, including,
but not limited to, any deposit account, which right is hereby granted by each
Obligor to Bank; and (iv) exercise any and all other rights under the Loan
Document, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay in
exercising any right or power under any Loan Document is not a waiver of
such right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and due diligence in
collecting this Note and all other demands and notices, and consents and agrees
that its liabilities and obligations will not be released or discharged by any
or all of the following, whether with or without notice to it or any other
Obligor, and whether before or after the stated maturity hereof: (i) extensions
of the time of payment; (ii) renewals; (iii) acceptance of partial payments;
(iv) releases or substitutions of any collateral or any Obligor; and (v)
failure, if any, to perfect or maintain perfection of any security interest
in any collateral. Each Obligor agrees that acceptance of any partial payment
will constitute a waiver and that waiver of any default will not constitute
waiver of any prior or subsequent default.
F-250-00835C (3/95)
CML Revolving Floating Rate Page 1 of 2 1280043
0080277343-710001
<PAGE>
Borrower represents and agrees that: all advances evidenced by this Note
are and will be for business, commercial, investment or other similar purpose
and not primarily for personal, family, or household uses as such terms are
used in Chapter One of the Texas Creidit Code.
Borrower and Bank: (i) _______________ no advances will be used
primarly for agricultural purposes as such term is used in the Texas Credit
Code. (ii) _____________ no advances will be used for the purposes of
purchasing or carrying any margin stock as that term in defined in Regulation
U of the Board of Governors of the Federal Reserve System (the "Board").
Notwithstanding anything contained herein or in any other Loan Document,
if this is a consumer credit obligation (as defined or described in 12 C.F.R.
227, Regulation AA, promulgated by the Board), the security for this credit
obligation will not extend to any non-possessory security interest in
household goods (as defined in Regulation AA) other than a purchase money
security interest, and no waiver of any notice contained herein or therein will
extend to any waiver of notice prohibited by Regulation AA.
Chapter 15 of the Texas Credit Code
REAL ESTATE SALE AND PURCHASE
AGREEMENT WITH LEASE
THIS AGREEMENT is entered into this 7th day of June, 1989, by and among
SUMMIT ENTERPRISES, LTD., a Nevada corporation, hereafter referred to as
"Summit", "Buyer" or "Lessor", and BENSON LABORATORIES, INC., d/b/a
ALOELABORATORIES, INC., a Texas corporation, hereafter referred to as
"AloeLabs", "Seller" or "Lessee", and R.C. BENSON, ANTHONY S. BENSON and TODD
C. BENSON, shareholders of AloeLabs, hereafter referred to as "Shareholders".
WITNESSETH
WHEREAS, Seller is the owner of real property with building
improvements located thereon in Cameron County, Texas;
WHEREAS, Seller desires to sell said real property and improvements to
Buyer as set forth below; and
WHEREAS, Buyer desires to purchase said real property and improvements
from Seller as set forth below; and
WHEREAS, Buyer desires to make additional improvements upon the real
property; and
WHERAS, Seller desires to lease the real property and improvements from
Buyer following the acquitions of title by Buyer; and
WHEREAS, Buyer owns certain equipment, machinery and other personal
property and desires to acquire more of the same, and lease such items to
Seller as provided below; and
WHEREAS, Seller manufactures Aloe Vega gel, and other Aloe Vera plant
products; and
WHEREAS, as a material part of this Agreement, Buyer desires to obtain
a consistent supply of Aloe Vera gel for its own business purposes, as set
forth herein;
NOW, THEREFORE, for and in exchange of the consideration herein set
forth, the parties do covenant, stipulate and agree as follows:
REAL ESTATE SALE AND PURCHASE AGREEMENT WITH LEASE - 1
<PAGE>
ARTICLE I -- REAL PROPERTY
For and in consideration of the purchase price set forth in Article II
below, Seller shal sell, transfer and convey to Buyer by good and sufficient
warranty deed, and Buyer shall purchase from Seller the following real
property, with improvements located thereon, located in Cameron County,
Texas, to-wit:
(SEE ATTACHED SCHEDULE 1, WHICH IS INCORPORATED HEREIN BY
THIS REFERENCE AS THOUGH SET FORTH IN FULL.)
Said real property and its improvements shall hereafter be referredc to
as the "real property" and consists of approximately 4.912 acres, more or
less, upon which an aloe plant processing and manufacturing facility and
other improvements are located, and upon which additional improvements may be
constructed. This real property is more commonly referred to as being located
at 6908 West Expressway 83, Harlingen, Texas 78551. The improvements
currently located thereon consisting of 2,000 square feet, more or less, of
office space, and 10,000 square feet, more or less, of warehouse
manufacturing space. The plan of the existing facility is generally as set
forth in Exhibit "A" which is attached hereto, and incorporated herein by
this reference.
