AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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M.D. LABS, INC.
(NAME OF SMALL BUSINESS ISSUER IN THE CHARTER)
Delaware 2099
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
86-0835247
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1719 West University Drive, Suite 187, Tempe, Arizona 85281; (602) 437-0127
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF
BUSINESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICER)
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Hooman Nikzad, Chief Executive Officer
M.D. LABS, INC.
1719 W. University Drive, Suite 187
Tempe, Arizona 85281
(602) 437-0127
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies To:
Paul M. Gales, Esq. Dennis J. Doucette, Esq.
QUARLES & BRADY James A. Mercer III, Esq.
One E. Camelback Road, Suite 400 LUCE, FORWARD, HAMILTON & SCRIPPS LLP
Phoenix, Arizona 85012-1659 600 W. Broadway, Suite 600
(602) 230-5500 San Diego, California 92101
(619) 236-1414
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed maximum
Title of each class of Amount to be maximum offering aggregate offering Amount of
securities to be registered registered(1) price pershare(2) price(2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value
per share ..................... 1,495,000 shares $ 7.00 $10,465,000 $3,608.62
======================================================================================================================
<FN>
(1) Includes 195,000 shares to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1996
1,300,000 SHARES
[ooo M.D. LABS, INC. LOGO ooo ]
COMMON STOCK
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All of the shares of Common Stock, $.001 par value per share, offered hereby
(the "Common Stock") are being issued and sold by M.D. Labs, Inc., a Delaware
corporation (the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently anticipated that the initial public offering
price per share will be $7.00. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The Company
has made application for the Common Stock to be quoted and traded on the Nasdaq
National Market under the symbol "MDLA" upon the effectiveness of this Offering.
THESE ARE SPECULATIVE SECURITIES THAT SHOULD ONLY BE PURCHASED BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE
5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS PRIOR TO INVESTING IN THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds
Price Discounts and to the
to Public Commissions(1) Company(2)
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Per Share ............ $ 7.00 $ 0.70 $ 6.30
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Total(3) ............. $ 9,100,000 $ 910,000 $ 8,190,000
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting Offering expenses estimated at $690,000, including the
Underwriters' non-accountable expense allowance, all of which are payable
by the Company. See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
195,000 additional shares of Common Stock at the Price to Public per share
less the Underwriting Discounts and Commissions solely to cover
over-allotments, if any (the "Over-allotment Option"). If the Over-
allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$10,465,000, $1,046,500, and $9,418,500, respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions, including the right of the
Underwriters to reject orders in whole or in part. It is expected that delivery
of the certificates representing the Common Stock will be made against payment
therefor in San Diego, California on or about three business days from the date
of this Prospectus.
SENTRA SPELMAN
SECURITIES CORPORATION & CO., INC.
The date of this Prospectus is , 1996.
<PAGE>
INSIDE FRONT COVER:
12 photographs of containers of company products
(4 rows x 3 columns)
1. Citrium(TM) Lean and Trim Chewing Gum individual packets
2. Citrium(TM) Herbal Tea box
3. Display case of multiple Citrium(TM) Herbal Tea boxes
4. Citrium(TM) Lean & Trim Chewing Gum bottles (large and small)
5. Women's Nature(TM) Natural Balance Herbal Tea-raspberry flavor
box
6. Citrium(TM) Lean & Trim Chewing Gum box
7. DHEA bottles (large and small)
8. Women's Nature(TM) P.M.S. Tea boxes
9. Pro-Line(R) Product line bottles & boxes
10. Daily Detox(R) Herbal Tea box
11. Daily Detox(R) and Daily Detox(R) II drop bottles
12. Daily Detox(R) Detox Herbal Tea-apple cider cinnamon flavor
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in the Prospectus does not give
effect to the exercise of the Over-allotment Option granted to the Underwriters,
as described under "Underwriting." On May 31, 1996, the Company exchanged
3,000,000 shares of its Common Stock for all of the membership interest in
Houston Enterprises, L.L.C., an Arizona limited liability company ("Houston"),
and the financial statements at May 31, 1996 reflect that exchange. For the
years ended May 31, 1995 and 1996, the Company's predecessor was taxed as a
limited liability company. For income tax reporting purposes, all profits and
losses for such years, and certain other items, were passed through to the
members of Houston. Because the income of the Company will be taxable after May
31, 1996 certain temporary differences between financial and tax reporting are
reflected as an income tax benefit in the statement of income for the years
reported and as deferred tax assets in the balance sheets for the years
reported. Except for historical information, the matters discussed in this
Prospectus are forward-looking and involve risks and uncertainties. See "Risk
Factors."
THE COMPANY
M.D. Labs, Inc. (together with its subsidiaries, the "Company") packages,
markets and distributes natural food and dietary supplements, consisting
primarily of herbal products and sports nutrition products, as well as a weight
management chewing gum product. The Company has focused on new product
innovation, such as its Daily Detox(R) teas targeted to the detoxification
herbal tea market and its Citrium(TM) Lean and Trim chewing gum targeted to the
weight loss chewing gum market. The Company's products generally are sold to
distributors and to health food, drug and other retail stores.
The Company currently markets the Naturally Klean(R), Daily Detox(R), Women's
Nature(TM), HerbalPathic(TM) and Citrium(TM) product lines. Through its
wholly-owned subsidiary, Belnik Investment Group, Inc. doing business as Freedom
Wholesalers, Inc. ("Freedom"), the Company also markets The Stuff(TM) and
Naturally Klean(R) Herbal Tea,(TM) and under the PRO-LINE(R) name it markets
products such as Super ProLean(TM) Fat Burners, Amino Formula "1240"(TM) and
Chromoplex(TM). The Naturally Klean(R) and Daily Detox(R) lines are focused on
the detoxification market. These products are available in teas, capsules and
extracts. Women's Nature(TM) herbal tea and the HerbalPathic(TM) single herb
supplements support and enhance overall health. The Citrium(TM) product line
addresses the weight management market. The Freedom products are intended for
the detoxification and energy supplement markets, and the PRO-LINE(R) products
are formulated for the sports nutrition market.
Sales of herb-based products, including dietary supplements, are estimated to
exceed $1 billion in the United States annually. Industry sources also indicate
that sales of sports nutrition products, excluding beverages, were $675 million
in 1995. The market for natural dietary supplements, weight management and
sports nutrition products is highly fragmented, with intense competition among
larger companies offering full lines of products and smaller single product
companies. The industry is characterized by frequent new product introductions,
short product life cycles, rapid price declines and eroding profit margins. The
Company believes that the competitive forces within the industry are
characterized by product innovation, brand recognition, and effective marketing
and distribution.
The Company is pursuing a three-pronged growth strategy focusing on (i)
expansion of sales of existing products to current and new customers via
increased advertising and marketing and development of additional channels of
distribution; (ii) development of new products which complement the Company's
existing product lines or address new markets with significant growth potential;
and (iii) acquisition of other companies, products or product lines which, as in
the case of new products under internal development, complement the Company's
existing product lines or address new markets with significant growth potential.
The Company was incorporated in Delaware on February 7, 1996 to be the
successor to Houston. On May 31, 1996, the Company acquired all of the
membership interests in Houston and thereupon succeeded to Houston's business.
Houston acquired its original line of products from Houston Enterprises, Inc.,
an Arizona corporation, through an asset purchase completed in February 1994.
Houston Enterprises, Inc. introduced its first product line in 1987. In February
1996, the Company purchased all of the outstanding stock of an affiliated
company, Belnik Investment Group, Inc., an Arizona corporation, which
distributed the Freedom products. See "Certain Transactions." The Company
obtained the PRO-LINE(R) product line through the purchase of substantially all
of the assets of Olympian Global, L.L.C., an Arizona limited liability company
("Olympian Global") in January 1996.
The principal office of the Company is located at 1719 W. University, Suite
187, Tempe, Arizona 85281. The Company's telephone number is (602) 437-0127.
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3
<PAGE>
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<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by the Company ................... 1,300,000 shares
Common Stock to be outstanding after the Offering .... 4,300,000 shares(1)
Use of proceeds ....................................... To fund development of sports nutrition product lines;
increase marketing and advertising; upgrade computer
systems; acquire automating equipment; and
potentially acquire complementary products and
businesses. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol ................ "MDLA"
<FN>
- ----------
(1) Excludes 464,421 common shares issuable upon the exercise of outstanding
warrants as of August 15, 1996, of which warrants for 267,656 shares were
exercisable, and 229,000 shares issuable upon exercise of outstanding stock
options authorized under the Company's 1996 Stock Option Plan, none of which
were exercisable as of August 15, 1996. See "Description of Capital Stock --
Warrants" and "Management -- Stock Option Plan."
</FN>
</TABLE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary financial data of the Company have been derived from
the audited financial statements of the Company. The summary financial data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and the notes thereto appearing elsewhere in this
Prospectus.
YEARS ENDED MAY 31,
------------------------
1996 1995
---- ----
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales .......................................... $5,191,067 $4,193,997
Cost of goods sold ................................. 1,510,479 1,608,568
---------- ----------
Gross Profit ....................................... 3,680,588 2,585,429
Selling, general and administrative expenses ....... 2,141,926 2,012,641
---------- ----------
Income from operations ............................. 1,538,662 572,788
Interest expense ................................... 12,991 0
---------- ----------
Income before income tax ........................... 1,525,671 572,788
Income tax benefit ................................. 86,039 0
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Net income ......................................... $1,611,710 $ 572,788
========== ==========
PRO FORMA NET INCOME DATA (UNAUDITED)(1):
Income before income tax ........................... $1,525,671 $ 572,788
Pro forma income taxes ............................. 610,039 229,115
---------- ----------
Pro forma net income ............................... $ 915,632 $ 343,673
========== ==========
Pro forma net income per share(2) .................. $ 0.27 $ 0.10
Shares used in pro forma net income per share(2) ... 3,329,899 3,329,899
---------- ----------
MAY 31, 1996
------------------------------
ACTUAL AS ADJUSTED(3)
BALANCE SHEET DATA:
Cash and cash equivalents ................ $ 91,799 $ 8,281,799
Working capital .......................... 1,191,112 9,381,112
Total assets ............................. 2,691,670 10,881,670
Long-term debt ........................... 0 0
Total shareholders' equity ............... 2,017,853 10,207,853
- ----------
(1) For the two years ended May 31, 1996, Houston elected under Internal Revenue
Code Sub-Chapter K to be treated as a limited liability company, and
accordingly, generally was not subject to federal and state income taxes.
For income tax reporting purposes for these years, all profits and losses,
and certain other items, were passed through to the members of Houston.
Since the income of the Company will be taxable after May 31, 1996, income
tax expense for the years ended May 31, 1996 and 1995 has been presented as
if the Company was a C corporation during those years. The income tax
expense was calculated assuming an effective tax rate of 40%.
(2) Based on weighted average common shares and common share equivalents
outstanding as of May 31, 1996, giving retroactive effect to the Company's
conversion in May 1996 from a limited liability company to a corporation,
and the conversion of membership interests into Common Stock. See Note 14 of
Notes to Financial Statements.
(3) Adjusted to give effect to the sale of 1,300,000 shares of Common Stock
offered by the Company hereby (at an assumed offering price of $7.00 per
share net of underwriting discounts and commissions, before other offering
expenses, and exclusive of the Underwriters' Over-allotment Option). See
"Use of Proceeds" and "Capitalization."
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4
<PAGE>
RISK FACTORS
Prospective purchasers of the Common stock should carefully consider the
following risk factors and the other information contained in this Prospectus
before making an investment in the Common Stock. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Strategy." No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
LIMITED INDUSTRY EXPERIENCE; RECENT BUSINESS VENTURE. Although the Company
has been profitable from inception, management has not had extensive experience
in the natural dietary supplement business or in the weight management products
business. Several of the Company's employees, however, have been active in the
industry for a number of years, although no employees are health science
professionals. The Company was formed in February 1996 and commenced business
through its predecessor in February 1994. Consequently, it has only a limited
operating history. It can be expected that future operating results may continue
to be subject to many of the problems, expenses, delays and risks inherent in
the early development of a business enterprise and that the Company may have
little control over some of such occurrences. For example, the Company has not
completed the process of implementing formal reporting systems, nor has it yet
received governmental inspections, such as those conducted by entities such as
the Occupational Safety and Health Administration ("OSHA"), the Food and Drug
Administration ("FDA") and Federal Trade Commission ("FTC"), as can be expected
in the industry. There can be no assurance, therefore, that the Company will be
able to continue the development of its business while sustaining profitability
in future periods. See "Business -- Strategy" and "-- Government Regulation."
SHORT PRODUCT LIFE CYCLES; DEPENDENCE ON NEW PRODUCTS. Certain of the
Company's products primarily are used by consumers who are early to adopt new
products. The markets for such products are characterized by factors such as
changing customer demand, short product life cycles and frequent new product
introductions. Such changes and cycles often are not due to identifiable market
factors. The performance of the Company will depend on its ability continually
to develop and market new products that achieve customer acceptance and loyalty,
as well as its ability to adapt its product offerings to meet changing pricing
considerations, consumer preferences and other market factors. The Company's
business, financial condition and results of operations could be materially
adversely affected if the Company were to incur delays in developing new
products or if such new products did not gain market acceptance. Therefore,
there can be no assurance that the Company's existing or future products will be
sufficiently successful to enable the Company to compete effectively in its
current markets or, should the Company's product offerings meet with significant
customer acceptance, that one or more current or future competitors will not
introduce products which compete successfully with the Company's products. See
"Business -- Product Planning, Development and Acquisition."
COMPETITION AND LOW BARRIERS TO ENTRY. The market for health food supplements
and sports nutrition products is characterized by intense competition. The
Company faces substantial competition in its efforts to capture a significant
share of its markets. A number of companies currently offer competing products
and additional competing products most probably will be introduced by other
companies in the future. There can be no assurance that other companies will not
develop products that are similar to those offered by the Company. In addition,
many of the Company's existing and potential competitors have greater financial,
marketing and research capabilities than the Company. Therefore, these
competitors may be better positioned to capture incremental sales of products
comparable to the Company's products which may become accepted in the mainstream
marketplace. See "Business -- Competition."
5
<PAGE>
ABSENCE OF CLINICAL STUDIES, SCIENTIFIC REVIEW AND TESTING. As discussed in
greater detail in the section relating to government regulation, current law
requires the Company to obtain scientific data and substantiation to support its
promotional claims concerning its products. Some products may require advance
FDA approval for the claims, and all product claims must be at least supported
by adequate substantiation. The Company has implemented a policy for collecting
the available substantiation for its product claims, which in most cases
consists of information prepared and supplied by other companies, including the
Company's suppliers. The sufficiency of the Company's substantiation for its
product claims has not been reviewed by any regulatory agency, and the Company
has not provided nor been requested to provide any scientific data to the FDA or
the FTC. There can be no assurance that the substantiation data obtained or
available to the Company in support of its product claims will be deemed
acceptable by the FDA or the FTC, should either agency request such
substantiation in the future. Further, the FTC has recently commenced
administrative proceedings against other businesses in the health food industry,
questioning the sufficiency of their substantiation for various product claims.
There is no assurance that such proceedings by the FTC or the FDA will not be
brought against the Company, and such proceedings or product changes needed to
avoid the commencement of such proceedings could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company markets its products on the premise that they fall within the
category known as "dietary supplements." Current regulations do not require that
this category of products undergo clinical testing or FDA review before they are
marketed. The Company does not conduct or sponsor such studies, nor does it
analyze the contents of products received from third-party manufacturers. See
"Risk Factors -- Reliance on Outside Suppliers and Manufacturers." As a result,
there can be no assurance that the Company's products contain ingredients
precisely as labelled, and there is increased risk that the Company's products
may cause unexpected side effects for which the Company may be liable to the
persons injured and/or the Company may be subject to administrative and judicial
proceedings by the regulatory authorities. Ingredients similar to those
contained in the Company's products have been associated with such adverse
effects. The Company has not received substantial complaints of adverse effects
resulting from the proper use of its products. However, because the Company is
highly dependent upon consumers' perception of the safety and quality of its
products as well as similar products distributed by other companies, the
Company's business, financial condition and results of operations could be
materially adversely affected if any of the Company's products or any similar
products distributed by other companies should prove or be asserted to be
harmful to consumers. In addition, because of the Company's dependence upon
consumer perceptions, adverse publicity associated with illness or other adverse
effects resulting from consumers' failure to consume the Company's products as
suggested by the Company or other misuse or abuse of the Company's products or
any similar products distributed by other companies could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Further, the Company believes that recent growth experienced by the
nutritional supplement market is based in part on national media attention
regarding recent scientific research suggesting potential health benefits from
regular consumption of certain nutritional products. Such research has been
described in major medical journals, magazines, newspapers and television
programs. The scientific research to date is preliminary, and there can be no
assurance of future favorable scientific results and media attention or of the
absence of unfavorable or inconsistent findings. See "Business -- Government
Regulation." There is also no assurance that regulatory agencies will continue
to permit the marketing of such products based on the type of scientific
research available.
Some of the Company's products may not qualify for dietary supplemental
status, and may become the subject of regulatory classification as a "drug" or
"new drug." The absence of clinical studies and scientific review for such
products could require the Company to discontinue their sale until formal FDA
approval of a New Drug Application is obtained. The Company does not expect that
it would be in a position to finance the submission of a New Drug Application.
All or any of the above may require the Company to make a business decision
to discontinue the marketing of one or more of its products. There is no
assurance that any such discontinuance or the
6
<PAGE>
cumulative effect of such discontinuance may not have a material adverse effect
on the Company's business, financial condition or results of operations.
UNCERTAINTY AND POTENTIAL NEGATIVE EFFECTS OF GOVERNMENT REGULATIONS. The
manufacturing, processing, formulating, packaging, labelling and advertising of
the Company's products are subject to regulation by one or more federal
agencies, including the FDA, the FTC, the Consumer Product Safety Commission
(the "CPSC"), the United States Department of Agriculture (the "USDA"), and the
Environmental Protection Agency (the "EPA"). The Company's activities are also
regulated by various agencies of the states, localities and foreign countries to
which the Company's products are distributed and in which the Company's products
are sold.
The composition and labelling of dietary supplements, which comprise a
significant majority of the Company's products, is most actively regulated by
the FDA under the provisions of the Federal Food, Drug, and Cosmetic Act ("FFDC
Act"). The FFDC Act has been revised in recent years by the Nutrition Labeling
and Education Act of 1990 ("NLEA") and by the Dietary Supplement Health and
Education Act of 1994 ("DSHEA"). While in the judgment of the Company these
regulatory changes are generally favorable to the dietary supplements industry,
there can be no assurance that the Company will not in the future be subject to
additional laws or regulations administered by various regulatory authorities.
In addition, there can be no assurance that existing laws and regulations will
not be repealed or be subject to more stringent or unfavorable interpretation by
applicable regulatory authorities.
The labelling requirements for dietary supplements have not been clearly
established. In December 1995, the FDA issued proposed regulations to govern the
labelling of dietary supplements. These regulations are expected to become final
later in 1996, and would require the Company to revise all of its dietary
supplement labels in 1997. The FDA has informally stated that it will, subject
to public comment, withhold enforcement of these regulations until January 1,
1998.
Marketing and sale of dietary supplements is to some extent dependent on
avoiding a drug classification for such products. The FDA has not yet delineated
how the drug versus dietary supplement distinctions will be made under the new
law. Some of the Company's products may be regulated separately as foods without
invoking the provisions of the law applicable to dietary supplements. The
adoption of new regulations in the United States or elsewhere, or changes in the
interpretation of existing regulations, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has been advised by Napa County, California, and Sonoma County,
California, that its Citrium(TM) and the Super ProLean(TM) Fat Burners are
possibly mislabeled. The Company has responded to such counties and has not
received a reply. The Company has also been advised by several states, including
the State of New York, that it may not sell its Naturally High(TM) herbal energy
product or any other product that contains ma huang or ephedrine in that state.
The Company has discontinued selling Naturally High(TM), the only product of the
Company which contained ma huang or ephedrine.
The Company cannot predict the nature of future laws, regulations,
interpretations or applications, nor can it determine what effect either
additional governmental regulations or administrative orders, when and if
promulgated, or disparate federal, state and local regulatory pronouncements
would have on its business in the future. Applicable regulations could, however,
require the reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated, additional
recordkeeping, expanded documentation of the properties of certain products,
expanded or different labeling and/or scientific substantiation. Any or all of
such requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally the responsibility of the Company's distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control. See "Business -- Government Regulation."
7
<PAGE>
NON-COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company has recently
undertaken a review of its products in light of current regulations. Because of
the evolving status of the regulatory environment and the early stage in the
life cycle of many of the Company's products, the Company cannot be certain as
to which regulations govern its activities. Nevertheless, the Company believes
that some of its products do not or may not comply with existing regulations in
all respects. The Company has commenced making the modifications that it
believes are necessary to come into material compliance with such regulations.
The Company's facilities are subject to regulation by various governmental
agencies, including state and local licensing, zoning, land use, construction
and environmental regulations and various health, sanitation, safety and fire
codes and standards. Failure to obtain necessary licenses or approvals or
suspension, due to failure to comply with applicable regulations or otherwise,
could interrupt the Company's packaging and distribution operations. The Company
recently became aware of the need for local licensing with respect to certain
aspects of its business. The Company may be subject to criminal or civil
penalties, including orders or injunctions to cease certain operations for
failure to have such licensing. There can be no assurance that the Company can
obtain such licensing without incurring material disruption of its business or
material regulatory penalties, if at all.
EFFECT OF DISCONTINUED PRODUCT. The Company recently discontinued selling its
Naturally High(TM) herbal energy product. Naturally High(TM) represented less
than 1% of revenues in fiscal 1996. This product contains ma huang. Ma huang has
been the subject of certain adverse publicity in the United States and other
countries relating to alleged harmful effects. After numerous reports of adverse
reactions, the FDA has warned that people should not consume ma huang, and
several states and local governments have banned or heavily regulated products
containing ma huang. The FDA has investigated reports linking products
containing ma huang or its active ingredient, ephedrine, to adverse reactions
such as heart attacks and death. In general, there has been very vigorous
regulatory activity at both the federal and state level against products which
might be construed as a substitute for otherwise illegal street drugs.
While the Company believes that Naturally High(TM) is safe when used as
suggested, it has chosen to focus on other products. In August 1996, the Company
received a letter from the FDA, which referred to the recent regulatory activity
concerning the above types of products, and specifically objected to the
Company's continued marketing of Naturally High.(TM) On August 30, 1996, the
Company advised the FDA that the Company had discontinued the sale of Naturally
High(TM) and would not market any other products which contained ma huang or any
other type of ephedrine.
The Company has not received any claims of liability with respect to products
containing ma huang previously sold by the Company, although there can be no
assurance that such claims will not be asserted in the future. See "Business --
Products," "-- Product Liability" and "-- Government Regulation."
PRODUCT CONCENTRATION. Sales of the Company's Naturally Klean(R) and related
products, and Citrium(TM) products accounted for approximately 51% and 25%,
respectively, of the Company's net sales for the fiscal year ended May 31, 1996.
The Company anticipates the sale of such products or a limited number of other
products will continue to contribute a substantial portion of total revenues in
subsequent periods. The market for the Company's products is characterized by
extensive competition, frequent new product introductions, short product life
cycles, rapid product declines, eroding profit margins and changing preferences
of consumers. A decline in the demand for any of the Company's products,
including the foregoing, whether as a result of competition, changes in
demographic trends or other factors, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Products."
DIFFICULTY OF PRODUCT POSITIONING. Approximately 55% of the Company's fiscal
1996 revenue was derived from sales of The Stuff(R) and Naturally Klean(R).
These products are designed to eliminate temporarily toxins from the body.
However, the Company believes the products instead are often used in preparation
for urine drug testing. A change in drug testing methodology from urine tests to
blood or hair tests could cause a material decrease in sales of The Stuff(R) and
Naturally Klean(R) and, therefore, in revenues and profits for the Company.
Additionally, there can be no assurance that the potential association by
customers of the Company with such activities would not hinder market acceptance
of the Company's other products as it attempts to replace any lost revenues from
such a change in methodology or seeks to diversify its product offerings. See
"Business -- Products."
8
<PAGE>
EXPOSURE TO PRODUCT LIABILITY. The Company faces a significant risk of
product liability claims in the event that the use of its products is alleged to
have resulted in adverse health effects. To date, no product liability lawsuits
have been brought against the Company. However, a number of the Company's
competitors are routinely sued on product liability claims. Moreover, the
Company's products contain ingredients, although in different combinations or
concentrations, which have been associated with adverse effects. The Company has
purchased product and general liability insurance with general aggregate limits
of $2 million and a $3 million excess liability umbrella policy. Such policies
provide coverage of up to $1 million for each occurrence. There can be no
assurance that liability claims will not exceed the coverage limits or be
excluded by coverage limitations or that such insurance will continue to be
available on commercially reasonable terms or at all. If the Company does not or
cannot maintain sufficient liability insurance, its ability to market its
products may be significantly impaired. In addition, product liability claims
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Product Liability."
LIMITED CAPITALIZATION. After completion of this Offering, the Company will
have approximately $9.38 million in working capital. There can be no assurance
that such capitalization is sufficient to enable the Company to compete
adequately in the industry on a continual basis or to defend itself against
potential liabilities associated with its products. Additionally, the Company
plans to continue to grow through development of its existing products and
through the development and acquisition of new products and existing operating
companies. The planned development and expansion of the Company's business will
place significant demands on the Company's working capital. There can be no
assurance that sufficient capital resources would be available to the Company if
and when required by management, or on terms that would be acceptable to the
Company. In the course of raising such additional capital, the Company may be
required to forego a substantial interest in its future revenues or dilute the
equity interests of existing stockholders, and a change in control could result.
See "Risk Factors -- Competition and Low Barriers to Entry," "-- Exposure to
Product Liability," "Selected Financial Data" and "Business -- General," "--
Strategy" and "-- Competition."
CUSTOMER CONCENTRATION. Over 50% of the Company's revenues are generated from
sales to distributors and large retail accounts, including one account, Naoki
Corporation of Japan ("Naoki"), which constituted $634,000, or approximately
12.2% of the Company's net sales in fiscal year ended May 31, 1996. The Company
does not have written contracts with its primary distributors. Additionally,
seven customers comprised approximately 60% of the accounts receivable balance
at May 31, 1996. Although there can be no assurance that the Company's principal
customers will continue to purchase products from the Company at current levels,
if at all, the Company expects to continue to depend on its principal customers
for a significant portion of its net sales. The loss of any one of such
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Marketing."
RELIANCE ON OUTSIDE SUPPLIERS AND MANUFACTURERS. The Company relies upon
various outside sources to supply its raw materials and to manufacture its
products, most of which are not in the United States. The Company has not
determined if the outside manufacturers comply with applicable regulations or
licensing requirements or if the foreign jurisdictions provide the Company
recourse for manufacturing defects. The Company does not analyze the contents of
products received from outside suppliers or manufacturers. The Company currently
has no written agreements with any of such sources; however, the Company's
relationships with these sources are believed to be good. Nevertheless, any
disruption in the supply of raw materials, in the manufacturing volume or
delivery schedule, in the pricing or in the quality of such products is outside
of the Company's direct control and could adversely and materially affect the
Company's business, financial condition and results of operations until
replacement sources are established. In addition, the Company's recourse against
such suppliers for any damages it may suffer may be limited. Because the
industry is characterized by a fragmented manufacturing base, management
believes that other outside manufacturing services could be obtained at similar
costs from a number of alternative sources within a reasonable period of time,
with the exception of the source of most of the Company's herbal products.
9
<PAGE>
Management believes the Company reserves adequate inventory in the event of a
need to change suppliers. However, an interruption in the supply of raw
materials, such as through crop failures or embargoes, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Production."
RELIANCE ON OTHERS TO DEVELOP PRODUCTS. None of the Company's employees are
health science professionals, and the Company itself has not developed any of
the products that it currently sells. To date, it has relied on the acquisition
of product formulas through various asset purchases and the commission of
product development with health science professionals. At present the Company
pays royalties to certain of the developers of the product formulas. See
"Business -- Product Royalties." The Company does not have long-term contracts
with any health science professionals for the development of new products and
will continue for the foreseeable future to rely on third parties to develop new
products. No assurances can be given that such individuals will be willing or
able to develop commercially successful products for the Company, or that such
individuals' services or product formulas will be available on terms that are
advantageous to the Company. See "Business -- Product Planning, Development and
Acquisition."
MANAGEMENT OF GROWTH. The Company plans to expand its overall level of
operations, which is expected to strain the Company's management, technical,
financial and other resources. To manage growth effectively, the Company is
likely to hire additional personnel, implement expanded operating, manufacturing
and financial controls, install enhanced reporting and management information
systems for materials procurement, manufacturing, order processing, system
monitoring, customer service and financial reporting, and otherwise to improve
coordination between product formulation, manufacturing processes, marketing,
sales and finance functions. The Company's failure to expand its sales base and
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Strategy."
SELECTION AND INTEGRATION OF ACQUISITIONS. A key element of the Company's
strategy is expansion through the acquisition of other companies, assets or
product lines. There can be no assurance, however, that the Company will be
successful in identifying appropriate opportunities or negotiating favorable
terms. The integration of any such acquisition is critical to the future
financial performance of the Company after any such acquisition. Complete
integration of any acquisitions could take several quarters to accomplish and
will require, among other things, integration of the companies' respective
product offerings and coordination of their sales and marketing, manufacturing,
research and development and regulatory compliance efforts. The difficulty of
combining companies may be increased by the need to integrate the personnel and
geographic distance between the companies. Changes brought about by any
acquisition may cause key employees or distributors to terminate their
relationship with the Company. In addition, the Company might incur significant
integration or additional operating costs associated with an acquisition. There
can be no assurance that such costs will not have an adverse effect upon the
Company's business, financial condition and results of operations, particularly
in the fiscal quarters immediately following the consummation of any
acquisition, while the operations of the acquired business are being integrated
into the Company's operations. The process of integrating companies may cause
management's attention to be diverted from operating the Company. In addition,
the process of combining two organizations could cause the interruption of, or a
loss of momentum in, the activities of either or both of the companies'
businesses. There can be no assurance that any acquisition will not materially
and adversely affect the Company's business, financial condition or results of
operations or that any such acquisition will enhance the Company's business.
See "Business -- Strategy."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL; LIMITED COMMITMENT OF PRESIDENT.
The Company depends upon the active involvement of its senior managers,
including its executive officers. The loss of one or more of such officers could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has entered into employment agreements
with Messrs. Nikzad, Todd Belfer, Djahandideh and Denton as executive officers.
Todd Belfer, the Company's President, is not employed on a full-time basis by
the Company, although he has committed orally to the Company that he will make
his time available to the Company as the Company's business may require.
Although the Company believes that Todd Belfer's time commitments should be
sufficient to meet the demands of the business of the Company, there is no
assurance he will continue to have sufficient time
10
<PAGE>
available or that the Company will be able to hire additional managers with the
necessary expertise if the need arises. Harvey Belfer, the father of Todd
Belfer, serves as a consultant to the Company on a part-time basis. The
Company's success and growth strategy also depend on its ability to attract and
retain qualified finance, accounting, purchasing, marketing, sales and other
personnel. Such personnel are in high demand and are often subject to competing
offers. There can be no assurance that the Company will be able to attract and
retain the qualified personnel necessary for its business and planned growth.
See "Business -- Production" and "Management -- Employment Agreements."
UNCERTAINTY REGARDING PROPRIETARY RIGHTS. The Company's success will depend
in significant part on its ability to retain protection of its proprietary
rights, including preservation of its trade secrets and know-how, without
infringing on the rights of others. The Company's products are sold under a
variety of trademarks and trade names. While the Company believes that it has
valid proprietary interests in all currently used trademarks and trade names in
the United States, only certain of the trademarks have been granted registration
with the United States Patent and Trademark Office ("U.S. Pat. Off."), others
have been filed with the U.S. Pat. Off. and are in the process of being
registered, and others have not been filed. There can be no assurance that the
Company will be able to successfully defend its trademarks or trade names
against claims that might be brought by third parties or obtain protection for
trademarks or trade names used with new products. See "Proprietary Rights: Trade
Names, Trademarks and Copyrights."
The Company does not maintain patent protection for its products and
processes, but rather relies on trade secret laws and common law concepts of
confidentiality to protect its product formulations. There can be no assurance
that the measures taken by the Company will protect the Company's proprietary
information or that others will not gain access to, or independently develop
similar trade secrets or know-how which will permit them to develop formulations
or processes that are substantially similar or superior to those of the Company.
ACCOUNTS RECEIVABLE. The Company distributes its products primarily through
distributors and retailers. While the Company typically extends 30-day credit
terms to qualified customers, some of its distributors and retailers tend to
extend the payment of their accounts beyond such terms and some are requiring
longer payment terms. For the year ended May 31, 1996, the Company's receivable
turnover was approximately 44 days. Although the Company has experienced no cash
flow problems in the past caused by the aging of its accounts receivable, as
management implements its plans for growth and should revenues rise, the Company
may experience larger accounts receivable balances and increasing cash
requirements, possibly creating cash flow pressures. Such pressures could
present difficult working capital demands on the Company which, if not resolved,
could limit the Company's growth. See "Business -- Marketing."
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results may vary
significantly due to a variety of factors, including changing market demands and
customer demographics, the availability and cost of raw materials, the
introduction of new products by the Company and its competitors, seasonality of
sales, the ability of the Company's sub-contractors and manufacturers to perform
as agreed, the timing and effectiveness of the Company's advertising and
promotional campaigns, pricing pressures, general economic and industry
conditions that affect customer demand and other factors. There can be no
assurance that the Company can continue to operate at historic levels or that
the Company's financial performance will remain stable from quarter-to-quarter.
The Company expects quarterly operating results to vary in the future.
Accordingly, period-to-period comparisons of financial results should not be
relied upon as an indication of future performance. No assurance can be given
that the Company will maintain profitability, in any given quarter, or at all,
in the future. It is possible that, if the Company's stock is followed by market
analysts, the Company's results for any quarter will fall below such analysts'
expectations. In such event, the market for the Common Stock would be materially
adversely affected.
NO INDEPENDENT MARKET STUDIES. The Company participates in markets for which
there generally is limited available market data. The Company has formulated its
business strategies based on certain assumptions of the Company's management
regarding the size of its markets, the Company's anticipated share of the
markets, and the estimated prices for and acceptance of the Company's products.
There can be no assurance that these assessments will prove to be correct. No
independent market studies have been conducted on behalf of the Company, nor are
such studies planned. See "Business -- Marketing."
11
<PAGE>
RISK OF PRODUCT RETURNS. The Company encounters the risk of product returns
from its customers. The Company's current return policy for retail customers
generally involves exchange of products and not the refund of the purchase
price. Nevertheless, certain of the Company's larger customers are requiring
more favorable return policies including longer periods within which such
customers may return products for a credit. Product returns to date have been
less than 4% of sales; however, there can be no assurance that actual levels of
returns will not significantly exceed the amounts previously experienced by the
Company, and such returns could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. In fiscal 1996, international
sales represented 17% of the Company's total revenues. The Company intends to
continue to expand its operations outside the United States and to enter
additional international markets, which will require significant management
attention and financial resources. The Company has committed and continues to
commit significant time and development resources to customizing its products
for selected international markets and to developing international sales and
support channels. There can be no assurance that the Company's efforts to
develop international sales will be successful. The failure of such efforts
could have a material adverse effect on the Company's business, financial
condition and results of operations.
International sales are subject to inherent risks, including unexpected
changes in regulatory requirements, uncertainties with regard to laws protecting
proprietary technology, import and export restrictions and tariffs, difficulties
in staffing and managing foreign operations, the burdens of complying with a
variety of foreign laws, greater difficulty and delay in accounts receivable
collection, potentially adverse tax consequences and political and economic
instability. The Company's export sales are currently denominated exclusively in
United States dollars. An increase in the value of the United States dollar
relative to foreign currencies could make the Company's products more expensive
and, therefore, potentially less competitive in foreign markets. If for any
reason exchange or price controls or other restrictions on foreign currencies
are imposed, the Company's business, financial condition and results of
operations could be materially adversely affected.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this Offering,
there has been no public market for the Company's Common Stock. Accordingly,
there can be no assurance that an active trading market will develop or be
sustained upon completion of this Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
trading price of the Common Stock could also be subject to significant
fluctuations in response to variations in quarterly operating results,
developments in the health supplement industry, the FDA and other regulatory
actions, public concern as to the safety of products developed by the Company or
others, stock market or general economic conditions, consumer tastes and other
factors. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Underwriters and may not be
indicative of the prices that may prevail in the public market. See
"Underwriting."
DILUTION. The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers in this Offering will experience immediate and substantial
dilution of $4.91 per share in the net tangible book value per share of the
Common Stock from the initial public offering price. See "Dilution."
CONTROL BY EXISTING STOCKHOLDERS. Following the sale of the shares offered by
this Prospectus, the Company's existing stockholders will beneficially own
approximately 69.8% of the outstanding Common Stock (66.7% if the Underwriters'
Over-allotment Option is exercised in full) and the Company's officers and
directors will own beneficially in the aggregate approximately 59.1% of the
Common Stock (56.6% if the Underwriters' Over-allotment Option is exercised in
full). Because of such ownership, these stockholders will continue to be able to
influence the election of members of the Company's Board of Directors and to
control the affairs of the Company, including mergers or other business
combinations. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL FOR ADVERSE EFFECT ON STOCK PRICE.
Sales of substantial amounts of Common Stock in the public market following the
Offering could have an adverse effect on the market price of the Common Stock.
The 1,300,000 shares offered hereby, and any shares sold pursuant
12
<PAGE>
to the exercise of the Underwriter's Over-allotment Option, are freely tradeable
without restriction. Certain stockholders, including all officers and directors,
holding an aggregate of 2,521,625 shares of Common Stock have agreed that they
will not sell any Common Stock without the prior consent of the representative
of the Underwriters (the "Representative") for a period of 180 days from the
date of this Prospectus (the "Lockup Period"). At June 1, 1998, 3,000,000 shares
will become eligible for immediate sale, subject in certain cases to compliance
with certain volume limitations. Holders of 498,375 shares of Common Stock and
warrants to acquire 257,656 shares of Common Stock have the right, under certain
circumstances, to require the Company to register their shares for resale under
the Securities Act of 1933 ("Securities Act") and to participate in future
Company registrations. Additionally, as of August 15, 1996, 229,000 shares of
Common Stock were issuable under options outstanding in the Company's 1996 stock
option plan ("Stock Option Plan"), none of which were exercisable, and 464,421
shares of Common Stock were issuable upon the exercise of outstanding warrants,
of which 267,656 were exercisable. Promptly after expiration of the Lockup
Period, the Company intends to register all shares reserved for issuance under
its Stock Option Plan. See "Management -- Stock Option Plan," "Description of
Capital Stock -- Registration Rights," and "Shares Eligible for Future Sale."
CERTAIN RESTRICTIVE CHARTER AND BYLAW PROVISIONS. The Company's Certificate
of Incorporation (the "Certificate") and Bylaws empower the Board of Directors,
without approval of the stockholders, to fix the rights and preferences of and
to issue shares of Preferred Stock; prohibit a substantial stockholder of the
Company from entering into a business combination or otherwise significantly
increasing its interest in the stock or assets of the Company without the
consent of the Board of Directors or a two-thirds majority of the stockholders
of the Company; and prohibit stockholders of the Company from calling a special
meeting unless requested by at least 25% of the outstanding voting shares. The
Certificate does not provide for cumulative voting for election of directors and
does require cause and the vote of a majority of stockholders to remove a
director. These provisions could have the effect of deterring unsolicited
takeovers or other business combinations or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over
then-current market prices. In addition, these provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock -- Certain Anti-Takeover
Provisions."
MANAGEMENT DISCRETION REGARDING USE OF PROCEEDS. Approximately $2,525,000 or
66.3% of the net proceeds of the Offering, after deducting all underwriting
discounts and commissions, and after deducting all estimated expenses of the
Offering, and assuming the Underwriters' Over-allotment Option is not exercised,
or $2,525,000, is committed to specific uses identified in this Prospectus, with
the remainder available for other corporate purposes such as working capital or
future acquisitions. The Company will have broad discretion in using the
unallocated net proceeds of the Offering. Prospective investors will not have an
opportunity to evaluate the relative merits of such unspecified uses. See "Use
of Proceeds."
SUBSTANTIAL PORTION OF PROCEEDS TO BE USED FOR NEW PRODUCT INTRODUCTION.
Approximately $1,625,000, or 22% of the proceeds of this Offering, will be used
by the Company in connection with the development of sports nutrition product
lines. These product lines are still under development and have not been
marketed. Consequently, the Company does not have any information concerning
consumer acceptance of the product lines. As with all of the Company's existing
product lines, the sports nutrition market is extremely competitive, with
frequent product introductions. There can be no assurance that the Company will
complete development of its planned product lines or that such planned product
lines will be accepted by consumers, will be able to compete successfully
against other similar products, or will be commercially viable.
NO DISTRIBUTIONS OR DIVIDENDS. The Company has not paid dividends on its
Common Stock and does not intend to do so in the foreseeable future. See
"Dividend Policy."
13
<PAGE>
<TABLE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $7.00
per share are estimated to be approximately $7.5 million (approximately $8.7
million if the Underwriters' Over-allotment Option is exercised in full), after
deducting commissions, discounts and estimated Offering expenses. The Company
intends to use the net proceeds of this Offering as set forth below:
<CAPTION>
PERCENT OF
PURPOSE AMOUNT NET PROCEEDS
------- ------ ------------
<S> <C> <C>
Development of Sports Nutrition Product Lines:
Increasing product research and development, including in
particular the completion of the development of two new sports
nutrition product lines ............................................................... $ 375,000 5.0%
Introducing one of the above sports nutrition lines to be
marketed through professional trainers, including raw
material acquisition, product manufacturing, site leasing, initial
advertising campaigns and expenses associated with
establishing relationships with the professional trainers through
whom the product will be sold ......................................................... 750,000 10.0
Establishing a new approximately 10,000 square foot off-site
manufacturing and packaging facility to be utilized primarily for
the Company's sports nutrition product operations ..................................... 500,000 6.7
Increasing product marketing and advertising campaigns for other
products in fiscal 1997 .................................................................... 400,000 5.3
Repay 12% note due March 6, 1997, payable to Belfer Labs, L.L.C., an
affiliated entity, plus interest ("Belfer Labs Note"). Proceeds of
the note were distributed to members of the Company's
predecessor. See "Certain Transactions." ................................................... 200,000 2.7
Upgrading computer hardware and software systems, acquiring a new
trade show booth, and obtaining new and upgraded
product packaging, encapsulating and other automating
equipment .................................................................................. 300,000 4.0
---------- ----
Total ........................................................................................... $2,525,000 33.7%
========== ====
</TABLE>
The remaining approximately $5.0 million of proceeds (approximately $6.2
million if the Underwriters' Over-allotment Option is exercised in full) has not
been specifically allocated, and in the interim will be utilized for general
working capital purposes. See "Risk Factors -- Management Discretion Regarding
Use of Proceeds." The Company plans to use a portion of such proceeds to acquire
existing product lines or entire operating companies in strategic markets,
although the Company currently has no understanding, commitment or agreement
regarding any such acquisition.
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, investment-grade securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
14
<PAGE>
LIMITED LIABILITY COMPANY DISTRIBUTIONS
The Company's predecessor, Houston, was an Arizona limited liability company
which was not obligated to pay federal or state income taxes. The earnings of
Houston were treated, for federal and state income tax purposes, as if they had
been earned directly by their respective members. For the fiscal years ended May
31, 1995 and 1996, Houston made distributions to its members totaling $692,817
and $1,300,000, respectively, which amount was intended, in part, to offset the
members' tax liability. See "Certain Transactions."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends for the foreseeable future. The Company
anticipates all earnings, if any, will be retained for future investment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
results of operations, financial condition and other factors deemed relevant by
the Board of Directors.
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996 on an actual basis and as adjusted to reflect the estimated net
proceeds from the sale of 1,300,000 shares of Common Stock offered by the
Company hereby at an assumed offering price of $7.00 per share. This table
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<CAPTION>
MAY 31, 1996
---------------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
Long-term debt ............................................................................. $ 0 $ 0
Shareholders' equity:
Preferred Stock, par value $.01; 100,000 shares
authorized; none issued or outstanding ........................................... -- --
Common Stock, par value $.001; 8,000,000 shares
authorized; 3,000,000 shares issued and outstanding,
actual; 4,300,000 shares issued and outstanding, as
adjusted(1) ...................................................................... 3,000 4,300
Paid in capital ....................................................................... 2,018,728 10,207,428
Less: Unearned compensation ...................................................... (3,875) (3,875)
------------ ------------
Total shareholders' equity .................................................. 2,017,853 10,207,853
------------ ------------
Total capitalization ................................................... $ 2,017,853 $ 10,207,853
============ ============
<FN>
- ----------
(1) Excludes 464,421 common shares issuable upon the exercise of warrants
outstanding as of May 31, 1996, of which 107,656 were exercisable. See
"Description of Capital Stock -- Warrants" and "Management -- Stock Option
Plan."
</FN>
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for each of the two years in the period ended May
31, 1996 are derived from financial statements of the Company, which have been
audited by Coopers & Lybrand L.L.P. The Company has never declared or paid any
cash dividends on shares of its capital stock. The selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes thereto and other financial information
appearing elsewhere in this Prospectus.
YEARS ENDED MAY 31,
-----------------------
1996 1995
---- ----
CONSOLIDATED STATEMENTS OF INCOME:
Net sales ............................................ $5,191,067 $4,193,997
Cost of goods sold ................................... 1,510,479 1,608,568
---------- ----------
Gross profit ......................................... 3,680,588 2,585,429
Selling, general and administrative expenses .... 2,141,926 2,012,641
---------- ----------
Income from operations ............................... 1,538,662 572,788
Interest expense ..................................... 12,991 0
---------- ----------
Income before income tax ............................. 1,525,671 572,788
Income tax benefit ................................... 86,039 0
---------- ----------
Net income ........................................... $1,611,710 $ 572,788
========== ==========
PRO FORMA NET INCOME DATA (UNAUDITED)(1):
Income before income tax ............................. $1,525,671 $ 572,788
Pro forma income taxes ............................... 610,039 229,115
---------- ----------
Pro forma net income ................................. $ 915,632 $ 343,673
========== ==========
Pro forma net income per share(2) .................... $ 0.27 $ 0.10
========== ==========
Shares used in pro forma net income per share(2) ..... 3,329,899 3,329,899
========== ==========
MAY 31, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
------ --------------
BALANCE SHEET DATA:
Cash and cash equivalents ................ $ 91,799 $ 8,281,799
Working capital .......................... 1,191,112 9,381,112
Total assets ............................. 2,691,670 10,881,670
Long-term debt ........................... 0 0
Total shareholders' equity ............... 2,017,853 10,207,853
- ----------
(1) For the two years ended May 31, 1996, Houston elected under Internal Revenue
Code Sub-Chapter K to be treated as a limited liability company, and
accordingly, generally was not subject to federal and state income taxes.
For income tax reporting purposes for these years, all profits and losses,
and certain other items, were passed through to the members of Houston.
Since the income of the Company will be taxable after May 31, 1996, income
tax expense for the years ended May 31, 1996 and 1995 has been presented as
if the Company was a C corporation during those years. The income tax
expense was calculated assuming an effective tax rate of 40%.
(2) Based on weighted average common shares and common share equivalents
outstanding as of May 31, 1996, giving retroactive effect to the Company's
conversion in May 1996 from a limited liability company to a corporation,
and the conversion of membership interests into Common Stock. See Note 14 of
Notes to Consolidated Financial Statements.
(3) Adjusted to give effect to the sale of 1,300,000 shares of Common Stock
offered by the Company hereby (at an assumed offering price of $7.00 per
share net of underwriting discounts and commissions, before other offering
expenses, and exclusive of the Underwriters' Over-allotment Option). See
"Use of Proceeds" and "Capitalization."
16
<PAGE>
DILUTION
The net tangible book value of the Company at May 31, 1996 was $1,497,121, or
$0.50 per share. Without taking into account any changes in net tangible book
value subsequent to May 31, 1996, other than to give effect to the sale of
1,300,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $7.00 per share and after deduction of the
estimated underwriting discount and estimated Offering expenses payable by the
Company estimated to be $690,000, the pro forma net tangible book value of the
Company's Common Stock at May 31, 1996 would have been $8,997,121, or $2.09 per
share. This represents an immediate increase in net tangible book value of $1.59
per share to existing stockholders and an immediate dilution in net tangible
book value of $4.91 per share to investors purchasing shares in this Offering.
The following table illustrates the per share dilution at May 31, 1996:
Assumed initial public offering price(1) ........................... $7.00
Net tangible book value before Offering(2) ....................... $ .50
Increase in net tangible book value attributable to new investors. 1.59
Pro forma net tangible book value after Offering ................... 2.09
-----
Dilution to new investors .......................................... $4.91
=====
- ----------
(1) Before deducting the estimated underwriting discount and Offering expenses
to be paid by the Company.
(2) Net tangible book value per share is determined by dividing the net tangible
book value of the Company (tangible assets less liabilities) by the number
of shares of the Company's Common Stock outstanding at May 31, 1996.
<TABLE>
The following table sets forth, on a pro forma basis at May 31, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and to be paid by new investors based upon an assumed initial
public offering price of $7.00 per share:
<CAPTION>
SHARES PURCHASED CONSIDERATION PAID
---------------------------------- ------------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders ..................... 3,000,000 69.8% $ 2,017,853(1) 18.1% $0.67
New investors ............................. 1,300,000 30.2% $ 9,100,000 81.9% $7.00
----------- ----- ----------- ----- -----
Total ................................... 4,300,000 100.0% $11,117,853 100.0% $2.59
=========== ===== =========== ===== =====
<FN>
- ----------
(1) Represents the total shareholders' equity as of May 31, 1996.
</FN>
</TABLE>
The foregoing table assumes no exercise of outstanding options and warrants.
Excludes 464,421 common shares issuable upon the exercise of warrants
outstanding as of May 31, 1996, of which 107,656 were exercisable. See
"Description of Capital Stock -- Warrants" and "Management -- Stock Option
Plan."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to provide an analysis of the Company's
financial condition and results of operations and should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
contained elsewhere in this Prospectus. The matters discussed in this section
that are not historical or current facts deal with potential future
circumstances and developments. Such forward-looking statements include, but are
not limited to, the development and market acceptance for new products, trends
in the results of the Company's operations and the mix of product revenues. The
Company's actual results could differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed under the
caption "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
M.D. Labs, Inc. (together with its subsidiaries, the "Company") packages,
markets and distributes natural dietary supplements, consisting primarily of
herbal products and sports nutrition products, as well as a weight management
chewing gum product. The Company has focused on new product innovation, such as
its Daily Detox(R) teas targeted to the detoxification herbal tea market and its
Citrium(TM) chewing gum targeted to the weight loss chewing gum market.
Currently, the Company's products are segmented into three primary categories:
(i) the all natural herbal tea and supplements line, (ii) the weight loss and
other chewing gum lines, and (iii) the amino acid sports nutrition product line.
For the fiscal year ended May 31, 1996, the Company's sales were as follows:
72% from the herbal line; 25% from the chewing gum line; and 3% from the sports
nutrition product line. The Company does not believe that such historical sales
are representative of future sales trends due to high initial demand for
Citrium(TM) resulting from strong introductory advertising and the initial
novelty of the product. Further, the Company did not enter the sports nutrition
business until January 1996.
Net sales have increased to $5.2 million in fiscal 1996 from $4.2 million in
fiscal 1995. The growth in sales primarily is attributable to the successful
launch of the Citrium(TM) and Women's Nature(TM) -- Natural Balance herbal tea
in fiscal 1996, as well as a significant increase in international sales.
International sales increased to approximately 17.4% of the Company's sales in
fiscal 1996, as compared to approximately 2.5% in fiscal 1995. However,
substantially all of the increase in international sales was due to the sale of
Citrium(TM) to a large distributor in Japan, and there are no assurances that
these sales will continue at this level in fiscal 1997.
The Company distributes its products through its in-house sales
representatives, who call on the approximately 8,000 independent health food
store operators, and through several large domestic and international
distributors. Recently, the Company has made initial sales to certain mass
retailers, such as large regional and national retail food and drug stores.
Generally, the Company's sales are not seasonal, with the primary exceptions
being (i) an increase in sales at the beginning of the calendar year related to
new year fitness resolutions and (ii) a decrease in tea sales during summer
months. Currently, the Company has 26 full-time employees, though management
believes this number will increase based upon anticipated Company growth.
The Company seeks to achieve revenue growth from three primary sources, (i)
growth of the Company's existing product lines, (ii) new product development and
(iii) product line and operating company acquisitions. At the present time, the
Company does not have any understanding, commitment or agreement regarding any
acquisition.
The Company continues to focus on new product innovation. The Company has
numerous products in various stages of research and development for possible
introduction in fiscal 1997 and thereafter, including a line of coffee chewing
gums, a Citrium(TM) tea, and new, complementary lines of sports nutrition
supplements. However, there can be no assurance that any new product can be
introduced successfully or on a timely basis.
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<PAGE>
The market for the Company's products is characterized by extensive
competition, frequent new product introductions, short product life cycles,
rapid product declines, eroding profit margins and changing preferences of
consumers. A decline in the demand for any of the Company's products, whether as
a result of competition, changes in demographic trends or other factors, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
On May 31, 1996, the Company exchanged 3,000,000 shares of its common stock
for all of the membership interest in Houston Enterprises, L.L.C., an Arizona
limited liability company ("Houston"), and the financial statements at May 31,
1996 reflect that exchange. For the years ended May 31, 1995 and 1996, the
Company's predecessor was taxed as a limited liability company. For income tax
reporting purposes, all profits and losses for such years, and certain other
items, were passed through to the members of Houston. Because the income of the
Company will be taxable after May 31, 1996, certain temporary differences
between financial and tax reporting are reflected as an income tax benefit in
the statement of income for the years reported and as deferred tax assets in the
balance sheets for the years reported.
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of income and
percentages of net sales represented by the individual line items for the fiscal
years ended May 31, 1996 and 1995. These operating results and percentages are
not necessarily indicative of anticipated results for any future period.
<CAPTION>
YEAR ENDED PERCENTAGE YEAR ENDED PERCENTAGE
MAY 31, 1996 OF NET SALES MAY 31, 1995 OF NET SALES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .......................................... $5,191,067 100.0% $4,193,997 100.0%
Cost of goods sold ................................. 1,510,479 29.1 1,608,568 38.4
---------- ----- ---------- -----
Gross profit ....................................... 3,680,588 70.9 2,585,429 61.6
Selling, general & admin. .......................... 2,141,926 41.3 2,012,641 48.0
---------- ----- ---------- -----
Income from operations ............................. 1,538,622 29.4 572,788 13.7
Interest expense ................................... 12,991 0.3 0 0.0
Income tax benefit ................................. 86,039 1.7 0 0.0
---------- ----- ---------- -----
Net income ......................................... $1,611,710 31.0% $ 572,788 13.7%
========== ===== ========== =====
</TABLE>
NET SALES. Net sales for the year ended May were $5.2 million, an increase of
$997,000 or 24% compared to the same period during fiscal 1995. The growth in
sales primarily is attributable to the successful launch of Citrium(TM) and
Women's Nature(TM) -- Natural Balance herbal tea in fiscal 1996, as well as a
significant increase in international sales. International sales increased to
approximately 17.4% of the Company's net sales in fiscal 1996, compared to
approximately 2.5% in fiscal 1995. However, substantially all of the increase in
international sales was due to the sale of Citrium(TM) to a large distributor in
Japan, and there are no assurances that these sales will continue at this level
in fiscal 1997. Sales of the Company's Naturally Klean(TM) and related products,
and Citrium(TM) products accounted for approximately 51% and 25%, respectively,
of the Company's net sales for the fiscal year ended May 31, 1996.
The Company generally sells product on net 30-day terms. However, the Company
has one guaranteed sale agreement with Revco Drug Stores ("Revco"). The Company
shipped approximately $161,000 of its Citrium chewing gum to Revco during the
fiscal year ended May 31, 1996 pursuant to a guaranteed sale agreement allowing
Revco to return all Citrium not sold 120 days subsequent to receipt. The sales
agreement required that Revco pay for all sales as the product was actually
sold. For financial reporting purposes, only the gum actually sold by Revco is
recorded as sales. The 120-day return period has lapsed, and Revco has elected
to retain the unsold gum and remit payment for the sold Citrium. As of September
1, 1996, the Company had not yet received this payment from Revco.
COST OF GOODS SOLD. Cost of goods sold for fiscal 1996 decreased from $1.6
million to $1.5 million, a decrease of $98,000 or approximately 6.1% from fiscal
1995. As a percentage of net sales, costs of goods sold decreased from 38.4% to
29.1% between the same periods. The reduction resulted from increased
efficiencies in purchasing herbs and other raw materials, as well as fiscal 1996
reductions in the volume of
19
<PAGE>
discounted sales and in the distribution of free sample products and literature.
In addition, a significant portion of the Company's cost of goods sold is
composed of fixed costs, which did not increase in proportion to increased
fiscal 1996 sales. The Company does not anticipate that this trend will continue
in fiscal 1997, in part because raw material costs are volatile and outside the
Company's direct control. See "Risk Factors -- Reliance on Outside Suppliers and
Manufacturers."
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Fiscal 1996 selling, general and
administrative expenses increased $129,000 or 6.4% over fiscal 1995, yet
decreased as a percentage of net sales from 48.0% to 41.3% in such periods. The
dollar increase in selling, general and administrative expenses is primarily
attributable to the net effect of increases in three expense categories, offset
by a significant decrease in another expense line item. In fiscal 1996,
professional fees increased $75,000 due to increased accounting and legal fees
associated with the Company's growth, and payroll increased approximately
$88,000 due to merit pay increases and the addition of new personnel.
Additionally, Company advertising increased approximately $179,000 due to the
initial marketing campaigns required for several new product launches in fiscal
1996, as well as a general increase in advertising for all of the Company's
other products. These expense increases were offset by the termination on
December 31, 1995 of the Company's consulting agreement with Pure Source
International, Ltd., an affiliated British Virgin Island company ("Pure Source")
which provided marketing, purchasing, promotional and other international
advertising services for the Company. The Company incurred $353,600 in expenses
under the Pure Source arrangement in fiscal 1995 and $0 in fiscal 1996. See
"Certain Transactions." The Company anticipates significant increases in
marketing and advertising expenses in fiscal 1997 in connection with the
introduction of new products and increased promotion of existing products.
Increased sales resulting from such expenses may not be realized for several
quarters after such expenses are incurred, if at all.
On May 31, 1996, the members of Houston completed a private placement of
portions of their Houston membership interests, selling approximately 16.6% of
their interests. The Company did not receive any proceeds from the sale. On that
same date, all members converted their interests into shares of the Company's
Common Stock. Private placement costs associated with the transactions of
approximately $70,000 were paid by the Company.
INCOME TAX BENEFIT. The Company recognized an $86,000 income tax benefit in
fiscal year 1996 due to the income tax effect of temporary differences between
financial and income tax reporting purposes. For the two years ended May 31,
1996, Houston elected to be treated as a limited liability company, and
generally was not subject to federal and state income taxes. The Company's
income is taxable commencing June 1, 1996, and the Company estimates an
effective tax rate for fiscal 1997 of 40%.
INFLATION
Management does not believe that inflation has had a material effect on the
Company's sales or results of operations during the past two fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
The Company traditionally has financed its capital needs from net cash flows
from operations. In fiscal 1996, the Company generated $1.1 million in cash
flows from operating activities, as compared to $475,000 in fiscal 1995. As of
May 31, 1996, the Company had working capital of approximately $1.2 million,
with a current ratio of 2.77. Management believes the Company will continue to
generate cash flows from operating activities in the near future. The Company
anticipates utilizing the proceeds from this Offering to finance new product
research and development and product introduction and expanded general
advertising campaigns, manufacturing and warehouse automation, computer system
upgrades, and for possible product line and/or operating company acquisitions,
as well as repayment of indebtedness discussed below.
On March 6, 1996, the Company borrowed $300,000 from Belfer Labs LLC, an
affiliated company formed by Todd Belfer, president and director of the Company,
and Harvey Belfer, father of Todd Belfer and consultant and director of the
Company. The Belfer Labs Note accrues interest at the rate of 12% per annum and
is payable March 6, 1997. The proceeds of the Belfer Labs Note were distributed
to the
20
<PAGE>
members of Houston for, among other things, the member's tax liability which
resulted from the profitable operations of the Company prior to the Company's
conversion to a corporation. On July 23, 1996, the Company paid $100,000 in
principal on the note plus accrued interest of $14,100. Management anticipates
repaying the remaining balance payable on the note with the proceeds from this
Offering. See "Use of Proceeds" and "Certain Transactions."
The Company does not currently have a working capital line of credit or other
term financing from a financial institution, nor has any financial institution
committed to provide any such financing to the Company.
The Company believes the net proceeds from this Offering and cash generated
from operations will be sufficient to fund its operations through fiscal 1997.
There can be no assurance, however, that the Company will not require additional
capital in the future, particularly for acquisitions of products or businesses.
If the Company were required to obtain additional financing in the future, there
can be no assurance that such sources of capital will be available on terms
favorable to the Company, if at all.
21
<PAGE>
BUSINESS
GENERAL
M.D. Labs, Inc., a Delaware corporation (together with its subsidiaries, the
"Company") packages, markets and distributes natural food and dietary
supplements, consisting primarily of herbal products and sports nutrition
products, as well as a weight management chewing gum product. The Company has
focused on new product innovation, such as its Daily Detox(R) teas targeted to
the detoxification herbal tea market and its Citrium(TM) chewing gum targeted to
the weight loss chewing gum market. The Company's products are sold generally to
distributors and to health food, drug and other retail stores.
The Company was incorporated in Delaware on February 7, 1996 to be the
successor to Houston Enterprises, L.L.C. ("Houston"), an Arizona limited
liability corporation. On May 31, 1996, the Company acquired all of the
membership interests in Houston and thereupon succeeded to Houston's business.
Houston acquired its original line of products from Houston Enterprises, Inc.,
an Arizona corporation, through an asset purchase completed in February 1994.
Houston Enterprises, Inc. introduced its first product line in 1987.
In February 1996, the Company purchased all of the outstanding stock of
Belnik Investment Group, Inc., an Arizona corporation doing business as Freedom
Wholesalers, Inc. ("Freedom"), from Messrs. Hooman Nikzad and Todd Belfer. The
purchase price consisted of $1,000 plus warrants to purchase 21,000 shares of
the Company's Common Stock exercisable at $1.00 per share and vesting in three
equal annual installments commencing December 31, 1996. See "Business --
Products -- Freedom Products" and "Certain Transactions."
In January 1996, the Company acquired certain assets of Olympian Global
L.L.C., an Arizona limited liability company ("Olympian Global") for $50,000 and
a $210,000 note. The assets included, among other things, rights in Olympian
Global's line of nutritional health supplements and the "PRO-LINE(R)" trademark.
The Company agreed not to market for 36 months under the acquired trademark any
new products that compete with products sold by Olympian Global under the
"Olympian Labs" trade name. The Company also is obligated to pay certain
royalties to a former owner of assets purchased from Olympian Global. See
"Business -- Product Royalties."
INDUSTRY BACKGROUND
According to industry sources, the natural and organic products industry,
which includes vitamins, supplements, herbs, personal care, natural medicines
and groceries, and organic clothing and household cleaners, grew over 20% in
1995 to approximately $9 billion in retail sales. Herbs have been a significant
category in this industry in recent years. The herb category, which includes
dietary supplement formulas, capsules, extracts and teas such as those sold by
the Company, as well as bulk and medicinal herb sales, has been estimated to
exceed $1 billion in the United States. Industry sources also indicate that
sales of sports nutrition products, excluding beverages, were $675 million in
1995. See "Risk Factors -- No Independent Market Studies."
The Company believes that the growth in its industry is attributable to
several factors, including (i) expansion of natural product sales channels
through natural foods supermarkets, health food stores, mainstream supermarkets,
drug stores and mail order catalogs, (ii) the aging population focusing on
alleviating the effects of age, (iii) increased consumer awareness and
dissemination of academic studies of the connection between health and fitness
and nutrition, and the hazards of chemical agriculture, and (iv) the perceived
improvements in the regulatory environment resulting from the DSHEA. See "Risk
Factors -- Uncertainty and Potential Negative Effects of Government Regulations;
Non-Compliance with Government Regulations" and "Business -- Government
Regulation."
22
<PAGE>
Industry data indicates that the primary consumers of natural and organic
products are female, with at least some college education and a median household
income of approximately $30,000. Consumers of sports nutrition products,
however, are primarily men aged 24 to 35, with that age group shrinking and
consumption by women over 35 increasing. Such consumers are characterized as
early to adopt new products and susceptible to change product preferences. See
"Risk Factors -- Short Product Life Cycles; Dependence on New Products."
The Company estimates that the market for the Company's products now includes
not only the approximately 8,000 independent and chain health food stores in the
U.S., but also the several hundred thousand drug stores, super markets, and
convenience stores across the country and, on a direct response basis,
individual consumers. Management also believes the market for natural health
food supplements outside of the United States has become a promising environment
for the Company's products.
STRATEGY
The Company is pursuing a three-pronged growth strategy focusing on (i)
expansion of sales of existing products to current and new customers via
increased advertising and marketing and development of additional channels of
distribution; (ii) development of new products which complement the Company's
existing product lines or address new markets with significant growth potential;
and (iii) acquisition of other companies, products or product lines which, as in
the case of new products under internal development, complement the Company's
existing product lines or address new markets with significant growth potential.
See "Risk Factors -- Limited Industry Experience; Recent Business Venture," "--
Limited Capitalization," and "-- Management of Growth." Key elements of the
strategy are as follows:
Build Brand Name Recognition. The Company believes that brand name
recognition is an increasingly important competitive factor in its target
markets as key customers tend to align themselves with fewer vendors of brand
name products. The Company believes that it has established significant brand
name recognition in detoxification markets. The Company intends to increase its
marketing and advertising programs after completion of the Offering to enhance
brand name recognition of current products and facilitate introduction of new
product offerings. Because a reputation for quality products is critical to
establishing a successful brand name, the Company will also focus efforts on
quality control. See "Risk Factors -- Competition and Low Barriers to Entry."
Increase Penetration in Domestic Health Food Market. The Company believes
that the expansion of retail distribution channels and the strong growth
characteristics of the nutritional supplement industry provide the Company with
significant opportunities to increase sales. The Company further believes that
increased brand name recognition of the Company's products will enable it to
increase its penetration of shelf space as health food retailers seek to align
themselves with companies which possess strong brand names, offer a wide range
of products, demonstrate continued marketing and advertising support and provide
high levels of customer service.
Build Upon Established Customer Relationships. The Company's established
relationships with distributors and health food store retailers are based upon
the Company's commitment to a high level of customer service. The Company's
direct sales force and management work with direct accounts, distributors and
individual retailers to build knowledge of the Company and its products, in turn
achieving increased exposure for these products.
Continue to Introduce New Products and Product Innovations. The Company has
introduced a number of innovative new products, including the successful
introductions in fiscal 1996 of Citrium(TM) weight management chewing gum and
Women's Nature(TM) -- Natural Balance herbal tea. The Company obtains new
product concepts through independent consultants, naturopathic doctors, market
feed back gained from its distributors and direct sales force, and other
sources. The Company intends to continue to emphasize the introduction of new
and innovative products not previously available in health food stores. See
"Risk Factors -- Short Product Life Cycle; Dependence on New Products," and "--
Competition and Low Barriers to Entry."
23
<PAGE>
Increase Penetration of International Markets. The Company believes that
there are substantial opportunities for growth in foreign markets. For example,
substantial sales of Citrium weight management chewing gum were achieved in
Japan in fiscal 1996, and marketing relationships have been initiated in
numerous additional countries. The Company intends to build upon existing
relationships and establish relationships in additional countries to pursue
growth opportunities in foreign markets. See "Risk Factors -- Product
Concentration."
Supplement Internal Growth Through Strategic Acquisitions. The nutritional
supplement industry is highly fragmented with many companies producing only a
single product line or single product. The Company believes that it is
positioned strategically to participate in the consolidation of the industry due
to the Company's increasing brand name recognition and access to distribution
channels, its ability to launch new products, and the financial resources
available upon completion of this Offering. The Company has added significant
products in fiscal 1996 via the acquisition of Freedom and Olympian Global, and
intends to pursue strategic acquisition opportunities where appropriate. See
"Risk Factors -- Selection and Integration of Acquisitions" and "Business --
General."
PRODUCTS
Certain of the Company's product formulations are marketed under different
packaging and labelling. The Company currently markets the Naturally Klean(R),
Daily Detox(R), Women's Nature(TM), HerbalPathic(TM), and Citrium(TM) product
lines. Through its wholly-owned subsidiary, Freedom, the Company also markets
The Stuff(TM) and Naturally Klean(R) Herbal Tea,(TM) and under the PRO-LINE(R)
name it markets sports nutrition products such as Super ProLean(TM) Fat Burners,
Amino Formula "1240"(TM), and Chromoplex(TM). The Naturally Klean(R) and Daily
Detox(R) lines are focused on the detoxification market. These products are
available in teas, capsules and extracts. Women's Nature(TM) herbal tea and the
HerbalPathic(TM) single herb supplements support and enhance overall health. The
Company's Citrium(TM) product line addresses the weight management market. The
Freedom products are intended for the detoxification and energy supplement
markets and the PRO-LINE(R) products are formulated for the sports nutrition
market. See "Risk Factors -- Product Concentration," and "-- Difficulty of
Product Positioning."
M.D. Labs Products
Naturally Klean(R). The Naturally Klean(R) product line consists of herbal
teas and capsules designed to stimulate the body's natural cleansing process to
flush out toxins stored in the body's eliminatory system. The tea consists of
nine herbs, is caffeine free, and available in three flavors: original herbal,
passion fruit, and lemon-lime. This product is also sold by Freedom.
Daily Detox(R). The Daily Detox(R) product line consists of herbal teas,
capsules and liquid extracts designed to support the body's natural
detoxification and cleansing process on a daily basis. The line is divided into
two herbal formulas: Daily Detox(R) with 11 herbs in two flavors, apple cider
cinnamon and original herbal, and Daily Detox(R) II, which is produced with nine
herbs in passion fruit and original herbal tea flavors. Each blend is also
available as encapsulated herbs and as a liquid herbal extract.
Women's Nature(TM). The Women's Nature(TM) product line consists of Women's
Nature(TM) PMS and Women's Nature(TM) -- Natural Balance. The product line was
developed by a naturopathic doctor. The products include Chinese, Ayurvedic and
Western herbs. Women's Nature(TM) PMS is designed to help balance naturally a
woman's system to alleviate the symptoms of pre-menstrual syndrome ("PMS"),
including cramps, water retention, fatigue and mood swings. This product comes
in two flavors, original and raspberry. Women's Nature(TM) -- Natural Balance is
designed to promote the natural balance of the female system.
HerbalPathic(TM). The HerbalPathic(TM) product line consists of five single
herb supplements. These products are encapsulated with standardized extracts of
(i) echinacea (intended to aid the body's natural immune system), (ii) garlic
(intended to normalize blood pressure, bronchial congestion, allergies, colds,
digestion and general intestinal functions), (iii) ginkgo biloba (intended to
aid blood circulation through the central nervous system, lungs and kidneys and
to aid nerve damage repair, and eye sight improvement), (iv) ginseng (intended
to increase energy level, normalize blood pressure, reduce cholesterol and
24
<PAGE>
combat fatigue) and (v) kudzu (intended for headache relief from dizziness,
diarrhea, and some effects of alcoholism as well as improvement in the body's
circulation). The product is competitively priced and packaged in a sealed,
tamper-resistant safety container.
Citrium(TM) Lean & Trim Chewing Gum. Citrium(TM) Lean & Trim is a
CitriMax-based weight management chewing gum manufactured in accordance with the
Company's specifications. Citrium(TM) combines CitriMax, ChromeMate and
L-Carnitine, three all-natural, weight management ingredients designed to
control appetite, balance blood sugar levels and stimulate the body's natural
fat burning metabolism.
Freedom Products
The Stuff(TM) and Naturally Klean(R) Herbal Tea. The Stuff(TM) powdered drink
is designed to eliminate toxins in the body temporarily by absorbing toxins and
other unnatural substances in the urinary tract and flushing them out through
the colon. The Stuff(TM) is available in grape, apple and orange flavors.
Naturally Klean(R) herbal tea is discussed above. The Company has discontinued
selling its Naturally High(TM) herbal energy product. See "Risk Factors --
Effect of Discontinued Product."
Sports Nutrition Products
Super ProLean(TM) Fat Burners, DHEA, Amino Formula "1240"(TM) and
Chromoplex(TM). The PRO-LINE(R) products consist of a variety of nutritional
supplements formulated for athletes. Included in this product line are the Super
ProLean(TM) Fat Burners, a natural weight management aid, DHEA, a hormone
supplement intended for cell rejuvination, Amino Formula "1240"(TM) to aid
athletes in muscular recovery, and Chromoplex(TM), a chromium supplement which
combines two forms of chromium to stabilize insulin levels and act as a weight
management supplement. The Company entered the sports nutrition business upon
acquiring certain assets from Olympian Global in January 1996. The Company
believes that Olympian Global may have breached certain aspects of the
acquisition agreement relating to the trademark and trade name rights
transferred thereunder. The Company is unable to predict the extent (if any) to
which its rights to the acquired trademarks and trade names may be affected by
this matter. However, the Company believes that its efforts to expand its lines
of sports nutrition offerings will not be materially adversely affected should
restrictions exist with respect to its rights to use the acquired trademarks and
trade names.
The Company is in the process of implementing two extensions of its current
line of sports nutrition offerings. The Company is developing a new line of
premium sports nutrition products to be marketed to health food stores and gyms.
The Company also is developing a separate line of sports nutrition products to
be marketed exclusively through professional trainers. The Company anticipates
that the new product lines will include weight management products. The Company
intends to use a portion of the proceeds from the sale of the Shares offered
hereby in connection with the development and introduction of these product
lines. See "Use of Proceeds." There can be no assurance that either product line
can be introduced successfully. See "Risk Factors -- Short Product Life Cycles;
Dependence on New Products" and "-- Substantial Portion of Proceeds to be Used
for New Product Introduction."
Although the above products are listed with indications for use for which
they have been designed, the Company does not necessarily have complete
scientific substantiation for such uses and the Company may not be able to
specifically label and promote the products for the indicated purposes. The
purposes stated above are based on alternative health concepts, which are not
necessarily recognized by the conventional medical establishment, or by such
regulatory authorities as the FDA and the FTC. As discussed in the section
"Business -- Government Regulation" the Company may be required to limit the
promotional and marketing claims which it may make as regulatory enforcement
practices are clarified and as the Company moves to bring itself into material
compliance with regulatory requirements. There is no assurance that the Company
will be able to effectively market its products absent the ability to promote
them for the above purposes. See "Risk Factors -- Uncertainty and Potential
Negative Effects of Government Regulations" and "-- Non-Compliance with
Government Regulations."
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PRODUCT PLANNING, DEVELOPMENT AND ACQUISITION
The Company engages in the planning, development and distribution of new,
specialty dietary supplements, weight management and sports nutrition products.
See "Risk Factors -- Short Product Life Cycles; Dependence on New Products" and
"-- Reliance on Others to Develop Products." Although it does not maintain
in-house research and formulation expertise, the Company engages independent
consultants, naturopathic doctors, and other experts to assist it in the
development of new products. Ideas for new products come from many sources,
including the Company's management and consultants, market feedback and
demographic trend analysis. In addition, some products are presented to the
Company for acquisition.
The Company works to develop innovative, cost effective new products from
conception to full production including the creation of product samples and
packaging mock-ups. Each product is intended to achieve a high level of customer
satisfaction. The Company estimates that research and development expenditures
during fiscal 1995 and 1996 were approximately $1,424 and $781, respectively. In
addition, a substantial portion of the Company's product development activities
are conducted in conjunction with third-party suppliers and manufacturers, which
generally invoice the Company for product ordered while not invoicing separately
for development costs associated with such products.
PRODUCTION
The Company orders the raw materials used in its products from various
sources, most of which are outside of the United States. The Company's principal
raw material suppliers are Marcor Development, Stryka Botanics, Interhealth, San
Francisco Herb Company and Stauber Performance, Ltd. The Company receives
directly and inspects a portion of such materials prior to trans-shipment to its
manufacturers. Most raw materials are shipped directly to the manufacturers for
inspection, fumigation and quarantine, if necessary, and processing.
The Company's products are obtained through oral agreements with independent
third-party manufacturers and manufacturers' representatives, primarily Business
Development Labs, Inc. and Willow International Marketing, Inc. These
manufacturers agree to produce products in accordance with the Company's
specifications. All finished products are shipped to the Company in bulk for
packaging, labelling, and in-house order fulfillment. See "Risk Factors --
Absence of Clinical Studies, Scientific Review and Testing." The Company has no
written agreements with its third-party manufacturers governing the services
they provide. See "Risk Factors -- Reliance on Outside Suppliers and
Manufacturers."
The Company anticipates that it will develop the capability to perform a
significant portion of its production capability internally over the next year,
but there can be no assurance that such capability will be developed or that it
will provide significant cost savings if developed.
The Company is contemplating the development of an in-house manufacturing
facility for its products. The manufacture of dietary supplements is subject to
a requirement for conformance to Good Manufacturing Practices. See "Business --
Government Regulation." The Company therefore will be required to establish
facilities for the laboratory testing of incoming raw materials; control of raw
materials; storage and handling; documentation of manufacturing procedures; and
final product quality assurance testing. These requirements also apply to the
Company's existing repackaging procedures. The full extent of the Good
Manufacturing Practices requirements is not yet known, but it is expected that
this will require the Company to hire additional skilled personnel, purchase
specialized technical equipment, and set aside portions of its facility for the
support and maintenance of proper good manufacturing practice procedures.
MARKETING
The Company's marketing strategy is to offer quality, unique products in
niche markets with distinguishable characteristics, such as detoxifying herbal
teas, herbs designed to aid digestion and herbal tea for PMS, weight management
chewing gum and the like. The Company's strategy also includes positioning its
products as innovative, competitively priced and effective.
The Company presently sells its products through distributors and brokers,
combined with an in- house direct sales force, into drug stores, supermarkets,
sporting goods stores, and other high volume retailers, and to consumers
directly. The Company's three largest customers accounted for approximately
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<PAGE>
$1.25 million in sales, or approximately 24.0% of fiscal 1996 net sales. The
Company supports its marketing strategy with a national advertising campaign in
the print media, mainstream sports and fashion magazines and television
advertising, all prepared and placed using the Company's public relations and
advertising departments. The Company advertises in publications such as Time,
Vegetarian Times, Let's Live and Natural Health. The Company intends to continue
to use full-color brochures, flyers, floor and counter displays, packaging and
labels created by its in-house advertising and marketing department for each
product. See "Risk Factors -- Accounts Receivable" and "-- No Independent Market
Studies." The Company also plans to increase its share of the herbal
detoxification market through trade shows, advertising, public relations,
corporate communications and the aggressive marketing of its natural products,
including direct response and mail order marketing.
The Company also publishes a periodic multiple page newsletter called the
Health Advocate which contains articles related to the natural products
industry, general health, the environment and recent events at the Company.
Distribution generally includes health food retailers and wholesalers, trade and
non-profit organizations, health professionals, and the media. The Company also
operates a "Press Alert" marketing program through which it informs the media of
newsworthy events and information related to health, the environment, the
natural products industry, and recent Company events. As a policy, the Company
makes decisions with consideration to their environmental impact, including the
production of packaging, stationary, labels, and the like.
To capitalize on the increasing international demand for alternative health
care products, the Company's strategy also includes increasing product sales
through marketing abroad using foreign distributors and brokers, export guides
and trade shows. The Company has initiated distribution in Canada, Mexico, the
United Kingdom, Japan, Thailand, Korea, Taiwan, Australia, Greece and other
countries, and intends to establish distribution in additional countries. To
date, the majority of international sales have been effected in Japan. See "Risk
Factors -- Customer Concentration" and "-- Risks Associated With International
Sales."
COMPETITION
Although the Company believes that its herbal detoxification products were
among the first of such products marketed nationwide, competing products have
been introduced into the market. Similarly, while the Company's Citrium(TM) has
gained rapid acceptance in the market, the Company has experienced increased
competition for market share. The market for the Company's products is
characterized by competitive factors such as product innovation, brand
recognition and effective marketing and distribution. The Company's principal
competitive advantage in the marketplace has been the specialty nature of its
products and the market niches they occupy. By focusing on high-margin,
specialty products with innovative formulations and packaging, the Company has
enhanced its competitive position. Nevertheless, the market for natural dietary
supplements, weight management and sports nutrition products is characterized by
extensive competition, frequent new product introductions, short product life
cycles, rapid price declines and eroding profit margins, together with changing
customer preferences and demographics. The Company expects to face substantial
competition in its efforts to capture and maintain a market share in its target
markets. There are a number of companies which currently offer competing
products, and additional competition could be expected. In addition, there are a
variety of channels of distribution for dietary supplements and for the
Company's other products including direct response marketing and multi-level
distribution, although the latter is not utilized by the Company. Many of the
Company's existing competitors have greater financial, marketing, distribution
and research capabilities than the Company. The performance of the Company will
depend on its ability to develop and market new products that can gain customer
acceptance and loyalty, as well as the Company's ability to adapt to its product
offerings to meet changing market conditions, including price pressures and
other factors. See "Risk Factors -- Competition and Low Barriers to Entry."
PROPRIETARY RIGHTS: TRADE NAMES, TRADEMARKS AND COPYRIGHTS
The Company owns registrations issued by the U.S. Pat. Off. for the following
trademarks: Naturally Klean(R), Daily Detox(R), and Daily Klean(R). The Company
entered into an agreement with Olympian Global in January 1996 for the
acquisition of rights to the federally-registered trademark, PRO-LINE(R),
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<PAGE>
as well as certain related names and marks. The Company believes Olympian Global
may have breached certain aspects of the acquisition agreement relating to the
trademark and trade name rights transferred thereunder. The Company is unable to
predict the extent (if any) to which its rights to the assigned trademark and
trade name may be affected by this matter. See "Business -- Products --
PRO-LINE(R) Products." The U.S. Pat. Off. has issued a Notice of Allowance for
the following trademarks: Woman's Nature(TM), Daily Herbal(TM), and Citrium(TM).
Applications for federal registration have been filed with the U.S. Pat. Off.
for the following trademark and servicemark: "M.D. Labs." The Company has filed
applications for Citrium(TM) in the European Community (CTM) and in South Korea.
For all products in development, name searches and applications for registration
are submitted regularly. See "Risk Factors -- Uncertainty of Proprietary
Rights."
The Houston International tradename has not been registered and an associated
logo has not been registered as a trademark, though the Company claims rights to
use the Houston International trade name under common law. The Company has
recorded a fictitious name certificate in Maricopa County, Arizona, for the
Houston International name. The Houston International name and logo will be
phased out over a period of time.
PRODUCT ROYALTIES
The Company has entered into a royalty agreement regarding Women's Nature(TM)
PMS herbal tea with a consultant (the "WN Consultant"), which calls for the
payment of a royalty of nine cents ($0.09) for each unit of the product sold for
18 months from March 15, 1995, the date the first unit was sold, and a royalty
of five cents ($0.05) thereafter (the "Women's Nature(TM) Royalty Contract").
The Women's Nature(TM) Royalty Contract calls for the WN Consultant to aid the
Company in developing Women's Nature(TM) PMS herbal tea through consultations,
research, formulation experiments and other procedures necessary to design the
product. The WN Consultant reserved the right to examine and approve all product
labeling, press releases, brochures and other material used to promote or market
the product prior to distribution. The original three-year term of the Women's
Nature(TM) Contract expires on March 14, 1998, three years from its effective
date, and is automatically renewed for an additional three-year term unless
either party provides advance written notice of intent not to renew prior to the
end of any such term. On such notice, the Company is entitled to continue to
sell Women's Nature(TM) PMS herbal tea and use the WN Consultant's name until
all inventory in stock and/or on order is exhausted. Thereafter, the Company
forfeits the right to use any reference to the WN Consultant in association with
Women's Nature(TM) PMS herbal tea and the WN Consultant forfeits the right to
any royalty payments for any sales occurring after the end of the last term and
the exhaustion of all inventory in stock and/or on order. The Women's Nature(TM)
Royalty Contract also contains non-disclosure and non-competition provisions.
