UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-SB
Amendment #1
TRIMFAST GROUP, INC.
(Name of Small Business Issuer)
NEVADA 88-0367136
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 S. Harbour Island Blvd. Suite 780, Tampa, Florida 33602
(Address of principal executive offices)
(813) 275-0050
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to Name of Each Exchange
be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
<PAGE>
TABLE OF CONTENTS
Part I Page
Item 1. Description Of Business...........................................2
Item 2. Management's Discussion And Analysis Or Plan Of Operation ........18
Item 3. Description Of Property...........................................19
Item 4. Security Ownership Of Certain Beneficial Owners And Management ...19
Item 5. Directors, Executive Officers, Promoters And Control Persons .....20
Item 6. Executive Compensation............................................21
Item 7. Certain Relationships And Related Transactions....................22
Item 8. Description Of Securities.........................................23
Part II
Item 1. Market For Common Equity And Related Stockholder Matters .........31
Item 2. Legal Proceedings.................................................32
Item 3. Changes In And Disagreements With Accountants.....................34
Item 4. Recent Sale Of Unregistered Securities............................34
Item 5. Indemnification Of Directors And Officers.........................37
Part III.
Part F/S Financial Statements................................................
Index To Exhibits...............................................................
Description Of Exhibits.........................................................
1
<PAGE>
References in this document to "us," "we," or "the Company" refer to TrimFast
Group, Inc., its predecessors and its subsidiaries.
ITEM 1. DESCRIPTION OF THE BUSINESS.
(a) Business Development.
We were incorporated in the State of Nevada on February 23, 1987 as Kendrex
Systems, Inc. On November 18, 1996, we reverse split our common stock. We issued
one (1) new share of our common stock in exchange for five (5) outstanding
shares of our common stock.* On the same day, we entered into a reverse
acquisition with HLHK World Group, Inc. (hereinafter "World Group"), a Nevada
corporation, and subsequently changed our name to HLHK World Group, Inc. World
Group was in the business of telecommunications, an area in which we wished to
pursue the available opportunities. Pursuant to the terms of this acquisition,
we issued 6,000,000 of our post-split common shares to the shareholders of World
Group plus 250,000 of our post-split shares as finder's fees. As a result of
this transaction, World Group became our wholly owned subsidiary.
On August 12, 1998, we acquired TrimFast, Inc., which was incorporated in the
State of Florida on April 28, 1991, in a common stock for common stock exchange.
Pursuant to the terms of this merger, we issued 1,370,049 shares of our common
stock to the shareholders of Trimfast, Inc. As such, the shareholders of
Trimfast, Inc. obtained control of our Company, and Trimfast, Inc. became our
wholly owned subsidiary. On September 4, 1998, we changed our name to TrimFast
Group, Inc. We continued the operations of Trimfast, Inc. As such, the
accounting and disclosure throughout this document reflects Trimfast, Inc. as
the surviving corporation.
Prior to and at the time of this transaction, Trimfast, Inc. was engaged in the
business of formulating and distributing dietary and vitamin supplements. We
entered into the merger with Trimfast, Inc. because we believed that the
nutrition and vitamin supplement field represented a business opportunity for
us. On December 20, 1998 we reverse split our common stock. We issued one (1)
new share of our common stock in exchange for ten (10) outstanding shares of our
common stock.*
(* Both stock splits are reflected in the numbers and calculations throughout
this document unless otherwise indicated.)
On September 4, 1998, we incorporated Body Life Sciences, Inc. (hereinafter
"Body Life"), a Florida corporation, as a wholly owned subsidiary of Trimfast,
Inc. We formed this subsidiary in order to expand our business by offering
products under the Body Life trade name.
On March 18, 1999, we acquired IMMMU, Inc. (hereinafter "IMMMU"), a Delaware
corporation, and IMMCEL Pharmaceuticals, Inc. (hereinafter "IMMCEL"), a New York
corporation. Both Companies were engaged in the business of developing and
marketing nutritional supplements manufactured by third parties. Pursuant to the
terms of this acquisition, IMMMU and IMMCEL became our wholly owned
subsidiaries. We issued 235,000 shares of our common stock, $50,000 in cash, an
option agreement based upon performance criteria and an employment agreement
pursuant to the terms of the agreement. We rescinded these acquisitions
effective November 1, 1999.
2
<PAGE>
We initially believed that the acquisitions of these companies would enhance our
product lines. However, once acquired, the product lines diod not prove
complimentary to our business. In addition, these companies were unable to
obtain audited financial statements. As such, our management deemed it in our
best interest to rescind the transactions. We rescinded the transaction because:
i) These companies may have had undisclosed liabilities;
ii) We were unable to verify inventory; and
iii) We were unable to verify previous sales.
As a result of the rescission, we have no formal agreement to sell IMMMU and
IMMCEL products in the United States. This rescission has reduced our product
line by approximately 18 products. We do not feel this will have a materially
adverse affect on our operations given the short period of time in which these
companies were our subsidiaries.
Despite the above, management believed that the products of IMMMU would enhance
our product line. Our management deemed it in our best interest to enter into a
distribution agreement with IMMMU to sell their products in Canada. On November
1, 1999, we entered into an exclusive distributor agreement with IMMMU, Inc.
Such agreement provides that IMMMU appoints us as the exclusive distributor of
products in Canada. Under the agreement, we may market, sell, and distribute
IMMMU products pursuant to a pricing structure set forth by IMMMU. The agreement
includes provisions that we will be indemnified by IMMMU for any loss, damages,
claim or settlement that may arise out of any defect, known or unknown, in any
of the products at the time of manufacture, assuming no material alteration of
the product occurred after manufacture. There is no assurance that IMMMU will
have sufficient assets or insurance coverage to indemnify us against any such
liabilities. The agreement is for a term of November 1, 1999 through December
31, 2001 with automatic renewals. Either party may terminate the agreement on
thirty days written notice.
On April 21, 1999, we formed a wholly owned subsidiary Nutrition Cafe, Inc., a
Florida Corporation which operates a website NutritionCafe.com. The website is
designed to provide nutritional information, provide links to other informative
sites and to market and sell our products.
On May 24, 1999, we acquired the assets of Ice Cold Water, Inc. (hereinafter
"Ice Water"), a Florida corporation incorporated on August 7, 1997, for
$120,000.00. At the time of this transaction, Ice Water was engaged in the
business of selling bottled water and leasing water coolers in Tampa, Florida
and the surrounding metropolitan areas. We entered into this transaction in
order to expand our product line to include water products, as we felt it would
complement our existing line of nutritional supplements.
(b) Principal Products and their Markets.
NUTRITIONAL PRODUCTS.
We are engaged in the nutraceutical business. We formulate, distribute and
market natural dietary supplements and health and fitness products through
wholesale and retail outlets. Third parties do all manufacturing of our
products. We also distribute bottled water through our subsidiary Ice Water.
3
<PAGE>
We sell approximately thirty-three (33) varieties of vitamins, nutritional
supplements, weight loss and muscle growth supplements and food supplements
under brand line names TrimFast, Body Life Sciences and IMMMU. TrimFast and Body
Life are our own product lines. We sell the IMMMU products through an exclusive
distributor agreement. (See this ITEM above). Products are formulated in
vitamins/minerals combinations with varying potency levels. They are offered in
soft-gel, two-piece capsule, chewable, and liquid and powder forms to
accommodate various consumer preferences.
There can be no assurances that any of our products will produce the desired
results since the consuming population is diverse in their physical,
psychological and mental makeup and differs in their metabolic rates, genetic
composition and other factors and hence there is no scientific basis for
believing that any of the desired results will be produced. Further, there have
been occurrences where ingredients in certain nutritional supplements have been
determined to be harmful when consumed by humans. We believe that our products
do not currently contain any ingredients not safe for human consumption, however
there is no assurance this assumption is correct. (See PART II, ITEM 2. Legal
Proceedings). Any product liability claims made against us could have an adverse
affect on our business. Many of the ingredients in our products are vitamins,
minerals, herbs and other substances for which there is not a long history of
human consumption. In addition, although we believe all of our products to be
safe when taken as directed by us, there is little experience with human
consumption of certain of these innovative product ingredients in concentrated
form. Accordingly, no assurance can be given that our products, even when used
as directed, will have the effects intended or be safe for human consumption.
However, because we are highly dependent upon consumers' perception of the
safety and quality of our products as well as similar products distributed by
other companies (which may not adhere to the same quality standards as we do),
we could be adversely affected in the event any of our products or any similar
products distributed by other companies should prove or be asserted to be
harmful to consumers. In addition, because of our dependence upon consumer
perceptions, adverse publicity associated with illness or other adverse effects
resulting from consumers' failure to consume our products as we suggest or other
misuse or abuse of our products or any similar products distributed by other
companies could have a material adverse effect on the results of our operations
and financial condition.
We, like any other retailer, distributor and manufacturer of products that are
designed to be ingested, face an inherent risk of exposure to product liability
claims in the event that the use of our products results in injury. Such claims
may include, among others, that our products contain contaminants or include
inadequate instructions as to use or inadequate warnings concerning side effects
and interactions with other substances. With respect to product liability
claims, we have $1,000,000 per occurrence and $2,000,000 in aggregate liability
insurance subject to a self-insurance retention of $10,000. In addition, if such
claims should exceed $2,000,000, we have excess umbrella liability insurance of
up to $4,000,000. However, there can be no assurance that such insurance will
continue to be available at a reasonable cost, or, if available, will be
adequate to cover liabilities. We generally do not obtain contractual
indemnification from parties supplying raw materials or marketing our products.
In any event, any such indemnification if obtained will be limited by our terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
In the event that we do not have adequate insurance or contractual
indemnification, product liabilities relating to defective products could have a
material adverse effect on our operations and financial conditions.
4
<PAGE>
PRINCIPAL PRODUCTS.
The TrimFast Dietary Supplement, formerly named Herbal Plus, was introduced in
January of 1999. It is an all-natural herbal formula marketed weight loss
supplement. It is sold by distributors and in the following health food stores
and weight loss centers: Ansley's Natural Marketplace, Beehive Natural Foods of
Miami, The Honey Tree, Health Quest, Natural Nutrition, Physicians Weight Loss
Clinics and Supplement Warehouse. TrimFast was designed to assist in curbing
appetite and increasing metabolism to affect the fat burning process. In
addition, TrimFast was designed to increase energy and reduce water retention.
However, there can be no assurances that this product will have such effects
uniformly upon all users since the consuming population is diverse from the
standpoint of various metabolic rates. The TrimFast product has also been used
in combination with St. Johns Wort to provide the mental drive in implementing
the positive effects of St. Johns Wort - reducing stress and nervous tension and
causing an alert mood. This product is packaged in a one-month supply bottle.
Immune Blast, introduced in July of 1998, is an all-natural immune system
enhancer designed to aid in the prevention of colds and flu. The product is
marketed to the distributors: Abyss Distributors and Nutraline Distributors.
Max Impact is an entire product line targeted to convenience stores and gasoline
outlets. The products include all-natural packages, thirty count bottles and
daily supply packages of St. John's Wort, Trim Fast, Sudden Energy and Ginseng
Zing.
Kicks, introduced in October of 1998, is an all natural chewable multi-vitamin
and mineral supplement developed and formulated exclusively for active children
and young athletes. This product is designed to compete with national brand
children's vitamins such as Flintstones.
The TrimFast Weight Loss Bar is a new product we introduced on June 14, 1999. We
designed this product to assist the user in a weight loss program by helping to
curb appetite, increase metabolism and increase energy levels; however, there
can be no assurance that any one or all of these effects will be produced in all
or any case. This product was designed to be implemented in conjunction with a
sensible nutritional diet program with exercise. The product was designed to
compete with several national companies including Slim Fast, Nestle's, MediFast
and Pounds Off nutrition. This product is offered in three flavors: chocolate
chocolate chip, chocolate peanut butter and passion fruit.
St. John's Wort: The only herb that has been scientifically studied and proven
to elevate mood and positive outlook, reduce stress and nervous tension which is
used to treat depression and mood related ailments.
Big Bad Rooster. A supplement designed to stimulate the male and female
reproductive, nervous and circulatory systems. The supplement contains an
alkaloid, yohimbine, which is believed by some to stimulate blood vessel
engorgement in the pelvic area, even though there is no scientific basis for
such conclusions.
5
<PAGE>
Herbal Fen. A natural dietary supplement containing 5-Hydroxytryptophan that
helps increase brain levels of serotonin, a neurotransmitter that regulates key
functions related to moods.
Body Life, our wholly owned subsidiary, will market under its trade name Muscle
Recovery nutritional supplement. This product is a comprehensive remedy for
muscle aches, pains and soreness. It is to be taken immediately after injury or
exercise to boost the body's natural recuperative powers.
To date, we have not undergone any research and development of potential new
products or regarding any other areas of potential development. Although we plan
to devote 2% of our revenues to research and development within the next fiscal
year, such plans are totally dependent upon a number of factors, including:
sufficient revenue streams to support this expense, the retention of qualified
personnel participating in research and development. Currently we employ Steve
Kushner, the company nutritionist that has over 20 years of practical experience
and trained under Dr. Hazel Parcells. In addition, we must have the ability to
attract new qualified personnel to perform research and development and numerous
other factors which management may have not currently contemplated.
Competition.
Nutritional and dietary supplement products involve highly competitive markets.
We are in the process of developing our marketing strategies and product lines
and expect that both will involve an ever-changing and evolving process.
Although we will attempt to competitively price our products, provide superior
quality products, and achieve success through attentive and efficient customer
service and effective marketability strategies, we are limited by a number of
factors, including the developmental character of our company and the
unpredictability and uncertainty of our future revenues. In addition, we are
limited by the intensely competitive nature of the dietary food and vitamin
product industry in which more established companies may offer any combination
of the following: superior service, more competitive pricing, superior product
quality and availability, a variety of marketing strategies and distribution
networks and profitability achieved through sales volume and narrow profit
margins. There are many well-established competitors with substantially greater
financial revenues, as well as, significant new market entrants. Many of these
competitors have been in existence for substantially longer periods of time than
we have and may be better established in the market where we want to operate.
Further, they may have sufficient revenue streams to engage in extensive
advertising and promotional campaigns far in excess of our marketing
capabilities. In addition, many of the competitors in this field are privately
held, leading to unavailability of available data of the size of our
competition. Accordingly, our competition is difficult to assess with any
preciseness.
INTERNET ACTIVITIES: NUTRITION CAFE.
Nutrition Cafe, Inc., a wholly owned subsidiary of the Company, launched its
Internet site (www.nutritioncafe.com) in June of 1999. Through this Internet
site, we intend to offer nutritional products, including vitamins, minerals,
dietary supplements, sports nutrition products and homeopathic products for sale
to the public. These products are also offered at our retail store located in
Clearwater, Florida. Once the Internet site becomes fully operational, we will
attempt to market approximately 10,000 vitamins, herbs, dietary supplements and
homeopathic products to members at distributor wholesale prices. The Internet
site is planned to promote all of our products as well as,
6
<PAGE>
market and sell vitamins and nutritional products from such other manufacturers
as Met-Rx, Prolabs and Nature's Way.
In addition to offering a complete line of vitamins and supplements, the
nutritioncafe.com web page plans to offer visitors and members advice relating
to a variety of highlighted subject areas including nutrition, health, diet,
physical fitness and nutritional supplements. Daily columns on such topics as
health care, vitamins, homeopathic remedies, chiropractic care, fitness and
exercise may also be provided. Management believes that the subject areas, style
and special features will be arranged in a simple, easy-to-use fashion intended
to enhance product search and customer knowledge while encouraging membership
and repeat business.
There can be no assurance that our Internet site will become fully operational
or will have the ability to effectively market our current products or those of
other manufacturers. In addition, there can be no assurance that our Internet
site will be able to market a projected 10,000 such products. The marketability
rate resulting from our Internet site is dependent upon revenues from our
Internet site and other sources, the relative success of promoting our Internet
site and competition from well-established Internet sites operated by strong
revenue based companies with long-life operational success.
Membership.
Anyone wishing to purchase products from the Nutrition Cafe will be required to
purchase a membership at the price of $9.95 per month. Memberships will be sold
on a pay-as-you-go basis in one month increments. Members will have the option
to continue their membership each month and no long term agreements will be
required. Members will have the option of having this fee automatically charged
to a credit card or debited from their checking account.
Payment.
Payment for orders placed on the nutritioncafe.com website may be made by check,
money order or credit card. Because of consumer concern on the issue of
utilizing their credit card for Internet purchases, we plan to utilize secure
server software. This software encrypts all of the customer personal information
including credit card number, name and address, so that it cannot be read during
Internet transmission.
Availability and Shipment.
Most of the products that are ordered from the Nutrition Cafe site would be
available for shipment within forty-eight (48) hours. Those products not in
stock can be ordered from various distributors or directly from the
manufacturer. Delivery time for these products can range from two (2) to four
(4) weeks. Orders are planned to be shipped via UPS ground transportation.
Express delivery options will be available at an additional cost. We warehouse
approximately 2,000 different products at our warehouse facility located in
Clearwater, Florida. Our goal is to continue developing our distribution
infrastructure to increase efficiency and support greater customer demand.
Marketing And Promotion.
7
<PAGE>
Our marketing strategy is designed to strengthen the nutritioncafe.com brand
name, to increase customer traffic to the nutritioncafe.com website, to build
customer loyalty, to increase the membership base and to encourage repeat
business. We intend to utilize traditional advertising media to gain name
recognition in the general public including television, radio and print
advertising. We also intend to utilize banners, agreements with search engine
providers and hyperlinks. All products sold on our website are offered with a
100% money back guarantee, if the customer is dissatisfied for any reason with
the purchase.
Competition.
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. Our current or potential competitors include Rexall
Sundown, Metabolife and Lifetrends International, each of which may be or are
currently offering their products on the Web. We also face competition from such
indirect sources as Yahoo and AOL that are involved in online commerce either
directly or in collaboration with other retailers, traditional retailers who
currently sell, or who may sell, products or services through the Internet. We
believe that the principal competitive edge in our market will be brand
recognition, price, selection, and a knowledgeable provider of health care
products, reliability and speed of performance. As the online commerce market
continues to grow, other companies may enter into business combinations or
alliances that strengthen their competitive positions. Our prospective customers
already have the opportunity to purchase various nutritional supplements from
various websites including greentree.com, rx.com, drugstore.com and vitamin.com.
Retail Location.
On May 15, 1999, we opened a Nutrition Cafe retail store at our warehouse
facility in Clearwater. The retail establishment occupies approximately 1,300
square feet of space and caters primarily to local clientele. We expect to use
this store to test the viability of opening additional Nutrition Cafe retail
establishments.
Raw Materials, Suppliers and Manufacturing.
While we employ our own consultants to develop new product mixes, we do not
currently manufacture any of our products; instead, we rely on third-party
contract manufacturers. Currently, Innovative Labs, Phillips Pharmatech Labs,
Inc., Dolisos America, Inc. and Five Star Brands, Inc. manufacture most of the
products for TrimFast and Body Life Sciences.
We procure raw materials from various suppliers, but we contract our finished
product production to one third party primarily. Since December 1998, we have
used a second production factory for some of our products; in the event that any
manufacturer ceases operations or cannot continue to manufacture any product for
us, we believe that there will be little difficulty in locating a manufacturer
to produce any of our products without delivery delays or significantly higher
costs.
The raw materials required for the manufacture of our products are readily
available from a number of different sources. As such, we do not believe there
will be any difficulties obtaining the required raw materials.
BOTTLED WATER.
8
<PAGE>
We recently acquired the assets of Ice Water, a bottled water distributor
located in the Tampa, Florida area. Ice Water delivers bottled water to a base
of customers in the Tampa, Florida area. Customers typically either own or rent
their water coolers from Ice Water. Rental customers typically sign a one-year
contract, providing Ice Water with a modest, but relatively stable stream of
revenue from both a monthly cooler rental charge and the sale of bottled water.
Water only customers generate revenues for us through the sale of bottled water
and ancillary services such as cooler repairs. We believe that direct delivery
water cooler companies enjoy several advantages over retailers of bottled water.
Management believes the strong industry growth has been and will continue to be
driven by: (i) concerns related to the quality of tap water sources, (ii)
consumer preferences for healthy products, (iii) taste preferences over tap
water and other refreshment beverages and (iv) favorable demographics.
Tap Water Concerns.
The aging of the tap water supply infrastructure and the high cost of adequately
maintaining or replacing existing water delivery systems have resulted in an
increase in tap water contamination incidences in recent years. Consequently,
there has been a decrease in consumers' confidence in the quality of tap water,
accompanied by an increase in consumption of bottled water. Management believes
that this trend will continue.
Healthy Products.
There is a movement toward a healthier lifestyle and the consumption of healthy
products, a theme that we attempt to promote in our varied line of products.
Within the "healthy products" segment, clear or natural colored products are
experiencing significant growth. Bottled water is perceived as a product with
strong health and fitness appeal.
Competition.
The bottled water industry is highly fragmented in North America. The bottled
water market is comprised of approximately 2,500 companies generating
approximately $4.0 billion in sales. Of these companies, the five largest
companies account for approximately 55% of the total market, with the remainder
comprised of hundreds of small regional companies. Management believes that the
industry will continue to consolidate as (i) operating leverage of the larger
companies makes the smaller companies uncompetitive, (ii) succession issues at
many smaller, family owned companies lead a number of independent companies to
exit the industry, and (iii) pressure to meet improving water quality standards
eliminates low quality producers.
We compete in the "alternative to tap water" market in two areas. First, we
compete directly with other home and office delivery bottled water companies in
our geographic markets. This segment is highly fragmented with the vast majority
of the companies being operated as small entrepreneurial and family-owned
businesses. We also compete indirectly with companies that distribute water
through retail stores and vending machines.
Management believes that the competitive advantage of water coolers over these
alternative distribution channels is primarily based on the convenience of home
or office delivery and, to a lesser
9
<PAGE>
extent, price. Similarly, we compete with providers of on-premises water
filtration systems, including systems distributed through retail outlets, which
we believe are aimed at less affluent consumers. In certain markets, we market
and provide on-premises water filtration systems.
The "alternative to tap water" industry also includes a number of
well-established, well-capitalized companies. These include Nestle S.A., which
owns Perrier and the Perrier Group of America. Perrier Group of America operates
the Arrowhead, Poland Spring, Zephyrhills, Ozarka, Oasis and Great Bear brands.
Suntory owns Belmont Springs, Hinkley & Schmitt, Crystal, Kentwood, and Polar.
BSN Group owns the Evian and Dannon brands and also operates the Crystal Spring
(Toronto), Spring Valley, and Laurentian businesses. McKesson Corporation
operates the Sparkletts business. Ionics Incorporated operates the Aquacool
businesses. In addition, United States Filter Corp. and Culligan Water
Technologies, Inc. compete in the water filtration segment.
Business and Products.
We primarily market two types of water. These are spring water and premium
drinking water.
Spring Water.
Spring water is water that has been naturally filtered by its passage through
various geological layers, and is drawn from a protected underground reservoir
called an aquifer. It can then be either bottled at the source or transported in
stainless steel tankers to a more strategically located bottling facility.
Before bottling, spring water is passed through a micron filter that removes
sediment while retaining the natural mineral content of the water. The water is
then purified through an industry standard purification process known as
ozonation.
The Company draws its spring water from local sources. The spring water is
bottled at the source or transported to an independently owned bottling
facility. At the bottling facility, the spring water is filtered and ozonated.
Ozonation is a process whereby impurities not removed through ordinary
filtration are removed through the injection of oxygen. The process involves a
special form of oxygen, ozone, which is the strongest disinfectant and oxidizing
agent available for water treatment. The added oxygen quickly dissipates and
results in tasteless and odorless purification as compared to chlorination. This
process is designed to prevent bacteria and other contaminants from being
transferred from the spring or the tanker to the finished product.
Premium Drinking Water.
Premium Drinking Water is drawn from local municipal sources. It is passed
through a series of carbon and sand filters, processed by either reverse osmosis
or deionization, ozonated and then bottled. Premium drinking water has 99.9% of
all impurities removed from it, including its natural mineral content.
Premium drinking water, like spring water is obtained from an independent
bottler. Premium drinking water is accessed through local, publicly available
water supplies. It is further purified through reverse osmosis to remove
chlorine and other chemicals frequently found in tap water. The product then
goes through the ozonation process prior to bottling as premium drinking water.
10
<PAGE>
All water is obtained from sources in the Tampa area. We do not do any bottling;
rather, we rely upon independent bottlers to deliver our supply of water bottles
and coolers that, in turn, are delivered to our customers.
Water Coolers.
Rental customers typically sign a one-year contract, providing us with a stream
of relatively stable revenue from both a monthly cooler rental charge and the
sale of bottled water. While pricing varies depending on the water cooler
selected and the lease term selected by the customer, our current average
monthly rental charge for our coolers is approximately $8 -$10 per month.
We strip down, clean, and redeploy returned water coolers prior to all new
installations. Our average cost per water cooler is approximately $150, and we
estimate that the average life of a water cooler is ten (10) years. The typical
pay back period on a water cooler investment (assuming only rental revenue) is
approximately fifteen (15) months. In the event of termination of the rental
agreement, water coolers can be readily redeployed at a relatively low cost to
us. In addition, we charge a water cooler collection fee in certain markets when
a customer opts to discontinue purchasing water.
Delivery.
We believe that one of the most important success factors in the delivered
bottled water business is delivery route efficiency. Route efficiency is the
critical cost factor in the water cooler business, as the average cost of local
delivery per bottle is over four (4) times the cost of preparing one (1) bottle
for distribution. However, the marginal distribution cost of an additional
bottle on an existing route is relatively low.
Distribution Methods for our Dietary and Nutritional Supplements.
We utilize five different distribution channels for our health and fitness
products. These are wholesalers, distributors, food brokers, and direct sales to
retail outlets and the Internet. Currently, we distribute to twelve (12)
wholesalers and fifteen (15) distributors. We also have agreements with eleven
(11) food brokerage firms that sell products to nationwide retailers and
distributors.
Wholesalers buy products directly from us. These wholesalers in turn sell to
independent sales agents, who then sell to various retail establishments. The
distributors on the other hand buy the product directly from us and resell to
various retail outlets. Brokers are contracted to sell our products to retail
chains, distributors and wholesalers. Any retail accounts secured by the brokers
are directed to the distributors that currently supply the retailer with other
products.
Wholesalers and distributors are set up on terms of two percent (2%) fifteen-
(15) days net thirty (30) days as long as pre-approved credit has been
established. If credit has not been approved, we require one-half (1/2) of the
purchase order price upon ordering and the balance due on delivery.
We also market through direct response television advertising. Inside sales
personnel who work directly for us will accept orders, arrange for production
and delivery of the products as required to service demand and co-ordinate
delivery of product to retailers and end customers.
11
<PAGE>
Prospective retail locations include convenience stores, supermarkets, drug
stores, health clubs, gasoline outlets, restaurants and bars, and health
specialty outlets.
Once the purchase order has been verified, shipping instructions are delivered
to our distribution center where orders are fulfilled within forty-eight (48)
hours. Typically, product orders are generally shipped by UPS ground
transportation and customers receive their product within seven (7) days.
Express delivery services are also available. Express product orders are
generally shipped within twenty-four (24) hours. Special order products may take
up to a week to deliver but, in general, can be shipped within seventy-two (72)
hours. Unless alternate payment plans are provided, payment is due within thirty
(30) days of delivery.
Dependence on a Few Customers.
As of December 31, 1998, we had only 79 customers, of whom one (1) accounted for
sixty percent (60%) of our business and two (2) accounted for an additional
thirteen percent (13%) of our business. Although, our marketing strategy
contemplates increasing our customer base to 250 there are no assurances that we
will meet this goal.
Intellectual Property.
We currently rely primarily on common law and proprietary protection. Our
business prospects will depend largely upon our ability to capitalize on
favorable consumer recognition of our trade names. We do not hold a trademark
registration for most of our products. We have been granted trademarks in the
state of Florida for TrimFast, Herbal Blast and Water with an Attitude. TrimFast
has also been registered with the U.S. Patent and Trademark Office (75-029550).
We have applied for trademark protection for Kicks. These applications are
currently pending, have not been approved and may not ever be approved. Even, if
obtained, there can be no assurance that our trademarks will not violate the
proprietary rights of others or that our trademarks would be upheld and not
prevented from using our trademarks, if challenged, any of which could have an
adverse effect on us. It is possible that our competitors will adopt product or
service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion. Our inability to protect
our trade names will have a material adverse effect on our business, results of
operations and financial condition.
We also rely on trade secrets and proprietary know-how, and employ various
methods, to protect our concepts. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to our know-how and concepts. We do
not maintain confidentiality or non-competition agreements with all of our
executives, key personnel or suppliers. There can be no assurance that we will
be able to adequately protect our trade secrets. Third parties may assert
infringement claims against us or against third parties upon whom we rely and,
in the event of an unfavorable ruling on any claim, we may be unable to obtain a
license or similar agreement to use technology that we rely upon to conduct our
business.
Unlike pharmaceutical products that rely on specific combinations of drugs and
chemicals, patents cannot protect herbal products. However, management believes
that simply knowing the ingredients to an herbal product does not mean that
other manufacturers can duplicate the product. Effective trademark, copyright
and trade secret protection may not be available in every country in which we
12
<PAGE>
may offer or intend to offer or sell our products. Failure to adequately protect
our intellectual property rights could harm brand-name recognition, devalue our
proprietary content and adversely affect our ability to compete effectively in
the marketplace. Further, defending the intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially affect the operations of the business. While we believe
that our steps are adequate to secure our intellectual property rights, there
can be no assurance that a third party will not misappropriate any of our
proprietary information.
Government Approval and Regulation
We do not plan to collect sales or other similar taxes in respect of goods sold
by our Nutriction Cafe.com website except where required by law for purchasers
located in certain jurisdictions. However, one or more states or the federal
government may seek to impose sales tax collection obligations on out-of-state
companies (such as beautymerchant.com) which engage in or facilitate online
commerce, and a number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce, and could adversely affect our opportunity to derive
financial benefit from such activities.
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing, and characteristics and quality
of products and services. Furthermore, the growth and development of the market
for Internet commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
over the Internet. The adoption of any additional laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet products and increase our cost of doing business or otherwise
have an adverse effect on our business, results of operations and financial
condition. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as sales tax, libel and personal
privacy is uncertain and may take years to resolve.
In addition, since our service is available over the Internet in multiple states
and we may sell to numerous consumer residents in such states, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject our
business to taxes and penalties for failure to qualify. Any such existing or new
legislation or regulation, including state sales tax, or the application of laws
or regulations from jurisdictions whose laws do not currently apply to our
business, could have a material adverse effect on our business, results of
operations and financial condition.
The manufacturing, processing, formulating, packaging, labeling, distributing,
selling and advertising of our products are subject to regulation by one or more
federal agencies. The most active regulation has been administered by The Food
and Drug Administration (hereinafter the "FDA") which regulates our products
pursuant to the Federal Food, Drug and Cosmetic Act (hereinafter the "FDCA") and
regulations promulgated thereunder. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, food supplements, over-the-counter
drugs and prescription drugs, medical devices and
13
<PAGE>
cosmetics. In addition, the Federal Trade Commission (hereinafter the "FTC") has
overlapping jurisdiction with the FDA to regulate the labeling, promotion and
advertising of dietary supplements, over the counter drugs, cosmetics and foods.
Although the dietary supplement industry is subject to regulation by the FDA and
local authorities, dietary supplements, including vitamins, minerals, herbs and
other dietary ingredients, now have been statutorily affirmed as a "food."
Dietary supplement companies are authorized to make substantiated statements of
nutritional support and, subject to several possible limitations, to market
manufacture-substantiated-as-safe dietary supplement products without FDA
pre-clearance. Failure to comply with applicable FDA requirements can result in
sanctions being imposed on the Company or the manufacturers of our products,
including but not limited to fines, injunctions, product recalls, seizures and
criminal prosecution.
Compliance with applicable FDA and any state or local statutes is critical.
Although we believe that we are in compliance with applicable statutes, there
can be no assurance that, should the FDA amend its guidelines or impose more
stringent interpretations of current laws or regulations, we would be able to
comply with these new guidelines. We are unable to predict the nature of such
future laws, regulations, interpretations or applications, nor can we predict
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on our business in the future. These regulations
could, however, require the reformation of certain products to meet new
standards, market withdrawal or discontinuation of certain products not able to
be reformulated, imposition of additional record keeping requirements, expanded
documentation regarding the properties of certain products, expanded or
different labeling and/or additional scientific substantiation.
The FDCA has been amended several times with respect to dietary supplements,
most recently by the Dietary Supplement Health and Education Act of 1994
(hereinafter "DSHEA"). DSHEA was enacted on October 15, 1994. It provides a new
statutory framework governing the composition and labeling of dietary
supplements. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, dietary supplements are generally excluded from the legal
definition of "food additive."
With respect to composition, DSHEA created a new class of "dietary supplements",
consisting of vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, as well as concentrates,
metabolites, extracts or combinations of such dietary ingredients. Generally,
under DSHEA, dietary ingredients that were on the market before October 15, 1994
may be sold without FDA pre-approval and without notifying the FDA. On the other
hand, a new dietary ingredient (one not lawfully on the market before October
15, 1994) requires proof that it has been present in the food supply as an
article used for food without being chemically altered, or evidence of a history
of use or other evidence of safety establishing that it is reasonably expected
to be safe. The FDA must be supplied with such evidence at least seventy-five
(75) days before the initial introduction into interstate commerce use of a new
dietary ingredient. There can be no assurance that the FDA will accept the
evidence of safety for any new dietary ingredients that we may decide to use,
and the FDA's refusal to accept such evidence could result in regulation of such
dietary ingredients as adulterated until such time as reasonable expectation of
safety for the ingredient can be established
14
<PAGE>
to the satisfaction of the FDA.
As for labeling, DSHEA permits "statements of nutritional support" for dietary
supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A
company making a statement of nutritional support must possess substantiating
evidence for the statement, and, for such statements that are not about the
effects on the body as a result of a dietary supplement used as a tool for its
nutritive value and are not otherwise "health claims," disclose on the label
that the FDA has not reviewed that statement and that the product is not
intended for use for a disease, and notify the FDA of the statement within
thirty (30) days after its initial use. The manner for making the disclosure and
notifying the FDA are set forth in the regulations. However, there can be no
assurance that the FDA will not determine that a given statement of nutritional
support that we decide to make is a drug claim rather than an acceptable
nutritional support statement. Such a determination would require deletion of
the drug claim or our submission, and the FDA's approval of a New Drug
Application (hereinafter "NDA"), which would entail costly and time-consuming
clinical studies. In addition, DSHEA allows the dissemination of "third party
literature", publications such as reprints of scientific articles linking
particular dietary ingredients with health benefits. Third party literature is
exempted from FDA regulation as dietary supplement "labeling" and may be used in
connection with the sale of dietary supplements to consumers. Such a publication
may be so used if, among other things, it is not false or misleading, no
particular manufacturer or brand of dietary supplement is promoted and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third party
literature that may be disseminated in connection with our products will be
determined by the FDA to satisfy each of these requirements, and any such
failure could subject the product involved to regulation as a new drug or as a
"misbranded" product.
DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining structure
or function of the body. Any statement of nutritional support beyond traditional
claims must be accompanied by disclosure that the FDA has not evaluated such
statement and that the product is not intended to cure or prevent any disease.
We anticipate that the FDA will promulgate Good Manufacturing Practices
(hereinafter "GMPs"), which are specific to dietary supplements and require at
least some of the quality control provisions contained in the GMPs for drugs.
Management anticipates that the FDA may promulgate GMP regulations authorized by
DSHEA, which are specific to dietary supplements. GMP regulation would require
supplements to be prepared, packaged and held in compliance with such rules, and
may require similar quality control provisions contained in the GMP regulations
for drugs. There can be no assurance that, if the FDA adopts GMP regulations
specific to dietary supplements, that either we or our manufacturers will be
able to comply with such GMP rules upon promulgation or without incurring
material expenses to do so.
Our products and product related activities may also be subject to regulation by
other regulatory agencies, including but not limited to the FTC, the Consumer
Products Safety Commission, the United States Department of Agriculture, the
United States Postal Service, the United States
15
<PAGE>
Environmental Protection Agency and the Occupational Safety and Health
Administration. These activities are also regulated by various agencies of the
states and localities in which our products are sold.
Advertising of dietary supplement products is subject to regulation by the FTC
under the Federal Trade Commission Act (hereinafter the "FTCA"). Section 5 of
the FTCA prohibits unfair methods of competition and unfair or deceptive trade
acts or practices in or affecting commerce. Section 12 of the FTCA provides that
the dissemination or the causing to be disseminated of any false advertising
pertaining to drugs or foods, which would include dietary supplements, is and
unfair or deceptive act or practice. Under the FTC's Substantiation Doctrine, an
advertiser is required to have a "reasonable basis" for all objective product
claims before the claims are made. Pursuant to this FTC requirement, we are
required to have adequate substantiation of all material advertising claims made
for its products. Failure to adequately substantiate claims may be considered
either deceptive or unfair practices.
In recent years the FTC has initiated numerous investigations of dietary
supplement and weight loss products and companies. The FTC has recently issued a
guidance document to assist supplement marketers of dietary supplement products
in understanding and complying with the substantiation requirement.
The FTC is authorized to use a variety of processes and remedies for
enforcement, both administratively and judicially including compulsory process,
cease and desist orders, and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. State and local authorities can also regulate
advertising and labeling for dietary supplements and conventional foods. There
can be no assurance that state and local authorities will not commence
regulatory action that could restrict the permissible scope of our product
claims.
Employees.
We currently have fifteen (15) employees, of whom eleven (11) are employed
full-time and four (4) are employed part-time.
Material Agreements.