ARTICLE II -- PURCHASE PRICE
The purchase price which Buyer agrees to pay and Seller agrees to
accept for the sale, transfer and conveyance of the real property to Buyer is
Three Hundred Thirty-six Thousand Five Hundred Seventy-five Dollars
($336,575.00), which consists of Two Hundred Ninety-nine Thousand Five
Hundred Seventy-five and No/100 Dollars ($299,575.00) for the building and
improvements located on the real property, as they existed prior to April 30,
1988, the date when AloeLabs first took possession thereof, Twenty Thousand
and No/100 Dollars ($20,000.00) for improvements made or to be made by
AloeLabs after April 30, 1988, and Seventeen Thousand and No/100 Dollars
($17,000.00) as additional consideration, and other consideration.
As partial consideration, Buyer shall pay the foregoing Three Hundred
Thirty-Six Thousand Five Hundred Seventy-five Dollars ($336,575.00) price as
follows:
REAL ESTATE SALE AND PURCHASE AGREEMENT WITH LEASE - 2
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(a) Ten Thousand and No/100 Dollars ($10,000.00)
contemporaneously herewith.
(b) The balance thereof, consisting of Three Hundred Twenty-six
Thousand Five Hundred Seventy-five Dollars ($326,575.00) is due
and payable at closing.
ARTICLE III -- CLOSING, TITLE AND TITLE INSURANCE
Closing shall be on or before July 15, 1989. The closing agent shall be
Raymond Jenkins, Attorney at Law; and each party shall pay one-half (1/2) of
the closing fees and expenses listed on Schedule 2, which is attached. At
closing, Seller shall convey good and marketable title to the real property
by warranty deed, and shall furnish Buyer standard ATLA form of title
insurance for the full purchase price thereof, insuring marketable title
thereto. Notwithstanding the foregoing, prior to closing a standard form of
title commitment shall contain exceptions to clear and marketable title, if
any. Summit shall have three (3) days from its receipt of the title
commitment in which to object to any such exceptions. Any objections, if any,
shall be delivered to AloeLabs in writing and shall be cleared at or before
closing.
ARTICLE IV -- LEASE BACK
AloeLabs hereby agrees to, and effective from the date of closing, does
and shall, lease from Summit and Summit hereby agrees to, and effective from
the date of closing, does and shall, lease to AloeLabs the real property
together with al buildings and improvements thereon for a period terminating
on July 1, 1999, unless earlier terminated as provided below. Consideration
for this Lease is set forth in Article VII below.
ARTICLE V -- OTHER IMPROVEMENTS
After closing, Summit agrees to, and shall, provide and arrange for
additional building expansion and improvements on and to the existing
improvements or real property, together with additional manufacturing
production equipment. The proposed additional building expansion is generally
described on Exhibit "B" attached hereto. The proposed additional
manufacturing equipment is described on the attached Exhibit "C". Provided,
however, in the event the additional expansion and additional production
equipment cost to Summit shall exceed a combined total of Two Hundred Fifty
Thousand and No/100 Dollars ($250,000.00), any such excess expenditure, and
the additional expansion and production equipment represented by such excess,
shall be made only upon the express written
REAL ESTATE SALE AND PURCHASE AGREEMENT WITH LEASE - 3
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consent of both Summit and AloeLabs. Absent such consent, Summit shall not be
required to provide and arrange for such items which are represented by such
excess. Provided, further, neither party shall be required to give such
consent.
ARTICLE VI -- LEASE OF EXISTING AND OTHER EQUIPMENT
In addition to the real property and improvements leased by AloeLabs
above, as a part of this lease for the time periods specified in this
agreement, and for the consideration set forth in Article VII below (which
consideration formula is adjusted as provided therein to reflect Summit's
cost of providing the same), after closing Summit shall lease to AloeLabs all
of the additional building expansion improvements and additional
manufacturing production equipment described in the preceding Article upon
their acquisition by Summit.
Prior to the execution of this Agreement, Summit purchased equipment
valued at $84,123.00, which equipment is now in the possession of, and being
used by AloeLabs. The purchase of said equipment is hereby affirmed by the
parties, and is more fully described in the following letters attached hereto
respectively as Exhibits "D", "E" and "F":
(a) Letter of December 29, 1988, equipment investment
by Summit for $30,100.00;
(b) Letter of February 23, 1989, equipment investment
of $42,000.00.
(c) Letter of April 25, 1989, equipment investment of
$12,023.00.
Said equipment is a part of this lease agreement for the periods
specified herein, the consideration for which is set forth in Article VII
(which consideration formula is adjusted as provided therein to reflect said
$84,123.00 price paid by Summit).
ARTICLE VII -- LEASE CONSIDERATION
As consideration for the lease of the real property, its buildings and
all other improvements and machinery, equipment or other items leased by
AloeLabs from Summit as provided in Articles IV through VI above, AloeLabs
shall pay Summit the amounts set forth below. Provided, however, subject to
Article VIII below, said lease payments are to be paid by AloeLabs in gallons
of One Hundred Percent (100%) undiluted Aloe Vera gel (hereafter "gel") which
shall be fully stabilized, suitable for export purposes and packaged in
fifty-five (55) gallon drums. This gel shall also be the same in all material
respects, including, but not necessarily limited to, the ingredients,
chemical components, quality and nature of such gel which was shipped by
AloeLabs to Summit at all times prior to May 1, 1989. Said drums are to be
delivered to Summit FOB the leased premises, and to the extent reasonably
possible for all shipments of gel to Summit, AloeLabs shall credit Summit's
invoice for the monthly shipments of said gel on the second full container of
gel shipped each month.
