As filed with the SEC on June 28, 1999 SEC Registration No. __________
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.
A Nevada Corporation 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.
Industry Overview.
According to the Nutrition Business Journal, the principal markets in
which Nova's products compete totaled approximately $65 billion world-wide in
1997 and grew at a compound annual growth rate of approximately 15% from 1992
through 1997. Nova believes several factors account for the steady growth of the
global nutrition market, including
o Increased public awareness of the health benefits of nutritional
supplements
o Favorable demographic trends, such as, the "baby boomer" population
o Older Americans who are more likely to consume nutritional supplements
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.
Nova believes that the aging of the United States population, together
with a corresponding increased focus on preventative health care measures, will
continue to result in increased demand for certain nutritional supplement
products. According to Congressional findings that accompanied the Dietary
Supplement Health and Education Act, national surveys reveal that almost 43% of
Americans regularly consume vitamins, minerals and herbal supplements and 80%
consume these products at some time during their lives. The 35-and-older age
group of consumers represents 78% of the regular users of vitamin and mineral
supplements. Based on data provided by the United States Bureau of the Census,
from 1990 to 2010, the 35-and-older age group of the United States population is
projected to increase by 32%, a significantly greater increase than the 20%
projected for the United States population in general. Nova believes these
events and trends together with product introductions have supplied the growth
of the nutritional supplement market.
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New products introduced over the past several years include, among others,
function specific products for weight loss, sports nutrition, menopause, energy
and mental alertness. In addition, the use of a number of innovative
ingredients, such as DHEA, chromium picolinate, melatonin, chondroitin sulfate,
glucosamine, and L-Phenylalanine have created opportunities to offer new
products.
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 also
provides Nova a competitive advantage in capturing 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 well received and recognized name
in the health and fitness Industry.
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
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, subjects using NxTrim combined
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with a sensible diet and exercise program, lost an average of 27 pounds with no
adverse side-effects.
Nova is also currently marketing NxBloc, its second release in the diet
aid category. NxBloc contains a proprietary fiber blend RC90 (trademark applied
for), 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.
Nova is also planning to release NxTrim Meal Replacement, a powder shake
mix in August of 1999. Nova has already received an order from a drug chain with
over 300 stores to be distributed in September of 1999.
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:
o Mass merchandisers - Wal-Mart and Fedco;
o Drug stores -- American Stores, Rite Aid, Longs Drug Stores, Drug
Emporium
o Supermarkets - Albertson's, Giant, Fred Meyer, Ralph's, Smith's
o 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, the expectation is that there will be 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
Strategic Alliances.
Nova's has established a nation wide, heavily experienced network of
brokers which provides key relationships with major chain buyers in all classes
of trade. Nova's has established alliances with manufacturers to provide
cutting-edge research and manufacturing capabilities. In addition Nova utilize
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one of the nations largest fulfillment houses to provide excellent, cost
efficient distribution services. The team 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.
Marketing and Customer Sales Support.
Nova intends to broaden its leadership position in the nutritional
supplement industry. Nova's strategy includes:
o Leveraging its portfolio of established brands through effective
consistent advertising to increase its share of the nutritional
supplement market
o Developing new brands and product line extensions through its
commitment to research and development
o 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.
Product Research and Development.
Nova believes it is important to develop new products in the nutritional
supplement industry in order to capitalize on new market opportunities, to
strengthen relationships with customers by meeting demand and to increase market
share. In order to support its commitment to research and development, Nov
utilizes DF Industries, Inc., one of the nations largest private label
supplement manufacturers, to head research and development efforts. In addition,
Nova maintains strong relationships with raw material suppliers, who are usually
the first entities to identify innovative new opportunities.
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Manufacturing and Product Quality.
Nova has aligned itself with DF Industries, Inc. and Universal Nutrition,
Inc. for manufacturing services. Management of the Company believes that they
are capable of obtaining the highest quality raw materials in the world, that
they have the productive capability to meet the growing demand for nutritional
supplement products, and that they are capable of maintaining competitive
operating efficiencies while maintaining high product quality standards
Nova's two manufacturing partners are ISO 9000 certified. Both D F
Industries, Inc. and Universal are equipped with microbiology and quality
control laboratories. All production is evaluated using state of the art testing
procedures and equipment. Nova's products are subjected to shelf life stability
testing to determine the effects of aging. Certified outside laboratories are
used to evaluate Nova's manufacturers laboratory performance and to supplement
testing capabilities. In addition, certain vendors certify raw material quality,
and in some instances, raw material quality is confirmed by a third-party
laboratory.
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. The nutritional supplement industry
consists of six principal types of suppliers:
o Independent health food suppliers, who focus primarily on vitamins and
nutritional supplements
o Mass volume retail suppliers, who sell nutritional products that have
mass appeal
o Gym and health club product companies
o Direct sale and mail order marketers
o Private label manufacturers
o Major pharmaceutical companies
The majority of competitors in the nutritional supplement industry are
privately held and Nova is unable to precisely assess the size of such
competitors. However, Nova believes that no competitor controls more than 10% of
this market.
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. 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 believes that it competes favorably with other
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nutritional supplement companies and major pharmaceutical companies because of
its competitive pricing, marketing strategies, sales support and the quality and
breadth of its product line.
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. 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, localities and
foreign countries to which Nova distributes its products. 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.
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.
Governmental regulations in foreign countries where Nova plans to commence
or expand sales may prevent or delay entry into the market or prevent or delay
the introduction, or require the reformulation of certain of Nova's products.
Compliance with such foreign governmental regulations is generally controlled by
Nova's distributors for those countries. These distributors are independent
contractors over whom Nova has limited control
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 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 recordkeeping 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.
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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.
Trademarks.
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.
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Employees.
Nova currently has ten (10) employees: Receptionist / Sales Clerk,
Accounts Receivable Clerk, Chief Financial Officer, Accountant, Two (2) 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.
Statements in this Report concerning the Company's outlook or future
economic performance; anticipated profitability, revenues, expenses and other
financial items; and statements concerning 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. 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, (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) competition, (iii) the
Company's quarterly operating results have fluctuated in the past and are
expected to fluctuate in the future, (iv) the Company's business experiences
seasonality, (v) the loss of services of key individuals could have a material
adverse effect on the Company's business, financial condition, or operating
results.
Trends and Uncertainties
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 March 31,1999, the Company had
cash and cash equivalents of $ 35,360 and a working capital deficit of $100,604.
The Company generated a net loss of $582,184 for the fiscal year ended December
31, 1998., and $335,599 for the quarter ended March 31, 1999. The Company is
anticipating a net loss for the second quarter 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.
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. These
factors, among others, may indicate that the Company will be unable to continue
as a going concern for a reasonable period of time.
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The Company operates in a rapidly changing environment that involves a
number of risks, some of which are outside the control of the Company. The
following discussion highlights some of these risks and others are discussed
elsewhere in this document.
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
Net cash used by operating activities was $666,512, and net cash used in
investing activities was $455,077 in the three months ended March 31, 1998.
Included in the funds utilized were the purchase of formulations $450,000,
prepaid royalties $200,000 and prepaid licensing and registration $300,000,
which were acquired through the issuance of common stock. Current assets,
consisting mainly of accounts receivable, increased by $166,512 in support of
sales growth. Cash flows from investing activities included issuance of common
stock in the amount of $957,436, and debt financing of $181,100 from a note
payable to shareholder.
Net cash used by operating activities was $252,984 in the three months ended
March 31,1999. Funds utilized were substantially an investment in marketing and
promotion of the NxTrim and NxBloc products. Cash provided by investing
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activities for the quarter were $168,884 from notes payable to shareholder, and
issuance of common stock in the amount of $21,700.
Net cash used by operating activities for the fiscal year ended December
31, 1998 was $989,751, and cash used by investing activities was $540,735. Cash
used by operating activities includes increased current assets, consisting
mainly of accounts receivable, inventory, and prepaid expenses that increased in
support of sales growth during the year. Investing activities included the
purchase of formulations $460,000, prepaid royalties $200,000, and prepaid
licenses $300,000, which were acquired through the issuance of common stock.
Debt financing of $630,730 was obtained through a note payable to a shareholder.
In order to reduce the accounts payable to current vendors, to continue
the expansion of NxTrim and Nxbloc, to introduce NxTrim Meal Replacement and
Gold's Gym Nutrition line, Nova will attempt to raise $5 million dollars through
a private placement, and to raise $700,000 through a bridge loan in advance of
the private placement. Subsequent to March 1999, Nova has entered into agreement
with Compass Point Group Incorporated to manage Nova's public relations, to
enhance of investor relations, to develop a financial web page, to distribute
Nova financial data to market makers, financial media, and internet stock pages,
to conduct radio interviews, and to perform general public relations support. In
addition, Compass Point Group Incorporated has been contracted to prepare and
market to the investment community a private placement offering in the amount of
$5,000,000. National Broker Dealer Service Corp. has contracted with Nova to
provide consultation on SEC reporting. E B I Securities Corporation has agreed
to perform investment banking and financial advisory services with respect to
the private placement offering. In connection with the above agreements Nova has
committed to pay $40,000, to issue warrants to purchase 100,000 shares at $1.00,
and to offer up to 544,551 shares of common stock depending on various
performance criteria. In conjunction with the above consulting contracts, non
affiliated shareholders, in order to facilitate Nova's attainment of the
business plan, have paid a portion of the consulting fees without cost to the
Company. Nova has entered into a contract with The MerchantHouse (US) Inc. to
obtain a $700,000 bridge loan in advance of the private placement offering.
Execution of the bridge loan is subject to MerchantHouse's successful completion
of their due diligence process.
Results of Operations
From inception to date, Nova has reflected losses in the results of
operations due to, the expenditures of advertising and promotion to build brand
equity in the NxTrim and NxBloc products, and due to expenditures to build the
selling and administrative infrastructure required to accomplish the aggressive
growth plan for these products.
