As filed with the Securities and Exchange Commission on March 30, 2000
Registration No. 333-90877
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
-----------
HEALTHLINK INTERNATIONAL, INC.
--------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Nevada 6324 88-0331113
------ ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) I.D. Number)
</TABLE>
929 Eastwind Drive,, Suite 225
Westerville, Ohio 43081
(614) 890-5100
-----------------------------------------------------------
(Address and telephone number of principal executive offices
and principal place of business)
Nicholas G. Venetis, Chief Executive Officer
HealthLink International, Inc.
929 Eastwind Drive, Suite 225
Westerville, Ohio 43081
(614) 890-5100
-------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies of all communications to:
Gary A. Agron, Esq.
Law Office of Gary A. Agron
5445 DTC Parkway, Suite 520
Englewood, CO 80111
(303) 770-7254
(303) 770-7257 (Fax)
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the registration statement.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box: |_|
[EXHIBIT INDEX LOCATED PAGE _____ OF THIS FILING]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Title of Each Class Amount Proposed Proposed Maximum Amount
of Securities To Be Maximum Price Aggregate of
to be Registered Registered Per Unit Offering Price Registration Fee
=======================================================================================================================
<S> <C> <C> <C> <C>
Common stock, $.001 par value, (1) ...... 1,380,000 $6.00 $ 8,280,000 $ 2,443
Shares
Common stock purchase warrants ........ 120,000 $-0- $ -0- $ -0-
issuable to the representative Warrants
of the underwriters (2)
Common stock, $.001 par value, ........ 120,000 $7.20 $ 864,000 $ 255
underlying representative's Shares
common stock purchase warrants (2)
Total $ 9,144,000 $ 2,698 (3)
</TABLE>
================================================================================
(1) Includes the representative's 15% overallotment option.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares issuable upon exercise of the warrants is subject to adjustment
in accordance with the anti-dilution provisions of such Warrants.
(3) The Registrant previously paid a filing fee of $7,080. Accordingly, no
additional filing fee is required.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE>
Subject to completion dated March __, 2000
1,200,000 shares of Common Stock
HEALTHLINK INTERNATIONAL, INC.
[LOGO]
We are offering 1,200,000 shares of common stock at $6.00 per share
We have applied to list our common stock on the NASDAQ SmallCap Market
under the symbol "HLNK".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying our units.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
Per Share Total
--------- -----
Public offering price . . . . . . $6.00 $ 7,200,000
Underwriting discounts
and commissions . . . . . . . . $0.60 $ 720,000
Proceeds to HealthLink
International, Inc. . . . . . .$5.40 $ 6,480,000
Spencer Edwards, Inc.
The date of this prospectus is ______________ , 2000.
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
Page
----
Prospectus Summary...................................................... 3
Summary Financial Data.................................................. 6
Risk Factors............................................................ 7
Use of Proceeds......................................................... 12
Dividend Policy......................................................... 12
Dilution................................................................ 13
Capitalization.......................................................... 14
Selected Financial Data................................................. 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 16
Our Business............................................................ 17
Our Management.......................................................... 28
Our Principal Stockholders.............................................. 30
Related Party and Other Material Transactions........................... 30
Description of Our Securities........................................... 31
Underwriting............................................................ 32
Legal Matters........................................................... 34
Experts................................................................. 34
Additional Information.................................................. 34
Financial Statements.................................................... F-1
2
<PAGE>
PROSPECTUS SUMMARY
Our Business
We offer health related products for sale, primarily through direct
marketing groups and the Internet. Our current products are:
o benefit savings plans which allow our plan members to obtain discounts
of 25% or more off the prices of healthcare products and services,
including the services of 450,000 physicians, 6,500 hospitals and
55,000 ancillary healthcare providers, such as dentists,
chiropractors, hearing and eye care specialists, nurses and
counselors. Our members access these healthcare products and services
by presenting discount health cards purchased from us to the
healthcare provider.
o nutritional supplements containing antioxidants and vitamins used to
improve the human immune system.
Our Market Opportunity
We currently emphasize our discount health services, which are offered
under our benefit savings plans and which address two significant concerns in
the healthcare industry: medical cost containment and the rising number of
people who are uninsured or underinsured. In 1997 the United States Census
Bureau reported that approximately:
o 43 million Americans, or approximately 16% of the population, had no
health insurance, and most Americans lacked insurance coverage for one
or more "ancillary" healthcare services, such as dental, chiropractic,
hearing care, eye care and pharmaceutical services.
o 4.8 million Americans with household incomes of $75,000 or more and
approximately 5.7 million Americans with incomes between $50,000 to
$75,000 were uninsured.
The nutritional supplements industry has experienced substantial growth
since the adoption of the Dietary Supplement Health and Education Act of 1994.
This act allows vendors of dietary supplements to educate consumers regarding
the effects of certain dietary ingredients. According to the Nutrition Business
Journal Annual Industry Overview, 1997 dietary supplement sales in the United
States increased by 13% and totaled approximately $12.6 billion.
3
<PAGE>
We believe that our medical discount cards provide a low-cost,
non-insurance alternative to:
o those seeking to reduce healthcare costs not covered by insurance;
o those desiring to fill in the coverage gaps in their current policies;
o those who are unable to obtain healthcare insurance due to their
medical history, age or occupation; and
o those that may be underinsured because of restrictions or provisions
within their managed care plans.
Our Strategy
Our strategy is to:
o expand our marketing capabilities;
o increase the number and content of our benefits savings plans;
o increase sales of our benefit savings plan programs;
o develop a complete line of nutritional supplements having health
benefits and mass appeal, and
o start up or acquire other companies engaged in healthcare or related
industries.
Our Offices
Our corporate offices are located at 929 Eastwind Drive, Suite 225,
Westerville, Ohio 43081, telephone number (614) 890-5100. Our Web site is
located at www.healthlinkintl.com. Information contained in our Web site should
not be considered a part of this prospectus.
The Offering
The information below and throughout this prospectus gives effect to a one
share for two shares reverse stock split approved by our board of directors on
February 24, 2000. Our outstanding common stock does not include:
o 50,000 shares issued by us to Sheldon R. Lefkowitz, our Executive
Vice President, on February 24, 2000,
o 120,000 common stock purchase warrants issuable to the representative
of the underwriters,
o up to 180,000 shares issuable under the over allotment option granted
to the underwriters.
Securities offered ............. 1,200,000 shares of common stock
4
<PAGE>
Common stock outstanding
prior to the offering ......... 5,919,914 shares
Common stock to be outstanding
after the offering ............ 7,119,914 shares
Proposed Nasdaq SmallCap
Market symbol ................. "HLNK"
5
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth financial information derived from our
audited financial statements for the years ended December 31, 1998 and 1999. We
commenced our current operations in September 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------------------- -------------------------
<S> <C> <C>
Statement of Operations Data
- ----------------------------
Revenue . . . . . . . . . . . $ 282,401 $8,242
Cost of sales . . . . . . . . $ 236,145 $6,917
Operating expenses . . . . . . $ 834,843 $1,250
Research and development . . . $ 210,000 $ --
Net income (loss). . . . . . . $ (995,087) $ 75
Weighted average
number of shares
outstanding . . . . . . . . . 5,919,914 5,919,914
Net income (loss) per share. . $ (.17) $ --
Actual As Adjusted(1)
------ --------------
Balance Sheet Data at December 31, 1999:
- ----------------------------------------
Working capital . . . . . . . . . . . . . . $ (230,660) $ 5,884,491
Total assets . . . . . . . . . . . . . . . $ 1,583,903 $ 7,547,903
Total liabilities . . . . . . . . . . . . . $ 515,062 $ 515,062
Stockholders' equity . . . . . . . . . . . $ 1,068,841 $ 7,032,841
</TABLE>
(1) As adjusted to reflect the sale of 1,200,000 shares offered by this
prospectus at $6.00 per share and the application of the net proceeds.
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in our securities. If any of these
risks occur, our business, results of operations and financial condition could
be harmed. This could cause the trading price of our securities to decline, and
you might lose part or all of your investment.
If government regulations regarding network marketing companies are changed,
interpreted or enforced in a manner adverse to our network marketer, our revenue
could be reduced.
Our operating history is extremely limited; we may have future losses and may
need more capital.
We commenced our current business operations in September 1998, have
incurred losses since that date and have not generated significant revenue.
Accordingly, we have no operating history upon which an investor can evaluate
us, and our prospects are subject to risks and uncertainties encountered by
early-stage companies that operate in a constantly evolving market, such as the
healthcare market.
Our limited operating history and the uncertainty of the evolving
healthcare market make any prediction of our future results of operations
difficult or impossible. We expect to increase considerably our operating
expenses in the future, particularly by expanding our marketing capabilities. As
a result, we may incur losses and may need to raise additional capital. We
cannot assure that we will be able to raise additional capital, and we do not
know what the terms of any capital raising would be. Any future sale of our
equity securities would dilute the ownership and control of our stockholders and
could be at prices substantially below the offering price of our common stock.
7
<PAGE>
We may be liable for medical malpractice claims or product liabiity claims which
could result in losses for our business.
Physicians and other medical entities have become increasingly vulnerable
to lawsuits alleging medical malpractice. While we do not practice medicine or
control any provider's practice of medicine, we may become a party to
malpractice litigation anyway. We may also be exposed to claims for personal
injuries as a result of the incorrect preparation or packaging of prescriptions
or injuries associated with consumption of our nutritional products. We take
precautions to avoid these claims, such as by seeking indemnification from
providers and by carrying product liabiity insurance, but we cannot assure that
our precautions or insurance coverages will prove adequate. Because we do not
render medical services, we cannot obtain malpractice insurance. We do not
maintain errors and omissions insurance, but we maintain general liability
insurance which provides coverage for property damage, business liability and
medical payments.
We must comply with government regulations which are costly and may limit our
operations.
The delivery of our discount health care products and services is subject
to federal, state and local regulation, including:
o the prohibition of business corporations from providing medical care;
o the fraud and abuse provisions of the Medicare and Medicaid statutes;
o state laws that prohibit referral fees and fee splitting; and
o regulations applicable to insurance companies and organizations that
provide healthcare services.
For instance, there is some question as to whether we can sell our discount
savings plan in California, because we may be classified as a health maintenance
organization in that state, which would require compliance with certain state
bonding requirements. We do not currently offer our discount savings plans in
California for that reason. In addition, statutes and regulations applicable to
other healthcare organizations with which we may contract, such as patient
freedom of choice rights and anti-discrimination rights, may force other
organizations to withdraw as our providers. Compliance with these statutes and
regulations are costly and may limit our operations.
We may not be able to successfully compete with other cost containment
organizations for employee benefit expenditures.
We compete with other medical cost-containment organizations, such as
preferred provider organizations, HMOs and insurance companies, for a portion of
employee medical benefit expenditures made by employers. Most of these
competitors have had longer operating histories and have greater financial,
marketing and other resources than we.
We may not be able to successfully compete with other nutritional supplements
marketers.
Competition in the nutritional supplements market is very intense. We
compete with numerous companies that have longer operating histories, more
products and greater name recognition and financial resources than we do. Many
of our competitors are able to devote greater resources to marketing,
promotional and pricing campaigns that may influence our existing and potential
customers to buy their products rather than ours.
Our management is inexperienced and may not be able to manage our growth.
Our management team has worked together for only a short time and none of
our executive officers has extensive experience managing a business enterprise
similar to ours. Any growth we experience will place a significant strain on our
management and financial resources. Any inability of our management to manage
growth effectively could increase our operating expenses and impair our
marketing efforts.
8
<PAGE>
If government regulations regarding network marketing companies are changed,
interpreted or enforced in a manner adverse to our network marketer, our revenue
could be reduced.
A significant portion of our revenue is generated through sales of our
discount medical services to members of Purchase Plus, a network marketing
company affiliated with us. Network marketing companies are subject to extensive
governmental regulation, including federal and state laws and rules regarding
network marketing plans and the offer and sale of business franchises, business
opportunities and securities. Any change in legislation or regulations or the
noncompliance with these regulations by our network marketer could reduce or
eliminate its membership and thereby significantly reduce our revenue.
If Purchase Plus is unable to attract and retain sales associates, our business
may suffer.
Our success depends upon Purchase Plus' ability to attract, maintain,
motivate and retain a large base of Purchase Plus' sales associates, who, in
turn, sell products and recruit additional associates to purchase and sell
products. We cannot assure you that the number or productivity of Purchase Plus'
sales associates will be sustained at current levels or increase in the future.
Several factors affect Purchase Plus' ability to retain a sufficient number of
sales associates, including:
o the motivation of the associates;
o general economic conditions;
o changes in the amount of commissions Purchase Plus pays;
o the public perception of Purchase Plus and its products;
o the limited number of people who are interested in pursuing direct
selling as a business; and
o competition in recruiting and retaining associates from other direct
selling organizations.
Competition by other direct selling companies for new associates interested
in direct selling is intense. We expect that competition will continue to
intensify as direct selling becomes more popular and more direct selling
organizations enter the marketplace. The pool of individuals interested in
direct selling tends to be limited in each market. Every time another network
marketing company successfully recruits an individual, Purchase Plus' potential
pool of associates is reduced.
Our sales and profits could suffer if:
o Purchase Plus is unable to attract and retain a sufficient number of
sales associates;
o Purchase Plus finds it necessary to terminate a significant number of
its sales associates or those associates quit;
o other network marketing companies recruit Purchase Plus' existing
sales associates; or
o other network marketing companies deplete the pool of potential sales
associates in a given market.
9
<PAGE>
If our outside nutritional supplements ingredient supplier or manufacturer fails
to supply us products in sufficient quantities and in a timely fashion, our
business may suffer.
The key ingredient in our nutritional supplements is provided by an outside
supplier and our nutritional supplements are manufactured by an outside
manufacturer. Our profit margins and ability to deliver our products on a timely
basis are dependent upon the ability of our supplier and manufacturer to supply
our products in a timely and cost-efficient manner. Our ability to enter new
markets and sustain satisfactory levels of sales in each market is dependent
upon the ability of these or other outside suppliers and manufacturers to
provide us with products.
We believe we have dependable alternative suppliers and manufacturers for
all our ingredients and that we can produce or replace any of our ingredients if
our current supplier is unable to supply our ingredients. However, any delay in
replacing or substituting suppliers, manufacturers or ingredients could also
hurt our business.
We are subject to and affected by extensive laws and governmental regulations at
the federal, state and local level. These regulations involve, among other
things:
o the formulation, manufacturing, packaging, labeling, distribution,
importation, sale and storage of our products;
o health and safety of food and drugs;
o trade practice laws and direct selling laws; and
o product claims and advertising by us; or for which we may be held
responsible.
New regulations could be adopted or existing regulations may change at any
time in a manner that could severely restrict our ability to continue to operate
our business. We may experience complications regarding health and safety and
food and drug regulations for nutritional products.
If our nutritional products and ingredients have harmful side effects or do not
have the healthful effects intended, our business may suffer.
Some of our products contain newly-introduced ingredients or combinations
of ingredients and there is little long-term experience with individuals
consuming those ingredients or in concentrated form. If any of our products were
shown to be harmful or negative publicity resulted from an individual who was
allegedly harmed by one of our products, it could hurt our business,
profitability and growth prospects.
Failure of third parties to achieve Year 2000 compliance could adversely affect
our business.
Many currently installed computer systems and software products are coded
to accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit entries will need to
be upgraded or replaced to accept four-digit entries to distinguish years
beginning with 2000 from prior years. We believe our computer systems and those
of our healthcare providers are Year 2000 compliant. Any failure of the systems
of third parties with whom we deal to achieve Year 2000 compliance could harm
our business.
Since there is no current market for our common stock, purchasers may be unable
to sell our common stock in the future.
There is presently no public market for the common stock and no assurance
that an active market will develop or be maintained. Accordingly, there can be
no assurance that purchasers will be able to sell their common stock in the
future.
10
<PAGE>
Forward-looking statements may be unreliable.
Many statements made or incorporated by reference in this prospectus are
"forward-looking statements" and include statements about:
o our ability to market our benefit savings plans;
o our ability to obtain discounted products and services from third
party providers;
o the anticipated growth in the number of older Americans and their
healthcare needs;
o competitiveness of the healthcare cost containment industry;
o our strategy to expand revenue and generate earnings;
o other statements that are not historical facts.
When used in this prospectus, the words "anticipate", "believe", "expect",
"estimate", "intend" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause our actual
results to differ materially from those expressed or implied by these forward
forward-looking statements, including:
o changes in the healthcare industry;
o steps taken by current and future competitors;
o the extent to which we are able to develop and expand markets for our
benefit savings plans;
o the time and expense involved in our development activities; o the
level of demand for, and market acceptance of, our benefit savings
plans;
o changes in our business strategy;
o other factors discussed in the "Risk Factors" section and elsewhere in
this prospectus.
11
<PAGE>
USE OF PROCEEDS
After payment of underwriting commissions and other expenses of the
offering, the net proceeds of the offering are estimated to be $5,964,000. We
expect to use the net proceeds over the next 12 months approximately as follows:
o $2.0 million for marketing and advertising expenses; associated with
the HealthLink discover card and our nutritional supplements;
o $1.0 million to increase our product and service providers as
discussed below;
o $1.54 million to fund development and marketing of our line of
nutritional supplements; and
o $1.424 million reserved for working capital and to cover any overages
in the above estimated expenditures.
In order to increase the number of our providers of products and services,
such as companies that have other networks of physicians, hospitals and
ancillary medical services providers, we will be required to incur expenses
associated with:
o hiring additional personnel to locate and negotiate contracts with
these providers;
o tendering up-front payments to these providers to obtain their
products and services;
o developing advertising and marketing plans to promote new products
and services to our customers; and,
o seeking new products and services not directly associated with medical
products, such as discounts on business insurance, tax preparation,
accidental death coverage, ambulance services and equipment leases.
Proceeds not immediately needed will be invested in bank certificates of
deposit, treasury bills, insured bank deposits or similar investments.
DIVIDEND POLICY
We have never paid dividends on our common stock and do not intend to pay
dividends in the foreseeable future. Instead, we will retain any earnings to
finance the expansion of our business and for general corporate purposes.
12
<PAGE>
DILUTION
At December 31, 1999, the net tangible book value of our outstanding shares
of common stock was approximately $917,690, or $.16 per share. "Net tangible
book value" per share represents the total amount of our tangible assets, less
the total amount of our liabilities, divided by the number of shares of common
stock outstanding. Without taking into account any changes in net tangible book
value after December 31, 1999, other than to give effect to the sale of all
1,200,000 shares of common stock offered hereby at a public offering price of
$6.00 per share, less underwriting discounts and commissions and estimated costs
of the offering, our net tangible book value at December 31, 1999 would have
been approximately $7.0 million, or $.99 per share. This per share value
represents an immediate increase in net tangible book value of $.83 per share
of common stock to our existing stockholders and an immediate dilution of $5.01
per share to new investors. "Dilution" per share represents the difference
between the price to be paid by the new stockholders and the net tangible book
value per share of common stock immediately after this offering.
The following table illustrates this per share dilution:
Public offering price per share .................. $6.00
Net tangible book value per share
before the offering ....................... $ .16
Increase in net tangible book value
per share attributable to new investors
purchasing in the offering ................ $ .83
Net tangible book value per share
after the offering ............................. $ .99
-----
Dilution per share to new investors .............. $5.01
=====
The following table sets forth the shares of common stock offered, the
total consideration to be paid and the average price per share paid by our
existing stockholders as of December 31, 1999 and new investors purchasing the
shares of common stock offered hereby:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------- ------------------- Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New investors .............. 1,200,000 16.9% $7,200,000 85.0% $ 6.00
Existing stockholders ...... 5,919,914 83.1% $1,266,630 15.0% $ .21
---------- ----- ---------- -----
TOTALS ..................... 7,119,914 100.0% $8,466,630 100.0%
========== ===== ========== =====
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth our historical and as adjusted
capitalization as of December 31, 1999, after deducting underwriting discounts
and commissions and estimated offering expenses. As adjusted capitalization
reflects the sale of 1,200,000 shares at an offering price of $6.00 per share
and the application of the net proceeds.
<TABLE>
<CAPTION>
December 31, December 31,
1999 1999
Actual As Adjusted
------------- -------------
<S> <C> <C>
Stockholders' equity:
Preferred stock, 1,000,000 no par value shares
authorized, no shares issued ............................ $ -- $ --
Common stock, 100,000,000 $.001 par
value shares authorized, 5,919,914
shares outstanding, 7,119,914 shares
outstanding, as adjusted ................................ 5,920 7,120
Additional paid-in capital ................................ 1,260,710 7,223,510
Retained earnings (deficit) ............................... (996,139) (996,139)
Accumulated other comprehensive income .................... 798,350 798,350
----------- -----------
Total stockholders' equity ....................... 1,068,841 7,032,841
----------- -----------
Total capitalization ............................. $1,068,841 $ 7,032,841
=========== ===========
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth financial information derived from our
audited financial statements for the year ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------------------- -------------------------
<S> <C> <C>
Statement of Operations Data
- ----------------------------
Revenue . . . . . . . . . . . $ 282,401 $8,242
Cost of sales . . . . . . . . $ 236,145 $6,917
Operating expenses . . . . . . $ 834,843 $1,250
Research and development . . . $ 210,000 $ --
Net income (loss). . . . . . . $ (995,087) $ 75
Weighted average
number of shares
outstanding . . . . . . . . . 5,919,914 5,919,914
Net income (loss) per share. . $ (.17) $ --
Actual As Adjusted(1)
------ --------------
Balance Sheet Data at December 31, 1999:
- ----------------------------------------
Working capital . . . . . . . . . . . . . . $ (230,660) $ 5,884,491
Total assets . . . . . . . . . . . . . . . $ 1,583,903 $ 7,547,903
Total liabilities . . . . . . . . . . . . . $ 515,062 $ 515,062
Stockholders' equity . . . . . . . . . . . $ 1,068,841 $ 7,032,841
</TABLE>
(1) As adjusted to reflect the sale of 1,200,000 shares offered by this
prospectus at $6.00 per share and the application of the net proceeds.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements, the notes related thereto, and the other financial data included
elsewhere in this prospectus. The discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
We are an early stage company, having commenced operations in September
1998. To date, our activities have been limited to organizing our company,
developing our initial relationships with discount healthcare providers, hiring
personnel, opening our offices, developing our initial marketing plans,
commencing the sale of our discount health cards and developing our nutritional
supplements.