The monthly amount of gel to be paid to Summit by AloeLabs during the
term of this lease shall be calculated as follows (partial months, if any,
shall be prorated):
The total amount of Summit's principal investment paid for the real
property, all improvements on the real property, and all machinery,
equipment or other assets which Summit has and which are being leased
by AloeLabs, which amount shall include, but is not limited to, Three
Hundred Thirty-six Thousand Five Hundred Seventy-five and No/100
Dollars ($336,575.00), as specified in Article II above, plus Eighty-
four Thousand One Hundred Twenty-three and No/100 Dollars ($84,123.00),
as set forth in Article VI above; however, said amount shall not
include closing costs paid by Summit in connection herewith. The
amount so determined shall be calculated by Summit, and a list thereof
shall be furnished to AloeLabs.
If additional principal investment is incurred during any month, that
amount shall be added to the total amount as of the date incurred, and
additional monthly rent incurred as a result thereof shall be prorated
for the actual number of days after said amount is added.
The first $600,000.00 thereof shall be divided by $539.00. The
resulting figure (rounded to the nearest whole number in the same
manner as described above) shall be the number of gallons of gel which
shall be paid, based upon the first $600,000.00 of the total principal
investment for each month. (For partial months in the period, that
number of gallons shall be adjusted by multiplying that number by a
fraction, the numerator of which equals the number of the days of the
month to be included, and the denominator of which is the total number
of days in the month. The resulting figure shall be rounded off to the
nearest whole gallon.)
With respect to that protion of Summit's total principal investment
which exceeds $600,000.00, the amount of such excess shall be divided
by
REAL ESTATE SALE AND PURCHASE AGREEMENT WITH LEASE - 5
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$566.00, the resulting figure (rounded to the nearest whole number in
the same manner as desrcribed above) shall be the number of gallons of
gel which shall be paid based upon that portion of Summit's principal
investment which exceeds $600,000.00. For partial months, the figure
shall be prorated and adjusted in like manner as is described above.
the total gallons of gel to be paid for any applicable month shall be
the sum of the gallons based upon the first $600,000.00 of Summit's
principal investment, plus the number of gallons based upon the
investment in excess of $600,000.00.
By way of example, if Summit's total principal investment from August
1, 1989, through August 20, 1989, is $552,000.00, and if it pays for
additional capital improvements to the real property on August 21,
1989, so that its total principal investment from August 21, 1989,
through August 31, 1989, is $637,000.00, then August's lease payment
from AloeLabs to Summit would be calculated as follows:
August 1 through August 20 = 20 days
$552,000.00 divided by $539 = 1,024.00
1024.00 x 20
___
31 = 1024.00 x .6452 = 661
gallons of gel
August 21 through August 31 = 11 days
$600,000.00 divided by $539.00 = 1113
$37,000.00 divided by $566.00 = 65
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1178
1178 x 11
____
31 =
1178 x .3548 = 418 gallons of gel
Total rent for August = 661 + 418 = 1079
gals. of gel
ARTICLE VIII - ALTERNATIVE TO GEL PAYMENTS
If there shall be little or no demand for Aloe Vera products, or a
significant and material decline in the market for Aloe Vera products in
Japan;
TEMPORARY LOAN AGREEMENT
Cindy Lagasse
It is agreed that Pharmaceutical Laboratories, Inc., hereinafter referred
to as (PLI) and Cindy Lagasse, hereinafter referred to as (Lagasse) wish to
enter into an agreement whereby Lagasse will loan to PLI monies, from time to
time. The loans will be in amounts to be determinedat the time the loans are to
be made and repayment will be made upon receipt of monies brought into PLI
through their accounts receivables.
It is understood that this agreement shall be in effect for a period of
one year and shall not exceed a total of $1,200,000.
Interest shall be at the rate of nine percent (9%) and will be paid
monthly. Interest shall be paid on a pro-rata basis on the total amount
borrowed during each month.
Collateral shall be a first lien on all PLI assets located at the
Harlingen, Texas facilities, and a second lien on all other PLI assets.
Special Instructions: The total amount of monies advanced against the
$1,200,000 line of credit will become due and payable immediately in the
event a receiver is appointed for the Company, or there is a change in
current management as a result of the lawsuit(s) filed by Elisa Miller.
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Interest on the debt evidenced by this note shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law; any interest in excess of that maximum
amount shall be credited on the principal of the debt or, if that has been
paid, refunded. On any acceleration or required or permitted prepayment, any
such excess shall be canceled automatically as of the acceleration or
prepayment or, if already paid, credited on the principal of the debt or, if
the principal of the debt has been paid, refunded. This provision overrides
other provisions in this and all other instruments concerning the debt.
Each maker is responsible for all obligations represented by this note.
SIGNED THIS 11TH DAY OF JULY, 1997.
MAKER: PHARMACEUTICAL LABORATORIES, INC.
By: /s/ JERRY MCCLURE
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Title: President
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PAYEE: CINDY LAGASSE
/s/ CINDY LAGASSE
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