The Company has entered into an additional agreement with the WN Consultant
dated February 21, 1996, governing Women's Nature(TM) -- Natural Balance herbal
tea and calling for the same terms, including royalties and automatic renewal of
its three-year term, as apply under the Women's Nature(TM) Royalty Contract
discussed above.
The Company's obligation to pay royalties with respect to the sales of
Citrium(TM) has been terminated in September 1996. The Company also agreed to
pay a former owner of the assets purchased from Olympian Global a royalty of 3%
of the gross selling price of each unit of PRO-LINE(R) product sold during a
24-month period commencing February 1, 1996. Olympian Global guaranteed that
gross monthly sales of the PRO-LINE(R) products would average $40,000 per month
during the six-month period following closing, and agreed that if the total
gross sales for such products during the six-month period were less than
$240,000, the principal balance due under the Company's note ($160,000 as of
August 31, 1996) would be reduced by the same amount, up to a $160,000
reduction. Through July 31, 1996, the Company sold approximately $224,000 of
PRO-LINE(R) products; however, a formal reduction in the note has not yet been
prepared. The note also provides that if certain sales levels are reached prior
to January 13, 1997, the Company must pay an additional $40,000. The Olympian
Global note is payable in full at the earlier of February 1997 or 30 days after
completion of the Company's initial public offering. The Company believes that
Olympian Global may have breached certain aspects of the acquisition agreement
relating
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to the trademark and trade name rights transferred thereunder. The Company is
unable to predict the extent (if any) to which its rights to the acquired
trademarks and trade names or the payment obligations under the note may be
affected by this matter.
PRODUCT LIABILITY
The natural dietary supplement, weight loss management and sports nutrition
markets are subject to product liability claims. Many of the Company's
competitors have been sued for injuries alleged to have occured as a result of
using their products. Recently, several companies have been sued for injuries
and wrongful death arising out of the use of products containing ma huang or
ephedrine. The Company marketed a product containing ma huang under the name
Naturally High(TM). The Company has discontinued all sales of Naturally
High(TM)and has not received any notice of any claim against it arising out of
its sale of such products.
The Company has not been sued on the basis of any product liability claim to
date. Because of the inherently differing sensitivities of various individuals
to certain chemicals and chemical combinations found in dietary supplements,
some risk of product liability is unavoidable. The Company has purchased product
and general liability insurance with general aggregate limits of $2 million and
a $3 million excess liability umbrella policy. Such policies provide coverage of
up to $1 million for each occurrence. The policies are subject to annual
renewal. There can be no assurance that liability claims will not exceed the
coverage limit or be excluded by coverage limitations or that such insurance
will continue to be available on commercially reasonable terms or at all.
Consequently, product liability claims could have a material adverse effect on
the business, financial condition and results of operations of the Company. The
Company has not experienced any product liability claims to date. See "Risk
Factors -- Effect of Discontinued Product" and "-- Risk of Product Liability
Claims."
GOVERNMENT REGULATION
The formulation, processing, packaging, labeling, product claims advertising
and marketing, including direct marketing, of the Company's products are subject
to regulation in the U.S. by one or more federal agencies, including but not
limited to the FDA, the FTC, the CPSC, the USDA, the United States Postal
Service, and the EPA. These activities are also regulated by various agencies of
the states and localities in which the Company's products are sold. In addition,
the Company is also subject to regulation by the Occupational Safety and Health
Administration.
The most extensive regulations applicable to the Company's operations is that
of the FDA enforcement under the FDCA. This statute, with which the Company must
comply, establishes a comprehensive regulatory scheme enforceable by various
civil and criminal actions. The Company's facilities are subject to inspection
and review by federal and state authorities.
The Company's business is in the industry commonly known as the "health food
industry" which has been the subject of many years of vigorous administrative
and judicial enforcement by the FDA. The FDA has taken the position that many
businesses which conduct operations similar to those of the Company are to
varying extents in violation of the law. These efforts by the FDA have resulted
in a series of judicial decisions and legislative enactments which have defined
the future course of this industry. On October 23, 1994, the DSHEA was enacted
and amended the FDCA, particularly with regard to dietary supplements. In the
judgment of the Company, this new law has been favorable to the dietary
supplement industry but, inasmuch as many aspects of the law have not yet been
fully interpreted or judicially applied, there is no assurance that this will in
fact continue to be the case.
First and foremost, the DSHEA legislation creates a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet. The
statute establishes a new safety standard which dietary supplements must meet
and, in certain cases, authorizes the FDA to order dangerous dietary supplements
off the market. The statute potentially authorizes dietary supplements to make
so-called structure and function claims without advance FDA approval, but
requires companies to give the FDA special notice when such claims are made, and
also to provide special labeling for products which make such claims.
However, procedures previously established by the FDA for approval of
so-called "health claim" messages remain in full force and effect. The
regulations prohibit the use of any claim for a dietary
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<PAGE>
supplement, unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has been very
restrictive in its approach to "health claims" and has approved the use of
health claims for dietary supplements only in connection with calcium and
osteoporosis, and folic acid and neural tube defects.
The Company's business is in large part dependent on the making of the
so-called structure and function claims, which do not require advance FDA
approval. However, the dividing line between "health claims" which do require
advance approval, and "structure and function claims" which do not, has not been
definitively determined. There is no assurance that claims of the type which the
Company is currently making will not become subject to an advance approval
requirement.
Under DSHEA, a dietary supplement which contains a new dietary ingredient,
one not on the market as of October 15, 1994, will require evidence of a history
of use or evidence of safety, establishing that it will reasonably be expected
to be safe, such evidence to be provided by the manufacturer or distributor to
FDA at least 75 days before commencing to market such a product. Among other
changes, the new law prevents the further regulation of dietary ingredients as
"food additives" and establishes a commission to study and provide
recommendations for the regulation of label claims and statements for dietary
supplements, including the use of literature in connection with sale of dietary
supplements and procedures for the evaluation of such claims.
Pursuant to the new law, the FDA has published notices in the Federal
Register asking for public comments on proposals for implementing the
requirements of the legislation. These proposals would require changes in the
Company's labeling for its products, but the regulations are not yet in effect.
Consequently, the FDA has not finally reconciled its existing enforcement
practice with the new legislation described above. Businesses in this industry,
including the Company, are introducing various products in reliance on industry
interpretations of the law, which interpretations have not yet been proven or
judicially tested.
Therefore, the Company cannot determine to what extent any new, changed or
amended regulations or enforcement practices, when and if implemented, will
affect its business. Such actions could, among other things, require expanded or
different labeling, the recall or discontinuance of certain products, additional
record keeping and expanded documentation of the properties of certain products,
and more complete scientific substantiation. For example, the new legislation
requires that dietary supplements be manufactured in accordance with "Good
Manufacturing Practices." The FDA has not yet identified what the specific
practices will be. The Good Manufacturing Practices requirement will affect the
businesses who supply finished dosage products to the Company. If the Company
implements its plans to undertake its own manufacturing operations, the Company
will also be required to comply with these manufacturing practices.
Similarly, marketing and sale of dietary supplements is to some extent
dependent on avoiding a drug classification for such products. The FDA has not
yet delineated how the drug versus dietary supplement will be made under the new
law. Classification as a drug and potentially as a "new drug" might prevent the
Company from continuing to sell, or from introducing certain types of products.
Some of the Company's products may be regulated separately as foods without
invoking the provisions of the law applicable to dietary supplements. This may
also require label changes to conform to FDA's separate food regulations.
Separate and apart from FDA regulations and enforcement, the promotional
activities of the Company are also subject to regulation by the FTC and to the
extent of the use of the mails, by the United States Postal Service. These
agencies impact on the Company's activities primarily in the areas of the
requirements for "truth in advertising." The Company's business is in large part
based upon the popularization of products and ingredients for which there have
been reports in the lay or scientific literature as to their usefulness in human
nutrition and health. These reports are often preliminary, and are not
necessarily supported and documented by the types of scientific studies which
would satisfy the FTC and FDA. The FTC has recently commenced proceedings
against other businesses in the health food industry challenging the sufficiency
of their "substantiation" in support of specific product marketing claims. As
FDA moves forward to finalize the regulations under DSHEA, it is expected that
the FTC, which to some
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<PAGE>
extent works cooperatively with FDA, may also step up its enforcement activities
with regard to substantiation requirements for promotional claims. There is
therefore no assurance that the Company will be able to continue making the
types of promotional claims which have previously characterized the Company's
marketing efforts.
The management of the Company believes that it is in substantial compliance
with existing regulatory and enforcement requirements, taking into account the
manner in which other companies market and promote their products, and the
present pattern of enforcement activities by the respective agencies discussed
above. There is no assurance that the present enforcement policies of the
regulatory agencies will continue either in general, or specifically as regards
the Company. Company management expects that the regulatory and enforcement
requirements will to some extent become more stringent, and that the Company
will have to adapt its marketing and promotional activities accordingly. All or
any of the change which will be required in the Company's labeling and
promotional activities could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Absence of Clinical Studies, Scientific Review and Testing," "-- Uncertainty and
Potential Negative Effect of Government Regulations" and "-- Non-Compliance with
Government Regulations."
Government regulations in foreign countries, where the Company may wish to
commence sales, may also prevent or delay entry into such markets. The Company
may be required to reformulate or otherwise adapt its products in order to
comply with the requirements of foreign countries. Some foreign countries may
prohibit the sales of products which the Company is authorized to sell in the
United States. There is no assurance that the Company will be able to comply
with the applicable requirements of foreign countries.
EMPLOYEES
As of August 15, 1996, the Company had 26 employees, 19 of whom were leased
through an employee leasing company, Employee Solutions, Inc., of which Harvey
Belfer, a director and consultant to the Company, is a director. See "Management
- -- Executive Officers and Directors" and "Certain Transactions." Six of the
Company's employees are in sales, seven in shipping and receiving, three in
accounting, two in advertising and public relations and two in consumer service.
The remainder of the Company's employees, including the officers, serve general
and administrative functions. None of the Company's employees are covered by a
collective bargaining agreement.
FACILITIES
In October 1995, the Company moved into a 14,000 square foot leased office
and warehouse facility in Tempe, Arizona. Management believes that this facility
provides sufficient space for the Company's current operations, but anticipates
that additional space will be needed during fiscal 1997. See "Risk Factors --
Limited Capitalization." The Company believes that additional suitable space
will be available on commercially reasonable terms. The lease currently calls
for monthly rent of $6,941, increasing to $7,288 in August 1997, $7,652 in
August 1998 and $8,035 in August 1999, and expires on July 31, 2000. The Company
also intends to establish a 10,000 square foot manufacturing facility by the end
of the fiscal year. See "Use of Proceeds."
TRADE ASSOCIATIONS
The Company belongs to a number of trade associations, including the American
Botanical Council, the American Herbal Products Association, the Herb Research
Foundation, the Canadian Health Food Association, the World Watch Institute, and
the National Nutritional Foods Association, and is a contributor to Citizens for
Health.
LITIGATION
The Company has received correspondence from an overseas trading company
threatening to institute litigation in Japan based on allegations that the
Company breached a contract with the trading company by failing to designate it
the exclusive distributor of Citrium(TM) in Japan. The trading company is
claiming damages of $500,000. No complaint has been filed in this matter at this
time. The Company is in the initial stages of reviewing the correspondence, and
it will take appropriate responsive measures if a complaint is filed.
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<TABLE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hooman Nikzad ................... 30 Chief Executive Officer, Director
Todd P. Belfer .................. 28 President, Director
Faradjollah "Fred" Djahandideh... 55 Vice President, Operations, Secretary/Treasurer, Director
Bradley A. Denton ............... 32 Chief Financial Officer, Vice President, Assistant Secretary
Harvey A. Belfer ................ 58 Director
Allan Richard Lyons(1) .......... 55 Director
Kenneth A. Steel, Jr.(1) ....... 38 Director
<FN>
- ----------
(1) Member of the Audit Committee.
</FN>
</TABLE>
HOOMAN NIKZAD. Mr. Nikzad has been the Chief Executive Officer and a Director
of the Company since its inception. He was also a member and manager of the
Company's predecessor, Houston. In September 1990, Mr. Nikzad co-founded Pro
Pay, Inc. a staff leasing firm, which he and his co-owner sold to a publicly
traded company, Employee Solutions, Inc., in October 1994.
TODD P. BELFER. Todd Belfer has been the President and a Director of the
Company since its inception. He was also a member and manager of the Company's
predecessor, Houston. From May 1991 to December 1995, he served as Vice
President of Marketing and Investor Relations and Director of Employee
Solutions, Inc., an employee leasing company based in Phoenix, Arizona. Mr.
Belfer currently works part-time for the Company. Mr. Belfer is the son of
Harvey Belfer, a Director of and consultant to the Company.
FRED DJAHANDIDEH. Mr. Djahandideh has been the Vice President, Operations and
Secretary/Treasurer and a Director of the Company since its inception. He was
also a member and manager of the Company's predecessor. From 1990 to 1992, Mr.
Djahandideh was a consultant for Momtaz Textile, Inc., an import/export textile
company based in Los Angeles, California. Mr. Djahandideh was instrumental in
developing new herbal and weight management products for the Company, and is
responsible for procuring many of the ingredients used in the Company's
products.
BRADLEY A. DENTON. Mr. Denton, a Certified Public Accountant, has been the
Company's Chief Financial Officer since its inception. He was also the Chief
Financial Officer of the Company's predecessor, Houston, since December 1995.
From October 1993 to December 1995, he was an Assistant Vice President at First
Interstate Bank, Southwest Region, Financial Advisory Services Group, in
Phoenix, Arizona. From December 1991 to October 1993, he was an Associate at
Donaldson, Lufkin & Jenrette Securities Corporation, New York City, where he
worked in the firm's Taxable Fixed Income and Real Estate Investment Banking
Groups.
HARVEY A. BELFER. Harvey Belfer has been a Director of the Company since its
inception. He was also a member of the Company's predecessor, Houston. In 1991,
he co-founded Employee Solutions, Inc., an employee leasing company based in
Phoenix, Arizona, of which he has been a Director since its inception. He was
the President of Employee Solutions, Inc. from inception until June 1996, and
also served as its Chief Executive Officer. From 1984 to 1991, Mr. Belfer was an
executive officer of Contract Personnel Systems, Inc. and Corporate Personnel
Services, Inc., firms engaged in the staff leasing business. Mr. Belfer serves
as a consultant to the Company and is the father of the Company's President.
ALLAN RICHARD LYONS. Mr. Lyons has been a Director of the Company since
September 1996. Since 1968, he has been a Certified Public Accountant with
Piaker & Lyons, P.C. in Vestal, New York. My Lyons has been Chairman of the
Board of Piaker & Lyons since November 1993. He is also a director of The Score
Board, Inc., a Cherry Hill, New Jersey, marketer of telephone and trading cards
and other sports and entertainment-related products and of Franklin Credit
Management Corp., a New York specialty consumer finance company.
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KENNETH A. STEEL, JR. Mr. Steel has been a Director of the Company since
September 1996. Since August 1978, Mr. Steel has been the Executive Vice
President of K.A. Steel Chemicals, Inc., a privately held Chicago, Illinois
based chemical company in which Mr. Steel holds primary responsibilities for
sales and marketing and operations management. Since October 1995, he has also
been a Director of Organic Food Products, Inc. (formerly Garden Valley Naturals,
Inc.), a privately held company engaged in processing, packing and marketing
natural foods.
The Bylaws provide for a Board of Directors of three to nine members. All
current directors of the Company hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Commencing with the 1997 annual meeting of stockholders, the Board of Directors
will be classified into three classes with each class holding office for a
three-year period. To provide for the expiration of the term of one of the three
classes of directors each year, the initial term for one class of directors
shall be one year, the initial term for the second class of directors shall be
two years and the initial term for the third class of directors shall be three
years. Thereafter, the terms of all directors shall be three years.
Directors are reimbursed for reasonable expenses incurred in attending
meetings. Each non-employee director (Messrs. Lyons and Steel) has been granted
options for 20,000 shares of Common Stock exercisable at $8 per share. Effective
June 1, 1996, the Company entered into a three-year consulting and
noncompetition agreement with Harvey A. Belfer, a director of the Company. The
agreement provides that the Company will pay Mr. Belfer an annual fee of
$12,000, increasing 10% each year, plus expenses in exchange for consulting
services in connection with the manufacturing operations, marketing, and sales
activities and business affairs of the Company. In connection therewith, Mr.
Belfer received five-year warrants exercisable for 40,000 shares of Common Stock
at an exercise price of $3.50 per share, vesting in stages through May 31, 1999.
On June 1, 1996, Mr. Belfer also received options to purchase 30,000 shares of
Common Stock at an exercise price of $3.50 per share under the Company's Stock
Option Plan.
Executive officers are elected annually by and serve at the discretion of the
Board of Directors.
<TABLE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer. No executive officer
who was serving as an executive officer on May 31, 1996 had an aggregate salary
and bonus exceeding $100,000 for the fiscal year ended May 31, 1996.
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
---------------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (#) ($)
- --------------------------- ---- --------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Hooman Nikzad
Chief Executive Officer(1)..... 1996 $41,870 -- $1,650(2) 0 $2,691(3)
<FN>
- ----------
(1) Mr. Nikzad also received member draws as a member of Houston, predecessor to
the Company. See "Certain Transactions."
(2) Represents an automobile lease payment paid by the Company in lieu of salary
payments.
(3) Represents Company payment of cellular telephone charges.
</FN>
</TABLE>
The executive officer named in the Summary Compensation Table did not own or
receive any stock options or SARs during the fiscal year ended May 31, 1996. See
"Description of Capital Stock -- Warrants" and "Certain Transactions" for
information regarding warrants received by Mr. Nikzad during
33
<PAGE>
fiscal 1996. On June 1, 1996, the Company adopted a plan pursuant to which the
Company may grant options to purchase Common Stock to employees, including
officers, and others. On June 1, 1996, the Company granted Mr. Nikzad an option
to purchase 30,000 shares at $3.50 per share under the Stock Option Plan. See
"Management -- Stock Option Plan."
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Stock Option Plan") was adopted by
the Board of Directors in June 1996 and approved by the stockholders in
September 1996 to grant options to purchase 300,000 shares of Common stock. As
of August 15, 1996, options to purchase 229,000 shares of Common Stock were
outstanding. The Stock Option Plan provides for the granting to employees of
either "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock
options to any individual, including employees and directors of the Company.
Incentive stock options may be granted only to employees, including officers.
The exercise price of incentive stock options granted under the Stock Option
Plan must be the fair market value of the Common Stock on the date of grant. The
exercise price of any incentive stock option granted to an optionee who
beneficially owns more than 10% (a "10% Holder") of the Company's voting stock
must be at least 110% of the fair market value of the underlying shares on the
date of grant. The Stock Option Plan expires in 2006 with respect to incentive
stock options.
Under the Stock Option Plan, nonqualified stock options may be granted to any
individual, including employees and directors and consultants who are not
employees of the Company. The exercise price of nonqualified stock options may
be any amount determined in good faith by the Board of Directors or a committee
appointed by the Board. The Company has no plans to grant nonqualified stock
options at an exercise price of less than the fair market value of the
underlying shares on the date of grant.
The Stock Option Plan is administered by the full Board of Directors or
compensation committee of the Board (the "Compensation Committee") which
determines the terms of options granted under the Stock Option Plan, including
the exercise price and the number of shares subject to the option. The Stock
Option Plan provides the Compensation Committee with the discretion to determine
when options granted thereunder shall become exercisable. Most options granted
under the Stock Option Plan become exercisable over a period of three years and
have a term of five years. No option may be exercised more than 10 years (or, in
the case of an incentive option granted to a 10% Holder, more than five years)
after its grant date. Options granted under the Stock Option Plan are not
transferable by the optionee after the date of its grant. Options granted under
the Stock Option Plan are not transferable by the optionee other than by will or
the laws of descent and distribution, and each option is exercisable during the
lifetime of the optionee only by the optionee, his guardian or legal
representative. Incentive stock options held by employees of the Company may be
exercised by the participant only while employed by the Company or within one
year following termination resulting from death or permanent disability or
within three months after termination for any reason other than cause, death or
permanent disability, or on or before the date the participant's employment with
the Company is terminated, if for cause. Options to non-employees may be
exercised within such time period as the Compensation Committee determines but
no later than 10 years from the date of grant, two years after cessation of
services to the Company for any reason other than death, permanent disability,
retirement or cause, three years after cessation of services by reason of death,
permanent disability or cause, or the date of cessation of services for cause.
Upon the occurrence of a change in control of the Company, 100% of all unvested
options that had been outstanding for at least six months will vest.
34
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
Hooman Nikzad entered into a three-year employment agreement with the Company
as of June 1, 1996, pursuant to which he was employed as Chief Executive
Officer. Under the agreement, Mr. Nikzad is entitled to an annual base salary of
$85,000, increasing by 10% annually commencing May 31, 1997. Unless terminated
without cause, Mr. Nikzad is entitled to a lump sum payment equal to the greater
of the base salary due for the remainder of the term of the employment agreement
or 12 months' base salary, and continuation of coverage under medical plans for
up to 12 months. Mr. Nikzad is entitled to certain incentive compensation
payments, if any, made for the year of termination of his employment for death
or disability. If the employment is terminated within 12 months after certain
changes in control of the Company, Mr. Nikzad is entitled to a lump sum payment
(in lieu of the payment referred to in the second preceding sentence) not to
exceed 2.99 times the base amount defined in Section 280G of the Internal
Revenue Code of 1986, as amended, continuation of medical coverage for 12 months
and other benefits in effect at that time. The agreement also contains
confidentiality and non-competition covenants. In connection with his
employment, Mr. Nikzad received options for 30,000 shares of the Company's
Common Stock on June 1, 1996, exercisable at $3.50 and vesting in equal parts on
the first three anniversaries of the grant date.
The Company has similar agreements with Messrs. Todd Belfer, Djahandideh and
Denton employing them in their capacities as officers with the Company, except
that their annual salary is $50,000, $85,000 and $65,000, respectively, and the
numbers of options received were 30,000, 30,000 and 10,000, respectively. Todd
Belfer's salary is $50,000 per annum, increasing 10% annually commencing May 31,
1997, and Mr. Denton's salary is $65,000 per annum, increasing to $70,000
January 1, 1997 and to $75,000 January 1, 1998, with provisions for Mr. Denton
to receive annual bonuses of $10,000, $15,000 and $20,000 for fiscal years 1997
through 1999, respectively, should the Company achieve net sales targets during
such years. In connection with his employment, Mr. Denton also received
five-year warrants exercisable for 60,000 and 30,000 shares of Common Stock at
an exercise price of $.50 and $1.00, respectively, vesting in stages through
December 31, 1998.
35
<PAGE>
CERTAIN TRANSACTIONS
The Company's predecessor, Houston, was founded by Hooman Nikzad, Todd P.
Belfer, Fred Djahandideh, Harvey A. Belfer and Marvin D. Brody. Houston was a
party to an agreement dated December 12, 1995 pursuant to which Marvin D. Brody
and Nancy P. Brody transferred their Houston membership interests to Harvey A.
Belfer, Todd P. Belfer, Hooman Nikzad and Fradjollah Djahandideh. Houston paid
approximately $4,100 in attorneys' fees relating to the agreement and agreed to
indemnify the sellers against all liabilities arising from Houston's operations.
On May 31, 1996, Messrs. Nikzad, Todd Belfer, Djahandideh and Harvey Belfer
completed a private placement of portions of their membership interests in the
Company's predecessor, Houston, selling approximately 16.6% of their interests.
The Company did not receive any proceeds from the sale. On that same date, all
members converted their interests into shares of the Company's Common Stock.
Private placement costs associated with the transactions of approximately
$70,000 were paid by the Company. In connection with the transactions, the
Company also issued warrants to purchase an aggregate of 118,449 shares of
Common Stock to the underwriter of a portion of the private placement and
entities associated with an attorney involved in the private placement and a
director of the Company who subsequently resigned. See "Description of Capital
Stock -- Warrants."
Houston made limited liability company distribution payments to its members
in fiscal 1995 and fiscal 1996, including the following payments to current
executive officers and directors: Mr. Nikzad, $125,256 in 1995 and $220,313 in
1996; Mr. Todd Belfer, $125,256 in 1995 and $220,313 in 1996; Mr. Djahandideh,
$224,339 in 1995 and $495,313 in 1996; and Mr. Harvey Belfer, $112,966 in 1995
and $264,063 in 1996. The Company succeeded to Houston's business effective May
31, 1996 and no additional distributions will be made. See "Limited Liability
Company Distributions" and Consolidated Statements of Shareholders' Equity and
Notes to Consolidated Financial Statements.
The Company currently leases 19 of its employees through an employee leasing
company, Employee Solutions, Inc. ("ESI"), of which Harvey Belfer was co-founder
and Chief Executive Officer, and is a Director, and for which Todd Belfer
previously served as Director and Vice President of Marketing and Investor
Relations. For the years ended May 31, 1996 and 1995, Houston paid ESI
approximately $923,000 and $506,000, respectively, for employee leasing and
related expenses.
From February 1994 to October 1994, Houston retained the services of Propay,
Inc., an employee leasing firm ("Propay"), which Hooman Nikzad co-founded. For
the fiscal year ended May 31, 1995, the Company paid Propay approximately
$329,000 for such employee leasing services.
During fiscal 1995, Houston paid a total of approximately $353,600 in
consulting and other fees to Pure Source Ltd., a British Virgin Islands
corporation ("Pure Source") which provided marketing, purchasing, promotional
and other international advertising services and assisted in locating sources of
raw materials. On December 31, 1995, the consulting agreement was terminated. No
fees were paid to Pure Source in fiscal 1996. All of the members of Houston, the
predecessor to the Company, had beneficial interests in Pure Source and
benefitted from the payment of such fees. Current directors and executive
officers of the Company held the following ownership interests in Pure Source:
Mr. Todd Belfer, 15%; Mr. Nikzad, 15%; Mr. Harvey Belfer, 17.5% and Mr.
Djahandideh, 35%.
In February 1996, the Company purchased all of the outstanding stock of
Belnik Investment Group, Inc., an Arizona corporation doing business as Freedom
Wholesalers, Inc. ("Freedom"), from Messrs. Nikzad and Todd Belfer. The purchase
price consisted of $1,000 plus warrants issued to each of Messrs. Nikzad and
Todd Belfer to purchase 10,500 shares of the Company's Common Stock exercisable
at $1.00 per share and vesting in three equal annual installments commencing
December 31, 1996. Prior to acquiring Freedom, the Company had been distributing
certain of its products through Freedom as well as providing office space,
telephone facilities, other business services, and management to Freedom for
which Freedom reimbursed the Company $190,291 in fiscal 1995 and $437,310 in
fiscal 1996. See "Business -- Products" and "-- Freedom Products." For financial
reporting purposes, the operations of Freedom are consolidated, and all
intercompany balances and transactions are eliminated. See Note 2 to the
Consolidated Financial Statements.
36
<PAGE>
On March 6, 1996, the Company borrowed $300,000 from Belfer Labs LLC, an
affiliated company formed by Todd Belfer, President and Director of the Company,
and Harvey Belfer, father of Todd Belfer and consultant and Director of the
Company. The Belfer Labs Note accrues interest at the rate of 12% per annum and
is payable March 6, 1997. The proceeds of the Belfer Labs Note were distributed
to the members of Houston for, among other things, the members' tax liability
which resulted from the profitable operations of the Company prior to the
Company's conversion to a corporation. On July 23, 1996, the Company paid
$100,000 in principal on the note plus accrued interest of $14,100. Management
anticipates repaying the remaining balance payable on the note with the proceeds
from this Offering.
The Company has no plans to enter into any additional transactions with
officers, directors or stockholders of the Company. In the future, the Company
will not engage in any additional transactions with its officers, directors or
5% stockholders or their affiliates unless the transaction is approved by a
majority of the disinterested directors of the Company after full disclosure and
will be on terms no less favorable to the Company than would be available from
an unaffiliated third party.
37
<PAGE>
<TABLE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 10, 1996 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person or entity known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors and
(iii) all directors and executive officers of the Company as a group.
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------
PERCENT PRIOR PERCENT AFTER
IDENTITY OF STOCKHOLDER OR GROUP(2) NUMBER TO OFFERING OFFERING
----------------------------------- ------ ----------- --------
<S> <C> <C> <C>
Hooman Nikzad ................................................................. 412,907 13.8% 10.4%
Todd P. Belfer ................................................................ 469,156(3) 15.6 10.9
Fred Djahandideh .............................................................. 994,359(4) 33.1 23.1
Harvey Belfer ................................................................. 600,203(5) 20.0 14.0
Allan Richard Lyons ........................................................... 65,000(6) 2.2 1.5
Kenneth A. Steel, Jr .......................................................... 20,000(7) 0.7 0.5
Storie Partners, L.P.(8) ...................................................... 180,000 6.0 4.2
All directors and executive officers as a group
(seven persons)(3)(4)(5)(6)(9) ............................................... 2,571,625 84.3 59.1
<FN>
- ----------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC" or "Commission") and generally
includes voting or investment power with respect to securities. In
accordance with SEC rules, shares which may be acquired upon exercise of
stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionee. Except as indicated by footnote, and subject to
community property laws where applicable, the persons or entities named in
the table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) Except as otherwise noted, mailing address is 1719 West University Drive,
Suite 187, Tempe, Arizona 85281.
(3) Represents shares owned by T.P.B. Investments Limited Partnership, of which
Todd Belfer is general partner, with beneficial interests accruing to Todd
Belfer and his sister, Beth Robin Belfer.
(4) Includes 250,000 shares held by Mr. Djahandideh's daughter, Daniela
Djahandideh, for which Mr. Djahandideh holds power of attorney.
(5) Represents shares owned by To Be Limited Partnership, of which Harvey Belfer
is general partner, with beneficial interests accruing to Harvey Belfer's
son, Todd Belfer, and Harvey Belfer's daughter, Beth Robin Belfer.
(6) Represents 45,000 shares held by two venture capital firms controlled by Mr.
Lyons and 20,000 shares Mr. Lyons has a right to acquire upon exercise of
stock options.
(7) Represents shares Mr. Steel has a right to acquire upon exercise of stock
options.
(8) Mailing address is 1 Bush Street, No. 1350, San Francisco, California 94104.
(9) Includes an aggregate of 50,000 shares issuable upon exercise of stock
options and warrants.
</FN>
</TABLE>
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 8,000,000 shares of
Common Stock, $.001 par value per share, and 100,000 shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock"), issuable in series. The
following summary of certain provisions of the Company's capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation (the "Certificate") and
Bylaws which are included as exhibits to the Registration Statement of which
this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
Immediately prior to the Offering, there were 3,000,000 shares of Common
Stock outstanding which were held of record by 39 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. Stockholders are not entitled to cumulate their votes for
the election of directors. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, the holders of Common Stock are entitled
to receive such dividends pro rata, if any, as may be declared from time to time
by the Board of Directors out of funds legally available for that purpose. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share pro rata in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this Offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 100,000 shares of undesignated Preferred
Stock. The Board of Directors has the authority to issue the undesignated
Preferred Stock in one or more series and to determine the powers, preferences
and rights and the qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued series of undesignated Preferred Stock and to
fix the number of shares constituting any series and the designation of such
series, without any further vote or action by the stockholders. Shares of
Preferred Stock so designated may have voting, conversion, liquidation
preference, redemption, sinking fund provisions and other rights which are
superior to those of the Common Stock. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of and the voting and other rights of the
holders of Common Stock. At present, the Company has no plans to issue any
shares of the Preferred Stock.
WARRANTS
As of August 15, 1996, the Company has outstanding warrants to purchase
464,421 shares of its Common Stock, of which 267,656 were exercisable, as
further described below. Each warrant expires in either May or June 2001,
respectively, and contains provisions for the adjustment of the exercise price
and the aggregate number of shares issuable upon exercise of the warrant under
certain circumstances, including stock dividends, stock splits, reorganizations,
reclassifications and consolidations, and in certain cases, for dilutive sales
of Common Stock below the then existing exercise price. Certain warrants are
entitled to registration rights. See "Description of Capital Stock --
Registration Rights."
Of the warrants referred to in the preceding paragraph, warrants to purchase
60,000 shares are exercisable at $.50 per share, vesting in stages through 1999.
Warrants to purchase 51,000 shares are exercisable at $1.00 per share, of which
10,000 warrants are vested, and the balance vest in stages through 1998.
Warrants to purchase 192,656 shares are exercisable at $3.50 per share, of which
107,656 are vested currently, and the balance vest in stages through 1999.
Warrants to purchase 75,000 shares are exercisable at each of $5.00 and $10.00
per share, respectively, all of which are vested currently. Warrants to purchase
10,765 shares are exercisable at the price at which shares are sold in this
Offering, all of which warrants are vested.
39
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
Stockholders' rights and related matters are governed by Delaware corporate
law, the Certificate and Bylaws. Certain provisions of the Certificate and
Bylaws that are summarized below may affect potential changes in control of the
Company. The cumulative effect of these provisions may be to make it more
difficult to acquire and exercise control of the Company and to make changes in
management.
The affirmative vote of at least two-thirds of the shares entitled to vote is
required for a merger or a consolidation with, or a sale by the Company of all
or substantially all of its assets to, any person, firm or corporation, or any
group thereof, which owns, directly or indirectly, 5% or more of any class of
voting securities of the Company, exclusive of any person holding 10% or more at
May 31, 1996 (an "Interested Person"). In addition, two-thirds approval is
required with respect to other transactions involving any Interested Person,
including the purchase by the Company or any of its subsidiaries of all or
substantially all of the assets or stock of an Interested Person and any other
transaction with an Interested Person that requires stockholder approval under
Delaware law. The two-thirds voting requirement is not applicable to a
transaction that is approved by the Board of Directors if a majority of the
members of the Board of Directors voting to approve such transaction were
elected prior to the date on which the other party became an Interested Person
(the "Continuing Directors") or whose initial election as a director succeeds a
Continuing Director or fills a newly created directorship approved by the
Continuing Directors.
Commencing with the 1997 annual meeting of stockholders, each director will
serve for a three-year term and approximately one-third of the directors will be
elected annually. Candidates for election of directors shall be nominated only
by the Board of Directors or by a stockholder who gives prior written notice to
the Company, generally not less than 60 nor more than 90 days before the annual
meeting. The Company may have three to nine directors as determined from time to
time by the Board, which currently consists of six members. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. The Certificate does not provide for cumulative voting at
stockholder meetings for election of directors. Stockholders controlling more
than 50% of the outstanding Common Stock can elect the entire Board of
Directors, while stockholders controlling less than 50% of the outstanding
Common Stock may not be able to elect any directors. A director may be removed
from office only for cause by the affirmative vote of a majority of the combined
voting power of the then outstanding shares of stock entitled to vote generally
in the election of directors.
The Certificate further provides that stockholder action must be taken at a
meeting of stockholders and may not be effected by any consent in writing. A
special meeting of stockholders may be called only by the Chairman of the Board,
the Chief Executive Officer, a majority of the whole Board of Directors or by
the holders of at least 25% of the Common Stock. If a stockholder wishes to
propose an agenda item for consideration at a meeting he must give a brief
description of each item and written notice to the Company not less than 60 nor
more than 90 days prior to the meeting or such other period of time necessary to
comply with applicable federal proxy solicitation rules or other regulations.
Stockholders may need to present their proposals or director nominations in
advance of the time they receive notice of the meeting because the Company's
Bylaws provide that notice of a stockholders' meeting must be given not less
than 10 or more than 60 days prior to the meeting date.
The Certificate provides further that the foregoing provisions of the
Certificate and Bylaws may be amended or repealed only with the affirmative vote
of at least two-thirds of the shares entitled to vote, unless the amendment is
recommended for stockholder approval by a majority of the Continuing Directors.
These provisions exceed the usual majority vote requirement of Delaware law and
are intended to prevent the holders of less than two-thirds of the voting power
from circumventing the foregoing terms by amending the Certificate or Bylaws.
These provisions, however, enable the holders of more than one-third of the
voting power to prevent amendments to the Certificate or Bylaws even if they
were favored by the holders of a majority of the voting power.
The effect of these provisions may be to make more difficult the
accomplishment of a merger or other takeover or change in control of the
Company. To the extent that these provisions have this effect, removal of the
Company's incumbent Board of Directors and management may be rendered more
40
<PAGE>
difficult. Furthermore, these provisions may make it more difficult for
stockholders to participate in a tender or exchange offer for Common Stock and
in so doing may diminish the market value of the Common Stock.
PERSONAL LIABILITY OF DIRECTORS
Delaware law authorizes a Delaware corporation to eliminate or limit the
personal liability of a director to the corporation and its stockholders for
monetary damages for breach of certain fiduciary duties as a director. The
Company believes that such a provision is beneficial in attracting and retaining
qualified directors, and accordingly, the Certificate includes a provision
eliminating liability for monetary damages for any breach of fiduciary duty as a
director, except (i) for any breach of the duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for any transaction
from which the director derived an improper personal benefit; or (iv) for
unlawful payments of dividends or unlawful stock repurchase or redemptions as
provided in Section 174 of the Delaware General Corporation Law. Directors are
not insulated from liability for breach of their duty of loyalty or for claims
arising under the federal securities laws. The foregoing provisions of the
Certificate may reduce the likelihood of derivative litigation against directors
for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
Furthermore, the Company has entered into indemnity agreements with all of its
directors and officers for the indemnification of and advancing of expenses to
such persons to the fullest extent permitted by law. The Company intends to
execute such indemnity agreements with its future officers and directors. The
Company is in the process of obtaining comprehensive directors and officers
liability insurance coverage, and anticipates obtaining an insurance policy with
an aggregate policy limit of not less than $5,000,000 for the benefit of its
officers and directors insuring such persons against certain liabilities,
including liabilities under the securities laws, no later than the effective
date of this Offering. Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act") may be permitted
to directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
REGISTRATION RIGHTS
Holders of 498,375 shares of Common Stock and holders of warrants to acquire
257,656 shares of Common Stock have the right to demand registration of up to
50% of such shares commencing September 1, 1997 and will have the right to
receive notice of proposed registrations of securities by the Company and to
cause the Company to include all or a portion of such shares in such
registrations, provided, among other conditions, that the underwriters of any
such offering shall have the right to limit the number of shares included in
such registration. Holders of applicable registration rights relating to this
Offering have been notified that their respective shares will not be included in
this Offering. The Company is obligated to pay the offering expenses of each
such offering, except for the selling stockholders' pro rata portion of
underwriting discounts and commissions.
41
<PAGE>
Prior to this Offering, there has been no market for the Common Stock and no
precise prediction can be made of the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Corporate Stock Transfer, Inc., Denver, Colorado as
the transfer agent and registrar for the Company's Common Stock.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 4,300,000 shares of
Common Stock outstanding. Of these shares, 1,300,000 of the shares sold in this
Offering (plus any additional shares sold upon the exercise of the Underwriters'
Over-allotment Option) will be freely tradable under the Securities Act except
for shares purchased by "affiliates" of the Company within the meaning of the
rules and regulations under the Securities Act.
The remaining 3,000,000 outstanding shares (the "Restricted Shares"), which
were issued by the Company on May 31, 1996 in reliance upon the "private
placement" exemption provided by Section 4(2) of the Securities Act, will be
deemed restricted securities within the meaning of Rule 144 under the Securities
Act. Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted securities" for at
least two years (one year under currently proposed amendments to Rule 144),
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then outstanding shares of Common Stock of
the Company (43,000 shares after giving effect to this Offering) and the average
weekly trading volume of the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about the Company. A
person who is not an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least three years
(two years under currently proposed amendments to Rule 144), would be entitled
to sell such shares without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144 of the Securities Act.
However, the transfer agent may require an opinion of counsel that a proposed
sale of shares comes within the terms of Rule 144 of the Securities Act prior to
effecting a transfer of such shares.
The Company and its officers and directors holding an aggregate of 2,521,625
shares of Common Stock have entered into lockup agreements with the Underwriters
pursuant to which such stockholders have agreed not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Underwriters. See
"Underwriting."
After the expiration of the lockup agreements with the Underwriters, the
Company expects to file a Registration Statement on Form S-8 under the
Securities Act to register all of the shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan. After the effective date of
such Registration Statement, shares purchased upon exercise of options granted
pursuant to the Stock Option Plan generally would be available for resale in the
public market. As of August 15, 1996, options to purchase 229,000 shares of
Common Stock were outstanding, none of which were exercisable. To date, no
options have been exercised.
Following completion of this offering, holders of 498,375 shares of Common
Stock and the holders of warrants to acquire 257,656 shares of Common Stock have
the right, under certain conditions, to cause the Company to register such
shares under the Securities Act and to participate in future Company
registrations. See "Description of Capital Stock -- Registration Rights."
Prior to this Offering, there has been no market for the Common Stock, and no
precise prediction can be made of the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and limit the Company's ability to raise additional capital.
43
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares set forth opposite their names.
NUMBER OF
UNDERWRITER SHARES
----------- ------
Sentra Securities Corporation.........................
Spelman & Co., Inc. ..................................
---------
TOTAL ........................................... 1,300,000
=========
The Company is obligated to sell, and the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock purchased by them directly to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at a price that represents a concession of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession within the discretion of the Representatives. After the initial
public offering of the Common Stock, the offering price and the selling terms
may be changed by the Underwriters.
The Company has granted an option to the Underwriters to purchase, in the
aggregate, up to 195,000 additional shares of Common Stock. The option is
exercisable for 45 days from the date of this Prospectus at an initial offering
price, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The option may only be exercised for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby.
The Underwriters will purchase the Common Stock (including Common Stock
subject to the Over-allotment Option) from the Company at a price of $6.30 per
share. In addition, the Company has agreed to pay to the Representatives a 3%
nonaccountable expense allowance on the aggregate initial public offering price
of the shares of Common Stock, including shares subject to the Over-allotment
Option, of which $25,000 has been paid. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that any Underwriter may be
required to make in respect thereof.
The Company has agreed to issue to the Representatives, for aggregate
consideration of $100, the Representatives' Warrant to purchase up to 10% of the
number of shares of Common Stock sold in this Offering for 120% of the offering
price, or $8.40 per share. The number of shares of Common Stock covered by the
Representatives' Warrants and the exercise price are subject to adjustment under
certain
44
<PAGE>
events to prevent dilution. The Representatives' Warrants are exercisable at any
time in the five-year period commencing one year from the effective date of this
Offering. The Representatives' Warrants are not transferable for one year from
the date of this Prospectus except (i) to an Underwriter or a partner or officer
of an Underwriter or (ii) by will or operation of law. During the term of the
Representatives' Warrants, the holder thereof is given the opportunity to profit
from a rise in the market price of the Company's securities. The Company may
find it more difficult to raise additional equity capital while the
Representatives' Warrants are outstanding. At any time at which the
Representatives' Warrants are likely to be exercised, the Company would probably
be able to obtain additional equity capital on more favorable terms.
Additionally, the Company has agreed, beginning one year after the date of this
Prospectus, on demand of the holders of a majority of the Representatives'
Warrants or the Common Stock issued or issuable thereunder, to register the
Common Stock underlying the Representatives' Warrants one time at the Company's
expense. If the Company files a registration statement relating to an equity
offering under the provisions of the 1933 Act at any time during the period
following the date of issuance of the Representatives' Warrants, the holders of
the Representatives' Warrants or underlying Common Stock will have the right,
subject to certain conditions, to include in such registration statements, at
the Company's expense, all or part of the underlying Common Stock at the request
of the holders. The registration of securities pursuant to the Representatives'
Warrants may result in substantial expense to the Company at a time when it may
not be able to afford such expense and may impede future financing.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Company, the Representative and the Commission.
The Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Company's
Common Stock. The initial public offering price for the Common Stock was
determined by negotiation among the Company and the Representatives. Among the
factors considered in determining the initial public offering price was the
history of and the prospects for the Company and the industry in which it
operates, the past and present operating results of the Company and the trends
of such results, the future prospects of the Company, an assessment of the
Company's management, the general condition of the securities markets at the
time of this Offering and the prices for similar securities of comparable
companies.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the Company
by the Company's general counsel, Quarles & Brady, Phoenix, Arizona. Legal
issues related to FDA, FTC and state and local licensing matters are being
passed upon for the Company by Bass & Ullman, P.C., New York, New York. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Luce, Forward, Hamilton & Scripps LLP, San Diego, California.
EXPERTS
The consolidated balance sheet of the Company as of May 31, 1996 and the
consolidated statements of income, shareholders' equity, and cash flows of the
Company for each of the two years in the period ended May 31, 1996 included in
this Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement under the Securities Act
concerning the Common Stock offered by this Prospectus. Certain portions of the
Registration Statement have not been included in this Prospectus as permitted
45
<PAGE>
by the Commission's regulations. For further information concerning the Company
and the shares of Common Stock offered hereby, reference is made to the
Registration Statement and its exhibits, which may be inspected at the offices
of the Commission, without charge. Copies of the material contained therein may
be obtained from the Commission upon payment of the prescribed fees. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete; where such contract or other document is
an exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions of such exhibit, to which reference is hereby
made for a full statement of the provisions thereof.
After completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "1934
Act") and, in accordance therewith, will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at public reference facilities of the
Commission at 450 Fifth Street N.W., Washington, D.C. 20549; and at the regional
offices maintained by the Commission at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; 7 World Trade Center, 13th Floor, New York, New York
10048; and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates.
Additionally, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission; the address of such site is
http://www.sec.gov.
46
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants ............................................................ F-1
Financial Statements:
Consolidated Balance Sheets as of May 31, 1996 .......................................... F-2
Consolidated Statements of Income for the years ended May 31, 1996 and 1995 ............. F-3
Consolidated Statements of Shareholders' Equity for the years ended May 31, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended May 31, 1996 and 1995 ......... F-5
Notes to Consolidated Financial Statements ................................................... F-6
</TABLE>
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
M.D. Labs, Inc.
We have audited the accompanying consolidated balance sheet of M.D. Labs,
Inc. and subsidiary as of May 31, 1996, and the related consolidated statements
of income, shareholders' equity, and cash flows for the two years then ended.
These consolidated 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 audits 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
M.D. Labs, Inc. and subsidiary as of May 31, 1996, and the consolidated results
of their operations and their cash flows for the two years then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
July 12, 1996
F-1
<PAGE>
<TABLE>
M.D. LABS, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................................. $ 91,799
Trade accounts receivable, net of allowance for doubtful accounts of $27,876 .......................... 619,860
Inventories ........................................................................................... 1,080,406
Deferred tax asset .................................................................................... 26,683
Other current assets .................................................................................. 46,181
-----------
Total current assets ............................................................................. 1,864,929
-----------
Property and equipment, net ................................................................................ 219,399
Intangible assets .......................................................................................... 520,732
Deferred tax asset ......................................................................................... 59,356
Deposits and other assets .................................................................................. 27,254
-----------
Total assets ..................................................................................... $ 2,691,670
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................................................................... $ 213,817
Notes payable .............................................................................................. 460,000
-----------
Total current liabilities ........................................................................ 673,817
-----------
Shareholders' equity:
Common stock, $.001 par value; 8,000,000 shares authorized; 3,000,000 shares .......................... 3,000
issued and outstanding
Preferred stock, $.01 par value; 100,000 shares authorized; none outstanding
Paid-in capital ....................................................................................... 2,018,728
Less: unearned compensation ........................................................................... (3,875)
-----------
Total shareholders' equity ....................................................................... 2,017,853
-----------
Total liabilities and shareholders' equity ....................................................... $ 2,691,670
===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-2
<PAGE>
M.D. LABS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
1996 1995
---- ----
Net sales ............................................ $5,191,067 $4,193,997
Cost of goods sold ................................... 1,510,479 1,608,568
---------- ----------
Gross profit ......................................... 3,680,588 2,585,429
Selling, general and administrative .................. 2,141,926 2,012,641
Income from operations ............................... 1,538,662 572,788
Interest expense ..................................... 12,991
---------- ----------
Income before income tax ............................. 1,525,671 572,788
Income tax benefit ................................... 86,039
---------- ----------
Net income ........................................... $1,611,710 $ 572,788
========== ==========
Pro forma net income data (unaudited):
Income before income tax ........................ $1,525,671 $ 572,788
Pro forma income taxes .......................... 610,039 229,115
---------- ----------
Pro forma net income ....................... $ 915,632 $ 343,673
========== ==========
Pro forma net income per share .................. $ 0.27 $ 0.10
========== ==========
Shares used in pro forma net income per share ... 3,329,899 3,329,899
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
M.D. LABS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
<CAPTION>
MEMBERS' COMMON PAID-IN UNEARNED
EQUITY STOCK CAPITAL COMPENSATION TOTAL
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances as of May 31, 1994 .............. $ 1,424,471 $ $ $ $1,424,471
Cash distributions ....................... (692,817) (692,817)
Contributions ............................ 400,000 400,000
Net income ............................... 572,788 572,788
----------- ----------- ----------- -------- -----------
Balances as of May 31, 1995 .............. 1,704,442 1,704,442
----------- ----------- ----------- -------- -----------
Cash distributions ....................... (1,300,000) (1,300,000)
Issuance of stock warrants ............... 5,576 (4,500) 1,076
Amortization of unearned
compensation ............................ 625 625
Net income ............................... 1,611,710 1,611,710
Conversion of members' equity
to common stock ......................... (2,016,152) 3,000 2,013,152
----------- ----------- ----------- -------- -----------
Balances as of May 31, 1996 .............. $ 0 $ 3,000 $ 2,018,728 $ (3,875) $2,017,853
=========== =========== =========== ======== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
M.D. LABS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 1,611,710 $ 572,788
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization ............................................. 183,461 145,032
Changes in assets and liabilities:
Increase in accounts receivable ........................................... (113,329) (151,814)
Increase in inventories ................................................... (608,034) (81,578)
Increase in deferred tax asset ............................................ (86,039)
(Increase) decrease in other current assets ............................... 7,588 (51,508)
(Increase) decrease in deposits and other assets .......................... 6,718 (32,472)
Increase in accounts payable and accrued expenses ......................... 92,371 74,973
----------- -----------
Net cash provided by operating activities ............................ 1,094,446 475,421
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ................................................. (121,832) (56,944)
Purchase of Olympian Global ......................................................... (50,000)
----------- -----------
Net cash used in investing activities ................................ (171,832) (56,944)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable ......................................................... 300,000
Repayment of notes payable .......................................................... (50,000)
Distributions to members ............................................................ (1,300,000) (692,817)
Contributions from members .......................................................... 400,000
----------- -----------
Net cash provided by (used in) financing activities .................. (1,050,000) (292,817)
----------- -----------
Net increase (decrease) in cash and cash equivalents ..................................... (127,386) 125,660
Cash and cash equivalents, beginning of year ............................................. 219,185 93,525
----------- -----------
Cash and cash equivalents, end of year ................................................... $ 91,799 $ 219,185
=========== ===========
Non-cash investing and financing activities:
Olympian Global assets received for notes payable.................................... $ 210,000
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND OPERATIONS:
M.D. Labs, Inc. and its subsidiary, Belnik Investment Group, Inc., are in the
business of developing, packaging, marketing and distributing natural dietary
supplements (consisting primarily of herbal products) and weight management
products. The formulation, processing, packaging, labeling, product claims,
advertising and marketing, including direct marketing, of these products are
subject to regulation in the U.S. by one or more federal agencies, including the
FDA, the FTC, the Consumer Product Safety Commission, the USDA, the United
States Postal Service and the Environmental Protection Agency. Sales are made to
large retailers, distributors and consumers, primarily in the United States and
Japan.
M.D. Labs, Inc., a Delaware corporation, was incorporated in February 1996.
On May 31, 1996, it exchanged three million shares of its common stock for all
of the investment units of Houston Enterprises, L.L.C. (the "Predecessor"), an
Arizona limited liability company. Concurrently, but prior to the exchange, the
members of the Predecessor sold in a private placement approximately 16.6% of
their investment units for $1,744,313. The Company received no proceeds from the
sale; however, private placement costs of $70,000 were paid by the Company.
On February 26, 1996, M.D. Labs, Inc. acquired from common owners all of the
assets of Belnik Investment Group, Inc. ("Belnik") from two owners of the
Predecessor for $1,000 and warrants to purchase 21,000 shares of M.D. Labs'
common stock.
On January 16, 1996, the Predecessor purchased all the assets of Olympian
Global, L.L.C., an unaffiliated Arizona limited liability company, for $260,000.
The excess of cost over the fair value of the net assets acquired of $240,000 is
included in intangibles. On February 14, 1994, the Predecessor purchased all of
the assets of Houston Enterprises, Inc., an unaffiliated Arizona corporation,
for $1,350,000. The excess of cost over the fair value of the net assets
acquired of $506,328 is included in intangibles. Both transactions were
accounted for in accordance with the purchase method of accounting and,
accordingly, the results of operations have been included in the consolidated
results of operations from the respective dates of acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
M.D. Labs, Inc., its Predecessor, and Belnik have historically operated under
a high degree of common ownership and management control. Accordingly, the
consolidated financial statements include the accounts of M.D. Labs, Inc., its
wholly-owned subsidiary, Belnik and its Predecessor (the "Company") for all
periods presented. All intercompany balances and transactions have been
eliminated.
The accompanying consolidated financial statements at May 31, 1996 reflect
the exchange of common shares for the investment units of its Predecessor, an
L.L.C.
Use 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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
acquisition to be cash equivalents, carried at cost, which approximates fair
value. At times, the Company's cash deposited in financial institutions may be
in excess of federally insured limits.
F-6
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out basis. Inventories consist primarily of finished goods,
finished but not packaged (semi-finished) goods, raw herbs and packaging.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on
depreciable assets by the straight-line method over estimated useful lives while
leasehold improvements are amortized by the straight-line method over the
shorter of estimated useful lives or the remaining lease terms.
When items are retired or disposed of, the cost and accumulated depreciation
or amortization are removed from the accounts and any gain or loss is included
in the statements of income.
Intangible Assets
Amortization of the intangibles is as follows:
Goodwill, including trademarks 15 years
Non-compete agreements 3 years
Product propriety rights 10 years
The Company assesses the recoverability of goodwill at each balance sheet
date by determining whether amortization of the assets over their original
estimated useful life can be recovered through estimated future undiscounted
operating income, excluding amortization.
Revenue Recognition
Sales and related cost of sales are recorded at the time of shipment and a
provision for anticipated sales returns is recorded based upon historical
experience.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which defines a fair value based method of accounting for employee stock
options or similar equity instruments. However, it also allows an entity to
continue to account for these plans according to Accounting Principles Board
Opinion No. 25 ("APB 25"), provided proforma disclosures of net income and
earnings per share are made as if the fair value based method of accounting
defined by FAS 123 had been applied. The Company anticipates electing to
continue to measure compensation expense related to employee stock purchase
options using APB 25, and will provide proforma disclosures as required.
Income Taxes
For the two years ended May 31, 1996, the Predecessor elected under Internal
Revenue Code Sub-Chapter K to be treated as a limited liability company, and
accordingly, is generally not subject to federal and state income taxes. For
income tax reporting purposes for these years, all profits and losses, and
certain other items, were passed through to the members of the Predecessor.
Since the income of M.D. Labs, Inc. will be taxable after May 31, certain
temporary differences between financial and tax reporting are reflected as an
income tax benefit in the statement of income for the year ended May 31, 1996
and as deferred tax assets in the balance sheet as of May 31, 1996.
F-7
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
3. CONCENTRATION OF RISK:
Financial instruments subject to credit risk consist primarily of trade
accounts receivable. In the normal course of business, M.D. Labs, Inc. extends
unsecured credit to its customers. Additionally, M.D. Labs has certain sales
concentrations. As of and for the year ended May 31, 1996, the following
concentrations existed:
Accounts Receivable
Seven customers comprised approximately 60% of the accounts receivable
balance.
Customer Sales
One customer comprised approximately 12.2% of net sales for the year ended
May 31, 1996. No customer comprised sales in excess of 10% during the year ended
May 31, 1995.
Product Sales Lines
Major product lines, as a percentage of sales, for the years ended May 31,
1996 and 1995 were as follows:
1996 1995
---- ----
Product A ...................... 51% 72%
Product B ...................... 25% 0%
Product C ...................... 10% 20%
International Sales
International sales during the past two years were as follows:
1996 ........................... $904,901
1995 ........................... $102,990
4. INVENTORIES:
Inventories consist of the following:
1996
----
Finished and semi-finished goods ........... $ 784,987
Raw materials .............................. 295,419
----------
$1,080,406
==========
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
1996
----
Computers and equipment ......................... $212,112
Leasehold improvements .......................... 85,985
Furniture and fixtures .......................... 38,057
Vehicles ........................................ 4,232
--------
340,386
Less accumulated depreciation and amortization .. 120,987
--------
$219,399
========
F-8
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
6. INTANGIBLES:
Intangibles consist of the following:
1996
----
Goodwill, including trademarks .............. $346,328
Non-compete agreements ...................... 300,000
Product propriety rights .................... 100,000
--------
746,328
Less accumulated amortization ............... 225,596
--------
$520,732
========
7. NOTES PAYABLE:
At May 31, 1996, notes payable included:
Promissory note payable to Belfer Labs, L.L.C., a related
party, due March 6, 1997, 12% interest ......................... $300,000
Note payable to Olympian Global, L.L.C., 7.5% interest,
collateralized by the right to the tradename of the
purchased product line ......................................... 160,000
--------
$460,000
========
The Belfer note is collateralized by substantially all of the Company's
assets.
The Olympian note matures on the earliest of February 28, 1997 or 30 days
after the Company becomes a publicly traded company. The note also provides that
if certain sales levels are reached prior to January 13, 1997, the Company must
pay an additional $40,000. Based on current sales levels, the Company does not
believe that payment of this amount is probable; therefore, no liability is
reflected in the financial statements.
8. COMMITMENTS:
M.D. Labs, Inc. is obligated under a long-term operating lease for office and
warehouse facilities through the year 2000.
Annual rental commitments under the above lease are as follows:
MAY 31,
-------
1997 ................................. $ 83,280
1998 ................................. 86,757
1999 ................................. 91,095
2000 ................................. 95,649
2001 ................................. 15,303
--------
$372,084
========
Rent expense under all operating leases amounted to $80,231 and $62,310, for
the years ended May 31, 1996 and 1995, respectively.
M.D. Labs, Inc. is obligated under various royalty agreements with product
designers. The agreements are based on product sales levels and expire through
February 1999. Royalty expense for the years ended May 31, 1996 and May 31, 1995
was $31,843 and $607, respectively.
F-9
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
9. STOCK WARRANTS AND OPTIONS:
Stock Warrants
Warrant transactions for the year ended May 31, 1996 were as follows:
Warrants granted in 1996, exercise price at:
$0.50 .................................. 60,000
$1.00 .................................. 51,000
$3.50 .................................. 107,656
Initial public offering price .......... 10,765
-------
Outstanding at May 31, 1996 ................. 229,421
=======
During 1996, as officer compensation, the Company granted warrants to
purchase an aggregate total of 60,000 common shares at an exercise price of
$0.50 and 51,000 common shares at an exercise price of $1.00. The $0.50 warrants
become exercisable in equal increments at the end of calendar years 1996, 1997
and 1998. The $1.00 warrants become exercisable as follows: 10,000 on June 3,
1996, 17,000 on December 31, 1996 and 1997, and 7,000 on December 31, 1998. All
warrants expire on June 2, 2001. Compensation expense is recognized pro rata
during the periods in which the warrants are earned. Compensation expense for
the year ended May 31, 1996 was $625.
In conjunction with the 1996 private placement, certain financial advisors
were granted warrants to purchase 107,656 common shares at an exercise price of
$3.50 per share and 10,765 shares at an exercise price equal to the selling
price set for shares offered at such time as the Company initially registers
shares for sale to the public. These warrants are exercisable immediately and
expire on May 31, 2001.
On June 2, 1996, the Company sold for $1,500 a warrant to purchase 75,000
shares at an exercise price of $5.00 and 75,000 shares at an exercise price of
$10.00, exercisable immediately. Additionally, the Company granted an officer
and a director warrants to purchase an aggregate total of 85,000 shares at an
exercise price of $3.50. These warrants become exercisable at the end of fiscal
years 1997, 1998 and 1999 according to the following schedule: 23,333, 28,333
and 33,334 shares, per year, respectively. The above 235,000 warrants expire on
June 2, 2001.
Stock Options
The Company has adopted a Stock Option Plan, dated June 1, 1996, for the
granting of Incentive Stock Options and Nonqualified Stock Options. Officers,
directors and employees of the Company are eligible to receive these options.
The aggregate number of shares that may be issued pursuant to exercise of
options granted under the Plan shall be 300,000 shares.
Subsequent to June 1, 1996, options were granted to purchase 224,000 shares
of common stock at $3.50 a share and additional options were granted to purchase
5,000 shares of common stock at $6.00 a share. These options will vest as to one
third of the underlying shares on each of June 1, 1997, 1998 and 1999. Also,
options were granted to certain directors to purchase 40,000 shares of common
stock at $8.00 a share. The directors' options were 100% vested as of September
1996.
F-10
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
10. INCOME TAXES:
The income tax effect of temporary differences between financial and tax
reporting gives rise to the deferred income tax assets which consist of the
following:
MAY 31, 1996
------------
Current:
Accounts receivable ................... $11,150
Inventories ........................... 2,800
Accrued expenses ...................... 12,733
-------
26,683
Noncurrent:
Intangibles ........................... 59,356
-------
$86,039
=======
11. RELATED PARTY TRANSACTIONS:
The Company retained the services of two employee leasing firms, Propay, Inc.
("Propay") and Employee Solutions, Inc. ("ESI"). Both Propay and ESI are
entities related by common ownership to the Company. For the year ended May 31,
1995, the Predecessor paid Propay approximately $329,000, and for the years
ended May 31, 1996 and 1995, the Predecessor paid ESI approximately $923,000 and
$506,000, respectively, for employee leasing and related expenses.
On March 10, 1994, Pure Source International, LTD., a British Virgin Island
Company ("Pure Source"), was incorporated and entered into a consulting
agreement with the Predecessor to provide marketing, promotional, advertising
and other similar services with respect to the sale of products outside of the
United States of America. Pure Source was an affiliated company with common
ownership of the Predecessor. During the year ended May 31, 1995, Houston paid
Pure Source consulting fees totaling $353,600. On December 31, 1995, the
Consulting Agreement terminated.
See Note 7, Notes Payable.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial Accounting Standard No. 107 requires the Company to disclose the
estimated fair value of its financial instruments. The Company's financial
instruments include cash and cash equivalents, accounts receivable, accounts
payable and notes payable. The carrying amounts of cash equivalents, accounts
receivable, accounts payable and notes payable approximate fair value at May 31,
1996.
13. SUBSEQUENT EVENTS:
Subsequent to May 31, 1996, the Board of Directors approved an initial public
offering of the Company's common stock. Also see Note 9.
14. UNAUDITED PRO FORMA DATA:
The following pro forma data has been presented on the historical statements
of income.
a. Income tax expense for the years ended May 31, 1996 and 1995 has been
presented as if the Company was a C corporation during those years. The
income tax expense was calculated assuming an effective tax rate of 40%.
F-11
<PAGE>
M.D. Labs, Inc.
Notes to Consolidated Financial Statements--(Continued)
The pro forma provision for income taxes consists of:
YEARS ENDED MAY 31,
-----------------------
1995 1994
---- ----
Current expense:
Federal ................. $591,000 $195,000
State ................... 105,000 34,000
-------- --------
696,000 229,000
Deferred benefit:
Federal ................. 73,133
State ................... 12,906
-------- --------
86,039
-------- --------
$609,961 $229,000
======== ========
Total pro forma provision for income taxes differs from the "expected"
pro forma tax expense of 34% due to state income taxes, net of the federal
benefit, of 6%.
b. Pro forma net income per share has been computed by dividing pro forma
net income for the years ended May 31, 1996 and 1995 by the 3 million shares
outstanding as of May 31, 1996 and common stock equivalents (representing
warrants and options issued within 12 months of the initial public offering
in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83).
F-12
<PAGE>
INSIDE BACK COVER:
12 photographs (4 rows x 3 columns) surrounding M.D. Labs Logo:
1. Woman in lab coat operating computer
2. Open field
3. Truss of bridge from below
4. Back of woman in bathing suit at beach, leaning against
fence
5. Man water skiing
6. Top half of woman in pool
7. Man with arms raised in bike race
8. Man climbing cliff
9. Woman running
10. Beaker and flask containing liquid
11. Field with farm buildings in background
12. Transmitter with clouds in background
<PAGE>
========================================= =====================================
NO DEALER, SALES REPRESENTATIVES OR
ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN 1,300,000 SHARES
AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT [ooo M.D. LABS, INC. LOGO ooo]
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY COMMON STOCK
SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS ----------
NOR ANY SALE MADE HEREUNDER SHALL, UNDER PROSPECTUS
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION ----------
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED SENTRA
HEREIN IS CORRECT AS OF ANY TIME SECURITIES CORPORATION
SUBSEQUENT TO THE DATE HEREOF.
---------- SPELMAN
& CO., INC.
TABLE OF CONTENTS
, 1996
PAGE
----
Prospectus Summary ..................... 3
The Company ............................ 3
Risk Factors ........................... 5
Use of Proceeds ........................14
Limited Liability Company Distributions 15
Dividend Policy ........................15
Capitalization .........................15
Selected Financial Data ................16
Dilution ...............................17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................18
Business ...............................22
Management .............................32
Certain Transactions ...................36
Principal Stockholders .................38
Description of Capital Stock ...........39
Shares Eligible for Future Sale ........43
Underwriting ...........................44
Legal Matters ..........................45
Experts ................................45
Available Information ..................45
Index to Financial Statements ..........47
----------
UNTIL , 1996, (25 DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS
OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
========================================== ====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law (the "General
Corporation Law") provides that a Delaware 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 or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner 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 cause to believe his conduct was
unlawful.
Section 145(b) provides that a Delaware 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 such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that despite
the adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense or any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members of
its board of directors or governing body for violations of a director's duty of
care. However, no such provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, acting or failing to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying
an unlawful dividend or approving an unlawful stock repurchase, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. The Company's Certificate of Incorporation contains such a
provision.
The Company's Bylaws provide that the Company shall indemnify officers and
directors to the full extent permitted by and in the manner permissible under
the laws of the State of Delaware.
The Company is in the process of obtaining comprehensive directors and
officers liability insurance coverage, and anticipates obtaining an insurance
policy with an aggregate policy limit of not less than $5,000,000 for the
benefit of its officers and directors insuring such persons against certain
liabilities, including liabilities under the securities laws, no later than the
effective date of this Offering.
The Company has entered into indemnity agreements with its directors and
officers for indemnification of and advance of expenses to such persons to the
full extent permitted by law. The Company intends to execute such indemnity
agreements with its future officers and directors.
II-1
<PAGE>
The Company and its officers, directors and other persons are entitled to be
indemnified under certain circumstances for certain securities law violations in
the Underwriting Agreement (attached on Exhibit 1.1 hereto).
The holders of the Company's capital stock or warrants to purchase capital
stock who have contractual registration rights are required to be indemnified by
the Company against losses, claims, damages or liabilities arising out of any
untrue statement of a material fact or omission thereof in a Registration
Statement under the Securities Act of 1933. The Company's obligation to
indemnify such holders includes the officers, directors and partners of such
holders, some of whom are currently directors of the Company. The Company shall
not be liable for any such indemnity to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
material omission in reliance upon and in conformity with written information
furnished by such person to the Company, specifically for use therein.
The indemnification provided as set forth above is not exclusive of any
rights to which a director or officer of the Company may be entitled. The
general effect of the forgoing provisions may be to reduce the circumstances in
which a director or officer may be required to bear the economic burdens of the
foregoing liabilities and expenses.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses (other than
underwriting discounts) to be born by the Registrant in connection with the
issuance and distribution of the securities offered hereby:
TOTAL
-----
SEC filing fee ................................................. $ 3,609
NASD filing fee ................................................ 1,547
Underwriter's non-accountable expense allowance ................ 313,950
Nasdaq National Market entry fee ............................... 26,500
Blue Sky fees and expenses, including legal fees ............... 15,000
Printing and engraving ......................................... 75,000
Legal fees and expenses ........................................ 90,000
Accounting fees and expenses ................................... 50,000
Transfer agent and registrar fees and expenses ................. 2,000
Directors' and officers' liability insurance ................... 100,000
Miscellaneous .................................................. 12,394
--------
TOTAL ........................................................ $690,000
========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding unregistered sales of the Company's
Common Stock since January 1, 1996:
On May 31, the Company issued 3,000,000 shares of its Common Stock in
exchange for 100% of the outstanding units of membership interest in Houston
Enterprises, L.L.C., the Company's predecessor. Certain of the units of interest
in Houston Enterprises, L.L.C. were sold by members of Houston Enterprises,
L.L.C. for $105,000 per unit immediately prior to the conversion, and each unit
was exchanged for 30,000 shares of the Company's Common Stock. The members paid
a placement fee of $5,250 per unit placed and the Company issued warrants to
purchase 10,765 shares of Common Stock to Capital West Holding Company, Inc.,
which acted as private placement agent for the selling members. In connection
with the transactions, the Company also issued warrants to purchase an aggregate
of 107,656 shares of Common Stock to entities associated with an attorney
involved in the placement and to a director of the Company who subsequently
resigned.
On February 7, the Company issued warrants to purchase an aggregate of 21,000
shares of Common Stock, at an exercise price of $1.00 per share, to officers of
the Company in connection with the purchase of Belnik Investment Group, Inc.
from the officers. See "Certain Transactions." On that same date, the
II-2
<PAGE>
Company issued warrants to purchase 30,000 and 60,000 shares of Common Stock at
exercise prices of $1.00 and $0.50 respectively, to an officer of the Company in
connection with his employment agreement.
On June 3, 1996, the Company issued a warrant to purchase 75,000 shares of
Common Stock at an exercise price of $5.00 per share and another warrant to
purchase 75,000 shares at an exercise price of $10.00 per share to Michael J.
Dwyer for $1,500. On that same date, the Company issued a warrant to purchase
40,000 shares of Common Stock at an exercise price of $3.50 per share to a
director of the Company in connection with his consulting agreement (see
"Management"), and a warrant to purchase 45,000 shares of Common Stock at an
excercise price of $3.50 per share to an employee of the Company.
Since June 1996, the Company has issued options to purchase an aggregate of
269,000 shares of Common Stock to its employees and directors pursuant to the
Company's Stock Option Plan at option exercise prices ranging from $3.50 to
$8.00 per share.
Exemption from registration for each transaction described above was claimed
pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 27. EXHIBITS.
See Exhibit Index following the Signature page which is incorporated by
herein by reference.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of the registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2, and has authorized this
registration statement to be signed on its behalf by the undersigned in the City
of Phoenix, State of Arizona, on September 12, 1996.
M.D. LABS, INC.
By: /s/ HOOMAN NIKZAD
-------------------------------------------
Hooman Nikzad
Chief Executive Officer and Director
<TABLE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<CAPTION>
PERSON TITLE DATE
------ ----- ----
<S> <C> <C>
/s/ HOOMAN NIKZAD Chief Executive Officer and Director September 12, 1996
------------------------------ (Principal Executive Officer)
Hooman Nikzad
/s/ TODD P. BELFER President and Director September 12, 1996
------------------------------
Todd P. Belfer
/s/ FARADJOLLAH DJAHANDIDEH Vice President, Operations, September 12, 1996
------------------------------ Secretary/Treasurer and Director
Faradjollah Djahandideh
/s/ BRADLEY A. DENTON Chief Financial Officer, Vice President, September 12, 1996
------------------------------ Assistant Secretary (Principal Financial
Bradley A. Denton and Accounting Officer)
/s/ HARVEY A. BELFER Director September 12, 1996
------------------------------
Harvey A. Belfer
/s/ ALLAN RICHARD LYONS Director September 12, 1996
------------------------------
Allan Richard Lyons
/s/ KENNETH A. STEEL, JR. Director September 12, 1996
------------------------------
Kenneth A. Steel, Jr.
</TABLE>
S-1
<PAGE>
<TABLE>
M.D. LABS, INC.
EXHIBIT INDEX TO REGISTRATION STATEMENT ON FORM SB-2
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Proposed Form of Underwriting Agreement
1.2 Proposed Form of Selected Dealers Agreement
1.3 Proposed Form of Representatives' Warrants
3.1 Registrant's Amended Certificate of Incorporation
3.2 Registrant's Amended Bylaws
4.1 Articles Fourth, Eighth and Ninth of Registrant's Certificate of Incorporation (included in
Exhibit 3.1)
4.2 Articles II and VII of Registrant's Bylaws (included in Exhibit 3.2)
4.3* Specimen Common Stock Certificate
5.1* Opinion of Quarles & Brady
10.1 Employment Agreement dated June 1, 1996 by and between Registrant and Hooman Nikzad
10.2 Employment Agreement dated June 1, 1996 by and between Registrant and Todd P. Belfer
10.3 Consulting and Noncompetition Agreement dated June 1, 1996 by and between Registrant and
Harvey A. Belfer
10.4 Employment Agreement dated June 1, 1996 by and between Registrant and Faradjollah Djahandideh
10.5 Employment Agreement dated June 1, 1996 by and between Registrant and Bradley A. Denton
10.6 Stock Purchase Warrant dated February 7, 1996 issued to Hooman Nikzad
10.7 Stock Purchase Warrant dated February 7, 1996 issued to Todd P. Belfer
10.8 Stock Purchase Warrant dated February 7, 1996 issued to Bradley A. Denton
10.9 Stock Purchase Warrant dated June 3, 1996 issued to Harvey A. Belfer
10.10 Stock Purchase Warrant dated May 31, 1996 issued to Canyon Security, L.L.C.
10.11 Stock Purchase Warrant dated May 31, 1996 issued to JBV Investments, L.C.
10.12 Stock Purchase Warrant dated May 31, 1996 issued to Capital West Investment Holding Company,
Inc.
10.13 Stock Purchase Warrant dated June 3, 1996 issued to Vincent Andrich
10.14 Stock Purchase Warrant dated June 3, 1996 issued to Michael J. Dwyer
10.15 Registrant's 1996 Stock Option Plan
10.16 Form of Grant Letter pursuant to 1996 Stock Option Plan
10.17 Stock Purchase Agreement dated February 26, 1996 by and between Hooman Nikzad and Todd P.
Belfer and Registrant
10.18 Purchase agreement dated December 12, 1995 by and among Houston Enterprises, L.L.C., Marvin D.
and Nancy P. Brody, Harvey A. Belfer, Todd P. Belfer, Hooman Nikzad and Fradjollah Djahandideh
10.19* Form of M.D. Labs, Inc. Share Subscription Agreement
10.20 Houston Enterprises, L.L.C. $300,000 Promissory Note payable to Belfer Labs, L.L.C. dated
March 6, 1996
10.21 Product Purchase and Distribution Agreement dated January 2, 1996 by and between Belnik
Investment Group, Inc. and Houston Enterprises, L.L.C. and related Promissory Note
EX-1
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.22 Asset Purchase Agreement dated January 16, 1996 between Olympian Global, L.C. and Houston
International, L.L.C. and related Promissory Note, Addendum and Security Agreement
10.23 Facilities and Management Agreement dated January 2, 1995 between Houston Enterprises, L.L.C.
and Belnik Investment Group, Inc.
10.24 Standard Lease dated April 25, 1995 between PS Partners VI, Ltd. and Houston International,
L.L.C.
10.25 Marketing Services Agreement dated March 18, 1996 between Pure Source International, Ltd. and
Houston International, L.L.C.
10.26 Form of Directors' and Officers' Indemnification Agreement
11.1 Statement regarding computation of per-share earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Quarles & Brady
24 Powers of attorney
27 Financial Data Schedule
<FN>
- ----------
* To be filed by amendment
</FN>
</TABLE>
EX-2
M.D. LABS, INC.
1,300,000 Shares
UNDERWRITING AGREEMENT
________________, 1996
Spelman & Co., Inc.
(As Representative of the Several
Underwriters Named in Schedule 1 hereto)
2355 Northside Drive, Suite 200
San Diego, CA 92108
Dear Sirs:
M.D. Labs, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement (this "Agreement") with you (the "Representative") and
members of the underwriting group (the "Underwriters"), as set forth below.
SECTION 1.
Description of Transaction
The Company proposes to issue and sell to the Underwriters on the
Closing Date (as defined below), pursuant to the terms and conditions of this
Agreement, an aggregate of 1,300,000 shares ("Firm Shares") of the Company's
Common Stock ("Common Stock") at a price of $____ per Share on the terms as
hereinafter set forth. The Company also proposes to issue and sell to the
several Underwriters on or after the Closing Date not more than 195,000
additional Shares if requested by the Representative as provided in Section 3.02
of this Agreement (the "Option Shares"). The Firm Shares and any Option Shares
are collectively referred to herein as the "Shares."
SECTION 2.
Representations and Warranties of the Company
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
2.1 Registration Statement and Prospectus. A registration
statement on Form SB- 2 (File No. _______) with respect to the Shares, including
the related prospectus, copies of which
1
<PAGE>
have heretofore been delivered by the Company to the Underwriters, has been
filed by the Company in conformity with the requirements of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and one or more amendments to such registration statement
have been so filed. After the execution of this Agreement, the Company will file
with the Commission either (a) if such registration statement, as it may have
been amended, has been declared by the Commission to be effective under the Act,
a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act and as have been
provided to and approved by the Representative prior to the execution of this
Agreement, or (b) if such registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Representative
prior to the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement on Form SB-2 and all
amendments thereto, including the prospectus, all exhibits and financial
statements, as it becomes effective; the term "Preliminary Prospectus" means
each prospectus included in said Registration Statement before it becomes
effective; and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 424(b) under the Act or, if no prospectus is
required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither
the Commission nor the "blue sky" or securities authority of any jurisdiction
has issued any order preventing or suspending the use of any Preliminary
Prospectus. When (a) any Preliminary Prospectus was filed with the Commission,
(b) the Registration Statement or any amendment thereto was or is declared
effective, and (c) the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective) and on the Closing Date the
Prospectus, as amended or supplemented at any such time, such filing (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
promulgated thereunder (the "Rules and Regulations") and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. The foregoing representation
does not apply to statements or omissions made in any Preliminary Prospectus,
the Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
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2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
2.4 Due Power and Authority. The Company has full corporate
power to own or lease its properties and conduct its business as described in
the Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
thereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of
the Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The Company is not in breach of any
term or provision of its Certificate of Incorporation or Bylaws; no default
exists, and no event has occurred which with notice or lapse of time or both,
would constitute a default, in the Company's due performance and observance of
any term, covenant or condition of any indenture, mortgage, deed of trust,
lease, note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
2.7 Licenses. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary for the conduct of its business, including
without limitation the Food and Drug Administration, the Federal Trade
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Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service and the Environmental
Protection Agency, and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Registration Statement. Each approval, registration, qualification,
license, permit, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental body or
agency necessary in connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions contemplated (except
such additional actions as may be required by the National Association of
Securities Dealers, Inc. or may be necessary to qualify the Common Stock for
public offering under state securities or blue sky laws) has been obtained or
made and each is in full force and effect.
2.8 Compliance with Laws. Except as disclosed in the
Registration Statement and in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company is not in
violation of any laws, ordinances, governmental rules or regulations to which it
is subject, including but not limited to the Federal Food, Drug and Cosmetic
Act, the Nutrition Labeling and Education Act of 1990, and the Dietary
Supplement Health and Education Act of 1994, which would have a material adverse
effect on the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company.
2.9 Existing Capital Structure and Shareholder Rights. The
Company has an authorized, issued and outstanding capitalization as set forth
in, and capital stock conforms in all material respects to the description
contained in, the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus. Except as described in the Registration Statement
and in the Prospectus there are no outstanding (a) securities or obligations of
the Company convertible into or exchangeable for any capital stock of the
Company, (b) warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (c) obligations of the Company to issue such
shares, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or obligations. All of the issued shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such shareholder under
the Act in the public offering contemplated herein except as disclosed in the
Registration Statement. Other than MDLA, Inc. and Belnik Investment Group, Inc.,
the Company has no subsidiaries, and does not own any shares of stock or any
other equity interest in any firm, partnership, association or other entity.
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2.10 Authority for Issuance of Shares. The issuance of the
Common Stock issuable in connection with the Shares has been duly authorized and
at any Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in all material respects with all
statements with regard thereto in the Registration Statement and the Prospectus.
2.11 Title to Tangible Property. Except as otherwise set forth
in or contemplated by the Registration Statement and Prospectus, the Company has
good and marketable title to all items of personal property owned by the
Company, free and clear of any security interest, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. The Company owns the
trademarks described in the Registration Statement. The Company has received
assignments of all trademarks from Olympian Global. The Company has applied for
registration of the trademark "M.D. Labs." The Company does not own any patents.
The Company owns or possesses, or can acquire on reasonable terms, all material,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by it in connection with its
business, and the Company has not received any notice of infringement of or
conflict with asserted rights of any third party with respect to any of the
foregoing intellectual property rights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding would result in a material
adverse change in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company, except as described in or
contemplated by the Prospectus.
2.13 Contract Rights. The agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company in accordance with their terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements.
2.14 No Market Manipulation. The Company has not taken nor
will it take, directly or indirectly, any action designed to cause or result, or
which might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
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2.15 No Other Sales or Commissions. The Company has not since
the filing of the Registration Statement (i) sold, bid for, purchased, attempted
to induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial
statements and schedules of the Company included in the Registration Statement
and the Prospectus, or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise noted therein and include all financial information
required to be included by the Act. The selected financial data set forth under
the captions "PROSPECTUS SUMMARY--Summary Financial Information," "SELECTED
FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" in the Prospectus, or, if the Prospectus is not in
existence the most recent Preliminary Prospectus, fairly present in all material
respects, on the basis stated in the Prospectus or such Preliminary Prospectus,
the information included therein.
2.17 Independent Public Accountant. Coopers & Lybrand L.L.P.,
which have certified or shall certify certain of the financial statements of the
Company filed or to be filed as part of the Registration Statement and the
Prospectus, are independent certified public accountants within the meaning of
the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration
Statement and Prospectus, there is and at the Closing Date there will be no
action, suit or proceeding before any court or governmental agency, authority or
body pending or to the knowledge of the Company threatened which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or would
have a material adverse effect on the properties or assets of the Company. The
Company is not subject to the provisions of any injunction, judgement, decree or
order of any court, regulatory body, administrative agency or other
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governmental body or arbitral forum, which might result in a material adverse
change in the business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), (a) the Company has not incurred any material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business affairs, management, or business prospects of the
Company, whether or not occurring in the ordinary course of business, (b) there
has not been any material transaction entered into by the Company, other than
transactions in the ordinary course of business or transactions specifically
described in the Registration Statement as it may be amended or supplemented,
(c) the Company has not sustained any material loss or interference with its
business or properties from fire, flood, windstorm, accident or other calamity,
(d) the Company has not paid or declared any dividends or other distribution
with respect to its capital stock and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations, and (e)
there has not been any change in the capital stock (other than the sale of the
Common Stock hereunder or the exercise of outstanding stock options or warrants
as described in the Registration Statement) or material increase in indebtedness
of the Company. The Company does not have any known material contingent
obligation which is not disclosed in the Registration Statement (or contained in
the financial statements or related notes thereto), as such may be amended or
supplemented.
2.21 Transactions With Affiliates. Subsequent to the
respective dates as of which information is given in the Registration Statement
and Prospectus or if the Prospectus is not in existence the most recent
Preliminary Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, (a) the Company has not entered into any transaction with an
"affiliate" of the Company, as defined in the Act and the Rules and Regulations,
or (b) declared, paid or made any dividend or distribution of any kind on or in
connection with any class of its capital stock, and (c) the Company has no
knowledge of any transaction between any affiliate of the Company and any
significant customer or supplier of the Company, except in its ordinary course
of business.
2.22 Insurance. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus, the Company is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the business in
which it is engaged, including without limitation products liability insurance;
the Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company.
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2.23 Tax Returns. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable or adequate accruals have been set up to cover
any such unpaid taxes, except for any such assessment, fine or penalty that is
currently being contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
2.25 Relationships with Customers, Suppliers and
Manufacturers. The Company does not currently have any written contracts with
any of its customers, suppliers and manufacturers. The Company is in compliance
with all oral agreements with its customers, suppliers and manufacturers. The
Company has not received notice from any of its customers, suppliers and
manufacturers alleging any breach of contract, representation or warranty which,
in the aggregate, would have a material adverse effect on the financial
condition or operations results of the Company.