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Net Revenues for the three months ended March 31, 1999 were $ 461,137, an
increase of $165,209, or 56% over three months ended March 31,1998. Revenues for
the three months ended March 31,1999 were reduced by $140,000 in returns related
to a packaging change from a bottle to a bottle packaged in a peggable box.
Revenues for the quarter, before these credits, were $601,137 or an increase of
$305,209 or 103% increase over prior year. The change in packaging provides Nova
the opportunity for much better shelf placement, and gives the consumer much
greater visibility of Nova's marketing points of difference from competitive
products. The increase in sales is related to the introduction of NxBloc, to
increased distribution to additional chain stores, and to increased sales to
existing chains. The increased distribution in new chains results from the
efforts of Nova's national broker network, which was developed in the third and
fourth quarters of 1998.
Cost of goods sold as a percentage of sales has declined from 53.8% in the
three months ended March 31, 1998 to 31.3% for the same period in 1999. In 1998,
as a start up company, initial purchases were made in lower production
quantities and as such were at a substantially higher cost. Through increased
volume and competitive bidding, a more cost-effective supplier was located and
the product cost was significantly reduced.
Sales and Marketing expenses for the three months ended March 31, 1999
were $401,688, an increase of $280,005, or 232% over the same period in the
prior year. A large New Year's resolution promotion was executed in December of
1998, for January retail sales. The advertising expenses were incurred in the
first quarter but a significant portion of the sales were shipped in December in
order to be on the shelves for New Year's day. A calculated investment
consisting of a Vogue Magazine advertisement, selected key market run of press
advertising, and a national free standing insert with a $1.00 off coupon was
made in the first quarter of 1999. This program, by intent, fell on some empty
shelves at retail, because of limited distribution in large areas of the
country. However, the investment was made to lend credibility to Nova's
advertising program in the eyes of prospective new chains, demonstrating clearly
Nova's commitment to product support. On the strength of this aggressive
advertising execution, Nova obtained first quarter opening orders from 16 new
chains with total stores of 2,673 and annual sales potential of 1.3 million
dollars. Additional sales presentations were made to 26 chains with stores
totaling 14,527 and annual sales potential of $6.9 million dollars. Feedback
from these presentations indicates that Nova will very likely receive opening
orders in this fiscal year.
General and Administrative expenses for the three months ended March 31,
1999 were $250,859 an increase of $164,821 or an increase of 191% over the same
period in the prior year. The increase is due to interest expense on factored
accounts receivable, to salaries, insurance, legal and professional fees related
to becoming a publicly traded company and to building the infra structure to
accommodate the planned rapid growth in sales.
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During the fiscal year ended December 31, 1998, quarterly revenues
have grown steadily as a result of increasing distribution to new customers, and
repeat sales to existing customers. This trend is masked in the third quarter by
an end cap display program with Longs, Savons, and Wal-Mart. The end cap program
generated sales of 20 to 29 cases per store displayed on an end cap featuring a
tv/vcr combination showing a loop tape on the NxTrim product. The program
resulted in the second quarter being unusually high due to the large quantity
sold in, and the third quarter being lower due to lack of repeat sales while the
end caps sold through. In addition, third quarter revenues were lowered by
return quantities from end caps, which did not sell through completely in
selected stores.
For the fiscal year ended December 31, 1998, cost of sales as a percent
of revenues declined steadily each quarter as the higher cost first quarter
purchase prices were sold through. The cost of product was significantly reduced
due to the lower cost of a new supplier as well as purchases of greater
quantities. Net revenues were reduced in the third and fourth quarters due to
introductory off invoice programs related to new distribution deals. The off
invoice reduction of revenues resulted in an increase in the cost of sales as a
percent of revenues, partially offsetting the percentage decline in cost of
sales due lower cost product.
During the fiscal year ended December 31, 1998, sales and marketing
expenses fluctuated significantly from quarter to quarter due to the timing of
advertising relative to the sales to the trade. End cap promotion sales late in
the second quarter were supported by advertising in the third quarter, causing
an increase of advertising and promotion to 79% of revenues in the third
quarter. End cap promotions in December, supported by advertising in the first
quarter of 1999 caused a lower percentage of sales and marketing expense in the
fourth quarter of 1998. Throughout the year, the Company increased the selling
expenses, building to the point at which an experienced Senior Vice President of
Sales and Marketing was on board with a sales staff capable of managing the
national network of brokers.
General and Administrative expenses increased steadily throughout the
year ended December 31, 1998, as the Company built the infrastructure required
to support the planned rapid revenue growth. In the fourth quarter
administrative expenses grew significantly due to travel expenses for
presentations to new customers, legal, accounting and consulting fees related to
becoming a public company, and insurance costs related to large increase in
revenues, and to becoming a public company.
Tax benefits of current year and prior year losses are not reflected in
the financial statements. A valuation reserve is provided for deferred tax
assets because as a development stage company, the ability to realize deferred
tax assets through future operations has not yet been demonstrated.
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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. Electronic communications with critical suppliers are minimal
and problems in that arena should be minimal.
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 March 31,1999 by
o Each shareholder known by us to own beneficially more than 5% of the
common stock
o Each executive officer
o Each director and all directors and executive officers as a group:
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Name Number of Shares (1) Percentage
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Ralph Mann Chief Executive 5,600,000 44.41%
Officer and Director
3811 Stone Meadow
Murrieta, Ca 92562
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Showtime Partners, 4,150,000 32.91%
shareholder (2)
31712 Casino Dr Suite 7B
Lake Elsinore, Ca 92530
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Carlos Schmidt M.D., 250,000 1.98%
Director
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613 Avenida Acapulco
San Clemente, Ca 92672
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James Ayres, Vice 100 0%
President, and Director
25573 Dorval Ct
Menifee, Ca 92584
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Robert Eggering 600 0%
23089 Joaquin Ridge Dr
Murrieta, Ca 92562
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Fred Zinos 100 0%
24375 Jackson Ave
Murrieta, Ca 92562
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Charles Braden - 0%
38002 Calle De Lobo
Murrieta, Ca 92562
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All Directors and Officers 5,850,100 46.39%
as a group (6 persons)
------------------------------------------------------------------
(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
12,610,282 shares of Common Stock outstanding as of March 31,1999.
(2) Showtime Partners is a general partnership consisting of 21 irrevocable
trusts whose beneficiaries are relatives of Ralph Mann, Director and Chief
Executive Officer
Item 5. Directors and Executive Officers.
The names and ages of our executive officers and directors as of
May 31, 1999, are as follows:
Name Age Position/Term
Ralph Mann 58 CEO & President/Director - From inception to
present
James Ayres 28 Senior Vice President &
Secretary/Director - From Inception to
present
Robert Eggering 55 Chief Financial Officer - From 4-30-98 to
present
15
<PAGE>
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 Coverters, 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.
16
<PAGE>
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. Mr. Braden is currently serving as President and CEO of CBS
Associates which provides consulting services in real estate, insurance, and
general contracting.
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
- - --------------------------------------------------------------------------------
Name and Principal Year Annual Compensation All Other Compensation
Position Salary Bonus
- - --------------------------------------------------------------------------------
Ralph Mann, 1998 $32,756 N/A $2,852
President
- - --------------------------------------------------------------------------------
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.
17
<PAGE>
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 7 directors.
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 Placements 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
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 named Nova Pharmaceutical, Inc 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.
18
<PAGE>
Transactions with Directors and Officers
Showtime Partners has lent Nova money for operating funds under a note
payable agreement. At 3-31-99, the principal balance of the Note was $794,619
and interest accrued totaled $36,783. The terms of the Note Payable include an
annual interest rate of 6%, principal and accrued interest due and payable on
January 31, 2001. Initially, Showtime Partners signed an agreement to convert
$500,000 of the Note to preferred stock at March 31, 1999. Subsequently,
Showtime has agreed to exchange $500,000 of the Note for 204,082 shares of
restricted common stock at March 31, 1999. On March 31, 1999 the shares were
exchanged at $2.45 per share, which represented a 30% discount to the projected
value of the free trading Nova common shares. Through consultation with our
investor relations and investment banking firms, the discount of 30% was
determined as reasonable for a large block purchase of SEC Rule 144 restricted
stock.
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 in the now-defunct
Nova Pharmaceutical, Inc.
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. 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 President. Payments to J Mann Studios totaled
$104,682 in the calendar year 1998. We believe that the above transactions were
entered into on terms no less favorable than would be obtained from unrelated
third parties.
19
<PAGE>
Item 8. Description of Securities.
All significant provisions of our capital stock are summarized in this
prospectus. However, the following description is not complete and is governed
by applicable Nevada law and our articles of incorporation and bylaws. We have
filed copies of these documents as exhibits to this registration statement.
Common Stock
Of the 12,610,282 common shares issued, 1,800,000 are registered for trading
on the National Quotations Board Pink Sheets, and 10,810,282 are Rule 144
restricted shares. Officers, directors and related parties currently control
10,204,282 of the 10,810,282 Rule 144 restricted shares outstanding at March
31,1999, 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 sell 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.
o Authorized shares of common stock: 25,000,000 with a par value of
$.001 per share.
o Issued shares of common stock: 12,610,282 shares at March 31, 1999.
o Each common shareholder may cast one vote for each share held of record
on all matters submitted to vote
o There are no cumulative voting rights in the election of directors.
o Common shareholders are entitled to receive dividends when and if
declared by the Board of Directors.
o Common shareholders are entitled to a share in the distribution of
assets after payment of all money owed to the Company's creditors.
o There are no preemptive rights to purchase additional shares offered by
the Company.
20
<PAGE>
Preferred Stock
In May of 1999, the Company has authorized 10,000,000 Preferred Stock, none
are issued, or outstanding. In the 12-31-98 audited financial statement a
footnote refers to an agreement with a shareholder to convert $500,000 of long
term debt to preferred shares. Subsequent to publishing the audited statement,
the Company negotiated with the shareholder to convert the $500, 000 long term
debt to 204,082 shares of 144 restricted common shares. The conversion was
executed at March 31, 1999. Shortly after this filing, the Company intends to
execute a private placement offering of 2,000,000 shares of preferred stock at
$2.25 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:
o Voting
o Dividend
o Required or optional repurchase by us
o Conversion into common stock, with or without additional payment o Payments
preferred stockholders will receive before common stockholders
if we go out of business forever
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.