Results of Operations
Net sales increased to $282,401 for the year ended December 31, 1999
compared to $8,242 for the prior year. Gross profit increased by approximately
$44,931 from $1,325 in 1998 to $46,256 for 1999. Our gross profit is expected to
increase in the future as a result of our agreement with Purchase Plus Buyers'
Group, Inc., commencing the sale of our nutritional supplements.
We lost $995,087 for the year ended December 31, 1999, had net income of
$75 for the year ended December 31, 1998, and expect to incur additional losses
into 2000 as a result of additional costs we expect to incur associated with
marketing, hiring of personnel and commencing the sale of our nutritional
supplements.
Significant operating categories for the year ended December 31, 1999
included office rent ($7,769), travel ($8,259), consulting services ($124,331),
writeoff of a loan to an unaffiliated corporation ($88,000) and compensation
expense for stock issued to employees ($553,986). We expect our operating
expenses to increase in future quarters as we continue to develop our operating
plan and expand marketing and sales efforts for our discount health cards and
nutritional supplements.
Our research and development expenses of $210,000 for the year ended
December 31, 1999 reflect the terms of our June 1999 technology and marketing
agreement with Longport under which we agreed to provide Longport with funds to
finance technology enhancements for Longport's digital scanner in exchange for
10% of the gross revenue generated from the scanner enhancements and related new
technology until 2009. In March 2000 we mutually agreed to cancel the agreement
with Longport.
In April 1999 we purchased 350,000 shares of Longport common stock for
$1.00 per share. The quoted market price of these shares at December 31, 1999
was $3.28 per share, or a total of $1,148,350, representing an unrealized gain
at December 31, 1999 of $798,350. The unrealized gains and losses are reported
as a separate component of our Statement of Stockholders' Equity, net of tax.
Since we invested in the Longport stock, we have adjusted our financial
statements monthly to reflect the current quoted market value of the shares.
Upon completion of the offering, we intend to increase our product and
service providers, emphasizing discount healthcare providers and spending on
marketing and advertising, with emphasis upon our Internet operations. In order
to increase our product and service providers, we will need to hire additional
personnel to identify such providers and negotiate provider agreements.
Subsequently, we will need to provide additional funds for up-front payments
under the new agreements and for advertising and marketing expenses to promote
these new products. We will also continue to develop our nutritional product
line and grow our in-house marketing staff.
We may also add non-healthcare providers, including those that offer
services to small businesses, such as tax preparers, equipment lessors and
business insurers. We may also seek to acquire other companies engaged in
healthcare and related industries and ramp up our marketing activities to
support our additional activities. To date we have not entered into any
agreements, arrangements or understandings with respect to any acquisitions or
business combinations.
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We currently expect that our available cash resources combined with the net
proceeds from the offering will be sufficient to meet our anticipated capital
rquirements for at least the 12 months following the offering.
We do not expect to incur any significant costs to address the impact of
the so-called Year 2000 problem. The Year 2000 problem concerns the inability of
information systems, primarily computer software programs, to properly recognize
and process date-sensitive information as the Year 2000 approaches. We believe
that our present systems and those of our healthcare providers are Year 2000
compliant.
Liquidity and Capital Resources
In July 1999 we entered into an agreement with Purchase Plus, a network
marketing company owned by Everett Eugene Armold, under which Purchase Plus
agreed to purchase 100,000 of our discount cards for $40 per card in 2000 and
will prepay the first 10,000 cards in consideration of our agreement not to
offer our discount cards to any other network marketing organization. Everett
Eugene Armold, who owns Purchase Plus, is the husband of Cleone W. Armold, one
of our directors. Two of our officers and directors, Ms. Armold and Mr.
Pedersen, are also officers and directors of Purchase Plus.
During the year ended December 31, 1999, our cash obligations were funded
by capital contributions from a shareholder and revenue from operations. In
October 1999, we entered into a letter of credit with Simba Financial,
Incorporated providing for cash advances of up to $500,000 to finance our
operating expenses and working capital requirements. Any amounts advanced under
the line of credit will bear interest at 10% per annum and are due on December
31, 2000. At December 31, 1999, no sums were advanced under the letter of
credit. Mr. Armold is a principal stockholder of Simba.
Operating activities used $335,039 of cash for the year ended December 31,
1999, which was primarily a result of the net loss for the period.
Investing activities used $195,925 of cash for the year ended December 31,
1999. We invested $350,000 in Longport's securities and made an $88,000 loan to
an unrelated corporation. The loan was not repaid and was written off during the
period.
Financing activities provided $560,366 of cash for the year ended December
31, 1999. Approximately $712,644 was gratuitously contributed to our capital
during the period and we incurred $151,151 of offering costs during the period.
We have no significant financial commitments at this time.
OUR BUSINESS
Our History
We were incorporated in Nevada in November 1994 as Commercial Building
Systems, Inc., but were inactive until September 1998 when we commenced our
current operations. We changed our name to HealthLink International, Inc. in
March 1999.
The HealthLink Discount Health Card
Our primary product is our HealthLink discount health card, which allows
holders to obtain discounts of approximately 25% or more on purchases of
healthcare products and services through our networks of healthcare providers.
Our discount card provides our members with reduced rates on physician and
hospital services, on ancillary medical services and on a 24-hour information
line staffed by nurses. Our health services networks comprise an aggregate of
approximately 450,000 physicians, 6,500 hospitals and 55,000 other medical
providers who offer ancillary health services and products throughout the United
States, such as:
o dental care;
o chiropractic services;
o hearing care;
o eye care; and
o pharmacy plans.
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Our physicians and hospital providers offer a full range of primary medical
services, as well as:
o plastic and cosmetic surgery;
o infertility services;
o psychiatric services; and
o services related to chemical dependency.
Substantially all of our discounted medical products and services are
provided under contracts we have with two network providers: International
MedCare, Inc. and National Administrative Company, Inc.
Our contract with IMC expires October 2000 and is cancellable by either
party on 45 days' notice. IMC provides us with networks of physicians, hospitals
and other healthcare providers that offer healthcare services under our discount
card.
Our contract with NAC expires October 2002 and may be cancelled by either
party on 120 days' notice prior to year end. NAC provides us with networks of
ancillary healthcare providers, including dentists, chiropractors, hearing care
specialists and eye care specialists, as well as other ancillary products,
including pharmacy services, a 24-hour nurse information line and a legal
benefits plan.
To date, all of our revenue has been generated through sales of our
discount medical services to members of Purchase Plus Buyer's Group, Inc.
Purchase Plus is a network marketing company owned by Everett Eugene Armold, who
is married to Cleone W. Armold, a principal stockholder and director of our
company. We anticipate that revenue generated by sales to members of Purchase
Plus will represent a smaller percentage of our total revenue in the future as
we expand our marketing efforts.
We believe that our emphasis on discount health services addresses two
significant concerns in the healthcare industry: cost containment and the rising
number of people who are uninsured or underinsured. We believe that our discount
cards provide a low-cost, non-insurance alternative to individuals who are
seeking to reduce their out-of-pocket healthcare costs not covered by insurance
or who are unable to obtain healthcare insurance due to their medical history,
age or occupation. For an annual fee of $99, our members obtain discounts of
approximately 25% or more off the retail, or usual and customary, charges of
participating healthcare providers. Acceptance in our program is unrestricted,
and our cards can be used to cover the member's entire immediate family.
Our Strategy
Our strategy is to:
o further develop and expand our marketing capabilities by:
o increasing the content currently available on our bilingual
Internet Web site;
o developing programs to offer our benefit savings plans directly
to affinity groups, such as large corporations, small business
and trade associations and charitable organizations; and
o expanding our in-house marketing staff.
o develop benefit savings plans for small businesses which would include
access to discounts on tax preparation, equipment leasing and business
insurance;
o increase our benefit savings plan sales by adding non-medical related
discounted products and services, such as accidental death coverage
and ambulance services;
o develop a line of nutritional supplements having both health benefits
and mass appeal to the increasing number of people who are health
conscious; and,
o start up or acquire other companies engaged in healthcare or related
industries following the offering.
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We intend to use proceeds of the offering to expand our benefit savings
plans by increasing our product and services providers and to develop and market
our nutritional supplements. In order to increase our product and service
providers, we will need to hire additional personnel to identify such providers
and negotiate provider agreements. Subsequently, we will need to provide
additional funds for up-front payments under the new agreements and for
advertising and marketing expenses to promote these new products.
Healthcare Overview
In recent years the cost of healthcare products and services has increased
at a greater rate than inflation. These increasing costs have led to limitations
on reimbursement from insurance companies, HMOs and government sources and have
generated demand for products and services designed to control healthcare costs.
Many employers have responded to the increased cost of providing health
insurance to their employees by reducing or eliminating available insurance
coverage and/or by requiring employees to contribute heavily to premiums,
especially for family members. As a result, the United States Census Bureau
reported that in 1997 approximately 43 million Americans, or approximately 16.1%
of the population, had no health insurance, and most Americans lacked insurance
coverage for one or more ancillary healthcare services. At the same time
according to the July 1997 issue of Managed Healthcare, the July 1997 issue of
Employee Benefit News and an October 1996 issue of the Wall Street Journal.
o the average price of prescriptions in the United States has risen from
$12 to $27 over the past ten years and continues to rise at the rate
of 4% per year;
o the average senior citizen takes 3.3 medications every day;
o 60% of all Americans require corrective lenses; 90% of Americans over
the age of 43 require corrective lenses;
o more than 900,000 Americans require medical assistance while traveling
away from home each year;
o over 33 million Americans are hearing impaired, but only approximately
6% purchase hearing aids because they consider the cost prohibitive;
o 19 million Americans use chiropractic services each year;
yet, according to an Associated Press wire story in October 1998, six million
Americans did not take health insurance that was offered at work in 1997.
As a result of the baby boom generation, people over the age of 50
represent the fastest growing segment of the United States population. As the
population ages, more people will need both primary and ancillary healthcare
products and services.
Our HealthCard Members
Our members generally are part of the following categories of individuals
and organizations:
o uninsured-individuals who cannot or do not wish to incur the expense
of traditional health insurance, especially part-time and temporary
employees, recently graduated students and the self-employed;
o underinsured-individuals covered by a health plan with limited
coverage, high deductibles and/or co-insurance limits, or needing
family coverage;
o insured-individuals seeking providers outside their present health
plans or interested in filling gaps in their coverage;
o uninsurable-individuals who are not eligible for health insurance
because of medical history, profession, lifestyle or other reasons;
o smaller groups-including small businesses, chambers of commerce,
employers of temporary or part-time personnel and other businesses
seeking affordable health benefits for their employees in order to
promote employee loyalty and differentiate their companies in the
marketplace;
o associations-including service organizations and trade groups seeking
to increase membership and promote member/customer loyalty by
providing or offering a discount health benefit.
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HealthCard Primary Medical Services
We offer a network of 450,000 physicians and 6,500 hospitals that provide a
full range of discounted medical services throughout the United States. Almost
75% of the acute care hospitals in the United States are members of our network,
including some of the better known cardiac and transplant hospitals. Our network
consists of over 200 medical specialties, including:
o chemical dependency;
o counseling and rehabilitation;
o chiropractic care;
o infertility;
o marriage and family counseling;
o nutrition;
o pain management;
o psychiatry;
o psychology;
o plastic surgery;
o podiatry;
o preventative medicine;
o sleep disorder therapy; and
o speech therapy.
In order to obtain discounts from physicians and hospitals, our members
complete a payment pre- authorization process which will make their medical
visit identical to other medical payment plans, such as insurance plans, HMOs
and the like. Members select a provider from our network, make an appointment
and request an estimate of fees for the anticipated procedure. The member then
calls IMC, our contract partner, to arrange for prepayment using a major credit
card. IMC sends the provider a referral guaranteeing payment based upon a "hold"
we have placed on the member's credit card. The member makes no payment to the
provider at the time services are rendered but simply presents his membership
card. The provider bills IMC, and IMC pays the provider and charges the
discounted amount to the member's credit card. The member subsequently receives
a statement of savings indicating the original amount billed, the amount charged
after savings were applied, and the total amount saved.
Ancillary HealthCard Services
Our HealthLink discount card provides ancillary healthcare services
including:
Dental. Our dental services and products are designed to provide our
members with discounts of 10% to 40% on dental examinations and dental products
from over 14,300 dentists throughout the United States.
Chiropractic. Our chiropractic services are designed to provide our members
with discounts of 20% to 50% on chiropractic examinations and related
chiropractic services from over 4,700 chiropractors throughout the United
States.
Hearing. Our hearing services are designed to provide our members with
discounts starting at 10% on hearing examinations and hearing products from over
1,700 hearing specialists throughout the United States.
Eye Care. Our eye care services are designed to provide our members with
discounts of 20% to 75% on eye examinations, contact lenses, eyeglass frames and
lenses and eye surgery from over 9,100 eye care specialists throughout the
United States.
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Pharmacy. Our pharmacy plans include discounts of 20% to 25% on drugs from
over 14,000 mail order pharmacies.
Nurse Information. We provide toll-free telephone access to experienced
registered nurses, 24 hours a day, 365 days per year. Our nurses are an
immediate and reliable source of health and medical information, education and
support.
The purpose of the nurse information service is to give our members
information to assist them in making decisions about their healthcare. In
addition to providing information that may prevent unnecessary trips to the
emergency room, trained nurses assist members in connection with:
o help with minor and emergency situations and general information on
all types of health and medical concerns supported by an audio health
library;
o self-care information and solutions based on physician-approved
guidelines;
o information about prescription and over-the-counter medication usage
and interaction; and
o information on non-medical support groups from a comprehensive
national database.
Legal Services. Our discount card also provides members with discounts for
consumer legal services provided by a network of over 7,000 attorneys throughout
the United States.
Advantages of the HealthLink Discount Card
Advantages to Members. In addition to providing access to healthcare
products and services on a discounted basis, we believe our discount healthcare
cards are attractive to members because of their flexibility and ease of use.
Membership in our healthcare programs is unrestricted and provides benefits to
individuals who, because of their medical history, age or occupation, are unable
to obtain health insurance. The cards cover each person in the member's
immediate family and can be used as often as each participant wishes. In
addition, unlike many insurance or managed care programs, members have no
paperwork or claims to prepare and no waiting periods.
Advantages to Providers and Networks. We believe that physicians, hospitals
and other healthcare providers are attracted to our programs because the
programs increase their customer base. Although members generally pay fees and
charges less than those of non-members, the incremental business from members
offers an additional source of revenue to the providers, with little or no
increase in their overhead costs. In addition, we believe that our programs are
attractive to provider networks because they increase the likelihood that
providers will affiliate with these provider networks in order to have access to
more members.
Advantages to Sponsors. We believe that our discount cards are attractive
to sponsors, that is, organizations with larger memberships or employee bases
that offer healthcare cards to their members or employees. We believe that our
cards assist sponsors in their efforts to attract and retain employees by
enabling them to offer a more complete healthcare benefits package. Similarly,
as competition between HMOs for participants intensifies, we believe that our
cards will enable HMOs to offer a more complete array of potential healthcare
benefits. Due to the low cost of the cards, sponsors may offer them to part-time
employees, who often are not eligible for healthcare benefits offered to
full-time employees. Moreover, because the cards are discount cards and not an
insurance product, sponsors can offer discounts to their employees or members
without bearing any economic risk in excess of the annual cost of the card.
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HealthCard Sales and Marketing
We intend to market our benefit savings plans:
Through Purchase Plus. In January 2000 we entered into a two year agreement
with Purchase Plus under which we provide the ancillary benefits portion of our
benefit savings plan to members of Purchase Plus for a set annual fee per
member. Purchase Plus purchases the program from us, adds a service charge for
handling and sells the program directly to its members. Under the agreement,
Purchase Plus is required to purchase 100,000 discount cards from us during the
first year of the agreement. Thereafter, the agreement may be cancelled by
either party on 90 days notice to the other. Purchase Plus is a network
marketing company with over 50,000 sales associates throughout the United States
owned by Everett Eugene Armold, who is married to Cleone W. Armold, a principal
stockholder, officer and director of our company. The agreement is cancellable
by either party on 30 days' notice.
Through the Internet. We have completed the development of English and
Spanish language healthcare benefits Internet Web site at www.healthlinkintl.com
which is accessible to healthcare providers, sponsors and members. Those
accessing the Web site are or soon will be able to review:
o our benefit savings plans;
o a list of our benefits providers and their locations;
o products and services provided by our providers;
o discounts available to members for services and products; and
o special promotions.
Individuals accessing our Web site can also purchase one of our benefit savings
plans by filling out an application online.
We also use banner-style advertisements on drkoop.com, a Web site devoted
to providing consumer medical information and the sale of medical products and
services to the public.
By Developing New Programs. By the fourth quarter of 2000, we intend to
develop new benefits savings plans for sale to affinity groups such as large
corporations, small business and trade associations and charitable
organizations. Under an affinity card arrangement, the sponsor would be able to
custom design and place its or our name on the discount card. In either event,
we would provide access to our networks, as well as all required fulfillment
services. We believe that affinity or private label cards will be attractive to
some sponsors because the cards will enable them to more closely identify
themselves with the benefits provided to their member. Moreover, we believe that
the preexisting relationship, or affinity, between the sponsor and its employees
or members will enhance the likelihood that the employee or member will purchase
our card.
Through Our In-house Marketing Staff. By the fourth quarter of 2000, we
intend to establish an in-house marketing staff to market our benefit savings
plans to other large sponsors, such as insurance carriers, third party
administrators, HMOs, preferred provider organizations and unions.
We expect that these sponsors will either fund the healthcare plans on
behalf of their members or employees so that every eligible individual in the
organization becomes a member or offer the plans to their members or employees
as an option where each individual will be responsible for purchasing the plan
discount card and paying the annual fee either directly or through a payroll
deduction plan. We also expect to market the plan directly to members of
sponsors, particularly in cases where a sponsor offers plan benefits as an
unpaid option to its members.
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Competition Among Discount Healthcare Plans
Our discount healthcare plans compete with the products of various cost
containment marketing organizations for a portion of the health benefit dollars
allocated by various organizations for employee medical benefit programs. These
organizations include:
o preferred provider organizations;
o HMOs;
o healthcare membership programs;
o retail pharmacies;
o mail order prescription companies; and
o other ancillary healthcare insurance programs for members and
providers.
With respect to our dental, chiropractic, hearing, eye care and
pharmaceutical products, we compete for sponsors, members and providers,
depending on the geographic area or market, with various entities that have
developed discount membership cards which provide national ancillary medical
benefits coverage, including AT&T, CUC International, and J.C. Penney, and
entities that have developed discount membership cards which provide regional
coverage only. We also compete with various organizations which provide services
and products in specific areas of ancillary healthcare, such as pharmaceutical
services. Most of our competitors have longer operating histories and have
significantly greater financial, marketing and administrative resources than we.
Our Eden River Nutritional Supplements
The nutritional supplements industry includes manufacturers and
distributors of products that are generally intended to enhance the body's
performance and well being. Nutritional supplements include:
o vitamins;
o minerals;
o dietary supplements;
o herbs;
o botanicals; and
o compounds derived from the above.
The nutritional supplements industry has experienced substantial growth
since the adoption of the Dietary Supplement Health and Education Act of 1994.
This act allows vendors of dietary supplements to educate consumers regarding
the effects of certain ingredients. According to the Nutrition Business Journal
Annual Industry Overview, 1997 dietary supplement sales in the United States
increased by 13% and totaled approximately $12.6 billon. We believe the growth
in the nutritional supplement market is driven by several factors, including:
o the general public's heightened awareness and understanding of diet
and health;
o the aging population, particularly the baby-boomer generation, which
is more likely to consume nutritional supplements;
o product introductions in response to new scientific research; and
o the nationwide trend toward preventive medicine.
Nutritional supplements are sold primarily through:
o mass market retailers, including drug stores, supermarkets and
discount stores;
o health food stores;
o mail order companies; and
o direct sales organizations.
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In the past decade, direct selling has grown as a means to distribute
products due to advancements in technology and communications. Network marketing
is a type of direct selling and represents the business operations of Purchase
Plus, an affiliated company with which we have entered into a marketing
agreement to sell our nutritional supplements. The distribution of products
through network marketing has grown significantly in recent years. According to
the "Survey of Attitudes toward Direct Selling," prepared by Wirthlin Worldwide,
food, nutrition and wellness products are among the three categories
experiencing the greatest gains in the direct selling industry since 1976.
According to this survey, approximately 51% of the American public has purchased
products or services from a direct selling company at some point in the past,
with 29% of those having made such a purchase in the last twelve months.
Further, four in ten adult Americans have expressed an interest in direct
selling as a method of buying products and services and 23% of those who have
never purchased products and services from direct selling companies are
interested in direct selling. We believe we can take advantage of growth in both
direct sales and the demand for nutritional supplement products.
Products
In Feburary 2000 we began marketing a line of four nutritional products
under our "Eden River" trademark. These products contain a proprietary
ingredient extracted from bovine cholestrum combined with whey along with
antioxidants and vitamins, and are intended to improve the human immune
response.
Our four nutritional products, all of which include bovine cholestrum and
whey, are:
o Eden River Immune Daily - a daily supplement that includes vitamins
and minerals.
o Eden River Immune Antioxidant - a daily supplement that includes
antioxidant vitamins, such as vitamins A, C and E and beta carotene.
o Eden River Immune 9.1.1 - a supplement that includes ginseng and
echinacea to be used when greater demand is placed on the immune
system, such as by illness or fatigue.
o Eden River Pure Relief - a supplement that includes stinging nettles,
panthothenic acid and adrenal tissue to be used to alleviate symptoms
associated with airborne irritants.
Product Distribution
Our Eden River nutritional products are marketed through Purchase Plus'
network marketing system consisting of over 50,000 sales associates throughout
the United States. We have a three year agreement with Purchase Plus under which
Purchase Plus has agreed to buy at least 15,000 units of each of the four
products from us each three months. We, in turn, have granted Purchase Plus the
exclusive network marketing rights to the Eden River products. We believe
network marketing is an effective vehicle to distribute our products for the
following reasons:
o it allows us to explain the benefits of our products in a
person-to-person, educational setting;
o it allows potential consumers to actually test our products;
o there is a greater impact on the consumer from associate and consumer
testimonials;
o it allows us to continue to build a base of potential consumers for
additional products;
o sales associates can provide high levels of customer service and
attention by following up on sales to ensure proper product usage and
customer satisfaction; and
o sales associates' contact with customers generates repeat purchases.