2.26 Investment Company Act. The Company conducts its
operations in a manner that does not subject it to registration as an investment
company under the Investment Company Act of 1940, as amended, and the
transactions contemplated by this Agreement will not cause the Company to become
an investment company subject to registration under the Investment Company Act
of 1940, as amended.
SECTION 3.
Purchase, Sale and Delivery of the Shares
3.1 Purchase of Firm Shares. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters named in Schedule I hereto, and each
of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at a purchase price of $____ per Share, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule 1 hereto. The Company
will make one or more certificates for Common Stock constituting the Firm
Shares, in definitive form and in such denomination or denominations and
registered in such name or names as the Representative shall request upon notice
to the Company at least 48 hours prior to the Firm Closing Date, available for
checking and packaging by the Representative at the offices of the Company's
transfer agent or registrar (or the correspondent or the agent of the Company's
transfer agent or registrar) at least 24 hours prior to the Firm Closing Date.
Payment for the Firm Shares shall be made by bank wire payable in same day funds
to the order of the Company drawn to the order of the Company for the Firm
Shares, against delivery of certificates therefor to the Representative.
Delivery of the documents, certificates and opinions
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described in Section 6 of this Agreement, the Firm Shares and payment for the
Firm Shares and the Option Shares shall be made at the offices of Spelman & Co.,
Inc., 2355 Northside Drive, Suite 200, San Diego, California 92108, at 9:00
a.m., San Diego time, on the third full business day following the date hereof
(on the fourth full business day if this Agreement is executed after 1:30 p.m.,
Arizona time), or at such other places, time or date as the Representative and
the Company may agree upon or as the Representative may determine pursuant to
Section 9 hereof, such time and date of delivery against payment being herein
referred to as the "Firm Closing Date."
3.2 Over-Allotments; Option Shares. For the purpose of
covering any over-allotments in connection with the distribution and sale of the
Firm Shares as contemplated by the Prospectus, the Company hereby grants to you
on behalf of the several Underwriters an option to purchase, severally and not
jointly, the Option Shares. The purchase price to be paid for any Option Shares
shall be the same price per share as the price per Share for the Firm Shares set
forth above in Section 3.1, plus, if the purchase and sale of any Option Share
takes place after the Firm Closing Date and after the Common Stock is trading
"ex-dividend," an amount equal to the dividends payable on the Common Stock
contained in such Option Shares. The option granted hereby may be exercised in
the manner described below as to all or any part of the Option Shares from time
to time within forty-five days after the date of the Prospectus. The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Representative may from time to
time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Shares as to which the several Underwriters are then exercising
the option and the date and time for delivery of and payment for such Option
Shares. Any such date of delivery shall be determined by the Representative but
shall not be earlier than two business days or later than seven business days
after such exercise of the option and, in any event, shall not be earlier than
the Firm Closing Date. The time and date set forth in such notice, or such other
time on such other date as the Representative and the Company may agree upon or
as the Representative may determine pursuant to Section 9 hereof, is herein
called the "Option Closing Date" with respect to such Option Shares. Upon each
exercise of the option as provided herein, subject to the terms and conditions
herein set forth, the Company shall become obligated to sell to each of the
several Underwriters, and each of the Underwriters (severally and not jointly)
shall become obligated to purchase from the Company, the same percentage of the
total number of the Option Shares as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Shares, as adjusted by the Representative in such
manner as it deems advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Shares, one or more
certificates for the Common Stock contained in such Option Shares, in definitive
form, and payment therefore, shall be delivered on the related Option Closing
Date in the manner, and upon the terms and conditions, set forth in Section 3.1,
except that reference therein to the Firm Shares and the Firm Closing Date shall
be deemed, for purposes of this Section 3.2, to refer to such Option Shares and
Option Closing Date, respectively. No Option Shares shall be required to be, or
be, sold and delivered unless the Firm Shares have been, or simultaneously are,
sold and delivered as provided in this Agreement.
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3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representative, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
Offering by the Underwriters
Upon payment by the Underwriters of the purchase price of $____ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
SECTION 5.
Covenants of the Company
Except as otherwise stated below, the Company covenants and agrees with
each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to
Become Effective. The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. During any time when a prospectus
relating to the Common Stock is required to be delivered under the Act, the
Company (a) will comply with all requirements imposed upon it by the Act and the
Rules and Regulations to the extent necessary to permit the continuance of sales
of or dealings in the Common Stock in accordance with the provisions hereof and
of the Prospectus, as then amended or supplemented, and (b) will not file with
the Commission the prospectus or the amendment referred to in the second
sentence of Section 2.1 hereof, any amendment or supplement to such prospectus
or any amendment to the Registration Statement unless and until the
Representative has been advised of such proposed filing, has been furnished with
a copy for a reasonable period of time prior to the proposed filing, and has
given its consent to such filing, which shall not be unreasonably withheld or
delayed.
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5.2 Preparation and Filing of Amendments and Supplements. The
Company will prepare and file with the Commission, in accordance with the Rules
and Regulations of the Commission, promptly upon written request by the
Representative or counsel for the Representative, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Representative, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representative of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the
Representative promptly after receiving notice or obtaining knowledge of: (a)
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued to obtain the withdrawal thereof as
promptly as possible.
5.4 Blue Sky Qualification. The Company will arrange and
cooperate with counsel to the Representative for the qualification of the Shares
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading, in the light of the circumstances under which they were made, or if
for any other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the Rules or Regulations, the Company will
promptly notify the Representative thereof and, subject to Section 3 hereof,
will prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance.
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5.6 Delivery of Prospectuses. The Company will, without
charge, provide (a) to the Representative and to counsel for the Representative
a signed copy of the Registration Statement originally filed with respect to the
Shares and each amendment thereto (in each case including exhibits thereto), (b)
to each other Underwriter so requesting in writing, a conformed copy of such
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (c) so long as a prospectus relating to the Shares is required to
be delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Representative may
reasonably request.
5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later than 90 days after the period covered
thereby, make generally available to its security holders and to the
Representative a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net
proceeds from the sale of the Shares as set forth in the Prospectus and
Registration Statement and will not take any action that would cause it to
become an investment company under the Investment Company Act of 1940, as
amended.
5.9 Sales of Securities. The Company will not, directly or
indirectly, without the prior written consent of the Representative, offer,
sell, grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of any option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for a period of one year after the date hereof,
except (a) to the Underwriters pursuant to this Agreement and (b) options to any
person pursuant to and in accordance with the Company's 1996 Stock Option Plan,
as such plan is in effect on the date hereof, and provided that such person has
delivered to the Representative the agreement described in Section 7.7 of this
Agreement.
5.10 Application to Nasdaq National Market. The Company will
cause the Common Stock to be duly included for quotation on the Nasdaq National
Market prior to the Closing Date. The Company will use its best efforts to
ensure that the Common Stock remains included for quotation on the Nasdaq
National Market following the Closing Date for a period of not less than three
years.
5.11 Reports to Stockholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representative (a) as soon as available a copy of each report of the Company
mailed to stockholders and filed with the Commission and (b) from time to time
such other information concerning the Company as the Representative may
reasonably request.
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5.12 Delivery of Documents. At or prior to the Closing, the
Company will deliver to the Representative true and correct copies of the
certificate of incorporation of the Company and all amendments thereto, all such
copies to be certified by the Secretary of State of the State of Delaware, a
good standing certificate from the Secretary of State of Delaware, dated no more
than five business days prior to the Closing Date; true and correct copies of
the bylaws of the Company, as amended, certified by the Secretary of the Company
and true and correct copies of the minutes of all meetings of the directors and
stockholders of the Company held prior to the Closing Date which in any way
relate to the subject matter of this Agreement.
5.13 Underwriters' Warrant. On or prior to the Closing Date,
the Company shall deliver to the Representative warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 120% of the per Share
public offering price of the Firm Shares.
5.14 Cooperation With Representative's Due Diligence. At all
times prior to the Closing Date, the Company will cooperate with the
Representative in such investigation as the Representative may make or cause to
be made of all the properties, business and operations of the Company in
connection with the purchase and public offering of the Shares and the Company
will make available to the Representative in connection therewith such
information in its possession as the Representative may reasonably request.
5.15 Stock Transfer Agent. The Company has appointed Corporate
Stock Transfer, Denver, Colorado, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.16 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representative. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the Representative the market price of the
Common Stock has been or is likely to be materially affected, regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus, the Company will, after written notice from the
Representative, evaluate the propriety of disseminating a press release or other
public statement reasonably acceptable to the Representative and its counsel,
commenting on such rumor, publication or event.
5.17 Forecasts and Projections. For a period of two years from
the effective date of the Registration Statement, the Company shall provide the
Representative with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
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5.18 Key Man Insurance. The Company will maintain for a period
of at least five (5) years, Key Man Insurance on Messrs. Nikzad and Belfer in
the amount of $1,000,000 each. The Representative reserves the right to write
the above policy at the next renewal date thereof providing it can do so on
terms no less favorable to the Company.
5.19 Registration and Transfer of Trademarks. The Company will
register the trademark "M.D. Labs" and all other trademarks material to the
operation of its business. The Company shall transfer and assign or caused to be
transferred and assigned to it, all trademarks held or used by any of its
subsidiaries or affiliated entities.
SECTION 6.
Expenses
6.1 Offering Expenses. The Company will pay upon demand all
costs and expenses incident to the performance of the Company's obligations
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (a) the printing or other
production of documents with respect to the transactions, including any costs of
printing the Registration Statement originally filed with respect to the Shares
and any amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, and any blue sky memoranda, (b) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (c) the fees and disbursements of counsel, accountants and
any other experts or advisors retained by the Company, (d) preparation, issuance
and delivery to the Underwriters of any certificates evidencing the Common
Stock, including transfer agent's and registrar's fees, (e) the qualification of
the Shares under state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Representative relating thereto, (f)
the filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares, (g) any listing fees for the quotation of
the Common Stock on the Nasdaq National Market, (h) one-half the cost of placing
"tombstone advertisements" in any publications which may be selected by the
Representative (provided that any such cost in excess of $5,000 shall require
the consent of both the Company and the Representative), and (i) all other
advertising that has been approved in advance by the Company relating to the
offering of the Shares (other than as shall have been specifically approved in
writing by the Representative to be paid for by the Underwriters). In addition
to the foregoing, the Company agrees to pay to the Representative a
non-accountable expense allowance of 3% of the gross amount to be raised from
the sale of the Shares hereunder, payable at the Closing(s), of which $25,000
has already been paid by the Company in connection with this offering. If the
sale of the Shares provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 7 (other than
Section 7.6) hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any
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of the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including counsel fees and disbursements)
that shall have been reasonably incurred by them in connection with the proposed
purchase and sale of the Shares. The Company shall in no event be liable to any
of the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
6.2 Interim Indemnification. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
such payment to the Company together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in THE WALL STREET
JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8.2 hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
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SECTION 7.
Conditions of the Underwriters' Obligations
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representative in its sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of the Firm Closing Date as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
7.1 Effectiveness of Registration Statement. If the
Registration Statement or any amendment thereto filed prior to the Firm Closing
Date has not been declared effective as of the time of execution hereof, the
Registration Statement or such amendment shall have been declared effective not
later than 11 a.m., California time, on the date on which the amendment to the
Registration Statement originally filed with respect to the Shares or to the
Registration Statement, as the case may be, containing information regarding the
initial public offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by the
Representative; if required, the Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representative, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) to the reasonable
satisfaction of counsel for the underwriters.
7.2 Opinion of Counsel. The Representative shall have received
an opinion, dated the Firm Closing Date, of Quarles & Brady, Phoenix, Arizona,
counsel for the Company, to the effect that:
(a) the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, and duly qualified to transact business as a foreign corporation
and is in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or
lease its properties; to conduct its business as described in the Registration
Statement and the Prospectus; to enter into this Agreement and to carry out all
of the terms and provisions hereof to be carried out by it;
(c) the Company has an authorized capital stock as
set forth under the heading "CAPITALIZATION" in the Prospectus; effective upon
the Closing all of the Company's
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all of the shares have been duly authorized and validly issued and are fully
paid and nonassessable; the shares have been duly authorized by all necessary
corporate action of the Company, and, when issued and delivered to and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the shares have been duly authorized for quotation on the Nasdaq
National Market; no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe for
any of the Shares; and no holders of securities of the Company are entitled to
have such securities registered under the Registration Statement;
(d) the capital stock of the Company conforms, as to
legal matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement is a valid and binding obligation of the Company except as rights to
indemnity and contribution thereunder may be limited by applicable federal or
state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity.
(f) no legal or governmental proceedings are pending
to which the Company is a party or to which the property of the Company is
subject that are required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened against the Company or with
respect to any of its properties that can reasonably be expected to, or, if
determined adversely to the Company, would, in any individual case or in the
aggregate, result in any material adverse change in the business, financial
condition or results of operations of the Company;
(g) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein or filed as
required;
(h) the issuance, offering and sale of the Shares by
the Company pursuant to this Agreement, the compliance by the Company with the
other provisions of this Agreement and the consummation of the other
transactions herein contemplated do not require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required under
state securities or blue sky laws, or conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other agreement or instrument,
known to such counsel, to which the Company is a party or by which the Company
or any of its properties are bound, or the Certificate of Incorporation or
Bylaws of the Company, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator known
to such counsel and applicable to the Company;
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(i) the Registration Statement is effective under the
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued by the Commission, and no proceedings for that
purpose have been instituted or, to the knowledge of such counsel, are
threatened or contemplated by the Commission;
(j) the Registration Statement and the Prospectus and
each amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(k) the Company is not required, and, if the Company
uses the proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment company within the meaning of the
Investment Company Act of 1940, as amended; and
(l) such counsel shall also state that they have no
reason to believe that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or the date of
such opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that in each case such counsel need not express any
opinion as to the financial statements and other financial and statistical
information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Company and public officials. The foregoing opinion may be limited to the
laws of the United States, the laws of the State or Arizona and the General
Corporation Law of the State of Delaware. With respect to certain regulatory
compliance issues, such counsel may rely on the opinion of Bass & Ullman
described in Section 7.3. References to the Registration Statement and the
Prospectus in this Section 7.2 shall include any amendment or supplement thereto
at the date of such opinion. Such counsel shall permit Luce, Forward, Hamilton &
Scripps to rely upon such opinion in rendering its opinion in Section 7.4.
7.3 Opinion of Special Counsel. The Representative shall have
received an opinion dated the Firm Closing Date, of Bass & Ullman, New York, New
York, Special Counsel for the Company, to the effect that:
(a) The Company's advertisements and packaging for
its products comply in all material respects with applicable federal and state
regulations.
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(b) The Company has received all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary for the conduct of its business, including
without limitation the Food and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service and the Environmental
Protection Agency, and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Registration Statement. Each approval, registration, qualification,
license, permit, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental body or
agency necessary in connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions contemplated has been
obtained or made and each is in full force and effect.
(c) The Company is not in violation of any laws,
ordinances, governmental rules or regulations relating to federal, state or
foreign regulatory authorities necessary for the conduct of its business,
including without limitation the Food and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety Commission, the United States Department
of Agriculture, the United States Postal Service and the Environmental
Protection Agency which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
(d) such counsel shall also state that they have no
reason to believe that the provisions of the Registration Statement under the
captions entitled "PROSPECTUS SUMMARY -- The Company", "RISK FACTORS -- Absence
of Clinical Studies and Scientific Review", "-- Effect of Discontinued Product",
"-- Difficulty in Product Positioning", "-- Uncertainty and Potential Negative
Effects of Government Regulations; Non-Compliance," and "BUSINESS "-- Products"
and " -- Proprietary Rights: Trade Name, Trademarks and Copyrights", and "--
Government Regulation" as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided that in each case such
counsel need not express any opinion as to the financial statements and other
financial and statistical information contained therein.
7.4 Review by and Opinion of Representative's Counsel. The
Representative shall have received an opinion, dated the Firm Closing Date, of
Luce, Forward, Hamilton & Scripps LLP, counsel for the Representative, with
respect to certain matters as the Representative may reasonably require, and the
Company shall have furnished to such counsel such documents and certificates as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
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7.5 Accountant's Letter. The Representative shall have
received from Coopers & Lybrand L.L.P. a letter or letters dated, respectively,
the date hereof and the Closing Date, in form and substance satisfactory to the
Representative, to the effect that:
(a) they are independent accountants with respect to
the Company within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements
audited by them and included in the Registration Statement and the Prospectus
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(c) on the basis of a reading of the audited
financial statements of the Company, for the year ended May 31, 1996, and the
unaudited financial statements of the Company for the period ended [August 31,
1996], and the notes thereto, carrying out certain specified procedures (which
do not constitute an audit made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance with
respect to the comments set forth in this paragraph, a reading of the minute
books of the shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(i) the unaudited condensed financial
statements of the Company included in the Registration Statement and the
Prospectus do not comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement and the
Prospectus; and
(ii) at a specific date not more than
five business days prior to the date of such letter, there were any changes in
the capital stock or long-term debt of the Company or any decreases in net
current assets or stockholders' equity of the Company, in each case compared
with amounts shown on the [August 31, 1996] balance sheet included in the
Registration Statement and the Prospectus, or for the period from [August 31,
1996] to such specified date there were any decreases, as compared with the
corresponding period in the preceding year, in net sales, gross profit, selling,
general and administrative expenses, employee plans and bonuses, income (loss)
from operations, interest expenses, income (loss) before income taxes, provision
(benefit) for income taxes, net income (loss) or net income (loss) per share of
the Company, except in all instances for changes, decreases or increases set
forth in such letter; and
(d) they have carried out certain specified
procedures, not constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the general
accounting records of the Company and are included in the Registration Statement
and
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the Prospectus, and have compared such amounts, percentages and financial
information with such records of the Company and with information derived from
such records and have found them to be in agreement, excluding any questions of
legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
representative deems such explanation unnecessary, and such changes, decreases
or increases do not, in the sole judgment of the Representative, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof.
References to the Registration Statement and the Prospectus in this
Section 7.5 with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
7.6 Officer's Certificate. The Representative shall have
received a certificate, dated the Firm Closing Date, of the president and the
principal financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, in light
of the circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
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7.7 NASD Review. The NASD, upon review of the terms of the
public offering of the Firm Shares and Option Shares, shall not have objected to
the Underwriters' participation in such offering.
7.8 Lockups. The Representatives shall have received from each
person who owns Common Stock, or securities convertible into Common Stock, an
agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of the Representative, offer, sell or grant
any option to purchase or otherwise dispose (or announce any offer, sale, grant
of an option to purchase or other disposition) of any shares of Common Stock or
any securities convertible into, or exchangeable for, shares of Common Stock for
a period of six months.
7.9 Due Diligence Examination. The counsel to the
Representative and other persons retained by the Representative to conduct a due
diligence investigation with respect to the offering, shall be reasonably
satisfied with the results of their respective due diligence investigations.
7.10 Blue Sky Qualification. The Shares shall be qualified in
such states as the Representative may reasonably request pursuant to Section
5.4, and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Closing Date or Option Closing Date, as the
case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representative and counsel for the Representative shall have received such
further certificates, documents or other information as they may have reasonably
requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative. The
Company shall furnish to the Representative such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representative and the counsel to the Representative shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Shares shall be subject, in the Representative's sole
discretion, to each of the foregoing conditions to purchase the Firm Shares,
except that all references to the Firm Shares and the Firm Closing Date shall be
deemed to refer to such Option Shares and the related Option Closing Date,
respectively.
SECTION 8.
Indemnification and Contribution
8.1 Indemnification by Company. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act") against any
losses, claims, damages or liabilities, joint or several, to which such
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Underwriter or such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement
made by the Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement
of any material fact contained in (i) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or (ii) any application or other document, or
any amendment or supplement thereto, executed by the Company and based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"); or
(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representative specifically for use therein; and provided further,
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any amendment
or supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such
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claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any losses, claims, damages or liabilities to which
the Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading in light
of the circumstances in which they are made, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any director, officer or
controlling person of the Company in connection with investigation or defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have. No Underwriter will, without the prior written consent of the
Company, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Company, any of its
directors, any of its officers who signed the Registration Statement or any
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company and each such director, officer and
controlling person from all liability arising out of such claim, action, suit or
proceeding.
8.3 Notice of Defense. Promptly after receipt by an
indemnified party under this Section 8 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party and
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<PAGE>
the indemnified party shall have reasonably concluded that there may be one or
more legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
(which may not be unreasonably withheld or delayed) under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (a) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel at any
one time in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by the Representative in the case of Section 8.1, representing the
indemnified parties under such Section 8.1 who are parties to such action or
actions) or (b) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the indemnifying
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party, unless such indemnified party waived its rights under this
Section 8 in which case the indemnified party may effect such a settlement
without such consent.
8.4 Contribution. In circumstances in which the indemnity
agreement provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages or liability (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (a) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Shares or (b) if the
allocation provided by the foregoing clause (a) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liability (or action
in respect thereof). The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (after deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or
25
<PAGE>
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable consideration referred to in the first sentence of this Section
8.4. Notwithstanding any other provision of this Section 8.4, no Underwriter
shall be obligated to make contributions hereunder that in the aggregate exceed
the underwriter discount on the Shares purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint, and contributions among
Underwriters shall be governed by the provisions of the Agreement Among
Underwriters. For purposes of this Section 8.4, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same right to contribution as the Company as the
case may be.
SECTION 9.
Default of Underwriters
If one or more Underwriters default in their obligations to purchase
Firm Shares, or Option Shares hereunder and the aggregate number of such Shares
that such defaulting Underwriter or Underwriters agreed but failed to purchase
is ten percent or less of the aggregate number of Firm Shares or Option Shares
to be purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representative shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purpose and delivery of the Firm Shares or Option Shares, as
the case may be. As used in this Agreement, the term "Underwriter" includes any
persons substituted for an Underwriter under this Section 9. Nothing herein
shall relieve any defaulting Underwriter from liability for its default.
26
<PAGE>
SECTION 10.
Survival
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 8 hereof shall remain in full force and effect, regardless of
any termination or cancellation this Agreement.
SECTION 11.
Termination
11.1 By Representative. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding or there shall
have been any material adverse change, or any development involving a
prospective material adverse change (including financial or otherwise), in the
business prospects, net worth or results of operations of the Company, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(b) trading in the Common Stock shall have been
suspended by the Commission or the National Association of Securities Dealers
Automated Quotation National Market or trading in securities generally on the
New York Stock Exchange or the American Stock Exchange shall have been suspended
or minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall have been declared by
New York, Arizona, or United States authorities; or
(d) there shall have been (i) an outbreak or
escalation of hostilities between the United States and any foreign power, (ii)
an outbreak or escalation of any other insurrection or armed conflict involving
the United States or (iii) any other calamity or crisis having
27
<PAGE>
an effect on the financial markets that, in the reasonable judgment of the
Representative, makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares as contemplated by the Registration
Statement, as amended as of the date hereof.
11.2 Effect of Termination Hereunder. Termination of this
Agreement pursuant to this Section 11 shall be without liability of any party to
any other party, except as provided in Section 10 hereof.
SECTION 12.
Information Supplied by Underwriters
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representative to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
Notices
All communications hereunder shall be in writing and, if sent to any of
the Underwriters, shall be mailed (certified or registered mail, postage
prepaid, return receipt requested) or delivered or sent by facsimile
transmission and confirmed in writing to Spelman & Co., Inc., 2355 Northside
Drive, Suite 200, San Diego, California 92108, Attention: Mr. Jason Rogers (with
a copy to Dennis J. Doucette, Esq., Luce, Forward, Hamilton & Scripps LLP, 600
West Broadway, Suite 2600, San Diego, CA 92101), if sent to the Company, shall
be mailed (certified or registered mail, postage prepaid, return receipt
requested), delivered or sent by facsimile transmission and confirmed in writing
to the Company at 1719 W. University, Ste. 187, Tempe, Arizona 85281, Attention:
Mr. Hooman Nikzad, (with a copy to Paul M. Gales, Esq., Quarles & Brady, One E.
Camelback Road, Suite 400, Phoenix, Arizona 85012). Notices shall be effective
if mailed, 48 hours after deposit in the mail properly addressed, sent by
facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
Successors
This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company and their respective successors and legal
representatives, and nothing
28
<PAGE>
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement, or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person except that (a) the indemnities of the Company contained in Section 8 of
this Agreement shall also be for the benefit of any person or persons who
control any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and (b) the indemnities of the Underwriters contained in
Section 8 of this Agreement shall also be for the benefit of the directors of
the Company, the officers of the Company who have signed the Registration
Statement and any person or persons who control the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Shares from any Underwriter shall be deemed a successor because of such
purchase.
SECTION 15.
Applicable Law
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, and
each of the several Underwriters.
Very truly yours,
M.D. LABS, INC.
By:_________________________________
Hooman Nikzad
Chief Executive Officer
29
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Spelman & Co., Inc.
(As Representative of the several
Underwriters named in Schedule 1 hereto)
By:______________________________________
Richard P. Woltman, President
30
<PAGE>
SCHEDULE 1
UNDERWRITERS
Number of Firm Shares
Underwriter to be purchased
- ----------- ---------------
Sentra Securities Corporation
Spelman & Co., Inc.
Total __________
M.D. LABS, INC.
1,300,000 Shares
SELECTED DEALER AGREEMENT
____________, 1996
Dear Sirs:
Sentra Securities Corporation, Spelman & Co., Inc. and the other
Underwriters named in the Prospectus relating to the above shares (the
"Underwriters"), acting through us as Representative, is severally offering for
sale an aggregate of 1,300,000 Shares (the "Firm Shares") of common stock
("Common Stock") of M.D. Labs, Inc. (the "Company") at a price of $____ per
Share. In addition, the several Underwriters have been granted an option to
purchase from the Company up to an additional 195,000 Shares (the "Option
Shares") to cover over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and any Option Shares purchased are herein called the
"Shares". The Shares and the terms under which they are to be offered for sale
by the several Underwriters are more particularly described in the Prospectus.
The Underwriters are offering the Shares pursuant to a Registration
Statement (the "Registration Statement") under the Securities Act of 1933, as
amended, subject to the terms of (a) their Underwriting Agreement with the
Company, (b) this Agreement, and (c) the Representative's instructions which may
be forwarded to the Selected Dealers from time to time. This invitation is made
by the Representative only if the Shares may be lawfully offered by dealers in
your state. The terms and conditions of this invitation are as follows:
1. Offer to Selected Dealers. The Representative is hereby soliciting
offers to buy, upon the terms and conditions hereof, a portion of the Shares
from Selected Dealers who are to act as principal. Shares are to be offered to
the public at a price of $_______ per Share (the "Offering Price"). Selected
Dealers who are members of the National Association of Securities Dealers, Inc.
(the "NASD") will be allowed, on all Shares sold by them, a concession of
$______ payable as hereinafter provided. Selected Dealers may reallow other
dealers who are members of the NASD a portion of that concession up to the
amount of $_____ per Share with respect to Shares sold by or through them. No
NASD member may reallow commissions to any non-member broker-dealer including
foreign broker-dealers registered pursuant to the Securities Exchange Act of
1934. This offer is solicited subject to the Company's issuance and delivery of
certificates and other documents evidencing its Shares and the acceptance
thereof by the Representative, to the approval of legal matters by counsel, and
to the terms and conditions set forth herein.
2. Revocation of Offer. The Selected Dealer's offer to purchase, if
made prior to the effective date of the Registration Statement, may be revoked
in whole or in part without obligation or commitment of any kind by it any time
prior to acceptance and no offer may be accepted by the
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<PAGE>
Representative and no sale can be made until after the Registration Statement
covering the Shares has become effective with the Securities and Exchange
Commission. Subject to the foregoing, upon execution by the Selected Dealer of
the Offer to Purchase below and the return of same to the Representative, the
Selected Dealer shall be deemed to have offered to purchase the number of Shares
set forth in its offer on the basis set forth in Section 1 above. Any oral offer
to purchase made by the Selected Dealer shall be deemed subject to this
Agreement and shall be confirmed by the Representative by the subsequent
execution and return of this Agreement. Any oral notice by the Representative of
acceptance of the Selected Dealer's offer shall be followed by written or
telegraphic confirmation preceded or accompanied by a copy of the Prospectus. If
a contractual commitment arises hereunder, all the terms of this Selected Dealer
Agreement shall be applicable. The Representative may also make available to the
Selected Dealer an allotment to purchase Shares, but such allotment shall be
subject to modification or termination upon notice from the Representative any
time prior to an exchange of confirmations reflecting completed transactions.
All references hereafter in this Agreement to the purchase and sale of Shares
assume and are applicable only if contractual commitments to purchase are
completed in accordance with the foregoing.
3. Selected Dealer Sales. Any Shares purchased by a Selected Dealer
under the terms of this Agreement may be immediately re-offered to the public at
the Offering Price in accordance with the terms of the offering thereof set
forth herein and in the Prospectus, subject to the securities or blue sky laws
of the various states or other jurisdictions. Shares shall not be offered or
sold by the Selected Dealers below the Offering Price. The Selected Dealer
agrees to advise the Representative, upon request, of any Shares purchased by it
remaining unsold and, the Representative has the right to purchase all or a
portion of such Shares, at the Public Offering Price less the selling concession
or such part thereof as the Representative shall determine.
4. Payment for Shares. Payment for Shares which the Selected Dealer
purchases hereunder shall be made by the Selected Dealer on or before three (3)
business days after the date of each confirmation by certified or bank cashier's
check payable to the Representative. Certificates for the securities shall be
delivered as soon as practicable after delivery instructions are received by the
Representative.
5. Open Market Transactions; Stabilization.
5.1 For the purpose of stabilizing the market in the Shares,
the Representative has been authorized to make purchases and sales of the
Company's Shares in the open market or otherwise, and, in arranging for sales,
to overallot. If, in connection with such stabilization, the Representative
contracts for or purchases in the open market any Shares sold to the Selected
Dealer hereunder and not effectively placed by the Selected Dealer, the
Representative may charge the Selected Dealer for the accounts of the several
Underwriters an amount equal to the Selected Dealer concession on such Shares,
together with any applicable transfer taxes, and the Selected Dealer agrees to
pay such amount to the Representative on demand. Certificates for Shares
delivered on such repurchases need not be the identical certificates originally
purchased.
2
<PAGE>
5.2 The Selected Dealer will not, until advised by the
Representative that the entire offering has been distributed and closed, bid for
or purchase Shares in the open market or otherwise make a market in the Shares
or otherwise attempt to induce others to purchase Shares in the open market.
Nothing contained in this section shall prohibit the Selected Dealer from acting
as an agent in the execution of unsolicited orders of customers in transactions
effectuated for them through a market maker.
6. Allotments. The Representative reserves the right to reject all
subscriptions, in whole or in part, to make allotments and to close the
subscription books at any time without notice. If an order from a Selected
Dealer is rejected or if a payment is received which proves insufficient, any
compensation paid to the Selected Dealer shall be returned by the Selected
Dealer either in cash or by a charge against the account of the Selected Dealer,
as the Representative may elect.
7. Reliance on Prospectus. The Selected Dealer agrees not to use any
supplemental sales literature of any kind without prior written approval of the
Representative unless it is furnished by the Representative for such purpose. In
offering and selling the Company's Shares, the Selected Dealer will rely solely
on the representations contained in the Prospectus. Additional copies of the
current Prospectus will be supplied by the Representative in reasonable
quantities upon request.
8. Representations of Selected Dealer. By accepting this Agreement, the
Selected Dealer represents that it: (a) is registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended; (b) is qualified to act as a
Dealer in the States or other jurisdictions in which it offers the Shares; (c)
is a member in good standing with the NASD; (d) will maintain all such
registrations, qualifications, and memberships throughout the term of this
Agreement; (e) will comply with all applicable Federal laws relating to the
offering, including, but not limited to, Rule 15c2-8 under the Securities
Exchange Act of 1934 and Release No. 4968 under the Securities Act of 1933
relating to delivery of preliminary and final prospectuses; (f) will comply with
the laws of the state or other jurisdictions concerned; (g) will comply the
rules and regulations of the NASD including, but not limited to, full compliance
with Rules 2100, 2730 2740, 2720 and 2750 of the Conduct Rules of the NASD and
the interpretations of such sections promulgated by the Board of Governors of
the NASD including an interpretation with respect to "Free-Riding and
Withholding" dated November 1, 1970, and as thereafter amended; and (h) confirms
that the purchase of the number of Shares it has subscribed for and may be
obligated to purchase will not cause it to violate the net capital requirements
of Rule 15c3-1 under the Exchange Act.
9. Blue Sky Qualification. The Selected Dealer agrees that it will
offer to sell the Shares only (a) in states or jurisdictions in which it is
licensed as a broker-dealer under the laws of such states, and (b) in which the
Representative has been advised by counsel that the Shares have been qualified
for sale under the respective securities or Blue Sky laws of such states. The
Representative assumes no obligation or responsibility as to the right of any
Selected Dealer to sell the Shares in any state or as to any sale therein.
3
<PAGE>
10. Expenses. No expenses will be charged to Selected Dealers. A single
transfer tax, if any, on the sale of the Shares by the Selected Dealer to its
customers will be paid when such Shares are delivered to the Selected Dealer for
delivery to its customers. However, the Selected Dealer will pay its
proportionate share of any transfer tax or any other tax (other than the single
transfer tax described above) if any such tax shall be from time to time
assessed against the Underwriters and other Selected Dealers.
11. No Joint Venture. No Selected Dealer is authorized to act as the
Underwriters' agent, or otherwise to act on our behalf, in the offering or
selling of Shares to the public or otherwise. Nothing contained herein will
constitute the Selected Dealers an association or other separate entity or
partners with the Underwriters, or with each other, but each Selected Dealer
will be responsible for its share of any liability or expense based on any claim
to the contrary.
12. Communications. This Agreement and all communications to the
Underwriters shall be sent to the Representative at the following address or, if
sent by facsimile, to the number set forth below:
Mr. Jason Rogers
Spelman & Co., Inc.
2355 Northside Drive, Ste. 200
San Diego, CA 92108
Fax No. (619) 584-7010
Any notice to the Selected Dealer shall be properly given if mailed, telephoned,
or transmitted by facsimile to the Selected Dealer at its address or number set
forth below its signature to this Agreement. All communications and notices
initially transmitted by facsimile shall be confirmed in writing.
13. Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of California.
14. Representative's Authority and Obligations. The Representative
shall have full authority to take such actions as it may deem advisable in
respect of all matters pertaining to the offering or arising thereunder. The
Representative shall not be under any liability to the Selected Dealer, except
such as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by it in this Agreement, and no obligation on its part shall be implied
or inferred herefrom.
15. Assignment. This Agreement may not be assigned by the Selected
Dealer without the Representative's prior written consent.
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<PAGE>
16. Termination. The Selected Dealer will be governed by the terms and
conditions of this Agreement until it is terminated. This Agreement will
terminate upon the termination of the Offering.
17. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one instrument. A copy of an executed counterpart of this Agreement may be sent
via facsimile by any party to the other party, and the other party may deem such
facsimile copy of the executed counterpart to be an original.
18. Application. If you desire to purchase any of the Shares, please
confirm your application by signing and returning to us your confirmation on the
duplicate copy of this letter, even though you may have previously advised us
thereof by telephone or telegraph. Our signature hereon may be by facsimile.
SENTRA SECURITIES CORPORATION
Dated: _____________, 1996 By:________________________________
Richard P. Woltman, President
Dated: _____________, 1996 ___________________________________
By:________________________________
5
<PAGE>
OFFER TO PURCHASE
-----------------
The undersigned does hereby offer to purchase (subject to the right to
revoke set forth in Section 2) _______ Shares in accordance with the terms and
conditions set forth above.
_________________________________________
By:______________________________________
Its:_____________________________________
Address:
Facsimile Number:
Telephone Number:
("Selected Dealer")
Date of Acceptance:________________________________
Accepted By:_______________________________________
IRS Employer Identification No.:___________________
Share Allocation:__________________________________
6
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933 FORMING A
PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS
EFFECTIVE UNDER SAID ACT, UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY SUCH
OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Shares of Common Stock
of
M.D. LABS, INC.
Void After 5 P.M. _______________, 2001
No. 1
Warrant to Purchase One Hundred Thirty Thousand (130,000) Shares of Common Stock
THIS IS TO CERTIFY, that, for value received, Sentra Securities
Corporation and Spelman & Co., Inc. (collectively, the "Underwriter") or
registered assigns, is entitled, subject to the terms and conditions hereinafter
set forth, on or after ____________, 1997 and at any time prior to 5 P.M.,
Pacific Standard Time ("PST"), on _______________, 2001, but not thereafter, to
purchase such number of shares of Common Stock (the "Shares") of M.D. Labs,
Inc., a Delaware corporation (the "Company"), from the Company as is set forth
above and upon payment to the Company of $____ per Share (the "Purchase Price"),
if and to the extent this Warrant is exercised, in whole or in part, during the
period this Warrant remains in force, subject in all cases to adjustment as
provided in Section 2 hereof, and to receive a certificate or certificates
representing the Shares so purchased, upon presentation and surrender to the
Company of this Warrant, with the form of subscription attached hereto,
including changes thereto reasonably requested by the Company, duly executed,
and accompanied by payment of the Purchase Price of each Share.
SECTION 1.
Terms of this Warrant
1.1 Time of Exercise. Subject to the provisions of Sections 1.5 and 3.1
hereof, this Warrant may be exercised at any time and from time to time after
9:00 A.M., PST, on __________, 1997 (the "Exercise Commencement Date"), but no
later than 5:00 P.M., _________, 2001 (the "Expiration Time") at which it shall
become void, and all rights hereunder shall thereupon cease.
<PAGE>
1.2 Manner of Exercise.
1.2.1 The holder of this Warrant (the "Holder") may exercise
this Warrant, in whole or in part, upon surrender of this Warrant with the form
of subscription attached hereto duly executed, to the Company at its corporate
office in Tempe, Arizona, together with the full Purchase Price for each Share
to be purchased in lawful money of the United States, or by certified check,
bank draft or postal or express money order payable in United States dollars to
the order of the Company, and upon compliance with and subject to the conditions
set forth herein.
1.2.2 Upon receipt of this Warrant with the form of
subscription duly executed and accompanied by payment of the aggregate Purchase
Price for the Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required for
delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
1.2.3 In case the Holder shall exercise this Warrant with
respect to less than all of the Shares that may be purchased under this Warrant,
the Company shall execute a new Warrant for the balance of the Shares that may
be purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when
due and payable any and all taxes which may be payable in respect of the issue
of this Warrant, or the issue of any Shares upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of this Warrant
or of the Shares in a name other than that of the Holder at the time of
surrender, and until the payment of such tax the Company shall not be required
to issue such Shares.
1.3 Exchange of Warrant. This Warrant may be split-up, combined or
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any other
Warrants to be so split-up, combined or exchanged, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of a Share. The Company may
require the Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
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1.4 Holder as Owner. Prior to due presentment for registration of
transfer of this Warrant, the Company may deem and treat the Holder as the
absolute owner of this Warrant (notwithstanding any notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
1.5 Transfer and Assignment. Prior to one year from the date hereof,
this Warrant may not be sold, hypothecated, exercised, assigned or transferred,
except to individuals who are officers of the Underwriter or any successor to
its business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance with
and subject to the provisions of the Securities Act of 1933 and applicable state
securities laws; provided, however, that if not exercised immediately upon such
transfer, this Warrant shall lapse.
1.6 Method of Assignment. Any assignment permitted hereunder shall be
made by surrender of this Warrant to the Company at its principal office with
the form of assignment attached hereto duly executed and funds sufficient to pay
any transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
1.7 Rights of Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of this Warrant and prior to its exercise, any of the following
shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings; as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) there shall be proposed any capital
reorganization or reclassification of the Common Stock, or a sale of all or
substantially all of the assets of the Company, or a consolidation or merger of
the Company with another entity; or
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(d) there shall be proposed a voluntary or
involuntary dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
twenty (20) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the shareholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Shares and other securities
and property deliverable upon exercise of this Warrant. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to exercise this Warrant shall terminate)
Without limiting the obligation of the Company to provide notice to the
holder of actions hereunder, it is agreed that failure of the Company to give
notice shall not invalidate such action of the Company.
1.8 Lost Certificates. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional contractual obligation
of the Company, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
1.9 Covenants of the Company. The Company covenants and agrees as
follows:
1.9.1 At all times it shall reserve and keep available for the
exercise of this Warrant such number of authorized shares of Common Stock as are
sufficient to permit the exercise in full of this Warrant.
1.9.2 Prior to the issuance of any Shares upon exercise of
this Warrant, the Company shall secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the Company's
Common Stock is listed for trading.
1.9.3 The Company covenants that all Shares when issued upon
the exercise of this Warrant will be validly issued, fully paid, non-assessable
and free of preemptive rights.
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SECTION 2.
Adjustment of Purchase Price
and Number of Shares Purchasable upon Exercise
2.1 Stock Splits. If the Company at any time or from time to time after
the issuance date of this Warrant effects a subdivision of the outstanding
Common Stock, the Purchase Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if the Company
at any time or from time to time after the issuance date of this Warrant
combines the outstanding shares of Common Stock, the Purchase Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this subsection 2.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
2.2 Dividends and Distributions. In the event the Company at any time,
or from time to time after the issuance date of this Warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Purchase Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Purchase Price shall be adjusted pursuant to this subsection
2.2 as of the time of actual payment of such dividends or distributions.
2.3 Recapitalization or Reclassification. If the Shares issuable upon
the exercise of the Warrant are changed into the same or a different number of
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2, then and in any such event each holder
of Warrants shall have the right thereafter to exercise such Warrant as to the
kind and amount of stock and/or other securities and property receivable upon
such reclassification or other change, by the holder of the number of shares of
Shares as to which such Warrant might have been exercised immediately prior to
such reclassification or exchange, all subject to further adjustment as provided
herein.
2.4 Sale of the Company. If at any time or from time to time there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2 or a merger or
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consolidation of the Company with or into another Company, or the sale of all or
substantially all of the Company's properties and assets to any other person,
then, as a part of such reorganization, merger, consolidation or sale, provision
shall be made so that the holders of the Warrants shall thereafter be entitled
to receive upon exercise of the Warrants, the number of shares of stock or other
securities or property of the Company, or of the successor Company resulting
from such merger or consolidation or sale, to which a holder of Shares
deliverable upon exercise would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 2
with respect to the rights of the holders of the Warrants after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section (including adjustment of the Purchase Price then in effect and
number of shares purchasable upon exercise of the Warrants) shall be applicable
after that event and be as nearly equivalent to the provisions hereof as may be
practicable.
2.5 Observance of Duties. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Exercise Rights of the holders of the
Warrants against dilution or other impairment.
SECTION 3.
Registration Under the Securities Act of 1933
3.1 Registration and Legends. This Warrant and the Shares issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon exercise, in part or in whole, of this
Warrant, the certificates representing the Shares shall bear the following
legend:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 ("ACT") OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND
MAY NOT BE OFFERED AND SOLD UNLESS REGISTERED AND/OR QUALIFIED PURSUANT
TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE
MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS
(A) SUCH TRANSACTION SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT AND
QUALIFIED OR APPROVED UNDER APPROPRIATE STATE OR BLUE SKY LAWS, OR (B)
THE ISSUER SHALL HAVE FIRST RECEIVED AN OPINION OF COUNSEL
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SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR
APPROVAL IS NOT REQUIRED.
3.2 No Action Letter. The Company agrees that it shall be satisfied
that no post-effective amendment or new registration is required for the public
sale of the Shares if it shall be presented with a letter from the Staff of the
Securities and Exchange Commission (the "Commission") stating in effect that,
based upon stated facts which the Company shall have no reason to believe are
not true in any material respect, the Staff will not recommend any action to the
Commission if such shares are offered and sold without delivery of a prospectus,
and that, therefore, no post-effective amendment to the Registration Statement
under which such Shares are to be registered or new registration statement is
required to be filed.
3.3 Demand Registration Rights. The Company has agreed, upon the
Underwriter's demand, to register the Shares, to file a new Registration
Statement, and to file all necessary undertakings with the Commission so as to
permit the Underwriter, or any assignee of the Underwriter, the right to sell
publicly the Shares issued on exercise of this Warrant on two occasions at any
time within five (5) years from the effective date of the Company's first
Registration Statement as filed in 1996. In connection with the first request,
the Company will bear all expenses attendant to registering the securities
(subject to Section 3.5(e)), and in connection with the second request, the
holders of the securities will bear all expenses.
3.4 Piggyback Registration Rights. In the event that the Underwriter
does not exercise its right to demand that the Shares be registered, the Company
agrees to include any appropriate Shares issuable upon exercise of the Warrants
in any Registration Statement filed by the Company at any time within five (5)
years from the effective date of the Company's first Registration Statement as
filed in 1996 (except for any registration on Forms S-4 or S-8 or similar
forms).
3.5 Covenants Regarding Registration. In connection with any
registration under Section 3.3 or 3.4 hereof, the Company covenants and agrees
as follows:
(a) The Company will, within twenty days after
written request from the Representative, take all steps necessary to effectuate
preparation and filing with the Securities and Exchange Commission of the
registration statement as required by and in compliance with the Act.
(b) The Company shall keep such registration
statement effective for the lesser of (i) one hundred twenty (120) days, or (ii)
the period of time in which the Holders of such securities have effected the
distribution of their Shares. During such period the Company shall prepare and
file with the SEC such amendments and supplements to such registration statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
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(c) The Company shall notify each Holder of Shares
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(d) The Company shall furnish to the Holders such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of the Shares
owned by them.
(e) The Company shall pay all costs, fees, and
expenses in connection with new registration statements under Section 3.3
(excluding the costs attendant to a second demand registration) and Section 3.4
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, blue sky fees and expenses, except that the Company shall not
pay for any of the following costs and expenses: (i) underwriting discounts and
commissions allocable to the Shares, (ii) state transfer taxes, (iii) brokerage
commissions, (iv) fees and expenses of counsel and accountants for the holders
of this Warrant or the Shares.
(f) The Company will take all necessary action which
may be required in qualifying or registering the Shares included in any
Registration Statement or post-effective amendment or new registration statement
for offering and sale under the securities or blue sky laws of such states as
are reasonably requested by the holders of such Shares, provided that the
Company shall not be obligated to execute or file any general consent to service
or process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.
(g) The Holder shall be entitled to pay the Purchase
Price for the Shares purchasable upon the exercise of this Warrant out of the
proceeds of any sale of the Shares purchasable upon its exercise.
3.6 Indemnity.
3.6.1 The Company shall indemnify and hold harmless each
person registering securities pursuant to this Section (the "Seller") and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any Seller any of the Common Stock from and against any and all losses, claims,
damages, and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any new registration statement or any
supplemented prospectus under the Act included therein required to be filed or
furnished by reason of this Section, or caused by any omission or alleged
omission to state therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to the Company by such Seller or underwriter within the meaning of such
Act; provided, however, that the indemnity agreement set forth in this Section
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3.6 with respect to any prospectus which shall be subsequently amended prior to
the written confirmation of sale of any Shares shall not inure to the benefit of
any Seller or underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased such Shares which are the subject
thereof (or to the benefit of any person controlling such Seller or
underwriter), if such Seller or underwriter failed to send or give a copy of the
prospectus as amended to such person at or prior to the written confirmation of
the sale of such Shares and if such amended prospectus did not contain any
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such cause, claim, damage, or liability.
3.6.2 Each Seller which avails itself of the procedures under
this Section 3 shall indemnify and secure the agreement of any underwriter which
the Seller employs to indemnify the Company, its directors, each officer signing
the related post-effective amendment or registration statement and each person,
if any, who controls the Company, within the meaning of the Act from and against
any losses, claims, damages, and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any post-effective
amendment or registration statement or any prospectus required to be filed or
furnished by reason of this Section 3 or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as such losses,
claims, damages, or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by any such Seller or underwriter expressly
for use therein.
3.7 Survival of Obligations. The agreements in this Section 3 shall
continue in effect regardless of the exercise and surrender of this Warrant.
SECTION 4.
Other Matters
4.1 Payment of Taxes. The Company will from time to time promptly pay,
subject to the provisions of paragraph (4) of Section 1.2 hereof, all taxes and
charges that may be imposed upon the Company in respect of the issuance or
delivery of this Warrant or the Shares purchasable upon the exercise of this
Warrant.
4.2 Binding Effect. All the covenants and provisions of this Warrant by
or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
4.3 Notices. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
or facsimilie and addressed, until another address is designated in writing by
the Company, as follows:
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M.D. Labs, Inc.
1719 W. University, Ste. 187
Tempe, Arizona 85281
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.4 Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of California.
4.5 Parties Bound and Benefitted. Nothing in this Warrant expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and, if
permitted, its assignees.
4.6 Headings. The Section headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ___ day of ________, 1996.
M.D. LABS, INC.
By:_______________________________________
Hooman Nikzad, Chief Executive Officer
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M.D. LABS
Assignment of Warrant
FOR VALUE RECEIVED, Spelman & Co., Inc. hereby sells, assigns and
transfers unto ____________________________________________ the within Warrant
and the rights represented thereby, and does hereby irrevocably constitute and
appoint _______________________________ Attorney, to transfer said Warrant on
the books of the Company, with full power of substitution.
Dated: _____________________
Signed:___________________________________
Signature guaranteed:
- ----------------------------
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M.D. LABS
1719 W. University, Ste. 187
Tempe, Arizona 85281
Subscription Agreement for the Exercise of Warrants
The undersigned hereby irrevocably subscribes for the purchase of
_____________ Shares pursuant to and in accordance with the terms and conditions
of this Warrant, and herewith makes payment, covering such Shares which should
be delivered to the undersigned at the address stated below, and, if said number
of Shares shall not be all of the Shares purchasable hereunder, that a new
Warrant of like tenor for the balance of the remaining Shares purchasable
hereunder be delivered to the undersigned at the address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel to M.D. Labs satisfactory to the
undersigned has rendered an opinion in writing and addressed to M.D. Labs that
such proposed offer, sale, transfer or other disposition of the Shares is exempt
from the provisions of Section 5 of the Act in view of the circumstances of such
proposed offer, sale, transfer or other disposition; (2) M.D. Labs may notify
the transfer agent for the Shares that the certificates for the Shares acquired
by the undersigned are not to be transferred unless the transfer agent receives
advice from M.D. Labs that one or both of the conditions referred to in (1)(a)
and (1)(b) above have been satisfied; and (3) M.D. Labs may affix the legend set
forth in Section 3.1 of this Warrant to the certificates for the Shares hereby
subscribed for, if such legend is applicable.
Dated: ______________________ Signed:______________________________
Signature guaranteed: Address:_____________________________
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12
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
M.D. LABS, INC.
This amended and restated Certificate of Incorporation has been
duly adopted in accordance with Section 245 of the Delaware General Corporation
Law.
1. Name. The name of the Corporation is M.D. Labs, Inc.
2. Registered Office and Agent. The name and address of the
registered office and registered agent of the Corporation is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801.
3. Purpose. The purpose for which this Corporation is organized
is the transaction of any or all lawful activity for which corporations may be
organized under the General Corporation Law of Delaware, as it may be amended
from time to time ("GCL").
4. Authorized Capital. The total number of shares of stock which
the Corporation shall have authority to issue is 8,100,000 shares, consisting of
8,000,000 shares of common stock having a par value of $.001 per share (the
"Common Stock") and 100,000 shares of preferred stock having a par value of $.01
per share (the "Preferred Stock").
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article 4, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
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(c)Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights;
(d)Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(e)Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(f)Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g)The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h)Any other relative rights, preferences and limitations of
that series.
5.Classification and Terms of Directors. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors consisting of not less than three directors nor more than
nine directors, the exact number of directors to be determined from time to time
by resolution adopted by the Board of Directors. Effective as of the 1997 annual
meeting of stockholders, the directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. The terms of the initial Class I directors shall
terminate on the date of the 1998 annual meeting of stockholders; the terms of
the initial Class II directors shall terminate on the date of the 1999 annual
meeting of stockholders; and the terms of the initial Class III directors shall
terminate on the date of the 2000 annual meeting of stockholders. At each annual
meeting of stockholders beginning with the 1997 annual meeting, successors to
the class of directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining terms of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the whole Board of
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Directors, and any other vacancy may be filled by a majority of the directors
then in office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article 4 applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article 5 unless expressly provided by such terms.
6.Removal of Directors. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, any or all of the
directors of the Corporation may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation then entitled to vote generally in the
election of directors, considered for purposes of this Article 6 as one class.
7.Election of Directors. Elections of directors at an annual or
special meeting of stockholders shall be by written ballot unless the Bylaws of
the Corporation shall otherwise provide. Advance notice of stockholder
nominations for the election of directors shall be given in the manner provided
in the Bylaws of the Corporation.
8.Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time only by the
Chairman of the Board, the Chief Executive Officer, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors,
or at the request in writing of stockholders owning twenty-five percent (25%) or
more in amount of the capital stock issued and outstanding and entitled to vote.
Special meetings of the stockholders may not be called by any other person or
persons. Business transacted at any special meeting of the stockholders shall be
limited to the purposes stated in the notice of such meeting.
9.Special Voting Requirements.
A.Except as set forth in Section B of this Article 9, the
affirmative vote of the holders of two-thirds of the outstanding stock of the
Corporation entitled to vote shall be required for:
(l)any merger or consolidation to which the Corporation,
or any of its subsidiaries, and an Interested Person (as hereinafter defined)
are parties;
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<PAGE>
(2)any sale or other disposition by the Corporation, or
any of its subsidiaries, of all or substantially all of its assets to an
Interested Person;
(3)any purchase or other acquisition by the Corporation,
or any of its subsidiaries, of all or substantially all of the assets or stock
of an Interested Person; and
(4)any other transaction with an Interested Person which
requires the approval of the stockholders of the Corporation under the GCL, as
in effect from time to time.
B.The provisions of Section A of this Article 9 shall not be
applicable to any transaction described therein if such transaction is approved
by resolution of the Corporation's Board of Directors, provided that a majority
of the members of the Board of Directors voting for the approval of such
transaction are Continuing Directors. The term "Continuing Director" shall mean
any member of the Board of Directors of the Corporation who is not the
Interested Person, and not an affiliate, associate, representative or nominee of
the Interested Person or of such an affiliate or associate, that is involved in
the relevant transaction, and (A) was a member of the Board of Directors on
September 4, 1996 or (B) was a member of the Board of Directors prior to the
date that the person, firm or corporation, or any group thereof, with whom such
transaction is proposed, became an Interested Person, or (C) whose initial
election as a director of the Corporation succeeds a Continuing Director or is a
newly created directorship, and in either case was recommended by a majority
vote of the Continuing Directors then in office.
C.As used in this Article 9, the term "Interested Person" shall
mean any person, firm or corporation, or any group thereof, acting or intending
to act in concert, including any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such person, firm
or corporation or group, which owns of record or beneficially, directly or
indirectly, five percent (5%) or more of any class of voting securities of the
Corporation; except that the term "Interested Person" shall not mean or apply to
a person, firm or corporation which owned of record or beneficially twenty-five
percent (25%) or more of any class of voting securities of the Corporation at
the effective time of the merger of Houston International, Inc., LLC, an Arizona
limited liability company, into the Corporation.
10.Limitation of Liability. No director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such a director as a director.
Notwithstanding the foregoing sentence, a director shall be liable to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from which
such director derived an improper personal benefit. No amendment to or repeal of
this Article 10 shall apply to or have an effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
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<PAGE>
11. Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized by majority
vote of the whole Board of Directors to adopt, repeal, alter, amend or rescind
the Bylaws of the Corporation. In addition, the Bylaws of the Corporation may be
adopted, repealed, altered, amended, or rescinded by the affirmative vote of
two-thirds of the outstanding stock of the Corporation entitled to vote thereon;
provided, if the Continuing Directors, as defined in Article 9, shall by a
two-thirds favorable vote of such Continuing Directors have adopted a resolution
approving the amendment or repeal proposal and have determined to recommend it
for approval by the holders of stock entitled to vote thereon, then the vote
required shall be the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote thereon.
12. Action by Consent of Stockholders. Any action required or
permitted to be taken by the stockholders must be effected at a duly called and
noticed annual or special meeting of such stockholders and may not be effected
by any consent in writing by such stockholders.
13. Certificate. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by statute and the
Certificate of Incorporation, and all rights conferred on stockholders herein
are granted subject to the reservations in this Article 13; provided, however,
the affirmative vote of the holders of at least two-thirds of the voting power
of the outstanding stock of the Corporation entitled to vote thereon shall be
required to alter, amend, or adopt any provision inconsistent with or repeal
Articles 5, 6, 7, 8, 9, 10, 11, 12 and this Article 13; provided, if the
Continuing Directors, as defined in Article 9, shall by a two-thirds favorable
vote of such Continuing Directors have adopted a resolution approving the
amendment or repeal proposal and have determined to recommend it for approval by
the holders of stock entitled to vote thereon, then the vote required shall be
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote thereon.
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AMENDED AND RESTATED
BYLAWS OF
M.D. LABS, INC.
ARTICLE I
OFFICES
SECTION 1.1 Registered Office.
------------------
The registered office of the Corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2 Other Offices.
--------------
The Corporation also may have offices at such other places both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 Stockholder Meetings.
---------------------
(a) Time and Place of Meetings. Meetings of the stockholders shall be
held at such times and places, either within or without the State of Delaware,
as may from time to time be fixed by the Board of Directors and stated in the
notices or waivers of notice of such meetings.
(b) Annual Meeting. The annual meeting of the stockholders shall be
held when designated by the Board of Directors, for the election of directors
and the transaction of such other business properly brought before such annual
meeting of the stockholders and within the powers of the stockholders.
(c) Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time only by the
Chairman of the Board, the Chief Executive Officer, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors,
or at the request in writing of shareholders owning at least 25% of the capital
stock issued and outstanding and entitled
<PAGE>
to vote. Business transacted at any special meeting of the stockholders shall be
limited to the purposes stated in the notice of such meeting.
(d) Notice of Meetings. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, written notice of each meeting of
the stockholders shall be given not less than ten days nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat,
directed to such stockholder's address as it appears upon the books of the
Corporation, such notice to specify the place, date, hour and purpose or
purposes of such meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his address as it appears on the stock ledger of the Corporation.
When a meeting of the stockholders is adjourned to another time and/or place,
notice need not be given of such adjourned meeting if the time and place thereof
are announced at the meeting of the stockholders at which the adjournment is
taken, unless the adjournment is for more than thirty days or unless after the
adjournment a new record date is fixed for such adjourned meeting, in which
event a notice of such adjourned meeting shall be given to each stockholder of
record entitled to vote thereat. Notice of the time, place and purpose of any
meeting of the stockholders may be waived in writing either before or after such
meeting and will be waived by any stockholder by such stockholder's attendance
thereat in person or by proxy. Any stockholder so waiving notice of such a
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
(e) Quorum. Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than a majority of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the affirmative vote of the majority of
such quorum shall be deemed the act of the stockholders. If a quorum shall fail
to attend any meeting of the stockholders, the presiding officer of such meeting
may adjourn such meeting from time to time to another place, date or time,
without notice other than announcement at such meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting of the stockholders as originally noticed. The foregoing
notwithstanding, if a notice of any adjourned special meeting of the
stockholders is sent to all stockholders entitled to vote thereat which states
that such adjourned special meeting will be held with those present in person or
by proxy constituting a quorum, then, except as otherwise required by law, those
present at such adjourned special meeting of the stockholders shall constitute a
quorum and all matters shall be determined by a majority of the votes cast at
such special meeting.
SECTION 2.2 Determination of Stockholders Entitled to Notice and to Vote.
-------------------------------------------------------------
To determine the stockholders entitled to notice of any meeting of the
stockholders or to vote thereat, the Board of Directors may fix in advance a
record date
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<PAGE>
as provided in Article VII, Section 7.1 of these Bylaws, or if no record date is
fixed by the Board of Directors, a record date shall be determined as provided
by law.
SECTION 2.3 Voting.
-----------
(a) Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, each stockholder present in person or by proxy at
a meeting of the stockholders shall be entitled to one vote for each full share
of stock registered in the name of such stockholder at the time fixed by the
Board of Directors or by law at the record date of the determination of
stockholders entitled to vote at such meeting.
(b) Every stockholder entitled to vote at a meeting of the stockholders
may do so either (i) in person or (ii) by one or more agents authorized by a
written proxy executed by the person or such stockholder's duly authorized
agent, whether by manual signature, typewriting, telegraphic transmission or
otherwise as permitted by law. No proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.
(c) Voting may be by voice or by ballot as the presiding officer of the
meeting of the stockholders shall determine. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
(d) In advance of or at any meeting of the stockholders, the Chairman
of the Board or President shall appoint one or more persons as inspectors of
election (the "Inspectors") to act at such meeting. Such Inspectors shall take
charge of the ballots at such meeting. After the balloting, the Inspectors shall
count the ballots cast and make a written report to the secretary of such
meeting of the results. Subject to the direction of the chairman of the meeting,
the duties of such Inspectors may further include without limitation:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity, and effect of proxies; receiving votes, ballots, or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes of consents and
determining when the polls shall close; determining the result; and doing such
acts as may be proper to conduct the election or vote with fairness to all
stockholders. An Inspector need not be a stockholder of the Corporation and any
officer of the Corporation may be an Inspector on any question other than a vote
for or against such officer's election to any position with the Corporation or
on any other questions in which such officer may be directly interested. If
there are three or more Inspectors, the determination, report or certificate of
a majority of such Inspectors shall be effective as if unanimously made by all
Inspectors.
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<PAGE>
SECTION 2.4 List of Stockholders.
---------------------
The officer who has charge of the stock ledger of the Corporation shall
prepare and make available, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to such meeting, either
at a place within the city where such meeting is to be held and which place
shall be specified in the notice of such meeting, or, if not so specified, at
the place where such meeting is to be held. The list also shall be produced and
kept at the time and place of the meeting of the stockholders during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 2.5 Action by Consent of Stockholders.
----------------------------------
Any action required or permitted to be taken by the stockholders must
be effected at a duly called annual or special meeting of such stockholders and
may not be effected by any consent in writing by such stockholders.
SECTION 2.6 Conduct of Meetings.
--------------------
The chairman of the meeting shall have full and complete authority to
determine the agenda, to set the procedures and order the conduct of meetings,
all as deemed appropriate by such person in his sole discretion with due regard
to the orderly conduct of business.
SECTION 2.7 Notice of Agenda Matters.
-------------------------
If a stockholder wishes to present to the Chairman of the Board or the
President an item for consideration as an agenda item for a meeting of
stockholders, he must give timely notice to the Secretary of the Corporation and
give a description of (i) the business desired to be brought before the meeting
and (ii) all arrangements or understandings between such stockholder and any
other person or persons (including their names) in connection with the proposal
of business by such stockholder and any material interest of such stockholder
and such other person(s) in such business. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation, not less than sixty days nor more than ninety days prior to
the meeting; provided, however, that in the event that less than seventy days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth day following the date on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever is earlier, and provided further that any other
time period necessary to comply with federal proxy solicitation rules or other
regulations shall be deemed to be timely.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 General Powers.
---------------
Unless otherwise restricted by law, the Certificate of Incorporation or
these Bylaws as to action which shall be authorized or approved by the
stockholders, and subject to the duties of directors as prescribed by these
Bylaws, all corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be controlled by, the
Board of Directors.
SECTION 3.2 Election of Directors.
----------------------
(a) Number, Qualification and Term of Office. The authorized number of
directors of the Corporation shall be fixed from time to time by a resolution
duly adopted by a majority of the whole Board of Directors, but shall not be
less than three nor more than nine.
(b) Resignation. Any director may resign from the Board of Directors at
any time by giving written notice to the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or if the time when
such resignation shall become effective shall not be so specified, then such
resignation shall take effect immediately upon its receipt by the Secretary;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(c) Nomination of Directors. Candidates for director of the Corporation
shall be nominated only either by:
(i) the Board of Directors or a committee appointed by the
Board of Directors, or
(ii) nomination at any stockholders' meeting by or on behalf
of any stockholder entitled to vote thereat; provided, that written
notice of such stockholder's intent to make such nomination or
nominations shall have been given, either by personal delivery or by
United States certified mail, postage prepaid, to the Secretary of the
Corporation not later than (l) with respect to an election to be held
at an annual meeting of the stockholders, not less than sixty days nor
more than ninety days prior to the meeting; provided, however, that in
the event that less than seventy days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later
than the close of business on the fifteenth day following the date on
which such notice of the date of the meeting was
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<PAGE>
mailed or such public disclosure was made, whichever is earlier, and
(2) with respect to an election to be held at a special meeting of the
stockholders for the election of directors, the close of business on
the fifteenth day following the date on which notice of such special
meeting is first given to the stockholders entitled to vote thereat or
public disclosure of the meeting date is made, whichever occurs first.
Each such notice by a stockholder shall set forth: (l) the name and
address of the (A) stockholder who intends to make the nomination and
(B) person or persons to be nominated; (2) a representation that the
stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice;
(3) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (4) such other information regarding
each nominee proposed by such stockholder as would be required to be
included in a proxy or information statement filed with the Securities
and Exchange Commission pursuant to the proxy rules promulgated under
the Securities Exchange Act of 1934, as amended, or any successor
statute thereto, had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (5) the manually signed
consent of each nominee to serve as a director of the Corporation if so
elected. The presiding officer of the meeting of the stockholders may
refuse to acknowledge the nominee of any person not made in compliance
with the foregoing procedure.
(d) Preferred Stock Provisions. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of stock issued by the
Corporation having a preference over the Common Stock as to dividends or upon
liquidation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of the stockholders, the election,
term of office, filling of vacancies, nomination, terms of removal and other
features of such directorships shall be governed by the terms of the Article of
the Certificate of Incorporation authorizing the preferred stock and the
resolution or resolutions establishing such class or series adopted pursuant
thereto.
SECTION 3.3 Meetings of the Board of Directors.
-----------------------------------
(a) Regular Meetings. Regular meetings of the Board of Directors shall
be held without call at the following times:
(i) at such times as the Board of Directors shall from time to
time by resolution determine; and
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<PAGE>
(ii) one-half hour prior to any special meeting of the
stockholders and immediately following the adjournment of any annual or special
meeting of the stockholders.
Notice of all such regular meetings hereby is dispensed with.
(b) Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the Chief Executive Officer, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors.
Notice of the time and place of special meetings of the Board of Directors shall
be given by the Secretary or an Assistant Secretary of the Corporation, or by
any person or entity entitled to call such meeting. Such notice shall be given
to each director personally or by mail, messenger, telecopy, telephone or
telegraph at such director's business or residence address. Notice by mail shall
be deposited in the United States mail, postage prepaid, not later than the
fifth day prior to the date fixed for such special meeting. Notice by telecopy,
telephone or telegraph shall be sent, and notice given personally or by
messenger shall be delivered, at least twenty-four hours prior to the time set
for such special meeting. Notice of a special meeting of the Board of Directors
need not contain a statement of the purpose of such special meeting.
(c) Adjourned Meetings. A majority of directors present at any regular
or special meeting of the Board of Directors or any committee thereof, whether
or not constituting a quorum, may adjourn any meeting from time to time until a
quorum is present or otherwise. Notice of the time and place of holding any
adjourned meeting shall not be required if the time and place are fixed at the
meeting adjourned.
(d) Place of Meetings. Meetings of the Board of Directors, both regular
and special, may be held within or without the State of Delaware.
(e) Participation by Telephone. Members of the Board of Directors or
any committee may participate in any meeting of the Board of Directors or
committee through the use of conference telephone or similar communications
equipment, so long as all members participating in such meeting can hear one
another, and such participation shall constitute presence in person at such
meeting.
(f) Quorum. At all meetings of the Board of Directors or any committee
thereof, a majority of the total number of directors of the entire then
authorized Board of Directors or such committee shall constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any such meeting at which there is a quorum shall be the act of the Board of
Directors or any committee, except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws. A meeting of the Board of
Directors or any committee at which a quorum initially is present may continue
to transact business notwithstanding the withdrawal of directors so
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<PAGE>
long as any action is approved by at least a majority of the required quorum for
such meeting.
(g) Waiver of Notice. The transactions of any meeting of the Board of
Directors or any committee for which notice is required, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum be present and if, either before or
after the meeting, each of the directors not present signs a written waiver of
notice, or a consent to hold such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
SECTION 3.4 Action Without Meeting.
-----------------------
Any action required or permitted to be taken by the Board of Directors
at any meeting or at any meeting of a committee may be taken without a meeting
if all members of the Board of Directors or such committee consent in writing
and the writing or writings are filed with the minutes of the proceedings of the
Board of Directors or such committee.
SECTION 3.5 Compensation of Directors.
--------------------------
Unless otherwise restricted by law, the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees of the Board of Directors may be allowed like compensation for
attending committee meetings.
SECTION 3.6 Committees of the Board.
------------------------
(a) Committees. The Board of Directors may, by resolution adopted by a
majority of the Board of Directors, designate one or more committees of the
Board of Directors, each committee to consist of one or more directors. Each
such committee, to the extent permitted by law, the Certificate of Incorporation
and these Bylaws, shall have and may exercise such of the powers of the Board of
Directors in the management and affairs of the Corporation as may be prescribed
by the resolutions creating such committee. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or
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<PAGE>
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. The Board of Directors shall have the power, at any time
for any reason, to change the members of any such committee, to fill vacancies,
and to discontinue any such committee.
(b) Minutes of Meetings. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
(c) Audit Committee. The Board of Directors shall appoint an Audit
Committee consisting of at least two directors, neither of which two directors
shall be employees of the Corporation. The Audit Committee shall review the
financial affairs and procedures of the Corporation from time to time with
management and meet with the auditors of the Corporation to review the financial
statements and procedures.
(d) Executive Committee. There may be an executive committee consisting
of at least three members of the Board of Directors elected by the whole Board.
Members of the executive committee shall serve at the pleasure of the Board of
Directors and each member of the executive committee may be removed with or
without cause at any time by the Board of Directors. Vacancies shall be filled
by the Board of Directors. The executive committee may exercise the powers of
the Board of Directors and the management of the business and affairs of the
corporation, but shall not possess any authority prohibited to it by law.
SECTION 3.7 Interested Directors.
---------------------
In addition to the statutory and corporate common law of Delaware, no
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted
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<PAGE>
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 4.1 Officers.
---------
(a) Number. The officers of the Corporation shall be chosen by the
Board of Directors and may include a Chair of the Board of Directors (who must
be a director as chosen by the Board of Directors) and shall include a Chief
Executive Officer, a President, a Secretary and a Treasurer. The Board of
Directors also may appoint one or more Vice Presidents, Chief Financial Officer,
Assistant Secretaries or Assistant Treasurers and such other officers and agents
with such powers and duties as it shall deem necessary. Any Vice President may
be given such specific designation as may be determined from time to time by the
Board of Directors. Any number of offices may be held by the same person, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws. The
Board of Directors may delegate to any other officer of the Corporation the
power to choose such other officers and to prescribe their respective duties and
powers.
(b) Election and Term of Office. The officers shall be elected annually
by the Board of Directors at its annual meeting and each officer shall hold
office until the next annual election of officers and until such officer's
successor is elected and qualified, or until such officer's death, resignation
or removal. Any officer may be removed at any time, with or without cause, by a
vote of the majority of the whole Board of Directors. Any vacancy occurring in
any office may be filled by the Board of Directors.
(c) Salaries. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors or a committee thereof from time to time.
SECTION 4.2 Chair of the Board of Directors.
--------------------------------
The Chair of the Board of Directors, if there be a Chair, shall preside
at all meetings of the stockholders and the Board of Directors and shall have
such other power and authority as may from time to time be assigned by the Board
of Directors.
SECTION 4.3 Chief Executive Officer.
------------------------
The Chief Executive Officer shall preside at all meetings of the
stockholders and the Board of Directors (if a Chair of the Board has not been
elected), and shall see that all orders and resolutions of the Board of
Directors are carried into effect. Subject to the
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<PAGE>
provisions of these Bylaws and to the direction of the Board of Directors, the
Chief Executive Officer shall have the general and active management of the
business of the Corporation, may execute all contracts and any mortgages,
conveyances or other legal instruments in the name of and on behalf of the
Corporation, but this provision shall not prohibit the delegation of such powers
by the Board of Directors to some other officer, agent or attorney-in-fact of
the Corporation.
SECTION 4.4 President.
----------
In the absence or disability of the Chief Executive Officer, the
President shall perform all the duties of the Chief Executive Officer, and when
so acting shall have all the powers of, and be subject to all the restrictions
upon, the Chief Executive Officer. The President shall have such other powers
and perform such other duties as from time to time may be prescribed by the
Board of Directors or these Bylaws.
SECTION 4.5 Vice Presidents.
----------------
In the absence or disability of the Chief Executive Officer and the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them, respectively, by
the Board of Directors or these Bylaws.
SECTION 4.6 Secretary and Assistant Secretaries.
------------------------------------
The Secretary shall record or cause to be recorded, in books provided
for the purpose, minutes of the meetings of the stockholders, the Board of
Directors and all committees of the Board of Directors; see that all notices are
duly given in accordance with the provisions of these Bylaws as required by law;
be custodian of all corporate records (other than financial) and of the seal of
the Corporation, and have authority to affix the seal to all documents requiring
it and attest to the same; give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors; and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by the Board of
Directors or by the President. At the request of the Secretary, or in the
Secretary's absence or disability, any Assistant Secretary shall perform any of
the duties of the Secretary and, when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the Secretary.
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<PAGE>
SECTION 4.7 Treasurer and Assistant Treasurers.
-----------------------------------
The Treasurer shall keep or cause to be kept the books of account of
the Corporation and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board of Directors or
the President. The Treasurer, subject to the order of the Board of Directors,
shall have custody of all funds and securities of the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements. The
Treasurer shall perform all other duties commonly incident to his office and
shall perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. At the request of
the Treasurer, or in the Treasurer's absence or disability, any Assistant
Treasurer may perform any of the duties of the Treasurer and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Except where by law the signature of the Treasurer is required, each
of the Assistant Treasurers shall possess the same power as the Treasurer to
sign all certificates, contracts, obligations and other instruments of the
Corporation.
SECTION 4.8 Chief Financial Officer.
------------------------
The Chief Financial Officer shall have the responsibility for the
accounting procedures and practices of the Corporation and shall keep or cause
to be kept at the principal office of the Corporation, and shall be responsible
for the keeping of, correct financial records of the business and transactions
of the Corporation and at all reasonable times shall exhibit such records to any
of the directors of the Corporation upon application at the office of the
Corporation where such records are kept. He shall also perform all the duties
incident to the office of Chief Financial Officer and such other duties as from
time to time may be assigned to him by the Board of Directors, the Chief
Executive Officer or the President.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 5.1 Right to Indemnification.
-------------------------
Subject to the terms and conditions of this Article V, each officer or
director of the Corporation who was or is made a party or witness or is
threatened to be made a party or witness to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or
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<PAGE>
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action or inaction in an official
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law ("DGCL"), as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided herein with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Section shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the DGCL
requires, an advancement of expenses incurred by an indemnitee shall be made
only upon delivery to the Corporation of an undertaking in the form then
required by the DGCL (if any), by or on behalf of such indemnitee, with respect
to the repayment of amounts so advanced (hereinafter an "undertaking").
SECTION 5.2 Right of Indemnitee to Bring Suit.
----------------------------------
If a claim under Section 5.1 of this Article is not paid in full by the
Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the DGCL.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
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<PAGE>
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard or conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified or to such
advancement of expenses under this Section or otherwise shall be on the
Corporation.
SECTION 5.3 Specific Limitations on Indemnification.
----------------------------------------
Notwithstanding anything in this Article to the contrary, the
Corporation shall not be obligated to make any payment to any indemnitee with
respect to any proceeding (i) to the extent that payment is actually made to the
indemnitee under any insurance policy, or is made to indemnitee by the
Corporation or an affiliate thereof otherwise than pursuant to this Article,
(ii) for any expense, liability or loss in connection with a proceeding settled
without the Corporation's written consent, which consent, however, shall not be
unreasonably withheld, (iii) for an accounting of profits made from the purchase
or sale by the indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar
provisions of any state statutory or common law, or (iv) where prohibited by
applicable law.
SECTION 5.4 Contract.
---------
The provisions of this Article shall be deemed to be a contract between
the Corporation and each director and officer who serves in such capacity at any
time while such Section is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter based in whole or in part upon any such state of
facts.
SECTION 5.5 Partial Indemnity.
------------------
If the indemnitee is entitled under any provision of this Article to
indemnification by the Corporation for some or a portion of the expenses,
liabilities or losses incurred in connection with a proceeding but not, however,
for all of the total amount thereof, the Corporation shall nevertheless
indemnify the indemnitee for the portion thereof to which the indemnitee is
entitled. Moreover, notwithstanding any other provision of this Article, to the
extent that the indemnitee has been successful on the merits or otherwise in
defense of any or all claims relating in whole or in part to a proceeding or in
defense of
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<PAGE>
any issue or matter therein, including dismissal without prejudice, the
indemnitee shall be indemnified against all loss, expense and liability incurred
in connection with the portion of the proceeding with respect to which
indemnitee was successful on the merits or otherwise.
SECTION 5.6 Non-Exclusivity of Rights.
--------------------------
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
SECTION 5.7 Insurance.
----------
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the DGCL.
SECTION 5.8 Indemnification of Employees and Agents of the Corporation.
-----------------------------------------------------------
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses, to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation, or to such
lesser extent as may be determined by the Board of Directors.
SECTION 5.9 Notice by Indemnitee and Defense of Claim.
------------------------------------------
The indemnitee shall promptly notify the Corporation in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any matter, whether civil, criminal,
administrative or investigative, but the omission so to notify the Corporation
will not relieve it from any liability which it may have to the indemnitee if
such omission does not prejudice the Corporation's rights. If such omission does
prejudice the Corporation's rights, the Corporation will be relieved from
liability only to the extent of such prejudice; nor will such omission relieve
the Corporation from any liability which is may have to the indemnitee otherwise
than under this Article V. With respect to any proceedings as to which the
indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its own
expense; and
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<PAGE>
(b) The Corporation will be entitled to assume the defense thereof,
with counsel reasonably satisfactory to the indemnitee; provided, however, that
the Corporation shall not be entitled to assume the defense of any proceeding
(and this Section 5.9 shall be inapplicable to such proceeding) if the
indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Corporation and the indemnitee with respect to such
proceeding. After notice from the Corporation to the indemnitee of its election
to assume the defense thereof, the Corporation will not be liable to the
indemnitee under this Article V for any expenses subsequently incurred by the
indemnitee in connection with the defense thereof, other than reasonable costs
of investigation or as otherwise provided below. The indemnitee shall have the
right to employ its own counsel in such proceeding but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of the indemnitee unless:
(i) The employment of counsel by the indemnitee has been
authorized by the Corporation in writing; or
(ii) The Corporation shall not have employed counsel to assume
the defense in such proceeding or shall not have assumed such defense and be
acting in connection therewith with reasonable diligence;
in each of which cases the fees and expenses of such counsel
shall be at the expense of the Corporation.
(c) The Corporation shall not settle any proceeding in any manner which
would impose any penalty or limitation on the indemnitee without the
indemnitee's written consent; provided, however, that the indemnitee will not
unreasonably withhold his consent to any proposed settlement.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Shares.
------------------------
Unless otherwise provided by a resolution of the Board of Directors,
the shares of the Corporation shall be represented by a certificate. The
certificates of stock of the Corporation shall be numbered and shall be entered
in the books of the Corporation as they are issued. They shall exhibit the
holder's name and number of shares and shall be signed by or in the name of the
Corporation by (a) the Chairman of the Board of Directors, the President or any
Vice President and (b) the Treasurer, any Assistant Treasurer, the Secretary or
any Assistant Secretary. Any or all of the signatures on a certificate may be
facsimile. In case any officer of the Corporation, transfer agent or
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<PAGE>
registrar who has signed, or whose facsimile signature has been placed upon such
certificate, shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may nevertheless be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issuance.
SECTION 6.2 Classes of Stock.
-----------------
(a) If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualification, limitations, or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences or rights.
(b) Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to applicable law (including Sections 151, 156, 202(a),
or 218(a) of the General Corporation Law of the State of Delaware) or a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights.
SECTION 6.3 Transfer.
---------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be cancelled, issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
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<PAGE>
SECTION 6.4 Record Owner.
-------------
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the laws of the State of
Delaware.
SECTION 6.5 Lost Certificates.
------------------
The Board of Directors may direct a new certificate or certificates or
uncertificated shares to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates or uncertificated shares, the Board
of Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Record Date.
------------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, 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 change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days prior to the date of
such meeting nor more than sixty days prior to any other action. If not fixed by
the Board of Directors, the record date shall be determined as provided by law.
(b) A determination of stockholders of record entitled to notice of or
to vote at a meeting of the stockholders shall apply to any adjournments of the
meeting, unless the Board of Directors fixes a new record date for the adjourned
meeting.
(c) Holders of stock on the record date are entitled to notice and to
vote or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the
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<PAGE>
case may be, notwithstanding any transfer of the shares on the books of the
Corporation after the record date, except as otherwise provided by agreement or
by law, the Certificate of Incorporation or these Bylaws.
SECTION 7.2 Execution of Instruments.
-------------------------
The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other persons, to execute any
corporate instrument or document or to sign the corporate name without
limitation, except where otherwise provided by law, the Certificate of
Incorporation or these Bylaws. Such designation may be general or confined to
specific instances.
SECTION 7.3 Voting of Securities Owned by the Corporation.
----------------------------------------------
All stock and other securities of other corporations held by the
Corporation shall be voted, and all proxies with respect thereto shall be
executed, by the person so authorized by resolution of the Board of Directors,
or, in the absence of such authorization, by the President.
SECTION 7.4 Corporate Seal.
---------------
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. If a corporate seal is
used, the same shall be at the pleasure of the officer affixing seal either (a)
a circle having on the circumference thereof the words "M.D. Labs, Inc." and in
the center "Incorporated - 1996, Delaware," or (b) a seal containing the words
"Corporate Seal" in the center thereof.
SECTION 7.5 Construction and Definitions.
-----------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of the State of
Delaware and the Certificate of Incorporation shall govern the construction of
these Bylaws.
SECTION 7.6 Amendments.
-----------
These Bylaws may be altered, amended or repealed as set forth in the
Certificate of Incorporation.
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of June 1, 1996
by and between M.D. LABS, INC., a Delaware corporation (the "Company"), and
HOOMAN NIKZAD (the "Employee").
RECITALS
A. The Company wishes to employ the Employee, and the Employee wishes
to be employed by the Company.
B. The parties wish to set forth in this Agreement the terms and
conditions of such employment.
AGREEMENTS
In consideration of the mutual promises and covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
the Company employs the Employee to serve in an executive capacity and the
Employee accepts such employment and agrees to dedicate all of his business time
and effort to Company business and perform such reasonable responsibilities and
duties as may be assigned to him from time to time by the Company's Chairman
and/or Board of Directors (the "Board"). Employee's title shall be Chief
Executive Officer of the Company, with general authority over and responsibility
for Company operations, subject to the direction of the Chairman and/or the
Board. Employee shall report directly to the Board and its Chairman. Subject to
Section 8, such title and duties may be changed from time to time by the Board;
so long as Employee is maintained in an executive capacity throughout the term
of his employment.
2. Term. This employment of Employee by the Company shall commence on
the date hereof, and continue until May 31, 1999. The term may be extended
thereafter by written agreement of the parties.
3. Compensation.
a. Salary. During the year ending May 31, 1997, the Company
shall pay Employee a base annual salary, before deducting all applicable
withholdings and car lease payments made by the Company on behalf of Employee,
at the rate of $85,000 per year, payable in accordance with the Company's
standard payroll policies. This salary level shall increase ten percent (10%)
annually in each of the years ending May 31, 1998 and 1999.
<PAGE>
b. Incentive Plan. The Company may establish and implement an
incentive compensation system which will provide additional incentive payments
to Employee based upon his performance and the performance of the Company.
4. Fringe Benefits. In addition to the options for shares of the
Company's Common Stock available to Employee under the same terms as those
available to Company employees, and any other employee benefit plans generally
available to Company employees, the Company shall include the Employee in any
group medical insurance plan maintained for the employees of the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts is discretionary with the Company but shall be
commensurate with Employee's executive status and shall include medical coverage
for Employee and Employee's family members who are eligible under the applicable
plans.
5. Vacation. Employee shall be entitled to vacation with pay in keeping
with Employee's previously established vacation practices. In addition, Employee
shall be entitled to such holidays as the Company may approve for its executive
personnel.