21
<PAGE>
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 sales 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
As of March 31, 1999, we had 62 of 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.
We are not a party to, nor, are we aware of any pending or threatened
lawsuits or other legal actions.
Item 3. Changes in and Disagreements with Accountants.
None
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.
22
<PAGE>
- - --------------------------------------------------------------------------
Name of Securities Date Consideration Exemption
Purchaser sold - type cash or specify from
and amount fair value of registration
services/ Terms claimed.
of conversion or
exercise /if
option
- - --------------------------------------------------------------------------
Fordee 500,000 4-10-98 $5,000 504
Management Co. common shares
- - --------------------------------------------------------------------------
The Gerald 300,000 4-27-98 $3,000 504
Romero Trust common shares
- - --------------------------------------------------------------------------
The Bull 10.000 8-31-98 $ 100 504
Dragon Trust common shares
- - --------------------------------------------------------------------------
The A-Z 10,000 8-31-98 $ 100 504
Creative Trust common shares
- - --------------------------------------------------------------------------
Chad Lee 10,000 9-3-98 $ 100 504
common shares
- - --------------------------------------------------------------------------
Sharmen 10,000 9-3-98 $ 100 504
Vigouret common shares
- - --------------------------------------------------------------------------
Marlene 7,000 9-3-98 $ 70 504
Schluter common shares
- - --------------------------------------------------------------------------
Elizabeth A Lee 10,000 9-3-98 $ 100 504
common shares
- - --------------------------------------------------------------------------
Cary Lee 10,000 9-3-98 $ 100 504
common shares
- - --------------------------------------------------------------------------
Corby Lee 10,000 9-3-98 $100 504
common shares
- - --------------------------------------------------------------------------
Diane Lee 7,000 9-3-98 $ 70 504
common shares
- - --------------------------------------------------------------------------
Deborah 10,000 9-3-98 $100 504
Jacobsen common shares
- - --------------------------------------------------------------------------
Danny Chang 10,000 9-3-98 $100 504
common shares
- - --------------------------------------------------------------------------
Loretta Barner 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Edward 8,000 9-3-98 $ 80 504
Ratnarajah common shares
- - --------------------------------------------------------------------------
Todd Marston 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
23
<PAGE>
Lance Momotani 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Mitchell Ponak 5,000 9-3-98 $ 50 504
common shares
- - --------------------------------------------------------------------------
Darin Wong 8,000 9-3-98 $ 80 504
- - --------------------------------------------------------------------------
Kristen Wong 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Nicole Wong 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Norman Chin 6,000 9-3-98 $ 60 504
common shares
- - --------------------------------------------------------------------------
Ron Chin 6,000 9-3-98 $ 60 504
common shares
- - --------------------------------------------------------------------------
Fred Chang 10,000 9-3-98 $ 100 504
common shares
- - --------------------------------------------------------------------------
John Ljuljovic 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Yun Gerbrandt 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Ray Wada 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Bantu Sukul 7,000 9-3-98 $ 70 504
common shares
- - --------------------------------------------------------------------------
Luigi Scaglione 7,000 9-3-98 $ 70 504
common shares
- - --------------------------------------------------------------------------
Onkar Sandhu 7,000 9-3-98 $ 70 504
common shares
- - --------------------------------------------------------------------------
Harry Reck 7,000 9-3-98 $ 70 504
common shares
- - --------------------------------------------------------------------------
Tia Hoy 9,000 9-3-98 $ 90 504
common shares
- - --------------------------------------------------------------------------
Shaun Chin 2,000 9-3-98 $ 20 504
common shares
- - --------------------------------------------------------------------------
Leigh Ivancoe 2,000 9-3-98 $ 20 504
common shares
- - --------------------------------------------------------------------------
Jess Sarber 5,000 9-3-98 $ 50 504
common shares
- - --------------------------------------------------------------------------
Dave Lambert 5,000 9-3-98 $ 50 504
common shares
- - --------------------------------------------------------------------------
24
<PAGE>
Sandra A. 5,000 9-3-98 $ 50 504
Collins common shares
- - --------------------------------------------------------------------------
Terri Schollen 4,000 9-3-98 $ 40 504
common shares
- - --------------------------------------------------------------------------
Dave 4,000 9-3-98 $ 40 504
Hihashitani common shares
- - --------------------------------------------------------------------------
Chris Ramsami 4,000 9-3-98 $ 40 504
common shares
- - --------------------------------------------------------------------------
Mike Denike 4,000 9-3-98 $ 40 504
common shares
- - --------------------------------------------------------------------------
Erik Davidson 3,000 9-3-98 $ 30 504
common shares
- - --------------------------------------------------------------------------
Rae Wong 8,000 9-3-98 $ 80 504
common shares
- - --------------------------------------------------------------------------
Wayne Chow 6,000 9-3-98 $ 60 504
common shares
- - --------------------------------------------------------------------------
The Gerald 200,000 9-4-98 $2,000 504
Romero Trust common shares
- - --------------------------------------------------------------------------
The Diana Snow 500,000 9-17-98 $5,000 504
Trust common shares
- - --------------------------------------------------------------------------
Al Andrade 100 1-4-99 $ 250 Employee
(4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Robert 100 1-4-99 $ 250 Employee
Eggering (4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Debra Mann 100 1-4-99 $ 250 Employee
(4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Fredrick Zinos 100 1-41-99 $ 250 Employee
(4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Jennifer 100 1-4-99 $ 250 Employee
Spriet (4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
James Ayres (4) 100 1-4-99 $ 250 Employee
common shares Christmas
Bonus
- - --------------------------------------------------------------------------
John 100 1-4-99 $ 250 Employee
Kleinpeter (4) common shares Christmas
25
<PAGE>
Bonus
- - --------------------------------------------------------------------------
John 100 1-4-99 $ 250 Employee
Normandeau (4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Keith Ayres (4) 100 1-4-99 $ 250 Employee
common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Sandra 100 1-4-99 $ 250 Employee
Tranquill (4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Antionette 100 1-4-99 $ 250 Employee
Lamkin (4) common shares Christmas
Bonus
- - --------------------------------------------------------------------------
Steven G. 5000 12-25-99 $12,250 Investor
Trapp & Co. (5) common share Relations
Consulting
Agreement
- - --------------------------------------------------------------------------
Showtime 204,082 3-31-99 $500,000 Conversion of
Partners (3) common shares Long term Debt
- - --------------------------------------------------------------------------
Note: (1) With respect to the 504d sale of stock: Sales were made to
accredited investors based on completed questionaires. No commissions were
paid. All appropriate state laws were observed. The Form D was filed with
the Securities and Exchange Commission.
Note: (2) Unless otherwise indicated above, all securities were sold by our
officers, directors and employees in compliance with Rule 3a-4.
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).
Note: (5) Steven Trapp & Associates is a sophisticated investor and as such
is under Section 4(2).
26
<PAGE>
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.
PART F/S
Financial Statements and Supplementary Data.
(a) Financial Statements See Ref's below under Exhibit Section
F1 Audited Annual Financial Statements - December 31, 1998
F2 Quarterly Financial Statements - March 31, 1999
(b) Supplementary Financial Information - Not Applicable
27
<PAGE>
PART III
Index to Exhibits.
Item 3
3.1 Articles of Incorporation -Page
3.2 Bylaws
3.3 Articles of Merger
3.4 Plan of Merger
3.5 Special Meeting of the Board of Directors - increased directors to
seven - authorized 10,000,000 preferred shares
Item 4
4.1 Registration rights for preferred shares
Item 10
10.1 Employment Contract - Fred Zinos
10.2 Employment Contract - Robert Eggering
10.3 Master Purchase and Sale Agreement - Sun Capital
10.4 Gold's Gym International, Inc Merchandise License Agreement
10.5 The MerchantHouse, (US) Inc. Merchant Banking Bridge Transaction
10.6 National Broker Dealer Service Corp. Consulting Agreement
10.7 Compass Point Group, Inc. Consulting Agreement - Investor Relations
Production
10.8 Compass Point Group, Inc. Consulting Agreement - Investor Relations
10.9 E B I Securities Consulting Agreement
10.10 Note Payable to Showtime Partners, Shareholder with Amendments
10.11 Note Receivable Carlos Schmidt, M.D., Director
Item 23
1. Consent of Sarna & Company Certified Public Accountants
Item 99
99.1 F1 - Audited Annual Financial Statements - December 31, 1998
99.2 F2 - Quarterly Financial Statements - March 31, 1999
28
<PAGE>
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: June 25, 1999
29
<PAGE>
Date Filed: June 28, 1999 SEC File No._______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
REGISTRATION STATEMENT
ON FORM 10
UNDER
THE SECURITIES ACT OF 1934
30
<PAGE>
REFERENCE F1
NOVA PHARMACEUTICAL, INC
AUDITED FINANCIAL STATEMENTS - DECEMBER 31,1998
31
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
WITH
INDEPENDENT AUDITOR'S REPORT THEREON
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditor's Report.............................1
Financial Statements:
Balance Sheet 2
Statement of Operations and Accumulated
Deficit 3
Statement of Changes in Stockholders'
Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-10
Supplemental Statement:
Statement of Operating Expenses 12
33
<PAGE>
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. 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
34
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
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 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 693,564
----------
Total Current Liabilities $ 698,564
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 955,000
Accumulated Deficit (582,184)
Total Stockholders' Equity 385,216
----------
Total Liabilities and Stockholders' Equity $1,709,510
==========
See Notes to Financial Statements
2
35
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
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 837,868
----------
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
3
36
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Total
Par Value $.001 Paid in Deficit Stockholders'
Shares Amount Capital Equity
------------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock Issued
Commencement of
Operations 1,400,000 $1,400 $8,600 $ ---- $10,000
Common Stock Issued
Upon Merger 10,000,000 10,000 937,400 ---- 947,400
Common Stock Issued
Upon Completion
of Reg D Rule
504 Filing 1,000,000 1,000 9,000 ---- 10,000
Net Loss
Year Ended
December 31, 1998 ---- ---- ---- (582,184) (582,184)
------------------------------------------------------------
Balances
December 31, 1998 12,400,000 $ 12,400 $ 955,000 $(582,184) $ 385,216
==============================================================
</TABLE>
See Notes to Financial Statements
4
37
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
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
Amortization 51,231
(Increase) Decrease in:
Accounts Receivable (399,527)
Inventory (66,751)
Prepaid Expenses (665,618)
Other Receivable (15,736)
Other Assets (9,975)
Increase (Decrease) in:
Accounts Payable and
Accrued Expenses 693,564
----------
Net Cash Used by Operating Activities (989,751)
Cash Flows from Investing Activities:
Acquisition of Formulations, for Stock $(460,000)
Purchases of Property and Equipment (44,735)
---------
Net Cash Used by Investing Activities (504,735)
Cash Flows From Financing Activities:
Debt Financing 630,730
Issuance of Common Stock 967,400
---------
Net Cash Provided by Financing Activities 1,598,130
---------
Net Increase in Cash 103,644
Cash at Beginning of Year 0
---------
Cash at End of Year $ 103,644
=========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 77,976
=========
See Notes to Financial Statements
38
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- - -------
Nova Pharmaceutical, Inc. (referred to as the "Company" or "Nova"), was
incorporated under the laws of the state of Nevada. 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.