License Agreement with WCW. In June 1999 we developed our first private label
product by entering into a licensing agreement with the World Championship
Wrestling Organization ("WCW") to produce Energy Bars in three flavors under the
WCW brand name in the United States, its territories and possessions and its
Military Installations. This license agreement is non-exclusive and expires on
December 31, 2002. This agreement provides that we may use logos, slogans and
the likeness of WCW wrestlers, as provided by WCW, on the labels of our energy
bars, which have been designed to target an audience of millions of adults and
children watching and attending professional wrestling matches. In consideration
of this license, we have agreed to pay WCW 6% of net sales as a royalty fee.
Venture Direct Worldwide Inc. On June 29, 1999 we entered into an agreement with
Venture Direct Worldwide Inc. as agent for Microsoft Network to exclusively
utilize the keywords vitamins,
16
<PAGE>
supplements and Sports Nutrition on the Microsoft Network.
May Davis Group of New York Agreement. We have entered into a series of
agreements with the May Davis Group of New York, whereby the May Davis Group of
New York acts as a placement agent for our securities offered and sold in
private placements. In exchange for these services, May Davis Group of New York
has been compensated with options to purchase forty thousand (40,000) shares of
our common stock at a variable price depending on an equation involving the
trading price at the time of exercise. Such options are exercisable for sixteen
(16) months from the date of each agreement and have registration rights.
Year 2000 Compliance.
Our systems are Year 2000 ("Y2K") compliant. The cost of such compliance on our
part was less than $5,000. The Y2K compliance issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Computer programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. This could result
in a systems failure or miscalculation causing disruption of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. We have verified
that our two principal customers are Y2K compliant. We do not know if our other
suppliers or distributors are Y2K compliant, but believe there will be no
material adverse impact upon us if one of our individual distributors or
manufacturers is not Y2K compliant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS/PLAN OF OPERATION
FINANCIAL STATEMENT PRESENTATION
The financial statements are presented without comparable 1998 quarterly
information. We were not publicly traded in 1998 and systems, though adequate to
address annual audit needs, were not in place to allow for extracting reliable
quarterly information. We have presented the comparison with adjustments from
the year end 1998 numbers.
RESULTS OF OPERATIONS.
Sales for the nine months ended September 30, 1999 were $581,337 as compared to
$1,925,332 for the year ended December 31, 1998 ($1,443,999 adjusted
proportionately for the nine months ended September 30, 1998.). The significant
decline in sales is primarily attributable to our decision to discontinue the
sale of Revivarant, a muscle replenishment supplement. This decision was
initiated by an industry wide investigation by the Food and Drug Administration
into the active ingredient in Revivarant.
Management had expected that the introduction of the IMMCEL and IMMMU product
lines would add to revenues. However, customer acceptance proved disappointing
and the prior owner, and key employee refused to honor his contractual
commitments to manage the newly added subsidiaries. As a result, we have
rescinded our agreement with the prior owners of IMMMU and IMMCEL and will focus
on the expansion of our own line of nutritional supplements. All rights title
and interest to the IMMMU/IMMCEL product lines will revert back to their prior
owners, all consideration paid or received will be returned and any profits or
losses generated from the operation on IMMMU and IMMCEL will be allocated to its
prior owners.
17
<PAGE>
Management believes that a significant boost to its revenues will be generated
from its licensing agreement with World Championship Wrestling ("WCW"). We
intend to sell high nutrition, energy bars with the WCW logo and images of the
various wrestling personalities. Both food brokers and retail stores have shown
tremendous interest in the product. We anticipate shipping the bars in December
and January with a national advertising campaign tentatively scheduled to begin
in February. While there can be no assurance that the product will meet
anticipated demand, management believes that the sale of the WCW energy bars
will be a significant source of revenues for the Company.
With the acquisition, formation and expansion of business activities during
1999, operating expenses increased significantly. Salaries for the year ended
December 31, 1998 total $221,773 as compared to $505,372 for the nine months
ended September 30, 1999. New employees had to be hired to handle the increased
business activities of the Company.
For the nine months ended September 30, 1999, we recorded $1,467,900 in
professional fees. A significant portion of this amount is non-cash expense,
representing the issuance of common stock to certain professionals in exchange
for professional services. Management anticipates that professional fees will
decline significantly in the future.
Selling general and administrative expenses were $423,289 for the year ended
December 31, 1998 as compared to $623,451 for the nine months ended September
30, 1999. Approximately $175,000 of this increase was attributable to
advertising for NutritionCafe.
Approximately $250,000 of the interest expense of $354,569 is attributable to
the intrinsic value of the convertible debenture executed by the Company.
Net income for the year ended December, 31 1998 was $43,063. We have generated a
net loss of $2,731,172 for the nine months ended September 30, 1999 and a net
loss of $0.77 per share.
LIQUIDITY AND CAPITAL RESOURCES.
December 31, 1998 as compared to September 30, 1999
Total cash and cash equivalents as of September 30, 1999 were $100,312 as
compared to $120,938 as of December 31, 1998, a decline of approximately 17%.
Trade receivables declined from $357,889 to $318,407 and inventory increased
from $188,737 to $377,270. This increase in inventory is attributable to the
launch of Nutrition Cafe and the inventory that we are required to carry to meet
customer orders.
Total current assets increased approximately 40%, increasing from $679,309 to
$1,308,267.
Property and equipment increased from $33,403 to $1,459,270. This increase is
due primarily to our purchase of the facility, which houses our warehouse
operations for Nutrition Cafe, and the equipment purchased to operate this
facility. The $228,705 attributable to software development represents our
investment in the Nutrition Cafe website software.
18
<PAGE>
We also experienced a significant increase in liabilities. Accounts payable
increased from $625,757 to $926,612, and we issued a convertible debt instrument
in the amount of $1,000,000. The proceeds raised from this debt offering were
used to purchase the warehouse facility.
Management believes that we have sufficient revenue and reserves to finance
ongoing business activities.
GENERAL.
At the beginning of August of 1998, our assets were negligible, totaling
$599.00. Liabilities at that time totaled $680,917.00 with no revenues being
generated and no business plan in place. Accumulated losses totaled
$1,122,218.00 with a stockholders deficiency of $680,318.00. Due to the lack of
revenues and no business plan, our management sought out an acquisition
candidate and, on August 11, 1998, acquired all of the issued and outstanding
shares of common stock of Trimfast, Inc., a company engaged in the nutraceutical
business.
Trimfast, Inc. was organized as a Florida corporation in April of 1997 and, in
its first year of operations generated revenues of $22,338.00. Start-up and
operating costs totaled $164,559.00 that resulted in a net loss of $151,846.00.
Trimfast, Inc.'s president, Michael Muzio, who, as of December 31, 1997, was
owed a total of $150,200.00, funded these operating expenses. Fiscal year 1998
represented the first full year of operations for Trimfast, Inc. From the
beginning, management chose not to invest the capital required to lease or
acquire the machinery needed to manufacture their products. Instead, Trimfast,
Inc. relied upon contract manufacturers, freeing working capital for other
matters.
With the addition of our wholly owned subsidiary, Trimfast, Inc., revenues in
1998 were $1,925,332.00. Cost of sales was $567,472.00 resulting in a gross
profit of $1,357,860.00. Operating expenses totaled $1,314,797.00 resulting in
income from operations of $43,063.00. We recorded $503,839.00 in bad debt
expense. This sum was partially due to the financial difficulties experienced by
Cutting Edge, a customer who accounted for approximately sixty percent (60%) of
our revenues in 1998 and the bankruptcy of another customer. During 1998, a
total of three (3) customers accounted for approximately seventy-three (73%) of
our sales. Prior to our acquisition of Trimfast, Inc., Trimfast, Inc. was
engaged in the nutraceutical business, distributing health and fitness products.
Our cash balance as of December 31, 1998 was $105,641.00. We also had
approximately $358,000.00 in accounts receivable and $188,000.00 in inventory.
Our total assets as of December 31, 1998 were $731,438.00. Liabilities totaled
$697,897.00 that was comprised of approximately $626,000.00 in accounts payable
and $72,000.00 in notes.
1998 represented a growing year for us. Relationships with distributors,
manufacturers and wholesalers had to be established. Manufacturing rates and
shipping costs all had to be analyzed and evaluated. With our acquisition of
Trimfast, Inc. in 1998, we opened new financing opportunities that would have
otherwise been foreclosed to us. We received a significant capital infusion
through the issuance of our common stock in private placements and borrowed
funds from private lenders.
19
<PAGE>
1999 saw our launch of the NutritionCafe website and the purchase of the assets
of Ice Water. Management believes direct sales to consumers will significantly
reduce reliance on several customers. During the next twelve months of
operation, management remains confident that revenues from operations will be
able to support our ongoing operations. Should the Company determine additional
financing is necessary, the additional financing will be to expand current or
proposed operations.
Debentures.
In June 1999, we entered into a debenture agreement. As a result, we have
$1,000,000 of 7.0% convertible debentures outstanding, which mature on June 14,
2002. After the date of issuance and continuing until the maturity date of the
Debentures, the Debentures may be converted, at the option of the holder, into
shares of our common stock, $0.001 par value per share, at a conversion price
equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid price as
reported by Bloomberg, LP for the five consecutive trading days prior to the
conversion date.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions of
that portion of the Debenture being redeemed.
ITEM 3. DESCRIPTION OF PROPERTY
Our executive offices are located at 777 South Harbour Island Boulevard, Suite
780, Tampa, Florida 33602, where we lease approximately 2,772 square feet of
office space at a monthly rent of $5,197.50. We feel that this space is adequate
for our needs at this time. The current lease term expires on October 31, 2004.
Upon such expiration, we believe that we will be able to obtain renewal terms or
a lease for new space at terms favorable to the Company.
We have also signed a lease option agreement to acquire a 17,000 square foot
warehouse facility in Clearwater, Florida. The total purchase price for the
property is $1.2 million. The agreement required us to make a $100,000.00
non-refundable deposit to the seller of the property with the remaining balance
of $1.1 million due on or before June 30, 2000. Until such time as we pay the
full purchase price, we have agreed to pay a monthly lease rent of $8,000 per
month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
20
<PAGE>
The following tables set forth the ownership, as of June 1, 1999, of our common
stock by our officers, directors and principal shareholders who are known by us
to own, either beneficially or of record, more than 5% of said stock and by all
directors as a group.
Security Ownership of Certain Beneficial Owners.
TITLE OF NO. OF NATURE OF CURRENT
CLASS NAME & ADDRESS SHARES OWNERSHIP % OWNED
- --------------------------------------------------------------------------------
Common Michael Muzio 1,183,845 Direct 25.70%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Mark Sansom 344,000 Direct 07.25%
4061 South Powers Circle
Salt Lake City, UT 84124
Security Ownership of Officers and Directors.
TITLE OF NO. OF NATURE OF
CLASS NAME & ADDRESS SHARES(1) OWNERSHIP % OWNED
- --------------------------------------------------------------------------------
Common Michael Muzio 1,183,845 Direct 25.70%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Gregg Vosler 0 Direct 00.0%
851 Lantana Avenue
Clearwater Beach,
Florida 34630
Common Christopher Hee 1,590 Direct Less than 1%
3152 Fiesta Drive
Dunedin, Florida 34689
Common John Troy 10,000 Direct Less than 1%
4014 W Waters Avenue
#1508
Tampa, Florida 33614
- ------------------------------------------------------------------------------
All Officers and Directors as a Group
(3 Individuals) 1,185,435 26%
(1) Any shares of Common stock underlying outstanding options, warrants
or convertible debentures are included in the figures under number
of shares.
Changes in Control.
There are currently no arrangements, which would result in a change in control
of our Company.
21
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our Bylaws provide that we shall have a minimum of three (3) directors on the
board at any one time. Vacancies are filled by a majority vote of the remaining
directors then in office. The directors and executive officers of the Company
are as follows:
NAME AND ADDRESS AGE POSITIONS HELD
- --------------------------------------------------------------------------------
Michael Muzio 35 President/Treasurer/Director
4957 Bayshore Blvd.
Tampa Florida 33611
Gregg Vosler 52 Vice President/Secretary/Director
851 Lantana Avenue
Clearwater Beach Florida 34630
Christopher Hee 58 Director
3152 Fiesta Drive
Dunedin Florida 34689
John Troy 37 Chief Financial Officer
4014 W Waters Avenue #1508
Tampa, Florida 33614
The directors named above will serve until the next annual meeting of our
shareholders or until their successors shall have been elected and accepted
their positions. Directors are elected for one-year terms. Both Mr. Muzio and
Mr. Vosler are parties to an oral employment agreement with the Company that
pays each an annual salary of $150,000 and $50,000 respectively. In addition,
these oral employment agreements include provisions for family health insurance
coverage through the Company, provisions for memberships at the Harbour Island
Athletic Club, and Mr. Vosler has use of an automobile owned by the Company.
Further, there are oral provisions for year-end bonuses based on performance of
each individual and the Company as a whole.
MICHAEL MUZIO: Since 1996, Mr. Muzio has served as president of the Company and
Trimfast, Inc. Prior thereto, from 1991 until 1995 he served as chief executive
officer of Advanced Medical Diagnostics, Inc. Research and development in health
related products represent a significant portion of his prior work experience.
In 1994, Mr. Muzio filed for Bankruptcy Protection under Chapter 7 in the
Southern District of Florida, Case Number 93-5409-8P7.
GREGG VOSLER: Mr. Vosler has served as vice president of the Company and
Trimfast, Inc. since November of 1997. Previously, from June 1996 to November
1997, he served as Director of Development for Physician's Weight Loss Center in
Akron, Ohio. In that capacity he was responsible for systems and franchise
development in the United States. From 1993 through June 1996, he served as an
independent consultant in the medical weight loss and health industry.
22
<PAGE>
CHRISTOPHER HEE: Mr. Hee was appointed to serve as a director of the Company on
October 6, 1998. Dr. Hee received his M.D. degree at Sydney University, in
Sydney, Australia. He completed his residency at State General Hospital in
Melaka, Malaysia. Dr. Hee opened and operated four medical clinics in Tampin,
Malaysia. After gaining admission to practice medicine in the United States, Dr.
Hee became the Chief Medical Officer of the Tampa Military Processing Station
for the United States Department of Defense. Dr. Hee provides the Board with the
medical background and skills necessary for the Company to develop vitamins and
supplements.
JOHN TROY: Mr. Troy became our Chief Financial Officer in October of 1999. Prior
to his current position, he served as a Controller for EnviroSys International
from February to September of 1999. From November 1997 through October 1998, Mr.
Troy was an Assistant Controller of Raymond James & Associates. From November
1995 through May of 1997, he was Accounting Manager at Lykes, Financial Services
Division. Prior to this position, Mr. Troy was a Controller of Chico's FAS, Inc.
until March of 1995. Mr. Troy obtained his Associates of Science Degree in May
of 1988 from Holyoke Community College and his Bachelor of Science Degree in
Accounting from Western New England College in 1990.
ITEM 6. EXECUTIVE COMPENSATION Mr. Muzio, our president and treasurer, oversees
the operations of the Trimfast, Inc. subsidiary and in consideration thereof,
receives annual compensation of $150,000. Mr. Vosler, the Company's vice
president and secretary, oversees sales and in consideration thereof receives
annual compensation of $50,000. Mr. Muzio and Mr. Vosler exercise complete
control over employee compensation.
The terms and conditions of each officer's employment is reviewed annually by
our Board of Directors who may also award annual bonuses. There is no
compensation paid to our board members for serving on the Board of Directors.
However, board members are reimbursed for all costs and expenses incurred in
either attending Board meetings or, for any expenses incurred on our behalf.
The following table sets forth the compensation of the company's two (2)
officers for the last two (2) fiscal years:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Name & Annual Compensation Long-Term Compensation Other
Position Year Salary Bonus Other Stock SARs LTIP Comp
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Muzio
President & 1998 $150,000 $0 $0 $240,000 $0 $0 $0
Treasurer 1997 $0 $0 $0 $0 $0 $0 $0
Gregg Vosler
Vice President 1998 $50,000 $0 $0 $96,000 $0 $0 $0
& Secretary 1997 $31,000 $0 $0 $0 $0 $0 $0
</TABLE>
(1) The amount used in this table were calculated using the market close price
for TRIM common stock on December 31, 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
23
<PAGE>
On August 12, 1998, we acquired all of the issued and outstanding shares of
common stock of Trimfast, Inc., in exchange for the issuance of 13,705,488
shares of our common stock. In conjunction therewith, Michael Muzio acquired
975,000 shares of our common stock and Gregg Vosler was issued 120,000 shares of
our common stock. As a result of this transaction the shareholders of Trimfast,
Inc. gained control of our Company after August 12, 1998.
On December 8, 1998, Mr. Muzio purchased all 508,313 shares of our outstanding
common stock held beneficially by our prior principal shareholder in a private
transaction.
Effective December 31, 1998, our principal shareholder exchanged $126,664.00 of
loans due to him by us for 70,358 shares of our common stock. The number of
shares received by Mr. Muzio was on a dollar for dollar basis, based upon the
outstanding debt obligation as of December 1, 1998 and the stock valued at $1.80
per share, with the debt due Mr. Muzio. During 1998, we issued 65,000 shares of
our common stock to Marsha Hardin, an associate and business consultant to Mr.
Muzio, in a related party exchange for a loan payable by us in the amount of
$40,000.
Mr. Muzio has entered into an oral employment agreement with us, which pays him
an annual compensation of $150,000. It is expected that we will renew this
agreement in the year 2000. Mr. Vosler has entered into an oral employment
agreement with us, which pays him an annual compensation of $50,000. It is
expected that we will renew this agreement in the year 2000.
We periodically advance funds to the principal stockholder and his affiliates as
well as borrow funds from the same parties. All of these amounts are interest
free without specific repayment terms. Such amounts do not exceed $60,000, and
we do not currently anticipate any repayment through issuances of our common or
preferred stock.
ITEM 8. DESCRIPTION OF SECURITIES
The following description is a summary and is qualified in its entirety by the
provisions of our Articles of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement.
COMMON STOCK.
General.
We are authorized to issue one-hundred million (100,000,000) shares of common
stock having a par value of $ 0.001 per share. As of August 24, 1999, there were
4,605,978 common shares issued and outstanding. All shares of common stock
outstanding are validly issued, fully paid and non-assessable.
Voting Rights.
Each share of common stock entitles the holder thereof to one vote, either in
person or by proxy, at meetings of shareholders. The holders are not permitted
to vote their shares cumulatively. Accordingly, the holders of common stock
holding, in the aggregate, more than fifty percent (50%) of the total voting
rights can elect all of our directors and, in such event, the holders of the
remaining minority shares will not be able to elect any of such directors. The
vote of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to such act or action, except as otherwise provided by law.
24
<PAGE>
Dividend Policy.
All shares of common stock are entitled to participate ratably in dividends when
and as declared by our Board of Directors out of the funds legally available
therefore and subject to the rights, if any, of the holders of outstanding
shares of preferred stock. Any such dividends may be paid in cash, property or
additional shares of common stock. We have not paid any dividends since our
inception and presently anticipate that all earnings, if any, will be retained
for development of our business, and that no dividends on the shares of common
stock will be declared in the foreseeable future. Any future dividends will be
subject to the discretion of our Board of Directors and will depend upon, among
other things, our future earnings, operating and financial condition, our
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the common stock will
be paid in the future.
Miscellaneous Rights and Provisions.
Holders of common stock have no preemptive or other subscription rights,
conversion rights, redemption or sinking fund provisions. In the event of our
dissolution, whether voluntary or involuntary, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
our equity after satisfaction of all liabilities and payment of the applicable
liquidation preference of any outstanding shares of preferred stock.
Under Nevada law, stockholders may take certain actions without the holding of a
meeting by a written consent or consents signed by the holders of a majority of
the outstanding shares of the capital stock of the company entitled to vote
thereon. Prompt notice of the taking of any action without a meeting by less
than unanimous consent of the stockholders will be given to those stockholders
who do not consent in writing to the action. The purposes of this provision are
to facilitate action by stockholders and to reduce corporate expense associated
with annual special meetings of the shareholders. If shareholder action is taken
by written consent, we will be required to send each shareholder entitled to
vote on the applicable matter, but whose consent was not solicited, an
information statement containing information about the action taken.
PREFERRED STOCK.
We have authorized the issuance of twenty million (20,000,000) shares of Class A
Preferred Stock with a par value of $0.01 and twenty-million (20,000,000) shares
of Class B Preferred Stock with a par value of $0.01. These shares have such
rights and preferences as determined by the Board of Directors. The Board of
Director's ability to issue preferred stock without further shareholder approval
has the potential to delay, defer or prevent a change in control of the Company.
As of July 16, 1999, there were 15,000 shares of Series A Preferred Stock, par
value $0.01 per share, outstanding. According to the terms of the Security
Purchase Agreement for these shares signed on the same date, such shares were
purchased at a price of $100.00 per share. The shares are (i) validly issued,
fully paid and non-assessable and (ii) free from all taxes, liens and charges
with respect to the issue thereof. All shares of our common stock are declared
junior in rank to such Series A preferred shares.
25
<PAGE>
Dividends.
Regular Dividends. Each holder of the preferred shares shall be entitled to
receive on each July 1 and January 1, or if such date is not a business day, the
immediately subsequent business day, commencing January 1, 2000, dividends at a
rate of eight percent (8%) per annum, computed on the basis of $100.00 per
preferred share. Such dividends shall be cumulative from (and including) the
issuance date of such preferred shares and shall accrue daily, whether or not
earned or declared, thereafter until paid, and shall be calculated on the basis
of a 360 day year. Dividends shall be payable in cash; provided, however, that
in lieu of paying such dividends in cash, we may, at our option, pay any or all
of such dividends by delivery of a number of shares of our common stock equal to
the quotient of (x) the dollar amount of the Regular Dividends to be paid on
such date, divided by (y) the conversion price, as provided by agreement,
determined on the day which is the third (3rd) business day prior to the date.
Participating Dividends. In the event any dividend or other distribution payable
in cash or other property is declared on our common stock, each Series A
preferred shareholder on the record date for such dividend or distribution shall
be entitled to receive, per preferred share on the date of payment or
distribution of such dividend or other distribution, the amount of cash or
property equal to the cash or property which would be received by the Series A
preferred shareholders of the number of shares of common stock into which such
preferred share would be converted immediately prior to such record date.
Conversion.
Any holder of the Series A preferred shares shall be entitled to convert any
whole number of preferred shares into fully paid and nonassessable shares of
Common Stock in accordance with the Certificate of Designations, Preferences and
Rights for such preferred shares. Without our prior consent, a holder shall not
be entitled to convert any preferred shares during the period beginning on and
including the issuance date and ending on and including the date that is 120
days after such issuance date.
We shall not issue any fraction of a share of common stock upon any conversion.
If the issuance would result in the issuance of a fraction of a share of common
stock, we shall round such fraction of a share of common stock up to the nearest
whole share. Each share of the Series A Preferred Stock is convertible into
approximately 11.63 shares of our common stock subject to adjustment as provided
in the Certificate of Designations, Preferences and Rights for such preferred
shares which is included as an exhibit to the Registration Statement of which
this Prospectus is a part. Adjustment is provided for in situations such as, but
not limited to: our issuance of options, our issuance of convertible securities,
or our change or alternative treatment of option prices or prices of conversion.
Voting.
Holders of Series A preferred shares shall have no voting rights, except as
required by law, including but not limited to the General Corporation Law of the
State of Nevada, and as expressly provided in the Certificate of Designations,
Preferences and Rights. The person or persons entitled to receive the shares of
common stock issuable upon a conversion of Series A preferred shares shall be
treated for all purposes as the record holder or holders of such shares of
common stock, with rights described above, on the date of conversion.
26
<PAGE>
Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A preferred shares shall be
entitled to receive in cash out of our assets, whether from capital or from
earnings available for distribution to our stockholders, before any amount shall
be paid to the holders of any of our capital stock of any class junior in rank
to the preferred shares in respect of the preferences as to the distributions
and payments upon our liquidation, dissolution and winding up, an amount per
preferred share equal to $100 and any accrued but unpaid Regular Dividends and
Participating Dividends. If insufficient funds are available to fulfill this
obligation, each Series A preferred shareholder would receive his pro rata
share.
Redemption.
In addition to all other rights of the holders of Series A preferred shares,
upon our consummation of a major transaction or triggering event, as defined by
the Certificate of Designations, Preferences and Rights for such preferred
shares, each holder of Series A preferred shares shall have the right, at their
option, to require us to redeem all or a portion of such holder's preferred
shares at a price per Series A preferred share equal to the greater of (i) 125%
of the stated value of such preferred share and (ii) the product of the
conversion rate in effect at such time as such holder delivers a Notice of
Redemption at Option of Buyer and the Closing Sale Price of our common stock on
the date immediately preceding such major transaction or triggering event on
which the principal market, or the market or exchange where the common stock is
then traded, is open for trading.
Taxes.
We shall pay any and all taxes that may be payable with respect to the issuance
and delivery of common stock upon the conversion of Series A preferred shares.
THE FOLLOWING DESCRIPTIONS OF CERTAIN TERMS OF THE DEBENTURES AND WARRANTS DO
NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE DEBENTURES AND WARRANTS PURSUANT TO WHICH THE DEBENTURES AND WARRANTS WERE
ISSUED, A COPY OF WHICH IS AN EXHIBIT TO THE REGISTRATION STATEMENT. TERMS
(WHETHER OR NOT CAPITALIZED) USED BUT NOT DEFINED IN THIS SECTION HAVE THE
MEANINGS GIVEN TO THEM IN THE RESPECTIVE WARRANTS OR DEBENTURES.
WARRANTS.
MAY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 20,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until May
12, 2000. In addition, we have warrants outstanding to purchase 20,000 common
shares at an exercise price of $7.00 per share. These warrants are exercisable
on any date until May 13, 1999. These warrants carry no other rights or
provisions.
JULY 1999 WARRANTS.
In General.
27
<PAGE>
We currently have Warrants outstanding affording the holders thereof the
opportunity to purchase a total of 223,881 shares of our common stock. The
holders of the Warrants are entitled to purchase each share of common stock at a
price of $10.31 per common share (subject to adjustment as hereinafter provided)
at any time until 11:59 p.m. Central Time on July 16, 2002. Unless exercised,
the Warrants will automatically expire on July 16, 2002. The Warrant Agreement
may be amended, subject to certain exceptions, by the Company and the warrant
agent with the consent in writing of the holders of at least a majority of the
Warrants, provided that no such action may increase the Warrant Exercise Price
of the Warrants or decrease the number of shares or class of stock obtainable
upon exercise of any Warrants without the written consent of the holder of such
Warrant.
Adjustment of Warrant Exercise Price.
The Warrant Exercise Price and the number of shares of common stock issuable
upon exercise of the Warrant may be adjusted from time to time due to our
subsequent issuance of any shares of common stock not issued in connection with
an approved stock plan or upon exercise or conversion of the other Securities,
our issuance of options, our issuance of convertible securities, our declaration
of dividends or subscription rights, our subdivision or combination of common
stock, our distribution of our assets other than dividends, or other certain
events undertaken on our part including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features. Consequently, this Registration Statement, of which this Prospectus is
a part, included registration of such shares of our common stock, which may be
issued for these purposes.
Immediately upon any adjustment of the Warrant Exercise Price, we are required
to give written notice thereof to the holders of these Warrants, setting forth
in reasonable detail, and certifying the calculation of such adjustment.
Further, we are required to give written notice to the holders of these Warrants
at least twenty (20) days prior to the date on which we close our books or take
a record (A) with respect to any dividend or distribution upon the common stock,
(B) with respect to any pro rata subscription offer to holders of common stock
or (C) for determining rights to vote with respect to any organic change,
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
Failure to Issue.
If we shall fail for any reason or for no reason to issue to the holder, on a
timely basis as described in the Warrant, a certificate for the number of shares
of common stock to which the holder is entitled upon the holder's exercise of
this Warrant or a new Warrant for the number of shares of common stock to which
such holder is entitled pursuant to the Warrant, we shall pay the amount of
0.25% of the product of a) the number of shares of common stock not issued to
the holder on a timely basis and to which the holder is entitled and/or, the
number of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and b) the average of the closing bid price of
our common stock for the three consecutive trading days immediately preceding
the last possible date which we could have issued such common stock or Warrant,
as the case may be, to the holder as additional damages in cash each day the
issuance of such common stock certificate or new Warrant, as the case may be, is
not timely effected.
Taxes.
28
<PAGE>
We shall pay any and all taxes which may be payable with respect to the issuance
and delivery of Securities upon exercise of the Warrant.
JULY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 18,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until July
26, 2000. In addition, we have warrants outstanding to purchase 50,000 common
shares at an exercise price of $4.00 per share. These warrants are exercisable
on any date until July 29, 1999. These warrants carry no other rights or
provisions.
DEBENTURES.
In General.
We have $1,000,000 of 7.0% convertible debentures outstanding, which mature on
June 14, 2002. After the date of issuance and continuing until the maturity date
of the Debentures, the Debentures may be converted, at the option of the holder,
into shares of our common stock, $0.001 par value per share at a conversion
price equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid
price as reported by Bloomberg, LP for the five consecutive trading days prior
to the conversion date.
Interest.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
Consequently, this Registration Statement, of which this Prospectus is a part,
includes registration of such shares of our common stock, which may be issued
for interest purposes.
Redemption.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions of
that portion of the Debenture being redeemed.
Marketability.
Prior to this offering, there has been no public market for the Debentures and a
limited public market for our common stock. There can be no assurance that a
public market will develop for the Debentures or that the public market for the
common stock will continue after the closing of this offering. The terms of the
Debentures were determined by negotiation between the parties bound thereby and
do not necessarily bear any direct relationship to our assets, earnings, book
value per share or other generally accepted criteria of value. Our common stock
is presently quoted on the OTCBB under the trading symbol "TRIM."
Taxes and Fees.
29
<PAGE>
We shall pay any and all documentary, stamp, or similar issue or transfer tax
due on the issue of shares of common stock upon conversion of the Debenture.
Conversion of Debentures.
The holder of a Debenture will be entitled at any time prior to the close of
business on June 14, 2002, subject to prior redemption and conversion, to
convert the Debentures in denominations of $5,000, or multiples thereof, at the
principal amount thereof, into shares of our common stock at the conversion
price of conversion price of the lesser of $8.50 or 80.0% of the 5 day average
closing bid price as reported by Bloomberg, LP, for the five consecutive trading
days prior to the conversion date. We will not issue fractional shares upon
conversion of Debentures. Instead, we will round up or down, as the case may be,
to the nearest whole share.
The number of shares of common stock purchasable upon the conversion of the
debenture is subject to adjustment in certain events, as set forth in the
Debentures. Such adjustments include the issuance of our stock as a dividend or
distribution on the common stock; subdivisions, combinations and
reclassifications of the common stock; the issuance to all holders of common
stock of certain rights (but only when the rights become exercisable) or
warrants entitling them to subscribe for our common stock at less than the
current market price; except for cash dividends permitted by the Indenture, the
distribution to all holders of our common stock of our assets or debt securities
or rights (other than those referred to above, but only when such additional
rights become exercisable) or warrants (other than those referred to above) to
purchase our assets, debt securities or other securities; the issuance, in
certain circumstances, of shares of our common stock for less than the then
current market price; and the issuance in certain circumstances of securities
which are convertible into or exchangeable for common stock (other than pursuant
to transactions described above) for a consideration per share less than the
then current market price of the common stock. If we consolidate or merge with
or into or transfer or lease all or substantially all of our assets to any
person, the person must assume in writing our obligations under the Debenture.
Consequently, this Registration Statement, which may be issued for these
purposes.
Events of Default.
In the event that the common stock is not delivered per the written instruction
of the Debenture holder, within seven (7) business days of the conversion date,
we must pay the Debenture holder one percent (1.0%) in cash of the dollar value
of the Debentures being converted per each day after the seventh (7th) business
day following the conversion date that the common stock is not delivered. A
provision for liquidated damages is also included in the Debenture in order to
provide for damages that would be difficult to ascertain in the case of default
on our part.
Should the delivery of shares of common stock upon conversion be delayed by our
failure to have the common stock necessary for complete conversion available, we
have agreed to pay to all holders of the outstanding Debentures for conversion
default. The exact terms of such conversion default payment are included in the
Debenture.
An Event of Default occurs if we default in payment of any principal of the
Debenture when the same
30
<PAGE>
becomes due and payable at maturity, upon redemption or otherwise; default for
five (5) business days on a payment other than the principal; fail to comply
with the provisions of the Debenture for the period and after the notice
required by the Debenture; engage in certain events of bankruptcy, insolvency or
reorganization; or fail to maintain listing on any recognized exchange including
the OTCBB. We must cure such default within five (5) business days of such
notice as provided for in the Debenture, or the Debenture holder will have the
right to accelerate the payments due and declare the remaining principal amount
of the Debenture to be due and payable upon such failure to cure.
SHARES ELIGIBLE FOR FUTURE SALE.
Upon completion of the offer and sale of the maximum number of shares offered
hereby, we will have outstanding approximately 5,637,826 shares of common stock.
The 1,553,706 shares of common stock sold in this offering will be freely
tradable without restrictions under the Securities Act, except for any shares
held by our "affiliate", which will be subject to the resale limitations of Rule
144 under the Securities Act.
A significant portion of the shares of our common stock currently outstanding
are "restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 thereunder.
In general, under Rule 144 as currently in effect, any of our affiliates and any
person (or persons whose sales are aggregated) who has beneficially owned his or
her restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period a number of shares of common stock that
does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain limitations on manner of sale, notice requirements, and
availability of current public information about us. Non-affiliates who have
held their restricted shares for one year may be entitled to sell their shares
under Rule 144 without regard to any of the above limitations, provided they
have not been affiliates for the three months preceding such sale.
Further, Rule 144A as currently in effect, in general, permits unlimited resales
of certain restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests $10 million
in securities. Rule 144A allows our existing stockholders to sell their shares
of common stock to such institutions and registered broker-dealers without
regard to any volume or other restrictions. Unlike under Rule 144, restricted
securities sold under Rule 144A to non-affiliates do not lose their status as
restricted securities.
As a result of the provisions of Rule 144, all of the restricted securities
could be available for sale in the public market beginning 90 days after the
date of this Prospectus. The availability for sale of substantial amounts of
common stock under Rule 144 could adversely affect prevailing market prices for
our securities.
31
<PAGE>
TRANSFER AGENT.
Interwest Stock Transfer, Inc., located in Salt Lake City, Utah, has been
appointed the transfer agent of our common stock and preferred stock.
32
<PAGE>
PART II.
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Our common stock is currently traded on the National Association of Securities
Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB")
under the symbol "TRIM." There is limited trading activity in our securities,
and there can be no assurance a regular trading market for our common stock will
be sustained.
The following table sets forth, for the period indicated, the bid price range of
our common stock. Please note that the prices reflected prior to August 12, 1998
reflect those of World Group and are not representative of the current business
activities reflected throughout this registration statement.
High Bid Low Bid
-------- -------
1997
Quarter Ended March 31, 1997 $ 9.00 $ 3.37
Quarter Ended June 30, 1997 5.50 1.55
Quarter Ended September 30, 1997 3.75 1.50
Quarter Ended December 31, 1997 2.62 0.25
1998
Quarter Ended March 31, 1998 $12.50 $ 2.50
Quarter Ended June 30, 1998 5.31 3.10
Quarter Ended September 30, 1998 2.60 1.50
Quarter Ended December 31, 1998 5.30 1.20
1999
Quarter Ended March 31, 1999 $ 6.31 $ 2.75
Quarter Ended June 30, 1999 10.37 5.12
Quarter Ended September 30, 1999 9.187 7.062
Such market quotations reflect the high bid and low prices as reflected by the
OTC BB or by prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions. The following companies serve as
market makers for our securities: D.L. Cromwell, Wilson Davis and Knight
Securities.
(b) Holders
As of June 1, 1999 there were approximately 159 holders of record of our common
stock.
33
<PAGE>
(c) Dividends
We have not paid any cash dividends since our inception, and the Board of
Directors does not contemplate doing so in the near future. Any decisions as to
future payment of dividends will depend on our earnings and financial position
and such other factors, as the Board of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
Product Liability.
Three lawsuits have been filed against us in connection with the sale of
Revivarant, a product containing the chemical GBL which has been determined by
the Food and Drug Administration to be unsafe for human consumption. In an
action filed in the District Court of the Fourth District of Idaho on June 7,
1999 (Case No. CV PI 9900250D; Jensen v. Body Life Sciences, Inc. & Trimfast
Group, Inc. ), in an action filed in the Circuit Court for Harrison County,
Mississippi on June 14, 1999 (Peck v. Trimfast Group, Inc.) and in a separate
action filed in the Circuit Court of Tennessee for the Thirteenth Judicial
District at Memphis on April 5, 1999 (Case No. 301672-5TD; Cliffton v. Body Life
Sciences, Inc., seeking $400,000 in compensatory damages and $300,000 in
punitive damages), the consumer of the product alleges serious harm from the
consumption of Revivarant. In each case the consumer seeks compensatory and
punitive damages totaling millions of dollars in damages in aggregate. We have
retained counsel to represent our interests in these claims. We have not had a
sufficient period of time to investigate the merits of these claims.
We have received notice indicating that three other parties have hired counsel
in connection with potential product liability claims arising from the use of
Revivarant. This substance was sold throughout the United States in health
stores. Pursuant to a voluntary agreement with the Food and Drug Administration,
we have removed this product from sale. All of the aforementioned claims have
been submitted to Royal Insurance Company. At the time that the alleged causes
of action arose, we had no product liability insurance. We have since obtained a
policy with an effective date of May 27, 1999. Our product liability insurance
will not be available to cover these claims, should we be found liable. As such,
our business, results of operations and financial condition could be adversely
affected, if we are found liable for these claims.
Since our product liability insurance only became effective on May 27, 1999, we
have no insurance coverage for the above mentioned claims or for future claims
relating to the sale of Revivarant. Further, we have insufficient assets
available to pay any such product liability claims. Any judgment or claim in
favor of the Claimant could have a materially adverse effect our operations.
We are presently engaged in various legal actions, although ultimate liability
for such other actions cannot be determined at the present time. As a result,
our business could be adversely affected.
Intellectual Property.