6. Expense Reimbursement. In addition to the compensation and benefits
provided above, the Company shall pay all reasonable expenses of Employee
incurred in connection with the performance of Employee's duties and
responsibilities to the Company pursuant to this Agreement, upon submission of
appropriate vouchers and supporting documentation in accordance with the
Company's usual and ordinary practices, provided that such expenses are
reasonable and necessary business expenses of the Company. The Company shall pay
Employee's reasonable cellular telephone expenses that are related to Company
business.
7. Termination. The Company may terminate Employee's employment prior
to the expiration of this Agreement, in the manner provided below:
a. For Cause. The Company may terminate Employee's employment
by the Company prior to the expiration of this Agreement, for cause, upon
written notice to the Employee stating the facts constituting such cause,
provided that Employee shall have 20 days following such notice to cure any
conduct or act, if curable, alleged to provide grounds for termination for cause
hereunder. In the event of termination for cause, the Company shall be obligated
to pay the Employee only the base salary due him through the date of
termination. Cause shall include willful failure to abide by instructions or
policies from or set by the Company, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
material breach of this Agreement, or breach by Employee of any other material
obligation to the Company.
b. Without Cause. The Chairman or the Company may terminate
Employee's employment by the Company at any time immediately, without cause, by
giving written notice to the Employee. If the Company terminates under this
Section 7.b, it shall pay to Employee
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<PAGE>
a lump-sum amount equal to the greater of (i) the greater of the base salary due
for the remaining term as set forth in Section 2 hereof or (ii) 12 months base
salary, in either case less applicable withholdings and shall continue coverage
of Employee and Employee's dependents under its medical plans for 12 months or
until Employee secures other employment (unless continuation of coverage under
such plans is unfeasible, in which event the Company will provide substantially
similar benefits).
c. Disability. If during the term of this Agreement, Employee
experiences a permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), the Company shall have the right to
terminate this Agreement without further obligation hereunder except for any
bonus amount payable in accordance with the next sentence and any amounts
payable pursuant to disability plans generally applicable to executive
employees. Within 90 days after the end of the fiscal year in which termination
pursuant to this Section 7.c occurs, so long as Employee is in full compliance
with this Agreement, Employee shall be entitled to receive an incentive
compensation payment (calculated and payable in the manner referred to in
Section 2.b, if any, based upon the Company's financial performance for such
fiscal year, which shall be prorated to the extent that Employees employment
during such fiscal year was for a period of less than the full year.
d. Death. If the Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and the Employee's legal
representative shall be entitled to receive the base salary due to Employee
through the 60th day from the date on which his death shall have occurred and
any other death benefits generally applicable to executive employees. In
addition, Employee's death occurs, Employee's legal representative shall be
entitled to receive, at the end of the first quarter of the year following the
fiscal year in which such death shall have occurred, an incentive compensation
payment (calculated and payable in the manner referred to in Section 2.b), if
any, based upon the Company's financial performance for such fiscal year, which
shall be prorated to the extent that Employee's employment during such fiscal
year was for a period of less than the full year.
8. Change in Control.
a. Severance Benefits. Notwithstanding Section 7.b., if your
employment with the Company terminates within 12 months after a Change in
Control (as defined in Section 8.b below), you shall be entitled to the
severance benefits provided in Section 8.d unless (i) such termination is in
accordance with Section 7.a, 7.c or 7.d above; or (ii) such termination is by
you for other than Good Reason (as defined in Section 8.c below).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the
- 3 -
<PAGE>
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
c. "Good Reason" shall mean, for purposes of this Agreement,
(i) without your express written consent, the assignment to you of duties
inconsistent with your positions, duties, responsibilities and status with the
Company immediately prior to the Change in Control, or a demotion or a change in
titles or offices as in effect immediately prior to a Change in Control (except
in connection with termination of your employment in compliance with Section
7.1, 7.c or 7.d above); or (ii) a material breach by the Company of any of its
obligations hereunder which (if curable) is not cured by the Company within 20
days after written notice thereof.
d. Amount of Benefit. If the Employee is entitled to severance
benefits under Section 8.a, the amount of such benefit shall equal (i) a
lump-sum payment not to exceed 2.99 times the "Base Amount" (as such term is
defined in Section 280G of the Internal Revenue Code of 1986) applicable to
Employee, whether or not the provisions of Section 280G actually applies to the
payment; (ii) a continuation of medical coverage in the manner contemplated in
Section 7.b above; and (iii) such other benefits to which the Employee is
entitled under the Company's benefits plans and policies as in effect
immediately prior to the Change in Control with respect to terminated Employees.
9. Confidentiality. Employee acknowledges that Employee may receive, or
contribute to the production of, confidential, proprietary, and trade secret
information of the Company, and others with whom the Company may be doing
business. For purposes of this Agreement, Employee agrees that "Confidential
Information" shall mean information or material proprietary
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<PAGE>
to the Company or designated as Confidential Information by the Company and not
generally known by non-Company personnel, which Employee develops or to which
Employee may obtain knowledge or access through or as a result of Employee's
relationship with Company (including information conceived, originated,
discovered, or developed in whole or in part by Employee). Confidential
Information includes, but is not limited to, the following types of information
and other information of a similar nature (whether or not reduced to writing):
discoveries, inventions, ideas, concepts, research, development, processes,
procedures, "know-how", formulae, marketing techniques and materials, marketing
and development plans, business plans, customer names and other information
related to customers, price lists, pricing policies, financial information,
employee compensation, and computer programs and systems. Confidential
Information also includes any information described above which the Company
obtains from another party and which the Company treats as proprietary or
designates as Confidential Information, whether or not owned by or developed by
the Company. Employee acknowledges that the Confidential Information derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use.
Information publicly known without breach of this Agreement that is
generally employed by the trade at or after the time Employee first learns of
such information, or generic information or knowledge which Employee would have
learned in the course of similar employment or work elsewhere in the trade,
shall not be deemed part of the Confidential Information.
Employee further agrees:
a. To furnish Company on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former,
and potential customers and other contacts gained while an employee of the
Company, whether or not in the possession or within the knowledge of the
Company.
b. That all notes, computer or disk memory, memoranda,
documentation, and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to
Company upon request or upon termination of Employee's employment with the
Company, regardless of whether the materials were prepared by or with the
assistance of Employee.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose, or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
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<PAGE>
d. That any ideas in whole or in part conceived of or made by
Employee during the term of his employment or relationship with the Company
which are made through the use of any of the Confidential Information of the
Company or any of the Company's equipment, facilities, trade secrets, or time,
or which result from any work performed by Employee for the Company, shall
belong exclusively to the Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Employee hereby assigns and agrees
to assign to the Company all rights in and to such Confidential Information
whether for purposes of obtaining patent or copyright protection or otherwise.
Employee shall acknowledge and deliver to the Company, without charge to Company
(but at its expense) such written instruments and do such other acts, including
giving testimony in support of Employee's authorship or inventorship, as the
case may be, necessary in the opinion of the Company to obtain patents or
copyrights or to otherwise protect or vest in the Company the entire right and
title in and to the Confidential Information.
10. Non-Competition.
a. Non-Competition During Employment Term. Employee agrees
that during the term of Employee's employment by the Company, Employee will
devote all of Employee's business time and effort to and give undivided loyalty
to the Company, and will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is competitive with the Company or its affiliates. During the term of
Employee's employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity.
b. Non-Competition After Employment Term. The parties
acknowledge that Employee will acquire much knowledge and information concerning
the business of the Company and its affiliates as the result of Employee's
employment. The parties further acknowledge that the scope of business in which
Company is engaged as of the date of execution of this Agreement is world-wide
and very competitive and one in which few companies can successfully compete.
Competition by Employee in that business after this Agreement is terminated
would severely injure Company. Accordingly, until one (1) year, or a reasonable
term determined by state law, after this Agreement is terminated or Employee
leaves the employment of Company for any reason whatsoever, Employee will not:
(1) Within any jurisdiction or marketing area in which
Company or any of its affiliates is doing business or
is qualified to do business, directly or indirectly
manage, operate, join, control, or participate or
become interested in or be connected with as an
employee, partner, officer, director, stockholder,
consultant, or investor, any corporation,
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<PAGE>
partnership, or other business entity other than the
Company or its affiliates, which shall operate a
business in competition with the business conducted
by the Company or its affiliates. Nothing herein
shall prohibit Employee from owning, solely for
investment purposes, publicly-traded securities of
any company which operates a business otherwise
covered by this Section, provided that such ownership
constitutes less than 1% of the issued and
outstanding equity or debt securities, as the case
may be, of said company.
(2) Persuade or attempt to persuade any potential
customer or client to which Company or any of its
affiliates has made a proposal or sale, or with which
Company or any of its affiliates has been having
discussions, not to transact business with Company or
such affiliate, or instead to transact business with
another person or organization;
(3) Solicit the business of any company which is a
customer or client of the Company or any of its
affiliates at any time during Employee's employment
by the Company, or was its customer or client within
3 years prior to the date of this Agreement,
provided, however, if Employee becomes employed by or
represents a business that exclusively sells products
that do not compete with products then marketed or
intended to be marketed by the Company, such contact
shall be permissible; or
(4) Solicit, endeavor to entice away from the Company or
any of its affiliates, or otherwise interfere with
the relationship of the Company or any of its
affiliates with, any person who is employed by or
otherwise engaged to perform services for the Company
or any of its affiliates, whether for Employee's
account or for the account of any other person or
organization.
c. Modification. The covenants set forth in Sections 9 and 10
shall be construed as independent of any other covenant or provision of this
Agreement or any other agreement. The Company may reduce the scope of the
obligations under the covenant unilaterally and without consent of any other
person or entity, effective upon giving notice thereof.
d. Time and Territory Reduction. If the period of time and/or
territory described above are held to be in any respect an unreasonable
restriction, it is agreed that the court so holding may reduce the territory to
which the restriction pertains or the period of time in which it operates or may
reduce both such territory and such period, to the minimum extent necessary to
render such provision enforceable.
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<PAGE>
e. Survival. The obligations described in Sections 9 and 10
shall survive any termination of this Employment Agreement or any termination of
the employment relationship created hereunder.
11. Return of the Company's Materials. Upon the termination of this
Agreement, Employee shall promptly return to the Company all files, credit
cards, keys, instruments, equipment, and other materials owned or provided by
the Company.
12. Insurance. The Company shall use commercially reasonable efforts to
carry director's and officer's professional liability insurance coverage for
Employee while in the performance of Employee's duties hereunder.
13. Remedies. In addition to other remedies provided by law or equity,
upon a breach by Employee of any of the covenants contained herein, the Company
shall be entitled to have a court of competent jurisdiction enter an injunction
against Employees prohibiting any further breach of the covenants contained
herein. The parties further agree that the services to be performed hereunder
are of a unique, special, and extraordinary character and that any breach or
threatened breach by Employee of any provision of Section 9 or 10 of this
Agreement shall cause the Company irreparable harm which cannot be remedied
solely by damages. Therefore, in the event of any controversy concerning the
rights or obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a decree of
specific performance or, if the Company elects, by obtaining damages or such
other relief as the Company may elect to pursue. Such remedies, however, shall
be cumulative and nonexclusive and shall be in addition to any other remedies
which the Company may have. The parties agree that in the event of litigation,
venue shall lie exclusively in Maricopa County, Arizona.
14. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides Company with broader protection than the
protection provided by this Agreement.
15. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights, and benefits of Employee hereunder are personal and may
not be delegated, assigned, or transferred in any manner whatsoever, nor are
such obligations, rights, or benefits subject to involuntary alienation,
assignment, or transfer. The Company may transfer its obligations hereunder to a
subsidiary, affiliate or successor.
16. Notices. All notices, demands, and communications required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes when sent to the respective addresses set forth below, (i) upon
personal delivery, (ii) one day after being sent, when sent by overnight courier
service to and from locations within the continental United States, (iii) three
days after posting when sent by registered, certified, or regular United States
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<PAGE>
mail, with postage prepaid and return receipt requested, or (iv) on the date of
transmission when sent by confirmed facsimile.
If to the Company: M.D. Labs, Inc.
1719 W. University Drive
Suite 187
Tempe, Arizona 85281
Attn: Todd P. Belfer
President
Copy to: Quarles & Brady
One E. Camelback Road
Suite 400
Phoenix, Arizona 85012
Attn: Paul M. Gales, Esq.
If to Employee: Hooman Nikzad
8100 East Camelback Road, #17
Scottsdale, Arizona 85251
Phone: 602-423-0239
Facsimile: 602-423-6926
(Or when sent to such other address as any party shall specify by written notice
so given.)
17. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties, or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
18. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
19. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
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<PAGE>
provisions hereof, but the same shall remain in full force and effect as if such
invalid or unenforceable provisions were omitted.
20. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Arizona exclusive of the
conflict of law provisions thereof.
21. Attorneys' Fees. If any party reasonably employs legal counsel to
bring an action at law or other proceedings against the other party to enforce
any of the terms hereof, the party prevailing in any such action or other
proceeding shall be paid by the other party its reasonable attorneys' fees as
well as court costs, all as determined by the court and not a jury.
22. Headings; Construction. Headings in this Agreement are for
informational purposes only and shall not be used to construe the intent of this
Agreement. The language in all parts of this Employment Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
nor against any party.
23. Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same agreement.
Delivery by any party of a facsimile signature to the other parties to this
Agreement shall constitute effective delivery by said party of an original
counterpart signature to this Agreement.
24. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators, and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
25. Binding Effect on Marital Community. Employee represents and
warrants to the Company that he has the power to bind his marital community (if
any) to all terms and provisions of this agreement by his execution hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement and caused the same to be duly delivered on its behalf as
of June 1, 1996.
M.D. LABS, INC.,
a Delaware corporation
By_______________________________________
Todd P. Belfer, President
"COMPANY"
_________________________________________
HOOMAN NIKZAD
"EMPLOYEE"
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of June 1, 1996
by and between M.D. LABS, INC., a Delaware corporation (the "Company"), and TODD
P. BELFER (the "Employee").
RECITALS
A. The Company wishes to employ the Employee, and the Employee wishes
to be employed by the Company.
B. The parties wish to set forth in this Agreement the terms and
conditions of such employment.
AGREEMENTS
In consideration of the mutual promises and covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
the Company employs the Employee to serve in an executive capacity and the
Employee accepts such employment and agrees to dedicate all of his business time
and effort to Company business and perform such reasonable responsibilities and
duties as may be assigned to him from time to time by the Company's Chief
Executive Officer and/or Board of Directors (the "Board"). Employee's title
shall be President of the Company, with such executive responsibilities as may
be assigned from time to time by, and subject to the direction of, the Chairman,
the Board and/or the Chief Executive Officer. Employee shall report directly to
the Chief Executive Officer and/or the Board. Subject to Section 8 herein, such
title and duties may be changed from time to time by the Board; so long as
Employee is maintained in an executive capacity throughout the term of his
employment.
2. Term. This employment of Employee by the Company shall commence on
the date hereof, and continue until May 31, 1999. The term may be extended
thereafter by written agreement of the parties.
3. Compensation.
a. Salary. During the year ending May 31, 1997, the Company
shall pay Employee a base annual salary, before deducting all applicable
withholdings, at the rate of $50,000 per year, payable in accordance with the
Company's standard payroll policies. This salary level shall increase ten
percent (10%) annually in each of the years ending May 31, 1998 and 1999.
<PAGE>
b. Incentive Plan. The Company may establish and implement an
incentive compensation system which will provide additional incentive payments
to Employee based upon his performance and the performance of the Company.
4. Fringe Benefits. In addition to the options for shares of the
Company's Common Stock available to Employee under the same terms as those
available to Company employees, and any other employee benefit plans generally
available to Company employees, the Company shall include the Employee in any
group medical insurance plan maintained for the employees of the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts is discretionary with the Company but shall be
commensurate with Employee's executive status and shall include medical coverage
for Employee and Employee's family members who are eligible under the applicable
plans.
5. Vacation. Employee shall be entitled to vacation with pay in keeping
with Employee's previously established vacation practices. In addition, Employee
shall be entitled to such holidays as the Company may approve for its executive
personnel.
6. Expense Reimbursement. In addition to the compensation and benefits
provided above, the Company shall pay all reasonable expenses of Employee
incurred in connection with the performance of Employee's duties and
responsibilities to the Company pursuant to this Agreement, upon submission of
appropriate vouchers and supporting documentation in accordance with the
Company's usual and ordinary practices, provided that such expenses are
reasonable and necessary business expenses of the Company. The Company shall pay
Employee's reasonable cellular telephone expenses that are related to Company
business.
7. Termination. The Company may terminate Employee's employment prior
to the expiration of this Agreement, in the manner provided below:
a. For Cause. The Company may terminate Employee's employment
by the Company prior to the expiration of this Agreement, for cause, upon
written notice to the Employee stating the facts constituting such cause,
provided that Employee shall have 20 days following such notice to cure any
conduct or act, if curable, alleged to provide grounds for termination for cause
hereunder. In the event of termination for cause, the Company shall be obligated
to pay the Employee only the base salary due him through the date of
termination. Cause shall include willful failure to abide by instructions or
policies from or set by the Company, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
material breach of this Agreement, or breach by Employee of any other material
obligation to the Company.
b. Without Cause. The Chairman or the Company may terminate
Employee's employment by the Company at any time immediately, without cause, by
giving written notice
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<PAGE>
to the Employee. If the Company terminates under this Section 7.b, it shall pay
to Employee a lump-sum amount equal to the greater of (i) the base salary due
for the remaining term as set forth in Section 2 or (ii) 12 months base salary,
in either case less applicable withholdings and shall continue coverage of
Employee and Employee's dependents under its medical plans for 12 months or
until Employee secures other employment (unless continuation of coverage under
such plans is unfeasible, in which event the Company will provide substantially
similar benefits).
c. Disability. If during the term of this Agreement, Employee
experiences a permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), the Company shall have the right to
terminate this Agreement without further obligation hereunder except for any
bonus amount payable in accordance with the next sentence and any amounts
payable pursuant to disability plans generally applicable to executive
employees. Within 90 days after the end of the fiscal year in which termination
pursuant to this Section 7.c occurs, so long as Employee is in full compliance
with this Agreement, Employee shall be entitled to receive an incentive
compensation payment (calculated and payable in the manner referred to in
Section 2.b., if any, based upon the Company's financial performance for such
fiscal year, which shall be prorated to the extent that Employees employment
during such fiscal year was for a period of less than the full year.
d. Death. If the Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and the Employee's legal
representative shall be entitled to receive the base salary due to Employee
through the 60th day from the date on which his death shall have occurred and
any other death benefits generally applicable to executive employees. In
addition, Employee's death occurs, Employee's legal representative shall be
entitled to receive, at the end of the first quarter of the year following the
fiscal year in which such death shall have occurred, an incentive compensation
payment (calculated and payable in the manner referred to in Section 2.b), if
any, based upon the Company's financial performance for such fiscal year, which
shall be prorated to the extent that Employee's employment during such fiscal
year was for a period of less than the full year.
8. Change in Control.
a. Severance Benefits. Notwithstanding Section 7.b, if your
employment with the Company terminates within 12 months after a Change in
Control (as defined in Section 8.b below), you shall be entitled to the
severance benefits provided in Section 8.d unless (i) such termination is in
accordance with Section 7.a, 7.c or 7.d above; or (ii) such termination is by
you for other than Good Reason (as defined in Section 8.c below).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the
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<PAGE>
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
c. "Good Reason" shall mean, for purposes of this Agreement,
(i) without your express written consent, the assignment to you of duties
inconsistent with your positions, duties, responsibilities and status with the
Company immediately prior to the Change in Control, or a demotion or a change in
titles or offices as in effect immediately prior to a Change in Control (except
in connection with termination of your employment in compliance with Section
7.1, 7.c or 7.d above); or (ii) a material breach by the Company of any of its
obligations hereunder which (if curable) is not cured by the Company within 20
days after written notice thereof.
d. Amount of Benefit. If the Employee is entitled to severance
benefits under Section 8.a, the amount of such benefit shall equal (i) a
lump-sum payment not to exceed 2.99 times the "Base Amount" (as such term is
defined in Section 280G of the Internal Revenue Code of 1986) applicable to
Employee, whether or not the provisions of Section 280G actually applies to the
payment; (ii) a continuation of medical coverage in the manner contemplated in
Section 7.b above; and (iii) such other benefits to which the Employee is
entitled under the Company's benefits plans and policies as in effect
immediately prior to the Change in Control with respect to terminated Employees.
9. Confidentiality. Employee acknowledges that Employee may receive, or
contribute to the production of, confidential, proprietary, and trade secret
information of the Company, and others with whom the Company may be doing
business. For purposes of this Agreement, Employee agrees that "Confidential
Information" shall mean information or material proprietary
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<PAGE>
to the Company or designated as Confidential Information by the Company and not
generally known by non-Company personnel, which Employee develops or to which
Employee may obtain knowledge or access through or as a result of Employee's
relationship with Company (including information conceived, originated,
discovered, or developed in whole or in part by Employee). Confidential
Information includes, but is not limited to, the following types of information
and other information of a similar nature (whether or not reduced to writing):
discoveries, inventions, ideas, concepts, research, development, processes,
procedures, "know-how", formulae, marketing techniques and materials, marketing
and development plans, business plans, customer names and other information
related to customers, price lists, pricing policies, financial information,
employee compensation, and computer programs and systems. Confidential
Information also includes any information described above which the Company
obtains from another party and which the Company treats as proprietary or
designates as Confidential Information, whether or not owned by or developed by
the Company. Employee acknowledges that the Confidential Information derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use.
Information publicly known without breach of this Agreement that is
generally employed by the trade at or after the time Employee first learns of
such information, or generic information or knowledge which Employee would have
learned in the course of similar employment or work elsewhere in the trade,
shall not be deemed part of the Confidential Information.
Employee further agrees:
a. To furnish Company on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former,
and potential customers and other contacts gained while an employee of the
Company, whether or not in the possession or within the knowledge of the
Company.
b. That all notes, computer or disk memory, memoranda,
documentation, and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to
Company upon request or upon termination of Employee's employment with the
Company, regardless of whether the materials were prepared by or with the
assistance of Employee.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose, or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
- 5 -
<PAGE>
d. That any ideas in whole or in part conceived of or made by
Employee during the term of his employment or relationship with the Company
which are made through the use of any of the Confidential Information of the
Company or any of the Company's equipment, facilities, trade secrets, or time,
or which result from any work performed by Employee for the Company, shall
belong exclusively to the Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Employee hereby assigns and agrees
to assign to the Company all rights in and to such Confidential Information
whether for purposes of obtaining patent or copyright protection or otherwise.
Employee shall acknowledge and deliver to the Company, without charge to Company
(but at its expense) such written instruments and do such other acts, including
giving testimony in support of Employee's authorship or inventorship, as the
case may be, necessary in the opinion of the Company to obtain patents or
copyrights or to otherwise protect or vest in the Company the entire right and
title in and to the Confidential Information.
10. Non-Competition.
a. Non-Competition During Employment Term. Employee agrees
that during the term of Employee's employment by the Company, Employee will
devote all of Employee's business time and effort to and give undivided loyalty
to the Company, and will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is competitive with the Company or its affiliates. During the term of
Employee's employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity.
b. Non-Competition After Employment Term. The parties
acknowledge that Employee will acquire much knowledge and information concerning
the business of the Company and its affiliates as the result of Employee's
employment. The parties further acknowledge that the scope of business in which
Company is engaged as of the date of execution of this Agreement is world-wide
and very competitive and one in which few companies can successfully compete.
Competition by Employee in that business after this Agreement is terminated
would severely injure Company. Accordingly, until one (1) year, or a reasonable
term determined by state law, after this Agreement is terminated or Employee
leaves the employment of Company for any reason whatsoever, Employee will not:
(1) Within any jurisdiction or marketing area in which
Company or any of its affiliates is doing business or
is qualified to do business, directly or indirectly
manage, operate, join, control, or participate or
become interested in or be connected with as an
employee, partner, officer, director, stockholder,
consultant, or investor, any corporation,
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<PAGE>
partnership, or other business entity other than the
Company or its affiliates, which shall operate a
business in competition with the business conducted
by the Company or its affiliates. Nothing herein
shall prohibit Employee from owning, solely for
investment purposes, publicly-traded securities of
any company which operates a business otherwise
covered by this Section, provided that such ownership
constitutes less than 1% of the issued and
outstanding equity or debt securities, as the case
may be, of said company.
(2) Persuade or attempt to persuade any potential
customer or client to which Company or any of its
affiliates has made a proposal or sale, or with which
Company or any of its affiliates has been having
discussions, not to transact business with Company or
such affiliate, or instead to transact business with
another person or organization;
(3) Solicit the business of any company which is a
customer or client of the Company or any of its
affiliates at any time during Employee's employment
by the Company, or was its customer or client within
3 years prior to the date of this Agreement,
provided, however, if Employee becomes employed by or
represents a business that exclusively sells products
that do not compete with products then marketed or
intended to be marketed by the Company, such contact
shall be permissible; or
(4) Solicit, endeavor to entice away from the Company or
any of its affiliates, or otherwise interfere with
the relationship of the Company or any of its
affiliates with, any person who is employed by or
otherwise engaged to perform services for the Company
or any of its affiliates, whether for Employee's
account or for the account of any other person or
organization.
c. Modification. The covenants set forth in Sections 9 and 10
shall be construed as independent of any other covenant or provision of this
Agreement or any other agreement. The Company may reduce the scope of the
obligations under the covenant unilaterally and without consent of any other
person or entity, effective upon giving notice thereof.
d. Time and Territory Reduction. If the period of time and/or
territory described above are held to be in any respect an unreasonable
restriction, it is agreed that the court so holding may reduce the territory to
which the restriction pertains or the period of time in which it operates or may
reduce both such territory and such period, to the minimum extent necessary to
render such provision enforceable.
- 7 -
<PAGE>
e. Survival. The obligations described in Sections 9 and 10
shall survive any termination of this Employment Agreement or any termination of
the employment relationship created hereunder.
11. Return of the Company's Materials. Upon the termination of this
Agreement, Employee shall promptly return to the Company all files, credit
cards, keys, instruments, equipment, and other materials owned or provided by
the Company.
12. Insurance. The Company shall use commercially reasonable efforts to
carry director's and officer's professional liability insurance coverage for
Employee while in the performance of Employee's duties hereunder.
13. Remedies. In addition to other remedies provided by law or equity,
upon a breach by Employee of any of the covenants contained herein, the Company
shall be entitled to have a court of competent jurisdiction enter an injunction
against Employees prohibiting any further breach of the covenants contained
herein. The parties further agree that the services to be performed hereunder
are of a unique, special, and extraordinary character and that any breach or
threatened breach by Employee of any provision of Section 9 or 10 of this
Agreement shall cause the Company irreparable harm which cannot be remedied
solely by damages. Therefore, in the event of any controversy concerning the
rights or obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a decree of
specific performance or, if the Company elects, by obtaining damages or such
other relief as the Company may elect to pursue. Such remedies, however, shall
be cumulative and nonexclusive and shall be in addition to any other remedies
which the Company may have. The parties agree that in the event of litigation,
venue shall lie exclusively in Maricopa County, Arizona.
14. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides Company with broader protection than the
protection provided by this Agreement.
15. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights, and benefits of Employee hereunder are personal and may
not be delegated, assigned, or transferred in any manner whatsoever, nor are
such obligations, rights, or benefits subject to involuntary alienation,
assignment, or transfer. The Company may transfer its obligations hereunder to a
subsidiary, affiliate or successor.
16. Notices. All notices, demands, and communications required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes when sent to the respective addresses set forth below, (i) upon
personal delivery, (ii) one day after being sent, when sent by overnight courier
service to and from locations within the continental United States, (iii) three
days after posting when sent by registered, certified, or regular United States
- 8 -
<PAGE>
mail, with postage prepaid and return receipt requested, or (iv) on the date of
transmission when sent by confirmed facsimile.
If to the Company: M.D. Labs, Inc.
1719 W. University Drive
Suite 187
Tempe, Arizona 85281
Attn: Hooman Nikzad
Chief Executive Officer
Copy to: Quarles & Brady
One E. Camelback Road
Suite 400
Phoenix, Arizona 85012
Attn: Paul M. Gales, Esq.
If to Employee: Todd P. Belfer
4422 North 24th Street
Phoenix, Arizona 85016
Phone: 602-508-0155
Facsimile: 602-957-8027
(Or when sent to such other address as any party shall specify by written notice
so given.)
17. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties, or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
18. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
19. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
- 9 -
<PAGE>
provisions hereof, but the same shall remain in full force and effect as if such
invalid or unenforceable provisions were omitted.
20. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Arizona exclusive of the
conflict of law provisions thereof.
21. Attorneys' Fees. If any party reasonably employs legal counsel to
bring an action at law or other proceedings against the other party to enforce
any of the terms hereof, the party prevailing in any such action or other
proceeding shall be paid by the other party its reasonable attorneys' fees as
well as court costs, all as determined by the court and not a jury.
22. Headings; Construction. Headings in this Agreement are for
informational purposes only and shall not be used to construe the intent of this
Agreement. The language in all parts of this Employment Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
nor against any party.
23. Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same agreement.
Delivery by any party of a facsimile signature to the other parties to this
Agreement shall constitute effective delivery by said party of an original
counterpart signature to this Agreement.
24. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators, and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
25. Binding Effect on Marital Community. Employee represents and
warrants to the Company that he has the power to bind his marital community (if
any) to all terms and provisions of this agreement by his execution hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement and caused the same to be duly delivered on its behalf as
of June 1, 1996.
M.D. LABS, INC.,
a Delaware corporation
By______________________________________
Hooman Nikzad, Chief Executive Officer
"COMPANY"
________________________________________
TODD P. BELFER
"EMPLOYEE"
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CONSULTING AND NONCOMPETITION AGREEMENT
This Consulting And Noncompetition Agreement (the
"Agreement"), which shall be effective as of June 1, 1996, is by and between
M.D. Labs, Inc., a Delaware corporation ("M.D. Labs" or "Company") and Harvey A.
Belfer ("Consultant").
RECITALS
A. Consultant is qualified and experienced in the business of
consulting in connection with the Company's industry and general business
matters.
B. The Company desires to contract with Consultant to provide
the services of Consultant to the Company on an as-needed basis.
C. Consultant represents that he can perform those services in
a high-quality manner based on his qualifications and experience.
D. It is deemed to be to the mutual advantage of the Company
and Consultant to enter into this Agreement upon the terms and conditions set
forth below.
AGREEMENTS
In consideration of the mutual promises and covenants set
forth herein and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, it is hereby agreed as follows:
1. Engagement as a Consultant. The Company hereby engages
Consultant and Consultant hereby accepts such engagement with the
Company as a consultant in accordance with the terms and conditions set
forth herein. Consultant agrees to provide his services and will devote
his skill, knowledge, and attention to the business of the Company and
the performance of Consultant's duties under this Agreement.
2. Term. This engagement of Consultant by the Company shall
commence on June 1, 1996, and continue until May 31, 1999. Thereafter,
this Agreement may be renewed only by a written agreement signed by
both parties.
3. Duties. Consultant agrees that he shall be available to the
Company, as may be requested by the Company, during the term of this
Agreement. Consultant shall be responsible for the following duties
during the term of this Agreement:
a. Provide consulting services in connection with the
manufacturing operations, marketing, and sales activities and
business affairs of the Company,
<PAGE>
as may be assigned by the Chief Executive Officer or Board of
Directors of the Company from time to time;
b. Perform such other duties as may be assigned by
the Chief Executive Officer or Board of Directors of the
Company from time to time.
Consultant agrees to serve the Company faithfully, diligently,
and to the best of his ability and to devote his working time,
attention, and energies to the Company's business as required for the
efficient and timely performance of Consultant's duties hereunder.
Consultant shall act in the best interests of the Company at all times
in performing his duties and responsibilities hereunder.
4. Compensation. Consultant shall receive as his entire
compensation from the Company for his services hereunder a fee of
$12,000 for the year ending May 31, 1997. The Consultant shall be paid
by Company check mailed to Consultant at the address appearing in (or
subsequently designated pursuant to) Section of this Agreement at
regularly scheduled intervals determined by the Company. This fee shall
increase ten percent (10%) annually in each of the years ending May 31,
1998 and 1999.
5. Expense Reimbursement. The Company shall pay all ordinary
and reasonable expenses of Consultant incurred in connection with the
rendering of services to the Company as a consultant pursuant to this
Agreement, upon submission of appropriate vouchers and supporting
documentation in accordance with the Company's usual and ordinary
practices, provided that such expenses are reasonable and necessary
business expenses of the Company, and provided further that all items
for which at least $250 in reimbursement is requested must be approved
in advance, in writing, by the Company. Company shall also reimburse
Consultant for his reasonable family health care insurance premiums.
6. Return of the Company's Materials. Upon the termination of
this Agreement, Consultant shall promptly return to the Company all
files, credit cards, keys, instruments, equipment, and other materials,
if any, owned or provided by the Company.
7. Terms of Consulting Arrangement. Consultant will be the
sole judge of the means, manner, and method by which he will perform
the services contracted for, the times at which those services will be
performed (within the deadlines reasonably established by the Company)
and the sequence of performance of those services. Consultant warrants
that he will perform the services for which he has contracted in a
timely and workmanlike manner. Consultant acknowledges that for the
term of this Agreement, Consultant is not an employee of the Company
and that he will not be treated or regarded as the Company's employee
under the laws or regulations of any government or governmental agency.
This Agreement does not constitute a hiring by
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<PAGE>
either party. The Consultant and the Company will be and shall remain
independent contractors bound by the provisions of this Agreement.
Consultant is under the control of the Company only as to the result of
Consultant's work and not as to the means, manner, and methods by which
such result is accomplished. Neither party hereto shall be liable for
any obligation incurred by the other except as provided in Section of
this Agreement. The Company shall not withhold from Consultant's fees
any amounts for income taxes or other similar assessments. The Company
shall provide the use of its employees as deemed suitable by the
Company to assist Consultant in carrying out his duties hereunder.
8. Non-Competition. Consultant will not, during the term of
this Agreement, directly or indirectly manage, operate, join, control,
or participate or become interested in or be connected with as an
employee, partner, officer, director, stockholder, consultant, or
investor, any corporation, partnership, or other business entity other
than the Company or its affiliates, which shall operate a business in
competition with the business conducted by the Company or its
affiliates. Nothing herein shall prohibit Consultant from owning,
solely for investment purposes, publicly-traded securities of any
company which operates a business otherwise covered by this Section ,
provided that such ownership constitutes less than 1% of the issued and
outstanding equity or debt securities, as the case may be, of such
company.
9. Confidential Treatment of Information. Consultant shall
not, either during or after the term of this Agreement, directly or
indirectly publish or disclose to any third party any confidential
information pertaining to the business of the Company unless the
Company gives written authorization to do so. Such information shall
not be used apart from Company business without the written approval of
the Company. Such prohibition against disclosure applies to all
confidential information, such as non-public information about the
Company's finances, any trade secrets, and any other information which
is normally kept confidential by the Company.
10. Remedies. The parties further agree that the services to
be performed hereunder are of a unique, special, and extraordinary
character and that any breach or threatened breach by Consultant of any
provision of Section or 9 of this Agreement shall cause the Company
irreparable harm which cannot be remedied solely by damages. Therefore,
in the event of any controversy concerning the rights or obligations
under this Agreement, such rights or obligations shall be enforceable
in a court of competent jurisdiction at law or in equity by an
injunction or a decree of specific performance or, if the Company
elects, by obtaining damages or such other relief as the Company may
elect to pursue. Such remedies, however, shall be cumulative and
nonexclusive and shall be in addition to any other remedies which the
Company may have.
- 3 -
<PAGE>
11. Indemnity. The Company shall not be liable for and
Consultant shall indemnify, defend, and hold the Company harmless from
any liability, claim, or loss whatsoever for any injury to or death of
Consultant, or for any damages to Consultant's property or the property
of any of its representatives or agents unless and only to the extent
that such loss or damage is directly caused by the negligence of the
Company or its employees. Consultant shall also indemnify, defend, and
hold the Company harmless from any liability, claim, or loss whatsoever
for any personal injury or death and for any property damage resulting
from the conduct or negligent omission of Consultant or his
representatives or agents.
12. Taxes. Consultant shall be responsible for reporting and
paying any and all taxes imposed by any government or governmental
entity whatsoever in connection with the payments to Consultant
contemplated by this Agreement, and shall indemnify and hold the
Company harmless with respect thereto.
13. Assignment. This Agreement and the respective rights,
duties, and obligations of Consultant hereunder may not be assigned and
may not be delegated by Consultant, but the respective rights, duties,
and obligations of the Company hereunder may be assigned or delegated
by the Company to a parent or affiliated corporation or entity.
14. Notice. All notices, demands, instructions, or requests
relating to this Agreement shall be in writing and, except as otherwise
provided herein, shall be deemed to have been given for all purposes
(i) upon personal delivery, (ii) one day after being sent, when sent by
professional overnight courier service from and to locations within the
Continental United States, (iii) five days after posting when sent by
United States registered or certified mail, with return receipt
requested and postage paid, or (iv) on the date of transmission when
sent by facsimile with a hard-copy confirmation; if directed to the
person or entity to which notice is to be given at his or its address
set forth in this Agreement or at any other address such person or
entity has designated by notice.
To the Company: M.D. LABS, INC.
1719 W. University Drive
Suite 187
Tempe, Arizona 85281
Attn: Chief Executive Officer
Ph: 602-437-0127
Fax: 602-437-8561
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<PAGE>
To Consultant: HARVEY A. BELFER
6109 East Indian Bend
Paradise Valley, Arizona 85253
Ph: 602-922-8888
Fax: 602-922-4555
15. Entire Agreement. This Agreement constitutes the final
written expression of all of the agreements between the parties (except
those relating to Consultant's service as a director of the Company),
and is a complete and exclusive statement of those terms. It supersedes
all understandings and negotiations concerning the matters specified
herein. Any representations, promises, warranties, or statements made
by either party that differ in any way from the terms of this written
Agreement shall be given no force or effect. The parties specifically
represent, each to the other, that there are no additional or
supplemental agreements between them related in any way to the matters
herein contained unless specifically included or referred to herein. No
addition to or modification of any provision of this Agreement shall be
binding upon any party unless made in writing and signed by all
parties.
16. Waiver. The waiver by either party of the breach of any
covenant or provision in this Agreement shall not operate or be
construed as a waiver of any subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this
Agreement are severable, it being the intention of the parties hereto
that should any provisions hereof be invalid or unenforceable, such
invalidity or unenforceability of any provision shall not affect the
remaining provisions hereof, but the same shall remain in full force
and effect as if such invalid or unenforceable provisions were omitted.
18. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the
State of Arizona, exclusive of the conflict of law provisions thereof,
and the parties agree that any litigation pertaining to this Agreement
shall be in courts located in Maricopa County, Arizona.
19. Headings. Headings in this Agreement are for informational
purposes only and shall not be used to construe the intent of this
Agreement.
20. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be
deemed an original but all of which together shall constitute one and
the same agreement.
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<PAGE>
21. Binding Effect; Benefits. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors, executors, administrators, and assigns.
Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators, and assigns any rights,
remedies, obligations, or liabilities under or by reason of this
Agreement.
22. Attorneys' Fees. If any party finds it necessary to employ
legal counsel or to bring an action at law or other proceeding against
the other party to enforce any of the terms hereof, the party
prevailing in any such action or other proceeding shall be paid by the
other party its reasonable attorneys' fees as well as court costs all
as determined by the court and not a jury.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Consulting Agreement and caused the same to be duly delivered on its behalf as
of the date first above written.
M.D. LABS, INC.
___________________________________
By: Hooman Nikzad
Its: Chief Executive Officer
the "COMPANY"
HARVEY A. BELFER
___________________________________
By:
"CONSULTANT"
- 6 -
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of June 1, 1996
by and between M.D. LABS, INC., a Delaware corporation (the "Company"), and
FRADJOLLAH DJAHANDIDEH (the "Employee").
RECITALS
A. The Company wishes to employ the Employee, and the Employee wishes
to be employed by the Company.
B. The parties wish to set forth in this Agreement the terms and
conditions of such employment.
AGREEMENTS
In consideration of the mutual promises and covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
the Company employs the Employee to serve in an executive capacity and the
Employee accepts such employment and agrees to dedicate all of his business time
and effort to Company business and perform such reasonable responsibilities and
duties as may be assigned to him from time to time by the Company's Chief
Executive Officer and/or Board of Directors (the "Board"). Employee's titles
shall be Vice President - Operations, Secretary and Treasurer of the Company,
with such executive responsibilities as may be assigned from time to time by,
and subject to the direction of, the Chairman, the Board and/or the Chief
Executive Officer. Employee shall report directly to the Chief Executive
Officer. Subject to Section 8, such title and duties may be changed from time to
time by the Board; so long as Employee is maintained in an executive capacity
throughout the term of his employment.
2. Term. This employment of Employee by the Company shall commence on
the date hereof, and continue until May 31, 1999. The term may be extended
thereafter by written agreement of the parties.
3. Compensation.
a. Salary. During the year ending May 31, 1997, the Company
shall pay Employee a base annual salary, before deducting all applicable
withholdings, at the rate of $85,000 per year, payable in accordance with the
Company's standard payroll policies. This salary level shall increase ten
percent (10%) annually in each of the years ending May 31, 1998 and 1999.
<PAGE>
b. Incentive Plan. The Company may establish and implement an
incentive compensation system which will provide additional incentive payments
to Employee based upon his performance and the performance of the Company.
4. Fringe Benefits. In addition to the options for shares of the
Company's Common Stock available to Employee under the same terms as those
available to Company employees, and any other employee benefit plans generally
available to Company employees, the Company shall include the Employee in any
group medical insurance plan maintained for the employees of the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts is discretionary with the Company but shall be
commensurate with Employee's executive status and shall include medical coverage
for Employee and Employee's family members who are eligible under the applicable
plans.
5. Vacation. Employee shall be entitled to vacation with pay in keeping
with Employee's previously established vacation practices. In addition, Employee
shall be entitled to such holidays as the Company may approve for its executive
personnel.
6. Expense Reimbursement. In addition to the compensation and benefits
provided above, the Company shall pay all reasonable expenses of Employee
incurred in connection with the performance of Employee's duties and
responsibilities to the Company pursuant to this Agreement, upon submission of
appropriate vouchers and supporting documentation in accordance with the
Company's usual and ordinary practices, provided that such expenses are
reasonable and necessary business expenses of the Company. The Company shall pay
Employee's reasonable cellular telephone expenses that are related to Company
business.
7. Termination. The Company may terminate Employee's employment prior
to the expiration of this Agreement, in the manner provided below:
a. For Cause. The Company may terminate Employee's employment
by the Company prior to the expiration of this Agreement, for cause, upon
written notice to the Employee stating the facts constituting such cause,
provided that Employee shall have 20 days following such notice to cure any
conduct or act, if curable, alleged to provide grounds for termination for cause
hereunder. In the event of termination for cause, the Company shall be obligated
to pay the Employee only the base salary due him through the date of
termination. Cause shall include willful failure to abide by instructions or
policies from or set by the Company, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
material breach of this Agreement, or breach by Employee of any other material
obligation to the Company.
b. Without Cause. The Chairman or the Company may terminate
Employee's employment by the Company at any time immediately, without cause, by
giving written notice
- 2 -
<PAGE>
to the Employee. If the Company terminates under this Section 7.b it shall pay
to Employee a lump-sum amount equal to the (i) the greater of the base salary
due for the remaining term as set forth in Section 2 hereof or (ii) 12 months
base salary, in either case less applicable withholdings and shall continue
coverage of Employee and Employee's dependents under its medical plans for 12
months or until Employee secures other employment (unless continuation of
coverage under such plans is unfeasible, in which event the Company will provide
substantially similar benefits).
c. Disability. If during the term of this Agreement, Employee
experiences a permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), the Company shall have the right to
terminate this Agreement without further obligation hereunder except for any
bonus amount payable in accordance with the next sentence and any amounts
payable pursuant to disability plans generally applicable to executive
employees. Within 90 days after the end of the fiscal year in which termination
pursuant to this Section 7.c occurs, so long as Employee is in full compliance
with this Agreement, Employee shall be entitled to receive an incentive
compensation payment (calculated and payable in the manner referred to in
Section 2.b, if any, based upon the Company's financial performance for such
fiscal year, which shall be prorated to the extent that Employees employment
during such fiscal year was for a period of less than the full year.
d. Death. If the Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and the Employee's legal
representative shall be entitled to receive the base salary due to Employee
through the 60th day from the date on which his death shall have occurred and
any other death benefits generally applicable to executive employees. In
addition, Employee's death occurs, Employee's legal representative shall be
entitled to receive, at the end of the first quarter of the year following the
fiscal year in which such death shall have occurred, an incentive compensation
payment (calculated and payable in the manner referred to in Section 2.b), if
any, based upon the Company's financial performance for such fiscal year, which
shall be prorated to the extent that Employee's employment during such fiscal
year was for a period of less than the full year.
8. Change in Control.
a. Severance Benefits. Notwithstanding Section 7.b, if your
employment with the Company terminates within 12 months after a Change in
Control (as defined in Section 8.b below), you shall be entitled to the
severance benefits provided in Section 8.d unless (i) such termination is in
accordance with Section 7.a, 7.c or 7.d above; or (ii) such termination is by
you for other than Good Reason (as defined in Section 8.c below).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under
- 3 -
<PAGE>
an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Common Stock of the surviving entity) at least two-thirds
of the total voting power represented by the Common Stock of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all the Company's
assets.
c. "Good Reason" shall mean, for purposes of this Agreement,
(i) without your express written consent, the assignment to you of duties
inconsistent with your positions, duties, responsibilities and status with the
Company immediately prior to the Change in Control, or a demotion or a change in
titles or offices as in effect immediately prior to a Change in Control (except
in connection with termination of your employment in compliance with Section
7.1, 7.c or 7.d above); or (ii) a material breach by the Company of any of its
obligations hereunder which (if curable) is not cured by the Company within 20
days after written notice thereof.
d. Amount of Benefit. If the Employee is entitled to severance
benefits under Section 8.a, the amount of such benefit shall equal (i) a
lump-sum payment not to exceed 2.99 times the "Base Amount" (as such term is
defined in Section 280G of the Internal Revenue Code of 1986) applicable to
Employee, whether or not the provisions of Section 280G actually applies to the
payment; (ii) a continuation of medical coverage in the manner contemplated in
Section 7.b above; and (iii) such other benefits to which the Employee is
entitled under the Company's benefits plans and policies as in effect
immediately prior to the Change in Control with respect to terminated Employees.
9. Confidentiality. Employee acknowledges that Employee may receive, or
contribute to the production of, confidential, proprietary, and trade secret
information of the Company, and others with whom the Company may be doing
business. For purposes of this Agreement,
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<PAGE>
Employee agrees that "Confidential Information" shall mean information or
material proprietary to the Company or designated as Confidential Information by
the Company and not generally known by non-Company personnel, which Employee
develops or to which Employee may obtain knowledge or access through or as a
result of Employee's relationship with Company (including information conceived,
originated, discovered, or developed in whole or in part by Employee).
Confidential Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not reduced to
writing): discoveries, inventions, ideas, concepts, research, development,
processes, procedures, "know-how", formulae, marketing techniques and materials,
marketing and development plans, business plans, customer names and other
information related to customers, price lists, pricing policies, financial
information, employee compensation, and computer programs and systems.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats as proprietary
or designates as Confidential Information, whether or not owned by or developed
by the Company. Employee acknowledges that the Confidential Information derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use.
Information publicly known without breach of this Agreement that is
generally employed by the trade at or after the time Employee first learns of
such information, or generic information or knowledge which Employee would have
learned in the course of similar employment or work elsewhere in the trade,
shall not be deemed part of the Confidential Information.
Employee further agrees:
a. To furnish Company on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former,
and potential customers and other contacts gained while an employee of the
Company, whether or not in the possession or within the knowledge of the
Company.
b. That all notes, computer or disk memory, memoranda,
documentation, and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to
Company upon request or upon termination of Employee's employment with the
Company, regardless of whether the materials were prepared by or with the
assistance of Employee.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose, or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
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<PAGE>
d. That any ideas in whole or in part conceived of or made by
Employee during the term of his employment or relationship with the Company
which are made through the use of any of the Confidential Information of the
Company or any of the Company's equipment, facilities, trade secrets, or time,
or which result from any work performed by Employee for the Company, shall
belong exclusively to the Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Employee hereby assigns and agrees
to assign to the Company all rights in and to such Confidential Information
whether for purposes of obtaining patent or copyright protection or otherwise.
Employee shall acknowledge and deliver to the Company, without charge to Company
(but at its expense) such written instruments and do such other acts, including
giving testimony in support of Employee's authorship or inventorship, as the
case may be, necessary in the opinion of the Company to obtain patents or
copyrights or to otherwise protect or vest in the Company the entire right and
title in and to the Confidential Information.
10. Non-Competition.
a. Non-Competition During Employment Term. Employee agrees
that during the term of Employee's employment by the Company, Employee will
devote all of Employee's business time and effort to and give undivided loyalty
to the Company, and will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is competitive with the Company or its affiliates. During the term of
Employee's employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity.
b. Non-Competition After Employment Term. The parties
acknowledge that Employee will acquire much knowledge and information concerning
the business of the Company and its affiliates as the result of Employee's
employment. The parties further acknowledge that the scope of business in which
Company is engaged as of the date of execution of this Agreement is world-wide
and very competitive and one in which few companies can successfully compete.
Competition by Employee in that business after this Agreement is terminated
would severely injure Company. Accordingly, until one (1) year, or a reasonable
term determined by state law, after this Agreement is terminated or Employee
leaves the employment of Company for any reason whatsoever, Employee will not:
(1) Within any jurisdiction or marketing area in which
Company or any of its affiliates is doing business or
is qualified to do business, directly or indirectly
manage, operate, join, control, or participate or
become interested in or be connected with as an
employee, partner, officer, director, stockholder,
consultant, or investor, any corporation,
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<PAGE>
partnership, or other business entity other than the
Company or its affiliates, which shall operate a
business in competition with the business conducted
by the Company or its affiliates. Nothing herein
shall prohibit Employee from owning, solely for
investment purposes, publicly-traded securities of
any company which operates a business otherwise
covered by this Section, provided that such ownership
constitutes less than 1% of the issued and
outstanding equity or debt securities, as the case
may be, of said company.
(2) Persuade or attempt to persuade any potential
customer or client to which Company or any of its
affiliates has made a proposal or sale, or with which
Company or any of its affiliates has been having
discussions, not to transact business with Company or
such affiliate, or instead to transact business with
another person or organization;
(3) Solicit the business of any company which is a
customer or client of the Company or any of its
affiliates at any time during Employee's employment
by the Company, or was its customer or client within
3 years prior to the date of this Agreement,
provided, however, if Employee becomes employed by or
represents a business that exclusively sells products
that do not compete with products then marketed or
intended to be marketed by the Company, such contact
shall be permissible; or
(4) Solicit, endeavor to entice away from the Company or
any of its affiliates, or otherwise interfere with
the relationship of the Company or any of its
affiliates with, any person who is employed by or
otherwise engaged to perform services for the Company
or any of its affiliates, whether for Employee's
account or for the account of any other person or
organization.
c. Modification. The covenants set forth in Sections 9 and 10
shall be construed as independent of any other covenant or provision of this
Agreement or any other agreement. The Company may reduce the scope of the
obligations under the covenant unilaterally and without consent of any other
person or entity, effective upon giving notice thereof.
d. Time and Territory Reduction. If the period of time and/or
territory described above are held to be in any respect an unreasonable
restriction, it is agreed that the court so holding may reduce the territory to
which the restriction pertains or the period of time in which it operates or may
reduce both such territory and such period, to the minimum extent necessary to
render such provision enforceable.
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<PAGE>
e. Survival. The obligations described in Sections 9 and 10
shall survive any termination of this Employment Agreement or any termination of
the employment relationship created hereunder.
11. Return of the Company's Materials. Upon the termination of this
Agreement, Employee shall promptly return to the Company all files, credit
cards, keys, instruments, equipment, and other materials owned or provided by
the Company.
12. Insurance. The Company shall use commercially reasonable efforts to
carry director's and officer's professional liability insurance coverage for
Employee while in the performance of Employee's duties hereunder.
13. Remedies. In addition to other remedies provided by law or equity,
upon a breach by Employee of any of the covenants contained herein, the Company
shall be entitled to have a court of competent jurisdiction enter an injunction
against Employees prohibiting any further breach of the covenants contained
herein. The parties further agree that the services to be performed hereunder
are of a unique, special, and extraordinary character and that any breach or
threatened breach by Employee of any provision of Section 9 or 10 of this
Agreement shall cause the Company irreparable harm which cannot be remedied
solely by damages. Therefore, in the event of any controversy concerning the
rights or obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a decree of
specific performance or, if the Company elects, by obtaining damages or such
other relief as the Company may elect to pursue. Such remedies, however, shall
be cumulative and nonexclusive and shall be in addition to any other remedies
which the Company may have. The parties agree that in the event of litigation,
venue shall lie exclusively in Maricopa County, Arizona.
14. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides Company with broader protection than the
protection provided by this Agreement.
15. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights, and benefits of Employee hereunder are personal and may
not be delegated, assigned, or transferred in any manner whatsoever, nor are
such obligations, rights, or benefits subject to involuntary alienation,
assignment, or transfer. The Company may transfer its obligations hereunder to a
subsidiary, affiliate or successor.
16. Notices. All notices, demands, and communications required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes when sent to the respective addresses set forth below, (i) upon
personal delivery, (ii) one day after being sent, when sent by overnight courier
service to and from locations within the continental United States, (iii) three
days after posting when sent by registered, certified, or regular United States
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<PAGE>
mail, with postage prepaid and return receipt requested, or (iv) on the date of
transmission when sent by confirmed facsimile.
If to the Company: M.D. Labs, Inc.
1719 W. University Drive
Suite 187
Tempe, Arizona 85281
Attn: Hooman Nikzad
Chief Executive Officer
Copy to: Quarles & Brady
One E. Camelback Road
Suite 400
Phoenix, Arizona 85012
Attn: Paul M. Gales, Esq.
If to Employee: Fradjollah Djahandideh
22663 Waterbury
Woodland Hills, California 91364
Phone: 602-947-3966
Facsimile: N/A
(Or when sent to such other address as any party shall specify by written notice
so given.)
17. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties, or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
18. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
19. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
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<PAGE>
provisions hereof, but the same shall remain in full force and effect as if such
invalid or unenforceable provisions were omitted.
20. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Arizona exclusive of the
conflict of law provisions thereof.
21. Attorneys' Fees. If any party reasonably employs legal counsel to
bring an action at law or other proceedings against the other party to enforce
any of the terms hereof, the party prevailing in any such action or other
proceeding shall be paid by the other party its reasonable attorneys' fees as
well as court costs, all as determined by the court and not a jury.
22. Headings; Construction. Headings in this Agreement are for
informational purposes only and shall not be used to construe the intent of this
Agreement. The language in all parts of this Employment Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
nor against any party.
23. Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same agreement.
Delivery by any party of a facsimile signature to the other parties to this
Agreement shall constitute effective delivery by said party of an original
counterpart signature to this Agreement.
24. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators, and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
25. Binding Effect on Marital Community. Employee represents and
warrants to the Company that he has the power to bind his marital community (if
any) to all terms and provisions of this agreement by his execution hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement and caused the same to be duly delivered on its behalf as
of June 1, 1996.
M.D. LABS, INC.,
a Delaware corporation
By
------------------------------------
Hooman Nikzad, Chief Executive Officer
"COMPANY"
--------------------------------------
FRADJOLLAH DJAHANDIDEH
"EMPLOYEE"
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of June 1, 1996
by and between M.D. LABS, INC., a Delaware corporation (the "Company"), and
BRADLEY A. DENTON (the "Employee").
RECITALS
A. The Company wishes to employ the Employee, and the Employee wishes
to be employed by the Company.
B. The parties wish to set forth in this Agreement the terms and
conditions of such employment.
AGREEMENTS
In consideration of the mutual promises and covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
the Company employs the Employee to serve in an executive capacity and the
Employee accepts such employment and agrees to dedicate all of his business time
and effort to Company business and perform such reasonable responsibilities and
duties as may be assigned to him from time to time by the Company's Chief
Executive Officer, President and/or Board of Directors (the "Board"). Employee's
titles shall be Chief Financial Officer, Vice-President and Assistant Secretary
of the Company, with responsibility for the Company's financial reporting and
related functions and such executive responsibilities as may be assigned from
time to time by, and subject to the direction of, the Board, the Chief Executive
Officer and/or the President. Employee shall report directly to the Chief
Executive Officer. Subject to Section 8, such title and duties may be changed
from time to time by the Board; so long as Employee is maintained in an
executive capacity throughout the term of his employment.
2. Term. This employment of Employee by the Company shall commence on
the date hereof, and continue until May 31, 1999. The term may be extended
thereafter by written agreement of the parties.
3. Compensation.
a. Salary. During the year ending December 31, 1996, the
Company shall pay Employee a base annual salary, before deducting all applicable
withholdings, at the rate of $65,000 per year, payable in accordance with the
Company's standard payroll policies. This
<PAGE>
salary level shall increase to $70,000 in the year ending December 31, 1997 and
to $75,000 in the year ending December 31, 1998.
b. Incentive Plan. The Company will establish and implement an
incentive compensation system which will provide additional incentive payments
to Employee according to the following schedule: Employee shall be paid $10,000,
$15,000 and $20,000 if the Company achieves sales targets to be agreed upon by
the Company and Employee by separate letter agreement.
These bonus payments shall be payable, if applicable, the earlier of:
(1) ninety (90) days after the end of the respective fiscal year in which the
sales goal was achieved; (2) the release of the Company's annual audited
financial statements from that same year.
4. Fringe Benefits. In addition to the options for shares of the
Company's Common Stock available to Employee under the same terms as those
available to Company employees, and any other employee benefit plans generally
available to Company employees, the Company shall include the Employee in any
group medical insurance plan maintained for the employees of the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts is discretionary with the Company but shall be
commensurate with Employee's executive status and shall include medical coverage
for Employee and Employee's family members who are eligible under the applicable
plans.
5. Vacation. Employee shall be entitled to vacation with pay in keeping
with Employee's previously established vacation practices. In addition, Employee
shall be entitled to such holidays as the Company may approve for its executive
personnel.
6. Expense Reimbursement. In addition to the compensation and benefits
provided above, the Company shall pay all reasonable expenses of Employee
incurred in connection with the performance of Employee's duties and
responsibilities to the Company pursuant to this Agreement, upon submission of
appropriate vouchers and supporting documentation in accordance with the
Company's usual and ordinary practices, provided that such expenses are
reasonable and necessary business expenses of the Company. The Company shall pay
Employee's reasonable cellular telephone expenses that are related to Company
business.
7. Termination. The Company may terminate Employee's employment prior
to the expiration of this Agreement, in the manner provided below:
a. For Cause. The Company may terminate Employee's employment
by the Company prior to the expiration of this Agreement, for cause, upon
written notice to the Employee stating the facts constituting such cause,
provided that Employee shall have 20 days following such notice to cure any
conduct or act, if curable, alleged to provide grounds for termination for cause
hereunder. In the event of termination for cause, the Company shall be
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<PAGE>
obligated to pay the Employee only the base salary due him through the date of
termination. Cause shall include willful failure to abide by instructions or
policies from or set by the Company, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
material breach of this Agreement, or breach by Employee of any other material
obligation to the Company.
b. Without Cause. The Chairman or the Company may terminate
Employee's employment by the Company at any time immediately, without cause, by
giving written notice to the Employee. If the Company terminates under this
Section 7.b it shall pay to Employee a lump-sum amount equal to 12 months base
salary, less applicable withholdings and shall continue coverage of Employee and
Employee's dependents under its medical plans for 12 months or until Employee
secures other employment (unless continuation of coverage under such plans is
unfeasible, in which event the Company will provide substantially similar
benefits).
c. Disability. If during the term of this Agreement, Employee
experiences a permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), the Company shall have the right to
terminate this Agreement without further obligation hereunder except for any
bonus amount payable in accordance with the next sentence and any amounts
payable pursuant to disability plans generally applicable to executive
employees. Within 90 days after the end of the fiscal year in which termination
pursuant to this Section 7.c occurs, so long as Employee is in full compliance
with this Agreement, Employee shall be entitled to receive an incentive
compensation payment (calculated and payable in the manner referred to in
Section 2.b, if any, based upon the Company's financial performance for such
fiscal year, which shall be prorated to the extent that Employees employment
during such fiscal year was for a period of less than the full year.
d. Death. If the Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and the Employee's legal
representative shall be entitled to receive the base salary due to Employee
through the 60th day from the date on which his death shall have occurred and
any other death benefits generally applicable to executive employees. In
addition, Employee's death occurs, Employee's legal representative shall be
entitled to receive, at the end of the first quarter of the year following the
fiscal year in which such death shall have occurred, an incentive compensation
payment (calculated and payable in the manner referred to in Section 2.b), if
any, based upon the Company's financial performance for such fiscal year, which
shall be prorated to the extent that Employee's employment during such fiscal
year was for a period of less than the full year.
8. Change in Control.
a. Severance Benefits. Notwithstanding Section 7.b, if your
employment with the Company terminates within 12 months after a Change in
Control (as defined in Section 8.b below), you shall be entitled to the
severance benefits provided in Section 8.d unless (i) such
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<PAGE>
termination is in accordance with Section 7.a, 7.c or 7.d above; or (ii) such
termination is by you for other than Good Reason (as defined in Section 8.c
below).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing one-third or more of the total voting power represented by the
Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
c. "Good Reason" shall mean, for purposes of this Agreement,
(i) without your express written consent, the assignment to you of duties
inconsistent with your positions, duties, responsibilities and status with the
Company immediately prior to the Change in Control, or a demotion or a change in
titles or offices as in effect immediately prior to a Change in Control (except
in connection with termination of your employment in compliance with Section
7.1, 7.c or 7.d above); or (ii) a material breach by the Company of any of its
obligations hereunder which (if curable) is not cured by the Company within 20
days after written notice thereof.
d. Amount of Benefit. If the Employee is entitled to severance
benefits under Section 8.a, the amount of such benefit shall equal (i) a
lump-sum payment not to exceed 2.99 times the "Base Amount" (as such term is
defined in Section 280G of the Internal Revenue Code of 1986) applicable to
Employee, whether or not the provisions of Section 280G actually applies to the
payment; (ii) a continuation of medical coverage in the manner contemplated in
Section 7.b above; and (iii) such other benefits to which the Employee is
entitled under the Company's
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<PAGE>
benefits plans and policies as in effect immediately prior to the Change in
Control with respect to terminated Employees.
9. Confidentiality. Employee acknowledges that Employee may receive, or
contribute to the production of, confidential, proprietary, and trade secret
information of the Company, and others with whom the Company may be doing
business. For purposes of this Agreement, Employee agrees that "Confidential
Information" shall mean information or material proprietary to the Company or
designated as Confidential Information by the Company and not generally known by
non-Company personnel, which Employee develops or to which Employee may obtain
knowledge or access through or as a result of Employee's relationship with
Company (including information conceived, originated, discovered, or developed
in whole or in part by Employee). Confidential Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing): discoveries, inventions,
ideas, concepts, research, development, processes, procedures, "know-how",
formulae, marketing techniques and materials, marketing and development plans,
business plans, customer names and other information related to customers, price
lists, pricing policies, financial information, employee compensation, and
computer programs and systems. Confidential Information also includes any
information described above which the Company obtains from another party and
which the Company treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by the Company. Employee
acknowledges that the Confidential Information derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use.
Information publicly known without breach of this Agreement that is
generally employed by the trade at or after the time Employee first learns of
such information, or generic information or knowledge which Employee would have
learned in the course of similar employment or work elsewhere in the trade,
shall not be deemed part of the Confidential Information.
Employee further agrees:
a. To furnish Company on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former,
and potential customers and other contacts gained while an employee of the
Company, whether or not in the possession or within the knowledge of the
Company.
b. That all notes, computer or disk memory, memoranda,
documentation, and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to
Company upon request or upon termination of Employee's employment
- 5 -
<PAGE>
with the Company, regardless of whether the materials were prepared by or with
the assistance of Employee.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose, or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
d. That any ideas in whole or in part conceived of or made by
Employee during the term of his employment or relationship with the Company
which are made through the use of any of the Confidential Information of the
Company or any of the Company's equipment, facilities, trade secrets, or time,
or which result from any work performed by Employee for the Company, shall
belong exclusively to the Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Employee hereby assigns and agrees
to assign to the Company all rights in and to such Confidential Information
whether for purposes of obtaining patent or copyright protection or otherwise.
Employee shall acknowledge and deliver to the Company, without charge to Company
(but at its expense) such written instruments and do such other acts, including
giving testimony in support of Employee's authorship or inventorship, as the
case may be, necessary in the opinion of the Company to obtain patents or
copyrights or to otherwise protect or vest in the Company the entire right and
title in and to the Confidential Information.
10. Non-Competition.
a. Non-Competition During Employment Term. Employee agrees
that during the term of Employee's employment by the Company, Employee will
devote all of Employee's business time and effort to and give undivided loyalty
to the Company, and will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is competitive with the Company or its affiliates. During the term of
Employee's employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity.
b. Non-Competition After Employment Term. The parties
acknowledge that Employee will acquire much knowledge and information concerning
the business of the Company and its affiliates as the result of Employee's
employment. The parties further acknowledge that the scope of business in which
Company is engaged as of the date of execution of this Agreement is world-wide
and very competitive and one in which few companies can successfully compete.
Competition by Employee in that business after this Agreement is terminated
would severely injure Company. Accordingly, until one (1) year, or a reasonable
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<PAGE>
term determined by state law, after this Agreement is terminated or Employee
leaves the employment of Company for any reason whatsoever, Employee will not:
(1) Within any jurisdiction or marketing area in which
Company or any of its affiliates is doing business or
is qualified to do business, directly or indirectly
manage, operate, join, control, or participate or
become interested in or be connected with as an
employee, partner, officer, director, stockholder,
consultant, or investor, any corporation,
partnership, or other business entity other than the
Company or its affiliates, which shall operate a
business in competition with the business conducted
by the Company or its affiliates. Nothing herein
shall prohibit Employee from owning, solely for
investment purposes, publicly-traded securities of
any company which operates a business otherwise
covered by this Section, provided that such ownership
constitutes less than 1% of the issued and
outstanding equity or debt securities, as the case
may be, of said company.
(2) Persuade or attempt to persuade any potential
customer or client to which Company or any of its
affiliates has made a proposal or sale, or with which
Company or any of its affiliates has been having
discussions, not to transact business with Company or
such affiliate, or instead to transact business with
another person or organization;
(3) Solicit the business of any company which is a
customer or client of the Company or any of its
affiliates at any time during Employee's employment
by the Company, or was its customer or client within
3 years prior to the date of this Agreement,
provided, however, if Employee becomes employed by or
represents a business that exclusively sells products
that do not compete with products then marketed or
intended to be marketed by the Company, such contact
shall be permissible; or
(4) Solicit, endeavor to entice away from the Company or
any of its affiliates, or otherwise interfere with
the relationship of the Company or any of its
affiliates with, any person who is employed by or
otherwise engaged to perform services for the Company
or any of its affiliates, whether for Employee's
account or for the account of any other person or
organization.
c. Modification. The covenants set forth in Sections 9 and 10
shall be construed as independent of any other covenant or provision of this
Agreement or any other agreement. The Company may reduce the scope of the
obligations under the covenant
- 7 -
<PAGE>
unilaterally and without consent of any other person or entity, effective upon
giving notice thereof.
d. Time and Territory Reduction. If the period of time and/or
territory described above are held to be in any respect an unreasonable
restriction, it is agreed that the court so holding may reduce the territory to
which the restriction pertains or the period of time in which it operates or may
reduce both such territory and such period, to the minimum extent necessary to
render such provision enforceable.
e. Survival. The obligations described in Sections 9 and 10
shall survive any termination of this Employment Agreement or any termination of
the employment relationship created hereunder.
11. Return of the Company's Materials. Upon the termination of this
Agreement, Employee shall promptly return to the Company all files, credit
cards, keys, instruments, equipment, and other materials owned or provided by
the Company.
12. Insurance. The Company shall use commercially reasonable efforts to
carry director's and officer's professional liability insurance coverage for
Employee while in the performance of Employee's duties hereunder.
13. Remedies. In addition to other remedies provided by law or equity,
upon a breach by Employee of any of the covenants contained herein, the Company
shall be entitled to have a court of competent jurisdiction enter an injunction
against Employees prohibiting any further breach of the covenants contained
herein. The parties further agree that the services to be performed hereunder
are of a unique, special, and extraordinary character and that any breach or
threatened breach by Employee of any provision of Section 9 or 10 of this
Agreement shall cause the Company irreparable harm which cannot be remedied
solely by damages. Therefore, in the event of any controversy concerning the
rights or obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a decree of
specific performance or, if the Company elects, by obtaining damages or such
other relief as the Company may elect to pursue. Such remedies, however, shall
be cumulative and nonexclusive and shall be in addition to any other remedies
which the Company may have. The parties agree that in the event of litigation,
venue shall lie exclusively in Maricopa County, Arizona.
14. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides Company with broader protection than the
protection provided by this Agreement.
15. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights, and benefits of Employee hereunder are personal and may
not be delegated,
- 8 -
<PAGE>
assigned, or transferred in any manner whatsoever, nor are such obligations,
rights, or benefits subject to involuntary alienation, assignment, or transfer.
The Company may transfer its obligations hereunder to a subsidiary, affiliate or
successor.
16. Notices. All notices, demands, and communications required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes when sent to the respective addresses set forth below, (i) upon
personal delivery, (ii) one day after being sent, when sent by overnight courier
service to and from locations within the continental United States, (iii) three
days after posting when sent by registered, certified, or regular United States
mail, with postage prepaid and return receipt requested, or (iv) on the date of
transmission when sent by confirmed facsimile.
If to the Company: M.D. Labs, Inc.
1719 W. University Drive
Suite 187
Tempe, Arizona 85281
Attn: Hooman Nikzad
Chief Executive Officer
Copy to: Quarles & Brady
One E. Camelback Road
Suite 400
Phoenix, Arizona 85012
Attn: Paul M. Gales, Esq.
If to Employee: Bradley A. Denton
11625 E. Carol Avenue
Scottsdale, Arizona 85259
Phone: 602-661-4726
Facsimile: N/A
(Or when sent to such other address as any party shall specify by written notice
so given.)
17. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties, or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or
- 9 -
<PAGE>
referred to herein. No addition to or modification of any provision of this
Agreement shall be binding upon any party unless made in writing and signed by
all parties.
18. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
19. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
20. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Arizona exclusive of the
conflict of law provisions thereof.
21. Attorneys' Fees. If any party reasonably employs legal counsel to
bring an action at law or other proceedings against the other party to enforce
any of the terms hereof, the party prevailing in any such action or other
proceeding shall be paid by the other party its reasonable attorneys' fees as
well as court costs, all as determined by the court and not a jury.
22. Headings; Construction. Headings in this Agreement are for
informational purposes only and shall not be used to construe the intent of this
Agreement. The language in all parts of this Employment Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
nor against any party.
23. Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same agreement.
Delivery by any party of a facsimile signature to the other parties to this
Agreement shall constitute effective delivery by said party of an original
counterpart signature to this Agreement.
24. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators, and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
- 10 -
<PAGE>
25. Binding Effect on Marital Community. Employee represents and
warrants to the Company that he has the power to bind his marital community (if
any) to all terms and provisions of this agreement by his execution hereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement and caused the same to be duly delivered on its behalf as
of June 1, 1996.
M.D. LABS, INC.,
a Delaware corporation
By_________________________________________
Hooman Nikzad, Chief Executive Officer
"COMPANY"
___________________________________________
BRADLEY A. DENTON
"EMPLOYEE"
- 11 -
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
M.D. LABS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 10,500 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: February 7, 1996
This certifies that, for value received:
Name: Hooman Nikzad
Address: 1719 West University Drive
Suite 187
Tempe, Arizona 85281
is entitled to purchase from M.D. Labs, Inc., a Delaware corporation (the
"Company"), having its principal office at 1719 W. University Dr., Suite 187,
Tempe, Arizona 85281, Ten Thousand Five Hundred (10,500) fully paid and
nonassessable shares of Common Stock, par value $.001, of the Company (the
"Common Stock"), subject to the terms set forth herein, at an exercise price of
One Dollar ($1.00) per share, subject to adjustment as provided elsewhere herein
(the "Warrant Price"). The holder of this Warrant shall be referred to herein as
the "Warrantholder" or the "Holder." This Warrant is issued pursuant to a stock
purchase agreement by and between Belnik Investment Group, Inc., an Arizona
corporation, doing business as Freedom Wholesalers ("Freedom") and Company.
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section , the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section , and all other provisions of this Warrant
with respect to the Common Stock shall apply on like terms to any such other
shares or other securities or property. Subject to the foregoing, and unless the
context requires otherwise, all references herein to "Common Stock"
<PAGE>
shall, in the event of an adjustment pursuant to Section , be deemed to refer as
well to any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on June
3, 1996 (the "Commencement Date") and expiring at 5:00 p.m., Mountain Standard
Time, June 2, 2001 (the "Expiration Date")(or such earlier date as may be
provided pursuant to Section 9 herein), or if such date is a day on which
federal or state chartered banking institutions are authorized by law to close,
then on the next succeeding day which shall not be such a day, upon presentation
of this Warrant at the principal office of the Company, or at the office of its
stock transfer agent, if any, with the purchase form attached hereto duly
completed and signed, and upon payment to the Company in cash or by certified
check or bank draft of an amount equal to the number of shares being so
purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Vesting Schedule. The purchase rights represented by this Warrant
shall become exercisable according to the following schedule: 3,500 shares upon
each of December 31, 1996, 1997 and 1998, respectively.
4. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any of the events described above, had such Warrant
been exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph (a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by
2
<PAGE>
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of shares of Common Stock
purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of shares of Common
Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section ,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
5. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant;
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof; and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
6. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
3
<PAGE>
7. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in paragraph 8(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 8, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
4
<PAGE>
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
8. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
9. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
10. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
11. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth
5
<PAGE>
above, or such other address as Holder shall have designated by written notice
to the Company as provided herein. Notices or other communications to the
Company shall be deemed to have been sufficiently given if delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to the company at 1719 W. University Dr., Suite 187, Tempe, Arizona
85281, or such other address as the Company shall have designated by written
notice to such registered owner as herein provided. All notices required
hereunder shall be in writing and shall be deemed received when delivered
personally, one business day after delivery to a nationally recognized
commercial overnight courier service, or two business days after mailing when
mailed by certified or registered mail to the Company or the Warrantholder.
12. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
13. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of February 7, 1996.
M.D. LABS, INC.
By:_________________________________
Todd P. Belfer
President
6
<PAGE>
PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _______ shares
of Common Stock, evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
Dated: [NAME OF HOLDER]
By___________________________________
(Signature)
Name:_______________________________
(Please Print)
Address:_____________________________
_____________________________
_____________________________
Employer Identification No., Social Security
No. or other identifying number:
______________________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
M.D. LABS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 10,500 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: February 7, 1996
This certifies that, for value received:
Name: Todd P. Belfer
Address: 6900 East Camelback Road
Suite 440
Scottsdale, Arizona 85251
is entitled to purchase from M.D. Labs, Inc., a Delaware corporation (the
"Company"), having its principal office at 1719 W. University Dr., Suite 187,
Tempe, Arizona 85281, Ten Thousand Five Hundred (10,500) fully paid and
nonassessable shares of Common Stock, par value $.001, of the Company (the
"Common Stock"), subject to the terms set forth herein, at an exercise price of
One Dollar ($1.00) per share, subject to adjustment as provided elsewhere herein
(the "Warrant Price"). The holder of this Warrant shall be referred to herein as
the "Warrantholder" or the "Holder." This Warrant is issued pursuant to a stock
purchase agreement by and between Belnik Investment Group, Inc., an Arizona
corporation, doing business as Freedom Wholesalers ("Freedom") and Company.
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section , the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section , and all other provisions of this Warrant
with respect to the Common Stock shall apply on like terms to any such other
shares or other securities or property. Subject to the foregoing, and unless the
context requires otherwise, all references herein to "Common Stock"
<PAGE>
shall, in the event of an adjustment pursuant to Section , be deemed to refer as
well to any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period described in the
Vesting Schedule below (the "Commencement Date") and expiring at 5:00 p.m.,
Mountain Standard Time, June 2, 2001 (the "Expiration Date")(or such earlier
date as may be provided pursuant to Section 9 herein), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Vesting Schedule. The purchase rights represented by this Warrant
shall become exercisable according to the following schedule: 3,500 shares each
on December 31, 1996, 1997 and 1998, respectively.
4. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any
2
<PAGE>
of the events described above, had such Warrant been exercised immediately prior
to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section ,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
5. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant;
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof; and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
3
<PAGE>
6. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
7. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in paragraph 8(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 8, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
4
<PAGE>
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
8. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
9. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
10. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
5
<PAGE>
11. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 1719 W.
University Dr., Suite 187, Tempe, Arizona 85281, or such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery to a
nationally recognized commercial overnight courier service, or two business days
after mailing when mailed by certified or registered mail to the Company or the
Warrantholder.
12. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
13. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of February 7, 1996.
M.D. LABS, INC.
By:_______________________________________
Hooman Nikzad
Chief Executive Officer
6
<PAGE>
PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _______ shares
of Common Stock, evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
Dated: [NAME OF HOLDER]
By___________________________________
(Signature)
Name:_______________________________
(Please Print)
Address:_____________________________
_____________________________
_____________________________
Employer Identification No., Social Security
No. or other identifying number:
_____________________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
M.D. LABS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 90,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: February 7, 1996
This certifies that, for value received:
Name: Bradley A. Denton
Address: 11625 East Carol Avenue
Scottsdale, Arizona 85259
is entitled to purchase from M.D. Labs, Inc., a Delaware corporation (the
"Company"), having its principal office at 1719 W. University Dr., Suite 187,
Tempe, Arizona 85281, Thirty Thousand (90,000) fully paid and nonassessable
shares of Common Stock, par value $.001, of the Company (the "Common Stock"),
subject to the terms set forth herein, at an exercise price described below,
subject to adjustment as provided elsewhere herein (the "Warrant Price"). The
holder of this Warrant shall be referred to herein as the "Warrantholder" or the
"Holder." This Warrant is issued pursuant to a written agreement by and between
the incorporators of the Company and the Holder on December 10, 1995 as
consideration for Holder's commitment to work for the Company.
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section , the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section , and all other provisions of this Warrant
with respect to the Common Stock shall apply on like terms to any such other
shares or other securities or property. Subject to the foregoing, and unless the
context requires otherwise, all references herein to "Common Stock"
<PAGE>
shall, in the event of an adjustment pursuant to Section , be deemed to refer as
well to any other securities or property then obtainable as a result of such
adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date described in the Vesting Schedule below (the "Commencement Date") and
expiring at 5:00 p.m., Mountain Standard Time, June 2, 2001 (the "Expiration
Date")(or such earlier date as may be provided pursuant to Section 9 herein), or
if such date is a day on which federal or state chartered banking institutions
are authorized by law to close, then on the next succeeding day which shall not
be such a day, upon presentation of this Warrant at the principal office of the
Company, or at the office of its stock transfer agent, if any, with the purchase
form attached hereto duly completed and signed, and upon payment to the Company
in cash or by certified check or bank draft of an amount equal to the number of
shares being so purchased multiplied by the Warrant Price, together with all
taxes applicable upon such exercise. The Company agrees that the Warrantholder
will be deemed the record owner of such shares as of the close of business on
the date on which the Warrant shall have been presented and payment shall have
been made for such shares as aforesaid. Certificates for the shares of Common
Stock so purchased shall be delivered to the Warrantholder within a reasonable
time, not exceeding 20 days, after the exercise in full of the rights
represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Vesting Schedule. Subject to Section 9 herein, the purchase rights
represented by this Warrant shall become exercisable according to the following
schedule:
# of Shares Exercise Price Vesting Date
- ----------- -------------- ------------
10,000 $ 1.00 June 3, 1996
- ------ ------ ------------
10,000 1.00 December 31, 1996
- ------ ------ -----------------
20,000 0.50 December 31, 1996
- ------ ------ -----------------
10,000 1.00 December 31, 1997
- ------ ------ -----------------
20,000 0.50 December 31, 1997
- ------ ------ -----------------
20,000 0.50 December 31, 1998
- ------ ------ -----------------
4. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number
2
<PAGE>
of shares of Common Stock or (iv) issue by reclassification of its shares of
Common Stock other securities of the Company, the number of shares of Common
Stock purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the Warrantholder shall be entitled to receive the kind and
number of shares of Common Stock or other securities of the Company which he
would have owned or have been entitled to receive at the happening of any of the
events described above, had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section ,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
5. Merger; Change in Control.
(a) Change in Control shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing one-third or more of the total voting power represented by the
Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other
3
<PAGE>
than a merger or consolidation which would result in the Common Stock of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
(b) In the event of a merger, consolidation or reorganization
with another corporation in which the Company is not the surviving corporation,
the Company (subject to the approval of the Board) or the board of directors of
any corporation assuming the obligations of the Company hereunder shall take
action pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the
protection of this Warrant by the substitution on an equitable basis of
appropriate shares of the surviving corporation, provided that the excess of the
aggregate fair market value (as determined by the Company) of the shares subject
to this Warrant immediately before such substitution over the exercise price
hereof is not more than the excess of the aggregate fair market value of the
substituted shares made subject to purchase immediately after such substitution
over the exercise price thereof; or
(ii) Appropriate provision may be made for the
cancellation of this Warrant. In such event, the Company, or the corporation
assuming the obligations of the Company hereunder, shall pay the Holder an
amount of cash (less normal withholding taxes) equal to the excess of the
highest fair market value per share of the Common Stock during the 60-day period
immediately preceding the merger, consolidation or reorganization over the
exercise price, multiplied by the number of shares subject to this Warrant
(whether or not then exercisable).
(c) Upon a Change in Control, subject to Section 9 herein,
this Warrant (provided that it has been outstanding for at least six months)
shall accelerate so that the Holder shall have the right, at all times until the
expiration or earlier termination of this Warrant, to exercise the unexercised
portions of this Warrant, including the portions thereof which would, but for
this paragraph 5(c), not yet be exercisable.
6. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect
4
<PAGE>
the exercise of this Warrant, the Company will take such corporate action as may
be necessary to increase its authorized but unissued Common Stock to such number
of shares as shall be sufficient for such purpose. The Company shall have
analogous obligations with respect to any other securities or properties
issuable upon exercise of this Warrant. The Company's issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant;
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof; and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
5
<PAGE>
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in paragraph 8(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 8, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
9. Termination of the Warrant. Notwithstanding anything herein to the
contrary, this Warrant can become exercisable only while the Holder is an
employee of the Company, and
6
<PAGE>
shall not be exercisable after the earliest of (i) June 2, 2001; (ii) three
months after the date the Holder's employment with the Company terminates, if
such termination is for any reason other than permanent disability, death, or
cause; (iii) the date the Holder's employment with the Company terminates, if
such termination is for cause, as determined by the Company in its sole
discretion; or (iv) one year after the date the Holder's employment with the
Company terminates, if such termination is the result of death or permanent
disability.
10. No Guarantee of Employment. This Agreement shall in no way restrict
any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's employment at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
12. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 1719 W.
University Dr., Suite 187, Tempe, Arizona 85281, or such other address as the
Company shall have designated by written
7
<PAGE>
notice to such registered owner as herein provided. All notices required
hereunder shall be in writing and shall be deemed received when delivered
personally, one business day after delivery to a nationally recognized
commercial overnight courier service, or two business days after mailing when
mailed by certified or registered mail to the Company or the Warrantholder.
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of February 7, 1996.
M.D. LABS, INC.
By:__________________________________
Hooman Nikzad
Chief Executive Officer
8
<PAGE>
PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _______ shares
of Common Stock, evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
Dated: [NAME OF HOLDER]
By___________________________________
(Signature)
Name:_______________________________
(Please Print)
Address:_____________________________
_____________________________
_____________________________
Employer Identification No., Social Security
No. or other identifying number:
_____________________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
M.D. LABS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 40,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: June 3, 1996
This certifies that, for value received including consulting services
already performed and to be performed pursuant to a consulting and
noncompetition agreement by and between M.D.