Merger
- - ------
The company completed a merger as of May 7, 1998 between Nova Pharmaceutical,
Inc., an operating Nevada corporation and Nalbando Enterprises, Inc., an
inactive Nevada corporation. 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 merged
activity of the original operating Nova Pharmaceutical, Inc. The purpose of this
merger was to provide additional expansion opportunities to the company.
Basis of Presentation
- - ----------------------
The Company reports revenue and expenses using the accrual method of accounting
for financial and tax reporting purposes.
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.
Development Stage Company
- - --------------------------
Nova Pharmaceutical, Inc. meets the guidelines of SFAS No. 7 and as such is
classified as a development stage company.
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.
6
39
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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.
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.
7
40
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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.
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 - ASSETS ACQUIRED FOR STOCK
The Company has acquired
formulas, and has prepaid royalty and license amounts, solely through the
issuance of common stock. These assets were acquired subject to various related
accounts payable and accrued expenses.
NOTE 4 - 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 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. $ 625730
8
41
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - LONG TERM DEBT (CONTINUED)
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. $ 5000
------
Total 630730
Less amount included in current liabilities (5000)
-------
Net Long Term Debt $ 625730
=======
NOTE 5 - 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 are not reflected in
these financial statements.
NOTE 6 - 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
-------
Furniture
Year Office and Equipment
---- ------ -------------
1999 $ 33000 $ 5194
2000 $ 33000 $ 4128
2001 $ 33000 $ 1996
2002 $ 16500 $ 1996
2003 $ 0 $ 1331
9
42
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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
determines will enhance the Company's ability to market innovative products in a
competitive field.
The company has also entered into various employment agreements. Known
obligations on these contracts are included on these financial statements.
NOTE 7 - 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.
10
43
<PAGE>
SUPPLEMENTAL INFORMATION
44
<PAGE>
NOVA PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
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
Interest Expense 77,976
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 $ 837,868
==========
See Notes to Consolidated Financial Statements
12
45
<PAGE>
REFERENCE F2
NOVA PHARMACEUTICAL, INC
QUARTERLY FINANCIAL STATEMENTS - MARCH 31, 1999
46
<PAGE>
NOVA PHARMACEUTICAL, INC
(A Development Stage Company)
FINANCIAL STATEMENTS
For the Quarter Ended March 31, 1999
47
<PAGE>
NOVA PHARMACEUTICAL INC
( A DEVELOPMENT STAGE COMPANY )
BALANCE SHEETS
<TABLE>
<CAPTION>
----------------- --------------
Mar 31, 1999 Dec 31,1998
----------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 35,360 $ 103,644
Accounts Receivable-Net 241,592 399,527
Inventory 53,072 66,751
Prepaid Expenses 131,129 146,251
Loans Receivable 15,262 15,736
----------------- --------------
TOTAL CURRENT ASSETS 476,415 731,909
FURNITURE AND FIXTURES 43,371 39,490
OTHER ASSETS
Formulae 452,500 460,000
Prepaid royalties 186,119 188,136
Licensing and Registration 275,000 280,000
Organization Expenses 6,945 7,375
Refundable Deposits 2,600 2,600
----------------- --------------
TOTAL OTHER ASSETS 923,164 938,111
================= ==============
TOTAL ASSETS $ 1,442,950 $ 1,709,510
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long Term Debt $ 5,000 $ 5,000
Accounts Payable and Accrued Expenses 572,019 693,564
----------------- --------------
TOTAL CURRENT LIABILITIES 577,019 698,564
LONG TERM DEBT
Long Term Debt-Related Party 294,614 625,730
----------------- --------------
TOTAL LONG TERM DEBT 294,614 625,730
STOCKHOLDERS' EQUITY
Common Stock, par value $.001;
25,000,000 Authorized; 12,610,282
and 12,400,000 shares issued and
outstanding 12,610 12,400
Paid In Capital 1,476,490 955,000
Retained Earnings ( deficit ) (917,783) (582,184)
----------------- --------------
TOTAL STOCKHOLDERS' EQUITY 571,317 385,216
================= ==============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,442,950 $ 1,709,510
================= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
48
<PAGE>
NOVA PHARMACEUTICAL INC
( A DEVELOPMENT STAGE COMPANY )
STATEMENTS OF INCOME
Three Months Ended March 31
<TABLE>
<CAPTION>
------------------ ------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Revenues $ 461,137 $ 295,927
Cost of Sales
Beginning Inventory 66,751 -
Direct Labor 10,932 4,742
Purchases 119,578 151,524
------------------ ------------------
Total Available 197,261 156,266
Less Ending Inventory (53,072) (2,880)
------------------ ------------------
Total Cost of Sales 144,189 153,386
------------------ ------------------
Gross Profit 316,948 142,541
Operating Expenses
Sales and Marketing 401,688 121,034
General and Administrative 250,859 92,480
------------------ ------------------
Total Operating Expenses 652,547 213,514
Loss Before Provision for
Income Taxes (335,599) (70,973)
Provision for Income Taxes - -
------------------ ------------------
Net Loss (335,599) (70,973)
Deficit, Beginning of year (582,184) -
------------------ ------------------
Accumulated Deficit, End of Year $ (917,783) $ (70,973)
================== ==================
Net Loss per Share $ (0.07) $ (0.01)
================== ==================
Weighted Average Shares Outstanding 12,472,161 11,400,000
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
49
<PAGE>
NOVA PHARMACEUTICAL INC
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Quarter Ended March 31, 1999
<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 6,200 6 21,694 21,700
Common Stock Issued For
Notes Payable 204,082 204 499,796 500,000
Net Loss (335,599) (335,599)
============== ============= =============== ============== ===============
12,610,282 $ 12,610 $ 1,476,490 $(917,783) $ 571,317
============== ============= =============== ============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
NOVA PHARMACEUTICAL INC
( A DEVELOPMENT STAGE COMPANY )
STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (335,599) $ (70,971)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation 2,003 386
Amortization 12,930 13,489
( Increase ) Decrease In:
Accounts Receivable 157,935 (181,657)
Inventory 13,679 (2,880)
Prepaid Expenses 15,123 (566,000)
Other Receivable 474 (16,785)
Other Assets 2,016 (9,207)
Increase ( Decrease ) In
Accounts Payable and
Accrued Expenses (121,545) 167,113
----------------- -----------------
Net Cash Used by Operating Activities (252,984) (666,512)
Cash Flow from Investing Activities
Acquisition of Formulations, for Stock (439,167)
Purchase of Property and Equipment (5,884) (15,910)
----------------- -----------------
Net Cash Flow from Investing Activities (5,884) (455,077)
Cash Flows from Financing Activities
Debt Financing (331,116) 181,100
Issuance of Common Stock 521,700 957,436
----------------- -----------------
----------------- -----------------
Net Cash Provided from Financing Activities 190,584 1,138,536
----------------- -----------------
Net Decrease in Cash (68,284) 16,947
Cash at Beginning of Period 103,644 -
================= =================
Cash at End of Period $ 35,360 $ 16,947
================= =================
Supplemental Disclosure of Cash Flow Information:
=================
Interest Paid $ 31,044 -
=================
</TABLE>
5
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
NOVA PHARMACEUTICAL, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31,1999
(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 March 31, 1999, and for the three months ended March 31, 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 three month period
ended March 31, 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 March 31,1999, the Company had
cash and cash equivalents of $ 35,360 and a working capital deficit of $100,604.
The Company generated a net loss of $582,184 for the fiscal year ended December
31, 1998., and $335,599 for the quarter ended March 31, 1999. The Company is
anticipating a net loss for the second quarter 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 and adequate amount of capital to finance its
anticipated losses and planned principal operations.
52
<PAGE>
NOVA PHARMACEUTICAL, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31,1999
(UNAUDITED)
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. These factors, among others, may indicate that the Company
will be unable to continue as a going concern for a reasonable period of time.
NOTE 3 - INCOME TAXES
During the period January 8, 1998 (date of incorporation) to March 31,
1998, 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 March 31, 1999, the Company had net operating loss
carryforwards of approximately $917,783 for income tax purposes. These
carryforwards will be available to offset future taxable income through the year
2018.
