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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
Nova Pharmaceutical, Inc.
<TABLE>
<S> <C> <C>
Nevada 2834 51-0380412
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
31712 Casino Drive, Suite 7B,
Lake Elsinore, CA 92530, 909-245-4657
(Address and telephone number of principal executive offices)
31712 Casino Drive, Suite 7B,
Lake Elsinore, CA 92530, 909-245-4657
(Address of Principal place of business or intended principal place
of business)
Samuel Wierdlow
1400 Colorado St
Boulder City, NV 89005
(Name, address, and telephone number of agent for service)
Securities to be registered pursuant to Section 12(b) of the
Act:
Title of each class
Name of each exchange on which to be so registered each class
is to be registered
None
Securities to be registered pursuant to Section 12(g) of the
Act:
Common Stock
(Title of class)
Preferred Stock
(Title of class)
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PART I
Item 1. Description of Business.
Organization.
Nova Pharmaceutical, Inc., a Nevada corporation, was incorporated on
January 8, 1998. The incorporation consisted of a purchase of a portion
of the assets and liabilities of Canyon Fitness Center, Inc, a
California corporation. Canyon Fitness Center, Inc. was doing business
as Canyon Fitness Center, Canyon Fitness Center Weight Loss Clinic,
Nova Weight Loss Clinic and Nova International. Nova purchased the
assets and liabilities related to the weight loss management and weight
loss supplement businesses. Nova did not purchase the fitness center
operations of Canyon Fitness Center, Inc., which was then owned by
Showtime Partners.
Included in the liabilities assumed in the purchase from Canyon Fitness
Center was a group of debtors, who, by converting their debt into
common stock, along with minor negotiated equity adjustments, formed
the initial capitalization of Nova Pharmaceutical, Inc.
Ralph Mann 1,400,000 shares
Showtime Partners 1,037,000 shares
Dr Carlos Schmidt 250,000 shares
Ralph Mann is a Director and Chief Executive Officer of the Company.
Dr. Carlos Schmidt is a Director of the Company. Showtime Partners is
a partnership consisting of 21 irrevocable trusts the beneficiaries of
which are all related to Ralph Mann.
Included in the assets purchased were: formulation ($450,000), prepaid
royalties ($200,000), and prepaid licensing ($300,000). The
formulation and prepaid licensing assets reflect the capitalized costs
incurred by Canyon Fitness Center in the development, testing, and
patent registration of the formula, NxTrim. These assets were
purchased subject to a license and royalty agreement. Under the terms
of the agreement, the Company obtained world wide manufacturing and
marketing rights to the formula, NxTrim. In exchange, the Company is
obligated to pay a royalty of .00625% of net sales on the product
NxTrim, after the amortization of $200,000 prepaid royalties purchased
from Canyon Fitness Center. The term of the agreement is 10 years,
with a 10-year renewal at the option of the licensor. The terms also
include a minimum annual royalty of $25,000, and a cost of living
adjustment. At that time, a patent application had been filed for the
NxTrim formula for use as a weight loss supplement. The patent was
subsequently issued (Patent Number 5,925,377) on July 20, 1999. The
license and royalty agreement was issued to Canyon Fitness Center, Inc.
by a group consisting of Ralph Mann, Showtime Partners, and Ralph Mann
Trusts 1-21 (partners in Showtime Partners). The royalty agreement was
assigned to Nova in the asset purchase transaction.
Nova Pharmaceutical, Inc. completed a reverse acquisition as of May 7,
1998. Nalbando Enterprises, Inc. (an inactive Nevada Corporation )
purchased all the assets and liabilities of Nova Pharmaceutical, Inc.
(an operating Nevada Corporation). Nalbando Enterprises, Inc., the
surviving corporation, immediately changed its name to Nova
Pharmaceutical, Inc. and initiated the closing of the original Nova
Pharmaceutical, Inc. Financial results as presented represent the
activity for the entire reporting period of the original operating Nova
Pharmaceutical, Inc. and the minimal incorporation activity for
Nalbando Enterprises, Inc. To reflect the true substance of the
transaction, the acquisition was treated financially as a purchase of
Nalbando stock by Nova Pharmaceutical, Inc, accompanied by a
reorganization to the resulting Nalbando capital structure. No
goodwill or intangible assets were recorded in this transaction. The
purpose of this merger was to provide additional capital expansion
opportunities to the company.
Industry Overview.
According to the Nutrition Business Journal (NBJ), the U.S. nutrition
industry grew 11% to $23.2 billion in 1997. Growth rates ranged from
13% to 16% from 1994 to 1996. Future growth is forecasted to continue
to add $2.2 to $2.8 billion a year up to the year 2001. Growth in the
past few years has been accomplished by expansion in distribution as
more products have
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found their way into more health food stores, penetrated further into
the mass market, and into the still expanding non-retail channels.
NBJ has estimated the growth of the supplement segment at 13% in 1997
to $12.7 billion, which, when compared to the 6% growth in the $92
billion drug and medicine market, indicates that the expansion is
continuing at the expense of the traditional markets. Per NBJ,
continuation of this cycle could result in the nutrition industry
growing to over $90 billion or 10% of the food, drug, and health store
markets by the year 2012.
Over the past several years, public awareness of the positive effects
of nutritional supplements on health has been heightened by widely
publicized reports and medical research findings indicating a
correlation between the consumption of nutrients and the reduced
incidence of certain diseases. These reports have indicated that the
United States government and universities generally have increased
sponsorship of research relating to nutritional supplements. In
addition, Congress has established the Office of Alternative Medicine
within the National Institutes of Health to foster research into
alternative medical treatment modalities, which may include natural
remedies. Congress has also recently established the Office of Dietary
Supplements in the National Institutes of Health to conduct and
coordinate research into the role of dietary supplements in maintaining
health and preventing disease.
According to NBJ, the percentage of U.S. households that purchase
supplements (30% for herbs to 65% for multivitamins) is expected to
rise to 50% to 75% depending on which of the many consumer surveys you
believe. The number of shoppers who have consumed supplements,
alternative medicines, or natural products, or who have a high
awareness of them are also rising, paving the way for even greater
numbers of paying customers.
Brands and Products.
Nova markets its branded products in three principal categories of
nutritional supplements: sports nutrition; vitamins, minerals and
herbs; and diet. Nova believes that offering its customers a wide
variety of products provides Nova an opportunity to capture an
increasing share of the growing nutritional supplement market.
Nova's brand names are supported by significant advertising and
marketing expenditures. Nova plans to launch its Gold's Gym Nutrition
line of products in July of 1999. The Gold's Gym name has been a
highly recognized name in the health and fitness Industry. The
conclusion of a consumer awareness study conducted by Colton Bernard
Inc. was: "Clearly, Gold's Gym is perceived as a national brand by a
national public. Only the "sneaker" brands, with their huge
advertising and marketing budgets and deep product penetration of
multiple tiers, have a significantly greater awareness among consumers
than Gold's Gym."
Sports Nutrition
Nova's Gold's Gym sports nutrition line includes a wide variety
of products designed to enhance athletic performance and support the
results derived from exercise programs. Nova's Gold's Gym sports
nutrition products deliver nutritional supplements through a variety of
forms, including powdered drink mixes, tablets, capsules, and nutrition
bars. The price range for these products is, retail $10.80 to $39.96
with a wholesale of $5.40 to $19.98
Vitamins, Mineral and Herbs
Nova markets a complete line of vitamins and minerals, including
multivitamins, multiminerals, and antioxidants. These products are
offered in various forms, including tablets, capsules, and softgels.
Herbs and phytonutrients, which are a growing category in the
nutritional supplement industry, are alternatives or complements to
over-the-counter pharmaceutical products for consumers who seek a more
natural and preventative approach to their health care.
The price range of these products is, retail $7.00 to $14.60 with a
wholesale of $3.50 to $7.30
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Diet
According to the Information Resources Inc. report (24 week ending
March 24, 1999), Nova's diet aid item, NxTrim, is California's number
one selling diet item per store in the drug class of trade, and the
nation's number 12 selling diet item. NxTrim utilizes amino acids,
vitamins, and herbs to promote weight control. In a 90 day double-
blind clinical study conducted by Nova, subjects using NxTrim combined
with a sensible diet and exercise program, lost an average of 27 pounds
with no adverse side-effects. Participants using a placebo lost an
average of 10 pounds.
Nova is also currently marketing NxBloc, its second release in the diet
aid category. NxBloc contains a fiber blend that is designed to bind
to ingested fat, making fat particles too large to be absorbed by the
body. NxBloc is currently available in over 5,000 retail outlets
nationwide. In conjunction with Nova's commitment to provide the
consumer the best products available, Nova has developed a new and
improved formula for NxBloc. The improved formula includes raw
materials, which, according to scientific studies, are very beneficial
in trapping excess dietary fat and LDL cholesterol. In addition, the
improved formula includes a raw material which mimics the effect of
insoluble fibers, but does not cause gastro intestinal distress, which
some insoluble fibers cause. Nova plans to introduce the improved
formula in the fourth quarter of 1999.
Nova is also planning to release NxTrim Meal Replacement, a powder
shake mix in August of 1999. Prior to the formal product introduction,
Nova received an order from a drug chain with over 300 stores.
Nova's diet aid products are specifically formulated, packaged and
priced to appeal to a wide variety of consumers with different
demographic characteristics and physiological needs. The price range
for these products is, retail $15.99 to $19.99 with a wholesale price
of $7.50 to $12.50.
Sales and Distribution.
Nova's products are currently sold in over 15,000 retail outlets
nationwide. Nova's customers in the mass volume retail channel include:
Mass merchandisers - Wal-Mart and Fedco;
Drug stores -- American Stores, Rite Aid, Longs Drug Stores, Drug
Emporium
Supermarkets - Albertson's, Giant, Fred Meyer, Ralph's, Smith's
Health food stores - General Nutrition Center (GNC)
Customers exceeding 10% of Nova's volume in the year ended 12-31-98
include Longs.
Drug Stores, American Stores, and Wal-Mart.
These chains are among the first in which Nova attained distribution.
As Nova's expansion into other chains continues into the first half of
1999, there are no chains exceeding 10% of the total volume. Nova
pursues a multi-channel distribution strategy in order to participate
in the growth being experienced in each of these channels
Contracted Services.
Nova's has established a nation wide network of brokers which provides
existing key relationships with major chain buyers in all classes of
trade. Nova utilizes contract manufacturers to provide high quality,
effective research and manufacturing capabilities. In addition Nova
utilizes a large distribution fulfillment houses to provide excellent,
cost efficient distribution services. The team of brokers,
manufacturers, and distribution specialists established by Nova
provides an efficient, competitive, cost effective, low fixed overhead
base from which Nova can effectively increase it's share of the growing
nutritional supplement markets. Nova is able to take advantage of the
experience and talent pool of these contracted larger firms on an as
needed basis without having the fixed expense of internal staffing. In
the areas of raw material and freight purchasing, Nova is able to
share in the cost savings related to the purchasing power of their
larger contractors.
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Marketing and Customer Sales Support.
As noted above, Nova has demonstrated it's leadership ability in the
supplement industry through NxTrim's attainment of the number one
ranking in the California drug trade, and number 12 nationally. Nova
intends to broaden its leadership position in the nutritional
supplement industry. Nova's strategy includes:
Expanding distribution of its portfolio of established brands through
effective consistent advertising to increase its share of the
nutritional supplement market.
Developing new brands and product line extensions through efficient
utilization of research capabilities of internal staff, contract
manufacturers, raw material suppliers, and consultants.
Increasing national distribution through effective management of broker
network.
The target customers for Nova's Gold's Gym sports nutrition products
are athletes, bodybuilders and fitness enthusiasts. Nova's Gold's Gym
sports nutrition products are intended to generally enhance the
consumer's ability to control weight, support muscle growth, lose fat
and increase energy levels and stamina.
A key part of Nova's strategy is to help educate consumers about
innovative, safe and beneficial nutritional supplement products. Nova's
marketing and advertising expenditures totaled $658,327 in fiscal
1998. Nova has promoted its products in consumer magazines (VOGUE
and WOMAN'S DAY), and trade magazines (BETTER NUTRITION, LET'S LIVE,
CHAIN DRUG REVIEW, NATURAL HEALTH, AND NATURAL LIVING). In addition,
Nova advertises in most major markets newspaper (LA TIMES, NEW YORK
TIMES, BOSTON GLOBE, and CHICAGO TRIBUNE). Nova also utilizes national
free standing inserts, which include a coupon, to add additional
consumer incentive to purchase Nova's products.
Nova maintains an Internet web site at www.novanx.com.
Manufacturing and Product Quality.
Nova is very selective in choosing manufacturers, requiring experienced
technical and research staffs, sufficient manufacturing capability,
good manufacturing practices, and an excellent contract manufacturing
reputation. Management of the Company verifies, through product sample
review, reference checks, and production equipment review, that the
manufacturers are capable of obtaining the highest quality raw
materials in the world, and that they have the productive capability to
meet the growing demand for nutritional supplement products while
maintaining high product quality standards. In order to assure
adequate capacity and product availability Nova maintains on-going
contact with additional manufacturers of similar capabilities.
Nova's contracted manufacturers are equipped with microbiological and
quality control laboratories. Production is evaluated using state of
the art testing procedures and equipment. Additional testing includes,
shelf life stability testing to determine the effects of aging,
certified outside laboratories to evaluate Nova's manufacturers
laboratory performance and to supplement testing capabilities, and
certification of raw material quality of critical ingredients.
Excellent contract manufacturers, that provide the above services are
available on a purchase order contract basis, as is the case with
Universal Nutrition Inc. The contract with Nutripharmaceuticals, Inc.
requires exclusive manufacturing right for all Gold's Gym products
developed by Nutripharmaceuticals for the life of the Gold's contract.
Product Research and Development.
Nova believes it is important to develop new products in the
nutritional supplement industry in order to increase market share by
capitalizing on new market opportunities, and to strengthen
relationships with customers by meeting their constantly changing
demands. To support its commitment to research and development, Nova
utilizes the capabilities of its internal staff coupled with the staffs
of each of their contract manufacturers. In addition, Nova maintains
strong relationships with raw material suppliers, who are often the
first entities to identify innovative new opportunities. Because of
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the competitiveness in the contract manufacturing industry and in the
raw material supply industry, Nova is able to obtain excellent research
and development without cost to Nova.
Beyond the research and formulation done by Nova's contract
manufacturers, Nova `s internal expenditures for research and
development are estimated at $88,000 for the year ended 12-31-98, and
$30,000 for the six months ended 6-30-99.
Competition.
The market for the sale of nutritional supplements is highly
competitive. Competition is based principally upon price, quality of
products, customer service and marketing support. Nova's position on
pricing is to reach parity, unless the particular product has a
significant marketing point of difference warranting a premium to
competition. Nova's position on quality as described in the above
section is to utilize the highest quality raw materials and to have
product manufactured consistently according to good manufacturing
practices. Nova's customer service is supported by very conscientious
employees, and by a large, professional distribution fulfillment house.
Nova's marketing support includes an aggressive newspaper and magazine
advertising programs, coupons, customer cooperative advertising, and
customer product display programs.
Nova believes that by reacting quickly to market changes, scientific
discoveries and competitive challenges, Nova will continue to compete
effectively in the nutritional supplement industry. Essential to
competing effectively is the continuation of Nova's aggressive
advertising and promotion programs, which have made NxTrim the number
one selling item in the California Drug trade. Utilizing this
approach, Nova anticipates attaining profitability when the number of
stores selling Nova products exceed 35,000 of the more than 134,000
stores in the drug, food, health, and mass merchandise trades.
Currently Nova is selling in approximately 15,000 stores.
As the nutritional supplement industry grows and evolves, Nova believes
retailers will rely heavily on suppliers, such as Nova, that can
respond quickly to new opportunities, support them with production
capacity and flexibility, and provide innovative and high margin
products. Nova's staff constantly stays in tune with consumers, seeking
new product ideas from the various news sources, magazines, gyms,
internet research, suppliers, and manufacturers. Utilizing the
resources of it's staff, manufacturers, and suppliers, Nova is able to
quickly and effectively develop the kind of imaginative, multi
functional, value added products which meet current consumer needs and
provide high margins required for support by the retail trades. As a
result of this process, Nova believes that it can function profitably
while competing with other nutritional supplement companies.
Government Regulation.
The manufacturing, packaging, labeling, advertising, distribution and
sale of Nova's products are subject to regulation by one or more
governmental agencies, the most active of which is the Food and Drug
Administration, which regulates Nova's products under the Federal Food,
Drug, and Cosmetic Act and related regulations. The FDCA has been
amended several times with respect to dietary supplements, most
recently, by the Nutrition Labeling and Education Act of 1990, and
DSHEA. Nova's products are also subject to regulation by the Federal
Trade Commission, the Consumer Product Safety Commission, the United
States Department of Agriculture and the Environmental Protection
Agency. Nova's activities are also regulated by various agencies of
the states, and localities to which Nova distributes its products.
The FTC, which exercises jurisdiction over the advertising of
nutritional and dietary supplements under the Federal Trade Commission
Act, has in the past several years instituted enforcement actions
against several nutritional supplement companies alleging false and
misleading advertising of certain products. These enforcement actions
have resulted in the payment of fines and/or consent decrees by certain
of the companies involved.
Nova may be subject to additional laws or regulations administered by
the FDA or other federal, state or foreign regulatory authorities, to
the repeal or amendment of laws or regulations, or to more stringent
interpretations of current laws or regulations. Nova is unable to
predict the nature of such future laws, regulations, interpretations or
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applications, nor can it predict what effect additional governmental
regulations or administrative orders, when and if promulgated, would
have on its business in the future. They could, however, require
reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated,
imposition of additional record keeping requirements, expanded
documentation of the properties of certain products, expanded or
different labeling and scientific substantiation. Any or all such
requirements could have a material adverse effect on Nova's results of
operations and financial condition.
Product Liability Insurance.
Because Nova's products are ingested, it faces the risk that materials
used may be contaminated with substances that may cause sickness or
other injury to persons who have used them. Although Nova's
manufacturing alliances maintain production and operating standards
designed to prevent such events, certain portions of the process of
product development, including the production, harvesting, storage and
transportation of raw materials and finished goods are not within the
control of Nova. Furthermore, sickness or injury to persons may occur
if products manufactured by Nova are ingested in a manner exceeding the
dosage recommended on the product label. Nova cannot control misuse of
its products by consumers, or the marketing, distribution and resale of
its products by its customers. With respect to product liability
claims, Nova has product liability insurance of $5 million, and Nova's
manufacturing alliances carry product liability insurance coverage up
to $10 million. Nova's product liability insurance does not cover non-
safety claims relating to Nova's products, such as noncompliance with
label claims or similar matters.
Patent and Trademarks
Nova has received a patent on the formula for NxTrim as a 100% all
natural weight loss aid with a composition containing amino acids,
minerals, vitamins, herbs, and essential nutrients along with gentle
diuretics and digestive enzymes. Patent number 5,925,377 was obtained
on July 20, 1999.
The following table displays Nova's current US trademark status:
Mark Registration Date Serial / Reg. No Status
PHENTRIM 04/06/99 2,237,644 REGISTERED
NOVA NATURALS 08/11/97 75/338,870 PENDING
NXTRIM 12/31/97 75/413,422 PENDING
RC90 03/29/99 75/671,036F PENDING
Nova relies on common law trademark rights to protect its unregistered
trademarks. Common law trademark rights do not provide Nova with the
same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights
are limited to the geographic area in which the trademark is actually
used, while a United States federal registration of a trademark enables
the registrant to stop the unauthorized use of the trademark by any
third party anywhere in the United States even if the registrants never
used the trademark in the geographic area wherein the unauthorized use
is being made; provided however, that an unauthorized third party user
has not, prior to the registration date, perfected its common law
rights in the trademark in that geographical area. Nova intends to
register its trademarks in certain foreign jurisdictions where Nova's
products are sold. However, the protection available in such
jurisdictions may not be as extensive as the protection available to
Nova in the United States.
Employees
Nova currently has ten (10) full time employees: Receptionist /
Accounts Receivable Clerk, Chief Financial Officer, Accountant, Three
(3) key Account Representatives, Vice President of Operations, Product
Development / Media Coordinator, CEO, Vice President of Sales and
Marketing.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Nova believes that statements in this Report concerning the Company's
outlook or future economic performance; anticipated profitability,
revenues, expenses and other financial items; and statements concerning
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assumptions made or exceptions to any future events, conditions,
performance or other matters are "forward looking" as that term is
defined in Federal Securities Laws. The safe harbor for "forward
looking" statements does not apply to initial public offerings.
Forward looking statements are subject to risks, uncertainties, and
other factors, which would cause actual results to differ materially
from those stated in such statements. Such risks, uncertainties and
factors include, but are not limited to:
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are outside the control of the Company,
(i) the Company has grown rapidly and there can be no assurance that
the Company will continue to be able to grow profitably or manage it's
growth, (ii) the Company's quarterly operating results have fluctuated
in the past and are expected to fluctuate in the future, (iii) the
Company's business experiences seasonality, (iv) the loss of services
of key individuals could have a material adverse effect on the
Company's business, financial condition, or operating results,
The time frame for market success for the Company's new products is
potentially long and uncertain. There can be no assurance that the
retail trade will accept the Company's new products, or if accepted,
whether the Company's marketing efforts will result in consumer initial
and repeat purchase of these products.
Changing government regulations relative to the Company's products
could result in the inability to continue marketing one or more of it's
products, or could cause changes in packaging, resulting in unfavorable
affect on the financial position or results of operations of the
Company.
The Company faces substantial competition from a variety of sources,
most of which are better capitalized and have more resources than the
Company. There can be no assurance that the efforts of one or more of
these competitors will not render one or more of the Company's products
non-competitive in the marketplace.
The Company relies on third party organizations for its manufacturing,
distribution, and sales. There can be no assurances that these
organizations will continue to meet the Company's growing need to
expand it's product lines on a commercially feasible basis. Should
one or more of these critical organizations not fulfill the growing
needs, there can be no assurance that the Company will be able to find
an economically feasible replacement on a timely basis.
Liquidity and Capital Resources
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At June
30,1999, the Company had cash and cash equivalents of $ 108 thousand
and working capital of $88 thousand. The Company generated a net loss
of $582 thousand for the fiscal year ended December 31, 1998, and a net
loss of $1.2 million for the six months ended June 30, 1999. Because
of the advertising and promotion investment required to expand
nationally, the Company is anticipating a net loss for the remainder of
1999 as well. The Company will require a significant amount of capital
to continue its planned operations. Accordingly, the Company's ability
to continue as a going concern is dependent upon its ability to secure
an adequate amount of capital to finance its anticipated losses and
planned principal operations. The Company's plans include a $5 million
private placement offering, and seeking a $700,000 bridge loan in
advance of that offering. At this time, there are three potential
investors conducting due diligence in anticipation of making a $5
million dollar investment/loan, and one for the $700,000 bridge loan.
The specific format of the investment /loan being considered by the
aforementioned investors would be negotiated subsequent to successful
completion of the due diligence process. In the event the Company
receives minimal or no proceeds from these efforts, the Company will
seek alternative funding sources and would adjust expenditures required
for implementing its planned operations. The Company has obtained a
verbal commitment from major shareholders to continue to infuse minimum
working capital in order to maintain the company's operations until
such time as the external funding efforts are successful. However these
factors, among others, may indicate that the Company would be unable to
continue as a going concern for a period of time in excess of six
months from the date of this filing.
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As stated above, Nova's liquidity is currently limited because the
generation of additional capital from outside investors has been
delayed. The current operations are being conducted with minimum
funding support of major shareholders. Accordingly, Nova's national
expansion plans have been delayed because Nova has substantially
reduced the advertising and promotion funds. This reduction of support
has resulted in a reduction in sales to current customers and a
reduction in sales generated from new accounts. Nova has communicated
the funding delays to brokers and key customers in explanation of the
reduced support that is evident in their respective markets. Despite
the reduction of support, the continuing strong I R I data on NxTrim's
movement has generally swayed Nova's brokers and most key customers to
remain patient, and await the additional marketing support promised
after Nova's successful attainment of additional funds. I R I data for
the drug trade for the 52 weeks ended June 20,1999 indicates that
NxTrim is the number one selling weight control aid in the California
markets, and the number 19 nationally.
In the six months ended June 30, 1999, Nova used cash from operations
in the amount of $429 thousand. The funding for this investment has
been obtained through increased long term borrowing from major
shareholders of $441 thousand. In the six months ended June 30, 1999,
accounts receivable was reduced by $351 thousand as a result of lower
sales in the second quarter of 1999, versus sales in the final quarter
of 1998. In the six months ended June 30, 1999, accounts payable was
reduced by $96 thousand in order to bring the accounts payable aging
more current.
On March 31, 1999, the Company negotiated with a shareholder to
exchange of 204,082 shares of common stock for $500,000 in long term
notes payable. The shares were issued at the market price based on the
NQB Pink Sheets at March 31, 1999. The difference between the carrying
value of the notes payable, and the market value of the shares, which
totaled $214 thousand, was recorded as interest expense on March 31,
1999.
In the six months ended June 30,1999, Nova issued 49,057 shares of
common stock for consulting services related to SEC filings and
industrial relations services. The shares were issued at the NQB Pink
Sheet market value ($172 thousand), and either expensed, or deferred as
a prepaid expense, based on the term of the related contract. In the
same period, Nova shareholders contributed shares of common stock to
investor relation firms on behalf of Nova. The market value of these
shares on the date of transfer ($453 thousand) was recorded as an
expense, or deferred as a prepaid expense, with a corresponding offset
to paid in capital.
Nova issued 100,000 shares of common stock, and accrued $45 thousand
for services rendered in the sale of stock, and for the subsequent
15c211 registration of that stock in March of 1999. Shares were issued
at market value ($350 thousand), with a corresponding entry to reduce
paid in capital for both the accrued amount and the shares issued.
In the six months ended June 30, 1998, the Company used cash from
operations in the amount of $172 thousand. The funding of this
investment was obtained substantially through shareholder loans.
Accounts receivable increased due to revenue growth. Inventory was
reduced due to working off an initial large inventory purchase through
the revenue growth. Prepaid expense increased due to deferral of
prepaid advertising and promotion services to the period of actual
usage of the purchased services.
Results of Operations
Revenues for the six months ended June 30, 1999 totaled $619 thousand a
decline of $424 thousand from the six months ended June 30, 1998. The
decline is due to a highly successful promotional event, which
generated $406 thousand in revenues in the prior year and did not occur
in the current year. Additional revenue decline is due to the
reduction of advertising and promotion funding related to delay in
obtaining additional capital to support the planned national expansion
programs.
Gross profit for the Six months ended June 30, 1999 totaled $414
thousand, a decline of $245 thousand from the same period of 1998.
Reduction in revenue caused $284 thousand of the gross profit decline,
while gross profit increased from the prior year by $39 thousand due to
improved purchase price of product from contract manufacturers.
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Selling and marketing expenses totaled $622 thousand in the first six
months of 1999, an increase of $96 thousand from the same period in the
prior year. The increase is substantially due to a first quarter
national advertising campaign totaling $254 thousand, which did not
occur in the prior year. This was offset by reduced advertising and
promotional expense of $158 thousand in the second quarter of 1999
versus the same period last year. The second quarter reduction of
advertising and promotion expenditures is due the delay in obtaining
additional capital to support the planned national expansion programs.
General and Administrative expenses totaled $724 thousand for the first
six months of 1999, an increase of $446 thousand from the prior year.
The increase is due to legal, accounting and professional fees of $277
thousand related to obtaining a bridge loan, preparing and executing a
private placement memorandum, preparing SEC documents to become a
reporting public company, and to investor relations programs. The
professional fees noted above were funded by shareholder contributions
of common stock in the amount of $96 thousand, by issuance of common
stock $150 thousand, and by current operating funds of $31 thousand.
Shareholder contributions to consultants for the above professional
fees were made with no repayment requirement by Nova. The remaining
increase in general and administrative expense resulted from an
accumulation of smaller dollar amounts in the areas of, salary, rent,
insurance and travel related to building the organizational infra
structure required to execute Nova's aggressive growth plans.
Interest expense totaled $270 thousand for the six months ended June
30, 1999, $251 thousand greater than the same period in the prior year.
The increase is substantially due to the imputed interest expense
generated from the conversion of shareholder long term debt to common
stock in the first quarter of 1999. The remainder of the increase in
interest resulted from higher borrowings on long term notes payable in
the first six months of 1999 than in the same period in the prior year.
The provision for income taxes reflects minimum tax payment
requirements. The tax benefits of operating losses from inception to
date have not been recorded. Recognition of any tax benefits from the
losses will be delayed until such time a Nova's operating results
indicate the ability to take advantage of the losses through future
earnings.
For the twelve months ended December 31, 1998, and the six months ended
June 30, 1999, Nova has reflected losses in the results of operations
due to, the advertising and promotional expenditures to build brand
equity, and to the selling and administrative expenditures necessary to
build the organizational infrastructure required to accomplish the
aggressive growth plans for Nova's products. In the six months ended
June 30, 1999, Nova has additionally incurred significant expenses
related to investment counseling and investor relations consulting fees
in order to raise much needed capital and in order to communicate to
potential shareholders the growth opportunity in Nova. It is Nova's
belief that, given success in the efforts to raise additional capital,
Nova will expand its revenues significantly to new markets and increase
the sales per store in all markets through continued advertising and
promotion. Profitability will be attained with expansion to
approximately 35,000 of the 134,000 potential retail outlets. Because
of the selling and administrative staffing already committed, expansion
beyond that level begins to incrementally add significant profit
without significant added general and administrative costs.
Year 2000 Issues
The Company could be impacted by the year 2000 issue, which results
from computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's, or their critical
supplier's computer programs could fail and result in a system failure,
or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, send
invoices, or engage in normal business activities.
The Company's systems are all relatively new, PC based, and stated to
be year 2000 compliant. The Company is prepared as of this date for
the year 2000 according to our software suppliers. The cost of
compliance has been upgrades to PC software costing under $1,000 in
total. The risk is that the software, stated to be compliant, does not
function properly. The Company's contingency plan is to revert to
<PAGE>12
manual systems until such time as the software problems are solved.
Due to the size of the Company and the number of daily transactions,
reversion to manual procedures for all major business systems is very
feasible.
Item 3. Description of Property.
Nova owns no property. Nova currently leases a 3,800 square foot
office suite. Under an operating lease terminating June 11, 2002, Nova
pays monthly rental of $2,750 plus Common Area Maintenance of $1,084
per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of June 30,1999 by:
Each shareholder known by us to own beneficially more than 5% of the
common stock
Each director and all directors and executive officers as a group:
Name Number of Shares(1) Percentage
Ralph Mann, Chief Executive
Officer and Director
3811 Stone Meadow
Murrieta, Ca 92562 5,600,000 43.91%
Showtime Partners, shareholder (2)
31712 Casino Dr Suite 7B
Lake Elsinore, Ca 92530 4,354,082 34.14%
Carlos Schmidt M.D., Director
613 Avenida Acapulco
San Clemente, Ca 92672 250,000 1.96%
James Ayres, Senior Vice President,
and Director
25573 Dorval Ct
Menifee, Ca 92584 100 (3)
Robert Eggering, Chief Financial Officer
23089 Joaquin Ridge Dr
Murrieta, Ca 92562 600 (3)
Fred Zinos, Senior Vice President
24375 Jackson Ave
Murrieta, Ca 92562 100 (3)
Charles Braden, Director
38002 Calle De Lobo
Murrieta, Ca 92562 - 0%
All Directors and Officers
as a group (6 persons) 5,850,700 45.88%
(1) This table is based upon information derived from our stock
records. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, we believe that
each of the shareholders named in this table has sole or shared voting
and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based upon 12,753,139
shares of Common Stock outstanding as of June 30,1999.
(2) Showtime Partners is a general partnership consisting of 21
irrevocable trusts whose beneficiaries are relatives of Ralph Mann,
Director and Chief Executive Officer
(3) Individual owns less than 1%
Item 5. Directors and Executive Officers.
The names and ages of our executive officers and directors as of June
30, 1999, are as follows:
</TABLE>
<TABLE>
<CAPTION>
Name Age Position Term
<S> <C> <C> <C>
Ralph Mann 58 CEO/Director From Inception to Present
<PAGE>13
James Ayres 28 Senior Vice President
& Secretary/Director From Inception to present
Robert Eggering 55 Chief Financial Officer From 4-30-98 to
present
Fred Zinos 56 Senior Vice President of
Sales & Marketing From 11-2-98 to present
Carlos Schmidt, M.D. 52 Director From inception to present
Charles Braden 56 Director From 5-20-99 to present
Mr. Ralph Mann, President and Chief Executive Officer, founded Nova
Pharmaceutical in January 1998 and became the Chairman of the Board in
February 1998. From September 1992 to December 1997, Mr. Mann owned
and acted as President for Canyon Fitness Center, Inc., a health club
business. From May 1975 to July 1989, Mr. Mann was the majority
shareholder and Chief Executive Officer of the Glen Ivy Financial
Group, a time share business.
Mr. James Ayres, Senior Vice President & Secretary joined us in January
1998 and became a board member in February 1998. From November 1989 to
December 1997, Mr. Ayres was Vice President and acting General Manager
of Canyon Fitness Center, Inc., a health club business. Mr. Ayres
received an Associate Arts degree and an Associate of Science degree
(1993) from San Jacinto College, California.
Mr. Robert Eggering, Chief Financial Officer, joined us in April of
1998. From May of 1997 to April of 1998, Mr. Eggering was Controller
of Coast Converters, Inc., a custom plastic bag manufacturer. From
April 1996 to April 1997, Mr. Eggering was Controller of Tempo/Pacific
Coast One Stop, a wholesale and retail recorded music distributor.
Prior to joining Pacific Coast, Mr. Eggering held positions with
ConAgra, Inc., a conglomerate with grain commodity trading, meat and
food processing businesses. Mr. Eggering received a Bachelor's Degree
(1966) in Psychology from St. Louis University and a Master's Degree
(1971) in Accounting from Missouri University.
Mr. Fred Zinos, Senior Vice President of Sales & Marketing, joined us
in November of 1998. From June of 1997 to October of 1998, Mr. Zinos
was Vice President of Sales and Marketing for Enforma Natural Products,
Inc., a natural product manufacturer. From January of 1996 to May of
1997, Mr. Zinos was Vice President of Sales for Nature's Products Inc.,
a natural product manufacturer. Prior to joining Nature's Products,
Mr. Zinos held positions with Shelby Health Systems, a natural products
manufacturer. Mr. Zinos received a Bachelor's Degree (1965) in
Business Administration from the University of Wisconsin.
Dr. Carlos Schmidt, M.D., Supervising Physician, joined us in January
of 1998, and became a board member in February of 1998. From July of
1996 to present, Dr. Schmidt is a Medical Director at the Bristol Park
Medical Group. From July of 1987 to June of 1996, Dr. Schmidt was an
ER Physician and Assistant Director of Emergency Services at Mission
Hospital. Dr. Schmidt received a Bachelor's Degree in Science and a
Medical Degree (1973) from the University of Guadalajara School of
Medicine.
Mr. Charles Braden, Director joined us as a Director in May of 1999.
Mr. Braden brings 35 years of experience in general management with an
emphasis on real estate, property management, marketing, financial
controls and human resources. From February 1994 to present Mr. Braden
has been President of CBS and Associates, a real estate, insurance, and
general management consulting firm. Prior to this assignment, Mr.
Braden was employed for 14 years by Fidelity Federal Bank, finishing
his career there as an Executive Vice President. From September of
1987 to present, Mr. Braden has served on the Board of Directors of
Health Net (California's third largest HMO). From January 1994 to
December 1997, Mr. Braden served on the Board of Directors of Health
Systems, Inc, a $35 billion dollar NYSE company. In addition to
serving as a member of the Board, Mr. Braden also served as Chairman of
the Audit and Finance Committee, and as a member of the Executive
Committee.
<PAGE>14
Item 6. Executive Compensation.
The following table sets forth summary information concerning the
compensation received for services rendered to us during the year ended
December 31, 1998 by the chief executive officer. No other executive
officers received aggregate compensation during our last fiscal year,
which exceeded $100,000. Other annual compensation consists of health
insurance premiums paid for by us on behalf of the named officers, and
in some cases, the spouse and dependents of the named officers.
SUMMARY COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Compensation All Other
Salary Bonus Compensation
<S> <C> <C> <C> <C>
Ralph Mann, President 1998 $32,756 N/A $2,852 *
</TABLE>
* Other compensation includes payment for medical and dental benefits.
During the 1998 fiscal year, we entered into an employment agreement
with Fred Zinos. The agreement is on an at-will basis. Under the
terms of the agreement, Mr. Zinos is required to devote his full time
to our business. We have agreed to pay him a base salary of $90,000
annually. We will pay him cash bonuses based upon the following: 10% of
annual salary for attainment of gross sales within 80% of plan, 20% for
100% attainment of plan gross sales, and 30% for attainment of 20%
above gross sales plan. The plan is prepared annually by Nova employees
and approved by the president. The only deduction from gross sales
used in computing this compensation is returned goods. In addition, we
have agreed to grant him the option to purchase common stock at $2.00
per share, based upon the following: 5,000 shares for 80% attainment of
plan sales, 10,000 shares for 100% attainment of plan gross sales, and
25,000 shares for attainment of 25% above plan gross sales.