In June of 1999, we received a written communication from counsel for Slimfast
Foods Company including a demand to cease and desist use of the TrimFast name.
To date, no litigation has been filed
34
<PAGE>
in this matter, and management feels confident that our registration of the name
with the U.S. Patent and Trademark office as well as the State of Florida will
be sufficient to defend this usage. We believe that there is no confusion
between the TrimFast and Slimfast in the marketplace, and the matter has been
referred to outside counsel for an opinion on this matter. Should Slimfast Foods
Company file suit in this matter and a judgment be rendered against us, it could
have a material adverse effect on our business and operations.
Breach of Contract.
Phillips Pharmatech Labs filed suit against us (County Court Pinellas 99-004791;
Phillips Pharmatech Labs v. Body Life Sciences, Inc.) seeking damages in the
amount of $14,000 in outstanding invoices for prior products not delivered. We
have not had the opportunity to evaluate the likelihood of an unfavorable
outcome in this suit, but plan to vigorously defend this action. Should a
judgment be granted against us, the amount should not exceed the damages
claimed.
On June 14, 1999, a suit was filed against us for breach of contract (Case No.
99-8611CC; L.and N. Label Company, Inc. v. Trimfast, Inc.) claiming damages in
the amount of approximately $10,500.00 as a result of labels being produced for
us. We have not had the opportunity to evaluate the likelihood of an unfavorable
outcome in this suit, but plan to vigorously defend this action. Should a
judgment be granted against us, the amount should not exceed the damages
claimed.
On April 21, 1999, a suit was filed against us for breach of contract (Case No.
99-5117CC; Graffitti Graphics Corporation v. Trimfast, Inc.) claiming damages in
the amount of approximately $5,500.00. We have not had the opportunity to
evaluate the likelihood of an unfavorable outcome in this suit, but plan to
vigorously defend this action. Should a judgment be granted against us, the
amount should not exceed the damages claimed.
On June 1, 1999, a suit was filed against us for breach of contract (Supreme
Court of New Jersey Docket # BER-L-4756-99; Kingchem, Inc. v. TrimFast Group,
Inc.) claiming damages in the amount of approximately $35,000.00. Currently,
management is trying to resolve this dispute by making payments over time.
Should a judgment be granted against us, the amount should not exceed the
damages claimed.
Other.
In 1999, we initiated a legal proceeding against a former major customer (Case
No. 99-003807; Body Life Sciences, Inc. v. Threshold Technology, Inc.) to
collect amounts receivable from such customer in an approximate amount of
$535,000.00 as of December 31, 1998. Such receivables related to products sold
to that customer during 1998, a portion of which were voluntarily recalled by
us, but never returned by the customer. The amounts recalled included 27 boxes
of (12 count) 32oz. Revivarant, 1 Box of (9 count) 32oz. Revivarant, 3 Bottles
of 4oz. Revivarant, 29 Boxes of (12 count) 200g Revivarant and some individual
products from these lines. These products were voluntarily recalled because they
contained GBL, which was found by the FDA to cause significant and potentially
dangerous sedating effects. These products have no commercial value as they were
recalled.
35
<PAGE>
Bankruptcy.
We incorporated HLHK International Systems Pte Ltd., as a wholly owned
subsidiary in the State of Nevada on July 8, 1996 to conduct telecommunications
business in Malaysia and Singapore. This entity filed for bankruptcy protection
in Singapore, and pursuant to The Companies Act Cap 50, the affairs of HLHK
Interactive were wound up by High Court Order No. 84 of 1988 on May 22, 1998. We
have no operations through this subsidiary and do not plan to have operations
through this subsidiary in the future.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The accounting firm of Schvaneveldt and Company previously audited our financial
statements. As a result of the stock exchange agreement entered into between the
Shareholders of Trimfast, Inc. and us on August 12, 1998, there was a change in
control of the Company and a relocation of our principal place of business from
Las Vegas, Nevada to Tampa, Florida. As a result of this move, the Board of
Directors felt that we would be better served by retaining an accounting firm
located in the State of Florida. As a result, we engaged the firm of Weinberg &
Co. to conduct our latest audit.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On November 18, 1996, we issued 625,000 shares of our common stock to then
existing shareholders of World Group in reliance upon the exemption from
registration contained in Section 4(2) Securities Act of 1933, as amended (the
"Act") in our acquisition of World Group.
On December 13, 1996, pursuant to various agreements for general consulting
services, we issued 120,000 shares of common stock in reliance upon the
exemption from registration contained in Section 4(2) of the Act.
On March 27, 1997, pursuant to various consulting agreements, we issued 7,500
shares of common stock in reliance upon the exemption from registration
contained in Section 4(2) of the Act.
On August 12, 1998, we issued 1,370,049 shares of our common stock to then
existing shareholders of TrimFast, Inc. in reliance upon the exemption from
registration contained in Section 4(2) of the Act, in our acquisition of
TrimFast, Inc.
We conducted, an offering pursuant to Rule 504 of Regulation D of the Securities
Act of 1933, as amended, raising a total cash proceeds of $930,000 and resulting
in the issuance of 1,253,350 shares of common stock. At the time of the
offering, we were not subject to the reporting requirements of Section 13 of
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
We were not a development stage company at the time of the offering and had not
raised funds in the twelve months prior to the offering in reliance on Section
3(b) of the Act. A Form D was filed in connection with the offering.
These shares were purchased from August 19, 1998 through April 5, 1999. Each
shareholder in this offering received subscription documents stating that the
securities had not been registered under the
36
<PAGE>
Securities Act of 1933, and subsequently made representations that they were
purchasing for investment purposes only and not with a view toward distribution
of the securities. The following shares were issued in consideration other than
cash:
On January 18, 1999, we issued 2,950 shares of our common stock in consideration
of Business Consulting Services rendered to the Company. On February 19, 1999,
we issued 95,000 shares of our common stock in consideration of Business
Consulting Services rendered to the Company and 8,000 share of our common stock
for cancellation of a bridge loan due by the Company. On March 10, 1999, we
issued 300,000 shares of our common stock in consideration of Business
Consulting Services rendered to the Company.
Pursuant to various agreements we issued the following shares of our restricted
common stock:
On October 16, 1998, we issued 195,000 shares of our common stock in repayment
of a loan due by the Company and 5,000 shares of our common stock as Employee
Bonuses for 1998. On January 6, 1999, we issued 477,100 shares of our common
stock in consideration of various Consulting Services rendered to the Company.
On February 9, 1999, we issued 20,000 shares of our common stock in
consideration of Nutrition Consulting Services rendered to the Company. On April
5, 1999, we issued 40,000 shares of our common stock in consideration of
Business & Legal Consulting Services rendered to the Company. On April 21, 1999,
we issued 16,500 shares of our common stock in consideration of cancellation of
a Bridge Loan due by the Company. On April 22, 1999, we issued 20,000 shares of
our common stock in consideration of Business Consulting Services rendered to
the Company. On April 26, 1999, we issued 125,000 shares of our common stock in
consideration of Financial Consulting Services rendered to the Company. On April
30, 1999, we issued 20,000 shares of our common stock in consideration of
Website Consulting Services rendered to the Company, 7,000 for Landscaping
Services rendered to the Company and 5,000 for Employee Bonuses in 1999.
On May 19, 1999, we issued 150,000 shares of our common stock in consideration
of Business Consulting Services rendered to the Company. On May 26, 1999, we
issued 23,000 shares of our common stock in consideration of the acquisition of
Ice Water and 3,750 share of our common stock in consideration of Business
Consulting Services rendered to the Company. On June 1, 1999, we issued 5,000
shares of our common stock in consideration of Construction Services rendered to
the Company, 12,000 share of our common stock for payoff on a loan that was due
by the Company and 47,500 share of our common stock for Nutritional Consulting
Services rendered to the Company. On June 2, 1999, we issued 20,000 shares of
our common stock in exchange for Public Relations Services rendered for the
Company. On June 17, 1999, we issued 15,000 shares of our common stock in
exchange for Nutritional Consulting Services rendered for the Company. On June
30, 1999, we issued 10,000 shares of our common stock in exchange for Legal
Services rendered for the Company.
On July 1, 1999, we issued 70,358 shares of our common stock for repayment of a
loan due to Mr. Muzio by the Company. On July 7, 1999, we issued 10,000 shares
of our common stock in exchange
37
<PAGE>
for Legal Services rendered for the Company. On July 19, 1999, we issued 30,000
shares of our common stock in repayment of a loan due by the Company. On August
3, 1999, we issued 10,000 share of our common stock in exchange for Business
Consulting Services and 10,000 shares of our common stock in consideration for
Legal Services rendered to the Company.
The aforementioned issuances and sales were made in reliance upon the exemption
from registration contained in Section 4(2) of the Act. The purchasers of the
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The shares which have been
issued pursuant to Section 4(2), bear legends stating that the securities may
not be offered, sold or transferred other than pursuant to an effective
Registration Statement under the Act, or an exemption from such registration
requirements. The Registrant will place stop transfer instructions with its
transfer agent with respect to all such securities.
On March 18, 1999, we issued 235,000 shares of our common stock to the then
existing shareholders of IMMMU and IMMCEL in reliance upon the exemption from
registration contained in Section 4(2) of the Act in our acquisitions of IMMMU
and IMMCEL. This transaction was rescinded on October 23, 1999.
April 5, 1999, we issued 50,000 restricted shares of our common stock at $4.00
per share in an offering made in reliance upon the exemption from registration
contained in Section 4(2) of the Act.
In May of 1999, we issued warrants to purchase 40,000 shares of our common stock
in exchange for placement services. Of these, 20,000 are exercisable on any date
until May 12, 2000 at a price of $4.00 per share. The remaining 20,000 are
exercisable on any date until May 13, 2000 at a price of $7.00 per share. These
warrants were issued without registration in reliance on the exemption from
registration provided in Section 4(2) of the Securities Act.
On June 30, 1999, we issued 30,500 restricted shares of our common stock at
$4.00 per share in an offering made in reliance upon the exemption from
registration contained in Section 4(2) of the Act. (May Davis Placements)
In June 1999, we issued a total of $1,000,000 in convertible debentures to Calp
II LP, a Bermuda corporation with a mailing address in Toronto, Ontario, out of
a total offering of $3 million. The Company in reliance upon the exemption from
registration contained in Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. The issuance of the convertible debenture was an
isolated issuance of securities to a non-U.S. entity, which is also an
accredited investor.
In July 1999, we issued 15,000 convertible preferred shares in consideration of
$1,500,000 paid to the Company. The Company relied upon the exemption from
registration provided in Section 4(2) of the Act.
In July 1999, we issued warrants, which entitle the holder thereof to purchase a
total of 223,881 shares of our common stock at a variable price. Such warrants
are exercisable at any time until July 16, 2002.
38
<PAGE>
The Company relied upon the exemption from registration provided in Section 4(2)
of the Act.
In July of 1999, we issued warrants to purchase 68,000 shares of our common
stock in exchange for consulting services. Of these, 18,000 are exercisable on
any date until July 26, 2000 at a price of $4.00 per share. The remaining 50,000
are exercisable on any date until July 29, 2000 at a price of $4.00 per share.
These warrants were issued without registration in reliance on the exemption
from registration provided in Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the NRS provides that Nevada corporations may limit, through
indemnification, the personal liability of their directors or officers in
actions, claims or proceedings brought against such person by reason of that
person's current or former status as an officer or director of the corporation.
Indemnification of directors or officers is available if the person acted in
good faith and in a manner the person reasonably believed was, at least, not
opposed to the best interests of the corporation. In the event of a criminal
action or proceeding, indemnification is not available if the person had
reasonable cause to believe their action was unlawful.
Further, in an action brought by the corporation or in the right of the
corporation, if the person, after exhaustion of all appeals, is found to be
liable to the corporation, or if the person makes payment to the corporation in
settlement of the action, indemnification is available only to the extent a
court of competent jurisdiction determines the person is fairly and reasonably
entitled to indemnification. Such discretionary indemnification is available
only as authorized on a case-by-case basis by: (1) the stockholders; (2) a
majority of a quorum of the board of directors consisting of members of the
board who were not parties to the action, suit or proceeding; (3) if a majority
of a quorum of the Board of Directors consisting of members of the Board who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (4) if a quorum of the Board of Directors
consisting of members of the Board who were not parties to the action cannot be
obtained, by independent legal counsel in a written opinion.
To the extent that a director or officer of a corporation is successful in
defending against an action, suit or proceeding brought against that person as a
result of their current or former status as an officer or director, the
corporation must indemnify the person against all expenses actually and
reasonably incurred by the person in connection with their defense. Nevada law
also allows Nevada corporations to advance expenses of officers and directors
incurred in defending a civil or criminal action as they are incurred, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such expenses if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be indemnified by
the corporation because such officer or director did not act in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation.
Section 78.751 of the NRS provides that any indemnification provided for by NRS
78.7502 (by court order or otherwise) shall not be deemed exclusive of any other
rights to which the indemnified party
39
<PAGE>
may be entitled and that the scope of indemnification shall continue as to
directors or officers who have ceased to hold such positions and to their heirs,
executors and administrators.
Section 78.752 of the NRS allows corporations to provide insurance, or other
financial arrangements such as a program of self-insurance, for their directors
or officers. Such insurance may provide coverage for any liability asserted
against the person and liability and expenses incurred by the person in their
capacity as a director or officer or arising out of their status as such,
whether or not the corporation has the authority to indemnify the person against
such liability and expenses. However, no financial arrangement made under
Section 78.752 may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for intentional misconduct, fraud or a knowing violation of law, except with
respect to the advancement of expenses or indemnification ordered by a court.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and
therefore unenforceable.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and
therefore unenforceable.
40
<PAGE>
PART F/S
FINANCIAL STATEMENTS
41
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
September 30, 1999
December 31, 1998 (Unaudited)
----------------- ------------------
<S> <C> <C>
Cash 105,641 $ 59,092
Short-term investments 15,297 $ 41,220
Accounts Receivable- Trade 357,889 318,407
Accounts Receivable- Other 11,745 512,278
Inventory 188,737 377,270
----------- -----------
Total Current Assets 679,309 1,308,267
PROPERTY AND EQUIPMENT - NET 33,403 1,459,270
OTHER ASSETS
Prepaid expenses 0 50,000
Rent deposit 10,619 15,000
Cash surrender value of life insurance 8,107 12,646
Software development 0 228,705
Goodwill - Net 0 54,708
----------- -----------
Total Other Assets 18,726 361,060
----------- -----------
TOTAL ASSETS $ 731,438 $ 3,128,596
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 625,767 $ 926,612
Notes and loans payable 72,100 33,881
Convertible debentures 0 1,000,000
----------- -----------
Total Current Liabilities 697,867 1,960,493
----------- -----------
TOTAL LIABILITIES 697,867 1,960,493
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, Class A, $ 0.01 par value; 20,000,000 shares authorized; 0
and 15,000 shares issued and outstanding as of December 31, 1998
and September 30, 1999 respectively 0 150
Preferred Stock, Class B, $ 0.01 par value;
20,000,000 shares authorized; none issued and outstanding 0 0
Common Stock, $0.001 par value; 100,000,000 shares authorized, 2,193,059
and 4,540,978 shares issued and outstanding as of December 31, 1998 and
September 30, 1999 respectively 2,192 4,541
Common Stock to be issued (145,598 shares) as of December 31, 1998 146
Additional Paid-in capital 163,987 6,174,618
Accumulated deficit (109,220) (3,588,022)
Less cost of treasury stock (32,500 shares) (23,534) (139,547)
Less common stock shares advanced 0 (925,312)
Less common stock subscriptions receivable 0 (358,325)
----------- -----------
Total Stockholders' Equity 33,571 1,168,103
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 $ 3,128,596
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 3
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (Audited)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine
For the One Year Months Ended Months Ended
Ended September 30, 1999 September 30, 1999
December 31, 1998 (Unaudited) (Unaudited)
------------------ ------------------ ------------------
<S> <C> <C> <C>
NET SALES 1,925,332 207,201 581,337
COST OF SALES 567,472 89,925 408,495
---------- ---------- ----------
GROSS PROFIT 1,357,860 117,276 172,842
---------- ---------- ----------
OPERATING EXPENSES
Salaries and other compensation 221,773 208,215 505,372
Commissions 41,700 14,302 18,117
Depreciation and amortization 10,498 54,202 54,202
Professional fees 49,511 505,576 1,467,900
Bad debt expense 503,839 102,723 102,723
Selling, general and administrative expenses 423,289 249,593 623,451
Travel and entertainment 64,187 54,240 132,249
---------- ---------- ----------
Total Operating Expenses 1,314,797 1,188,851 2,904,014
---------- ---------- ----------
INCOME FROM OPERATIONS 43,063 (1,071,575) (2,731,172)
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Realized gain on sale of trading securities - net 1,905 499 499
Unrealized gain on sale of trading securities - net 922 0 (18,549)
Interest expense (3,264) (354,569) (354,569)
---------- ---------- ----------
Total Other Income (Expense) (437) (354,070) (372,619)
---------- ---------- ----------
---------- ---------- ----------
NET INCOME/ (LOSS) 42,626 (1,425,645) (3,103,791)
========== ========== ==========
NET INCOME/ (LOSS) PER COMMON SHARE - BASIC 0.02 (0.31) (0.77)
WEIGHTED AVERAGE COMMON 1,723,134 4,574,887 4,029,906
SHARES OUTSTANDING - BASIC
NET INCOME/ (LOSS) PER COMMON SHARE - DILUTED N/A (0.29) (0.75)
FULLY DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -DILUTED N/A 4,835,900 4,113,569
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 4
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ONE YEAR ENDED DECEMBER 31, 1999 (Audited)
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
For the One Year Ended
Ended September 30, 1999
December 31, 1998 (Unaudited)
----------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 42,626 (3,103,791)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 10,498 54,202
Bad debt expense 503,839 6,498
Unrealized gain on short term investments (922) (18,459)
Issuance of warrants for professional services 0 461,640
Issuance of common stock for professional services 0 760,207
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable (856,839) (472,796)
Prepaid expenses 0 (50,000)
Inventory (165,038) (188,533)
Increase (decrease) in:
Accounts payable and other liabilities 496,181 300,845
---------- ----------
Total adjustments (12,281) 853,604
---------- ----------
Net cash (used in) provided by operating activities 30,345 (2,250,187)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in:
Short term investments (14,375) (25,923)
Due from employees (5,800) 5,800
Property and equipment (37,821) (1,748,024)
Due from affiliate (5,945) 5,945
Rent deposit (8,119) (4,381)
Cash surrender value of life insurance (8,107) (4,529)
Purchase of treasury stock (23,534) (116,013)
---------- ----------
Net cash (used in) provided by investing activities (103,701) (1,887,125)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,975 961,781
Proceeds from issuance of common stock 177,800 1,628,942
Proceeds from issuance of preferred stock 0 1,500,040
Due to stockholder/ officer (18,436) 0
---------- ----------
Net cash provided by (used in) financing activities 161,339 4,090,763
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS 87,983 (46,549)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 105,641
----------
========== ==========
CASH AND CASH EQUIVALENTS - END OF YEAR 105,641 59,092
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 5
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE ONE YEAR ENDED DECEMBER 31, 1999 (Audited)
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock and Common Additional
Stock to be Issued Paid-In Preferred Stock Issued
Shares Amount Capital Shares Amount
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 3,000,000 $ 1,000 -- -- --
Issuance of common stock in exchange for shares
of TrimFast Holdings, Inc. 278,080 227,800 -- -- --
Effect of recapitalization 19,404,907 (206,117) 37,413 -- --
Issuance of common stock in exchange for
stockholder loans 703,577 70 126,574 -- --
Reverse one-for-ten split (21,047,908) (20,415) -- -- --
Repurchase of treasury stock at cost -- -- -- -- --
Net income 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 2,338,656 $ 2,338 $ 163,987 -- --
----------- ----------- ----------- ----------- -----------
Equity financing - issuance of common stock for cash 558,000 558 1,628,942 -- --
Issuance of common stock in exchange for
consulting and other professional services 1,219,464 1,220 447,395 -- --
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per recission agreement. 235,000 235 925,077 -- --
Issuance of common stock to employees 150,358 150 95,247 -- --
Issuance of convertible debentures -- -- 250,000 -- --
Return of common stock in repayment of debt (50,000) (50) (399,950) -- --
Issuance of common stock held in escrow to
secure loan 23,000 23 199,790 -- --
Issuance of common stock for debt repayment 24,500 25 168,006 -- --
Repurchase of treasury stock at cost -- -- -- -- --
Settlement of outstanding liabilities 42,000 42 359,583 -- --
Issuance of Preferred Stock -- -- 1,874,901 15,000 150
Valuation of warrants issued for services -- -- 461,640 -- --
Net Loss, year to date as of September 30, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 4,540,978 $ 4,541 $ 6,174,618 15,000 $ 150
=========== =========== =========== =========== ===========
<CAPTION>
Accumulated Subscriptions Shares Treasury
Deficit Receivable Advanced Stock Total
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 ($151,846) -- -- -- ($150,846)
Issuance of common stock in exchange for shares
of TrimFast Holdings, Inc. -- -- -- -- $ 227,800
Effect of recapitalization -- -- -- -- ($168,704)
Issuance of common stock in exchange for
stockholder loans -- -- -- -- $ 126,644
Reverse one-for-ten split -- -- -- -- ($20,415)
Repurchase of treasury stock at cost -- -- -- (23,534) ($23,534)
Net income 1998 42,626 -- -- -- $ 42,626
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ($109,220) -- -- ($23,534) $ 33,571
----------- ----------- ----------- ----------- -----------
Equity financing - issuance of common stock for cash -- -- -- -- $ 1,629,500
Issuance of common stock in exchange for
consulting and other professional services -- (358,325) -- -- $ 90,290
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per recission agreement. -- -- (925,312) -- $ 0
Issuance of common stock to employees -- -- -- -- $ 95,397
Issuance of convertible debentures -- -- -- -- $ 250,000
Return of common stock in repayment of debt -- -- -- -- ($400,000)
Issuance of common stock held in escrow to
secure loan -- -- -- -- $ 199,813
Issuance of common stock for debt repayment -- -- -- -- $ 168,031
Repurchase of treasury stock at cost -- -- -- (116,013) ($116,013)
Settlement of outstanding liabilities -- -- -- -- $ 359,625
Issuance of Preferred Stock (375,011) -- -- -- $ 1,500,040
Valuation of warrants issued for services -- -- -- -- $ 461,640
Net Loss, year to date as of September 30, 1999 (3,103,791) -- -- -- ($3,103,791)
=========== =========== =========== =========== ===========
Balance, September 30, 1999 ($3,588,022) ($358,325) ($925,312) ($139,547) $ 1,168,103
=========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 6
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operation.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
For further information, refer to the consolidated financial statements
and footnotes included in the company's Form 10-SB, as amended for the
year ended December 31, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Revenue Recognition
Nutrition Cafe charges a monthly membership fee for access to order
products at discounted prices. Memberships are sold on a pay-as-you-go
basis in one month increments. Members choose whether or not to continue
their membership each month; no long term agreements are required. The
membership fees are recognized as revenue in the month they are paid.
Revenue for products ordered is recognized when the product is shipped.
Revenue for the Cooler Group is earned through rental of water coolers and
delivery of water. A contract is signed for cooler rental and/or water
delivery service, and is invoiced monthly. Revenue is recognized for
cooler rental each month when invoiced and for water service based on
usage when delivered.
(B) Accounts Receivable - Other
Components of A/R - Other is as follows:
Millennium - related party $259,558
Cash from recission of IMMMU purchase 50,000
Stock held in escrow securing loan 199,790
Other 2,930
--------
$512,278
========
Page 7
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (Cont'd)
(B) Accounts Receivable - Other (Cont'd)
On May 26, 1999 the company placed in an escrow account 23,000 shares of its'
common stock valued at $199,790 to secure the loan to acquire Ice Cold Water,
Inc. (See note 7B) The shares will be returned to authorized when the loan is
satisfied.
(C) Inventory
Components of inventory are as follows:
Finished Goods $320,296
Product Components 56,974
--------
Total $377,270
========
The Company performs periodic inspections of inventory to identify expired
or obsolete items. Any merchandise, which has past its expiration date, or
has been deemed obsolete by management, is removed from inventory and
written off.
(D) Advertising Costs
Advertising costs are expensed as incurred unless a direct measurable
response exists. All advertising related costs have been recognized as
expense in these Interim Financial Statements.
(E) Software Development
The Company has contracted with an outside software development firm to
develop software that runs the website for Nutrition Cafe. All costs
associated with the development of the software have been capitalized
while any costs associated with content have been expensed.
NOTE 3 - ACQUISITION OF BUILDING
On July 30, 1999 the Company exercised its option to purchase the facility
located at 2555 Blackburn Street, Clearwater, FL for $1,200,000. The
property is used as the sales, storage and distribution facility for
Nutrition Cafe, Inc. The funds were raised through the sale of 15,000
shares of Class A Preferred Stock and 223,681 warrants to purchase common
stock. (See Note 6)
Page 8
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 4 - WCW LICENSE AGREEMENT
On June 2, 1999 the Company signed a license agreement with World
Championship Wrestling, Inc (WCW) to utilize certain names, likeness,
characters, trademarks and/or copyrights in connection with the
manufacture, distribution, advertising, promotion and sale of certain
articles of merchandise.
The license extends through December 2002. The agreement includes a
non-refundable advance of $50,000 which, has been capitalized as prepaid
expense and will be amortized over the life of the agreement. Terms of the
agreement include a royalty payment of 6% of net sales with the following
guarantees:
$100,000 Due No Later Than 12-31-99
$100,000 Due No Later Than 6-30-00
$100,000 Due No Later Than 9-30-00
$100,000 Due No Later Than 12-31-00
$100,000 Due No Later Than 6-30-01
NOTE 5 - CONVERTIBLE DEBENTURE
On June 14, 1999 the Company issued $1,000,000 in Convertible Debentures
in exchange for $1,000,000 in cash. The agreement, which contains a
beneficial conversion feature, stipulates that the debentures may be
converted as of the closing date at the lower of $8.50 or 80% of the fair
market value of the common stock on the conversion date resulting in the
recognition of $250,000 interest expense at closing.
NOTE 6 - EQUITY TRANSACTIONS
Sale of Preferred Stock and Warrants
On July 16, 1999 (the "issuance date") the Company issued 15,000 shares of
convertible preferred stock and 223,881 warrants to purchase common stock
in exchange for $1,500,040 cash. The preferred stock contains a beneficial
conversion feature whereby it is convertible immediately at the lesser of
$8.59 or 80% of the fair market value of the common stock on the
conversion date. The warrants vest immediately, expire on July, 2000 and
are exercisable at $10.31 per share. As a result of accounting for the
beneficial conversion feature, the Company charged a $375,011 dividend to
retained earnings on the issuance date. (See Note 3)
Page 9
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 7 - ACQUISITIONS
(A) Acquisitions of Subsidiaries and Subsequent Recission
On March 18, 1999 the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL
Pharmaceuticals, Inc. ("IMMCEL"), two companies related through common
stockholders, in a transaction accounted for as a purchase. Under terms of
the agreement, 235,000 shares of the Company's common stock, $50,000 in
cash and an option agreement for shares of the Company's common stock
exercisable based on stipulated Company performance criteria were
exchanged for all of the issued and outstanding capital stock of IMMMU and
IMMCEL. Subsequently, the Company entered into a recission agreement of
the purchase. Activity from IMMMU and IMMCEL are not part of these
consolidated statements. The common stock shares are recorded as "Common
Shares Advanced" and deducted from stockholder equity and the $50,000 is
recorded in Accounts Receivable - Other. The Company incurred a loss of
$94,225 from operating the companies during 1999 which is recorded in
Accounts Receivable - Other with a reserve for 100% recorded as bad debt.
(B) Asset Accumulation
On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co.,
Inc. ("ICW") including certain receivables, inventory, property and
equipment, a customer list and the name "Ice Cold Water" and all other
intellectual property rights associated with the name. Under terms of the
agreement, the Company acquired the assets for $20,000 in cash and a
$100,000 promissory note at 8.5% per annum which is due in four monthly
installments of $25,000 plus accrued interest, commencing June 10, 1999. A
balance of $30,406 remains outstanding at August 31, 1999.
Page 10
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(CONSOLIDATED) AND 1997
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONTENTS
PAGE 1 - INDEPENDENT AUDITORS' REPORT.
PAGE 2 - CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998
PAGE 3 - STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE
PERIOD FROM APRIL 27, 1997 (INCEPTION) TO
DECEMBER 31, 1997.
PAGE 4 - STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998
(CONSOLIDATED) AND FOR THE PERIOD FROM APRIL 27,
1997 (INCEPTION) TO DECEMBER 31, 1997.
PAGES 5 - 6 - STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE
PERIOD FROM APRIL 27, 1997 (INCEPTION) TO
DECEMBER 31, 1997.
PAGES 7 - 23 - NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER
31, 1998 AND 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Trimfast Group, Inc.
We have audited the accompanying balance sheet of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the related statements
of operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1998 (consolidated) and for the period from April 27, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 financial statements referred to above present fairly, in
all material respects, the financial position of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the results of their
operations and their cash flows for the year ended December 31, 1998
(consolidated) and for the period from April 27, 1997 (inception) to December
31, 1997 in conformity with generally accepted accounting principles.
/s/ WEINBERG & COMPANY, P.A.
----------------------------
Boca Raton, Florida
June 10, 1999 (Except for Notes 13(G), 13(H), 13(D), 7(C), 13(B) and 13(A) as to
which the dates are June 14, 1999, July 16, 1999, July 30, 1999, August 31,
1999, October 22, 1999 and October 23, 1999, respectively.)
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 105,641
Short-term investments 15,297
Accounts receivable 357,889
Due from employees 5,800
Inventory 188,737
---------
Total Current Assets 673,364
---------
PROPERTY AND EQUIPMENT - NET 33,403
OTHER ASSETS
Due from affiliate 5,945
Rent deposit 10,619
Cash surrender value of life insurance 8,107
---------
Total Other Assets 24,671
---------
TOTAL ASSETS $ 731,438
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 625,767
Notes and loans payable 72,100
---------
Total Current Liabilities 697,867
---------
TOTAL LIABILITIES 697,867
---------
STOCKHOLDERS' EQUITY
Preferred Stock, Class A, $0.01 par value;
20,000,000 shares authorized;
none issued and outstanding --
Preferred Stock, Class B, $0.01 par value;
20,000,000 shares authorized;
none issued and outstanding --
Common stock, $0.001 par value; 100,000,000
shares authorized; 2,260,775 shares issued
and outstanding 2,260
Common stock to be issued (77,881 shares) 78
Additional paid-in capital 163,987
Accumulated deficit (109,220)
Less cost of treasury stock (5,500 shares) (23,534)
---------
Total Stockholders' Equity 33,571
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438
=========
See accompanying notes to financial statements.
2
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION) THROUGH DECEMBER 31, 1997
(CONSOLIDATED)
1998 1997
----------- -----------
NET SALES $ 1,925,332 $ 22,338
COST OF SALES 567,472 9,625
----------- -----------
GROSS PROFIT 1,357,860 12,713
----------- -----------
OPERATING EXPENSES
Executive compensation 201,077 31,633
Salaries 20,696 --
Commissions 41,700 --
Depreciation expense 10,498 230
Professional fees 49,511 9,245
Bad debt expense 503,839 11,226
Selling, general and administrative expenses 423,289 92,565
Travel and entertainment 64,187 19,660
----------- -----------
Total Operating Expenses 1,314,797 164,559
----------- -----------
INCOME (LOSS) FROM OPERATIONS 43,063 (151,846)
----------- -----------
OTHER INCOME (EXPENSE)
Realized gain on sale of trading securities - net 1,905 --
Unrealized gain on trading securities - net 922 --
Interest expense (3,264) --
----------- -----------
Total Other Income (Expense) (437) --
----------- -----------
NET INCOME (LOSS) $ 42,626 $ (151,846)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ 0.02 $ (0.11)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC AND DILUTED 1,710,860 1,350,549
=========== ===========
See accompanying notes to financial statements.
3
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED) AND
FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK AND
COMMON STOCK TO ADDITIONAL
BE ISSUED PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 1,350,549 $ 1,351 $ 187,449 $ -- $ -- $ 188,800
Net loss 1997 -- -- -- (151,846) -- (151,846)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 1,350,549 1,351 187,449 (151,846) -- 36,954
Issuance of common stock to related
party in exchange for $40,000 debt 19,500 20 39,980 -- -- 40,000
Trimfast, Inc. shares outstanding
acquired by HLHK (1,370,049) (1,371) 1,371 -- -- --
HLHK equity at August 12, 1998 817,749 818 441,083 (1,122,218) -- (680,317)
Reclassification pursuant to
recapitalization -- -- (1,122,218) 1,122,218 -- --
Common stock issued to 1,370,049 1,370 (1,370) -- -- --
Trimfast, Inc. stockholders
Common stock issued to employees 500 -- -- -- -- --
Common stock issued to attorney
for services 5,000 5 (5) -- -- --
Common stock issued in exchange
for debt of HLHK principal stockholder 75,000 75 491,123 -- -- 491,198
Issuance of common stock in exchange
for stockholder loans 70,358 70 126,574 -- -- 126,644
Purchase of treasury stock at cost -- -- -- -- (23,534) (23,534)
Net income 1998 -- -- -- 42,626 -- 42,626
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 2,338,656 $ 2,338 $ 163,987 $ (109,220) $ (23,534) $ 33,571
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION)TO DECEMBER 31, 1997
(CONSOLIDATED)
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 42,626 $(151,846)
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation 10,498 230
Bad debt expense 503,839 11,226
Unrealized gain on short-term investments (922) --
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable (856,839) (16,115)
Inventory (165,038) (23,699)
Increase (decrease) in:
Accounts payable and accrued expenses 496,181 14,873
--------- ---------
Total adjustments (12,281) (13,485)
--------- ---------
Net cash provided by (used in) operating
activities 30,345 (165,331)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (14,375) --
Advances to employees (5,800) --
Purchases of property and equipment (37,821) (5,711)
Advances to affiliate (5,945) --
Rent deposit (8,119) (2,500)
Cash surrender value of life insurance (8,107) --
--------- ---------
Net cash used in investing activities (80,167) (8,211)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholder/officer (18,436) 150,200
Due to related party -- 40,000
Proceeds from borrowings 1,975 --
Proceeds from issuance of common stock 177,800 1,000
Purchase of treasury stock (23,534) --
--------- ---------
Net cash provided by financing activities 137,805 191,200
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 87,983 17,658
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 --
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 105,641 $ 17,658
========= =========
See accompanying notes to financial statements.
5
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION)TO DECEMBEER 31, 1997
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of
the issued and outstanding common stock of Trimfast, Inc. in a transaction
accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently
changed its name to Trimfast Group, Inc. (See Note 12)
On August 12, 1998, concurrent with the HLHK stock exchange discussed
above, the prior principal stockholder of HLHK received 75,000 shares of
common stock in exchange for $491,198 of amounts owed to him by HLHK.
Effective December 1998, the principal stockholder of the Company
exchanged $126,644 of loans due to him and his wholly-owned affiliates for
70,357 shares of common stock of the Company valued at a market price of
$1.80 per share based upon the trading price of the common stock at the
exchange date.
During July 1998 the Company issued 19,500 shares of common stock to an
individual related party in exchange for a loan payable of $40,000
resulting in a price paid per share of $2.05 at the exchange date.
See accompanying notes to financial statements.
6
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Description of Business
Trimfast Group, Inc. (the Company) formerly known as HLHK World Group,
Inc.(HLHK) is a Nevada corporation that through its subsidiaries,
develops, markets and sells dietary supplements. The Company's
subsidiaries Trimfast, Inc. and Body Life Sciences, Inc. were incorporated
in the State of Florida on April 28, 1997 and September 4, 1998,
respectively. Trimfast, Inc. is considered a predecessor pursuant to the
acquisition discussed below.
On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of
the issued and outstanding common stock of Trimfast, Inc. in a transaction
accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently
changed its name to Trimfast Group, Inc. (See Note 12).
(B) Basis of Presentation and Principles of Consolidation
The 1998 consolidated financial statements include the accounts of
Trimfast Group, Inc. and its subsidiaries Trimfast, Inc. and Body Life
Sciences, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation. The 1997 financial statements include
the accounts of Trimfast, Inc., the predecessor company.
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
(D) Cash and Cash Equivalents
For purposes of the cash flow statement, the Company considers all highly
liquid investments with original maturities of three months or less at
time of purchase to be cash equivalents.
7
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D)
(E) Short-Term Investments
The Company's policy is to invest in various equity or debt instruments.
The Company accounts for such investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." ("SFAS 115")
Management determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance
sheet date. Trading securities are carried at fair value, with unrealized
trading gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized gains and losses,
net of tax, reported as a separate component of stockholders' equity.
Investments classified as held-to-maturity are carried at amortized cost.
In determining realized gains and losses, the cost of the securities sold
is based on the specific identification method.
(F) Inventories
Inventories consist principally of consumable finished goods and raw
materials and are stated at lower of cost or market determined on the
first-in, first-out method. The Company performs an inventory review on an
annual basis and disposes of any inventory that is past its expiration
date. The related inventory value is written down accordingly.
(G) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures from maintenance and repairs are charged to expense as
incurred. Depreciation is provided using the double-declining balance
method over the estimated useful life of the assets from five to seven
years.
(H) Revenue Recognition
The Company recognizes income from sale of products at the time of
delivery.
8
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D)
(I) Income taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109.
"Accounting for Income Taxes" ("Statement No. 109"). Under Statement No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
(J) Earnings Per Share Data
Net income (loss) per common share for the year ended December 31, 1998
and 1997 is required to be computed based on the weighted average common
shares and dilutive common stock equivalents outstanding during the year
as defined by Statement of Financial Accounting Standards, No. 128,
"Earnings Per Share". For 1998, under Generally Accepted Accounting
Principles, the shares outstanding for the period from January 1, 1998
through the acquisition date of August 12, 1998 (Note 12), are deemed to
be that amount issued and to be issued to the shareholders of Trimfast,
Inc. on the acquisition date. For the period from the acquisition date
through December 31, 1998, the shares used in the weighted average
computation are the actual shares outstanding for that period. For 1997,
the weighted average shares have been retroactively restated to reflect
the quantity of shares of Trimfast Group, Inc., issued to the Company's
stockholders at the date of the reorganization. There were no dilutive
common stock equivalents outstanding at December 31, 1998 and 1997.