NOTE 4 - LONG TERM DEBT
Long term debt at March 31, 1999 consists of:
Notes payable to stockholders consist of advances to the Company which were
utilized as operating funds. The notes are unsecured and accrue interest at 6%
pr annum. Principal and accrued interest are due to stockholders on January 31,
2001. The notes payable contain a contingency clause that require 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 March 31,
1999 was $329,122. At March 31, 1999, a shareholder converted $500,000 of
principal balance into 204,082 shares of common stock.
53
<PAGE>
NOVA PHARMACEUTICAL, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31,1999
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Marketing Agreement
- - -------------------
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
June2, 2001 to June 1, 2002 $420,000
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to March 31, 1999, 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 prepare a SEC Form 10 in order to register
the Company for trading on the OTC Bulletin Board, to provide investment banking
services, and to provide investor relations services. Compensation for these
services include cash payments of $40,000, issuance of warrants to purchase
100,000 shares of common stock at $1.00, and issuance of up to 544,551 shares of
common stock depending on various levels of performance.
54
<PAGE>
REFERENCE 3.1
ARTICLES OF INCORPORATION
55
<PAGE>
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.
__Samuel Wierdlow__________________
Dated February 5, 1998 SAMUEL WIERDLOW
56
<PAGE>
REFERENCE 3.2
BYLAWS
57
<PAGE>
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.
58
<PAGE>
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 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.
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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 Article, the record date for
determining shareholders entitled to give consent pursuant to this Section 10,
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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.
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(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.
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
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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
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required by law or by the 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:
(a) The approval of any action which requires shareholders' approval or approval
of the outstanding shares;
(b) The filling of vacancies on the Board or on any committees; (c) The fixing
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of compensation of the directors for serving on the Board or
on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws; (e) 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;
(f) A distribution to the shareholders of the corporation; (g) 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.
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.
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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.
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.
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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
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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 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,
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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.
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REFERENCE 3.3
ARTICLES OF MERGER
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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.
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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.
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.
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/s/ Charlene Kalk
- - -----------------------------------
Charlene Kalk, Secretary
} 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.
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REFERENCE 3.4
PLAN OF MERGER
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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.
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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:
(1) The name and jurisdiction of organization of each constituent entity; (2)
That a plan of merger or exchange has been adopted by each constituent
entity;
(3) If approval of the owners of the parent was not required, a statement
to that effect;
(4) If approval of the owners of one or more constituent entities was
required, a statement that:
(a) The plan was approved by the unanimous consent of the owners; or (b) A plan
was submitted to the owners pursuant to this chapter including: (1) The
designation, percentage of total vote or number of votes entitled
to vote separately on the plan; and
(2) 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;
(3) 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
(4) 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)
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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.
(3) 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:
(a) 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).
(b) There will be no conversion of the common stock of NALBANDO
ENTERPRISES, INC. The shares issued and outstanding shall remain
issued and outstanding.
(4) Fourth: The terms and conditions of the merger are as follows:
(A) 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.
(B) 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
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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.
(C) DIRECTORS.
The directors shall be: Ralph Mann, James Ayres, John Michael, and Dr.
Carlos Schmidt.
(D) 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
(E) 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.
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(F) 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.
(G) EXPNSES
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 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
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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.
(H) 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.
(J) EMPLOYMENT CONTRACTS/AGREEMENTS
Any and all employment contracts or agreements with THE CORPORATION shall be
attached as Exhibit B to this document.
(K) 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.
(L) REPRESENTATIONS AND WARRANTIES
Surviving Corporation, NALBANDO ENTERPRISES, INC., represents warrants to the
Non-Surviving corporation, NOVA PHARMACEUTICAL, INC., as follows:
(1) 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:
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(2) 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.
(m) 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 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.
(5) 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
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/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
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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 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
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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
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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 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 )
)
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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:
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REFERENCE 3.5
SPECIAL MEETING OF THE BOARD OF DIRECTORS TO INCREASE DIRECTORS TO SEVEN AND
TO AUTHORIZE 10,000,000 SHARES OF PREFERRED STOCK (WITH MAJORITY SHAREHOLDERS
CONSENT
87
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Special Meeting of the Board of Directors of
Nova Pharmaceutical, Inc.
A special meeting of the Board of Directors of Nova Pharmaceutical, Inc. (the
"Corporation") was held on May 20, 1999.
The Directors discussed the resignation of John Mann as a Director of the
Corporation, whose resignation had previously been accepted by the Board of
Directors, and the proposed election of Charles Braden as a Director to replace
Mr. Mann.
RESOLVED, that Mr. Charles Braden be elected as a Director of the Corporation.
The Directors discussed the proposed operations of the Corporation and the need
for additional members of the Board of Directors to more completely cover said
operations. Upon review of financial statements of the Corporation and based
upon the above discussions, it is hereby:
RESOLVED, that the Bylaws of the Corporation shall be amended to increase the
number of Directors of the Corporation to Seven.
FURTHER RESOLVED, that the officers of the Corporation are authorized to do
whatever necessary pursuant to the laws of the state of Nevada to effectuate the
necessary amendment.
The Directors discussed the capitalization structure of the Corporation and the
need for additional capitalization.
RESOLVED, the Articles of Incorporation shall be amended to authorize a class of
preferred shares. The number of authorized preferred shares shall be 10,000,000.
The Board of Directors shall be authorized to create series of preferred shares
and determine the specific terms of each series of preferred shares as needed.
There being no further business to come before the meeting, upon motion duly
made, seconded and unanimously carried, the meeting adjourned.
FURTHER RESOLVED, that the officers of the Corporation are authorized to do
whatever necessary pursuant to the laws of the state of Nevada to effectuate the
necessary amendment.
Dated: May 20 , 1999
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/s/ Ralph Mann
Ralph Mann, Director
/s/ James R Ayres
James R Ayres, Director
/s/ Carlos Schmidt
Carlos Schmidt, M.D.,Director
We, the undersigned, being President and Secretary of the corporation, and in
pursuance of the Nevada Revised Statutes, do hereby certify that the attached
resolution was adopted by the Board of Directors and subsequently written
consent of the Shareholders of the Corporation holding 87.8 percent of the
outstanding shares of the corporation on the 23 day of May, 1999 was obtained.
Dated this 23rd day of May, 1999. /s/ Ralph Mann
Ralph Mann, President
/s/ James R Ayres
James R Ayres, Secretary
State of )
)ss.
County of )
On the day of May, 1999, personally appeared before me the President and
Secretary of Nova Pharmaceutical, Inc., a Nevada corporation, the signers of the
above instrument who duly acknowledged to me that they executed the same on
behalf of said corporation pursuant to duly adopted directors' resolution.
NOTARY PUBLIC
Address
My Commission Expires:
SEAL
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CONSENT
Pursuant to the Nevada Revised Statutes, as amended, the undersigned
shareholders holding 87.8% percent of the voting power consent to and authorize
the following action:
That Charles Braden be elected as a Director of the Corporation;
That the Bylaws shall be amended to indicate that number of
Directors of the Corporation by increased to Seven;
That a class of 10,000,000 Preferred Stock be created; and
That the officers of the Corporation do whatever necessary pursuant to the
laws of the state of Nevada to effectuate the proposed amendments.
Number of
Signature Date Shares
/s/ Ralph Mann
5/23/99 5,600,000
Ralph Mann
/s/ Carol Barquin
5/23/99 4,354,082
Showtime Partners, Carol Barquin, Trustee
/s/ Carlos Schmidt
5/23/99 250,000
Carlos Schmidt M. D.
/s/ Tone Lamkin
5/23/99 500.000
The Gerald Romero Trust, Tone Lamkin, Trustee
/s/ Tone Lamkin
5/23/99 500,000
The Diana Snow Trust, Tone Lamkin, Trustee
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REFERENCE 4.1
REGISTRATION RIGHTS FOR PREFERRED SHARES
91
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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
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(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
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.
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(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.
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
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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 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
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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.
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.
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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 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.
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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
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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:
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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:
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<PAGE>
REFERENCE 10.1
EMPLOYMENT CONTRACT - FRED ZINOS
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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
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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.
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
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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 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.
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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
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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
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
106
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REFERENCE 10.2
EMPLOYMENT CONTRACT - ROBERT EGGERING
107
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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
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3.1 ASSIGNMENT OF DUTIES. Executive shall have such duties as may be assigned to
him from time to time by the Company's Board of Directors commensurate with
his experience and responsibilities in the position for which 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 legal
requirements;
D. Cause to be prepared cash flows, financial projections, and financial
statements. Tax returns and other similar items respecting the operation
of the Company.
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.
3.4 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
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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.
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).
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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
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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.
6.10Headings. 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.
6.11Notices. 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:
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.
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6.12Survival. 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.
6.13Right 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
---------------------------
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REFERENCE 10.3
MASTER PURCHASE AND SALE AGREEMENT - SUN CAPITAL
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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%)
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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.
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
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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 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
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"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
5.1 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. 5.2 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
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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 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.
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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.
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.
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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.
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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 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____
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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 endeavoring to
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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
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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.
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
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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.
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REFERENCE 10.4
GOLD'S GYM INTERNATIONAL, INC. MERCHANDISE LICENSE AGREEMENT
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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.
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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. 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.
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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
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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.
1.2 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."
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.
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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.
1.2 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
1.1 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
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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
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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.
Distribution Restrictions
1.1 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.
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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:
License Period Minimum Sales Minimum Royalty Marketing
Commitment
Effective $2,000,000.00 $140,000.00 As per paragraph
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Date through points 1 through
June 1, 2000 9 of Exhibit "C"
June 2, 2000 $4,000,000.00 $280,000.00 30% of Gross
through Sales, as per
June 1, 2001 paragraph point
10 of Exhibit "C"
attached hereto
June 2, $6,000,000.00 $420,000.00 30% of Gross
2001 Sales, as per
through paragraph point
June 1, 2002 10 of Exhibit "C"
attached hereto
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
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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.
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.
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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
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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 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;
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(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:
(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;
(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
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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 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.
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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.