In the future, we will offer our nutritional products under other trade
names and through private label arrangements.
Licensing and Production
In February 2000 we acquired exclusive United States rights for a period of
three years, with an additional five year option, to manufacture and market our
Eden River line of nutritional products from Quantum Research, Inc., a
non-affiliate. Quantum has selected TwinLabs, a large supplement and vitamin
manufacturer to manufacture the products in quantities determined by us. Under
our agreement with Quantum we are required to purchase a minimum of 60,000 units
of each of the four products which represents approximately $1,600,000 of
purchases annually. We also pay $.50 per bottle for medical consulting services
provided to us by a non affiliated physician who lectures and publishes articles
on bovine cholestrum extract.
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The bovine cholestrum extract included in our nutritional supplements is
provided to Quantum by a non affiliated supplier. Although currently a sole
supplier, Quantum has indicated it could obtain bovine cholestrum from other
suppliers if necessary. If Quantum or its supplier is unable to supply us with
the products, we also have the right under our agreement to manufacture the
products elsewhere, subject to our ability to obtain the formulation for the
bovine cholestrum extract.
Government Regulation
The delivery of our discount health care products and services is subject
to federal, state and local regulation, including:
o the prohibition of business corporations from providing medical care;
o the fraud and abuse provisions of the Medicare and Medicaid statutes;
o state laws that prohibit referral fees and fee splitting; and
o regulations applicable to insurance companies and organizations that
provide healthcare services.
In the United States, sale of nutritional supplements is regulated by laws,
governmental regulations, and other legal requirements at the federal, state and
local levels. These regulations address, among other things:
o how we make, package, label, distribute, import, sell and store our
products;
o what we put in our products;
o what we claim our products do for the human body; and,
o how we advertise.
One or more of these governmental agencies regulate our business or our
products.
o Food and Drug Administration;
o Federal Trade Commission;
o Consumer Product Safety Commission;
o Department of Agriculture;
o Postal Service; and
o various agencies of state and local governments where our
products are manufactured, distributed and sold.
The Food and Drug Administration regulates the formulation, manufacture,
packaging, storage, labeling, promotion, distribution and sale of nutritional
supplements. The Food and Drug Administration has also published a Notice of
Advanced Rule Making expected to cover manufacturing practices for dietary
supplements, but it has not yet issued a proposed rule.
The Dietary Supplement Health and Education Act of 1994 revised the
provisions of the Federal Food, Drug and Cosmetic Act concerning the composition
and labeling of dietary supplements. We believe this act is generally favorable
to the dietary supplement industry. The legislation creates a new class, by
statute, of "dietary supplements." This new class includes vitamins, minerals,
herbs, amino acids and other dietary substances for human use to supplement the
diet. This legislation grandfathers, with certain limitations, dietary
ingredients that were on the market before October 15, 1994. A dietary
supplement which contains a dietary ingredient that was not on the market before
October 15, 1994 must provide evidence establishing that the supplement is
reasonably expected to be safe. Manufacturers of dietary supplements which make
a "statement of nutritional support," thereby describing certain types of
product performance characteristics, must:
o have evidence that the statement is truthful and not misleading;
o make a disclaimer in the statement itself; and
o notify the Food and Drug Administration of the statement no later than
30 days after the statement is first made.
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Our nutritional supplements will be classified as dietary supplements under
the Federal Food, Drug and Cosmetic Act. In September 1997, the Food and Drug
Administration issued regulations governing the labeling and marketing of
dietary supplement products. These regulations cover:
o the identification of dietary supplements and their nutrition and
ingredient labeling;
o the wording used for claims about nutrients, health claims and
statements of nutritional support;
o labeling requirements for dietary supplements for which "high potency"
and "antioxidant" claims are made;
o notification procedures for statements on dietary supplements; and
o premarket notification procedures for new dietary ingredients in
dietary supplements.
The notification procedures became effective in October 1997, while the new
labeling requirements did not become effective until March, 1999. We will be
required to provide evidence for our product performance claims, and to notify
the Food and Drug Administration of any types of performance claims made for our
products. Our substantiation program will involve compiling and reviewing the
scientific literature pertinent to the ingredients contained in our products.
In certain markets, including the United States, claims made with respect
to dietary supplements may change the regulatory status of the products. For
example, in the United States, the Food and Drug Administration could possible
take the position that claims made for some of our products make those products
new drugs requiring preliminary approval. The Food and Drug Administration could
also place those products within the scope of a Food and Drug Administration
over-the-counter drug monograph. Over-the-counter monographs dictate permissible
ingredients, appropriate labeling language and require the marketer or supplier
of the products to register and file annual drug listing information with the
Food and Drug Administration. If the Food and Drug Administration asserts that
product claims for our products caused them to be new drugs or fall within the
scope of over-the-counter monographs, we would be required to either file a New
Drug Application, comply with the applicable monographs or change the claims
made in connection with the products.
Dietary supplements are subject to the Nutrition, Labeling and Education
Act which regulates health claims, ingredient labeling and nutrient content
claims characterizing the level of a nutrient in the product. This act prohibits
the use of specific health claims for dietary supplements unless the health
claim is supported by significant scientific evidence and is pre-approved by the
Food and Drug Administration.
The Federal Trade Commission regulates the marketing practices and
advertising of our products. In the past several years, the Federal Trade
Commission instituted enforcement actions against several dietary supplement
companies for false and misleading marketing practices and advertising of
certain products. These enforcement actions have resulted in consent decrees and
monetary payments by the companies involved. The Federal Trade Commission
requires reasonable evidence proving product claims at the time that the claims
are first made. The failure to have this evidence when product claims are first
made violates the Federal Trade Commission Act. We cannot assure you that the
Federal Trade Commission will not question our advertising or other operations
in the future.
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We cannot predict the content of any future laws, regulations,
interpretations or applications, nor can we predict how new or different
governmental regulations or orders could hurt our business in the future. These
regulations could, however:
o require us to change the contents of our products;
o make us keep additional records;
o make us increase the available documentation of the properties of our
product ingredients, safety or usefulness.
Any or all of such requirements could become a costly burden.
Competition in the Nutritional Supplements Industry
The nutritional supplements industry is large and intensely competitive. We
compete directly with companies that manufacture and market nutritional products
including:
o Rexall Showcase International;
o Rexall Sundown;
o General Nutrition Companies, Inc.;
o Solgar Vitamin and Herb Company, Inc.;
o Twinlab Corporation;
o Weider Nutrition International, Inc.; and
o Mannatech, Incorporated.
Most of our competitors in the nutritional supplements market have longer
operating histories, are more well-known and have greater financial resources
than us. Also, nutritional supplements are offered for sale in a wide variety of
retail stores, including supermarkets and health food stores. While we believe
that consumers appreciate the convenience of ordering products from home through
a sales person, the buying habits of many consumers who are used to purchasing
products through traditional retail methods are difficult to change. The number
of our products is small compared to the large variety of products offered by
many other nutritional product companies.
Employees
At February 29, 2000, we had six full time employees, including our
executive officers.
Facilities
We sublease from Purchase Plus Buyers Group, Inc., an affiliate,
approximately 1,567 square feet of executive office space on a month-to-month
basis in Westerville, Ohio, for $1,639 per month. We believe the lease terms are
fair, reasonable and consistent with lease terms offered by nonaffiliates in the
same market area. We further believe that the office space is suitable for our
current needs and that we carry adequate insurance coverages on the premises.
27
<PAGE>
OUR MANAGEMENT
Officers and Directors
Information concerning each of our executive officers and directors is set
forth below:
Name Age Position
- ---- --- --------
Nicholas G. Venetis 49 Chief Executive Officer, President
and Director
Sheldon R. Lefkowitz 61 Executive Vice President
Cleone W. Armold 49 Secretary and Director
Donald M. Pedersen 42 Chief Financial Officer and Director
Paul D. Martin 53 Director
Charles R. Bruce 49 Director
Directors hold office for a period of one year from their election at the
annual meeting of stockholders or until their successors are duly elected and
qualified. Officers are elected by, and serve at the discretion of, the board of
directors. Our audit committee consists of Messrs. Pedersen, Martin and Bruce
and our Compensation Committee consists of Mrs. Armold and Messers Martin and
Bruce.
Nicholas G. Venetis joined us as our Chief Executive Officer, President and
a director in September 1999. From January 1995 to September 1999, he was
President, Chief Executive Officer and a director of Micrys, Inc., a
privately-held company engaged in semiconductor design. Mr. Venetis earned a BS
degree in Business Administration, with a major in accounting, from The Ohio
State University. He has over 17 years of senior management experience in
business startups, corporate finance and as an executive officer and director of
a public company. His business experience includes implementation and management
of worldwide product distribution, strategic investments, joint ventures,
product development and license agreements with a number of multinational
corporations.
Sheldon R. Lefkowitz joined us as our Executive Vice-President in February,
2000. Mr. Lefkowitz earned an undergraduate degree in accounting from the
Wharton School, University of Pennsylvania and a graduate degree in law from the
Harvard Law School. Early in his career, Mr. Lefkowitz worked in the tax
departments of Arthur Andersen & Co., a national accounting firm, and Wolf,
Block, Schorr & Solis-Cohen, a major Philadephia law firm. From 1971 to 1997 he
made a career as an investor and entrepreneur, either alone or in partnership
with others, participating as an equity owner with emerging companies in their
growth and development stage. His focus included identifying potential growth
companies, investing and/or securing required capital, participating in major
corporate decisions, and performing the functions of chief financial officer.
From April 1997 to September 1999 Mr. Lefkowitz was chief Financial Officer of
Micrys, Inc., a privately-held company engaged in semiconductor design.
Cleone W. Armold joined us as our Secretary and a director in April 1999.
Since 1997, Ms. Armold has been Vice President of Operations for Purchase Plus,
an affiliate, and from 1986 to 1994, was Vice President of Con-Trak Development
Corporation, an Ohio-based construction company. She has also been Chief
Executive Officer of Simba Financial, Inc. a privately held investment company
since 1994. She earned an associate degree from Brigham Young University.
Donald M. Pedersen joined us as our Chief Financial Officer and a director
in November 1999 and joined Purchase Plus as its Chief Financial Officer at the
same time. From 1996 to July 1999, he was Vice President of Finance for JD
Services, a privately-held telecommunications company, where he acted as the
company's senior financial officer, responsible for managing the accounting
departments, legal and accounting compliance matters, including preparing the
company for an initial public offering, negotiations with investment bankers and
development of corporate strategies. From 1989 to 1996, Mr. Pedersen was the
Chief Financial Officer and Chief Operating Officer of PAAC, Inc., a nonprofit
corporation engaged in environmental improvement projects. He earned a B.A.
degree in finance from the University of Utah and an MBA degree from the
University of Phoenix. Mr. Pedersen devotes approximately 25% of his time to our
affairs and 75% of his time to the affairs of Purchase Plus.
28
<PAGE>
Paul D. Martin joined us as a director in June 1999. Since 1994, he has
been Chief Financial Officer of the Mid-Rivers market area for AON, a
multinational insurance brokerage firm. From 1987 to 1992, he was the Chief
Operating Officer of Willis Corrdon, an international insurance brokerage firm,
and from 1979 to 1981, he was Chief Executive Officer of Reliable Insurance
Company, a Missouri-based life insurance provider. He earned a B.S. degree from
the University of Missouri.
Charles R. Bruce joined us as a director in July 1999. Since July 1999, he
has been Chief Executive Officer of Nubix Corp., a franchise and marketing
company owned by Everett Eugene Armold, the husband of Cleone W. Armold. From
1994 to June 1999, he was Vice President of International Marketing for Wendy's
and from 1986 to 1994 was Vice President of Marketing for the International
Pizza Hut Franchise Holders Association. From 1978 to 1986, he was Export Sales
and Marketing Manager for The Coleman Company. He earned a B.A. degree from
Kansas State University.
Executive Compensation
None of our executive officers or directors were paid compensation for
services in 1998. In 1999 none of our executive officers received total
compensation in excess of $100,000. Mr. Venetis' joined us in September 1999 and
received compensation in 1999 of $18,750. We do not have employment agreements
with any of our executive officers.
Our outside directors receive $250 for each Board meeting attended, are
reimbursed for out-of-pocket expenses in attending board meetings and may be
issued stock options in the future on an annual basis as compensation for
serving as directors. We have no plans to issue any other form of compensation
to officers or directors, other than officers' salaries.
Stock Option Plan
We have a stock option plan which provides for the grant of options
intended to qualify as "nonqualified stock options" within the meaning of
Section 422 of the United States Internal Revenue Code of 1986 (the "Code").
The purposes of the plan are to attract and retain the best available
personnel, to provide additional incentives to our employees and to promote the
success of our business.
We have reserved 1,000,000 shares of common stock for issuance under the
plan, which is administered by our board of directors. Under the plan, the board
determines which individuals will receive options, the time period during which
the options may be partially or fully exercised, the number of shares of common
stock that may be purchased under each option and the option price.
The per share exercise price of the common stock subject to options must
not be less than the fair market value of the common stock on the date the
option is granted. The stock options are subject to anti-dilution provisions in
the event of stock splits, stock dividends and the like.
No stock options are transferable by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, the
option is only exercisable by the optionee. The exercise date of an option
granted under the plan must not be later than ten years from the date of grant.
Any options that expire unexercised or that terminate upon an optionee's ceasing
to be employed by us will become available once again for issuance. Shares
issued upon exercise of an option rank equally with other shares then
outstanding. To date, no options have been granted under the plan.
29
<PAGE>
OUR PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the holdings
of common stock by (1) each person who holds of record or is known by us to hold
beneficially or of record, more than 5% of our common stock, (2) each director,
and (3) all officers and directors as a group. The address of each person is in
care of our address at 929 Eastwind Drive, Suite 225, Westerville, Ohio 43081.
<TABLE>
<CAPTION>
Percent Percent
Shares of Class of Class
Name Owned Prior to Offering After Offering
---- ----- ----------------- --------------
<S> <C> <C> <C>
Nicholas G. Venetis 150,000 2.5% 2.1%
Cleone W. Armold 4,764,224 80.5% 66.9%
Donald M. Pedersen -0- 0 % 0%
Paul D. Martin 17,242 .3% .2%
Charles R. Bruce 4,310 .1% .1%
All executive officers and
directors as a group
(6 persons) 4,935,776 83.4% 69.3%
</TABLE>
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
In July 1999 we entered into an agreement with Purchase Plus, a network
marketing company owned by Everett Eugene Armold, under which Purchase Plus has
agreed that in 2000 it will purchase 100,000 of our discount cards, which offer
only our ancillary services, for $40 per card and will prepay the first 10,000
cards in consideration of our agreement not to offer our discount cards to any
other network marketing organization. Everett Eugene Armold, who controls
Purchase Plus, is the husband of Cleone W. Armold, one of our directors. Two of
our officers and directors, Ms. Armold and Mr. Pedersen, are also officers and
directors of Purchase Plus.
In April 1999, we purchased 350,000 shares of Longport, Inc. common stock
for $1.00 per share. The quoted market price of these shares at December 31,
1999 was $3.28 per share or a total of $1,148,350. There are no other
affiliations or arrangements between Longport and us.
We lease 1,567 square feet of office space from Purchase Plus Buyers Group,
Inc. on a month-to-month lease for $1,639 per month.
Between April and December, 1999 Everett Eugene Armold and Cleone W. Armold
gratuitously contributed an aggregate of $712,664 to our capital.
In October 1999, Simba Financial Incorporated provided us with a $500,000
line of credit to finance our operating expenses and working capital. Funds
advanced under the line of credit will bear interest at 10% per annum and are
due for repayment on December 31, 2000. As of this date, no funds have yet been
advanced to us under the line of credit.
The Company had an account payable to Purchase Plus of $242,000 at December
31, 1999.
In our opinion, the transactions described above were on terms no less
favorable than those which could have been obtained from unaffiliated third
parties. All future related party transactions will be approved by a majority of
disinterested directors.
30
<PAGE>
DESCRIPTION OF OUR SECURITIES
Common Stock
We are authorized to issue 100,000,000 shares of $.001 par value common
stock, of which 5,919,914 shares are currently outstanding. Each share of
common stock is entitled to one vote on all matters submitted to a vote of the
stockholders, and cumulative voting is not permitted. Upon issuance, shares of
common stock are not subject to further assessment or call. Subject to the prior
rights of any series of preferred stock that may be issued by us in the future,
holders of common stock are entitled to receive ratably such dividends that may
be declared by the board of directors out of funds legally available therefor
and are entitled to share ratably in all assets remaining after payment of
liabilities in the event of our liquidation, dissolution or winding up. Holders
of common stock have no preemptive rights or rights to convert their common
stock into any other securities. The outstanding common stock is fully paid and
nonassessable.
We have not paid dividends on our common stock since inception and do not
plan to pay dividends in the foreseeable future. Any earnings will be retained
to finance growth.
Preferred Stock
Our articles of incorporation authorize the issuance of up to 1,000,000
shares of no par value preferred stock with such rights and preferences as may
be determined from time to time by our board of directors. Accordingly, under
the articles of incorporation, the board of directors may, without stockholder
approval, issue preferred stock with dividend, liquidation, conversion, voting,
redemption or other rights which could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of any shares of
preferred stock having rights superior to those of the common stock may result
in a decrease of the value or market price of the common stock and could further
be used by the board of directors as a device to prevent a change in our
control. We have no other anti-takeover provisions in our articles of
incorporation or bylaws. Holders of the preferred stock may have the right to
receive dividends, certain preferences in liquidation and conversion rights.
Shares Eligible for Future Sale
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering, we will have outstanding 7,169,914
shares of common stock. Of these shares, the 1,200,000 shares sold in the
offering will be freely tradable without restriction under the Securities Act,
unless purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act, generally, our officers, directors or 10% stockholders.
The remaining 5,969,914 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 of the Securities Act. A total of
5,737,156 shares may be sold under Rule 144 between March and July 2000, 182,758
shares may be sold commencing November 2000 and the remaining 50,000 shares may
be sold in February 2002. Sales of restricted securities in the public market,
or the availability of such securities for sale, could adversely affect the
market price of the common stock.
31
<PAGE>
In connection with the offering, substantially all of our stockholders have
agreed not to sell 90% of their shares into the public market for a period of
one year from the date of this prospectus, without the written consent of the
representative. The remaining 10% of their shares may be sold after six months
from the date of the prospectus.
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the number of shares of common stock then outstanding, which will
amount to 71,199 shares immediately after the offering, or the average weekly
trading volume of the common stock during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Transfer Agent
Corporate Stock Transfer, Inc., Denver, Colorado, is our transfer agent.
The transfer agent's address is 3200 Cherry Creek Drive South, #430, Denver,
Colorado 80209, and its telephone number is (303) 282-4800.
Limitation on Liability
Our bylaws provide our directors, officers, employees and agents with
substantial protection against personal liability related to actions taken in
their capacity as our representatives. The effect of these provisions is that we
may be required to pay reasonably incurred expenses such as attorney's fees,
judgments, penalties, fines and amounts paid in settlements associated with work
related actions, suits or proceedings. We must pay these expenses if we find
that the individual acted in good faith and in our best interests.
UNDERWRITING
Subject to the terms and conditions of our underwriting agreement, the
underwriters named below, for whom Spencer Edwards, Inc. is acting as
representative, have severally agreed to purchase from us and we have agreed to
sell to the underwriters, the respective number of shares of common stock set
forth opposite each underwriter's name below:
Number of
Underwriters Shares
------------ ---------
Spencer Edwards, Inc. ..............................
---------
Total 1,200,000
=========
Our underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business, and the receipt of certificates,
opinions and letters from our counsel and independent public accountants. The
nature of the underwriters' obligation is such that they are committed to
purchase and pay for all the shares of common stock if any are purchased.
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock directly to the public on the terms set
forth on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more than $______ per share, and the underwriters
may allow, and such selected dealers may reallow, a concession of not more than
$______ per share, to other dealers. After the initial public offering of the
shares, the public offering price and other selling terms may be changed by the
representative. No change in such terms shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus.
32
<PAGE>
We have granted an option to the underwriters, exercisable for a period of
45 days after the date of this prospectus, to purchase up to an additional
180,000 shares of common stock at the same price per share as the initial shares
to be purchased by the underwriters to cover overallotments, if any. To the
extent that the underwriters exercise this option, each of the underwriters will
be committed, subject to certain conditions, to purchase such additional shares
of common stock in approximately the same proportion as set forth in the above
table.
The representative of the underwriters have advised us that it does not
expect any sales of the shares of common stock offered hereby to be made to
discretionary accounts controlled by the underwriters.
We have agreed to pay the representative a nonaccountable expense allowance
equal to 3% of the aggregate price of the shares of common stock offered hereby,
including shares of common stock underlying the overallotment option. The
representative's expenses in excess of the nonaccountable expense allowance,
including legal expenses, will be borne by the representative.
We have agreed to issue to the representative at the closing of the
offering warrants to purchase up to 120,000 shares of common stock at an
exercise price per share equal to 120% of the initial per share public offering
price, or $7.20 per share. The representative's warrants are exercisable for a
period of four years beginning one year from the date of this prospectus.
The holders of the representative's warrants will have no voting, dividend
or other shareholder rights until the representative's warrants are exercised.
The terms of the representative's warrants were established as the result of
negotiations between the representative and us. If the representative's warrants
are exercised, the representative may realize additional compensation. By their
terms, the representative's warrants will be restricted from sale, transfer,
assignment or hypothecation, except to persons that are officers, but not
directors, of the representative. The number of shares covered by the
representative's warrants and the exercise price are subject to adjustment to
prevent dilution. In addition, we have granted rights to the holders of the
representative's warrants to register the representative's warrants and the
common stock underlying the representative's warrants under the Securities Act.
Total compensation to the representative and the underwriters is as
follows:
o Commissions - $.60 per share of common stock sold;
o Nonaccountable expense allowance - $.18 per share of common stock
sold; and
o Warrants to purchase up to 120,000 shares of common stock at $7.20 per
share.