(K) Advertising Costs
In accordance with the Accounting Standards Executive Committee Statement
of Position 93-7, ("SOP 93-7") costs incurred for producing and
communicating advertising are expensed when incurred.
9
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D)
(L) New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 133 as amended by Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments
and related contracts and hedging activities. This statement is effective
for all fiscal quarters and fiscal years beginning after June 15, 2000.
The Company believes that its future adoption of these pronouncements will
not have a material effect on the Company's financial position or results
of operations.
NOTE 2 - SHORT-TERM INVESTMENTS
The Company's short-term investments, purchased principally for the
purpose of selling them in the near future, as defined under SFAS 115, are
comprised of equity securities, all classified as trading securities,
which are carried at their fair value are based upon the quoted market
prices of those investments at December 31, 1998. Accordingly, net
realized and unrealized gains and losses on trading securities are
included in net earnings.
The composition of short-term investments at December 31, 1998 is as
follows:
Fair
Cost Value
---- -----
Common stock $14,375 $15,297
------- -------
Short-term investments $14,375 $15,297
======= =======
Investment income for the year ended December 31, 1998 consisted of the
following:
Net realized gains on the
sale of trading securities $ 1,905
Net unrealized holding gains 922
-------
$ 2,827
=======
10
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 3 - ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE
During 1998 the Company wrote off 100% accounts receivable totaling
$202,112 from a customer who filed for bankruptcy and 50% of the
receivable or $267,240 from another customer relating to a voluntary
recall of a Company product. These two customers accounted for
approximately 60% and 12% of revenues in 1998 (See Note 7(D)). The
remaining accounts receivable consists of another $267,240 due from the
one customer discussed above, and $90,649 due from various other
customers, none of which are considered individually significant.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consisted of the following:
Automobiles $ 33,475
Furniture and fixtures 7,900
Equipment 2,756
--------
$ 44,131
Less accumulated depreciation (10,728)
--------
$ 33,403
========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$10,498 and $230, respectively.
NOTE 5 - INCOME TAXES
There was no income tax expense for 1998 due to the utilization of net
operating loss carryforwards.
The actual tax expense differs from the "expected" tax expense for the
year ended December 31, 1998 (computed by applying the U.S. Federal
Corporate tax rate of 34 percent to income before income taxes), as
follows:
Computed "expected" tax expense $ 14,493
State income tax, net of federal benefit 1,547
Meals and entertainment 10,911
Benefit of net operating loss carry forwards (26,951)
--------
Actual tax expense $ --
========
At December 31, 1998, the unused pre-acquisition net operating loss
carryforwards available to offset the separate future net income of
Trimfast, Inc. and its subsidiary, Body Life Sciences, Inc., and
11
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 5 - INCOME TAXES - (CONT'D)
Trimfast Group, Inc., the holding company (f.k.a. HLHK World Group, Inc.)
were $94,105 and $1,105,240, respectively. The deferred tax assets of
$51,628 and $381,554, respectively, resulting from these net operating
loss carryforwards were fully offset by valuation allowances at December
31, 1998. In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the historical taxable
earnings patterns, reversal of deferred tax liabilities, and projected
future taxable income in making this assessment.
The $94,105 net operating loss carryforward may be used to offset future
net income of Trimfast, Inc. and its subsidiary through the year 2012.
Usage of the $1,105,240 net operating loss carryforward of Trimfast Group,
Inc., the holding company, is subject to a separate return limitation year
rule, which allows it to be applied only to future net income of Trimfast
Group, Inc., the holding company. There was no post-acquisition net
operating loss carryforward for the consolidated group.
The valuation allowance for the deferred tax asset resulting from the net
operating loss of Trimfast, Inc. as of January 1, 1998 was $51,628. The
net change in the pre-acquisition valuation allowance for Trimfast, Inc.
was a decrease of $19,633. The valuation allowance for the deferred tax
asset resulting from the net operating losses of Trimfast Group, Inc., the
holding company, as of January 1, 1998 was $381,554. The net change in the
pre-acquisition valuation allowance for Trimfast Group, Inc., the holding
company, was a decrease of $5,772.
NOTE 6 - NOTES AND LOANS PAYABLE
At December 31, 1998, the Company has three notes payable with individual
lenders in the amounts of $20,000, $25,125 and $25,000. The following
schedule reflects notes and loans payable to non-related parties at
December 31, 1998:
12
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 6 - NOTES AND LOANS PAYABLE - (CONT'D)
Notes payable to individual
lenders in the amounts of $20,000,
$25,000 and $25,125, currently due,
interest at 12% per annum $70,125
Other loans payable, currently due 1,975
-------
$72,100
=======
Accrued interest of $15,923 on the notes and loans payable has been
included in accrued expenses at December 31, 1998. All principal and
accrued interest for $50,125 of the notes were exchanged for an aggregate
40,000 shares of common stock in 1999 resulting in a price per share of
$1.25.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
(A) Year 2000 Issues
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The
"Year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two-digit
year to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data or
cause a system to fail.
The Company uses a standard off the shelf accounting software package for
all of its accounting requirements. Management has contacted the software
vendor and confirmed that the accounting software is Year 2000 compliant.
Management has contacted its primary vendors has not identified any Year
2000 compliance issues with those vendors. Costs of investigating Year
2000 compliance issues have not been material to date. As a result,
management believes that the effect of investigating and resolving Year
2000 compliance issues will not have a material effect on the Company's
future financial position or results of operations.
13
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(B) Lease Agreements
The Company leases a corporate office facility in Tampa, office equipment,
and two automobiles under operating leases. The leases have remaining
terms varying from the years 1999 through 2002.
Future minimum lease payments for the operating leases are as follows at
December 31, 1998:
Years
Ending Amount
------ ------
1999 $ 39,393
2000 40,407
2001 26,708
2002 8,302
---------
$ 114,810
=========
Rent expense for 1998 and 1997 aggregated $31,885 and $9,263,
respectively.
(C) Consulting Agreements and Stock Issued To Vendors
On October 9, 1998 the Company entered into a consulting agreement with an
individual whereby the Company will be provided with advice with regard to
corporate strategy and business development and such other matters as
agreed upon between the parties from time to time. As consideration for
the consulting services provided, the Company shall issue 20,000 shares of
common stock to the consultant (See Note 8(B)).
On December 14, 1998 the Company entered into a two year consulting
agreement with an individual whereby the Company will be provided with
advice with regard to corporate strategy and business development
including targeting of acquisitions. As consideration for the services
provided the Company shall issue 50,000 free trading common shares
pursuant to Regulation D, Rule 504 and 250,000 common shares restricted
under Rule 144 (See Note 8(B)). In addition, the Company shall provide the
consultant with a $1,000 per month expense account. On June 30, 1999 this
consulting agreement was rescinded and the Company offered the consultant
300,000 restricted shares of its common stock at a price of $0.25 per
share.
14
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(C) Consulting Agreements - (CONT'D)
On December 18, 1998 the Company entered into a two year consulting
agreement with a consulting organization whereby the Company will be
provided with advice with regard to corporate strategy and business
development including targeting of acquisitions. As consideration for the
services provided the Company shall issue 100,000 free trading common
shares pursuant to Regulation D, Rule 504 and 350,000 common shares
restricted under Rule 144 (See Note 8B). In addition, the Company should
make monthly payments of $2,500 to the consulting organization. On June
30, 1999 this consulting agreement was rescinded and the Company offered
the consultant 275,000 restricted shares of its common stock at a price of
$0.25.
Subsequent to year end, the Company entered into various additional
consulting agreements whereby common stock will be issued as
consideration. Services under the consulting agreements entered into in
both 1998 and 1999 are being performed generally for two year periods and
accordingly, consulting expense is being recognized in 1999 and in any
subsequent service period based upon the fair market value of the common
stock issued in accordance with SFAS 123 since that value is more reliably
measurable (See Note 13 (F)). The Company also periodically issues common
stock as payment to vendors and records such issues at the fair market
value of the common stock. For the period from January 1, to August 31,
1999 (unaudited) the Company issued approximately 1,063,000 shares of
common stock for consulting services and as payment to vendors valued at
approximately $2,624,000 based upon the discounted trading price of the
stock.
(D) Litigation
In 1999 the Company initiated a legal proceeding against a former major
customer to collect amounts receivable from that customer aggregating
approximately $535,000 at December 31, 1998. Such receivable related to
products sold to that customer during 1998 that were voluntarily recalled
by the Company, but never returned by the customer. It is management's
assertion and the opinion of the Company's outside legal counsel with
regard to this matter that since the product was never returned to the
Company, and is believed to have been resold by the customer, a successful
outcome in favor of the Company is possible. The Company has written off
$267,240 or fifty percent of the total receivable (See Note 3).
In early 1999, pursuant to a voluntary arrangement with the Food and Drug
Administration, the Company's product, Revivarant, was
15
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(D) Litigation - (CONT'D)
recalled and removed from sale. Since the time of the recall, the Company
has been subject to six known lawsuits and claims relating to consumer use
of the product. As of the date of this report, only one lawsuit has
specified a dollar amount, that being, $400,000 of compensatory damages
and $350,000 of punitive damages. The Company is covered for product
liability of $1,000,000 per occurrence and up to $2,000,000 in the
aggregate under the policy of its third party manufacturer. All lawsuits
are being referred by management to the insurance carrier. With regard to
any punitive damage claims, the Company intends to vigorously oppose any
factual basis for imposition of punitive damages based upon research and
efforts made prior to the distribution of the Revivarant product to
determine its safety. Since the lawsuits and claims have been made fairly
recently, the Company's management and outside legal counsel are unable to
evaluate and determine the likely outcome of each cause of action.
However, management believes that the Company will be fully covered by the
liability insurance, and therefore the outcome of such cases will not
materially effect the Company's consolidated financial position of future
results of operations. Accordingly, pursuant to the Financial Accounting
Standards Board, Statement of Financial Accounting Standards No. 5, no
liabilities have been accrued as of December 31, 1998 relating to the
above matters.
The Company is subject to various lawsuits, investigations and claims
which, in the opinion of management, arise in the normal course of
conducting Company business. Several cases have been settled during 1999
and appropriate amounts have been accrued at December 31, 1998. In the
opinion of the Company's management after consultation with outside legal
counsel, the ultimate disposition of such remaining proceedings will not
have a materially adverse effect on the Company's consolidated financial
position or future results of operations.
NOTE 8 - STOCKHOLDERS' EQUITY
(A) Authorized Shares
The Company has authorized 100,000,000 shares of common stock, $0.001 par
value; 20,000,000 shares of Class A Preferred Stock, $0.01 par value; and
20,000,000 shares of Class B Preferred Stock, $0.01 par value. The
preferred stock shall have such rights and preferences as determined by
the Board of Directors.
16
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCKHOLDERS' EQUITY - (CONT'D)
(B) Reverse Stock Split and Retroactive Restatement of Per Share Data
On December 8, 1998, effective for stockholders of record on December 20,
1998, the Company's Board of Directors approved a one-for-ten reverse
split of its shares of issued and outstanding common stock. All share
quantities and per share data in these financial statements for the years
ended December 31, 1998 and 1997 have been retroactively restated to
reflect the reverse stock split as well as the recapitalization discussed
in Note 12.
(C) Repurchase of Outstanding Common Stock By Principal Stockholder
On December 8, 1998 the Company's Chairman, CEO and principal stockholder,
purchased all 508,313 shares of the Company's outstanding common stock
held beneficially by the prior principal stockholder of HLHK (See Note
12). In accordance with SFAS 123, the transaction is considered a
secondary market transaction and accordingly, had no effect on the
Company's financial position or results of operations.
(D) Acquisition and Stock Exchange
In August 1998, prior to the acquisition of Trimfast, Inc. by HLHK World
Group, Inc., Trimfast, Inc. acquired all of the issued and outstanding
common stock of Trimfast Holdings, Inc., affiliated through common
control, by issuing eleven shares of Trimfast, Inc. for every ten shares
of Trimfast Holdings, Inc. Trimfast Holdings, Inc. was an inactive company
whose only asset at that time was $177,800 in cash and whose only expense
was a $10,000 consulting expense for which common stock was issued. The
acquisition was recorded under the pooling method of accounting and
accordingly the financial statements for the period presented have been
restated to include the accounts of Trimfast Holdings, Inc.
(E) Conversion of Debt to Equity
During July 1998, the Company issued 19,500 shares of common stock to an
individual related party in exchange for a loan payable of $40,000,
resulting in a price paid per share of $2.05 at the exchange date.
17
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCKHOLDERS' EQUITY - (CONT'D)
(F) Conversion of Principal Stockholder's Debt to Equity
In December 1998, $126,644 of amounts due to the principal stockholder
were converted to common stock at the fair value of the stock on December
1, 1998, which was $1.80 per share (See Note 10).
(G) Common Stock to be Issued
The Company underissued 7,524 fully paid shares of common stock of the
Company to certain stockholders of Trimfast, Inc. as a result of the
August 12, 1998 reorganization and has not yet issued 70,357 shares of
common stock to its principal stockholder in exchange for $126,644 of
amounts due to that stockholder. The total shares to be issued of 77,881
are shown as common stock to be issued at December 31, 1998.
NOTE 9 - CONCENTRATIONS
(A) Supplier Concentration
The Company procures raw materials from various suppliers but contracts
the production of finished products to one primary third party
manufacturing company. Since December 31, 1998 the Company has contracted
with other production facilities for several of its products and believes
that many alternative third party production facilities are available
should the need arise.
(B) Customer Concentration
During 1998, approximately 60% of consolidated revenues was derived from
one customer and 13% was derived from two other customers (See Note 3).
NOTE 10 - RELATED PARTIES
The Company periodically advances funds to the principal stockholder and
affiliates of the principal stockholder, pays certain expenses of the
principal stockholder, and borrows from the principal stockholder. The
advances to affiliates are shown as due from affiliate at December 31,
1998 and the net effect of transactions with the principal stockholder are
shown as due to stockholder/officer at December 31, 1997. All net amounts
due to the principal stockholder were converted to common stock in
18
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 10 - RELATED PARTIES - (CONT'D)
December 1998. (See supplemental disclosure of non-cash investing and
financing activities in cash flow statement.)
The Company received an advance of $40,000 from an individual during 1997
which was recorded as due to related party at December 31, 1997 (see Note
8(E)). During 1998 the Company issued 19,500 shares of common stock to
that same individual in exchange for the $40,000 payable.
NOTE 11 - OPERATING AGREEMENTS
The Company enters into wholesaler and broker agreements whereby the
wholesalers and brokers are appointed the Company's sole and exclusive
wholesaler and broker within a specified geographic territory for certain
stipulated products. In general, under the agreements, the wholesalers and
brokers have the right to purchase, sell, promote, advertise and deliver
the stipulated products. Broker agreements allow for broker commissions
while wholesaler agreements allow for the purchase of product by
distributors at a discount. The agreements generally may be terminated by
either party with 60 days notice to the other party.
NOTE 12 - ACQUISITION AND RECAPITALIZATION
Under a Stock Exchange Agreement (the "Agreement") consummated on August
12, 1998, HLHK World Group, Inc., a non-reporting public shell, acquired
one hundred percent of the issued and outstanding common stock of
Trimfast, Inc. in exchange for 1,370,049 shares of the $0.001 par value
common stock of HLHK. Under the terms of the Agreement, the Trimfast,
Inc., shares were exchanged at a ratio of 3 shares of HLHK common stock
for each share of Trimfast, Inc. common stock. As a result of the
exchange, the Company became a wholly-owned subsidiary of HLHK and the
stockholders of Trimfast, Inc. became stockholders of approximately 60.42%
of HLHK which represented 1,370,049 shares of the total 2,268,298 issued
and outstanding just subsequent to the exchange (Approximately 82% after
repurchase agreement discussed in Note 8(C)). Generally Accepted
Accounting Principles require that the Company whose
19
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 12 - ACQUISITION AND RECAPITALIZATION - (CONT'D)
shareholders retain a majority interest in a combined business be treated
as the acquiror for accounting purposes. As a result, the exchange was
treated as an acquisition of HLHK by Trimfast, Inc. and a recapitalization
of Trimfast, Inc. The Company's consolidated financial statements
immediately following the acquisition were as follows: (1) The Balance
Sheet consists of Trimfast, Inc.'s net assets at historical cost and
HLHK's net assets at historical cost and (2) the Statement of Operations
includes Trimfast, Inc.'s operations for the period presented and HLHK's
operations from the date of acquisition. On September 4, 1998 the Company
filed an amendment to its articles of incorporation to (i) change its name
from HLHK to Trimfast Group, Inc. and (ii) authorize 20,000,000 shares
each of Class A and Class B Preferred Stock, $0.01 par value.
NOTE 13 - SUBSEQUENT EVENTS
(A) Acquisitions
On March 18, 1999 the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL
Pharmaceuticals, Inc. ("IMMCEL"), two companies unrelated to the Company
but related to each other through common stockholders, in a transaction
accounted for as a purchase. Under terms of the agreement, 235,000 shares
of the Company's common stock, $50,000 in cash and an option agreement for
shares of the Company's common stock exercisable based on stipulated
Company performance criteria were exchanged for all of the issued and
outstanding capital stock of IMMMU and IMMCEL. The 235,000 common shares
issued were valued at the trading price on the consummation date resulting
together with the other consideration in a purchase price of $975,312.
IMMMU and IMMCEL are manufacturers of nutritional supplements primarily
marketed to pharmacies, supermarkets and discount stores. In connection
with the acquisitions, the Company entered into a five year employment
agreement, renewable in one year increments, with a former stockholder of
IMMMU and IMMCEL whereby the former stockholder will be employed as the
Chief Executive Officer of IMMMU and IMMCEL and serve on the Board of
Directors of the Company. The former stockholder will receive an annual
salary of $75,000 and a bonus based on stipulated performance criteria.
The employment agreement may be terminated by the Company if IMMMU and
IMMCEL have two consecutive non-profitable fiscal quarters as defined in
the agreement. On October 23, 1999, effective October 31, 1999, the
Company and former stockholders of IMMMU and IMMCEL executed a rescission
agreement for the above acquisitions to make the parties whole.
20
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS - (CONT'D)
(A) Acquisitions - (CONT'D)
On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co.,
Inc. ("ICW") including certain receivables, inventory, property and
equipment, a customer list and the name "Ice Cold Water" and all other
intellectual property rights associated with the name. Under terms of the
agreement, the Company acquired the assets for $20,000 in cash and a
$100,000 promissory note at 8.5% per annum which is due in four monthly
installments of $25,000 plus accrued interest, commencing June 10, 1999.
(B) Agreement with Investment Group
On March 18, 1999 the Company entered into an agreement (the "Agreement")
with a third party investment group (the "investment group") whereby the
investment group will purchase (i) common shares of the Company in the
open market having an aggregate value of no less than $300,000, and (ii)
300,000 common shares from the Company at a price of $4.00 per share
according to a stipulated schedule based on the average market price of
the outstanding shares. The Agreement was contingent upon the consummation
of the acquisition of IMMMU and IMMCEL, discussed above. As of October
1999 the investment group had purchased 155,000 shares of common stock
from the Company at $4.00 per share. On October 22, 1999 the Company
executed an agreement with the investment group to repurchase the 155,000
shares at a price of $8.25 per share on a scheduled basis through December
15, 1999 as stipulated in the agreement. Any of the 155,000 shares
purchased after December 15, 1999 shall be at $8.50 per share.
(C) Formation of New Division
On April 21, 1999 the Company formed a new division of Trimfast Group,
Inc. doing business as NutritionCafe.com. NutritionCafe.com is an internet
web site business established to (i) provide nutrition information, (ii)
provide portal links to other information sites and (iii) market and sell
at a discount the Company's products and products of other nutrition
product companies for which the Company acts as a distributor.
(D) Lease and Purchase Option of Facility
In connection with the formation of its new division, NutritionCafe.com,
on April 8, 1999 the Company entered into a lease/purchase option
agreement for a facility which will be used for the operations of
NutrionCafe.com. The lease calls for rental
21
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS - (CONT'D)
(D) Lease and Purchase Option of Facility- - (CONT'D)
payments of $8,000 per month and is effective for the period from May 15,
1999 through June 30, 2000. In addition, the Company paid $100,000 in cash
as non-refundable consideration for a purchase option on the premises. The
purchase price shall be for the sum of $1,200,000 with full credit for the
$100,000 option monies paid. The option must be exercised by June 30,
2000. On July 30, 1999 the Company exercised its purchase option.
(E) Issuance of Warrants
In May 1999 the Company issued 40,000 warrants to purchase common stock to
two unrelated parties in exchange for services performed relating to
raising debenture capital. The exercise prices and expiration dates for
exercise of the warrants are as follows:
Quantity Exercise Price Expiration Date
-------- -------------- ---------------
10,000 $4.00 May 12, 2000
10,000 $4.00 May 12, 2000
10,000 $7.00 May 13, 2000
10,000 $7.00 May 13, 2000
Pursuant to Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"), the fair market
value of the warrants will be charged to expense in the period the
services are performed.
(F) Private Placement
From January through April 5, 1999 the Company issued common stock
pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as
amended. The Company issued 663,000 shares for aggregate cash proceeds of
approximately $980,000 and 5,450 shares for services valued for financial
accounting purposes at approximately $11,000 based upon the trading price
of the common stock. (See Note 7 (C)).
(G) Convertible Debentures
On June 14, 1999 the Company issued $1,000,000 of convertible debentures
due on June 14, 2002. The debentures contain a beneficial conversion
feature whereby the holder is entitled to convert the face amount of the
debenture, plus accrued interest, as of the closing date into common stock
of the Company at the lesser
22
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS - (CONT'D)
(G) Convertible Debentures
of (a) 80% of the 5 day average closing bid price for the 5 consecutive
trading days prior to the conversion date or (b) $8.50. The debentures
also contain a mandatory 36 month conversion feature at the end of which
all debentures outstanding will be automatically converted.
The Company accounts for the debentures in accordance with EITF 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios." Accordingly, the Company
has allocated a portion of the proceeds to additional paid-in capital
equal to the intrinsic value of the features as computed on the commitment
date, resulting in recognition on the closing date of $250,000 interest
expense.
(H) Convertible Preferred Stock and Common Stock Warrants
On July 16, 1999, pursuant to a securities purchase agreement (the
"Agreement") the Company issued 15,000 shares of Series A Convertible
Preferred Stock and 223,881 warrants to purchase common stock to four
investors for a total aggregate selling price of $1,500,040. The
debentures contain a beneficial conversion feature whereby the stock is
convertible any time after the issuance date at the lesser of (a) $8.5938
or (b) 80% of the market price of the common stock as defined in the
Agreement. The preferred stock entitles the holder to receive on each July
1, and January 1, commencing January 1, 2000 cumulative dividends at 8%
per annum computed on the basis of $100 per preferred stock. At the
Company's option, the dividends may be paid in cash or the Company's
common stock. The warrants are exercisable at $10.31 per share, vest
immediately and expire on July 16, 2002. As a result of accounting for the
beneficial conversion feature, the Company charged a $375,011 dividend to
retained earnings on the issuance date.
A total of 750,000 shares of the Company's authorized common stock have
been reserved for issuance upon conversion of the preferred stock and
exercise of the warrants.
23
<PAGE>
- --------------------------------------------------------------------------------
Exhibit # Description Page Number
- --------------------------------------------------------------------------------
2.1 Kendrex and HLHK Merger E- 1
- --------------------------------------------------------------------------------
2.2 Trimfast, Inc. Acquisition
- --------------------------------------------------------------------------------
2.3 Rescission of IMMMU and IMMCEL Acquisitions
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation, as amended
- --------------------------------------------------------------------------------
3.2 Bylaws
- --------------------------------------------------------------------------------
4.1 Specimen Share Certificate
- --------------------------------------------------------------------------------
4.2 Debenture Agreement
- --------------------------------------------------------------------------------
4.3 Warrant Agreement
- --------------------------------------------------------------------------------
4.4 Preferred Share Agreement
- --------------------------------------------------------------------------------
10.1 Lease Option Agreement
- --------------------------------------------------------------------------------
10.2 WCW Agreement
- --------------------------------------------------------------------------------
10.3 MSN Agreement
- --------------------------------------------------------------------------------
10.4 Distribution Agreement
- --------------------------------------------------------------------------------
21 Subsidiaries of Registrant
- --------------------------------------------------------------------------------
27 Financial Data Schedule
- --------------------------------------------------------------------------------
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Michael Muzio
----------------------------------------
By: Michael Muzio, President
Date: December 22, 1999
42
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("the Agreement"), dated as of
the 18th day of November, 1996, by and between Kendrex Systems, Inc., a Nevada
corporation ("Kendrex") and HLHK World Group, Inc., a Nevada corporation
("HLHK") and the shareholders of HLHK ("Shareholders"), with reference to the
following:
A. Kendrex is a Nevada corporation organized on February 23, 1987.
Kendrex has authorized capital stock of 100,000,000 shares, $.001 par
value, of which 31,850,000 shares are issued and outstanding. The common
shares of Kendrex are traded on the OTC Bulletin Board under the symbol
KNDX.
B. HLHK is a privately held corporation organized under the laws of
the State of Nevada on July 8, 1996.
C. The respective Boards of Directors of Kendrex and HLHK have
deemed it advisable and in the best interests of Kendrex and HLHK that
HLHK be acquired by Kendrex, pursuant to the terms and conditions set
forth in this Agreement.
D. Kendrex and HLHK propose to enter into this Agreement which
provides among other things that all of the outstanding shares of HLHK be
acquired by Kendrex, in exchange for shares of Kendrex and such additional
items as more fully described in the Agreement.
E. The parties desire the transaction to qualify as a tax-free
reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
THE ACQUISITION
1.01 At the Closing, a total of 1,000 common shares, which represents all
of the outstanding shares of HLHK, shall be acquired by Kendrex in exchange for
6,000,000 restricted post-split common shares of Kendrex and an additional
250,000 restricted post-split common shares of Kendrex pursuant to Rule 701 of
the Securities Act of 1933 as a finder's fee to the consultants of HLHK. The
shares of Kendrex to be issued in this transaction shall be issued as set forth
in Exhibit A to this Agreement.
1.02 At the Closing, the HLHK shareholders will deliver certificates for
the outstanding shares of HLHK, duly endorsed so as to make Kendrex the sole
holder thereof, free and clear of all claims and encumbrances and Kendrex shall
deliver a transmittal letter directed to the transfer agent
1
<PAGE>
of Kendrex directing the issuance of shares to the shareholders of HLHK as set
forth on Exhibit A of this Agreement.
1.03 Following the reorganization, reverse split of shares as set forth in
paragraph 5.01(d) and cancellation of shares as set forth in paragraph 5.01(c),
there will be a total of 7,020,000 shares, $.001 par value, issued and
outstanding in Kendrex.
ARTICLE 2
THE CLOSING
2.01 The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place in the offices of HLHK, 3361 Westwind Road, Las
Vegas, Nevada 89102 on November 18, 1996, (the "Closing Date") or at such other
place or date and time as may be agreed to in writing by the parties hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KENDREX
Kendrex hereby represents and warrants to HLHK as follows:
3.01 Kendrex shall deliver to HLHK, on or before Closing, each of the
following:
(a) Financial Statements. Audited financial statements of Kendrex
including, but not limited to, balance sheets and profit and loss
statements from inception to December 31, 1995 and unaudited financial
statements from January 1, 1996 to October 31, 1996, prepared in
accordance with generally accepted accounting principles and which fairly
present the financial condition of Kendrex at the dates thereof. (Schedule
A)
(b) Property. An accurate list and description of all property, real
or personal, owned by Kendrex of a value equal to or greater than
$1,000.00. (Schedule B.)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule A. (Schedule C.) A
complete and accurate list of all debts, liabilities and obligations of
Kendrex incurred or owing as of the date of this Agreement. (Schedule
C.1.)
(d) Leases and Contracts. A complete and accurate list describing
all material terms of each lease (whether of real or personal property)
and each contract, promissory note, mortgage, license, franchise, or other
written agreement to which Kendrex is a party which involves or can
reasonably be expected to involve aggregate future payments or receipts by
Kendrex (whether by the terms of such lease, contract, promissory note,
license, franchise or other written agreement or as a result of a
guarantee of the payment of or indemnity against the failure to pay same)
of $1,000.00 or more annually during the twelve-month period ended
December 31, 1995, or any consecutive twelve-month period thereafter,
except any of said
2
<PAGE>
instruments which terminate or are cancelable without penalty during such
twelve-month period. (Schedule D.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of Kendrex for
the repayment of borrowed money. (Schedule E.)
(f) Consents Required. A complete list of all agreements wherein
consent to the transaction herein contemplated is required to avoid a
default thereunder; or where notice of such transaction is required at or
subsequent to closing, or where consent to an acquisition, consolidation,
or sale of all or substantially all of the assets is required to avoid a
default thereunder. (Schedule F.)
(g) Articles and Bylaws. Complete and accurate copies of the
Certificate and Articles of Incorporation and Bylaws of Kendrex together
with all amendments thereto to the date hereof. (Schedule G.)
(h) Shareholders. A complete list of all persons or entities holding
capital stock of Kendrex or any rights to subscribe for, acquire, or
receive shares of the capital stock of Kendrex (whether warrants, calls,
options, or conversion rights), including copies of all stock option plans
whether qualified or nonqualified, and other similar agreements. (Schedule
H.)
(i) Officers and Directors. A complete and current list of all
Officers and Directors of Kendrex. (Schedule I.)
(j) Salary Schedule. A complete and accurate list (in all material
respects) of the names and the current salary rate for each present
employee of Kendrex who received $1,000.00 or more in aggregate
compensation from Kendrex whether in salary, bonus or otherwise, during
the year 1995, or who is presently scheduled to receive from Kendrex a
salary in excess of $1,000.00 during the year ending December 1996,
including in each case the amount of compensation received or scheduled to
be received, and a schedule of the hourly rates of all other employees
listed according to departments. (Schedule J.)
(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration or
other such proceedings or investigations (including without limitations
unfair labor practice matters, labor organization activities,
environmental matters and civil rights violations) pending or, to the
knowledge of Kendrex threatened, which may materially and adversely affect
Kendrex. (Schedule K.)
(l) Tax Returns. Accurate copies of all Federal and State tax
returns for Kendrex for the last fiscal year. (Schedule L.)
(m) Agency Reports. Copies of all material reports or filing (and a
list of the
3
<PAGE>
categories of reports or filings made on a regular basis) made by Kendrex
under ERISA, EEOC, FDA and all other governmental agencies (federal, state
or local) during the last fiscal year. (Schedule M.)
(n) Banks. A true and complete list (in all material respects), as
of the date of this Agreement, showing (1) the name of each bank in which
Kendrex has an account or safe deposit box, and (2) the names and
addresses of all signatories. (Schedule N.)
(o) Jurisdictions Where Qualified. A list of all jurisdictions
wherein Kendrex is qualified to do business and is in good standing.
(Schedule O.)
(p) Subsidiaries. A complete list of all subsidiaries of Kendrex.
(Schedule P.) The term "Subsidiary" or "Subsidiaries" shall include
corporations, unincorporated associations, partnerships, joint ventures,
or similar entities in which Kendrex has an interest, direct or indirect.
(q) Union Matters. An accurate list and description (in all material
respects) of all union contracts and collective bargaining agreements of
Kendrex, if any. (Schedule Q.)
(r) Employee and Consultant Contracts. A complete and accurate list
of all employee and consultant contracts which Kendrex may have, other
than those listed in the schedule on Union Matters. (Schedule R.)
(s) Employee Benefit Plans. Complete and accurate copies of all
salary, stock options, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
disability, death benefit or other benefit plans, trust agreements or
arrangements of Kendrex in effect on the date hereof or to become
effective after the date thereof, together with copies of any
determination letters issued by the Internal Revenue Service with respect
thereto. (Schedule S.)
(t) Insurance Policies. A complete and accurate list (in all
material respects) and a description of all material insurance policies
naming Kendrex as an insured or beneficiary or as a loss payable payee or
for which Kendrex has paid all or part of the premium in force on the date
hereof, specifying any notice or other information possessed by Kendrex
regarding possible claims thereunder, cancellation thereof or premium
increases thereon, including any policies now in effect naming Kendrex as
beneficiary covering the business activities of Kendrex. (Schedule T.)
(u) Licenses and Permits. A complete list of all licenses, permits
and other authorizations of Kendrex. (Schedule U.)
3.02 Organization, Standing and Power. Kendrex is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada with
all requisite corporate power to own or lease its properties and carry on its
businesses as are now being conducted.
4
<PAGE>
due or to become due, incurred in respect of or measured by Kendrex income or
business prior to the Closing Date.
3.09 Options, Warrants, etc. Except as otherwise described in Schedule H, there
are no outstanding options, warrants, calls, commitments or agreements of any
character to which Kendrex or its shareholders are a party or by which Kendrex
or its shareholders are bound, or are a party, calling for the issuance of
shares of capital stock of Kendrex or any securities representing the right to
purchase or otherwise receive any such capital stock of Kendrex.
3.10 Title to Assets. Except for liens set forth in Schedule C, Kendrex is the
sole unconditional owner of, with good and marketable title to, all assets
listed in the schedules as owned by it and all other property and assets are
free and clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever.
3.11 Agreements in Force and Effect. Except as set forth in Schedules D and E,
all material contracts, agreements, plans, promissory notes, mortgages, leases,
policies, licenses, franchises or similar instruments to which Kendrex is a
party are valid and in full force and effect on the date hereof and Kendrex has
not breached any material provision of, and is not in default in any material
respect under the terms of, any such contract, agreement, plan, promissory note,
mortgage, lease, policy, license, franchise or similar instrument which breach
or default would have a material adverse effect upon the business, operations or
financial condition of Kendrex.
3.12 Legal Proceedings, Etc. Except as set forth in Schedule K, there are no
civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of either Kendrex or the
shareholders thereof, threatened, in which, individually or in the aggregate, an
adverse determination would materially and adversely affect the assets,
properties, business or income of Kendrex. Kendrex has substantially complied
with, and is not in default in any material respect under, any laws, ordinances,
requirements, regulations or orders applicable to its businesses.
3.13 Governmental Regulation. To the knowledge of Kendrex and except as set
forth in Schedule K, Kendrex is not in violation of or in default with respect
to any applicable law or any applicable rule, regulation, order, writ or decree
of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of Kendrex.
3.14 Brokers and Finders. Kendrex shall be solely responsible for payment to any
broker or finder retained by Kendrex for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated herein.
3.15 Accuracy of Information. No representation or warranty by Kendrex contained
in this Agreement and no statement contained in any certificate or other
instrument delivered or to be delivered to HLHK pursuant hereto or in connection
with the transactions contemplated hereby
6
<PAGE>
(including without limitation all Schedules and exhibits hereto) contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary in order to make the statements contained
herein or therein not misleading.
3.16 Subsidiaries. Except as listed in Schedule P, Kendrex does not have any
other subsidiaries or own capital stock representing ten percent (10%) or more
of the issued and outstanding stock of any other corporation.
3.17 Consents. Except as listed in Schedule F, no consent or approval of, or
registration, qualification or filing with, any governmental authority or other
person is required to be obtained or accomplished by Kendrex or any shareholder
thereof in connection with the consummation of the transactions contemplated
hereby.
3.18 Improper Payments. Neither Kendrex, nor any person acting on behalf of
Kendrex has made any payment or otherwise transmitted anything of value,
directly or indirectly, to (a) any official or any government or agency or
political subdivision thereof for the purpose of influencing any decision
affecting the business of Kendrex (b) any customer, supplier or competitor of
Kendrex or employee of such customer, supplier or competitor, for the purpose of
obtaining, retaining or directing business for Kendrex or (c) any political
party or any candidate for elective political office nor has any fund or other
asset of Kendrex been maintained that was not fully and accurately recorded on
the books of account of Kendrex.
3.19 Copies of Documents. Kendrex has made available for inspection and copying
by HLHK and its duly authorized representatives, and will continue to do so at
all times, true and correct copies of all documents which it has filed with the
Securities and Exchange Commission and all other governmental agencies which are
material to the terms and conditions contained in this Agreement. Furthermore,
all filings by Kendrex with the Securities and Exchange Commission, and all
other governmental agencies, including but not limited to the Internal Revenue
Service, have contained information which is true and correct, to the best
knowledge of the Board of Directors of Kendrex, in all material respects and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein not misleading or
which could have any material adverse effect upon the financial condition or
operations of Kendrex or adversely effect the objectives of this Agreement with
respect to HLHK including, but not limited to, the issuance and subsequent
trading of the shares of common stock of Kendrex to be received hereby, subject
to compliance by the shareholders of HLHK with applicable law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
HLHK
HLHK hereby represents and warrants to Kendrex as follows:
7
<PAGE>
4.01 HLHK shall deliver to Kendrex, on or before Closing, the following:
(a) Financial Statements. Audited financial statements of HLHK
including, but not limited to, balance sheets and profit and loss
statements for the period from inception through November 7, 1996.
(Schedule AA)
(b) Property. An accurate list and description of all property, real
or personal owned by HLHK of a value equal to or greater than $1,000.00.
(Schedule BB.)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule AA. (Schedule CC.)
A complete and accurate list of all debts, liabilities and obligations of
HLHK incurred or owing as of the date of this Agreement. (Schedule CC.1.)