During the 1998 fiscal year, we entered into an employment agreement
with Robert Eggering. The agreement is on an at-will basis. Under the
terms of the agreement, Mr. Eggering is required to devote his full
time to our business. We have agreed to pay him a base salary of
$90,000 annually. In addition, we have agreed to pay him $15,000
annually toward a whole life insurance policy maintained by his spouse
on his life.
Board Composition and Related Matters
Directors are elected annually at our annual meeting of stockholders
and serve for a term of one year. Our Bylaws currently provide for a
Board of Directors comprised of seven members. Originally, the bylaws
provided for one director. On 5-20-99, a special meeting of the board
of directors was held to amend the bylaws to increase the number of
Directors to seven. Pursuant to Nevada law, consent was obtained from
87.8% of the shareholders to approve the change in the bylaws.
(Reference 3.5 in the attached exhibits)
Our officers are appointed by the Board of Directors and serve at the
Board's discretion.
At this time, we have no compensation committee or other board
committee performing equivalent functions. Mr. Mann, our current chief
executive officer, has established a salary of $50,000 annually for
himself.
Board Compensation
Our directors do not receive cash compensation for their services as
directors, although some directors are reimbursed for reasonable
expenses incurred in attending Board meetings.
Item 7. Certain Relationships and Related Transactions.
Private Placement of Securities.
On May 8, 1998 Nova Pharmaceutical, Inc did a reverse merger with
Nalbando Enterprises, Inc. Nalbando Enterprises Inc. was the surviving
corporation and it immediately changed its name to Nova Pharmaceutical,
Inc. In conjunction with that merger, Ralph Mann, Director and
President obtained 5,600,000 shares of restricted common stock in
surviving corporation, named Nova Pharmaceutical Inc. in exchange for
common stock in the former Nova Pharmaceutical, Inc. In the same
<PAGE>15
transaction, Showtime Partners (a general partnership consisting of 21
irrevocable trusts established in 1989 whose beneficiaries are all
related to Ralph Mann) received 4,150,000 shares of restricted common
stock in the surviving corporation in exchange for common stock in the
former Nova Pharmaceutical, Inc. In conjunction with the same
transaction, Dr Carlos Schmidt, M.D., Director received 250,000 shares
of restricted common stock in the surviving corporation in exchange for
stock in the former Nova Pharmaceutical, Inc.
Transactions with Directors and Officers
A royalty agreement exists between the Company and a licensing group
consisting of Showtime Partners (shareholder), Ralph Mann (Director,
Chief Executive Officer, shareholder), and Ralph Mann Trusts 1-21
(partners in Showtime Partners). The terms of the royalty agreement
were outlined in the Organization section above. The company amortized
the prepaid royalty of $4,008 in the six months ended June 30, 1999,
and $6,464 in the same period of 1998.
Ralph Mann has lent Nova money for operating funds under a note payable
agreement. The principal balance of the Note was $341,000 at June 30,
1999 and zero at December 31, 1998. Interest accrued totaled $3,980 at
June 30, 1999. The terms of the Note Payable include an annual
interest rate of 6%, principal and accrued interest due and payable on
May 9, 2003
Showtime Partners has lent Nova money for operating funds under a note
payable agreement. The principal balance of the Note was $219,358 at
June 30, 1999 and $625,730 at December 31, 1998. Interest accrued
totaled $26,282 at June 30, 1999 and $13,025 at December 31, 1999. The
terms of the Note Payable include an annual interest rate of 6%,
principal and accrued interest due and payable on January 31, 2001. On
December 10,1998 the CEO, Ralph Mann negotiated with Showtime Partners
trustee to convert the notes payable to Nova into preferred stock.
Ralph Mann, CEO, presented the argument that, since the Company's
equity had diminished significantly as a result of the marketing
investment in NxTrim, the Company's ability to generate much needed
additional funding from the private sector would be significantly
enhanced with the commitment for additional equity by major
shareholders. At that time, Showtime agreed to convert $500,000 of
the notes payable to preferred stock. In March of 1999, the Company
determined with their financial consultants that the best approach to
obtaining additional funding would be a private placement memorandum
for preferred stock convertible to common. The terms of the preferred
in the private placement memorandum would include immediate conversion
to common stock with no dividend provision. Because of the complexity
of establishing two layers of preferred stock and the undesirability of
complex preferred stock arrangements to potential new investors, Ralph
Mann negotiated with Showtime Partners trustee to convert $500,000 of
notes payable to 204,082 shares of Rule 144 restricted common stock
The conversion was made on March 31, 1999.
As of December 31, 1998 and June 30, 1999, Nova has a Note Payable to
Ralph Mann, CEO, and Director in the amount of $5,000. The Note, dated
May 6, 1998, bears interest at an annual rate of 7%, with principal and
interest due and payable on December 31, 1999. The Note was given in
exchange for Mr. Mann's shares of preferred stock. The preferred stock
was issued and subsequently exchanged for notes by Nova Pharmaceutical
prior to the reverse acquisition with Nalbando Enterprises, Inc in May
of 1998.
As of December 31, 1998 and June 30, 1999, Nova holds a Promissory Note
Receivable dated August 31, 1998 from Dr Carlos Schmidt, MD, Director,
in the amount of $5,000. The Note bears interest at an annual rate of
6% and has a stated principal payment date of December 31, 1998. The
Company has agreed to extend the principal and accrued interest payment
date to March 5, 2000. As of December 31, 1998 and June 30, 1999, the
Company also holds a Promissory Note Receivable dated March 5, 1998
from Dr Carlos Schmidt, MD, Director, in the amount of $10,000. The
Note bears interest at an annual rate of 6% with principal and accrued
interest payable on March 5, 2000.
We have utilized the services of the J Mann Studios for professional
artwork, packaging development, printed materials, packaging samples,
and print advertising development. John Michael, owner of J Mann
Studios, is the brother of Ralph Mann Director and Chief Executive
<PAGE>16
Officer of Nova. Payments to J Mann Studios totaled $104,682 in the
calendar year 1998 and $41,067 for the six months ended June 30, 1999.
We believe that the above transactions were entered into on terms no
less favorable than would be obtained from unrelated third parties.
Item 8. Description of Securities.
All significant provisions of our capital stock are summarized in this
prospectus. We have filed copies of the appropriate articles of
incorporation and bylaws as exhibits to this registration statement.
Common Stock
Of the 12,753,139 common shares issued, 1,800,000 are registered for
trading on the National Quotations Board Pink Sheets, and 10,953,139
are Rule 144 restricted shares. Officers, directors and related
parties currently control 10,204,282 of the 10,953,139 Rule 144
restricted shares outstanding at June 30, 1999, and 800 of the
1,800,000 common shares registered for trading on the National
Quotations Board Pink Sheets. Nova has entered into agreements with
investor relations, market maker, and investment banking firms to
educate the investing public on Nova's stock, to become a SEC reporting
company traded on the OTC bulletin board, and to prepare and execute a
five million dollar private placement offering. In conjunction with
these contracts, Nova has committed to pay $40,000, to issue
approximately 544,551 shares of common stock and to issue warrants to
purchase 100,000 shares of common stock at $1.00. The number of shares
to be eventually committed are dependent on stock value at date of
issue and the attainment of target levels of Nova's stock volume and
price performance. In conjunction with the above consulting
agreements, non affiliated shareholders, in order to facilitate the
Company's attainment of its business plans, have paid a portion of the
consulting fees without cost to the Company. The market value of the
shares contributed by non affiliated shareholders have been recorded on
the Company's books as an expense with a corresponding entry to paid in
capital.
Authorized shares of common stock: 25,000,000 with a par value of
$.001 per share.
Issued shares of common stock: 12,753,139 shares at June 30, 1999.
Each common shareholder may cast one vote for each share held of record
on all matters submitted to vote
There are no cumulative voting rights in the election of directors.
Common shareholders are entitled to receive dividends when and if
declared by the Board of Directors.
Common shareholders are entitled to a share in the distribution of
assets after payment of all money owed to the Company's creditors.
There are no preemptive rights to purchase additional shares offered by
the Company.
Preferred Stock
In May of 1999, the Company authorized 10,000,000 Preferred Stock, none
are issued, or outstanding. The Company is currently executing a
private placement offering of 2,000,000 shares of preferred stock at
$2.50 per share. Fees and expenses of offering are estimated at 10% of
$5,000,000 gross proceeds. The certificate of designations,
preferences, and rights of the preferred shares are included in the
exhibits to this filing.
Our board of directors can issue preferred stock at any time with any
legally permitted rights and preferences without your approval.
Our board of directors, without your approval, is authorized to issue
preferred stock. They can issue different classes of preferred stock,
with some or all of the following rights or any other rights they think
are appropriate and that are legal:
Voting
Dividend
Required or optional repurchase by us
Conversion into common stock, with or without additional payment
Payments preferred stockholders will receive before common
stockholders if we go out of business forever
<PAGE>17
The issuance of preferred stock could provide us with flexibility for
possible acquisitions and other corporate purposes. But it also could
render meaningless your right to vote your stock on a matter that you
are entitled to vote on because preferred stockholders could own shares
with a majority of the votes required on any issue. Someone interested
in buying our company may not follow through with their plans because
they could find it more difficult to acquire, or be discouraged from
acquiring, a majority of our outstanding stock because we issue
preferred stock. The issuance of preferred stock can adversely affect
any and all the rights of the common shareholders, depending on the
preferences and terms approved by the Board of Directors for the
preferred issue.
<PAGE>18
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
In February of 1999, Nova's common stock was cleared for quotation on
the National Quotations Board Pink Sheets. Nova's common shares began
trading publicly in March 1999. We are currently trading under the
symbol NOVX.
The high and low bid prices for our stock for each full quarterly
period within the two most recent fiscal years, which we traded are set
forth below.
Quarterly Period Ending High Low
3-31-99 4.00 3.50
6-30-99 3.50 1.00
As of June 30, 1999 we had 68 shareholders of our common stock.
We have never paid any dividends and do not expect to do so in the
foreseeable future.
Transfer Agent and Registrar
The transfer agent /registrar for the common stock is Signature Stock
Transfer Inc. The transfer agent's address and telephone number is
14675 Midway Road - Suite 221 Dallas, TX 75244 972-788-4193 fax
972-788-4194 Contact: Jason Bogutski
Item 2. Legal Proceedings.
D & F Industries, Inc. a California Corporation v. Nova Pharmaceuticals
[sic] Inc., a Nevada Corporation, et. al. Orange County Superior Court
Case No. 814076.
This is an action by a former contract supplier. Plaintiff contends
that defendant Nova agreed to use plaintiff D & F to supply the
products under the Gold's Gym contract, that D & F prepared certain
formulations to accommodate that contract, that Nova breached the
contract by not using D & F to supply the products under the Gold's Gym
contract and that Nova misappropriated plaintiff's trade secrets by
using plaintiffs formulations to fulfill the Gold's Gym contract.
Plaintiff also claims that Nova owes it for some product shipped. The
complaint states that it alleges six causes of action: two for breach
of contract, one for common counts, one for misappropriation of trade
secrets, one for unfair business practices, and one for interference
with economic advantage. Plaintiff seeks an injunction against the use
of the trade secrets and damages of lost profits (which of course would
depend on what Nova sells under the Gold's Gym contract), unstated
punitive damages, statutory damages, attorneys fees and the amount
allegedly due for the product shipped and not yet paid for (claimed to
be $52,000). The action was allegedly served on September 14, 1999,
although defendants are of the opinion that the service on Nova was
insufficient. Discovery has not yet begun. At the time of this
writing, defendants have not yet filed their answer to the complaint,
but intend to deny the relevant material allegations of the complaint
and expect to file a cross complaint for intentional interference with
contractual relations and breach of contract. Defendants believe the
action is generally without merit, that they will prevail on their
cross complaint and have a very good chance to prevail on a claim for
malicious prosecution. Should the outcome of this litigation be
resolved in favor the plaintiff, it could have a materially adverse
effect on the Company's results of operations.
Item 3. Changes in and Disagreements with Accountants.
None
<PAGE>19
Item 4 Recent Sales of Unregistered Securities.
The following sets forth information relating to all previous sales of
Common Stock by the Registrant which sales were not registered under
the Securities Act of 1933.
A. Name of Purchaser
B. Securities Sold, Type and Amount
C. Date
D. Consideration Cash or specify Fair Value of Services
E. Exemption from registration claimed
A B C D E
Fordee Management Co.
500,000 common shares 4-10-98 $5,000 504 (1)
The Gerald Romero Trust
300,000 common shares 4-27-98 $3,000 504 (1)
The Bull Dragon Trust
10.000 common shares 8-31-98 $100 504 (1)
The A-Z Creative Trust
10,000 common shares 8-31-98 $100 504 (1)
Chad Lee 10,000 common shares 9-3-98 $100 504 (1)
Sharmen Vigouret
10,000 common shares 9-3-98 $100 504 (1)
Marlene Schluter
7,000 common shares 9-3-98 $70 504 (1)
Elizabeth A Lee
10,000 common shares 9-3-98 $ 100 504 (1)
Cary Lee 10,000 common shares 9-3-98 $ 100 504 (1)
Corby Lee 10,000 common shares 9-3-98 $100 504 (1)
Diane Lee 7,000 common shares 9-3-98 $ 70 504 (1)
Deborah Jacobsen
10,000 common shares 9-3-98 $100 504 (1)
Danny Chang 10,000 common shares 9-3-98 $100 504 (1)
Loretta Barner 8,000 common shares 9-3-98 $ 80 504 (1)
Edward Ratnarajah
8,000 common shares 9-3-98 $ 80 504 (1)
Todd Marston 8,000 common shares 9-3-98 $ 80 504 (1)
Lance Momotani 8,000 common shares 9-3-98 $ 80 504 (1)
Mitchell Ponak 5,000 common shares 9-3-98 $ 50 504 (1)
Darin Wong 8,000 common shares 9-3-98 $ 80 504 (1)
Kristen Wong 8,000 common shares 9-3-98 $ 80 504 (1)
Nicole Wong 8,000 common shares 9-3-98 $ 80 504 (1)
Norman Chin 6,000 common shares 9-3-98 $ 60 504 (1)
Ron Chin 6,000 common shares 9-3-98 $ 60 504 (1)
Fred Chang 10,000 common shares 9-3-98 $ 100 504 (1)
John Ljuljovic 8,000 common shares 9-3-98 $ 80 504 (1)
Yun Gerbrandt 8,000 common shares 9-3-98 $ 80 504 (1)
Ray Wada 8,000 common shares 9-3-98 $ 80 504 (1)
Bantu Sukul 7,000 common shares 9-3-98 $ 70 504 (1)
Luigi Scaglione 7,000 common shares 9-3-98 $ 70 504 (1)
Onkar Sandhu 7,000 common shares 9-3-98 $ 70 504 (1)
Harry Reck 7,000 common shares 9-3-98 $ 70 504 (1)
Tia Hoy 9,000 common shares 9-3-98 $ 90 504 (1)
Shaun Chin 2,000 common shares 9-3-98 $ 20 504 (1)
Leigh Ivancoe 2,000 common shares 9-3-98 $ 20 504 (1)
Jess Sarber 5,000 common shares 9-3-98 $ 50 504 (1)
Dave Lambert 5,000 common shares 9-3-98 $ 50 504 (1)
Sandra A. Collins
5,000 common shares 9-3-98 $ 50 504 (1)
Terri Schollen 4,000 common shares 9-3-98 $ 40 504 (1)
Dave Hihashitani4,000 common shares 9-3-98 $ 40 504 (1)
Chris Ramsami 4,000 common shares 9-3-98 $ 40 504 (1)
Mike Denike 4,000 common shares 9-3-98 $ 40 504 (1)
Erik Davidson 3,000 common shares 9-3-98 $ 30 504 (1)
Rae Wong 8,000 common shares 9-3-98 $ 80 504 (1)
Wayne Chow 6,000 common shares 9-3-98 $ 60 504 (1)
The Gerald Romero Trust
200,000 common shares 9-4-98 $2,000 504 (1)
The Diana Snow Trust
500,000 common shares 9-17-98 $5,000 504 (1)
Al Andrade (4) 100 common shares 1-4-99 $250 4(2)
Robert Eggering (4) 100 common shares 1-4-99 $ 250 4(2)
Debra Mann (4) 100 common shares 1-4-99 $250 4(2)
Fredrick Zinos (4)100 common shares 1-41-99 $250 4(2)
<PAGE>20
Jennifer Spriet (4) 100 common shares 1-4-99 $250 4(2)
James Ayres (4) 100 common shares 1-4-99 $250 4(2)
John Kleinpeter (4) 100 common shares 1-4-99 $250 4(2)
John Normandeau (4) 100 common shares 1-4-99 $250 4(2)
Keith Ayres (4) 100 common shares 1-4-99 $250 4(2)
Sandra Tranquill (4) 100 common shares 1-4-99 $250 4(2)
Antionette Lamkin(4) 100 common shares 1-4-99 $250 4(2)
Steven G. Trapp & Co.
(2) 5000 common shares 12-25-99 $12,250 4(2)
Showtime Partners (3) 204,082 common shares 3-31-99 $500,000 4(2)
EBI Securities (2) 40,000 common shares 3-31-99 $140,000 4(2)
Ron Blekicki (2) 60,000 common shares 3-31-99 $210,000 4(2)
National Broker Dealer Service
(2) 42,857 common shares 5-11-99 $150,000 4(2)
Note: (1) With respect to the 504d sale of stock: Sales were made to
accredited investors based on completed questionnaires. No
commissions were paid. All appropriate state laws were observed. The
Form D was filed with the Securities and Exchange Commission.
Note: (2) Consultants are sophisticated investors and as such is
under Section 4(2).
Note: (3) Showtime Partners is a general partnership consisting of 21
irrevocable trusts established in 1989 whose beneficiaries are all
related to Ralph Mann, Director and CEO.
Shares were issued under section 4(2), Showtime Partners is a
sophisticated investor.
Note: (4) Employees are deemed to be sophisticated investors with
respect Nova Pharmaceutical, Inc. and as such are under Section 4(2).
Item 5. Indemnification of Directors and Officers.
Our Bylaws do not contain a provision entitling any director or
executive officer to indemnification against liability under the
Securities Act of 1933. The Nevada Revised Statutes allow a company to
indemnify its officers, directors, employees, and agents from any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, except under certain
circumstances. Indemnification may only occur if a determination has
been made that the officer, director, employee, or agent acted in good
faith and in a manner, which such person believed to be in the best
interests of the company. A determination may be made by the
shareholders; by a majority of the directors who were not parties to
the action, suit, or proceeding confirmed by opinion of independent
legal counsel; or by opinion of independent legal counsel in the event
a quorum of directors who were not a party to such action, suit, or
proceeding does not exist. Provided the terms and conditions of these
provisions under Nevada law are met, officers, directors, employees,
and agents of the Company may be indemnified against any cost, loss, or
expense arising out of any liability under the '33 Act. Insofar as
indemnification for liabilities arising under the '33 Act may be
permitted to directors, officers and controlling persons of the
Company. The Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy and is, therefore, unenforceable.
<PAGE>21
Part F/S
Financial Statements and Supplementary Data.
a) Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report dated April 12, 1999 22
Balance Sheet as of December 31, 1998 23
Statement of Operations and Accumulated Deficit
for the Year ended December 31, 1998 24
Statement of Stockholders' Equity for the Year
ended December 31, 1998 25
Statement of Cash Flows for the Year ended December 31, 1998 26
Notes to Financial Statements 28
Unaudited Balance Sheet as of June 30, 1999 and 1998 33
Unaudited Statement of Operations for the six months ended June 30,
1999 and 1998 34
Unaudited Statement of Changes in Stockholders' Equity 35
Unaudited Statement of Cash Flows for the three months ended
June 30, 1999 and 1998 36
Notes to Unaudited Financial Statements 38
a) Supplementary Financial Information - Not Applicable
<PAGE>22
To the Board of Directors
Nova Pharmaceutical, Inc.
We have audited the accompanying balance sheet of Nova Pharmaceutical,
Inc., a development stage company, as of December 31, 1998 and the
related statements of operations and accumulated deficit, changes in
stockholders' equity, and statement of cash flows for the year then
ended. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
consolidated 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 Nova
Pharmaceutical, Inc. as of December 31, 1998, and the result of its
operations, changes in stockholders' equity and cash flows for the year
ended December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. Nova Pharmaceutical,
Inc. has minimal cash reserves and requires continual capital
infusements to pay operating expenses. This factor together with
capital deficiencies raise substantial doubt about Nova Pharmaceutical,
Inc.'s ability to continue as a going concern. These financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental statement of
operating expenses is presented for the purposes of additional analysis
and is not a required part of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
Sarna & Company
Westlake Village, California
April 12, 1999
<PAGE>23
NOVA PHARMACEUTICAL, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
Current Assets
Cash $ 103,644
Accounts Receivable, Net 399,527
Inventory 66,751
Prepaid Expenses 146,251
Other Receivables - Related Party 15,736
-----------
Total Current Assets $ 731,909
Property and Equipment 39,490
Other Assets
Formulations 460,000
Prepaid Royalties 188,136
Prepaid Licensing 280,000
Organizational Costs 7,375
Refundable Deposits 2,600
----------
Total Other Assets 938,111
----------
Total Assets $1,709,510
==========
Liabilities and Stockholders' Equity
Current Liabilities
Current Portion of Long Term Debt $ 5,000
Accounts Payable and
Accrued Expenses 694,565
----------
Total Current Liabilities $ 699,565
Long Term Debt - Related Party 625,730
Stockholders' Equity
Common Stock
$.001 Par Value,
25,000,000 Shares Authorized,
12,400,000 Shares Issued 12,400
Additional Paid in Capital 953,999
Accumulated Deficit <582,184>
----------
Total Stockholders' Equity 384,215
----------
Total Liabilities and Stockholders' Equity $1,709,510
==========
See Notes to Financial Statements
<PAGE>24
NOVA PHARMACEUTICAL, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues $ 1,934,529
Cost of Sales
Beginning Inventory $ 0
Direct Labor 28,045
Purchases 732,507
Total Available 760,552
Less: Ending Inventory <66,751>
---------
Total Cost of Sales 693,801
---------
Gross Profit 1,240,728
---------
Operating Expenses
Sales and Marketing 985,044
General and Administrative 759,892
Interest Expense 64,951
Interest Expense - Related Party 13,025
---------
Total Operating Expenses <1,822,912>
---------
Loss Before Provision for
Income Taxes <582,184>
Provision for Income Taxes <0>
--------
Net Loss <582,184>
========
Deficit, Beginning
of Year <0>
Accumulated Deficit, End of Year $<582,184>
Net Loss per Share $ <0.05>
=========
Weighted Average Shares Outstanding 11,733,333
==========
See Notes to Financial Statements
<PAGE>25
NOVA PHARMACEUTICAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
</TABLE>
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------- ----------------- Additional Total
Par Value $.001 Par Value .01 Paid in Accumulated
Stockholder's
Shares Amount Shares Amount Capital Deficit Equity
------------------ ------------------ ----------- ------------ -----------
- -
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued
Commencement of
Operations 2,500,000 $ 2,500 500,000 $ 5,000 945,335 $952,835
Retirement of
Preferred Stock (500,000) $(5,000) (5,000)
Reverse Acquisition
and Recapitalization-
Nalbando Enterprises,
Inc. 8,900,000 8,900 (336) 8,564
Sale of Common Stock
Reg D Rule 504 Private
Placement Offering
1,000,000 1,000 9,000 10,000
Net Loss Year Ended
December 31, 1998 (582,184) (582,184)
--------- -------- -------- -------- -------- --------- --------
Balance, December 31, 1998
12,400,000 $12,400 - - $953,999 $(582,184) $384,215
========== ======== ======== ======== ========= ========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>26
NOVA PHARMACEUTICAL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
Cash Flows from Operating Activities:
Net Loss $(582,184)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation 5,245
Royalty Expense Amortization 11,864
Other Asset Amortization 51,231
Cash Acquired - Weight Loss Supplement Business 23,208
Change in Assets and Liabilities Net Effect from
Purchase of Weight Loss Supplement Business
in 1998 (Increase) Decrease in:
Accounts Receivable (397,428)
Inventory 47,721
Prepaid Expenses (129,155)
Other Receivable (9,428)
Other Assets (3,606)
Increase in:
Accounts Payable and
Accrued Expenses 518,245
--------
Net Cash Used by Operating Activities (464,287)
--------
Cash Flow from Investing Activities
Acquisition of Formulations (40,000)
Purchase of Property and Equipment (37,364)
--------
Net Cash Used by Investing Activities (77,364)
--------
Cash Flow from Financing Activities
Debt Financing 630,730
Issuance of Common Stock 14,565
--------
Net Cash Provided from Financing Activities 645,295
--------
Net Increase in Cash 103,644
Cash at Beginning of Period -0-
---------
Cash at End of Period $ 103,644
==========
See Notes to Financial Statements
<PAGE>27
NOVA PHARMACEUTICAL, INC.
STATEMENT OF CASH FLOWS - (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
The Company purchased assets and liabilities of the weight loss
supplement business from Canyon Fitness Center, Inc. on January 8,
1998. The initial capitalization of the Company substantially
consisted of conversion of notes payable acquired in this transaction
into common and preferred stock.
Fair Value of Assets Acquired $ 1,128,154
Notes Payable Assumed (952,835)
Liabilities Assumed (175,319)
------------
Other Purchase Compensation $ -0-
Conversion of Notes Payable into Common Stock
Common Stock $ 2,500
Preferred Stock 5,000
Paid in Capital 945,335
------------
Total Notes Converted $ 952,835
In May of 1998, the Company exchanged preferred stock of $5,000 for a
note payable to a shareholder. The market value of the preferred stock
was estimated to be face value at the date of the exchange.
See Notes to Financial Statements
<PAGE>28
NOVA PHARMACEUTICAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Nova Pharmaceutical, Inc. (referred to as the "Company" or "Nova"), was
incorporated on January 8, 1998 under the laws of the state of Nevada.
The incorporation consisted of a purchase of a portion of the assets
and liabilities of Canyon Fitness Center, Inc., a California
corporation. Canyon Fitness Center, Inc., was then owned by Showtime
Partners.
Included in the liabilities assumed in the purchase from Canyon Fitness
Center was a group of debtors, who, by converting their debt into
common stock, along with minor negotiated equity adjustments, formed
the initial capitalization of Nova.
The group forming the initial capitalization of the Company includes:
Ralph Mann a Director and Chief Executive Officer of the Company, Dr.
Carlos Schmidt a Director of the Company, and Showtime Partners.
Showtime Partners is a partnership consisting of 21 irrevocable trusts,
the beneficiaries of which are all related to Ralph Mann.
Included in the assets purchased were: formulation ($450,000), prepaid
royalties ($200,000), and prepaid licensing ($300,000). The
formulation and prepaid licensing assets reflect the capitalized costs
incurred by Canyon Fitness Center in the development, testing, and
patent registration of the formula, NxTrim. These assets were purchased
subject to a license and royalty agreement. Under the terms of the
agreement, the Company obtained world wide manufacturing and marketing
rights to the formula, NxTrim. In exchange, the Company is obligated
to pay a royalty of .00625% of the net sales on the product, NxTrim,
after the amortization of the $200,000 prepaid royalties purchased from
Canyon Fitness Center. The term of the agreement is 10 years, with a
10 year renewal including a cost of living adjustment at the option of
the licensor. The terms also include a minimum annual royalty of
$25,000 subsequent to full amortization of the prepaid royalty amount.
The license and royalty agreement, which was issued to Canyon Fitness
Center, Inc. by a group consisting of Ralph Mann, Showtime Partners,
and Ralph Mann Trusts 1-21 (partners in Showtime Partners), was
assigned to Nova in the asset purchase transaction.
Merger
Nova Pharmaceutical, Inc. completed a reverse acquisition as of May 7,
1998. Nalbando Enterprises, Inc. (an inactive Nevada Corporation)
purchased all the assets and liabilities of Nova Pharmaceutical, Inc.
(an operating Nevada Corporation). Nalbando Enterprises, Inc., the
surviving corporation, immediately changed its name to Nova
Pharmaceutical, Inc. and initiated the closing of the original Nova
Pharmaceutical, Inc. Financial results as presented represent the
activity for the entire reporting period of the original operating Nova
Pharmaceutical, Inc. and the minimal incorporation activity of Nalbando
Enterprises, Inc. To reflect the true substance of the transaction,
the acquisition was treated financially as a purchase of Nalbando stock
by Nova Pharmaceutical, Inc., accompanied by a reorganization to the
resulting Nalbando capital structure.
Nature Of Operations
The Company develops and sells various licensed medical and nutritional
supplement products. Products are manufactured and packaged on a
contract basis by others. The Company maintains executive and sales
offices at Lake Elsinore, California.
Prior Operations
Operations of Nalbando Enterprises, Inc. and Canyon Fitness Center
Weight Loss segment prior to January 1, 1998 were not significant and
are not reported in these financial statements.
Going Concern
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. At December 31,1998 the
Company had cash and equivalents of $103,644 and a working capital
surplus of $32,344. However, the Company generated a loss of $582,184
for the fiscal year ended December 31,1998 and is anticipating losses
throughout most of 1999. The Company will require a significant amount
<PAGE>29
NOVA PHARMACEUTICAL
NOTES TO FIANANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT.
of capital to continue its planned operations. Accordingly, the
Company's ability to continue as a going concern is dependent upon its
ability to secure an adequate amount of capital to finance its
anticipated losses and planned principal operations. The Company's
plans include a $5 million private placement offering, and seeking a
$700,000 bridge loan, however, there is no assurance that the Company
will be successful in these efforts. In the event the Company receives
minimal or no proceeds from these efforts, the Company will seek
alternative funding sources and may adjust its focus and expenditures
required for implementing its planned operations. The Company has
obtained verbal commitment from major shareholders to continue to loan
the minimum working capital funds required to maintain operations,
should the search for additional funding be delayed. These factors,
among others indicate that the Company may be unable to continue as a
going concern for a reasonable period of time. These financial
statements do not include any adjustments that might result from the
outcome of the above mentioned uncertainties.
Basis of Presentation
The Company reports revenue and expenses using the accrual method of
accounting for financial and tax reporting purposes. Revenues are
recorded upon delivery of products and expenses are recorded when
incurred
Use of Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principals.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses.
Significant Risk and Uncertainties
Nova relies on two contract manufacturers for the production of all the
Company's products. Should the relations between the Company and one
or both the manufacturers become strained, there is a risk of
interruption of product available for sale. There are numerous other
competent manufacturers capable of handling Nova's production. Nova
maintains a line of communication with several manufacturers who are
capable of handling Nova's needs to hedge the unlikely event that
relations with current manufacturers may deteriorate.
Pro Forma Compensation Expense
Nova accounts for costs of stock-based compensation in accordance with
APB No. 25, "Accounting for Stock Based Compensation" instead of the
fair value based method in SFAS No. 123. No stock options have been
issued. Accordingly, no pro forma compensation expense is reported in
these financial statements.
Cash and Cash Equivalents
The company considers temporary, highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventory is stated at the lower of cost (first in, first out) or
market value. Inventory consists of products and packaging held for
resale.
Property and Equipment
Property and equipment are stated at historical cost.
Depreciation, Amortization and Capitalization
The Company records depreciation and amortization using both straight-
line and declining balance methods over the estimated useful life of
the assets (three to seven years).
Expenditures for maintenance and repairs are charged to expense as
incurred. Additions, major renewals and replacements that increase the
property's useful life are capitalized. Property sold or retired,
together with the related accumulated depreciation, is removed from the
appropriate accounts and the resultant gain or loss is included in net
income.
<PAGE>30
NOVA PHARMACEUTICAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT.
Income Taxes
The company accounts for its income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under statement 109, a liability method is used whereby
deferred tax assets and liabilities are determined based on temporary
differences between the basis used for financial reporting and income
tax reporting purposes. Income taxes are provided based on tax rates
in effect at the time such temporary differences are expected to
reverse. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not, that the Company will not realize
the tax assets through future operations.
Fair Value of Financial Instruments
Financial accounting Standards Statement No. 107, "Disclosures About
Fair Value of Financial Instruments", requires the Company to disclose,
when reasonably attainable, the fair market values of its assets and
liabilities which are deemed to be financial instruments. The
Company's financial instruments consist primarily of cash and certain
investments.
Stock Option Plan
The company has a stock option agreement with one employee. The
agreement grants certain options to this employee based upon
achievement of predetermined levels of sales performance. Those levels
of performance are as follows:
If eighty percent (80%) of the sales volume based on the sales plan is
achieved then the employee shall be entitled to five thousand (5,000)
shares of stock at a value of $2.00 a share which will become vested
immediately. If one hundred percent (100%) of the sales volume based
on the sales plan is achieved then the employee shall be entitled to
ten thousand (10,000) shares of stock at $2.00 a share. Should one
hundred and twenty five percent (125%) or more of sales volume based on
the sales plan be achieved, then the employee shall be entitled to
twenty five thousand (25,000) shares of stock at $2.00 per share.
At December 31, 1998 no stock options had been granted under this plan.
Per Share Information
The Company computes per share information by dividing the net loss for
the period presented by the weighted average number of shares
outstanding during such period.
Advertising Expense
The company generally expenses advertising costs as they are incurred.
NOTE 2 - RECEIVABLE FINANCING
The company has entered into a receivable financing arrangement whereby
the company borrows against certain receivables. The company receives
immediate advances of 70% of the receivable balance and the company
pays interest at the approximate rate of 2% per month. Financed
receivables that are unpaid to Nova after 90 days must be replaced or
paid by the company.
NOTE 3 - LONG TERM DEBT
Long term debt at December 31, 1998 consists of:
Note payable stockholder, unsecured, accruing
interest at a rate of 6% per annum. Principal
in the amount of $500,000, by written agreement
with stockholder, to be converted to 100,000
shares of preferred stock at March 31, 1999.
Preferred stock to be convertible to common
stock at $5.00 per share three years from
date of issuance, and earning dividends at
an annual rate of 7% until conversion. All
remaining principal and accrued interest
balance of long-term debt to stockholder is
due on January 31, 2001. This note payable
contains a contingency clause that requires
<PAGE>31
NOVA PHARMACEUTICAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - LONG TERM DEBT CONT.
payment in full of the then outstanding
balance of principal and accrued interest
at such time as the Company raises capital
from the sale of Company securities totaling
$4,000,000 or more. $ 625,730
Note payable related party, unsecured,
accruing interest at a rate of 7% per annum.
Principal and accrued interest are due and
payable on December 31, 1999. $ 5,000
---------
Total 630,730
Less amount included in current liabilities <5,000>
--------
Net Long Term Debt $ 625,730
NOTE 4 - PROVISION FOR INCOME TAXES
The provision for income taxes for the year ended December 31, 1998
represents the minimum state income tax expense of the company, which
is not considered significant. Deferred income taxes will be provided
for whenever there is a timing difference in recording revenues and
expenses for financial versus tax reporting purposes. Tax benefits of
current period losses, deferred income tax liabilities and deferred
income tax assets are insignificant and are not reflected in these
financial statements.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The company leases sales and office space under a noncancellable
operating lease terminating on June 11, 2002. In connection with the
lease arrangement, the Company is obligated to make rental payments of
$2750 per month. The company also leases furniture and equipment under
various operating leases. Future annual minimum rental and lease
commitments are as follows:
Amounts
Year Office Furniture and Equipment
1999 $ 33000 $ 5194
2000 $ 33000 $ 4128
2001 $ 33000 $ 1996
2002 $ 16500 $ 1996
2003 $ 0 $ 1331
Litigation
The Company is not presently involved in any litigation.
Licensing and Consulting Agreements
The Company has currently entered into, and will continue to enter
into, product licensing and royalty agreements that the Company's board
of directors determine will enhance the Company's ability to market
innovative products in a competitive field. Minimum annual commitments
under these agreements amount to $25,000 for each of the next nine
years.
The company has also entered into various employment agreements. Known
obligations on these contracts are included on these financial
statements.
NOTE 6 - SUBSEQUENT EVENTS
In February 1999 the Company was cleared for quotation on the NQB Pink
Sheets. Nova common shares began trading publicly in March 1999.
<PAGE>32
SUPPLEMENTAL INFORMATION
NOVA PHARMACEUTICAL, INC.