Substantially all of our stockholders have entered into lock-up agreements
with Spencer Edwards which provide that they will not offer, sell or otherwise
dispose of 90% of their common stock in the public market for a period of one
year from the date of the prospectus without the prior written consent of
Spencer Edwards. The remaining 10% of their shares may be sold after six months
from the date of the prospectus. Spencer Edwards has no present intention to
release the locked-up shares prior to expiration of the one year period although
Spencer Edwards may release the locked-up shares prior to expiration of such
period. The granting of any release would be conditioned, in the judgment of
Spencer Edwards, on such sale not materially adversely impacting the prevailing
trading market for the common stock on the Nasdaq SmallCap Market. Specifically,
factors such as average trading volume, recent price trends, and the need for
additional public float in the market for the common stock would be considered
in evaluating such a request.
Prior to the offering, there has been no established trading market for the
common stock. Consequently, the initial public offering price for the common
stock offered hereby has been determined by negotiations between the
representative and us. Among the factors considered in such negotiations were:
o the preliminary demand for the common stock;
o the prevailing market and economic conditions;
o our results of operations;
o estimates of our business potential and prospects;
o the present state of our business operations;
o an assessment of our management'
o the market valuation of comparable companies in related businesses;
and
o the current condition of the markets in which we operate.
There can be no assurance that an active trading market will develop for
the common stock or that the common stock will trade in the public market after
the offering at or above the initial public offering date.
33
<PAGE>
The representative has advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representative to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representative in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representative has advised us that such transactions may be effected on the
Nasdaq SmallCap Market or otherwise and, if commenced, may be discontinued at
any time.
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against liabilities under the Securities Act or
will contribute to payments the underwriters and their controlling persons may
be required to make in this respect.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
for us by the Law Office of Gary A. Agron, Englewood, Colorado. Michael J.
Tauger has acted as counsel to the representative. Mr. Agron and Mr. Tauger
maintain separate law practices, although they share office space and from time
to time may represent the same client on a project or may refer clients to each
other.
EXPERTS
Our financial statements for the years ended December 31, 1999 and 1998
have been included in this prospectus in reliance on the report of Angell &
Deering, independent public accountants, as given upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, covering the common
stock and warrants. As permitted by the rules and regulations of the Commission,
this prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits. For further information with respect to
our company and our securities, reference is made to the Registration Statement
and the exhibits, which may be examined without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549, copies of which may be obtained from the
Commission upon payment of the prescribed fees.
We will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission. Copies of these materials may be obtained at prescribed rates from
the Commission at its address above. The reports, proxy statements and other
information can also be inspected at the Commission's regional offices at 7
World Trade Center, Suite 300, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison, Chicago, Illinois 60621 and on the Commission's
Web site at www.sec.gov.
We will furnish to our stockholders annual reports which will include
audited financial statements. We may also furnish to our stockholders quarterly
financial statements and other reports that may be authorized by our board of
directors.
34
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
- -------------------- ----
Independent Auditors' Report ....................................... F-2
Balance Sheet as of December 31, 1999 .............................. F-3
Statements of Operations for the years ended December 31,
1999 and 1998 ..................................................... F-4
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999 and 1998 ............................ F-5
Statements of Cash Flows for the years ended December 31,
1999 and 1998 ..................................................... F-6
Notes To Financial Statements ...................................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
HealthLink International, Inc.
We have audited the accompanying balance sheet of HealthLink International, Inc.
as of December 31, 1999 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HealthLink International, Inc.
as of December 31, 1999 and the results of its operations and its cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
Angell & Deering
Certified Public Accountants
Denver, Colorado
February 24, 2000, except for
the last paragraph of Note 9 as
to which the date is March 1, 2000
F-2
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
BALANCE SHEET
ASSETS
------
December 31,
1999
------------
Current Assets:
Cash and cash equivalents $ 29,402
Prepaid expenses 255,000
-----------
Total Current Assets 284,402
-----------
Other Assets:
Deferred offering costs 151,151
Marketable securities 1,148,350
-----------
Total Other Assets 1,299,501
-----------
Total Assets $ 1,583,903
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable:
Trade $ 24,126
Related entities 242,000
Deferred revenue 248,936
-----------
Total Current Liabilities 515,062
-----------
Commitments and Contingencies --
Stockholders' Equity:
Preferred stock: no par value, 1,000,000 shares
authorized, none issued or outstanding --
Common stock: $.001 par value, 100,000,000 shares
authorized, 5,919,914 shares issued and outstanding 5,920
Additional paid in capital 1,260,710
Retained earnings (deficit) (996,139)
Accumulated other comprehensive income 798,350
-----------
Total Stockholders' Equity 1,068,841
-----------
Total Liabilities and Stockholders' Equity $ 1,583,903
===========
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Year Ended
December 31,
------------------------------
1999 1998
----------- -----------
Net sales $ 282,401 $ 8,242
Cost of sales 236,145 6,917
----------- -----------
Gross Profit 46,256 1,325
----------- -----------
Operating Expenses:
General and administrative 280,857 1,250
Stock compensation 553,986 --
Research and development 210,000 --
----------- -----------
Total Operating Expenses 1,044,843 1,250
----------- -----------
Operating Income (Loss) (998,587) 75
----------- -----------
Other Income (Expense):
Interest and dividend income 3,500 --
----------- -----------
Total Other Income (Expense) 3,500 --
----------- -----------
Income (Loss) Before Provision
For Income Taxes (995,087) 75
Provision for income taxes -- --
----------- -----------
Net Income (Loss) $ (995,087) $ 75
=========== ===========
Net Income (Loss) Per Share of
Common Stock:
Basic $ (.17) $ --
Diluted $ (.17) $ --
Weighted Average Number of Common
Shares Outstanding:
Basic 5,919,914 5,919,914
Diluted 5,919,914 5,919,914
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HEALTHLINK INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated
Common Stock Additional Current Years Retained Other
------------ Paid In Comprehensive Earnings Comprehensive
Shares Amount Capital Income (Deficit) Income
------ ------ ------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,172,414 $ 5,172 $ (5,172) $ -- $ --
Net income -- -- -- $ 75 75 --
-----------
Total Comprehensive Income -- -- -- $ 75 -- --
----------- -------- ----------- =========== ----------- -----------
Balance at December 31, 1998 5,172,414 5,172 (5,172) 75 --
Capital contributions in cash by a shareholder -- -- 712,644 -- --
Shares of common stock issued in March
for services valued at $.0058 per share 518,104 518 2,487 -- --
Shares of common stock issued in April, May
and July for services valued at $.058 per share 46,637 47 2,658 -- --
Shares of common stock issued in November
for services valued at $3.00 per share 182,759 183 548,093 -- --
Net loss -- -- -- $ (995,087) (995,087) --
Other comprehensive income, net of tax:
Unrealized gain on securities -- -- -- 798,350 -- --
-----------
Other Comprehensive Income -- -- -- 798,350 -- 798,350
-----------
Total Comprehensive Income (Loss) -- -- -- $ (196,737) -- --
===========
Distribution -- -- -- (1,127) --
-----=--- -------- ----------- ----------- -----------
Balance at December 31, 1999 5,919,914 $ 5,920 $ 1,260,710 $ (996,139) $ 798,350
========= ======== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Year Ended
December 31,
----------------------
1999 1998
--------- ---------
Cash Flows From Operating Activities:
Net income (loss) $(995,087) $ 75
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Write off of note receivable 88,000 --
Common stock issued for services 553,986 --
Changes in operating assets and liabilities:
Prepaid expenses (255,000) --
Accounts payable 24,126 --
Deferred revenue 248,936 --
--------- ---------
Net Cash Provided (Used) By Operating Activities (335,039) 75
--------- ---------
Cash Flows From Investing Activities:
Receivable from related entities 75 (75)
Payable to related entities 242,000 --
Investment in marketable securities (350,000) --
Advances to corporation (88,000) --
--------- ---------
Net Cash (Used) By Investing Activities (195,925) (75)
--------- ---------
Cash Flows From Financing Activities:
Contributed capital 712,644 --
Distribution to stockholders (1,127) --
Offering costs incurred (151,151) --
--------- ---------
Net Cash Provided By Financing Activities 560,366 --
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 29,402 --
Cash and Cash Equivalents at Beginning of Year -- --
--------- ---------
Cash and Cash Equivalents at End of Year $ 29,402 $ --
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ -- $ --
Income taxes -- --
The accompanying notes are an integral
part of these financial statements.
F-6
</TABLE>
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Organization
------------
HealthLink International, Inc., formerly Commercial Building Systems, Inc.,
(the "Company") was incorporated in Nevada on November 17, 1994. The
Company had no operations until March 1999.
The Company offers Benefit Savings Plans, which allow holders to pay
reduced prices or to receive a savings on health care and other related
products and services designed to create a healthy lifestyle. These plans
are arranged with an emphasis on health care, and leisure programs for
seniors, the handicapped, and students. Members receive a discount benefit
card, which they present for verification for membership and point-of-
purchase savings. The Company also intends to explore numerous ventures in
the health care industry.
In February 2000, the Company commenced selling dietary supplements and
homeopathic remedies formulated by an unrelated corporation.
Basis of Presentation
---------------------
The financial statements reflect the results of operations, financial
position, changes in stockholders' equity and cash flows of the business
segment that was transferred to the Company from Purchase Plus Buyers
Group, Inc. ("Purchase Plus") as if the Company were a separate entity for
all periods presented. The financial statements have been prepared using
the historical basis in the assets and liabilities and historical results
of operations related to the business segment. Changes in additional paid
in capital represent Purchase Plus's contribution of its net investment
after giving effect to the net income (loss) of the Company plus net cash
transfers to or from Purchase Plus. The Company will begin accumulating its
retained earnings on April 1, 1999, the date on which the Agreement with
Purchase Plus is effective (Note 9).
Additionally, the financial statements include allocations of certain
Purchase Plus operating expenses relating to the business segment that was
transferred to the Company from Purchase Plus. Management believes these
allocations are reasonable. However, the costs of these services charged to
the Company are not necessarily indicative of the costs that would have
been incurred if the Company had performed these functions using its own
resources or purchased services from an unrelated third party.
The financial statements included herein may not necessarily reflect the
results of operations, financial position, changes in stockholders' equity
and cash flows of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.
Marketable Securities
---------------------
Marketable securities consist of common stock. Marketable securities are
stated at market value as determined by the most recently traded price of
each security at the balance sheet date. All marketable securities are
defined as trading securities or available-for-sale securities under the
provisions of Statement of Financial Accounting Standards No. ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
F-7
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies (Continued)
----------------------------------------------------------------------
Marketable Securities (Continued)
--------------------------------
Management determines the appropriate classification of its investments in
marketable securities at the time of each purchase and re-evaluates such
determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and unrealized holding gains and losses
are included in earnings. Debt securities for which the Company does not
have the intent or ability to hold to maturity and equity securities are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported
as a separate component of stockholders' equity. The cost of investments
sold is determined on the specific identification or the first-in,
first-out method.
Revenue Recognition
-------------------
Revenue is generally recognized on the sales of products or services when
the products are delivered or the services performed, all substantial
contractual obligations have been satisfied, and the collection of the
resulting receivable is deemed probable.
Revenue from the sale of Benefit Savings Plans are recorded as deferred
revenue and amortized to revenue over the term of the Benefit Savings Plan.
The Benefit Savings Plan generally covers a period of thirteen months and
the deferred revenue is amortized to revenue over that term.
Stock-Based Compensation
------------------------
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company will measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees".
Long-Lived Assets
-----------------
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
reviews for the impairment of long-lived assets and certain identifiable
intangibles, whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. An impairment loss would
be recognized when the estimated future cash flows is less than the
carrying amount of the assets. No impairment losses have been identified by
the Company.
Income Taxes
------------
Deferred income taxes are provided for temporary differences between the
financial reporting and tax basis of assets and liabilities using enacted
tax laws and rates for the years when the differences are expected to
reverse.
Rent Expense
------------
The Company leases its office facilities and computer equipment under an
operating lease on a month to month basis. Rental expense charged to
operations was $7,769 and $-0- for the years ended December 31, 1999 and
1998, respectively.
Deferred Offering Costs
-----------------------
In connection with the Company's proposed public offering (Note 5), costs
incurred to complete the offering having been deferred and will be offset
F-8
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies (Continued)
----------------------------------------------------------------------
Deferred Offering Costs (Continued)
----------------------------------
against the proceeds of the offering if completed, or charged to expense if
the offering is not completed.
Net Income (Loss) Per Share of Common Stock
-------------------------------------------
As of December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share", which specifies the method of computation, presentation and
disclosure for earnings per share. SFAS No. 128 requires the presentation
of two earnings per share amounts, basic and diluted.
Basic earnings per share is calculated using the average number of common
shares outstanding. Diluted earnings per share is computed on the basis of
the average number of common shares outstanding plus the dilutive effect of
outstanding stock options using the "treasury stock" method.
The basic and diluted earnings per share are the same since the Company had
no options or warrants outstanding in 1999 and 1998.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the
date of purchase to be cash equivalents.
Estimates
---------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
2. Marketable Securities
---------------------
Marketable securities are carried on the balance sheet at their market
value.
Unrealized Market
Cost Gain (Loss) Value
---- ----------- -----
As of December 31, 1999:
Available-for-sale securities:
Equity securities $350,000 $798,350 $1,148,350
-------- -------- ----------
Total $350,000 $798,350 $1,148,350
======== ======== ==========
3. Income Taxes
------------
The components of the provision for income taxes for the years ended
December 31, 1999 and 1998 are as follows:
F-9
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
3. Income Taxes (Continued)
-----------------------
1999 1998
---- ----
Current:
Federal $-- $--
State -- --
--- ---
Total -- --
--- ---
Deferred:
Federal -- --
State -- --
--- ---
Total -- --
--- ---
Total Provision For Income Taxes $-- $--
=== ===
The provision (benefit) for income taxes reconciles to the amount computed
by applying the federal statutory rate to income before the provision
(benefit) for income taxes as follows:
1999 1998
---- ----
Federal statutory rate (34)% 34%
State income taxes, net of federal benefits (6) 8
Valuation allowance 40 --
Other -- --
---- ----
Total -- % 42%
==== ===
The following is a reconciliation of the provision for income taxes to
income before provision for income taxes computed at the federal statutory
rate of 34%.
1999 1998
---- ----
Income taxes at the federal statutory rate $(338,330) $ 26
State income taxes, net of federal benefits (59,705) 6
Other (1,168) (32)
Valuation allowance 399,203 --
--------- ----
Total $ -- $ --
========= ====
Significant components of deferred income taxes as of December 31, 1999 are
as follows:
Net operating loss carryforward $ 398,631
------------
Total Deferred Tax Asset 398,631
------------
Less valuation allowance (398,631)
------------
Net Deferred Tax Asset $ --
============
The Company has assessed its past earnings history and trends, sales
backlog, budgeted sales, and expiration dates of carryforwards and has
determined that it is more likely than not that no deferred tax assets will
be realized. The valuation allowance of $398,631 is maintained on deferred
tax assets which the Company has not determined to be more likely than not
F-10
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
3. Income Taxes (Continued)
-----------------------
realizable at this time. The net change in the valuation allowance for
deferred tax assets was an increase of $398,631. The Company will continue
to review this valuation on a quarterly basis and make adjustments as
appropriate.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $1,000,000. Such carryforwards expire in the
year 2019 for federal purposes.
4. Accumulated Other Comprehensive Income
--------------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" which the Company adopted in the first
quarter of 1998. SFAS No. 130 requires presentation of comprehensive income
and its components in the financial statements. Components of other
comprehensive income consist of the following:
Accumulated
Unrealized Other
Gains/(Losses) Comprehensive
on Securities Income (Loss)
------------- -------------
Balance at December 31, 1997 $ -- $ --
1998 change -- --
----------- -----------
Balance at December 31, 1998 -- --
1999 change 798,350 798,350
----------- -----------
Balance at December 31, 1999 $ 798,350 $ 798,350
=========== ===========
5. Stockholders' Equity
--------------------
Amendment to Authorized Common Shares
-------------------------------------
In March 1999, the Company's Board of Directors authorized, and the
shareholders approved, an amendment of the Company's Articles of
Incorporation, to increase the number of authorized shares of common stock
from 25,000 to 100,000,000 with a par value of $.001. The Company also
authorized 1,000,000 shares of preferred stock with no par value.
In March 1999, the Company's stockholders returned their 900 shares of
common stock, representing all of the outstanding common stock of the
Company, in exchange for 30,000,000 newly issued shares of common stock.
This transaction has been accounted for as a stock split and all share
information and per share data have been retroactively restated for all
periods presented to reflect the stock split.
Stock Splits
------------
On October 28, 1999, the Company's shareholders adopted a resolution
approving a 2.90 for one reverse stock split of the issued and outstanding
common shares, effective October 28, 1999. All share information and per
share data have been retroactively restated for all periods presented to
reflect the stock split.
On February 24, 2000, the Company's Board of Directors adopted a resolution
approving a two for one reverse stock split of the issued and outstanding
common shares, effective February 24, 2000. All share information and
F-11
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
5. Stockholders' Equity (Continued)
-------------------------------
Stock Splits (Continued)
------------------------
per share data have been retroactively restated for all periods presented
to reflect the stock split.
Initial Public Offering
-----------------------
On February 24, 2000, the Company executed a letter of intent with an
Underwriter to offer 1,200,000 shares of the Company's common stock at
$6.00 per share on a firm commitment basis. The Company will also grant the
Underwriter an option to purchase up to 180,000 shares from the Company to
cover over-allotments for a period of forty-five days from the effective
date of the Registration Statement.
The Company will pay the Underwriter a commission equal to ten percent of
the gross proceeds of the offering and a non-accountable expense allowance
equal to three percent of the gross proceeds of the offering. In connection
with the offering, the Company has agreed to issue the Underwriter a
warrant, for $100, to purchase up to 120,000 shares of common stock. The
Underwriter's warrant is exercisable for a period of four years beginning
one year from the effective date of the Registration Statement. The
exercise price of the Underwriter's warrant shall be an amount equal to
120% of the price of the shares sold to the public. There can be no
assurance that the Offering will be successfully completed.
6. Stock Options and Warrants
--------------------------
Stock Option Plan
-----------------
The Company adopted a stock option plan (the "Plan"), effective as of
November 15, 1999, which provides for the grant of non-qualified stock
options. A total of 1,000,000 shares of common stock have been reserved for
issuance under the Plan.
Options under the Company's plan are issuable only to eligible officers,
directors, key employees and consultants of the Company. The Plan is
administered by a committee selected by the Board of Directors, which
determines those individuals who shall receive options, the time period
during which the options may be exercised, the number of shares of common
stock that may be purchased under each option, and the option price. Unless
sooner terminated, the Plan shall remain in effect until December 31, 2009.
The per share exercise price of the common stock may not be less than the
fair market value of the common stock on the date the option is granted.
The stock options are subject to anti-dilution provisions in the event of
stock splits, stock dividends and the like.
No stock options are transferrable by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee,
the option is only exercisable by the optionee. The exercise date of an
option granted under the Plan must not be later than ten years from the
date of grant. Any options that expire unexercised or that terminate upon
an optionee's ceasing to be employed by the Company will become available
once again for issuance. As of December 31, 1999 no options have been
granted under the Plan.
7. Preferred Stock
---------------
The authorized preferred stock of the Company consists of 1,000,000 shares,
no par value. The preferred stock may be issued in series from time to
F-12
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
7. Preferred Stock (Continued)
--------------------------
time with such designation, rights, preferences and limitations as the
Board of Directors of the Company may determine by resolution. The rights,
preferences and limitations of separate series of preferred stock may
differ with respect to such matters as may be determined by the Board of
Directors, including without limitation, the rate of dividends, method and
nature of payment of dividends, terms of redemption, amounts payable on
liquidation, sinking fund provisions (if any), conversion rights (if any),
and voting rights. Unless the nature of a particular transaction and
applicable statutes require approval, the Board of Directors has the
authority to issue these shares without shareholder approval.
8. Commitments and Contingencies
-----------------------------
Technology Enhancement and Marketing Agreement
----------------------------------------------
The Company entered into a Technology Enhancement and Marketing Agreement
(the "Agreement") with a corporation in June 1999. The Company has agreed
to fund $5,000,000 for research for biomedical technology enhancements to
the corporation's digital scanner technologies. The two companies will
share in the proceeds from the sale or lease of any enhancements and new
applications of the digital scanner developed as a result of the research
funded by the Company. The Company will receive from the corporation ten
percent of the gross revenues from the sale or lease of any enhancements
and new applications of the digital scanner developed as a result of the
research funded by the Company under the Agreement for a period of ten
years. In addition, the corporation will give the Company the opportunity
to finance up to fifty percent of the digital scanners produced and from
each digital scanner produced and financed by the Company, the corporation
and the Company will share equally in the lease income of $2,000 per month.
The Agreement is effective June 1, 1999 and the Company shall provide the
funding in increments of $30,000 a month for the first year, $60,000 a
month for the second year, $120,000 a month for the third and fourth years
and $100,000 a month for the fifth year until a total of $5,000,000 is paid
under the Agreement (See Note 9).
9. Related Party Transactions
--------------------------
The Company occupies office space and leases computer equipment which is
shared by seven entities that are related through common ownership
beginning April 1999. The Company rents the office space and computer
equipment on a month to month basis and was allocated one seventh of the
lease cost on a monthly basis through August and one third of the lease
cost when the Company moved into new office space from September through
December.
The Company entered into a two year agreement with Purchase Plus in April
1999 to purchase various benefits from Purchase Plus. In connection with
this agreement, the Company agreed with Purchase Plus to manage the health
care benefits which Purchase Plus purchased from an unrelated insurance
company. The Company provided these health care benefits to Purchase Plus
for $25.44 per year for each individual that is enrolled in such programs.
The Company purchased the benefits from the insurance company utilizing
Purchase Plus as the intermediary. In November 1999, the Company contracted
directly with the insurance company to purchase the benefits.
F-13
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
9. Related Party Transactions (Continued)
-------------------------------------
In July 1999, the Company entered into a new two year agreement with
Purchase Plus to provide various health care benefits from the Company. The
Company provided these health care benefits to Purchase Plus for $32.35
per year for each individual that is enrolled in such programs. Beginning
November 1999, the Company purchases the benefits directly from insurance
companies and other providers under the terms of the new agreement.