Labs, Inc. and Harvey A. Belfer effective June 1, 1996:
Name: Harvey A. Belfer
Address: 6109 East Indian Bend
Paradise Valley, Arizona 85253
602-922-8888
is entitled to purchase from M.D. Labs, Inc., a Delaware corporation (the
"Company"), having its principal office at 1719 W. University Dr., Suite 187,
Tempe, Arizona 85281, Forty Thousand (40,000) fully paid and nonassessable
shares of Common Stock, par value $.001, of the Company (the "Common Stock"),
subject to the terms set forth herein, at an exercise price of Three Dollars and
Fifty Cents ($3.50) per share, subject to adjustment as provided elsewhere
herein (the "Warrant Price"). The holder of this Warrant shall be referred to
herein as the "Warrantholder" or the "Holder."
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section , the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section , and all other provisions of this Warrant
with respect to the Common Stock shall apply on like terms to any such other
shares or other securities or property. Subject to the
<PAGE>
foregoing, and unless the context requires otherwise, all references herein to
"Common Stock" shall, in the event of an adjustment pursuant to Section , be
deemed to refer as well to any other securities or property then obtainable as a
result of such adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date of this Warrant (the "Commencement Date") and expiring at 5:00 p.m.,
Mountain Standard Time, June 2, 2001 (the "Expiration Date")(or such earlier
date as may be provided pursuant to Section 9 herein), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Vesting Schedule. Subject to Section 9 herein, the purchase rights
represented by this Warrant shall become exercisable according to the following
schedule: warrants to acquire 13,333 shares of Common Stock shall be exercisable
at May 31, 1997; warrants to acquire 13,333 shares of Common Stock shall be
exercisable at May 31, 1998; and warrants to acquire 13,334 shares of Common
Stock shall be exercisable at May 31, 1999.
4. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any of the events described above, had such Warrant
been exercised immediately prior to the
2
<PAGE>
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section ,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
5. Merger; Change in Control.
(a) Change in Control shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing one-third or more of the total voting power represented by the
Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or
3
<PAGE>
disposition by the Company of (in one transaction or a series of transactions)
all or substantially all the Company's assets.
(b) In the event of a merger, consolidation or reorganization
with another corporation in which the Company is not the surviving corporation,
the Company (subject to the approval of the Board) or the board of directors of
any corporation assuming the obligations of the Company hereunder shall take
action pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the
protection of this Warrant by the substitution on an equitable basis of
appropriate shares of the surviving corporation, provided that the excess of the
aggregate fair market value (as determined by the Company) of the shares subject
to this Warrant immediately before such substitution over the exercise price
hereof is not more than the excess of the aggregate fair market value of the
substituted shares made subject to purchase immediately after such substitution
over the exercise price thereof; or
(ii) Appropriate provision may be made for the
cancellation of this Warrant. In such event, the Company, or the corporation
assuming the obligations of the Company hereunder, shall pay the Holder an
amount of cash (less normal withholding taxes) equal to the excess of the
highest fair market value per share of the Common Stock during the 60-day period
immediately preceding the merger, consolidation or reorganization over the
exercise price, multiplied by the number of shares subject to this Warrant
(whether or not then exercisable).
(c) Upon a Change in Control, subject to Section 9 herein,
this Warrant (provided that it has been outstanding for at least six months)
shall accelerate so that the Holder shall have the right, at all times until the
expiration or earlier termination of this Warrant, to exercise the unexercised
portions of this Warrant, including the portions thereof which would, but for
this paragraph 5(c), not yet be exercisable.
6. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of
4
<PAGE>
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant;
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof; and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the
5
<PAGE>
restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in paragraph 8(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 8, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
9. Termination of the Warrant. Notwithstanding anything herein to the
contrary, this Warrant can become exercisable only while the Holder is a
consultant to the Company, and shall not be exercisable after the earliest of
(i) June 2, 2001; (ii) three months after the date the Holder's consulting
relationship with the Company terminates, if such termination is for any reason
other than permanent disability, death, or cause; (iii) the date the Holder's
consulting relationship with the Company terminates, if such termination is for
cause, as determined by the
6
<PAGE>
Company in its sole discretion; or (iv) one year after the date the Holder's
consulting relationship with the Company terminates, if such termination is the
result of death or permanent disability.
10. No Guarantee of Employment. This Agreement shall in no way restrict
any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's consulting relationship at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
12. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 1719 W.
University Dr., Suite 187, Tempe, Arizona 85281, or such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery
7
<PAGE>
to a nationally recognized commercial overnight courier service, or two business
days after mailing when mailed by certified or registered mail to the Company or
the Warrantholder.
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of June 3, 1996.
M.D. LABS, INC.
By:________________________________
Hooman Nikzad
Chief Executive Officer
8
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _______ shares
of Common Stock, evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
Dated: [NAME OF HOLDER]
By___________________________________
(Signature)
Name:_______________________________
(Please Print)
Address:_____________________________
_____________________________
_____________________________
Employer Identification No., Social Security
No. or other identifying number:
____________________________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT, THE EXISTENCE OF WHICH EXEMPTION HAS BEEN CONFIRMED BY AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY OR BY A NO ACTION LETTER OR
INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
TRANSFER OF THESE SECURITIES IS RESTRICTED AS DESCRIBED HEREIN.
Void after 5:00 p.m., Mountain Standard Time
on May 31, 2001
M.D. LABS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, Canyon Security, L.L.C., an
Arizona limited liability company, or registered assigns (the "Holder"), is
irrevocably entitled, subject to the provisions of this Warrant, to purchase
Fifty Three Thousand Eight Hundred Twenty-eight (53,828) shares, $0.001 par
value per share, of the common stock (the "Common Stock") of M.D. Labs, Inc., a
Delaware corporation(the"Company"),at a price of Three and 50/100 Dollars
($3.50)per share. The exercise price is subject to adjustment as provided in
Section 6 below (the "Exercise Price"). The number of shares of Common Stock to
be received upon the exercise of this Warrant (the "Warrant Shares") and the
Exercise Price may be adjusted from time to time as hereinafter set forth. In
addition, under certain circumstances as set forth herein, the Holder shall have
the right to require the Company to register the Warrant Shares.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time or from time to time on or after the date hereof, but in any
event by no later than 5:00 p.m., Mountain Standard Time, on May 31, 2001 (the
fifth anniversary of the date hereof) or if such date is a day on which federal
or state chartered banking institutions are authorized by law to close, then on
the next succeeding day which shall not be such a day, by presentation and
surrender thereof to the Company at its principal office or at the office of its
stock transfer agent, if any, the Purchase Form annexed hereto duly executed and
accompanied by payment, in cash or by certified or official bank check, payable
to the order of the Company, in the amount of the Exercise Price for the number
of Warrant Shares specified in such form, together with all taxes applicable
upon such exercise. Alternatively, in the Holder's discretion, the Exercise
Price may be satisfied (i) by cancellation of indebtedness to Holder, or (ii) by
surrendering to the Company the right to acquire a number of
<PAGE>
Warrant Shares having a value in excess of their Exercise Price equal to the
Exercise Price of the Warrant Shares as to which the Warrant is being exercised.
If this Warrant should be exercised in part only, the Company shall, if this
Warrant is surrendered for cancellation, execute and deliver a new Warrant of
the same tenor evidencing the right of the Holder to purchase the balance of the
Warrant Shares purchasable hereunder upon the same terms and conditions as
herein set forth. Upon and as of receipt by the Company of the Purchase Form (in
the form attached hereto) at the office or stock transfer agent of the Company,
in proper form for exercise, and accompanied by payment as herein provided and
evidence reasonably satisfactory to the Company of the availability of an
exemption from registration under applicable securities laws, the Holder shall
be deemed to be the holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder.
2. Reservation of Shares. The Company hereby covenants and agrees that
at all times during the period this Warrant is exercisable it shall reserve from
its authorized and unissued Common Stock for issuance and delivery upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance and delivery upon exercise of this Warrant. The Company agrees that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
4. Exercise, Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be exercised, assigned or
transferred except as provided herein and in accordance with and subject to the
provisions of the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder (said Act and such Rules and Regulations
being hereinafter collectively referred to as the "Act"). Any purported transfer
or assignment made other than in accordance with this Section 4 and Section 10
hereof shall be null and void and of no force and effect.
(b) This Warrant shall be exercisable or transferable only
upon the opinion of counsel satisfactory to the Company, to the effect that (i)
the exercising party or the transferee is a person to whom the Warrant Shares
may be issued or the Warrant may be legally transferred, respectively, without
registration under the Act; and (ii) such exercise or transfer will not violate
any
2
<PAGE>
applicable law or governmental rule or regulation including, without limitation,
any applicable federal or state securities law. Prior to the exercise, transfer
or assignment, the exercising party, assignor or transferor shall reimburse the
Company for its reasonable expenses, including attorneys' fees, incurred in
connection with the exercise, transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Wan-ant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new Warrants are to be issued. The terms "Wan-ant" and
"Wan-ants" as used herein includes any Warrants in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged.
(d) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e) Each Holder of this Warrant, the Warrant Shares or any
other security issued or issuable upon exercise of this Warrant shall indemnify
and hold harmless the Company, its directors and officers, and each person, if
any, who controls the Company, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or any such person may become subject under the Act or statute or common
law, insofar as such losses, claims, damages or liabilities, or actions in
respect thereof, arise out of or are based upon the disposition by such Holder
of the Warrant, the Warrant Shares or other such securities in violation of this
Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant and the Exercise
Price of such securities shall be subject to adjustment from time to time upon
the happening of certain events as follows:
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(a) Adjustment for Dividends in Stock. In case at any time or
from time to time, on or after the date hereof, the holders of the Common Stock
of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock of the Company by way of dividend, then and in each case, the
Holder of this Warrant shall, upon the exercise hereof,, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of such
other or additional stock of the Company which such Holder would hold on the
date of such exercise had it been the holder of record of such Common Stock on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by paragraphs (a) and (b) of
this paragraph 6.
(b) Adjustment for Reclassification, Reorganization or Merger.
In case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case, the terms
of this paragraph 6 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately increased; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common Stock shall be
combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately decreased.
7. Officer's Certificate. Whenever the Exercise Price or the Warrant or
Shares issuable on exercise of this Warrant shall be adjusted as required by the
provisions of Section 6 hereof, the Company shall forthwith file with its
Secretary or an Assistant Secretary at its principal office, and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price and
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Warrant Shares determined as herein provided and setting forth in reasonable
detail the facts requiring such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder,
and the Company shall, forthwith after each such adjustment, deliver a copy of
such certificate to the Holder.
8. Registration Under Securities Act of 1933, as amended (the "Act"
8.1 Certain Other Definitions. As used in this Common Stock Purchase
Warrant, the following terms shall have the following respective meanings:
"Commission" shall mean the United States Securities and
Exchange Commission and any successor federal agency having similar powers.
"Initiating Holder" shall mean any Holder or Holders, as
defined herein, who or which, in the aggregate, own not less than 50.1% of the
aggregate number of Registrable Securities, as hereinafter defined, then
existing.
The term "majority of the Registrable Securities" refers to a
majority of the specified Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"Registrable Securities" shall mean those Securities which
have not been included in a registration statement deemed to be effective or
those Securities sold to the public.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Section 8, including, without limitation, (i)
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company (but not counsel retained by the Holders), blue sky fees
and expenses, and accountants' expenses including without limitation any special
audits or "comfort" letters incident to or required by any such registration,
transfer taxes, fees of transfer agents and registrars, costs of insurances, and
fees of the National Association of Securities Dealers, Inc., and (ii) any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions.
"Securities" shall mean the Common Stock, as hereinafter
defined, subject to this Common Stock Purchase Warrant and to that certain
Common Stock Purchase Warrant issued to Canyon Security, L.L.C., together with
any other securities which are hereafter issued with respect thereto by way of
exchange, reclassification, dividend or distribution, whether or not such
securities have been sold to the public.
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"Common Stock" shall mean all currently outstanding shares of
$0.001 par value per share common stock of the Company now issued and
outstanding and all shares hereafter issued and outstanding, as well as any
securities hereafter convertible into or exchangeable for shares of Common Stock
of the Company.
8.2 Registration on Demand.
(a) Demand. After September 1, 1997, and upon the written
demand of one or more Initiating Holders, requesting that the Company effect the
registration under the Act of up to fifty percent (50%) of such Initiating
Holder's Registrable Securities and specifying the intended method or methods of
disposition thereof, the Company will promptly, but in any event within ten (10)
days, give written notice of such demanded registration to Holder, or its
successors and assigns, as the case may be, and to the other acquirers of
Registrable Securities (together with the Holder, the "Holders") and thereupon
will use its best efforts to effect the registration under the Act of:
(i) the Registrable Securities which the Company has
been so demanded to register by such Initiating Holder, for
disposition in accordance with the intended method or methods
of disposition stated in such demand,
(ii) all other Registrable Securities which the
Company has been demanded to register by the Holders thereof
by written demand delivered to the Company within ten (IO)
days after giving of such written notice by the Company (which
request shall specify the intended method or methods of
disposition of such Registrable Securities), and
(iii) all shares of Common Stock which the Company
may elect to register for its own account or the account(s) of
other stockholder(s) in connection with the offering of
Registrable Securities pursuant to this Section 8.2,
all to the extent requisite to permit the disposition (in accordance -with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that the Company shall not be required to effect more than
one (1) registration pursuant to this Section 8.2. If, at the date of receipt of
a demand by Initiating Holder, the Company has previously filed a registration
statement pursuant to the Act (otherwise than on Form S-4 or S-8 or any similar
form for the registration of securities pursuant to an employee benefit plan or
business combination or reorganization), the Company may defer the filing of any
such demanded registration statement to a date not later than ninety (90) days
after the effective date of such prior registration statement.
(b) Registration Statement Form. Each registration demanded
pursuant to this Section 8.2 shall be effected by the filing of a registration
statement on any form which the Company is eligible to use, such form to be
selected by the Company, after consultation with counsel and after notice of
such selection of such form is delivered to the Holders of all Registrable
Securities electing to participate in such registration; provided, however, that
if the Holders of at least a majority of the Registrable Securities as to which
registration has been demanded pursuant to this Section 8.2 shall
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so request, the Company shall file such registration statement pursuant to the
Commission's Rule 415, or any successor rule or regulation thereto, so as to
permit the continuous or delayed offering of the Registrable Securities in
accordance with the intended method of disposition specified in the Initiating
Holder's notice pursuant to subsection (a) of this Section 8.2, but in no event
shall the Company be required to maintain the effectiveness of such registration
beyond the period specified in Section 8.4 (b). Such selection of form by the
Company shall be final.
(c) Expenses. Except as otherwise prohibited by applicable
law, the Company will pay all Registration Expenses in connection with the
registration of Registrable Securities requested pursuant to this Section 8.2.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 8.2 shall not be deemed to be effected unless a
registration statement covering all shares of Registrable Securities specified
in notices received as described in subsection (a), for sale in accordance with
the method of disposition specified by the Initiating Holder, shall have been
declared effective by the Commission or otherwise becomes effective; provided
that a registration which does not become effective after the Company has
substantially prepared and has filed or is in a position to file a registration
statement with respect thereto solely by reason of the refusal to proceed of any
of the Initiating Holders (other than any refusal to proceed based upon the
advice of their counsel that the registration statement, or the prospectus
contained therein, contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing)
shall be deemed to have been effected by the Company at the request of such
Holder.
8.3. Piggyback Registration Rights.
(a) Right to Include Registrable Securities. If, at any time
within five (5) years from the date hereof, other than in connection with the
Company's initial registration and offering of its securities to the public, the
Company proposes to register any of its equity securities under the Act, whether
or not for sale for its own account, on a form and in a manner which would
permit registration of Registrable Securities for sale to the public under the
Act, it will, each such time, unless inclusion of Registrable Securities in such
registration is prohibited by the terms of a financing transaction pursuant to
which the Company raised gross proceeds of at least $2 million, give notice at
least twenty (20) days prior to the proposed filing date to all Holders of
Registrable Securities of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration and, upon the written request of any such Holder delivered
to the Company within ten (10) days after the giving of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method or methods of disposition thereof), the
Company shall use its best efforts to effect the registration under the Act of
Registrable Securities which the Company has been requested to register by the
Holders of Registrable Securities (hereinafter "Requesting Holders"), but not
exceeding ten percent (10%) of the Registrable Securities to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable
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Securities so to be registered, of those Registrable Securities which the
Company is requested to register by Holder up to ten percent (10%) of the
Registrable Securities provided that:
(i) if, at any time after giving such notice of its
intention to register any of its securities and prior to the
effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such securities, the Company
may, at its election, give written notice of such
determination to each Holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration
(but not its obligation to pay the Registration Expenses in
connection therewith as provided in subsection (b) of this
Section 8.3), without prejudice, however, to the rights of any
one or more Holders to request that such registration be
effected in a subsequent such registration;
(ii) if (a) the registration so proposed by the
Company involves an underwritten offering of the securities so
being registered to be distributed by or through one or more
underwriters of recognized standing under underwriting terms
appropriate for such a transaction, (b) the Company proposes
that the securities to be registered in such underwritten
offering will not include all of the Registrable Securities
requested to be so included, and (c) the managing underwriter
of such underwritten offering shall advise the Company in
writing that, in its opinion, the distribution of all or a
specified portion of such Registrable Securities concurrently
with the securities being distributed by such underwriters
will materially and adversely affect the distribution of such
securities by such underwriters (such opinion to state the
reasons therefor), then the Company will promptly furnish each
such Holder of Registrable Securities with a copy of such
opinion and may require, by written notice to each such Holder
accompanying such opinion, that the distribution of all or a
specified portion of such Registrable Securities be excluded
from such distribution (in case of an exclusion of a portion
of such Registrable Securities, such portion to be allocated
among such Holders in proportion to the respective numbers of
shares of Registrable Securities so requested to be registered
by such Holders); provided, however, that if the Company shall
require such a reduction, the Holder of Registrable Securities
shall have the right to withdraw from the offering;
(iii) the Company shall not be obligated to effect
any registration of Registrable Securities under this Section
8.3 incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock options or other employee
benefit plans or incidental to the registration of any
non-equity securities not convertible into equity securities;
and,
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(iv) the number of shares of Registrable Securities
which shall be included in each such registration shall not
exceed ten percent (10%) of the Registrable Securities.
No registration of Registrable Securities effected under this
Section 8.3 shall relieve the Company of its obligation to effect
registrations of Registrable Securities upon the request of an
Initiating Holder pursuant to Section 8.2.
(b) Expenses. Except as otherwise prohibited by applicable
law, the Company will pay all Registration Expenses in connection with
the registration of Registrable Securities requested pursuant to this
Section 8.3.
8.4 Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Act as provided in Section 8.2 and 8.3, the Company shall promptly:
(a) use its best efforts to prepare and (in any event within
(90) days of the last date on which the Holders of Registrable
Securities may notify the Company of their request to include their
Registrable Securities in such registration in accordance herewith or
such earlier date as may be provided elsewhere herein) file with the
Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective provided that, in the case of a
registration of any Registrable Securities pursuant to Section 8.2 or
8.3, such preparation and filing may be delayed if, in the good faith
determination of the Board of Directors of the Company, such deferral
would be in the best interest of the Company and such deferral would be
without material prejudice to the rights of the Holders of Registrable
Securities to request that such registration be effected as a
subsequent registration under Section 8.3;
(b) use its best efforts to prepare and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Act with respect to the disposition of all
Registrable Securities and other securities covered by such
registration statement until the earlier of such time as all of such
Registrable Securities and other securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement or the
expiration of one (1) year (or, in the case of registration of
Registrable Securities pursuant to Section 8.3, ninety (90) days) after
such registration statement becomes effective; and will furnish, upon
request, to each such seller and each Requesting Holder prior to the
filing thereof a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any such
amendment or supplement to which any such seller or Requesting Holder
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all
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material aspects with the requirements of the Act or of the rules or
regulations thereunder with regard to disclosure concerning a holder of
Registrable Securities;
(c) furnish to each seller of such Registrable Securities and
each Requesting Holder such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
tile requirements of the Act, such documents, if any, incorporated by
reference in such registration statement or prospectus, and such other
documents, as such seller or Requesting Holder may reasonably request;
(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
the States of the United States as each seller shall reasonably
request, to keep Such registration or qualification in effect for so
long as such registration statement remains in effect, and do any and
all other acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it is not and would not, but for the requirements of this
subsection (d), be obligated to be so qualified, or to subject itself
to taxation in any such jurisdiction, or to consent to general service
of process in any such jurisdiction or to obtain clearance in more than
five (5) states if the Common Stock is not listed on the Nasdaq
National Market System;
(e) upon request, use best efforts to furnish to each seller
of Registrable Securities and each Requesting Holder a signed
counterpart, addressed to such seller and such Requesting Holder, of
(i) an opinion of counsel to the Company, dated the effective date of
such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter, signed by the
independent public accountants who have certified the Company's
financial statements included in such registration statement, dated
after the effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated
the date of the closing under tile underwriting agreement), covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountant's letters delivered to underwriters
in underwritten public offerings of securities;
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(f) immediately notify each seller of Registrable Securities
covered by such registration statement and each Requesting Holder, at
any time when a prospectus relating thereto is required to be delivered
under the Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, which untrue statement or
omission requires amendment of the registration statement or
supplementation of the prospectus, and at the request of any such
seller or Requesting Holder, prepare and furnish to such seller and
Requesting Holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the acquirers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing; provided, however that each Holder of
Registrable Securities registered pursuant to such registration
statement agrees that Such Holder will not sell any Registrable
Securities pursuant to such registration statement during the time that
the Company is preparing and filing with the Commission a supplement to
or an amendment of such prospectus or registration statement;
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its Holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not
more than eighteen (I 8) months, beginning with the first month of the
first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11 (a) of the Act;
(h) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement; and
(i) use its best efforts to list all Registrable Securities
covered by such registration statement on each securities exchange on
which any of the Common Stock of the Company is then listed or, if the
Company's Common Stock is not then quoted on NASDAQ or listed on any
national securities exchange, use its best efforts to have such
Registrable Securities covered by such registration statement quoted on
NASDAQ or, at the option of the Company, listed on a national
securities exchange.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request in
writing and as shall be required by law or by the Commission in
connection therewith and such seller shall furnish such information. If
such information is not provided when requested, the Company in its
discretion may exclude the affected shares from registration.
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8.5 Underwritten Offerings.
(a) Underwritten Offerings. If the number of shares of
Registrable Securities and any other securities to be sold in any
underwritten offering involves a registration requested by Initiating
Holders pursuant to Section 8.2 should be limited due to market
conditions or otherwise, the Company shall include in such registration
to the extent of the number which the Company is so advised can be sold
in such offering (i) first, Registrable Securities requested to be
included in such registration, pro rata among the Holders of such
Registrable Securities on the basis of the number of shares of such
securities requested to be included by such Holders, and (ii) other
securities of the Company proposed to be included in such registration,
in accordance with the priorities, if any, then existing among the
Company and the Holders of such securities.
(b) Underwriting Agreement. If requested by the underwriters
for any underwritten offering of Registrable Securities on behalf of a
Holder or Holders of Registrable Securities pursuant to a registration
requested under Section 8.2, the Company will enter into an
underwriting agreement reasonably acceptable to the Company with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to distributions, including, without limitation, indemnities to
the effect and to the extent provided in Section 8.7, provided,
however, that such agreement shall not contain any provision which is
inconsistent with the provisions hereof The Holders of Registrable
Securities on whose behalf Registrable Securities are to be distributed
by such underwriters shall be parties to any such underwriting
agreement and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders
of Registrable Securities. Such Holders of Registrable Securities shall
not be required by the Company to make any representations or
warranties to or agreements with the Company or the underwriters other
than reasonable representations, warranties or agreements (including
indemnity agreements customary in secondary offerings) regarding such
Holder, such Holder's Registrable Securities and such Holder's intended
method or methods of disposition and any other representation required
by law.
(c) Piggyback Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Act as
contemplated by Section 8.3 and such securities are to be distributed
by or through one or more underwriters, the Company will use its best
efforts, if requested by any Holder of Registrable Securities, who
requests piggyback registration of Registrable Securities in connection
therewith pursuant to Section 8.3 to arrange for such underwriters to
include the Registrable Securities to be offered and sold by such
Holder among the securities to be distributed by or through such
underwriters, provided that, for purposes of this sentence, "best
efforts" shall not require the Company to reduce the amount or sale
price of such securities proposed to be distributed by or through such
underwriters. The Holders of Registrable Securities to be distributed
by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters
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and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
shall also be made to and for the benefit of such Holders of
Registrable Securities, and the Company will cooperate with such
Holders of Registrable Securities to the end that the conditions
precedent to the obligations of such Holders of Registrable Securities
under such underwriting agreement shall not include conditions that are
not customary in underwriting agreements with respect to combined
primary and secondary distributions and shall be otherwise satisfactory
to such Holders. Such Holders of Registrable Securities shall not be
required by the Company to make representations or warranties to or
agreements (including customary indemnity agreements) with the Company
or the underwriters other than reasonable representations, warranties
or agreements regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method or methods of distribution
and any other representation required by law.
(d) Selection of Underwriters. Whenever a registration
requested pursuant to Section 8.2 is for all underwritten offering, the
Holders of a majority of the Registrable Securities included in such
registration shall have the right to select the managing underwriter(s)
to administer the offering, subject to the approval of the Company,
which approval shall not be unreasonably withheld. If the Company at
any time proposed to register any of its securities under the Act for
sale for its own account and such securities are to be distributed by
or through one or more underwriters, the selection of the managing
underwriter(s) shall be made by the Company and notice of the selection
thereof delivered to the Holders of.' all Registrable Securities
eligible to participate in such registration.
(e) Holdback Agreements. If any registration pursuant to
Section 8.2 or 8.3 shall be in connection with an underwritten public
offering, each Holder of Registrable Securities agrees by acquisition
of such Registrable Securities, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities or other securities of the Company (other than
as part of such underwritten public offering) within seven (7) days
prior to the effective date of such registration statement or one
hundred twenty (120) days after the effective date of such registration
statement.
8.6 Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Act, the Company will give the Holders of Registrable
Securities on whose behalf such Registrable Securities are to be so registered
and the underwriters, if any, each Requesting Holder, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be reasonably
necessary to conduct a reasonable investigation within the meaning of the Act.
To minimize disruption and expense to the Company during the course of the
registration process, sellers of Registrable Securities to be covered by any
such registration statement shall coordinate their investigation and due
diligence
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efforts hereunder and, to the extent practicable, will act through a single set
of counsel and a single set of accountants.
8.7 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Act, the Company shall,
and hereby does, hereby indemnify and hold harmless in the case of any
registration statement filed pursuant to this Section 8.2 or 8.3, the seller of
any Registrable Securities covered by such registration statement, such Seller's
directors, trustees, officers, agents and attorneys each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such seller or any such underwriter
within the meaning of the Act against any losses, claims, damages, liabilities
or expenses, joint or several, to which such seller or Requesting Holder or any
such director or officer or participating person or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (x) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, (y) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any failure by the Company timely to deliver a prospectus or otherwise to
comply with applicable securities laws and the Company will reimburse such
seller, Requesting Holder and each such director, trustee, officer, agent,
attorney, participating person and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with information furnished to
the Company by such seller or such Requesting Holder or any such director,
trustee, officer, participating person or controlling person.
(b) Indemnification by the Seller. The Company may require, as
a condition to including Registrable Securities in any registration statement
filed pursuant to Section 8.2 or 8.3, that the Company shall have received an
undertaking satisfactory to it from each- prospective seller of such securities,
severally and not jointly, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subsection (a) of this Section 8.7) the
Company, each director of the Company, each officer of the Company who shall
sign such registration statement and each other person, if any, who controls the
Company within the meaning of the Act, and the Company's agents and attorneys,
with respect to (i) any untrue statement in or omission from such registration
statement, any
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preliminary prospectus, final prospectus or summary prospectus included therein,
or any amendment or supplement thereto, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Company by
such seller or (ii) any failure by such seller timely to deliver a prospectus or
otherwise to comply with applicable securities laws. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer, agent, or attorney or controlling
person and shall survive the transfer of such securities by such seller.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or any proceeding
involving a claim referred to in the preceding subsections of this Section 8.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided therein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 8.7, except to the extent that
the indemnifying party is actually materially prejudiced by such failure to give
notice. In case such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment (i) a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim, or
(ii) the indemnified party has available to it reasonable defenses which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the foregoing, in any such action, any indemnified party shall have the right to
retain its own counsel but the fees and disbursements of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party shall
have failed to retain counsel for the indemnified person as aforesaid, or (ii)
the indemnifying party and such indemnified party shall have mutually agreed to
the retention of such counsel. It is understood that the indemnifying party
shall not, in connection with any action or related actions in the same
jurisdiction, be liable for the fees and disbursements of more than one separate
firm qualified in such jurisdiction to act as counsel for the indemnified party.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without the consent
of the indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
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(d) Other Indemnification. Indemnification similar to that
specified in the preceding subsections of this Section 8.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Act.
(e) Contribution. If the indemnification provided for in this
Section 8.7 is unavailable or insufficient to hold harmless an indemnified party
in respect of any losses, claims, damages, liabilities or expenses described as
indemnifiable pursuant to subsections (a) or (b), then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses in such proportion as appropriate to reflect
the relative fault of the Company, on the one hand, or such seller of
Registrable Securities on the other hand, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any
untrue statement or omission giving rise to such indemnification obligation. The
Company and the Holder of Registrable Securities agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if Holders of Registrable Securities were treated
as one entity for such purpose) or by any other method of allocation which did
not take account of the equitable considerations referred to above in this
subsection (e). No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(f) Indemnification Payments. The indemnification required by
this Section 8.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, is and when bills are received or
any expense, loss, damage or liability is incurred.
(g) Limitation on Seller's Payments. Notwithstanding any
provision hereof to the contrary, the liability of any seller of Registrable
Securities under this Section 8.2 shall in no event exceed the proceeds received
by such seller from the sale of Registrable Securities covered by the
registration statement giving rise to such liability.
9. Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially -,ill of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, the Company shall cause to be delivered to the Holder,
at least ten days prior to the date specified in (a) or (b) below, as the case
may be, a notice containing a brief
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description of the proposed action and stating the date on which (a) a record is
to be taken for the purpose of such dividend, distribution or rights, or (b)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any, is
to be fixed, as of which the holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
10. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may not be sold,
transferred or otherwise disposed of except to a person who, in the
opinion of counsel reasonably satisfactory to the Company, is a person
to whom this Warrant or such Warrant Stock may legally be transferred
pursuant to Section 4 hereof without registration and without the
delivery of a current prospectus under the Act with respect thereto and
then only against receipt of an agreement of such person to comply with
the provision of this Section 10 with respect to any resale or other
disposition of such securities unless, in the opinion of such counsel,
such agreement is not required.
(b) The Company may cause the following legend to be set forth
on each certificate representing Warrant Shares or any other security
issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to
the public, unless counsel for the Company is of the opinion as to any
such certificate that such legend is unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under the
Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of the Company.
11. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Arizona applicable to contracts
entered into and to be performed wholly within such State.
12. Attorney Review. The Company has had this Common Stock Purchase
Warrant reviewed by an attorney independent of Holder and independent of any
counsel which may have represented Holder.
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13. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to Matthew S. Rogers, Canyon Security, L.L.C., 5725 N. Scottsdale Road,
Suite 190, Scottsdale Arizona 85250, or such other address as Holder shall have
designated by written notice to the Company as provided herein. Notices or other
communications to the Company shall be deemed to have been sufficiently given if
delivered by hand, by facsimile transmission, or by overnight express courier or
mailed, postage prepaid, to the Company at 1719 W. University, Suite 187, Tempe
85281, or such other address as the Company shall have designated by written
notice to such registered owner as herein provided. Notice shall be deemed given
(i) three business days after being deposited in the United States mail, postage
prepaid, as herein provided; and (ii) one business day after being sent by
overnight express courier or facsimile transmission.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
31st day of May, 1996.
M.D. LABS, INC.
By:/s/ Hooman Nikzad
--------------------------------------
Hooman Nikzad, Chief Executive Officer
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PURCHASE FORM
-------------
Dated:_____________________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing __________ shares of Common Stock and
hereby makes payment of $_________ in payment of the actual exercise price
thereof.
________________________________________
Signature
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated:_____________________
FOR VALUE RECEIVED,____________________________ hereby sells,
assigns, and transfers unto (Please type or print) __________________________
(Please type or print) address ___________________________________
_________________________ the right to purchase Common Stock represented by this
Warrant to the extent of ___________________shares as to which such right is
exercisable and does hereby irrevocably constitute and appoint the Company
and/or its transfer agent as attorney to transfer the same on the books of the
Company with full power of substitution in the premises.
_________________________________________
Signature
19
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURlTlES ACT OF 1933 AND HAVE BEEN TAKEN FOR lNVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO THE DISTRIBUTION THEREOF. AND SUCH SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT, THE EXISTENCE OF WHICH EXEMPTION HAS BEEN CONFIRMED BY AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY OR BY A NO ACTION LETTER OR
INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
TRANSFER OF THESE SECURITIES IS RESTRICTED AS DESCRIBED HEREIN.
Void after 5:00 p.m., Mountain Standard Time
on May 31, 2001
M.D. LABS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies (that, for value received, JBV Investments, L.C., a Utah
limited liability company, or registered assigns (the "Holder"), is irrevocably
entitled, subject to the provisions of this Warrant, to purchase Fifty Three
Thousand Eight Hundred Twenty-eight (53,828) shares, $0.001 par value per share,
of the common stock (the "Common Stock") of M.D. Labs, Inc., a Delaware
corporation (the"Company"), at a price of Three and 50/100 Dollars ($3.50) per
share. The exercise price is subject to adjustment as provided in Section 6
below (the "Exercise Price"). The number of shares of Common Stock to be
received upon the exercise of this Warrant (the "Warrant Shares") and the
Exercise Price may be adjusted from time to time as hereinafter set forth. In
addition, under certain circumstances as set forth herein, the Holder shall have
the right to require the Company to register the Warrant Shares.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the date hereof, but in any event
by no later than 5:00 p.m., Mountain Standard Time, on May 31, 2001 (the fifth
anniversary of the date hereof) or if such date is a day on which federal or
state chartered banking institutions are authorized by law to close, then on the
next succeeding day which shall not be such a day, by presentation and surrender
thereof to the Company at its principal office or at the office of its stock
transfer agent, if any, the Purchase Form annexed hereto duly executed and
accompanied by payment, in cash or by certified or official bank check, payable
to the order of the Company, in the amount of the Exercise Price for the number
of Warrant Shares specified in such form, together with all taxes applicable
upon such exercise. Alternatively, in the Holder's discretion, the Exercise
Price may be satisfied (i) by cancellation of indebtedness to Holder, or (ii) by
surrendering to the Company the right to acquire a number of Warrant Shares
having a value in excess of their Exercise Price
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equal to the Exercise Price of The Warrant Shares as to which the Warrant is
being exercised. If this Warrant should be exercised in part only, the Company
shall, if this Warrant is surrendered for cancellation, execute and deliver a
new Warrant of the same tenor evidencing the right of the Holder to purchase the
balance of the Warrant Shares purchasable hereunder upon the same terms and
conditions as herein set forth. Upon and as of receipt by the Company of the
Purchase Form (in the form attached hereto) at the office or stock transfer
agent of the Company, in proper form for exercise, and accompanied by payment as
herein provided and evidence reasonably satisfactory to the Company of the
availability of an exemption from registration under applicable securities laws,
The Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder.
2. Reservation of Shares. The Company hereby covenants and agrees that at
all times during the period this Warrant is exercisable it shall reserve from
its authorized and unissued Common Stock for issuance and delivery upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance and delivery upon exercise of this Warrant. The Company agrees that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
4. Exercise, Transfer. Exchange. Assignment or Loss of Warrant.
(a) This Warrant may not be exercised, assigned or transferred except
as provided herein and in accordance with and subject to the provisions of the
Securities Act of 1933, as amended, and the Rules and Regulations promulgated
thereunder (said Act and such Rules and Regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 4 and Section 10 hereof shall be
null and void and of no force and effect.
(b) This Warrant shall be exercisable or transferable only upon the
opinion of counsel satisfactory to the Company, to the effect that (i) the
exercising party or the transferee is a person to whom the Warrant Shares may be
issued or the Warrant may be legally transferred, respectively, without
registration under the Act; and (ii) such exercise or transfer will not violate
any applicable law or governmental rule or regulation including, .without
limitation, any applicable federal or state securities law. Prior to the
exercise, transfer or assignment, the exercising party, assignor or transferor
shall reimburse the Company for its reasonable expenses, including attorneys"
fees, incurred in connection with the exercise, transfer or assignment.
(c) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tat. In
such event, the Company shall, without charge,
2
<PAGE>
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation thereof at the principal office of the Company together
with a written notice signed by the holder thereof, specifying the names And
denominations in which new Warrants are to be issued. The terms "Warrant" And
"Warrants" as used herein includes any Warrants in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged.
(d) Upon receipt by The Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e) Each holder of this Warrant, the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant shall indemnify and
hold unless the Company, its directors and officers, and each person, if any,
who controls the Company, against any losses, claims, damages or liabilities,
joint or several, to which the Company or any such director, officer or Any such
person may become subject under the Act or statute or common law, insofar as
such losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or are based upon the disposition by such Holder of The Warrant,
the Warrant Shares or other such securities in violation of this Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustment of Exercise Price and Number of Shares. The number and kind
of securities issuable upon the exercise of this Warrant and the Exercise Price
of such securities shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time, on or after the date hereof, the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
of the Company by way of dividend, then and in each case, the Holder of this
Warrant shall, upon the exercise hereof, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of such other or additional
stock of the Company which such Holder would hold on the date of such exercise
had it been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock
3
<PAGE>
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by paragraphs (a) and (b) of this
paragraph 6.
(b) Adjustment for Reclassification. Reorganization or Merger. In
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation,,the stock or other securities or property to
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case, the terms
of this paragraph 6 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
the date hereof the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of Warrant Shares receivable upon exercise of the Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Exercise Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
Warrant Shares receivable upon exercise of the Warrant shall thereby be
proportionately decreased.
7. Officer's Certificate. Whenever the Exercise Price or the Warrant or
Shares issuable on exercise of this Warrant shall be adjusted as required by the
provisions of Section 6 hereof, the Company shall forthwith file with its
Secretary or an Assistant Secretary at its principal office, and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price and Warrant Shares determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holder, and the Company shall, forthwith after each such adjustment, deliver
a copy of such certificate to the Holder.
8. Registration Under Securities Act of 1933. as amended (the "Act"t.
8.1 Certain Other Definitions. As used in this Common Stock Purchase
Warrant, the following terms shall have the respective meanings:
"Commission " shall mean the United States Securities and Exchange
Commission and any successor federal agency having similar powers.
"Initiating holder" shall mean any Holder or Holders, as defined
herein, who or which, in the aggregate, own not less than 50.1% of the aggregate
number of Registrable Securities, as hereinafter defined, then existing.
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<PAGE>
The term "majority of the Registrable Securities" refers to a
majority of the specified Registrable Securities.
The terms "register" "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering or the effectiveness of
such registration statement.
"Registrable Securities" shall mean those Securities which have not
been included in a registration statement deemed to be effective or those
Securities sold to the public.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Section 8, including, without limitation, (i) all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company (but not counsel retained by the Holders), blue sky fees
and expenses, and accountants' expenses including without limitation any special
audits or "comfort" letters incident to or required by any such registration,
transfer taxes, fees of transfer agents and registrars, costs of insurance, and
fees of the National Association of Securities Dealers, Inc., and (ii) any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions.
"Securities" shall mean the Common Stock, as hereinafter defined,
subject to this Common Stock Purchase Warrant and to that certain Common Stock
Purchase Warrant issued to Canyon Security, L.L.C., together with any other
securities which are hereafter issued with respect thereto by way of exchange,
reclassification, dividend or distribution, whether or not such securities have
been sold to the public.
"Common Stock" shall mean all currently outstanding shares of $0.001
par value per share common stock of the Company now issued and outstanding and
all shares hereafter issued and outstanding, as well as any securities hereafter
convertible into or exchangeable for shares of Common Stock of the Company.
8.2 Registration on Demand.
(a) Demand. After September I, 1997, and upon the written demand of
one or more Initiating Holders, requesting that the Company effect the
registration under the Act of up to fifty percent (50%! of such Initiating
Holder's Registrable Securities and specifying the intended method or methods of
disposition thereof, the Company will promptly, but in any event within ten (
10) days, give written notice of such demanded registration to Holder, or its
successors and assigns, as the case may be, and to the other acquirers of
Registrable Securities (together with the Holder, the "Holders") and thereupon
will use its best efforts to effect the registration under the Act of:
(i) the Registrable Securities which the Company has been so
demanded to register by such Initiating Holder, for disposition in
accordance with the intended method or methods of disposition stated
in such demand,
(ii) all other Registrable Securities which The Company has
been demanded to register by the Holders thereof by written demand
delivered to the Company within ten (10) days after giving of such
written notice by the Company (which request shall
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<PAGE>
specify the intended method or methods of disposition of such
Registrable Securities), and
(iii) all shares of Common Stock which the Company may elect to
register for its own account or the account(s) of other
stockholder(s) in connection with the offering of Registrable
Securities pursuant to this Section 8.2,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that the Company shall not be required to effect more than
one ( I ) registration pursuant to this Section 8.2. If, at the date of receipt
of a demand by Initiating Holder, the Company has previously filed a
registration statement pursuant to the Act (otherwise than on Form S-4 or S-8 or
any similar form for the registration of securities pursuant to an employee
benefit plan or business combination or reorganization), the Company may defer
the filing of any such demanded registration statement to a date not later than
ninety (90) days after the effective date of such prior registration statement.
(b) Registration Statement Form. I Each registration demanded
pursuant to this Section 8.2 shall be effected by the filing of a registration
statement on any form which the Company is eligible to use, such form to be
selected by the Company, after consultation with counsel and after notice of
such selection of such form is delivered to the Holders of all Registrable
Securities electing to participate in such registration; provided, however, that
if the Holders of at least a majority of the Registrable Securities as to which
registration has been demanded pursuant to this Section 8.2 shall so request,
the Company shall file such registration statement pursuant to the Commission's
Rule 415, or any successor rule or regulation thereto, so as to permit the
continuous or delayed offering of the Registrable Securities in accordance with
the intended method of disposition specified in the Initiating Holder's notice
pursuant to subsection (a) of this Section 8.2, but in no event shall the
Company be required to maintain the effectiveness of such registration beyond
the period specified in Section 8.4 (b). Such selection of form by the Company
shall be final.
(c) Expenses. Except as otherwise prohibited by applicable law, the
Company will pay all Registration Expenses in connection with the registration
of Registrable Securities requested pursuant to this Section 8.2.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 8.2 shall not be deemed to be effected unless a
registration statement covering all shares of Registrable Securities specified
in notices received as described in subsection (a), for sale in accordance with
the method of disposition specified by the Initiating Holder, shall have been
declared effective by the Commission or otherwise becomes effective; provided
that a registration which does not become effective after the Company has
substantially prepared and has filed or is in a position to file a registration
statement with respect thereto solely by reason of the refusal to proceed of any
of the Initiating Holders (other than any refusal to proceed based upon the
advice of their counsel that the registration statement, or (he prospectus
contained therein, contains an untrue statement of a material fact or omits to
slate a material fact required to be staled therein or necessary to make the
statements therein not misleading in light of the circumstances then existing)
shall be deemed to have been effected by the Company at the request of such
Holder.
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8.3 Piggyback Registration Rights.
(a) Right to Include Registrable Securities. If, at any time within
five (5) years from the date hereof, other than in connection with the Company's
initial registration and offering of its securities to the public, the Company
proposes to register any of its equity securities under the Act, whether or not
for sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the Act, it
will, each such time, unless inclusion of Registrable Securities in such
registration is prohibited by the terms of a financing transaction pursuant to
which the Company raised gross proceeds of at least $2 million, give notice at
least twenty (20) days prior to the proposed filing date to all Holders of
Registrable Securities of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration and, upon the written request of any such Holder delivered
to the Company within ten ( 10) days after the giving of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method or methods of disposition thereof), the
Company shall use its best efforts to effect the registration under the Act of
Registrable Securities which the Company has been requested to register by the
Holders of Registrable Securities (hereinafter "Requesting Holders"), but not
exceeding ten percent (10%) of the Registrable Securities to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered, of
Those Registrable Securities which the Company is requested to register by
Holder up to ten percent (10%) of the Registrable Securities provided that:
(i) if, at any time after giving such notice of its intention
to register any of its securities and prior to the effective date of
the registration statement filed in connection with such
registration, the Company shall determine for any reason nol to
register such securities, the Company may, al its election, give
written notice of such determination to each Holder of Registrable
Securities and thereupon shall be relieved of its obligation to
register any Registrable Securities in connection with such
registration (but not its obligation lo pay the Registration Expenses
in connection therewith as provided in subsection (b) of this Section
8.3), without prejudice, however, to the rights of any one or more
Holders to request that such registration be effected in a subsequent
such registration;
(ii) if (a) the registration so proposed by the Company
involves an underwritten offering of The securities so being
registered to be distributed by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such
a transaction, (b) the Company proposes that the securities to be
registered in such underwritten offering will not include all of the
Registrable Securities requested to be so included, and (c) the
managing underwriter of such underwritten offering shall advise the
Company in writing that, in its opinion, the distribution of all or a
specified portion of such Registrable Securities concurrently with
the securities being distributed by such underwriters will materially
and adversely affect the distribution of such securities by such
underwriters (such opinion to state the reasons therefor), then the
Company will promptly furnish each such Holder of Registrable
Securities with a copy of such opinion and may require, by written
notice to each such Holder accompanying such opinion, that the
distribution of all or a specified portion of such Registrable
Securities be excluded from such distribution (in case of an
exclusion of a portion of such Registrable Securities, such portion
to be allocated among such Holders in proportion to the
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<PAGE>
respective numbers of shares of Registrable Securities so requested
to be registered by such Holders); provided, however, that if the
Company shall require such a reduction, the Holder of Registrable
Securities shall have the right to withdraw from the offering;
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 8.3
incidental to the registration of any of its securities in connection
with mergers, acquisitions, exchange offers, dividend reinvestment
plans or stock options or other employee benefit plans or incidental
to the registration of any non-equity securities not convertible into
equity securities; and,
(iv) the number of shares of Registrable Securities which shall
be included in each such registration shall not exceed ten percent
(10%) of the Registrable Securities.
No registration of Registrable Securities effected under this Section 8.3
shall relieve the Company of its obligation to effect registrations of
Registrable Securities upon the request of an Initiating Holder pursuant to
Section 8.2.
(b) Expenses. Except as otherwise prohibited by applicable law, the
Company will pay all Registration Expenses in connection with the registration
of Registrable Securities requested pursuant to this Section 8.3.
8.4 Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Act as provided in Section 8.2 and 8.3, the Company shall promptly:
(a) use its best efforts to prepare and (in any event within (90)
days of the last date on which Holders of Registrable Securities may notify the
Company of their request to include their Registrable Securities in such
registration in accordance herewith or such earlier date as may be provided
elsewhere herein) file with the Commission a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective provided that, in the case of a
registration of any Registrable Securities pursuant to Section 8.2 or 8.3, such
preparation and filing may be delayed if, in the good faith determination of the
Board of Directors of the Company, such deferral would be in the best interest
of the Company and such deferral would be without material prejudice to the
rights of the Holders of Registrable Securities to request that such
registration be effected as a subsequent registration under Section 8.3;
(b) use its best efforts to prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with respect to
the disposition of all Registrable Securities and other securities covered by
such registration statement until the earlier of such time as all of such
Registrable Securities and other securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or the expiration of one ( I ) year (or, in
the case of registration of Registrable Securities pursuant to Section 8.3,
ninety (90) days) after such registration statement becomes effective; and will
furnish, upon request, to each such seller and each Requesting Holder prior to
the filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any such amendment
8
<PAGE>
or supplement to which any such seller or Requesting Holder shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material aspects with the requirements of the Act or of the rules
or regulations thereunder with regard lo disclosure concerning a holder of
Registrable Securities;
(c) furnish to each seller of such Registrable Securities and each
Requesting Holder such number of conformed copies of such registration statement
and of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Act, such documents, if any,
incorporated by reference in such registration statement or prospectus, and such
other documents, as such seller or Requesting Holder may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or blue sky laws of the States of the United States as
each seller shall reasonably request, to keep such registration or qualification
in effect for so long as such registration statement remains in effect, and do
any and all other acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not and
would not, but for the requirements of this subsection (d), be obligated to be
so qualified, or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction or to obtain
clearance in more than five (5) states if the Common Stock is not listed on the
Nasdaq National Market System;
(e) upon request, use best efforts to furnish to each seller of
Registrable Securities and each Requesting Holder a signed counterpart,
addressed to such seller and such Requesting Holder, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), and (ii) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement, dated
after the effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's letters delivered to
underwriters in underwritten public offerings of securities;
(f) immediately notify each seller of Registrable Securities covered
by such registration statement and each Requesting Holder, at any time when a
prospectus relating thereto is required to be delivered under the Act, upon
discovery that. or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, which untrue statement
or omission requires amendment of the registration statement or supplementation
of the prospectus, and at the request of any such seller or Requesting Holder,
prepare and furnish to such seller and Requesting Holder a reasonable number of
copies of a
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<PAGE>
supplement to or an amendment of such prospectus as may be necessary so that, as
thereinafter delivered to the acquirers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; provided, however that each Holder of Registrable Securities
registered pursuant to such registration statement agrees that such Holder will
not sell any Registrable Securities pursuant to such registration statement
during the time that the Company is preparing and filing with the Commission a
supplement to or an amendment of such prospectus or registration statement;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its Holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18) months, beginning with
the first month of the first fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11 (a) of the Act;
(h) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration statement:
and
(i) use its best efforts to list all Registrable Securities covered
by such registration statement on each securities exchange on which any of the
Common Stock of the Company is then listed or, if the Company's Common Stock is
not then quoted on NASDAQ or listed on any national securities exchange, use its
best efforts to have such Registrable Securities covered by such registration
statement quoted on NASDAQ or, at the option of the Company, listed on a
national securities exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith and such seller shall furnish such
information. If such information is not provided when requested, the Company in
its discretion may exclude the affected shares from registration.
8.5 Underwritten Offerings.
(a) Underwritten Offerings. If the number of shares of Registrable
Securities and any other securities to be sold in any underwritten offering
involves a registration requested by Initiating Holders pursuant to Section 8.2
should be limited due to market conditions or otherwise, the Company shall
include in such registration to the extent of the number which the Company is so
advised can be sold in such offering (i) first, Registrable Securities requested
to be included in such registration, pro rata among the Holders of such
Registrable Securities on the basis of the number of shares of such securities
requested to be included by such Holders, and (ii) other securities of The
Company proposed to be included in such registration, in accordance with the
priorities, if any, then existing among the Company and the Holders of such
securities.
(b) Underwriting Agreement. If requested by the underwriters for any
underwritten offering of Registrable Securities on behalf of a Holder or Holders
of Registrable Securities
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<PAGE>
pursuant to a registration requested under Section 8.2, the Company will enter
into an underwriting agreement reasonably acceptable to the Company with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to distributions,
including, without limitation, indemnities to the effect and to the extent
provided in Section 8.7, provided, however, that such agreement shall not
contain any provision which is inconsistent with the provisions hereof. The
Holders of Registrable Securities on whose behalf Registrable Securities are to
be distributed by such underwriters shall be parties to any such underwriting
agreement and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holders of Registrable Securities. Such
Holders of Registrable Securities shall not be required by the Company to make
any representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
(including indemnity agreements customary in secondary offerings) regarding such
Holder, such Holder's Registrable Securities and such Holder's intended method
or methods of disposition and any other representation required by law.
(c) Piggyback Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Act as contemplated by
Section 8.3 and such securities are to be distributed by or through one or more
underwriters, the Company will use its best efforts, if requested by any Holder
of Registrable Securities, who requests piggyback registration of Registrable
Securities in connection therewith pursuant to Section 8.3 to arrange for such
underwriters to include the Registrable Securities to be offered and sold by
such Holder among the securities to be distributed by or through such
underwriters, provided that, for purposes of this sentence, "best efforts" shall
not require the Company to reduce the amount or sale price of such securities
proposed to be distributed by or through such underwriters. The Holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such Holders of Registrable Securities, and the Company will
cooperate with such Holders of Registrable Securities to the end that the
conditions precedent to the obligations of such Holders of Registrable
Securities under such underwriting agreement shall not include conditions that
are not customary in underwriting agreements with respect to combined primary
and secondary distributions and shall be otherwise satisfactory to such Holders.
Such Holders of Registrable Securities shall not be required by the Company to
make representations or warranties to or agreements (including customary
indemnity agreements) with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method or methods of
distribution and any other representation required by law.
(d) Selection of Underwriters. Whenever a registration requested
pursuant to Section 8.2 is for an underwritten offering, the Holders of a
majority of the Registrable Securities included in such registration shall have
the right to select the managing underwriter(s) to administer the offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld. If the Company at any time proposed to register any of its securities
under the Act for sale for its own account and such securities are to be
distributed by or through one or more underwriters, the selection of the
managing underwriter(s) shall be made by the Company and
11
<PAGE>
notice of the selection thereof delivered to the Holders of all Registrable
Securities eligible to participate in such registration.
(e) Holdback Agreements. If any registration pursuant to Section 8.2
or 8.3 shall be in connection with an underwritten public offering, each Holder
of Registrable Securities agrees by acquisition of such Registrable Securities,
if so required by the managing underwriter, not to effect any public sale or
distribution or Registrable Securities or other securities or the Company (other
than as part of such underwritten public offering) within seven (7) days prior
to the effective date of such registration statement or one hundred twenty (
120) days after the effective date of such registration statement.
8.6 Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Act, the Company will give the Holders of Registrable
Securities on whose behalf such Registrable Securities are to be so registered
and the underwriters, if any, each Requesting Holder, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be reasonably
necessary to conduct a reasonable investigation within the meaning of the Act.
To minimize disruption and expense to the Company during the course of the
registration process, sellers of Registrable Securities to be covered by any
such registration statement shall coordinate their investigation and due
diligence efforts hereunder and. to the extent practicable, will act through a
single set of counsel and a single set of accountants.
8.7 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Act, the Company shall, and hereby
does, hereby indemnify and hold harmless in the case of any registration
statement filed pursuant to this Section 8.2 or 8.3, the seller of any
Registrable Securities covered by such registration statement, such seller's
directors, trustees, officers, agents and attorneys each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such seller or any such underwriter
within the meaning of the Act against any losses, claims. damages, liabilities
or expenses, joint or several, to which such seller or Requesting Holder or any
such director or officer or participating person or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based Upon (x) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, (y) any
omission or alleged omission to state therein a material fact required to be
stated therein necessary to make the statements therein not misleading, or (z)
any failure by the Company timely to deliver a prospectus or otherwise to comply
with applicable securities laws and the Company will reimburse such seller,
Requesting Holder and each such director, Trustee, officer, agent, attorney,
participating person and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending
12
<PAGE>
any such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (or action or proceeding in respect thereof) arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with information furnished to the
Company by such seller or such Requesting Holder or any such director, trustee,
officer, participating person or controlling person.
(b) Indemnification by the Seller. The Company may require, as a
condition to including Registrable Securities in any registration statement
filed pursuant to Section 8.2 or 8.3, that the Company shall have received an
undertaking satisfactory to it from each prospective seller of such securities,
severally and not jointly, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subsection (a) of this Section 8.7) the
Company each director of the Company, each officer of the Company who shall sign
such registration statement and each other person, if any, who controls the
Company within the meaning of the Act, and the Company's agents and attorneys,
with respect to (i) any untrue statement in or omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, if such statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by such seller or (ii) any failure by such seller timely to
deliver a prospectus or otherwise to comply with applicable securities laws.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer,
agent, or attorney or controlling person and shall survive the transfer of such
securities by such seller.
(c) Notice of Claims. etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or any proceeding involving a
claim referred to in the preceding subsections of this Section 8.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action. provided that the failure of any indemnified party to give notice
as provided therein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 8.7, except to the extent that
the indemnifying party is actually materially prejudiced by such failure to give
notice. In case such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgement (i) a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim, or
(ii) the indemnified party has available to it reasonable defenses which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other defenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the foregoing, in any such action, any indemnified party shall have the right to
retain its own counsel but the fees and disbursements of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party shall
have railed to retain counsel for the indemnified person as aforesaid, or (ii)
the indemnifying party and such indemnified party shall have mutually agreed to
the retention of such counsel. It is understood that the indemnifying party
shall not, in connection with any action or related actions in the same
jurisdiction, be liable for the fees and disbursements of more than one separate
firm qualified in
13
<PAGE>
such jurisdiction to act as counsel for the indemnified party. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgement. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subsections of this Section 8.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Act.
(e) Contribution. If the indemnification provided for in this Section
8.7 is unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages, liabilities or expenses described as
indemnifiable pursuant to subsections (a) or (b), then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses in such proportion as appropriate to reflect
the relative fault or the Company, on the one hand, or such seller of
Registrable Securities on the other hand. and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any
untrue statement or omission giving rise to such indemnification obligation. The
Company and the Holder of Registrable Securities agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if Holders of Registrable Securities were treated
as one entity for such ,purpose) or by any other method of allocation which did
not take account of the equitable considerations referred to above in this
subsection (e). No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation .
(f) Indemnification Payments. The indemnification required by this
Section 8.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or any
expense, loss, damage or liability is incurred.
(g) Limitation on Seller's Payments. Notwithstanding any provision
hereof to the contrary, the liability of any seller of Registrable Securities
under this Section 8.2 shall in no event exceed the proceeds received by such
seller from the sale of Registrable Securities covered by the registration
statement giving rise to such liability.
9. Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary
14
<PAGE>
or involuntary dissolution, the Company shall cause to be delivered to the
Holder, at least ten days prior to the date specified in (a) or (b) below, as
the case may be, a notice containing a brief description of the proposed action
and stating the date on which (a) a record is to be taken for the purpose of
such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
10. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may not be sold, transferred or
otherwise disposed of except to a person who, in the opinion of counsel
reasonably satisfactory to the Company, is a person to whom this Warrant or such
Warrant Stock may legally be transferred pursuant to Section 4 hereof without
registration and without the delivery of a current prospectus under the Act with
respect thereto and then only against receipt of an agreement of such person to
comply with the provision of this Section I 1) with respect to any resale or
other disposition of such securities unless, in the opinion of such counsel,
such agreement is not required.
(b) The Company may cause the following legend to be set forth on
each certificate representing Warrant Shares or any other security issued or
issuable upon exercise of this Warrant not theretofore distributed to the public
or sold to underwriters for distribution to the public, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:
The securities represented by this certificate may not be offered for sale, sold
or otherwise transferred except pursuant to an effective registration statement
made under the Securities Act of 1933 (the "Act"), or pursuant to an exemption
from registration under the Act, the availability of which is to be established
to the satisfaction of the Company.
11. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Arizona applicable to contracts
entered into and to be performed wholly within such State.
12. Attorney Review. The Company has had this Common Stock Purchase
Warrant reviewed by an attorney independent of Holder and independent of any
counsel which may have represented Holder.
13. Notice. Notices and other communications to be given to the Holder of
the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to James B. Van Treese, JBV Investments, L.C., 6906 South 300 West,
Salt Lake City, Utah 84047, or such other address as Holder shall have
designated by written notice to the Company as provided herein. Notices or other
communications to the Company shall be deemed to have been sufficiently given if
delivered by hand, by facsimile transmission, or by overnight express courier or
mailed, postage prepaid, to the Company at 1719 W. University, Suite 187, Tempe
85281, or such other address as the Company shall have
15
<PAGE>
designated by written notice to such registered owner as herein provided. Notice
shall be deemed given (i) three business days after being deposited in the
United States mail, postage prepaid, as herein provided; and (ii) one business
day after being sent by overnight express courier or facsimile transmission.
IN WlTNESS WHEREOF. the Company has executed this Warrant as of the 31st
day of May, 1996.
M D. LABS, INC.
By:/s/ Hooman Nikzad
---------------------------------------
Hooman Nikzad, Chief Executive Officer
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PURCHASE FORM
-------------
Dated:___________________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing________________ shares of Common
Stock and hereby makes payment of $_______
_____________________ in payment of the actual exercise price thereof.
------------------------------------------------
Signature
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated:_________________________________
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns, and transfers unto (Please type or print)______________________________
____________________, (Please type or print) address____________________________
______________________________________________the right to purchase Common Stock
represented by this Warrant to the extent of _______________ shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint the
Company and/or its transfer agent as attomey to transfer the same on the books
of the Company with full power of substitution in the premises.
--------------------------------------
Signature
17
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT, THE EXISTENCE OF WHICH EXEMPTION HAS BEEN CONFIRMED BY AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY OR BY A NO ACTION LETTER OR
INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
TRANSFER OF THESE SECURTIES IS RESTRICTED AS DESCRIBED HEREIN.
Void after 5:00 p.m., Mountain Standard Time
on May 31, 2001
M.D. LABS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, Capital West Investment
Holding Company, Inc., an Arizona corporation, or registered assigns (the
"Holder"), is entitled, subject to the provisions of this Warrant, to purchase
Ten Thousand Seven Hundred Sixty-five (10,765) shares, $0.001 par vaue per
share, of the common stock (the "Common Stock") of M.D. Labs, Inc., a Delaware
corporation (the "Company"), at a price per share equal to the selling price per
share set for Common Stock offered at such time as the Company initially
registers Common Stock under the Securities Act of 1933, as amended, for sale to
the public. The exercise price is subject to adjustment as provided in Section 6
below (the "Exercise Price"). The number of shares of Common Stock to be
received upon the exercise of this Warrant (the "Warrant Shares") and the
Exercise Price may be adjusted from time to time as hereinafter set forth.
1. Exercise of Warrant. Subject to the provisions of Section 11 hereof,
this Warrant may be exercised in whole or in part at any time or from time to
time on or after the date hereof, but in any event by no later than 5:00 p.m.,
Mountain Standard Time, on May 31, 2001 (the fifth anniversary of the date
hereof) or if such date is a day on which federal or state chartered banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender thereof to the
Company at its principal office or at the office of its stock transfer agent, if
any, the Purchase Form annexed hereto duty executed and accompanied by payment,
in cash or by certified or official bank check, payable to the order of the
Company, in the amount of the Exercise Price for the number of Warrant Shares
specified in such form, together with all taxes applicable upon such exercise.
Alternatively, in the Holder's discretion, the Exercise Price may be satisfied
(i) by cancellation of indebtedness to Holder, or (ii) by surrendering to the
Company the right to acquire a number of Warrant Shares having a value in excess
of their Exercise Price equal to the Exercise Price of the Warrant Shares as to
which the Warrant is being exercised. If this Warrant should be exercised in
part only, the Company shall, if this Warrant is surrendered
<PAGE>
for cancellation, execute and deliver a new Warrant of the same tenor evidencing
the right of the Holder to purchase the balance of the Warrant Shares
purchasable hereunder upon the same terms and conditions as herein set forth.
Upon and as of receipt by the Company of the Purchase Form (in the form attached
hereto) at the office or stock transfer agent of the Company, in proper form for
exercise, and accompanied by payment as herein provided and evidence reasonably
satisfactory to the Company of the availability of an exemption from
registration under applicable securities laws, the Holder shall be deemed to be
the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
2. Reservation of Shares. The Company hereby covenants and agrees that
at all times during the period this Warrant is exercisable it shall reserve from
its authorized and unissued Common Stock for issuance and delivery upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance and delivery upon exercise of this Warrant. The Company agrees that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
4. Exercise, Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be exercised, assigned or transferred
except as provided herein and in accordance with and subject to the provisions
of the Securities Act of 1933, as amended, and the Rules and Regulations
promulgated thereunder (said Act and such Rules and Regulations being
hereinafter collectively referred to as the "Act"). Any purported transfer or
assignment made other than in accordance with this Section 4 and Section 10
hereof shall be null and void and of no force and effect.
(b) This Warrant shall be exercisable or transferable only
upon the opinion of counsel satisfactory to the Company, to the effect that (i)
the exercising party or the transferee is a person to whom the Warrant Shares
may be issued or the Warrant may be legally transferred, respectively, without
registration under the Act; and (ii) such exercise or transfer will not violate
any applicable law or. governmental rule or regulation including, without
limitation, any applicable federal or state securities law. Prior to the
exercise, transfer or assignment, the exercising party, assignor or transferer
shall reimburse the Company for its reasonable expenses, including attorneys'
fees, incurred in connection with the exercise, transfer or assignment.
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<PAGE>
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new Warrants are to be issued. The terms "Warrant" and
"Warrants" as used herein includes any Warrants in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged.
(d) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, at-id (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e) Each Holder of this Warrant, the Warrant Shares or any
other security issued or issuable upon exercise of this Warrant shall indemnify
and hold harmless the Company, its directors and officers, and each person, if
any, who controls the Company, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or any such person may become subject under the Act or statute or common
law, insofar as such losses, claims, damages or liabilities, or actions in
respect thereof, arise out of or are based upon the disposition by such Holder
of the Warrant, the Warrant Shares or other such securities in violation of this
Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant and the Exercise
Price of such securities shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
from time to time, on or after the date hereof, the holders of the Common Stock
of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock of the Company by way of dividend, then and in each case, the
Holder of this Warrant shall, upon the exercise hereof, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
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<PAGE>
without payment of any additional consideration therefor, the amount of such
other or additional stock of the Company which such Holder would hold on tile
date of such exercise had it been the holder of record of such Common Stock on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by paragraphs (a) and (b) of
this paragraph 6.
(b) Adjustment for Reclassification. Reorganization or Merger.
In case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification.
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case, the terms
of this paragraph 6 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately increased; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common Stock shall be
combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately decreased.
7. Officer's Certificate. Whenever the Exercise Price or the Warrant or
Shares issuable on exercise of this Warrant shall be adjusted as required by the
provisions of Section 6 hereof, the Company shall forthwith file with its
Secretary or an Assistant Secretary at its principal office, and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price and Warrant Shares determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holder, and the Company shall, forthwith after each such adjustment, deliver
a copy of such certificate to the Holder.
8. Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the Company shall offer to
the holders of Common Stock for subscription or
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<PAGE>
purchase by them any shares of stock of any class or any other rights, or (iii)
in the event of any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, the Company shall cause to be delivered to the Holder,
at least ten days prior to the date specified in (a) or (b) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (a) a record is to be taken for the purpose of such
dividend, distribution or rights, or (b) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
9. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may not be sold, transferred or
otherwise disposed of except to a person who, in the opinion of counsel
reasonably satisfactory to the Company, is a person to whom this Warrant or such
Warrant Stock may legally be transferred pursuant to Section 4 hereof without
registration and without the delivery of a current prospectus under the Act with
respect thereto and then only against receipt of an agreement of such person to
comply with the provision of this Section 9 with respect to any resale or other
disposition of such securities unless, in the opinion of such counsel, such
agreement is not required; or
(b) The Company may cause the following legend to be set forth
on each certificate representing Warrant Shares or any other security issued or
issuable upon exercise of this Warrant not theretofore distributed to the public
or sold to underwriters for distribution to the public, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under the
Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of the Company.
10. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Arizona applicable to contracts
entered into and to be performed wholly within such State.
11. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courier or mailed, postage
prepaid, to Lawrence Kohler, Capital West Investment Holding
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<PAGE>
Company, Inc., 2525 E. Camelback Road, Suite 510, Phoenix, Arizona 85016, or
such other address as Holder shall have designated by written notice to the
Company as provided herein. Notices or other communication to the Company shall
be deemed to have been sufficiently given if delivered by hand, by facsimile
transmission, or by overnight express courier or mailed, postage prepaid, to the
Company at 1719 W. University, Suite 187, Tempe 85281, or such other address as
the Company shall have designated by written notice to such registered owner as
herein provided. Notice shall be deemed given (i) three business days after
being deposited in the United States mail, postage prepaid, as herein provided;
and (ii) one business day after being sent by overnight express courier or
facsimile transmission.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
31st day of May, 1996.
M.D. LABS, INC.
By: Hooman Nikzad
----------------------------------------
Hooman Nikzad, Chief Executive Officer
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<PAGE>
PURCHASE FORM
-------------
Dated: _________________
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing ______________ shares of Common Stock and hereby makes
payment of $ ____________ in payment of the actual exercise price thereof.
___________________________________
Signature
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated:_________________________
FOR VALUE RECEIVED, ____________________ hereby sells,
assigns, and transfers unto (Please type or print) _________________, (Please
type or print) address __________________ the right to purchase Common Stock
represented by this Warrant to the extent of ________________ shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint the
Company and/or its transfer agent as attorney to transfer the same on the books
of the Company with full power of substitution in the premises.
___________________________________
Signature
7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION ("BLUE SKY LAWS"), AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE BLUE SKY LAWS, UNLESS AN EXEMPTION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.
M.D. LABS, INC.
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 45,000 SHARES OF
COMMON STOCK AS DESCRIBED HEREIN
Dated: June 3, 1996
This certifies that, for value received:
Name: Vincent Andrich
Address: 9421 Mission Lane #212
Scottsdale, Arizona 85251
602-616-4231
is entitled to purchase from M.D. Labs, Inc., a Delaware corporation (the
"Company"), having its principal office at 1719 W. University Dr., Suite 187,
Tempe, Arizona 85281, Forty-Five Thousand (45,000) fully paid and nonassessable
shares of Common Stock, par value $.001, of the Company (the "Common Stock"),
subject to the terms set forth herein, at an exercise price of Three Dollars and
Fifty Cents ($3.50) per share, subject to adjustment as provided elsewhere
herein (the "Warrant Price"). The holder of this Warrant shall be referred to
herein as the "Warrantholder" or the "Holder."
1. "Common Stock." If at any time, as a result of an adjustment made
pursuant to Section , the securities or other property obtainable upon exercise
of this Warrant shall include shares or other securities of the Company other
than common stock or securities of another corporation or other property,
thereafter the number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section , and all other provisions of this Warrant
with respect to the Common Stock shall apply on like terms to any such other
shares or other securities or property. Subject to the
<PAGE>
foregoing, and unless the context requires otherwise, all references herein to
"Common Stock" shall, in the event of an adjustment pursuant to Section , be
deemed to refer as well to any other securities or property then obtainable as a
result of such adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Warrantholder or its duly authorized attorney or
representative, in whole or in part (but not as to a fractional share of Common
Stock), at any time and from time to time during the period commencing on the
date of this Warrant (the "Commencement Date") and expiring at 5:00 p.m.,
Mountain Standard Time, June 2, 2001 (the "Expiration Date")(or such earlier
date as may be provided pursuant to Section 9 herein), or if such date is a day
on which federal or state chartered banking institutions are authorized by law
to close, then on the next succeeding day which shall not be such a day, upon
presentation of this Warrant at the principal office of the Company, or at the
office of its stock transfer agent, if any, with the purchase form attached
hereto duly completed and signed, and upon payment to the Company in cash or by
certified check or bank draft of an amount equal to the number of shares being
so purchased multiplied by the Warrant Price, together with all taxes applicable
upon such exercise. The Company agrees that the Warrantholder will be deemed the
record owner of such shares as of the close of business on the date on which the
Warrant shall have been presented and payment shall have been made for such
shares as aforesaid. Certificates for the shares of Common Stock so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
20 days, after the exercise in full of the rights represented by this Warrant.
If the Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Warrantholder to purchase the balance of the shares of Common
Stock which the Warrantholder is entitled to purchase hereunder.
3. Vesting Schedule. Subject to Section 9 herein, the purchase rights
represented by this Warrant shall become exercisable according to the following
schedule: warrants to acquire 10,000 shares of Common Stock shall be exercisable
commencing June 3, 1997; warrants to acquire 15,000 shares of Common Stock shall
be exercisable commencing June 3, 1998; and warrants to acquire 20,000 shares of
Common Stock shall be exercisable commencing June 3, 1999.
4. Certain Adjustments to Warrant.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive at the happening of any
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<PAGE>
of the events described above, had such Warrant been exercised immediately prior
to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) In the event of any adjustment pursuant to this Section ,
no fractional shares of Common Stock shall be issued in connection with the
exercise of any Warrants, but the Company shall, in lieu of such fractional
shares, make such cash payment therefor on the basis of the current market price
on the day immediately prior to exercise.
(d) Irrespective of any adjustments pursuant to this Section
to the Warrant Price or to the number of shares or other securities obtainable
upon exercise of this Warrant, this Warrant may continue to state the Warrant
Price and the number of shares obtainable upon exercise, as the same price and
number of shares stated herein.
5. Merger; Change in Control.
(a) Change in Control shall be deemed to have occurred if (i)
any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing one-third or more of the total voting power represented by the
Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Common Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Common
Stock of the surviving entity) at least two-thirds of the total voting power
represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company
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<PAGE>
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.
(b) In the event of a merger, consolidation or reorganization
with another corporation in which the Company is not the surviving corporation,
the Company (subject to the approval of the Board) or the board of directors of
any corporation assuming the obligations of the Company hereunder shall take
action pursuant to either clause (i) or (ii) below:
(i) Appropriate provision may be made for the
protection of this Warrant by the substitution on an equitable basis of
appropriate shares of the surviving corporation, provided that the excess of the
aggregate fair market value (as determined by the Company) of the shares subject
to this Warrant immediately before such substitution over the exercise price
hereof is not more than the excess of the aggregate fair market value of the
substituted shares made subject to purchase immediately after such substitution
over the exercise price thereof; or
(ii) Appropriate provision may be made for the
cancellation of this Warrant. In such event, the Company, or the corporation
assuming the obligations of the Company hereunder, shall pay the Holder an
amount of cash (less normal withholding taxes) equal to the excess of the
highest fair market value per share of the Common Stock during the 60-day period
immediately preceding the merger, consolidation or reorganization over the
exercise price, multiplied by the number of shares subject to this Warrant
(whether or not then exercisable).
(c) Upon a Change in Control, subject to Section 9 herein,
this Warrant (provided that it has been outstanding for at least six months)
shall accelerate so that the Holder shall have the right, at all times until the
expiration or earlier termination of this Warrant, to exercise the unexercised
portions of this Warrant, including the portions thereof which would, but for
this paragraph 5(c), not yet be exercisable.
6. Covenants of the Company. The Company covenants and agrees that:
(a) During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times reserve and keep
available, free from preemptive rights out of the aggregate of its authorized
but unissued Common Stock, for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon the exercise of this Warrant,
the number of shares of Common Stock deliverable upon the exercise of this
Warrant. If at any time the number of shares of authorized Common Stock shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose. The Company shall have analogous obligations with respect to any other
securities or properties issuable upon exercise of this Warrant. The Company's
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of
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<PAGE>
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant;
(b) All Common Stock that may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof; and
(c) All original issue taxes payable with respect to the
issuance of shares upon the exercise of the rights represented by this Warrant
will be borne by the Company but in no event will the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Warrant.
7. No Stockholder Rights. Until exercised, this Warrant shall not
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company. The rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
8. Transfer Restrictions.
(a) This Warrant is not transferable except by will or the
laws of descent and distribution and, during Holder's lifetime, it may only be
exercised by Holder.
(b) Neither this Warrant nor the shares of stock issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available. In the
event Holder desires to transfer any of the shares of stock issued hereunder,
the Holder must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel to the Company in either case to the effect
that the proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the shares of stock to be sold or transferred have
been registered under the Securities Act and that there is in effect a current
prospectus meeting the requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the shares of stock to be
sold or transferred.
(c) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Securities Act, the Holder will, if requested by the
Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the
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<PAGE>
restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in paragraph 8(d) below.
(d) Holder acknowledges that Holder understands the meaning
and legal consequences of this Section 8, and the Holder hereby agrees to
indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (i) the inaccuracy of any representation or
the breach of any warranty of Holder contained in, or any other breach of, this
Warrant Agreement, (ii) any transfer of any of this Warrant or the shares of
stock issuable hereunder in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of this Warrant or any of said shares of
stock not in accordance with this Warrant Agreement or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this Warrant
Agreement, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(f) Unless the shares of stock issuable hereunder have been
registered under the Securities Act, upon exercise of this Warrant (in whole or
in part) and the issuance of any of said shares, the Company shall instruct its
transfer agent to enter stop transfer orders with respect to such shares, and
all certificates representing said shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with Arizona law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
9. Termination of the Warrant. Notwithstanding anything herein to the
contrary, this Warrant can become exercisable only while the Holder is an
employee of the Company, and shall not be exercisable after the earliest of (i)
June 2, 2001; (ii) three months after the date the Holder's employment with the
Company terminates, if such termination is for any reason other than permanent
disability, death, or cause; (iii) the date the Holder's employment with the
Company terminates, if such termination is for cause, as determined by the
Company in its sole
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<PAGE>
discretion; or (iv) one year after the date the Holder's employment with the
Company terminates, if such termination is the result of death or permanent
disability.
10. No Guarantee of Employment. This Agreement shall in no way restrict
any right (which might otherwise exist) of the Company or any of its
subsidiaries to terminate Holder's employment at any time.
11. Lost Certificate. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as the Company may reasonably
impose, including a requirement that the Warrantholder obtain a bond, issue a
new Warrant of like denomination, tenor and date.
12. Binding Effect. This Warrant shall inure to the benefit of and be
binding upon the Warrantholder, the Company and their respective successors and
permitted assigns.
13. Company's Notice of Certain Events. So long as this Warrant shall
be outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of shall or substantially
all of the property and assets of the Company to another corporation, or
voluntary or involuntary dissolution, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date specified in (a) or (b) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (a) a record is to be taken for the purpose
of such dividend, distribution or rights, or (b) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
14. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by overnight express courtier or mailed, postage
prepaid, to the Holder at the address set forth above, or such other address as
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand, by facsimile transmission, or by
overnight express courier or mailed, postage prepaid, to the company at 1719 W.
University Dr., Suite 187, Tempe, Arizona 85281, or such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. All notices required hereunder shall be in writing and shall be
deemed received when delivered personally, one business day after delivery to a
nationally recognized commercial overnight courier service, or two business days
after mailing when mailed by certified or registered mail to the Company or the
Warrantholder.
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<PAGE>
15. Governing Law. The validity, interpretation, and performance of
this Warrant and of the terms and provisions hereof shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
giving effect to the principles of conflicts of laws.
16. Amendment. This Warrant may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of June 3, 1996.
M.D. LABS, INC.
By:__________________________________
Hooman Nikzad
Chief Executive Officer
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PURCHASE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _______ shares
of Common Stock, evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
Dated: [NAME OF HOLDER]
By___________________________________
(Signature)
Name:_______________________________
(Please Print)
Address:_____________________________
_____________________________
_____________________________
Employer Identification No., Social Security
No. or other identifying number:
_____________________________________
If the number of shares specified above shall not be all the shares
purchasable under the within warrant, the Warrantholder hereby requests that a
new Warrant for the unexercised portion shall be registered in Warrantholder's
name and delivered to the address set forth in the Warrant.
9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT, THE EXISTENCE OF WHICH EXEMPTION HAS BEEN CONFIRMED BY AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY OR BY A NO ACTION LETTER OR
INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
TRANSFER OF THESE SECURITIES IS RESTRICTED AS DESCRIBED HEREIN.
Void after 5:00 p.m., Mountain Standard Time
on June 2, 2001
M.D. LABS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received of $0.01 per share ($1,500 in
the aggregate), Michael J. Dwyer, or registered assigns (the "Holder"), is
irrevocably entitled, subject to the provisions of this Warrant, to purchase One
Hundred Fifty Thousand (150,000) shares, $0.001 par value per share, of the
common stock (the "Common Stock") of M.D. Labs, Inc., a Delaware corporation
(the "Company"). The exercise price with respect to 75,000 shares purchasable
pursuant to this warrant shall be Five Dollars ($5.00) per share; the exercise
price with respect to the remaining 75,000 shares purchasable pursuant to this
warrant shall be Ten Dollars ($10.00) per share. The exercise price is subject
to adjustment as provided in Section 6 below (the "Exercise Price"). The number
of shares of Common Stock to be received upon the exercise of this Warrant (the
"Warrant Shares") and the Exercise Price may be adjusted from time to time as
hereinafter set forth. In addition, under certain circumstances as set forth
herein, the Holder shall have the right to require the Company to register the
Warrant Shares.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time or from time to time on or after the date hereof, but in any
event by no later than 5:00 p.m., Mountain Standard Time, on June 2, 2001, or if
such date is a day on which federal or state chartered banking institutions are
authorized by law to close, then on the next succeeding day which shall not be
such a day, by presentation and surrender thereof to the Company at its
principal office or at the office of its stock transfer agent, if any, the
Purchase Form annexed hereto duly executed and accompanied by payment, in cash
or by certified or official bank check, payable to the order of the Company, in
the amount of the Exercise Price for the number of Warrant Shares specified in
such form, together with all taxes applicable upon such exercise. Alternatively,
in the Holder's discretion, the Exercise Price may be satisfied (i) by
cancellation
<PAGE>
of indebtedness to Holder, or (ii) by surrendering to the Company the right to
acquire a number of Warrant Shares having a value in excess of their Exercise
Price equal to the Exercise Price of the Warrant Shares as to which the Warrant
is being exercised. If this Warrant should be exercised in part only, the
Company shall, if this Warrant is surrendered for cancellation, execute and
deliver a new Warrant of the same tenor evidencing the right of the Holder to
purchase the balance of the Warrant Shares purchasable hereunder upon the same
terms and conditions as herein set forth. Upon and as of receipt by the Company
of the Purchase Form (in the form attached hereto) at the office or stock
transfer agent of the Company, in proper form for exercise, and accompanied by
payment as herein provided and evidence reasonably satisfactory to the Company
of the availability of an exemption from registration under applicable
securities laws, the Holder shall be deemed to be the holder of record of the
Warrant Shares issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
2. Reservation of Shares. The Company hereby covenants and agrees that
at all times during the period this Warrant is exercisable it shall reserve from
its authorized and unissued Common Stock for issuance and delivery upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance and delivery upon exercise of this Warrant. The Company agrees that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
4. Exercise, Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be exercised, assigned or transferred
except as provided herein and in accordance with and subject to the provisions
of the Securities Act of 1933, as amended, and the Rules and Regulations
promulgated thereunder (said Act and such Rules and Regulations being
hereinafter collectively referred to as the "Act"). Any purported transfer or
assignment made other than in accordance with this Section 4 and Section 10
hereof shall be null and void and of no force and effect.
(b) This Warrant shall be exercisable or transferable only
upon the opinion of counsel satisfactory to the Company, to the effect that (i)
the exercising party or the transferee
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<PAGE>
is a person to whom the Warrant Shares may be issued or the Warrant may be
legally transferred, respectively, without registration under the Act; and (ii)
such exercise or transfer will not violate any applicable law or governmental
rule or regulation including, without limitation, any applicable federal or
state securities law. Prior to the exercise, transfer or assignment, the
exercising party, assignor or transferor shall reimburse the Company for its
reasonable expenses, including attorneys' fees, incurred in connection with the
exercise, transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new Warrants are to be issued. The terms "Warrant" and
"Warrants" as used herein includes any Warrants in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged.
(d) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e) Each Holder of this Warrant, the Warrant Shares or any
other security issued or issuable upon exercise of this Warrant shall indemnify
and hold harmless the Company, its directors and officers, and each person, if
any, who controls the Company, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or any such person may become subject under the Act or statute or common
law, insofar as such losses, claims, damages or liabilities, or actions in
respect thereof, arise out of or are based upon the disposition by such Holder
of the Warrant, the Warrant Shares or other such securities in violation of this
Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
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<PAGE>
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant and the Exercise
Price of such securities shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
from time to time, on or after the date hereof, the holders of the Common Stock
of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock of the Company by way of dividend, then and in each case, the
Holder of this Warrant shall, upon the exercise hereof, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of such
other or additional stock of the Company which such Holder would hold on the
date of such exercise had it been the holder of record of such Common Stock on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by paragraphs (a) and (b) of
this paragraph 6.
(b) Adjustment for Reclassification, Reorganization or Merger.
In case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case, the terms
of this paragraph 6 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reserve Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately increased; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common Stock shall be
combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Warrant Shares receivable upon exercise of the Warrant shall
thereby be proportionately decreased.
4
<PAGE>
7. Officer's Certificate. Whenever the Exercise Price or the Warrant or
Shares issuable on exercise of this Warrant shall be adjusted as required by the
provisions of Section 6 hereof, the Company shall forthwith file with its
Secretary or an Assistant Secretary at its principal office, and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price and Warrant Shares determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holder, and the Company shall, forthwith after each such adjustment, deliver
a copy of such certificate to the Holder.