STATEMENT OF OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
Sales and Marketing
Advertising $ 574,095
Commissions 129,959
Promotional Expense 84,232
Printing 36,673
Salaries 134,690
Telephone Expense 25,395
---------
Total Sales and Marketing $ 985,044
General and Administrative
Allowance for Uncollectable Accounts $ 20,133
Amortization Expense 51,231
Bank Charges 4,568
Depreciation Expense 5,245
Employers Tax Expense 39,971
Insurance Expense 74,517
Legal and accounting 63,630
Licenses, Permits and Fees 3,177
Office Supplies, Postage, Office Exps 34,128
Product Testing 1,792
Rent Expense 27,779
Royalty Expense 11,864
Salaries - Administration 230,670
Shipping Expenses - Samples 122,345
Travel and Trade Shows 66,673
Utilities 2,169
---------
Total General and Administrative $ 759,892
See Notes to Consolidated Financial Statements
<PAGE>33
NOVA PHARMACEUTICAL INC
BALANCE SHEETS AT JUNE 30
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash 108,988 103,644
Accounts Receivable-Net 48,876 399,527
Inventory 66,289 66,751
Prepaid Expenses 471,394 146,251
Loans Receivable - Related Party 15,000 15,736
-------- --------
TOTAL CURRENT ASSETS 710,546 731,909
FURNITURE AND FIXTURES 41,270 39,490
OTHER ASSETS
Formulae 445,000 460,000
Prepaid royalties 184,128 188,136
Licensing and Registration 270,000 280,000
Organization Expenses - 7,375
Refundable Deposits 5,100 2,600
--------- ---------
TOTAL OTHER ASSETS 904,228 938,111
--------- ---------
TOTAL ASSETS 1,656,043 1,709,510
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long Term Debt 5,000 5,000
Accounts Payable and Accrued Expenses 617,619 693,564
-------- --------
TOTAL CURRENT LIABILITIES 622,619 698,564
LONG TERM DEBT - RELATED PARTIES 566,353 625,730
STOCKHOLDERS' EQUITY
Common Stock, par value $.001;
25,000,000 Authorized; 12,753,139
and 12,400,000 shares issued and
outstanding 12,753 12,400
Paid In Capital 2,248,539 955,000
Retained Earnings ( deficit ) (1,794,221) (582,184)
TOTAL STOCKHOLDERS' EQUITY 467,071 385,216
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 1,656,043 1,709,510
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>34
NOVA PHARMACEUTICAL INC
STATEMENTS OF INCOME
Six Months Ended June 30
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues 619,035 1,043,291
Cost of Sales
Beginning Inventory 66,751 5,075
Direct Labor 22,270 10,681
Purchases 182,654 412,620
Total Available 271,675 428,376
Less Ending Inventory (66,289) (44,296)
--------- --------
Total Cost of Sales 205,386 384,080
--------- --------
Gross Profit 413,649 659,211
Operating Expenses
Sales and Marketing 622,154 526,250
General and Administrative 724,143 277,542
--------- --------
Total Operating Expenses 1,346,297 803,792
--------- --------
Income from Operations (932,648) (144,581)
Other Expense
Interest Expense 38,891 18,365
Interest Expense - Related Party 231,523 811
Write Off Deferred
Organizational Expense 7,375 -
---------- --------
Total 277,789 19,176
Provision for Income Taxes 1,600 -
Net Loss (1,212,037) (163,757)
========= ========
Net Loss per Share (0.10) (0.01)
==== ====
Weighted Average Shares Outstanding 12,613,998 11,400,000
========== ==========
</TABLE>
See Notes to Financial Statements
<PAGE>35
NOVA PHARMACEUTICAL INC
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
Common Stock Additional Total
Par Value $.001 Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance January 1, 1999 12,400,000 12,400 955,000 (582,184) 385,216
Common Stock Issued For
Professional Contracts 49,057 49 171,650 171,699
Consulting Contracts For 504 D
Private Placement & 15c211
Filing 100,000 100 (45,100) (45,000)
Conversion of Notes Payable
to Common Stock 204,082 204 714,082 714,286
Shareholder Contributions to
Investor Relation Contracts 452,906 452,906
Net Loss (1,212,037) (1,212,037)
Balance June 31, 1999 12,753,139 12,753 2,248,539 (1,794,221) 467,071
</TABLE>
See Notes to Financial Statements
<PAGE>36
NOVA PHARMACEUTICAL INC
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss (1,212,037) (163,757)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation 4,105 1,551
Royalty Expense Amortization 4,008 6,464
Other Asset Amortization 25,000 25,520
Non Cash Expense -
Consulting Fees for Common Stock 243,981
Non Cash Expense - Accounting Change 7,375
Non Cash Expense - Interest Debt
Conversion to Common Stock 214,286
Cash Acquired - Weight Loss
Supplement Business 23,208
Change in Assets and Liabilities Net of
Effects from Purchase of Weight Loss
Supplement Business in 1998 (Increase)
Decrease In:
Accounts Receivable 350,651 (216,890)
Inventory 462 70,176
Prepaid Expenses 30,482 (99,089)
Other Receivable 736 (10,160)
Other Assets (2,500) (606)
Increase ( Decrease ) In
Accounts Payable and
Accrued Expenses (95,945) 191,828
------- -------
Net Cash Used by Operating Activities (429,396) (171,755)
------- -------
Cash Flow from Investing Activities
Purchase of Property and Equipment (5,884) (35,248)
-------- -------
Net Cash Provided from
Investing Activities (5,884) (35,248)
-------- -------
Cash Flows from Financing Activities
Debt Financing 440,623 208,000
Issuance of Common Stock - 4,601
------- -------
Net Cash Provided from
Financing Activities 440,623 212,601
------- -------
Net Increase in Cash 5,343 5,598
Cash at Beginning of Period 103,644 -
-------- -------
Cash at End of Period 108,987 5,598
======== =======
Supplemental Disclosure of
Cash Flow Information:
Interest Paid 270,414 19,176
</TABLE>
See Notes to Financial Statements
<PAGE>37
NOVA PHARMACEUTICAL INC
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
For the Six Months Ended June 30, 1999 and June 30, 1998
UNAUDITED
On March 31, 1999, the Company exchanged 204,082 shares of common
stock for $500,000 long term debt to a shareholder. The difference
between the carrying value of the notes and the market value of the
shares ($214,286) was recorded as interest expense.
In the six months ended June 30, 1999, the Company issued 49,057
shares of common stock for consulting services related to SEC filings
and investor relations services. The shares were recorded at market
value ($171,699) and either expensed or deferred as a prepaid expense
depending on the terms of the related contract.
In the six months ended June 30, 1999, shareholders contributed shares
of common stock to investor relations and investment counseling firms
on behalf of the Company. The market value of these shares ($452,906)
was recorded as an expense or deferred as a prepaid expense depending
on the terms of the related contract.
In the six months ended June 30, 1999, the Company accrued $45,000 and
issued 100,000 shares of common stock in exchange for services related
to the sale of stock and for the subsequent 15c211 registration of that
stock in March of 1999. The common shares were issued at a market
value of $350,000. A corresponding entry was made to reduce paid in
capital for both the amount accrued and the market value of the common
stock.
The Company purchased assets and liabilities of the weight loss
supplement business from Canyon Fitness Center, Inc. on January 8,
1998. The initial capitalization of the Company substantially
consisted of conversion of notes payable acquired in this transaction
into common and preferred stock.
Fair Value of Assets Acquired 1,128,154
Notes Payable Assumed (952,835)
Liabilities Assumed (175,319)
Other Purchase Compensation -
Conversion of Notes Payable into Common Stock
Common Stock 2,500
Preferred Stock 5,000
Paid in Capital 945,335
Total Notes Converted 952,835
In May of 1998, the Company exchanged preferred stock of
$5,000 for a note payable to a shareholder. The market value
of the preferred stock was estimated to be face value at the
date of the exchange.
See Notes to Financial Statements.
<PAGE>38
NOVA PHARMACEUTICAL, INC
NOTES TO FINANCIAL STATEMENTS
JUNE 30,1999
(UNAUDITED)
NOTE 1 - DESCRIPTION OF THE BUSINESS
Nova Pharmaceutical, Inc. ("the Company" or "Nova") was
incorporated under the laws of the state of Nevada. The Company
markets a line of weight loss, health and sports enhancement supplement
products. The products are manufactured and packaged on a contract
basis by others. The Company maintains executive and sales offices at
Lake Elsinore, California.
The accompanying unaudited financial information of Nova
Pharmaceutical, Inc. as of June 30, 1999, and for the six months ended
June 30, 1999 and 1998 has been prepared in accordance with the
instructions to Form 10-Q. In the opinion of management, such
financial information includes all adjustments (consisting only of
normal recurring adjustments) considered necessary for fair
presentation of the financial position at such date and the operating
results and cash flows for such periods. Operating results for the six
month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the entire year. These financial
statements and the related notes should be read in conjunction with the
Company's audited annual financial statements for the year ended
December 31, 1998 included in this Form 10 Filing.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. At
June 30,1999, the Company had cash and cash equivalents of $ 108
thousand and working capital of $88 thousand. The Company generated a
net loss of $582 thousand for the fiscal year ended December 31, 1998.,
and a net loss of $1.2 million for the six months ended June 30, 1999.
Because of the advertising and promotion investment required to expand
nationally, the Company is anticipating a net loss for the remainder of
1999 as well. The Company will require a significant amount of capital
to continue its planned operations. Accordingly, the Company's ability
to continue as a going concern is dependent upon its ability to secure
an adequate amount of capital to finance its anticipated losses and
planned principal operations. The Company's plans include a $5 million
private placement offering, and seeking a $700,000 bridge loan in
advance of that offering. At this time, there are three potential
investors conducting due diligence in anticipation of making a $5
million dollar investment/loan, and one for the $700,000 bridge loan.
The specific format of the investment /loan being considered by the
aforementioned investors would be negotiated subsequent to successful
completion of the due diligence process. In the event the Company
receives minimal or no proceeds from these efforts, the Company will
seek alternative funding sources and would adjust expenditures required
for implementing its planned operations. The Company has obtained a
verbal commitment from major shareholders to continue to infuse minimum
working capital in order to maintain the company's operations until
such time as the external funding efforts are successful. However these
factors, among others, may indicate that the Company would be unable to
continue as a going concern for a reasonable period.
NOTE 3 - INCOME TAXES
During the period January 8, 1998 (date of incorporation) to June 30,
1999, the Company recognized losses for both financial and tax
reporting purposes. No deferred taxes have been provided for in the
accompanying statement of operations. The Company established a
valuation allowance to fully reserve the deferred tax asset related to
net operation loss carryforwards. The realization of the asset did
not meet the required asset recognition standard established by
Financial Accounting Standard Statement No. 109 "Accounting for Income
Taxes". At June 30, 1999, the Company had net operating loss
carryforwards of approximately $1,794,221 for income tax purposes.
These carryforwards will be available to offset future taxable income
through the year 2018.
<PAGE>39
NOTE 4 - LONG TERM DEBT
Long term debt at March 31, 1999 consists of:
Note payable to stockholder, unsecured, accruing interest at 6% pr
annum. Principal and accrued interest are due to stockholder on
January 31, 2001. The note payable contains a contingency clause that
requires payment in full of the then outstanding balance of principal
and accrued interest at such time as the Company raises capital from
the sale of securities totaling $4,000,000 or more. The balance of
principal and accrued interest at June 30, 1999 was $245,640.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement with Gold's Gym
International, Inc to exclusively market and manufacture a line of
nutritional, sports enhancement, and health supplements under the
Gold's Gym name and logo. In conjunction with that agreement the
Company has committed to minimum royalty payments as follows:
March 1, 1999 to June 1, 2000 $140,000
June 2, 2000 to June 1, 2001 $280,000
June 2, 2001 to June 1, 2002 $420,000
The Company's Board of Directors approved contracts with
various financial consulting firms to prepare and market a $5 million
dollar private placement offering, to generate a $700,000 bridge loan
in advance of the private placement, to provide investment banking
services, and to provide investor relations services. Compensation for
these services includes the potential issue of up to 400,000 shares of
common stock depending on various levels of performance.
<PAGE>40
PART III
Index to Exhibits Page
3.1 Articles of Incorporation 41
3.2 Bylaws 42
3.3 Articles of Merger 50
3.4 Plan of Merger 52
4.1 Registration rights for preferred shares 59
10.1 Employment Contract - Fred Zinos 66
10.2 Employment Contract - Robert Eggering 70
10.3 Master Purchase and Sale Agreement - Sun Capital 74
10.4 Gold's Gym International, Inc
Merchandise License Agreement 83
10.5 Nutri Pharmaceutical, Inc Manufacturing Agreement 96
10.6 National Broker Dealer Service Corp. Consulting
Agreement 100
10.7 Compass Point Group, Inc. Consulting Agreement -
Investor Relations Production 102
10.8 Compass Point Group, Inc. Consulting Agreement -
Investor Relations 110
10.9 Note Payable to Showtime Partners, Shareholder
with Amendments 112
10.10 Note Receivable Carlos Schmidt, M.D., Director 117
10.11 Note Payable to Ralph Mann 118
10.12 License and Royalty Agreement - NxTrim 121
23 Consent of Sarna & Company Certified Public
Accountants 123
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Nova Pharmaceutical Inc.
/s/ Ralph Mann
Director, Chief Executive Officer
/s/ Robert Eggering
Chief Financial Officer
Date: October 8, 1999
<PAGE>41
ARTICLES OF INCORPORATION
OF
NALBANDO ENTERPRISES, INC
FIRST: The name of this corporation shall be:
NALBANDO ENTERPRISES, INC.
SECOND: Its registered office in the State of Nevada is to be located
at: 1400 Colorado St. Boulder City, Nevada, 89005, and its registered
agent at such address is SAMUEL WIERDLOW.
THIRD: The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation law of Nevada.
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is: Twenty five million (25,000,000) with a par
value of $.001 per share.
FIFTH: The first Board of Directors shall consist of one member:
Charlene Kalk, 120 S. San Fernando Road #418, Burbank California, 91502
SIXTH: The name and address of the incorporator signing these articles
of incorporation is: Charlene Kalk, 120 S. San Fernando Road, Burbank,
California, 91502
IN WITNESS HEREOF, the undersigned, being the incorporator herein
before named, has executed, signed and acknowledged this Certificate of
Incorporation this 5th day of February, 1998.
/s/ Charlene Kalk
__________________________________
CHARLENE KALK, INCORPORATOR
Subscribed and sworn to before me this 5th day of February, 1998
__________________________________
Notary Public
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF RESIDENT AGENT
SAMUEL WIERDLOW hereby accepts appointment as registered agent for the
above named corporation.
/s/Samuel Wierdlow
------------------
Dated February 5, 1998 SAMUEL WIERDLOW
<PAGE>42
BYLAWS
OF
NALBANDO ENTERPRISES, INC.
A Nevada Corporation
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal office
of the Corporation is hereby fixed in Boulder City, at 1400 COLORADO
STREET in the State of Nevada.
SECTION 2. OTHER OFFICES. Branch or subordinate offices may
be established by the Board of Directors at such other places as may be
desirable.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of shareholders shall
be held either at the principal executive office of the corporation or
at any other location within or without the State of Nevada which may
be designated by written consent of all persons entitled to vote
thereat.
SECTION 2. ANNUAL MEETINGS. The annual meeting of
shareholders shall be held on such day and at such time as may be fixed
by the Board; provided, however, that should said day fall upon a
Saturday, Sunday, or legal holiday observed by the Corporation at its
principal executive office, then any such meeting of shareholders shall
be held at the same time and place on the next day thereafter ensuing
which is a full business day. At such meetings, directors shall be
elected by plurality vote and any other proper business may be
transacted.
SECTION 3. SPECIAL MEETING. Special meetings of the
shareholders may be called for any purpose or purposes permitted under
Chapter 78 of Nevada revised Statutes at any time by the Board, the
Chairman of the Board, the President, or by the shareholders entitled
to cast not less than twenty-five percent (25%) of the votes at such
meeting. Upon request in writing to the Chairman of the Board, the
President, any Vice-President or the Secretary, by any person or
persons entitled to call a special meeting of shareholders, the
Secretary shall cause notice to be given to the shareholders entitled
to vote, that a special meeting will be held not less than thirty-five
(35) nor more than sixty (60) days after the date of the notice.
SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Written
notice of each annual meeting of shareholders shall be given not less
than ten (10) nor more than sixty (60) days before the date of the
meeting to each shareholder entitled to vote thereat. Such notice
shall state the place, date and hour of the meeting and (i) in the case
of a special meeting the general nature of the business to be
transacted, or (ii) in the case of the annual meeting, those matters
which the Board, at the time of the mailing of the notice, intends to
present for action by the shareholder, but, any proper matter may be
presented at the meeting for such action. The notice of any meeting at
which directors are to be elected shall include the names of the
nominees intended, at the time of the notice, to be presented by
management for election.
Notice of shareholders' meeting shall be given either
personally or by mail or, addressed to the shareholder at the address
of such shareholder appearing on the books of the corporation or if no
such address appears or is given, by publication at least once in a
newspaper of general circulation in Clark County, Nevada. An affidavit
of mailing of any notice, executed by the Secretary, shall be prima
facie evidence of the giving of the notice.
SECTION 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders. If a quorum is present, the affirmative vote
of the majority of shareholders represented and voting at the meeting
on any matter, shall be the act of the shareholders. The shareholders
present at a duly called or held meeting which a quorum is present may
continue to do business until adjournment, notwithstanding withdrawal
<PAGE>43
of enough shareholders to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
number of shares required as noted above to constitute a quorum.
Notwithstanding the foregoing, (1) the sale, transfer and other
disposition of substantially all of the corporation's properties and
(2) a merger or consolidation of the corporation shall require the
approval by an affirmative vote of not less than two-thirds (2/3) of
the Corporation's issued and outstanding shares.
SECTION 6. ADJOURNED MEETING AND NOTICE THEREOF. Any
shareholders meeting, whether or not a quorum is present, may be
adjourned from time to time. In the absence of a quorum (except as
provided in Section 5 of this Article), no other business may be
transacted at such meeting.
It shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted
thereat, other than by announcement at the meeting at which such
adjournment is taken; provided, however when a shareholders meeting is
adjourned for more than forty-five (45) days or, if after adjournment a
new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of an original meeting.
SECTION 7. VOTING. The shareholders entitled to notice of any
meeting or to vote at such meeting shall be only persons in whose name
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 8 of this Article.
SECTION 8. RECORD DATE. The Board may fix, in advance, a
record date for the determination of the shareholders entitled to
notice of a meeting or to vote or entitled to receive payment of any
dividend or other distribution, or any allotment of rights, or to
exercise rights in respect to any other lawful action. The record date
so fixed shall be not more than sixty (60) nor less than ten (10) days
prior to the date of the meeting nor more than sixty (60) days prior to
any other action. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution, or allotment of
rights, or to exercise of the rights, as the case may be,
notwithstanding any transfer of shares on the books of the corporation
after the record date. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall
apply to any adjournment of the meeting unless the Board fixes a new
record date for the meeting. The Board shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, a
the close of business on the business day next preceding the day on
which notice is given. The record date for determining shareholders
for any purpose other than as set in this Section 8 or Section 10 of
this Article shall be at the close of the day on which the Board adopts
the resolution relating thereto, or the sixtieth day prior to the date
of such other action, whichever is later.
SECTION 9. CONSENT OF ABSENTEES. The transactions of any
meeting of shareholders, however called and noticed, and wherever held,
are as valid as though had at a meeting duly held after regular call
and notice, if a quorum is present either in person or by proxy, and
if, either before or after the meeting, each of the persons entitled to
vote not present in person or by proxy, signs a written waiver of
notice, or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 10. ACTION WITHOUT MEETING. Any action which, under
any provision of law, may be taken at any annual or special meeting of
shareholders, may be taken without a meeting and without prior notice
if a consent in writing, setting forth the actions to be taken, shall
be signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon
were present and voted. Unless a record date for voting purposes be
fixed as provided in section 8 of this
<PAGE>44
Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 10, when no prior action by the Board
has been taken, shall be the day on which the first written consent is
given.
SECTION 11. PROXIES. Every person entitled to vote shares has
the right to do so either in person or by one or more persons
authorized by a written proxy executed by such shareholder and filed
with the Secretary not less than five (5) days prior to the meeting
SECTION 12. CONDUCT OF MEETING. The President shall preside as
Chairman at all meetings of the shareholders, unless another Chairman
is selected. The Chairman shall conduct each such meeting in a
businesslike and fair manner, but shall not be obligated to follow any
technical, formal or Parliamentary rules or principles of procedure.
The Chairman's ruling on procedural matters shall be conclusive and
binding on all shareholders, unless at the time of ruling a request for
a vote is made by the shareholders entitled to vote and represented in
person or by proxy at the meeting, in which case the decision of a
majority of such shares shall be conclusive and binding on all
shareholders without limiting the generality of the foregoing, the
Chairman shall have all the powers usually vested in the chairman of a
meeting of shareholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to limitation of the Articles of
Incorporation, of these bylaws, and of actions required to be approved
by the shareholders, the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised by or under the
direction of the Board. The Board may, as permitted by law, delegate
the management of the day-to-day operation of the business of the
corporation to a management company or other persons or officers of the
corporation provided that the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised under the
ultimate direction of the Board. Without prejudice to such general
powers, it is hereby expressly declared that the Board shall have the
following powers:
(a) To select and remove all of the officers, agents and
employees of the corporation, prescribe the powers and duties for
them as may not be inconsistent with law, or with the Articles of
Incorporation or by these bylaws, fix their compensation, and
require from them, if necessary, security for faithful service.
(b) To Conduct, manage, and control the affairs and business of
the corporation and to make such rules and regulations therefore
not inconsistent with law, with the Articles of Incorporation or
the bylaws, as they may deem best.
c To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock and to alter the form of such seal
and such of certificates from time to time in their judgment they
deem best.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such
consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecation or
other evidence of debt and securities therefor.
SECTION 2. NUMBER AND QUALIFICATIN OF DIRECTORS. The
authorized number of directs shall be one until changed by amendment of
the Articles or by a bylaw duly adopted by approval of the outstanding
shares amending this Section 2.
<PAGE>45
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall
be elected at each annual meeting of shareholders but if any such
annual meeting is not held or the directors are not elected thereat,
the directors may be elected at any special meeting of shareholders
held for that purpose. Each director shall hold office until the next
annual meeting and until a successor has been elected and qualified.
SECTION 4. CHAIRMAN OF THE BOARD. At the regular meeting of
the Board, the first order of business will be to select, from its
members, a Chairman of the Board whose duties will be to preside over
all board meetings until the next annual meeting and until a successor
has been chosen.
SECTION 5. VACANCIES. Any director may resign effective upon
giving written notice to the chairman of the Board, the President,
Secretary, or the Board, unless the notice specified a later time for
the effectiveness of such resignation. If the resignation is effective
at a future time, a successor may be elected to take office when the
resignation becomes effective.
Vacancies in the Board including those existing as a result of
a removal of a director, shall be filled by the shareholders at a
special meeting, and each director so elected shall hold office until
the next annual meeting and until such director's successor has been
elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist in
case of the death, resignation or removal of any director or if the
authorized number of directors be increased, or if the shareholders
fail, at any annual or special meeting of shareholders at which any
directors are elected, to elect the full authorized number of directors
to be voted for the meeting.
The Board may declare vacant the office of a director who has
been declared of unsound mind or convicted of a felony by an order of
court.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies. Any such election by written consent
requires the consent of a majority of the outstanding shares entitled
to vote. If the Board accepts the resignation of a director tendered
to take effect at a future time, the shareholder shall have power to
elect a successor to take office when the resignation is to become
effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of the
director's term of office.
SECTION 6. PLACE OF MEETING. Any meeting of the Board shall
be held at any place within or without the State of Nevada which has
been designated from time to time by the Board. In the absence of such
designation meetings shall be held at the principal executive office of
the corporation.
SECTION 7. REGULAR MEETINGS. Immediately following each
annual meeting of shareholders the Board shall hold a regular meeting
for the purpose of organization, selection of a Chairman of the Board,
election of officers, and the transaction of other business. Call and
notice of such regular meeting is hereby dispensed with.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board
for any purposes may be called at any time by the Chairman of the
Board, the President, or the Secretary or by any two directors.
Special meetings of the Board shall be held upon at least four
(4) days written notice or forty-eight (48) hours notice given
personally or by telephone, telegraph, telex or other similar means of
communication. Any such notice shall be addressed or delivered to each
director at such director's address as it is shown upon the records of
the Corporation or as may have been given to the Corporation by the
director for the purposes of notice.
SECTION 9. QUORUM. A majority of the authorized number of
directors constitutes a quorum of the Board for the transaction of
business, except to adjourn as hereinafter provided. Every act or
decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded as the
act of the Board, unless a greater number be required by law or by the
<PAGE>46
Articles of Incorporation. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a
majority of the number of directors required as noted above to
constitute a quorum for such meeting.
SECTION 10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board may participate in a meeting through use of
conference telephone or similar communications equipment so long as all
members participate in such meeting can hear one another.
SECTION 11. WAIVER OF NOTICE. The transactions of any meeting
of the Board, however called and noticed or wherever held, are as valid
as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of
the directors not present signs a written waiver of notice, a consent
to holding such meeting or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate
records or made part of the minutes of the meeting.
SECTION 12. ADJOURNMENT. A majority of the directors present,
whether or not a quorum is present, may adjourn any directors' meeting
to another time and place. Notice of the time and place of holding an
adjourned meeting need not be given to absent directors if the time and
place be fixed at the meeting adjourned. If the meeting is adjourned
for more than forty-eight (48) hours, notice of any adjournment to
another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of
adjournment.
SECTION 13. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services,
and such reimbursement for expenses, as may be fixed or determined by
the Board.
SECTION 14. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board may be taken without a meeting if
all members of the Board shall individually or collectively consent in
writing to such action. Such consent or consents shall have the same
effect as a unanimous vote of the Board and shall be filed with the
minutes of the proceedings of the Board.
SECTION 15. COMMITTEES. The board may appoint one or more
committees, each consisting of two or more directors, and delegate to
such committees any of the authority of the Board except respect to:
The approval of any action which requires shareholders' approval or
approval of the outstanding shares;
The filling of vacancies on the Board or on any committees;
The fixing of compensation of the directors for serving on the
Board or on any committee;
The amendment or repeal of bylaws or the adoption of new bylaws;
The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable by a committee of
the board;
A distribution to the shareholders of the corporation;
The appointment of other committees of the Board or the members
thereof.
Any such committee must be appointed by resolution adopted by a
majority of the authorized number of directors and may be designated an
Executive Committee or by such other name as the Board shall specify.
The Board shall have the power to prescribe the manner in which
proceedings of any such committee shall be conducted. Unless the Board
or such committee shall otherwise provide, the regular or special
meetings and other actions of any such committee shall be governed by
the provisions of this Article applicable to meetings and actions of
the Board. Minutes shall be kept of each meeting of each committee.
<PAGE>47
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be
a president, a secretary and a treasurer. The corporation may also
have, at the discretion of the Board, one or more vice-presidents, one
or more assistant vice presidents, one or more assistant secretaries,
one or more assistant treasurer and such other officers as may be
elected or appointee in accordance with the provisions of Section 3 of
this Article.
SECTION 2. ELECTION. The officers of the corporation, except
such officers as may be elected or appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be chosen
annually by, and shall serve at the pleasure of, the Board, and shall
hold their respective offices until their resignation, removal or other
disqualification from service, or until their respective successors
shall be elected.
SECTION 3. SUBORDINATE OFFICERS. The Board may elect, and may
empower the President to appoint, such other officers as the business
of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in
these bylaws or as the Board, or the President may from time to time
direct.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by the Board of Directors at any
time, or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to
the corporation. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein. The
acceptance of such resignation shall be necessary to make it effective.
SECTION 5. VACANICES. A vacancy of any office because of
death, resignation, removal, disqualification, or any other cause shall
be filled in the manner prescribed by these bylaws for the regular
election or appointment to such office.
SECTION 6. PRESIDENT. The President shall be the chief
executive officer and general manager of the corporation. The
President shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board at all meetings of the Board.
The president has the general powers and duties of management usually
vested in the chief executive officer and the general manager of a
corporation and such other powers and duties as may be prescribed by
the Board.
SECTION 7. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by
the Board or, if not ranked, the Vice President designated by the
Board, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the
restrictions upon the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the President or the Board.
SECTION 8. SECRETARY. The Secretary shall keep or cause to be
kept, at the principal executive offices and such other place as the
Board may order, a book of minutes of all meeting of shareholders, the
Board, and its committees, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at Board and committee meetings, the
number of shares present or represented at shareholders' meetings, and
proceedings thereof. The Secretary shall keep, or cause to be kept, a
copy of the bylaws of the corporation at the principal executive office
of the corporation.
The Secretary shall keep, or cause to be kept, at the principal
executive office, a share register, or a duplicate share register,
showing the names of the shareholders and their addresses, the number
and classes of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
<PAGE>48
The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board and any committees
thereof required by these bylaws or by law to be given, shall keep the
seal of the corporation in safe custody, and shall have such other
powers and perform such other duties as may be prescribed by the Board.
SECTION 9. TREASURER. The Treasurer is the chief financial
officer of the corporation and shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties
and financial transactions of the corporation, and shall send or cause
to be sent to the shareholders of the corporation such financial
statements and reports as are by law or these bylaws required to be
sent to them.
The Treasurer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as
may be designated by the Board. The Treasurer shall disburse the funds
of the corporation as may be ordered by the Board, shall render to the
President and directors, whenever they request it, an account of all
transactions as Treasurer shall disburse the funds of the corporation
as may be ordered by the Board, shall render to the president and
directors, whenever they request it, an account of all transactions as
Treasurer and of the financial conditions of the corporation, and shall
have such other powers and perform such other duties as may be
prescribed by the Board.
SECTION 10. AGENTS. The President, any Vice-President, the
Secretary or Treasurer may appoint agents with power and authority, as
defined or limited in their appointment, for and on behalf of the
corporation to execute and deliver, and affix the seal of the
corporation thereto, to bonds, undertakings, recognizance, consents of
surety or other written obligations in the nature thereof and any said
officers may remove any such agent and revoke the power and authority
given to him.
ARTICLE V
OTHER PROVISIONS
SECTION 1. DIVIDENDS. The Board may from time to time
declare, and corporation may pay, dividends on its outstanding shares
in the manner and on the terms and conditions provided by law, subject
to any contractual restrictions on which the corporation is then
subject.
SECTION 2. INSPECTION OF BY-LAWS. The Corporation shall keep
in its Principal executive Office the original or a copy of these
bylaws as amended to date which shall be open to inspection to
shareholders at all reasonable times during office hours. If the
Principal Executive Office of the corporation is outside the State of
Nevada, and the Corporation has no principal business office in such
State, it shall upon the written notice of any shareholder furnish to
such shareholder a copy of these bylaws as amended to date.
SECTION 3. REPRESENTATION OF SHARES OF OTHER. CORPORATIONS.
The President or any other officer or officers authorized by the Board
or the President are each authorized to vote, represent, and exercise
on behalf of the Corporation all rights incident to any and all shares
of any other corporation or corporations standing in the name of the
Corporation. The authority herein granted may be exercised either by
any such officer in person or by any other person authorized to do so
by proxy or power of attorney duly executed by said officer.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION IN ACTIONS BY THIRD PARTIES.
Subject to the limitations of law, if any, the corporation shall have
the power to indemnify any director, officer, employee and agent of the
corporation who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of to
procure a judgement in its favor) against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding, provided that the Board shall find
that the director, officer, employee or agent acted in good faith and
in a manner which such person reasonably believed in the best interests
of the corporation and, in the case of criminal proceedings, had no
reasonable cause to believe the conduct was unlawful. The termination
of any proceeding by judgement, order, settlement, conviction or upon a
plea of noel contender shall not, of itself create a presumption that
<PAGE>49
such person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of the corporation or
that such person had reasonable cause to believe such person's conduct
was unlawful.
SECTION 2. INDEMNIFICATION IN ACTIONS BY OR ON BEHALF OF THE
CORPORATION. Subject to the limitations of law, if any, the
Corporation shall have the power to indemnify any director, officer,
employee and agent of the corporation who was or is threatened to be
made a party to any threatened, pending or completed legal action by or
in the right of the Corporation to procure a judgement in its favor,
against expenses actually and reasonable incurred by such person in
connection with the defense or settlement, if the Board of directors
determine that such person acted in good faith, in a manner such person
believed to be in the best interests of the Corporation and with such
care, including reasonable inquiry, as an ordinarily prudent person
would use under similar circumstances.
SECTION 3. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by the Corporation prior to
the final disposition of such proceeding upon receipt of an undertaking
by or on behalf of the officer, director, employee or agent to repay
such amount unless it shall be determined ultimately that the officer
or director is entitled to be indemnified as authorized by the Article.
SECTION 4. INSURANCE. The corporation shall have power to
purchase and maintain insurance on behalf of any officer, director,
employee or agent of the Corporation against any liability asserted
against or incurred by the officer, director, employee or agent in such
capacity or arising out of such person's status as such whether or not
the corporation would have the power to indemnify the officer, or
director, employee or agent against such liability under the provisions
of this Article.
ARTICLE VII
AMENDMENTS
These bylaws may be altered, amended or repealed either by
approval of a majority of the outstanding shares entitled to vote or by
the approval of the Board; provided however that after the issuance of
shares, a bylaw specifying or changing a fixed number of directors or
the maximum or minimum number or changing from a fixed to a flexible
Board or vice versa may only be adopted by the approval by an
affirmative vote of not less than two-thirds of the corporation's
issued and outstanding shares entitled.
<PAGE>50
State Of Nevada
Articles Of Merger
OF DOMESTIC CORPORATIONS
NalBando Enterprises, Inc.
And Nova Pharmaceutical Inc
We the undersigned Charlene Kalk, President and Secretary of NALBANDO
ENTERPRISES, INC. and Ralph Mann, President, and James Ayres, Secretary
of Nova Pharmaceutical Inc. do hereby certify:
FIRST: The parties to this merger are NALBANDO ENTERPRISES, INC., by
its Articles of Incorporation which were filed in the office of The
Nevada Secretary of State on the 6th day of February 1998, and NOVA
PHARMACEUTICAL INC, by its Articles of Incorporation which were filed
in the office of the Nevada Secretary of State on the 8th day of January
1998, both corporations organized under the jurisdiction of the
corporate laws of the State of Nevada; and
SECOND: By the unanimous written consent of the Board of Directors of
NALBANDO ENTERRPRISES, INC., on 30th day of April 1998, resolutions were
duly adopted setting forth a proposed Merger between said corporation
and NOVA PHARMACEUTICAL INC., declaring said Merger to be advisable and
calling for the stockholders to adopt the Plan of Merger by written
consent. The resolution setting forth the proposed Merger is as
follows:
RESOLVED, that the Plan Of Merger between the Board of Directors of
NALBANDO ENTERPRISES, INC., and the Board of Directors of NOVA
PHARMACEUTICAL INC., is hereby adopted in full.
By the unanimous written consent of the Board of Directors of NOVA
PHARMACEUTICAL, INC., on 30th day of April 1998, resolutions were duly
adopted setting forth a proposed Merger between said corporation and
NALBANDO ENTERPRISES INC., declaring said Merger to be advisable and
calling for the stockholders to adopt the Plan of Merger by written
consent. The resolution setting forth the proposed Merger is as
follows:
RESOLVED, that the Plan of Merger between the Board of Directors of
NALBANDO ENTERPRISES, INC., and the Board of Directors of NOVA
PHARMACEUTICAL, INC., is hereby adopted in full.
THIRD: Thereafter, pursuant to the resolutions of each corporation's
Board of Directors, the Plan of Merger was approved by the unanimous
written consent of the shareholders of both corporations in the
following manner:
Unanimous written consent of all of the stockholders of both
corporations were duly obtained in accordance with NRS 78:320, in which
consents all of the shareholders of each corporation consented to the
Plan of Merger.
FOURTH: The surviving corporation shall be NALBANDO ENTERPRISES, INC.,
FIFTH: Until altered, amended or repealed, as therein provided, the
Articles of Incorporation of NALBANDO ENTERRPRISES, INC., party to the
merger, as in effect at the date of this agreement, shall be the
Articles of Incorporation of NALBANDO ENTERPRISES, INC., the surviving
corporation, except that Article First of NALBANDO ENTERPRISES, Inc.'s
Articles of Incorporation shall be amended upon the effective date to
read in its entirety as follows:
FIRST: The name of the corporation shall be:
NOVA PHARMACEUTICAL, INC.
SIXTH: The complete executed Plan of Merger is on file at 31712 Casino
Drive, Suite 7B, Lake Elsinore, CA 92530, the principal place of
business of the surviving corporation. A copy of the entire Plan Of
Merger will be furnished by the surviving corporation, NALBANDO
ENTERPRISES, INC. on request and without cost, to any stockholder of
the corporations who is a party to the merger.
<PAGE>51
IN WITNESS THEREOF, the undersigned Charlene Kalk, President and
Secretary of NALBANDO ENTERPRISES INC. and Ralph Mann, President, and
James Ayres, Secretary, of NOVA PHARMACEUTICAL INC., have executed,
signed and acknowledged these ARTICLES OF MERGER this 30th day of April
1998.
NALBANDO ENTERPRISES INC.
/s/ Charlene Kalk
_________________________________
Charlene Kalk, President
NALBANDO ENTERPRISES, INC.
/s/ Charlene Kalk
___________________________________
Charlene Kalk, Secretary
State of: ________________)
} ss.
County of: __________ }
On ______________________, 1998 personally appeared before me, a
Notary Public, Charlene Kalk, president and secretary of NALBANDO
ENTERPRISES, INC., who acknowledged she executed the above instrument.
___________________________________
Notary Public
NOVA PHARMACEUTICAL, INC.
/s/ Ralph Mann
________________________________
Ralph Mann, President
NOVA PHARMACEUTICAL, INC.
/s/ James Ayres
_________________________________
James Ayres, Secretary
State of: California }
}ss.