(d) Leases and Contracts. A complete and accurate list describing
all material terms of material leases (whether of real or personal
property) and each contract, promissory note, mortgage, license,
franchise, or other written agreement to which HLHK is a party which
involves or can reasonably be expected to involve aggregate future
payments or receipts by HLHK (whether by the terms of such lease,
contract, promissory note, license, franchise or other written agreement
or as a result of a guarantee of the payment of or indemnity against the
failure to pay same) of $1,000.00 or more annually during the twelve-month
period ended December 31, 1995 or any consecutive twelve-month period
thereafter, except any of said instruments which terminate or are
cancelable without penalty during such twelve-month period. (Schedule DD.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of HLHK for the
repayment of borrowed money. (Schedule EE.)
(f) Consents Required. A complete list of all agreements wherein
consent to the transaction herein contemplated is required to avoid a
default thereunder; or where notice of such transaction is required at or
subsequent to closing, or where consent to an acquisition, consolidation,
or sale of all or substantially all of the assets is required to avoid a
default thereunder. (Schedule FF.)
(g) Articles and Bylaws. Complete and accurate copies of the
Articles of Incorporation and Bylaws of HLHK, together with all amendments
thereto to the date hereof. (Schedule GG.)
(h) Shareholders. A complete list of all persons or entities holding
capital stock of HLHK or any rights to subscribe for, acquire, or receive
shares of the capital stock of HLHK (whether warrants, calls, options, or
conversion rights), including copies of all stock
8
<PAGE>
option plans whether qualified or nonqualified, and other similar
agreements. (Schedule HH.)
(i) Officers and Directors. A complete and current list of all
officers and Directors of HLHK. (Schedule II.)
(j) Salary Schedule. A complete and accurate list (in all material
respects) of the names and the current salary rate or each present
employee of HLHK who received $1,000 or more in aggregate compensation
from HLHK whether in salary, bonus or otherwise, during the year 1995, or
who is presently scheduled to receive from HLHK a salary in excess of
$1,000.00 during the year ending December 31, 1996, including in each case
the amount of compensation received or scheduled to be received, and a
schedule of the hourly rates of all other employees listed according to
departments. (Schedule JJ.)
(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration or
other such proceedings or investigations (including without limitations
unfair labor practice matters, labor organization activities,
environmental matters and civil rights violations) pending or, to the
knowledge of HLHK threatened, which may materially and adversely affect
HLHK. (Schedule KK.)
(l) Tax Returns. Accurate copies of all Federal and State tax
returns for HLHK, if any. (Schedule LL.)
(m) Agency Reports. Copies of all material reports or filings (and a
list of the categories of reports or filings made on a regular basis) made
by HLHK under ERISA, EEOC, FDA and all other governmental agencies
(federal, state or local). (Schedule MM.)
(n) Jurisdictions Where Qualified. A list of all jurisdictions
wherein HLHK is qualified to do business and is in good standing.
(Schedule NN.)
(o) Subsidiaries. A complete list of all subsidiaries of HLHK.
(Schedule OO.) The term "Subsidiary" or "Subsidiaries" shall include
corporations, unincorporated associations, partnerships, joint ventures,
or similar entities in which HLHK has an interest, direct or indirect.
(p) Employee and Consultant Contracts. A complete and accurate list
of all employee and consultant contracts which HLHK may have, other than
those listed in the schedule on Union Matters. (Schedule PP.)
(q) Employee Benefit Plans. Complete and accurate copies of all
salary, stock option, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
disability, death benefit or other benefit plans, trust agreements or
arrangements of HLHK in effect on the date hereof or to become effective
after the date
9
<PAGE>
thereof, together with copies of any determination letters issued by the
Internal Revenue Service with respect thereto. (Schedule QQ.)
(r) Insurance Policies. A complete and accurate list (in all
material respects) and description of all material insurance policies
naming HLHK as an insured or beneficiary or as a loss payable payee or for
which HLHK has paid all or part of the premium in force on the date
hereof, specifying any notice or other information possessed by HLHK
regarding possible claims thereunder, cancellation thereof or premium
increases thereon, including any policies now in effect naming HLHK as
beneficiary covering the business activities of HLHK. (Schedule RR.)
(s) Customers. A complete and accurate list (in all material
respects) of the customers of HLHK, including all presently effective
contracts of HLHK to be assigned to HLHK, accounting for the principle
revenues of HLHK, indicating the dollar amounts of gross revenues of each
such customer for the period ended December 31, 1995. (Schedule SS.)
(t) Licenses and Permits. A complete list of all licenses, permits
and other authorizations of HLHK. (Schedule TT.)
4.02 Organization, Standing and Power. HLHK is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada with
all requisite corporate power to own or lease its properties and carry on its
business as is now being conducted.
4.03 Qualification. HLHK is duly qualified and licensed as a foreign corporation
authorized to do business in each jurisdiction wherein it conducts business
operations. Such jurisdictions, which are the only jurisdictions in which HLHK
is duly qualified and licensed as a foreign corporation, is shown in Schedule
OO.
4.04 Capitalization of HLHK. The authorized capital stock of HLHK consists of
2,500,000 shares of Common Stock, of which the only shares issued and
outstanding are 1,000 shares issued to the shareholders listed on Schedule HH,
which shares were duly authorized, validly issued and fully paid and
nonassessable. There are no preemptive rights with respect to the HLHK stock.
4.05 Authority. The execution and delivery of this Agreement and consummation of
the transactions contemplated herein have been duly authorized by all necessary
corporate action, including but not limited to duly and validly authorized
action and approval by the Board of Directors, on the part of HLHK. This
Agreement constitutes the valid and binding obligation of HLHK, enforceable
against it in accordance with its terms, subject to the principles of equity
applicable to the availability of the remedy of specific performance. This
Agreement has been duly executed by HLHK and the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall not result in any breach of any terms or provisions of HLHK's
Articles of Incorporation or Bylaws or of any other agreement, court order or
instrument to which HLHK is
10
<PAGE>
a party or bound.
4.06 Absence of Undisclosed Liabilities. HLHK has no material liabilities of any
nature, whether fixed, absolute, contingent or accrued, which were not reflected
on the financial statements set forth in Schedule AA or otherwise disclosed in
this Agreement or any of the Schedules or Exhibits attached hereto.
4.07 Absence of Changes. Since November 7, 1996, there has not been any material
adverse change in the condition (financial or otherwise), assets, liabilities,
earnings or business of HLHK, except for changes resulting from completion of
those transactions described in Section 5.02.
4.08 Tax Matters. All taxes and other assessments and levies which HLHK is
required by law to withhold or to collect have been duly withheld and collected,
and have been paid over to the proper government authorities or are held by HLHK
in separate bank accounts for such payment or are represented by depository
receipts, and all such withholdings and collections and all other payments due
in connection therewith (including, without limitation, employment taxes, both
the employee's and employer's share) have been paid over to the government or
placed in a separate and segregated bank account for such purpose. There are no
known deficiencies in income taxes for any periods and further, the
representations and warranties as to absence of undisclosed liabilities
contained in Section 4.06 includes any and all tax liabilities of whatsoever
kind or nature (including, without limitation, all federal, state, local and
foreign income, profit, franchise, sales, use and property taxes) due or to
become due, incurred in respect of or measured by HLHK income or business prior
to the Closing Date.
4.09 Options, Warrants, etc. Except as otherwise described in Schedule HH, there
are no outstanding options, warrants, calls, commitments or agreements of any
character to which HLHK or its shareholders are a party or by which HLHK or its
shareholders are bound, or are a party, calling for the issuance of shares of
capital stock of HLHK or any securities representing the right to purchase or
otherwise receive any such capital stock of HLHK.
4.10 Title to Assets. Except for liens set forth in Schedule CC, HLHK is the
sole and unconditional owner of, with good and marketable title to, all the
assets listed in the schedules as owned by them and all other property and
assets are free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever.
4.11 Agreements in Force and Effect. Except as set forth in Schedules DD and EE,
all material contracts, agreements, plans, promissory notes, mortgages, leases,
policies, licenses, franchises or similar instruments to which HLHK is a party
are valid and in full force and effect on the date hereof, and HLHK has not
breached any material provision of, and is not in default in any material
respect under the terms of, any such contract, agreement, plan, promissory note,
mortgage, lease, policy, license, franchise or similar instrument which breach
or default would have a material adverse effect upon the business, operations or
financial condition of HLHK.
11
<PAGE>
4.12 Legal Proceedings, Etc. Except as set forth in Schedule KK, there are no
civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of HLHK, threatened, in which,
individually or in the aggregate, an adverse determination would materially and
adversely affect the assets, properties, business or income of HLHK. HLHK has
substantially complied with, and is not in default in any material respect
under, any laws, ordinances, requirements, regulations or orders applicable to
its businesses.
4.13 Governmental Regulation. To the knowledge of HLHK and except as set forth
in Schedule KK, HLHK is not in violation of or in default with respect to any
applicable law or any applicable rule, regulation, order, writ or decree of any
court or any governmental commission, board, bureau, agency or instrumentality,
or delinquent with respect to any report required to be filed with any
governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of HLHK.
4.14 Broker and Finders. Kendrex shall be solely responsible for payment to any
broker or finder retained by HLHK for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated herein.
4.15 Accuracy of Information. No representation or warranty by HLHK contained in
this Agreement and no statement contained in any certificate or other instrument
delivered or to be delivered to Kendrex pursuant hereto or in connection with
the transactions contemplated hereby (including without limitation all Schedules
and Exhibits hereto) contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary in order to make
the statements contained herein or therein not misleading.
4.16 Subsidiaries. Except as listed in Schedule PP, HLHK does not have any other
subsidiaries or own capital stock representing ten percent (10%) or more of the
issued and outstanding stock of any other corporation.
4.17 Consents. Except as listed in Schedule FF, no consent or approval of, or
registration, qualification or filing with, any other governmental authority or
other person is required to be obtained or accomplished by HLHK or any
shareholder thereof, in connection with the consummation of the transactions
contemplated hereby.
4.18 Improper Payments. No person acting on behalf of HLHK has made any payment
or otherwise transmitted anything of value, directly or indirectly, to (a) any
official or any government or agency or political subdivision thereof for the
purpose of influencing any decision affecting the business of HLHK, or (b) any
political party or any candidate for elective political office, nor has any fund
or other asset of HLHK been maintained that was not fully and accurately
recorded on the books of account of HLHK.
12
<PAGE>
4.19 Copies of Documents. HLHK has made available for inspection and copying by
Kendrex and its duly authorized representatives, and will continue to do so at
all times, true and correct copies of all documents which it has filed with any
governmental agencies which are material to the terms and conditions contained
in this Agreement. Furthermore, all filings by HLHK with governmental agencies,
including but not limited to the Internal Revenue Service, have contained
information which is true and correct in all material respects and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made therein not misleading or which could
have any material adverse effect upon the financial condition or operations of
HLHK or adversely affect the objectives of this Agreement.
4.20 Investment Intent of Shareholders. Each shareholder of HLHK represents and
warrants to Kendrex that the shares of Kendrex being acquired pursuant to this
Agreement are being acquired for his own account and for investment and not with
a view to the public resale or distribution of such shares and further
acknowledges that the shares being issued have not been registered under the
Securities Act and are "restricted securities" as that term is defined in Rule
144 promulgated under the Securities Act and must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO THE
EFFECTIVE TIME OF THE ACQUISITION
5.01 Conduct and Transactions of Kendrex. During the period from the date hereof
to the date of Closing, Kendrex shall:
(a) Conduct its operations in the ordinary course of business,
including but not limited to, paying all obligations as they mature,
complying with all applicable tax laws, filing all tax returns required to
be filed and paying all taxes due;
(b) Maintain its records and books of account in a manner that
fairly and correctly reflects its income, expenses, assets and
liabilities.
(c) Submit Resolution to Shareholders to approve a 1 for 5 reverse
split of the outstanding shares of Kendrex.
Kendrex shall not during such period, except in the ordinary course of
business, without the prior written consent of HLHK:
(a) Except as otherwise contemplated or required by this Agreement,
sell, dispose of or encumber any of its properties or assets;
(b) Except as set forth in paragraph 5.01(c), declare or pay any
dividends on shares of its capital stock or make any other distribution of
assets to the holders thereof;
13
<PAGE>
(c) Issue, reissue or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue or sell,
any shares of its capital stock or acquire or agree to acquire any shares
of its capital stock;
(d) Except as otherwise contemplated and required by this Agreement,
amend its Articles of Incorporation or merge or consolidate with or into
any other corporation or sell all or substantially all of its assets or
change in any manner the rights of its capital stock or other securities;
(e) Except as contemplated or required by this Agreement, pay or
incur any obligation or liability, direct or contingent, of more than
$1,000;
(f) Incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other
party, or make loans or advances to any other party;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees; except in accordance with
existing employment contracts;
(i) Enter into any agreement or make any commitment to any labor
union or organization;
(j) Make any capital expenditures.
5.02 Conduct and Transactions of HLHK. During the period from the date hereof to
the date of Closing, HLHK shall:
(a) Obtain an investment letter from each shareholder of HLHK in a
form substantially like that attached hereto as Exhibit B.
(b) Conduct the operations of HLHK in the ordinary course of
business.
HLHK shall not during such period, except in the ordinary course of
business, without the prior written consent of Kendrex:
(a) Except as otherwise contemplated or required by this Agreement,
sell, dispose of or encumber any of the properties or assets of HLHK;
(b) Declare or pay any dividends on shares of its capital stock or
make any other distribution of assets to the holders thereof;
14
<PAGE>
(c) Issue, reissue or sell, or issue options or rights to subscribe
to, or enter into any contract or commitment to issue, reissue or sell,
any shares of its capital stock or acquire or agree to acquire any shares
of its capital stock;
(d) Except as otherwise contemplated and required by this Agreement,
amend its Articles of Incorporation or merge or consolidate with or into
any other corporation or sell all or substantially all of its assets or
change in any manner the rights of its capital stock or other securities;
(e) Except as otherwise contemplated and required by this Agreement,
pay or incur any obligation or liability, direct or contingent, of more
than $1,000;
(f) Incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other
party, or make loans or advances to any other party;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or indirect, of
any of its officers or executive employees; except in accordance with
existing employment contracts;
(i) Enter into any agreement or make any commitment to any labor
union or organization;
(j) Make any material capital expenditures.
(k) Allow any of the foregoing actions to be taken by any subsidiary
of HLHK.
ARTICLE 6
RIGHTS OF INSPECTION
6.01 During the period from the date of this Agreement to the date of Closing of
the acquisition, Kendrex and HLHK agree to use their best efforts to give the
other party, including its representatives and agents, full access to the
premises, books and records of each of the entities, and to furnish the other
with such financial and operating data and other information including, but not
limited to, copies of all legal documents and instruments referred to on any
schedule or exhibit hereto, with respect to the business and properties of
Kendrex or HLHK, as the case may be, as the other shall from time to time
request; provided, however, if there are any such investigations: (1) they shall
be conducted in such manner as not to unreasonably interfere with the operation
of the business of the other parties and (2) such right of inspection shall not
affect in any way whatsoever any of the representations or warranties given by
the respective parties hereunder. In the event of termination of this Agreement,
Kendrex and HLHK will each return to
15
<PAGE>
the other all documents, work papers and other materials obtained from the other
party in connection with the transactions contemplated hereby, and will take
such other steps necessary to protect the confidentiality of such material.
ARTICLE 7
CONDITIONS TO CLOSING
7.01 Conditions to Obligations of HLHK. The obligation of HLHK to perform this
Agreement is subject to the satisfaction of the following conditions on or
before the Closing unless waived in writing by HLHK.
(a) Representations and Warranties. There shall be no information
disclosed in the schedules delivered by Kendrex which in the opinion of
HLHK would materially adversely affect the proposed transaction and intent
of the parties as set forth in this Agreement. The representations and
warranties of Kendrex set forth in Article 3 hereof shall be true and
correct in all material respects as of the date of this Agreement and as
of the Closing as though made on and as of the Closing except as otherwise
permitted by this Agreement.
(b) Performance of Obligations. Kendrex shall have in all material
respects performed all agreements required to be performed by it under
this Agreement and shall have performed in all material respects any
actions contemplated by this Agreement prior to or on the Closing and
Kendrex shall have complied in all material respects with the course of
conduct required by this Agreement.
(c) Corporate Action. Kendrex shall have furnished minutes,
certified copies of corporate resolutions and/or other documentary
evidence satisfactory to counsel for HLHK that Kendrex has submitted with
this Agreement and any other documents required hereby to such parties for
approval as provided by applicable law.
(d) Consents. Execution of this Agreement by the shareholders of
HLHK and any consents necessary for or approval of any party listed on any
Schedule delivered by Kendrex whose consent or approval is required
pursuant thereto shall have been obtained.
(e) Financial Statements. HLHK shall have been furnished with
audited financial statements of Kendrex including, but not limited to,
balance sheets and profit and loss statements from inception through
December 31, 1995 and unaudited financial statements from January 1, 1996
to October 31, 1996. Such financial statements shall have been prepared in
conformity with generally accepted accounting principles on a basis
consistent with those of prior periods and fairly present the financial
position of Kendrex as of October 31, 1996.
(f) Statutory Requirements. All statutory requirements for the valid
consummation by Kendrex of the transactions contemplated by this Agreement
shall have been fulfilled.
16
<PAGE>
(g) Governmental Approval. All authorizations, consents, approvals,
permits and orders of all federal and state governmental agencies required
to be obtained by Kendrex for consummation of the transactions
contemplated by this Agreement shall have been obtained.
(h) Changes in Financial Condition of Kendrex. There shall not have
occurred any material adverse change in the financial condition or in the
operations of the business of Kendrex, except expenditures in furtherance
of this Agreement.
(i) Absence of Pending Litigation. Kendrex is not engaged in or
threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement or
the consummation of the transactions contemplated hereunder.
(j) Authorization for Issuance of Stock. HLHK shall have received in
form and substance satisfactory to counsel for HLHK a letter instructing
and authorizing the Registrar and Transfer Agent for the shares of common
stock of Kendrex to issue stock certificates representing ownership of
Kendrex common stock to HLHK shareholders in accordance with the terms of
this Agreement and a letter from said Registrar and Transfer Agent
acknowledging receipt of the letter of instruction and stating to the
effect that the Registrar and Transfer Agent holds adequate supplies of
stock certificates necessary to comply with the letter of instruction and
the terms and conditions of this Agreement.
(k) Shareholder Approval. Kendrex shareholders shall have (i)
approved a one for five reverse split of its outstanding shares, prior to
issuance of shares to HLHK under Section 1.01; (ii) approved a change of
the name of Kendrex to HLHK World Group, Inc.; (iii) elected the following
persons to the Board of Directors of Kendrex: Harry Kay, Francis M.
Fillerup, John E. Dempsey, E. Gregory George, and Velma Tronolone; and
(iv) approved the Agreement and Plan of Reorganization.
7.02 Conditions to Obligations of Kendrex. The obligation of Kendrex to perform
this Agreement is subject to the satisfaction of the following conditions on or
before the Closing unless waived in writing by Kendrex.
(a) Representations and Warranties. There shall be no information
disclosed in the schedules delivered by HLHK, which in the opinion of
Kendrex, would materially adversely affect the proposed transaction and
intent of the parties as set forth in this Agreement. The representations
and warranties of HLHK set forth in Article 4 hereof shall be true and
correct in all material respects as of the date of this Agreement and as
of the Closing as though made on and is of the Closing, except as
otherwise permitted by this Agreement.
17
<PAGE>
(b) Performance of Obligations. HLHK shall have in all material
respects performed all agreements required to be performed by it under
this Agreement and shall have performed in all material respects any
actions contemplated by this Agreement prior to or on the Closing and HLHK
shall have complied in all respects with the course of conduct required by
this Agreement.
(c) Corporate Action. HLHK shall have furnished minutes, certified
copies of corporate resolutions and/or other documentary evidence
satisfactory to Counsel for Kendrex that HLHK has submitted with this
Agreement and any other documents required hereby to such parties for
approval as provided by applicable law.
(d) Consents. Any consents necessary for or approval of any party
listed on any Schedule delivered by HLHK, whose consent or approval is
required pursuant thereto, shall have been obtained.
(e) Financial Statements. Kendrex shall have been furnished with
audited financial statements of HLHK including, but not limited to,
balance sheets and profit and loss statements from inception through
November 7, 1996.
(f) Statutory Requirements. All statutory requirements for the valid
consummation by HLHK of the transactions contemplated by this Agreement
shall have been fulfilled.
(g) Governmental Approval. All authorizations, consents, approvals,
permits and orders of all federal and state governmental agencies required
to be obtained by HLHK for consummation of the transactions contemplated
by this Agreement shall have been obtained.
(h) Employment Agreements. Existing HLHK employment agreements will
have been delivered to counsel for Kendrex.
(i) Changes in Financial Condition of HLHK. There shall not have
occurred any material adverse change in the financial condition or in the
operations of the business of HLHK except expenditures in furtherance of
this Agreement.
(j) Absence of Pending Litigation. HLHK is not engaged in or
threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement or
the consummation of the transactions contemplated hereunder.
(k) Shareholder Approval. The Kendrex shareholders shall have (i)
approved a one for five reverse split of its outstanding shares, prior to
issuance of shares to HLHK under Section 1.01; (ii) approved a change of
the name of Kendrex to HLHK World Group, Inc.; (iii) elected the following
persons to the Board of Directors of Kendrex: Harry Kay.
18
<PAGE>
Francis M. Fillerup, John E. Dempsey, E. Gregory George and Velma
Tronolone; (iv) approved the Agreement and Plan of Reorganization.
ARTICLE 8
MATTERS SUBSEQUENT TO CLOSING
8.01 Covenant of Further Assurance. The parties covenant and agree that they
shall, from time to time, execute and deliver or cause to be executed and
delivered all such further instruments of conveyance, transfer, assignments,
receipts and other instruments, and shall take or cause to be taken such further
or other actions as the other party or parties to this Agreement may reasonably
deem necessary in order to carry out the purposes and intent of this Agreement.
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS
9.01 All statements contained in any written certificate, schedule, exhibit or
other written instrument delivered by Kendrex or HLHK pursuant hereto, or
otherwise adopted by Kendrex, by its written approval, or by HLHK by its written
approval, or in connection with the transactions contemplated hereby, shall be
deemed representations and warranties by Kendrex or HLHK as the case may be. All
representations warranties and agreements made by either party shall survive for
the period of the applicable statute of limitations and until the discovery of
any claim, loss, liability or other matter based on fraud, if longer.
ARTICLE 10
TERMINATION OF AGREEMENT AND ABANDONMENT OF REORGANIZATION
10.01 Termination. Anything herein to the contrary notwithstanding, this
Agreement and any agreement executed as required hereunder and the acquisition
contemplated hereby may be terminated at any time before the Closing as follows:
(a) By mutual written consent of the Boards of Directors of Kendrex
and HLHK
(b) By the Board of Directors of Kendrex if any of the conditions
set forth in Section 7.02 shall not have been satisfied by the Closing
Date.
(c) By the Board of Directors of HLHK if any of the conditions set
forth in Section 7.01 shall not have been satisfied by the Closing Date.
10.02 Termination of Obligations and Waiver of Conditions; Payment of Expenses.
In the event this Agreement and the acquisition are terminated and abandoned
pursuant to this Article 10 hereof, this Agreement shall become void and of no
force and effect and there shall be no liability on the part of any of the
parties hereto, or their respective directors, officers, shareholders or
19
<PAGE>
controlling persons to each other. Each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and any
of the documents evidencing the transactions contemplated hereby, including
fees, expenses and disbursements of counsel.
ARTICLE 11
EXCHANGE OF SHARES; FRACTIONAL SHARES
11.01 Exchange of Shares. At the Closing, Kendrex shall issue a letter to the
transfer agent of Kendrex with a copy of the resolution of the Board of
Directors of Kendrex authorizing and directing the issuance of Kendrex shares as
set forth on Exhibit A to this Agreement.
11.02 Restrictions on Shares Issued to HLHK. Due to the fact that HLHK will
receive shares of Kendrex common stock in connection with the acquisition which
have not been registered under the 1933 Act by virtue of the exemption provided
in Section 4(2) of such Act, those shares of Kemdrex will contain the following
legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be sold or offered for sale in
the absence of an effective Registration Statement for the shares
under the Securities Act of 1933 or an opinion of counsel to the
Corporation that such registration is required.
ARTICLE 12
MISCELLANEOUS
12.01 Construction. This Agreement shall be construed and enforced in accordance
with the laws of the State of California excluding the conficts of laws.
12.02 Notices. All notices necessary or appropriate under this Agreement shall
be effective when personally delivered or deposited in the United States mail,
postage prepaid, certified or registered, return receipt requested, and
addressed to the parties last known address which addresses are currently as
follows:
If to "Kendrex" If to "HLHK"
Kendrex Systems, Inc. HLHK World Group, Inc.
12722 Craigwood Lane 3361 Westwind Road
Cypress, Texas 77429 Las Vegas, Nevada 89102
20
<PAGE>
With copies to:
Ronald L. Poulton, Esq.
4 Triad Center, Suite 500-A
Salt Lake City, Utah 84180
12.03 Amendment and Waiver. The parties hereby may, by mutual agreement in
writing signed by each party, amend this Agreement in any respect. Any term or
provision of this Agreement may be waived in writing at any time by the party
which is entitled to the benefits thereof, such waiver right shall include, but
not be limited to, the right of either party to:
(a) Extend the time for the performance of any of the obligations of
the other;
(b) Waive any inaccuracies in representations by the other contained
in this Agreement, or in any document delivered pursuant hereto;
(c) Waive compliance by the other with any of the covenants
contained in this Agreement, and performance of any obligations by the
other; and
(d) Waive the fulfillment of any condition that is precedent to the
performance by the party so waiving of any of its obligations under this
Agreement. Any writing on the part of a party relating to such amendment,
extension or waiver as provided in this Section 12.03 shall be valid if
authorized or ratified by the Board of Directors of such party.
12.04 Remedies not Exclusive. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies by Kendrex or
HLHK shall not constitute a waiver of the right to pursue other available
remedies.
12.05 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.06 Benefit. This Agreement shall be binding upon, and inure to the benefit
of, the respective successors and assigns of Kendrex and HLHK and its
shareholders.
12.07 Entire Agreement. This Agreement and the Schedules and Exhibits attached
hereto, represent the entire agreement of the undersigned regarding the subject
matter hereof, and supersedes all prior written or oral understandings or
agreements between the parties.
12.08 Each Party to Bear its Own Expense. Kendrex and HLHK shall each bear their
own respective expenses incurred in connection with the negotiation, execution,
closing, and
21
<PAGE>
performance of this Agreement, including counsel fees and accountant fees.
12.09 Captions and Section Headings. Captions and section headings used herein
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
Executed as of the date first written above.
"Kendrex" "HLHK"
Kendrex Systems, Inc., HLHK World Group, Inc.
a Nevada corporation a Nevada corporation
By: /s/ Harry Kay By: /s/ Harry Kay
-------------------------- ------------------------------
Harry Kay, President Harry Kay, President
22
STOCK EXCHANGE AGREEMENT
This Stock Exchange Agreement (the "AGREEMENT") dated as of the 12th
day of August, 1998, is by and amongst HLHK World GROUP, INC., a Nevada
corporation (hereinafter referred to as "Buyer"), MICHAEL MUZIO and those
shareholders identified on the attached Exhibit A (hereinafter referred to as
the "Shareholders") and TrimFast Inc. a Florida corporation, (hereinafter
referred to as the "Company"). The Shareholders and the Company may jointly be
referred to as "Seller".
WHEREAS, the respective Board of Directors of Buyer and the Company
deem the acquisition by Buyer of all of the issued and outstanding capital stock
of the Company on the terms set forth in this Agreement to be desirable,
generally to the welfare and advantage of each, and in the best interests of the
shareholders of each;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained, and for the purpose of prescribing
the terms and conditions of such acquisition, the mode of carrying it into
effect, and such other details and provisions as are necessary or desirable, the
parties hereto hereby represent, warrant, covenant and agree as follows:
ARTICLE I
PLAN OF AGREEMENT
1.01 Number of Shares. Subject to the further conditions of this
Agreement and the truth of the representations and warranties provided herein,
the Shareholders agrees to transfer to Buyer at the Closing a total of
_______________ shares of common stock (the "Shares"), said Shares representing
all of the issued and outstanding shares of common stock of the Company owned by
the Shareholders duly endorsed for transfer in exchange for a total of
13,466,248 shares of the $.001 par value common stock of the Buyer. (Each of the
shareholders will receive ___ shares of the Buyer for each and every share of
common stock owned by them in the Company. The shares of the Buyer to be issued
to the Shareholders will be restricted securities as that term is defined under
the Securities Act of 1933, as amended.
Notwithstanding the foregoing, any shares to be issued to Muzio will
be subject to the following terms and conditions. At Closing, Muzio will receive
a total of 9,750,000 million shares free and clear of all liens or encumbrances
except for
1
<PAGE>
the restriction on transfer under Rule 144. The remaining shares will be held in
Escrow, by Jeffrey Klein P.A. subject to the following terms and conditions:
On or before December 31, 1999, TrimFast must provide the Buyer with
audited financial statements indicating a net worth (assets less liabilities) of
at least $2 million. Upon presentation to the Escrow Agent of financial
statements indicating a net worth of $2 million, Escrow Agent shall release the
remaining shares of common stock to Muzio. If Muzio does not provide the
required audited financial statements to the Escrow Agent by March 15, 2000, on
Notice to the Escrow Agent, Escrow Agent shall deliver the escrowed shares to
the Company and the Company shall then deliver the escrowed shares to the
transfer agent for cancellation.
During such time as the escrowed shares are held by the Escrow Agent, all
rights, title and interest to the Shares shall be vested with Muzio except that
Muzio shall be prohibited from assigning, encumbering or hypothecating any of
the escrowed shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF Company AND THE SHAREHOLDER
The Company and Michael Muzio, the principal shareholder of TRIMFAST,
Inc., represent and warrant to Buyer that:
2.01 Incorporation, Common Stock, Etc. Company is a corporation duly
organized and existing in good standing under the laws of the State of Florida.
Attached hereto as Exhibit 2.01 is the Company's good standing certificate.
Company has full corporate power and authority to carry on its business as it is
now being conducted and to own and operate its assets, businesses and
properties. Company has authorized capital stock consisting of _____________
shares of Common Stock, par value ____________ per share, of which ___________
shares are issued and outstanding. There are and at the Closing will be no
outstanding subscriptions, options, warrants, convertible securities, calls,
commitments or agreements calling for or requiring issuance or transfer, sale or
other disposition of any shares of capital stock of the Company or calling for
or requiring the issuance of any securities or rights convertible into or
exchangeable (including on a contingent basis) for shares of capital stock. All
of the outstanding shares of the Company are duly authorized, validly issued,
fully paid and non-assessable. There
2
<PAGE>
are no dividends due, to be paid or are in arrears with respect to any of the
capital stock of Company.
2.02 Company Financial Statements. Attached hereto as Schedule 2.02
are the most recent financial statements for the Company dated June 30, 1998.
The Company Balance Sheet and Income Statement present fairly the financial
position of the Company as of the dates set forth in the financial statements.
The Balance Sheet has been prepared in conformity with generally accepted
accounting principles. There has been no material change in the financial
condition of the Company since the date of the financial statements. All
liabilities of the Company are set forth in the financial statements and there
are no undisclosed liabilities of any kind or nature.
The Company further agrees to provide the Buyer within 60 days of closing
with certified financial statements in conformity with Securities and Exchange
Commission reporting requirements. If the Company is unable to provide the
required certified financial statements or, the certified financial statements
reflect a material change in the financial condition of the Company (defined as
a change of more than 30% of the assets or Net Worth from that which was
represented in the June 30, 1998 financial statements, then in that event the
Buyer may, in its sole and absolute discretion and in addition to any remedies
available at law, rescind this Agreement.
2.03 Litigation. There are no actions, suits, proceedings, or
investigations pending or, to the best of its knowledge, threatened or
contemplated against Company at law or in equity, before any federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign. The Company is not subject to any
outstanding judgments or operating under or subject to or in default with
respect to any order, writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign.
2.04 Compliance with Laws. The Company has complied in all material
respects with all laws, regulations, orders, domestic and foreign, and neither
the present uses by Company of its properties nor the conduct of its business
violate any such laws, regulations, orders or requirements, and except as set
forth in Schedule 2.04 (if applicable) the Company has not received any notice
of any claim or assertion that it is not so in compliance. In addition, the sale
by the
3
<PAGE>
Company of its vitamins and food supplements are in compliance with all
applicable state and federal guidelines and that the Company has obtained any
required Federal Drug Administration approvals.
2.05 Indebtedness. Except as set forth in the Company Balance Sheet,
Company has not executed any instruments, entered into any agreements or
arrangements pursuant to which the Company has borrowed any money, incurred or
guaranteed any indebtedness or established any line of credit which represents a
liability of the Company as of the date thereof.
2.06 No Material Adverse Change. Since the Company Balance Sheet
Date, there has not been any material adverse change in the condition, financial
or otherwise, of the Company or in its business taken as a whole; nor has there
been any material transaction entered into by the Company. The Company has not
incurred any material obligations, contingent or otherwise except for legal and
accounting fees and expenses in connection with the transactions contemplated by
this Agreement. There has not been any damage, destruction or loss, whether or
not covered by insurance adversely affecting the Company's business, property or
assets; nor has the Company (a) created or incurred any indebtedness; (b)
issued, sold, purchased, redeemed or granted any shares of Company Common Stock
or any other securities of Company or any options, warrants or other rights to
purchase any shares of Company Common Stock except as between and amongst its
current shareholders; (c) amended its Certificate of Incorporation or bylaws,
(d) paid any obligation or liability other than obligations or liabilities
reflected in its Balance Sheet dated as of the Company Balance Sheet Date or
incurred any liabilities except for legal and accounting fees and disbursements
incurred in the ordinary course of business or in connection with this Agreement
and the transactions contemplated hereby.
2.07 No Defaults. Neither the execution nor delivery of this
Agreement nor the consummation of the contemplated transaction are events which,
of themselves or with the giving of notice or passage of time or both, could
constitute a violation of or conflict with or result in any breach of or default
under the terms, conditions or provisions of any judgment, law or regulation or
of the Company's Certificate of Incorporation or Bylaws, or of any agreement or
instrument to which Company is a party or by which it is bound; or could result
in the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on the
4
<PAGE>
property or assets of Company; and no consent of any third party except as
expressly contemplated herein is required for the consummation of this Agreement
by Company.
2.08 Corporate Action of Company. The Board of Directors of the
Company has duly authorized the execution and delivery of this Agreement.
Subject to the approval of the stockholders of the Company as provided herein,
this Agreement constitutes a valid, legal and binding agreement of Company and
is enforceable in accordance with its terms.
2.09 Liabilities. As of the Company Balance Sheet Date, the Company
has incurred no other liabilities except in the ordinary course of business.
2.10 Taxes. Except as set forth on Schedule 2.10, all federal,
state, and local tax returns, reports and declarations of estimated tax or
estimated tax deposit forms required to be filed by Company have been duly
filed; the Company has paid all taxes which have become due pursuant to such
returns or pursuant to any assessment received by it, and has paid all
installments of estimated taxes due; and all taxes, levies and other assessments
which Company is required by law to withhold or to collect have been duly
withheld and collected and have been paid over to the proper governmental
authorities. Company has no knowledge of any tax deficiency which has been or
might be asserted against Company which would materially and adversely affect
the business or operations of Company. At Closing, the Company shall provide
Buyer with copies of all tax returns, of any kind or nature, filed by Company,
together with all accounting information.
2.11 Title to Property; Leases. Company has good and defensible
title in fee simple to, or valid and enforceable leasehold estates in, all
properties and assets, which are material to its continued operations, free and
clear of all liens, encumbrances, charges or restrictions or are not materially
significant or important in relation to its operations and business. All of such
leases and subleases under which Company is the lessor or sublessor, lessee or
sublessee of properties or assets or under which Company holds properties or
assets as lessee or sublessee are in full force and effect. Company is not in
default in respect of any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to their respective
rights as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or
5
<PAGE>
affecting or questioning their respective rights to continued possession of the
leased or subleased premises or assets under any such lease or sublease; and
Company either owns or leases all such properties as are necessary to its
operations as now conducted. Attached hereto and marked Exhibit 2.11 are copies
of all leasehold obligations for which Company is bound.
In addition to the matters set forth above, the Company and Muzio warrant
and represent that all assets previously titled, owned or controlled by TRIMFAST
Holdings Inc. have been validly transferred to TRIMFAST Inc. and there are no
claims of any kind or nature, which could arise from the transfer of any assets
from TRIMFAST Holdings, Inc. to TRIMFAST Inc.
2.12 Licenses. The Company has obtained all required licenses,
permits or other governmental authorization for the conduct of its business as
now being conducted.
2.13 Bank Accounts. Attached hereto as schedule 2.13 is a listing of
all bank accounts and account numbers which are currently held by Company.
2.14 Contracts and Commitments. Except as set forth in Exhibit 2.14,
there are no contracts nor commitments of Company requiring any future payment
to an officer, director, employee, agent or shareholder of Company. Also
attached and marked as Exhibit 2.14 is a list of all current Company employees
and the salary of each.
2.15 Representations True and Correct. This Agreement and the
Schedules and Exhibits attached hereto do not contain any untrue statement of a
material fact concerning Company or omits any material fact concerning Company
which is necessary in order to make the statements therein not misleading. All
of the representations and warranties contained herein (including all statements
contained in any certificate or other instrument delivered by or on behalf of
the Shareholders pursuant hereto or in connection with the transactions
contemplated hereby) shall survive the Closing.
2.16 Retirement Plans. Company has no pension plan, profit sharing
or similar employee benefit plan.
2.17 Intellectual Property Rights. Attached hereto as Exhibit 2.17
is a list of all trademarks and trade names which are owned by the Company
together with copies of any official notice from any issuing governing
organization.
6
<PAGE>
2.18 Matters related to Phillip Cook, Momentum Capital Funding Corp. and
TRIMFAST Holdings The Company and Muzio agree and acknowledge that a predecessor
entity, TRIMFAST Holdings, Inc. previously offered securities to the
shareholders identified in this Agreement and that Momentum Funding was
identified as a principal shareholder of TRIMFAST Holdings, Inc. The Company and
Muzio, as president, secretary and treasurer warrant and represent that TRIMFAST
Holdings, Inc. has not issued any shares of common stock to either Cook,
Momentum Funding or any entity under common control and that neither Cook nor
any affiliate of Cook has any right, title or claim to the assets or common
stock of Trim Fast Inc.