8. Registration Under Securities Act of 1933, as amended (the "Act").
8.1 Certain Other Definitions. As used in this Common Stock Purchase
Warrant, the following terms shall have the following respective meanings:
"Commission" shall mean the United States Securities and
Exchange Commission and any successor federal agency having similar powers.
"Initiating Holder" shall mean any Holder or Holders, as
defined herein, who or which, in the aggregate, own not less than 50.1% of the
aggregate number of Registrable Securities, as hereinafter defined, then
existing.
The term "majority of the Registrable Securities" refers to a
majority of the specified Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"Registrable Securities" shall mean those Securities which
have not been included in a registration statement deemed to be effective or
those Securities sold to the public.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Section 8, including, without limitation, (i)
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company (but not counsel retained by the Holders), blue sky fees
and expenses, and accountants' expenses including without limitation any special
audits or "comfort" letters incident to or required by any such registration,
transfer taxes, fees of transfer agents and registrars, costs of insurances, and
fees of the National Association of Securities Dealers, Inc., and (ii) any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions.
"Securities" shall mean the Common Stock, as hereinafter
defined, subject to this Common Stock Purchase Warrant, together with any other
securities which are hereafter issued
5
<PAGE>
with respect thereto by way of exchange, reclassification, dividend or
distribution, whether or not such securities have been sold to the public.
"Common Stock" shall mean all currently outstanding shares of
$0.001 par value per share common stock of the Company now issued and
outstanding and all shares hereafter issued and outstanding, as well as any
securities hereafter convertible into or exchangeable for shares of Common Stock
of the Company.
8.2 Registration on Demand.
(a) Demand. Upon the written demand of one or more Initiating
Holders (which may be given not earlier than December 3, 1997), requesting that
the Company effect the registration under the Act of up to fifty percent (50%)
of such Initiating Holder's Registrable Securities and specifying the intended
method or methods of disposition thereof, the Company will promptly, but in any
event within ten (10) days, give written notice of such demanded registration to
Holder, or its successors and assigns, as the case may be, and to the other
acquirers of Registrable Securities (together with the Holder, the "Holders")
and thereupon will use its best efforts to effect the registration under the Act
of:
(i) the Registrable Securities which the Company has
been so demanded to register by such Initiating Holder, for
disposition in accordance with the intended method or methods
of disposition stated in such demand,
(ii) all other Registrable Securities which the Company
has been demanded to register by the Holders thereof by
written demand delivered to the Company within ten (10) days
after giving of such written notice by the Company (which
request shall specify the intended method or methods of
disposition of such Registrable Securities), and
(iii) all shares of Common Stock which the Company may
elect to register for its own account or the account(s) of
other stockholder(s) in connection with the offering of
Registrable Securities pursuant to this Section 8.2,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that the Company shall not be required to effect more than
one (1) registration pursuant to this Section 8.2. If, at the date of receipt of
a demand by Initiating Holder, the Company has previously filed a registration
statement pursuant to the act (otherwise than on Form S-4 or S-8 or any similar
form for the registration of securities pursuant to an employee benefit plan or
business combination or reorganization), the Company may defer the filing of any
such demanded registration statement to a date not later than ninety (90) days
after the effective date of such prior registration statement.
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(b) Registration Statement Form. Each registration demanded
pursuant to this Section 8.2 shall be effected by the filing of a registration
statement on any form which the Company is eligible to use, such form to be
selected by the Company, after consultation with counsel and after notice of
such selection of such form is delivered to the Holders of all Registrable
Securities electing to participate in such registration; provided, however, that
if the Holders of at least a majority of the Registrable Securities as to which
registration has been demanded pursuant to this Section 8.2 shall so request,
the Company shall file such registration statement pursuant to the Commission's
Rule 415, or any successor rule or regulation thereto, so as to permit the
continuous or delayed offering of the Registrable Securities in accordance with
the intended method of disposition specified in the Initiating Holder's notice
pursuant to subsection (a) of this Section 8.2, but in no event shall the
Company be required to maintain the effectiveness of such registration beyond
the period specified in Section 8.4(b). Such selection of form by the Company
shall be final.
(c) Expenses. Except as otherwise prohibited by applicable
law, the Company will pay all Registration Expenses in connection with the
registration of Registrable Securities requested pursuant to this Section 8.2.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 8.2 shall not be deemed to be effected unless a
registration statement covering all shares of Registrable Securities specified
in notices received as described in subsection (a), for sale in accordance with
the method of disposition specified by the Initiating Holder, shall have been
declared effective by the Commission or otherwise becomes effective; provided
that a registration which does not become effective after the Company has
substantially prepared and has filed or is in a position to file a registration
statement with respect thereto solely by reason of the refusal to proceed of any
of the Initiating Holders (other than any refusal to proceed based upon the
advice of their counsel that the registration statement, or the prospectus
contained therein, contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing)
shall be deemed to have been effected by the Company at the request of such
Holder.
8.3 Piggyback Registration Rights.
(a) Right to Include Registrable Securities. If, at any time
within five (5) years from the date hereof, other than in connection with the
Company's initial registration and offering of its securities to the public, the
Company proposes to register any of its equity securities under the Act, whether
or not for sale for its own account, on a form and in a manner which would
permit registration of Registrable Securities for sale to the public under the
Act, it will, each such time, unless inclusion of Registrable Securities in such
registration is prohibited by the terms of a financing transaction pursuant to
which the Company raised gross proceeds of at least $2 million, give notice at
least twenty (20) days prior to the proposed filing date to all Holders of
Registrable Securities of its intention to do so, describing such securities
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<PAGE>
and specifying the form and manner and the other relevant facts involved in such
proposed registration and, upon the written request of any such Holder delivered
to the Company within ten (10) days after the giving of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method or methods of disposition thereof), the
Company shall use its best efforts to effect the registration under the act of
Registrable Securities which the Company has been requested to register by the
Holders of Registrable Securities (hereinafter "Requesting Holders"), to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
of those Registrable Securities which the Company is requested to register by
Holder of the Registrable Securities provided that:
(i) if, at any time after giving such notice of its
intention to register any of its securities and prior to the
effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such securities, the Company
may, at its election, give written notice of such
determination to each Holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration
(but not its obligation to pay the Registration Expenses in
connection therewith as provided in subsection (b) of this
Section 8.3), without prejudice, however, to the rights of any
one or more Holders to request that such registration be
effected in a subsequent such registration;
(ii) if (a) the registration so proposed by the Company
involves an underwritten offering of the securities so being
registered to be distributed by or through one or more
underwriters of recognized standing under underwriting terms
appropriate for such a transaction, (b) the Company proposes
that the securities to be registered in such underwritten
offering will not include all of the Registrable Securities
requested to be so included, and (c) the managing underwriter
of such underwritten offering shall advise the Company, in
writing that, in its opinion, the distribution of all or a
specified portion of such Registrable Securities concurrently
with the securities being distributed by such underwriters
will materially and adversely affect the distribution of such
securities by such underwriters (such opinion to state the
reasons therefor), then the Company will promptly furnish each
such Holder of Registrable Securities with a copy of such
opinion and may require, by written notice to each such Holder
accompanying such opinion, that the distribution of all or a
specified portion of such Registrable Securities be excluded
from such distribution (in case of an exclusion of a portion
of such Registrable Securities, such portion to be allocated
among such Holders in proportion to the respective numbers of
shares of Registrable Securities so requested to be registered
by such Holders); provided, however, that if the Company shall
require such a reduction, the Holder of Registrable Securities
shall have the right to withdraw from the offering; and
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(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 8.3
incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock options or other employee
benefit plans or incidental to the registration of any
non-equity securities not convertible into equity securities.
No registration of Registrable Securities effected under this
Section 8.3 shall relieve the Company of its obligation to effect registrations
of Registrable Securities upon the request of an Initiating Holder pursuant to
Section 8.2.
(b) Expenses. Except as otherwise prohibited by applicable
law, the Company will pay all Registration Expenses in connection with the
registration of Registrable Securities requested pursuant to this Section 8.3.
8.4 Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Act as provided in Section 8.2 and 8.3, the Company shall promptly:
(a) use its best efforts to prepare and (in any event within
(90) days of the last date of which the Holders of Registrable Securities may
notify the Company of their request to include their Registrable Securities in
such registration in accordance herewith or such earlier date as may be provided
elsewhere herein) file with the Commission a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective provided that, in the case of a
registration of any Registrable Securities pursuant to Section 8.2 or 8.3, such
preparation and filing may be delayed if, in the good faith determination of the
Board of Directors of the Company, such deferral would be in the best interest
of the Company and such deferral would be without material prejudice to the
rights of the Holders of Registrable Securities to request that such
registration be effected as a subsequent registration under Section 8.3;
(b) use its best efforts to prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the Act
with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of such time
as all of such Registrable Securities and other securities have been disposed of
in accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or the expiration of one (1)
year (or, in the case of registration of Registrable Securities pursuant to
Section 8.3, ninety (90) days after such registration statement becomes
effective; and will furnish, upon request, to each such seller and each
Requesting Holder prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not file any
such amendment or supplement to which any such seller or
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Requesting Holder shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material aspects with the
requirements of the Act or of the rules or regulations thereunder with regard to
disclosure concerning a holder of Registrable Securities;
(c) furnish to each seller of such Registrable Securities and
each Requesting Holder such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Act, such
documents, if any, incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller or Requesting Holder may
reasonably request;
(d) use its best efforts to register or quality all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of the States of the
United States as each seller shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement remains in
effect, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required to
quality generally to do business as a foreign corporation in any jurisdiction
wherein it is not and would not, but for the requirements of this subsection
(d), be obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any such
jurisdiction or to obtain clearance in more than five (5) states if the Common
Stock is not listed on the Nasdaq National Market System;
(e) upon request, use best efforts to furnish to each seller
of Registrable Securities and each Requesting Holder a signed counterpart,
addressed to such seller and such Requesting Holder, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), and (ii) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement, dated
after the effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's letters delivered to
underwriters in underwritten public offerings of securities;
(f) immediately notify each seller of Registrable Securities
covered by such registration statement and each Requesting Holder, at any time
when a prospectus relating thereto is required to be delivered under the Act,
upon discovery that, or upon the happening
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of any event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, which untrue statement or omission requires amendment of the
registration statement or supplementation of the prospectus, and at the request
of any such seller or Requesting Holder, prepare and furnish to such seller and
Requesting Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the acquirers of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; provided,
however that each Holder of Registrable Securities registered pursuant to such
registration statement agrees that such Holder will not sell any Registrable
Securities pursuant to such registration statement during the time that the
Company is preparing and filing with the Commission a supplement to or an
amendment of such prospectus or registration statement;
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
Holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve (12) months, but not more than eighteen (18) months,
beginning with the first month of the first fiscal quarter after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act;
(h) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement; and
(i) use its best efforts to list all Registrable Securities
covered by such registration statement on each securities exchange on which any
of the Common Stock of the Company is then listed or, if the Company's Common
Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Registrable Securities covered by
such registration statement quoted on NASDAQ or, at the option of the Company,
listed on a national securities exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith and such seller shall furnish such
information. If such information is not provided when requested, the Company in
its discretion may exclude the affected shares from registration.
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8.5 Underwritten Offerings.
(a) Underwritten Offerings. If the number of shares of
Registrable Securities and any other securities to be sold in any underwritten
offering involves a registration requested by Initiating Holders pursuant to
Section 8.2 should be limited due to market conditions or otherwise, the Company
shall include in such registration to the extent of the number which the Company
is so advised can be sold in such offering (i) first, Registrable Securities
requested to be included in such registration, pro rata among the Holders of
such Registrable Securities on the basis of the number of shares of such
securities requested to be included by such Holders, and (ii) other securities
of the Company proposed to be included in such registration, in accordance with
the priorities, if any, then existing among the Company and the Holders of such
securities.
(b) Underwriting Agreement. If requested by the underwriters
for any underwritten offering of Registrable Securities on behalf of a Holder or
Holders of Registrable Securities pursuant to a registration requested under
Section 8.2, the Company will enter into an underwriting agreement reasonably
acceptable to the Company with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to distributions, including, without limitation,
indemnities to the effect and to the extent provided in Section 8.7, provided,
however, that such agreement shall not contain any provision which is
inconsistent with the provisions hereof. The Holders of Registrable Securities
on whose behalf Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities. Such Holders of
Registrable Securities shall not be required by the Company to make any
representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or agreements
(including indemnity agreements customary in secondary offerings) regarding such
Holder, such Holder's Registrable Securities and such Holder's intended method
or methods of disposition and any other representation required by law.
(c) Piggyback Underwritten Offerings. If the Company at any
time proposed to register any of its securities under the Act as contemplated by
Section 8.3 and such securities are to be distributed by or through one or more
underwriters, the Company will use its best efforts, if requested by any Holder
of Registrable Securities, who requests piggyback registration of Registrable
Securities in connection there with pursuant to Section 8.3 to arrange for such
underwriters to include the Registrable Securities to be offered and sold by
such Holder among the securities to be distributed by or through such
underwriters, provided that, for purposes of this sentence, "best efforts" shall
not require the Company to reduce the amount or sale price of such securities
proposed to be distributed by or through such underwriters. The Holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting
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<PAGE>
agreement between the Company and such underwriters and the representation and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Holders of Registrable Securities, and the Company will cooperate with such
Holders of Registrable Securities to the end that the conditions precedent to
the obligations of such Holders of Registrable Securities under such
underwriting agreement shall not include conditions that are not customary in
underwriting agreements with respect to combined primary and secondary
distributions and shall be otherwise satisfactory to such Holders. Such Holders
of Registrable Securities shall not be required by the Company to make
representations or warranties to or agreements (including customary indemnity
agreements) with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method or methods of
distribution and any other representation required by law.
(d) Selection of Underwriters. Whenever a registration
requested pursuant to Section 8.2 is for an underwritten offering, the Holders
of a majority of the Registrable Securities included in such registration shall
have the right to select the managing underwriter(s) to administer the offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld. If the Company at any time proposed to register any of its securities
under the Act for sale for its own account and such securities are to be
distributed by or through one or more underwriters, the selection of the
managing underwriter(s) shall be made by the Company and notice of the selection
thereof delivered to the Holders of all Registrable Securities eligible to
participate in such registration.
(e) Holdback Agreements. If any registration pursuant to
Section 8.2 or 8.3 shall be in connection with an underwritten public offering,
each Holder of Registrable Securities agrees by acquisition of such Registrable
Securities, if so required by the managing underwriter, not to effect any public
sale or distribution of Registrable Securities or other securities of the
Company (other than as part of such underwritten public offering) within seven
(7) days prior to the effective date of such registration statement or one
hundred twenty (120) days after the effective date of such registration
statement.
8.6 Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Act, the Company will give the Holders of Registrable
Securities on whose behalf such Registrable Securities are to be so registered
and the underwriters, if any, each Requesting Holder, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be reasonably
necessary to conduct a reasonable investigation within the meaning of the Act.
To minimize disruption and expense to the Company during the course of the
registration process,
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sellers of Registrable Securities to be covered by any such registration
statement shall coordinate their investigation and due diligence efforts
hereunder, and, to the extent practicable, will act through a single set of
counsel and a single set of accountants.
8.7 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Act, the Company shall,
and hereby does, hereby indemnify and hold harmless in the case of any
registration statement filed pursuant to this Section 8.2 or 8.3, the seller of
any Registrable Securities covered by such registration statement, such seller's
directors, trustees, officers, agents and attorneys each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such seller or any such underwriter
within the meaning of the Act against any losses, claims, damages, liabilities
or expenses, joint or several, to which such seller or Requesting Holder or any
such director or officer or participating person or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (x) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, (y) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any failure by the Company timely to deliver a prospectus or otherwise to
comply with applicable securities laws and the Company will reimburse such
seller, Requesting Holder and each such director, trustee, officer, agent,
attorney, participating person and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with information furnished to
the Company by such seller or such Requesting Holder or any such director,
trustee, officer, participating person or controlling person.
(b) Indemnification by the Seller. The Company may require, as
a condition to including Registrable Securities in any registration statement
filed pursuant to Section 8.2 or 8.3, that the Company shall have received an
undertaking satisfactory to it from each prospective seller of such securities,
severally and not jointly, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subsection (a) of this Section 8.7) the
Company, each director of the Company, each officer of the Company who shall
sign such registration statement and each other person, if any, who controls the
Company within the meaning of the Act, and the Company's agents and attorneys,
with respect to (i) any untrue statement in or
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omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with information furnished to the Company by such seller or (ii)
any failure by such seller timely to deliver a prospectus or otherwise to comply
with applicable securities laws. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any such director, officer, agent or attorney or controlling person and shall
survive the transfer of such securities by such seller.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or any proceeding
involving a claim referred to in the preceding subsections of this Section 8.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided therein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 8.7, except to the extent that
the indemnifying party is actually materially prejudiced by such failure to give
notice. In case such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment (i) a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim, or
(ii) the indemnified party has available to it reasonable defenses which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the foregoing, in any such action, any indemnified party shall have the right to
retain its own counsel but the fees and disbursements of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party shall
have failed to retain counsel for the indemnified person as aforesaid, or (ii)
the indemnifying party and such indemnified party shall have mutually agreed to
the retention of such counsel. It is understood that the indemnifying party
shall not, in connection with any action or related actions in the same
jurisdiction, be liable for the fees and disbursements of more than one separate
firm qualified in such jurisdiction to act as counsel for the indemnified party.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without the consent
of the indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
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(d) Other Indemnification. Indemnification similar to that
specified in the preceding subsections of this Section 8.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Act.
(e) Contribution. If the indemnification provided for in the
Section 8.7 is unavailable or insufficient to hold harmless an indemnified party
in respect of any losses, claims, damages, liabilities or expenses described as
indemnifiable pursuant to subsections (a) or (b), then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses in such proportion as appropriate to reflect
the relative fault of the Company, on the one hand, or such seller of
Registrable Securities on the other hand, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any
untrue statement or omission giving rise to such indemnification obligation. The
Company and the Holder of Registrable Securities agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if Holders of Registrable Securities were treated
as one entity for such purpose) or by any other method of allocation which did
not take account of the equitable considerations referred to above in this
subsection (e). No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(f) Indemnification Payments. The indemnification required by
this Section 8.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
any expense, loss, damage or liability is incurred.
(g) Limitation on Seller's Payments. Notwithstanding any
provision hereof to the contrary, the liability of any seller of Registrable
Securities under this Section 8.2 shall in no event exceed the proceeds received
by such seller from the sale of Registrable Securities covered by the
registration statement giving rise to such liability.
9. Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock, or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) in the event of any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, the company shall cause to be delivered to the Holder, at least ten
days prior to the date specified in (a) or (b) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (a)
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a record is to be taken for the purpose of such dividend, distribution or
rights, or (b) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any, is to be fixed, as of which the holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
10. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may not be sold, transferred or
otherwise disposed of except to a person who, in the opinion of counsel
reasonably satisfactory to the Company, is a person to whom this Warrant or such
Warrant Stock may legally be transferred pursuant to Section 4 hereof without
registration and without the delivery of a current prospectus under the Act with
respect thereto and then only against receipt of an agreement of such person to
comply with the provision of this Section 10 with respect to any resale or other
disposition of such securities unless, in the opinion of such counsel, such
agreement is not required.
(b) The Company may cause the following legend to be set forth
on each certificate representing Warrant Shares or any other security issued or
issuable upon exercise of this Warrant not theretofore distributed to the public
or sold to underwriters for distribution to the public, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under the
Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of the Company.
11. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Arizona applicable to contracts
entered into and to be performed wholly within such State.
12. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand, by
facsimile transmission, or by express courier or mailed, postage prepaid, to
Michael J. Dwyer, 11180 East Cochise, Scottsdale, Arizona 85259, or such other
address as Holder shall have designated by written notice to the Company as
provided herein. Notices or other communications to the Company shall be deemed
to have been sufficiently given if delivered by hand, by facsimile transmission,
or by overnight express courier or mailed, postage prepaid, to the Company at
1719 W. University, Suite 187, Tempe 85281, or such other address as the Company
shall have
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designated by written notice to such registered owner as herein provided. Notice
by mail shall be deemed given (i) three business days after being deposited in
the United States mail, postage prepaid, as herein provided; and (ii) one
business day after being sent by overnight express courier or facsimile
transmission.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the 3rd
day of June, 1996.
M.D. LABS, INC.
By:_________________________________________
Hooman Nikzad, Chief Executive Officer
18
M.D. LABS, INC.
1996 STOCK OPTION PLAN
1. Purpose
The purposes of the 1996 Stock Option Plan ("Plan") of M.D. Labs, Inc.,
an Arizona corporation, are to attract and retain the best available employees
and directors of M.D. Labs, Inc. or any parent or subsidiary or affiliate of
M.D. Labs, Inc. which now exists or hereafter is organized or acquired by or
acquires M.D. Labs, Inc. (collectively or individually as the context requires
the "Company") as well as appropriate third parties who can provide valuable
services to the Company, to provide additional incentive to such persons and to
promote the success of the business of the Company. This Plan is intended to
comply with Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934,
as amended or any successor rule ("Rule 16b-3"), and the Plan shall be
construed, interpreted and administered to comply with Rule 16b- 3.
2. Definitions
(a) "Affiliate" means any corporation, partnership, joint venture or
other entity, domestic or foreign, in which the Company, either directly or
through another affiliate or affiliates, has a 50% or more ownership interest.
(b) "Affiliated Group" means the group consisting of the Company and
any entity that is an "affiliate," a "parent" or a "subsidiary" of the Company.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing one-third or
more of the total voting power represented by the Company's then outstanding
Common Stock, or (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the Common Stock of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least two-thirds of the total voting power represented
<PAGE>
by the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.
(e) "Committee" means the Compensation or Stock Option Committee of the
Board (as designated by the Board), if such a committee has been appointed.
(f) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(g) "Incentive Stock Options" means options intended to qualify as
incentive stock options under Section 422 of the Code, or any successor
provision.
(h) "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
(i) "Nonemployee Director" shall have the meaning assigned in Section
4(a)(ii) hereof.
(j) "Nonqualified Stock Options" means options that are not intended to
qualify for favorable income tax treatment under Sections 421 through 424 of the
Code.
(k) "Parent" means a corporation that is a "parent" of the Company
within the meaning of Code Section 424(e).
(l) "Section 16" means Section 16 of the Securities Exchange Act of
1934, as amended.
(m) "Subsidiary" means a corporation that is a "subsidiary" of the
Company within the meaning of Code Section 424(f).
(n) "Voting Securities" means any securities of the Company which vote
generally in the election of directors.
3. Incentive and Nonqualified Stock Options
Two types of options (referred to herein as "options," without
distinction between such two types) may be granted under the Plan: Incentive
Stock Options and Nonqualified Stock Options.
4. Eligibility and Administration
(a) Eligibility. The following individuals shall be eligible to receive
grants pursuant to the Plan as follows:
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(i) Any employee (including any officer or director who is an
employee) of the Company or any ISO Group member shall be eligible to receive
either Incentive Stock Options or Nonqualified Stock Options under the Plan. An
employee may receive more than one option under the Plan.
(ii) Any director who is not an employee of the Company or any
Affiliated Group member shall be eligible to receive only Nonqualified Stock
Options.
(iii) Any other individual whose participation the Board or
the Committee determines is in the best interests of the Company shall be
eligible to receive Nonqualified Stock Options.
(b) Administration. The Plan may be administered by the Board or by a
Committee appointed by the Board which is constituted so to permit the Plan to
comply under Rule 16b-3, as it may be amended from time to time. The Company
shall indemnify and hold harmless each director and Committee member for any
action or determination made in good faith with respect to the Plan or any
option. Determinations by the Committee or the Board shall be final and
conclusive upon all parties.
5. Shares Subject to Options
The stock available for grant of options under the Plan shall be shares
of the Company's authorized but unissued or reacquired voting common stock. The
aggregate number of shares that may be issued pursuant to exercise of options
granted under the Plan shall be 300,000 shares. If any outstanding option grant
under the Plan for any reason expires or is terminated, the shares of common
stock allocable to the unexercised portion of the option grant shall again be
available for options under the Plan as if no options had been granted with
respect to such shares.
6. Terms and Condition of Options
Option grants under the Plan shall be evidenced by agreements in such
form and containing such provisions as are consistent with the Plan as the Board
or the Committee shall from time to time approve. Each agreement shall specify
whether the option(s) granted thereby are Incentive Stock Options or
Nonqualified Stock Options. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the following
terms and conditions:
(a) Shares Granted. Each option grant agreement shall specify the
number of Incentive Stock Options and/or Nonqualified Stock Options being
granted; one option shall be deemed granted for each share of stock. In
addition, each option grant agreement shall specify the exercisability and/or
vesting schedule of such options, if any.
(b) Purchase Price. The purchase price for a share subject to (i) a
Nonqualified Stock Option may be any amount determined in good faith by the
Committee, and (ii) an
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Incentive Stock Option shall not be less than 100% of the fair market value of
the share on the date the option is granted, provided, however, the option price
of an Incentive Stock Option shall not be less than 110% of the fair market
value of such share on the date the option is granted to an individual then
owning (after the application of the family and other attribution rules of
Section 424(d) or any successor rule of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any ISO Group
member. For purposes of the Plan, "fair market value" at any date shall be (i)
the reported closing price of such stock on the New York Stock Exchange or other
established stock exchange or Nasdaq National Market on such date, or if no sale
of such stock shall have been made on that date, on the preceding date on which
there was such a sale, (ii) if such stock is not then listed on an exchange or
the Nasdaq National Market, the last trade price per share for such stock in the
over-the-counter market as quoted on Nasdaq or the pink sheets or successor
publication of the National Quotation Bureau on such date, or (iii) if such
stock is not then listed or quoted as referenced above, an amount determined in
good faith by the Board or the Committee.
(c) Termination. Unless otherwise provided herein or in a specific
option grant agreement which may provide for accelerated vesting and/or longer
or shorter periods of exercisability, no option shall be exercisable after the
expiration of the earliest of
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or
five years from the date the option is granted to an
individual owning (after the application of the family and
other attribution rules of Section 424(d) of the Code) at the
time such option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company
or any ISO Group member,
(2) three months after the date the optionee ceases
to perform services for the Company or any ISO Group member,
if such cessation is for any reason other than death,
disability (within the meaning of Code Section 22(e)(3)), or
cause,
(3) one year after the date the optionee ceases to
perform services for the Company or any ISO Group member, if
such cessation is by reason of death or disability (within the
meaning of Code Section 22(e)(3)), or
(4) the date the optionee ceases to perform services
for the Company or any ISO Group member, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
(ii) in the case of a Nonqualified Stock Option;
(1) 10 years from the date the option is granted,
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(2) two years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is for any reason other than death,
permanent disability, retirement or cause,
(3) three years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is by reason of death, permanent
disability or retirement, or
(4) the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such
cessation is for cause, as determined by the Board or the
Committee in its sole discretion;
provided, that, unless otherwise provided in a specific option grant agreement,
an option shall only be exercisable for the periods above following the date an
optionee ceases to perform services to the extent the option was exercisable on
the date of such cessation.
(d) Method of Payment. The purchase price for any share purchased
pursuant to the exercise of an option granted under the Plan shall be paid in
full upon exercise of the option by any of the following methods, (i) by cash,
(ii) by check, or (iii) to the extent permitted under the particular grant
agreement, by transferring to the Company shares of stock of the Company at
their fair market value as of the date of exercise of the option as determined
in accordance with paragraph 6(b), provided that the optionee held the shares of
stock for at least six months. Notwithstanding the foregoing, the Company may
arrange for or cooperate in permitting broker- assisted cashless exercise
procedures. The Company may also extend and maintain, or arrange for the
extension and maintenance of, credit to an optionee to finance the optionee's
purchase of shares pursuant to the exercise of options, on such terms as may be
approved by the Board or the Committee, subject to applicable regulations of the
Federal Reserve Board and any other applicable laws or regulations in effect at
the time such credit is extended.
(e) Exercise. Except for options which have been transferred pursuant
to paragraph 6(f), no option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his or her guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise; provided, however, except as provided in paragraph
12, no options may be exercised prior to the later of the expiration of six
months from the date of grant thereof or stockholder approval, unless otherwise
provided by the Board or Committee. To the extent that an optionee has the right
to exercise one or more options and purchase shares pursuant thereto, the
option(s) may be exercised from time to time by written notice to the Company
stating the number of shares being purchased and accompanied by payment in full
of the purchase price for such shares. Any certificate for shares of outstanding
stock used to pay the purchase price shall be accompanied by a stock power duly
endorsed in blank by the registered owner of the certificate (with the signature
thereon guaranteed). If the certificate tendered by the optionee in such payment
covers more shares than are required for such payment, the certificate shall
also be accompanied by instructions from the optionee to the Company's transfer
agent with respect to the disposition of the balance of the shares covered
thereby.
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<PAGE>
(f) Nontransferability. No option shall be transferable by an optionee
otherwise than by will or the laws of descent and distribution, provided that
the Committee in its discretion may grant options that are transferable, without
payment of consideration, to immediate family members of the optionee or to
trusts or partnerships for such family members; the Committee may also amend
outstanding options to provide for such transferability.
(g) ISO $100,000 Limit. If required by applicable tax rules regarding a
particular grant, to the extent that the aggregate fair market value (determined
as of the date an Incentive Stock Option is granted) of the shares with respect
to which an Incentive Stock Option grant under this Plan (when aggregated, if
appropriate, with shares subject to other Incentive Stock Option grants made
before said grant under this Plan or another plan maintained by the Company or
any ISO Group member) is exercisable for the first time by an optionee during
any calendar year exceeds $100,000 (or such other limit as is prescribed by the
Code), such option grant shall be treated as a grant of Nonqualified Stock
Options pursuant to Code Section 422(d).
(h) Investment Representation. Unless the shares of stock covered by
the Plan have been registered with the Securities and Exchange Commission
pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee
by accepting an option grant represents and agrees, for himself or herself and
his or her transferees by will or the laws of descent and distribution, that all
shares of stock purchased upon the exercise of the option grant will be acquired
for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon
request of the Company furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares of stock are
being acquired in good faith for investment and not for resale or distribution.
Furthermore, the Company may if it deems appropriate affix a legend to
certificates representing shares of stock purchased upon exercise of options
indicating that such shares have not been registered with the Securities and
Exchange Commission and may so notify its transfer agent.
(i) Rights of Optionee. An optionee or transferee holding an option
grant shall have no rights as a stockholder of the Company with respect to any
shares covered by any option grant until the date one or more of the options
granted thereunder have been properly exercised and the purchase price for such
shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided for in paragraph 6(k).
Nothing in the Plan or in any option grant agreement shall confer upon any
optionee any right to continue performing services for the Company or any
Affiliated Group member, or interfere in any way with any right of the Company
or any Affiliated Group member to terminate the optionee's services at any time.
(j) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an option. The value of any fractional
share subject to an option grant shall be paid in cash in connection with an
exercise that results in all full shares subject to the grant having been
exercised.
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<PAGE>
(k) Reorganizations, Etc. Subject to paragraph 9 hereof, if the
outstanding shares of stock of the class then subject to this Plan are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, stock splits,
reverse stock splits, stock dividends, spin-offs, other distributions of assets
to stockholders, appropriate adjustments shall be made in the number and/or type
of shares or securities for which options may thereafter be granted under this
Plan and for which options then outstanding under this Plan may thereafter be
exercised. Any such adjustments in outstanding options shall be made without
changing the aggregate exercise price applicable to the unexercised portions of
such options.
(l) Option Modification. Subject to the terms and conditions and within
the limitations of the Plan, the Board or the Committee may modify, extend or
renew outstanding options granted under the Plan, accept the surrender of
outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options, or authorize the granting of new options
in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option (either directly or
through modification of the Plan) shall, without the consent of the optionee,
alter or impair any rights of the optionee under the option.
(m) Grants to Foreign Optionees. The Board or the Committee in order to
fulfill the Plan purposes and without amending the Plan may modify grants to
participants who are foreign nationals or performing services for the Company or
an Affiliated Group member outside the United States to recognize differences in
local law, tax policy or custom.
(n) Other Terms. Each option grant agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, such as without limitation
discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.
7. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided, that
stockholder approval shall be obtained of any action for which stockholder
approval is required in order to comply with Rule 16b-3, the Code or other
applicable laws or regulatory requirements within such time periods prescribed.
8. Stockholder Approval and Term of the Plan
The Plan shall be effective as of June 1, 1996, the date as of which it
was adopted by the Board, subject to ratification by the stockholders of the
Company within (each of) the time period(s) prescribed under Rule 16b-3, the
Code, and any other applicable laws or regulatory requirements, and shall
continue thereafter until terminated by the Board. Unless sooner terminated by
the Board, in its sole discretion, the Plan will expire on May 31, 2006 solely
with respect to the granting of Incentive Stock Options or such later date as
may be permitted by the Code for Incentive Stock Options, provided that options
outstanding upon termination or
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<PAGE>
expiration of the Plan shall remain in effect until they have been exercised or
have expired or been forfeited.
9. Merger, Consolidation, Reorganization or Change in Control
(a) In the event of a merger, consolidation or reorganization with
another corporation in which the Company is not the surviving corporation, the
Board, the Committee (subject to the approval of the Board) or the board of
directors of any corporation assuming the obligations of the Company hereunder
shall take action regarding each outstanding and unexercised option pursuant to
either clause (i) or (ii) below:
(i) Appropriate provision may be made for the protection of
such option by the substitution on an equitable basis of appropriate shares of
the surviving corporation, provided that the excess of the aggregate fair market
value (as defined in paragraph 6(b)) of the shares subject to such option
immediately before such substitution over the exercise price thereof is not more
than the excess of the aggregate fair market value of the substituted shares
made subject to option immediately after such substitution over the exercise
price thereof; or
(ii) Appropriate provision may be made for the cancellation of
such option. In such event, the Company, or the corporation assuming the
obligations of the Company hereunder, shall pay the optionee an amount of cash
(less normal withholding taxes) equal to the excess of the highest fair market
value (as defined in paragraph 6(b)) per share of the Common Stock during the
60-day period immediately preceding the merger, consolidation or reorganization
over the option exercise price, multiplied by the number of shares subject to
such options (whether or not then exercisable).
(b) Upon a Change in Control, notwithstanding any other provisions
hereof, each unexercised option that has been outstanding for at least six
months shall accelerate so that the optionee shall have the right, at all times
until the expiration or earlier termination of the option, to exercise the
unexercised portions of the option, including the portions thereof which would,
but for this paragraph 9(b), not yet be exercisable.
10. Dissolution or Liquidation
Anything contained herein to the contrary notwithstanding, on the
effective date of any dissolution or liquidation of the Company, the holder of
each then outstanding option (whether or not then exercisable) shall receive the
cash amount described in paragraph 9(a)(ii) hereof and such option shall be
cancelled.
11. Withholding Taxes
(a) General Rule. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise of
an option. The Company may require, as a condition to the exercise of an option
or the issuance of a stock certificate, that the optionee concurrently pay to
the Company (either in cash or, at the request of optionee but in
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<PAGE>
the discretion of the Board or the Committee and subject to such rules and
regulations as the Board or the Committee may adopt from time to time, in shares
of Common Stock of the Company) the entire amount or a portion of any taxes
which the Company is required to withhold by reason of such exercise, in such
amount as the Committee or the Board in its discretion may determine.
(b) Withholding from Shares to be Issued. In lieu of part or all of any
such payment, the optionee may elect, subject to such rules and regulations as
the Board or the Committee may adopt from time to time, or the Company may
require that the Company withhold from the shares to be issued that number of
shares having a fair market value (as defined in paragraph 6(b)) equal to the
amount which the Company is required to withhold.
(c) Special Rule for Insiders. Any such request or election (to satisfy
a withholding obligation using shares) by an individual who is subject to the
provisions of Section 16 shall be made in accordance with the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
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M.D. LABS, INC.
LETTER OF NONQUALIFIED OPTION GRANT
1996 STOCK OPTION PLAN
----------------------
______________, 199_
[name]
[address]
Re: M.D. Labs, Inc.
1996 Stock Option Plan
Dear ___________:
In order to provide additional incentive to certain selected employees,
M.D. Labs, Inc., a Delaware corporation (the "Company") adopted the 1996 Stock
Option Plan (the "Plan"). By means of this letter, the Company is offering you
nonqualified stock options (sometimes referred to herein as the "Option")
pursuant to the Plan, a copy of which is enclosed with this letter.
The options granted to you hereunder shall be subject to all of the
terms and conditions of the Plan, which you should review carefully. In
addition, such options are subject to the following terms and conditions:
1. Grant of Option. Effective the date set forth above (sometimes
referred to herein as the "Effective Date of Grant"), the Company grants to you,
pursuant to the Plan, options to purchase from the Company, upon the terms and
conditions and at the times hereinafter set forth, an aggregate of ____________
shares of the common stock, $.001 par value, of the Company (the "Shares") at a
purchase price of $________ per share.
2. Vesting. Subject to Section 7 below, the Option may be exercised as
follows:
(a) After one year of continuous employment following the
Effective Date of Grant, the Option may be exercised for up to one-third of the
Shares;
(b) After two years of continuous employment following the
Effective Date of Grant, the Option may be exercised for up to two-thirds of the
Shares; and
(c) After three years of continuous employment following the
Effective Date of Grant, the Option may be exercised for all of the Shares.
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<PAGE>
3. Nontransferability. The option shall not be transferable otherwise
than by will or by the laws of descent and distribution, and the options shall
be exercisable only (i) by you during your lifetime (except as provided in the
next clause); and (ii) by your legal representative or a person who acquired the
right to exercise these options by bequest or inheritance during the one-year
period referred to in Section 7(iv) hereof. Any attempted transfer in violation
of this restriction shall be void.
4. Other Conditions and Limitations.
(a) Any Shares issued upon exercise of these options
shall not be issued unless the issuance and delivery
of Shares pursuant thereto shall comply with all
relevant provisions of law including, without
limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, the
rules and regulations promulgated thereunder, any
applicable state securities or "Blue Sky" law or laws
(or an exemption from such provision is available),
and the requirements of any stock exchange upon which
the Shares may then be listed and shall be further
subject to the approval of counsel for the Company
with respect to such compliance.
(b) No transfer of any Shares issued upon the exercise of
these options will be permitted by the Company,
unless any request for transfer is accompanied by
evidence satisfactory to the Company that the
proposed transfer will not result in a violation of
any applicable law, rule or regulation, whether
federal or state, including in the discretion of the
Company an opinion of counsel reasonably acceptable
to the Company.
(c) Inability of the Company to obtain approval from any
regulatory body having jurisdictional authority
deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any Shares hereunder
shall relieve the Company of any liability with
respect to the nonissuance or sale of such Shares as
to which such requisite authority shall not have been
obtained.
(d) Unless the Shares have been registered under the
Securities Act of 1933, upon exercise of this option
(in whole or in part) and the issuance of the Shares,
the Company shall instruct its transfer agent to
enter stop transfer orders with respect to Shares,
and all certificates representing the Shares shall
bear on the face thereof substantially the following
legend:
"The shares of common stock represented by
this certificate have not been registered
under the Securities Act of 1933, as
amended, and may not be sold, offered for
sale, assigned, transferred or otherwise
disposed of unless registered pursuant to
the provisions
2
<PAGE>
of that Act or an opinion of counsel to the
Company is obtained stating that such
disposition is in compliance with an
available exemption from such registration."
5. Exercise of Options. You may exercise these options only by giving
the Chief Executive Officer of the Company written notice by personal hand
delivery, or by registered or certified mail, postage prepaid, at the following
address, of your intent to exercise options (including the number of Shares that
you intend to acquire) accompanied by the full exercise price therefor:
Chief Executive Officer
M.D. Labs, Inc.
1719 W. University Drive
Tempe, Arizona 85281
Payment of the option price shall be made either in (i) cash or by check, or
(ii) at your request and with the approval of the Company, by delivering shares
of the Company's common stock which have been beneficially owned by you and/or
your spouse for a period of at least six months prior to the time of exercise
("Delivered Stock") or a combination of cash and Delivered Stock. Payment in the
form of Delivered Stock shall be in the amount of the fair market value of the
stock at the date of exercise, determined pursuant to the Plan.
6. Valuation and Withholding. If required by applicable regulations,
the Company shall, at the time of issuance of any Shares purchased pursuant to
the Plan, provide you with a statement of valuation of the Shares issued. The
Company shall be entitled to withhold amounts from your compensation or
otherwise to receive an amount adequate to provide for any applicable federal,
state and local income taxes (or require you to remit such amount as a condition
of issuance). The Company may, in its discretion, satisfy any such withholding
requirement, in whole or in part, by withholding from the Shares to be issued
the number of Shares that would satisfy the withholding amount due.
7. Termination of Options. Notwithstanding anything to the contrary,
these options can become exercisable only while you are an employee of the
Company, and shall not be exercisable after the earliest of (i) the fifth
anniversary of the Effective Date of Grant; (ii) three months after the date
your employment with the Company terminates, if such termination is for any
reason other than permanent disability, death, or cause; (iii) the date your
employment terminates, if such termination is for cause, as determined by the
Company in its sole discretion; or (iv) one year after the date your employment
with the Company terminates, if such termination is the result of death or
permanent disability.
8. Miscellaneous. You will have no rights as a stockholder with respect
to the Shares until the exercise of options, payment of the full purchase price
therefor in accordance with the terms of the Plan and this Letter of Grant, and
issuance by the Company of a certificate representing the Shares. Nothing herein
contained shall impose any obligation on the Company
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<PAGE>
or any parent or subsidiary of the Company or on you with respect to your
continued employment by the Company or any parent or subsidiary of the Company.
Nothing herein contained shall impose any obligation upon you to exercise any
options.
9. Governing Law. This Letter of Grant shall be subject to and
construed in accordance with the law of the State of Arizona. Venue for any
action arising from or relating to this Agreement shall lie exclusively in
Superior Court, Maricopa County, Arizona or the United States District Court for
the District of Arizona, Phoenix Division.
10. Relationship to the Plan. The options contained in this Letter of
Grant are subject to the terms, conditions and definitions of the Plan. To the
extent that the terms, conditions and definitions of this Letter of Grant are
inconsistent with the terms, conditions and definitions of the Plan, the terms,
conditions and definitions of the Plan shall govern. You acknowledge receipt of
a copy of the Plan and represent that you are familiar with the terms and
provisions thereof. You hereby accept this option subject to all such terms and
provisions. You agree to accept as binding, conclusive and final all decisions
or interpretations of the Board or any committee appointed by the Board upon any
questions arising under the Plan. You agree to consult your independent tax
advisors with respect to the income tax consequences to you, if any, of
participating in the Plan.
11. Communication. No notice or other communication under this
Agreement shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at the address set forth in Section 5
above, or such other address as the Company has designated in writing to the
Employee, in accordance with the provisions hereof, or
(b) the Employee at the address set forth at the
beginning of this letter, or such other address as the Employee has designated
in writing to the Company, in accordance with the provisions hereof.
12. Buyback. Notwithstanding anything herein or in the Plan to the
contrary, until such time as the Company's Common Stock is Publicly Traded (as
defined below), the Company may, in its sole discretion, satisfy the exercise of
the Option (or any portion hereof) by paying cash in an amount equal to the
difference between the exercise price and the fair market value of the Common
Stock on the date of exercise (as determined in accordance with the Plan). The
term "Publicly Traded" stock is a class which is listed or admitted to unlisted
trading privileges on a national securities exchange or as to which sales or bid
and offer quotations are reported in the automated quotations system ("Nasdaq")
operated by the National Association of Securities Dealers, Inc.
4
<PAGE>
You should execute the enclosed copy of this Letter of Grant and return
it to the Company as soon as possible. The additional copy is for your records.
Sincerely yours,
M.D. LABS, INC.
By:________________________________
Hooman Nikzad
Chief Executive Officer
5
<PAGE>
ACCEPTANCE
The undersigned understands, acknowledges and agrees to the
terms and conditions of the options granted pursuant to this Letter of Grant.
_______________________________
Date:__________________________
6
<PAGE>
M.D. LABS, INC.
NOTICE OF EXERCISE OF STOCK OPTION ISSUED
UNDER THE 1996 STOCK OPTION PLAN
To: Chief Executive Officer
M.D. Labs, Inc.
1719 W. University, Suite 187
Tempe, Arizona 85281
I hereby exercise my Option dated _______________, 199_ to
purchase _______________ shares of $.001 par value common stock of the Company
at the option exercise price of_______________________ per share. Enclosed is a
certified or cashier's check in the total amount of $ , or payment in such other
form as the Company has specified or as permitted by the option grant letter.
I represent to you that I am acquiring said shares for
investment purposes and not with a view to any distribution thereof. I
understand that my stock certificate may bear an appropriate legend restricting
the transfer of my shares and that a stock transfer order may be placed with the
Company's transfer agent with respect to such shares.
I request that my shares be issued in my name as follows:
-----------------------------------------
(Print your name in the form in which you
wish to have the shares registered)
_____________________________________
(Social Security Number)
_____________________________________
(Street and Number)
___________________________________________________
(City) (State) (Zip Code)
Dated:________________, 19__.
Signature:____________________________
7
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
this 26th day of February, 1996, by and between Hooman Nikzad ("Nikzad"), and
Todd P. Belfer ("Belfer") residents of the State of Arizona (together, the
"Shareholders" or the "Sellers") the only shareholders of Belnik Investment
Group, Inc., an Arizona corporation doing business as Freedom Wholesalers and
African American Trading Co. ("Belnik"), and M.D. Labs, Inc., a Delaware
corporation ("MD Labs" or "Buyer").
R E C I T A L S:
WHEREAS, Belnik is in the business of packaging, marketing and
distributing natural dietary supplements consisting of Naturally High TM, the
Stuff TM and Naturally Klean R Herbal Tea, all but the latter of which Belnik
owns (the "Products");
WHEREAS, Belnik has an authorized capitalization consisting of 10,000
shares of common stock, no par value, all of which are presently issued and
outstanding and held by the Shareholders equally (the "Stock");
WHEREAS, the Shareholders believe it to be in their best interest to
sell to Buyer all of the Stock in accordance with the terms and conditions of
this Agreement;
WHEREAS, Buyer believes it to be in its best interest to enter into
this Agreement to acquire all of the authorized, issued and outstanding common
stock of Belnik.
NOW, THEREFORE, in consideration of the warranties, representations,
covenants and agreements contained herein, and subject to the terms conditions
set forth herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
1.1 Sale and Purchase of the Stock. At the Closing, as hereinafter
defined, upon and subject to the terms and conditions set forth in this
Agreement, Sellers shall sell and deliver the Stock to Buyer and Buyer shall
purchase the Stock from Sellers and Buyer shall then own all the authorized,
issued and outstanding shares of Belnik.
1.2 Purchase Price. In consideration of the sale and delivery to Buyer
of the Stock, Buyer shall pay Sellers the sum of One Thousand and no/100 Dollars
($1,000.00), $500.00 to Nikzad and $500.00 to Belfer to be paid by Buyer's
corporate check at the Closing. In addition, Buyer shall issue to Sellers
warrants to purchase up to a total of Twenty-One Thousand (21,000) shares (up to
10,500 shares to Nikzad and up to 10,500 shares to Belfer) of the restricted
common stock, $0.001
<PAGE>
par value per share, of Seller (the "Common Stock") at an exercise price of
$1.00 per share in substantially the form attached hereto as Exhibit A (the
"Warrants") with one third of such warrants, or warrants to purchase 7,000
shares of Common Stock, vesting at the end of each of three fiscal years from
the date of such acquisition, if Belnik generates pre-tax profits of $100,000,
$200,000, and $300,000 in fiscal years 1997, 1998, and 1999, respectively.
ARTICLE 2
THE CLOSING
-----------
2.1 The Closing. As used herein, the term "Closing" means the time at
which Sellers shall sell and deliver and Buyer shall purchase the Stock. The
Closing shall take place on February 26, 1996, at 10:00 a.m. at the executive
offices of Buyer at 1719 W. University, Tempe, Arizona, or at such other time
and place as the parties shall agree in writing (the "Closing Date").
2.2 Deliveries and Other Acts at the Closing.
(a) At the Closing, Sellers shall deliver to Buyer the
following:
(i) Stock certificates evidencing the Stock, duly
endorsed to Buyer or by a duly executed stock power
transferring the Stock to Buyer;
(ii) A duly authorized certificate dated as of the
Closing Date and signed by the President and Secretary of
Belnik to the effect that all representations and warranties
of Belnik herein or in any certificates, or documents
delivered pursuant hereto are true and correct on and as of
Closing Date with the same effect as if made on and as of the
Closing Date;
(iii) Such other instruments and documents as are
reasonably requested by Buyer to evidence or effectuate the
transfer to Buyer of the Stock or to evidence or effectuate
any other intent or purpose of the Agreement.
(b) At the Closing, Buyer shall deliver to Sellers the
following:
(i) The sum of One Thousand and no/100 Dollars
($1,000.00) by Buyer's corporate checks payable $500.00 to
Nikzad and $500.00 to Belfer representing the aggregate
purchase price for the Stock; and
(ii) The Warrants issued 10,500 shares in the name of
Nikzad and a like amount issued in the name of Belfer.
2
<PAGE>
ARTICLE 3
COVENANTS OF BELNIK
-------------------
Inspection Rights. During the period between execution hereof and the
Closing, Buyer and its agents, attorneys, accountants and other representatives
shall have full access, to all of Belnik's books and records. Belnik agrees to
instruct the employees of Belnik to cooperate fully with Buyer and its
representatives and to provide any information requested.
ARTICLE 4
COVENANTS OF BUYER
------------------
Confidentiality. Buyer shall hold in confidence all information
proprietary to Belnik of which it becomes aware by reason of its inspection
rights described in Article 3 above unless such information is or becomes
generally available other than by the action of Buyer or its representatives in
violation of this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Representations and Warranties of Sellers. Sellers represent and
warrant to Buyer as follows:
(a) Belnik is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona, is duly qualified
as a foreign corporation to transact business, and is in good standing, in all
other jurisdictions in which such qualification is required, and has all
necessary corporate power and authority to own its properties and other assets
and to carry on its business as now being conducted and presently proposed to be
conducted by it.
(b) The execution, delivery and performance of the Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of Sellers, and this
Agreement has been duly and validly executed and delivered by Sellers and, upon
execution and delivery by Sellers, will be the valid and binding obligation of
Sellers, enforceable in accordance with its terms.
(c) The authorized capital stock of Belnik consists of 10,000
shares of Common Stock, no par value per share, of which I 0,000 shares are
presently issued and outstanding. Belnik has no other authorized or outstanding
stock or securities and has issued no other options, warrants or other rights to
acquire stock or any
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<PAGE>
beneficial rights in stock of Belnik. The Stock has been duly authorized and
validly issued and is fully paid and nonassessable, was issued in compliance
with all applicable state and federal securities laws, and is held by the
Shareholders equally.
(d) Belnik has filed all tax returns required to be filed by
it and has paid all taxes shown due on such returns as well as all other taxes,
assessments and governmental charges which have become due and payable by
Belnik;
(e) Neither the execution or delivery of this Agreement, or
any instrument contemplated hereby, nor the consummation of the transactions
contemplated hereby and thereby, nor the compliance with terms and provisions
hereof and thereof, will conflict with or result in a breach of or default under
any provision of any contract or agreement, any law or any order, ruling,
certificate, license, regulation or demand of any court, agency or tribunal to
which Sellers or Belnik, or any of their respective property or assets are
subject;
(f) Belnik possesses such licenses and permits as are adequate
for the conduct of its business;
(g) No approval, consent or authorization of any governmental
authority is necessary in connection with the execution and delivery by Sellers
of this Agreement, or any instrument contemplated hereby, or for the performance
by Sellers of any of the terms or conditions hereof or thereof;
(h) Sellers have good and marketable title to the Stock and
Belnik has good and marketable title to its properties and assets, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
liens for current taxes and assessments not delinquent and encumbrances and
liens which arise in the ordinary course of business and do not materially
impair their respective ownerships or uses of such property or assets. All
leases pursuant to which Belnik leases real or personal property and all
licenses pursuant to which it has acquired rights to technology, know-how,
patents, developments or the like are in good standing and are valid and
effective in accordance with their respective terms, and, to Sellers' knowledge,
there exists no default or other occurrence or condition which could result in a
material default or termination of any thereof;
(i) Belnik is not in violation of any term of its Articles of
Incorporation or Bylaws or any term or provision of any mortgage, indebtedness,
- -indenture, contract, agreement, instrument, judgment or decree, and to the best
of Sellers' knowledge is not in violation of any order, statute, rule or
regulation applicable to Belnik where such violation would materially and
adversely affect Belnik. The execution, delivery and performance of and
compliance with this Agreement and the transfer of the Stock will not result in
any breach or violation of any of the terms of,
4
<PAGE>
or conflict with, or constitute a default under, or result in the creation or
imposition of any lien encumbrance or charge pursuant to the terms of, the
Articles of Incorporation or Bylaws of Belnik, or any statute, law, rule or
regulation or any order, judgment, decree, indenture, mortgage, lease or other
agreement to which Belnik or the Sellers, or any of their properties, is
subject;
(j) There are no actions, suits, proceedings or investigations
pending or, to the knowledge of Belnik, threatened, against Sellers or any of
its properties or assets before any court or governmental agency which might
result in any material and adverse change in the property, assets or financial
condition of Belnik nor, to the best knowledge of Sellers is there any
reasonable basis for any such action, proceeding or investigation. To the best
of Sellers' knowledge, Belnik is in compliance in all material respects with all
laws and regulations applicable to it, its properties and business;
(k) Belnik is not under any contractual obligation to
register, under the Securities Act of 1933, as amended (the "Securities Act"),
any of its presently outstanding securities or any of its securities which may
hereafter be issued;
(l) Belnik is not a party to any contract, agreement or
instrument or subject to any judgment, order, writ, injunction, rule or
regulation which, in the opinion of Sellers, either is unduly burdensome or
substantially and adversely affects its business, operations or conditions
(financial or other) or, as presently anticipated, will be unduly burdensome or
will substantially and adversely affect its business, operations or condition
(financial or other); and
(m) No representation or warranty of Sellers in this
Agreement, the certificates or documents delivered pursuant hereto contains any
untrue statement of a material fact or omits to state any material fact
necessary to make such representation or warranty not misleading. There is, to
the best of Sellers' knowledge, no fact which materially adversely affects
Belnik or any of its properties or assets which has not been set forth in this
Agreement or the exhibits hereto.
5.2 Representations of Buyer. Buyer represents and warrants to Sellers
as follows:
(a) Neither the execution or delivery of this Agreement or any
instrument contemplated hereby nor the consummation of the transactions
contemplated hereby and thereby will conflict with or result in the breach of or
default under any contract or agreement, any law or any order, ruling,
certificate, license, regulation or demand of any court, agency or tribunal to
which Buyer is subject.
(b) The Agreement has been duly authorized and executed and
constitutes a valid and binding obligation of Buyer.
5
<PAGE>
ARTICLE 6
INVESTMENT REPRESENTATIONS
--------------------------
In connection with the purchase of the Stock, Buyer represents to
Sellers the following:
6.1 Investment. Buyer is purchasing the Stock for investment for its
own account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act. Buyer
understands that the Stock has not been registered under the Securities Act by
reason of a specific exemption therefrom.
6.2 Restrictions on Transfer Under Securities Act. Buyer further
acknowledges and understands that the Stock must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
such registration is available. Moreover, Buyer understands that Belnik is under
no obligation to register the Stock. In addition, Buyer understands that the
certificate evidencing the Stock will be imprinted with a legend which prohibits
the transfer of the Stock unless it is registered or unless Belnik receives an
opinion of counsel that such registration is not required.
ARTICLE 7
MISCELLANEOUS PROVISIONS
------------------------
7.1 Further Assurances. From time to time after the Closing, each of
the parties hereto shall execute and deliver to the other parties such further
instruments or documents as may be reasonably requested in order to consummate
the transactions set forth herein.
7.2 Notice. Any notice or other communication required or permitted to
be given to the parties hereto shall be deemed to have been given if delivered
by hand or forty-eight (48) hours after being mailed by certified or registered
United States mail, return receipt requested, first-class postage pre-paid or
twelve (12) hours after the time dispatched by telegram or by facsimile
transmission in each case addressed as follows:
(a) If to Buyer:
M. D. Labs, Inc.
1719 W. University, Suite 187
Tempe, Arizona 85281
Attention: Fradjollah "Fred" Djahandideh, Vice President
6
<PAGE>
With a copy to:
Robert K. Rogers
Robert K. Rogers & Associates
5725 N. Scottsdale Road, Suite 190
Scottsdale, Arizona 85250
(b) If to Sellers:
Hooman Nikzad
Todd P. Belfer
1719 W. University, Suite 187
Tempe, Arizona 85281
or such other addresses as the parties hereto may from time to time designate in
writing.
7.3 Entire Agreement. This Agreement, together with the exhibits,
embodies the entire representations and warranties, covenants and agreements of
the parties in respect to the subject matter hereof and supersedes all prior
agreements, covenants, whether oral or written. No representations, warranties,
covenants, understandings or agreements or otherwise in relation thereto exist
between the parties except as expressly set forth herein.
7.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective executors,
administrators, heirs, successors. assigns and personal representatives as the
case may be; provided, however, none of the parties hereto may make any
assignment of this Agreement or any interest therein by operation of law or
otherwise without the prior written consent of the other party, such consent not
to be unreasonably withheld by such other party.
7.5 Third Parties, Amendment, Termination. Except as specifically set
forth or referred to herein, nothing expressed or implied in this Agreement is
intended to or shall be construed to confer upon or give to any person, firm or
corporation other than the parties hereto and their respective permitted
successors, assigns or personal representatives, any rights or remedies under or
by reason of this Agreement. This Agreement may not be amended or terminated
orally but only as expressly provided herein or by an instrument in writing duly
executed by the parties hereto.
7.6 Attorneys' Fees. In the event any legal action or arbitration or
other proceeding is brought for the enforcement of this Agreement or in
connection with, any other provisions of this Agreement, the successful and
prevailing party shall be entitled to reasonable attorneys' fees and other costs
incurred in such action or proceeding.
7
<PAGE>
7.7 Interpretation and Construction. The captions set forth in this
Agreement are for convenience only and shall not be considered as part of this
Agreement or as in any way limiting or amplifying the terms and provisions
hereof.
7.8 Governing Law and Jurisdiction. This Agreement shall in all
respects be interpreted, construed and governed by and in accordance with the
laws of the State of Arizona. In the event of suit, action or proceeding to
enforce any and all rights and obligations under this Agreement, the parties
agree that the proper jurisdiction and venue for such suit, action or
proceedings is a court of competent jurisdiction located in Phoenix, Maricopa
County, State of Arizona, submit to the jurisdiction of any such court, and
waive and agree not to assert, by way of motion or otherwise, that any such
suit, action or proceeding is brought in an inconvenient forum or that the venue
of the suit, action or proceeding is improper.
7.9 Survival of Warranties. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement, and the Closing.
7.10 Counterparts. More than one counterpart of this Agreement may be
executed by the parties hereto and each counterpart shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
duly executed as of the day and year first above written.
Sellers:
/s/ Hooman Nikzad
-----------------------------
Hooman Nikzad
/s/ Todd P. Belfer
-----------------------------
Todd P. Belfer
Buyer:
M. D. Labs, Inc.,
a Delaware corporation
By: /s/ F. Djahandideh
---------------------------------
Fradjollah "Fred" Djahandideh
Vice President
8
PURCHASE AGREEMENT
THIS AGREEMENT is dated the 12th day of December, 1995, by and among
HOUSTON ENTERPRISES, L.L.C., an Arizona limited liability company ("Houston") ;
MARVIN D. BRODY and NANCY P. BRODY, husband and wife (collectively, "Sellers") ,
HARVEY A. BELFER, a married man ("Harvey"), TODD P. BELFER, an unmarried man
("Todd") , HOOMAN NIKZAD, an unmarried man ("Hooman"), and FRADJOLLAH
DJAHANDIDEH, a married man ("Fred").
R E C I T A L S
- - - - - - - -
A. Sellers are the owners of seventeen and five-tenths (17.5)
investment Units (collectively, the "Units") in Houston.
B. Harvey, Todd, Hooman and Fred (collectively, the "Purchasers") and,
individually, a "Purchaser") each wish to purchase one-fourth (1/4) of Sellers'
Units (i. e. , four and three eighths [4.375] Units each and Sellers desire to
sell to Purchasers all of such Units, upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. PURCHASE AND SALE. Sellers hereby sell to Purchasers, and Purchasers
hereby purchase from Sellers, all of Sellers, Units, as follows:
Total
-----
Purchaser # of Units Purchased Purchase Price
--------- -------------------- --------------
Harvey 4.375 $75,000
Todd 4.375 $75,000
Hooman 4.375 $75,000
Fred 4.375 $75,000
----- -------
TOTAL: 17.500 $300,000
====== ========
2. CONSIDERATION.
(a) Purchase Price. Upon the terms and subject to the
conditions contained in this Agreement, in consideration for the Units and in
full payment therefor, Purchasers will pay the purchase price set forth in
paragraph 3(b) below.
<PAGE>
(b) Amount. The total purchase price ("Purchase Price") for
the Units shall be equal to a total of Three Hundred Thousand Dollars
($300,000.00), payable Seventy-five Thousand Dollars ($75,000.00) by each
Purchaser.
(c) Method of Payment. Subject to the provisions of paragraph
7(d) below, the Purchase Price will be paid in the following manner:
(1) Two Hundred Thousand Dollars ($200,000.00) of the
Purchase Price will be paid, in cash, on December 12, 1995, with each Purchaser
paying a one-fourth (1/4) portion thereof, or Fifty Thousand Dollars
($50,000.00).
(2) The One Hundred Thousand Dollar ($100,000.00)
balance shall be paid, in full and in cash, on or before January 31, 1996, with
each Purchaser being primarily responsible for a one-fourth (1/4) share thereof,
or Twenty-five Thousand Dollars ($25,000.00) each. However, in the event any
particular Purchaser should not fulfill his primary obligation to pay his
Twenty-five Thousand Dollar ($25,000.00) deferred balance, all other Purchasers
shall be jointly and severally liable to Sellers for payment of such amount.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS. The Sellers
jointly and severally represent, warrant and covenant to Purchasers as follows:
(a) The execution and delivery of this Agreement have been
duly authorized and approved by the Sellers. Each Seller executing this
Agreement is fully authorized to do so. This Agreement has been duly executed
and delivered by all of the Sellers and it constitutes a valid and legally
binding and enforceable obligation of each such party in accordance with its
terms.
(b) Ownership of Purchased Assets.
(1) Except as specifically provided herein to the
contrary, and except for any which may have been incurred by Houston or the
other members thereof, the Sellers own the Units free and clear of any and all
judgments, actions, claims, charges, liabilities, liens or encumbrances of any
kind or nature whatsoever (collectively, "Claims")
(2) The Sellers have not pledged any of the Units as
collateral for any loans, and they have good and marketable title to the Units.
Except as specifically provided herein to the contrary, and except for any
Claims which may have
2
<PAGE>
been placed thereon or incurred by Houston or the other members thereof, each
Seller has the complete and unrestricted power and the unqualified right to
sell, assign, transfer and deliver to Purchasers title to the Units, entirely
free and clear of any and all Claims.
(3) Upon the Closing and consummation of this
transaction, Purchasers shall be the owners of the Units, entirely free and
clear of any and all Claims of any kind or nature whatsoever (except as
specifically provided herein to the contrary).
(c) Action Required to be Taken by Sellers.
(1) All actions required to be taken by each of the
Sellers under this Agreement as of the Closing Date have been or will be duly
taken prior to the Closing Date.
(2) This Agreement is a valid and binding obligation
of all of the Sellers and is. enforceable against Sellers in accordance with its
terms and conditions.
(3) Each Seller has full power and authority to enter
into this Agreement, to perform his or her respective obligations hereunder, and
to consummate the transactions contemplated hereby.
(4) Each Seller has taken all necessary and
appropriate action with respect to the execution and delivery of this Agreement,
and this Agreement constitutes valid and binding obligations of each Seller
enforceable in accordance with its terms.
(5) The execution and delivery of this Agreement by
Sellers and the consummation of the transactions contemplated hereby and the
compliance with the terms hereof by them presently do not, and as of the Closing
Date will not, conflict with or result in a breach of any terms of, or
constitute a default under any material agreement, obligation, or instrument to
which any one or more of the Sellers is a party or by which any one or more of
them is bound.
(6) No consent, approval, order, authorization,
registration, qualification, designation, declaration, or filing with any
federal, state, local, or provincial governmental authority or any third party
is required in connection with the consummation by any Seller of the
transactions contemplated hereunder.
3
<PAGE>
(d) Conflicts. None of the agreements or undertakings of any
Seller under this Agreement is or will be in, conflict with, in violation of, or
prohibited under the terms of any contract, agreement or obligation of any
Seller, or any governmental authorizations or judgments or, to the knowledge of
the Sellers, any laws, rules, regulations or judgments.
(e) Complete Disclosure.
(1) Each of the representations, warranties and
covenants of each Seller pursuant to this Agreement shall be true, accurate and
correct as of the date hereof and as of the Closing Date.
(2) The copies of all instruments, agreements, other
documents or written information (including the exhibits attached to this
Agreement) delivered to Purchasers by or on behalf of any Seller are complete
and correct in all material respects as of the date of this Agreement, and shall
be complete and correct in all material respects as of the Closing Date.
(f) Brokerage Fees. There is no obligation on the part of, or
incurred by any of, the Sellers to pay any fees or expenses of any broker or
finder in connection with the origin, negotiation, or execution of this
Agreement or in connection with any of the transactions contemplated hereby.
(g) Truthfulness of Representations.
(1) Except as specifically provided herein to the
contrary, no representation, warranty or covenant of any Seller in this
Agreement, and no statement, exhibit or certificate furnished or to be furnished
to Purchasers pursuant to this Agreement or in connection with the transaction
contemplated hereby includes any misstatement of material fact or omits to state
any fact necessary to render the facts stated therein not misleading in light of
the circumstances relevant to such representation, warranty or covenant.
(2) Each of the representations, warranties,
covenants, agreements, statements, exhibits and certificates of Sellers pursuant
to this Agreement shall be true, accurate and complete as of the date hereof and
as of the Closing Date.
(3) The copies of all instruments, agreements, other
documents and written information (including the exhibits attached to this
Agreement) delivered to Purchasers by or on behalf of any one or more of the
Sellers are complete and correct in all material respects as of the date of this
Agreement.
4
<PAGE>
(h) Knowledgeable Sellers. Sellers each possess such knowledge
and experience in financial and business matters pertaining to the type of
transaction conducted hereunder, and otherwise, that they are capable of
evaluating the merits and risks of a sale of the Units to Purchasers and the
other transactions described herein or otherwise contemplated hereunder.
(i) Effect of Representations and Warranties. The
representations and warranties of Sellers contained in this Agreement shall be
true and correct. as of the signing of this Agreement and as of the Closing
Date, as though such representations and warranties were made again at, and as
of, the Closing Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASERS. Purchasers
hereby jointly and severally represent, warrant and covenant to Sellers that:
(a) Authorization. Purchasers have full legal power and
authority to enter into this Agreement, to perform their respective obligations
hereunder, and to consummate the transactions contemplated hereby. Purchasers
have taken all necessary and appropriate legal action with respect to the
execution and delivery of this Agreement, and this Agreement constitutes a valid
and binding obligation of Purchasers enforceable in accordance with its terms.
(b) Compliance with Other Instruments. The execution and
delivery of this Agreement by Purchasers, and the consummation of the
transactions contemplated hereby, and the compliance with the terms hereof by
them do not, or as of the Closing Date will not, conflict with or result in a
breach of any terms of, or constitute a default under any material agreement,
obligation, or instrument to which they (or any one or more of them) are a party
or by which they (or any one or more of them) are bound.
(c) Brokerage Fees. None of the Purchasers are obligated to
pay any fees or expenses of any broker or finder in connection with the origin,
negotiation, or execution of this Agreement or in connection with any of the
transactions 'contemplated hereby.
(d) Absence of Other Warranties. It is specifically
acknowledged that, except as otherwise set forth herein, Sellers do not make and
have not made any warranty or representation concerning Houston's business
(including, but not limited to, the implied warranties of merchantability or
fitness for a particular purpose). Purchasers are presently owners of,
5
<PAGE>
managers of, and/or employed by Houston in Houston's business and are therefore
fully familiar with the nature, scope and volume of such business and with the
condition, utility and value of the business. Purchasers have made an inspection
of Houston's business and otherwise investigated said business to their full and
complete satisfaction and Sellers are released from all responsibility and
liability regarding the business, other than arising from the specific
warranties and representations of Sellers contained herein. Purchasers
acknowledge that Sellers have made no representation or warranty that the
customers, clients or suppliers of Houston will remain customers, clients, or
suppliers of Houston or that a particular level of income can be derived from
Houston's business.
5. CLOSING.
(a) Closing Date. Subject to satisfaction of the conditions
set forth in paragraph 6 below, or Sellers' , Purchasers' and Houston's written
waiver or extension (from time to time) of same, the transactions contemplated
by this Agreement shall be completed on the 12th day of December, 1995 (the
"Closing Date"), with the Closing taking place at the offices of Houston,
located at 3658 East Chipman Road, Phoenix, Arizona, 85040, or at such other
time or place as may be agreed to in writing by Purchasers, Sellers and Houston.
The "Closing" shall mean the time and place at which will occur the deliveries
to be made by the parties hereto as of the Closing Date in accordance with this
Agreement.
(b) Deliveries by Sellers. At the Closing, Sellers shall
deliver to Purchasers all duly and properly executed (where applicable) , four
(4) Assignment of Membership Interest and Agreement of Assignee documents in the
form of Exhibits A-1 through A-4 attached hereto and incorporated herein by this
reference, conveying the Units to Purchasers.
(c) Deliveries by Purchasers. At the Closing, Purchasers shall
deliver, or cause to be delivered, to Sellers, all duly and properly executed
(where applicable), the following documents:
(1) certified copies of resolutions of the respective
members of Houston ratifying, authorizing and approving of this Agreement and
all related transactions in regards hereto; and
(2) cash in the amount of Two Hundred Thousand
Dollars ($200,000.00), representing the initial payment of the Purchase Price,
as provided in paragraph 2(c)(1) above.
6
<PAGE>
(d) Further Assurances. At or after the Closing, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments of conveyance, sale, assignment, or transfer, and shall take or
cause to be taken such other or further action, as any party shall reasonably
request of any other party at any time or from time to time in order to perfect,
confirm, or evidence in Purchasers title to all or any part of the Units or to
consummate, in any other manner, the terms and provisions of this Agreement.
6. CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS. Each and every
obligation of Purchasers to be performed at the Closing shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived or extended in writing by Purchasers):
(a) Representations and Warranties. The representations and
warranties of the Sellers set forth in paragraph 3 of this Agreement shall have
been true and correct when made and shall be true and correct at and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
(b) Performance of Agreement. All covenants, conditions, and
other obligations under this Agreement which are to be performed or complied
with by the Sellers prior to the Closing shall have been fully performed and
complied with at or prior to the Closing Date, including the delivery of the
instruments and documents described in paragraph 5(b) hereof.
(c) Absence of Governmental or other Objection. There shall be
no pending or threatened lawsuit challenging this transaction by any body or
agency of the federal, state, or local government or by any 'third party, and
the consummation of this transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date.
(d) Approval of Documentation. The form and substance of all
certificates, instruments, opinions, tax returns, financial statements, and
other documents delivered or to be delivered to Purchasers under this Agreement
shall be satisfactory to Purchasers and their counsel in all reasonable
respects.
7. INDEMNIFICATION.
(a) Survival of Representations, Warranties and Covenants.
Notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of any party, all representations, warranties, covenants, and
agreements of each
7
<PAGE>
party in this Agreement shall survive the execution, delivery, and performance
of this Agreement. All representations and warranties of each party set forth in
this Agreement shall be deemed to have been made again by such party at and as
of the Closing Date.
(b) Indemnification by Sellers. Sellers, jointly and
severally, shall indemnify Purchasers and hold them harmless after the Closing
Date, against and in respect of any and all of the following:
(1) any and all damage or deficiency resulting from
any misrepresentation, breach of warranty, or breach, default or nonfulfillment
of any condition or obligation on the part of any one or more of them under this
Agreement, or any exhibit or schedule to this Agreement or from any
misrepresentation in or omission from any certificate or other instrument
furnished to the Purchasers by any one or more of them or on their behalf
(collectively, "Damages");
(2) any and all liabilities of or claims against any
Seller, or which affect or impair title to the Units, including, but not limited
to, any of such matters which are disclosed herein or in the Exhibits or
Schedules attached hereto (collectively, the "Liabilities"); and
(3) all demands, assessments, judgments, costs and
legal and other expenses arising from or in connection with any action, suit,
proceeding or claim incident to any of the foregoing (collectively, "Costs and
Expenses").
(c) On Demand Reimbursement by Sellers. Purchasers shall be
reimbursed by the Sellers on demand for any payment made by any one or more of
them or loss, damage, cost or expense. suffered by any one or more of them at
any time after the Closing Date with respect to any liability or claim to which
the foregoing indemnities relate or otherwise arising out of or relating to any
Damages, Liabilities, or Costs and Expenses incurred or paid by or on behalf of
any Purchaser.
(d) Effect of Seller Defaults. Notwithstanding any provisions
hereof which may be interpreted to the contrary:
(1) In the event that any Seller is in default
hereunder or under any other document executed in connection herewith in any
respect whatsoever (an "Uncured Default") or in the event that any one or more
of the Sellers has any unfulfilled indemnification obligations under this
paragraph 7 or otherwise (collectively, "Unfulfilled Indemnification
Obligations"), then Purchasers may offset, against any unpaid portion of the
Purchase
8
<PAGE>
Price, or any other amount otherwise payable or transferable to any one or more
of them the amount or amounts owed by Sellers to Purchasers as a result of the
Uncured Default(s) and Unfulfilled Indemnification Obligations (collectively,
the "Total Unfulfilled Seller Obligations").
(2) If the Total Unfulfilled Seller Obligations
should exceed the total of any unpaid portion of the Purchase Price or other
amount otherwise payable hereunder or under any other agreement on the part of
Purchasers in connection herewith, then, unless Purchasers otherwise agree in
writing, no additional Purchase Price or other amounts will be payable or
transferable and the Sellers shall remain jointly and severally liable to
Purchasers for the amount by which the Total Unfulfilled Seller Obligations
exceed the unpaid Purchase Price and other amounts otherwise payable or
transferable hereunder.
(e) Indemnification by Purchasers. Purchasers, jointly and
severally, shall indemnify Sellers and hold them harmless after the Closing
Date, against and in respect of any and all of the following:
(1) any and all damage or deficiency resulting from
any misrepresentation, breach of warranty, or breach, default or nonfulfillment
of any condition or obligation on the part of any one or more of them under this
Agreement, or any exhibit or schedule to this Agreement or from any
misrepresentation in or omission from any certificate or other instrument
furnished to the Sellers by any one or more of them or on their behalf
(collectively, "Seller Damages"); and
(2) all demands, assessments, judgments, costs and
legal and other expenses arising from or in connection with any action, suit,
proceeding or claim incident to any of the foregoing (collectively, "Seller
Costs and Expenses").
(f) Additional Indemnification by Purchasers and Houston.
Houston and Purchasers also jointly and severally agree to indemnify, defend and
hold harmless Sellers from and against any and all liabilities, losses, claims,
damages, costs and expenses (including reasonable attorneys fees) arising from
any and all aspects of Houston's operations, whether post-Closing or preClosing
and specifically including, but not necessarily limited to, any and all claims
by any customers or employees or by any governmental agency, but not to the
extent that the claim or action being asserted arises out of any actions or
omissions on the part of the Sellers.
9
<PAGE>
(g) On Demand Reimbursement by Purchasers. Sellers shall be
reimbursed by the Purchasers on demand for any payment made by any one or more
of them or loss, damage, cost or expense suffered by any one or more of them at
any time after the Closing Date with respect to any liability or claim to which
the indemnities described in paragraphs 7(e) and 7(f) relate or otherwise
arising out of or relating to any Seller Damages or Seller Costs and Expenses
incurred or paid by or on behalf of any Seller.
(h) Exhibits and Schedules Included as Well. As used in this
paragraph 7, any reference to a representation, warranty, or covenant contained
in any paragraph of this Agreement shall include any Exhibit or Schedule
relating to such paragraph.
(i) Remedies Cumulative. Except as herein expressly provided,
the remedies provided herein shall be cumulative and shall not preclude
assertion by an aggrieved party of any other rights or the seeking of any other
remedies against any other party hereto.
8. MISCELLANEOUS PROVISIONS.
(a) Notice. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be delivered or
sent to the parties at their respective addresses as set forth below, or at such
other address that they designate by notice to all other parties in accordance
with this paragraph 8(a). Any party delivering notice to any one or more of the
Sellers shall deliver it to:
Marvin D. Brody and Nancy P. Brody
5632 N. Camelback Canyon Drive
Phoenix, AZ 85018
with a copy to:
Thomas G. Georgiou, Esq.
THOMAS G. GEORGIOU, P.C.
2929 E. Camelback Road, Suite 215
Phoenix, AZ 85016
Any party delivering notice to Harvey shall deliver it to:
Harvey A. Belfer
3833 N. 60th Place
Scottsdale, AZ 85251
10
<PAGE>
with a copy to:
Robert K. Rogers, Esq.
5725 N. Scottsdale Road, Suite 190
Scottsdale, AZ 85250
Any party delivering notice to Todd shall deliver it to:
Todd P. Belfer
4552 N. 52nd Place
Phoenix, AZ 85018
with a copy to:
Robert K. Rogers, Esq.
5725 N. Scottsdale Road, Suite 190
Scottsdale, AZ 85250
Any party delivering notice to Hooman shall deliver it to:
Hooman Nikzad
c/o 1719 W. University, #187
Tempe, AZ 85281
with a copy to:
Robert K. Rogers, Esq.
5725 N. Scottsdale Road, Suite 190
Scottsdale, AZ 85250
Any party delivering notice to Fred shall deliver it to:
Fred Djahandideh
c/o 1719 W. University, #187
Tempe, AZ 85281
with a copy to:
Robert K. Rogers, Esq.
5725 N. Scottsdale Road, Suite 190
Scottsdale, AZ 85250
Any party delivering notice to Houston shall deliver it to:
Todd P. Belfer, Manager
Hooman Nikzad, Manager
Houston Enterprises, L.L.C.
c/o 1719 W. University, #187
Tempe, AZ 85281
11
<PAGE>
with a copy to:
Robert K. Rogers, Esq.
5725 N. Scottsdale Road, Suite 190
Scottsdale, AZ 85250
All notices and communications shall be deemed to have been received: (1) in the
case of personal delivery, on the date of such delivery; (2) in the case of
telex or facsimile transmission, on the date on which the sender receives
confirmation by telex or facsimile transmission that such notice was received by
the addressee, provided that a copy of such transmission is additionally sent by
mail as set forth in (4) below; (3) in the case of overnight air courier, on the
second business day following the day sent, with receipt confirmed by the
courier; and (4) in the case of mailing by first class certified or registered
mail, postage prepaid, return receipt requested, on the date of delivery, as
evidenced by the certified or registered mail receipt.
(b) Entire Agreement. This Agreement, the exhibits and
schedules hereto, and the documents referred to herein embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, oral or written, relative to said subject matter.
(c) Binding Effect; Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the parties hereto, their successors and assigns; provided,
however, that no obligations of any party hereunder shall be transferred or
assigned without the prior written consent of all other parties hereto, which
may be withheld or delayed in their sole and absolute discretion.
(d) Construction. The language in all parts of this Agreement
shall in all cases be construed as a whole according to its fair meaning and not
strictly for nor against any party. The paragraph headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require. The parties agree that each party has reviewed this Agreement and
has had the opportunity to have counsel review the same and that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply in the interpretation of this Agreement or any
amendment or any exhibits thereof.
12
<PAGE>
(e) Expenses of Transaction. Except for all reasonable
attorney, accounting and related professional fees of any party hereto in
drafting and executing this Agreement (which shall be paid in full by Houston)
and except as may otherwise be specifically provided herein to the contrary,
each party shall bear its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.
(f) Amendments; Waivers; Consents. This Agreement may not be
changed, amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by all of the
parties hereto, and no waiver of any of the provisions or conditions of this
Agreement or any of the rights of a party hereto shall be effective or binding
unless such waiver shall be in writing and signed by the party claimed to have
given or consented thereto. Except to the extent that a party hereto may have
otherwise agreed in writing, no waiver by that party of any condition of this
Agreement or breach by any other party of any of its obligations or
representations hereunder or thereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation by the other party, nor shall any forbearance by
the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
(g) Third-Party Beneficiaries. Except as otherwise expressly
provided for in this Agreement, nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation, or legal entity, other than the parties hereto, any rights,
remedies, or other benefits under or by reason of this Agreement.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as the signatories.
(i) Severability. In the event any term or provision of this
Agreement is declared by a court of competent jurisdiction to be invalid or
unenforceable for any reason, this Agreement shall remain in full force and
effect, and either (1) the invalid or unenforceable provision shall be modified
to the minimum extent necessary to make it valid and enforceable or (2) if such
a modification is not possible, this Agreement shall be interpreted
13
<PAGE>
as if such invalid or unenforceable provision were not a part hereof.
(j) Governing Law and Venue. This Agreement shall in all
respects be construed in accordance with and governed by the laws of the State
of Arizona. Venue for any litigation or other proceedings affecting this
Agreement shall be in Maricopa County, Arizona Superior Court or the United
States District Court for the District of Arizona, Phoenix Division.
(k) Enforcement. In the event of any default on the part of
any party hereto, this Agreement may be enforced by an action for specific
performance or other appropriate remedy authorized under the laws of the State
of Arizona. Should any party breach any of the terms and conditions of this
Agreement, or any other documents executed in connection herewith, necessitating
the filing of a lawsuit for damages, specific performance or any other remedy
allowed under the laws of the State of Arizona, then, and in that event, the
prevailing party in such lawsuit shall be entitled to reasonable attorneys, fees
that shall be determined by the court.
(l) Indulgences. Neither the failure nor the delay on the part
of any party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or future
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
9. LIMITATION ON SELLER REPRESENTATIONS AND WARRANTIES. Notwithstanding
any provisions hereof which may be interpreted to the contrary, it is
specifically acknowledged and agreed that Sellers make no representations or
warranties whatsoever with respect to the operation of Houston or with respect
to any action taken by Houston or by its managers, agents or employees, due to
the fact that Sellers were not involved in the operation or management of
Houston but, rather, such matters were handled by the Purchasers hereunder. The
purpose of this limitation is to reflect the parties' mutual intention that the
Sellers shall only be responsible for their own acts or omissions, without
having any responsibility for other matters or issues.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 12th day of December, 1995.
SELLERS: HOUSTON:
/s/ Marvin D. Brody
- --------------------------- HOUSTON ENTERPRISES, L.L.C., an
Marvin D. Brody Arizona limited liability company
/s/ Nancy P. Brody By /s/ Todd P. Belfer
- --------------------------- ------------------------------
Nancy P. Brody Todd P. Belfer, Manager
By /s/ Hooman Nikzad
------------------------------
Purchasers: Hooman Nikzad, Manager
/s/ Harvey A. Belfer
- --------------------------
Harvey A. Belfer, Member
/s/ Todd P. Belfer
- --------------------------
Todd P. Belfer, Member
/s/ Hooman Nikzad
- --------------------------
Hooman Nikzad, Member
/s/ Fradjollah Djahandideh
- --------------------------
Fradjollah Djahandideh, Member
ACCEPTANCE BY PURCHASER SPOUSES:
By signing below, the undersigned SANDRA H. BELFER and URSLA
DJAHANDIDEH, spouses of Purchasers HARVEY A. BELFER and FRADJOLLAH DJAHANDIDEH,
respectively, hereby signify their acceptance of the foregoing Purchase
Agreement and all of its provisions (including, but not limited to, the
indemnification provisions of paragraph 7 thereof) and the undersigned further
agree to be fully bound thereby.
DATED effective the 12th day of December, 1995.
/s/ Sandra H. Belfer
-----------------------------
Sandra H. Belfer
/s/ Ursla Djahandideh
-----------------------------
Ursla Djahandideh
15
<PAGE>
HOUSTON ENTERPRISES, L.L.C.