County of: Riverside }
On________________personally appeared before me, a Notary Public, Ralph
Mann, President and James Ayres, Secretary, of NOVA PHARMACEUTICAL,
INC. who acknowledged they executed the above instrument.
<PAGE>52
PLAN OF MERGER
This Plan of Merger, dated this 30th day of April, 1998 made by and
between NALBANDO ENTERPRISES, INC. party of the first part, a
corporation organized and existing under and by virtue of the laws of
the state of Nevada, and NOVA PHARMACEUTICAL, INC., party of the
second part, a corporation organized and existing under and by virtue
of the laws of the state of Nevada.
Witnesseth that:
Whereas the board of directors of each of said corporations, parties
hereto, in consideration of the mutual agreements of each corporation
as set forth herein, do deem it advisable and generally to the welfare
of said corporations and their respective stockholders, that NALBANDO
ENTERPRISES, INC., the party of the first part, merge into itself NOVA
PHARMACEUTICAL, INC., party of the second part, and that NOVA
PHARMACEUTICAL, INC., party of the second part should be merged into
NALBANDO ENTERPRISES, INC., the party of the first part, as authorized
by the statutes of the state of Nevada, under and pursuant to the terms
and conditions hereinafter set forth; and
Whereas said NALBANDO ENTERPRISES, INC., the party of the first part,
by its articles iv incorporation which were filed in the office of the
secretary of state of Nevada on February 6, 1998, has authorized
capital stock consisting of 25,000,000 shares of common stock, of the
par value of one-tenth of one cent ($.001) each, amounting in the
aggregate to twenty-five thousand dollars ($25,000), of which capital
stock one million four hundred thousand (1,400,000) shares of such
common stock are now issued and outstanding.
Whereas said NOVA PHARMACEUTICAL, INC, the party of the second part, by
its articles of incorporation which were filed in the office of the
secretary of state of Nevada on January 8th of 1998, has authorized
capital stock consisting of 25,00,000 shares of common stock of one
tenth of one cent ($.001) par value, and 2,500,000 shares of preferred
stock of one cent ($.01) par value, of which capital stock two million
five hundred thousand (2,500,000) share of common stock and no shares
of preferred stock are now issued and outstanding; and
Whereas, the principal office of said NALBANDO ENTERPRISES, INC., party
of the first part, is located at 4001 Kennett Pike #134, Wilmington,
Delaware 19807,and the name and address of its resident agent is Samuel
Wierdlow, 1400 Colorado St., Boulder City, Nevada, 89005; and the
principal office of NOVA PHARMACEUTICAL, INC, party of the second part,
is located at 31712 Casino Drive, Lake Elsinore, California, 92530,
and the name and address of its registered agent is Rite, Inc.,1905 S.
Eastern Ave. Las Vegas, Nevada, 89104.
Now, therefore, the corporations, parties to this agreement, by and
between their respective boards of directors, in consideration of the
mutual covenants, agreements and provisions hereinafter contained have
agreed and do hereby agree each with the other that NALBANDO
ENTERPRISES, INC., party of the first part, merge into itself NOVA
PHARMACEUTICAL, INC., and likewise NOVA PHARMACEUTICAL, INC., party of
the second part, shall be merged into NALBANDO ENTERPRISES, INC., party
of the first part, pursuant to NRS 92A.100, 92A.120, 92A.200, and do
hereby agree upon and prescribe the terms and conditions of said merger
and of carrying the same into effect as follows:
(1) First: NALBANDO ENTERPRISES, INC., party of the first part, hereby
merges itself into NOVA PHARMACEUTICAL, INC., party of the second part,
and likewise said NOVA PHARMACEUTICAL, INC., party of the second part,
shall be and hereby is merged into NALBANDO ENTERPRISES, INC., party of
the first part, which shall be the surviving corporation, hereinafter
usually referred to as "THE CORPORATION."
(2) Second: The facts required to be set forth in he Articles of
Merger of a corporation incorporated under the laws of the state of
Nevada, which can be stated in the case of the merger provided for in
this agreement, are as follows:
The name and jurisdiction of organization of each constituent entity;
<PAGE>53
That a plan of merger or exchange has been adopted by each constituent
entity;
If approval of the owners of the parent was not required, a statement
to that effect;
If approval of the owners of one or more constituent entities was
required, a statement that:
The plan was approved by the unanimous consent of the owners; or
A plan was submitted to the owners pursuant to this chapter including:
The designation, percentage of total vote or number of votes entitled
to vote separately on the plan; and
Either the total number of votes or percentage of owners of each class
of interests entitled to vote separately on the plan or the total
number of undisputed votes or undisputed total percentage of owner's
interests cast for the plan separately by the owners of each class, and
the number of votes or percentage of owner's interests cast for the
plan by the owners of each class of interests was sufficient for
approval by the owners of that class;
In the case of a merger, the amendment to the articles of
incorporation, articles of organization or certificate of limited
partnership of the surviving entity; and
If the entire plan of merger or exchange is not set forth, a statement
that the complete executed plan of merger or plan of exchange is on
file at the registered office if a corporation or limited-liability
company, office described in paragraph (a) of Subsection 1 of NRS
88.330 if a limited partnership, principal place of business if a
general partnership, or other place of business of the surviving entity
or the acquiring entity, respectively.
Third: The manner of converting the outstanding shares of the capital
stock of each of the constituent corporations into the shares of the
other securities of the corporation shall be as follows:
Forthwith upon the filing of the Certificate of Merger as required by
law:
Each share of common stock of said NOVA PHARMACEUTICAL, INC., shall be
converted into four (4) shares of the common stock of the CORPORATION,
and each holder of shares of the common stock of said NOVA
PHARMACEUTICAL, INC., upon the surrender to THE CORPORATION of one or
more certificates of such shares for cancellation, shall be entitled to
receive one or more certificates for the number of shares represented
by the certificates so surrendered for cancellation by such holder
multiplied by four (4).
There will be no conversion of the common stock of NALBANDO
ENTERPRISES, INC. The shares issued and outstanding shall remain
issued and outstanding.
Fourth: The terms and conditions of the merger are as follows:
ARTICLES OF INCORPORATION
Until altered, amended or repealed, as therein provided, the Articles
of Incorporation of NALBANDO ENTERPRISES, INC., party of the first
part, as in effect at the date of this agreement, shall be the Articles
of Incorporation of THE CORPORATION, except that said Article First of
NALBANDO ENTERPRISES, INC.'S Articles of Incorporation shall be amended
upon the effective date to read in it's entirety as follows:
FIRST: The name of this corporation shall be
:
NOVA PHARMACEUTICAL, INC
As so amended, the Amended Articles of Incorporation of NALBANDO
ENTERPRISES, INC. shall be the Articles of Incorporation of THE
CORPORATION after the effective date, and thereafter may be amended in
accordance with its terms as provided by law.
<PAGE>54
BYLAWS
Until altered, amended, or repealed, as therein provided, the bylaws of
NALBANDO ENTERPRISES, INC., party of the first part, as in
effect at the date of this agreement, shall be the bylaws of THE
CORPORATION, except that Article 3 section 2 of the Bylaws shall be
amended as follows:
SECTION 2. NUMBER AND TERM. The number of directors shall be four.
The directors shall be elected to serve until his successor shall be
elected and qualify. The number of directors may be increased at any
time pursuant to Article 3 section 2 of these Bylaws.
DIRECTORS.
The directors shall be: Ralph Mann, James Ayres, John Michael, and Dr.
Carlos Schmidt.
OFFICERS
The officers of THE CORPORATION shall be a President/CEO, Vice
President, and a Secretary/Treasurer, and the names and places of
residence of the officers of THE CORPORATION, who shall hold such
offices as are set before their names from and after the date when this
agreement shall become effective and until the first meeting of the
board of directors to be held thereafter, are as follows:
Office Name Address
President & CEO Ralph Mann 31712 Casino Dr. , Ste. 7B
Lake Elsinore, Ca 92530
Vice President James Ayres 31712 Casino Dr. Ste 7B
Lake Elsinore, Ca 92530
Secretary James Ayres 31712 Casino Dr. Ste 7B
Lake Elsinore, Ca 92530
Treasurer Ralph Mann 31712 Casino Dr. Ste. 7B
Lake Elsinore, Ca 92530
REGULAR MEETING
The first regular meeting of the board of directors of THE CORPORATION
to be held after the date when this agreement shall become effective,
may be called or may convene in the manner provided in the bylaws of
THE CORPORATION and may be held at the time and place specified in the
notice of the meeting.
EFFECTIVE DATE
The "effective date" of this merger agreement to be effected pursuant
to the provisions hereof shall, for all of the purposes herein, be and
be deemed to be the date when the Articles of Merger duly signed and
acknowledged, shall have been filed and recorded as required by the
laws of the state of Nevada.
EXPENSES
THE CORPORATION shall pay all expenses of carrying this Plan of Merger
into effect and of accomplishing the merger.
(H) EFFECT OF MERGER
Upon the date when this agreement shall become effective, the separate
existence of NOVA PHARMACEUTICAL, INC. shall cease, and NOVA
PHARMACEUTICAL, INC. shall be merged into NALBANDO ENTERPRISES, INC.,
the surviving corporation in accordance with the provisions of this
agreement, which corporation shall possess all the rights, privileges,
powers and franchises as well of a public as of a private nature and be
subject to all the restrictions, disabilities, and duties of each of
the corporations, parties to this agreement, and all and singular, the
rights, privileges, powers and franchises of each of said corporations,
and all property, real, personal and mixed, and all debts due to each
of such corporations shall be vested in the surviving corporation; and
all property, right and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of
the surviving corporation as they were of the respective constituent
<PAGE>55
corporations, and the title to any real estate, whether by deed or
otherwise, vested in any of said corporations, parties hereto, shall
not revert or be in any way impaired by reason of this merger, provided
that all rights of creditors and all liens upon the property of any of
said corporations, parties hereto, shall be preserved unimpaired, and
all debts, liabilities and duties of NOVA PHARMACEUTICAL, INC., party
of the second part, shall thenceforth attach to the said surviving
corporation and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by
it.
If at any time THE CORPORATION shall consider or be advised that any
further assignments or assurances in law or any things are necessary or
desirable to vest in said corporation, according to the terms hereof,
the title to any property or rights of said NOVA PHARMACEUTICAL, INC.,
party of the second part, the proper officers and directors of said
corporation shall and will execute and make all such proper assignments
and assurances and do all thins necessary or proper to vest title in
such property or rights in THE CORPORATION, and otherwise to carry out
the purposes of this Plan of Merger.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Plan of Merger which may be contained
in the articles of incorporation of a corporation organized under the
Corporation Law of Nevada, in the manner now or hereafter prescribed by
said Corporation Law, and all rights conferred upon stockholders
herein are granted subject to this reservation.
STOCK EXCHANGE LISTING
The CORPORATION will strive toward listing on the Electronic Bulletin
Board and THE CORPORATION shall make all reasonable efforts to maintain
such listing once it is achieved.
EMPLOYMENT CONTRACTS/AGREEMENTS
Any and all employment contracts or agreements with THE CORPORATION
shall be attached as Exhibit B to this document.
CONDUCT OF BUSINESS PENDING MERGER
Both Surviving and Non-Surviving Corporation shall conduct their
business in the ordinary and usual course, and there shall be no
material changes in the conduct of their operations.
Neither Non-Surviving Corporation nor Surviving Corporation shall sell,
pledge, or issue or agree to sell, pledge or issue any stock owned by
it, or amend its Articles of Incorporation or By-Laws, or split,
combine, or reclassify the outstanding Stock, or pay dividends.
REPRESENTATIONS AND WARRANTIES
Surviving Corporation, NALBANDO ENTERPRISES, INC., represents warrants
to the Non-Surviving corporation, NOVA PHARMACEUTICAL, INC., as
follows:
All filings required of NALBANDO ENTERPRISES, INC. are current and up
to date. None of the information supplied therein contains any untrue
statement of a material fact or omits to make any statement of material
fact necessary to make the statements therein not misleading.
Non-Surviving Corporation, NOVA PHARMACEUTICAL, INC. represents and
warrants to the acquiring corporation NALBANDO ENTERPRISES, INC. as
follows:
All filings required of NOVA PHARMACEUTICAL, INC. are current and up to
date. All information supplied to NALBANDO ENTERPRISES, INC. in the
Business Plan and Proforma and otherwise is accurate and reliable
information. None of the information supplied contains any untrue
statement of material fact or omits to make any statement of material
fact necessary to make the statements therein not misleading.
REMEDIES FOR BREACH
Surviving Corporation, NALBANDO ENTERPRISES, INC., and the Non
Surviving corporation, NOVA PHARMACEUTICAL, INC., acknowledge and agree
that irreparable damage would occur in the event any of the provisions
of this agreement were not performed in accordance with their specific
<PAGE>56
terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this agreement and to enforce
specifically the terms and provisions hereof in any court of the United
States or any State thereof having jurisdiction, in addition to any
other remedy to which they might be entitled to at law or equity.
Fifth: The Certificate of Merger shall be filed in the office of the
Secretary of State of Nevada and this Plan of Merger shall be effective
upon the filing thereof.
In witness whereof, the parties to this agreement, pursuant to
authority duly given by their respective boards of directors have
caused this plan of merger to be executed by a majority of the
directors of each party hereto, and the corporate seal affixed.
NALBANDO ENTERPRISES, INC.
/s/ Charlene Kalk
By: CHARLENE KALK, Director
A Majority of the Board of Directors
(Corporate seal)
/s/ Charlene Kalk
Attest:_____________________________
By: CHARLENE KALK, SECRETARY
NOVA PHARMACEUTICAL, INC.
/s/ Ralph Mann
______________________________
By: MR. RALPH MANN, Director
/s/ James Ayres
______________________________
By: MR. JAMES AYRES, Director
/s/ Carlos Schmidt
______________________________
By: DR. CARLOS SCHMIDT, Director
A Majority of the Board of Directors
(Corporate seal)
/s/ James Ayres
Attest: _____________________________
By: JAMES AYRES, Secretary
I, CHARLENE KALK, Secretary of NALBANDO ENTERPRISES, INC., a
corporation organized and existing under the laws of the state of
Nevada, hereby certify, as such Secretary and under the seal of the
said corporation, that the Plan of Merger to which this certificate is
attached, after having been first duly signed on behalf of the said
corporation by a majority of the directors thereof and having been
signed by a majority of the directors of NALBANDO ENTERPRISES, INC., a
corporation of the state of Nevada was duly adopted pursuant to NRS
92A. 100 and 92A. 120, by the written consent of the stockholders
holding 100% of the shares of the capital stock of NALBANDO
ENTERPRISES, INC., same being a majority of the shares issued and
outstanding and that a signed copy of the consent is attached hereto
and made a part of the Plan of Merger.
Witness my hand and the seal of said NALBANDO ENTERPRISES, INC., on
this 30th day of April, 1998
/s/ Charlene Kalk
Attest: _____________________________
By: CHARLENE KALK, Secretary
(Corporate seal)
I, MR. JAMES AYRES, Secretary of NOVA PHARMACEUTICAL, INC., a
corporation organized and existing under the laws of the state of
Nevada, hereby certify, as such Secretary and under the seal of the
said corporation, that the Plan of Merger to which this certificate is
<PAGE>57
attached, after having been first duly signed on behalf of the said
corporation by a majority of the directors thereof and having been
signed by a majority of the directors of NOVA PHARMACEUTICAL, INC., a
corporation of the state of Nevada, was duly adopted pursuant to NRS
92A. 100 and 92A. 12 by the written consent of the stockholders holding
100% of the shares of the capital stock of NOVA PHARMACEUTICAL, INC.,
same being a majority of the shares issued and outstanding and that a
signed copy of the consent is attached hereto and made a part of the
Plan of Merger.
Witness my hand and the seal of said NOVA PHARMACEUTICAL, INC., on this
30th day of April, 1998
/s/ James Ayres
Attest: ______________________________
By: MR. JAMES AYRES, Secretary
(Corporate seal)
The above Plan of Merger, having been executed by a majority of the
board of directors of each corporate party thereto, and having been
adopted separately by the stockholders of each corporate party thereto,
in accordance with the provisions of the Corporation Law of the state
of Nevada, and that fact having been certified on said Plan of Merger
by the Secretary of each corporate party thereto do now hereby execute
the said Plan of Merger under the corporate seals of their respective
corporations, by authority of the directors and stockholders thereof,
as the respective act, deed and agreement of each said corporations, on
this 30th day of April, 1998.
NALBANDO ENTERPRISES, INC.
/s/ Charlene Kalk
___________________________________
By: CHARLENE KALK, President
/s/ Charlene Kalk
___________________________________
By: CHARLENE KALK, Secretary
(Corporate seal)
/s/ Charlene Kalk
Attest: ______________________________
By: CHARLENE KALK, Secretary
STATE OF CALIFORNIA )
) SS:
COUNTY OF LOS ANGELES )
Be it remembered that on this 30th day of April, A.D. 1998, personally
came before me, a notary public, in and for the county and state
aforesaid, CHARLEN KALK, President of NALBANDO ENTERPRISES, INC., a
corporation of the state of Nevada and one of the corporations
described in and which executed the foregoing Plan of Merger, known to
me personally to be such, and she the said president. As such
president duly executed said Plan of Merger before me and acknowledged
said NALBANDO ENTERPRISES, INC., that the signatures of the said
president and the secretary of said corporation to said foregoing Plan
of Merger are in the handwriting of said president and secretary of
said NALBANDO ENTERPRISES, INC., and that the seal affixed to said Plan
of Merger is the common corporate seal of said corporation.
In witness whereof, I have hereunto set my hand and seal of office the
day and year aforesaid.
____________________________
Notary Public
My Commission expires: 12/8/01
The above Plan of Merger, having been executed by a majority of the
board of directors of each corporate party thereto, and having been
adopted separately by the stockholders of each corporate party thereto,
in accordance with the provisions of the Corporation Law of the state
of Nevada, and that fact having been certified on said Plan of Merger
by the Secretary of each corporate party thereto do now hereby execute
<PAGE>58
the said Plan of Merger under the corporate seals of their respective
corporations, by authority of the directors and stockholders thereof,
as the respective act, deed and agreement of each said corporations, on
this 30th day of April, 1998.
NOVA PHARMACEUTICAL, INC.
/s/ Ralph Mann
___________________________________
By: MR. RALPH MANN, President
/s/ James Ayres
___________________________________
By: MR. JAMES AYRES, Secretary
(Corporate seal)
/s/ James Ayres
Attest: ______________________________
By: MR. JAMES AYRES, Secretary
STATE OF CALIFORNIA )
) SS:
COUNTY OF )
Be it remembered that on this 30th day of April, A.D. 1998, personally
came before me, a notary public, in and for the county and state
aforesaid, RALPH MANN, President of NOVA PHARMACEUTICAL, INC., a
corporation of the state of Nevada and one of the corporations
described in and which executed the foregoing Plan of Merger, known to
me personally to be such, and she the said president. As such
president duly executed said Plan of Merger before me and acknowledged
said NOVA PHARMACEUTICAL, INC., that the signatures of the said
president and the secretary of said corporation to said foregoing Plan
of Merger are in the handwriting of said president and secretary of
said NOVA PHARMACEUTICAL, INC., and that the seal affixed to said Plan
of Merger is the common corporate seal of said corporation.
In witness whereof, I have hereunto set my hand and seal of office the
day and year aforesaid.
____________________________
Notary Public
My Commission expires:
<PAGE>59
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
NOVA PHARMACEUTICAL, INC.
Nova Pharmaceutical, Inc. (the "Company"), a corporation organized and
existing under the Nevada Business Corporation Act of the State of
Nevada, does hereby certify that, pursuant to authority conferred upon
the Board of Directors of the Company by the Articles of Incorporation
of the Company, and pursuant to Section 78.196 of the Nevada Revised
Statutes, the Board of Directors of the Company at a meeting duly held,
adopted resolutions (i) authorizing a series of the Company's
authorized preferred stock, $.01 par value per share, and (ii)
providing for the designations, preferences, and relative,
participating, optional, or other rights, and the qualifications,
limitations, or restrictions thereof, of Two Million (2,000,000) shares
of Series A Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue Two Million
(2,000,000) shares of Series A Convertible Preferred Stock (the "Series
A Preferred Shares"), $.01 par value per share, which shall have the
following powers, designations, preferences, and other special rights:
Section 1 - Dividends.
A holder of Series A Preferred Shares shall be entitled to receive, out
of funds legally available thereof, when, as, and if declared by the
Board of Directors, dividends.
Section 2 - Voting Rights
Except as otherwise provided by law, holders of Series A Preferred
Shares shall vote on all matters together as a single class with all
other stockholders of the Company. In such matters, a holder of
Series A Preferred Shares will e entitled to a number of votes equal to
the number of shares of Common Stock into which his Series A Preferred
Shares are then convertible.
Section 3 - Holder's Conversion of Series A Preferred Shares.
A holder of Series A Preferred Shares shall have the right, at such
holder's option, to convert the Series A Preferred Shares into shares
of the Company's common stock, $.001 par value per share (the "Common
Stock"), on the following terms and conditions:
(a) Optional Conversion Right. Each Share is convertible at the
option of the holder thereof at any time into Common Stock on a
one-for-one basis, subject to adjustment to prevent dilution in
certain circumstances, as summarized below.
(b) Automatic Conversion. Each Share shall automatically be
converted into shares of Common Stock upon the earlier of either (I)
the closing of a firm commitment underwritten offering pursuant to an
effective registration statement under the Securities Act covering the
offer and sale of any Common Stock for the account of the Company to
the public at an aggregate offering price of not less than $7,500,000,
(or (ii) upon the aggregate remaining outstanding number of Shares of
Series A Preferred Stock being less than or equal to 100,000
(c) Mechanics of Conversion.
(i) Holder's Delivery Requirements. To convert Series A Preferred
Shares into full shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) deliver or transmit by facsimile,
for receipt on or prior to 11:59 P.M., Eastern Standard Time, on such
date, a copy of a fully executed notice of conversion in the form
attached hereto as Exhibit I (the "Conversion Notice") to the Company
or its designated transfer agent (the "Transfer Agent"), and (B)
surrender to a common carrier for delivery to the Company or the
Transfer Agent as soon as practicable following such date, the original
<PAGE>60
certificates representing the Series A Preferred Shares being converted
(or an indemnification undertaking with respect to such shares in the
case of their loss, theft, or destruction) (the "Preferred Stock
Certificates") and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately
send, via Facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted pursuant to a
Conversion Notice, together with the originally executed Conversion
Notice, the Company or the Transfer Agent (as applicable) shall, within
five (5) business days following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B) credit the aggregate
number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account at Company's Transfer
Agent
.
(iii) Record Holder. 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 on the Conversion
Date.
(iv) Company's Failure to Timely Convert. If the Company
shall fail to issue to a holder within five (5) business days following
the date of receipt by the Company or the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to a Conversion
Notice, a certificate for the number of shares of Common Stock to which
such holder is entitled upon such holder's conversion of Series A
Preferred Shares, in addition to all other available remedies which
such holder may pursue hereunder, the Company shall pay additional
damages to such holder on each day after the fifth (5th) business day
following the date of receipt by the Company or the Transfer Agent of
the Preferred Stock Certificates to be converted pursuant to the
Conversion Notice, for which such conversion is not timely effected, an
amount equal to 1.0% of the product of (A) the number of shares of
Common Stock not issued to the holder and to which such holder is
entitled and (B) the Closing Bid Price of the Common Stock on the
business day following the date of receipt by the Company or the
Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to the Conversion Notice.
(d) Fractional Shares. The Company shall not issue any fraction of
a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more
than one share of the Series A Preferred Shares by a holder thereof
shall be aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of Common Stock.
If, after the aforementioned aggregation, the issuance would result in
the issuance of a fraction of it share of Common Stock, the Company
shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(e) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares.
<PAGE>61
Section 4 - Reorganization, Reclassification, Consolidation, Merger, or
Sale.
Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to
another Person (as defined below), or other similar 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 in "Organic Change." Prior to the
consummation of any Organic Change, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a
majority of the Series A Preferred Shares then outstanding) to insure
that each of the holders of the Series A Preferred Shares 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 conversion
of such holder's Series A Preferred Shares, such shares of stock,
securities, or assets as may be issued or payable with respect to, or
in exchange for, the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make appropriate provision
(in form and substance satisfactory to the holders of a majority of the
Series A Preferred Shares then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this
Section 3(c)(iv) and Section 5 below will thereafter be applicable to
the Series A Preferred Shares. The Company will not effect any such
consolidation, merger, or sale, unless prior to the consummation
thereof the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes,
by written instrument (in form and substance satisfactory to the
holders of a majority of the Series A Preferred Shares then
outstanding), the obligation to deliver to each holder of Series A
Preferred Shares such shares of stock, securities, or assets as, in
accordance with the foregoing provisions, such holder may be entitled
to acquire. For purposes of this Agreement, "Person" shall mean 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.
Section 5 - Notices.
The Company will give written notice to each holder of Series A
Preferred Shares at least twenty (20) days prior to the date on which
the Company closes its books or takes a record (i) with respect to any
dividend or distribution upon the Common Stock, (ii) with respect to
any pro rata subscription offer to holders of Common Stock or (iii) for
determining rights to vote with respect to any Organic Change,
dissolution, or liquidation,
The Company will also give written notice to each holder of Series A
Preferred Shares at least twenty (20) days prior to the date on which
any Organic Change, Major Transaction (as defined below), dissolution,
or liquidation will take place.
Section 6 - Purchase Rights.
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") at a conversion price of
less than $2.50 per Common Share, then the holders of Series A
Preferred Shares 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 conversion of the Series A
Preferred Shares immediately before the date an which a record is taken
<PAGE>62
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.
Section 7 - Redemption Rights.
The Series A Preferred Shares are not redeemable.
Section 8 - Reissuance of Certificates.
In the event of a conversion pursuant to this Certificate of
Designations of less than all of the Series A Preferred Shares
represented by a particular Preferred Stock Certificate, the Company
shall promptly cause to be issued and delivered to the holder of such
Series A Preferred Shares a Preferred stock certificate representing
the remaining Series A Preferred Shares which have not been so
converted.
Section 9 - Reservation of Shares.
The Company shall, so long as any of the Series A Preferred Shares are
outstanding reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Shares, such number of shares of
Common Stock as shall from time to time be sufficient to affect the
conversion of all of the Series A Preferred Shares then outstanding;
provided that the number of shares of Common Stock so reserved shall at
no time be less than 200% of the number of shares of Common Stock for
which the Series A Preferred Shares are at any time convertible.
Section 10 - Liquidation, Dissolution, or Winding-Up.
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 the assets of the
Company, whether from capital or from earnings available for
distribution to its stockholders (the "Preferred Funds"), before any
amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Series A Preferred Shares in
respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount per
Series A Preferred Share equal to the sum of (i) per share
consideration paid to the Company by a Holder on the Issuance Date (the
"Purchase Price") and (ii) the amount equal to the per share [Purchase
Price plus accrued and unpaid interest] (such sum being referred to as
the "Liquidation Value"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series A
Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Series A
Preferred Shares as to payments of Preferred Funds (the "Pari Passu
Shares"), then each holder of Series A Preferred Shares and Pari Passu
Shares shall receive a percentage of the Preferred Funds equal to the
full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of
Designations, Preferences and Rights as a percentage or the full amount
of Preferred Funds payable to all holders of Series A Preferred Shares
and Pari Passu Shares. The purchase or redemption by the Company of
stock of any class in any manner permitted by law, shall not for the
purposes hereof be regarded as a liquidation, dissolution, or winding
up of the Company. Neither the consolidation or merger of the Company
with or into any other Person, nor the sale or transfer by the Company
of less than substantially all of its assets, shall, for the purposes
hereof be deemed to be a liquidation, dissolution, or winding up of the
Company. No holder of Series A Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation,
dissolution, or winding up of the Company other than the amounts
provided for herein.
<PAGE>63
Section 11 - Preferred Rate.
All shares of Common Stock shall be of junior rank to all Series A
Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution, and winding up of the
Company. The rights of the shares of Common Stock shall be subject to
the Preferences and relative rights of the Series A Preferred Shares.
The Series A Preferred Shares shall be of greater than any Series of
Common or Preferred Stock hereinafter issued by the Company. Without
the prior express written consent of the holders of not less than two-
thirds (2/3) of the then outstanding Series A Preferred Shares, the
Company shall not hereafter authorize or issue additional or other
capital stock that is of senior or equal rank to the Series A Preferred
Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less
than two-thirds (2/3) of the then outstanding Series A Preferred
Shares, the Company shall not hereafter authorize or make any amendment
to the Company's Certificate of Incorporation or bylaws, or make any
resolution of the board of directors with the Nevada Secretary of State
containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Series A
Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock. In the event of the
merger or consolidation of the Company with or into another
corporation, the Series A Preferred Shares shall maintain their
relative powers, designations, and preferences provided for herein and
no merger shall result inconsistent therewith.
Section 12 - Restriction on Dividends.
If any Series A Preferred Shares are outstanding, without the prior
express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Series A Preferred Shares, the Company
shall not directly or indirectly declare, pay or make any dividends or
other distributions upon any of the Common Stock so long as written
notice thereof has been given to holders of the Series A Preferred
Shares at least 30 days prior to the earlier of (a) the record date
taken for or (b) the payment of any such dividend or other
distribution. Notwithstanding the foregoing, this Section 11(a) shall
not prohibit the Company from declaring and paying a dividend in cash
with respect to the Common Stock so long as the Company: (i) pays
simultaneously to each holder of Series A Preferred Shares an amount in
cash equal to the amount such holder would have received had all of
such holder's Series A Preferred Shares been converted to Common Stock
pursuant to Section 3 hereof one business day prior to the record date
for any such dividend, and (ii) after giving effect to the payment of
any dividend, the Company has in cash or cash equivalents an amount
equal to the aggregate of: (A) all of its liabilities reflected on its
most recently available balance sheet, (B) the amount of any
indebtedness incurred by the Company or any of its subsidiaries since
its most recent balance sheet, and (C) 125% of the amount payable to
all holders of any shares of any class of preferred stock of the
Company assuming a liquidation of the Company as the date of its most
recently available balance sheet.
Section 13 - Vote to Change the Terms of Series A Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-
thirds (2/3) of the then outstanding Series A Preferred Shares, shall
be required for any change to this Certificate of Designations or the
Company's Certificate of Incorporation which would amend, alter,
change, or repeal any of the powers, designations, preferences, and
rights of the Series A Preferred Shares.
Section 14 - Lost or Stolen Certificates.
Upon receipt by the Company of evidence satisfactory to the Company of
the loss, theft, destruction, or mutilation of any Preferred Stock
Certificates representing the Series A Preferred Shares, and, in the
<PAGE>64
case of loss, theft, or destruction, of any indemnification undertaking
by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the
Company shall execute and deliver new preferred stock certificate(s) of
like tenor and date; provided however, the Company shall not be
obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Series A
Preferred Shares into Common Stock.
Section 15 - Withholding Tax Obligations.
Notwithstanding anything herein to the contrary, to the extent that the
Company receives advice in writing from its counsel that there is a
reasonable basis to believe that the Company is required by applicable
federal laws or regulations and delivers a copy of such written advice
to the holders of the Series A Preferred Shares so effected, the
Company may reasonably condition the making of any distribution (as
such term is defined under applicable federal tax law and regulations)
in respect of any Series A Preferred Share on the holder of such Series
A Preferred Shares depositing with the Company an amount of cash
sufficient to enable the Company to satisfy its withholding tax
obligations (the "Withholding Tax") with respect to such distribution.
Notwithstanding the foregoing or anything to the contrary, if any
holder of the Series A Preferred Shares so effected receives advice in
writing from its counsel that there is a reasonable basis to believe
that the Company is not so required by applicable federal laws or
regulations and delivers a copy of such written advice to the Company,
the Company shall not be permitted to condition the making of any such
distribution in respect of any Series A Preferred Share on the holder
of such Series A Preferred Shares depositing with the Company any
Withholding Tax with respect to such distribution, provided however,
the Company may reasonably condition the making of any such
distribution in respect of any Series A Preferred Share on the holder
of such Series A Preferred Shares executing and delivering to the
Company, at the election of the holder, either: (a) if applicable, a
property completed Internal Revenue Service Form 4224, or (b) an
indemnification agreement in reasonably acceptable form, with respect
to any federal tax liability, penalties, and interest that may be
imposed upon the Company by the Internal Revenue Service as a result of
the Company's failure to withhold in connection with such distribution
to such holder. If the conditions in the preceding two sentences are
fully satisfied, the Company shall not be required to pay any
additional damages set forth in Section 3(c)(iv) of this Certificate of
Designations if its failure to timely deliver any Conversion Shares
results solely from the holder's failure to deposit any withholding tax
hereunder or provide to the Company an executed indemnification
agreement in the form reasonably satisfactory to the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Ralph Mann, its Chief Executive Officer,
as of the First day of June, 1999.
NOVA PHARMACEUTICAL, INC.
By: /s/ Ralph Mann
Chief Executive Officer
<PAGE>65
EXHIBIT I
NOVA PHARMACEUTICAL, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences, and
Rights of Nova Pharmaceutical, Inc. (the "Certificate of
Designations"). In accordance with and pursuant to the Certificate of
Designations, the undersigned hereby elects to convert the number of
shares of Series A Convertible Preferred Stock, $.01 par value per
share (the "Series A Preferred Shares"), of Nova Pharmaceutical, Inc.,
a Nevada corporation (the "Company"), indicated below into shares of
Common Stock, $.001 par value per share (the "Common Stock"), of the
Company, by tendering the stock certificate(s) representing the
share(s) of Series A Preferred Shares specified below as of the date
specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series A
Preferred Shares shall be made only pursuant to (i) a registration
statement effective under the Securities Act of 1933, as amended (the
"Act"), or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the Act.
Date of Conversion:---------------------
Number of Series A
Preferred Shares to be converted---------------------
Stock certificate no(s). of Series A Preferred Shares to be converted:
- ---------------------
Please confirm the following information:
Conversion Price:---------------------
Number of shares of Common Stock to be issued:
- ---------------------
Please issue the Common Stock into which the Series A Preferred Shares
are being converted in the following name and to the following address:
Issue to:
- --------------------------------
- --------------------------------
- --------------------------------
Facsimile Number:
If other than to the record holder of the Series A Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
Authorization:
- ---------------------------------
By: -------------------------
Title: -------------------------
Dated: -------------------------
ACKNOWLEDGED AND AGREED:
NOVA PHARMACEUTICAL, INC.
By: --------------------------
Title: --------------------------
Dated: --------------------------
<PAGE>66
EMPLOYMENT AGREEMENT
This employment agreement (this "Agreement") is made effective as of
November 2, 1998, by and between Nova Pharmaceutical, Inc, ("the
Employer"), of 31712 Casino Drive, suite 7b, Lake Elsinore, California,
92530, and Fred Zinos, (the Employee"), of 24375 Jackson Ave #300,
Murrieta, California, 92562.
A. Employer is engaged in the business of manufacturing and
distributing natural food supplements. The Employee will primarily
perform the job duties at the following location: 31712 Casino Drive,
Suite 7B, Lake Elsinore Ca. 92530.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree to:
1. EMPLOYMENT. Employer shall employ Employee as a Senior Vice
President-Sales and Marketing and National Sales and Marketing
Director. Employee shall provide to Employer the following services:
As part of your duties, you will be responsible in preparing and
developing the yearly sales figures for years three through five.
These figures are to be submitted to the Company for approval 90 days
prior to the end of the Company's fiscal year. Employee accepts and
agrees to such employment, subject to the general supervision, advice
and direction of Employer and the Employer's supervisory personnel.
Employee shall also perform (i) such other duties as are customarily
performed by an employee in a similar position, and (ii) such other
and unrelated services and duties as may be assigned to Employee from
time to time by Employer.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform
faithfully, industriously, and to the best of Employee's ability,
experience, and talents, all of the duties that may be required by the
express and implicit terms of this Agreement, to the reasonable
satisfaction of Employer. Such duties shall be provided at such
place(s) as the needs, business, or opportunities of the Employer may
require from time to time.
3. COMPENSATION OF EMPLOYEE. As compensation for the services
provided by Employee under this Agreement, Employer will pay Employee
an annual salary of $90,000 payable in accordance with Employer's usual
payroll procedures. Upon termination of this Agreement, payments under
this paragraph shall cease; provided, however, that the Employee shall
be entitled to payments for periods or partial periods that occurred
prior to the date of termination and for which the Employee has not yet
been paid. Accrued vacation will be paid in accordance with state law
and the Employer's customary procedures. This section of the Agreement
is included only of accounting and payroll purposes and should not be
construed as establishing a minimum or definite term of employment.
4. BONUS PAYMENTS. Employee shall receive a bonus equal to ten
percent (10%) of Employee's base salary if the Gross Sales of the
Company are within eighty percent (80%) of the Plan. If the Gross
Sales Volume are within one hundred percent (100%) of the Plan a bonus
equal to twenty percent (20%) of Employee's base salary shall be paid.
Should the Gross Sales of the company exceed twenty percent (20%) or
more of the Plan, then Employee shall receive a bonus equal to thirty
percent (30%) of his base salary. This bonus payment will be paid
monthly on the ninety days after the close of the calendar year day of
the following month. Upon request by Employee, Employer will make
advances against expected commissions in accordance with Employer's
usual policies.