2.19 Indemnification. The Company and Muzio jointly and individually
shall indemnify and hold Buyer, its officers and directors, harmless of and in
respect of:
(1) Any damage or loss resulting from any loss, any liability of any
kind or nature which is not set forth in the financial statements, damage,
misrepresentation, breach of warranty or non-fulfillment on the part of Company
under this Agreement or from any misrepresentation or omission from any
certificates or other instruments furnished to Company pursuant to this
Agreement.
(2) All actions, suits, proceedings, demands assessments, judgments,
costs and expenses incident to any of the foregoing including reasonable
attorney's fees and all costs incurred by Buyer to enforce this agreement
against Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF Buyer
Buyer represents and warrants to the Shareholder and Company that:
3.01 Incorporation, Common Stock, Etc. Buyer is a corporation duly
organized and existing in good standing under the laws of the State of Nevada. A
copy of the Buyer's good standing certificate is attached hereto. The Buyer has
full corporate power and authority to carry on its business as it is now being
conducted and to own and operate its assets, businesses and properties. The
Buyer has authorized capital stock consisting of 100,000,000 shares of Common
Stock, par value $.001 per share, of which 8,177,499 were outstanding as of July
27, 1998 shares are issued and outstanding. (Does not include 800,000 shares of
common stock issued subsequent to the date of the most recent shareholder list.
7
<PAGE>
All of the outstanding shares of the Company are duly authorized, validly
issued, fully paid and non-assessable. There are no dividends due, to be paid or
are in arrears with respect to any of the capital stock of Company.
3.02 Buyer Financial Statements. Attached hereto as Schedule 3.02
are the most recent financial statements for the Buyer dated
_____________________. The Buyer Balance Sheet and Income Statement present
fairly the financial position of Buyer as of the dates set forth in the
financial statements. The Balance Sheet has been prepared in conformity with
generally accepted accounting principles. There has been no material change in
the financial condition of the Buyer since the date of the financial statements.
All liabilities of the Buyer are set forth in the financial statements and there
are no undisclosed liabilities of any kind or nature.
3.03 Litigation. Except as set forth on Exhibit 3.03 there are no
actions, suits, proceedings, or investigations pending or, to the best of its
knowledge, threatened or contemplated against Buyer at law or in equity, before
any federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign. The Buyer is not subject
to any outstanding judgments or operating under or subject to or in default with
respect to any order, writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign.
3.04 Compliance with Laws. The Buyer has complied in all material
respects with all laws, regulations, orders, domestic and foreign, and neither
the present uses by Buyer of its properties nor the conduct of its business
violate any such laws, regulations, orders or requirements, and except as set
forth in Schedule 3.04 (if applicable) the Buyer has not received any notice of
any claim or assertion that it is not so in compliance.
3.05 Indebtedness. Except as set forth in the Buyer Balance Sheet,
Buyer has not executed any instruments, entered into any agreements or
arrangements pursuant to which Buyer has borrowed any money, incurred or
guaranteed any indebtedness or established any line of credit which represents a
8
<PAGE>
liability of Buyer as of the date thereof.
3.06 No Material Adverse Change. Since the Buyer Balance Sheet Date,
there has not been any material adverse change in the condition, financial or
otherwise, of Buyer or in its business taken as a whole; nor has there been any
material transaction entered into by Buyer. Buyer has not incurred any material
obligations, contingent or otherwise except for legal and accounting fees and
expenses in connection with the transactions contemplated by this Agreement.
There has not been any damage, destruction or loss, whether or not covered by
insurance adversely affecting Buyer's business, property or assets; nor has
Buyer (a) created or incurred any indebtedness; (b) amended its Certificate of
Incorporation or bylaws, [ILLEGIBLE] paid any obligation or liability other than
obligations or liabilities reflected in its Balance Sheet dated as of the Buyer
Balance Sheet Date or incurred any liabilities except for legal and accounting
fees and disbursements incurred in the ordinary course of business or in
connection with this Agreement and the transactions contemplated hereby.
3.07 No Defaults. Neither the execution nor delivery of this
Agreement nor the consummation of the contemplated transaction are events which,
of themselves or with the giving of notice or passage of time or both, could
constitute a violation of or conflict with or result in any breach of or default
under the terms, conditions or provisions of any judgment, law or regulation or
of Buyer's Certificate of Incorporation or Bylaws, or of any agreement or
instrument to which Buyer is a party or by which it is bound; or could result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on the property or assets of Buyer; and no consent of any third party
except as expressly contemplated herein is required for the consummation of this
Agreement by Buyer.
3.08 Corporate Action of Buyer. The Board of Directors of the Buyer
has duly authorized the execution and delivery of this Agreement. This Agreement
constitutes a valid, legal and binding agreement of Buyer and is enforceable in
accordance with its terms.
3.09 Taxes. Except as set forth on Schedule 3.09, all federal,
state, and local tax returns, reports and declarations of estimated tax or
estimated tax deposit forms required to be filed by Buyer have been duly filed;
Buyer has paid all taxes which have become due pursuant to such returns or
pursuant to any assessment received by it, and has paid all installments of
estimated taxes due;
9
<PAGE>
and all taxes, levies and other assessments which Buyer is required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental authorities. Buyer has no knowledge of any tax
deficiency which has been or might be asserted against Buyer which would
materially and adversely affect the business or operations of Buyer.
3.10 Title to Property; Leases. Buyer has good and defensible title
in fee simple to, or valid and enforceable leasehold estates in, all properties
and assets, which are material to its continued operations, free and clear of
all liens, encumbrances, charges or restrictions except as set forth in the
attached Schedule 3.11. or are not materially significant or important in
relation to its operations and business. All of such leases and subleases under
which Buyer is the lessor or sublessor, lessee or sublessee of properties or
assets or under which Buyer holds properties or assets as lessee or sublessee
are in full force and effect. Buyer is not in default in respect of any of the
terms or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to their respective rights as lessor, sublessor,
lessee or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning their respective rights to continued possession of the
leased or subleased premises or assets under any such lease or sublease; and
Buyer either owns or leases all such properties as are necessary to its
operations as now conducted.
3.11 Representations True and Correct. This Agreement and the Schedules
and Exhibits attached hereto do not contain any untrue statement of a material
fact concerning Buyer or omits any material fact concerning Buyer which is
necessary in order to make the statements therein not misleading. All of the
representations and warranties contained herein (including all statements
contained in any certificate or other instrument delivered by or on behalf of
the Buyer) shall survive the closing.
3.12 Indemnification. Buyer shall indemnify and hold Company, its
officers and directors, harmless of and in respect of:
(1) Any damage or loss resulting from any loss, liability, damage,
misrepresentation, breach of warranty or non-fulfillment on the part of Buyer
under this agreement or from any misrepresentation or omission from any
certificates or other instrument furnished to Company pursuant to this
agreement.
(2) All actions, suits, proceedings, demands assessments, judgments,
10
<PAGE>
costs and expenses incident to any of the foregoing including reasonable
attorney's fees and all costs incurred by Company to enforce this agreement
against Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholders owns 100% of the issued and outstanding shares of stock
of Company. The Shares are owned free and clear of any liens or encumbrances and
that the Shareholder is free to transfer the Shares without the consent of any
third party.
Muzio warrants and represents that he has authority to execute this
agreement on behalf of the other shareholders and to transfer the shares on
behalf of the other named shareholders to the Buyer.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS of Buyer TO CLOSE
The obligations of Buyer under this Agreement are, at the option of Buyer,
subject to the fulfillment of the following conditions at, or prior to, the
closing date:
5.01 Representations, Warranties and Covenants. All representations
and warranties of Company contained in this Agreement and in any statement,
certificate, schedule or other document delivered by Company pursuant hereto or
in connection herewith shall have been true and accurate in all respects as of
the date when made and as of the Closing Date.
5.02 Covenants, Etc. Company shall have substantially performed and
complied with each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by them prior to, or at, the Closing
Date.
5.03 Certificate. Company shall have delivered to Buyer a certificate of
the President and Secretary of Company, dated the Closing Date, certifying to
the fulfillment of the conditions set forth in 5.01 and 5.02.
5.04 Proceedings. No action or proceedings shall have been instituted or
threatened against the Company which could materially adversely affect the
business of the Company. No action or proceedings shall have been instituted or
threatened against any of the parties to this Agreement or their directors or
officers before any court or governmental agency to restrain, prohibit or obtain
substantial damages in respect of this Agreement or the consummation of the
transactions contemplated hereby.
11
<PAGE>
5.05 Corporate Documents. Prior to Closing the Company shall furnish to
Buyer copies of the Certificate of Incorporation of Company and each amendment
thereto, if any, which shall be certified by a proper state official; one copy
of the By-Laws and minutes of Company by its secretary or an assistant secretary
as being currently in effect, and a certificate of good standing issued by the
proper state officials of each state in which Company transacts business and is
required to qualify.
5.06 Document & Production. This Agreement is expressly conditioned on
Company providing all identified schedules and exhibits at the time of closing.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Shareholders is subject to the fulfillment of the
following conditions at or prior to the Closing Date:
6.01 Representations, Warranties and Covenants. All representations
and warranties of Buyer contained in this Agreement and in any statement,
certificate, schedule or other document delivered pursuant hereto, or in
connection herewith, shall have been true and accurate in all respects as of the
date when made and as of the Closing Date.
6.02 Covenants, Etc. Buyer shall have substantially performed and
complied with each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by it prior to, or at, the Closing
Date.
6.03 Proceedings. No action or proceedings shall have been
instituted or threatened against Buyer which could materially and adversely
affect the business of Buyer. No actions or proceedings shall have been
instituted or threatened against any of the parties to this Agreement, or their
directors or officers before any court or governmental agency to restrain,
prohibit or obtain substantial damages in respect to this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.01 Abandonment of Agreement. This Agreement may be terminated and
the transactions hereby contemplated abandoned at any time prior to the Closing
Date, whether before or after the approval and adoption hereof by
12
<PAGE>
the shareholders of each Company by (a) the mutual consent of the Board of
Directors of Company and Buyer or (b) the Board of Directors of the Company if
any condition to its obligations provided in this Agreement has not been met at
the time such condition is to be met and has not been waived by it, or
[ILLEGIBLE] by the Board of Directors of Buyer, if any condition to its
obligations provided in this Agreement has not been met at the time such
condition is to be met and has not been waived by it.
7.02 Liabilities. In the event this Agreement is terminated pursuant
to Section 7.01, no party hereto shall have any liability to the other and each
party shall bear their own costs incurred.
7.03 Assignments. This Agreement may not be assigned except with the
written consent of the nonassigning party. Notwithstanding the foregoing, the
rights of the Shareholders to receive the Shares shall be freely assignable.
7.04 Survival of Representations and Warranties. Company and Buyer
agree all representations and warranties contained herein or made hereunder
shall survive the Closing, except that any breach disclosed in writing to either
party prior to Closing is waived by such party if it elects to close
notwithstanding such breach.
7.05 Notices. All notices, demands and other communications which
may or are required to be given pursuant to this Agreement shall be given or
made when personally delivered or when deposited in the United States Mail,
first class, postage pre-paid, addressed as follows:
If to Company to: Michael Muzio
TRIMFAST Inc.
777 South Harbour Island Blvd. Suite 260
Tampa, Florida 33602
or to such other address as Company may, from time to time, designate by Notice
to Buyer
If to Buyer to: Harry Kay
HLHK World Group, Inc.
3361 Westwind Drive
Las Vegas, Nevada 89102
With a copy to:
Jeffrey Klein
23123 State Road Seven #350B
Boca Raton, Florida 33428
or to such other addresses as Buyer may, from time to time, designate by notice
to Company.
13
<PAGE>
7.06 Closing. The closing date for the contemplated transaction
shall be on or before August 15, 1998
7.07 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
agreements between the parties relating to its subject matter. The
representations, warranties, covenants and conditions of the obligations of the
parties hereto may not be orally amended, modified or altered, but may be
amended, modified or altered in a writing signed by each of the parties, whether
before or after the meeting of shareholders of Company contemplated herein.
7.08 Captions. The captions of Articles and Sections of Articles
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
7.09 Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Nevada and jurisdiction
for any dispute shall be in Nevada.
7.10 Waivers. Any failure of either party hereto to comply with any
of its obligations or agreements, or to fulfill conditions herein contained may
be waived in writing by the other party. No waiver by any party of any condition
or the breach of any provision, term, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, shall be deemed to
be or construed as a further or continuing waiver of any such condition or of
the breach of any other provision, term, covenant, representation, or warranty
of this Agreement.
7.11 Counterparts. This Agreement may be executed in several
counterparts and all so executed shall constitute one agreement, binding upon
all of the parties hereto, notwithstanding that not all of the parties are
signatory to the original or the same counterpart. Fax copies shall be binding
upon the parties provided that original copies are received within seven days of
execution.
7.12 Successors. The terms covenants and conditions of the Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, legal representatives, successors and assigns.
7.13 Binding Agreement. This Agreement represents the entire
agreement among the parties hereto with respect to the matters described herein
and is binding upon and shall inure to the benefit of the parties hereto and
their legal representatives. This Agreement may not be assigned and, except as
stated
14
<PAGE>
herein, may not be altered or amended except in writing executed by the party to
be charged.
7.14 Tax Free Exchange. This Agreement is to be construed as a tax
free exchange under Section 368(a)(1)(b) of the Internal Revenue Code and the
parties agree to take such action as may be necessary to effect this intent.
This Agreement entered into the date first entered above.
HLHK World Group, Inc. WITNESS:
/s/ Harry Kay Chairman [ILLEGIBLE]
- ------------------------- -------------------------
BY:
TRIMFAST INC.
/s/ Michael Muzio [ILLEGIBLE]
- ------------------------- -------------------------
BY:
THE SHAREHOLDERS
- ---------------------- ----------------------- ----------------------
- ---------------------- ----------------------- ----------------------
- ---------------------- ----------------------- ----------------------
- ---------------------- ----------------------- ----------------------
15
EXHIBIT 2.3
RESCISSION OF IMMMU AND IMMCEL ACQUISITION
RESCISSION AGREEMENT
This Agreement is entered into this 23rd day of October 1999 is by and
between TrimFast Group, Inc., ("TrimFast") and Leo Ehrlich, Helenka Bodner and
Joseph Levi (the "Shareholders")
Whereas, the Shareholders previously owned all of the issued and
outstanding shares of common stock of IMMCEL Pharmaceuticals, Inc. and IMMMU,
Inc. (the "Companies); and
Whereas, TrimFast purchased all of the issued and outstanding shares of
the common stock of the Companies from the Shareholders pursuant to an agreement
dated March 17, 1999 (the "Agreement"); and
WHEREAS, the parties wish to rescind the Agreement;
NOW THEREFORE, in consideration of the mutual coventants contained herein
it is agreed:
1. On or before October 31, 1999, TrimFast shall deliver to the
Shareholders 200 shares of common stock in each entity previously purchased by
TrimFast. Said shares representing all of the issued and outstanding shares of
common stock in both Immmu and Immcel.
2. Upon delivery of the Immmu and Immcel shares, the Shardholders shall be
obligated to deliver to TrimFast a total of 225,000 shares of restricted common
stock of TrimFast previously issued to the Shareholders as follows: Helenka
Bodner 150,750 shares, Leo Ehrlich 60,750 shares and Joseph Levi 13,500 shares.
Said shares to be duly endorsed for transfer and medallion signature guaranteed.
B. Sellers will arrange for the delivery to TrimFast of 10,OOO shares of
free trading shares which were previously issued to Moishe Bodner.
C. Sellers shall also deliver to TrimFast the sum of $50,000.
3. TrimFast shall be permitted to market the Immcel and Immmu product
lines until October 31, 1999 after which time all rights, title and interest in
the product shall forever be vested with Immcel and Immmu.
4. Beginning November 1, 1999, TrimFast shall have no right to market or
promote the Immmu and Immcel products and agrees to refrain from using any
marketing material containing the Immcel and Immu product line. In the event
that any orders are received for Immmu or Immcel products after October 31,
1999, TrimFast agrees to refer these orders to Immcel or Immmu for fulfillment.
5. On or before November 1, 1999 TrimFast shall provide the shareholders
with a complete accounting of all revenues and expenses associated with the
operation Immcel and
<PAGE>
Immmu. If the accounting indicates that TrimFast generated any profits from the
sale of the Immcel or Immmu products, then in that event, TrimFast shall forward
said profits to Immmu/Immcel. If the accounting indicates a net loss from
operations, then in that event Immmu/Immcel shall reimburse TrimFast the amount
of the net loss.
6. TrimFast warrants and represents that:
(A) The shares to be conveyed hereunder are owned free and clear of all
liens and encumbrances.
(B) Except for the shares to be conveyed hereunder, there are no other
outstanding shares, options, warrants or other rights which upon their exercise
may be converted into shares of common stock of either Immmu or Immcel.
(C) Since the execution of the Agreement, TrimFast has not incurred any
expenses on behalf of either entity except in the ordinary course of business.
(D) TrimFast has not filed for any type of trademark protection for any of
the Immmu or Immcel products.
7. Upon execution of this Agreement, each party releases and forever
discharges the other from liability of whatever kind or nature which may have or
could have arisen as a result of any misstatement in the original transfer
Agreement.
8. The parties agree and acknowledge that the purpose of this agreement is
to restore the respective parties to as close a position as possible as each
party was prior to execution of the original transfer agreement. To the extent
that either party may require the execution of additional documentation to
effectuate these ends, the parties agree to execute such additional
documentation without payment of additional consideration.
9. This Agreement shall be construed pursuant to the laws of the state of
Florida with jurisdiction for any dispute in Tampa, Florida. In the event of any
litigation, the prevailing party shall be entitled to recover all costs
including reasonable attorneys fee.
This Agreement executed the date set forth above.
TrimFast Group, Inc.
/s/ Michael Muzio /s/ Leo Ehrlich
- ---------------------- ---------------
BY: Michael Muzio, pres Leo Ehrlich
/s/ Helenka Bodner /s/ Joseph Levi
- ---------------------- ---------------
Helenka Bodner Joseph Levi
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF KENDREX SYSTEMS, INC.
<AS FILED>
5
EXHIBIT 3.2
BYLAWS OF KENDREX SYSTEMS
<AS FILED>
6
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
[GRAPHIC OMITTED]
---------------------
CUSIP NO. 89626R 20 6
---------------------
NUMBER TRIMFAST SHARES
[GRAPHIC OMITTED] GROUP, INC. [GRAPHIC OMITTED]
AUTHORIZED COMMON STOCK: 100,000,000 SHARES
PAR VALUE: $.001
SPECIMEN
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of TRIMFAST GROUP, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- -------------------------- --------------------------
SECRETARY PRESIDENT
[SEAL]
TRIMFAST GROUP, INC.
CORPORATE
Seal
NEVADA
*****
[LOGO] INTERWEST TRANSFER CO. INC. P.O. BOX 17136/SALT LAKE CITY, UTAH 84117
COUNTERSIGNED AND REGISTERED [ILLEGIBLE]
EXHIBIT 4.2
DEBENTURE AGREEMENT
<AS FILED>
8
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IN FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS
NOT REQUIRED UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH THE APPLICABLE STATE SECURITIES LAWS.
TRIMFAST GROUP, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 1999WT-1 Number of Shares: 74,627
Date of Issuance: July 16, 1999
TrimFast Group, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Cranshire Capital, L.P., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or
times on or after the date hereof, but not after 11:59 P.M. Central Time
on the Expiration Date (as defined herein) Seventy-Four Thousand Six
Hundred Twenty Seven (74,627) fully paid nonassessable shares of Common
Stock (as defined herein) of the Company (the "Warrant Shares") at the
purchase price per share provided in Section 1(b) below.
Section 1
Securities Purchase Agreement. This Warrant is one of the Warrants issued
pursuant to the terms of that certain Securities Purchase Agreement dated as of
July 16, 1999, among the Company and the Buyers referred to therein (the
"Securities Purchase Agreement").
Definitions. The following words and terms as used in this Warrant shall have
the following meanings:
"Approved Stock Plan" shall mean any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director,
consultant or other service provider for services provided to the Company.
"Common Stock" means (i) the Company's common stock, no par value per share, and
(ii) any capital stock into which such Common Stock shall have been changed or
any capital stock resulting from a reclassification of such Common Stock.
10
<PAGE>
"Common Stock Deemed Outstanding" means, at any given time, the number of shares
of Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 8(b)(i) and 8(b)(ii)
hereof regardless of whether the Options (as defined below) or Convertible
Securities (as defined below) are actually exercisable or convertible at such
time, but excluding any shares of Common Stock owned or held by or for the
account of the Company or issuable upon exercise of the Warrants.
"Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exchangeable for Common Stock.
"Expiration Date" means the date three (3) years from the date of this Warrant
or, if such date falls on a Saturday, Sunday or other day on which banks are
required or authorized to be closed in the City of Chicago or the State of
Illinois or on which trading does not take place on the principal exchange or
automated quotation system on which the Common Stock is traded (a "Holiday"),
the next date that is not a Holiday.
"Options" means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.
"Other Securities" means (i) those warrants of the Company issued prior to, and
outstanding on, the date of issuance of this Warrant, (ii) the Preferred Shares
and (iii) the shares of Common Stock issued upon conversion of the Preferred
Shares.
"Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Preferred Shares" means the shares of the Company's Series A Preferred Stock
issued pursuant to the Securities Purchase Agreement.
"Principal Market" means the Nasdaq National Market or Nasdaq Small-Cap Market.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant" means this Warrant and all Warrants issued in exchange, transfer or
replacement of any thereof.
"Warrant Exercise Price" shall be $10.31 per common share, subject to adjustment
as hereinafter provided.
Section 2
Exercise of Warrant.
Subject to the terms and conditions hereof, this Warrant may be exercised by the
holder hereof then registered on the books of the Company, in whole or in part,
at any time on any business day on or after the opening of business on the date
hereof and prior to 11:59 P.M. Central Time on the Expiration Date by (i)
delivery of a written notice, in the form of the subscription notice attached as
Exhibit A hereto (the "Exercise Notice"), of such holder's election to exercise
this Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender to a common carrier for delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), a certificate or certificates for the Warrant Shares so purchased,
in such denominations as may be requested by the holder hereof and registered in
the name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable, and in no
event later than two business days, after the Company's receipt of the Exercise
Notice, the Aggregate Exercise Price and this Warrant (or an
<PAGE>
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction). Upon delivery of the Exercise Notice and Aggregate
Exercise Price referred to in clause (ii) above, the holder of this Warrant
shall be deemed for all corporate purposes to have become the holder of record
of the Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of this Warrant as required by clause (iii)
above or the certificates evidencing such Warrant Shares.
Unless the rights represented by this Warrant shall have expired or shall have
been fully exercised, the Company shall, as soon as practicable and in no event
later than five (5) business days after any exercise and at its own expense,
issue a new Warrant identical in all respects to this Warrant exercised except
it shall represent rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant exercised, less the number
of Warrant Shares with respect to which such Warrant is exercised.
No fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock issued upon exercise of
this Warrant shall be rounded up or down to the nearest whole number.
If the Company shall fail for any reason or for no reason to issue to the holder
on a timely basis as described in this Section 2, a certificate for the number
of shares of Common Stock to which the holder is entitled upon the holder's
exercise of this Warrant or a new Warrant for the number of shares of Common
Stock to which such holder is entitled pursuant to Section 2(b) hereof, the
Company shall, in addition to any other remedies under this Warrant or the
Securities Purchase Agreement or otherwise available to such holder, including
any indemnification under the Securities Purchase Agreement, pay as additional
damages in cash to such holder on each day the issuance of such Common Stock
certificate or new Warrant, as the case may be, is not timely effected an amount
equal to .25% of the product of (A) the sum of the number of shares of Common
Stock not issued to the holder on a timely basis and to which the holder is
entitled and/or, the number of shares represented by the portion of this Warrant
which is not being converted, as the case may be, and (B) the average of the
closing bid price of the Common Stock for the three consecutive trading days
immediately preceding the last possible date which the Company could have issued
such Common Stock or Warrant, as the case may be, to the holder without
violating this Section 2.
Section 3
Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:
This Warrant is, and any Warrant issued in substitution for or replacement of
this Warrant will upon issuance be, duly authorized and validly issued.
All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved at least
100% of the number of shares of Common Stock needed to provide for the exercise
of the rights then represented by this Warrant and the par value of said shares
will at all times be less than or equal to the applicable Warrant Exercise
Price.
The Company shall promptly secure the listing of the shares of Common Stock
issuable upon exercise of this Warrant upon each national securities exchange or
automated quotation system or bulletin board system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
<PAGE>
The Company will not, by amendment of its Articles 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 by it hereunder, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
his Warrant will be binding upon any entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
Section 4
Taxes. The Company shall pay any and all taxes which may be payable with respect
to the issuance and delivery of Warrant Shares upon exercise of this Warrant.
Section 5
Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance to
the holder of this Warrant of the Warrant Shares which he or she is then
entitled to receive upon the due exercise of this Warrant. In addition, nothing
contained in this Warrant shall be construed as imposing any liabilities on such
holder to purchase any securities (upon exercise of this Warrant or otherwise)
or as a stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. Notwithstanding this Section 5, the
Company will provide the holder of this Warrant with copies of the same notices
and other information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6
Representations of Holder. The holder of this Warrant, by the acceptance hereof,
represents that it is acquiring this Warrant for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution of this Warrant, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant for any
minimum or other specific term and reserves the right to dispose of this Warrant
at any time in accordance with or pursuant to a registration statement or an
exemption under the Securities Act. The holder of this Warrant further
represents, by acceptance hereof, that, as of this date, such holder is an
"accredited investor" as such term is defined in Rule 501(a)(l) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "Accredited Investor").
Section 7
Ownership and Transfer. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
This Warrant and the rights granted to the holder hereof are transferable, in
whole or in part, upon surrender of this Warrant, together with a properly
executed warrant power in the form of Exhibit B attached hereto; provided,
however, that any transfer or assignment shall be subject to the conditions set
forth in Section 7(c) below.
<PAGE>
The holder of this Warrant understands that this Warrant has not been and is not
expected to be, registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (a)
subsequently registered thereunder, or (b) such holder shall have delivered to
the Company an opinion of counsel, in generally acceptable form, to the effect
that the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; provided that (i)
any sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (ii) neither the Company nor any other person is under any
obligation to register the Warrants under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
The Company is obligated to register the Warrant Shares for resale under the
Securities Act pursuant to the Registration Rights Agreement dated July 16, 1999
by and between the Company and the Buyers listed on the signature page thereto
(the "Registration Rights Agreement") and the initial holder of this Warrant
(and certain assignees thereof) is entitled to the registration rights in
respect of the Warrant Shares as set forth in the Registration Rights Agreement.
Section 8
Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise
Price and the number of shares of Common Stock issuable upon exercise of this
Warrant shall be adjusted from time to time as follows:
Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Section 8(b) is deemed to
have issued or sold, any shares of Common Stock (including the issuance or sale
of shares of Common Stock owned or held by or for the account of the Company,
but excluding shares of Common Stock deemed to have been issued by the Company
in connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than the Warrant Exercise
Price in effect immediately prior to such time (the "Applicable Price"), then
immediately after such issue or sale the Warrant Exercise Price then in effect
shall be reduced to an amount equal to the product of (x) the Warrant Exercise
Price in effect immediately prior to such issue or sale and (y) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Applicable Price by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product derived by
multiplying the (I) Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale. Upon each such
adjustment of the Warrant Exercise Price hereunder, the number of shares of
Common Stock acquirable upon exercise of this Warrant shall be adjusted to the
number of shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment.
Effect on Warrant Exercise Price of Certain Events. For purposes of determining
the adjusted Warrant Exercise Price under Section 8(a) above, the following
shall be applicable:
Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this Section 8(b)(i), the
"lowest price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of any Convertible Security issuable upon
<PAGE>
exercise of such Option. No further adjustment of the Warrant Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible Securities issuable upon exercise of such Option
are convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this Section 8(b)(ii), the "lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion or exchange of
such Convertible Security. No further adjustment of the Warrant Exercise Price
shall be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Warrant Exercise Price had been or are to be made pursuant to other
provisions of this Section 8(b), no further adjustment of the Warrant Exercise
Price shall be made by reason of such issue or sale. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 8(b)(ii) to the
extent that such adjustment is based solely on the fact that such Convertible
Securities are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock.
Change in Option Price or Rate of Conversion. If the purchase price provided for
in any Options, the additional consideration, if any, payable upon the issue,
conversion or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time, the Warrant Exercise Price in effect at the time of such
change shall be adjusted to the Warrant Exercise Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold and the number of
shares of Common Stock acquirable hereunder shall be correspondingly readjusted.
For purposes of this Section 8(b)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
Treatment of Expired Options and Unexercised Convertible Securities. If, in any
case, the total number of shares of Common Stock issuable upon the exercise of
any Option or upon exercise, conversion or exchange of any Convertible Security
is not, in fact, issued and the rights to exercise such Option or to exercise,
convert or exchange such Convertible Securities shall have expired or
terminated, the Warrant Exercise Price then in effect will be readjusted to the
Warrant Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof) never been issued.
<PAGE>
Effect on Warrant Exercise Price of Certain Events. For purposes of determining
the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following
shall be applicable:
Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
market price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
Record Date. If the Company takes a record of the holders of Common Stock for
the purpose of entitling them (1) to receive a dividend or other distribution
payable in Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common
Stock. If the Company at any time after the date of issuance of this Warrant
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased.
Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other transaction) (a "Distribution"), at any time after the
issuance of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price
determined by multiplying such Warrant Exercise Price by a fraction of
which (A) the numerator shall be the Closing bid price on the trading day
immediately preceding such record date minus the value of the Distribution
(as determined in good faith by
<PAGE>
the Company's Board of Directors) applicable to one share of Common Stock,
and (B) the denominator shall be the Closing bid price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise of this
Warrant shall be increased to a number of shares equal to the number of
shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding clause
(i), or (B) in the event that the Distribution is of common stock of a
company whose common stock is traded on a national securities exchange or
a national automated quotation system, then the holder of this Warrant
shall receive an additional warrant to purchase Common Stock, the terms of
which shall be identical to those of this Warrant, except that such
warrant shall be exercisable into the amount of the assets that would have
been payable to the holder of this Warrant pursuant to the Distribution
had the holder exercised this Warrant immediately prior to such record
date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i).
Certain Events. If any event occurs of the type contemplated by the provisions
of this Section 8 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board of
Directors will make an appropriate adjustment in the Warrant Exercise Price and
the number of shares of Common Stock obtainable upon exercise of this Warrant so
as to protect the rights of the holders of the Warrants; provided that no such
adjustment will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.
Notices.
Immediately upon any adjustment of the Warrant Exercise Price, the Company will
give written notice thereof to the holder of this Warrant, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.
The Company will give written notice to the holder of this Warrant at least
twenty (20) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Organic Change
(as defined below), dissolution or liquidation, provided that such information
shall be made known to the public prior to or in conjunction with such notice
being provided to such holder.
The Company will also give written notice to the holder of this Warrant at least
twenty (20) days prior to the date on which any Organic Change, dissolution or
liquidation will take place, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
Section 9
Purchase Rights: Reorganization, Reclassification, Consolidation, Merger or
Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of Common Stock (the "Purchase
Rights"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
<PAGE>
(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to
another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior
to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will
secure from the Person purchasing such assets or the successor resulting
from such Organic Change (in each case, the "Acquiring Entity") written
agreement (in form and substance satisfactory to the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon
exercise of the Warrants then outstanding) to deliver to each holder of
Warrants in exchange for such Warrants, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and
substance to this Warrant and satisfactory to the holders of the Warrants
(including, an adjusted warrant exercise price equal to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock
acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Warrant Exercise Price in effect immediately
prior to such consolidation, merger or sale). Prior to the consummation of
any other Organic Change, the Company shall make appropriate provision (in
form and substance satisfactory to the holders of Warrants representing a
majority of the shares of Common Stock obtainable upon exercise of the
Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrants, such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to
or in exchange for the number of shares of Common Stock which would have
been acquirable and receivable upon the exercise of such holder's Warrant
as of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10
Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen,
mutilated or destroyed, the Company shall, on receipt of an indemnification
undertaking, issue a new Warrant of like denomination and tenor as this Warrant
so lost, stolen, mutilated or destroyed.
Section II
Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
TrimFast Group, Inc.
777 South Harbour Island Blvd.
Suite 260
Tampa, Florida 33602
Telephone: (813) 275-0040
Facsimile: (813) 275-0051
Attention: Michael Muzio
With copy to:
Jeffrey G. Klein, P.A.
23123 State Road 7, Suite 350B
<PAGE>
Boca Raton, Florida 33428
Telephone: (561) 470-9010
Facsimile: (561) 470-9078
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12
Amendments. This Warrant and any term hereof may be changed, waived, discharged,
or terminated only by an instrument in writing signed by the party or holder
hereof against which enforcement of such change, waiver, discharge or
termination is sought.
Section 13
Date. The date of this Warrant is July 16, 1999. This Warrant, in all events,
shall be wholly void and of no effect after the close of business on the
Expiration Date, except that notwithstanding any other provisions hereof, the
provisions of Section 7 shall continue in full force and effect after such date
as to any Warrant Shares or other securities issued upon the exercise of this
Warrant.
Section 14
Amendment and Waiver. Except as otherwise provided herein, the provisions of the
Warrants may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holders of Warrants representing
a majority of the shares of Common Stock obtainable upon exercise of the
Warrants then outstanding; provided that no such action may increase the Warrant
Exercise Price of the Warrants or decrease the number of shares or class of
stock obtainable upon exercise of any Warrants without the written consent of
the holder of such Warrant.
Section 15
Descriptive Headings: Governing Law. The descriptive headings of the several
Sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. This Warrant shall be governed by the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois.
[Signature Page Follows]
<PAGE>
This Warrant has been duly executed by the Company as of the date first set
forth above.
TRIMFAST GROUP, INC.
By:__________
Name:________
Title:_______
21
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
TRIMFAST GROUP, INC.
The undersigned holder hereby exercises the right to purchase __________________
of the shares of Common Stock ("Warrant Shares") of TrimFast Group, Inc., a
_________ corporation (the "Company"), evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
Payment of Warrant Exercise Price. The holder shall pay the sum of $___________
to the Company in accordance with the terms of the Warrant.
Delivery of Warrant Shares. The Company shall deliver to the holder ________
Warrant Shares in accordance with the terms of the Warrant.
Date:______________________________
Name of Registered Holder
By:________________________________
Name:______________________________
Title:_____________________________
22
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
__________________ Federal Identification No. ___________,a warrant to purchase
_____________ shares of the capital stock of TrimFast Group, Inc., a
____________ corporation, represented by warrant certificate no. ______,
standing in the name of the undersigned on the books of said corporation. The
undersigned does hereby irrevocably constitute and appoint ________________,
attorney to transfer the warrants of said corporation, with full power of
substitution in the premises.