In January 2000, the Company entered into a new two year agreement with
Purchase Plus to provide various health care benefits from the Company. The
Company has agreed with Purchase Plus that during the term of the agreement
the Company's services will not be made available for marketing resale
through any network market company or organization other than Purchase
Plus. The Company will provide these health care benefits to Purchase Plus
on a periodic fee per member basis utilizing a thirteen month service
period. In consideration for the exclusive nature of the marketing rights
under the agreement Purchase Plus will make a payment to the Company of
$400,000, representing an advance on fees payable for the first 10,000
members who purchase services under the new agreement. In further
consideration for the exclusive nature of the rights granted Purchase Plus
has guaranteed that by December 31, 2000, it will pay to the Company fees
representing a minimum aggregate total of 100,000 purchases or renewals of
the Company's services by Purchase Plus customers or independent marketing
associates. The agreement may be terminated by either party without cause
upon 90 days written notice.
The Company has an account payable to Purchase Plus of $242,000 at December
31, 1999.
Purchase Plus advanced funds totalling $712,644 to the Company during 1999.
The advances, less amounts owed to the Company for purchase of member's
health care benefits, were contributed to capital.
During 1999 all of the Company's sales were through Purchase Plus's
customers or independent marketing associates.
In October 1999, Simba Financial, Incorporated, a company controlled by the
owner of Purchase Plus, provided the Company with a $500,000 line of credit
to finance the Company's operating expenses and working capital
requirements. Amounts advanced under the line of credit will bear interest
at 10% per annum and are due on December 31, 2000. As of December 31, 1999
no amounts have been advanced under this agreement.
On March 1, 2000, the Company assigned all rights and obligations under the
Technology Enhancement and Marketing Agreement (Note 8) to Redstone
Financial, Inc., a company controlled by the owner of Purchase Plus, for no
additional consideration. The Company has also agreed to sell its
marketable securities to Redstone in March 2000 at the fair market value of
the securities on the date of sale.
10. Concentration of Credit Risk and Major Customers
------------------------------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and accounts receivable. The Company places its cash
F-14
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
10. Concentration of Credit Risk and Major Customers (Continued)
-----------------------------------------------------------
equivalents and short term investments with high credit quality financial
institutions and limits its credit exposure with any one financial
institution. The Company provides credit in the normal course of business.
The Company performs periodic credit evaluations of its customers'
financial condition and generally requires no collateral. The Company
maintains reserves for potential credit losses, and such losses have not
exceeded management's expectations. The Company's sales in 1999 and 1998
are from a single product which subjects the Company to significant
financial exposure. If future sales change the Company's operations could
be materially adversely affected.
Sales to major customers, which comprised 10% or more of net sales, for the
years ended December 31, 1999 and 1998 were as follows:
1999 1998
---- ----
Customer A 100% 100%
11. Fair Value of Financial Instruments
-----------------------------------
Disclosures about Fair Value of Financial Instruments for the Company's
financial instruments are presented in the table below. These calculations
are subjective in nature and involve uncertainties and significant matters
of judgment and do not include income tax considerations. Therefore, the
results cannot be determined with precision and cannot be substantiated by
comparison to independent market values and may not be realized in actual
sale or settlement of the instruments. There may be inherent weaknesses in
any calculation technique, and changes in the underlying assumptions used
could significantly affect the results. The following table presents a
summary of the Company's financial instruments as of December 31, 1999:
1999
----------------------------
Carrying Estimated
Amount Fair Value
----------- -----------
Financial Assets:
Cash and cash equivalents $ 29,402 $ 29,402
Marketable securities 1,148,350 1,148,350
Financial Liabilities:
Accounts payable - related entities 242,000 242,000
The carrying amounts for cash and cash equivalents, receivables, accounts
payable and accrued expenses approximate fair value because of the short
maturities of these instruments. The fair value of marketable securities is
determined by the most recently traded price of each security at the
balance sheet date.
F-15
<PAGE>
================================================================================
HEALTHLINK INTERNATIONAL, INC.
[GRAPHIC OMITTED]
Until ________ , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's bylaws provides as follows:
"ARTICLE VII INDEMNIFICATION
PURSUANT TO N.R.S. 78.751 any person who is a Director, Officer, Employee,
or Agent of this Corporation, who becomes a party to an action is entitled to
indemnification against expenses including attorney fees, judgments, fines and
amounts paid in settlement, if he acted in good faith and he reasoned his
conduct or action to be in the best interest of the Corporation."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Statement............................... $ 7,080
Blue Sky Filing Fees..................................... $ 10,000
Blue Sky Legal Fees...................................... $ 20,000
Printing Expenses........................................ $ 30,000
Legal Fees and Expenses.................................. $ 150,000
Accounting Fees.......................................... $ 60,000
Transfer Agent Fees...................................... $ 5,000
Nasdaq Application Fee .................................. $ 10,000
Miscellaneous Expenses................................... $ 7,920
---------
Total $ 300,000
=========
(1) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act, as amended.
(i) In March 1999, the Registrant sold the following shares of its common stock
to the persons listed below for $.0058 per share or a total of $3,005.
II-1
<PAGE>
Name Number of Shares
---- ----------------
Golden Guardian Productions, Ltd. 91,379
Agape Family Trust 51,724
Harmony International, LLC 34,483
Janitye L. Vaile 86,207
Hubert T. McDonald, LLC 51,724
M.E.I.C. 37,931
Chris Beddoes 17,241
Ronald Beddoes 17,241
David Martin 17,242
Dan Beddoes 8,620
Alan Day 8,620
Don Fisher 8,620
Kevin Grandy 8,620
Ruthie Lewis 8,620
Lisa Navaratnam 8,620
Frank Valinho 8,620
Joe Valinho 8,620
Jim Williamson 8,620
Lynn Harrison 5,172
Elizabeth Blair 4,310
Amy Kish 4,310
William Lundberg 4,310
Becky Breedlove 3,448
Bill Fate 3,448
Patricia Morgan 3,448
Tanya St. John 3,448
Don Wright 3,448
(ii) Between April and July, 1999, the Registrant sold the following shares of
its common stock to the persons listed below for $.058 per share or a total of
$2,705.
Kris TenEyck, LLC 14,655
Victor E. Vaile, IV, LLC 14,655
David Thomas, LLC 6,378
Charles Bruce 4,310
ETN, Inc. 3,448
Brenda Burns 1,724
Shelly Blake 1,465
(iii) In November 1999, the Registrant sold 150,000 shares to Nicholas G.
Venetis and 32,759 shares to Chris Beddoes for services rendered valued at $3.00
per share, or a total of $548,276. In February 2000, the Registrant sold 50,000
shares to Coppertree, Inc., wholly owned by Sheldon R. Lefkowitz, for services
rendered valued at $3.00 per share or a total of $150,000.
II-2
<PAGE>
With respect to the sales made, the Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"). No advertising or
general solicitation was employed in offering the securities. The securities
were offered to a limited number of persons all of whom were sophisticated
investors who were business associates or personal friends of the Registrant or
its stockholders, executive officers or directors, and the transfer thereof was
appropriately restricted by the Registrant. All persons were capable of
analyzing the merits and risks of their investment,acknowledged in writing that
they were acquiring the securities for investment and not with a view toward
distribution or resale and understood the speculative nature of their
investment. All persons were provided information regarding the Registrant,
including a description of its proposed business. Officers of the Registrant
answered all questions raised by these persons.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Title
- ----------- -----
1.04 Form of Underwriting Agreement
3.01 Articles of Incorporation, as amended, of the Registrant (1)
3.02 Bylaws of the Registrant (1)
5.01 Opinion of Gary A. Agron regarding legality of the common stock
and warrants (includes consent) (1)
10.01 Agreement with Longport, Inc. (1)
10.02 Agreement with Purchase Plus Buyers Group, Inc. (1)
10.03 Agreement with International MedCare, Inc.(1)
10.05 Line of credit with Simba Financial Incorporated (1)
10.06 Agreement with National Administrative Company, Inc. (1)
10.07 Stock Option Plan (1)
10.08 Agreement with Quantum, Inc.
10.09 Agreement with Purchase Plus (Eden River)
10.10 Marketing Services Agreement (Stoff)
10.11 Agreement with Purchase Plus
23.01 Consent of Gary A. Agron (included in Exhibit 5.01) (1)
23.02 Consent of Angell & Deering (1)
23.03 Consent of Angell & Deering (1)
23.04 Consent of Angell & Deering
27.01 Financial Data Schedule (1)
27.02 Financial Data Schedule (1)
27.03 Financial Data Schedule
- ------------
(1) Previously Filed
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(e) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(g) To provide at the closing of the offering certificates in such
denominations and registered in such names as required to permit prompt
delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in Westerville, Ohio, on March 27, 2000.
HEALTHLINK INTERNATIONAL, INC.
By: /s/ Nicholas G. Venetis
----------------------------------------
Nicholas G. Venetis, Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Nicholas G. Venetis, as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intends and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed below by the following persons on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Nicholas G. Venetis Chief Executive Officer, March 27, 2000
- ------------------------ President and Director
Nicholas G. Venetis
/s/ Sheldon R. Lefkowitz Executive Vice President March 27, 2000
- -------------------------
Sheldon R. Lefkowitz
/s/ Cleone W. Armold Secretary and Director March 27, 2000
- ------------------------
Cleone W. Armold
/s/ Donald M. Pedersen Chief Financial Officer March 27, 2000
- ------------------------ (Principal Accounting
Donald M. Pedersen Officer) and Director
/s/ Paul D. Martin Director March 27, 2000
- ------------------------
Paul D. Martin
/s/ Charles R. Bruce Director March 30, 2000
- ------------------------
Charles R. Bruce
II-5
<PAGE>
HEALTHLINK INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Title
- ----------- -----
1.04 Form of Underwriting Agreement
3.01 Articles of Incorporation, as amended, of the Registrant (1)
3.02 Bylaws of the Registrant (1)
5.01 Opinion of Gary A. Agron regarding legality of the common stock
and warrants (includes consent) (1)
10.01 Agreement with Longport, Inc. (1)
10.02 Agreement with Purchase Plus Buyers Group, Inc. (1)
10.03 Agreement with International MedCare, Inc.(1)
10.05 Line of credit with Simba Financial Incorporated (1)
10.06 Agreement with National Administrative Company, Inc. (1)
10.07 Stock Option Plan (1)
10.08 Agreement with Quantum, Inc.
10.09 Agreement with Purchase Plus (Eden River)
10.10 Marketing Services Agreement (Stoff)
10.11 Agreement with Purchase Plus
23.01 Consent of Gary A. Agron (included in Exhibit 5.01) (1)
23.02 Consent of Angell & Deering (1)
23.03 Consent of Angell & Deering (1)
23.04 Consent of Angell & Deering
27.01 Financial Data Schedule (1)
27.02 Financial Data Schedule (1)
27.03 Financial Data Schedule
- ---------------
(1) Previously Filed
Exhibit 1.04
HEALTHLINK INTERNATIONAL, INC.
1,200,000 Shares of Common Stock
UNDERWRITING AGREEMENT
________________, 2000
Spencer Edwards, Inc.
6041 S. Syracuse Way, Suite 305
Englewood, CO 80111
Gentlemen:
Healthlink International, Inc. a Nevada corporation (the "Company"), hereby
confirms its agreement with Spencer Edwards, Inc. ("Spencer Edwards"), as
managing representative (the "Representative") of the several underwriters
listed on Schedule 1 annexed hereto (the "Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters 1,200,000 shares
of the Company's $.001 par value common stock (the "Common Stock"). The Common
Stock being sold by the Company is referred to as the "Firm Shares."
In addition, for the sole purpose of covering over-allotments from the sale
of the Firm Shares, the Company proposes to grant to the Underwriters an option
to purchase an additional 180,000 shares of Common Stock (the "Firm Option
Shares" or the "Option Shares"), all as provided in Section 2(c) of this
agreement (the "Agreement") and to issue to you the Representative's Warrant (as
defined in Section 2 hereof) to purchase certain additional shares of Common
Stock and Warrants. The Firm Shares and the Option Shares are collectively
referred to herein as either the "Securities" or the "Shares."
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-90877), with
respect to the Securities and the Representative's Warrant (as hereinafter
defined), including a prospectus subject to completion, has been filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act "), and one or more amendments to
that registration statement may have been so filed. Copies of such registration
statement and of each amendment heretofore filed by the Company with the
Commission have been delivered to the Underwriters. After the execution of this
Agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
<PAGE>
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed, in such amendment), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters prior to the execution of this
Agreement, or (ii) if that registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to that registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Underwriters prior
to the execution of this Agreement. The Company also may file a related
registration statement with the Commission pursuant to Rule 462(b) under the Act
for purposes of registering certain additional Securities, which registration
statement shall become effective upon filing with the Commission (the "Rule
462(b) Registration Statement"). As used in this Agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined), together with any
Rule 462(b) Registration Statement; the term "Preliminary Prospectus" means each
prospectus subject to completion filed with the Registration Statement
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is so filed pursuant to Rule
424(b), the prospectus included in the Registration Statement. The Company has
caused to be delivered to the Underwriters copies of each Preliminary Prospectus
and has consented to the use of those copies for the purposes permitted by the
Act. If the Company has elected to rely on Rule 462(b) and the Rule 462(b)
Registration Statement has not been declared effective, then (i) the Company has
filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
2
<PAGE>
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The foregoing provisions of this paragraph (b) do not apply to
statements or omissions made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by the
Underwriters specifically for use therein.
(c) The Company is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified or authorized to transact business as a foreign corporation and is in
good standing in each jurisdiction where the ownership or leasing of its
properties or the conduct of its businesses require such qualification or
authorization. The Company has no subsidiaries.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business entity.
(f) The Company has an authorized, issued and outstanding capitalization
as set forth in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). All of the issued shares of capital stock
of the Company, have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. There are no outstanding options,
warrants or other rights granted by the Company to purchase shares of its Common
Stock or other securities, other than as described in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus). The
Firm Shares have been duly authorized, by all necessary corporate action on the
part of the Company and, when the Firm Shares are issued and delivered to and
paid for by the Underwriter pursuant to this Agreement, the Firm Shares will be
validly issued, fully paid, nonassessable and free of preemptive rights and will
conform to the description thereof in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus). No holder of
outstanding securities of the Company is entitled as such to any preemptive or
other right to subscribe for any of the Securities, and no person is entitled to
have securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
3
<PAGE>
(g) The capital stock of the Company conforms to the description thereof
contained in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. Except
as previously disclosed in writing to the Representative, no compensation was
paid to or on behalf of any member of the National Association of Securities
Dealers, Inc. ("NASD"), or any affiliate or employee thereof, in connection with
any such issuance.
(i) The financial statements of the Company included in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present the financial position of the
Company as of the dates indicated and the results of operations of the Company
for the periods specified. Such financial statements have been prepared in
accordance with generally accepted accounting principles in effect in the United
States of America, consistently applied, except to the extent that certain
footnote disclosures regarding unaudited interim periods may have been omitted
in accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The financial data set forth
under the caption "Summary Financial Information" in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(j) Angell & Deering, Certified Public Accountants, which has audited
certain financial statements of the Company and delivered its report with
respect to the financial statements included in the Registration Statement and
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), is an independent public accountant with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder.
(k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, whether or not arising in the ordinary course of business, (ii) except
as otherwise stated therein, there have been no transactions entered into by the
Company and no commitments made by the Company that, individually or in the
aggregate, are material with respect to the Company, (iii) there has not been
any change in the capital stock or indebtedness of the Company, and (iv) there
has been no dividend or distribution of any kind declared, paid or made by the
Company in respect of any class of its capital stock.
(l) The Company has full corporate power and authority to enter into and
perform its obligations under this Agreement and the Representative's Warrant
Agreement (as hereinafter defined). The execution and delivery of this Agreement
and the Representative's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this Agreement and the
Representative's Warrant Agreement have each been duly executed and delivered by
4
<PAGE>
the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriters of the Securities pursuant to this Agreement or the
Representative's Securities pursuant to the Representative's Warrant Agreement,
the compliance by the Company with the provisions of this Agreement and the
Representative's Warrant Agreement, and the consummation of the other
transactions contemplated by this Agreement and the Representative's Warrant
Agreement do not (i) require the consent, approval, authorization, registration
or qualification of or with any court or governmental or regulatory authority,
except such as have been obtained or may be required under state securities or
blue sky laws and, if the Registration Statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of, or constitute a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which the Company is a party or by which the Company or any of
its property is bound or subject, or the certificate of incorporation or by-laws
of the Company, or any statute or any rule, regulation, judgment, decree or
order of any court or other governmental or regulatory authority or any
arbitrator applicable to the Company.
(m) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject, and no
such proceedings have been threatened against the Company or with respect to any
of its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice or lapse of time or both would constitute such a
default.
(o) The Company currently owns or possesses adequate rights to use all
intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
5
<PAGE>
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the properties
and assets reflected in the Company's financial statements or as described in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind, except those reflected in
such financial statements or as described in the Registration Statement and the
Prospectus (and such Preliminary Prospectus). Except as disclosed in the
Prospectus, the Company occupies its leased properties under valid and
enforceable leases conforming to the description thereof set forth in the
Registration Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in a
manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) The Company has obtained and delivered to the Representative the
agreements (the "Lock-up Agreements") with all security holders owning shares of
Common Stock substantially to the effect that, among other things, each such
person will not, commencing on the date that the Registration Statement is
declared effective by the Commission (the "Effective Date") and continuing for a
period of 12 months from the Effective Date, without the prior written consent
of the Representative, directly or indirectly, publicly sell, offer or contract
to sell or grant any option to purchase, transfer, assign or pledge, or
otherwise encumber, or dispose of any shares of Common Stock now or hereafter
owned by such person and that the purchaser or transferee in any private sale
agrees to be bound by the Lock-up Agreement, except that after six months from
the Effective Date, 10% of such shares of Common Stock held by each security
holder may be sold or otherwise transferred.
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
6
<PAGE>
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Representative's Warrant (as hereinafter defined) will conform
to the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Representative in accordance
with the Representative's Warrant Agreement, will have been duly authorized and
validly issued and will constitute valid and binding obligations of the Company
entitled to the benefits of the Representative's Warrant Agreement. The shares
of Common Stock issuable upon exercise of the Representative's Warrant have been
duly authorized and reserved for issuance upon exercise of the Representative's
Warrant by all necessary corporate action on the part of the Company and, when
issued and delivered and paid for upon such exercise in accordance with the
terms of the Representative's Warrant Agreement and the Representative's
Warrant, respectively, will be validly issued, fully paid, nonassessable and
free of preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is entitled
to any commission, fee or other compensation or payment for services as a finder
for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Representative.
(x) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.
(y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
7
<PAGE>
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or affiliates
(as defined in the Regulations), has taken or will take, directly or indirectly,
prior to the completion of the Offering, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Securities.
2. Purchase, Sale and Delivery of the Securities and the Representative's
Warrants.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company, the
number of Firm Shares as set forth opposite its name on Schedule 1 annexed
hereto, at the purchase price indicated in the Prospectus.
(b) Certificates in definitive form for the Firm Shares that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriters, against
payment by or on behalf of the Underwriters of the purchase prices therefor by
wire transfer of immediately available funds to a bank account specified by the
Company. Such delivery of the Firm Shares shall be made at the offices of
Counsel for the Underwriters, 5445 DTC Parkway, Suite 520, Englewood, Colorado
80111 at 7:30 a.m. Denver time, within five days from the Effective Date of the
Offering, or at such other place, time or date as the Underwriters and the
Company may agree upon, such time and date of delivery against payment being
herein referred to as the "Firm Closing Date." The Company will make such
certificates for the Firm Shares available for checking and packaging by the
Underwriters, at such offices as may be designated by the Representative, at
least 24 hours prior to the Firm Closing Date. In lieu of physical delivery, the
closing may occur by "DTC" delivery.
(c) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Shares as contemplated by the Prospectus,
the Company hereby grants to the Underwriter an option to purchase any or all of
the Option Shares, which options are exercisable by the Representative on behalf
of and for the account of the Underwriters. The purchase price to be paid for
8
<PAGE>
any of the Option Shares shall be the same price per share for the Firm Shares
set forth above in paragraph (a) of this Section 2. The option granted hereby
may be exercised as to all or any part of the Option Shares from time to time
within 45 calendar days after the Firm Closing Date. The Underwriters shall not
be under any obligation to purchase any of the Option Shares prior to the
exercise of such option. The Representative may from time to time exercise the
option granted hereby on behalf of the Underwriters by giving notice in writing
or by telephone (confirmed in writing) to the Company setting forth the
aggregate number of Option Shares as to which the Underwriters are then
exercising the option and the date and time for delivery of and payment for such
Option Shares. Any such date of delivery shall be determined by the Underwriters
but shall not be earlier than two business days or later than three business
days after such exercise of the option and, in any event, shall not be earlier
than the Firm Closing Date. The time and date set forth in such notice, or such
other time on such other date as the Representative and the Company may agree
upon, is herein called the "Option Closing Date" with respect to such Option
Shares. Upon exercise of the option as provided herein, the Company shall become
obligated to sell to the Underwriters, and, subject to the terms and conditions
herein set forth, each Underwriter shall become obligated to purchase from the
Company, the Option Shares as to which the Underwriter is then exercising its
option. If the option is exercised as to all or any portion of the Option
Shares, certificates in definitive form for such Option Shares, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (b) of this Section 2,
except that reference therein to the Firm Shares and the Firm Closing Date shall
be deemed, for purposes of this paragraph (c), to refer to such Option Shares
and Option Closing Date, respectively.