ASSIGNMENT OF MEMBERSHIP INTEREST
AND AGREEMENT OF ASSIGNEE
EFFECTIVE DATE: December 12, 1995
ASSIGNOR: MARVIN D. BRODY
5632 North Camelback Canyon Drive
Phoenix, AZ 85018
Tax Identification No. ###-##-####
ASSIGNEE: HARVEY A. BELFER
3633 North 68th Place
Scottsdale, AZ 85251
Tax Identification No. ###-##-####
PURPOSE:
Assignor is the owner of 17.5 Investment Units and 17.5 Voting Units in
Houston Enterprises, L.L.C., an Arizona limited liability company (the
"Company"). The Company was formed pursuant to Articles of Organization of the
Company, dated January 13, 1994, and filed with the Arizona Corporation
Commission on January 14, 1994, File No. L-710159-3 and an Operating Agreement
of the Company, dated February 14, 1995 (the "Operating Agreement"). Assignor
desires: (i) to assign 4.375 of his Investment Units (the "Assigned Units"),
together with all of the rights under the Operating Agreement with respect to
such Assigned Units and (ii) to have Assignee substituted as a member under the
Operating Agreement in the place and stead of Assignor with respect to such
Assigned Units, and Assignee is willing in consideration thereof to assume all
of Assignor's obligations under the Operating Agreement with respect to such
Assigned Units.
AGREEMENTS:
1. Assignment and Substitution. For valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns all of
his right, title and interest in and to the Assigned Units and the rights under
the Operating Agreement with respect to such-Assigned Units, including, without
limitation, the right to any distributions of cash or property and any
allocation of profit or loss provided for in the Operating Agreement, to
Assignee, subject to the terms and conditions of this Agreement and the terms
and conditions of the Operating Agreement. Upon satisfaction of the conditions
antecedent to assignment and substitution set forth below in Section 2, Assignee
shall be substituted for Assignor as a member under the
EXHIBIT A-1
<PAGE>
Operating Agreement with respect to such Assigned Units, and Assignor shall
relinquish to Assignee all of his rights as a member with respect to such
Assigned Units.
2. Conditions Precedent to Assignment and Substitution. The
substitution of Assignee as member under the operating Agreement shall be
subject to the following conditions:
(a) The filing of this Agreement with the Company; and
(b) The written consent of all of the members of the Company.
3. Disclaimer. Neither the Company nor any of its members shall bear
any responsibility of any kind or nature with respect to the tax or other
effects of this transaction to Assignor and Assignee.
4. Covenants, Representations and Warranties of Assignee.
4.1 Adoption of Agreement. Assignee hereby acknowledges
receipt of a copy of the Operating Agreement and all amendments thereto (if any)
and, as to the Assigned Units, hereby agrees to assume all obligations of
Assignor pursuant to, and to be bound by and to act in accordance with, all of
the terms and conditions of the Operating Agreement.
4.2 Warranties and Representations. Assignee hereby represents
and warrants:
(a) His acquisition of the Assigned Units is made as
a principal for his sole account for investment purposes only and not with a
view toward the distribution or resale of all or any portion thereof and that
under no circumstances will he sell, transfer or assign all or any portion of
the Assigned Units except in compliance with the provisions of the operating
Agreement.
(b) He is aware of the restrictions on transfer of
the Assigned Units and that the Assigned Units will at no time be freely
transferable or be assignable otherwise than to a person or entity accepting
similar restrictions on transferability.
(c) He has no reason to anticipate any change in
personal circumstances, financial or otherwise, which would
2
<PAGE>
cause him to sell or distribute or necessitate or require any sale or
distribution of the Assigned Units.
(d) He is familiar with the nature of and risks
attending investments in closely held businesses and securities.
(e) He is fully aware of the restrictions on resale
of the Assigned Units under the Operating Agreement and the Securities Act of
1933, as amended (the "Act") and Rules promulgated thereunder, and applicable
state securities laws; in particular, he is aware that the Assigned Units will
not be registered under the Act at any time, will not at any time be freely
transferable and that any sale thereof may have significant adverse tax
consequences.
(f) He will not, in any event, sell or distribute the
Assigned Units, or any portion thereof, unless accordance with the terms and
conditions of the operating Agreement.
(g) He is fully aware that the Assigned Units were
issued by the Company in reliance upon the exemption provided by Section 4(2) of
the Act (and more particularly Regulation D thereunder), on the grounds that no
public offering was involved, and upon representations, warranties and
agreements as set forth above.
5. Power of Attorney.
5.1 Grant of Power. Assignee hereby irrevocably constitutes
and appoints the Managers and any successor Manager his true and lawful
attorney-in-fact, with power and authority to act in his name, place and stead
and to make, execute, acknowledge, deliver, file, record and publish:
(a) Any certificate of authority, including the
Operating Agreement, or amended Certificate or Articles as required by the
provisions of Section 4.1 of the Operating Agreement or by the Arizona Limited
Liability Company Act;
(b) All documents which may be required to effectuate
the admission of an additional or substituted member or the continuation,
dissolution or termination of the Company, provided-that such continuation,
dissolution or termination is in accordance with the terms of the Operating
Agreement; and
(c) Any technical revisions to the operating
Agreement in order to conform such document to the Arizona Limited Liability
Company Act as now in effect or as hereafter amended.
3
<PAGE>
5.2 Nature and Power. The Assignee expressly acknowledges that
the foregoing special power of attorney is coupled with an interest, is
irrevocable and shall survive the death or legal incapacity of the Assignee and
the delivery of any assignment by any Assignee of his interest. This power of
attorney may be exercised by the Managers for the Assignee by signature or by
listing all members executing any instrument with the signature of the Manager
acting as attorney-in-fact for all of them. Nothing contained in this paragraph
or anywhere in the Operating Agreement shall be construed as authorizing the
Managers to vote on behalf of the Assignee for the purpose of amending or
modifying this Agreement. As a condition of becoming a substituted member, any
transferee or assignee must agree to appoint, and upon accepting such transfer
or assignment shall thereby be deemed to have appointed the Managers as his or
her attorney-in-fact with identical powers to those set forth in the applicable
provisions of the Operating Agreement.
5.3 Binding Effect of Attorney's Acts. The Assignee shall be
bound by all representations of the Managers as his attorney-in-fact and hereby
waives any and all defenses which may be available to him to consent, negate or
disaffirm the actions of the Managers or their successors under this power of
attorney, and hereby ratifies and confirms all acts which the Managers or their
successors hereunder, may take as attorney-in-fact hereunder in all respects as
though performed by the Assignee.
5.4 Proof of Power of Attorney. The pages of this Assignment
upon which this Section 5 is set forth and the pages hereof upon which the
Assignee's signature appears may be separated from the rest of this Assignment
and may be recorded as evidence of the power and authority of the Managers and
each of them to exercise the power of attorney set forth herein.
6. General.
6.1 Waiver. The waiver or release by either party of
performance by the other party under any of the terms of this Assignment shall
not operate as a waiver or release of performance under other terms of this
Assignment.
6.2 Additional Agreements. The parties shall each execute such
agreements and other instruments as may be necessary to carry into effect the
purposes of this Assignment.
6.3 Entire Agreement. This Assignment and that certain
Purchase Agreement of even date herewith between Assignor, Assignee, Todd P.
Belfer, Hooman Nikzad and Fradjollah Djahandideh, together constitute an
integration of all agreements of the parties
4
<PAGE>
hereto relevant to the subject matter of this Assignment and all prior
discussions and negotiations are merged herein. This Assignment may be amended
only by written amendment executed by the parties whose rights are affected by
such amendment.
6.4 Construction. The parties shall be bound by the terms and
conditions hereof which terms and conditions shall be construed in accordance
with Arizona law.
6.5 Benefit. This Assignment shall bind and inure to the
heirs, legal representatives, successors and assigns of the parties hereto.
6.6 Gender. In this Assignment, whenever the context so
requires, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural.
IN WITNESS WHEREOF, the parties have executed Agreement to be effective
the day and year first above written.
ASSIGNOR:
/s/ Marvin D. Brody
---------------------------
Marvin D. Brody
ASSIGNEE:
/s/ Harvey A. Belfer
---------------------------
Harvey A. Belfer
ACCEPTANCE OF ASSIGNMENT:
/s/ Todd P. Belfer
- ----------------------------------
Todd P. Belfer, Member and Manager
/s/ Hooman Nikzad
- ----------------------------------
Hooman Nikzad, Member and Manager
/s/ Fradjollah Djahandideh
- ----------------------------------
Fradjollah Djahandideh, Member
5
<PAGE>
CONSENT OF SPOUSE
(Assignor)
The undersigned, NANCY P. BRODY, spouse of the Assignor, MARVIN D.
BRODY, hereby consents to the above-described assignment of the Assigned Units
described therein and further confirms that any and all right, title and
interest of the undersigned in and to said Assigned Units shall also be conveyed
to Assignee as a part of Assignor's assignment.
DATED effective the 12th day of December,
/s/ Nancy P. Brody
----------------------------
Nancy P. Brody
CONSENT OF SPOUSE
(Assignee)
The undersigned, SANDRA H. BELFER, spouse of the Assignee, HARVEY A.
BELFER, hereby consents to the above-described assignment of the Assigned Units
to her husband and further agrees to abide by and be bound by all of the terms
and conditions which are applicable to her husband, the Assignor.
DATED effective the 12th day of December, 1995.
/s/ Sandra H. Belfer
---------------------------
Sandra H. Belfer
6
<PAGE>
HOUSTON ENTERPRISES, L.L.C.
ASSIGNMENT OF MEMBERSHIP INTEREST
AND AGREEMENT OF ASSIGNEE
EFFECTIVE DATE: December 12, 1995
ASSIGNOR: MARVIN D. BRODY
5632 North Camelback Canyon Drive
Phoenix, AZ 85018,
Tax Identification No. ###-##-####
ASSIGNEE: TODD P. BELFER
4552 North 52nd Place
Phoenix, AZ 85018
Tax Identification No. ###-##-####
PURPOSE:
Assignor is the owner of 17.5 Investment Units and 17.5 Voting Units in
Houston Enterprises, L.L.C., an Arizona limited liability company (the
"Company") . The Company was enforced pursuant to Articles of Organization of
the Company, dated January 13, 1994, and filed with the Arizona Corporation
Commission on January 14, 1994, File No. L-710159-3 and an Operating Agreement
of the Company, dated February 14, 1995 (the "Operating Agreement"). Assignor
desires: (i) to assign 4.375 of his Investment Units (the Assigned Units"),
together with all of the rights under the Operating Agreement with respect to
such Assigned Units and (ii) to have Assignee substituted as a member under the
Operating Agreement in the place and stead of Assignor with respect to such
Assigned Units, and Assignee is willing in consideration thereof to assume all
of Assignor's obligations under the Operating Agreement with respect to such
Assigned Units.
AGREEMENTS:
1. Assignment and Substitution. For valuable consideration, the receipt
and sufficiency of which is hereby acknowledged Assignor hereby assigns all of
his right, title and interest in and to the Assigned Units and the rights under
the Operating Agreement with respect to such Assigned Units, including, without
limitation, the right to any distributions of cash or property and any
allocation of profit or loss provided for in the Operating Agreement, to
Assignee, subject to the terms and conditions of this Agreement and the terms
and conditions of the Operating Agreement. Upon satisfaction of the conditions
precedent to assignment and substitution set forth below in Section 2, Assignee
shall be substituted for Assignor as a member under the
EXHIBIT A-2
<PAGE>
Operating Agreement with respect to such Assigned Units, and Assignor shall
relinquish to Assignee all of his rights as a member with respect to such
Assigned Units.
2. Conditions Precedent to Assignment and Substitution. The
substitution of Assignee as member under the Operating Agreement shall be
subject to the following conditions:
(a) The filing of this Agreement with the Company; and
(b) The written consent of all of the members of the Company.
3. Disclaimer. Neither the Company nor any of its members shall bear
any responsibility of any kind or nature with respect to the tax or other
effects of this transaction to Assignor and Assignee.
4. Covenants, Representations and Warranties of Assignee.
4.1 Adoption of Agreement. Assignee hereby acknowledges
receipt of a copy of the Operating Agreement and all amendments thereto (if any)
and, as to the Assigned Units, hereby agrees to assume all obligations of
Assignor pursuant to, and to be bound by and to act in accordance with, all of
the terms and conditions of the Operating Agreement.
4.2 Warranties and Representations. Assignee hereby represents
and warrants:
(a) His acquisition of the Assigned Units is made as
a principal for his sole account for investment purposes only and not with a
view toward the distribution or resale of all or any portion thereof and that
under no circumstances will he sell, transfer or assign all or any portion of
the Assigned Units except in compliance with the provisions of the Operating
Agreement.
(b) He is aware of the restrictions on transfer of
the Assigned Units and that the Assigned Units will at no time be freely
transferable or be assignable otherwise than to a person or entity accepting
similar restrictions on transferability.
(c) He has no reason to anticipate any change in
personal circumstances, financial or otherwise, which would
2
<PAGE>
cause him to sell or distribute or necessitate or require any sale or of the
Assigned Units.
(d) He is familiar with the nature of and risks
attending investments in closely-held businesses and securities.
(e) He is fully aware of the restrictions on resale
of the Assigned Units under the Operating Agreement and the Securities Act of
1933, as amended (the "Act") and Rules promulgated thereunder, and applicable
state securities laws; in particular, he is aware that the Assigned Units will
not be registered under the Act at any time, will not at any time be freely
transferable and that any sale thereof may have significant adverse tax
consequences.
(f) He will not, in any event, sell or distribute the
Assigned Units, or any portion thereof, unless in accordance with the terms and
conditions of the Operating Agreement.
(g) He is fully aware that the Assigned Units were
issued by the Company in reliance upon the exemption provided by Section 4(2) of
the Act (and more particularly Regulation D thereunder), on the grounds that no
public offering was involved, and upon representations, warranties and
agreements as set forth above.
5. Power of Attorney.
5.1 Grant of Power. Assignee hereby irrevocably constitutes
and appoints the Managers and any successor Manager his true and lawful
attorney-in-fact, with power and authority to act in his name, place and stead
and to make, execute, acknowledge, deliver, file, record and publish:
(a) Any certificate of authority, including the
Operating Agreement, or amended Certificate or Articles as required by the
provisions of Section 4.1 of the Operating Agreement or by the Arizona Limited
Liability Company Act;
(b) All documents which may be required to effectuate
the admission of an additional or substituted member or the continuation,
dissolution or termination of the Company, provided that such continuation,
dissolution or termination is in accordance with the terms of the Operating
Agreement; and
3
<PAGE>
(c) Any technical revisions to the Operating
Agreement in order to conform such document to the Arizona Limited Liability
Company Act as now in effect or as hereafter amended.
5.2 Nature and Power. The Assignee expressly acknowledges that
the foregoing special power of attorney is coupled with an interest, is
irrevocable and shall survive the death or legal incapacity of the Assignee and
the delivery of any assignment by any Assignee of his interest. This power of
attorney may be exercised by the Managers for the Assignee by signature or by
listing all members executing any instrument with the signature of the Manager
acting as attorney-in-fact for all of them. Nothing contained in this paragraph
or anywhere in the Operating Agreement shall be construed as authorizing the
Managers to vote on behalf of the Assignee for the purpose of amending or
modifying this Agreement. As a condition of becoming a substituted member, any
transferee or assignee must agree to appoint, and upon accepting such transfer
or assignment shall thereby be deemed to have appointed, the Managers as his or
her attorney-in-fact with identical powers to those set forth in the applicable
provisions of the Operating Agreement.
5.3 Binding Effect of Attorney's Acts. The Assignee shall be
bound by all representations of the Managers as his attorney-in-fact and hereby
waives any and all defenses which may be available to him to consent, negate or
disaffirm the actions of the Managers or their successors under this power of
attorney, and hereby ratifies and confirms all acts which the Managers or their
successors hereunder, may take as attorney-in-fact hereunder in all respects as
though performed by the Assignee.
5.4 Proof of Power of Attorney. The pages of this Assignment
upon which this Section 5 is set forth and the pages hereof upon which the
Assignee Is signature appears may be separated from the rest of this Assignment
and may be recorded as evidence of the power and authority of the Managers and
each of them to exercise the power of attorney set forth herein.
6. General.
6.1 Waiver. The waiver or release by either party of
performance by the other party under any of the terms of this Assignment shall
not operate as a waiver or release of performance under other terms of this
Assignment.
6.2 Additional Agreements. The parties shall each execute such
agreements and other instruments as may be necessary to carry into effect the
purposes of this Assignment.
4
<PAGE>
6.3 Entire Agreement. This Assignment and that certain
Purchase Agreement of even date herewith between Assignor, Assignee, Harvey A.
Belfer, Hooman Nikzad and Fradjollah Djahandideh, together constitute an
integration of all agreements of the parties hereto relevant to the subject
matter of this Assignment and all prior discussions and negotiations are merged
herein. This Assignment may be amended only by written amendment executed by the
parties whose rights are affected by such amendment.
6.4 Construction. The parties shall be bound by the terms and
conditions hereof which terms and conditions shall be construed in accordance
with Arizona law.
6.5 Benefit. This Assignment shall bind and inure to the
heirs, legal representatives, successors and assigns of the parties hereto.
6.6 Gender. In this Assignment, whenever the context so
requires, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective the day and year first above written.
ASSIGNOR:
/s/ Marvin D. Brody
-----------------------------
Marvin D. Brody
ASSIGNEE:
/s/ Todd P. Belfer
-----------------------------
Todd P. Belfer
ACCEPTANCE OF ASSIGNMENT:
/s/ Hooman Nikzad
- ---------------------------------
Hooman Nikzad, Member and Manager
/s/ Harvey A. Belfer
- ---------------------------------
Harvey A. Belfer, Member
/s/ Fradjollah Djahandideh
- ---------------------------------
Fradjollah Djahandideh, Member
5
<PAGE>
CONSENT OF SPOUSE
(Assignor)
The undersigned, NANCY P. BRODY, spouse of the Assignor, MARVIN D.
BRODY, hereby consents to the above-described assignment of the Assigned Units
described therein and further confirms that any and all rights, title and
interest of the undersigned in and to said Assigned Units shall also be conveyed
to Assignee as a part of Assignor's assignment.
DATED effective the 12th day of December, 1995.
/s/ Nancy P. Brody
-------------------------
Nancy P. Brody
6
<PAGE>
HOUSTON ENTERPRISES, L.L.C.
ASSIGNMENT OF MEMBERSHIP INTEREST
AND AGREEMENT OF ASSIGNEE
EFFECTIVE DATE: December 12, 1995
ASSIGNOR: MARVIN D. BRODY
5632 North Camelback Canyon Drive
Phoenix, AZ 85018
Tax Identification No. ###-##-####
ASSIGNEE: HOOMAN NIKZAD
3658 East Chipman Road
Phoenix, AZ 85040
Tax Identification No. ###-##-####
PURPOSE:
Assignor is the owner of 17.5 Investment Units and 17.5 Voting Units in
Houston Enterprises, L.L.C., an Arizona limited liability company (the
"Company"). The Company was formed pursuant to Articles of Organization of the
Company, dated January 13, 1994, and filed with the Arizona Corporation
Commission on January 14, 1994, File No. L-710159-3 and an Operating Agreement
of the Company, dated February 14, 1995 (the "Operating Agreement"). Assignor
desires: (i) to assign 4.375 of his Investment Units (the "Assigned Units"),
together with all of the rights under the Operating Agreement with respect to
such Assigned Units and (ii) to have Assignee substituted as a member under the
Operating Agreement in the place and stead of Assignor with respect to such
Assigned Units, and Assignee is willing in consideration thereof to assume all
of Assignor's obligations under the Operating Agreement with respect to such
Assigned Units.
AGREEMENTS:
1. Assignment and Substitution. For valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns all of
his right, title and interest in and to the Assigned Units and the rights under
the Operating Agreement with respect to such Assigned Units, including, without
limitation, the right to any distributions of cash or property and any
allocation of profit or loss provided for in the Operating Agreement, to
Assignee, subject to the terms and conditions of this Agreement and the terms
and conditions of the Operating Agreement. Upon satisfaction of the conditions
precedent to assignment and substitution set forth below in Section 2, Assignee
shall be substituted for Assignor as a member under the
EXHIBIT A-3
<PAGE>
Operating Agreement with respect to such Assigned Units, and Assignor
shall relinquish to Assignee all of his rights as a member with respect to such
Assigned Units.
2. Conditions Precedent to Assignment and Substitution. The
substitution of Assignee as member under the Operating Agreement shall be
subject to the following conditions:
(a) The filing of this Agreement with the Company; and
(b) The written consent of all of the members of the Company.
3. Disclaimer. Neither the Company nor any of its members shall bear
any responsibility of any kind or nature with respect to the tax or other
effects of this transaction to Assignor and Assignee.
4. Covenants, Representations and Warranties of Assignee.
4.1 Adoption of Agreement. Assignee hereby acknowledges
receipt of a copy of the Operating Agreement and all amendments thereto (if any)
and, as to the Assigned Units, hereby agrees to assume all obligations of
Assignor pursuant to, and to be bound by and to act in accordance with, all of
the terms and conditions of the Operating Agreement.
4.2 Warranties and Representations. Assignee hereby represents
and warrants:
(a) His acquisition of the Assigned Units is made as
a principal for his sole account for investment purposes only and not with a
view toward the distribution or resale of all or any portion thereof and that
under no circumstances will he sell, transfer or assign all or any portion of
the Assigned Units except in compliance with the provisions of the Operating
Agreement.
(b) He is aware of the restrictions on transfer of
the Assigned Units and that the Assigned Units will at no time be freely
transferable or be assignable otherwise than to a person or entity accepting
similar restrictions on transferability.
(c) He has no reason to anticipate any change in
personal circumstances, financial or otherwise, which would
2
<PAGE>
cause him to sell or distribute or necessitate or require any sale or
distribution of the Assigned Units.
(d) He is familiar with the nature of and risks
attending investments in closely-held businesses and securities.
(e) He is fully aware of the restrictions on resale
of the Assigned Units under the Operating Agreement and the Securities Act of
1933, as amended (the "Act") and Rules promulgated thereunder, and applicable
state securities laws; in particular, he is aware that the Assigned Units will
not be registered under the Act at any time, will not at any time be freely
transferable and that any sale thereof may have significant adverse tax
consequences.
(f) He will not, in any event, sell or distribute the
Assigned Units, or any portion thereof, unless in accordance with the terms and
conditions of the Operating Agreement.
(g) He is fully aware that the Assigned Units were
Issued by the Company in reliance upon the exemption provided by Section 4(2) of
the Act (and more particularly Regulation D thereunder) on the grounds that no
public offering was involved, and upon representations, warranties and
agreements as set forth above.
5. Power of Attorney.
5.1 Grant of Power. Assignee hereby irrevocably constitutes
and appoints the Managers and any successor Manager his true and lawful
attorney-in-fact, with power and authority to act in his name, place and stead
and to make, execute, acknowledge, deliver, file, record and publish:
(a) Any certificate of authority, including the
Operating Agreement, or amended Certificate or Articles as required by the
provisions of Section 4.1 of the Operating Agreement or by the Arizona Limited
Liability Company Act;
(b) All documents which may be required to effectuate
the admission of an additional or substituted member or the continuation,
dissolution or termination of the Company, provided that such continuation,
dissolution or termination is in accordance with the terms of the Operating
Agreement; and
(c) Any technical revisions to the operating
Agreement in order to conform such document to the Arizona Limited Liability
Company Act as now in effect or as hereafter amended.
3
<PAGE>
5.2 Nature and Power. The Assignee expressly acknowledges that
the foregoing special power of attorney is coupled with an interest, is
irrevocable and shall survive the death or legal incapacity of the Assignee and
the delivery of any assignment by any Assignee of his interest. This power of
attorney may be exercised by the Managers for the Assignee by signature or by
listing all members executing any instrument with the signature of the Manager
acting as attorney-in-fact for all of them. Nothing contained in this Paragraph
or anywhere in the Operating Agreement shall be construed as authorizing the
Managers to vote on behalf of the Assignee for the purpose of amending or
modifying this Agreement. As a condition of becoming a substituted member, any
transferee or assignee must agree to appoint, and upon accepting such transfer
or assignment shall thereby be deemed to have appointed, the Managers as his or
her attorney-in-fact with identical powers to those set forth in the applicable
provisions of the Operating Agreement.
5.3 Binding Effect of Attorney's Acts. The Assignee shall be
bound by all representations of the Managers as his attorney-in-fact and hereby
waives any and all defenses which may be available to him to consent, negate or
disaffirm the actions of the Managers or their successors under this power of
attorney, and hereby ratifies and confirms all acts which the Managers or their
successors hereunder, may take as attorney-in-fact hereunder in all respects as
though performed by the Assignee.
5.4 Proof of Power of Attorney. The pages of this Assignment
upon which this Section 5 is set forth and the pages hereof upon which the
Assignee's signature appears may be separated from the rest of this Assignment
and may be recorded as evidence of the power and authority of the Managers and
each of them to exercise the power of attorney set forth herein.
6. General.
6.1 Waiver. The waiver or release by either party of
Performance by the other party under any of the terms of this Assignment shall
not operate as a waiver or release of performance under other terms of this
Assignment.
6.2 Additional Agreements. The parties shall each execute such
agreements and other instruments as may be necessary to carry into effect the
purposes of this Assignment.
6.3 Entire Agreement. This Assignment and that certain
Purchase Agreement of even date herewith between Assignor, Assignee, Harvey A.
Belfer, Todd P. Belfer, and Fradjollah Djahandideh, together constitute an
integration of all agreements
4
<PAGE>
of the parties hereto relevant to the subject matter of this Assignment and all
prior discussions and negotiations are merged herein. This Assignment may be
amended only by written amendment executed by the parties whose rights are
affected by such amendment.
6.4 Construction. The parties shall be bound by the terms and
conditions hereof which terms and conditions shall be construed in accordance
with Arizona law.
6.5 Benefit. This Assignment shall bind and inure to the
heirs, legal representatives, successors and assigns of the parties hereto.
6.6 Gender. In this Assignment, whenever the context so
requires, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective the day and year first above written.
ASSIGNOR:
/s/ Marvin D. Brody
----------------------------
Marvin D. Brody
ASSIGNEE:
/s/ Hooman Nikzad
----------------------------
Hooman Nikzad
ACCEPTANCE OF ASSIGNMENT
/s/ Todd P. Belfer
- ----------------------------------
Todd P. Belfer, Member and Manager
/s/ Harvey A. Belfer
- ----------------------------------
Harvey A. Belfer, Member
/s/ Fradjollah Djahandideh
- ----------------------------------
Fradjollah Djahandideh, Member
5
<PAGE>
CONSENT OF SPOUSE
(Assignor)
The undersigned, NANCY P. BRODY, spouse of the Assignor, MARVIN D.
BRODY, hereby consents to the above-described assignment of the Assigned Units
described therein and further confirms that any and all right, title and
interest of the undersigned in and to said Assigned Units shall also be conveyed
to Assignee as a part of Assignor's assignment.
DATED effective the 12th day of December, 1995.
/s/ Nancy P. Brody
---------------------------
Nancy P. Brody
6
<PAGE>
HOUSTON ENTERPRISES, L.L.C.
ASSIGNMENT OF MEMBERSHIP INTEREST
AND AGREEMENT OF ASSIGNEE
EFFECTIVE DATE: December 12, 1995
ASSIGNOR: MARVIN D. BRODY
5632 North Camelback Canyon Drive
Phoenix, AZ 85018
Tax Identification No. ###-##-####
ASSIGNEE: FRADJOLLAH DJAHANDIDEH
3658 East Chipman Road
Phoenix, AZ 85040
Tax identification No. ###-##-####
PURPOSE:
Assignor is the owner of 17.5 Investment Units and 17.5 Voting Units in
Houston Enterprises, L.L.C., an Arizona limited liability company (the
"Company"). The Company was formed pursuant to Articles of Organization of the
Company, dated January 13, 1994, and filed with the Arizona Corporation
Commission on January 14, 1994, File No. L-710159-3 and an Operating Agreement
of the Company, dated February 14, 1995 (the "Operating Agreement") Assignor
desires: (i) to assign 4.375 of his Investment Units (the "Assigned Units"),
together with all of the rights under the Operating Agreement with respect to
such Assigned Units and (ii) to have Assignee substituted as a member under the
Operating Agreement in the place and stead of Assignor with respect to such
Assigned Units, and Assignee is willing in consideration thereof to assume all
of Assignor's obligations under the Operating Agreement with respect to such
Assigned Units.
AGREEMENTS:
1. Assignment and Substitution. For valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns all of
his right, title and interest in and to the Assigned Units and the rights under
the Operating Agreement with respect to such Assigned Units, including, without
limitation, the right to any distributions of cash or property and any
allocation of profit or loss provided for in the Operating Agreement, to
Assignee, subject to the terms and conditions of this Agreement and the terms
and conditions of the Operating Agreement. Upon satisfaction of the conditions
precedent to assignment and substitution set forth below in Section 2, Assignee
shall be substituted for Assignor as a member under the
EXHIBIT A-4
<PAGE>
Operating Agreement with respect to such Assigned Units, and Assignor shall
relinquish to Assignee all of his rights as a member with respect to such
Assigned Units.
2. Conditions Precedent to Assignment and Substitution. The
substitution of Assignee as member under the Operating Agreement shall be
subject to the following conditions:
(a) The filing of this Agreement with the Company; and
(b) The written consent of all of the members of the Company.
3. Disclaimer. Neither the Company nor any of its members shall bear
any responsibility of any kind or nature with respect to the tax or other
effects of this transaction to Assignor and Assignee.
4. Covenants, Representations and Warranties of Assignee.
4.1 Adoption of Agreement. Assignee hereby acknowledges
receipt of a copy of the Operating Agreement and all amendments thereto (if any)
and, as to the Assigned Units, hereby agrees to assume all obligations of
Assignor pursuant to, and to be bound by and to act in accordance with, all of
the terms and conditions of the Operating Agreement.
4.2 Warranties and Representations. Assignee hereby represents
and warrants:
(a) His acquisition of the Assigned Units is made as
a principal for his sole account for investment purposes only and not with a
view toward the distribution or resale of all or any portion thereof and that
under no circumstances will he sell, transfer or assign all or any portion of
the Assigned Units except in compliance with the provisions of the operating
Agreement.
(b) He is aware of the restrictions on transfer of
the Assigned Units and that the Assigned Units will at no time be freely
transferable or be assignable otherwise than to a person or entity accepting
similar restrictions on transferability.
(c) He has no reason to anticipate any change in
personal circumstances, financial or otherwise, which would
2
<PAGE>
cause him to sell or distribute or necessitate or require any sale or
distribution of the Assigned Units.
(d) He is familiar with the nature of and risks
attending investments in closely-held businesses and securities.
(e) He is fully aware of the restrictions on resale
of the Assigned Units under the Operating Agreement and the Securities Act of
1933, as amended (the "Act") and Rules promulgated thereunder, and applicable
state securities laws; in particular, he is aware that the Assigned Units will
not be registered under the Act at any time, will not at any time be freely
transferable and that any sale thereof may have significant adverse tax
consequences.
(f) He will not, in any event, sell or distribute the
Assigned Units, or any portion thereof, unless in accordance with the terms and
conditions of the Operating Agreement.
(g) He is fully aware that the Assigned Units were
issued by the Company in reliance upon the exemption provided by Section 4(2) of
the Act (and more particularly Regulation D thereunder), on the grounds that no
public offering was involved, and upon representations, warranties and
agreements as set forth above.
5. Power of Attorney.
5.1 Grant of Power. Assignee hereby irrevocably constitutes
and appoints the Managers and any successor Manager his true and lawful
attorney-in-fact, with power and authority to act in his name, place and stead
and to make, execute, acknowledge, deliver, file, record and publish:
(a) Any certificate of authority, including the
Operating Agreement, or amended Certificate or Articles as required by the
provisions of Section 4.1 of the Operating Agreement or by the Arizona Limited
Liability Company Act;
(b) All documents which may be required to effectuate
the admission of an additional or substituted member or the continuation,
dissolution or termination of the Company, provided that such continuation,
dissolution or termination is in accordance with the terms of the Operating
Agreement; and
3
<PAGE>
(c) Any technical revisions to the Operating
Agreement in order to confirm such document to the Arizona Limited Liability
Company Act as now in effect or as hereafter amended.
5.2 Nature and Power. The Assignee expressly acknowledges that
the foregoing special power of attorney is coupled with an interest, is
irrevocable and shall survive the death or legal incapacity of the Assignee and
the delivery of any assignment by any Assignee of his interest. This power of
attorney may be exercised by the Managers for the Assignee by signature or by
listing all members executing any instrument with the signature of the Manager
acting as attorney-in-fact for all of them. Nothing contained in this paragraph
or anywhere in the Operating Agreement shall be construed as authorizing the
Managers to vote on behalf of the Assignee for the purpose of amending or
modifying this Agreement. As a condition of becoming a substituted member, any
transferee or assignee must agree to appoint, and upon accepting such transfer
or assignment shall thereby be deemed to have appointed, the Managers as his or
her attorney-in-fact with identical powers to those set forth in the applicable
provisions of the Operating Agreement.
5.3 Binding Effect of Attorney's Acts. The Assignee shall be
bound by all representations of the Managers as his attorney-in-fact and hereby
waives any and all defenses which may be available to him to consent, negate or
disaffirm the actions of the Managers or their successors under this power of
attorney, and hereby ratifies and confirms all acts which the Managers or their
successors hereunder, may take as attorney-in-fact hereunder in all respects as
though performed by the Assignee.
5.4 Proof of Power of Attorney. The pages of this Assignment
upon which this Section 5 is set forth and the pages hereof upon which the
Assignee's signature appears may be separated from the rest of this Assignment
and may be recorded as evidence of the power and authority of the Managers and
each of them to exercise the power of attorney set forth herein.
6. General.
6.1 Waiver. The waiver or release by either party of
performance by the other party under any of the terms of this Assignment shall
not operate as a waiver or release of performance under other terms of this
Assignment.
6.2 Additional Agreements. The Parties shall each execute such
agreements and other instruments as may be necessary to carry into effect the
purposes of this Assignment.
4
<PAGE>
6.3 Entire Agreement. This Assignment and that certain
Purchase Agreement of even date herewith between Assignor, Assignee, Todd P.
Belfer, Hooman Nikzad and Harvey A. Belfer, together constitute an integration
of all agreements of the parties hereto relevant to the subject matter of this
Assignment and all prior discussions and negotiations are merge herein. This
Assignment may be amended only by written amendment executed by the parties
whose rights are affected by such amendment.
6.4 Construction. The parties shall be bound by the terms and
conditions hereof which terms and conditions shall be construed in accordance
with Arizona law.
6.5 Benefit. This Assignment shall bind and inure to the
heirs, legal representatives, successors and assigns of the parties hereto.
6.6 Gender. In this Assignment, whenever the context so
requires, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective the day and year first above written.
ASSIGNOR:
/s/ Marvin D. Brody
-----------------------------
Marvin D. Brody
ASSIGNEE:
/s/ Fradjollah Djadhandideh
-----------------------------
Fradjollah Djadhandideh
ACCEPTANCE OF ASSIGNMENT:
/s/ Hooman Nikzad
- ---------------------------------
Hooman Nikzad, Member and Manager
/s/ Todd P. Belfer
- ---------------------------------
Todd P. Belfer, Member and Manager
/s/ Harvey A. Belfer
- ---------------------------------
Harvey A. Belfer, Member
5
<PAGE>
CONSENT OF SPOUSE
(Assignor)
The undersigned, NANCY P. BRODY, spouse of the Assignor, MARVIN D.
BRODY, hereby consents to the above-described assignment of the Assigned Units
described therein and further confirms that any and all right, title and
interest of the undersigned in and to said Assigned Units shall also be conveyed
to Assignee as a part of Assignor's assignment.
DATED effective the 12th day of December, 1995.
/s/ Nancy P. Brody
-----------------------------
Nancy P. Brody
CONSENT OF SPOUSE
(Assignee)
The undersigned, URUSALA DJAHANDIDEH, spouse of the Assignee,
FRADJOLLAH DJAHANDIDEH, hereby consents to the above-described assignment of the
Assigned Units to her husband and further agrees to abide by and be bound by all
of the terms and conditions which are applicable to her husband, the Assignor.
DATED effective the 12th day of December, 1995.
/s/ Urusala Djahandideh
-----------------------------
Urusala Djahandideh
6
PROMISSORY NOTE
$300,000
Phoenix, Arizona
March 6, 1996
FOR VALUE RECEIVED, the undersigned HOUSTON ENTERPRISES, L.L.C., dba
HOUSTON INTERNATIONAL, L.L.C., an Arizona limited liability company ("Maker"),
promises to pay to the order of BELFER LABS, L.L.C., an Arizona limited
liability company, at 4422 North 24th Street, Phoenix, Arizona 85016 (together
with all subsequent holders of this Note, hereinafter called "Payee"), or at
such other place as Payee may from time to time designate in writing, the
principal sum of THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000), plus
interest calculated on a daily basis (based on a 365-day year) from the date
hereof on the principal balance from time to time outstanding as hereinafter
provided, principal, interest and all other sums payable hereunder to be paid in
lawful money of the United States of America as follows:
A. Interest shall accrue at the rate of twelve percent
(12%) per annum.
B. Interest, principal and all other amounts payable
hereunder shall be due and payable on March 6, 1997.
All payments on this Note shall be applied first to the payment of any
costs, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note is secured by a Security Agreement of even date herewith,
executed by Maker, or debtor, in favor of Payee, as secured party.
Time is of the essence of this Note. Upon the occurrence of any Event
of Default, as defined in the Security Agreement, at the option of Payee, the
entire unpaid principal balance, all accrued and unpaid interest and all other
amounts payable hereunder shall become immediately due and payable without
notice.
After demand or maturity, including maturity upon acceleration, the
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall bear interest at the rate of sixteen percent (16%) per
annum. Maker shall pay all costs and expenses, including reasonable attorneys'
fees and court costs, incurred in the collection or enforcement of all or any
part of this Note.
1
<PAGE>
Maker shall have the option to prepay this Note, in full or in part, at
any time without penalty.
Upon the occurrence of an Event of Default as defined in the Security
Agreement, Payee may exercise any rights and remedies in such order and manner
as Payee, in its sole discretion, shall determine. Failure of Payee to exercise
any option hereunder shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default or in the event of the continuance
of any existing default after demand for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be
jointly and severally bound, (b) severally waive demand, diligence, presentment
for payment, protest and demand, and notice of extension, dishonor, protest,
demand and nonpayment of this Note, (c) consent that Payee may extend the time
of payment or otherwise modify the terms of payment of any part or the whole of
the debt evidenced by this Note, at the request of any other person primarily
liable hereon, and such consent shall not alter nor diminish the liability of
any person, and (d) agree that Payee may set off at any time any sums or
property owed to any of them by Payee.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee and their successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and in the manner provided in the Security Agreement for the
giving of notices.
This Note shall be governed by and construed according to the
substantive laws of the State of Arizona, without giving regard to conflict of
law principles.
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by payee, in connection with this Note. All
agreements between Maker and Payee, whether now existing or hereafter arising
and whether written or oral, are hereby limited so that in no contingency,
whether by reason of acceleration of the maturity of this Note or otherwise,
shall the interest contracted for, charged or received by Payee exceed the
maximum amount permissible under applicable federal or state law. If, from any
circumstance whatsoever, interest which would otherwise be payable to Payee is
in excess of the maximum lawful amount, the interest payable to Payee shall be
reduced to the maximum amount permitted under applicable law; and if from any
circumstance Payee shall ever receive anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal to that
amount which would have been
2
<PAGE>
excessive interest shall be applied to the reduction of the principal balance of
this Note and not to the payment of interest and if such amount which would have
been excessive interest exceeds the unpaid balance of principal of this Note,
such additional amount shall be refunded to Maker. All interest paid or agreed
to be paid to Payee shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period until
payment in full of the principal of this Note (including the period of any
renewal or extension thereof) so that the interest thereon for such full period
shall not exceed the maximum amount permitted by applicable law. This paragraph
shall control all agreements between Maker and Payee.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
HOUSTON ENTERPRISES, L.L.C., dba
HOUSTON INTERNATIONAL, L.L.C., an
Arizona limited liability company
By /s/ Todd P. Belfer
----------------------------
Todd P. Belfer, Its Manager
By /s/ Hooman Nikzad
----------------------------
Hooman Nikzad, It Manager
3
PRODUCT PURCHASE AND DISTRIBUTION AGREEMENT
-------------------------------------------
This Product Purchase and Distribution Agreement is entered into as of
this 2nd day of January, 1995, by and between Belnik Investment Group, Inc., an
Arizona corporation doing business as Freedom Wholesalers ("Freedom") and
Houston Enterprises, L.L.C., an Arizona limited liability company doing business
as Houston International, L.L.C. ("Houston");
RECITALS:
WHEREAS, Freedom desires to enter the business of packaging, marketing
and distributing natural dietary supplements and wishes to own the products it
will be handling and/or to have the right to distribute such products;
WHEREAS, Houston operates its own business of packaging, marketing and
distributing dietary supplements and, among others, owns three products which it
presently markets under the names Naturally High TM, the Stuff TM and Naturally
Klean R Herbal Tea and is willing to sell to Freedom all of its right, title and
interest in Naturally High TM and the Stuff TM (the "Products") and to allow
Freedom to distribute, non-exclusively, Naturally Klean R Herbal Tea (the
"Distributed Product");
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
parties' mutual covenants contained herein, the parties agree as follows:
1. Sale and Purchase of the Products. Houston does hereby sell and
convey to Freedom and Freedom does hereby purchase all of Houston's right, title
and interest in the Products for and in consideration of the sum of One Thousand
Dollars ($ 1,000. 00) which sum is hereinafter referred to as the "Purchase
Price". The Purchase Price shall be paid with the issuance to Houston of
Freedom's unsecured, five-year, promissory note in the amount of the Purchase
Price, dated the date of this agreement, bearing simple interest at the rate of
ten percent (10%) per annum, and in substantially the form attached hereto as
Exhibit A.
2. Right to Distribute the Distributed Product. Houston does hereby
grant to Freedom the non-exclusive right to distribute the Distributed Product
during the term of this Agreement. Freedom shall purchase the Distributed
Product from Houston at such price and on such other terms and conditions as
shall be acceptable to Houston and Freedom, as determined from time to time.
3 . Additional Documents. Houston shall execute and deliver to Freedom
all such documents of conveyance and other instruments as shall be necessary or
required to effect and evidence the foregoing conveyance of the Products to
Freedom.
4. Term. This Agreement shall continue in effect for a term of three
(3) years
<PAGE>
commencing on the date hereof and shall automatically extend for additional one
(1) year periods unless either party shall give the other party ninety (90) days
written notice of its desire to terminate this Agreement.
5. Representations and Warranties. Houston represents and warrants to
Freedom that it has good and transferable title to the Products and to the
Distributed Product, free and clear of all liens, pledges, charges, security
interests, encumbrances, claims, licenses, conditions, restrictions on transfer
or other restrictions or rights of third parties. Furthermore, Houston has the
power to transfer the rights under this Agreement, and this Agreement has been
approved by valid action of Houston. Houston indemnifies Freedom, its licensees
and assigns, from and against all losses, damages and costs which may be caused
Freedom, its licensees or assigns, as a result of the breach, failure, or
invalidity of any of the foregoing representations and warranties.
6. Notice. Any notice or other communication required or permitted to
be given to the parties hereto shall be deemed to have been given if delivered
by hand or forty-eight (48) hours after being mailed by certified or registered
United States mail, return receipt requested, first-class postage pre-paid or
twelve (12) hours after the time dispatched by telegram or by facsimile
transmission, in each case, addressed as follows: if to Freedom, Freedom
Wholesalers, 1719 W. University, Suite 187, Tempe, Arizona 85281, Attention:
Todd P. Belfer, President; if to Houston, Hooman Nikzad, Managing Member, 1719
W. University, Suite 187, Tempe, Arizona 8528 1, with a copy to Robert K.
Rogers, Robert K. Rogers & Associates, 5725 N. Scottsdale Road, Suite 190,
Scottsdale, Arizona 85250, or such other addresses as the parties hereto may
from time to time designate in writing.
7. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and upon their respective successors and
assigns.
8. Applicable Law. This Agreement shall be governed by and construed in
accordance with Arizona law.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be duly executed as of the day and year first above written.
Freedom:
Belnik Investment Group, Inc.
/s/Todd P. Belfer
-----------------
Todd P. Belfer, President
2
<PAGE>
Houston:
Houston Enterprises, L.L.C.
/s/Hooman Nikzad
----------------
Hooman Nikzad, Managing Member
/s/Todd P. Belfer
-----------------
Todd P. Belfer, Managing Member
3
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$1,000.00 January 2, 1995
FOR VALUE RECEIVED, Belnik Investment Group, Inc., an Arizona
corporation doing business as Freedom Wholesalers ("Maker") promises to pay to
the order of Houston Enterprises, L.L.C., an Arizona limited liability company
doing business as Houston International, L.L.C. ("Payee"), the aggregate
principal sum of One Thousand and no/100 Dollars ($1,000.00) together with
interest on the unpaid principal balance thereof from the date hereof at an
annual interest rate of ten percent (10%). All principal and interest accrued
hereunder shall be due and payable in full on January 1, 2000.
All payments of principal and interest shall be made in lawful money of
the United States of America to Payee at such address as Payee may from time to
time designate.
Maker may at any time prepay all or any portion of the amount owing
hereunder without premium or penalty. All payments hereunder shall be allocated
first to the payment of accrued interest and subsequently to a reduction of the
outstanding principal amount hereof.
This Promissory Note may be amended, waived or modified only upon the
prior written consent of Maker and Payee.
Any notice herein required or permitted to be given shall be in writing
and may be personally served or sent by registered or certified United States
mail, postage prepaid, or by commercial courier with verification of delivery,
and shall be effective upon receipt.
This Promissory Note has been executed in and shall be governed by the
laws of the State of Arizona.
If, after maturity, this Promissory Note is placed in the hands of an
attorney for collection or if it is collected through judicial, bankruptcy or
receivership proceedings, an additional reasonable amount shall be paid by Maker
for attorneys' fees.
All references to Payee herein shall include its successors and
assigns. All references to Maker herein shall include its successors and
assigns, and all covenants and agreements contained herein by or on behalf of
Maker shall be binding on its successors and assigns.
Maker hereby waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement hereof and consent that no indulgence, and no
substitution, release or surrender of collateral, and no discharge or release of
any other party primarily or secondarily liable hereon, shall discharge or
otherwise affect the liability of Maker. No delay or omission on the part of
Payee in exercising any right hereunder shall operate as a waiver of such right
or of any other right hereunder, and a waiver of any such right on
<PAGE>
any one occasion shall not be construed as a bar to or waiver of any such right
on any future occasion.
IN WITNESS WHEREOF, Houston Enterprises, L.L.C. has caused this
Promissory Note to be executed, delivered and issued effective as of the date
first set forth above.
HOUSTON ENTERPRISES, L.L.C.
By: /S/Hooman Nikzad
----------------
Hooman Nikzad, Managing Member
By: /S/Todd P. Belfer
-----------------
Todd P. Belfer, Managing Member
2
ASSET PURCHASE AGREEMENT
This Agreement made 16th day of January, 1996, between OLYMPIAN GLOBAL,
L.C., an Arizona limited liability company, organized under the laws of the
State of Arizona, having its principal place of business at P.O. Box 12461,
Scottsdale, Arizona 85267, here referred to as "Seller", and HOUSTON
INTERNATIONAL, L.L.C., an Arizona limited liability company, having its
principal office at 1719 W. University, Suite 187, Tempe, Arizona 85281, here
referred to as "Buyer".
RECITALS
A. Seller is engaged in the manufacture and sale of nutritional health
vitamins and supplements;
B. Seller holds all rights to the federally registered trademark
"PRO-LINE" as filed with the United States Patent and Trademark Office,
registration no. 1,857,461, dated October 11, 1994;
C. Seller desires to sell to Buyer and Buyer desires to purchase all of
Seller's right, title and interest in the PRO-LINE trademark and tradename
("Trademark"), including all good will.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto agree as follows;
1. Sale and Purchase.
(a) Assets and Properties to be Sold and Purchased.
At the Closing (as hereinafter defined), Seller shall sell and Buyer shall
purchase, subject to all the terms and conditions of this Agreement, all of
Seller's right, title and interest in, to or under the following assets and
properties of Seller (the "Transferred Assets"):
(i) Trademark. Seller, by a separate
instrument in writing, will assign and transfer to Buyer the entire right, title
and interest in and to the trademark "PRO-LINE" and the good will of the
business in connection with which such mark is used to Buyer
(ii) Customer Lists and Data. Buyer hereby
acknowledges that Seller has furnished Buyer with a list of all Seller's
customers for PRO-LINE, and complete sales reports and data useful in the sale
of PRO-LINE.
<PAGE>
(iii) Available Inventory. Seller and Buyer
acknowledge that there exists some available inventory ("Inventory") of PRO-LINE
products that has been delivered to Buyer for $20,000.00. Buyer acknowledges
that the value of the Inventory equals or exceeds $20,000.00.
2. Purchase Price.
(a) Amount of Purchase Price. The term "Purchase
Price" shall mean and be defined herein as the sum of Two Hundred Sixty Thousand
Dollars ($260,000.00).
(b) Payment of Purchase Price. The Purchase Price to
be paid by the Buyer to Seller pursuant to this Agreement shall be paid as
follows:
(i) Buyer has delivered funds in the amount
of ten thousand dollars ($10,000.00) to Seller on December 19, 1995, in exchange
for Seller granting and delivering to Buyer an Exclusive License and
Distribution Agreement.
(ii) Buyer shall deliver certified funds or
by wire transfer, whichever Seller requests, in the amount of Forty Thousand
Dollars ($40,000.00) to Arizona Escrows, the escrow agent ("Escrow Agent") on or
before January 31, 1995. The escrow agent deliver these funds to the Seller.
Upon payment of these funds, the Escrow Agent shall also deliver the Assignment
of Registration Of Trademark, fully executed by the Seller, to the Buyer.
(iii) Buyer shall deliver a promissory note
("Note") in the amount of Two Hundred and Ten Thousand Dollars ($210,000.00),
secured by a Security Agreement for the Transferred Assets that are being sold
to the Buyer. The Note shall be identical to the terms and conditions of the
promissory note set forth in Exhibit "A", attached hereto.
(iv) The payments pursuant to the Note
shall be paid into a collection account at Arizona Escrows or such other
collection agent as Seller may dictate. Collection fees of the collection agent
shall be split between the Seller and Buyer on a 50/50 basis.
(v) Buyer acknowledges that pursuant to a
prior agreement between the Seller and LANCE DREHER, it will pay LANCE DREHER
("Dreher") a fee or royalty computed at the rate of three percent(3%) of the
gross selling price, for each unit of PRO-LINE products sold, or shipped to fill
orders by Buyer or any entity in which Buyer or any of the partners of Buyer has
any directing or controlling interest or position, including but not limited to
the sales by the Employees as defined in Section 5 (a). This monthly royalty
shall be paid to Dreher for 24 consecutive months commencing with the first
payment on February 1, 1996. The
-2-
<PAGE>
computation of royalty shall be based on the total dollar sales. PRO-LINE
products distributed directly or through sales personnel free of charge to
retail stores for clinical trial to promote the sale of PRO-LINE products shall
be royalty free.
(vi) Buyer agrees to keep complete and
accurate accounts of all data required for the computation of the license fee or
royalty referred to herein, and on or before the last day of each year transmit
to Dreher a statement in writing showing in reasonable detail the amount of the
license fee or royalty accruing during the preceding quarter, together with a
remittance of the amount accruing for such period.
(vii) Buyer agrees that Dreher, or Dreher's
authorized agent, shall have the right to examine Buyer's books and records
during regular business hours to such extent as may be necessary to determine
the accuracy or inaccuracy of any royalty statements submitted by Buyer to
Dreher, provided that Dreher shall pay the expense thereof and shall not request
more than one audit in any one calendar year.
3. Liability of Seller Not Assumed by Buyer. Buyer shall not
be deemed by anything contained herein to have assumed any obligation or
liability of Seller, except those obligations associated with the Transferred
Assets.
4. Seller's Representations and Warranties. To induce Buyer to
enter into this Agreement, and for the benefit of Buyer, Seller represents and
warrants as follows:
(a) Company Status and Authority. Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws Of the State of Arizona and has the full power to own, operate and
lease the assets and properties being sold hereunder and to carry on its
business as it is now being conducted. The execution and delivery of this
Agreement, the consummation of the transaction contemplated hereby and the
fulfillment of the terms hereof have been validly authorized by all necessary
action including, without limitation, members approval, and this Agreement
constitutes the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms.
(b) Financial Records. Seller agrees to provide Buyer
a copy of its most recent sales reports of PRO-LINE products, from April 1995
through September 30,1995
(c) Transfer of Trademark. The Seller shall cause the
Trademark to be assigned in the United States Patent and Trademark office.
-3-
<PAGE>
(d) Ownership of Rights. Seller represents and
warrants that it holds or will hold at the closing date all legal rights and
title to the Trademark used in or necessary to the operation of its business as
now conducted. There exists no known conflict with the trademark of others.
(e) Guarantee. Seller shall guarantee that the total
gross monthly sales of the PRO-LINE products shall average $40,000.00 per month
for six consecutive months following the close of escrow. If the total gross
sales for this six month period is less than $240,000.00, the principal balance
due under the Note shall be reduced by the same amount up to the $160,000.00
balance due under the Note. The total gross monthly sales shall include sales
from all sources, including the Employees, as defined below, and any other
persons authorized by the Buyer to sell PRO-LINE products. However, Buyer is
under no duty to market and sell these products through persons other than the
Employees. [For example, if the Employees generate $200,000 for the six month
guarantee period and the Buyer's other sales personnel generate $100,000 for the
same period, the total gross sales shall be $300,000. Seller would not be
responsible for any deficiency under this guarantee. However, if the Employees
generate $200,000 for the six month guarantee period and the Buyer's other sales
personnel generate $10,000 for the same period, the total gross sales shall be
$210,000; and Seller shall be responsible for a deficiency of $30,000. This
deficiency in total gross sales would cause the debt due under the Note to be
reduced by $30,000 so that the principal due under the Note would be $130,000.]
(f) Consulting. Seller agrees to provide to Buyer at
least 25 hours of consulting services subsequent to the close of escrow. Seller
will usually provide these consulting services from 1:00 pm to 5:00 pm on
Fridays.
5. Buyer's Representations and Warranties.
(a) Company Status and Authority. Buyer is a limited
liability company duly authorized, validly existing and in good standing under
the laws of the state of Arizona, and has the full power to own, operate and
lease the assets and properties being sold hereunder to carry on its business as
it is now being conducted. The execution and delivery of this Agreement, the
consummation of the transaction contemplated hereby and the fulfillment of the
terms hereof have been validly authorized by all necessary actions including,
without limitation, members approval and this Agreement constitutes the legal,
valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms.
(b) Telemarketing Employees. At the date of this
Agreement, Seller has two telemarketing employees, Kyle Deibler and Richard
Cisneros (the "Employees"), for marketing the PRO-LINE
-4-
<PAGE>
products and other products sold by Seller. Buyer agrees to retain these two
telemarketers at a commission of 15% of gross sales until the Note is paid in
full. Further, Buyer agrees that it will not employ ox interfere with Seller's
employment of the Employees for 24 months from the close of escrow. Buyer
acknowledges that the Employees may continue to market PRO-LINE products, but
Buyer will not request, require or solicit the Employees to market any products,
other than PRO-LINE.
(c) Non-competition. For a period of 36 months from
the close of escrow, Buyer will not market any new products under the PRO-LINE
Trademark that would compete with products sold under the "Olympian Labs"
tradename. This non-competition provision does not apply to products currently
sold under the PRO- LINE Trademark.
(d) Books and Records. Buyer agrees that Seller shall
have the right to inspect and audit the books and records of Buyer relating to
the sale of PRO-LINE products during the time that Seller guarantees monthly
gross sales as set forth in section 4 (e) above. Seller Is rights shall include
the audit and inspection of distributors and raw material suppliers.
(e) Advertising. Buyer agrees to allocate a minimum
of 5,000 per month for advertising products sold under the PRO-LINE trademark
beginning April 1, 1996 and continuing for three months. Thereafter, and
continuing until the Note is paid in full, Buyer shall allocate 10% of the prior
months total gross sales to advertising.
(f) Operation. Buyer shall maintain its present
existence and shall maintain executive personnel and management at a level of
experience and ability equivalent to its present personnel and management. In
addition, Buyer will cause the manufacturing of products under the PRO-LINE
trademark to be done with materials from those manufacturers listed in Exhibit
"B" attached hereto. If buyer desires to purchase materials from a Manufacturer
not listed on Exhibit "B", Buyer must obtain written consent from Seller.
6. Closing. The closing under this Agreement (the "Closing")
shall take place at the offices of Arizona Escrows, Phoenix, Arizona, on or
before January 31, 1996 at 2:00 p.m., Phoenix time, or at such other date, time
and place as may be agreed upon by Seller and Buyer, which date is sometimes
herein called the "Closing Date."
7. Deliveries by Seller. At the Closing, Seller shall deliver
the fully executed Assignment of Registration of Trademark to the Escrow Agent
to be delivered to Buyer.
-5-
<PAGE>
8. Further Assurances. Seller and Buyer shall execute and
deliver all such other instruments and take all such other action as any party
may reasonably request from time to time after the Closing, in order to
effectuate the transactions provided for herein. The parties shall cooperate
with each other and with their respective counsel and accountants in connection
with any steps to be taken as a part of their respective obligations under this
Agreement.
9. General Provisions.
(a) Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received. Notices by fax
is permissible.
(b) Captions and Headings. The paragraph captions in
this Agreement are for convenience only and are not intended to limit or
interpret the provisions hereof.
(c) Time. Time is of the essence of this Agreement
and all provisions hereof.
(d) Successors. All the terms, covenants and
conditions hereof will be binding on and inure to the benefit of the heirs,
executors, administrators, successors and permitted assigns of the parties.
(e) Entire Agreement. This Agreement is the entire
agreement between the parties. It is specifically understood that this Agreement
may be altered, amended or modified only by a writing signed by both the Buyer
and Seller.
(f) Assignment. The interest of the Buyer under this
Agreement may not be assigned in whole or in part by the Buyer without the prior
written consent of the Seller, which consent may be withheld in the absolute
discretion of the Seller.
(g) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Arizona.
(h) Counterparts. This Agreement may be executed in
counterparts each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute one and the same instrument. It
shall not be necessary to the effectiveness of this Agreement that all parties
sign each counterpart, so long as each party signs at least one counterpart.
(i) Attorney's Fees. In any action brought by either
party to enforce the obligations of the other party under this Agreement, the
prevailing party will be entitled to collect
-6-
<PAGE>
such party's reasonable attorney's fees, court costs and expenses in such
action.
(j) Arbitration. In the event any dispute or
controversy arising out of this Agreement cannot be settled by the parties, such
controversy or dispute shall be submitted to arbitration in Phoenix, Arizona,
and for this purpose each party hereby expressly consents to such arbitration in
such place. In the event the parties cannot mutually agree upon an arbitrator
and procedure to settle their dispute or controversy within fifteen (15) days
after written demand by one of the Parties for arbitration, then the dispute or
controversy shall be arbitrated by a single arbitrator pursuant to the then
existing rules and regulations of the American Arbitration Association governing
commercial transactions. The decision of the arbitrator shall be binding upon
the parties hereto for all purposes, and judgment to enforce any such binding
decision may be entered in Superior Court, Maricopa County, Arizona (and for
this purpose each party hereby expressly and irrevocably consents to the
jurisdiction of said court) . At the request of either party, arbitration
proceedings shall be conducted in the utmost secrecy. In such case, all
documents, testimonies and records shall be received, heard and maintained by
the arbitrator in secrecy, available for inspection only by either party and by
their attorneys and experts who shall agree, in advance and in writing, to
receive all such information in secrecy. In all other respects, the arbitration
shall be conducted pursuant to the Uniform Arbitration Act as adopted in the
State of Arizona and the then existing rules and regulations of the American
Arbitration Association governing commercial transactions to the extent such
mules and regulations are not inconsistent with such Act or this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SELLER: BUYER:
OLYMPIAN GLOBAL, L.C., an HOUSTON INTERNATIONAL, L.L.C.,
Arizona limited liability an Arizona limited liability
company company
By: Signature Illegible By: Signature Illegible
----------------------- ----------------------------
Its: Its: member
--------------------- --------------------------
-7-
<PAGE>
This Note shall be governed by and construed according to the laws of
the State of Arizona.
The indebtedness evidenced by this Note is secured by a Security
Agreement of even date herewith, and reference is made to the Security Agreement
for rights as to acceleration of the indebtedness evidenced by this Note.
IN WITNESS WHEREOF, these present are executed as of the date first
written above.
MAKER:
HOUSTON INTERNATIONAL, L.L.C.,
an Arizona limited liability company
By: Signature Illegible
----------------------------------
Its:________________________________
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
---------------
$210,000.00 January 30,1996
- ----------- Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned as Makers of this Note (Makers"),
promise to pay to the order of OLYMPIAN GLOBAL, L.C., an Arizona limited
liability company ("Holders") or order, the principal sum Of Two Hundred Ten
Thousand Dollars ($210,000.00) with seven and one-half percent (7.5%) interest
per annum, such principal and interest amount to be paid in lawful money of the
United States of America as follows:
Payments under this note shall be as follows:
(A) On or before February 28, 1996, Maker shall pay a
principal reduction payment of $50,000.00.
(B) On or before February 28, 1997, Maker shall pay the
remaining unpaid principal of $160,000 and accrued interest. Notwithstanding the
above, if the Maker becomes a publicly traded company prior to the maturity date
of this Note, Maker shall pay all remaining unpaid principal and accrued
interest to Holder within 30 days after Holder's stock is offered to the public.
In addition to the payment of interest of 7.5% as set forth above, the
Makers shall pay the Holders additional interest in the amount of Forty Thousand
Dollars ($40,000) if and only if the gross annual sales of the PRO-LINE products
sold between February 1, 1996 and January 31, 1997 exceeds Six Hundred Thousand
Dollars ($600,000). If the total gross annual sales for this time period do not
exceed $600,000, no additional interest will be owed by the Makers to the
Holders of this Note. The term "Gross Sales" means all income and revenues from
the sale of products sold under the PRO-LINE trademark. Any noncash
consideration, including promissory notes or other evidences of indebtedness,
received by the makers shall be included in the Gross Sales.
There will be a ten (10) day grace period after which a late charge of
five (5%) percent of the delinquent amount will be added. If any payment becomes
sixty (60) days delinquent, the loan will be considered in default.
Maker shall have the option to prepay this Note, in full or in part, at
any time without penalty.
Maker, (i) waives demand, diligence, presentment for payment, protest
and demand, and notice of extension, dishonor protest, demand and nonpayment of
this Note; (ii) consents that the holder hereof may extend the time of payment.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of the holder hereof.
<PAGE>
This Note shall be governed by and construed according to the laws of
the State of Arizona.
The indebtedness evidenced by this Note is secured by a Security
Agreement of even date herewith, and reference is made to the Security Agreement
for rights as to acceleration of the indebtedness evidenced by this Note.
IN WITNESS WHEREOF, these present are executed as of the date first
written above.
MAKER:
HOUSTON INTERNATIONAL, L.L.C.,
an Arizona limited liability company
By: Signature Illegible
----------------------------------
Its:________________________________
<PAGE>
ADDENDUM
--------
This addendum ("Addendum") to the Asset Purchase Agreement dated
December 191, 1995 (the "Agreement") is entered this 30th day of January, 1996
between Olympian Global, L.C., an Arizona limited liability company, P.O. Box
12461, Scottsdale, Arizona 85267 ("Seller") and Houston International, L.C., an
Arizona limited liability company, having its principal office at 1719 W.
University, Suite 187, Tempe, Arizona 85281 ("Buyer").
The Seller and Buyer wish to amend and modify the terms of the
Agreement as set forth below, whereby the parties agree as follows:
1. Seller represents and warrants that the tradename "PRO- LINE" is
free and clear of all liens as of the date of this Agreement. Should any liens
be claimed by third parties to have attached to the trademark "PRO-LINE" at a
time prior to the Agreement, Seller shall cause said lien to be released at its
own cost.
2. All other terms and conditions of the Agreement and first Addendum
shall remain unchanged.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SELLER: BUYER:
OLYMPIAN GLOBAL, L.C., an HOUSTON INTERNATIONAL, L.L.C.,
Arizona limited liability an Arizona limited liability
company company
By: Signature Illegible By: Signature Illegible
--------------------------- ----------------------------
Its: Member Its:__________________________
By: Signature Illegible
----------------------------
Its:__________________________
<PAGE>
SECURITY AGREEMENT
DATED: January 30, 1996
SECURED PARTY: OLYMPIAN GLOBAL, L.C., an Arizona
limited liability company,
hereinafter referred to as "Secured Party"
DEBTOR: HOUSTON INTERNATIONAL, L.L.C., an
Arizona limited liability company,
hereinafter referred to as "Debtor"
EXHIBIT A: Description of Collateral
RECITALS:
Debtor has executed a promissory note of even date herewith, payable to
Secured Party, the terms and provisions of which are incorporated herein by
reference (hereinafter the "Note"), pursuant to which Debtor has borrowed the
principal sum of TWO HUNDRED TEN THOUSAND DOLLARS ($210,000.00); and
The parties have Agreed that the Secured Party should have a security
interest in certain personal property of the Debtor, as security for this
payment of the Note. Therefore, the parties hereby agree as follows:
SECTION 1. COLLATERAL.
1.01 Property Comprising the Collateral. For valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, for
the purpose of securing performance of all of Debtor's obligations to the
Secured Party under the Note and under such other documents and instruments
executed or to be executed by the Debtor in relation to the Note, including, but
not limited to, this security Agreement, all costs of collection, legal expenses
and attorneys, fees incurred by the Secured Party upon the occurrence of any
default under any of the foregoing, in collecting or enforcing payment of said
indebtedness or in preserving, protecting, or realizing on the collateral
herein, and any obligations of Debtor to Secured Party, which may hereafter in
any matter arise, Debtor hereby grants to Secured Party a security interest in,
personal property of the Debtor, described on Exhibit "A" (the "Collateral").
This security interest shall secure Debtor's obligation to pay
all amounts due and owing under the Note,
<PAGE>
including principal and interest, together with all costs and expenses incurred
by Secured Party in the collection and enforcement of the same.
1.02 Debtor's Representation and Warranties as to Collateral.
Debtor hereby represents, warrants and covenants that:
(a) Debtor will immediately notify the Secured Party
in writing of any change in the location of the Collateral from that
shown in this Security Agreement, and shall also on demand furnish
Secured Party such further information, and will execute and deliver to
Secured Party such financing statements and other documents in form
satisfactory to Secured Party, and will do all such acts and things
that Secured Party at any time or from time to time may reasonably
request or as may be necessary or appropriate to establish and maintain
a protective security interest in the Collateral as security for the
obligations of Debtor, subject to no adverse liens or encumbrances,
except as otherwise expressly permitted hereby;
(b) Debtor will not sell or offer to sell, assign,
pledge, lease or otherwise transfer or encumber the collateral or any
interest therein, without the prior written consent of Secured Party,
except as otherwise provided herein; and,
(c) Debtor will not cancel, terminate or destroy the
Collateral or its interest in the Collateral, nor use the Collateral in
violation of any statute, ordinance or policy of insurance thereon.
(d) Debtor acknowledges that the Collateral consists
of high-quality nutritional supplements. Therefore, Debtor shall not
take any action that will diminish the value of the Collateral in the
marketplace; including, but not limited to, the use of inferior
materials in the production of nutritional supplements sold under the
PRO-LINE trademark.
(e) Debtor shall keep the Collateral free from any
adverse lien, claim, security interest, except when consented to by the
Secured Party, or encumbrance whether voluntarily ox involuntarily
created and in good order and repair and shall not waste or destroy the
Collateral or any part thereof. Debtor shall not use the Collateral in
violation of any statute or ordinance. Debtor will promptly notify
Secured Party of any levy, restraint or any other seizure by legal
process or otherwise of any part of the Collateral, and of any
threatened or filed
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<PAGE>
claims or proceedings that might in any way affect or impair any of the
terms hereof;
(f) Debtor shall from time to time do all acts and
things and will execute and file all instruments in a timely and proper
manner as required by Secured Party to establish, maintain, continue,
guarantee and protect the security interests and assignments contained
herein.
1.03 Lien Against Collateral. At its option, Secured Party may
discharge liens or security interests or other encumbrances at any time levied
or placed on the Collateral. To the extent permitted by the uniform Commercial
Code or similar statutes for the state where the collateral is located (the
"Applicable Law"), Debtor agrees to reimburse Secured Party on demand for any
payment made or any expense incurred by Secured Party pursuant to the foregoing
authorization. Until default, Debtor may have possession of the Collateral and
use it in any lawful manner not inconsistent with this Security Agreement and
not inconsistent with any policy of insurance thereon.
SECTION 2. DEFAULT.
2.01 Events of Default. The occurrence of any of the following
events shall be deemed an event of default hereunder:
(a) If the Collateral is sold or disposed of;
(b) If Debtor defaults in performing any of its obligations,
promises, covenants or agreements contained herein or in the Note,
given by Debtor to Secured Party;
(c) If Debtor uses the Collateral in violation of any law or
governmental regulation;
(d) If Debtor fails to pay promptly when due all liens, fees,
charges and assessments upon the Collateral.
2.02 Occurrence of Default. On the occurrence of any event of
default, and at any time thereafter, Secured Party, at its option may declare
all obligations secured hereby immediately due and payable and take immediate
and exclusive possession of the collateral Secured Party shall have remedies
under the Uniform Commercial Code, as adopted in the state where the Collateral
is located, including, without limitation, the right to take immediate and
exclusive possession of the Collateral.
2.03 Remedies Cumulative. The remedies of secured Party
hereunder are cumulative, and the exercise of any one or more of the remedies
provided for herein or under the Uniform Commercial Code, as adopted in the
state where the Collateral is located, shall not be construed as a waiver of any
of the other remedies of
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<PAGE>
Secured Party so long as any part of Debtor's obligations remain unsatisfied.
SECTION 3. GENERAL PROVISIONS.
3.01 Binding Effect. No waiver by secured party of any default
shall operate as a waiver of any other default or of the same default on a
future occasion. All rights of Secured Party hereunder shall inure to the
benefit of its successors and assigns; and all obligations of Debtor shall bind
his heirs, executors, or administrators or his or its successors or assigns. If
there be more than one Debtor, the obligations shall be joint and several. This
Security Agreement shall become effective when signed by Debtor.
3.02 Governing Law. The terms and provisions contained herein
shall, unless the context otherwise requires, have the meaning and be construed
under the laws of the State of Arizona.
3.03 Attorneys' Fees and Costs. Debtor agrees to pay
reasonable attorneys, fees and all other costs and expenses which may be
incurred by Secured Party in the enforcement of this Security Agreement.
3.04 Severability. Any provision hereof which may be deemed
invalid or unenforceable under any applicable laws or a governmental regulation
shall be deemed omitted therefrom or deemed modified, as appropriate. Such
omissions shall not invalidate the remaining provisions of this Security
Agreement.
3.05 Modifications. No modification of this Security Agreement
or waiver off any provision hereof shall be deemed effective unless in writing
and signed by all parties hereto, and any waiver granted shall not be deemed
effective except for the instance and in the circumstances particularly
specified thereon. Time is of the essence for each term and condition herein.
3.06 Waiver of Exemptions. Debtor hereby acknowledges express
intent to hereby waive and abandon all personal property exemptions granted by
law upon the goods which are the subject of this Security Agreement.
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<PAGE>
NOTICE: By signing this Security Agreement, Debtor waives all rights provided by
law to claim such goods exempt from the process.
SECURED PARTY: DEBTOR:
OLYMPIAN GLOBAL, L.C., an HOUSTON INTERNATIONAL, L.L.C.,
Arizona limited liability an Arizona limited liability
company company
By: Signature Illegible By: Signature Illegible
------------------------ ---------------------------
Its: Member Its: Manager
---------------------- -------------------------
By: Signature Illegible
---------------------------
Its: Manager
-------------------------
-5-
<PAGE>
EXHIBIT A
---------
COLLATERAL
1. All rights, title and interest to the trademark and tradename of
"PRO-LINE".
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FACILITIES AND MANAGEMENT AGREEMENT
This Management Agreement is entered into as of this 2nd day of
January, 1995 by and between Belnik Investment Group, Inc., an Arizona
corporation doing business as Freedom Wholesalers and African-American Trading
Co., Inc. ("Freedom") and Houston Enterprises, L.L.C., an Arizona limited
liability company doing business as Houston International, L.L.C. ("Houston");
RECITALS:
WHEREAS, Freedom is in the business of packaging, marketing and
distributing natural dietary supplements consisting of Naturally High TM, the
Stuff TM and Naturally Klean R Herbal Tea and requires management assistance in
overseeing its operations and plant, equipment and staff to conduct its
business;
WHEREAS, Houston manages its own business of packaging, marketing and
distributing its own dietary supplements including, but not limited to,
Naturally Klean R Herbal Tea, has its own plant, equipment and staff, and is
willing to make such plant, equipment and staff available to Freedom for its use
and to provide the management assistance needed by Freedom for the compensation
and on the other terms herein stated;
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
parties' mutual covenants contained herein, the parties agree as follows:
1. Plant, Equipment and Staff. Houston shall permit Freedom to use such
of its plant, equipment and staff as Freedom shall reasonably require from time
to time.
2. Management. Houston shall provide such management of Freedom as the
officers of Freedom shall, from time to time, reasonably require of Houston.
3. Compensation. Freedom shall reimburse Houston for the prorata cost
of Houston's plant, equipment and staff which Freedom may use and for any and
all expenses it may incur in providing the management of Freedom which the
officers of Freedom may request. In addition, Freedom shall compensate Houston
for the management services it provides Freedom at the rate the parties
establish either prior to Houston providing the desired management services,
during the providing of such services, at the conclusion of the providing of
such services, monthly, quarterly, or otherwise. Freedom's transfer of funds to
Houston and Houston's acceptance of such funds shall constitute agreement
between such parties that the funds so transferred constitute acceptable
compensation to Houston for the services provided by it to Freedom for the
period prior to the transfer, unless otherwise stated.
4. Term. This Agreement shall continue in effect for a term of three
(3) years
<PAGE>
commencing on the date hereof and shall automatically extend for additional one
(1) year periods unless either party shall give the other party ninety (90) days
written notice of its desire to terminate this Agreement.
5. Notice. Any notice or other communication required or permitted to
be given to the parties hereto shall be deemed to have been given if delivered
by hand or forty-eight (48) hours after being mailed by certified or registered
United States mail, return receipt requested, first-class postage pre-paid or
twelve (12) hours after the time dispatched by telegram or by facsimile
transmission, in each case, addressed as follows: if to Freedom, Freedom
Wholesalers, 1719 W. University, Suite 187, Tempe, Arizona 85281, Attention:
Todd P. Belfer, President; if to Houston, Hooman Nikzad. Managing Member, 1719
W. University, Suite 187, Tempe, Arizona 85281, with a copy to Robert K. Rogers,
Robert K. Rogers & Associates, 5725 N. Scottsdale Road, Suite 190, Scottsdale.
Arizona 85250, or such other addresses as the parties hereto may from time to
time designate in writing.
6. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and upon their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be duly executed as of the day and year first above written.
Freedom:
Belnik Investment Group, Inc.
/s/ Todd P. Belfer
------------------------------
Todd P. Belfer, President
Houston:
Houston Enterprises, L.L.C.
/s/ Hooman Nikzad
------------------------------
Hooman Nikzad, Managing Member
/s/ Todd P. Belfer
------------------------------
Todd P. Belfer, Manageing Member
2
EXHIBIT 10.24
STANDARD LEASE
Lease Preparation Date: April 25, 1995
Lessor: PS PARTNERS VI, LTD., A CALIFORNIA LIMITED PARTNERSHIP
Lessee: HOUSTON INTERNATIONAL, LLC AN ARIZONA COMPANY
Trade Name:
1. Lease Terms
1.01 Premises: The Premises referred to in this Lease contain
approximately 14,064 rentable square feet and are located on Exhibit "A" as
described in Exhibit "A1" attached. The address of the leased Premises is 1719
W. University #187, Tempe, AZ 85281.
1.02 Project: The Project consists of approximately 197,716 rentable
square feet.
1.03 Lessee's Notice Address: Lessee's Notice Address is the address of
the leased Premises as defined in paragraph 1.01 unless otherwise specified
here: .
1.04 Lessor's Notice Address: Lessor's Notice Address is PS BUSINESS
PARKS, 1755 W. University #121, Tempe, AZ 85281. Mail rent payments to: PS
Partners VI, Ltd., c/o Katie Yost, 3116 E. Shea Blvd #125, Phoenix, AZ 85028.
1.05 Lessee's Permitted Use: sales and packaging of herbal products.
1.06 Lease Term: The Lease Term commences on August 1, 1995 and ends on
July 31, 2000 (60 months, and -0- days).
1.07 Base Monthly Rent: $6937.28 in lawful money of the United States
of America. Base rent $6610.08 + tax 327.99.
1.08 Base Monthly Rent Increases - in the event that Lessee's Lease
Term is greater than twelve (12) months, Lessee's Base Rent will increase to the
amounts at the time noted below:
Effective Date of Increase New Base Monthly Rent
August 1, 1996 $6940.58*
August 1, 1997 $7287.61*
August 1, 1998 $7651.99*
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<PAGE>
August 1, 1999 $8034.59* plus applicable tax
1.09 Security Deposit: $6937.28 in lawful money of the United States of
America.
1.10 Lease Documentation Fee: $ n/a in lawful money of the United
States of America.
1.11 Proportionate Share: Lessee's Proportionate Share is 071.
2. Demise and Possession
2.01 Lessor leases to Lessee and Lessee leases from Lessor the Premises
described in 1.01. By entering the Premises, Lessee acknowledges that is has
examined the Premises and accepts the Premises in their present condition
subject to any additional work Lessor has agreed to do as stated on Exhibit B.
2.02 If for any reason Lessor cannot deliver possession of the Premises
on the date the Lease commences, Lessor shall not be subject to any liability
nor shall the validity of this Lease be affected. If Lessee has not caused such
delay there shall be a proportionate reduction of the Base Monthly Rent covering
the period between the commencement of the Lease Term and the date when Lessor
can deliver possession. However, either Lessor or Lessee, unless it is the cause
of the delay, has the right to cancel this Lease by written notification if
possession of the Premises is not delivered within ninety (90) days of the date
the Lease Term commences.
3. Base Monthly Rent
3.01 Base Monthly Rent: On the first day of each calendar month of the
Lease Term, Lessee will pay, without deduction or offset, prior notice or
demand, Base Monthly Rent at the place designated by Lessor. However, the first
month's rent is due and payable upon execution of this Lease. In the event that
the Term of this Lease commences or ends on a day other than the first day of a
calendar month, a prorated amount of Base Monthly Rent shall be due upon
execution and it will be calculated using a thirty (30) day month.
3.02 Any installment of rent or any other charge payable which is not
paid within five (5) days after it becomes due will be considered past due and
lessee will pay to Lessor as Additional Rent a late charge equal to ten percent
(10%) of such installment or the sum of twenty-five dollars ($25.00), whichever
is greater, for each month or fractional month transpiring from the date due
until paid. A twenty-five dollar ($25.00) handling charge will be paid by Lessee
to Lessor for each returned check and, thereafter, Lessee will pay all future
payments of rent or
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<PAGE>
other charges due by money order or cashier's check.
3.03 The amount of the Base Monthly Rent includes projected
construction of Lessee's improvements as indicated on Exhibit "B" attached. In
the event that Lessee requests Lessor to construct additional improvements
and/or final construction costs exceed original estimates, Lessor may increase
the Base Monthly Rent according to the terms and conditions outlined on Exhibit
"B", or elsewhere in this Lease.
4. Additional Rent
4.01 All charges payable by Lessee other than Base Monthly Rent are
called "Additional Rent". Unless this Lease provides otherwise, Additional Rent
is to be paid with the next monthly installment of Base Monthly Rent and is
subject to the provisions of 3.02. The term "rent" whenever used in this Lease
means Base Monthly Rent and Additional Rent.
4.02 Based on Lessee's Proportionate Share defined in 1.11, Lessee
agrees to pay as Additional Rent to Lessor its pro rata share of any parking
charges, utility surcharges, occupancy taxes, or any other costs resulting from
the statutes or regulations, or interpretations thereof, enacted by any
governmental authority in connection with the use or occupancy of the Project or
the parking facilities serving the Project, or any part thereof.
5. Security Deposit
5.01 If Lessee defaults with respect to any provision of this Lease,
Lessor may retain, use or apply all or any part of the Security Deposit to
compensate Lessor for any loss or damage suffered by Lessee's default including
but not limited, the payment of Base Monthly Rent, Additional Rent or other
rental sums due, and for payment of amounts Lessor is obligated to spend by
reason of Lessee's default. If any portion is so retained, used or applied,
Lessee, upon demand, will deposit with Lessor an amount sufficient to restore
the deposit to its original amount, as adjusted per 1.08. Lessor will not be
required to keep the Security Deposit separate from its general funds, and
Lessee will not be entitled to interest on it. If Lessee fully and faithfully
performs every provision of this Lease, the Security Deposit or a balance
thereof will be returned to Lessee within the time frame permitted by law. In no
event will Lessee have the right to apply any part of the Security Deposit to
any rents payable under this Lease. At the same time the Base Monthly Rent is
adjusted, the Security Deposit will also be adjusted to equal the new Base
Monthly Rent amount and the deficiency is due concurrently with the next payment
of Base Monthly Rent.
6. Lease Documentation Fee
3
<PAGE>
6.01 For expenses incurred related to the execution of this Lease
including, but not limited to, legal costs, administration and credit
verification, Lessee will pay Lessor upon execution of this Lease, the Lease
Documentation Fee. Lessee acknowledges and agrees that this fee is nonrefundable
and will not be credited to any sums which may become due during the Lease Term.
7. Use of Premises; Quiet Conduct
7.01 The Premises may be used and occupied only for Lessee's Permitted
Use as shown in 1.05 and for no other purpose, without obtaining Lessor's prior
written consent. Lessee will comply with all covenants, conditions and
restrictions affecting the Premises. Lessee will promptly comply with all laws,
ordinances, orders and regulations affecting the Premises. Lessee will not
perform any act or carry on any practices that may injure the project or the
Premises or be a nuisance or menace, or disturb the quiet enjoyment of other
lessees in the Project including but not limited to equipment which causes
vibration, use or storage of chemical, or heat or noise which is not properly
insulated. Lessee will not cause, maintain or permit any outside storage on or
about the Premises. In addition, Lessee will not allow any condition or thing to
remain on or about the Premises which diminishes the appearance or aesthetic
qualities of the Premises and/or the Project or the surrounding property. The
keeping of a dog or other animal on or about the Premises is expressly
prohibited.
8. Tenant Improvements
8.01 Tenant Improvements to be performed in the Premises, if any, will
be performed in accordance with the terms and provisions entitled "Lessor's
Work" contained in "Exhibit B" attached. Thereafter during the Lease Term,
Lessor will be under no obligation to alter, change, decorate or improve the
Premises.
9. Parking
9.01 Lessee and Lessee's customers, suppliers, employees, and invitees
have the non-exclusive right to park in common with other Lessees in the parking
facilities as designated by Lessor. Lessee agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other Lessees in the use of
the parking facilities. Lessor reserves the right to, on an equitable basis,
assign specific spaces with or without charge to Lessee as Additional Rent, make
changes in the parking layout from time to time, and to establish reasonable
time limits on parking.
10. Utilities (delete 10.01 or 10.02)
10.01 Serviced Space: Lessor will provide to the Premises between the
hours of 8 a.m. and 6 p.m., Monday through Friday or
4
<PAGE>
any other time periods established by Lessor:
A. All utilities, including heat, electricity, gas, power and
air-conditioning, if any, as are commercially reasonable for normal office use.
If Lessee uses heat, water, electricity, gas power or air-conditioning in excess
of normal office use, Lessor may separately meter such services at Lessee's
expense where applicable, or Lessor, may at its sole discretion, measure or
estimate the increased use and Lessee will pay Lessor, on demand, the amount of
the measured or estimated increase. Lessor will also provide water for restroom
facilities (if any). However, Lessee will pay all services directly contracted
for by Lessee.