Dated: _________, 1999
By:__________
Name:________
Title:_______
23
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 16, 1999,
is entered into by and among TrimFast Group, Inc., a Nevada corporation, with
headquarters located at 777 South Harbour Island Blvd., Suite 260, Tampa,
Florida 33602 (the "Company"), and the investors listed on Schedule 1 attached
hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, par value $.01 per share: the Company's Series A Preferred Stock (the
"Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock") (as converted, the
"Conversion Shares"), in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Preferred Stock, substantially in
the form attached hereto as Exhibit E (the "Certificate of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 15,000 shares of the Preferred Stock (the
"Preferred Shares"), $.01 par value per share, in the respective amounts set
forth opposite each Buyer's name on Schedule 1 and warrants, in substantially
the same form attached hereto as Exhibit D (the "Warrants") to acquire 223,881
shares of Company Common Stock (as exercised, collectively, the "Warrant
Shares"); and
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. In connection with the
offering (the "Offering") by the Company of the Preferred Shares and Warrants to
the Buyers, and subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer
and each Buyer severally agrees to purchase from the Company the respective
number of Preferred Shares set forth opposite such Buyer's name on Schedule 1,
along with Warrants to acquire the respective number of Warrant Shares set forth
opposite such Buyer's name on Schedule 1 (the "Closing"). The purchase price
(the "Purchase Price") of the Preferred Shares and the related Warrants at the
Closing shall be $1,500,040.
b. Closing Date. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m. Central Time, within three (3) business days
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7 below (or such
later date as is mutually agreed to by the Company and the Buyers). The Closing
shall occur on the Closing
24
<PAGE>
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693.
c. Form of Payment. On the Closing Date, (i) subject to the
satisfaction (or waiver) of the conditions set forth in Section 7 below, each
Buyer shall pay the Purchase Price to the Company, for the Preferred Shares and
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) subject to the satisfaction (or waiver) of the conditions
set forth in Section 6 below, the Company shall deliver to Katten Muchin &
Zavis, c/o Anthony J. Ribaudo, located at 525 West Monroe St., Suite 1600,
Chicago, Illinois 60661-3693, as the escrow agent (the "Escrow Agent"), on
behalf of each Buyer, stock certificates (in the denominations as such Buyer
shall request) (the "Preferred Stock Certificates") representing such number of
the Preferred Shares which such Buyer is then purchasing (as indicated opposite
such Buyer's name on Schedule 1) along with the Warrants such Buyer is
purchasing (as indicated opposite such Buyer's name on Schedule 1) hereunder,
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee. Upon the completion of the conditions contained in Sections 6
and 7 of this Agreement, the Escrow Agent shall deliver the certificates
representing the Preferred Shares and the Warrants to the Buyers via overnight
courier after the Buyers have wired the Purchase Price to the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer is acquiring the Preferred Shares
and Warrants (the Preferred Shares and Warrants may also be referred to herein
as the "Securities"), for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
25
<PAGE>
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended, (or a successor rule thereto) ("Rule 144"); and (ii) any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, and if Seller intends to utilize Rule
144 but Rule 144 is not applicable to such resale, any resale of the Securities
under circumstances in which the Seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder.
g. Legends. Such Buyer understands that the Preferred Stock
Certificates and certificates or other instruments representing the Warrants
and, until such time as the sale of the Conversion Shares and the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and
the Warrant Shares except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(1) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS, OR (2)
IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR (3) UNLESS SOLD,
TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country and state, if
applicable, specified in its address on Schedule 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
26
<PAGE>
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a controlling position of capital
stock or holds a controlling position of an equity or similar interest) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results or operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below in Section
3(b)).
b. Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions
(as defined in Section 5), the Warrants and the Certificate of Designations and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof, respectively, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies, and (v) prior to the Closing Date, the Certificate of Designations has
been filed with the Secretary of State of the State of Nevada and will be in
full force and effect, enforceable against the Company in accordance with its
terms.
c. Issuance of Securities. The Securities are duly authorized and,
upon issuance in accordance with the terms hereof, shall be (i) validly issued,
fully paid and non-assessable and (ii) free from all taxes, liens and charges
with respect to the issue thereof. The Preferred Shares shall be entitled to the
rights and preferences set forth in the Certificate of Designations. 750,000
shares of Company common stock (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(g) below) have been duly authorized and reserved
for issuance upon conversion of the Preferred Shares and exercise of the
Warrants. Upon conversion in accordance with the Certificate of Designations or
exercise in accordance with the Warrants, the Conversion Shares and Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Company common
stock. The issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
d. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
Company's issuance of the Securities and the reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) will not (i) result in
a violation of the Company's Articles of Incorporation, as amended and as in
effect on the date hereof (the "Articles of Incorporation") or the Company's
By-laws, as amended and as in effect on the date hereof (the "By-laws") or any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or (ii) conflict with, or constitute a default
(or an event which with notice
27
<PAGE>
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market (as defined in
Section 4(f) below)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Neither the Company nor its Subsidiaries is in violation of any
term of or in default under its Articles of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or By-laws or their organizational charter or by-laws,
respectively. Neither the Company or any of its Subsidiaries is in violation or
any term of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for possible
conflicts, defaults, terminations, amendments which would not have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance,
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by the Transaction
Documents and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain prior to Closing
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Principal Market (as defined in
Section 4(f) below).
e. SEC Documents; Financial Statements. As of the Closing, if
required, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents, if any,
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, if any, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents, if any, complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements, if any, have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). No other information provided by or on behalf of the Company
to the Buyers which is not included in the SEC Documents, including, without
limitation contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Buyers with any material,
nonpublic information.
f. Absence of Certain Changes. Since the most recent filing by the
Company with the SEC, there has been no material adverse change and no material
adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to
28
<PAGE>
seek protection pursuant to any bankruptcy law nor does the Company or any of
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
g. Absence of Litigation. Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Company's common stock, the
Common Shares or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such
which would have a Material Adverse Effect.
h. [Reserved].
i. No Undisclosed Events; Liabilities; Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its common stock and which
has not been publicly announced.
j. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
l. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened.
m. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.
n. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of
29
<PAGE>
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.
o. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in the SEC Documents or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
p. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged and the Company does not have any reason to believe it will not be able
to renew its existing insurance coverage under substantially similar terms for
the next two (2) years.
q. Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
s. Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof, none of the
officers, control parties, control entities, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
t. Eligibility. The Company is currently eligible to register the
resale of the Conversion Shares and Warrant Shares on a registration statement
on Form S-3 under the 1933 Act.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
30
<PAGE>
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is one
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and Warrant
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto), or (ii) the date on which (A) the Investors shall
have sold all the Conversion Shares and Warrant Shares (the "Registration
Period") and (B) none of the Preferred Shares or Warrants are outstanding, the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. [Reserved].
e. Right of First Refusal. Subject to the exceptions described
below, after the Closing the Company and its Subsidiaries shall not negotiate or
contract with any party for any equity financing (including any debt financing
with an equity component) or issue any equity securities of the Company or any
Subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any Subsidiary (including debt securities with an
equity component) in any form ("Future Offerings") during the period beginning
on the date hereof and ending on, and including, the date which is 180 days
after the Closing Date, unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "Future Offering Notice")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase up to its Aggregate
Percentage (as defined below) of the securities to be issued in such Future
Offering, as of the date of delivery of the Future Offering Notice, in the
Future Offering (the limitations referred to in this sentence is referred to as
the "Capital Raising Limitations"). For purposes of this Section 4(e),
"Aggregate Percentage" at any time with respect to any Buyer shall mean the
percentage obtained by dividing (i) the aggregate number of the Preferred Shares
initially issued and the Closing to such Buyer by (ii) the aggregate number of
the Preferred Shares sold to the Buyers by the Company at the Closing in
connection with the Offering. A Buyer can exercise its option to participate in
a Future Offering by delivering written notice thereof to participate to the
Company within five (5) business days after receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Percentage, then each Buyer which has indicated that
it is willing to purchase a number of securities in such Future Offering in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more of the Buyers have
not elected to purchase. In the event the Buyers fail to elect to fully
participate in the Future Offering within the periods described in this Section
4(e), the Company shall have 90 days thereafter to sell the securities of the
Future Offering that the Buyers did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 90 day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Buyers in the manner provided in this Section 4(e). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank which does not
have any equity feature, (ii) any transaction involving the Company's issuances
of securities (A) as consideration in a merger or consolidation, or (B) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of common stock in a firm commitment.
31
<PAGE>
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors ((i) through (v) collectively, the "Exempt
Issuances"). The Buyers shall not be required to participate or exercise their
right of first refusal with respect to a particular Future Offering in order to
exercise their right of first refusal with respect to later Future Offerings.
f. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) upon each national securities exchange, automated quotation system or
bulletin board system, if any, upon which shares of the Company's common stock
are then listed (subject to official notice of issuance) and shall maintain, so
long as any other shares of common stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock's
authorization for quotation on the Nasdaq National Market, Nasdaq Small-Cap
Market, Nasdaq Bulletin Board System, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc., as applicable (the "Principal Market"). Neither
the Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of Company common
stock on the Principal Market. The Company shall promptly, and in no event later
than the following business day, provide to each Buyer copies of any notices it
receives from the Principal Market regarding the continued eligibility of
Company common stock for listing on such automated quotation system or
securities exchange. The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(f).
g. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Company common stock
needed to provide for the issuance of the shares of Company common stock upon
conversion of all outstanding Preferred Shares and exercise of all outstanding
Warrants.
h. Issuance of Conversion Shares and Warrant Shares. The issuance of
the Conversion Shares and Warrant Shares shall be duly authorized, and when
issued in accordance with the Certificate of Designations or Warrants, as
applicable, the Conversion Shares and Warrant Shares will be validly issued,
fully paid and non-assessable and free of all taxes, liens, charges and
preemptive rights with respect to the issue thereof.
i. Limitation on Filing Registration Statements. The Company shall
not file a registration statement (other than the Registration Statement (as
defined in the Registration Rights Agreement) or a registration statement on
Form S-8) covering the sale or resale of shares of Company common stock with the
SEC during the period beginning on the date hereof and ending on the date which
is 90 days after the Registration Statement has been declared effective by the
SEC.
j. Independent Auditors. The Company shall, until at least three (3)
years after the Closing Date, maintain as its independent auditors an accounting
firm authorized to practice before the SEC.
k. Corporate Existence and Taxes. The Company shall, until at least
the later of (i) the date that is three (3) years after the Closing Date or (ii)
the conversion or redemption of all Preferred Stock and exercise of all Warrants
purchased pursuant to this Agreement, maintain its corporate existence in good
standing (provided, however, that the foregoing covenant shall not prevent the
Company from entering into any merger or corporate reorganization as long as the
surviving entity in such transaction, if not the Company, has common stock
listed for trading on the Principal Market and shall pay all its taxes when due
except for taxes which the Company disputes).
32
<PAGE>
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent (the "Transfer Agent"), and any subsequent transfer agent, substantially
in the form of Exhibit B hereto (the "Transfer Agent Instructions") to issue
certificates, registered in the name of each Buyer or its respective nominee(s),
for the Conversion Shares or Warrant Shares, as applicable in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Preferred Shares or exercise of the Warrants, as applicable. Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof will be given by the Company to its
Transfer Agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 5 shall
affect in any way each Buyer's obligations and agreements set forth in Section
2(g) to comply with all applicable prospectus delivery requirements, if any,
upon resale of the Securities. If a Buyer provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or the Buyer provides the Company with reasonable assurances that
the Securities can be sold pursuant to Rule 144 without any restriction as to
the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its Transfer Agent to
issue one or more certificates in such name and in such denominations as
specified by such Buyer and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction Documents,
where appropriate, to which it is a party and delivered the same to the Escrow
Agent for the transactions contemplated by this Agreement;
b. The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date; and
c. Such Buyer shall have delivered to the Escrow Agent such other
documents relating to the transactions contemplated by this Agreement as the
Escrow Agent may reasonable request.
33
<PAGE>
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares and Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Escrow Agent;
b. The Company's common stock shall be authorized for quotation on
the Principal Market and trading in Company common stock shall not have been
suspended by the SEC or the Principal Market;
c. The Certificate of Designations, shall have been filed with the
Secretary of State of the State of Nevada, and a copy thereof certified by such
Secretary of State shall have been delivered to such Buyer;
d. The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date;
e. The Company shall have delivered to the Escrow Agent the opinion
of the Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit C attached hereto;
f. The Company shall have executed and delivered to the Escrow Agent
the Preferred Stock Certificates and Warrants (in such denominations as such
Buyer shall request) for the Preferred Shares and Warrants being purchased by
such Buyer at the Closing;
g. The Transfer Agent Instructions, in the form of Exhibit B
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent and a copy of the executed Transfer Agent Instructions
shall have been delivered to the Escrow Agent;
h. The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws;
i. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued common stock, solely for the purpose of effecting
the conversion of the Preferred Shares and exercise of the Warrants, no less
than 200% of the number of shares of Company common stock needed to provide for
the issuance of the shares of Company common stock upon conversion of all
outstanding Preferred Stock and exercise of all outstanding Warrants;
j. The Company shall have delivered to the Escrow Agent such other
documents relating to the transactions contemplated by this Agreement as the
Escrow Agent may reasonably request; and
k. Subject to Section 11(1) below, at Closing, the Company shall
reimburse the Buyers for the Buyers' attorneys' fees and expenses (in an amount
not to exceed $15,000.00) incurred by the Buyers concerning the due diligence
review of the contemplated transactions and the Company, and the negotiation and
preparation of the Transaction Documents and the consummation of the
transactions contemplated thereby.
8. INDEMNIFICATION.
34
<PAGE>
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Securities and all of their stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(d) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such Buyer or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
9. [RESERVED]
10. LIQUIDATED DAMAGES.
The Company agrees that Buyers will suffer damages if the Company
violates any provision of or fails to fulfill any of its obligations or duties
pursuant to the Transaction Documents, other than the Registration Rights
Agreement (a "Company Violation"), and that it would not be possible to
ascertain the extent of such damages. Accordingly, in the event of such Company
Violation, the Company hereby agrees to pay liquidated damages ("Liquidated
Damages") to each Buyer following the occurrence of such Company Violation in an
amount determined by multiplying (i) $2.00 per Preferred Share then held by such
Buyer by (ii) the percentage derived by dividing (A) the actual number of days
elapsed from the last day of the date of the Company Violation or the prior
30-day period, as applicable, to the day such Company Violation has been
completely cured by (B) 30, in cash, or at the Buyer's option, in the number of
shares of Company common stock equal to the quotient of (v) the dollar amount of
the Liquidated Damages on the Payment Date (as defined below) divided by (w) the
closing bid price of the Company's common stock as of the date of the Company
Violation (as quoted in the Principal Market or the market or exchange where the
Company's common stock is then traded). The Liquidated Damages payable pursuant
hereto shall be payable within five (5) business days from the end of the
calendar month commencing on the first calendar month in which the Company
Violation occurs (each, a "Payment Date"). In the event the Buyer elects to
receive the Liquidated Damages amount in shares of Company common stock, such
shares shall also be considered Conversion Shares and shall have the
registration rights set forth in the Registration Rights Agreement.
11. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be
governed by and construed in all respects by the internal laws of the State of
Illinois (except for the proper application of the United States federal
securities laws), without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
35
<PAGE>
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an instrument
in writing signed by the party against whom enforcement is sought.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
TrimFast Group, Inc.
777 South Harbour Island Blvd.
Suite 260
Tampa, Florida 33602
Telephone: (813) 275-0040
Facsimile: (813) 275-0051
Attention: Michael Muzio
With a copy to:
Jeffery G. Klein, P.A.
23123 State Road 7
Suite 350B
Boca Raton, Florida 33428
Telephone: (561) 470-9010
Facsimile: (561-470-9078
36
<PAGE>
If to the Transfer Agent:
Interwest Transfer Company, Inc.
1981 East Murray Holladay Road
Suite 100
P.O. Box 17136
Salt Lake City, Utah 84117
Telephone: (801) 277-9294
Facsimile: (801) 277-3147
If to a Buyer, to it at the address and facsimile number set forth on Schedule 1
with copies to such Buyer's representatives as set forth on Schedule 1, or at
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party five days prior to the effectiveness of such change.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section
11(1), the agreements and covenants set forth in Sections 4, 5 and 11, the
indemnification provisions set forth in Section 8 and the liquidated damages
provisions set forth in Section 10 shall survive the Closing. Each Buyer shall
be responsible only for its own representations, warranties, agreements and
covenants hereunder.
j. [Reserved].
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 11(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 7(i) above.
m. Placement Agent. The Company acknowledges that it has not engaged
any placement agent in connection with the sale of the Preferred Shares and
Warrants. The Company shall be responsible for the payment of any placement
agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against,
37
<PAGE>
any liability, loss or expense (including, without limitation, attorneys' fees
and out of pocket expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to the Transaction Documents or
the Buyers enforce or exercise their rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
[Signature Page Follows]
38
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYERS:
TRIMFAST GROUP, INC. CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Incorporated,
the General Partner
By:_________________________
Name:_______________________ By:__________
Title:______________________ Name: Mitchell Kopin
Title: President
S. ROBERT PRODUCTIONS, LLC
By:______
Name:____
Title:___
KEYWAY INVESTMENTS, LTD.
By:______
Name:____
Title:___
THE DOTCOM FUND, LLC
By:______
Name:____
Title:___
39
<PAGE>
SCHEDULE 1: LIST OF INVESTORS
40
<PAGE>
<TABLE>
<CAPTION>
Investor's Name Investor Address Purchase Number of Number of Investor's Legal
and Facsimile Number Price Preferred Shares Warrant Representatives
Shares Address and Facsimile
Number
- ----------------------- -------------------------- ----------- ---------------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, L.P. 666 Dundee Rd., Ste. 1801 $500,010.00 5,000 74,627 Katten Muchin & Zavis
Northbrook, IL 60062 525 W. Monroe Street
Attn: Mitchell Kopin Chicago, Illinois 6066
(p) 847/562-9030 Attention: Anthony J.
(f) 847/562-9031 Ribaudo, Esq.
(p) 312/ 902-5521
(f) 312/ 577-8763
S. Robert Productions, 666 Dundee Road, Ste. 1801 $200,010.00 2,000 29,851
LLC Northbrook, IL 60062
Attn: Mitchell Kopin
(p) 847/562-9030
(f) 847/562-9031
Keyway Investments Ltd. 19 Mount Havelock $500,010.00 5,000 74,627
Douglas, Isle of Man
United Kingdom
1M1 2QG
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
Attention: Martin Peters
The dotCom Fund, LLC 666 Dundee Rd. $300,010.00 3,000 44,776
Northbrook, IL 60062
Attention: Mark Rice
(p) 847/509-2290
(f) 847/509-2295
</TABLE>
41
<PAGE>
EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Transfer Agent Instructions
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Warrant
Exhibit E Form of Certificate of Designations, Preferences and Rights of the
Series [A] Preferred Stock
42
EXHIBIT 10.1
LEASE OPTION AGREEMENT
<AS FILED>
11
MERCHANDISING LICENSE AGREEMENT
Date: as of June 2, 1999
Property: World Championship Wrestling
License No.: D993287
WCW LICENSEE
WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC.
One CNN Center 777 South Harbour Island Blvd., #260
l2th Floor, South Tower Tampa, FL 33602
Atlanta, Georgia 30348-5366
Contact: Michael J. Muzio
Tel: 8l3-275-0050
Fax: 813-275-0051
This Agreement is made as of the date specified above between WCW on
behalf of itself and its parent, subsidiaries and affiliates (the foregoing
collectively, "Related Entities") and Licensee, whereby WCW grants Licensee a
license to utilize certain names, likenesses, characters, trademarks and/or
copyrights in connection with the manufacture, distribution, advertising,
promotion and sale of certain articles of merchandise on the following terms and
conditions:
1. Licensed Elements: See Schedule "1" attached below.
2. Authorized Articles: Trimfast Energy Bars (WCW Bars) in 3 flavors:
chocolate, chocolate chip; chocolate peanut butter;
and Passion fruit
Licensee is limited to the foregoing Authorized Articles as
currently manufactured by Licensee with the ingredients set
out in Exhibit A*. Licensee has provided WCW with a complete
list of its entire current product line. Licensee shall from
time to time provide WCW with an updated list of its current
product line. In the event WCW objects to any products being
produced or sold by Licensee, Licensee shall discontinue
production and sale of such products within sixty (60) days of
notice by WCW or WCW may terminate this Licensee agreement
immediately without recourse.
*(Exhibit A)
Ingredients: High fructose, corn syrup, chocolate coating
(contains turbinado sugar, fractionated vegetable oils,
non-fat dry mild, cocoa, soy lecithin, and salt), cocoa
powder, chocolate chips, calcium, etc.
3. Licensed Territory: U.S., its territories and possessions & U.S. Military
Installations
The Authorized Articles may only be distributed in the Licensed Territory.
Licensee shall impose the obligation on its customers to sell the
Authorized Articles only within the Licensed Territory and shall not
knowingly sell Authorized Articles to persons or entities whom Licensee
knows, or reasonably should know, intend to resell or
<PAGE>
7. Advance/Guarantee: Advance: $50,000 (already received)
Balance of
Guarantee: $500,000
Total of Guarantee: $550,000 (includes advance)
The non-refundable Advance of $50,000 is payable in full concurrently with
WCW's receipt of copies of this Agreement (without amendments or
modifications) signed by Licensee, which in any event will be not later
than the date fourteen (14) days after Licensee receives copies of this
Agreement for signature.
The balance of the Guarantee is payable in installments as follows:
$100,000 due no later than 12/31/99
$100,000 due no later than 6/30/00
$100,000 due no later than 9/30/00
$100,000 due no later than 12/31/00
$100,000 due no later than 6/30/01
(All references to "Dollar(s)" and/or "$" anywhere in this Agreement will
refer to United States Dollars.)
8. Marketing Date: Marketing of each of the Authorized Articles will begin no
later than October 1, 1999.
9. Shipping Date: Shipment to retailers of each of the Authorized Articles
will begin no later than November 1, 1999.
10. Authorized Channels of Distribution: Mass Markets, Chain Stores, Specialty
Stores
The Authorized Articles may only be distributed through the Authorized
Channels of Distribution within the Licensed Territory. Licensee shall
impose the obligation on its customers to sell the Authorized Articles
only through the Authorized Channels of Distribution and shall not
knowingly sell Authorized Articles to persons or entities whom Licensee
knows, or reasonably should know, intend to resell or are likely to resell
the Authorized Articles outside of the Authorized Channels of
Distribution. Authorized Articles may not be sold within 500 feet of any
WCW event.
The Authorized Articles may only be distributed through the Authorized
Channels of Distribution within the Licensed Territory. In the event the
Authorized Articles are permitted for distribution to retail outlets
located at or within 500 feet of a WCW event venue, Licensee shall impose
the obligation on the retail outlets not to sell any of the Authorized
Articles on the day of any WCW sponsored events at such venue. Licensee
shall impose the obligation on its customers to sell the Authorized
Articles only through the Authorized Channels of Distribution and shall
not knowingly sell Authorized Articles to persons or entities whom
Licensee knows, or reasonably should know, intend to resell or are likely
to resell the Authorized Articles outside of the Authorized Channels of
Distribution.
11. Sell-off Period: 90 days
12. Form of Copyright and Trademark Notice: Each Authorized Article shall bear
copyright and trademark notices in the following form (or in such other
form as WCW may hereafter designate, for prospective implementation, by
notice to Licensee):
<PAGE>
Trademark: WCW(tm) and NWO(c) are trademarks of World Championship
Wrestling, Inc.
All characters depicted, are trademarks of or used under
License to World Championship Wrestling Inc.
13. Notices: Payments and statements to WCW shall be made or given to agent,
Leisure Concepts Inc. (WCW's Agent) at 1414 Avenue of the Americas, New
York, NY 10014 attn: Accounting Department. All other notices to WCW shall
be sent to WCW at the Atlanta address specified on the first page of this
Agreement, with a copy to the same address, Attention: Legal Department.
14. Standard Terms: The attached "Exhibit `A' (Standard Terms and Conditions)
are incorporated by this reference into the terms of this Merchandising
License Agreement (collectively referred to herein as "Agreement"). If any
provision set forth above in this Agreement conflicts (or is construed to
conflict) with any provision of the Standard Terms and Conditions, the
provisions hereinabove set forth will control.
15. Credit Terms: Execution of this Agreement by WCW is contingent upon WCW's
satisfaction with Licensee's financial ability to fulfill the Guarantee
stated herein. To this end, Licensee agrees to furnish any financial
information requested by WCW to confirm Licensee's credit status. If
deemed necessary by WCW, Licensee shall furnish a first priority lien and
security interest, a letter of credit, or any other such acceptable form
of security to cover the Guarantee. Licensee agrees to comply with WCW's
request(s) pursuant to this Paragraph before and during the entire term of
this Agreement.
16. Special Terms: If Authorized Articles are not marketed within 90 days of
the Shipping Date, WCW may remove the rights of those items.
If the forgoing proposal meets with the approval of Licensee, please sign
and return this proposal to WCW. Upon execution by WCW, this document will
be a binding agreement between Licensee and WCW as of the date first above
written.
WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC.
("WCW" ) ("Licensee")
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------- --------------------
Title: Director of Licensing Title: C.E.O.
---------------------- ------------------
<PAGE>
SCHEDULE "1"
1. "Licensed Elements" means only the names and static visual likenesses of
the following specific fictional characters, only as depicted in the
entertainment properties defined below as the "Program(s)" (excluding
dialogue, storylines and plot elements from the Pictures, except as
specifically agreed in writing and in advance by WCW). It is specifically
understood and agreed that the character names, likenesses and other
elements referred to above (including, if applicable, the names of actors,
voice-over artists, and/or other elements listed in this Schedule "1") are
included within the definition of "Licensed Elements" (i) only to the
extent of WCW's ownership or control thereof, and (ii) only as
specifically depicted in and as part of the Program(s). Licensee
understands and acknowledges that nothing herein grants Licensee the right
to use sound bites, voices, music, or other audio effects from the
Program(s). If Licensee wishes to use any such elements, Licensee must
separately' procure the necessary rights, and any rights, clearance or
related fees arising from same shall be at Licensee's sole expense. WCW
reserves the right to amend the list of Licensed Elements from time to
time to keep the list current with WCW licensing rights.
PROGRAM(S) LICENSED ELEMENTS
WORLD CHAMPIONSHIP WRESTLING
All WCW & NWO Logos
All WCW & NWO Slogans
Adams, Brian
Adams, Chris
Anderson, Arn
Armstrong, Brad
Armstrong, Scott
Armstrong, Steve
Asya
Bagwell, Marcus
Barbarian
Benoit, Chris
Bam Bam Bigelow
Bischoff, Eric
Blaze, Bobby
Blitzkrieg
Burke, Leo
Chastity
Ciclope
Damien
Darsow, Barry
Dillon, JJ
Disciple
Disco Inferno
Disorderly Conduct (Tom)
Disorderly Conduct (Mike)
DJ Ran (DJ)
Duncum, Jr., Bobby
Eaton, Bobby
El Dandy
Elizabeth, Miss
<PAGE>
Fortune, Chad
Fuller, Rick
Gambler
Garza, Hector
Goldberg, Bill
Gorgeous George
Guerrera, Juventud
Guerrero, Chavo Jr.
Guerrero, Eddie
Hacksaw Jim Duggan
Hale, Emory
Hak
Hall, Scott
Hanmer, Bret
Hankton, Kirt
Harlem Heat - Booker T
Harlem Heat - Stevie Ray
Hart, Bret "The Hitman"
Hart, Jimmy
Helms, Shane
Heenan, Bobby (Announcer)
Hennie, Curt
High Voltage -Rage
High Voltage - Kaos
Hogan, Hollywood
Horace
Horowitz, Barry
Hudson, Scott (Announcer)
Ice Train
Jakes
Johnson, Mark (NWO Referee)
Kanyon
Kaz
Kellum, Rob
Kidman, Billy
Knobs
Konnan
Karagias, Evan
Lane, Lenny
La Parka
LaRue, Lash
Lex Luger
Lizmark, Jr.
Lodi
Madusa
Malenko, Dean
Master P
Meng
Miller, Ernest
Mitchell, James
Moore, Shannon
Morris, Hugh
<PAGE>
Nitro Girls -- Fyre
Nitro Girls -- AC Jazz
Nitro Girls -- Storm
Norris, Harrison - Trainee
Norton, Scott
NWO Sting
Okerlund, Mean Gene (Announcer)
Onoo, Sonny
Page, Diamond Dallas
Patrick, Nick (Referee)
Piper, Roddy
Poffo, Lanny
Prince Iaukea
Psychosis
Public Enemy (Rocco Rock)
Public Enemy (Johnny Grunge)
Putski, Scott
Rachtman, Riki (Announcer)
Raven
Regal, Steven
Reese, Ron
Riggs, Scotty
Saturn
Savage, Randy
Schiavone, Tony (Announcer)
Sick Boy
Silver King
Smiley, Norman
Steiner, Rick
Steiner, Scott
Sting
Sullivan, Kevin
Swinger, Johnny
Swoll
Tatum, Chase
Tenay, Mike (Announcer)
Torborg, Dale
Ultimo Dragon
Van Hammer
Vicious, Sid
Villano IV
Villano V
Vincent
Walker, Bobby
Wallstreet, Michael
Watts, Erik
Wilson, Luther
Windham, Kendall
Windham. Barry
Wrath
Wright, Alex
Whipwreck, Mikey
<PAGE>
EXHIBIT "A"
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions shall be deemed fully incorporated in
the License Agreement ("Underlying Agreement") to which this Exhibit "A" is
attached, and these Standard Terms and Conditions and the Underlying Agreement
shall hereinafter be collectively referred to as the "Agreement." All terms
shall, unless expressly provided to the contrary herein, have the same
respective meanings as set forth in the Underlying Agreement. Unless expressly
provided to the contrary herein, to the extent that any provision of these
Standard Terms and Conditions conflicts with any provision of the Underlying
Agreement, the Underlying Agreement shall control.
A-l LICENSE
WCW hereby grants to Licensee, and Licensee hereby accepts, a license to
utilize the Licensed Elements upon or in connection with the Authorized
Articles, for the purpose of the manufacture, distribution, advertising,
promotion and sale of the Authorized Articles in the Licensed Territory during
the License Period, upon and subject to all of the terms and conditions of this
Agreement. Any and all rights not expressly granted to Licensee hereunder are
expressly reserved by WCW and may be exercised and exploited freely by WCW at
any time, and Licensee covenants and agrees that it shall not exercise, or
authorize or permit others to exercise, any rights with respect to the Licensed
Elements other than the limited and specific rights licensed hereunder. It is
understood that the license granted hereunder relates to the sale of Authorized
Articles and does not grant Licensee any rights with respect to the use of the
Licensed Elements in connection with premium promotions or other giveaways.
A-2 PAYMENT AND ACCOUNTINGS
(a) Royalty. Licensee shall pay to WCW's Agent a royalty as specified in
the Underlying Agreement with respect to all Net Sales of Authorized Articles.
"Net Sales" shall mean gross sales by Licensee or any of its affiliated,
associated or subsidiary companies, without any deductions whatsoever
(including, without limitation, freight, taxes, uncollectible accounts,
manufacturing, distribution, advertising, marketing or promotion costs with the
exception of trade quantity discounts only), except for actual returns. Credit
against sales shall be allowed only for actual returns and shall not be allowed
on the basis of an accrual or reserve system. Net Sales for each Authorized
Article shall be computed on no less than Licensee's regular, full,
"top-of-the-line" gross wholesale invoice price calculated at source in the
Licensed Territory, based upon the usual billing price for items sold in the
normal course of business ("Royalty Base Price"). The foregoing royalty shall be
payable on all Authorized Articles distributed by Licensee, including Authorized
Articles not billed, except for a reasonable number of samples which may be
given away to the trade in the normal course of business.
(b) Advance and Guarantee. Licensee shall pay to WCW's Agent the Advance
and Guarantee in accordance with the payment schedule specified in the
Underlying Agreement. The Advance and installments of the balance of the
Guarantee constitute a non-refundable advance against royalties to be earned as
provided above. The total Guarantee shall be deemed accrued to WCW's account as
of the date of this Agreement.
(c) Monthly Statements. Not later than thirty (30) days after the initial
shipment of the Authorized Articles and promptly on the 15th day of every month
thereafter during the License Period, Licensee shall furnish to WCW's Agent
complete and accurate statements (certified to be accurate by Licensee) showing
the product and style number, description, unit sales, Royalty Base Price, gross
sales and Net Sales of each and every Authorized Article covered by this
Agreement. All statements shall be prepared by Licensee utilizing the form
attached as Exhibit "B" hereto and incorporated by reference, as said form may
be revised from time to time by WCW. Royalty reports shall be prepared
separately for each country within the Licensed Territory, and shall include a
product sales breakdown by style number, which indicates clearly which of the
Licensed Elements were utilized in connection with each Authorized Article,
including a breakdown for each Licensed Element, by character. Reporting will be
completed in such a manner, and in sufficient detail, to enable WCW to separate
royalties by the respective elements used; including, without limitation, the
contract number present in the upper left-hand corner of the first page of this
contract.
(d) Royalty Payments. Royalty payments due hereunder shall be paid not
later than thirty (30) days after the end of each calendar month and such
payments shall accompany the statements required above. Licensee shall also
include the contract number, present in the upper left-hand corner of the first
page of this contract, on the face of the royalty check. If the License Period
is extended beyond the term specified in Paragraph 4 of the Underlying
Agreement, royalty payments which exceed the total Guarantee shall not be
credited toward any similar guarantee which is payable with respect to the
extension period. All payments shall be in U.S. funds. Licensee shall pay, and
hold WCW forever harmless from, all taxes, customs, duties, levies, imposts or
any other charges now or hereafter imposed or based upon the manufacture,
delivery, license, sale, possession or use hereunder to or by Licensee of the
Authorized Articles or the Licensed Elements (including but not limited to
sales, use, inventory, income and value added taxes on sales of Authorized
Articles), which charges shall not be deducted from WCW's royalties. All monies
payable to or received by Licensee from the exploitation of the rights granted
herein shall be held by Licensee in
<PAGE>
A-3 BOOKS AND RECORDS
Licensee shall keep accurate books of account and records in a form
meeting the generally accepted standards of the profession of certified public
accountants covering all transactions relating to the license hereby granted,
and WCW and its authorized representatives shall have the right at all
reasonable business hours, and upon reasonable notice, to examine and audit said
books of account and records and all other documents and materials in the
possession or under the control of Licensee with respect to the subject matter
and terms of this Agreement, and shall have free and full access thereto for
said purposes and for the purpose of taking extracts therefrom. Upon demand of
WCW, but not more than twice per calendar year. Licensee shall at its own
expense furnish to WCW a detailed statement prepared by an independent certified
public accountant, or certified to be accurate by a duly authorized official of
Licensee, showing the product and style number, description, Net Sales, itemized
deductions from Net Sales and Royalty Base Price of the Authorized Articles
distributed and/or sold by Licensee to the date of WCW's demand. If an audit
reveals that Licensee has misrepresented or underreported any item bearing upon
the royalties or other compensation due or payable to WCW, then, in addition to
recomputing and making immediate payment of the sums due based on the true items
together with interest thereon at the rate at which WCW is entitled to borrow
from its principal lending institution (after giving effect to compensating
balance requirements and any commitment fees), Licensee shall pay costs and
expenses incurred by WCW for the audit and checking and attorney's fees incurred
by WCW in connection therewith or in connection with enforcing the collection
thereof if the difference between the actual sums due hereunder is in excess of
three percent (3%) of the sums previously paid. All books of account and records
shall be kept available for at least three (3) years after the termination of
this license in Licensee's principle place of business.
A-4 EXCLUSIVITY
(a)(i) If, and only if, the Underlying Agreement specifies that Licensee's
license hereunder is exclusive, WCW shall not, except as otherwise provided
herein, grant any other licenses effective during the License Period for the use
of the Licensed Elements in connection with the manufacture, distribution and
sale, in the Licensed Territory, of the Authorized Articles as expressly
described in the Underlying Agreement. Notwithstanding the foregoing, nothing in
this Agreement shall be construed to prevent WCW from granting any licenses for
the use of the Licensed Elements other than as provided herein, or from
utilizing the Licensed Elements in any manner whatsoever other than as provided
herein, regardless of the extent to which such use or utilization may be
competitive with the license granted hereunder.
(ii) Licensee shall not during the License Period enter into or renew any
license agreements for the manufacture, distribution and/or sale of any of the
Authorized Articles and or manufacture, distribute or sell any of the Authorized
Articles for or in conjunction with or containing the elements of any other
professional wrestlers or professional wrestling organizations, and will not in
any event during the License Period directly or indirectly manufacture,
distribute or sell any Authorized Articles for or in conjunction with the World
Wrestlinig Federation (WWF).
(iii) If the Underlying Agreement specifies that Licensee's license
hereunder is non-exclusive, then WCW shall be free to utilize, or to grant any
licenses to third parties to utilize, the Licensed Elements in any manner for
any purposes whatsoever.
(b) In all cases, WCW expressly reserves all rights whatsoever relating to
the promotion, sale and other exploitation of Authorized Articles at (i) the MGM
Grand Hotel/Casino complex in Las Vegas, Nevada, and (ii) concert halls, arena
shows, circuses, stadiums, theaters, theme parks and all other public
performance venues at which television programs or motion pictures containing
elements included in the Licensed Elements or derivative works (e.g.. concerts,
musicals and other stage plays, motion picture sequels, audio-visual
performances, etc.) based thereon are exhibited or performed, and (iii) retail
outlets or any other facilities owned, operated or controlled by WCW (or its
parent, subsidiaries or affiliates), and (iv) catalogs or similar direct mail
sales publications featuring WCW products published by WCW (or its parent,
subsidiaries, or affiliates). The foregoing venues, retail outlets, other
facilities, and catalogs are collectively referred to herein as "WCW Venues".
Licensee acknowledges that WCW Venues are expressly excluded from the Licensed
Territory and that Licensee has not been granted any rights with respect to the
exploitation of Authorized Articles at WCW Venues, it being understood that WCW
may itself exercise such rights or grant others licenses for the manufacture and
distribution of Authorized Articles for sale or other exploitation at WCW
Venues.
(c) WCW reserves the right to permit distribution of stock on hand or in
process as of termination or expiration of prior licenses, even if the exercise
of said rights may conflict with those rights granted Licensee hereunder.
A-5 QUALITY OF MERCHANDISE
(a) The Authorized Articles shall be of high standard and of such style,
appearance and quality as to be adequate and suited to their exploitation to the
best advantage and to the protection and enhancement of the Licensed Elements
and the good will pertaining thereto. The Authorized Articles shall be
manufactured, sold, distributed, promoted and advertised in accordance with all
applicable governmental, regulatory, professional and industry-wide codes,
statutes, rules and regulations.
(b) Licensee shall submit to WCW and WCW shall have absolute approval of
the Authorized Articles, and the cartons, containers, and advertising,
promotional, packaging and wrapping materials bearing any Licensed Elements
("Collateral Materials") at all stages of the development and application
thereof. Licensee may not manufacture, use, sell, advertise, promote, or
distribute any Authorized Articles or Collateral Materials until and unless
Licensee has received WCW's prior written approval. Any and all items submitted
by Licensee to WCW
<PAGE>
(d) At the time of first distribution of each Authorized Article, Licensee
shall submit to WCW twelve (12) samples of each such item to WCW and a royalty
shall not be payable on such samples. Upon WCW's annual written request
thereafter, Licensee shall furnish without cost to WCW twelve (12) additional
random samples of each Authorized Article being distributed by Licensee
hereunder, together with any cartons, containers and packing and wrapping
material used in connection with such distribution for quality control by WCW.
It being agreed that WCW shall have the right, if quality problems are
encountered as a result of the examination of samples, to take such additional
samples as frequently as WCW in its sole discretion deems desirable in an effort
to assure that proper quality control has been established. Moreover, WCW shall
have the right to have its representatives visit the plant or plants where the
Authorized Articles are produced and where the Collateral Materials and the like
are printed or produced in order to determine whether or not proper quality
controls are being exercised.
(e) In the event Licensee is not the manufacturer of the Authorized
Articles, Licensee shall, subject to WCW's prior written consent, be entitled to
engage a third party manufacturer to make and produce the Authorized Articles
exclusively for Licensee, provided that Licensee will obtain from such
manufacturer and deliver to WCW a duly executed letter in the form contained in
Exhibit "C" hereto. The use by Licensee of any such manufacturer shall not
affect Licensee's obligations hereunder and Licensee shall be responsible for
ensuring that such manufacturer complies with the provisions of this Agreement.