(d) On the Firm Closing Date, the Company will further issue and sell to
the Representative or, at the direction of the Representative, to bona fide
officers of the Underwriters, for an aggregate purchase price of $100, warrants
(the "Representative's Warrant") entitling the holders thereof to purchase
120,000 shares of Common Stock and 200,000 Warrants for a period of four years,
such period to commence on the first anniversary of the Effective Date. The
Representative's Warrant shall be exercisable at the price indicated in the
Prospectus, and shall contain terms and provisions more fully described herein
below and as set forth more particularly in the warrant agreement relating to
the Representative's Warrant to be executed by the Company on the Effective Date
(the "Representative's Warrant Agreement"), including, but not limited to, (i)
customary anti-dilution provisions in the event of stock dividends, split
mergers, sales of all or substantially all of the Company's assets, sales of
stock below then prevailing market or exercise prices and other events, and (ii)
prohibitions of mergers, consolidations or other reorganizations of or by the
Company or the taking by the Company of other action during the five-year period
following the Effective Date unless adequate provision is made to preserve, in
substance, the rights and powers incidental to the Representative's Warrant. As
provided in the Representative's Warrant Agreement, the Representative may
designate that the Representative's Warrant be issued in varying amounts
directly to bona fide officers of the Underwriters. As further provided, no
sale, transfer, assignment, pledge or hypothecation of the Representative's
Warrant shall be made for a period of five years from the Effective Date, except
(i) by operation of law or reorganization of the Company, or (ii) to the
Underwriters and bona fide partners, officers (but not directors) of the
Underwriters and selling group members.
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3. Offering by the Underwriters. The Underwriters propose to offer the Firm
Shares for sale to the public upon the terms set forth in the Prospectus (the
"Offering").
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriters shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriters or counsel to the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriters, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriters of each such
filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose,
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Underwriters,
arrange for the qualification of the Securities for offering and sale under the
blue sky or securities laws of such jurisdictions as the Underwriters may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.
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(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriters thereof and, subject to Section 4(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) Intentionally left blank.
(f) The Company will, without charge, provide to the Underwriters and to
counsel for the Underwriters (i) as many signed copies of the Registration
Statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriters may
reasonably request, (ii) as many conformed copies of such Registration Statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriters may reasonably request, and (iii) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally available
to its security holders and to the Underwriters an earnings statement of the
Company that satisfies the provisions of Section 11 (a) of the Act and Rule 158
thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of any outstanding warrants and the Representative's
Warrant (including the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.
(j) Intentionally left blank.
(k) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without prior written consent of the
Representative, issue any press release or other public announcement or hold any
press conference with respect to the Company or its activities with respect to
the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).
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<PAGE>
(l) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then immediately following the execution of this Agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A and Rule 424(b) under the Act, copies of the
Prospectus including the information omitted in reliance on Rule 430A, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included in The Nasdaq
SmallCap Market on the Effective Date and to maintain such listing thereafter.
The Company will file with The Nasdaq SmallCap Market all documents and notices
that are required by companies with securities that are traded on The Nasdaq
SmallCap Market.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion and shall timely file all reports required to be
filed under the securities laws.
(o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Representative, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed Corporate Stock Transfer, Inc. as transfer
agent for the Common Stock, subject to the Closing. The Company will not change
or terminate such appointment for a period of three years from the Firm Closing
Date without first obtaining the written consent of the Representative. For a
period of three years after the Effective Date, the Company shall cause the
transfer agent to deliver promptly to the Underwriters a duplicate copy of the
daily transfer sheets relating to trading of the Securities. The Company shall
also provide to the Representative, on a weekly basis, copies of the DTC special
securities positions listing report.
(q) During the period of 180 days after the date of this Agreement, the
Company will not at any time, directly or indirectly, take any action designed
to or that will constitute, or that might reasonably be expected to cause or
result in, the stabilization of the price of the Common Stock to facilitate the
sale or resale of any of the Common Stock.
(r) The Company will not take any action to facilitate the sale of any
shares of Common Stock pursuant to Rule 144 under the Act if any such sale would
violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company will
provide the Underwriters and their designees with three bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Representative.
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<PAGE>
(t) The Company shall consult with the Representative prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriters will consult with the Company prior to the
issuance of any research report or recommendation concerning the Company's
securities. Copies of all documents that the Company or its public relations
firm intend to distribute will be provided to the Representative for review
prior to such distribution.
(u) The Company and the Underwriters will advise each other immediately
in writing as to any investigation, proceeding, order, event or other
circumstance, or any threat thereof, by or relating to the Commission or any
other governmental authority, that could impair or prevent the Offering. Except
as required by law or as otherwise mutually agreed in writing, neither the
Company nor the Underwriters will acquiesce in such circumstances and each will
actively defend any proceedings or orders in that connection.
(v) The Company shall first submit to the Representative certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(w) The Company will prepare and file a registration statement with the
Commission pursuant to section 12 of the 1934 Act, and will use its best efforts
to have such registration statement declared effective by the Commission on the
Effective Date. For this purpose the Company shall prepare and file with the
Commission a General Form of Registration of Securities (Form 8-A).
(x) For so long as the Securities are registered under the 1934 Act, the
Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(y) The Company will engage a financial public relations firm reasonably
satisfactory to the Representative on or before the Firm Closing Date, and
continuously engage such firm, or a substitute firm reasonably acceptable to the
Representative, for a period of twelve (12) months following the Firm Closing
Date.
(z) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date. Such application shall be made on an accelerated basis no
more than two days following the Effective Date.
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<PAGE>
(aa) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up Agreements.
(bb) During the twelve-month period commencing on the later of the
Effective Date and the Closing Date, and provided that the Representative agrees
to a complete or partial release of the restrictions contained in a Lock-up
Agreement, the Company shall grant the Representative the right to sell, within
seven business days of the effective date of such release, for the account of
any person who was a shareholder of the Company prior to the Offering and who
owns at least five percent (5%) of the Company's Common Stock after the
Offering, any securities sold pursuant to Rule 144 under the Act, provided that
such sale is made in accordance with the applicable shareholder's instructions.
(cc) Prior to the Effective Date, the Company will have taken all
necessary and appropriate action to have at least two persons be elected to the
Company's Board of Directors who are deemed to be independent of the Company's
management.
(dd) The Company will allow a representative of the Underwriter to
attend all Company Board of Director meetings for a period of two years from the
Effective Date.
5. Expenses
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, and the costs
and expenses of the Underwriters in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriters of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements, (vi)
the filing fees of the Commission and the NASD relating to the Securities, (vii)
the inclusion of the Securities on The Nasdaq SmallCap Market and in the
Standard and Poor's Corporation Descriptions Manual, (viii) any "road shows" or
other meetings with prospective investors in the Shares, including
transportation, accommodations, meals, conference rooms, audio-visual
14
<PAGE>
presentations and similar expenses, including such expenses for the Underwriters
or their representatives or designees, and (ix) the publication of "tombstone
advertisements" in The Wall Street Journal and/or Investor's Business Daily to
be selected by the Representative, and the manufacture of prospectus
memorabilia. In addition to the foregoing, the Company, shall reimburse the
Representative for its expenses on the basis of a non-accountable expense
allowance in the amount of 3.00% of the gross offering proceeds to be received
by the Company. The non-accountable expense allowance, based on the gross
proceeds from the sale of the Firm Shares, shall be deducted from the funds to
be paid by the Representative in payment for the Firm Shares, pursuant to
Section 2 of this Agreement, on the Firm Closing Date. To the extent any Option
Shares are sold, any remaining non-accountable expense allowance based on the
gross proceeds from the sale of the Option Shares shall be deducted from the
funds to be paid by the Representative in payment for the Option Shares,
pursuant to Section 2 of this Agreement, on the Option Closing Date. The Company
warrants, represents and agrees that all such payments and reimbursements will
be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the
Offering is terminated in accordance with the provisions of Section 6 or Section
10(a)(l), the Company agrees that, in addition to the Company paying its own
expenses as described in subparagraph (a) above, the Company shall reimburse the
Representative for its actual accountable out-of-pocket expenses net of the
$10,000, which has previously been advanced to the Representative, up to a
maximum of $100,000. Such expenses shall include, but are not to be limited to,
fees for the services and time of counsel for the Underwriters to the extent not
covered by clause (a) above, plus any additional expenses and fees, including,
but not limited to, travel expenses, postage expenses, duplication expenses,
long-distance telephone expenses, and other expenses incurred by the
Representative in connection with the proposed offering.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares shall be subject, in the
Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Registration Statement, as heretofore amended, has not been
declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such Registration Statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriters; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
15
<PAGE>
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriters shall have received an opinion, dated the Firm
Closing Date, of the Law Offices of Gary A. Agron, counsel to the Company, as to
law, substantially to the effect that:
(1) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
organization and is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which its
ownership or leasing of any properties or the conduct of its business requires
such qualification, except where the failure to be in good standing or so
qualify would not have a materially adverse effect upon the Company;
(2) the Company has full corporate power and authority to own or
lease its property and conduct its business as it is now being conducted and as
it is proposed to be conducted, as described in the Registration Statement and
the Prospectus, and the Company has full corporate power and authority to enter
into this Agreement and the Representative's Warrant Agreement and to carry out
all the terms and provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Shares have been duly authorized and the Representative's
Warrant shares have been duly reserved for issuance by all necessary corporate
action on the part of the Company and the Shares when issued and delivered to
and paid for by the Representative, pursuant to this Agreement, the
Representative's Warrant when issued and delivered and paid for in accordance
with this Agreement and the Representative's Warrant Agreement by the
Underwriters, and the Representative's Warrant Shares when issued upon payment
of the exercise price specified in the Representative's Warrant, will be validly
issued, fully paid, nonassessable and free of preemptive rights and will conform
to the description thereof in the Prospectus; to the knowledge of such counsel,
no holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares or the
Representative's Warrant Shares; and to the knowledge of such counsel, no person
is entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus;
(4) the execution and delivery of this Agreement and the
Representative's Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
Representative's Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is considered in
16
<PAGE>
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement and the Representative's Warrant Agreement may
be limited by applicable securities laws and the public policy underlying such
laws;
(5) the Representative's Warrant is duly authorized and upon payment
of the purchase price therefore specified in Section 2(d) of this Agreement will
be validly issued and constitute valid and binding obligations of the Company;
and the certificates representing the Securities are in due and proper form
under law;
(6) the statements set forth in the Prospectus under the caption
"Description of Securities" insofar as those statements purport to summarize the
terms of the capital stock and warrants of the Company, provide a fair summary
of such terms; to the knowledge of such counsel, the statements set forth in the
Prospectus describing statutes and regulations and the descriptions of the
consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; to the knowledge of such counsel, the statements in the Prospectus,
insofar as those statements constitute summaries of the contracts, instruments,
leases or licenses referred to therein, constitute a fair summary in all
material respects of those contracts, instruments, leases or licenses and
include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement and the
Representative's Warrant Agreement, (B) the issuance, offering and sale by the
Company to the Underwriters of the Securities pursuant to this Agreement and the
Representative's Warrant Shares pursuant to the Representative's Warrant
Agreement, or (C) the compliance by the Company with the other provisions of
this Agreement and the Representative's Warrant Agreement and the consummation
of the transactions contemplated hereby and thereby, to the knowledge of such
counsel (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws as to which we express no opinion or (2) conflicts with or
results in a breach or violation of, or constitutes a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or any of its property is bound
or subject, or the certificate of incorporation or by-laws of the Company, or
any material statute or any judgment, decree, order, rule or regulation of any
court or other governmental or regulatory authority known to us applicable to
the Company;
(8) to the knowledge of such counsel, (A) no legal or governmental
proceedings are pending to which the Company is a party or to which the property
of the Company is subject except those arising in the ordinary course of
business and fully covered by insurance and (B) no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(9) to the knowledge of such counsel, the Company possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate federal, state or local regulatory agencies or bodies necessary
17
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to conduct its business as described in the Registration Statement and the
Prospectus, and, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus, which would have a material adverse effect on the Company;
(10) The Company is not in violation or breach of, or in default
with respect to, any term of its certificate of incorporation or by-laws, and to
the knowledge of such counsel, the Company is not in (i) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (ii) default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice, lapse of time or both would constitute such a
default.
(11) The Securities have been approved for inclusion on The Nasdaq
SmallCap Market;
(12) The Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and to our knowledge,
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(13) The Registration Statement originally filed with respect to the
Securities and each amendment thereto and the Prospectus (in each case, other
than the financial statements, the notes, schedules and other financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder; and
(14) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 and, if the Company conducts
its business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company Act.
Such counsel also shall state in its opinion that it has
participated in the preparation of the Registration Statement and the Prospectus
and that nothing has come to its attention that has caused it to believe that
the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
18
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that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters
of fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriters, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriters, in form and substance acceptable to
the Underwriters, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriters' reliance upon such opinion is justified.
(d) A. At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Representative and Representative's counsel, from Angell & Deering,
Certified Public Accountants:
(i) confirming that it is a independent certified public
accountant with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Representative may
rely upon the opinion of the Certified Public Accountants with respect to the
financial statements included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries (which, as to the interim financial statements included
in the Registration Statement, shall constitute a review as described in SAS No.
71, Interim Financial Statements), nothing has come to the Certified Public
Accountants' attention which would lead them to believe that (A) the unaudited
financial statements of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (B) at a specified
date not more than five (5) days prior to the Effective Date, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the December 31, 1999, balance sheet included in
19
<PAGE>
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from December
31, 1999, to a specified date not more than five (5) days prior to the Effective
Date, there was any decrease (increase) in net revenues, net income (loss) or in
net earnings (loss) per common share of the Company, in each case as compared
with the corresponding period in December 31, 1999, other than as set forth in
or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease (increase);
(iv) setting forth, at a date not later than five (5) days prior
to the Effective Date, the amount of liabilities of the Company;
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
B. At the Firm Closing Date and the Option Closing Date, if
any, the Representative shall have received from the Certified Public
Accountants, a letter, dated as of the Firm Closing Date or the Option Closing
Date, as the case may be, to the effect that it reaffirms that statements made
in the letter furnished pursuant to subsection A of this Section 6(e), except
that the specified date referred to shall be a date not more than five (5) days
prior to the Firm Closing Date or the Option Closing Date, as the case may be,
and, if the Company has elected to rely on Rule 430A of the Rules and
Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection A of this Section 6(e) with respect to
certain amounts, percentages and financial information as specified by the
Representative and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(e) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein in order to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company shall
have performed all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Firm Closing Date.
20
<PAGE>
(f) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto).
(h) The Underwriters shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (e) and (f) above.
(i) The Securities shall be qualified in such jurisdictions as the
Underwriters may reasonably request pursuant to Section 4(c), and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(j) The Company shall have executed and delivered to the Underwriters
the Representative's Warrant Agreement and a certificate or certificates
evidencing the Representative's Warrant, in each case in a form acceptable to
the Underwriters.
(k) The Underwriters shall have received Lock-up Agreements executed
by the persons listed on Schedule 2 annexed hereto.
(l) On or before the Firm Closing Date, the Underwriters and counsel
for the Underwriters shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and counsel
for the Underwriters. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall reasonably
request.
The obligation of the Underwriters to purchase and pay for any Option
Shares shall be subject, in its discretion, to each of the foregoing conditions,
except that all references to the Firm Shares and the Firm Closing Date shall be
deemed to refer to such Option Shares and the related Option Closing Date,
respectively.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriters
and each person, if any, who controls the Underwriters within the meaning of
Section 15 of the Act or Section 20 of the 1934 Act against any losses, claims,
damages, or liabilities, joint or several, to which the Underwriters, or such
21
<PAGE>
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriters and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriters or such controlling person in connection with investigating or
defending against any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriters,
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriters, or controlling person,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Underwriters or any person who
controls the Underwriters or within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriters and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) The Underwriters will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the 1934 Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or otherwise,
but only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
22
<PAGE>
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriters specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or defending
against any such loss, claim, damage, liability, action investigation,
litigation or proceedings, in respect thereof. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity obligation provided for in
the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
23
<PAGE>
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the Offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceeding the total public offering price of the Securities purchased by the
Underwriters under this Agreement, less the aggregate amount of any damages that
the Underwriters have otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriters, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the 1934
Act, shall have the same rights to contribution as the Company.
8. Substitution of Underwriters.
If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Shares hereunder, or shall fail to take up and
pay for the number of Firm Shares set forth opposite names in Schedule 1 hereto
upon tender of such Firm Shares in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Shares which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Shares, the other Underwriters shall be obligated to purchase the
Firm Shares which such defaulting Underwriter agreed but failed to purchase.
24
<PAGE>
(b) If any Underwriter so defaults and the agreed number of Firm
Shares with respect to which such default or defaults occurs is more than 10% of
the total number of Firm Shares, the remaining Underwriters shall have the right
to take up and pay for the Firm Shares which the defaulting Underwriter agreed
but failed to purchase. If such remaining Underwriters do not, at the Firm
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter agreed but failed to purchase, the time for delivery of the Firm
Shares shall be extended to the next business day to allow the remaining
Underwriters the privilege of substituting within twenty-four hours (including
nonbusiness hours) another underwriter or underwriters satisfactory to the
Company. If no such underwriter or underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the Firm
Shares may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters to purchase the Firm Shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriter or substituted Underwriters to take up
the Firm Shares of the defaulting Underwriter as provided in this section, (i)
the Company or the Underwriters shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other document or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of Firm Shares to be purchased by the remaining Underwriters or
substituted Underwriters shall be taken as the basis of the underwriting
obligation for all purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriters shall not take up and pay for all the Firm Shares agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
If, following exercise of the option provided in Section 2(c) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Shares at the Option Closing Date, or shall
fail to take up and pay for the number of Option Shares, which it became
obligated to purchase at the Option Closing Date upon tender of such Option
Shares in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Shares of the
defaulting Underwriters in the manner provided in Section 8(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Shares, the Underwriters shall be entitled to purchase the
number of Option Shares for which there is no default or, at their election, the
option shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 8 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
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<PAGE>
9. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in Section 7 hereof, and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 4 and 7 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
10. Termination.
(a) This Agreement may be terminated with respect to the Firm Shares
or any Option Shares in the sole discretion of the Representative by notice to
the Company given prior to the Firm Closing Date or the related Option Closing
Date, respectively, in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on its part to
be performed or satisfied under Section 6 hereunder at or prior thereto or if at
or prior to the Firm Closing Date or such Option Closing Date, respectively:
(1) the Company sustains a loss by reason of explosion, fire,
flood, accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock shall have been suspended by the
Commission, the NASD or on Nasdaq, or trading in securities generally on the New
York Stock Exchange shall have been suspended or minimum or maximum prices shall
have been established on either such exchange or quotation system;
(4) a banking moratorium shall have been declared by New York or
United States authorities;
26
<PAGE>
(5) there shall have been (A) an outbreak of hostilities between
the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement; and
(6) termination of this Agreement pursuant to this Section 10
shall be without liability of any party to any other party, except as provided
in Section 5(b) and Section 7 hereof.
11. Information Supplied by the Underwriter. The statements set forth in
the "Underwriting Section" in any Preliminary Prospectus or the Prospectus
constitute the only information furnished by the Underwriter to the Company for
the purposes of Section 7(b) hereof. The Underwriter confirms that such
statements (to such extent) are correct.
12. Notices. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: At the address listed in the Prospectus
To the Company's counsel: At the address listed in the Prospectus
To the Representative: Spencer Edwards, Inc.
6041 S. Syracuse Way, Suite 305
Englewood, CO 80111
To the Representative's counsel: Michael J. Tauger, Esq.
Law Office of Michael J. Tauger
5445 DTC Pkwy., Suite 520
Englewood, Colorado 80111
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
27
<PAGE>
13. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
14. Waiver. No course of dealing or omission or delay on the part of either
party hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
15. Applicable Law. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of Colorado without
regard to principles of choice of law or conflict of laws.
16. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Colorado courts and the United
States District Court for the District of Colorado in connection with any suit,
action or other proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, waives any objection to venue in the City and
County of Denver, State of Colorado, or such District and agrees that service of
any summons, complaint, notice or other process relating to such suit, action or
other proceeding may be effected in the manner provided by clause (ii) of
Section 12.
17. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
19. Severability. The provisions hereof are severable and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
21. Successors. This Agreement shall inure to the benefit of and be binding
upon the Underwriter, the Company and their respective successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
28
<PAGE>
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 7 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriter
contained in Section 7 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the 1934 Act. No purchaser
of Securities from the Underwriter shall be deemed a successor because of such
purchase.
22. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. Grammatical Conventions. Whenever the context so requires, each pronoun
or verb used herein shall be construed in the singular or the plural sense and
each capitalized term defined herein and each pronoun used herein shall be
construed in the masculine, feminine or neuter sense.
24. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
25. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and the
Underwriter.
Very truly yours,
Healthlink International, Inc.
By:
-----------------------------------------
Chief Executive Officer
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
29
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Spencer Edwards, Inc.
as representative of the several
underwriters listed on Schedule l
annexed hereto
By:
------------------------------
Title:
----------------------------
30
<PAGE>
Schedule 1
----------
Number of Shares of Common Stock
--------------------------------
31
<PAGE>
Schedule 2
----------
Lock-Up period ends 12 months from the Effective Date with respect to the
following shareholders who constitute all stockholders of the Company's Common
Stock immediately prior to the Effective Date:
[LIST NAMES OF ALL SHAREHOLDERS]
32
Exhibit 10.08
AGREEMENT
PARTIES: QUANTUM QUANTUM RESEARCH, INC.,
an Arizona corporation
7975 N. Hayden Road, Suite D333
Scottsdale, Arizona 85258
and
HEALTHLINK: HEALTHLINK INTERNATIONAL, INC.,
a Nevada corporation
929 Eastwind Drive, Suite 223
Westerville, Ohio 43081
DATE: December 27, 1999
RECITALS:
A. Quantum has the exclusive right to purchase specific colostrum/whey
extracts (the "Extracts") from a third party supplier for use in the
production of dietary supplements and homeopathic remedies formulated and
owned by Quantum.
B. HealthLink is in the business of manufacturing and marketing natural and
nutritional products, and other products, in the United States and desires
to market certain Quantum Products, and to manufacture products utilizing
the Extracts.
C. Quantum desires to sell its Products and the Extracts to HealthLink and
grant HealthLink the right to market and manufacture the Products on an
exclusive basis upon the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
SECTION 1 - DEFINITIONS
1.1 Affiliates. Any business entity shall be deemed to be affiliated with
HealthLink if it, directly or indirectly, controls such entity. An entity
shall be deemed to be affiliated with another entity, if one of them is the
subsidiary of the other or both are the subsidiaries of the same entity or
each of them is ultimately controlled by HealthLink. If two (2) entities
are affiliated with HealthLink at the same time, they shall be deemed to be
affiliated with each other.