<PAGE>67
a. Right to Inspect. The Employee, or the Employee's agent, shall
have the right to inspect Employer's records for the limited purpose of
verifying the calculation of the commission payment, subject to such
restrictions as Employer may reasonably impose to protect the
confidentiality of the records. Such inspections shall be made during
reasonable business hours as may be set by Employer.
5. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY.
The Employer will reimburse Employee for the following "out of pocket"
expenses in accordance with Employers policies in effect form time to
time:
Travel expenses
Meals
Professional dues and expenses
6. RECOMMENDATIONS FOR IMPROVING OPERATIONS. Employee shall
provide Employer with all information, suggestions, and recommendations
regarding Employer's business, of which Employee has knowledge that
will be of benefit to Employer.
7. CONFIDENTIALITY. Employee recognizes that Employer has and
will have information regarding the following:
Inventions
Products
Prices
Costs
Future plans
And other vital information (collectively, "Information") which are
valuable, special, and unique assets of Employer. Employee agrees that
the Employee will not at any time or in any manner, either directly or
indirectly, divulge, disclose, or communicate any Information to any
third party without the prior written consent of the Employer.
Employee will protect the Information and treat is as strictly
confidential. A violation by Employee of this paragraph shall be a
material violation of this Agreement and will justify legal and/or
equitable relief.
8. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that
Employee has disclosed (or has threatened to disclose) Information in
violation of this Agreement, Employer shall be entitled to an
injunction to restrain Employee from disclosing in whole or in part,
such Information, or from providing any services to any party to whom
such Information has been disclosed or may be disclosed. Employer
shall not be prohibited by this provision from pursuing other remedies,
including a claim for losses and damages.
9. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The
confidentiality provisions of this Agreement shall remain in force and
effect for a One-year period after the termination of Employee's
employment. During such One-year period, neither party shall make or
permit the making of any public announcement or statement of any kind
that Employee was formerly employed by or connected with Employer.
10. NON-COMPETE AGREEMENT. Employee recognizes that the various
items of Information are special and unique assets of the company and
need to be protected from improper disclosure. In consideration of the
disclosure of the Information to Employee, Employee agrees and
covenants that for a period of one year following the termination of
this Agreement, whether such termination is voluntary or involuntary,
Employee will not directly or indirectly engage in any business
competitive with Employer. This covenant shall apply to the
geographical area that includes, but is not limited to, (i) engaging in
a business as owner, partner, or agent, (ii) becoming an employee of
any third party that is engaged in such business,
(iii) becoming interested directly or indirectly in any such
business, or (iv) soliciting any customer of Employer for the
benefit of a third party that is engaged in such business.
11. EMPLOYEE'S INABILITY TO CONTRACT FOR EMPLOYER. Employee shall
not have the right to make any contracts o9r commitment for or on
behalf of Employer without first obtaining the express written consent
of Employer.
12. VACATION. Employee shall be entitled to two weeks of paid
vacation for each year of employment beginning on the first day of
Employee's employment. Such vacation must be taken at a time mutually
<PAGE>68
convenient to Employer, and Employee, and must be approved by Employer.
Requests for vacation shall be submitted to Employee's immediate
supervisor sixty days in advance of the requested date such vacation
would commence.
13. SICK LEAVE. After completion of ninety days of employment,
Employee shall be entitled to _______ hour(s) paid time due to illness
each calendar year effective January 1,1998. Sick leave benefits may
not be converted into cash compensation. All requests for sick days
off shall be made by Employee in accordance with Employer policies in
effect from time to time.
14. HOLIDAYS. Employee shall be entitled to the following holidays
with pay during each calendar year: New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day.
15. INSURANCE BENEFITS. Employee shall be entitled to insurance
benefits, in accordance with the Employer's applicable insurance
contract(s) and policies, and applicable state law. These benefits
shall include: Health Insurance.
16. OTHER BENEFITS. Employee shall be entitled to the following
additional benefits:
If eighty percent 80%) if the sales volume based on Plan is achieved
then Employee shall be entitled to five thousand (5000) shares of
stock at a value of $2.00 a share which will become vested immediately.
If one hundred percent (100%) of the sales volume based on the Plan is
achieved then the Employee shall be entitled to ten thousand (10,000)
shares of stock at $2.00 a share. Should twenty five percent (25%) or
more of sale volume based on the Plan be achieved, then Employee shall
be entitled to twenty five thousand (25,000) shares of stock at
$2.00 per share.
17. TERM/TERMINATION. Employee's employment under this agreement
shall be for an unspecified term on an "at will" basis. This
Agreement may be terminated by either party upon two weeks notice. If
Employer shall so terminate this Agreement, the Employee is entitled to
a proration of any bonuses earned. If the employee leaves the Company
for any reason, the Company's stock is to be relinquished at the value
of $2.00 per share, unless the Employee is in violation of this
Agreement. If Employee is in violation of this Agreement, Employer may
terminate employment without notice and with compensation to Employee
only to date of such termination.
18.TERMINATION FOR DISABILITY. Employer shall have the option to
terminate this Agreement, if Employee becomes permanently disabled and
is no longer able to perform the essential functions of the position
with reasonable accommodation. Employer shall exercise this option by
giving 30 days written notice to Employee.
19.COMPLIANCE WITH EMPLOYER'S RULES. Employee agrees to comply with
all of the rules and regulations of Employer.
20.RETURN OF PROPERTY. Upon termination of this Agreement, the
Employee shall deliver all property (including keys, records, notes,
data, memoranda, models, and equipment) that is in the Employee's
possession or under the Employee's control which is Employer's
property or related to Employer's business. Such obligation shall be
governed by any separate confidentiality or proprietary rights signed
by the Employee.
21. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed delivered when
delivered in person or deposited in the United States mail, postage
paid, addressed as follows:
Employer:
Nova Pharmaceutical, Inc.
Ralph Mann CEO and President
31712 Casino Dr Suite 7b
Lake Elsinore, Ca 92530
Employee:
Fred Zinos
24375 Jackson Ave Apt L 308
Murrieta Ca 92562
Such address may be changed from time to time by either party by
providing written notice in the manner set forth above
<PAGE>69
22. ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any
other agreement whether oral or written. This Agreement supersedes any
prior written or oral agreements between the parties.
23. AMENDMENT. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
24. SEVERABILITY. If any provisions of this Agreement shall be
held to be invalid or unenforceable for any reason, the remaining
provisions shall continue to be valid and enforceable. If a court
finds that any provision of this Agreement is invalid or unenforceable,
but that by limiting such provision it would become valid or
enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
25. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to
enforce any provision of this Agreement shall not be construed as a
waiver or limitation of that party's right to subsequently enforce and
compel strict compliance with every provision of this Agreement.
26. APPLICABLE LAW. This Agreement shall be governed by the laws
of the State of California.
Employer:
Nova Pharmaceutical, Inc
By: /s/ Ralph Mann
Ralph Mann
CEO and President
AGREED TO AND ACCEPTED
/s/ Fred Zinos
By Fred Zinos 11-3-98
<PAGE>70
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this day of May,
1998, by and between Nova Pharmaceutical, Inc., an Nevada corporation,
(the Company), and Robert J. Eggering, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and
services of Executive for the Company.
B. Executive is willing and desires to be employed by the Company,
and the Company is willing to employ Executive, upon the terms,
covenants and conditions hereinafter se forth.
ARTICLE 1. AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants, and
conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
1.1 EMPLOYMENT. The Company hereby employs Executive as its
Controller, subject to the supervision and direction of the Company's
Board of Directors.
1.2 TERM. The term of this Agreement shall be for a period of one
(1) year communicant on May 4, 1998 unless terminated earlier pursuant
to Article 5 below.
ARTICLE 2. COMPENSATION; REIMBURSEMENT
2.1 BASE SALARY. For all services rendered by the Executive under
this Agreement, the Company shall pay Executive a base salary of Ninety
thousand Dollars ($90,000) per annum, payable monthly in equal
installments (the "Base Salary"). Base Salary shall be $93,600 per
annum until such time as the Company furnishes health benefits to
Executive.
2.2 ADDITIONAL BENEFITS. In addition to the Base Salary, Executive
shall be entitled to $3,750 per quarter, and all other benefits
of employment provided to other executives as may be granted from
time to time by the Board of Directors.
2.3 REIMBURSEMENT. Executive shall be entitled to a one-time
relocation expense reimbursement in an amount not to exceed eight
thousand dollars ($8,000).
ARTICLE 3. SCOPE OF DUTIES
3.1 ASSIGNMENT OF DUTIES. Executive shall have such duties as may be
ES. Executive shall have such duties as may be
<PAGE>66
y days of employment,
ch he is employed pursuant to Paragraph 1.1
above. Such duties shall be exercised subject to the control of
the Board of Directors of the Company.
3.2 GENERAL SPECIFICATION OF DUTIES. Executive's duties shall
include, but not limited to, the duties as follows:
A. Act as Controller of the Company and perform all duties,
functions and responsibilities generally associated with those
titles;
B. Establish procedures for implementing the policies established
by the Company;
C. Cause the Company to be operated in compliance with all leggal
requireements;
D. Cause to be prepared cash flows, financial projections, and
financial statements. Tax returns and other similar items
respecting the operation of the Company.
<PAGE>71
The foregoing specifications are not intended as a complete itemization
of the duties, which Executive shall perform and undertake on behalf of
the Company in satisfaction of his employment obligations under this
Agreement.
3.3 EXECUTIVE'S DEVOTION OF TIME. Executive hereby agrees to
devote his abilities and energy to the faithful performance of the
duties assigned to him and to the promotion and forwarding of the
business affairs of the Company, and not to divert any business
opportunities from the company to himself, or to any other person or
business entity.
3.3 CONFLICTING ACTIVITIES.
A. Executive shall not, during the term of this Agreement, be
engaged in any other business activity without the prior
consent of the Board of Directors of the Company; provided,
however, that this restriction shall not be construed as
preventing Executive from investing his personal assets in
passive investments in business entities which are not in
competition with the Company or its affiliates.
B. Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to the then
current business of the Company, in a manner consistent with
the best interests of the Company and with his duties under
this Agreement.
ARTICLE 4. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS
4.1 TRADE SECRETS. Other than in the performance of his duties
hereunder, Executive agrees not to disclose, either during the
term of his employment by the Company or at any time thereafter,
to any person, firm or corporation any information concerning the
business affairs, the trade secrets, the customer lists, or
similar information of the Company. Any technique, method,
process, or technology used by the Company shall be considered a
"trade secret" for the purposes of this Agreement.
4.2 OWNERSHIP OF TRADE SECRETS- ASSIGNMENT OF RIGHTS. Executive
hereby agrees that all know-how, documents, reports, plans,
proposals, marketing and sales plans, client lists, client files,
and materials relating to Company's business made by him or by the
Company during his employment under this Agreement, are the
property of the Company, and shall not be used by him in any way
adverse to the Company's interests. Executive hereby assigns to
the Company any rights which he may have in any such trade secret
or proprietary information.
ARTICLE 5. TERMINATION
5.1 BASIS FOR TERMINATION
A. Executive's employment hereunder may be terminated at any time
by mutual agreement of the parties.
B. This Agreement shall automatically terminate on the last day of
the month in which Executive dies.
C. Executive's employment may be terminated by the Company "with
cause" effective thirty (30) days after delivery of written
notice to Executive given at any time (without any necessity
for prior notice) if any of the following shall occur.
i) Any action by Executive which would be grounds for
termination under Section 2924 of the California Labor
Code or any successor provision currently covering any
willful breach of duty, habitual neglect of duty, and
continued incapacity.
ii) Any material breach of Executive's obligations of this
Employment Agreement.
D. Executive's employment may be terminated by the Company
"without cause" (for any reason or no reason at all) at any
time by giving Executive sixty (60) days prior written notice
of termination, which termination shall be effective on the
60th day following such notice.
<PAGE>72
5.2 Payment Upon Termination. Upon termination, the Company shall
pay to Executive within ten (10) days after termination an amount equal
to the sum of (1) Executive's Base Salary accrued to the date of
termination. After any such termination, the Company shall not be
obligated to compensate Executive, his estate or representatives except
for the foregoing compensation then due and owing, nor provide the
benefits to Executive described in Paragraph 2.2 (except as provided by
law).
ARTICLE 6. MISCELLANEOUS
6.1 Transfer and Assignment. This Agreement is personal as to
executive and shall not be assigned or transferred by Executive without
the prior written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of all of the parties hereto and
their respective permitted heirs, personal representatives, successors
and assigns.
6.2 Serverability. Nothing contained herein shall be constructed
to require the commission of any act contrary to law. Should there be
any conflict between any provisions hereof and any present or future
stature, law, ordinance, regulation, or other pronouncement having the
force of law, the latter shall prevail, but the provision of this
Agreement affected thereby shall be curtailed and limited only to the
extent necessary to bring it within the requirements of the law, and
the remaining provisions of this Agreement shall remain in full force
and effect.
6.3 Governing Law. This Agreement is made under and shall be
constructed pursuant to the laws of the State of California/.
6.4 Counterparts. This Agreement may be executed in several
counterparts and all documents so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that
all of the parties did not sign the original or the same counterparts.
6.5 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior oral or written agreements,
arrangements, and understandings with respect thereto. No
representation, promise, inducement, statement or intention has been
made by any party hereto that is not embodied herein, and no party
shall be bound by or liable for any alleged representation, promise,
inducement, or statement no so forth herein.
6.6 Modification. This Agreement may be modified, amended,
superseded, or canceled, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, only be
a written instrument executed by the party or parties to be bound by
any such modification, amendment, suppression, cancellation, or waiver.
6.7 Attorneys' Fees and Costs. In the event of any dispute arising
out of the subject matter of this Agreement, the prevailing party shall
recover, in addition to any other damages assessed, its reasonable
attorneys' fees and court costs incurred in litigating or otherwise
settling or resolving such dispute whether or not an action is brought
or prosecuted to judgment. In construing this Agreement, none of the
parties hereto shall have any term or provision construed against such
party solely by reason of such party having drafted the same.
6.8 Waiver. The waiver by either of the parties, express or
implied, of any right under this Agreement or any failure to perform
under this Agreement by the other party, shall not constitute or be
deemed as a waiver of any other right under this Agreement or of any
other failure to perform under this Agreement by the other party,
whether of a similar or dissimilar nature.
6.9 Cumulative Remedies. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
exclusive of any other right or remedy, and the exercise of any one or
such rights or remedies shall not be deemed a waiver or, or an election
to exercise, any other such right or remedy.
6.10 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way
affect the meaning and interpretation of this Agreement.
6.11 Notices. Any notice under this Agreement must be in writing,
may be faxed, sent by express 24-hour guaranteed courier, or hand-
delivered, or may be served by depositing the same in the United Stated
Mail, addressed to the party to be notified, postage-prepaid and
registered or certified with a return receipt requested. The addresses
of the parties for the receipt of notice shall be as follows:
<PAGE>73
If to the Company:
Nova Pharmaceutical, Inc.
31712 Casino drive, Suite 7B
Lake Elsinore, CA 92530
FAX: 909-245-8197
If to the Executive:
Robert Eggering
2310 North Vermont Canyon
Los Angeles, CA 90027
Each notice given by registered or certified mail shall be deemed
delivered and effective on the date of delivery as shown on the return
receipt, and each notice delivered in any other manner shall be deemed
to be effective as of the time of actual delivery thereof. Each party
may change its address for notice by giving notice thereof in the
manner provided above.
6.10 Survival. Any provision of the Agreement which imposes an
obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding
on Executive and the Company.
6.11 Right of Set-Off. Upon termination or expiration of this
Agreement, the Company shall have the right to set-off against the
amounts due executive hereunder the amount of any outstanding loan or
advance from the Company to Executive.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
"Company"
NOVA PHARMACEUTICAL, INC.
/s/ Ralph Mann
_______________________________
By: Ralph Mann
Its: President
"Executive"
ROBERT EGGERING
/s/ Robert Eggering
___________________________
PAGE>74
Master Purchase and Sale Agreement
1. PURCHASE OF ACCOUNTS
1.1 Sun Capital, Inc. ("SCI"), with its principal place of business at
929 Clint Moore Road, Boca Raton, Florida 33487, here purchases from
Nova Pharmaceutical, Inc., (Taxpayer Id. No. 88-0384305) with its
principal place of business at 31712 Casino Drive, Lake Elsinore, CA
92530 ("Seller") and seller hereby sells, transfers, and assigns to SCI
as Seller's sole Factor and as absolute owner, all of Seller's right,
title and interest in and to (i) those specific accounts receivable
(the "Accounts Purchased") owing to Seller and accepted SCI as set on
the assignment forms provided by SCI ("the "Assignment Schedule")
together with all rights of action accrued or to accrue thereon,
including without limitation, full power to collect, sue for,
compromise, assign, in whole or in part, or in any other manner enforce
collection thereof in SCI's name or otherwise, (ii) all books and
records evidencing or relating to the Accounts, and all Seller's rights
with respect to the goods represented by such Accounts, including good
returned by any customer or obligor in any way obligated on or in
connection with the Accounts (the "Account Debtor"), (iii) all rights
of stoppage in transit, replevin, repossession and reclamation and all
other rights of action of any unpaid vendor or lien or, (iv) all
deposits or other security for the obligation of any person under or
relating to the Accounts, (v) all of Seller's rights under any
insurance policy covering any merchandise sold pursuant to the Accounts
and (vi) all payments or other proceeds of the foregoing in any form.
The form of assignment shall be in a form satisfactory to SCI and shall
be delivered to SCI with identical duplicates of Seller's customers'
invoices (the originals having been mailed by Seller to Seller's
customers at Seller's expense (or at SCI's election, originals shall be
delivered to SCI for forwarding to Seller's customers and shall,
likewise, deliver to SCI all original shipping or delivery receipts
(i.e. Bills of Lading, UPS, etc.) for all merchandise sold, together
with such other documents and proof of delivery of merchandise or the
rendition of services as SCI may require.
1.2 From time to time hereafter, Seller may deliver to SCI
and SCI may purchase, in its sole and absolute discretion, additional
accounts which shall be reflected in an Assignment Schedule reflecting
the Accounts offered for sale. The aggregate net face value of each
Assignment Schedule shall not be less than $5,000. Any Assignment
Scheduled, or portion thereof, purchased shall be deemed Accounts
Purchased hereunder and shall be governed by and subject to the terms
and conditions of the Agreement, including, without limitation, the
representations warranties and covenants herein contained. The phrase
aggregate net face value shall mean the gross amount of all accounts
scheduled less allowances, discounts to customers calculated upon
shortest or longest selling terms, as SCI may elect or any other
reduction to the gross invoice amount (s).
1.3 Upon SCI's receipt and acceptance of each Assignment
Schedule, or any portion thereof, SCI shall pay to Seller up to Up to
eighty percent (Up to 80%) of the aggregate net face value of the
Accounts therein described (the "Initial Down Payment"), subject to
SCI's right to maintain a reserve. The term reserve shall mean an
amount sufficient to cover, among other things, customers' returns,
allowances, deductions and disputes and/or charge backs including any
charge back SCI anticipates might arise in the future, as security for
the payment of Seller's obligations to SCI. SCI may, in its sole and
exclusive discretion, increase or decrease such reserve, as SCI may
deem necessary to protect SCI's interests. Subject to a reserve, on
each Friday of the week in which all Accounts Purchased set forth on
the applicable Assignment Schedule have been collected in good funds
(or as to any Account Purchased not collected as a result of a
discharge in bankruptcy, the last day of the month of such customer's
bankruptcy), SCI will pay to Seller the amount of the Purchase Price
minus (i) the Initial Down Payment, (ii) all returns, credits,
allowances and discounts calculated upon shortest or longest selling
term, at SCI's option, on any alternative terms of sale offered by
Seller to Account Debtors and (iii) all other unpaid sums charged or
chargeable to Seller's account which shall include, but not be limited
to, all costs and expenses (including attorney's fees), of any kind and
nature, which we may incur. "Purchase Price" means the aggregate net
face value of the Accounts Purchased less discount fee calculated as
described Section 1.4.
<PAGE>76
1.4 SCI's discount fee as to each Account Purchased shall be a
percentage of the gross face value of each Account Purchased based on
the number of days elapsed between the date of purchase by SCI and the
date of collection of such Accounts Purchased by SCI after allowing 3
(three) additional days. In no event shall the discount fee for any
Account Purchased be less than $10.00
Days Elapsed Percentage
0-90 .10 per day
90 + 14 %
2. EXPECTED VOLUME
Seller expects that the aggregate net face value of Accounts
that seller will offer each month to SCI under this Agreement for
Purchase by SCI will be at least $150,000, and that the percentages set
forth in Section 1.4 are based upon that expectation.
3. WARRANTIES, REPRESENTATIONS AND COVENANTS
3.1 Seller makes the following warranties,
representations and covenants to SCI, each of which shall be deemed
continuing and shall be deemed made upon the delivery of each
Assignment Schedule:
(a) Seller is the sole and absolute owner of each Account
Purchased, sold free and clear of any liens, security interests or
encumbrances; (b) Seller has the full legal right to sell, assign and
transfer the Accounts Purchased and that the sale, assignment and
transfer thereof does not contravene or conflict with the terms of any
other agreement, commitment or instrument to which Seller is a party;
(c) Each Assignment Schedule will vest in SCI all right, title and
interest in and to the Accounts Purchased; (d) Each Account Purchased
represents an accurate and undisputed statement of indebtedness from an
Account Debtor of Seller for a sum certain, without offset or
counterclaim and which is due and payable not more than 90 days from
invoice date; (e) Each Account Purchased is an accurate statement of a
bona fide sale, delivery and acceptance of merchandise or performance
of service by Seller to an Account Debtor; (f) Seller is not affiliated
with and does not own, control, or exercise dominion, in any way
whatsoever, over the business of any Account Debtor; (g) All financial
records, statements, books, or other documents shown to SCI by Seller
at any time either before or after the signing of this Agreement are
true and accurate; (h) All invoices will state plainly on their face in
the form acceptable to SCI that each Account Purchased represented
thereby have been sold and assigned to SCI and is payable only and
directly to SCI'; (i) No Account Purchased shall be on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment or any
other repurchase or return basis; (j) Seller is solvent; (k) No
financing statement governing any of the Accounts Purchased, or any
property of Seller in which SCI is granted a security interest under
this Agreement, is on file in any public office other than that which
may be in favor of SCI; and (l) Seller's principal place of business is
set forth above and Seller maintains its records relating to the
Accounts Purchased and such property at such place. (m) Seller has no
parent, affiliate and/or subsidiary; (n) that the sale, transfer and/or
SCI's collection of the Accounts Purchased or any receivable will not
be avoidable by any receiver, trustee or debtor-in-possession; (o) that
each Account Purchased and receivable shall be absolutely enforceable
against Seller's customer in accordance with the express terms of the
invoice free and clear of any offset, deduction, claim, lien,
encumbrance, or dispute, whether as to price, terms, delivery, guaranty
or quality; and (p) seller shall not effect any change in its mailing
address, or in Seller's chief place of business, or in the office in
which Seller's records relating to where accounts are kept without
first giving SCI written notice thereof.
3.2 The warranties, representations and covenants
contained in paragraph 3.1 above shall be continuous and be deemed to
be renewed as of the date of each additional assignment Schedule each
time Seller assigns Accounts Purchased to SCI. All representations,
warranties and covenants of Seller under this paragraph shall survive
any purchase or sale of Accounts Purchased and any termination of this
Agreement.
4. NO RECOURSE TO SELLER
To the extent of the Initial Down Payment for each Account
Receivable, SCI accepts the credit risk for non-payment of the Accounts
Purchased due to any Account Debtor's Bankruptcy. Seller shall
nonetheless remain liable to SCI for all damages suffered by SCI in the
event of a breach of any warranty, representation or covenant set forth
<PAGE>77
in paragraph 3 above. In the event SCI does not receive payment in
full of any account receivable, in cleared funds, for any reason other
than a discharge in bankruptcy of an Account Debtor, such non-payment
shall be deemed a breach of Seller's representations and warranties
contained in Paragraph 3 of this Agreement. As used herein, the term
"Bankruptcy" shall mean a judicially supervised bankruptcy proceeding
seeking the discharge of an Account Debtor's debts, which proceeding is
initiated after the sale of the particular Account Receivable to SCI.
If any account receivable is not paid by the Account Debtor due solely
to its discharge in Bankruptcy then Seller shall not be liable to
return to SCI the amount of the Initial Down Payment made with respect
to that account receivable.
5. DISPUTES
SCI may charge Seller's account for the Initial Down payment and
discount fee calculated as described in Section 1.4 for any Account
Purchased that is subject to a "Dispute". "Dispute" means any alleged
defense, counterclaim, offset, dispute or other claim asserted by an
Account Debtor of the Account Purchased which relates to the sale of
goods or rendition of services or arising from or relating to any other
transaction or occurrences.
Seller must immediately (i.e., not more than eight hours upon receipt
of notification of information) notify SCI of any Dispute, return
rejection, loss of or damage to merchandise, any request for an
extension of time to pay or any fact or circumstance with respect to
any Account Purchased or receivable which may tend, in any way, to
impair or affect the collectibility of any Account Purchased or
receivable or diminish the sum payable thereon. Seller agrees it may
not grant any allowance, credit or adjustment to a customer, or accept
any return of merchandise, without SCI's express prior written consent.
SCI may, at its option, settle and/or compromise any Dispute. Any
settlement made by SCI shall not relieve Seller of any of its
obligations under this Agreement. No charge back shall be deemed a
reassignment to Seller of the Account involved. All amounts chargeable
to Seller's account under this Agreement shall be payable by Seller on
demand.
6. HOLD IN TRUST
Any check or other form of payment an any Account Purchased, or
upon default, any account receivable that Seller receives, shall not be
deposited by Seller and shall be held in trust and safekeeping, as the
sole and exclusive property of SCI, and shall be immediately returned
to SCI. Should Seller come into possession of a check comprising
payment owing to both Seller and SCI, Seller shall forthwith turn over
such check to SCI and SCI will refund Seller's portion, if any, to
Seller.
7. BOOK ENTRY
Seller will immediately, upon each sale of Accounts, make the proper
entry on its books and records recording the absolute sale of such
Account to SCI.
8. SECURITY INTEREST
Seller hereby grants to SCI, as security for all present and future
Obligations of Seller to SCI under this agreement, a continuing first
lien superior in priority and dignity to all others, in all accounts
whether or not specifically purchased by SCI under this Agreement,
whether now existing or hereafter arising, together with all documents,
instruments, chattel paper and the computer software programs, stored
date, aging schedules, customer lists, books, records, returns,
deposits and credit balances thereto and the proceeds thereof, together
with all returned merchandise and all property of Seller at any time
coming into SCI's possession. As used in this Agreement, the term
"Obligations" means and includes all loans, advances, debts,
liabilities, obligations, debit balances, covenants and duties, of
every kind and description, owing by Seller, any Affiliate, Parent or
Subsidiary of Seller, to SCI under this Agreement or otherwise (whether
or not evidenced by any note or other instrument and whether or not for
the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, including, without
limitation, all interest, fees, charges, expenses and attorneys' fees
for which Seller is obligated hereunder. As used in this Agreement,
the terms "Parent", "Affiliate". Or "Subsidiary" means any corporation
or similar legal entity under common control with Seller. Seller shall
execute and deliver to SCI all financing statements and other documents
and instruments that SCI may request to perfect, protect, or establish
<PAGE>78
the security interest (s) granted hereunder and Seller authorizes SCI
to execute and file alone any such financing statements disclosing
SCI's security interest (s). Recourse to security shall not be
required and Seller shall at all times remain liable for the repayment
on demand of all our indebtedness arising hereunder and for all
Obligations.
9. POWER OF ATTORNEY
In order to implement this Agreement, Seller irrevocably appoints SCI
its attorney in fact or agent with power to (a) Strike out Seller's
address on any correspondence to any Account Debtor and insert SCI's
address; (b) Receive and open all mail addressed to Seller via SCI's
address; (c) Endorse the name of Seller or Seller's trade name on any
checks or other evidences of payment payable to Seller that may come
into the possession of SCI; (d) In Seller's name, or otherwise, demand,
sue for compromise and/or collect any and all moneys due to Seller; (e)
Compromise, prosecute or defend any action, claim or proceeding as to
the Accounts; (f) Send notices, demands or requests to the Account
Debtor in the name of Seller for any purpose whatsoever deemed
necessary or desirable by SCI including, without limitation, notices
regarding payment instructions or seeking estoppel information on the
account. The Power of Attorney granted to SCI herein shall be deemed
to be coupled with an interest and therefore irrevocable and shall
remain in full force and effect until all Accounts are paid in full and
all indebtedness, if any, of Seller to SCI is discharged.
10. FIANANCING STATEMENT
Seller has delivered to SCI and SCI may file executed financing
statements (a) to perfect the purchase by SCI of all present and future
Accounts and (b) to perfect any security interest granted to SCI under
this Agreement. Seller authorizes SCI to execute in Seller's name and
to file all such further financing statements and renewals thereof as
SCI may deem appropriate to carry out the intent of this Agreement.
11. RESTRICTIONS ON OTHER TRANSACTIONS.
During the term of this Agreement, Seller will not sell or factor any
of its accounts receivable to any entity other than SCI.
12. PLEDGE AND ASSIGNMENT OF SELLER'S ACCOUNTS RECEIVABLE BY SCI:
Seller acknowledges and understands that SCI may enter into a financing
agreement with Capital Business Credit, a division of Capital Factors,
Inc., ("Capital"). In connection with said financing, SCI may sell
and/or assign all or a portion of Seller's Accounts Receivable to
Capital. Seller hereby consents to SCI entering into such financing
agreement with Capital. Seller further agrees as follows: (a) Seller
shall have no rights under the financing agreement, Seller will not
look or seek to hold Capital, or its respective officers, employees,
directors or agents responsible for any of SCI's obligations under this
Agreement, and that SCI's relationship with Capital is completely
separate and apart from Seller's relationship with SCI except as to any
lien rights and the granting and enforcing of any security interest
that Capital may have and assert by reason of its purchase and/or
assignment of Seller's Accounts Receivable to Capital pursuant to the
financing agreement entered into between SCI and Capital; (b) Seller
will have no rights against Capital for any actions that it takes or
fails to take under the aforementioned financing agreement; (c) In the
event that Seller is advised that Capital has purchased or has received
an assignment of all or a portion of Seller's Accounts Receivable
pursuant to the financing agreement between Capital and SCI, Seller
agrees that all of its representations set forth in Paragraph 3 of this
Agreement shall, at the request of SCI or Capital, extend and insure to
Capital and its successors and assigns; (d) If requested by SCI or
Capital, Seller shall execute any documentation or notice required by
Capital to evidence the fact that any or all of the Accounts Receivable
have been sold and assigned to Capital and are payable to Capital only.
Seller shall take such additional actions in furtherance of the rights
of Capital and SCI as Capital may require; (e) Upon SCI's or Capital's
request, Seller shall immediately provide to Capital any and all
information which Capital may require regarding Seller's financial
condition, any Accounts Receivable, any obligations under this
Agreement the collateral for Seller's obligations under this Agreement
and any other information which Capital may request; (f) Seller
consents to SCI sharing with Capital copies of all financial and
information regarding Seller delivered to or made available to SCI
under this Agreement.
<PAGE>79
13. NO ASSUMPTION
Nothing contained in this Agreement shall be deemed to impose any duty
or obligation upon SCI in favor of any Account Debtor and/or any other
party in connection with the Accounts.
14. BINDING FUTURE PARTIES
This Agreement shall inure to the benefit of and is binding upon the
parties, any parent, subsidiaries, and affiliates, whether now or
hereafter formed, together with their executors, administrators,
successors, and assigns. Seller may not assign or transfer any or all
of its rights and obligations under this Agreement to any party without
the express prior written consent of SCI.
15. WAIVER; ENTIRE AGREEMENT
No failure or delay on SCI's part in exercising any right, power or
remedy granted to SCI hereunder will constitute or operate as a waive
thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the
exercise of any other right set forth herein. This Agreement contains
the entire agreement and understanding of the parties hereto and no
amendment modification or waiver of, or consent, oral or otherwise,
with respect to any provision of this Agreement will in any event be
effective unless the same is in writing and signed and delivered by
SCI.
16. FLORIDA LAW
This Agreement shall be deemed executed in the State of Florida and in
all respects shall be governed by and construed in accordance with the
laws of the State of Florida. Seller acknowledges that all actions and
proceedings relating directly or indirectly to this Agreement shall be
litigated in a state court of competent jurisdiction in the County of
Palm Beach or, at SCI's sole and exclusive option, in a venue where the
Seller is domiciled.
17. JURY WAIVER
SCI and Seller and any obligor hereunder hereby knowingly, voluntarily
and intentionally waive any right that any party may have to a trial by
jury in respect to any litigation based hereon, arising out of or
related hereto whether, under or in connection with this agreement or
any agreement contemplated to be executed in conjunction herewith, or
any course of conducts, course of dealing, statements (whether verbal
or written) or actions of either party.
18. INDEMNITY
Seller shall indemnify SCI and hold SCI harmless from and against any
action or other proceeding brought by an Account Debtor against SCI
arising from SCI's commercially reasonable efforts in collecting or
attempting to collect any of the Accounts. Seller also agrees to
indemnify SCI against any liability, loss or expense caused by, or
arising out of, the rejection or revocation of merchandise or disputes
with respect to any services of every kind and nature by Seller's
customers.
19. COOPERATION
Seller shall at any future time execute and deliver to SCI any and all
documents deemed desirable or necessary by SCI to effectuate the
provisions of this Agreement.
20. MISCELLANEOUS PROVISIONS
This Agreement shall be deemed to be one of financial accommodation and
not assumable by any debtor, trustee or debtor-in-possession in a
bankruptcy proceeding without Factor's express written consent and may
be suspended in the event a petition in bankruptcy is filed by or
against Seller.
21. TERM
This Agreement will remain in effect for a period of 6 months, November
1, 1998 (the "Term). The Term will be automatically extended for
successive periods of (1) year each unless either party provides the
other with a written notice of cancellation at least sixty (60) days
prior to the expiration of the initial Term or any renewal Term;
provided, however, SCI may cancel this Agreement at any time upon
thirty (30) days notice to Seller. In the event of a breach by Seller
of any provision of this Agreement or upon Seller's bankruptcy,
receivership, inability to pay its debts or similar insolvency event,
or the occurrence of such an event with respect to any guarantor of
Seller's obligations hereunder, SCI shall have the right, at its
discretion, to cancel this Agreement without notice to Seller, and all
Seller's obligations to SCI hereunder shall be immediately due and
<PAGE>80
payable. In the event of cancellation, Seller's obligations under this
Agreement shall remain in full force and effect and accrue at the
maximum interest rate allowable under the law until all of the Accounts
(other than in the case of a Bankruptcy discharge) have been paid in
full and SCI is paid in full for all amounts owed by Seller.
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of this 9th day of April, 1998.
Nova Pharmaceutical Inc Sun Capital, Inc.
/s/ Ralph Mann
______________________ _____________________
Ralph Mann
President
_____________________ ______________________
Title Title
Ralph Mann
______________________ ______________________
Printed Name Printed Name
Initials /s/ RM____
Guaranty of Validity
To: Sun Capital, Inc.
929 Clint More Road
Boca Raton, Florida 33487
Dear Sir or Madam:
Nova Pharmaceutical Inc, a corporation, or sole proprietorship,
or partnership organized under the laws of the State of California
(herein called "Debtor) is a company to which I am an owner, officer,
director and/or stockholder. Accordingly, it is in my direct interest
and advantage to assist the Debtor to procure funds, credit or other
financial assistance from you in order to further its business and
sales.
Accordingly, in order to induce you to purchase or otherwise
acquire from the Debtor accounts receivable, conditional sales or lease
agreements, chattel mortgages, drafts, notes, bills, acceptances, trust
receipts, contracts or other obligations or choses-in-action (herein
collectively called "receivables"), or to advance moneys or extend
credit to the Debtor thereon, or to factor the sales or finance the
account of the Debtor (either according to any present or future
agreements or according to any changes in any such agreements or on any
other terms and arrangements from time to time agreed upon with the
Debtor, the undersigned hereby consenting to and waiving notice of any
and all such agreement, terms and arrangements and changes thereof) or
to otherwise directly or indirectly advance money to or give or
extend faith and credit to the Debtor, or other wise assist the Debtor
in financing its business or sales (without obligation you to do any of
the foregoing), I the undersigned, for value received, do hereby
unconditionally guarantee to you and your assigns the accuracy of the
representations and warranties made and in the event Sun Capital, Inc.
fails to receive timely payment of any receivable by virtue of a breach
thereof, guarantor unconditionally guarantees prompt payment in full at
maturity and all times thereafter (waiving notice of non-payment) of
any and all indebtedness, obligations and liabilities of every kind or
nature (both principal and interest) now or at any time hereafter owing
to you by the Debtor, and of any and all receivables heretofore or
hereafter acquired by you from said Debtor in respect of which the
Debtor has or may become in any way liable, and the prompt, full and
faithful performance and discharge by the Debtor of all the terms,
conditions, agreements, representations, warranties, guaranties and
provisions on the part of the Debtor contained in the Master Purchase
and Sale Agreement or in any modification or addenda thereto or
substitution thereof, or contained in any schedule or other instrument
heretofore or hereafter given by or on behalf of said Debtor in
connection with the sale or assignment of any such receivable to you,
or contained in any other agreement, undertaking or obligations of the
Debtor with or to you, of any kind or nature, and we also hereby agree
on demand to reimburse you and your assigns for all expenses,
collection charges, court costs and attorney's fees incurred in
<PAGE>81
endeavoring to collect or enforce any of the foregoing against the
Debtor and/or undersigned or any other person or concern liable
thereon; for all of which, with interest at the highest lawful contract
rate after due until paid, we hereby agree to be directly,
unconditionally and primarily liable jointly and severally with the
Debtor and agree that the same be recovered in the same or separate
actions brought to recover the principal indebtedness.