Relationship This Agreement creates a right to use the Trademarks by
Licensee, and the relationship between parties shall be solely that of
licensor and licensee. No joint venture, franchise, or other
relationship other than that of licensor and licensee is intended or
shall be created hereby. Licensee shall be entitled to describe itself
at Gold's "licensee" of the Products but shall not hold itself out as
Gold's agent or as being entitled to bind Gold in any way.
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
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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, 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.
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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
10.1 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.
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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 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.
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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
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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.
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.
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REFERENCE 10.5
THE MERCHANTHOUSE (US) INC MERCHANT BANKING BRIDGE TRANSACTION
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THE MERCHANTHOUSE (US) INC.
Private Merchant Bankers
THE MERCHANTHOUSE TELEPHONE
4741 CENTRAL, SUITE 154 (800)269-1668
KANSAS CITY, MISSOURI 64112 FACSIMILE:
(800)329-2418
WEB ADDRESS:
www.themerchanthouse.com
May 18, 1999
CONFIDENTIAL
Ralph Mann, President & CEO
Nova Pharmaceutical Inc.
31712 Casino Drive Suite 7B
Lake Elsinore, CA 92530
RE: Merchant Banking Bridge Transaction
Dear Ralph Mann,
After review of various documents and records concerning Nova Pharmaceutical
Inc. and its management, we have made several adjustments to our Proposal dated
April 22, 1999. This letter sets forth our new proposal (the "Proposal") with
respect to the services you have requested to be performed by The MerchantHouse
(US), Inc. (the "MerchantHouse") in connection with a bridge financing
transaction (the "Bridge Transaction") for Nova Pharmaceutical Inc. (the
"Company").
MerchantHouse will structure a Bridge Transaction, which will be designed to
"net" the Company up to $700,000 on the terms which are reflected in the
Proposal. MerchantHouse will oversee the preparation of all documentation of the
Bridge Transaction, up to and through the closing, and final disbursement of the
Participating Debenture Offering to the Membership of The MerchantHouse (US),
Inc. for their Participation (the "Participants").
It is anticipated that the structure of the Bridge Transaction and the related
financing agreements (the "Financing Agreements") will include:
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A. (i) A Preferred Subordinated Capital Note (individually and
collectively the "Note") redeemable for a fixed cash payment of
$700,000 bearing interest at 14% per annum, payable at maturity. The
Note will be due and payable along with any unpaid interest or fees (if
any) thereon, nine (9) months following the date of closing (the
"Maturity Date").
(ii) A provision for an extension of three months to the Maturity Date
of the Note (the "Extension"), providing that no events of default
shall have taken place, at the option of the Company. Should such
Extension be granted, the Company will be obligated to pay an
additional premium fee of $75,000 to the Participants.
Accrued interest as of the Effective Date of the Extension and the
Extension Premium Fee will be added to the principal amount of the
Note and interest thereon will continue to accrue at an annual rate of
fourteen percent (14%).
(iii) An Equity Participation attachment representing 70,000 shares of
the voting common stock (the "Capital Note Shares") of the Company.
(iv) A Conversion Privilege whereby the Note may be converted, at the
sole option of the participants at any time, into an additional
280,000 shares of the Common Voting Stock of the Company (the
"Conversion Shares").
(v) If any portion of the Note has bot been converted as described
above by the maturity Date, or Extended Maturity Date, whichever
occurs later, the Company shall redeem (the "Redemption") the
outstanding portion of the Note for a fixed cash redemption
payment in the aggregate of $700,000 Extension Fee, if
applicable, and any unpaid interest, adjusted ratably according
to the portion of the Note outstanding at that time.
Should any portion of interest due remain unpaid for
period of ten (10) business days or more, the unpaid amount
shall double and be added to the principal amount. Interest
thereon will continue at the annual rate of 14%. Future payments
shall apply to unpaid portions of interest, then principal.
(vi) A Pledge and Security Agreement whereby the Management of the
Company will pledge on hundred percent (100%) of its shares to
MerchantHouse or an appointed agent as collateral surety for the
repayment of principal, interest, and extension fees, if any.
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B. In consideration for the services provided The MerchantHouse (US),
Inc., the fees listed below will be paid by the Company to
MerchantHouse:
(i) A cash fee in the amount of $15,000 for the production of the
Private Merchant Banking Transaction Memorandum, Comprehensive
Transaction Agreement, Exhibit Book and related documents, to be
paid to MerchantHouse at the signing of this Proposal.
MerchantHouse acknowledges receipt of the above mentioned cash
payment on or about April 22, 1999.
(ii) In addition the Company will issue or cause to be issued to
MerchantHouse upon the signing of this proposal, $20,000 worth
of the freely trading voting common stock of the company. The
number of shares issued is to be determined based on the most
recent verifiable closing bid price of the stock as of the
signing of this proposal. Example: $20,000/$4.00 = 5,000
share to be issued to MerchantHouse. MerchantHouse
acknowledges receipt of 5,222 shares in satisfaction of this
paragraph.
(iii) A merchant banking transaction closing fee of up to $75,000,
payable at each Closing in proportion to the proceeds received by
the Company.
C. The Capital Note Shares and the Conversion Shares shall also be subject
to the provisions of a Comprehensive Transaction Agreement to be
prepared in connection with the Bridge Transaction.
D. The Above-mentioned Capital Note Shares and the Conversion Shares
issued by the Company will be allocated ratably to the Participant (s)
in the Bridge Transaction at the direction of MerchantHouse.
E. The Bridge Transaction will take effect on the following basis:
1. Use of Proceeds. The proceeds of the Bridge Transaction will be used in
accordance with an exhibit to the Note and Comprehensive Transaction
Agreement, which will be prepared and supplied by the Company to
MerchantHouse for its approval.
2. Closing. The Closing of the Bridge Transaction will occur at such location as
shall be mutually agreeable to the Company and MerchantHouse.
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3. Private Merchant Banking Transaction Memorandum. As part of the Bridge
Transaction, a Private Placement Memorandum (the"Memorandum") will be
prepared by MerchantHouse. The Company will be the issuer of the Note and
Equity attachments offered thereby to the members of MerchantHouse.
4. Legal Counsel. The Company will employ outside counsel to advise it as to
legal issues and other considerations in connection with the Bridge
Transaction.
5. Conditions Precedent of the company to Closing. The Closing will occur on the
following conditions:
a. The Note and Comprehensive Transaction Agreement shall contain the usual
and customary representations and warranties, including but not limited to
the following:
o Ownership of subsidiaries, franchises and other assets, property, patents,
trademarks, logos, service marks and licensing rights, if any.
o Proper authority of the Company.
o Absence of material liabilities.
o Copies of material agreements and instruments to be supplied by the
Company, including by-laws, articles of organization, debt agreements or
instruments for the company and for each affiliate and subsidiary
companies; all agreements permitting security interests or liens on
assets; written or oral agreements with officers, directors or employees;
leases, contracts or agreements limiting the company or its officers'
ability to compete in a business or geographic area; any contract or
agreement which may materially or adversely affect the company's business
or assets or the Bridge Transaction.
o Absence of material litigation.
o Absence of UCC filings or other claims against the Company.
o Evidence, if applicable, that tax returns and payment record have been
properly filed.
o Compliance with all regulations, possession of approval, licenses,
authorizations and permits, whether federal, state or local, or foreign which
have been applied for or are necessary for the business engaged in by the
Company.
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b. The Company will be required to give certain affirmative covenants which
shall include, but not be limited to:
o Maintaining proper books of account, allowing access to records and providing
MerchantHouse with monthly and annual financial statements as well as any
operating plan and budget revisions.
o Providing MerchantHouse with an annual statement of the Company's
transactions with any affiliated entities.
o Providing copies of books of account, including cash receipts and
disbursements and tax returns for any affiliated entities. Of the Company,
which entities shall have been previously disclosed the MerchantHouse.
o Maintaining its corporate existence in good standing and payment of all
taxes.
o Maintaining its property in good order and keeping some properly
insured.
o Providing MerchantHouse with prompt notice of all material litigation,
disputes and controversies which would have an adverse impact on the Company
if successfully concluded as filed or claimed.
o Providing MerchantHouse with prompt notice of all other obligations with
respect to any indebtedness of the company.
o Punctually and properly performing all other obligations with respect to any
indebtedness of the company.
o Maintaining confidentiality, non-competition and employment agreements in
form and substance satisfactory to MerchantHouse with such key personnel and
employees, or consultants as MerchantHouse shall deem it appropriate to enter
into such agreement.
c. The company shall carry key person life insurance in the amount of up to
$1,000,000 on such persons and in such amounts as MerchantHouse shall
designate. The proceeds shall be for the benefit of MerchantHouse, in
proportion to the funds received by the Company in the Bridge Transaction,
plus accrued interest and fees if any, and the balance shall be for the
account of the Company.
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d. As long as the Note is outstanding the Company will not, without the
concurrence of MerchantHouse, be permitted to:
o Enter into any business activity which is substantially different from its
Business Plan.
o Repay any shareholder's loans or repay other debt before its stated maturity,
except to retire the Note.
o Declare any dividends on its Common Stock or make any other distribution to
existing stockholders, exclusive of salaries which amounts shall have been
approved by the Company's Board of Directors and shall be listed on a
schedule attached to the Note and comprehensive Transaction Agreement;
expense reimbursements; and the payment of interest and/or principal when due
under the Note.
o Enter into any senior financing arrangements without the consent of
MerchantHouse.
o Sell, merge, liquidate or dissolve its business.
o Transfer any interest in any copyrights, logos, trademarks or grant or
transfer any licenses, equity holdings or interests, or interest in other
intangible developed and/or acquired from time to time.
o Grant any options, warrants or rights to purchase or otherwise acquire
its capital stock except as described in Section A above and/or pursuant
to the Bridge Transaction. As reflected in a schedule to the Note and
Comprehensive Transaction Agreement, issue any additional shares of its
capital stock or securities convertible into capital stock of the Company
except as previously disclosed to MerchantHouse; or repay any outstanding
indebtedness due principals of the Company or its affiliated entities,
except as listed in the Use of Proceeds.
o Sell, transfer or exchange equity or debt securities or redeem securities
except pursuant to the Bridge Transaction and as referenced above.