1.2 Confidential Information: Confidential Information means all information
that is of a proprietary nature, including without limitations, the
Specifications and all other technical information, methods, processes,
techniques, data bases, computer programs, descriptions, drawings,
documents, sketches, files, records, data, designs, plans, and any other
<PAGE>
information that concerns any dietary supplements or other products
formulated and owned by Quantum as well as the Products as defined herein.
Confidential information also includes as to HealthLink and its affiliates,
all information of a proprietary nature relating to its or their
independent associates including without limitation current and historic
population counts, names, addresses, telephone numbers, and e-mail
addresses; also current and projected recurring levels; current and
projected product inventory levels, turnovers and turnover ratios; current
and projected product sales levels, costs of sales, commissions and
proposals or plans for commission program changes.
1.3 Governmental Agencies: Governmental Agencies shall mean any agency having
jurisdiction over the Products in the Territory.
1.4 Payment: All references to payments shall refer to United States dollars.
1.5 Products: Products shall mean those certain Quantum products described in
Exhibit A attached hereto and any subsequent addenda thereto signed by both
parties.
1.6 Specifications: Specifications shall mean the specific formulae developed
by Quantum for the production of its products including the Products which
are the subject of this Agreement.
1.7 Territory: Territory shall mean the United States of America.
SECTION 2 - GRANT OF LICENSE
2.1 Quantum hereby grants to HealthLink and its Affiliates the right to
distribute and sell the Products in the Territory on an exclusive basis,
subject to the terms of this Agreement. Quantum further grants to
HealthLink the right to manufacture the Products utilizing the Extracts and
to distribute and sell same, subject to the terms of this Agreement.
SECTION 3 - QUANTUM'S OBLIGATIONS
3.1 Quantum shall supply HealthLink such amounts of the Products or Extracts as
HealthLink needs, subject to the other terms and conditions contained in
this Agreement.
3.2 Quantum will provide the technical information relating to the Products and
their ingredients and such other support reasonably required by HealthLink
in the context of consumer education and simplification of such technical
information. Quantum will provide, as reasonably required by HealthLink,
adequate training to sales support staff regarding the Products.
<PAGE>
3.3 At HealthLink' request, Quantum will provide, in its reasonable discretion
and as such may relate to the Products, (i) current and subsequent
scientific, medical and clinical studies, (ii) the right to the use of the
name, image, likeness, picture sayings, writings and reputation of the
members of Quantum's medical professionals, and (iii) copies of all press
releases and other marketing materials used by Quantum.
3.4 To the extent HealthLink undertakes the manufacture of any Products,
Quantum will provide to HealthLink all necessary technical information
including raw material specifications, production and testing methods,
packaging specifications, stability data and technical support to enable
HealthLink to manufacture the Products.
3.5 Quantum shall not compete directly or indirectly with HealthLink or assist
any other person or entity to compete with HealthLink in the manufacture,
sale, or distribution of the Products in the Territory. However, Quantum
shall not be liable to HealthLink for third parties that, make, advertise,
sell or distribute the Products without Quantum's consent. HealthLink
understands that Quantum has developed other products that may be similar
in nature to the Products and that these products may be present or
presented in the Territory by others and that this covenant shall not apply
to such other products.
3.6 Quantum shall provide HealthLink the benefit and description of all
licenses, certifications and permits issued by any governmental,
regulatory, or non-public agency or organization with respect to the
Products, including Licenses, certifications and permits issued by the
United States Food and Drug Administration or any other authorized agency
as may be encountered in advancing the sale of the Products. Quantum shall
provide ongoing assistance to HealthLink to the extent necessary to secure
the benefits of any such licenses, certifications, and permits.
3.7 Quantum shall not disclose any Confidential Information peculiar to
HealthLink to any third parties without HealthLink's written consent.
3.8 Quantum warrants that the Products will be manufactured in the United
States of America to the standards of the nutritional supplement industry,
and Quantum will monitor the manufacturing processes as it deems necessary
and appropriate to assure quality and Product contamination avoidance. Such
monitoring will include, but not be limited to, obtaining appropriate
Certificate of Analysis for each ingredient in the Products and selecting a
manufacturer that applies appropriate standards to the manufacturing
process. Facilities selected for manufacturing will be selected based upon
criteria that includes licensing, quality control programs, and experience
in working with the Product materials and reputation.
3.9 Quantum will require each manufacturer to provide a certificate of
insurance listing Quantum as an additional insured appearing on their
product liability insurance policy and will, upon request, provide a copy
of the certificate to HealthLink.
<PAGE>
3.10 Quantum will develop for HealthLink label copy for each product and provide
assurance that such labeling is in compliance with the current requirements
of applicable regulatory agencies. Legal fees incurred by Quantum in
connection with such product labeling will be paid by HealthLink.
3.11 Quantum, upon request from HealthLink, will assist in the development of
copy for collateral materials related to the Products. Quantum will, upon
request, review and approve all such collateral materials as directed by
HealthLink. Collateral materials include, but are not limited to,
brochures, audiotapes, videotapes, and training manuals. Such review will
include a legal review to determine that the collateral materials are in
compliance with the current regulatory requirements of applicable
regulatory agencies. Legal fees incurred by Quantum in completing this
review will be paid by HealthLink.
3.12 Quantum, upon request from HealthLink, will assist in addressing issues
related to its development of an appropriate consumer safety program. Such
assistance will cover product returns, safety seals, consumer FAQ, lot
storage, sampling guidelines and such other issues as the parties deem
appropriate.
3.13 Quantum shall indemnify, defend and hold harmless HealthLink, its
affiliates, officers and independent sales associates from and against any
and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including reasonable attorneys' fees
and costs that HealthLink, its affiliates, officers and independent sales
associates may incur or suffer, which arise, result from, or relate to
Quantum's performance, or failure to perform, the warranties, duties and
responsibilities delineated in paragraphs 3.6, 3.8, 3.10, and 3.11.
SECTION 4 - OBLIGATIONS OF HEALTHLINK
4.1 HealthLink and its affiliates shall not modify, revise, repackage or
relabel any of the Products prior to sale or distribution of the Products.
HealthLink, its affiliates and its or their independent associates or
distributors shall not make any claims or representations regarding the
nature or composition of the Products or the performance attributes thereof
which claims or representations are not wholly encompassed within the
claims made by Quantum in the labeling, use instructions or marketing
literature or materials prepared or approved in writing for HealthLink, or
which are otherwise not specifically approved in writing by Quantum prior
to their use or publication by HealthLink or its affiliates.
4.2 On or before the last day of each month, HealthLink shall provide to
Quantum reports reflecting all sales of Products during the immediately
preceding month and all sales on a year-to-date basis through the end of
the immediately preceding month, the amount of inventory of Products on
<PAGE>
hand at the end of the immediately preceding month, and the anticipated
production and ordering schedule for the three-month period following the
date of each report.
4.3 HealthLink shall indemnify, defend and hold harmless Quantum, its
affiliates and officers from and against any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including reasonable attorneys' fees and costs that Quantum
may incur or suffer, which arise, result from, or relate to any violation
by HealthLink, its affiliates or any of their independent sales associates
of the restrictions of paragraph 4.1 above.
4.4 HealthLink shall not disclose any Confidential Information peculiar to
Quantum to any third parties without the written consent of Quantum.
4.5 In the event HealthLink requests that any Quantum personnel or Dr. Jesse
Stoff travel with respect to the performance of any services required
hereunder, it shall reimburse Quantum the maximum rates specified in 41
Code of Federal Regulations Chapter 301 for reimbursement of per diem
expenses incurred during travel within the continental United States plus
the actual cost of travel to and from the destination. In the absence of
per diem guidelines, actual cost shall be reimbursed upon presentation of
appropriate documentation. Quantum shall furnish HealthLink with such
records and other documentary evidence as are customarily sufficient to
satisfy the requirements for substantiation of such expenditures as an
income tax deduction (or capitalization) pursuant to applicable laws and/or
regulations. All air travel shall be "First Class".
4.6 HealthLink shall allow upon reasonable request and notice by Quantum, the
inspection and random sampling by Quantum of the facilities, processes, and
the Products produced by HealthLink pursuant to this Agreement. Such
inspections shall not cause any delay of shipments of the Products to
distributors or purchasers. Quantum shall bear all costs of such
inspections and testing, including any repackaging costs.
SECTION 5 - FEES
5.1 HealthLink shall pay Quantum pursuant to the fee schedule set forth in
Exhibit A.
5.2 These prices set forth in Exhibit A may be adjusted by Quantum upon 90 days
notice to HealthLink. Such adjustments shall be based upon actual increases
of costs to Quantum for materials and production from its suppliers and
shall be made to ensure Quantum's margin of profit contemplated under fees
set forth in Exhibit A.
5.3 HealthLink shall pay Quantum the full price for the initial purchase order
for the Products upon submission of its purchase order. Thereafter,
HealthLink shall pay one-half of the price concurrently with the submission
of its purchase order and the balance upon shipment by Quantum. All
shipping expenses shall be paid by HealthLink.
<PAGE>
5.4 Payments required by this contract shall be made by wire transfer directly
to the account of Quantum Research, Inc. Account information will be
provided by Quantum Research, Inc.
SECTION 6 - SUPPLY
6.1 Upon the terms and subject to the conditions contained herein, Quantum
shall produce, package, sell and deliver exclusively to HealthLink such
quantities of the Products as specified in purchase orders submitted by it
to Quantum from time to time (Purchase Orders) and HealthLink shall
purchase such Products. Unless otherwise expressly agreed in writing by the
parties, the terms and conditions of this Agreement shall apply to any
Purchase Order and shall be deemed to be incorporated into any Purchase
Order.
6.2 All Products manufactured by Quantum and delivered to HealthLink pursuant
to this Agreement shall conform in all respects to the formula, packaging
and labeling specifications set forth in Exhibit A to this Agreement.
6.3 Title to the Products, Extracts, or other components purchased by
HealthLink under this agreement shall vest in HealthLink when the Product
has been delivered at the F.O.B. point, which shall be determined by
Quantum.
6.4 The license granted herein in Section 2 shall remain exclusive so long as
HealthLink maintains the minimum purchases and pays the corresponding fee
in each year as set forth in Exhibit A.
6.5 HealthLink will specify in each Purchase Order the quantity of Products to
be delivered and Quantum shall ship same within sixty (60) days following
receipt of the Purchase Order. Concurrently upon the execution of this
Agreement, HealthLink will submit its initial Purchase Order.
6.6 Quantum shall maintain a supply of components necessary to meet the
requirements of this Agreement for a six month period, either in the form
of pure Extract or Extract being used in the process of manufacturing to
meet Purchase Orders currently being processed.
SECTION 7 - LIQUIDATED DAMAGES
7.1 The parties recognize that the calculation of damages in the event either
party should breach their obligations hereunder regarding the disclosure of
Confidential Information peculiar to the other party to third parties would
be difficult to calculate. The parties agree that a minimum assessment of
damages in the event of such breach by either party shall be $50,000. This
is not intended to be construed as a penalty but rather the parties' best
effort to ascertain the fair amount of damages they would sustain in the
event of such a breach.
<PAGE>
SECTION 8 - INFRINGEMENT
8.1 In the event that HealthLink learns of any infringement or threatened
infringement or piracy of the Products, or any actual or intended
passing-off or unfair competition by reason of imitation or otherwise, or
that any third party alleges, or claims, or intends to allege or claim that
the Products infringe on its Products in any manner or that the production,
sale or use of the Products infringes or any other right of a third party,
HealthLink shall promptly give notice to Quantum together with all such
information with respect to the infringement as it may from time to time
obtain. The parties undertake and agree to consult with each other with
respect to how to respond to each infringement or violation.
8.2 In the event Quantum undertakes the defense or prosecution of any such
legal proceedings, HealthLink agrees on behalf of, and at Quantum's
expense, to execute any and all documents and do such acts and things,
including without limitation, being made a party to such proceedings, as
may, in the opinion of counsel for Quantum, be necessary of useful to carry
out such defense or prosecution.
8.3 Notwithstanding the forgoing, if Quantum declines to institute legal
proceedings, HealthLink may institute legal proceedings at its sole expense
and Quantum shall fully cooperate with it in connection with such
proceedings provided, however, Quantum shall always be free, at its own
cost and expense, to subsequently join in any pending proceedings.
8.4 Legal proceedings as used herein shall include demand letters, negotiation
and settlement of disputes, as well as the filing of formal legal actions
with a court of proper jurisdiction. Under no circumstances shall
HealthLink have the authority to settle or compromise a matter which in any
way mitigates, lessens of restricts Quantum's ownership in or rights to the
Products, Extracts, or other components.
SECTION 9 - REPRESENTATIONS AND WARRANTIES OF QUANTUM
9.1 Quantum hereby represents and warrants that:
9.1.1 It is the holder of sole and exclusive rights, title, property,
benefit and interest in and to the Products and Extracts for use in
the Territory;
9.1.2 It has every legal right to enter into this Agreement and to perform
the terms and conditions hereof, except as described herein, free of
any encumbrances whatsoever;
<PAGE>
9.1.3 It has entered no relationship or agreement, written or oral,
expressed or implied, which is inconsistent with the provisions of
this Agreement;
9.1.4 The sale of the Products by HealthLink will not, to the best of its
knowledge, constitute an infringement of any patents or other
proprietary rights owned by any third party or a violation of any
statutory or regulatory provisions.
9.2 Each of the parties hereto hereby represents to the other that the
execution and delivery of this Agreement and the performance thereof will
not contravene or constitute a default under its charter, by-laws or any
other agreement, instrument or other forms of commitment to which any party
hereto is also bound.
SECTION 10 - TERM OF AGREEMENT
10.1 This Agreement will run for an initial period of three (3) years commencing
on the effective date of this Agreement, and is renewable for an additional
period of five (5) years, subject only to the minimum quantities specified
in Exhibit A.
10.2 Quantum may suspend or terminate this Agreement as it thinks fit in the
event of a material breach of its terms which remains uncured for more than
sixty (60) days from the date HealthLink is notified in writing of such
breach, or if HealthLink ceases operation or files for relief under the
insolvency laws of the Territory.
SECTION 11 - GENERAL PROVISIONS
11.1 The Parties hereby acknowledge and agree that each is an independent
contractor that neither party shall be considered to be the agent,
representative, master or servant of the other for any purpose whatsoever
and that neither party has any authority to enter into any contract to
assume any obligations or to give any warranties or representations on
behalf of the other party hereto. Nothing in this Agreement shall be
construed to create a relationship of partners, joint ventures,
fiduciaries, agency or any other similar relationship between the parties.
11.2 Time shall be of the essence of this Agreement.
11.3 The terms of this Agreement will be kept strictly confidential by both
parties except to their attorneys, accountants or other professional
advisors or unless required according to the regulations of any Government
Agency having competent jurisdiction.
11.4 HealthLink shall have the option to terminate this agreement upon 90 days
written notice to Quantum Research, Inc.
<PAGE>
11.5 This Agreement has been entered into in the State of Arizona and all
questions with respect to this Agreement and the rights and liabilities of
the parties hereto shall be governed by the laws of the State of Arizona.
11.6 If a dispute arises out of or related to this Agreement or the breach
thereof and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration. Such mediation shall be
conducted in Phoenix, Arizona within thirty (30) days following receipt by
the American Arbitration Association of a Request for Mediation or a
Submission to Dispute Resolution. If the dispute is not resolved through
mediation it shall be settled by arbitration administered by the American
Arbitration Association under its Arbitration rules. Such arbitration shall
be conducted in Phoenix, Arizona by a single arbitrator. No discovery shall
be conducted prior to such arbitration hearing except that the arbitration
shall require the parties to exchange a list of witnesses and copies of all
documents or exhibits either party intends to use at the arbitration.
11.7 This Agreement may not be assigned except to an Affiliate or, with the
permission of the other party, which permission cannot be unreasonably
withheld, to the buyer of the party's entire business.
11.8 All notices, requests, demands, and other communication required or
permitted to be given under this Agreement shall be in writing addressed to
the other party at the address set forth above, or such other address as
either party may designate in writing to the other subsequent to the
execution of this Agreement, and shall be conclusively deemed to have duly
given (1) when hand delivered to the other party; or (2) when received when
sent by telex or facsimile at the address and number set forth below
(provide, however, that notices given by facsimile shall not be effective
unless either (a) a duplicate copy of such facsimile notice is promptly
given by depositing same in a United States post office or mailbox with
first-class postage prepaid and addressed to the parties as set forth
below, or (b) the receiving party delivers a written confirmation of
receipt for such notice either by facsimile or any other method permitted
under this section; or (3) three business days after the same have been
deposited in a United States post office or mailbox with a first-class or
certified mail, return receipt requested, postage prepaid; or (4) the next
business day after same have been deposited with a national overnight
delivery service reasonably approved by the parties (Federal Express,
Airborne, United Parcel Service, and DHL WorldWide Express being deemed
approved by the parties), shipping prepaid, addressed to the parties as set
forth below with next-business day delivery guaranteed, provided that the
sending party receives a confirmation of delivery from the delivery service
provider. Any notice sent by telex of facsimile received after 4 PM at the
receiving party's office shall be deemed received on the following day.
11.9 No waiver of any provision or consent to any action shall constitute a
waiver of any other provision or consent to any other action, whether or
not similar. No waiver or consent shall constitute a continuing waiver or
consent or commit a party to provide a waiver in the future except to the
extent specifically set forth in writing.
<PAGE>
11.10 No amendment, modification, or supplement to this Agreement shall be
binding on any of the parties unless it is in writing and signed by the
parties in interest at the time of the modification.
11.11 If any term or provision of this Agreement is determined to be illegal,
unenforceable, or invalid in whole or in part for any reason, such illegal,
unenforceable, or invalid provisions or part thereof shall be stricken from
this Agreement, and such provision shall not affect the legality,
enforceability, or validity of the remainder of this Agreement. If any
provision or part thereof of this Agreement is stricken in accordance with
the provisions of this section, then this stricken provision shall be
replaced, to the extent possible, with a legal, enforceable, and valid
provision that is as similar in tenor to the stricken provision as legally
possible.
11.12 The headings of the various sections and paragraphs hereof are for
convenience of reference only, and shall in no way alter of affect the
meaning or construction of any of the provisions of this Agreement.
11.13 All exhibits attached to this Agreement are incorporated in and made a
part of this Agreement.
11.14 Quantum shall have the option to terminate this agreement upon ninety-(90)
days written notice to HealthLink if it fails to effectively market the
Products. Failure to market effectively would be evidenced by an
accumulation of inventory by HealthLink exceeding twelve (12) months sales
based on the aggregate monthly sales recorded for the preceding
twelve-month period. HealthLink undertakes to have an inventory reflecting
the potential for growth, international market factors and reaction time
considerations. Quantum also retains the right to terminate the agreement
upon thirty (30) days written notice to HealthLink should it violate any
laws, or be formally accused of violating any laws by any governmental
organization. Quantum shall have sole discretion to determine the efficacy
and impact of such violations for purposes of this termination provision.
11.15 Any obligations of either party under this agreement that by their nature
would continue beyond termination, cancellation or expiration of this
agreement shall survive termination, cancellation or expiration of this
agreement.
11.16 Neither party shall be responsible for any delay or failure in performance
of any part of this agreement to the extent that such delay or failure is
caused by failure of subcontract manufacturing facilities, fire, flood,
explosion, war, strike, embargo, government requirement, civil or military
authority, act of God, act or omission of carriers, acts or omissions by a
government authority (de jure or de facto), riots, revolutions, fuel or
energy shortages, earthquakes, interruptions in electricity, natural gas,
water or fuel, or shortages of essential materials ("Force Majeure
Conditions"). If any Force Majeure Condition occurs, the party and the
<PAGE>
other party affected by the other's delay or inability to perform may elect
to: 1) terminate this agreement or the affected part, or 2) suspend this
agreement for the duration of the Force Majeure Condition. Unless written
notice is given within thirty (30) days after the affected party is
notified of the Force Majeure Condition, option (2) shall be deemed
selected.
11.17 In the event of termination, HealthLink reserves the right to sell its
ongoing operations or its inventory to a third party within a reasonable
liquidation period in order to deplete its complete inventory. Quantum
shall have the right of first refusal to purchase the Products at the same
cost.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
dates indicated below to become effective on the date first written above.
QUANTUM RESEARCH, INC.,
an Arizona Corporation
By
David L. Bergsma
Its President
HEALTHLINK INTERNATIONAL, INC.,
a Nevada corporation
By
Nicholas G. Venetis
Its President and CEO
Exhibit 10.09
This Agreement is made as of the 29th day of December 1999 by and between
HealthLink International Inc. a Nevada corporation. 929 Eastwind Dr., Suite 225,
Westerville, OH 43081 ("HLI") and Purchase Plus Buyers Group, INC., an Ohio
corporation, 936 Eastwind Dr., Westerville, OH 43081 ("PPBG").
Recitals
--------
HLI owns the rights to distribute and sell in the United States of America
(the "Territory") certain dietary supplement products more specifically
described in Exhibit A attached hereto and incorporated herein (the "Products").
PPBG markets consumer products and services through a nationwide
organization of independent sales associates utilizing a network marketing
program and desires to offer the Products for sale through its network of sales
associates.
HLI is willing to sell the Products to PPBG for resale through its network-
marketing program subject to the terms and conditions of this agreement.
Therefore in consideration of the forgoing and for other good and valuable
consideration, the parties agree as follows:
I. Marketing Rights
A. HLI herby grants to PPBG the rights to market the Products in the
Territory subject to the terms and conditions set forth herein.
B. The marketing rights granted hereby shall be exclusive as to
resale of the Products in the network marketing distribution
channel in the Territory provided PPBG is in compliance with the
minimum purchase and inventory control requirements of the set
forth in paragraph III D.
II. HLI Obligations
A. HLI shall supply PPBG such amounts of the products as PPBG needs,
subject to other terms and conditions set forth herein.
B. Products shall be manufactured and packaged according to the
standards of the nutritional supplement industry in the United
Sates, shall by licensed, permitted. and certified as necessary
<PAGE>
Dietary supplement Product Marketing License and Supply Agreement
for sale within the United States and shall be labeled in
compliance with the requirements of applicable regulatory
agencies.