Notice of acceptance of this guaranty, the giving or extension
of credit to the Debtor, the purchase or acquisition of receivables or
the advancement of money or credit thereon, and presentment, demand,
notices of default, non-payment of partial payments and protest, notice
of protest and all other notices or formalities to which the Debtor
might otherwise be entitled, prosecution of collection or remedies
against the Debtor or against the makers, endorsers, or other person
liable on any such receivables or against any security or collateral
thereto appertaining, are hereby waived. The undersigned also waives
notice of any consents to the granting of indulgences or extensions of
time payment, the taking and releasing of security in respect of any
said receivable agreements, obligations, indebtedness or liabilities so
guaranteed hereunder, or your accepting partial payments thereon or
your settling compromising or compounding any of the same in such
manner and at such times as you may deem advisable, without in any way
impairing or affecting our liability for the full amount thereof and
you shall not be required to prosecute collection, enforcement or other
remedies against the Debtor or against any person liable on any said
receivable, agreement, obligations, indebtedness or liabilities so
guaranteed, or to enforce or resort to any security, liens, collateral
or other rights or remedies thereto appertaining, before calling on us
for payment; nor shall our liability in any way be released or affected
by reason of any failure or delay on your part to do so.
This guaranty is absolute, unconditional and continuing and
payment of the sums for which the undersigned become liable shall be
made to you at your office from time to time on demand as the same
become or are declared due, notwithstanding that you hold reserves,
credits, collateral or security against which you may be entitled to
resort for payment, and one or more and successive or concurrent
actions may be brought hereon against the undersigned, either in the
same action in which the Debtor is sued or in separate actions, as
often as deemed advisable. We expressly waive and bar ourselves from
any right to set-off, recoup or counterclaim any claim or demand
against said Debtor, or against any other person or concern liable on
said receivables, and, as further security to you any and all debts or
liabilities now or hereafter owing to us by the Debtor or by such other
person or concern are hereby subordinate to your claims and are hereby
assigned to you. Moreover, guarantor agrees that any limitation
imposed by Florida law to attach or garnish wages is hereby waived
except that all Federal limitations shall be applicable.
The guaranty shall inure to the benefit of yourself, your
successors and assigns. It shall be binding on the undersigned,
successors and assigns, and shall continue in full force and effect
until notice of termination is given and received as hereinbefore
provided and all of said indebtedness, liabilities or obligations
created or assumed are fully paid.
This Agreement shall be deemed made in the State of Florida and
shall be governed, interpreted, and construed in accordance with the
laws of the State of Florida. No modification, amendment, waiver, or
discharge of Agreements shall be binding upon you unless in writing and
signed by you. In the event that Sun Capital, Inc. obtains counsel for
the purpose of collecting any indebtedness from Seller or Guarantors,
each agrees to pay the reasonable fees and expenses (including trial
and appellate) of Sun Capital's counsel.
WAIVER OF JURY TRIAL. EACH PARTY MUTUALLY AGREES THAT TRIAL BY
JURY IS HERBY WAIVED BY US IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF US AGAINST THE OTHER ON ANY MATTES WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH AGREEMENTS, OR THE
RELATIONS CREATED HEREBY, WHETHER FOR CONTRACT, TORT, OR OTHERWISE, AND
WE HERBY CONSENT TO THE JURISDICTION OF THE COURTS OF THE STATE OF
FLORIDA AND OF ANY FEDERAL COURT IN SUCH STATE FOR DETERMINATION OF ANY
DISPUTE AS TO ANY SUCH MATTERS, HOWEVER, EXCLUSIVELY THE COUNTIES OF
BROWARD OF PALM BEACH, FLORIDA.
<PAGE>82
In witness whereof and intending to be bound, we have executed this
guarantee this 9th day of April 1998.
Witnessed by:
_____________________________________/s/ James Ayres______________
Guarantor
State of: California )
) ss:
County of: Riverside )
I, the undersigned Notary Public, in and for the jurisdiction
aforesaid, do certify that
James R. Ayres, who is personally known to me as the person who
executed the foregoing Guaranty, personally appeared before me on the
date set forth above and acknowledged the execution of same as his/her
free act and deed.
Notary Public
NOTE: This guarantee of validity form was signed by Ralph Mann,
President, in the same format as the one above signed by James Ayres.
<PAGE>83
GOLD'S GYM INTERNATIONAL, INC.
314 Sunset Avenue, Venice, California, 90291
Telephone (310) 392-3005 Facsimile (310) 452-3269
MERCHADISE LICENSE AGREEMENT
Licensee: Nova Pharmaceutical Inc. a California Corporation
Date: , 1999
Address: 31712 Casino Drive, Suite 7B
Telephone (909) 245-4657
Lake Elsinore, CA 92530
Facsimile: (909) 245-8339
DEFINITIONS
For the purpose of the Agreement, the following definitions shall
apply:
1. Advertising Material: All catalogs, advertisements, and promotional
materials displaying or pertaining to the Products.
2. Ancillary Rights: All packaging, labels, logos, art work, designs,
trademarks, copyrights, or patents resulting from the Products.
3. Authorized Distributors: Distributors licensed by Gold for
redistribution of the Products.
4. Effective Date: March 1, 1999.
5. Extended Term: The three- (3) year period commencing upon the
expiration of the Initial Term.
6. GGE: Gold's Gym Enterprises, Inc., a California corporation.
7. Gold: Gold's Gym International, Inc., a California corporation.
8. Gyms: Gold's Gym gym licensees and franchises.
9. Information: Confidential or proprietary information or property
disclosed or furnished to Licensee consisting of, without
limitations, concepts, formulas, designs, styles, patterns, colors,
marketing decisions and directions, trade secrets, and proposed
trademarks.
10. Initial Term: The period commencing on the Effective Date and
continuing until June 1, 2002.
11. License Period: Unless specified otherwise, a twelve- (12) month
period commencing on the effective Date or the anniversary thereof.
12. Manufacturer's Cost: Fifty percent (50%) of Licensee's then listed
wholesale prices.
13. Minimum Sales: The amount set forth in paragraph 7 hereof.
14. Net Sales: The extended invoice sales price for the Products
(including, without limitation, any irregulars, seconds, etc) less
reasonable and customary quantity discounts, as actually calculated
on the invoice, and returns actually made or allowed. No
deductions shall be made for cost incurred in manufacturing,
selling, distributing, or advertising the Products (including
cooperative and promotional allowances) or for uncollectible
accounts, taxes, cash discounts, commissions, or similar
allowances. In the case of sales to or use of the Products by a
Related Party of License, the invoice sales price regularly charged
to the Licensee's independent bona fide customers.
15. Ownership Interest: Shares of stock in the event that the Licensee
is a corporation, interest in partnership capital or profits in the
events that Licensee is a partnership.
16. Products: Nutritional Supplements bearing the Trademark.
17. Related Party: Any (a) director, officer, employee, shareholder,
partner, or owner of the subject party or (b) a corporation,
partnership, trust, or any other entity in which the subject party
or any director, officer, employee, shareholder, partner, or owner
of the subject party owns, directly or indirectly, any interest.
18. Retail: Sales of the Products directly to the ultimate consumer
including sales by audio, video, print, or other media.
19. Sales Royalty: Seven percent (7%) of the Net Sales of Products.
20. Sell Through Period: The ninety- (90) day period immediately
following the expiration or termination of this Agreement.
21. .Term: The Initial Term and also the Extended Term, provided that
the Initial Term is extended as provided in Paragraph 28 hereof.
22. Territory: United States.
23. Trademarks: The trademarks set forth in Exhibit "A" attached
hereto.
<PAGE>84
24. Trade Show Fee: The amount determined by Gold based upon the costs
incurred and amount of space utilized by Licensee at trade shows.
25. Wholesale: Sales of the Products other than the ultimate consumer.
RECITALS
A. GGE is the owner of the Trademarks. Under the terms
and conditions of a license agreement by and between GGE and Gold, Gold
has been granted the exclusive authority to grant licenses for the use
of the Trademarks as contemplated by this Agreement.
B. GGE and Gold have expended large sums of money as well
as substantial effort over a period of many years developing and
establishing public recognition and identification of the Trademarks
and the goodwill associated therewith.
C. Gold desires to grant and Licensee desires to acquire
a license to manufacture and distribute various goods specified below
using the Trademarks under the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the foregoing the mutual
covenants contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
1. Grant of License
1.1 Gold hereby grants to Licensee, during the Term, the
nonexclusive right to use the Trademarks in connection with the design,
manufacture, marketing, sale at wholesale, and distribution of the
Products only within the territory and subject to the terms and
conditions set forth in this Agreement. Licensee shall have no right
to sell the Products at retail.
1.2. Licensee shall immediately cease the manufacture of
any Products which Licensee has not commenced distribution of prior to
the end of the first License Period ("Terminated Products"). The
Terminated Products shall thereafter be excluded from the definition of
the "Product" for purposes of this Agreement, provided however, that
Licensee may continue to distribute its current inventory of the
Terminated Products subject to the provisions of Paragraph 10.3 (a)
hereof. A Terminated Product shall not cause any adjustment to the
Minimum Royalty of Minimum Sales.
Neither Licensee nor any Related party of Licensee shall
manufacture, distribute, or sell any merchandise (a) of any other
health club, fitness center, or gym (e.g. Bally's, World's Gym, Crunch
Gym, 24 Hour Fitness, etc.); (b) of any health or fitness brand (e.g.,
Speedo or Everlast); or (c) which incorporates, in whole or in part,
any Information of the Trademarks or any derivation thereof. The
preceding sentence shall not apply to the manufacture only of non-
Related Third Party as a private label manufacturer, provided that
Licensee or Related Party of Licensee does not sell, market, or
distribute private label items.
Gold reserves all rights to exploit the Trademarks throughout
the world except the expressly granted herein to Licensee.
Trademark Rights and Usage
2.1 Gold reserves all rights in the Trademarks, and any use of
Trademarks by Licensee shall be subject at all times to the terms and
conditions of this Agreement and shall inure to the benefit of Gold.
The Ancillary Rights shall be included in the definition of the
"Trademarks." Licensee hereby assigns to Gold any Ancillary Rights and
shall execute such documents as requested by Gold in order that Gold
shall be sole owner of all Ancillary Rights. Licensee represents and
warrants to Gold that the Ancillary Rights do not and shall not
infringe on the rights of any third party and that no third party has
or shall have interest therein. No provision herein shall restrict
Gold's use of Ancillary Rights whether during or after the Term.
2.2 Each and every use of the Trademarks by Licensee
shall clearly (a) indicate the registration or ownership of the
Trademarks by the appropriate registration identification symbol of an
"R" within a circle or a "TM," as the case may be; and (b) display the
statement "Manufactured and distributed under license from Gold's Gym
International, Inc."
<PAGE>85
The license granted herein pertains only to the Trademarks as
set out in Exhibit "A" and does not include any other trademarks in
which GGE or Gold has interest.
Licensee recognizes and agrees the Trademarks are valid and
that GGE is the sole and rightful owner thereof. Licensee shall
neither represent nor claim any title in the Trademarks or right to use
the Trademarks except pursuant to this Agreement. Any use of the
Trademarks by Licensee shall not vest in Licensee any interest or title
in any of the Trademarks or right or presumptive right to continue such
use other than as expressly provided in this Agreement. Licensee
shall, at Gold's request, execute such documents, which Gold deems
necessary to protect and preserve GGE's and Gold's rights in the
Products Trademarks.
Licensee shall promptly notify Gold, in writing, of any
conflicting or infringing use of the Trademarks, or any similar mark or
symbol by any third party in the Territory, or of any claim by any
third party that Licensee' use of the Trademarks as provided herein
infringes any rights of such third party. Upon receipt of such notice,
Gold shall take action, as Gold shall determine, including institution
of legal proceedings, pertaining to such infringing use or such claim
of infringement, as the case may be, all at Gold's expense, and
Licensee shall cooperate fully in such action. The commencement,
conduct, resolution, or settlement of such action shall be in the sole
discretion of Gold, and any recovery therefrom shall be the sole
property of Gold. Gold hereby agrees to indemnify, defend (with
counsel of Gold's choice), and hold Licensee harmless from and against
any monetary judgement rendered in such action which may be brought
against Licensee by a third party claiming an interest in the
Trademarks, providing however, that notwithstanding any other
provisions contained in this Agreement, in no event shall GGE or Gold
be liable to Licensee for any lost profits, start up or other costs and
expenses, or consequential damages resulting from any limitation or
diminishment in the rights granted to licensee hereunder. If as the
result on any action referred to in this paragraph Licensee's rights to
use the Trademarks have been materially limited or diminished, then
Licensee may terminate the Agreement upon ninety- (90) day's prior
written notice to Gold. Only for purpose of this paragraph, the term
"Trademark" shall not include the Ancillary rights.
Licensee shall not, directly or indirectly, do anything which
may have an adverse effect on Gold's rights in the Trademarks, or any
rights appurtenant thereto, or which may diminish or dilute the value,
reputation, or goodwill associated therewith. Licensee (a) shall use
the Trademarks only in their stylized form as displayed in exhibit "A"
attached hereto; (b) shall not use any abbreviated or varied from of
the Trademarks; (c) shall not use other name, word, letter, number,
mark, inscription, or designed whatsoever with the Trademarks; (d)
shall not use any of the Trademarks in connection with any other
merchandise other than the products; (e) shall not use the Trademarks
in any manner that, in gold's opinion, may infringe upon any
enforceable rights of any third party or weaken or impair Gold's or
GGE's rights in the trademarks of the Products; and (f) shall not
include any of the Trademarks, or any derivation ;thereof, in any trade
name, business name, or fictitious business name.
If Gold determines, in gold's sole discretion, that Licensee's
use of the Trademarks or the Products violates the provisions of this
paragraph, Licensee shall, upon notice from Gold, immediately terminate
or modify such use in accordance with Gold's instructions without any
damage or offset in connection with this Agreement.
Advertising Materials and Trade Show Fees
3.1 Advertising Materials - Licensee may print and distribute
Advertising Materials, provided however, that any Advertising Materials
shall be submitted to Gold for its prior written approval at least
fourteen (14) days in advance of its intended productions. Such
approval shall be in the sole judgment of Gold, and any revisions
modifications requested by Gold shall be made by Licensee before such
use. In the event Licensee does not receive from Gold a written
approval of an Advertising Material within such fourteen- (14) days
period, such Advertising Material shall be deemed disapproved.
<PAGE>86
Trade Show Feeds - Throughout the Term, Licensee shall participate in
the Gold's Gym annual convention by providing staff, product, and other
support reasonably requested by Gold. The Trade Show Fee shall be due
and payable within thirty- (30) days following Licensee's receipt of an
invoice from Gold.
Manufacturing Restrictions
Any Products manufactured by Licensee under the term of this Agreement
shall be subject to Gold's prior written approval as to quality, style,
color, materials, placement of the Trademarks, method and quality of
imprinting the Trademarks, labels, packaging, containers, etc.
Licensee acknowledges and agrees that the quality standards which
Gold's will use to evaluate the Product samples shall be comparable to
those followed by major retail department stores in the Territory.
Gold shall provide Licensee with standard approval forms which shall be
used by the parties for Gold's approval of the Products as provided
herein. The procedures and timing of approvals for Advertising
Materials set forth in Paragraph 3.1 hereof also shall apply to all
approvals under Paragraph 4 hereof.
Licensee shall provide to Gold, at Licensee's sole cost, an approved
sample of each approved design for Gold's historical sample line, and
such approved samples shall be standard by which future production
quality shall be judged. Only an approved sample shall constitute a
Product for purpose of this Agreement. Except for insignificant
manufacturing variance, Licensee shall not depart from approved sample
in any respect without Gold's prior written consent.
If Gold reasonably determines that any Products fail to conform to the
quality and design standards of the approved samples, upon written
notice from Gold, Licensee shall immediately cease any and all
manufacturing, advertisement, promotion, offerings for sale, sales,
shipment, and distribution of such nonconforming Products. If any
nonconforming Products are in the offerings for sale, sales, shipment,
and distribution of such nonconforming Products. If any nonconforming
Products are in the marketplace, Gold may either (a) require Licensee
to recall such products at Licensee's sole expense; or (b) purchase
such Products and Licensee shall pay to Gold, within ten (10) days
following Gold's written demand, the purchase price and all other costs
incurred by Gold in connection with such purchase. Neither of the
foregoing shall result in an adjustment to the minimum Royalty.
Upon Gold's written request from time to time, but no more than once
during any calendar quarter, Licensee shall deliver to Gold up to four
(4) complete sample sets of the Products, together with any labels,
cartons, containers, advertisements and display materials used in
connection therewith. As to any calendar quarter, the first two (2)
sample sets shall be at no cost to Gold, and the second two (2) sample
sets shall be at the Manufacturer's Cost.
Licensee shall not contract or subcontract the performance of any of
its obligations under this Agreement, except that Licensee may contract
for the manufacture of the Products, provided that (a) the acts and
omissions of such third party manufacturer shall be deemed to be those
of Licensee for purposes of this Agreement; and (b) any agreements
between Licensee and a third party manufacturer shall in all events be
subject to the terms and conditions of this Agreement and shall contain
provisions which adequately protect GGE's and Gold's interest in and to
the Products and Trademarks.
Licensee shall permit, upon at least forty-eight (48) hour notice, duly
authorized representatives of Gold to inspect the premise of Licensee
or any place where Products are manufactured or held on behalf of
Licensee. The costs to Gold of such inspection (e.g., airfare, meals,
lodging, etc.) are the responsibility of and shall be paid entirely by
Licensee. Any agreement between Licensee and a third party
manufacturer shall include a provision incorporating Gold's right of
inspection hereunder. Gold's right of inspection hereunder. Gold and
Licensee agree that any costs incurred hereunder. Gold and Licensee
agree that any costs incurred hereunder ant the frequency of the
inspections conducted hereunder shall be reasonable.
<PAGE>87
Distribution Restrictions
2.1 Licensee's right to distribute the Products under the terms of this
Agreement shall be limited only to the Authorized Distributors,
retailers, and Gyms located within the Territory. Gold specifically
reserves the right to disapprove the distribution of the Products to
any Authorized distributor, retailer, or Gym, and upon receipt of such
written disapproval from Gold, Licensee shall immediately cease and
desist from distributing any of the Products to such disapproval
Authorized Distributor, retailer, or Gym.
All sales of the Products to the Authorized Distributors shall be at
Licensee's then distributor price and shall not be subject to a
royalty.
Licensee agrees that in order to protect the Trademarks and enhance the
reputation of Gold, Licensee shall distribute the Products only through
channels of trade directed to retailers of high repute and those who
follow high standards of merchandising in the sale of goods to the
public. Licensee shall not distribute or sell the Products to any
factory outlet stores or for sale at any warehouse sales, parking lot
sales, swap meets, flea markets, or similar sale or disposal venues.
Licensee shall ship all orders for the Products on a timely basis. As
to all orders received by Licensee during any License Period, Licensee
shall ship at least eighty-five (85%) of such orders within the terms
state on a credit approved and accepted purchase order, and if none,
the within thirty (30) days of their respective order dates. The Net
Sales as well as the number of units shall both be used as separate
tests to determine the percentage of the Products shipped, and both
tests must be satisfied in order to comply with the terms of this
paragraph. If during any License Period, Licensee fails to comply with
the terms of this paragraph, than this Agreement shall terminate upon
written notice by Gold.
Licensee shall not market, sell, or distribute the Products outside the
Territory or within the Territory for resale or redistribution outside
the Territory. Licensee shall not maintain branch offices or
distribution facilities for the products outside the Territory.
Licensee shall not use the Trademarks or any of the Products in any way
to promote enhance the distribution or sale of any other merchandise
sold by Licensee including the use of the Trademarks or products as a
loss leader or promotional attraction to Licensee's other merchandise.
General Obligations of Licensee
(a) Use its best effort to promote the sale, distribution, and use
of the Products in the Territory;
(b) Licensee shall manufacture and distribute the Products in such
quantities as may be required to satisfy the demands of its
distributees, including Gold and the Authorized Distributor;
(c) Licensee shall not engage, participate, or otherwise become
involved in any activity or course of action which, in Gold's sole
opinion, diminishes or tarnishes the goodwill, image, or reputation of
the Products or Trademark; and
(d) Licensee shall comply with all federal, state, and local laws,
rules, regulations, and orders applicable to the products, Licensee's
use of the Trademarks, or Licensee's business as it pertains to the
manufacture or distribution of the Products.
Minimum Sales, Minimum Royalty, and Marketing Commitment-Not
withstanding any other provision in this Agreement, the aggregate of
the net sales of the of the Products distributed by Licensee during any
License Period shall not be less than the applicable Minimum Sales.
Licensee's failure to satisfy the Minimum Sales of any License Period
shall constitute a material breach of this Agreement, and Gold shall
have the right, notwithstanding Licensee's payment of the royalty, to
terminate this Agreement upon written notice to Licensee. In such event
the aggregate of the Net Sales during any License Period exceeds the
applicable Minimum Sales for such License Period, such excess shall not
reduce or be applied to the Minimum sales for any preceding or
succeeding License Period.
For purposes of the Agreement, the following terms shall be the
indicated amounts for the applicable License Period:
<PAGE>88
<TABLE>
<CAPTION>
License Period Minimum Sales Minimum Royalty Marketing Commitment
<S> <C> <C> <C>
Effective Date through
June 1, 2000 $2,000,000.00 $140,000.00 As per paragraph points
1 through 9 of Exhibit "C"
June 2, 2000 through
June 1, 2001 $4,000,000.00 $280,000.00 30% of Gross Sales, as per
paragraph point 10 of Exhibit
"C" attached hereto
June 2, 2001 through
June 1, 2002 $6,000,000.00 $420,000.00 30% of Gross Sales, as per
paragraph point 10 of Exhibit
"C" attached hereto
</TABLE>
The minimum Sales for each License Period during the Extended
Term shall be one hundred ten percent (110%) off the greater of (a) the
aggregate of the Net Sales of the Products distributed or sold by
Licensee during the immediately preceding License Period, or (b) the
Minimum Sales for the immediately preceding License Period. The
Minimum royalty for each License Period during the Extended Term shall
be seven percent (7%) of the Minimum sales for the applicable License
Period. Concerning Licensee's Marketing commitment, a written
Marketing Report executed by a duly authorized officer of Licensee
shall be provided to Gold by Licensee on or before the twenty fifth
(25th) day of the calendar month immediately following the preceding
calendar quarter and shall indicate how the corresponding Marketing
Commitment was computed and expended for the applicable quarter, as
well as year-to-date for the current License Period.
8.Royalty
8.1 Throughout the Term, as well as the Sell Through Period if
applicable, Licensee shall pay gold, at its address for notice
purposes, a royalty equal to the greater of (a) the Sales Royalty for
Products distributed during a calendar month; or (b) the Minimum
Royalty for the applicable License Period regardless of the Net Sales
of the Products divided by the total number of calendar months
(including any partial calendar month) included in such License Period,
provided however, that during any License Period the aggregate of the
royalties due and paid exceeds the Minimum royalty during the sell
through period, then the Minimum Royalty for the remainder of that
License Period shall be zero (0). The Minimum royalty during the sell
through period, then the Minimum Royalty for the remainder of that
License Period shall be zero (0). The royalty for the last calendar
month of each License Period shall be an amount equal to the excess, if
any, of the greater of (a) the aggregate of the Sales Royalties for
such License Period; or (b) the Minimum Royalty for such License
Period, less the royalties already due and paid pertaining to such
License Period.
8.2 The royalty shall be paid in United States funds and shall be
due and payable on the fifteenth (15th) day following the end of each
calendar month. Any royalty not paid by its due date shall bear
interest at the rate of eighteen percent (18%) per annum (but in no
event greater than the maximum rate of interest allowed by law) from
such due date until receipt of the royalty in full. Any payment shall
be applied first to accrued interest and then to the delinquent
royalty. Notwithstanding the foregoing, the no royalty payment shall
be due hereunder until July 1, 1999.
8.3 In the event any royalty or other amount specified in the
paragraph is not paid to gold when due, the parties hereto agree that
it would be impracticable or extremely difficult to fix the actual
damages caused Gold for such late payment. Therefore, for each and
every month Licensee fails to pay any royalty or other amount due under
this Paragraph 8, Licensee agrees to pay to Gold as a late charge and
as liquidated damages, and not as a penalty, the sum of two hundred
fifty dollars ($250), which represents a reasonable compensation for
the monthly loss incurred because of late payment. The late charge due
hereunder shall be paid on or before the tenth (10th) day of the month
following the month for which the late charge is assessed. The right
to collect such a late charge shall be in addition to any other rights
or remedies available to Gold at law, in equity, and under this
Agreement.
<PAGE>89
8.4 A written report executed by a duly authorized officer of
Licensee shall accompany each royalty payment and shall include the
following:
(a) A Royalty Report, in a standard form provided by Gold,
indicating how the royalty was computed for the current calendar month
and year-to-date for the current License Period.
(b) A Product Shipping Report which shall include the total units
and total dollar sales of each Product shipped to all customer.
(c) A Customer Shipping Report which shall include the name of each
customer shipped and total sales of the Product shipped to each
customer.
(d) An Order Backlog Report, a standard form provided by Gold,
indicating the amount of Products on hand, the amount of orders
received for the next six (6) months, by month, and the total projected
or expected orders for the next six (6) months, by month.
(e) Such other reports and additional information, in a form as
Gold may specify in writing from time to time, to verify Licensee's
compliance with the terms and conditions of this agreement.
8.5 Licensee shall keep proper books and records in accordance with
Generally Accepted Accounting Principles as promulgated by the American
Institute of Certified public Accountants. Licensee's records shall
include sales and inventories of the Products including,
without limitations, a customer purchase order register maintained on a
daily basis. Within sixty (60) days following the end of Licensee's
fiscal year, Licensee shall, throughout the Term, provide to Gold
copies of Licensee's financial statements (including a balance sheet,
statement of income and expenses, changes in shareholder's equity, cash
flow, and the related thereto) for such fiscal year. The financial
statements provided by Licensee to Gold shall consist of a compilation,
as that term is defined under Generally Accepted Accounting Principles,
with accompanying footnotes. The compilation so prepared shall be
attested to and reconciled to the corresponding fiscal year's federal
tax return by a certified public accountant. Gold shall keep such
financial statements confidential and shall only disclose them to those
individuals with a "need to know" such information. Throughout the
Term and for a period of three (3) years following the expiration or
termination of the Term, Gold, or a duly appointed agent or
representative of Gold, shall have access, during Licensee's normal
business hours, to all books, records, financial statements of Licensee
including, without limitation, loan and factoring agreements, to
inspect, audit, copy, extract, and verify Licensee's overall financial
condition and compliance under this Agreement. As an alternative, Gold
may require Licensee to supply Gold with any of the above information,
and Licensee shall deliver the same to Gold within fourteen (14) days
of Gold's written request.
8.6 If as a result of an inspection or audit by Gold the royalty
payments and Trade Show Fees due under this Agreement exceed the amount
actually paid to Gold, Licensee shall within five (5) days of receipt
of notice from Gold pay such excess plus interest. In the event such
excess exceeds the aggregate of the royalty payment and Trade Show Fees
due hereunder for the applicable License Period (a) by five (5%) or
more, Licensee shall pay for all costs and expenses associated with
such inspection or audit; and (b) by seven (7%) or more, Gold shall
have the right, notwithstanding Licensee's payment of such excess, to
terminate this Agreement upon written notice to Licensee.
9. Disclaimer: Product and Warranty Liability: Indemnification:
And Insurance
9.1 Disclaimer. Neither Gold nor GGE, nor any Gold or GGE Related
Party, shall be liable to Licensee or to any other person with respect
to the manufacture, distribution, or sale of the products by licensee
or its distributes, including, without limitation, the performance,
characteristics, fitness, or suitability of any of them for any
purpose. Gold and GGE expressly disclaim any liability for incidental
or consequential damages or losses of any sort arising from the
manufacture, distribution, sale or use of the Products whether or not
arising from defects, malfunctions, or failures to conform to
specifications.
9.2 Product and Warranty Liability; Liability;
Indemnification Licensee assumes all product and warranty liability in
connection with the Products whenever and wherever incurred or
<PAGE>90
asserted. Licensee hereby agrees to indemnify, defend, and hold Gold,
GGE, any Related Party of Gold or GGE harmless from and against any and
all causes of action, liabilities, losses, claims, costs, damages, or
expenses, including attorneys' fees, whatsoever which may be brought or
made against Gold, GGE or any Related party of Gold or GGE or which may
be sustained, paid, or incurred as a result of or in any way connected
with Licensee's use of the trademarks or the manufacture, distribution,
sale or performance of products.
9.3 Insurance Within ten (10) days after the date hereof,
licensee shall acquire and maintain in full force and effect,
throughout the Term as well as the sell Through Period if applicable,
product liability insurance in the minimum amount of One Million
Dollars ($1,000,000.00) per each occurrence and Two Million
($2,000,000.00) in the aggregate, in order to exceed Ten Thousand
Dollars ($10,000.00) per each occurrence and Twenty Thousand
($20,000.00) in the aggregate with a deductible not to exceed Ten
Thousand ($10,000.00) per each occurrence and Twenty Thousand
($20,000.00) in aggregate, in order to protect Licensee, Gold and GGE
against any liability for damages or injuries suffered which arise out
of or involve the Products or Licensee's use of Trademarks. Such
coverage shall be on an "occurrence" basis and shall provide that it
cannot be canceled, terminated, reduced, or amended without the insurer
giving Gold thirty- (30) day's advance written notice thereof.
Licensee shall cause Gold and GGE to be named as additional insured on
any such policy and shall deliver to Gold a certificate evidencing
Licensee's compliance with the terms of this paragraph. Licensee shall
immediately notify Gold in writing of any claims paid or reservations
made by the insurer under any policy required hereunder.
10. Termination
10.1 Licensee expressly acknowledges and agrees that the
occurrence of any of the following events, whether known or unknown to
Gold, shall constitute a material breach of this Agreement and shall
cause this Agreement to immediately cease and terminate without prior
notice or action by Gold:
(a) Licensee makes any assignment for the benefit of
creditors;
(b) The appointment of a trustee or receiver to administer
or conduct Licensee's business or affairs, Licensee voluntarily files
any petition under any bankruptcy act, or an involuntary petition in
bankruptcy is filed against Licensee and not stayed, withdrawn, or
terminated within thirty (30) days, except to the extent that the
Bankruptcy code makes unenforceable any provision terminating a license
agreement upon the filing of a petition in bankruptcy under federal
law;
(c) Licensee's current liabilities exceed its current
assets as determined in accordance with generally accepted accounting
principles;
(d) Licensee's liabilities exceed its assets as determined
in accordance with generally accepted accounting principles; or
(e) A cumulative total of fifty percent (50%) or more of
the Ownership Interest in Licensee, as of the Effective Date, is
issued, sold, exchanged, or otherwise transferred, during the Term, by
or to Licensee or any of its owners. Not withstanding the foregoing,
Licensee's shareholders may transfer any of their Ownership Interest
between and among existing shareholders, their family members and/or
trusts established for the benefit of said shareholders or their family
members provided, however, that such a transfer is not to or for the
benefit of any market competitor of Gold's or of any Gold's Related
Party.
Licensee expressly acknowledges and agrees that the occurrence of any
of the following events shall constitute a material breach of this
Agreement and Gold may, at its option, terminate the Agreement upon
written notice to Licensee:
<PAGE>91
(a) Licensee's failure to pay Promotional or Trade Show
Fee, royalty, or interest as provided herein, provided however, that if
all past due amounts are paid in full within five (5) days after such
notice to Licensee, then such notice shall be of no further force or
effect;
(b) Licensee's failure to comply with any provisions of
Paragraph 4.6, 5.4, 7, 8.6, 9.3, 17 hereof;
<PAGE>92
(c) Licensee's failure to comply with any other provision
of this Agreement applicable to Licensee, provided however, that if
Licensee corrects such breach to Gold's satisfaction within thirty
(30) days after such notice to Licensee, than such notice shall be of
no further force or effect; or
(d) Licensee's failure to comply with any provisions of
this Agreement, including those subject to a cure period but for this
clause, if Licensee has at any time during the Term cured a breach
hereunder as to the same provision.
Upon the termination, for whatever cause, or expiration of this
Agreement:
(a) Licensee shall immediately cease the manufacture and
distribution of the Products, provided however, that upon the
expiration of the Term or upon termination of this Agreement other than
by default of Licensee, Licensee may, subject to the terms of this
Agreement, complete any work in process bearing the Trademarks and
continue to distribute and sell through the same approved channels of
distribution, on a nonexclusive basis, its inventory of the products
existing as of such expiration or termination, as the case may be,
during the Sell Through Period. At the expiration of Sell Through
Period or upon termination of this Agreement by default of Licensee,
all or any portion of the existing inventory of the Products and any
work in process bearing the Trademarks, shall be, at Golds' option,
either (i)destroyed by Licensee at Licensee's expense, or (ii)
purchased by Gold or its designee at the Manufacturer's Cost for
finished goods and Licensee's raw material cost for work in process,
less any amounts owed by Licensee to gold. To the extent Licensee
destroys any Products as required under this Agreement, Licensee shall
promptly provide to Gold, in writing, certification, duly signed by
Licensee's authorized representative, under penalty or perjury, that
such Product destruction has taken place. Such certificate shall
include a detailed description and quality of each Product so destroyed
and the method, location, and date of such destruction.
(b) Within seven (7) days following such expiration or
termination and the expiration of the Sell Through Period if
applicable, Licensee shall provide to gold a written statement setting
forth, as of the date of termination or expiration (i) the inventories
of work on process, finished goods, and garment identification labels
pertaining to the Products: (ii) open orders for the Products (iii)
all future production and distribution schedules; and (iv) all future
advertising and promotional schedules.
(c) Within seven (7) days following such termination or
the expiration of the Sell Through Period of applicable, Licensee shall
deliver to Gold all packaging, labels, tags, and other materials
relating to the Products and Trademarks for destruction or other
disposition or use as Gold may elect in its sole discretion.
(d) All trademark rights granted herein shall immediately
revert to Gold, and any and all rights of Licensee in any of the
Trademarks shall be immediately terminated. Licensee shall no longer
use or have the right to use the Trademarks, any variation or
derivation or use as Gold may elect in its sole discretion.
(e) Upon termination of this Agreement by default of
Licensee including, without limitation, Licensee's failure to satisfy
the Minimum Sales, Licensee shall, within thirty (30) days following
<PAGE>92
(f) such termination, pay Gold an amount equal to the
Minimum Royalty and Trade Show Fee due for the remainder of the then
License Period. The termination of this Agreement by Gold or such
payment to gold shall not prejudice Gold's right to pursue any and all
remedies against Licensee including, without limitation, the collection
of all unpaid Minimum Royalties and Trade Show Fees for the remainder
of the Term.
Representative and Warranties of Licensee Licensee hereby represents
and warrants to Gold that:
(a) It is currently engaged in the business of the
production and distribution of Nutritional Supplement;
(b) It understands the business risks, costs, and profit
potential of such business;
(c) It is entering into the Agreement in reliance upon its
own investigation and is not relying upon any projections or other
information or statistics furnished by Gold; and
(d) Exhibit "B" attached hereto is a complete and
accurate list of all of the shareholders, including shares owned,
directors, and officers of Licensee as of the Effective Date.
Entire Agreement This document constitutes the entire agreement between
the parties, all oral and written representations being merged herein,
and supersedes all prior oral and written representations.
Confidentiality The information is a valuable, special, and unique
asset of Gold and is either nonpublic, confidential, or proprietary in
nature. Licensee shall have no rights or claims in the Information and
shall at all times keep the information confidential. Licensee shall
not disclose, and shall have no rights or claims in the information and
shall at all times keep the Information confidential Licensee shall not
disclose, and shall not permit any of its officers, directors, agents,
employees, independent contractors, or associates to disclose, any of
the Information to any person, firm, or entity for any reason or
purpose. Licensee may only disclose the Information to those
individuals within its organization in with a "need to know", and
Licensee shall advise any recipient of the disclosure restrictions set
forth in this paragraph. The provisions of this paragraph shall
survive the expiration or termination of this Agreement.
Amendment The provisions of this Agreement may be modified at any time
but only if in writing and signed by the party against whom enforcement
of the modification or discharge is sought.