B. Such janitorial service as is commercially reasonable.
10.02 Unserviced Space: Lessee will pay for all water, gas, heat,
light, power, sewer, electricity, or other services metered, chargeable to or
provided to the Premises. Lessor reserves the right to install separate meters
for any such utility.
10.03 Lessor will not be liable or deemed in default to Lessee nor will
there be any abatement of rent for any interruption or reduction of utilities or
services not caused by any act of Lessor or any act reasonably beyond Lessor's
control. Lessee agrees to comply with energy conservation programs implemented
by Lessor by reason of enacted laws or ordinances.
10.04 Lessee will contract and pay for all telephone and such other
services for the Premises subject to the provisions of 11.03.
11. Alterations, Mechanic's Liens
11.01 Lessee will not make any alterations to the interior of the
Premises, without Lessor's prior written consent which will not be unreasonably
withheld. If Lessor gives its consent, no such alterations will proceed without
Lessor's prior written approval of (i) Lessee's contractor (ii) certificates of
insurance by Lessee's contractor for public liability and automobile liability
and property damage insurance with limits not less than
$1,000,000/$250,000/$500,000 respectively endorsed to show Lessor as an
additional insured and for worker's compensation as required and (iii) detailed
plans and specification for such work. In addition, before alterations may
begin, valid building permits or other permits or licenses required must be
furnished to Lessor, and, once the alterations begin, Lessee will diligently and
continuously pursue their completion. At Lessor's option, any alterations may
become part of the realty and belong to Lessor. If requested by Lessor, Lessee
will pay, prior to the commencement of construction an amount determined by
Lessor necessary to cover the costs of
5
<PAGE>
demolishing such alterations and/or the cost of returning the Premises to their
condition before such alteration. Lessor may also require Lessee to provide
Lessor, at Lessee's sole expense, a payment and performance bond in form
acceptable to Lessor, in a principal amount not less than one and one-half times
the estimated cost of such alterations, to insure Lessor against any liability
for mechanic's and materialmen's liens and to insure completion of the work and
such bond will continue in force for a period no less than 131 days after the
completion of such work.
11.02 Notwithstanding anything in 11.01, Lessee may, with written
consent of Lessor, install (trade fixtures, equipment, and machinery in
conformance with the ordinances of the applicable city and county, and they may
be removed upon termination of this Lease provided the Premises are not damaged
by their removal.
11.03 All private telephone systems and/or other related
telecommunications equipment and lines may not be installed without Lessor's
prior written consent. In addition, if Lessor gives consent all equipment must
be installed within Lessee's Premises and, upon termination of this Lease
removed and the Premises restored to the same condition as before such
installation.
11.04 Lessee will pay all costs for alterations and will keep the
Premises, the Project and the underlying property free from any liens arising
out of work performed for, materials furnished to, or obligation incurred by
Lessee.
11.05 Lessor will have the right to construct or permit construction of
tenant improvements in or about the Project for existing and new lessees and to
alter any public areas in and around the Project. Notwithstanding anything which
may be contained in this Lease, Lessee understands this right of Lessor and
agrees that such construction will not be deemed to constitute a breach of this
Lease by Lessor and Lessee waives any such claim which it might have arising
from such construction.
12. Fire Insurance; Hazards and Liability Insurance
12.01 Except as expressly provided as Lessee's Permitted Use, or as
otherwise consented to by Lessor in writing, Lessee shall not do or permit
anything to be done within or about the Premises which will increase the
existing rate of insurance on the Project or cause the cancellation of any
insurance policy covering the Project. Nor shall Lessee keep, use or sell, or
permit anyone to keep, use or sell, any article in or about the Premises, which
may be prohibited by the standard form of fire and other insurance policies.
Lessee shall, at its sole cost and expense, comply with any requirements
pertaining to the Premises
6
<PAGE>
or any insurance organization insuring the Project and Project- related
apparatus. Lessee agrees to pay to Lessor, as Additional Rent, any increases in
premiums on policies resulting from Lessee's Permitted Use or other use
consented to by Lessor which increases Lessor's premiums or requires extended
coverage by Lessor to insure the Premises.
12.02 Lessee, at all times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of standard fire and extended
coverage insurance with "all risk" coverage on all Lessee's improvements and
alterations in or about the Premises and on all personal property and equipment
to the extent of at least ninety percent (90%) of their full replacement value.
The proceeds from this policy will be used by Lessee for the replacement of
personal property and equipment and the restoration of Lessee's improvements
and/or alterations. This policy will contain any express waiver, in favor of
Lessor, of any right of subrogation by the insurer.
12.03 Lessee, at all times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of comprehensive general liability
coverage with limits of not less than $1,000,000 combined single limit for
bodily injury and property damage insuring against all liability of Lessee and
its authorized representatives arising out of or in connection with Lessee's use
or occupancy of the Premises. This policy of insurance will name Lessor as an
additional insured and will include an express waiver of subrogation by the
insured in favor of Lessor and will release Lessor from any claims for damage to
any person, to the Premises, and to the Project, caused by or resulting from
risks which are to be insured against by Lessee under this Lease.
12.04 All insurance required to be provided by Lessee under this Lease
will (a) be issued by an insurance company authorized to do business in the
state in which the Premises are located and which is satisfactory to Lessor, (b)
be primary and noncontributing with any insurance carried by Lessor, and (c)
contain an endorsement requiring at least thirty (30) days prior written notice
of cancellation to Lessor before cancellation or change in coverage, scope or
limit of any policy. Lessee will deliver a certificate of insurance or a copy of
the policy to Lessor within thirty (30) days of execution of the Lease and will
provide evidence of renewed insurance coverage at each anniversary, prior to the
expiration of any current policies. Lessee's failure to provide evidence of this
coverage to Lessor may, in Lessor's sole discretion, constitute a default under
this Lease.
13. Indemnification and Waiver of Claims
13.01 Lessee waives all claims against Lessor for damage to
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<PAGE>
any property in or about the Premises and for injury to any person, including
death resulting therefrom, regardless of cause or time of occurrence. Lessee
will defend, indemnify and hold Lessor harmless from and against any and all
claims, actions, proceedings, expenses, damages and liabilities, including
attorneys' fees, arising out of, connected with, or resulting from any use of
the Premises by Lessee, its employees, agents, visitors, or licensees, except
for any damage or injury which is the direct result of intentional acts by
Lessor, its employees, agents, visitors or licensees.
14. Repairs
14.01 Lessee shall, at its sole expense, keep and maintain the Premises
and every part thereof (excepting air-conditioning, common use equipment,
exterior walls and roof, which Lessor agrees to repair unless damages are due to
the neglect or intentional acts of Lessee or its agents, employees, visitors, or
licensees), including interior windows, skylights, doors, any store fronts and
the interior of the Premises, in good and sanitary order, condition and repair.
Lessee will also, at its sole cost keep and maintain all utilities, fixtures,
plumbing and mechanical equipment used by Lessee in good order and repair and
furnish all expendables (light bulbs (unless provided by Lessor), paper goods,
soaps, etc.) used in the Premises. The standard for comparison and need of
repair will be the condition of the Premises at the time of commencement of this
Lease and all repairs will be made by a licensed and bonded contractor approved
by Lessor.
14.02 Lessee will not make repairs to the Premises at the cost of
Lessor, whether by deduction of rent or otherwise or vacate the Premises or
terminate the Lease with abatement or termination of rent because repairs are
not made. If during the Term, any alteration, addition or change to the Premises
is required by legal authorities, Lessee, at its sole expense, shall promptly
make the same. Lessor reserves the right to make any such repairs not repaired
or maintained in good condition by Lessee and Lessee shall reimburse Lessor for
all such costs upon demand. If such repairs have not been made within 30 days of
notice to repair by Lessor to Lessee, Lessor may make such repairs and such
costs of repairs shall be at Lessee's expense. Failure to pay such expenses
within 30 days of presentation shall be deemed to be a breach of this Lease.
15. Auctions, Signs, Landscaping
15.01 Lessee will not conduct or permit to be conducted any sale by
auction on the Premises. Lessor will have the right to control landscaping and
approve the placement, size, and qualify of signs. Lessee shall comply with the
terms and conditions regarding sign criteria set forth in Exhibit "C" attached.
Lessee
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will not make alterations or additions to the landscaping and will not place
signs which are visible from the outside of any buildings of the project without
prior written consent of Lessor. Lessor will have the right in its sole
discretion to withhold its consent. Any signs not in conformity with this Lease
may be removed by Lessor at Lessee's expense.
16. Entry By Lessor
16.01 Lessee will permit Lessor and Lessor's agents to enter the
Premises at all reasonable times for the purpose of inspecting the same, or for
the purpose of maintaining the Project, or for the purpose of making repairs,
alterations or additions to any portion of the Project, including the erection
and maintenance of such scaffolding, canopies, fences and props as may be
required, or for the purpose of posting notices of nonresponsibility for
alterations, additions or repairs, or for the purpose of showing the Premises to
prospective tenants during the last six months of the Lease Term, or placing
upon the Project any usual or ordinary "for sale" signs, without any rebate of
rents and without any liability to Lessee for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned. Lessee will permit Lessor at any
time within sixty (6) days prior to the expiration of this Lease, to place upon
the Premises any usual or ordinary "to let" or "to lease" signs. For each of the
above purposes, Lessor will at all times have and retain a key with which to
unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults and safes. Lessee will not alter any lock or install a new or additional
lock or any bolt on any door of the Premises without the prior written consent
of Lessor, which will not be unreasonably withheld. If Lessor gives its consent,
Lessee will furnish Lessor with a key and Lessor retains the right to charge
Lessee for restoring any altered doors to their condition prior to installation
of the new or additional locks.
17. Abandonment
17.01 Lessee will not vacate or abandon the Premises at any time during
the Lease Term or permit the Premises to remain unoccupied for a period longer
than fifteen (15) consecutive days during the Lease Term. If Lessee abandons,
vacates or surrenders the Premises, or is dispossessed by process of law, or
otherwise, any personal property belonging to Lessee left in or about the
Premises will, at the option of Lessor be deemed abandoned and may be disposed
of by Lessor in the manner provided for by the laws of the state in which the
Premises are located.
18. Destruction
18.01 Should the Premises or the building on the Premises be partially
destroyed by any cause not the fault of Lessee (or
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any person in or about the Premises with the consent, expressed or implied, of
Lessee), this Lease will continue in full force and effect and Lessor, at
Lessor's own cost and expense, will promptly commence the work of repairing and
restoring the Premises to their prior condition providing that the work can be
accomplished under all applicable government laws and regulations within sixty
(60) working days from the date of damage at a cost not exceeding twenty-five
percent (25%) of the total replacement cost of the Premises. Within thirty (30)
days of the occurrence of partial destruction, Lessor may terminate this Lease
as of the date of the occurrence if nine (9) months or less remain in the Lease
Term.
18.02 Should the Premises or the building in which the Premises are a
part be so far destroyed by any cause not the fault of Lessee (or any person in
or about the Premises with the consent, expressed or implied, of Lessee) that
they cannot be repaired or restored to their former condition within sixty (60)
days of the date of damage or at a cost exceeding twenty-five percent (25%) of
the total replacement cost of the Premises, Lessor may at Lessor's options
either:
A. Continue this Lease in full force and effect by repairing and
restoring, at Lessor's own cost and expense, the Premises to their former
condition; or
B. Terminate this Lease by giving Lessee written notice of such
termination.
18.03 Should the Premises be partially or totally destroyed by any
cause of Lessee, or any person in or about the Premises with the consent,
expressed or implied of Lessee, this Lease will remain in full force and effect
and Lessee shall immediately commence work to repair the damage and diligently
pursue its completion.
18.04 Any insurance proceeds received by Lessor because of the total or
partial destruction of the Premises or the building on the Premises will be the
sole property of Lessor, free from any claims of Lessee, and may be used by
Lessor for whatever purposes Lessor may desire.
18.05 Should Lessor elect to repair and restore the Premises to their
former condition, or should Lessor be required to restore the Premises to their
former condition, there will be a proportional abatement in the amount of rent
payable during the period of repair and restoration as long as Lessee (or any
person in or about the Premises with the consent, expressed or implied of
Lessee) is not the cause of the total or partial destruction. The rent due under
the terms of the Lease will be reduced between the date of destruction and the
date of completion of restoration and repairs based on the extent to which
destruction interferes
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with Lessee's use of the Premises.
19. Assignment, Subletting and Transfers of Ownership
19.01 Lessee will not directly or indirectly, voluntarily or by
operation of law, assign, sell, mortgage, encumber, convey, or otherwise
Transfer all or any part of Lessee's Leasehold estate, or permit the Premises to
be occupied by anyone other than Lessee and Lessee's employees or sublet the
Premises or any portion thereof (collectively called "Transfer") without
Lessor's prior written consent. If Lessee desires at any time to Transfer this
Lease, Lessee shall first give written notice to Lessor of its desire to do so,
which notice shall contain (a) the identity of the proposed Transferee, (b) the
terms and provisions of the proposed Transfer, (c) the nature of the proposed
Transferee's business to be carried on in the Premises, (d) a detailed summary
of the business background and financial condition of the proposed Transferee,
and (e) such financial information as deemed necessary by Lessor to evaluate any
proposed Transfer. All of the foregoing information shall be provided to Lessor
by Lessee at least sixty (60) days in advance of Lessee's proposed Transfer
date.
19.02 Lessor will not unreasonably withhold its consent to any proposed
Transfer except that such consent need not be granted if; (a) in the reasonable
judgment of Lessor the Transferee is of a character or is engaged in a business
which is not in keeping with the standards of the Lessor for the Project; (b) in
the reasonable judgment of Lessor any purpose for which the Transferee intends
to use the Premises is not in keeping with the standards of Lessor for the
Project; provided in no event may any purpose for which Transferee intends to
use the Premises be in violation of this Lease; (c) the portion of the Premises
subject to the Transfer is not regular in shape with appropriate means of
entering and exiting, including adherence to any local, county or other
governmental codes, or is not otherwise suitable for the normal purposes
associated with such a Transfer; (d) the proposed Transferee be at least as
financially responsible as Lessee was expected to be at the time of the
execution of this Lease or (e) Tenant is in default under this Lease.
19.03 In the event Lessor consents to a Transfer, Lessee will pay
Lessor the excess, if any, of the rent and other charges reserved in the
Transfer over the allocable portion of the rent and other charges hereunder for
that portion of the Premises subject to the Transfer. For the purpose of this
section, the rent reserved in the Transfer will be deemed to include any lump
sum payment or other consideration given to Lessee in consideration for the
Transfer. Lessee will pay or cause the Transferee to pay to Lessor this
additional rent together with the monthly installments of rent due.
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19.04 Any consent to any Transfer which may be given by Lessor, or the
acceptance of any rent, charges or other consideration by Lessor from Lessee or
any third party, will not constitute a waiver by Lessor of the provisions of
this Lease or a release of Lessee from the full performance by it or the
covenants stated herein; and any consent given by Lessor to any Transfer will
not relieve Lessee (or any transferee of Lessee) from the above requirements for
obtaining the written consent of Lessor to any subsequent Transfer.
19.05 If a default under this Lease should occur while the Premises or
any part of the Premises are assigned, sublet or otherwise transferred, Lessor,
in addition to any other remedies provided for within this Lease or by law, may
at its option collect directly from the Transferee all rent or other
consideration becoming due to Lessee under the Transfer and apply these monies
against any sums due to Lessor by Lessee; and Lessee authorizes and directs any
Transferee to make payments of rent or other consideration direct to Lessor upon
receipt of notice from Lessor. No direct collection by Lessor from any
Transferee should be construed to constitute a notation or a release of Lessee
or any guarantor of Lessee from the further performance of its obligations in
connection with this Lease.
19.06 Any Transfer without the Lessor's consent shall e void and shall,
at the option of Lessor, terminate this Lease.
19.07 If Lessee requests a consent of Lessor to any Transfer, then
Lessee shall, upon demand, pay Lessor an administrative fee of One Hundred Fifty
Dollars ($150.00) plus any attorneys' fees reasonably incurred by Lessor in
connection with such request.
20. Breach by Lessee
20.01 Lessee will be in breach of this Lease if at any time during the
term of this Lease (and regardless of the pendency of any bankruptcy,
organization, receivership, insolvency or other proceedings in law, in equity or
before any administrative tribunal which have or might have the effect of
preventing Lessee from complying with the terms of this Lease):
A. Lessee fails to make payment of any installment of Base Monthly
Rent, Additional Rent, or of any other sum herein specified to be paid by
Lessee, and such failure is not cured within three (3) days after Lessor's
written notice to Lessee of such failure of payment, which notice shall be in
lieu of and not in addition to any notice required by statute; or
B. Lessee fails to observe or perform any of its other covenants,
agreements or obligations hereunder, and such failure is not cured within ten
(10) days after Lessor's written notice
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to Lessee of such failure, which notice shall be in lieu of and not in addition
to any notice required by statute provided, however, that if the nature of
Lessee's obligation is such that more than ten (10) days are required for
performance, then Lessee will not be in breach if Lessee commences performance
within such ten (10) day period and thereafter diligently prosecutes the same to
completion; or
C. Lessee becomes insolvent, makes a transfer in fraud of its
creditors, makes a transfer for the benefit of its creditors, voluntarily files
for bankruptcy, is adjudged bankrupt or insolvent in proceedings filed against
Lessee, a receiver, trustee, or custodian is appointed for all or substantially
all of Lessee's assets, fails to pay its debts as they become due, convenes a
meeting of all or a portion of its creditors, or performs any acts of bankruptcy
or insolvency, including the selling of its assets to pay creditors; or
D. Lessee has abandoned the Premises as defined in paragraph 17 above.
21. Remedies of Lessor
21.01 Termination of Lease After Breach: If Lessee breaches this Lease
and abandons the Premises before the end of the term, or if its right to
possession is terminated by Lessor because of Lessee's breach of this Lease,
then this Lease may be terminated by Lessor at its option. On such termination
Lessor may recover from Lessee, in addition to the remedies permitted by law:
A. The worth at the time of award of the unpaid rents which had been
earned at the time of termination;
B. The worth at the time of award of the amount by which the unpaid
rents which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
C. The worth at the time of award of the amount by which the unpaid
rents for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss for such period that Lessee proves could be
reasonably avoided; and
D. Any other amount necessary to compensate Lessor for all the damage
proximately caused by Lessee's breach of its obligations under this Lease, or
which in the ordinary course of events would be likely to result therefrom. The
damage proximately caused by Lessee's breach will include, without limitation,
(i) expenses for cleaning, repairing or restoring the Premises, (ii) expenses
for altering, remodeling or otherwise improving the Premises for the purpose of
reletting, (iii) broker's fees and commissions, advertising costs and other
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expenses of reletting the Premises, (iv) costs of carrying the Premises such as
taxes, insurance premiums, utilities and security precautions, (v) expenses in
retaking possession of the Premises, (vi) attorney's fees and court costs, (vii)
any unearned brokerage commissions paid in connection with this Lease and (viii)
reimbursement of any previously waived Base Rent or Additional Rent.
21.02 Continuation of Lease After Breach: Notwithstanding the
foregoing, in the event Lessee has breached this Lease and abandoned the
Premises, this Lease, at Lessor's option, will continue in full force and effect
so long as Lessor does not terminate Lessee's right to possession of the
Premises, and in such event Lessor may enforce all of its rights and remedies
under this Lease, including the right to recover rent as it becomes due. For
purposes of this Subparagraph 21.02, the following acts by Lessor will not
constitute the termination of Lessee's right to possession of the Premises:
A. Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Lessor shall consider advisable of the
purpose of reletting the Premises or any part thereof; or
B. The appointment of a receiver upon the initiative of Lessor to
protect Lessor's interest under this Lease or in the Premises.
21.03 In the event of bankruptcy, Lessee assigns to Lessor all its
rights, title and interest in the Premises as security for its obligations and
covenants set forth in this Lease.
21.04 Definitions and Incidental Rights:
A. The "worth at the time of award" of the amounts referred to in
21.01A, and 21.01B, will be computed by allowing interest at the rate of ten
percent (10%) per annum. The "worth at the time of award" of the amount referred
to above in 21.01C will be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco in effect at the time of
award, plus one percent (1%).
B. Any efforts by Lessor to lessen the damages caused by Lessee's
breach of this Lease will not waive Lessor's right to recover the damages set
forth above.
C. Nothing herein will be construed to affect other provisions of this
Lease regarding Lessor's right to indemnification from Lessee for liability
arising prior to the termination of this Lease for personal injuries or property
damage.
D. No right or remedy conferred upon or reserved to Lessor
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in this Lease is intended to be exclusive of any other right or remedy granted
to Lessor by statute or common law, and each and every such right and remedy
will be cumulative.
22. Surrender of Lease not Merger
22.01 The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, will not work a merger and will, at the option of
Lessor, terminate all or any existing transfers, or may, at the option of
Lessor, operate as an assignment to it or any or all of such transfers.
23. Attorneys Fees/Collection Charges
23.01 In the event of any legal action or proceeding between the
parties hereto, actual attorneys' fees and expenses of the prevailing party in
any such action or proceeding will be added to the judgment therein. Should
Lessor be named as defendant in any suit brought against Lessee in connection
with or arising out of Lessee's occupancy hereunder, Lessee will pay to Lessor
its costs and expenses incurred in such suit, including actual attorneys' fees.
23.02 If Lessor utilizes the services of any attorney at law for the
purpose of collecting any rent due and unpaid by Lessee after three (3) days'
written notice for Lessee of such nonpayment of rent or in connection with any
other breach of this Lease by Lessee, Lessee agrees to pay Lessor actual
attorney's fees as determined by Lessor for such services, regardless of the
fact that no legal action may be commenced or filed by Lessor.
24. Condemnation
24.01 If twenty-five percent (25%) or more of the Premises is taken for
any public or quasi-public purpose by any lawful government power or authority,
by exercise of the right of appropriation, reverse condemnation, condemnation or
eminent domain, or sold to prevent such taking, the Lessee or the Lessor may at
its option terminate this Lease as of the effective date thereof. Lessee will
not because of such taking assert any claim against the Lessor or the taking
authority for any compensation because of such taking, and Lessor will be
entitled to receive the entire amount of any award without deduction for any
estate of interest of Lessee. If less than twenty-five percent (25%) of the
Premises is taken, Lessor at its option may terminate this Lease. If Lessor does
not so elect, Lessor will promptly proceed to restore the Premises to
substantially its same condition prior to such partial taking, allowing for any
reasonable effects of such taking, and a proportionate allowance will be made to
Lessee for the rent corresponding to the time during which, and to the part of
the Premises which, Lessee is deprived on account of such taking and
restoration.
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25. Rules and Regulations
25.01 Lessee will faithfully observe and comply with the Rules and
Regulations printed on or attached to this Lease and Lessor reserves the right
to modify and amend them as it deems necessary. Lessor will not be responsible
to Lessee for the nonperformance by any other lessee or occupant of the Project
of any of said Rules and Regulations.
25.02 Violation of any such Rules and Regulations shall be deemed a
material breach of this Lease by Lessee.
26. Estoppel Certificate
26.01 Lessee will execute and deliver to Lessor, within ten (10) days
of receiving written notice, a statement in writing certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification) and the date to which rent and other charges are paid in
advance, if any, and acknowledging that there are not, to Lessee's knowledge,
any uncured defaults on the part of Lessor hereunder or specifying such defaults
if they are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises. Lessee's failure to
deliver such statement within such time shall be conclusive upon Lessee that (1)
this Lease is in full force and effect, without modification except as may be
represented by Lessor; (2) there are no uncured defaults in Lessor's
performance; and (3) not more than one (1) month's rent has been paid in
advance.
27. Sale by Lessor
27.01 In the event of a sale or conveyance by Lessor of the Project the
same shall operate to release Lessor from any liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Lessee, and in such event Lessee agrees to look solely to the responsibility of
the successor in interest of Lessor in and to this Lease. This Lease will not be
affected by any such sale, and Lessee agrees to attorn to the purchaser or
assignee.
28. Notices
28.01 All notices, statements, demands, requests, consents, approvals,
authorizations, offers, agreements, appointments, or designations under this
Lease by either party to the other will be in writing and will be considered
sufficiently given and served upon the other party if sent by certified mail,
return receipt requested, postage prepaid, and addressed as indicated in 1.03
and 1.04.
29. Waiver
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29.01 The failure of Lessor to insist in any one or more cases upon the
strict performance of any term, covenant or condition of this Lease will not be
construed as a waiver of a subsequent breach of the same or any other covenant,
term or condition; nor shall any delay or omission by Lessor to seek a remedy
for any breach of this Lease be deemed a waiver by Lessor of its remedies or
rights with respect to such a breach.
30. Lessee's Intent, Holding Over
30.01 Lessee will give Lessor, ninety (90) days prior to the expiration
of the Lease Term, written notification of Lessee's intent to either remain in
or vacate the Premises on the Lease Expiration Date. If Lessee does not notify
Lessor by the date specified herein, Lessor deems that Lessee will vacate the
Premises by the Lease Expiration Date and Lessor will have no further
obligation.
30.02 Any holding over after the expiration or termination of the term
of this Lease, or after any notice given by Lessor to Lessee terminating this
Lease, such possession by Lessee will be deemed to be a month-to-month tenancy
terminable on thirty (30) day notice at any time by either party. All provisions
of this Lease, except those pertaining to term and rent, will apply to the
month-to-month tenancy. Lessee will pay Base Monthly Rent in an amount equal to
150% of rent for the last full calendar month during the regular term.
31. Project Plan
31.01 In the event Lessor requires the Premises for use in conjunction
with another suite or for other reasons connected with the Project planning
program, Lessor, upon notifying Lessee in writing, shall have the right to move
Lessee to space in the Project of which the Premises forms a part, at Lessor's
sole cost and expense (excluding private telephone systems which Lessee must
bear the cost of moving and installing), and the terms and conditions of the
original Lease will remain in full force and effect excepting that the Premises
will now be in a new location. However, if the new space does not meet with
Lessee's approval, Lessee will have the right to cancel this Lease upon giving
Lessor thirty (30) days' notice within ten (10) days of receipt of Lessor's
notification. Should Lessee elect to cancel the Lease as provided in this
paragraph, the effective expiration date will equal the projected move-in date
of the suite Lessor wishes Lessee to move to as indicated in Lessor's written
notification to Lessee.
32. Default of Lessor/Limitation of Liability
32.01 In the event of any default by Lessor hereunder, Lessee agrees to
give notice of such default, by registered mail,
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to Lessor at Lessor's Notice Address as stated in 1.04 and to offer Lessor a
reasonable opportunity to cure the default.
32.02 In the event of any actual or alleged failure, breach or default
hereunder by Lessor, Lessee's sole and exclusive remedy will be against Lessor's
interest in the Project, and no partner of Lessor will be sued, be subject to
service of process, or have a judgment obtained against him in connection with
any alleged breach or default, and no writ of execution will be levied against
the assets of any partner of Lessor. The covenants and agreements are
enforceable by Lessor and also by any partner of Lessor.
33. Release of Partners of Lessor
33.01 If Lessee has any claim against Lessor under or arising out of
this Lease, Lessee's recourse shall be against the assets of Lessor and Lessee
further hereby waives any and all right to assert any claim against, or obtain
any damages from the partners, employees, officers, directors or agents of
Lessor.
34. Expansion Clause
34.01 If during the Lease Term, Lessee executes a lease within the
Project for space larger than the present Premises with a lease term at least
equal to that which remains on this Lease or one (1) year, whichever is greater,
with a Base Monthly Rent amount at least equal to the present Base Monthly Rent
of this Lease, this Lease shall be terminated upon the commencement date of the
Lease for such substitute space. Notwithstanding the above-stated, Lessee shall
remain obligated to pay for any adjustments in rent pursuant to Paragraph 3 and
4 due Lessor as a result of Lessee's tenancy hereunder and this obligation shall
survive the termination of this Lease pursuant to this Paragraph 34.
35. Subordination
35.01 Without the necessity of any additional document being executed
by Lessee for the purpose of affecting a subordination, and at the election of
Lessor or any mortgagee with a lien on the Project or any ground lessor with
respect to the Project, this Lease will be subject and subordinate at all times
to (a) all ground leases or underlying leases which may now exist or hereafter
be executed affecting the Project, and (b) the lien of any mortgage or deed of
trust which may now exist or hereafter be executed in any amount for which the
Project, ground leases or underlying leases, or Lessor's interest or estate in
any of said items is specified as security. In the event that any ground lease
or underlying lease terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made for any reason,
Lessee will,
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notwithstanding any subordination, attorn to and become the Lessee of the
successor in interest to Lessor, at the option of such successor in interest.
Lessee covenants and agrees to execute and deliver, upon demand by Lessor and in
the form requested by Lessor any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground lease or underlying
leases or the lien of any such mortgage or deed of trust. Lessee hereby
irrevocably appoints Lessor as attorney-in-fact of Lessee to execute, deliver
and record any such document in the name and on behalf of Lessee.
36. Miscellaneous Provisions
36.01 Whenever the singular number is used in this Lease and when
required by the context, the same will include the plural, and the masculine
gender will include the feminine and neuter genders, and the word "person" will
include corporation, firm, partnership, or association. If there be more than
one Lessee, the obligations imposed upon Lessee under this Lease will be joint
and several.
36.02 The headings or titles to paragraphs of this Lease are not a part
of this Lease and will have no effect upon the construction or interpretation of
any part of this Lease.
36.03 This instrument contains all of the agreements and conditions
made between the parties to this Lease and may not be modified orally or in any
other manner than by an agreement in writing signed by all parties to this
Lease. Lessee acknowledges that neither Lessor nor Lessor's agents have made any
representation or warranty as to the suitability of the Premises to the conduct
of Lessee's business. Any agreements, warranties or representations not
expressly contained herein will in no way bind either Lessor or Lessee, and
Lessor and Lessee expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease.
36.04 Time is of the essence of each term and provision of this Lease.
36.05 Except as otherwise expressly stated, each payment required to be
made by Lessee is in addition to and not in substitution for other payments to
be made by Lessee.
36.06 Subject to Paragraph 19, the terms and provisions of this Lease
are binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of Lessor and Lessee.
36.07 All covenants and agreements to be performed by Lessee under any
of the terms of this Lease will be performed by
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Lessee at Lessee's sole cost and expense and without any abatement of rent.
36.08 Any provision of this Lease, except for the payment of rents,
determined to be invalid by a court of competent jurisdiction will in no way
affect any other provision hereof.
36.09 In consideration of Lessor's covenants and agreements hereunder,
Lessee hereby covenants and agrees not to disclose any terms, covenants or
conditions of this Lease to any other party without the prior written consent of
Lessor.
37. Deposit Agreement
37.01 Lessor and Lessee hereby agree that Lessor will be entitled to
immediately endorse and cash Lessee's good faith rent and the Security Deposit
check(s) accompanying this Lease. It is further agreed and understood that such
action will not guarantee acceptance of this Lease by Lessor, but, in the event
Lessor does not accept this Lease, such deposits will be refunded in full to
Lessee. This Lease will be effective only after Lessee has received a copy fully
executed by Lessor.
38. Governing Law
38.01 This Lease is governed by and construed in accordance with the
laws of the state in which the Premises are located, and venue of any suit will
be in the county where the Premises are located.
39. Severability
39.01 If any provision of this Lease is found to be unenforceable, all
other provisions shall remain in full force and effect.
40. Landlord's Lien
40.01 LESSOR HEREUNDER WILL HAVE THE BENEFIT OF, AND THE RIGHT TO, ANY
AND ALL LANDLORD'S LIENS PROVIDED UNDER THE LAW BY WHICH THIS LEASE IS GOVERNED.
41. Special Provisions
41.01 Special provisions of this Lease number 42 through 44 are
attached hereto and made a part hereof. If none, so state in the following
space:
-------------------------------------------------------------------------
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year indicated by Lessor's execution date as written below.
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Individuals signing on behalf of Lessee warrant that they have the
authority to bind their principals. In the event that Lessee is a corporation,
Lessee shall deliver to Lessor, concurrently with the execution and delivery of
this Lease, a certified copy of corporate resolutions adopted by Lessee
authorizing said corporation to enter into and perform the Lease and authorizing
the execution and delivery of the Lease on behalf of the corporation by the
parties executing and delivering this Lease. THIS LEASE, WHETHER OR NOT EXECUTED
BY LESSEE, IS SUBJECT TO ACCEPTANCE BY LESSOR, ACTING ITSELF OR BY ITS AGENT
ACTING THROUGH ITS PRESIDENT AND VICE PRESIDENT AT ITS HOME OFFICE.
LESSOR
PS PARTNERS VI, LTD. A CALIFORNIA LIMITED PARTNERSHIP
- -----------------------------------------------------
By: PS Commercial Properties Group, Inc. Agent for Owner
By Lee Rippel
-----------------
Authorized Signature
Lee Rippel
-----------------
Vice President Title
Date 5/9/95
-----------------
Execution Date
LESSEE
HOUSTON INTERNATIONAL, LLC., AN ARIZONA COMPANY
By Todd Belfer
-----------------
Authorized Signature
Todd Belfer
-----------------
Manager Title
Date 4/26/95
-----------------
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EXHIBIT "B"
A. AGREEMENT
A.1 Lessor and Lessee agree to the construction of improvements in the Premises
according to the terms and conditions of the Lease, Exhibit "A1", and this
EXHIBIT "B".
A.2 Lessee agrees to provide Lessor with a fully executed Lease on or before
April 26, 1995.
A.3 Provided the A.2 deadline date is adhered to, Lessor will provide Lessee
with final detailed plans and specifications of all proposed improvements on or
before May 10, 1995.
A.4 Lessee will return to Lessor a copy of said final detailed plans and
specifications EXHIBIT "A1" approved by Lessee on or before May 15, 1995,
subject to the provisions or paragraph D.1 DELAYS of this EXHIBIT "B".
A.5 Any changes required by Lessee to final plans and specifications previously
approved by both Lessor and Lessee, shall be approved by Lessor at its sole
discretion, subject to the provisions of paragraph D.1 DELAYS of this EXHIBIT
"B".
A.6 Provided Lessee and Lessor perform according to the mentioned provisions of
A.1 through A.5 and there are no Delays which are identified in provisions D.1 &
D.2 of this Exhibit, Lessor shall complete all final proposed improvements to
the best of its ability on or before August 1, 1995.
B. LESSEE PAID IMPROVEMENTS
B.1 Lessee at its sole cost and expense will pay for the following improvements
to the Premises:
Item Amount
---- ------
1. Any and all change orders
------------------------- ------------------
C. METHOD OF PAYMENT (deleted)
D. DELAYS
D.1 Should Lessee not submit a fully executed Lease by the indicated date in
paragraph A.2 and approve final plans and specifications to lessor by the date
indicated in paragraph A.4 of this EXHIBIT "B", Lessor will not be subject to
any liability and the validity of this Lease will not be affected in any way.
However, Lessor also reserves the right, at its sole discretion,
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to terminate this Lease.
D.2 The commencement of rent on the date specified in paragraph 1.06 of this
Lease will not be postponed or waived and Lessor will not be subject to any
liability if:
(1) Lessee is the cause of any delay as identified in paragraphs A.2 and
A.4 and in construction. By way of example for construction, including
but not limited to: Lessee's request for a delay; the installation of
Lessee's trade fixtures and/or equipment; Lessee's request for
additional improvements after plans and specifications have been
approved.
(ii) Lessor is unable to complete all improvements by the date indicated in
A.6 of this EXHIBIT "B" due to circumstances beyond Lessor's reasonable
control, including but not limited to: requirements by any governing
authority; shortage; strikes; material delivery delays; or acts of God.
E. ADDITIONAL COSTS
E.1 Any changes required by any governing authority to Lessee approved final
plans and specifications to conform to local, state of federal laws will be at
the sole cost of Lessee, in addition to any other previously agreed upon
improvement costs, if such changes are determined to be for the Lessees special
use and not part of the general requirements of Lessor to lease space at the
Project, in accordance with the provisions of paragraph E.3 of this EXHIBIT "B".
E.2 Should any changes to previously approved plans and specifications be
required by Lessee:
(i) the cost of such revised final plans and specifications shall be at the
sole cost of Lessee;
(ii) the cost of any changes resulting from such revised plans and
specifications shall be at the sole cost and expense of Lessee; and
such charges shall be subject to the provisions of paragraphs D and E.3
of this EXHIBIT "B".
E.3 Any additional costs including costs of revised construction drawings,
incurred as a result of the changes described in paragraphs E.1 and E.2 herein,
or if for any other reason the actual costs of improvements exceed Lessor's
estimated improvement costs, (a) such costs or expenses shall be paid by Lessee
to Lessor immediately upon receipt by Lessee of Lessor's itemized notice, or (b)
such costs or expenses shall be amortized and included in the Base Monthly Rent
for the duration of the Lease Term.
F. LESSOR'S PAID IMPROVEMENTS
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F.1 Lessor at its sole cost will provide the following improvements per
Attachment "A" Bid Proposal, (see attached).
Lessor will give Lessee a Tenant Improvement Allowance not to exceed $22,000.
This allowance may be used for architectural fees, permit fees and all building
standard tenant improvements, i.e., carpet, paint, walls, etc. If Lessee does
not require the full $22,000 the additional monies shall remain the property of
Lessor with no reimbursement to tenant nor reduction in rent.
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EXHIBIT "C"
SIGN CRITERIA
UNIVERSITY I
These criteria have been established for the purpose of assuring an outstanding
industrial park for the mutual benefit of all tenants. Conformance shall be
strictly enforced; any installed nonconforming or unapproved signs shall be
brought into conformance at the expense of the Lessee.
The Lessor shall administer and interpret the criteria.
A. GENERAL REQUIREMENTS
--------------------
1. Lessee shall submit or cause to be submitted to Lessor for
approval before fabrication at least (2) copies of detailed
drawings covering the location, size, layout, design and color
of the proposed sign, including all lettering, graphics, cans
and face colors.
2. All permits for signs and their installation shall be obtained
by the Lessee or his representative prior to installation.
3. Lessee shall be responsible for the fulfillment of all
requirements and specifications.
4. Lessee to have sign displayed no later than one month from
date of move in.
5. Lessee shall, at it's own expense, provide and maintain it's
own identification sign in accordance with specification noted
herein. If no identification is desired, Lessee is responsible
for blank plex in sign can. If Lessee fails to provide either
signage or plex within the allotted time, Lessor reserves the
right to install plea and charge back Lessee for plea cost.
B. GENERAL SPECIFICATIONS
----------------------
1. Painted lettering shall not be permitted except on plea faces
of can signs.
2. Flashing, moving, or audible signs shall not be permitted.
3. All electrical signs and their installation must comply with
all local buildings codes and electrical does. All signs must
comply with the sign ordinances of the City of Temp.
4. No exposed conduit, tubing, J-Boxes or raceways shall
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be permitted.
5. All cabinets, conductors, transformers and other equipment
shall be concealed.
C. CONSTRUCTION REQUIREMENTS
-------------------------
1. All signs facing the major streets (University Dr. and 52nd
St.) shall be of standard can type sign design and shall
consist of box with plexiglass face and silkscreened letters.
Exterior surfaces of cans shall be painted yellow. Sign face
shall be Pantone Cool Grey 3C and letters to be teal vinyl
(thin blackout line is optional). No other material colors
will be allowed.
2. All cans facing the major streets will be comprised of
illuminated and non-illuminated faces. Can construction will
be of a type so as to prevent light from illuminated areas
being visible in the nonilluminated areas. Lighting is the
responsibility of the Lessee.
3. All signs facing other than major streets shall be non-
illuminated and of the same design as described in #1 above.
4. See attached drawings of can and signs and conform
accordingly.
5. Can sign sizes shall be a maximum of 1'6" X 10'0". Signs shall
be located as shown on the enclosed drawings. All exterior
signs, bolts, fastenings and clips shall be of hot dipped
galvanized iron, stainless steel, aluminum, brass or bronze
and no black iron materials of any type shall be permitted.
6. Location of all openings for conduit and sleeves in the
building walls shall be indicated by the sign contractor on
drawings submitted for the approval of Lessor and his
architect. The contractor shall install the same in accordance
with the approved drawings.
7. No label shall be permitted on the exposed surface of signs,
except those required by local ordinance, which shall be
applied in an inconspicuous location.
8. All penetrations of the building structure required for sign
installation shall be neatly sealed in a watertight condition.
9. Sign contractor shall repaid any damage to any work
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caused by his work.
10. Lessee shall be fully responsible for the operations of his
sign contractor.
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EXHIBIT "D"
RULES AND REGULATIONS
1. SIGNS/WINDOWS. All tenant (Lessee) identification signs shall be
provided at the expense of Lessee. No sign placard, picture,
advertisement, name or notice shall be attached to any part of the
outside of any building and, if so placed, Lessor shall have the right
to remove any such sign, placard, picture, advertisement, name or
notice at Lessee's expense.
Lessee shall not place nor allow anything to be placed near the glass
of any window, door, partition or wall which may appear unsightly from
outside the leased premises, nor conflict with the above. Lessor may
provide a standard drape, blind or window covering that shall not be
altered or removed by Lessee.
Lessee is responsible to keep windows washed, inside and/or outside. No
awning or shade shall be affixed or installed over or in the windows or
the exterior of the premises.
2. COMMON AREA/ROOF. The sidewalks, entrances and exits, hall passages and
stairways, if any, shall not be obstructed or used by Lessee for any
purpose other than for ingress and egress. The hall passages, exits,
entrances, stairways and roofs are not for the use of the general
public and Lessor shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgement
of the Lessor shall be prejudicial to the safety, character, reputation
and interest of the premises all tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with
whom Lessee normally deals in the ordinary course of Lessee's business
unless such persons are engaged in illegal activities. Neither Lessee
nor employees or invitees of Lessee shall go upon the roof of any
building.
3. ADVERTISING. Lessee shall not use the name of the building in
connection with or in promoting or advertising the business Lessee
except as to lessee's address. Lessor shall have the right to prohibit
the use of the name of the project or other publicity for Lessee which
in Lessor's opinion tends to impair the reputation of the project or
its desirability for the other Lessees. Lessees will refrain from or
discontinue such publicity upon notification by Lessor.
4. LOCKS. No additional locks or bolts shall be placed upon
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any of the doors or windows by Lessee, nor shall any changes be made in
existing locks or the mechanisms thereof. Lessee must, upon the
termination of Lessee's tenancy, return to Lessor all keys either
furnished to or otherwise procured by Lessee. In the event of the loss
of any keys so furnished, Lessee shall pay to Lessor the costs thereof.
5. SOLICITATIONS. Lessee shall not disturb, solicit or canvass any
occupant of the project and shall cooperate to prevent the same.
6. USE OF PREMISES. The leased premises shall not be used for lodging,
sleeping or cooking or for any immoral or illegal purpose or for any
purpose that will damage the premises or the reputation thereof or for
any purpose other than that specified in the lease covering the
premises.
7. PARKING. The parking areas within the office park complex shall be used
solely for the parking of passenger vehicles during normal office
hours. The parking of trucks, trailers, recreational vehicles and
campers is specifically prohibited. No vehicles of any type shall be
stored in the parking areas at any time. In the event that a vehicle is
disabled, it shall be removed within 48 hours. There shall be no "For
Sale" or other advertising signs on or about any parked vehicle. All
vehicles shall be parked in the designated parking areas in
conformation with all signs and other markings. No parking is permitted
on public streets adjacent to the complex.
8. NUISANCES. Lessee shall not use, keep or permit to be used or kept, any
four or noxious gas or substance in the premises or permit or suffer
the premises to be occupied or used in a manner offensive or
objectional to Lessor or other occupants of the building by reason of
noise, odors and/or vibrations, or interfere in any way with other
Lessees or those having business therein nor shall any animals or birds
be brought in or kept in or about the premises of the project. Lessee
shall maintain the leased premises free from mice, bugs and ants
attracted by food, water or storage materials. Lessor is responsible
for maintaining the outside area.
9. DANGEROUS ARTICLES. Lessee shall not use or keep on the premises of the
complex any kerosene, gasoline or inflammable or combustible fluid or
material, or any article deemed extra hazardous on account of fire
(COPY MISSING FROM HERE TO END OF PARAGRAPH).
10. IMPROPER CONDUCT. Lessor reserves the right to exclude or expel from
the complex any person who, in the judgement of the Lessor, is
intoxicated or under the influence of liquor
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or drugs or who shall in any manner do any act in violation of the
Rules and Regulations of said project.
11. WIRING. No electric wires, or any other electrical apparatus, or
additional electrical outlets, shall be installed except with written
request to and written approval from Lessor. Any installation of above
wiring shall be removed by Lessor at Lessee's expense. lessor reserves
the right to enter upon the leased premises for the purpose of
installing additional electrical wiring and other utilities for the
benefit of the Lessee or adjoining tenants.
Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. The location of telephone call
boxes and other equipment affixed to the premises shall be subject to
the approval of Lessor.
12. AUCTION. No auction, public or private, will be permitted.
13. EXTERIOR. Lessee shall not place any improvements or moveable object
including antennas, outside furniture, etc., in the parking areas,
landscaped area or other areas outside of the leased premises, or on
the roof of any building.
14. SECURITY PRECAUTIONS. All entrance doors in the complex shall be closed
and securely locked when the premises are not in use, and all doors
opening to public corridors shall be kept closed except for normal
ingress and egress. Lessee must observe strict care and caution that
all water faucets or any other apparatus is shut off before Lessee or
Lessee's employees leave the premises and that all electricity, gas,
etc., shall likewise be carefully shut off so as to prevent waste or
damage.
15. REST ROOM FACILITIES. The washrooms and restrooms and appurtenances
thereto shall not be used for any other use than those for which they
were constructed. No sweepings, rubbish, rags or other foreign
substances shall be thrown or placed thereof. No person shall waste
water by interfering or tampering with the faucets. Any damage
resulting in soiled washrooms or restrooms or appurtenances shall be
paid for by the Lessee who, or whose agents, guests, or employees,
shall cause such damage.
16. DAMAGE. Walls, floors and ceilings shall not be defaced in any way and
no one shall be permitted to make, nail, screw or scratch into
surfaces, paint or in any way mar the building surface. Pictures,
certificates, licenses and similar items normally used in Lessee
premises may be carefully attached to the walls by Lessee in a manner
to be prescribed by the Lessor. Upon removal of such items by
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Lessee, any damage to the walls or other surfaces shall be repaired by
the Lessee.
17. FURNITURE, SAFES/MOVING. Furniture, freight, equipment, safes or other
bulky articles shall be moved into or out of the complex only in the
manner and at such times as Lessor may direct. Lessor shall not
overload the floor of the premises or in any way deface the premises or
any part there. Lessor shall in all cases have the right to determine
or limit the weight, size, and position of safes and other heavy
equipment. Lessor will not be responsible for loss or damage to any
safe or other property of Lessee by any cause. All damage done to the
building or complex by moving or maintaining any such safe or other
property shall be repaired at the expense of Lessee.
18. JANITORIAL SERVICE. Lessee shall not cause any unnecessary labor by
reason of Lessee's carelessness or indifference in preservation of good
order and cleanliness. Lessor shall not be responsible to Lessee for
any loss of property on the premises, however, occurring or for any
damage done to the effect of Lessee by the janitor or any other
employee or any other person.
19. REQUIREMENTS OF LESSEE. Employees of Lessor shall not perform any work
or do anything outside of their regular duties unless under special
instruction from Lessor. Lessee shall give Lessor prompt notice of any
defects in the water, sewage, gas plumbing, electrical lights and
fixtures, heating apparatus, or any other service equipment.
20. RULES AND REGULATIONS. Rules may be modified, amended or supplemented
at any time by Lessor upon notice to Lessee.
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42. Hazardous Materials
42.01 Compliance with Law
-------------------
Lessee, at Lessees expense, shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of federal, state, county
and municipal authorities pertaining to Lessee's use of the premises and with
the recorded covenants, conditions and restrictions, regardless of when they
become effective, including, without limitation, all applicable federal, state
and local laws, regulations or ordinances pertaining to air and water quality,
Hazardous Materials (as hereinafter defined), waste disposal, air emissions and
other environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Lessor or Lessee with respect to the
use or occupation of the Premise.
42.02 Use of Hazardous Materials
--------------------------
(1) Lessee shall (1) not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the Premises or the Project by Lessee,
its agents, employees, contractors or invitee without the prior written consent
of Lessor, which Lessor shall not unreasonably withhold as long as Lessee
demonstrates to Lessor's reasonable satisfaction that such Hazardous Material is
necessary or useful to Lessee's business and will be used, kept and store in a
manner that complies with all laws regulation any such Hazardous Material so
brought upon or used or kept in or about the Premises. If Lessee breaches the
obligations stated in the preceding sentence, or if the presence of Hazardous
Materials on the Premises or the Project caused or permitted by Lessee results
in contamination of the Premises or the Project, or if contamination of the
Premises or the Project by Hazardous Materials otherwise occurs for which Lessee
is legal liable to Lessor for damage resulting therefrom, then Lessee shall
indemnify, defend and hold Lessor harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premise or the Project, damages for the
loss or restriction on use of rentable or usable space or of any amenity of the
Premises or the Project, damages airing from any adverse impact on marking of
space, and sums paid in settlement of claims, attorneys' fees, consultant fees
and expert fees) which arise during or after the Lease terms as a result of such
contamination. This indemnification of Lessor by Lessee includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or
1
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under the Premises or the Project. Without limiting the foregoing, if the
presence of any Hazardous Material on the Premises or the project caused or
permitted by Lessee results in any contamination of the Premises or the Project,
Lessee shall promptly take all actions at its sole expense as are necessary to
return the Premises and the Project to the condition existing prior to the
introduction of any such Hazardous Material to the Premises or the Project;
provided that Lessor's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
Premises or the Project. The foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
(2) Definition of "Hazardous Material"
----------------------------------
As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material or waste, including, but not limited to, those
substances, materials, and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 CAR 172.101) or by the
Environmental Protection Agency as hazardous substances (40 CAR Part 302) and
amendments thereto, or such substances, materials and wastes that are or become
regulated under any applicable local, state or federal law.
(3) Disclosure
----------
At the commencement of this Lease, and January 1 of each year
thereafter (each such date being the year after the termination of this Lease),
Lessee shall disclose to Lessor the names and amounts of all Hazardous
Materials, or any combination thereof, which were stored, used or disposed of on
or about the Premises.
(4) Inspection
----------
Lessor and its agents shall have the right, but not the duty, to
inspect the Premises and the Project at any time to determine whether Lessee is
complying with the terms of this Lease. If Lessee is not in compliance with this
Lease, Lessor shall have the right to immediately enter upon the Premises and
the project to remedy any contamination caused by Lessee's failure to comply
notwithstanding any other provision interference with Lessee's business but
shall not be liable for any interference caused thereby.
(5) Default
-------
Any default under this Paragraph shall be a material default - enabling
Lessor to exercise any of the remedies set forth in
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this Lease.
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PROVISION 43
ATTORNEY'S FEES AND COSTS
In the event of any legal action or proceeding between the parties hereto,
actual attorneys fees and expenses of the prevailing party in any such action or
proceeding will be added to the judgment therein. Should Lessor be named as a
defendant in any suit brought against Lessee in connection with or arising out
of Lessee's occupancy hereunder, Lessee will pay to Lessor its costs and
expenses incurred in such suit, including actual attorneys fees. If Lessor
utilizes the services of any attorney at law for the purpose of collecting any
rent due and unpaid by Lessee after three (3) days written notice to Lessee of
such nonpayment of rent or in connection with any other breach of this Lease by
Lessee, Lessee agrees to pay Lessor actual attorneys fees and costs as
determined by Lessor for such services, regardless of the fact that no legal
action may be commenced or filed by Lessor.
All terms, covenants and conditions in the Lease not specifically modified by
this Amendment to Lease, shall remain in full force and effect as if re-stated
in their entirety herein.
<PAGE>
PROVISION 44
ADDENDUM TO LEASE
USE CLAUSE
----------
Tenant has negotiated the use clause contained in section 1.05 of this Lease.
Tenant hereby agrees that the Use Clause as so written is deemed to be
reasonable for all purposes. Tenant hereby further agrees that this Use Clause
is enforceable for all purposes and specifically waives all challenges to this
clause now and in the future. The purposes for which this Use Clause is deemed
to be reasonable and enforceable include, but are not limited to, any and all
future changes tenant may request in the use of the Premises, and any and all
circumstances relating to breach of Lease, and/or mitigation of damages, and/or
assignment, and/or subletting.
<PAGE>
CORPORATE RESOLUTION
--------------------
WHEREAS, it is deemed to be to the best interests of this Corporation, HOUSTON
INTERNATIONAL, LLC, AN ARIZONA COMPANY and its shareholders:
NOW, THEREFORE, BE IT RESOLVED, that the officers of the Corporation be
empowered to negotiate a lease with PS PARTNERS VI, LTD., A CALIFORNIA LIMITED
PARTNERSHIP ("Lessor") for the space located at 1719 W. UNIVERSITY #187 TEMPE,
AZ 85281 for a period of SIXTY (60) months beginning on August 1, 1995, at an
anticipated monthly rental of 6937.28 including stipulated increases of 5% and
applicable taxes upon all the terms and conditions of Lessor's lease and any
agreed upon amendments and supplements attached thereto.
Executed at Maricopa County, State of Arizona, City of Tempe this 27th day of
April, 1995.
Manager
- ---------------------
Title
(Todd Belfer)
- ---------------------
Place Corporate Seal Below:
MARKETING SERVICES AGREEMENT
THIS AGREEMENT made and entered into by and between HOUSTON
ENTERPRISES, L.L.C , an Arizona limited liability company ("Principal"), and
PURE SOURCE INTERNATIONAL LTD., a British Virgin Islands company ("Contractor").
R E C I T A L S :
- - - - - - - - - -
A. Principal presently conducts the business of the development,
manufacture, processing, warehousing and distribution of detoxification
products, herbal teas and herbal capsules (collectively, "Detoxification and
Herbal Products") in the State of Arizona and elsewhere.
B. Contractor is engaged in the business of providing consulting
services with respect to international sales and distribution matters, as well
as other international marketing services to businesses.
C. Principal desires to utilize the services of Contractor with respect
to the development and expansion of its international business operations, and
Contractor is willing to provide such services under certain terms and
conditions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T S :
- - - - - - - - - - - -
1. Engagement. Principal agrees to engage Contractor as an independent
contractor to provide marketing, promotion, advertising and similar services
with respect to the sale of Principal's Detoxification and Herbal Products
outside of the United States of America and otherwise with respect to
Principal's international business operations and Contractor accepts engagement
and agrees to faithfully perform such services, all in accordance with the terms
and conditions hereafter set forth.
2. Project Ownership and Operation. All projects shall be owned by and
operated in the name of Principal.
3. Duties of Contractor. Contractor's services to Principal shall
consist of the following:
(a) Contractor shall provide one or more competent executives
(the "Executives") to consult with respect to the marketing, promotion and
advertising aspects of Principal's international operations.
(b) Contractor shall assist in the development of
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strategies, procedures, systems and controls for the purpose of providing
effective international marketing, promotion and advertising techniques and
functions for the benefit of Principal and Principal's international operations.
(c) Contractor also agrees to assist Principal in matters of
international public relations and will further the interest of Principal in
matters considered international customer relations.
(d) Contractor shall determine, in its sole discretion, the
extent of time and services necessary and/or reasonably proper to maintain the
efficient operation of Principal's projects. Contractor may enter into
agreements to provide similar services to persons or entities other than
Principal, provided, however, Contractor shall not disclose to any other person
or entity confidential information acquired by Contractor in performing its
obligations hereunder, nor shall Contractor provide any such services to any
persons or entities which are engaged in the business of the development,
manufacture, processing, warehousing and distribution of Detoxification and
Herbal Products, unless it first obtains Principal's written consent with
respect thereto.
4. Duties of Principal. Principal shall perform as follows:
(a) Unless the parties otherwise agree in writing, from time to
time, Principal shall provide all necessary operating staff and personnel at its
sole cost.
(b) Principal shall reimburse Contractor for any and all
out-of-pocket costs or expenses which Contractor incurs or advances on behalf of
Principal, to include, but not necessarily be limited to, advertising expenses
advanced by Contractor. Principal shall not, however, be obligated to pay for
any of Contractor's normal operational expenses, such as payroll, administrative
or other overhead expenses.
(c) Principal shall cooperate with Contractor in all reasonable
respects and shall furnish Contractor all information reasonably required by it
for the performance of its services and shall permit Contractor to examine and
copy any data in possession and control of Principal affecting marketing and/or
its operations and shall in every reasonable way cooperate to enable Contractor
to perform its services in a satisfactory manner.
5. Consideration. The consideration payable to Contractor shal l be
equal to a total of Eight Hundred Fifty-Three Thousand Six Hundred Dollars
($853,600.00), payable as follows: 18, 1994.
(a) Five Hundred Thousand Dollars ($500,000.00) on May
(b) One Hundred Forty-Three Thousand Six Hundred Dollars
($143,600.00) on August 31, 1994.
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(c) One Hundred Fifty Thousand Dollars ($150,000.00) on October
31, 1994.
(d) Sixty Thousand Dollars ($60,000.00) on December 21, 1994.
6. Term. The term of this Agreement shall commence on March 10, 1994
and end on December 31, 1995.
7. Independent Contractor Status.
(a) Contractor is retained by Principal only for the purposes and
to the extent set forth in this Agreement, and Contractors relationship to
Principal during the period or periods of service hereunder is solely that of an
independent contractor. Contractor and its employees shall not be considered
under the provisions of this Agreement or otherwise as having an employee status
or being entitled to participate in any plans, arrangements or distributions by
Principal pertaining to or in connection with any pension, stock bonus, profit
sharing, or similar benefits for Principal's regular employees. In addition,
Contractor shall have no authority to bind Principal by any promise or
representation, unless specifically authorized in writing to do so.
(b) Contractor shall be responsible for the payment of all
unemployment taxes and costs, federal and state taxes, together with any
penalties and interest thereon, as well as social security contributions and
workmen's compensation and insurance costs, which may be due and payable with
respect to the amounts received by Contractor hereunder.
(c) Contractor shall not be liable to Principal for any expenses
incurred by Principal in performing its duties and obligations hereunder, nor
shall Contractor be liable to Principal for any office overhead or other
overhead expenses which may be incurred by Principal as a result of this
Agreement.
(d) Principal and Contractor shall not be deemed to be partners
or joint venturers in any respect whatsoever. Principal and its employees shall
not be considered under the provisions of this Agreement or otherwise as being
entitled to participate in any plans, arrangements or distributions by
Contractor pertaining to or in connection with any pension, stock bonus, profit
sharing, or similar benefits for Contractor's regular employees. In addition,
Principal shall have no authority to bind Contractor by any promise or
representation, unless specifically authorized in writing to do so.
(e) Except to the extent specifically provided herein to the
contrary, Principal shall not be liable to Contractor for any expenses incurred
by Contractor in performing its duties and obligations hereunder, nor shall
Principal be liable to Contractor for any office overhead or other overhead
expenses which may be incurred by Contractor as a result of this Agreement.
8. Warranties. Each party represents, warrants and
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covenants to the other as follows:
(a) It will comply with all applicable laws, ordinances,
statutes, and governmental rules and regulations, with respect to the
performance of its obligations hereunder.
(b) Its duties to be performed and its business will be run with
integrity and honesty so as to not adversely affect the reputation, goodwill and
name of the other.
(c) It has the full right and legal authority to enter into and
fully perform this Agreement in accordance with its terms.
(d) This Agreement, when executed and delivered by its
undersigned officers, will be its legal, valid and binding obligation
enforceable against it in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, or other similar
laws affecting creditors' rights generally.
(e) The execution and delivery of this Agreement has been duly
authorized by it and such execution and the performance of its obligations
hereunder do not and will not violate or cause a breach of any other agreements
or obligations to which it is a party or by which it is bound.
9. Hiring of Personnel. Principal shall not employ or seek to employ
any person who is at the time employed by Contractor without first obtaining the
written consent of Contractor.
10. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered or sent by certified mail, return receipt requested, addressed to the
parties as follows:
If to Principal:
----------------
Todd P. Belfer
Hooman Nikzad
HOUSTON ENTERPRISES, L.L.C.
3658 East Chipman Road
Phoenix, AZ 85040
If to Contractor:
-----------------
Todd P. Belfer
Investment Advisor
PURE SOURCE INTERNATIONAL LTD.
Abbott Building, 2nd Floor
Road Town, Tortola
British Virgin Islands
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
11. Further Assurances. Each party hereto agrees that, from time to
time hereafter, and upon request, it shall without undue delay execute,
acknowledge and deliver such other documents as
4
<PAGE>
reasonably may be required by any other party hereto, and perform any reasonable
action which may become necessary, to more effectively carry out the terms and
conditions of this Agreement.
12. Entire Agreement: Amendments. This Agreement contains the entire
understanding of the parties with respect to its subject matter and supercedes
all prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained. The
express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing executed by an
authorized officer of each party.
13. Construction. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning and not strictly
for nor against any party. The paragraph headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment or any
exhibits thereof.
14. Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that no party may assign or transfer its rights or obligations
under this Agreement without the prior written consent of an authorized officer
of the other party.
15. Enforcement. In the event of any default on the part of any party
hereto, this Agreement may be enforced by an action for specific performance or
other appropriate remedy authorized under applicable law. Should any party
breach any of the terms and conditions of this Agreement, or any other documents
executed in connection herewith, necessitating the filing of a lawsuit for
damages, specific performance or any other remedy allowed under applicable law
then, and in that event, the prevailing party in such lawsuit shall be entitled
to reasonable attorneys' fees that shall be determined by the court.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as the signatories.
17. Severability. In the event any term or provision of this Agreement
is declared by a court of competent jurisdiction to be invalid or illegal for
any reason, this Agreement shall remain in
5
<PAGE>
full force and effect, and the same shall be interpreted as if such invalid or
illegal provision were not a part hereof.
18. Indulgences. Neither the failure nor the delay on the part of any
party to exercise any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or future exercise of
the same or of any other right, remedy, power or privilege, nor shall any waiver
of any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
IN WITNESS WHEREOF, the parties have executed this written Agreement on
the ____________ day of March, 1996, to confirm their oral agreement which was
effective the 10th day of March, 1994.
PRINCIPAL: CONTRACTOR:
HOUSTON ENTERPRISES, L.L.C., PURE SOURCE INTERNATIONAL
an Arizona limited liability LTD., a British Virgin
company Islands company
By Todd P. Belfer By
------------------------ -------------------------
Todd P. Belfer, Manager Todd P. Belfer
Investment Advisor
By
------------------------
Hooman Nikzad, Manager
6
DIRECTORS and OFFICERS
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is entered into as of
July ___, 1996, between M.D. Labs, Inc., a Delaware corporation (the "Company"),
and Todd P. Belfer ("Indemnitee").
RECITALS
A. It is essential to the Company to retain and attract as
directors and officers the most capable persons available;
B. Indemnitee is a director and/or officer of the Company;
C. Both the Company and Indemnitee recognize the increased
risk of litigation and other claims being asserted against directors and
officers of public companies in today's environment;
D. The Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") of the Company requires the Company to
indemnify and advance expenses to its directors and officers to the fullest
extent permitted by law and Indemnitee has been serving and continues to serve
as a director or officer of the Company in part in reliance on such Certificate
of Incorporation; and
E. In recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner and Indemnitee's reliance on the
Certificate of Incorporation, and in part to provide Indemnitee with specific
contractual assurance that the protection promised by the Certificate of
Incorporation will be available to Indemnitee (regardless of, among other
things, any amendment to or revocation of such or any change in the composition
of the Company's Board of Directors or acquisition transaction relating to the
Company), the Company wishes to provide in this Agreement for the
indemnification of, and the advancing of expenses to, Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.
COVENANTS
In consideration of Indemnitee continuing to serve the Company directly
or, at its request, with another enterprise, and intending to be legally bound
hereby, and for other good and valuable consideration, the adequacy of which is
hereby acknowledged, the parties agree as follows:
<PAGE>
Indemnification Agreement Page - 2
1. Certain Definitions:
(a) Action: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether conducted
by the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any such
action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(b) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such ----------------- term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended [the "Exchange Act"]), other than a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the
Company representing one-third or more of the total voting
power represented by the Company's then outstanding Voting
Securities (as defined below), or (ii) during any period of
two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority thereof, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at
least two-thirds of the total voting power represented by the
Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series
of transactions) all or substantially all the Company's
assets.
(c) Derivative Action: an Action by or in the right of the
Company.
(d) Expenses: include reasonable attorneys' fees, court costs,
deposition costs, court reporter fees, travel and all other
costs, expenses and obligations actually paid to another or
incurred in connection with investigating the facts underlying
the
<PAGE>
Indemnification Agreement Page - 3
Action, preparing to defend and defending the Action or
preparing for and participating in the Action as a witness, or
any of the foregoing expenses incurred on appeal, or any other
reasonable expenses incurred by Indemnitee in participating in
any Indemnifiable Action or Indemnifiable Derivative Action.
(e) Indemnifiable Action or Indemnifiable Derivative Action: any
Action or Derivative Action arising out of or relating,
directly or indirectly, to the fact that Indemnitee is or was
a Director, Indemnitee, employee, agent or fiduciary of the
Company, or a subsidiary of the Company, or is or was serving
at the request of the Company as a Director, Indemnitee,
employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of Indemnitee's actions or
omissions in any such capacity.
(f) Potential Change in Control: shall be deemed to have occurred
if (i) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in
Control; (ii) any person (including the Company) publicly
announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control;
(iii) any person other than a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company who is
or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting
Securities, increases such person's beneficial ownership of
such securities by five percentage points (5%) or more over
the percentage so owned by such person; or (iv) the Board of
Directors adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
(g) Voting Securities: any securities of the Company which vote
generally in the election of directors.
2. No Pending Actions. Indemnitee represents to Company that to
Indemnitee's actual knowledge, (i) there is no Indemnifiable Action or
Indemnifiable Derivative Action involving Indemnitee as of the date of this
Agreement and (ii) no facts exist that may form the basis for such Action
involving Indemnitee.
3. Indemnification For Actions Other Than Derivative Actions. If
Indemnitee was, is, or becomes a party to or a witness or other participant in,
or is threatened to be made a party to or witness or other participant in, an
Indemnifiable Action other than an Indemnifiable
<PAGE>
Indemnification Agreement Page - 4
Derivative Action, the Company shall, subject to the provisions of this
Agreement, indemnify Indemnitee to the fullest extent permitted by law against
any and all Expenses, judgments, fines, penalties, and amounts paid in
settlement of such Action.
4. Indemnification For Derivative Actions.
(a) Basic Indemnification. If Indemnitee was, is, or becomes a
party to or a witness or other participant in, or is threatened to be made a
party to or witness or other participant in an Indemnifiable Derivative Action,
the Company shall, subject to the provisions of this Agreement, indemnify
Indemnitee to the fullest extent permitted by law against any and all Expenses,
but not judgments, fines, or, except as set forth below, amounts paid in
settlement of such Derivative Action.
(b) Adjudication of Liability in Derivative Actions.
Notwithstanding Paragraph 4(a), no indemnification shall be made in respect of
any claim, issue, or matter as to which Indemnitee shall have been adjudged (by
final judicial determination from which there is no further right to appeal) to
be liable to the Company unless and only to the extent that the court in which
such Derivative Action was brought shall determine upon application by
Indemnitee that despite the adjudication of liability and in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnification which such court shall deem proper.
(c) Settlement of Derivative Actions. Notwithstanding
Paragraph 4(a), the court in which such Derivative Action was brought may
determine upon application of Indemnitee that, in view of all circumstances of
the case, indemnity for amounts paid in settlement is proper and may order
indemnity for the amounts so paid in settlement and for the Expenses actually
and reasonably paid in connection with such application, to the extent the court
deems proper.
5. Limits on Indemnification. Except as stated in Paragraph 6, there
shall be no indemnification pursuant to this Agreement:
(a) to the extent that payment for the same claims or amounts
are actually made to Indemnitee under a valid and collectible insurance policy;
provided, however, that if it should subsequently be determined that the
Indemnitee is not legally entitled to retain any such payment, the restriction
on indemnification pursuant to this subparagraph (a) shall no longer apply;
(b) to the extent that Indemnitee is indemnified or receives a
recovery for the same claims or amounts otherwise than pursuant to this
Agreement; provided, however, that if it should subsequently be determined that
Indemnitee is not legally entitled to retain any such
<PAGE>
Indemnification Agreement Page - 5
recovery, the restriction on indemnification pursuant to this subparagraph (b)
shall no longer apply;
(c) on account of any violation of Paragraph l6(b) of the
Exchange Act of l934, as amended, and rules promulgated thereunder;
(d) on account of any violation of Paragraph l0(b) of the
Exchange Act of l934, and any rules promulgated thereunder, or similar state
law, to the extent that such violation is based on (i) the purchase or sale of a
security by Indemnitee or a person affiliated with Indemnitee while Indemnitee
is in possession of material nonpublic information about the Company, or (b) the
communication of material nonpublic information about the Company in connection
with any transaction on or through the facilities of a national securities
exchange or from or through a broker or dealer, other than as part of a
securities offering by the Company;
(e) with respect to any transaction from which Indemnitee
derived an improper personal benefit to which he or she is not legally entitled;
(f) for the return of any remuneration paid to Indemnitee that
is held by any court in a final judgment to have been illegal or improper;
(g) to the extent that Indemnitee's action (or omission) was
done (or not done) (i) not in good faith, or (ii) not in a manner Indemnitee
believed reasonably to be in or not opposed to the best interests of the
Company, or (iii) with respect to any criminal Action, with reasonable cause to
believe Indemnitee's conduct was unlawful; or
(h) if a final nonappealable decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
6. Partial and Mandatory Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company of some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of an Action but not for the total amount, the Company shall
indemnify Indemnitee for the portion to which Indemnitee is entitled. To the
extent that Indemnitee has been successful on the merits or otherwise (including
dismissal with or without prejudice) in defense of any Indemnifiable Action or
Indemnifiable Derivative Action, or in defense of any claim, issue or matter
therein, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by Indemnitee in connection therewith, except as stated in
Subparagraph 5(a) or 5(b).
7. Notification of Indemnifiable Action or Indemnifiable Derivative
Action. Indemnitee shall promptly notify the Company of any Indemnifiable Action
or Indemnifiable
<PAGE>
Indemnification Agreement Page - 6
Derivative Action promptly after receipt by Indemnitee of notice of the
commencement of such Indemnifiable Action or Derivative Action. With respect
thereto:
(a) The Company will be entitled to participate therein at its
own expense.
(b) Except as otherwise provided below, the Company may assume
jointly the defense thereof with any other indemnifying party, with counsel
reasonably satisfactory to Indemnitee to be chosen or approved by the Company.
After notice from the Company to Indemnitee of its election to so assume the
defense thereof, the Company will not be liable to Indemnitee for any legal or
other expenses subsequently incurred by Indemnitee in connection with the
defense thereof other than reasonable costs of investigation or participation in
any Action or Derivative Action (including travel expenses) or as otherwise
provided below. Indemnitee shall have the right to employ independent counsel in
such Action or Derivative Action; however, the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense thereof
shall be at the expense of Indemnitee unless:
(i) the employment of independent counsel by
Indemnitee has been authorized by the Company;
(ii) counsel employed by the Company to represent
Indemnitee shall have reasonably concluded that there may be a conflict
of interest in the conduct of the defense of such action that prevents
such counsel from representing Indemnitee; or
(iii) the Company shall not in fact have employed
counsel to assume the defense of such Action or Derivative Action on
behalf of Indemnitee.
The fees and expenses of independent counsel of Indemnitee incurred pursuant to
the provisions of Subparagraphs 7(b)(i), (ii) and (iii) shall be borne by the
Company.
(c) If the Company has assumed the defense of Indemnitee
pursuant to Subparagraph (b) above:
(i) the Company shall not be liable to indemnify
Indemnitee under this Agreement for any amount paid in settlement of
any Action or Derivative Action effected without its written consent;
(ii) the Company shall not settle any Action or
Derivative Action in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent; and
<PAGE>
Indemnification Agreement Page - 7
(iii) neither the Company nor Indemnitee will
unreasonably withhold their consent to any proposed settlement.
8. Establishment of Trust. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Indemnifiable
Action or Indemnifiable Derivative Action, and any and all judgments, fines,
penalties and settlement amounts of any and all Indemnifiable Actions or
Indemnifiable Derivative Action from time to time actually paid or claimed,
reasonably anticipated or proposed to be paid; provided, however, that in no
event shall more than $100,000 be required to be deposited in any trust created
hereunder in excess of amounts deposited in respect of reasonably anticipated
Expenses. The terms of the trust shall provide that upon a Change in Control (i)
the trust shall not be revoked or the principal thereof invaded without the
written consent of Indemnitee, (ii) the trustee shall advance, within ten (10)
business days of a written request by Indemnitee, any and all Expenses to
Indemnitee (and Indemnitee hereby agrees to reimburse the trust under the
circumstances under which Indemnitee would be required to reimburse the Company
under Paragraph 9(b) of this Agreement), (iii) the trust shall continue to be
funded by the Company in accordance with the funding obligation set forth above,
(iv) the trustee shall promptly pay to Indemnitee all amounts for which
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in such trust shall revert to the
Company upon a final determination by Indemnitee or a court of competent
jurisdiction, as the case may be, that Indemnitee has been fully indemnified
under the terms of this Agreement. Trustee shall be chosen by the Board of
Directors. Nothing in this Paragraph 8 shall relieve the Company of any of its
obligations under this Agreement.
9. Advance of Expenses; Failure to Pay Claim.
(a) Written Request. If so requested by Indemnitee in writing,
the Company shall (subject to the Expense Advance Rules hereinafter described)
advance to Indemnitee (an "Expense Advance") any and all Expenses incurred in
connection with the investigation or preparation of Indemnitee's participation
in any Indemnifiable Action or Indemnifiable Derivative Action, whether as a
witness or a party, pursuant to this Agreement. The Company shall comply with
Indemnitee's written request for an Expense Advance within ten (10) business
days of receipt of such written request together with the reimbursement
commitment referred to in subparagraph (b) below. If the Company does not honor
Indemnitee's request for an Expense Advance, Indemnitee may bring an action in
any court of competent jurisdiction to enforce the right to an Expense Advance,
and the Company shall have the burden of proof in such action to demonstrate
that the Expense Advance is not payable.
<PAGE>
Indemnification Agreement Page - 8
(b) Reimbursement by Indemnitee. The obligation of the Company
to make an Expense Advance shall be subject to the condition that, if it is
ultimately determined (by final judicial determination from which there is no
further right to appeal) that there are matters to which Indemnitee is not
entitled to indemnity under this Agreement, the Company shall be entitled to be
reimbursed by Indemnitee for all such amounts. Prior to obtaining the initial
Expense Advance, Indemnitee must confirm such reimbursement obligation by
delivery to Company of a signed undertaking in the form of Exhibit A attached
hereto or in such other form as Company may accept reasonably.
(c) Expense Advance Rules. Expenses in all cases must be
reasonable and comply with existing or future billing procedures of the Company
so that the Company can monitor and audit reasonably such Expenses. With respect
to attorneys' fees, the Company will give reasonable consideration to requests
for specific counsel and to requests for the grouping of individuals for joint
defense purposes. Any attorney representing more than one individual may be
requested to render separate billing statements to each such represented
individual or otherwise allocate billings by such represented individual.
(d) Failure to Pay Claim. If loss has been incurred and a
claim for indemnification under this Agreement is not paid by the Company within
ten (10) business days after a written claim has been received by the Company,
Indemnitee may at any time thereafter bring suit against the Company to recover
any unpaid amount of the claim.
10. Burden of Proof. In connection with any determination as to whether
Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be
on the Company to establish that Indemnitee is not so entitled.
11. No Presumption. For purposes of this Agreement, the termination of
any action, suit or proceeding by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not payable under this Indemnification
Agreement or permitted by applicable law.
12. Nonexclusivity, Etc. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation, or the Delaware General Corporation Law or otherwise. To the
extent that a change in the Delaware General Corporation Law (whether by statute
or judicial decision) permits greater indemnification by agreement than would be
afforded currently under the Company's Certificate of Incorporation and this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by such change.
<PAGE>
Indemnification Agreement Page - 9
13. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company Director, Officer or Indemnitee. If Indemnitee incurs any Expenses in
tendering the defense of the Action to the insurance company providing the
Directors and Officers insurance, such Expenses shall be considered
indemnifiable Expenses.
14. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
15. No Right To Continued Employment. Nothing contained in this
Indemnification Agreement is intended to, or shall, create any right to
continued employment by the Company.
16. Amendments and Waiver. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto; provided, however, that if any provision of this Agreement is
challenged as being unlawful, the parties agree that the court in which such
challenge is litigated may modify such provision so that it is enforceable to
the maximum extent permitted by law and may enforce the Agreement as so
modified. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
17. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
18. Binding Effect. Etc. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, heirs, and assigns.
l9. Termination by Company. This Agreement shall continue in full force
and effect, regardless of whether Indemnitee continues to serve as an officer or
director of the Company or any other enterprise at the Company's request, unless
terminated pursuant to this Paragraph 19. By giving written notice to Indemnitee
at his or her address according to Company records,
<PAGE>
Indemnification Agreement Page - 10
the Company, prior to a Potential Change of Control or Change of Control, may
terminate its obligations under this Indemnification Agreement as to any act or
omission of Indemnitee after such written notice is given. Notice is deemed
given when actually received or two days after being sent by registered or
certified mail, whichever is earlier.
20. Severability. The provisions of this Agreement shall be severable
and, in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, the remaining
provisions shall remain enforceable to the fullest extent permitted by law,
including the provisions that have been modified by a court pursuant to
Paragraph 16 hereof.
21. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
22. Prior Agreements. This Agreement supersedes all prior
Indemnification Agreements between the Company and Indemnitee.
M.D. LABS, INC.
By:_____________________________
Its:____________________________
________________________________
Todd P. Belfer, Indemnitee
<PAGE>
EXHIBIT A
---------
_____ __, l996
M.D. Labs, Inc.
Attention: Chief Executive Officer
1719 W. University
Suite 187
Tempe, Arizona 85281
Re: Indemnification Agreement Dated , l996 (the "Agreement")
-------------------------------------------------------------------
Ladies and Gentlemen:
I am the beneficiary of the above Agreement and am a defendant,
witness, or other participant in the following legal action:
________________________________________________________. A copy of the
Complaint in this action is attached for your information.
Pursuant to Paragraph 9 of the Agreement, I hereby request that M.D.
Labs, Inc. advance my Expenses as such term is used in the Agreement, subject to
the Expense Advance Rules, as such Rules are applied in the Agreement. I hereby
confirm that I will reimburse M.D. Labs, Inc. for all the amounts advanced to me
that are ultimately determined (by final judicial determination from which there
is no further right to appeal) to be associated with matters to which I am not
entitled to indemnity under the Agreement.
If any additional information is needed, my address and telephone
number are listed below:
Address:
_________________________
_________________________
_________________________
Telephone Number:
_________________
Very truly yours,
Exhibit 11
M.D. Labs, Inc.
Statement Regarding Computation of Per-Share Earnings
Calculation of Earnings Per Common Share
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1996 May 31, 1995
<S> <C> <C>
Pro forma net income for earnings per-share calculation $ 915,632 $ 343,673
--------------- ---------------
Weighted average shares outstanding at May 31 3,000,000 3,000,000
Stock options, less the number of shares assumed purchased under
the Treasury Stock Method 112,714 112,714
Warrants, less the number of shares assumed purchased under the
Treasury Stock Method 217,185 217,185
--------------- ---------------
Weighted average common shares outstanding 3,329,899 3,329,899
=============== ===============
Pro forma net income per common share
(Primary and Fully Diluted) $ 0.27 $ 0.10
--------------- ---------------
</TABLE>
Exhibit 21.1
M.D. LABS, INC.
SUBSIDIARIES
Jurisdiction of Name Under Which Subsidiary
Subsidiary Incorporation Does Business
- ---------- ------------- -------------
Belnik Investment Group, Inc. Arizona Freedom Wholesalers, Inc.
MDLA, Inc. Arizona MDLA, Inc.
Exhibit 23.1
Consent of Independent Accountants
We consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated July 12, 1996, on our audit of the financial statements of M.D.
Labs, Inc. We also consent to the reference to our firm under the caption
"Experts."
Phoenix, Arizona
September 11, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Hooman Nikzad
------------- -----------------------------
Hooman Nikzad
Chief Executive Officer
and Director
Witness:
/s/ Todd P. Belfer
------------------------------
Signature
Todd P. Belfer
------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF MARICOPA )
Subscribed and sworn to before me this
9th day of September, 1996.
- --- ---------
/s/ Rita K. Rodeheaver
- ------------------------------
Notary Public
My commission expires:
November 15, 1999
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Todd P. Belfer
------------- -----------------------------
Todd P. Belfer
President and Director
Witness:
/s/ Fred Djahandideh
------------------------------
Signature
Fred Djahandideh
------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF MARICOPA )
Subscribed and sworn to before me this
9th day of September, 1996.
- --- ---------
/s/ Rita K. Rodeheaver
- ------------------------------
Notary Public
My commission expires:
November 15, 1999
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Fred Djahandideh
------------ ---------------------------------------
Faradjollah Djahandideh
Vice President, Operations,
Secretary/Treasurer and Director
Witness:
/s/ Harvey A. Belfer
----------------------------------------
Signature
Harvey A. Belfer
----------------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF Maricopa )
Subscribed and sworn to before me this
9th day of September, 1996.
/s/ Rita K. Rodeheaver
- ------------------------------
Notary Public
My commission expires:
November 15, 1999
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Bradley A. Denton
------------- ------------------------------------
Bradley A. Denton
Chief Financial Officer,
Vice President, Assistant
Secretary and Director
Witness:
/s/ Bart Catmull
-------------------------------------
Signature
Bart Catmull
--------------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF Maricopa )
Subscribed and sworn to before me this
9th day of September, 1996.
/s/ Rita K. Rodeheaver
- ------------------------------
Notary Public
My commission expires:
November 15, 1999
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Harvey A. Belfer
----------------- -----------------------------------------
Harvey A. Belfer
Director
Witness:
/s/ Fred Djahandideh
-----------------------------------------
Signature
Fred Djahandideh
-----------------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF Maricopa )
Subscribed and sworn to before me this
9th day of September, 1996.
/s/ Rita K. Rodeheaver
- ------------------------------
Notary Public
My commission expires:
November 15, 1999
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Allan Richard Lyons
------------- -----------------------------------------
Allan Richard Lyons
Director
Witness:
/s/ Kaye P. Coates
-----------------------------------------
Signature
Kaye P. Coates
-----------------------------------------
Print Name
STATE OF NEW YORK )
)ss.
COUNTY OF BLOOME )
Subscribed and sworn to before me this
___ day of _________, 1996.
/s/ Frances M. Santoni
- ------------------------------
Notary Public
My commission expires:
March 30, 1998
[SEAL]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Todd P. Belfer and Bradley A. Denton, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of M.D. Labs, Inc. on Form SB-2
to which this Power of Attorney is attached, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 9/9/96 /s/ Kenneth A. Steel, Jr.
------------ -----------------------------------------
Kenneth A. Steel, Jr.
Director
Witness:
/s/ Chris La Fleur
-----------------------------------------
Signature
Chris La Fleur
-----------------------------------------
Print Name
STATE OF ARIZONA )
)ss.
COUNTY OF Maricopa )
Subscribed and sworn to before me this
9th day of September, 1996.
/s/ Robin K. McEntire
- ------------------------------
Notary Public
My commission expires:
September 21, 1998
[SEAL]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S REGISTRATION STATEMENT ON FORM SB-2
FILED ON SEPTEMBER 11, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM SB-2
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1
<CASH> 91,799
<SECURITIES> 0
<RECEIVABLES> 647,736
<ALLOWANCES> 27,876
<INVENTORY> 1,080,406
<CURRENT-ASSETS> 1,864,929
<PP&E> 340,386
<DEPRECIATION> 120,987
<TOTAL-ASSETS> 2,691,670
<CURRENT-LIABILITIES> 673,817
<BONDS> 0
0
0
<COMMON> 3,000
<OTHER-SE> 2,014,853
<TOTAL-LIABILITY-AND-EQUITY> 2,691,670
<SALES> 5,191,067
<TOTAL-REVENUES> 5,191,067
<CGS> 1,510,479
<TOTAL-COSTS> 2,141,926
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,991
<INCOME-PRETAX> 1,525,671
<INCOME-TAX> 610,039
<INCOME-CONTINUING> 915,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 915,632
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