C. HLJ shall indemnify, defend and hold harmless PPBG, its
affiliates. officers and independent sales associates from and
against any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies,
including reasonable attorney's fees and costs that PPBG, its
affiliates, officers and independent sales associates may incur
or suffer, which arise, result from, or relate to HLI's
performance, or failure to perform, the warranties, duties and
responsibilities delineated in paragraph II. B., above.
III. PPBG Obligations
A. PPBG shall pay the prices set forth for the Products in Exhibit
A. Prices shall include cost of manufacture, packaging, labeling,
and certain promotional services.
B. These prices set forth in Exhibit A may be adjusted by HLI upon
90 days notice to PPBG. Such adjustments shall be based upon
actual increases of costs passed on to HLI from its suppliers and
shall be made to ensure HLI's margin of profit contemplated under
prices set forth in Exhibit A.
C. PPBG shall pay RU the full price for the initial purchase order
for the Products upon submission of its purchase order.
Thereafter, PPBG shall pay one-half of the price concurrently
with the submission of its purchase order and the balance upon
delivery.
D. The marketing rights granted herein in Section I shall remain
exclusive so long as PPBG maintains the minimum purchases and
pays the corresponding fee in each period as set forth below:
15,000 Units of each Product depicted on Exhibit A each three (3)
month period commencing April 1, 2000. This requirement is in
addition to any purchases made before April 1, 2000 including the
initial purchase order described in paragraph III E.
If additional Products are added to Exhibit A by addenda, the
three month minimum purchase requirements shall be as agreed upon
and set forth in the addenda and the three (3) month period as to
2
<PAGE>
Dietary Supplement Product Marketing License and Supply Agreement
each such product will commence on the date of each addenda or as
specified in the addenda.
Purchases in excess of the minimum purchase requirement shall not
be applied to the requirements of any other three-month period.
The parties agree minimum quantities may be subject to the
manufacturer's guidelines. In such case, PPBG will purchase
minimums as required by the manufacturer.
E. PPBG will specify in each Purchase Order the quantity of Products
to be delivered and HLI shall cause same within sixty (60) days
following receipt of the Purchases Order. Concurrently upon the
execution of this Agreement, PPBG will submit its initial
Purchase Order for the following products:
Number of Capsules
Product Units Per Unit
------- ----- --------
Daily 10,000 60
911 10,000 30
Allergy 5,000 60
Antioxidant 10,000 60
F. PPBG and its affiliates shall not modify, revise, repackage or
relabel any of the products prior to sale or distribution of the
products. PPBG its' affiliates and its' or their independent
associates or distributors shall not make any claims or
representations regarding the nature of composition of the
products or the performance attributes thereof which claims or
representations are not wholly encompassed within the claims made
in the labeling, use instructions or marketing literature or
materials prepared or approved in writing for PPBG, or which are
otherwise not specifically approved in writing by HLI's supplier
prior to their use or publication by PPBG or its' associates.
G. On or before the last day of each month, PPBG shall provide to
HUI reports reflecting all sales of Products during the
immediately preceding month and all sales on a year-to-date basis
3
<PAGE>
Dietary Supplement Product Marketing License and Supply Agreement
through the end of the immediately preceding month, and the
anticipated productior and ordering schedule for the three-month
period following the datc of each report.
H. PPBG shall indemnify, defend, and hold harmless HUI, its
affiliates and officers from and against any and all claims,
demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including reasonable
attorney's fees and costs that HLI may incur or suffer, which
arise, result from, or relate to any violation by PPBG, its'
affiliates, or any of their independent sales associates of the
restrictions of paragraph 111. F.
IV. Term
The initial term of this agreement shall run for a period of three (3)
years from the effective date hereof. Thereafter this agreement may be
renewed at PPBGs option for a renewal term of five (5) years provided
the minimum quantities provided for in III D shall be increased to
25,000 Units per month for each product except Allergy which shall be
increased to 12,500 per month.
V. Miscellaneous
A. Independent Contactor
The Parties acknowledge and agree that each is an independent
contractor and that neither party shall be considered to be the
agent, representative, master or servant of the other for any
purpose whatsoever and that neither party has any authority to
enter into any contract to assume any obligations or to give any
warranties or representations on behalf of the other party
hereto. Nothing in this Agreement shall be construed to create a
relationship of partners, joint venturers, fiduciaries, agency or
any other similar relationship between the parties.
B. This agreement may not be assigned except to an Affiliate or,
with the permission of the other party, which permission cannot
be unreasonable withheld, to the buyer of the party's entire
business.
C. No amendement, modification, or supplement to this Agreement
shall be Binding on any of the parties unless it is in writing
and signed by the parties in interest at the time of the
modification.
4
<PAGE>
Dietary Supplement Product Marketing License and Supply Agreement
D. This Agreement has been entered into in the State of Ohio and all
questions with respect to this Agreement and the rights and
liabilities of the parties hereto shall be governed by the laws
of the State of Ohio.
In witness whereof the parties have signed this Agreement to be effective
on the date first indicated above.
HealthLink International, Inc. (HLI)
By
------------------------------------
Its
------------------------------------
Purchase Plus Buyers Group, Inc. (PPBG)
By
-----------------------------------
Its
----------------------------------
5
<PAGE>
Exhibit A
Allergy
Quantity per bottle: 60 capsules
Capsule size: #1 gelatin
Bottle size: 100cc
Shelf life: 2 years
Formula:
Adrenal (whole gland) 25mg
Pantothenic acid 50mg
Stinging nettle leaf powder 100mg
Ai/E 25mg
In a base of arrowroot, silica, magnesium stearate.
Antioxidant (modified 12/7/99)
Quantity per bottle: 60 White capsules
Capsule size: #0 White gelatin
Bottle size: 100cc
Shelf life: 2 years
Formula (Two capsules contain):
CoEnzymeQlO 30mg
Vitamin A 2000 IU
Vitamin E (d alpha tocopheryl) 150 IU
Selenium (selenomethionine) 26mcg
Zinc 10mg
Grape Seed Extract 30mg
Bioflavonoid Complex 50 mg
Quercitin 100mg
L-Glutathione 50mg
Bilberry 30mg
Green Tea Extract 50mg
Hesperidin (40% complex) 100mg
Taurine 50mg
Lipoic Acid 24mg
L-Carnitine 50mg
Manganese (Amino acid chelate) 6mg
Ai/E 4mg
Rosemary 24mg
<PAGE>
Exhibit a
Daily
Quantity per bottle: 60 capsules
Capsule size: #1 gelatin
Bottle size: 100cc
Shelf life: 2 years
Formula:
Vitamin C 17.0mg
Vitamin B1 .8mg
Vitamin B2 .5mg
Vitamin B3 5.3mg
Vitamin B6 1.3mg
Vitamin B12 1.7mg
Pantolhenic Acid 2.7mg
Biotin 53.3mg
Calcium 66.7mg
Magnesium 26.7mg
Folic Acid 100.0mg
Zinc .8mg
Ai/E 50.0mg
In a base of Astragalus
Trace amounts of amino acids from protein hydrolysate.
911
Quantity per bottle: 30 capsules
Capsule size: #1 gelatin
Bottle size: 75cc
Shelf life: 2 years
Formula:
Echinacea 100mg
Siberian Ginseng 100mg
Ai/E 100mg
Exhibit 10.10
CONSULTING AND MARKETING SERVICES AGREEMENT
This Agreement is made effective as of December 20, 1999, by and between,
Healthlink International, Inc., a Nevada corporation, of 929 Eastwind Drive,
Suite 223, Westerville, Ohio 43081, and Jesse A. Stoff, M.D. (H.), of Insight
Consulting Services, P. 0. Box 86594, Tucson, Arizona 85754-6594.
In this Agreement, the party who is contracting to receive services shall be
referred to as "Healthlink", and the party who will be providing the services
shall be referred to as "Stoff".
Stoff is a physician who has a background in Conventional Medicine including
Clinical Immunology, Alternative Medicine including Homeopathy, Dietary
Supplement Formulation and Application, Homeopathic Medicine Formulation and
Application and other related areas.
Healthlink intends to distribute and sell in the United States the products
described in Exhibit A attached (the "Products") and desires to engage the
services of Stoff in connection with its distribution and sales.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Stoff will provide the following services from and
after December 20, 1999 with respect to Products currently marketed by
Healthlink:
A) Consulting from time to time with respect to formulation of products.
B) Qualifying, describing and explaining the features, benefits,
applications and uses of the products, extracts or other active
ingredients thereof.
C) Generally describing his pertinent clinical observations as
appropriate.
D) Endorsing, sharing, and popularizing the products.
2. ADDITIONAL PRODUCTS. In the event Healthlink contracts with Quantum Research,
Inc. for the right to distribute and sell additional products containing
extracts intended to improve immune system performance, the Parties shall
execute an Addendum to this Agreement to modify the definition of Products to
include such additional products and the services of Stoff to be provided
hereunder shall be deemed to include such additional products.
3. PERFORMANCE OF SERVICES. Stoff will provide five (5) personal engagements per
year as specified by Healthlink, with adequate notice to avoid scheduling
conflicts. Each such engagement may involve one or more appearances per day by
Stoff endorsing and promoting the products at meetings or conferences of
Healthlink or its affiliate companies sales associates. Stoff will make himself
available to engage in up to 10 telephone conference calls annually as a
participant from a location of his choosing, such participation not to exceed
<PAGE>
90 minutes per conference. Stoff will also participate in the development of
audio and video tapes and related printed literature describing and promoting
the products.
4. PAYMENT. During the term of this Agreement and for so long thereafter as
Healthlink or its successors shall continue to distribute and sell the Products
(or additional products), Healthlink will pay to Stoff for the Services a fee of
$0.50 per unit of product purchased by Healthlink from Quantum Research, Inc.
("Product Fee"). This fee shall be payable monthly, no later than the 10th day
of the month following the purchase by Healthlink and delivery from Quantum
Research, Inc. In addition, Healthlink will pay to Stoff a fee of $.25 per audio
or video tape produced and sold pursuant to paragraph 1 above ("Tape Fee"). Such
pa~ments shall be made with appropriate information reporting on or before the
10 day of the month following sale by Healthlink. Should Healthlink elect to
give such tapes away without charge for any reason, the same payment
requirements will apply. The payments set forth in this paragraph 4 constitute
the complete compensation and entire consideration to be paid to Stoff for any
services provided hereunder.
5. EXPENSE REIMBURSEMENT. Stoff shall be entitled to reimbursement for expenses
associated with respect to providing any services required herein: Healthlink
shall reimburse Stoff the maximum rates specified in 41 Code of Federal
Regulations Chapter 301 for reimbursement of per diem expenses incurred during
travel with the continental United States plus the actual cost of travel to and
from the destination. In the absence of per diem guidelines, actual cost shall
be reimbursed upon presentation of appropriate documentation. Dr. Stoff shall
furnish Healthlink with such records and other documentary evidence as is
customarily sufficient to satisfy the requirements for substantiation of such
expenditures as an income tax deduction (or capitalization) pursuant to
applicable laws and/or regulations. All air travel shall be "First Class".
6. SUPPORT SERVICES. Healthlink will provide audiovisual equipment necessary to
support lectures and presentations.
7. NEW PROJECT APPROVAL. Stoff and Healthlink recognize that StofFs Services may
include working on various projects for Healthlink. Stoff shall obtain the
approval of Healthlink prior to the commencement of a new project.
8. TERM/TERMINATION. This Agreement may be terminated by either party upon 30
days written notice to the other party, except that if Stoff has performed all
the services required by the agreement and Healthlink still wishes to terminate
the agreement, the Tape Fee provided in paragraph 4 above shall continue to be
paid to him under the same terms and conditions as outlined herein as long as
audio, video or printed marketing materials produced with Stoff's participation
hereunder are utilized by Healthlink. The termination of this Agreement shall
not affect Healthlink's obligation to pay the Product Fee provided in paragraph
4 above.
9. RELATIONSHIP OF PARTIES. It is understood by the parties that Stoff is an
independent contractor with respect to Healthlink, and not an employee of
Healthlink.
2
<PAGE>
Healthlink will not provide fringe benefits, including health insurance
benefits, paid vacation, or any other employee benefit, for the benefit of
Stoff.
10. DISCLOSURE. Stoff is required to disclose any outside activities or
interests, including ownership or participation in the development of prior
inventions that conflict or may conflict with the best interests of Healthlink.
Prompt disclosure is required under this paragraph if the activity or interest
conflicts with or otherwise relates directly or indirectly, to:
- a product or product line of Healthlink
- any activity that Stoff may be involved with on behalf of Healthlink
Stoff herein discloses and Healthlink acknowledges that he supports and
promotes the product Biomune OSF Plus marketed byMatol Botanical
International, Ltd. of Montreal, Canada.
11. iNJURIES. Stoff acknowledges his obligation to obtain appropriate insurance
coverage. Staff waives any rights to recovery from Healthlink for any injuries
that Stoff may sustain while performing services under this Agreement and that
are a result of the negligence of Stoff.
12. ASSIGNMENT. The obligations of Stoff and Healthlink under this Agreement may
not be assigned or transferred to any other person, firm, or corporation without
the prior written consent of Healthlink or Stoff, as the situation may dictate.
13. CONFIDENTIAlITY. Healthlink recognizes that from time to time Stoff has and
will have access to the following types of information:
- prices
- costs
- future plans
- business affairs
- process information
- trade secrets
- technical information
- customer lists
- copyrights
- any information associated with the operation of Healthlink
and other proprietary information (collectively, "Information") which are
valuable, special and unique assets of Healthlink International and need to be
protected from improper disclosure. In consideration for the disclosure of the
Information, Stoff agrees that Staff will not at any time or in any manner,
either directly or indirectly, use any Information for StofFs own benefit, or
divulge, disclose, or communicate in any manner any Information to any third
party without the prior written consent of Healthlink. Stoff will protect the
Information and treat it as strictly confidential. A violation of this paragraph
shall be a material violation of this Agreement.
14. UNAUTHORIZED DISCLOSURE OF iNFORMATION. If it appears that Stoff has
disclosed (or has threatened to disclose) Information in violation of this
Agreement, Healthlink shall be entitled to an injunction to restrain Stoff 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
3
<PAGE>
disclosed. Healthlink shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
15. CONFIDENTIALITY AFTER TERMINATION. The confidentiality provisions of this
Agreement shall survive and remain in full force and effect following the
termination of this Agreement.
16. RETURN OF RECORDS. Upon termination of this Agreement, Stoff shall deliver
all records, notes, data, memoranda, models, and equipment of any nature that
are in StofFs possession or under Staffs control and that are Healthlink's
property or relate to Healthlink's business.
17. 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 prepaid, addressed as follows:
IF for Healthlink:
Healthlink International, Inc.
Richard Waak
Senior Legal Counsel
929 Eastwind Drive, Suite 223
Westerville, Ohio 43081
IF for Staff:
Jesse A. Stoff, M.D.
Insight Consulting Services
P. 0. Box 86594
Tucson, Arizona 85754-6594
Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
18. 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.
19. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
20. SEVERABILITY. If any provision of this Agreement shall be held to be invalid
or inenforceable 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 inenforceable, 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.
4
<PAGE>
21. 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.
22. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
Arizona.
Party receiving services:
Healthlink International, Inc.
By: /s/ Nicholas G. Venetis
---------------------------------
Nicholas G. Venetis
Its President and CEO
Jesse A. Stoff, M.D.
By:
----------------------------------
Jesse A. Stofl M.D.
5
<PAGE>
Exhibit A -- The Products
Eden River Immune Daily
Eden River Immune 911
Eden River Pure Relief
Eden River Immune Antioxidant
Exhibit 10.11
HealthLink Services Wholesale Marketing Agreement
This agreement is made as of the 3rd day of January, 2000 by and between
HealthLink International, Inc., a Nevada corporation, 929 Eastwind Dr. Suite 225
Westerville, OH 43081 (hereinafter "HLI") and Purchase Plus Buyers Group, Inc.,
a Ohio corporation, 975 Eastwind Dr., Suite 190 Westerville, OH 43081
(hereinafter "PPBG")
WHEREAS, HLI markets certain discount health-related and other services at
wholesale for resale to consumers who may access services utilizing a
membership card; and
WHEREAS, PPBG markets discount services on a membership basis through a
nationwide organization of independent marketing associates utilizing a
network marketing program; and
WHEREAS, by agreement dated as of July 1, 1999, the parties contracted for
PPBG to offer certain HLI services through it's independent marketing
associates; and
WHEREAS, the parties now desire to revise and restate the referenced
agreement, effective from the day and year first written above.
Therefore in consideration for the foregoing and for other mutual
consideration set forth herein, the parties now agree as follows:
AGREEMENT
1. HLI Duties:
- --------------
A. Services: FILl will make the following discounted services available for
marketing and resale to and by authorized independent associates of PPBG:
o Pharmacy (Retail and Mail Order)
o Dental
o Vision
o Hearing
o Chiropractic
o 24-Hour Nurse Line
o Medical I.D. Card
o Prepaid Legal Club
B.Service Period: Discounted services will be provided by HLI on a periodic
fee per member basis utilizing a 13-month service period.
1
<PAGE>
HealthLink Services Wholesale Marketing Agreement
C. Network Marketing Exclusive: HLI warrants that during the term of
this Agreement, it's services will not be made available for marketing
resale through any network marketing company or organization other
than PPBG.
2. PPBG Duties:
------------
A. Fee For Services: PPBG will pay to I-ILl a $40 fee for each of its
customers and independent marketing associates who purchase HLI
services. The fee will be renewable on a 13-month periodic basis for
each customer or independent associate who renews such services.
B. Customer Information: PPBG will provide its customers and
associates who purchase HLI services with a member card and
information booklet outlining and describing the services and
benefits.
C. Advance Payment: In consideration for the exclusive nature of the
marketing rights of this Agreement PPBG will make payment to HLI in
the amount of $400,000.00, representing an advance on fees payable for
the first 10,000 customers and associates who purchase or renew HLI
services during the term of this Agreement.
D. Minimum Guarantee: In further consideration for the exclusive
nature of the rights granted herein, PPBG guarantees that by or before
December 31, 2000, it will pay to HLI hereunder fees representing a
minimum aggregate total count of 100,000 purchases and or renewals of
HLI services by PPBG customers or independent marketing associates.
3. Term and Termination:
--------------------
A. Term: The term of this Agreement shall be for a period of two (2)
years commencing on the date first set forth above and ending on
December 31,2001. Thereafter, this Agreement shall be automatically
renewed for successive terms of one year each unless and until
terminated by either party in accordance with section 3.B. below.
B. Termination: After the first year of the initial term hereof, this
Agreement may be terminated by either party without cause upon giving
the other party not less than 90 days written notice of its election
to terminate.
2
<PAGE>
HealthLink Services Wholesale Marketing Agreement
4. Confidentiality:
---------------
The parties acknowledge that in carrying out their mutual obligations
hereunder, they will receive and have access to confidential and
proprietary business information and know-how of one another. Such
information may include, but is not limited to marketing methods,
techniques, technology, and lists of names, addresses or other
identifying data regarding customers or independent marketing
associates, their purchasing or sales performance or their commission
income. The parties agree to keep and maintain such information on a
confidential and proprietary basis and to make no disclosure of any
such information or the terms of this Agreement except as required by
binding legal process or by prior agreement of the parties. The
provisions of this section 4 shall survive termination of this
Agreement by either party.
5. Independent Contractor Status:
-----------------------------
The parties acknowledge and agree that providers performing the
health-related services and other services accessible through HLI
membership are independent contractors for purposes of this Agreement
and for purposes of providing services to such members including
customers and independent associates of PPBG. Moreover, HLI and PPBG
recognize that they are separate and independent entities. As such
they agree to perform their duties hereunder as independent
contractors. Nothing in this Agreement shall be deemed to, nor shall
it create, the relationship of principal and agent, master and
servant, partners or joint ventures between FILl and PPBG.
6. Miscellaneous Provisions:
------------------------
A. Amendment: This Agreement cannot be amended except by a written
instrument executed by authorized officers of both parties.
B. Assignment: The rights and obligations of either party under this
Agreement may be assigned only upon written agreement of the other.
C. Entire Agreement: This agreement and any attachments hereto
represents the entire agreement of the parties and supercedes any and
all previous agreements, oral or written, between the parties covering
the subject matter hereof.
D. Governing Law: This Agreement, having been entered into in the
state of Ohio, shall be governed by and construed according to the
laws of the state of Ohio.
3
<PAGE>
HealthLink Services Wholesale Marketing Agreement
E. Indemnification: Each party hereto shall indemnify, hold harmless,
and defend the other and its officers, directors, shareholders,
employees, agents, licenses and assigns from any and all claims,
actions, suits, costs, liabilities, judgments, losses, penalties,
expenses, or damages of any kind and nature whatsoever imposed on or
incurred by any indimnitee arising out of any breach or alleged breach
of any representation, warranty or obligation made by such party
pursuant to this Agreement. Such indemnification shall include payment
of reasonable attorney fees necessary for defense of any such claim.
In witness WHEREOF, the undersigned parties have duly executed this Agreement
this 26 Day of January, 2000.
HealthLink International, Inc. Purchase Plus Buyers Group, Inc.
By /s/ Nicholas G. Venetis By /s/ Don Pedersen
---------------------------- -----------------------------------
Nicholas g. Venetis Name /s/
President/CEO ---------------------------------
Title CFO
---------------------------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use, in Amendment No. 2 to the Registration
Statement on Form SB-2, of our report dated February 24, 2000, except for the
last paragraph of Note 9 as to which the date is March 1, 2000 relating to the
financial statements of HealthLink International, Inc. for the years ended
December 31, 1999 and 1998 and the reference to our firm under the caption
"Experts" in the Prospectus contained in said Registration Statement.
Angell & Deering
Certified Public Accountants
Denver, Colorado
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 29,042
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 284,402
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,583,903
<CURRENT-LIABILITIES> 515,062
<BONDS> 0
0
0
<COMMON> 5,920
<OTHER-SE> 1,062,921
<TOTAL-LIABILITY-AND-EQUITY> 1,583,903
<SALES> 282,401
<TOTAL-REVENUES> 282,401
<CGS> 236,145
<TOTAL-COSTS> 1,044,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (995,087)
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<NET-INCOME> (995,087)
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