A-6 LABELING
(a) As a condition to WCW's authorization of the public distribution of
items bearing reproductions of the Licensed Elements, including, without
limitation, Authorized Articles sold under this license and advertising,
promotional and display material therefor, all such items shall bear copyright
and trademark notices as set forth in Paragraph 11 of the Underlying Agreement
as well as any other legal notices which WCW may from time to time reasonably
direct.
(b) In the event that any Authorized Article is marketed in a carton,
container and/or packing or wrapping material employing the Licensed Elements,
such notice shall also appear upon the said carton, container and or packing or
wrapping material. Each and every tag, label, imprint or other device containing
any such notice and all advertising, promotional or display material bearing the
Licensed Elements shall be submitted by Licensee to WCW for its written approval
prior to use by Licensee in accordance with Paragraph A-5 above. Any such
approval by WCW shall not constitute waiver of WCW's rights or Licensee's duties
under any provision of this Agreement.
A-7 TECHNICAL AND PROMOTIONAL MATERIAL
WCW reserves the right to require Licensee to pay for film footage or
other technical materials which Licensee may requests for which WCW from time to
time might charge. All technical materials involving the Licensed Elements or
any reproduction thereof, notwithstanding their invention, creation or use by
Licensee, shall be and remain the property of WCW, and WCW shall be entitled to
use same and to license the use of same by others provided such use does not
conflict with the terms of this Agreement. "Technical materials" shall mean all
artwork and designs, pictures. separations, textual material, screens, films,
proofs and any and all materials used in the creation, production and/or
reproduction of the Authorized Articles.
A-8 DISTRIBUTION
(a) Commencing not later than the Marketing Date specified in the
Underlying Agreement, and thereafter during the License Period (including any
extensions thereof), Licensee shall diligently and continuously manufacture,
sell, distribute and promote Authorized Articles in interstate commerce
throughout the Licensed Territory and Licensee shall make and maintain adequate
arrangements for the distribution of the Authorized Articles. Licensee's failure
(except as otherwise provided herein) to commence in good faith to manufacture
and distribute in substantial commercial quantities any of the Authorized
Articles on or before the Marketing Date and to continue during the License
Period diligently and continuously to manufacture, sell, distribute and promote
each such Authorized Article throughout the Licensed Territory will result in
immediate damage to WCW. In such a case, in addition to all other remedies
available to it hereunder, WCW may remove from this Agreement any Licensed
Elements listed in the Underlying Agreement or any article or class or category
of articles included within the definition of Authorized Articles which is not
so diligently and continuously used by Licensee for a period of three (3)
consecutive months, by giving thirty (30) days' written notice to Licensee.
(b) Unless expressly provided herein otherwise, Licensee shall not,
without the express prior written consent of WCW, permit the distribution or
other marketing of any Authorized Articles on an F.O.B. or L.C. basis (as those
terms are commonly understood in the international merchandising business). All
Authorized Articles distributed or marketed (as subject to WCW's prior written
approval) on an F.O.B. or L.C. basis will be subject to a Royalty Rate in the
amount of one and one-half (1 1/2%) percent over the Royalty Rate indicated in
the Underlying Agreement.
(c) Licensee shall sell to WCW such quantities of the Authorized Articles
as WCW shall request at as low rate and on as favorable terms as Licensee sells
similar quantities of the Authorized Articles to the general trade.
<PAGE>
(b) WCW shall have the right, but shall not be under any obligation, to
use the Licensed Elements and/or the name of Licensee so as to give the Licensed
Elements, Licensee, WCW and/or WCW's television programs and/or motion pictures
full and favorable prominence and publicity. WCW shall not be under any
obligation whatsoever to broadcast or exhibit, or to continue broadcasting or
exhibiting, any television program or motion picture or use the Licensed
Elements or any person, character, symbol, design or likeness or visual
representation thereof in any medium, nor shall WCW be restricted in any way
whatsoever from producing and distributing derivative works which contain or are
derived from the Licensed Elements or any element or component part thereof.
A-10 WARRANTIES AND REPRESENTATIONS
(a) By WCW. WCW has the right and power to enter into and perform this
Agreement, and has taken all steps necessary and appropriate to authorize the
execution and performance hereof. WCW owns or controls all rights necessary to
grant Licensee the rights granted to it hereunder.
(b) By Licensee. Licensee has the right and power to enter into and
perform this Agreement, and has taken all steps necessary and appropriate to
authorize the execution and performance hereof. Licensee will not act in any
manner that is inconsistent with the provisions hereof.
A-11 INDEMNIFICATION AND INSURANCE
Subject to the full performance by Licensee of all of its obligations
hereunder, WCW hereby indemnifies Licensee and undertakes to defend Licensee
against and hold Licensee harmless from all claims, suits, liabilities, losses,
damages, penalties, costs and expenses (including reasonable attorneys fees,
which may be suffered by or obtained against Licensee arising solely out of the
use by Licensee of the Licensed Elements in strict accordance with this
Agreement. Licensee hereby indemnifies WCW and undertakes to defend WCW against
and hold WCW harmless from any and all claims, suits, liabilities, losses,
damages, penalties, costs and expenses (including reasonable attorneys fees,
which may include, without limitation, an allocation for in-house counsel) of
any nature which may be suffered by or obtained against WCW arising from (i) any
allegedly unauthorized use of any patent, design, mark, process, idea, method or
device by Licensee (none of the same being included in the Licensed Elements) in
connection with the Authorized Articles or any other alleged action or omission
by Licensee constituting a breach by Licensee of any term or provision of, or
representation, warranty, covenant or agreement made by Licensee under, this
Agreement, and (ii) alleged defects in the Authorized Articles, any alleged
inadequacy or failure to perform any agreement or render any service, or
personal damages or injury resulting from the use of the Authorized Articles.
Licensee shall obtain, at its own expense, a comprehensive general liability
insurance policy for the entire License Period (including any extensions
thereof) including coverage for contractual liability (applying to the terms and
conditions of this Agreement), product liability, personal injury liability and
advertiser's liability, and including a vendor's liability endorsement in favor
of WCW. Said policy shall be written by a recognized insurance company which has
qualified to do business in the State of California, the State of New York and
the State of Georgia, or which has an A. M. Best Company rating of "B" or better
in the latest edition of Best's Insurance Guide and Key Ratings, and shall
provide for minimum combined single limit of liability coverage of not less than
$1,000,000 for each occurrence. As proof of such insurance, fully paid
certificates of insurance naming WCW as an insured party, will be submitted by
Licensee for WCW's prior approval before any Authorized Articles are
distributed, advertised or sold, and at the latest within thirty (30) days after
the commencement of the License Period: World Championship Wrestling, Inc., One
CNN Center, Box 105366, Atlanta, GA 30345-5366, Attn: Director of Risk
Management. Any proposed change in such certificates of insurance shall be
submitted to WCW for its prior approval, and Licensee shall furnish WCW with a
copy of the then prevailing certificate of insurance. For purposes of Licensee's
indemnity and insurance policy coverage under this Paragraph, WCW shall also
include the officers, directors, shareholders, agents and employees of WCW and
its Related Entities, as well as any person(s) the use of whose name or likeness
may be licensed hereunder.
A-12 PROTECTION OF WCW'S RIGHTS
(a) Licensee acknowledges that WCW owns or controls the copyrighted works
which underlie this license and Licensee shall not during the term hereof or
thereafter attack the rights of WCW in the Licensed Elements or any trademarks
based thereon, regardless of the basis of such attack and regardless of whether
the same relates to title or validity. Licensee shall at no time use or
authorize the use of any trademark, trade name or other designation identical
with or confusingly or colorably similar to the Licensed Elements.
(b) Licensee shall cooperate fully and in good faith with WCW for the
purpose of securing and preserving rights of WCW (or any grantor of WCW) in and
to the Licensed Elements. WCW may commence or prosecute any claims or suits in
its own name or in the name of Licensee or join Licensee as a party thereto.
Licensee shall immediately notify WCW in writing of any infringements or
imitations by others of the Licensed Elements on articles similar to those
covered by this Agreement, and WCW shall have the sole right to determine
whether or not any action shall be taken on account of any such infringements or
imitations. Licensee shall not institute any suit or take any actions on account
of any such infringements or imitations without first obtaining the written
consent of WCW so to do.
(c) Licensee shall utilize all necessary and adequate security measures to
prevent the loss, theft, destruction or unauthorized exploitation of the
technical materials and/or Licensed Elements delivered to Licensee, and Licensee
shall immediately report to WCW any such loss, theft,
<PAGE>
Agreement. If any materials bearing the Licensed Elements (or any element or
component part thereof) utilized by Licensee hereunder on or in connection with
the Authorized Articles were not created or owned by WCW, it is an essential
condition of this Agreement that Licensee shall do all that is necessary to
ensure that such materials achieve copyright protection and that valid title to
such copyright is, at the earliest possible moment, transferred to WCW. To this
end, Licensee shall, among other things, enter into a contract with anyone not
directly in its employ who creates such materials bearing the Licensed Elements,
or any element or component part thereof, which states that such materials are
created as works made for hire, as such term is defined in the U.S. Copyright
Act, 17 U.S.C. ss. 101 et seq. or otherwise contractually bind such person to
execute all such documents as may be necessary to transfer valid title in the
copyright in such materials to WCW and shall arrange for the execution of such
documents and their transmittal to WCW at the earliest possible moment.
(e) No later than thirty (30) days following the date of the first
interstate shipment by Licensee of each Authorized Article, Licensee shall
provide WCW, free of cost, with sufficient evidence of the date of first
shipment of the Authorized Article in interstate commerce and a description of
the use of the Licensed Elements in relation to the Authorized Article along
with identical samples of each such Authorized Article including packaging. Such
evidence and sample shall be sent to WCW at its address at World Championship
Wrestling. Inc., c/o Legal Department - Domestic Trademarks, One CNN Center,
Atlanta, Georgia 30303.
(f) Licensee shall fully cooperate with WCW in undertaking the
registration of any copyright, trademark, service mark or other intellectual
property registration or filing with respect to the Licensed Elements and/or
Authorized Articles as requested by WCW in writing, and all such registrations
shall be in WCW's name (or such other name as WCW designates). Such registration
shall be handled by attorneys selected or approved by WCW. In the event of any
registration relating to the Licensed Elements by Licensee in its own name or
that of any third party, such registration shall be (i) deemed to be for WCW's
benefit and (ii) held in trust for WCW by Licensee, and (iii) Licensee shall
bear all costs, expenses, damages and loss occasioned by such unauthorized
registration and/or WCW's correction of same.
(g) Licensee shall execute and deliver to WCW, in such form as WCW shall
reasonably request, any and all documents which may be necessary or desirable to
assist WCW in recording Licensee as a registered user of the Licensed Elements
(as trademark and/or servicemark) in the Licensed Territory, if appropriate.
Upon or after the expiration or termination of this Agreement. Licensee shall
execute and deliver to WCW, in such form as WCW shall reasonably request, any
and all documents which may be necessary or desirable to cancel the recordation
of Licensee as a registered user of the Licensed Elements in the Licensed
Territory provided, however, that if WCW elects first to complete the
recordation of Licensee as a registered user, Licensee shall also provide any
and all documents which may be necessary or desirable to achieve this purpose.
(h) Licensee shall not commingle on Authorized Articles manufactured
hereunder (or in the advertising and promotion thereof) names, characters and/or
likenesses from any individual motion picture or other television program which
are included in the Licensed Elements with those associated with any other
motion picture or television program (whether or not containing elements
included in the Licensed Elements) without WCW's prior written consent.
(i) WCW may, in its absolute discretion, withdraw any element of the
Licensed Elements, or any component part thereof, from the terms of this
Agreement if WCW determines that the exploitation thereof hereunder would or
might violate or infringe or reasonably tend to violate or infringe the
copyright, trademark or other rights of third parties, or subject WCW to any
liability, or violate any law, court order, government regulation or other
ruling of any governmental agency, or if, on account of the expiration or sooner
termination of an agreement between WCW and a third party from whom WCW has
obtained certain underlying rights relating to the exploitation of the Licensed
Elements hereunder or otherwise, WCW shall no longer have the right to act in
the capacity herein contemplated on behalf of any third party or parties, or if
WCW determines that it cannot adequately protect its rights in the Licensed
Elements under the copyright, trademark or other laws of the Licensed Territory;
provided, however, that in the event of any such withdrawal, WCW shall reimburse
Licensee its actual, out-of-pocket cost of any Authorized Articles (bearing such
withdrawn Licensed Element) which were produced, but not sold, prior to
Licensee's receipt of notice of such withdrawal. Any such withdrawal shall not
constitute grounds for termination of this Agreement unless all elements and
component parts of the Licensed Elements are simultaneously withdrawn by WCW.
A-13 DEFAULT
The following shall be events of default hereunder: if Licensee (i)
becomes the subject of any bankruptcy proceeding, becomes insolvent, makes an
assignment for the benefit of its creditors, or a receiver, liquidator or
trustee is appointed for its affairs, (ii) breaches any other agreement with
WCW, (iii) fails to make payment of royalties, Guarantee(s) and or any other
sums payable to WCW pursuant to this Agreement when due or fails to perform any
of its other material obligations hereunder or otherwise breaches any
representation, warranty, covenant or agreement referred to or contained in this
Agreement, and does not fully cure such failure or breach within ten (10)
business days after receipt of written notice thereof from WCW, in the case of
failure to make payments, or within fifteen (15) business days in the case of
other failure or breach, (iv) discontinues its business or loses any license or
authorization required to permit Licensee to perform fully its obligations
hereunder pursuant to an action of any duly constituted governmental, judicial
or legislative authority. Upon any default, WCW may, in addition and without
prejudice to any other rights it may have, terminate this Agreement, in which
event the entire unpaid balance of all royalties and Guarantees accrued to WCW's
account hereunder shall immediately become due and payable. In the event this
Agreement is so terminated, Licensee, its receivers, representatives, trustees,
agents, administrators, successors, and or assigns shall not have the right to
sell, exploit or in any way deal with or in any Authorized Articles or any
carton, container, packing or wrapping material, advertising, promotional or
display materials pertaining thereto, except with and under the special consent
and instructions of WCW in writing, which they shall be obligated to
<PAGE>
A-15 EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or sooner termination of this license, (a) all
rights licensed to Licensee hereunder shall forthwith revert to WCW, (b) if the
Underlying Agreement specifies that the license granted hereunder is an
exclusive license, WCW shall be free to license others to use the Licensed
Elements in connection with the manufacture, sale, distribution and promotion of
the Authorized Articles in the Licensed Territory (it being acknowledged that
WCW has the full and complete right so to do during the License Period if the
license granted hereunder is a non-exclusive license), and (c) Licensee shall
refrain from further use of the Licensed Elements or any further reference,
direct or indirect, thereto or to anything deemed by WCW to be similar to the
Licensed Elements, in connection with the manufacture, sale, distribution or
promotion of Licensee's products, except as permitted in Paragraph A-17 below.
It shall not be a violation of any right of Licensee if WCW should at any time
during the License Period enter into negotiations with another to license use of
the Licensed Elements in respect of the Authorized Articles within the Licensed
Territory provided that, in the event that the license granted to Licensee
hereunder is an exclusive license, it is contemplated that such prospective
license shall commence after termination of this Agreement. In the event of any
termination hereunder, no monies or other consideration which WCW may receive in
respect of any licenses of the Licensed Elements within or outside the Licensed
Territory shall be deemed in mitigation of, or be otherwise offset, credited or
applied against, any sums payable to WCW pursuant to this Agreement.
A-16 FINAL STATEMENT
Ninety (90) days before the expiration of the License Period, and, in the event
of its sooner termination, ten (10) business days after receipt of notice of
termination, a statement showing the number and description of Authorized
Articles which are or will be fully manufactured, packaged and ready for
distribution as of the expiration or termination of the Agreement shall be
furnished by Licensee to WCW. WCW shall have the right to take a physical
inventory to ascertain or verify such inventory and statement. Refusal by
Licensee to submit to such physical inventory by WCW and/or failure by Licensee
to render the final statement as and when required by this provision, shall
result in a forfeiture by Licensee of Licensee's right to dispose of its
inventory (as provided by the next paragraph hereof), WCW retaining all other
legal and equitable rights may have in the circumstances.
A-17 DISPOSAL OF INVENTORY
(a) Licensee shall not at any time manufacture Authorized Articles in excess of
those reasonably anticipated to meet normal customer requirements. Provided that
Licensee is in compliance with the foregoing, after termination or expiration of
the license under the provisions hereof, Licensee, except as otherwise provided
in this Agreement, may distribute and sell Authorized Articles which are fully
manufactured, packaged and ready for immediate distribution at the time notice
of termination is received or upon the expiration date, whatever the case may
be, during the sell off period indicated in the Underlying Agreement, on a non
exclusive basis, provided Guarantee and royalty payments are up-to-date for the
current period and payments and statements are made and furnished for that
period in accordance with Paragraph A-2 above. As of the commencement of such
sell-off period, Licensee may no longer manufacture or promote any Authorized
Articles. Licensee shall not be authorized to sell and distribute such excess
inventory to the extent that it exceeds ten percent (10%) of the total number of
Authorized Articles sold during the License Period, without WCW's prior written
consent. Upon the conclusion of the sell-off period, Licensee shall cease all
sale and distribution of Authorized Articles, and any Authorized Articles which
have not been sold as of the expiration of the sell-off period shall, at WCW's
election, be delivered to WCW or destroyed. Notwithstanding anything to the
contrary herein, Licensee shall not manufacture, sell or dispose of any
Authorized Articles after any expiration or termination of this license based on
the failure of Licensee to affix notice of copyright, trademark or servicemark
registration or any other notice to the Authorized Articles, canons, containers
or packing or wrapping material or advertising, promotional or display material
or because of the departure by Licensee from the quality and style approved by
WCW pursuant to Paragraph A-5 above. All applicable royalties shall be paid on
Authorized Articles sold during the sell-off period within fifteen (15) days
following the expiration of said sell-off period.
(b) Licensee acknowledges that its failure to cease the manufacture, sale,
distribution or promotion of the Authorized Articles or any class or category
thereof after the termination or expiration of this Agreement (or any applicable
sell-off period) will result in immediate and irremediable damage to WCW and to
the rights of any subsequent licensee. Licensee acknowledges and admits that
there is no adequate remedy at law for such failure to cease manufacture, sale,
distribution or promotion, and Licensee agrees that in the event of such
failure, WCW shall be entitled to equitable relief by way of temporary and
permanent injunctions and such other and further relief as any court with
jurisdiction may deem just and proper, other provisions to the contrary
elsewhere herein notwithstanding.
A-18 ASSIGNMENT
WCW reserves the right to assign this Agreement to any third party and to
hypothecate or pledge this Agreement as collateral for any purpose. In the event
of any such assignment, Licensee shall pay the royalties and Guarantees due
hereunder as directed by WCW. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of WCW. The license herein
granted is personal to Licensee and this Agreement may not be assigned,
transferred, sublicensed, pledged, mortgaged or otherwise encumbered, in whole
or in part, by Licensee either voluntarily or by operation of law or as part of
a merger, consolidation or otherwise without WCW's prior written consent, which
shall not be unreasonably withheld
<PAGE>
have been sent by facsimile transmission or personally delivered to the
recipient. The date of said facsimile transmission or personal delivery, or the
date which is three (3) business days following the date of said mailing, shall
be deemed to be the date of the giving of such notice, except statements and
payments to WCW hereunder and notice of change of address, which shall be deemed
effective only upon actual receipt thereof.
A-20 FURTHER DOCUMENTS
Licensee shall execute, verify, acknowledge, deliver and file any formal
assignments, recordations and any and all other documents which WCW may prepare
and reasonably call for to give effect to any of the provisions of this
Agreement. If Licensee fails so to do within ten (10) days after WCW requests
such execution, verification. acknowledgment, delivery or filing, Licensee
hereby irrevocably appoints WCW its attorney-in-fact (which appointment shall be
deemed a power coupled with an interest), with full powers of substitution and
delegation, to execute, verify, acknowledge and deliver any such assignments,
recordations and/or such other documents.
A-21 MISCELLANEOUS PROVISIONS
In the event any provision of this Agreement shall be found to be contrary
to any law or regulation of any federal, state or municipal administrative
agency or body, the other provisions of this Agreement shall not be affected
thereby but shall notwithstanding continue in full force and effect. If any
legal action or other proceeding is brought for the enforcement of this
Agreement or as a result of a breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in such action or proceeding, in addition to any other relief to which such
party may be entitled. No waiver by either party hereto of any breach or default
by the other party shall be construed to be a waiver of any other breach or
default by such other party. Resort to any remedies referred to herein shall not
be construed as a waiver of any other rights and remedies to which either party
is entitled under this Agreement or otherwise, nor shall an election to
terminate be deemed an election of remedies or a waiver of any claim for damages
or otherwise. This Agreement may not be altered or modified except in writing
signed by the party to be charged with such alteration or modification. This
Agreement constitutes the entire understanding between the parties with respect
to the subject matter hereof and all prior understandings, whether oral or
written, have been merged herein. Irrespective of the place of execution or
performance, this Agreement shall be governed, construed and enforced in
accordance with the laws of the State of Georgia applicable to agreements
entered into and to be wholly performed therein, and Licensee hereby consents to
the exclusive jurisdiction of the courts of the State of Georgia and United
States courts located in the State of Georgia in connection with any suit,
action or proceeding brought by Licensee arising out of or related in any manner
to this Agreement. Licensee agrees that the service of process by mail shall be
effective service of same and that such service shall have the same effect as
personal service within the State of Georgia and result in jurisdiction over
Licensee in the appropriate forum in the State of Georgia. Nothing herein
contained shall constitute a partnership between, or joint venture by, the
parties hereto or constitute either party the employee or agent of the other,
and Licensee shall have no right or power to obligate or bind WCW in any manner
whatsoever. This Agreement is not for the benefit of any third party and shall
not be deemed to give any right or remedy to any third party whether referred to
herein or not. Paragraph headings as used in this Agreement are for convenience
only and are not a part hereof, and shall not be used in any manner to interpret
or otherwise modify any provision of this Agreement. As used herein, the word
"person" means any individual, firm, partnership, association, corporation or
other entity.
END OF STANDARD TERMS AND CONDITIONS
<PAGE>
EXHIBIT "C"
Attn: Licensing Manager
World Championship Wrestling. Inc.
One CNN Center, Box 105366
Atlanta, GA 30348
Re: Trimfast Group, Inc.
Dear Sirs,
This letter will serve as notice to you that pursuant to Paragraph A-5(a) of the
Merchandising Licensee Agreement (the "Agreement") dated May 6, 1999 between
World Championship Wrestling, Inc. ("WCW") and the Licensee (as defined
therein), we have been engaged as the manufacturer for the manufacture of the
Articles as defined in the Agreement. We hereby acknowledge that we have
received and read copy of Exhibit "A" to that License Agreement containing the
Standard Terms and Conditions and understand the terms and conditions set forth
in the said Agreement and hereby agree to be bound by those provisions of the
said Agreement which are applicable to us as manufactures of the Articles,
including but not limited to your right, pursuant to Paragraphs A-3 and A-5 of
the Agreement, to examine our books of account and records and manufacturing
facility with respect to the manufacture of the Articles.
We further agree that we will abide by all relevant instructions from WCW and/or
Licensee with respect to the inclusion of markings and notices on the Authorized
Articles and the packaging and wrapping materials or cartons or containers
therefor.
We understand that our engagement as the manufacture for the Authorized Articles
is subject to your written approval. We request, therefore, that you sign the
space below, thereby showing your acceptance of our engagement as aforesaid.
For and on behalf of:
/s/ [ILLEGIBLE]
- -------------------
Agreed and accepted
Online Media Planning & Buying
Venture Direct Worldwide, Inc.
INSERTION ORDER
Salesperson: JW Date: 07/09/1999
Customer#: NUTTRI
COMPANY: Nutritioncafe/Trim fast
Contact:
Address:
FL
Phone: (727) 723-3041/(813) 275-0050
Fax: (727) 724-8780
Space Reservation:
<TABLE>
<CAPTION>
Schedule: Contracted
IO# Media Vehicle Flight Quantity Rate Cost
- --- ------------- ------ -------- ---- ----------
<S> <C> <C> <C> <C> <C>
JW-907015 Microsoft Network 07/22/1999-07/21/2000 1 Flat $14,000.00
----------
$14,000.00
</TABLE>
Advertiser will receive the following keywords. These keywords are exclusive for
the term of the contract:
Vitamin
Vitamins
Supplement
Supplements
sports nutrition
Advertiser should email all creatives (468x60. 10K) to [ILLEGIBLE].com no later
than 7/9/99. Advertiser will pay net30= date of Venture Direct Invoice pending
credit approval, otherwise, advertiser will prepay order. Advertiser will
receive weekly reports via email. Publisher shall deliver all impressions evenly
throughout the entire campaign. Publisher shall provide [ILLEGIBLE].com login
and password to access reports online. If there is no online reporting,
publisher will provide weekly reports and that rate should be specified
beforehand by publisher. If publisher does not supply us with weekly reports on
the established day, Venture Direct will deduct 5% of total net buy every day.
<PAGE>
Advertiser Salesperson JW
Company Nutritioncafe/Trim fast Customer # -
THE TERMS AND CONDITIONS STATED HEREIN SHALL TAKE PRECEDENCE OVER ANY OTHER
CONDITIONS, AND NO CONTRARY, ADDITIONAL OR DIFFERENT PROVISIONS OR CONDITIONS
SHALL BE ACCEPTED.
TERMS AND CONDITIONS
1. Agency. Venture Communications International, Inc. t/a VentureDirect
Worldwide acts solely as agent for the represented media sites and assumes no
responsibility for any problems arising from the media placement.
2. WARRANTIES. VDW MAKES NO WARRANTIES (INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT)..
GUARANTEES, REPRESENTATIONS, PROMISES, STATEMENTS, ESTIMATES, CONDITIONS OR
OTHER INDUCEMENTS, EXPRESS, IMPLIED, ORAL, WRITTEN OR OTHERWISE EXCEPT AS
EXPRESSLY SET FORTH HEREIN. VDW DOES NOT WARRANT OR GUARANTY CONVERSION RATES,
PAY-UP RATES, RESPONSE RATES OR ABILITY TO CONVERT THE RESPONSES INTO SALES.
VDW DOES NOT WARRANT OR GUARANTY THE PROFILE OR DEMOGRAPHICS OF A RESPONDENT.
VDW DOES NOT GUARANTEE TO MATCH COLORS, TEXT, PHOTO IMAGE OR SCREEN DESIGN.. ALL
ORDERS ARE CONTINGENT UPON VDW'S ABILITY TO PROCURE NECESSARY ON-LINE ACCESS AND
UPON DELAYS CAUSED BY ACCIDENTS, WAR, ACT OF GOD, EMBARGOES, OR ANY OTHER
CIRCUMSTANCES BEYOND ITS CONTROL. VDW WILL MAKE EVERY EFFORT TO MEET SCHEDULED
DELIVERY AND ONLINE DATES, BUT MAKES NO GUARANTEE AND ACCEPT NO LIABILITY FOR
ITS FAILURE TO MEET SAID DATES.
3. Cancellations. No cancellations can be accepted after the 15th day of the
month prior to the month of publication.
4. Confirmations. All telephone orders and/or orders placed on Advertiser/Agency
correspondence must be confirmed by VDW in writing by this Insertion Order.
Acceptance of all such orders is expressly conditioned upon acceptance by
Advertiser/Agency of the terms and conditions contained herein. The Advertiser
and Agency agree that VDW may refuse at any time to print or mail any copy,
photographs or illustrations of any kind that in its sole judgment it believes
is an invasion of privacy, is degrading, libelous, unlawful, profane, obscene,
pornographic, tends to ridicule or embarrass or is in bad taste, or which in its
sole judgment is an infringement on a trade mark, trade name or copyright
belonging to others.
5. Liability. There shall be no liability or responsibility on VDW for any
damages, direct, indirect or consequential as a result of its failure to perform
the services under this Agreement. In no event shall VDW be responsible for any
loss of profits, damages or other expenses alleged to have arisen out of this
Agreement. Any and all claims in this respect are expressly waived. VDW
liability, if any, in all other cases shall be limited to $500.00.
Advertiser/Agency agree and do waive trial by jury in any action, proceeding or
counterclaim brought against VDW for any matters whatsoever arising out of or in
any way connected with this Agreement. No action, suit or proceeding shall be
brought against VDW more than one year after the date of service performed.
6. Terms of Payment. All charges hereunder shall be invoiced and payment is due
upon receipt. Agency and Advertiser shall be joint and severally liable for all
invoices. Any and all sales, use or other taxes shall be the responsibility of
Advertiser/Agency. Advertiser and Agency agree to pay the cost of extra
composition and labor when changes are made after proofs are submitted. Payment
due on closing date for First Time Advertisers.
7. Late Charges. In the event Advertiser/Agency fail to pay any charges or
invoices provided for herein within 30 days when due, all such outstanding
charges and invoices shall be subject to a service charge of 1-1/2% per month
until paid in full. Advertiser/Agency agree to pay all costs of collection,
including reasonable attorney's fees of 25%, incurred by VDW in connection with
this order or in any action or proceeding against Advertiser/Agency for a breach
of this Agreement.
8. Indemnification. Advertiser/Agency shall at all times indemnify and hold VDW
harmless, our successors and assign and any of our officers, directors,
employees, representatives and/or agents or each of them from and against any
and all liabilities, obligations, claims, damages, fines, penalties, interest,
taxes, causes of action, costs and expenses, including, without limitation,
reasonable fees and disbursements of counsel imposed upon or asserted against
or incurred by us in any suit, action or proceeding (including
<PAGE>
10. Miscellaneous. Any provision of this instrument prohibited by law in any
state shall, as to such state, be ineffective to the extent of such prohibition,
without invalidating the remaining provisions of this instrument. This Agreement
shall be deemed to have been executed in the State of New York and shall be
governed and construed in accordance with the laws thereof. Advertiser/Agency
hereby acknowledge, consent and submit solely to the jurisdiction of the Federal
Court, Southern District of New York or New York Supreme or Civil Court, County
of New York for resolution of any and all claims or controversies arising
hereunder and appoints the Secretary of State of New York State as its agent for
service of process herein.
11. Approvals: All offers are subject to Media Site Owner approval. All requests
for credit must be personally guaranteed by signing the guaranty below.
PERSONAL GUARANTY
In consideration of the extension of Credit heretofore or hereafter made to or
for the Advertiser and/or Agency named herein, the undersigned (Guarantor)
hereby unconditionally, irrevocably and indivisibly guaranties to VDW the due
and punctual payment and peformance of all monies or other claims of every
nature and description of VDW against Advertiser and/or Agency, and all
extensions, renewals or refinancing thereof, whenever due and payable or to be
performed, all expenses of the enforcement of same or the Guaranty, including
reasonable attorneys' fees. The Supervisor hereby expressly waives all notices
to which the Guarantor might otherwise be entitled in connection with the
Guaranty, and trial by jury and the right thereto in any action or proceeding of
any kind or nature, arising on, under or by reason of, relating in any way to,
the Guaranty. The terms and conditions stated above shall be binding on
Guarantor.
----------------------------------------
GUARANTOR DATE
----------------------------------------
PLEASE PRINT NAME
CONFIRMATION OF ORDER
The Undersigned (Advertiser and Agency) hereby purchases advertising from
Venture Communications International, Inc. t/a VentureDirect Worldwide ("VDW")
pursuant to the Terms and Conditions contained above and on the reverse side
hereof. All requests for information from the media placement must be responded
to within 48 hours. Payment must be received 20 days before media schedule date
to ensure timely placement. Mail your check (payable to VentureDirect),
insertion order and camera-ready art to:
VentureDirect Worldwide, Inc.
60 Madison Avenue
New York, New York 10010
Peter Lloyd President
----------------------------------------
PRINT NAME TITLE
/s/ Peter Lloyd 6/29/99
----------------------------------------
SIGNATURE DATE
EXCLUSIVE DISTRIBUTOR AGREEMENT
1. PARTIES
The parties to this Distributer Agreement are:
TrimFast Group, Inc. (Hereinafter "Distributor")
[ILLEGIBLE] South Harbour Island Blvd.
Suite 260
Tampa, FL 33602
And
IMMMU Inc. (Hereinafter "Manufacturer")
[ILLEGIBLE] E. l8th Street
Brooklyn N.Y. 11230
II. COMMENCEMENT
This Distributor Agreement shall commence on the 1st day of November 1999.
III. TERM
This Distributor Agreement shall commence on the 1st day of November 1999
and expire on the 31st day of December 2001. This contract will
automatically renew if the following new minimums monthly sales are met.
See Section V E.
IV. PURPOSE
Manufacturer desires to appoint TrimFast Group Inc. as the Distributor on
an exclusive basis for the country of Canada and the Distributor desires
to accept such appointment.
<PAGE>
Distributor Agreement
Page Two
V. AGREEMENT
In consideration for the mutual agreements and promises Manufacturer and
Distributor agree as follows:
A Manufacturer agrees to allow Distributor to market Manufacturer's
products directly to distributors, wholesalers and retailers under
the pricing structure designated by Manufacturer during the term of
this agreement.
B Distributor shall keep Manufacturer informed as to the general
conditions, which pertain to or affect the sale of its products.
C Distributor shall have the responsibility for the sale and
distribution of all products, whether through a line extension or
acquisition.
D Distributor will serve as an independent contractor responsible for
paying all applicable social insurance, withholding, and other
employment taxes. The Distributor bears all expenses incurred in its
sales endeavors. Excluding certain expenses that Manufacturer agrees
to pay prior to any commitment being made. Said Manufacturer expense
to be approved in writing.
E Manufacturer shall furnish Distributor with all necessary sales
supplies such as catalogs, price lists, and other sales aids in
sufficient quantity to fulfill the requirements of the territory, at
no charge,
Distributor Agreement
Page Three
unless mutually agreed upon in writing. In addition, Manufacturer
shall furnish adequate samples to Distributor. Such samples shall
remain the property of Manufacturer. Except in the case of
unsolicited samples or samples which are expendable or of
insufficient value. Distributor shall exercise reasonable care in
accounting for all samples furnished and will return such samples to
Manufacturer or dispose of them at prices set by Manufacturer
remitting any proceeds to Manufacturer, at its direction
F Distributor will receive a 2% volume discount (in product) on all
purchase orders, to be used for samples and demos.
G Distributor will make no representations, warranties, or commitments
binding Manufacturer without Manufacturer's prior consent, other
than standard terms of the sale.
<PAGE>
H. Manufacturer agrees to indemnify and hold harmless Distributor from
any loss, damages, claim or settlement that may arise out of any
defect, known or unknown, in the product at the time of manufacture.
That is, provided that no material alteration of the product by
Manufacturer's Representative, its officers, agents, or employees
contributed to or caused the loss, damage, claim or settlement in
question.
I. Distributor agrees to aggressively and vigorously market and promote
the product to all existing and potential customers.
J. Distributor will make no representations, warranties, or commitments
binding Manufacturer without Manufacturer's prior consent, other
than standard terms of the sale.
K. Distributor agrees to indemnify and hold Manufacturer harmless from
any loss, damages, claim or settlement arising from the
misrepresentation of Distributor, its officers, agents or employees
in the marketing and promotional activities of Distributor.
L Manufacturer retains the right to approve any marketing materials
containing its product logos, designs, trade names etc. The
Manufacturer's trade names, product and designs remain the sole
property of Manufacturer.
Distributor Agreement
Page Four
VI. TERMINATION
Either party hereto may terminate this Distributor Agreement on
thirty-day's written notice to the other party. If said termination is
occasioned by a breach of or default in performance of any obligation
contained herein, the defaulting party shall be afforded 30 days from
default notice to cure such default. Cure includes payment to the other
party of all reasonable expenses incurred as approximate result of such
default.
VII. ENTIRE AGREEMENT
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matters hereof and supersedes any prior agreements
or understandings respecting such subject matter. Any modification of this
Agreement must be in writing and executed by both parties to this
Agreement. The parties agree that the terms and conditions of this
Agreement shall remain confidential during its term and for a period of
ninety (90) days thereafter.
All notices or other communications which are required or which may be
given pursuant to the terms of this Agreement shall be in writing and
shall be delivered personally (and receipted for) or by registered or
certified mail, postage prepaid, return receipt requested.
Any such notice shall be deemed effective when personally delivered of
five (5) days following its deposit in the United States mail as
specified.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida. In case of any dispute under this Agreement,
the parties agree to the jurisdiction of the Florida court with venue in
Hillsborough County, Florida. In the event of any dispute arising under
this Agreement, the prevailing party shall be entitled to recover all
costs including reasonable attorney's fees.
Distributor Agreement
Page Five
If any provision of this Agreement is for any reason determined to be
invalid or unenforceable, such determination shall not affect the validity
or the enforceability of any other provision hereof.
SIGNED and AGREED TO this 1 day of November 1999
--- ----------
Distributor TrimFast Group Inc.
<PAGE>
By: Michael J. Muzio
President
/s/ Michael J. Muzio
--------------------
Signature
Manufacturer Immmu Inc..
By: Leo Ehrlich
CEO/President
--------------------
Signature
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Body Life Sciences, Inc., a Florida corporation
Nutrition Cafe, Inc., a Florida corporation
Trimfast, Inc., a Florida corporation
HLHK World Group, Inc., a Nevada corporation
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 105,641
<SECURITIES> 15,297
<RECEIVABLES> 357,889
<ALLOWANCES> 0
<INVENTORY> 188,737
<CURRENT-ASSETS> 673,364
<PP&E> 44,131
<DEPRECIATION> 10,728
<TOTAL-ASSETS> 731,438
<CURRENT-LIABILITIES> 697,867
<BONDS> 0
0
0
<COMMON> 2,338
<OTHER-SE> 31,233
<TOTAL-LIABILITY-AND-EQUITY> 731,438
<SALES> 1,925,332
<TOTAL-REVENUES> 1,928,159
<CGS> 567,472
<TOTAL-COSTS> 1,882,269
<OTHER-EXPENSES> 3,264
<LOSS-PROVISION> 503,839
<INTEREST-EXPENSE> 3,264
<INCOME-PRETAX> 42,626
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,626
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