Waiver Either party may waive the other party's failure to perform any
provisions or to satisfy and condition to this Agreement, provided
however, that any waiver shall not be effective unless in writing and
signed by the waiving party. A waiver shall not be considered to waive
any future performance, breach, or condition under this Agreement
including the one being waived. Failure of a party to complain,
notify, or declare that the other party is in breach of the terms
hereof or failure of a party to give or withhold its constant or
approval. Neither party will be liable to the other by reason of any
failure in performance of this Agreement if the failure arises out of
acts of God, acts of governmental authority, fires, strikes, delays in
transportation, riots, wars, or any cause beyond the reasonable control
of that party. If any such delays performance, the time allowed for
each performance shall be appropriately extended.
Nonassignability Licensee shall not sublicense, assign, or transfer any
of the right granted herein without Gold's prior written consent which
may be withheld for any reason. Licensee shall not pledge,
<PAGE>93
hypothecate, mortgage, grant any liens or security interest in, use as
collateral, or otherwise borrow upon any of Licensee's rights under the
Agreement.
Succession Subject to provisions otherwise contained in the Agreement,
this Agreement shall inure to benefit of and be binding on successors
and permitted assigns of the respected parties hereto.
Notice Any and all notices, demands, or other communications by any
party shall be in writing and shall be validly given or made to another
party at the respective addresses or facsimile numbers of the parties
as set forth above. Such notice, demand, or other communication shall
be conclusively deemed given and received (a) at the time or personal
service or receipt of facsimile, followed by delivery by mail or
courier; (b) five business days after deposit thereof in the United
States mail (certifies or registered, return receipt requested); or (c)
two (2) business day after the deposit thereof with a reputable
overnight delivery service.
Attorney's Fees If the service of an attorney are required (a) to
secure the performance hereof or otherwise upon the breach or default
of any party; (b) to prevent or stop Licensee's unauthorized use of the
trademarks, or any colorable imitation or derivation thereof, during or
subsequent to the Term; (c) if any judicial remedy or arbitration is
necessary, to enforce or interrupt the provisions of this agreement or
the rights or duties of any person in relationship thereto; or (d) to
enforce a judgment rendered in connection with the Agreement, the
prevailing party/judgement creditor shall be entitled to recover its
attorneys' fees, cost, and other expenses, in addition to any relief to
which such party may be entitled. Clause (d) above shall be separate
from all other provisions of this Agreement, shall survive any
judgement, and shall not be deemed merged into the judgment.
Severability If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of
the Agreement shall continue in full force and effect and shall in no
way be impaired or invalidated.
Incorporation All exhibits to which reference is made are deemed
incorporated in the Agreement whether or not actually attached.
Authorization In the event that Licensee is a corporation or
partnership, the undersigned warrants that the Board of Directors or
requisite number of partners, as the case may be, of Licensee have
passed a resolution or voted authorizing Licensee to enter into this
Agreement and the undersigned is authorized to sign on behalf of
Licensee.
Governing Law; Form for Litigation
24.1 The rights and obligations of the parties and the interpretation
and performance of the Agreement shall be governed by the laws of the
State of California as applied to agreements among California residents
which are entered into and performed entirely within California.
The parties hereby consent, freely and voluntarily, to the personal
jurisdiction of any state or federal court within the counties of Los
Angeles or Sacramento, California and further agree that venue for
purposes of any legal action is proper in either of these two Counties.
Specific Performance Each party's obligations under this Agreement are
unique. Each party acknowledges that if any party should default in
the performance of the duties and obligations imposed by this
Agreement, monetary damages would be inadequate, and it would be
extremely difficult and impracticable to measure or ascertain the
resulting damages. Accordingly, the non defaulting party, in addition
to any other available rights or remedies, may sue in equity for
specific performance of such duty and obligation, and the parties, in
addition to any other available rights or remedies, may sue in equity
for specific performance of such duty and obligation, and the parties
each expressly waive the defense that a remedy in damages will be
<PAGE>94
adequate. In addition, Licensee expressly agrees that such default in
performance shall entitle either GGE or Gold, or both of them, to
enjoin such default in performance and further use of the Trademarks
hereunder.
Counterparts This Agreement may be executed in any number of
counterparts with the same effect as if the parties had all signed the
same document. All counterparts shall be construed together and shall
constitute one agreement.
Time. Time is of the essence of this Agreement and each and every
provision; hereof.
Option to Extend Provided that Licensee is in compliance with all the
terms and conditions of this Agreement including, but not limited to,
satisfaction of the requirements of paragraphs 7 and 8 hereof for each
year during the Initial Term, Licensee shall have an option ("Option"),
subject to the provisions of this paragraph 28, to extend the Term for
the Extended Term on the terms and conditions set forth this Agreement.
Licensee shall exercise the Option by providing written notice
("Notice") to Gold of such exercise no later than four (4) months and
no earlier than six (6) months prior to the expiration of the Initial
Term. Any rights of Licensee to extend the Term as set forth in this
paragraph shall be null and void, and the Term shall expire at the
expiration of the Initial Term, if Licensee is in breach or violation
of any of the terms or conditions of this Agreement at any time during
the period commencing with the giving of the Notice and ending on the
expiration of the Initial Term.
Executed this__22nd______day of _March____1999 Executed
this_________day of ___________1999
At Venice California
Licensee at Lake Elsinore, CA.
Gold's Gym International, Inc.
By: /s/ Krista Murphy
By:_/s/ Ralph Mann______
Title: Director of Product Licensing_________
Title: President
By: __/s/ Peter Grymkowski___________
Title: ___President__________________
GUARANTY
FOR VALUE RECEIVED and in consideration of Gold entering into the
preceding Merchandise License Agreement, the undersigned guarantees the
full and timely observation and performance by Licensee of all the
obligations on the part of the Licensee under the Merchandise Licensee
Agreement in accordance with the terms thereof.
/s/ Ralph Mann
___________________________________
Ralph Mann
EXHIBIT "A"
GOLD'S GYM LOGOS
EXHIBIT "B"
The following are all of the shareholders, and their respective number
of shares of stock issued and outstanding, of Licensee as of Effective
Date:
Ralph Mann 5,600,000; Showtime Partners 4,150,000; and various non-
affiliated small shareholders.
Ralph Mann controls 88% of shares.
<PAGE>95
The following are all of the directors of Licensee as of the Effective
Date:
Ralph Mann, CEO & President; James Ayres, Senior Vice President &
Corporate Secretary; Robert Eggering, Controller; Dr. Carlos Schmidt,
Outside Board Member; Steve Scheele, Outside Board Member.
The following are all of the officers of Licensee as of the Effective
Date:
Ralph Mann, CEO & President; James Ayres, Senior Vice President &
Corporate Secretary; Robert Eggering, Controller.
<PAGE>96
AGREEMENT
This agreement entered into the fifth day of July, 1999, by and between
Nutri Pharmaceuticals, Inc. (hereinafter referred to as "NPI") and Nova
Pharmaceutical Inc. (hereinafter referred to as "Nova").
RECITALS
Whereas, NPI manufactures certain quality nutrient and vitamin
products.
Whereas, Nova obtained a contract with Gold's Gym International, Inc.
(hereinafter referred to as "Gold's Gym") granting Nova the exclusive
license to manufacture, distribute and sell products using the Gold's
Gym trademark and logos along with the exclusive right to sell products
to franchisees of Gold's Gym, as well as other wholesale and retail
venues. A true and correct copy of the contract between Gold's Gym and
Nova is attached hereto and incorporated herein by this reference as
Exhibit A.
Whereas NPI and Nova are desirous of entering into an agreement whereby
NPI will exclusively manufacture all of the products which are to be
distributed in accordance with the contract between Nova and Gold's Gym
in exchange for certain favorable financing terms.
NOW THEREFORE, in consideration as set forth below, the parties hereby
enter into the following agreement for the manufacture of all products
desired or required under the contract between Nova and Gold's Gym.
1. NPI shall have the exclusive right to manufacture all products
desired or required under the contract between Nova and Gold's Gym,
NPI's exclusive right to manufacture shall continue for as long as Nova
has a contractual relationship with Gold's Gym granting Nova the
opportunity to manufacture or subcontract for the manufacturing of
nutrient and vitamin products. NPI's exclusive right shall furthermore
extend to all successor contracts vis-.-vis the parties and shall not
be limited to any particular product line.
2. Nova shall pay NPI for all products in relation to this
agreement within sixty (60) days of NPI's transmittal of products. The
parties recognize and agree that they are favorable financing terms.
3. The parties shall, in good faith, agree upon a price list for
all products required under the terms of this agreement. Said price
list shall be subject to modification for the following reasons:
a) Modification of products required in accordance with
Nova's agreement with Gold's Gym.
b) The cost and availability of raw materials.
c) The cost and availability of packaging materials.
d) Nova reserves the right to verify the costs and
availability of raw materials.
4. NPI shall also produce all necessary products for
exhibition at Gold's Gym's public relations conference to be held in
Las Vegas, Nevada from July 26, 1999, through July 30, 1999.
5. NPI shall disclose the product content as required by
existing federal, state and local laws. Although NPI shall provide
Nova with the makeup of each particular product, NPI is not required to
divulge any trade secrets, including percentages of raw materials
within any given product, to Nova or any other party.
6. NPI shall develop and administer a tracking system for products
which meets or exceeds generally accepted record-keeping practices.
7. This agreement may only be terminated for the following
reasons, and under any circumstances performance may not be terminated
prior to written notification of the following circumstance followed by
a thirty (30) day period within which to cure said circumstance:
a) Any failure of Nova to satisfy any financial
obligation NPI;
<PAGE>97
b) Independent evidence of sub-potent product by an
independent assay exceeding a standard deviation of five percent (5%);
c) Modification of the formula of any product without
prior notice by NPI;
d) Repeated and consistent failure of NPI to met
deadlines;
e) Repeated and consistent failure of NPI to have the
capacity to satisfy orders;
f) NPI fails to maintain minimum product liability
insurance of $1,000,000 with $10,000,000 excess liability and fails to
name Nova as an additional insured party; or
g) NPI shall have the right to terminate its obligation
under this agreement in the event that Nova unreasonably withholds
consent or communication regarding any matter hereunder.
8. The terms of this agreement shall be binding on all heirs,
assigns, and legal representatives of the parties hereto.
9. This agreement constitutes the entire agreement between the
parties and any modifications to this agreement shall be in writing
executed by both parties.
10. Each of the provisions of this agreement shall be deemed
independent and severable, and the invalidity or partial invalidity of
any provision or portion thereof shall not affect the validity or
enforceability of any other provision.
11. In the event that there is any dispute as to the interpretation
or performance of this agreement, the prevailing party to such dispute
shall be entitled to its actual attorney's fees and costs in relation
thereto.
12. The undersigned are vested with the right power and authority
to bind the parties to this agreement.
Dated this fifth day of July 1999.
NPI Nova Pharmaceutical Inc.
_______________________________ _______________________________
By: By:
Its: Its:
<PAGE>98
CONTINUING GUARANTY
For Valuable Consideration the receipt and sufficiency of which is
hereby acknowledged, the undersigned, for themselves, their heirs,
executors, personal representatives, successors and assigns
(individually called "Guarantor" and collectively called "Guarantors")
jointly and severally and in solido, hereby unconditionally guarantee
to
____________________________________________________________________
Nutri Pharmaceutical, Inc.
Its successor, endorses and assigns, (collectively called "NPI") that
_____________________________________________________________________
Nova Pharmaceutical Inc
_____________________________________________________________________
("Nova"), whose address is 31712 Casino Drive, Lake Elsinore,
California 92530 shall promptly and fully perform, pay and discharge
all of its present and future liabilities, obligations and indebtedness
to NPI, whether direct or indirect, joint or several, absolute or
contingent secured or unsecured, matured or unmatured, and whether
originally contracted with or otherwise acquired by NPI (all of which
liabilities, obligations and indebtedness are herein individually and
collectively called the "Indebtedness"). This Guaranty is an absolute
and unconditional guarantee of payment and not of collectibility. The
liability of each Guarantor hereunder is not conditional or contingent
upon the genuineness, validity, sufficiency or enforceability of the
Indebtedness or any instruments, agreement or chattel paper related
thereto (collectively called "Agreements") or any security or
collateral therefore (collectively called "Security") or the pursuit by
NPI of any rights or remedies which it now has or may hereafter have.
If Nova fails to pay the indebtedness promptly as the same becomes due,
or otherwise fails to perform any obligation under any of the
Agreements, each Guarantor agrees to pay on demand the entire
Indebtedness and all losses, costs, attorneys' fees and expenses which
may be suffered by NPI by reason of the Nova's default or the default
of any Guarantor hereunder, and agrees to be bound by and to pay on
demand any deficiency established by the sale of any of the Agreements
or Security, all without relief from valuation and appraisement laws
and without requiring NPI to (I) proceed against Nova by suit or
otherwise, (ii) foreclose, proceed against, liquidate or exhaust any
of the Agreements or Security, (iii) exercise, pursue or enforce any
right or remedy NPI may have against Nova, any co-Guarantor (whether
hereunder or under a separate instrument) or any other party. Each
Guarantor agrees that: this Guaranty shall not be discharged or
affected by any circumstances which constitute a legal or equitable
discharge of a Guarantor or surety, or by the death of any Guarantor;
the record of NPI shall be received as conclusive evidence of the
amount of the Indebtedness at any time owing; one or more successive or
concurrent status suits may be brought and maintained against any or
all of the Guarantors, at the option of NPI, with or without joinder of
the Nova or any of the other Guarantors as parties thereto; such
Guarantor will not avail itself of any defense whatsoever which Nova
may have against NPI, other than full payment of the Indebtedness; and
such Guarantor will not seek a change of venue from any jurisdiction or
court in which any action, proceeding or litigation is commenced.
Each guarantor hereby waives notice of any adverse change in Nova's
condition or of any other fact which might materially increase such
guarantor's risk, whether or not NPI has knowledge of the same. Each
guarantor also hereby waives any claim, right or remedy which such
guarantor may not have or hereafter acquire against the company that
arises hereunder and/or from the performance by any guarantor hereunder
including, without limitation, any claim, remedy of NPI against Nova or
any security which NPI now has or hereafter acquires, whether or not
such claim, right or remedy arises inequity, under contract, by
stature, under common law or otherwise.
No termination hereof shall be effective until the Guarantors deliver
to NPI a written notice signed by them electing not to guarantee any
new extension of credit that may be granted by NPI to the company after
its receipt of such notice, but such notice shall not affect the
obligations of the guarantors hereunder as to any and all Indebtedness
existing at the time such notice is received. Each Guarantor hereby
waives (i) notice of acceptance hereof and notice of extensions of
credit given by NPI to Nova from time to time, (ii) presentment,
<PAGE>99
demand, protest, and notice of non-payment or protest as to any note or
other evidence of indebtedness signed, accepted, endorsed or assigned
to NPI by Nova, (iii) all exemptions and homestead laws, (iv) any
other demands and notices required by law; and (v) any right to trial
by jury. NPI may at any time and from time to time, without notice to
or the consent of any Guarantor, and without affecting or impairing the
obligation of any Guarantor hereunder; (a) renew, extend or refinance
any part of all the Indebtedness of Nova or any Indebtedness of its
customers, or any of co-Guarantor (whether hereunder or under a
separate instrument or) or any other party; (b) accept partial payment
of the Indebtedness and apply such payments to any part of the
Indebtedness; (c) settle, release (by operation of law or otherwise),
compound compromise, collect or liquidate, in any manner, any of the
Indebtedness, any Security, or any Indebtedness of any co-Guarantor
(whether hereunder or under a separate instrument) or any other party;
(d) consent to the transfer of any Security; (e) bid and purchase at
any sale of any of the Agreements or Security; and (f) exercise any and
all rights and remedies available to NPI by law or agreement even if
the exercise thereof may affect, modify or eliminate any rights or
remedies which a Guarantor may have against Nova. Each Guarantor shall
continue to be liable under this Guaranty, the provisions hereof shall
remain in full force and effect and NPI shall not be estopped from
exercising any rights hereunder, notwithstanding (i) NPI waiver of or
failure to enforce any of the terms or conditions contained in any of
the Agreement; (ii) any release of, or failure on the part of NPI to
perfect any security interest in or foreclose, proceed against, or
exhaust, any Security; or (iii) NPI failure to take new, additional or
substitute security or collateral for the Indebtedness.
Each Guarantor agrees that NPI may bring any legal proceedings it deems
necessary to enforce any or all of such Guarantor's obligations
hereunder in the state of Nevada; and service of process may be made
upon such Guarantor by mailing a copy of the summons to such Guarantor
or at its address last known to NPI. All rights and remedies of NPI
are cumulative and not alternative. Each provision of its Guaranty is
intended to be severable. Any term or provision hereof declared to be
contrary to, prohibited by or invalid under applicable laws or
regulations shall be inapplicable and deemed omitted hereof, but shall
not invalidate the remaining terms and provision hereof.
IN WITNESS WHEREOF, the Guarantors have executed this Guaranty on July
5, 1999.
____________________________
Ralph W. Mann
Social Security No.: ###-##-####
<PAGE>100
National Broker Dealer Service Corp.
April 21, 1999
Ralph Mann, CEO
Nova Pharmaceutical Inc.
31712 Casino Drive Suite 7B
Lake Elsinore, CA 92530
VIA TELEFAX
Re: Agreement Concerning SEC Reporting Status for Trading, Non-
Reporting Companies.
Dear Sirs:
You are currently trading on the Pink Sheets but are not yet a SEC
reporting company.
We agree to provide all services necessary to make you a fully-
reporting SEC company under our Fast Track SEC Reporting ProgramT.
Description of Process and timing
1. We will send you a checklist of information we need to begin to
prepare the SEC filing.
2. You must have 2 years audited financial statements (or a
shorter period if you have not been in existence for 2 years) that have
been prepared by a qualified SEC accounting firm. Even if you have an
audit, if your audit was not done by such a firm, it will have to re
redone before the SEC filing can be made.
3. Our SEC counsel will prepare the SEC filing and the necessary
SEC legal opinion.
4. When we have all necessary information, including the exhibits
to the SEC filing and your audit, and the SEC filing is completed, it
will be submitted to the SEC.
5. It will take approximately 90 days after we file to clear the
SEC, assuming they have no accounting comments, in which case the
process could be delayed for an additional period of time.
Legal Services
All SEC legal services will be provided by our SEC Counsel. You must
separately retain an attorney for the transaction, as some legal work
is required. Our Counsel cannot represent you because to do so would
be a conflict of interest. None of the legal work required of your
attorney will be SEC work. It will be general corporate work that we
identify as needing to be done to file with the SEC. We can assist
your customers in locating qualified counsel.
Fees
Our fee for these services is $150,000 worth of the issued and
outstanding shares of the your company at the time of execution of this
letter, based upon the Bid price of your stock on the date of execution
of this letter, to be issued to persons or entities we designate. You
may not reduce the number of shares issued to us through a reverse
stock split or similar transaction.
Costs
We will be responsible for paying the $100 SEC filing fee associated
with the services provided above.
To indicate your agreement with the foregoing, please sign this Letter
below and return it with a stock certificate for the shares.
<PAGE>101
Sincerely,
/s/ Joe Stapely
Joe Stapley, Vice President
National Broker Dealer Service Corporation
Agreed and Accepted:
Nova Pharmaceutical Inc
/s/ Ralph Mann
By: ________________________________
Ralph Mann, Nova Pharmaceutical Inc
<PAGE>102
THE COMPASS POINT GROUP
INCORPORATED
This Agreement (the "Agreement") is dated April 14, 1999 and is entered
into by and between NOVA PHARMACEUTICAL INC., (hereinafter referred to
as "CLIENT') and THE COMPASS POINT GROUP, INC. (hereinafter referred to
as "CPG").
1. CONDITIONS. This Agreement will not take effect and CPG will
have no obligation to provide any service whatsoever, until CLIENT
returns a signed copy of this Agreement to CPG (either by mail or
facsimile copy). CLIENT shall be truthful with CPG in regard to any
relevant material regarding CLIENT, verbally or otherwise, or this
entire Agreement will terminate and all monies paid shall be forfeited
without further notice. Agreed, CLIENTS INITIALS._/s/ RM.
Upon execution of this Agreement, CLIENT agrees to cooperate with CPG
and keep CPG informed of any developments of importance pertaining to
the CLIENT'S business, and abide by this Agreement in its entirety.
2 SCOPE AND DUTIES. During the term of this Agreement, CPG will
perform the following services on a best efforts basis for CLIENT:
2.1 Advice and Counsel. CPG will provide advice an counsel
regarding CLIENT's strategic business and financial plans, strategy and
negotiations with potential lenders/investors, joint ventures,
corporate partners and others involving financial and financially
related transactions.
2.2 Mergers and Acquisitions. CPG will provide assistance to
CLIENT, as mutually agreed, in identifying M&A candidates, assisting in
any due diligence process, recommending transaction terms and
participating in negotiations.
2.3 Introductions to the Investment Community. CPG has a
familiarity or association with numerous broker/dealers and investment
professionals across the country and will enable contact between CLIENT
and/or CLIENT's CLIENTs to facilitate business transactions among them.
CPG shall use their contacts in the brokerage community to assist
CLIENT in establishing relationships with Private Equity Capital
Sources [Venture Capita, ET. AL] and securities dealers while providing
the most recent corporate information to interested securities dealers
on a regular and continuous basis. CPG understands that this is in
keeping with CLIENT's business objective to market CLIENT's business or
project to the investment community.
2.4 CLIENT and/or CLIENT's CLIENT Transaction Due Diligence. CPG
will participate in the due diligence on all proposed financial
transactions affecting the CLIENT, of which CPG is notified in writing
in advance, including investigation and advice on the financial,
valuation and stock price implications thereof.
2.5 Ancillary Document Services. If necessary, CPG will undertake
the development, editing and production of documents necessary to
procure the agreed upon capital formation: Private Placement
Memorandum, Investment Marketing Memorandum, and Business Plan.
Client acknowledges that once documentation production has commenced,
if client refuses editing process or terminates the Agreement to
produce said documentation prior to its completion, or if client does
not contract with The Compass Point Group, Inc. For capital formation
services-no refunds of cash or stock shall be granted.
Production shall commence immediately with normal production time range
of two [2] to three [3] weeks depending upon client's availability for
editing process and barring any mechanical failures or emergency
occurrences beyond the control of client and/or The Compass Point
Group, Inc.
2.6 Additional Duties. CLIENT and CPG shall mutually agree upon
any additional duties that CPG may provide for compensation paid or
payable by CLIENT under this Agreement. Such additional agreement (s)
may, although there is no requirement to do so, may be attached hereto
and made a part hereof by written amendments to be listed as "Exhibits"
beginning with "Exhibit A" and initialed by both parties.
<PAGE>103
2.7 Best Efforts. CPG shall devote such time and bet efforts to the
affairs of the CLIENT as is reasonable and adequate to render the
consulting services contemplated by this Agreement. CPG is not
responsible for the performance of any services which may be rendered
hereunder without the CLIENT providing the necessary information in
writing prior thereto, nor shall CPG include any services that
constitute the rendering of any legal opinions or performance of work
that is in the ordinary purview of the Certified Public Accountant.
CPG cannot guarantee results on behalf of CLIENT, but shall pursue all
avenues available through its' network of financial contacts. At such
time as an interest is expressed in CLIENT's needs, CPG shall notify
CLIENT and advise it as to the source of such interest and any terms
and conditions of such interest. The acceptance and consummation of
any transaction is subject to acceptance of the terms and conditions by
CLIENT. It is understood that a portion of the compensation to be paid
hereunder is being paid hereunder by CLIENT to have CPG remain
available to assist with transactions on an as-needed basis. CPG's
duty is to introduce and market CLIENT's funding request to appropriate
funding sources. CPG will in no way act as a "broker-dealer" under
state securities laws. Because all final decisions pertaining to any
particular investment are to be made by CLIENT, it will, in some cases,
be CLIENTS' responsibility to communicate with potential funding
sources pertaining to the CLIENT's funding request.
2.8 Non-Guarantee. CPG MAKES NO GURARANTEE THAT CPG WILL BE ABLE
TO SUCCESSFULLY MARKET AND IN TURN SECURE A LOAN OR INVESTMENT
FINANCING FOR CLEINT, OR TO SUCCESSFULLY PROCURE SUCH LOAN OR
INVESTMENT WITHIN CLIENTS DESIRED TIMEFRAME OR TO GUARANTEE THAT IT
WILL SECURE ANY LOAN OR INVESTMENT FINANCING WITH A SPECIFIC OR MINIMUM
RETURN, INTEREST RATE OR OTHER TERMS, NEITHER ANYTHING IN THIS
AGREEMENT NOR THE PAYMENT OF DEPOSITS TO CPG BY CLIENT PURSUANT TO FEE
AGREEMENTS FOR OUTSIDE SERVICES (DOCUMENTATION, DESIGN, ADVERTISING, ET
AL.) SHALL BE CONSTRUED AS ANY SUCH GUARANTEE. ANY COMMENTS MADE
REGARDING POTENTIAL TIME FRAMES OR ANYTHING THAT PERTAINS TO THE
OUTCOME OF CLIENT'S FUNDING REQUESTS ARE EXPRESSIONS OF OPINION ONLY.
CLIENT HAS NOT BEEN REQUIRED TO MAKE EXCLUSIVE USE OF CPG FOR ANY
SERVICES OR DOCUMENTATION DEEMED NECESSARY FOR THE PURPOSE OF SECURING
INVESTMENTS. CPG HAS MADE NO SUCH DEMANDS IN ORDER FOR CLIENT'S
PROJECT TO BE MARKETED UNDER THE TERMS OF THIS AGREEMENT. CPG HOLDS NO
EXCLUSIVE RIGHTS TO THE MARKETING OF CLIENT'S PROJECT.
Agreed, CLIENT INITIALS:_/s/ RM
Compensation to CPG.
3.1 A. CLIENT hereby agrees to pay CPG $80,000 annually for the
above services plus the fees outlined in paragraphs 3.2,3.3, and 3.4
below. The fees (exclusive of those outlined in 3.2, 3.3. and 3.4
below) will be paid as follows: $35,000 in cash upon the execution of
this Agreement plus $4,091 monthly thereafter to be received by the 5th
day of the calendar month.
OR B. The CLIENT may, however, elect to pay for the services
(exclusive of 3.2, 3.3. and 3.4 below) by paying $50,000 in cash and
.05% in the form of the CLIENT's common stock. These monies would be
due as follows: upon the execution of this Agreement $20,000 in cash
and $60,000 of the CLIENT's common stock and then $2,727 monthly
thereafter to be received the 5th day of the calendar month. Option
elected, CLIENT INITIALS:________
OR C. The CLIENT may, however, elect to pay for these services
(exclusive of 3.2,3.3 and 3.4 below) by paying $10,000 in cash and 1.5%
in the form of the CLIENT's common stock. These monies and securities
would be due immediately upon execution of the agreement. Option
elected, CLIENT INITIALS:__________
OR D. The CLIENT may, however, elect to pay for these services
(exclusive of 3.2,3.3 and 3.4 below) by 54,000 shares in the form of
the CLIENT's common stock. These securities would be due immediately
upon execution of the agreement. Option elected, CLIENT INITIALS:_/s/
RM
Note to D: CLIENT may, at its opinion, purchase back the 54,000 shares
in the form of the CLIENT'S common stock from CPG for the amount of
$100,000 to be executed not later than 60 calendar days from the
execution of this agreement. CLIENT INITIALS: /s/ RM
<PAGE>104
3.2 In the event that CPG, on a non-exclusive basis introduces CLIENT
or a CLIENT affiliate to any third party funding source (s),
underwriter(s), merger partner(s) or joint venture(s) who enters into a
funding, underwriting, merger joint venture or similar agreement with
CLIENT or CLIENTs affiliate, CLIENT hereby agrees to pay CPG advisory
fees based on the following schedule derived from such funding,
underwriting, merger, joint venture or similar agreement with CLIENT or
CLIENT's CLIENT, unless generally accepted industry standards dictate
otherwise, fees shall be payable at the Close of the transaction or
when that is not practical with 24 hours after CLIENT has received the
proceeds of such investment. The advisory fee is payable upon the
commencement of such funding, underwriting, merger, joint venture or
similar agreement with CLIENT or CLIENT's CLIENT. This provision shall
survive this Agreement for a period of one year even though the term of
this Agreement may have expired, as pursuant to the section titled
"Term of Agreement and Termination". If CPG's efforts produce any
investment in accordance with the terms and conditions set for the in
Section 3, and CLIENT rejects said funding, a finders fee and expenses
will become immediately due and payable. CPG shall also be entitled to
50.% of finders fee outlined in paragraph 3.3. or 3.4 below, in
connection with any and all investment offers from CLIENT Contacts.
Agreed, CLIENT INITIALS:__/s/ RM
3.3 Fees for Direct Investment or Merger. CLIENT shall pay CPG a
finder's fee of 5.0% of total amount offered or committed to CLIENT or
in a Merger/Acquisition scenario, 5.0% of the total value of the
transaction resulting from an introduction or negotiation by CPG. The
5.0% shall be paid in cash at the Close of the transaction.
Additionally, CPG shall receive 100,000 options exercisable without
cash at a 30.0% discount to market [calculated on the day funding in
any amount occurs] and expiring three years from the signing of this
contract. The share issueable upon exercise of the warrants will have
standard piggyback registration rights. The fees [cash and stock]
shall be paid upon signing a term sheet with the investor.
Additionally, upon successful merger or acquisition CPG shall receive
1% of the total merger value in the form of the surviving entity's free
trading stock.
Fees for Introduction to a Third Party Investment. CLIENT shall pay
CPG a finder's fee of the total amount offered or committed to CLIENT
of one percent (1.0%) in cash and a cash equivalent equal to 5.0% of
the total raise offered or committed to CLIENT in the form of shares of
the CLIENTS free trading stock. Additionally, CPG shall receive
100,000 options exercisable without cash at a 30.0% discount to market
[calculated on the day funding in any amount occurs] and expiring three
years from the signing of this contract. The shares issueable upon
exercise of the warrants will have standard piggyback registration
rights. The fees [cash and stock] shall be paid upon signing a term
sheet with the investor.
THE FEES PROVIDED FOR IN SECTIONS 3.3 AND 3.4 ARE NOT INTENDED TO AND
WILL NOT APPLY CUMULATIVELY TO THE SAME FUNDING; HOWEVER, EACH MAY
APPLY TO DIFFERENT PORTIONS OF A TRANSACATION COMPRISING DIFFERENT
FUNDING SOURCES.
3.5 Expenses. If CLIENT accepts any investment provided under this
Agreement, CLIENT shall reimburse CPG for reasonable expenses incurred
in performing its duties pursuant to this Agreement (including
printing, postage, express mail, photo reproduction, travel, lodging,
and long distance telephone and facsimile charges). Such reimbursement
will be payable within 24 hours after CLIENT's receipt of CPG invoice
for same.
3.6 Additional Fees. CLIENT and CPG shall mutually agree upon any
additional fees that CLIENT may pay in the future for services rendered
by CPG under this Agreement. Such additional agreement (s) may,
although there is no requirement to do so, be attached hereto and made
apart hereof as Exhibits beginning with Exhibit A.
3.7 Interest on Funds Due. CLIENT shall pay interest on all payment
in arrears due CPG, at the rate of ten percent (10.0%) per annum.
3.8 Terms and Conditions of Investment. CLIENT is not obligated to
accept any investment from any potential investor under the following
conditions:
<PAGE>105
[i] CLIENT may reject any investment from any potential investor that
does not qualify as an "accredited investor" under Rule 501 (a) of the
securities an Exchange Commission.
[ii] CLIENT may reject any investment from any single potential
investor that is less than $250,000. US.
[iii] CLIENT may reject any equity investment from any potential
investor, or all investment, if after the completion of all such
investment, or all investors would hold or be entitled to hold a
majority of the issued and outstanding shares of capital stock of
CLIENT pursuant to reasonable valuation.
[iv] CLIENT reserves the right to refuse any equity investment that
requires equity at more than a 30% discount to market.
3.9 Investment Source[s] Disclosure. It is fully understood that
in some cases CPG's investment/lending sources that may be public
sources and who may independently approach CLIENT without the
assistance of CPG. CPG makes no claims to have SPECIAL relationships
with sources and is not to be considered as having any capabilities of
expediting or `pushing' CLIENT's case through any approval channels
outside the norm of any request of this type. The sources in the CPG
database are sources compiled by CPG from created relationships as well
as lists purchased or requested for the purpose of building a
comprehensive LENDER/INVESTOR MARKETING SERVICE.
Agreed, CLIENT INITIALS:__/s/ RM
4. Indemnification. The CLIENT agrees to indemnify and hold
harmless CPG, each of its officers, directors, employees and each
person, if any, who controls CPG against any and all liability, loss
and costs, expenses or damages, including but not limited to, any and
all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any
claim whatsoever or howsoever caused by reason of any injury (whether
to body, property, personal or business character or reputation)
sustained by any person or to any person or property by reason of any
act, neglect, default or omission, or any untrue or alleged untrue
statement of a material fact, or any misrepresentation of any material
fact or any breach of any material warranty or covenant as the client
or any of its agents, employees, or other representatives arising out
of, or in relation to, this Agreement. Nothing herein is intended to
nor shall it relieve either party from liability for their own act,
omission or negligence. All remedies provided by law, or in equity
shall be cumulative and not in the alternative.
CPG agrees to indemnify and hold harmless CLIENT, each of its officers,
directors, employees and each person, if any, who controls CLIENT
against any and all liability, loss and costs, expenses or damages,
including but not limited to, any and all expenses whatsoever
reasonably incurred in investigation, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever or
howsoever cause by reason of any injury (whether to body, property,
personal or business character or reputation) sustained by any person
or to any person or property by reason of any act, neglect, default or
omission, or any untrue or alleged untrue statement of an material
fact, or any misrepresentation of any material fact or any breach of
any material warranty or covenant as CPG or any of its agents,
employees, or other representatives arising out of, or in relation to,
this Agreement. Nothing herein is intended to nor shall it relieve
either party from liability for its own act, omission or negligence.
All remedies provided by law, or in equity shall be cumulative and not
in the alternative.
5. CLIENT Representations. CLIENT hereby represents,
covenants and warrants to CPG as
follows:
5.1 Authorization. CLIENT and its signatories herein have full
power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
5.2 No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will violate any provision of the charter or by-laws of CLIENT, or
violate any terms of provision of any other Agreement or any statue or
law.
<PAGE>106
5.3 Agreement in Full Force and Effect. All contracts,
agreements, plans, leases, policies, and licenses referenced herein to
which CLIENT is a party are valid and in full force and effect.
5.4 Litigation. Except as set forth below, there is no action,
suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission
pending or, to the best knowledge of CLIENT threatened against or
invoking CLIENT, or which questions or challenges the validity of this
Agreement and its subject matter; and CLIENT does not know or have any
reason to know of any valid basis for any such action, proceeding or
investigation.
5.5 Consents. No consent of any person, other than the signatories
hereto, is necessary to the consummation the transactions contemplated
hereby, including, without limitation, consents from parties to loans,
contracts, lease or other Agreements and consents from governmental
agencies, whether federal, state, or local.
5.6 CPG Reliance. CPG has and will rely upon the documents;
instruments and written information furnished to CPG by the CLIENT's
officers or designated employees.
A. CLIENTs Material. All representations and statements provided
herein about the CLIENT are true and complete and accurate to the best
of CLIENT's knowledge. CLIENT agrees to indemnify, hold harmless, and
defend CPG, its officers, directors, agents and employees, at CLIENTS's
expense for any proceeding or suit which may raise out of any
inaccuracy or incompleteness of any such material or written
information supplies to CPG.
CLIENT'S CLIENT and Other Material. CLIENT warrants that all
representation and statements provided, other than that about the
CLIENT, are, to the best of its knowledge, true, complete and accurate.
5.7 SERVICES NOT EXPRESS OR IMPLIED.
CPG has not agreed with CLIENT in the Agreement or any other Agreement,
verbal or written, to be a market-maker (but may be a placement agent
by other "Selling Agreement" from time-to-time) in CLIENTs securities
or in any specific securities or securities in which CLIENT or CLIENT's
CLIENT has an interest; and,
Any payments made herein to CPG are not, and shall not be construed as,
compensation to CPG for the purposes of making a market, to cover CPG
out-of-pocket expenses for making a market, or for the submission by
CPG of an application to make a market in any securities; and
No payments made herein to CPG are for the purpose of affecting the
price of any security or influencing any market-making functions,
including but not limited to bid/ask quotations, initiation and
termination of quotations, retail securities activities, or for the
submission of any application to make a market.
6. Confidentiality.
6.1 CPG and CLIENT each agree to provide reasonable
security measures to keep information confidential where release
may be detrimental to their respective business interests. CPG and
CLIENT shall each require their employees, agents, affiliates,
subCLIENTs, other licensees, and others who will have access to the
information through CPG and CLIENT respectively, to first enter
appropriate non-disclosure Agreements requiring the confidentiality
contemplated by their Agreement in perpetuity.
6.1 CPG will not, either during its engagement by the CLIENT
pursuant to this Agreement or at any time thereafter, disclose, use or
make known for its or another's benefit, any confidential information,
knowledge, or data of the CLIENT or any of its affiliates in any way
acquired or used by CPG during its engagement by the CLIENT.
Confidential information, knowledge or date of the CLIENT and its
affiliates shall not include any information that is, or become
generally available to the public other than as a result of a
disclosure by CPG or its representatives.