5. Registration Rights. The Note and Comprehensive Transaction Agreement
will provide for the following with respect to the Capital Notes Shares:
(i) Except for an Initial Public Offering of the Company's Common Stock,
the Company and Management will agree to register all or a portion
of the shares of Common Stock held by the participant (s) under the
Securities Act of 1933 contemporaneously with and pro rata to any
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such registration of the Company's and/or Management's shares of
Common Stock by the Company, at the sole expense of the Company.
(ii) The Management of the Company will agree with MerchantHouse, including
the Participant (s), that in the event of any sale of all or any
part of their capital stock of the company, at a time when the
company is not publicly held, to any person or entity, that they
will arrange for the sale of the same proportion of capital stock
of MerchantHouse, including the Participant (s), for the same
consideration and on the same terms, subject to MerchantHouses's
acceptance of such terms.
6. Other Closing conditions. The obligation of MerchantHouse to consummate this
proposed Bridge Transaction shall be subject to fulfillment of the following
conditions:
a. Execution and delivery by the Company of the Securities and definitive
agreements including the Note, Comprehensive Transaction Agreement, an
Opinion of Company counsel satisfactory to MerchantHouse and to counsel for
the Company, and approved by the Company's Board of Directors as to the
substance of the agreements and transactions anticipated herein.
b. No adverse material changes in the Company's business.
c. An opinion of the company's counsel concerning certain representations and
warranties.
d. The results of the Due-Diligence investigation of the Company shall be
satisfactory to MerchantHouse, and MerchantHouse shall not have learned or
discovered any material or adverse information concerning the financial or
operating conditions, or business or properties of the Company not previously
disclosed by the Company to MerchantHouse.
e. The Company shall have engaged an independent auditor, which shall be a ":
Big Six" accounting firm or another accounting firm satisfactory to
MerchantHouse.
F. Within 15 days of the acceptance of this Proposal and concurrently with
compliance of its terms and conditions by the Company, The
MerchantHouse (US), Inc. will purchase the Note of $700,000 and its
Attachments written to the terms outlined in the Proposal. As
consideration for the purchase of the Note, The MerchantHouse (US),
Inc. will issue its own Purchase Money Note from The MerchantHouse
(US), Inc. to the Company for a term of 90 days in the amount of
$700,000, and bearing an interest rate of 14%.
G. Soon after its purchase of the Note, MerchantHouse will conduct a
Participating Debenture offering which will be Divided into seventy
(70) Units of $10,000 each. The Participating Debenture Units in the
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aggregate will participate in the rights of the Note and its
Attachments. This will be a self-offering to the members of The
MerchantHouse (US), Inc. (the "Participating Debenture Holds").
H. All proceeds from the participating Debenture Offering will be used to
retire the obligation (the "Purchase Money Note of MerchantHouse") to
the company.
I. Reciprocating Rights of Offset between MerchantHouse and the Company
are to be established as follows:
(a)To the extent that the sale of the Debenture Units by MerchantHouse is
insufficient to fully retire the remaining balance on the purchase Money
Note, MerchantHouse may apply the amount of the unsold Debenture Units as an
offset to retire the balance due on the Purchase Money Not upon its maturity.
(b)To perfect its Right to Offset, MerchantHouse will notify the company in
writing that it is exercising its Right to Offset accompanied by an
accounting of the Debenture Units sold and not sold. Upon receipt of this
notification from MerchantHouse, the company will acknowledge the
satisfaction of the debtor and return the cancelled Purchase Money note to
MerchantHouse.
(c)At the time that the Purchase Money Note is cancelled and returned to
MerchantHouse, MerchantHouse will agree to the reduction in the balance due
on the Note by an mount equal to the amount offset on the Purchase Money
Note.
(d)All accrued interest on that portion of the principal balance outstanding
that is offset by the borrowers on the Note and the Purchase Money Note will
be forgiven.
(e)It is acknowledged that by exercising the right of Offset, MerchantHouse
will forfeit its rights to the purchase of a proportionate amount of capital
Note Shares. As an example, for every $10,000 that is offset on the note
balance, MerchantHouse, including the Participants will lose the right to
acquire, 1,000 shares of Capital Note Shares.
J. MerchantHouse will have the right to pass all of its rights in the Note
and its attachments onto the Participating Debenture holders.
Accordingly, at the direction of MerchantHouse, the Company will issue
or reissue the appropriate securities to the participating Debenture
holders in proportion to the proceeds it receives from the
participating Debenture.
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K. The closings for the Preferred Subordinated Capital Note with its
Attachments and the Purchase Money Note will close simultaneously.
The Company acknowledges that it has not contacted any broker or finder in
connection with the Bridge Transaction and was not directed to MerchantHouse as
the result of any services or facilities of any such person and the Company
agrees to indemnify and hold harmless Merchant House from any and all claims for
brokerage, commission or finder's fees arising out of or on account of the
Bridge Transaction by any person claiming a right to such commission, brokerage
or finders' fee, arising out of this or her dealing with the Company.
In the event that the Bridge Transaction does not close for any reason due to
the Company's willful failure to proceed with the Bridge Transaction, or as a
result of inaccurate information or representations as supplied the Company, the
Company agrees to pay to MerchantHouse a liquidated damages, the sum of $25,000.
We hope this proposal meets with your satisfaction. Any questions should be
directed to the undersigned, if the proposal is satisfactory, please acknowledge
your acceptance by returning a signed copy as indicated below.
Sincerely,
/s/ Edward McNeil
Edward McNeil
Managing Governor
The MerchantHouse (US), inc.
AGREED AND ACCEPTED THIS 20TH DAY OF MAY, 1999. Nova Pharmaceutical Inc.
/s/ Ralph Mann
- - -------------------------------
Ralph Mann, President/CEO
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REFERENCE 10.6
NATIONAL BROKER DEALER SERVICE CORP. CONSULTING AGREEMENT
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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:
Your 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 Program(TM).
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
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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.
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
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REFERENCE 10.7
COMPASS POINT GROUP INC - CONSULTING AGREEMENT INVESTOR RELATIONS PRODUCTION
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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:
2.1Advice 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.
2.2Mergers 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.
2.3Introductions 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.
2.4CLIENT 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
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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.
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
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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
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
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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:
[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.
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[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.
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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.
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.
B. 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.
A. 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,
B. 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
C. 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.
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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.
6 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
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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.
7.10Counterparts. 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.
7.11Headings. 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.
7.12Entire 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.
7.13Third 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.
7.14Attorneys' 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.
7.15Survivability. 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.
7.16Further 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.
7.17Relationship 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.
7.18No 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.
7 Arbitration. WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, THE
UNDERSIGNED HEREBY ACKNOWLEDGE THAT;
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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 EXPENSES INCURRED IN CONNECTION
WITH THE DEFENSE OF SUCH LEGAL PROCEEDING OR ITS EFFORTS TO ENFORCE ITS
RIGHTS TO ARBITRATION AS PROVIDED FOR HEREIN.
K. 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.
8 Term of Agreement and Termination. This Agreement shall be effective upon
execution, shall continue for one year unless terminated sooner, by either
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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:__________________________
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REFERENCE 10.8
COMPASS POINT GROUP INC - CONSULTING AGREEMENT INVESTOR RELATIONS
172
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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)
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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.)
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.
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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
/s/ Robert Sullivan
By:_________________________
By:___________________________
Ralph Mann Managing Director
President
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REFERENCE 10.9
E B I SECURITIES CONSULTING AGREEMENT
176
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EBI
SECURITIES CORPORATION
Nova Pharmaceutical Inc
31712 Casino Drive #7B
Lake Elsinore, Ca 92530
March 29, 1999
Attn: Mr. Ralph Mann
Gentlemen:
The purpose of this letter is to confirm the engagement of EBI Securities
Corporation (the "Consultant") by Nova Pharmaceutical Inc. (the "Company") on
an exclusive basis to render financial advisory and investment banking
services to the Company.
1. Engagement of Consultant. The Company hereby engages Consultant and
Consultant hereby agrees to render services to the Company as a
corporate finance consultant.
2. Services. The Company is examining methods of obtaining liquidity for
its stock and various methods of obtaining additional capital.
During the term of this Agreement, Consultant shall provide
advice to, and consult with, the Company concerning business and
financial planning, corporate organization and structure, private
and public equity and debt financing, the Company's relations
with its securities holders, and the preparation and distribution
of periodic reports; and it shall periodically provide to the
Company analyses of the Company's financial statements as
requested by the Company. Such advice and consultation are
hereinafter referred to as "Financial Services". The Consultant,
in conjunction with the Company, shall schedule meetings between
the Company's management and certain of the Consultant's
brokerage representatives to introduce the Company and its
operations. The Company shall make key management available to
make presentations as reasonably requested by the Consultant.
The Financial Services shall be provided to the Company in such
form, manner and place as the Company reasonably requests.
Consultant shall not by this Agreement be prevented or barred
from rendering services of the same or similar nature, as herein
described, or services of any nature whatsoever for, or on behalf
of, persons, firms, or corporations other than the Company.
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3 Term. This Agreement shall be for an initial term of six (6) months
commencing on the date of this Agreement. The term shall
automatically be extended for an additional three (3) month term
unless one party notifies the other of its desire not to renew prior
to the commencement of the additional three (3) month term.
4. Compensation. The Company agrees to issue to the consultant, or its
designees, warrants to purchase a total of 100,000 shares of its
Common Stock (the "Warrants"), exercisable at $1.00 per share
within thirty days upon the signing of this agreement. These
warrants will be exercisable at any time within three years of
the date of their issuance. The warrants shall contain standard
anti-dilution provisions; and shall also provide the Consultant
with a cashless exercise provision and "piggy-back" registration
rights at the Company's cost. During the term of this agreement,
the Company also agrees to pay the Consultant a monthly
consulting fee of $5,000. The first $5,000 payment shall be due
upon the signing of this agreement. Monthly consulting fees for
the remaining term of the agreement will be $5,000. All monthly
consulting fees will be made no later than the third day of each
month.