<PAGE>107
7. Miscellaneous Provisions.
7.1 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by written agreement of CPG and CLIENT.
7.2 Waiver of Compliance. Any failure of CPG, on the one hand, or
CLIENT on the other, to comply with any obligation, agreement, or
condition herein may be expressly waived in writing, but such waiver or
failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of or
estoppel with respect to, any subsequent or other failure.
7.3 Expenses: Transfer Taxes, Etc. Whether or not the
transaction, if any, contemplated by this Agreement shall be
consummated, CPG agrees that all fees and expenses incurred by CPG in
connection with the Agreement shall be borne by CPG and CLIENT agrees
that all fees and expenses incurred by CLIENT in connection with this
Agreement shall be borne by CLIENT, including, without limitation as to
CPG or CLIENT, all fees of counsel and accountants.
7.4 Compliance with Regulatory Agencies. Each party agrees that
all actions, direct or indirect, taken by it and it's respective
agents, employees and affiliates in connection with this Agreement and
any financing or underwriting hereunder shall conform to all applicable
Federal and State securities laws.
7.5 Notices. Any notices to be given hereunder by any party to the
other may be effected by personal delivery in writing or in by mail,
registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addresses to the "Contact Person" at the
addresses appearing in the introductory paragraph of this Agreement,
but any party may change his address
7.6 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Agreement nor any right, interest or obligations hereunder will be
assigned by any of the parties hereto without the prior written consent
of the other parties, except by operation of law.
7.7 Delegation. Neither party shall delegate the performance of
its duties under this Agreement without the prior written consent of
the other party.
7.8 Publicity. Neither GPG nor CLIENT shall make or issue, or
cause to be made or issued, any announcement or written statement
concerning this Agreement or the transaction contemplated hereby for
dissemination to the general public without the prior consent of the
other party. This provision shall not apply, however, to any
announcement or written statement required to be made by law or the
regulations of any Federal or State governmental agency, except that
the party concerning the timing and consent of such announcement before
such announcement is made.
7.9 Governing Law. This Agreement and the legal relations among
the parties hereto shall be governed by and construed in accordance
with the laws of the State of California, without regard to its
conflict of law doctrine. CLINET and CPG agree that if any action is
instituted to enforce or interpret any provision of this Agreement, the
jurisdiction and venue shall be San Diego County, CA.
7.10 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
7.11 Headings. The heading of the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereto or
affect in any way the meaning or interpretation of this Agreement.
7.12 Entire Agreement. This Agreement, including any Exhibits
hereto, and the other documents and certificates delivered pursuant to
the terms hereto, sets forth the entire Agreement and understanding of
the parties hereto in respect of the subject matter contained herein,
and supersedes all prior agreements, promise, covenants, arrangements,
communications, representations or warranties, whether oral or written,
by any officer, employee or representative of any party hereto.
7.13 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other
than the parties hereto and their successors or assigns, any rights or
remedies under or by reason of this Agreement.
<PAGE>108
7.14 Attorneys' Fees and Costs. If any action is necessary to
enforce and collect upon the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fee and costs, in
addition to any other relief to which that party may be entitled. This
provision shall be construed as applicable to the entire Agreement.
7.15 Survivability. If any part of this Agreement is found, or
deemed by a court of competent jurisdiction to be invalid or
unenforceable, that part shall be severable from the remainder of the
Agreement.
7.16 Further Assurances. Each of the parties agrees that it shall
from time-to-time take such actions and execute such additional
instruments as may be reasonable necessary or convenient to implement
and carry out the intent and purpose of this Agreement.
7.17 Relationship of the Parties: Nothing contained in this
Agreement shall be deemed to constitute either party to become the
partner or the other, the agent or legal representative of the other,
nor create any fiduciary relationship between them, except as otherwise
expressly provided herein. It is not the intention of the parties to
create nor shall this Agreement be construed to create any commercial
relationship or other partnership. Neither party shall have any
authority to act for or to assume any obligation or responsibility on
behalf of the other party, except as otherwise expressly provided
herein. The rights, duties, obligations and liabilities of the parties
shall be separate, not joint or collective. Each party shall be
responsible only for its obligations as herein set out and shall be
liable only for its share of the costs and expenses as provided herein.
7.18 No Authority to Obligate the CLIENT. Without the consent of
the Board of Directors of the CLIENT, CPG shall have no authority to
take, nor shall it take, any action committing or obligating the CLIENT
in any manner, and it shall not represent itself to others as having
such authority.
9. Arbitration. WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE,
THE UNDERSIGNED HEREBY ACKNOWLEDGE THAT;
A. ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
B. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDY IN COURT,
INCLUDING THEIR RIGHT TO JURY TRIAL;
C. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDING;
D. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT OF APPEAL OR TO SEEK
MODIFICATION OF RULING BY THE ARBITRATORS IS STRICTLY LIMITED;
E. THIS ARBITRATION AGREEMENT IS SPECIFICALLY INTENDED TO INCLUDE
ANY AND STATUTORY CLAIMS WHICH MIGHT BE ASSERTED BY ANY PARTY.
F. ALL DISPUTES, CONTROVERSIES, OR DIFFERENCES BETWEEN THE CLIENT,
CPG OR ANY OF THEIR OFFICRS, DIRECTORS, LEGAL REPRESENTATIVES,
ATTORNEYS, ACCOUNTANTS, AGENTS OR EMPLOYEES, OR ANY CUSTOMER OR OTHER
PERSON OR ENTITY, ARISING OUT OF, IN CONNECTION WITH OR AS A RESULT OF
THIS AGREEMENT, SHALL BE RESOLVED THROUGH ARBITRTION RATHER THAN
THROUGH LITIGATION.
G. THE UNDERSIGNED CLIENT HEREBY AGREES TO SUBMIT THE DISPUTE FOR
RESOLUTION TO EITHER THE AMERICAN ARBITRATION ASSOCIATION, IN SAN
DIEGO, CALIFORINA WITHIN FIVE (5) DAYS AFTER RECEIVING A WRITTEN
REQUEST TO DO SO FROM ANY OF THE AFORESAID PARTIES.
H. IF ANY PARTY FAILS TO SUBMIT THE DISPUTE TO ARBITRATION ON
REQUEST, THEN THE REQUESTING PARTY MAY COMMENCE AN ARBITRATION
PROCEEDING, BUT IS UNDER NO OBLIGATION TO DO SO.
I. ANY HEARING SCHEDULED AFTER AN ARBITRATION IS INITIATED SHALL
TAKE PLACE IN SAN DIEGO COUNTY, CALIFORNIA, AND THE FEDERAL ARBITRATION
ACT SHALL GOVERN THE PROCEEDING AND ALL ISSUES RAISED BY THIS AGREEMENT
TO ARBITRATE.
J. IF ANY PARTY SHALL INSTITUTE ANY COURT PROCEEDING IN AN EFFORT
TO RESIST ARBITRTION AND BE UNSUCCESSFUL IN RESISTING ARBITRATION OR
SHALL UNSUCCESSFULLY CONTEST THE JURISDICTION OF ANY ARBITRATION FORUM
LOCATED IN SAN DIEGO COUNTY, CALIFORNIA, OVER ANY MATTER WHICH IS THE
SUBJECT OF THIS AGREEMENT, THE PREVAILING PARTY SHALL BE ENTITLED TO
RECOVER FROM THE LOSING PARTY ITS LEGAL FEES AND ANY OUT-OF-POCKET
<PAGE>109
K. EXPENSES INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH LEGAL
PROCEEDING OR ITS EFFORTS TO ENFORCE ITS RIGHTS TO ARBITRATION AS
PROVIDED FOR HEREIN.
L. THE PARTIES SHALL ACCEPT THE DECISION OF ANY AWARD AS BEING
FINAL AND CONCLUSIVE AND AGREE TO ABIDE THEREBY:
M. ANY DECISION MAY BE FILED WITH ANY COURT AS A BASIS FOR
JUDGMENT AND EXECUTION FOR COLLECTION.
10. Term of Agreement and Termination. This Agreement shall be
effective upon execution, shall continue for one year unless terminated
sooner, by either party, upon giving to the other party five (5) days
written notice, after which this Agreement is terminated. CPG shall be
entitled to the finders fees described in this Agreement for funding or
underwriting commitments entered into by CLIENT's CLIENT within two(2)
year after the termination of this Agreement if said funding or
underwriting was the result of CPG efforts prior to the termination of
Agreement. Any future compensation due CPG after termination shall be
cancelled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
NOVA PHARMACEUTICAL INC.
/s/ Ralph Mann
By: Ralph Mann
Its: President
CPG: THE COMPASS POINT GROUP, INC.
/s/ Robert Sullivan
By:__________________________
<PAGE>110
The Compass Point Group
INCORPORATED
THIS AGREEMENT ASSUMES AN AVERAGE CLOSING PRICE OF $3.83 OVER 5 TRADING
DAYS UPON LISTING ON THE OTC-BB. IF STOCK OPENS AT A LOWER PRICE UPON
LISTING, CLIENT AGREES TO ADJUST FEES AND PRICE POINTS ACCORDINGLY
COMMENSURATE WITH DECREASE IN STOCK PRICE. CLIENT INITIALS_/s/
RM_______
AGREEMENT FOR INVESTOR RELATIONS SERVICES
This INVESTOR RELATION SERVICES
Agreement (this"Agreement") is made effective as of April 14, 1999, by
and between , ET. AL, and MAKENNA DELANEY & SULLIVAN, INC. In this
Agreement, the party who is contracting to receive the services shall
be referred to as "NOVX", and the party who will be providing the
services shall be referred to as "CPG".
1. DESCRIPTION OF SERVICES. Beginning on April 14, 1999, CPG will
provide the following services (collectively, the "Services"):
A) Full Production [Concept, Research, Writing, In-House Printing]
of "Nova Pharmaceutical Inc SHAREHOLDER COMMUNICATIONS" PRODUCED BI-
MONTHLY (EVERY OTHER MONTH). This Investor Relations, hereinafter
referred to as "IR" piece includes Relevant Milestone Update, Investor-
Watch, Stock Performance Analysis for the period, Contract News,
Earnings/Revenue Growth Updates, Financing News.
B) CPG Portfolio Page Web Site Addition
C) Distribution to Market Makers, Financial Media, Internet Stock
pages/threads
D) Live Monthly Radio Interview
E) **Live Monthly "Live-Chat" Interviews
G) Press Release creation as is appropriate and in concert with
company's milestones and newsworthy events.
H) General financial public relations support ~ [Road Shows,
Media direct interview fees not included]
**$1,800 (PRODUCTION AND INTERNET/BROADCAST FEES INCLUDED)
PAYMENT FOR "IR" PRODUCTION SERVICES. NOVX will pay 37,000 Free-
Trading [504, et. Al] NOVX shares annually as compensation annually for
production/news distribution expenses and services. The fees shall be
payable as follows:
A) DEPOSIT DUE UPON EXECUTION OF AGREEMENT=18,500
Free-Trading [504, et.
Al] NOVX shares
B) BALANCE DUE MONTHLY COMMENCING MAY 1, 1999 =1680
Free-Trading [504,et.
Al] NOVX shares
*NOTE-MONTHLY FEES RECEIVED AFTER THE FIRST MAILING DAY AFTER THE 5TH
DAY PAST THE DUE DATE SHALL BE SUBJECT TO A FEE OF 10%.
3. PERFORMANCE PAYMENT FOR INVESTOR RELATIONS SERVICES. NOVX agrees to
the following compensation schedule for successful movement of NOVX
STOCK:
A)***75,000 SHARES GRANTED FOR STOCK INCREASE TO $4.25-$4.75 (STOCK
MUST HAVE AN AVERAGE CLOSING AT OR ABOVE $4.25 FOR NO LESS THAN 5
MARKET DAYS WITH A MINIMUM VOLUME OF 10,000 SHARES.)
<PAGE>111
B)***75,000 SHARES GRANTED FOR STOCK INCREASE TO $4.75 (STOCK MUST HAVE
AN AVERAGE CLOSING AT OR ABOVE $4.75 FOR NO LESS THAN 5 MARKET DAYS
WITH A MINIMUM VOLUME OF 10,000 SHARES)
C)***125,000 SHARES GRANTED FOR STOCK INCREASE TO $5.25-5.74 (STOCK
MUST HAVE AN AVERAGE CLOSING AT OR ABOVE $5.25 FOR NO LESS THAN 5
MARKET DAYS WITH A MINIMUM VOLUME OF 10,000 SHARES)
D)***125,000 SHARES GRANTED FOR STOCK INCREASE TO $5.75+ (STOCK MUST
HAVE AN AVERAGE CLOSING AT OR ABOVE $5.75 FOR NO LESS THAN 5 MARKET
DAYS WITH A MINIMUM VLUME OF 10,000 SHARES)
***NOTE-NOVX AGREES TO PLACE SHARES INTO ESCROW OF NOVX'S CHOICE WITHIN
24 HOURS OF INCREMENTAL INCREASE TO BE RELEASED TO CPG UPON COMPLETION
OF TIME FRAME DESCRIBED IN A,B,AND C ABOVE.
4. TERM/TERMINATION. This Agreement shall terminate automatically
on April 13, 2000. If all `Performance Shares' described in Section
`3' are granted prior to the expiration of this contract, NOVX agrees
to remunerate CPG for additional stock price increases pursuant to a
similar negotiated schedule to Section `3' agreed to above.
5. CONFIDENTIALITY. CPG will not at any time or in any manner,
either directly or indirectly, use for the personal benefit of CPG, or
divulge, disclose or communicate in any manner any information that is
proprietary to NOVX without NOVX express written consent. CPG will
protect such information and treat it as strictly confidential. This
provision shall continue to be effective after the termination of this
Agreement.
6. ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties, and there are no other promises or conditions in any
other agreement whether oral or written.
7. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable for any reason, the remaining provisions
shall continue to be valid and enforceable. If a court finds that any
provision of this Agreement is invalid or unenforceable, but that by
limiting such provision it would become valid and enforceable, then
such provision shall be deemed to be written, construed, and enforced
as so limited.
8. CHOICE OF LAW. This Agreement shall be governed by, and shall
be construed in accordance with the laws of the State of California.
9. REGISTRATION OF SHARES. CPG shall have `piggy-back'
registration rights for all shares issued in accordance with this
agreement NOVX also agrees to include within that registration
statement any future `performance' shares set forth in section 3A),
3B), and 3C) of this agreement. Appropriate registration shall be
delivered to CPG within 3 business days of filing.
10. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof, shall be settled by
arbitration administered by the American Arbitration Association in
accordance with it applicable rules, and judgement upon an award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
11. COUNTERPARTS. This agreement may be executed in any number of
counterparts by the original or facsimile signature of the respective
duly authorized officers of THE COMPASS POINT GROUP, Inc. and each of
which counterparts, when executed and delivered, shall be an original
but such counterparts together shall constitute one and the same
instrument.
Party Contracting Services: Service Provider:
THE COMPASS POINT GOUP, INC. /s/ Ralph Mann
By:_________________________ By:___________________________
<PAGE>112
PROMISSORY NOTE
with provision for future advances
$500,000.00 Lake Elsinore, Calif.
May 7, 1998
Upon the terms and subject to the restrictions and conditions set forth
herein, Nova Pharmaceutical, Inc., a Nevada corporation (the AMaker@),
promises to pay to the order of Showtime Partners, a Nevada General
Partnership (the@Note holder@), the sum of up to Five Hundred Thousand
and 00/100 Dollars ($500,000.00) provided, however, that only such
amount will be due hereunder as have actually been advanced pursuant to
the terms of this promissory note (the Anote@) together with interest
thereon, accrued from the date of such advances, if any as set forth in
Schedule One attached hereto; in lawful money of the United States of
America.
The Noteholder shall, from time to time, make principal advances to
Maker as Maker shall request provided Maker is not in default pursuant
to the terms of this Note.
The principal amount hereof, as adjusted from time to time, shall bear
interest at the rate of Six percent (6%) per annum. Interest shall be
paid, in arrears, in monthly installments (AInstallments@). The
Installments shall be paid commencing June 8, 1998 and continuing on
the eighth 8th day of each month thereafter until May 9, 2003, at which
time the entire unpaid principal amount together with all accrued and
unpaid interest shall be due and payable. Interest hereunder shall be
calculated on the basis of a three hundred sixty (360) day year for
each day, all or any of the principal balance hereof shall remain
outstanding.
Each monthly Installment shall be credited first to accrued interest.
Should default be made in any payment when due or in the performance or
observance of any of the covenants and agreements of this Note, the
whole sum of principal and interest shall become immediately due and
payable at the option of the holder. Failure to exercise such option
shall not constitute a waiver of the right to exercise it in the event
of a continuing or subsequent default.
In addition to the interest payments required above, Maker shall have
the option to prepay, in whole or part and without penalty, the
principal amount due hereunder.
At its option, the Holder of this Note may accept delinquent payments.
Any amount not paid by the tenth (10th) day following the date on which
payment is due shall be subject to a late charge of five percent (55%)
of the amount not timely paid. Acceptance by the Holder of such
payment and the late charge thereon shall not constitute a waiver of
the right to declare the whole sum of principal and interest
immediately due in the event of any subsequent default.
The Maker hereby waives diligence, demand, presentment for payment, and
notice of whatever kind of nature. Without discharging or in any way
affecting the liability of the undersigned, the undersigned hereby
consents to any and all extensions of this Note as the Holder hereof
may in its sole discretion grant from time to time, to the release of
all or part of the security for the payment hereof. The Maker further
waives exhaustion of legal remedies and the right to plead any and all
statutes of limitation as a defense to any demand on this Note, or to
any agreement to pay the same.
All payments due on this Note shall be payable in lawful money of the
United States of America, and shall be made to the Holder, as such
address as the Holder may hereafter designate from time to time.
If any provision of this Note is held to be invalid or unenforceable by
a court of competent jurisdiction, the other provisions of this note
shall remain in full force.
Any interest rate provided hereunder which exceeds the maximum rate
provided by applicable law shall instead be deemed to be such maximum
rate and any interest in excess of such maximum rate paid to Noteholder
<PAGE>113
shall be applied to reduce the principal balance of this Note so that
in no event shall Noteholder receive or be entitled to receive interest
in excess of the maximum amount permitted by applicable law.
The provisions and covenants contained herein shall insure to and be
binding upon the heirs, successors and assigns of the parties hereto.
Maker agrees that Noteholder may assign this Note and Maker will make
payment to such assignee upon notice of such assignment.
Time is of the essence in connection with each and every obligation of
Maker pursuant to this Note.
This Note is to be governed by, and construed in accordance with, the
laws of the State of California.
Noteholder and Maker agree to execute such further documents, and take
such further actions, as may reasonably be required to carry out the
provisions of this Note or any agreement or document relating hereto or
entered into in connection herewith.
This Note may be amended or modified only by an instrument in writing
which by its express terms refers to this Note and which is duly
executed by the parties sought to be bound thereby.
Any failure by Noteholder to insist upon the strict performance by Make
of any of the covenants, agreements, obligations or conditions hereof
shall not be deemed to be a waiver of any such covenants, agreements,
obligations or conditions, and Noteholder, notwithstanding any such
failure, shall have the right thereafter to insist upon the strict
performance by Maker of any and all of such covenants, agreements,
obligations and conditions.
In the event that this Note is placed in the hands of an attorney at
law for collection after the Maturity Date or upon default or in the
event that proceedings at law or in equity are instituted in connection
herewith, or in the event that this Note is placed in the hands of an
attorney at law to enforce any of the rights or agreements contained
herein, the undersigned shall pay all costs of collecting or attempting
to collect this Note or protecting or enforcing such rights including,
without limitation, reasonable attorney=s fees; and all such amounts
shall be deemed to be secured by the Loan Documents.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note
as of the date first herein above written.
Maker:
NOVA PHARMACEUTICAL INC.
a Nevada Corporation
By:___________________________
President
Noteholder:
SHOWTIME PARTNERS
a Nevada Corporation
By:__________________________
Trustee for the Ralph Mann Trusts
SCHEDULE ONE
Acknowledgment of Advances
Starting Principal Balance: $203,000.00
Advance
Authorized by Note Balance
Date Amount
Signature After Advance
______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
<PAGE>114
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
By executing this Note, you hereby acknowledge actual receipt of the
funds described under heading Advanced Amount@. * Balance may not be
reflective of amount paid directly by Showtime Partners on behalf of
Nova Pharmaceutical, Inc. i.e., minimal construction costs.
SHOWTIME PARTNERS ?
31250 Railroad Canyon Road
Canyon Lake, Calif. 92587
HAND DELIVERED
December 10, 1998
Mr. Ralph Mann
President
Nova Pharmaceutical, Inc.
31712 Casino Drive, Suite 7B
Lake Elsinore, Calif. 92530
RE: Conversion of Debt to Stock.
Dear Mr. Mann:
This letter shall serve as a ALetter of Intent@ pursuant to which the
undersigned would be prepared to exchange Five Hundred Thousand Dollars
($500,000) of its principal balance due them as of March 31, 1999 for
100,000 shares of preferred stock in Nova Pharmaceutical, Inc.,
referred to as (the ACompany@). It is also agreed that the preferred
stock in the ACompany@ will be converted to common stock at $5.00 per
share three years from the original date of issuance, and that these
preferred shares shall earn dividends at an annual rate of Seven
Percent (7%) until the time of the conversion. The dividends will be
paid upon the time of the stock conversion.
It is also mutually agreed to, based upon this conversion of $500,000
in principal debt to stock, that the original promissory note between
Showtime Partners and Nova Pharmaceutical, Inc., dated May 7, 1998,
shall be amended, to the following terms; any and all outstanding
principal and interest as of March 31, 1999 will be converted in total
to a new note, bearing interest at Six Percent (6%) and all outstanding
principal and accrued interest shall then become due and payable in
full on January 31, 2001.
December 10, 1998
Mr. Ralph Mann
President
Nova Pharmaceutical, Inc.
The new promissory note shall also contain a contingency clause
requiring that at such time as the ACompany@ raises capital from the
sale of the ACompany >s@ securities totaling Four Million Dollars
($4,000,000) or more, that all outstanding principal and interest due
Showtime Partners shall be paid in full at that time.
At any time, Nova Pharmaceutical, Inc. shall continue to have the
option to prepay, in whole or part and without penalty, the principal
and interest amount due hereunder.
Sincerely,
Carol Barquin
Trustee
Showtime Partners
<PAGE>115
THE FOREGOING LETTER OF INTENT IS HEREBY APPROVED AND ACCEPTED BY:
Nova Pharmaceutical Inc.
By: _______________________
Ralph Mann, President
Date: ________________________
SHOWTIME PARTNERS
31250 Railroad Canyon Road
Canyon Lake, Calif. 92587
March 31, 1999
Mr. Ralph Mann
President
Nova Pharmaceutical, Inc.
Suite 7b
Lake Elsinore, Calif. 92530
RE: Outstanding Debt
Dear Mr. Mann:
On December 10, 1998, Showtime Partners and Nova Pharmaceutical Inc.
(the Company) entered into a letter of intent to convert $500,000 of
its principal balance due as of March 31, 1999 for 100,000 shares of
preferred stock in the Company@ At this point in time, because Athe
Company=s financial position has changed dramatically, the stipulations
of the debt to stock conversion have changed as noted, for Showtime
Partners, their potential debtrepayment would occur sooner when the
shares are traded publicly. Concurrently, Nova would benefit by a long
term debt reduction and the related significant increase in equity.
Thus it is mutually agreed, that the following terms on the original
promissory note dated May 7,1998 Showtime Partners and Nova
Pharmaceutical, Inc. be amended as follows:
Any and all outstanding Principal and Interest as of March 31, 1999
will beconverted in total to a new note, bearing interest at Six
Percent (6%) and all outstanding principal and accrued interest shall
then become due and payable in full on January 31, 2001.
The $500,000 reduction in the principal balance as of March 31, 1999
shall be in exchange for 204,082 shares of restricted stock, valued
by two independent financial sources at $2.45 which is, in their
opinion, to be a reasonable discounted price for a large block of
restricted stock.
March 31, 1999
Nova Pharmaceutical, Inc.
Page 2.
The new promissory note shall also have a contingency clause requiring
that at such time as the Company raises capital from the sale of its
securities totaling Four Million Dollars ($4,000,000) or more, that all
outstanding principal and interest due to Showtime Partners at the that
time shall be paid in full.
At any time, Nova Pharmaceutical, Inc. shall have the option to prepay,
in whole or part and without any penalty, the principal and interest
amount due hereunder.
Sincerely,
Carol Barquin,
Trustee
Showtime Partners
<PAGE>116
THIS FOREGOING AMENDMENT TO THE PROMISSORY NOTED DATED MAY
7, 1998 IS HEREBY APPROVED AND ACCEPTED BY:
Date:_________________________
_______________________________ ________________________________
Ralph Mann, President Carol Barquin, Trustee for Showtime
Nova Pharmaceutical, Inc.
Partners and the Ralph Mann Trust 1 thru inclusively.
<PAGE>117
UNSECURED PROMISSORY NOTE
$5,000 August 31, 1998
FOR THE VALUE REDEIVED, the undersigned Dr. Carlos Schmidt promises to
pay to NOVA PHARMACEUTICAL, INC., or order ("Holder") at Lake Elsinore,
California or at such other place as may be designated by the Holder of
this Note, the principal sum of Five Thousand Dollars and no cents
($5,000) together with interest thereon from August 31, 1998 ("Interest
Commencement Date") at the rate of 6 percent (6%). Interest and
Principal are due and payable on March 5, 2000. Interest and/or
Principal payments may be made by the undersigned at any time.
Payments will apply first to any outstanding interest and the balance
then applied to principal.
Should default be made in he payment of the principal and interest a
suit shall be commenced to collect this note or any portion thereof,
such sums as the Court may deem reasonable shall be added hereto such
as attorney fees or collection fees.
Dated: 8-31-98
/s/ Carlos Schmidt
DR. Carlos Schmidt
UNSECURED PROMISSORY NOTE
$10,000 March 5, 1998
FOR THE VALUE REDEIVED, the undersigned Dr. Carlos Schmidt promises to
pay to NOVA PHARMACEUTICAL, INC., or order ("Holder") at Lake Elsinore,
California or at such other place as may be designated by the Holder of
this Note, the principal sum of Ten Thousand Dollars and no cents
($10,000) together with interest thereon from March 5, 1998 ("Interest
Commencement Date") at the rate of 6 percent (6%). Interest and
Principal are due and payable on March 5, 2000. Interest and/or
Principal payments may be made by the undersigned at any time.
Payments will apply first to any outstanding interest and the balance
then applied to principal.
Should default be made in he payment of the principal and interest a
suit shall be commenced to collect this note or any portion thereof,
such sums as the Court may deem reasonable shall be added hereto such
as attorney fees or collection fees.
Dated: 3-6-98
/s/ Carlos Schmidt
DR. Carlos Schmidt
<PAGE> 118
NOTE PAYABLE
with provision for future advances
$500,000.00 Lake Elsinore, Calif.
April 2, 1999
Upon the terms and subject to the restrictions and conditions set forth
herein, Nova Pharmaceutical, Inc., a Nevada corporation (the "Maker"),
promises to pay to the order of Ralph Mann, (the"Note holder"), the sum
of up to Five Hundred Thousand and 00/100 Dollars ($500,000.00)
provided, however, that only such amount will be due hereunder as have
actually been advanced pursuant to the terms of this promissory note
(the "note") together with interest thereon, accrued from the date of
such advances, if any as set forth in Schedule One attached hereto; in
lawful money of the United States of America.
The Noteholder shall, from time to time, make principal advances to
Maker as Maker shall request provided Maker is not in default pursuant
to the terms of this Note.
The principal amount hereof, as adjusted from time to time, shall bear
interest at the rate of Six percent (6%) per annum. Interest shall be
paid, in arrears, in monthly installments ("Installments"). The
Installments shall be paid commencing with the eighth day of the month
following the first advance, and continuing on the eighth (8th) day of
each month thereafter until May 9, 2003, at which time the entire
unpaid principal amount together with all accrued and unpaid interest
shall be due and payable. Interest hereunder shall be calculated on
the basis of a three hundred sixty (360) day year for each day, all on
any of the principal balance hereof outstanding.
Each monthly Installment shall be credited first to accrued
interest. Should default be made in any payment when due or in the
performance or observance of any of the covenants and agreements of
this Note, the whole sum of principal and interest shall become
immediately due and payable at the option of the holder. Failure to
exercise such option shall not constitute a waiver of the right to
exercise it in the event of a continuing or subsequent default.
In addition to the interest payments required above, Maker
shall have the option to prepay, in whole or part and without penalty,
the principal amount due hereunder.
At its option, the Holder of this Note may accept delinquent
payments. Any amount not paid by the tenth (10th) day following the
date on which payment is due shall be subject to a late charge of five
percent (5%) of the amount not timely paid. Acceptance by the Holder
of such payment and the late charge thereon shall not constitute a
waiver of the right to declare the whole sum of principal and interest
immediately due in the event of any subsequent default.
The Maker hereby waives diligence, demand, presentment for
payment, and notice of whatever kind of nature. Without discharging or
in any way affecting the liability of the undersigned, the undersigned
hereby consents to any and all extensions of this Note as the Holder
hereof may in its sole discretion grant from time to time, to the
release of all or part of the security for the payment hereof. The
Maker further waives exhaustion of legal remedies and the right to
plead any and all statutes of limitation as a defense to any demand on
this Note, or to any agreement to pay the same.
All payments due on this Note shall be payable in lawful money
of the United States of America, and shall be made to the Holder, as
such address as the Holder may hereafter designate from time to time.
If any provision of this Note is held to be invalid or
unenforceable by a court of competent jurisdiction, the other
provisions of this note shall remain in full force.
<PAGE>118
Any interest rate provided hereunder which exceeds the maximum
rate provided by applicable law shall instead be deemed to be such
maximum rate and any interest in excess of such maximum rate paid to
Noteholder shall be applied to reduce the principal balance of this
Note so that in no event shall Noteholder receive or be entitled to
receive interest in excess of the maximum amount permitted by
applicable law.
The provisions and covenants contained herein shall insure to
and be binding upon the heirs, successors and assigns of the parties
hereto. Maker agrees that Noteholder may assign this Note and Maker
will make payment to such assignee upon notice of such assignment.
Time is of the essence in connection with each and every
obligation of Maker pursuant to this Note.
This Note is to be governed by, and construed in accordance
with, the laws of the State of California.
Noteholder and Maker agree to execute such further documents,
and take such further actions, as may reasonably be required to carry
out the provisions of this Note or any agreement or document relating
hereto or entered into in connection herewith.
This Note may be amended or modified only by an instrument in
writing which by its express terms refers to this Note, and which is
duly executed by the parties sought to be bound thereby.
Any failure by Noteholder to insist upon the strict performance
by Maker of any of the covenants, agreements, obligations or conditions
hereof shall not be deemed to be a waiver of any such covenants,
agreements, obligations or conditions, and Noteholder, notwithstanding
any such failure, shall have the right thereafter to insist upon the
strict performance by Maker of any and all of such covenants,
agreements, obligations and conditions.
In the event that this Note is placed in the hands of an
attorney at law for collection after the Maturity Date or upon default
or in the event that proceedings at law or in equity are instituted in
connection herewith, or in the event that this Note is placed in the
hands of an attorney at law to enforce any of the rights or agreements
contained herein, the undersigned shall pay all costs of collecting or
attempting to collect this Note or protecting or enforcing such rights
including, without limitation, reasonable attorney's fees; and all such
amounts shall be deemed to be secured by the Loan Documents.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note
as of the date first herein above written.
Maker: NOVA PHARMACEUTICAL INC.
a Nevada Corporation
By:___________________________
President
Noteholder: RALPH MANN
By:__________________________
INDIVIDUAL
<PAGE>120
SCHEDULE ONE
Acknowledgment of Advances
Starting Principal Balance: $0
ADVANCE
NOTE BALANCE AUTHORIZED BY
DATE AMOUNT AFTER ADVANCE
SIGNATURE___________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
By executing this Note, you hereby acknowledge actual receipt from
Ralph Mann of the funds described under heading "Advanced Amount".
<PAGE>121
LICENSE AND ROYALTY AGREEMENT
This agreement is entered into this 2nd day of January, 1998 by and
between Showtime Partners, Ralph Mann trusts 1 thru 21 inclusively and
Ralph Mann, parties of the first part hereafter referred to as the
"Licensing Group" and/or "Licensor" and Canyon Fitness Center Inc., a
California Corporation, party of the second part, hereafter referred to
as the "Licensee" and/or "Royalty Obligor".
RECITALS
A. Licensing Group desires to license Canyon Fitness Center
for the worldwide manufacturing and marketing rights to a
list of products and product/concepts, referred to in
Exhibit A., attached hereto and made a part hereof.
B. Licensee is desirous of obtaining manufacturing and
marketing rights to said product and/or product concept,
on an exclusive and worldwide basis.
C. Licensee agrees to pay Licensor consideration for said
license and pay a royalty fee on each product and/or
product concept manufactured or sold.
D. The parties desire to formalize their purchase agreement.
NOW THEREFORE, IN CONSIDERATION OF THEIR MUTUAL PROMISES AND COVENANTS
SET FORTH HEREINAFTER, THE PARTIES AGREE AS FOLLOWS:
1 Right of Licensee - (A) Licensee will have the exclusive
worldwide right to manufacture its products and/or product
concepts referred to in Exhibit A. Licensee will also have the
right to subcontract the manufacture of any of the product
and/or product concepts by others, however, subcontract
manufacture's will provide standard product liability naming the
Licensing Group as additional insured.
(B)Licensee will have the exclusive
worldwide marketing rights to those products and/or product concepts
referred to in Exhibit A on an indirect or direct basis and/or have the
ability to appoint additional marketing firms.
2 Licensee will agree to pay a royalty of 2% (.00625) of net
sales (exclusive of returns and allowances) of each product
and/or product concept when sold. The royalty will then become
due and payable on a quarterly basis. There will then become a
minimum annual royalty paid of $25,000 per year, if the royalty
payments are higher than the 25,000 the minimum will be
considered paid.
3 As an incentive for the Licensee to enter into this contract and
to aggressively market the products, or product concepts, in
Exhibit "A", Licensor grants Lessee a prepaid deposit of
$200,000. The quarterly royalty amount calculated based on net
sale of products sold will be applied against the prepaid
deposit, until such time as the deposit is fully distributed.
4 Default - In the event any party defaults in performing any of
its duties or obligations under this Agreement, the party
responsible for such default shall pay all costs incurred by the
other party in enforcing its right under this Agreement or in
obtaining damages for such fees, whether incurred through legal
action or otherwise and whether incurred before or after
judgement.
5 Notices - Any notice or correspondence required or permitted to
be given under this Agreement may be given personally to an
individual party or to an officer or registered agent of a
corporate party or may
<PAGE>122
be given by depositing such notice or correspondence in the U.S. mail,
postage prepaid, certified or registered, return receipt requested,
addressed to the party at the following addresses:
Licensing Group
31712 Casino Drive
Suite 7B
Lake Elsinore, CA 92530
Nova Pharmaceutical Inc.
1905 South Easter Avenue
Las Vegas, NV 89104
Any notice given by mail shall be deemed to be delivered on the date
such notice is deposited in the U.S. mail. Any party may change its
address for purpose of this Agreement by giving written notice to the
other parties as provided above.
6 Binding - This Agreement shall be binding upon the parties
hereto and upon their respective heirs, representatives,
successors and assigns.
7 Governing Law - This Agreement shall be governed by and
construed under the laws of the State of Nevada.
8 Authority - The officers executing this Agreement on behalf of
corporate parties represent that they have been authorized to
execute this Agreement pursuant to resolutions of the Board of
Directors of their respective corporations.
9 Accounting - Licensee will furnish quarterly accounting reports
specifically accounting for the net sales figure and the basis
of the fee.
10 Term - the term of the License and Royalty Agreement shall be
Ten (10) years and will be renewable for an additional ten years
at the option of the Licensor and will include a cost of living
adjustment.
11 Signatures - The License and Royalty Agreement may be signed in
counterparts.
IN WITNESS WHEREOF, the parties have executed this License and Royalty
Agreement as of the day and year first written above.
CANYON FITNESS CENTER, INC. LICENSING GROUP:
______________________ _______________________________
Ralph Mann, President Showtime Partners, John Mann Trustee
________________________________
Ralph Mann Trusts 1 - 21 (inclusively)
_________________________________
Ralph Mann, individual
SCHEDULE A
LICENSE AND ROYALTY AGREEMENT
Product and product concepts for which the license and royalty
agreement apply include:
NxTrim - Dietary Supplement, Formerly Phentrim
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<PERIOD-END> DEC-31-1999
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<RECEIVABLES> 48,876
<ALLOWANCES> 0
<INVENTORY> 66,289
<CURRENT-ASSETS> 710,546
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<DEPRECIATION> 0
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<COMMON> 12,753
0
0
<OTHER-SE> 921,389
<TOTAL-LIABILITY-AND-EQUITY> 1,656,043
<SALES> 619,035
<TOTAL-REVENUES> 619,035
<CGS> 205,386
<TOTAL-COSTS> 205,386
<OTHER-EXPENSES> 1,346,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 270,414
<INCOME-PRETAX> (1,212,037)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,212,037)
<EPS-BASIC> (.10)
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