5. Merger and Acquisition. If the Company contemplates the purchase of
assets, a merger, acquisition, joint venture or significant
investment by the Company in another entity, the Company will, in
its discretion, engage Consultant to assist it in negotiating,
structuring and evaluating the transaction and upon consummation of
such transaction, and will pay a fee to Consultant for its services
calculated as follows:
(iii) 5% of the value of the transaction to the Company up to and including
$1,000,000;
(iv) 4% of the value of the transaction to the Company greater than
$1,000,000 and up to and including $3,000,000;
(v) 3% of the value of the transaction to the Company greater than
$3,000,000 and up to and including $4,000,000;
(vi) 2% of the value of the transaction to the Company greater than
$4,000,000 and up to and including $5,000,000; and
(vii) 1% of the value of the transaction to the Company in excess of
$5,000,000.
Value of the transaction (consideration) is defined as:
A. The total proceeds and other consideration (including cash,
securities or installments) issued by the Company in connection with
an acquisition of, or merger with, another company.
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B. If a portion of such consideration includes contingent payments
(whether or not related to future earning or operations), aggregate
consideration will be paid as the Company or its shareholders issue
or receive payment, but not in advance of receiving same
C. In the event that the aggregate consideration for the transaction
consists in whole or in part of securities, for the purpose of
calculating the amount of aggregate consideration, the value of
such securities will be the average bid of closing prices for
five consecutive days preceding the announcement of the
transaction or, in the absence of a public trading market
thereof, the fair market value thereof as the Company and the
Consultant agree on the day preceding the consummation of the
transaction.
D. The Consultants merger and acquisition fee will be reduced by fifty
percent (50%) for merger and acquisition projects introduced to the
Company by some source other than the Consultant, during the term of
this agreement.
6. Disclaimer of Responsibility for Acts of the Company. The obligations
- - ----------------------------------------------------------
of the Consultant described in this Agreement consist solely of
Financial Services to the company. In no event shall Consultant
be required by this Agreement to act as the agent of the Company
or otherwise to represent or make decisions for Company. All
final decisions with respect to acts of Company or its
affiliates, whether or not made pursuant to or in reliance on
information or advice furnished by Consultant hereunder, shall be
those of Company or such affiliates and Consultant shall under no
circumstances be liable for any expense incurred or loss suffered
by Company as a consequence of such decisions.
7. Expenses. In addition to the payment of Consultants fees hereunder,
the Company will reimburse Consultant for all reasonable
pre-approved, travel and other out-of-pocket expenses incurred, in
behalf of the Company, during the term of this agreement.
8. Amendment. No amendment to this Agreement shall be valid unless such
amendment is in writing and is signed by authorized representatives
of all the parties to this Agreement.
9. Termination. This Agreement may be terminated after three (3) months
by either party upon giving fifteen (15) days prior written notice
to the other party.
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10. Waiver. Any of the terms and conditions of this Agreement may be
waived at any time and from time to time in writing by the party
entitled to the benefit thereof, but a waiver in one instance shall
not be deemed to constitute a waiver in any other instance. A
failure to enforce any provision of this Agreement shall not operate
as a waiver of this provision or of any other provision hereof.
11. Severability. In the event that any provision of this Agreement
shall be held to be invalid, illegal, or unenforceable in any
circumstances, the remaining provisions shall nevertheless remain in
full force and effect and shall be construed as if the unenforceable
portion or portions were deleted.
12. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted
assigns. Any attempt by either party to assign any rights, duties,
or obligations which may arise under this Agreement without the
prior written consent of the other party shall be void.
13. Governing Law. The validity, interpretation and construction of this
Agreement and each part thereof will be governed by the laws of the
State of Colorado.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of
which together will constitute one and the same instrument.
15. Arbitration. The parties agree that all controversies which may arise
- - -----------------
between them concerning any transaction, the construction,
performance or beach of this or any other agreement between the,
whether entered into prior, on, or subsequent to the date hereof,
or any other matter, including but not limited to, securities
activity, investment advice or in any way, related thereto, shall
be determined by arbitration in accordance with the rules of the
NASD. This shall inure to the benefit of and be binding on the
Company, its officers, directors, agents, independent
contractors, employees, sureties, controlling persons and shall
inure to the benefit of and be binding on the consultant, its
officers, directors, registered representatives, agents,
independent contractors, employees, sureties, controlling persons
and any person acting on its behalf in relation to the
Agreement. Any award rendered in arbitration may be enforce in
any court of competent jurisdiction.
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EBI SECURITIES CORPORATION
"CONSULTANT"
/s/ Harold M Golz
By___________________________
Harold M. Golz
Executive Vice President
Nova Pharmaceutical Inc
"COMPANY"
By_/s/ Ralph Mann
Ralph Mann
President
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EBI
SECURITIES CORPORATION
Nova Pharmaceutical Inc
31712 Casino Drive Suite 7B
Lake Elsinore, CA 92530
Re: Private Equity Placement
April 1, 1999
Mr. Ralph Mann
Per our recent discussions, we are pleased to submit this letter with respect to
a proposed public or private offering by Nova Pharmaceutical Inc., a Nevada
corporation of such number of shares of the Company's common stock ("shares")
which when sold would result in gross proceeds, to the Company, of a minimum of
$2.0 million and a maximum of $4.0 million.
The offering price of the shares will ultimately depend upon, among other
things, the Company's financial condition, market conditions, liquidity for the
Company's common stock, the market price of the Company's common stock at the
time of the offering, and other factors relating to the business of the Company
including its revenues, net income, business growth, business prospects and
attainment of milestones. The offering price of the shares will be priced
relative to the representative bid price of the Company's common stock
immediately prior to the Effective Date or from the moving average of the
closing representative bid prices of the Company's common stock for a period not
to exceed 60 business days immediately preceding the Effective Date.
It is understood that this letter is merely a statement of intent, while the
parties hereto agree in principle to the contents hereof and to proceed promptly
and in good faith to negotiate the terms of the Offering contemplated herein,
any legal obligations between the parties hereto shall be only pursuant to the
terms and conditions set forth in an executed underwriting agreement (the
"Underwriting Agreement") in connection with the Offering.
If the foregoing is acceptable to you, please sign and return two copies of this
letter to my office, at the address shown below. Upon receipt of the executed
copies a representative of EBI Securities Corporation will begin work on the due
diligence investigation and preparation of the appropriate documents and
materials prepared by the Company and its counsel in connection with the
proposed offering. Thank you.
Sincerely,
/s/ Ronald Blekicki
Ronald Blekicki
Vice President
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REFERENCE 10.10
NOTES PAYABLE TO SHOWTIME PARTNERS, SHAREHOLDER, WITH AMMENDMENTS
183
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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
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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
185
<PAGE>
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 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.
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<PAGE>
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.
187
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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
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<PAGE>
SCHEDULE ONE
Acknowledgment of Advances
Starting Principal Balance: $203,000.00
Advance Authorized by Note Balance
Date Amount Signature After Advance
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
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By executing this Note, you hereby acknowledge actual receipt of the funds
described under heading AAdvanced Amount@. * Balance may not be reflective of
amount paid directly by Showtime Partners on behalf of Nova Pharmaceutical, Inc.
i.e., minimal construction costs.
189
<PAGE>
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.
190
<PAGE>
December 10, 1998
Mr. Ralph Mann
President
Nova Pharmaceutical, Inc.
Page 2.
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
THE FOREGOING LETTER OF INTENT IS HEREBY APPROVED AND ACCEPTED BY:
Nova Pharmaceutical Inc.
By: _______________________
Ralph Mann, President
Date: ________________________
191
<PAGE>
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. (Athe
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 Athe
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 debt repayment 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 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.
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.
192
<PAGE>
March 31, 1999
Nova Pharmaceutical, Inc.
Page 2.
The new promissory note shall also have a contingency clause
requiring that at such time as Athe 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
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 21 inclusively.
193
<PAGE>
REFERENCE 10.11
NOTES RECEIVABLE CARLOS SCHMIDT M.D., DIRECTOR
194
<PAGE>
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
195
<PAGE>
REFERENCE 23.1
SARNA & COMPANY CERTIFIED PUBLIC ACCOUNTANTS - CONSENT
196
<PAGE>
(Letterhead of Sarna & Company)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our audit report dated April 12,1999, on
the financial statements of Nova Pharmaceutical, Inc. ("the Company") for the
period ended December 31, 1998 in the Company's Form 10-SB registration
statement to be filed with the United States Securities Exchange Commission. We
also consent to the application of such report to the financial information in
the Form 10-SB, when such financial information is read in conjunction with the
financial statements referred to in our report.
/s/ Sarna & Company
Sarna & Company
Certified Public Accountants
Westlake Villiage, California
June 25, 1999
197
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-04-1998 JAN-01-1999
<PERIOD-END> DEC-05-1998 MAR-31-1999
<CASH> 103,644 35,360
<SECURITIES> 0 0
<RECEIVABLES> 395,527 241,592
<ALLOWANCES> 0 0
<INVENTORY> 66,751 53,072
<CURRENT-ASSETS> 731,909 476,415
<PP&E> 44,735 50,619
<DEPRECIATION> 5,245 7,248
<TOTAL-ASSETS> 1,709,510 1,442,950
<CURRENT-LIABILITIES> 698,564 577,019
<BONDS> 0 0
0 0
0 0
<COMMON> 12,400 12,610
<OTHER-SE> 955,000 1,476,490
<TOTAL-LIABILITY-AND-EQUITY> 1,709,510 1,442,950
<SALES> 1,934,529 461,137
<TOTAL-REVENUES> 1,934,529 461,137
<CGS> 693,801 144,189
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,822,912 652,547
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (582,184) (335,599)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (582,184) (335,599)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (582,184) (335,599)
<EPS-BASIC> (0.05) (0.07)
<EPS-DILUTED> (0.05) (0.07)
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