<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
VITAL LIVING PRODUCTS, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
DELAWARE 56-1683886
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5001 Smith Farm Road, Matthews, NC 28104
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (704) 821-3200
----------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Vital Living Products, Inc. (the "Company", which may be referred to as
"we", "us" or "our"), was incorporated in North Carolina in January 1990. On
December 23, 1991 the Company merged into a Delaware corporation bearing the
same name as a result of which the Company became a Delaware corporation.
We do business under the name American Water Service and sell a variety
of water treatment and testing products and services, including home water test
kits, water treatment equipment and high purity drinking water vended from
machines placed at retail locations.
We began as a manufacturer and distributor of two proprietary drinking
water programs: The Drinking Water Machine(TM) and The Raindrop Shoppe(TM). The
Drinking Water Machine(TM) was the first in-store water bottling program for
grocery stores. The Raindrop Shoppe(TM) provided consumers with an in-store
water vending program.
In April 1992, we consummated an initial public offering of our shares
of common stock at $3.25 per share. During the first twelve months of trading on
the Nasdaq Stock Market our stock price fell to $.25 per share. The following
year operational losses completely depleted all cash raised from the initial
public offering.
In March 1993, the chairman of our board, C. Wilbur Peters, made
changes in management personnel, personally assumed the role of president and
chief executive officer and began funding the Company's operations using his own
financial resources. Soon thereafter, the Company halted placements of the
unprofitable Drinking Water Machine(TM) and Raindrop Shoppe(TM) and began
installing self-serve coin-operated water vending machines on revenue share
programs with retailers.
In March 1994, our common stock, trading as low as $.04 per share,
ceased to be traded on the Nasdaq Stock Market. Since then it has been traded on
the Nasdaq OTC Bulletin Board. Vending machine installations continued to grow,
however, and in 1994 we began selling water treatment equipment for home and
commercial use.
In 1995 we began developing a line of home water test kits designed to
enable consumers to test the safety and quality of their home's tap water. In
late 1996 we launched the first of our PurTest(R) line of home water testing
products, our PurTest(R) Bacteria test kit. By the fall of 1997 we had a
comprehensive home water test kit product line on the market. Since then,
because we believe the continued development of our PurTest(R) line of products
offers the best opportunity to grow our business, it has been our primary focus.
2
<PAGE> 3
WATER TESTING PRODUCTS
We are currently the only U.S. provider of a comprehensive set of home
water test kits. Our PurTest(R) line of test kits includes: PurTest(R) Bacteria,
Nitrate, Nitrite; PurTest(R) Lead; PurTest(R) Iron Hardness Plus; PurTest(R)
Pesticide; and PurTest(R) Home Water Analysis Kit.
Concern with the safety of water is growing in the United States as
well as in other countries. According to a recent study conducted by the Water
Quality Association, a water industry group, many Americans are concerned about
their water and want to know more about what is in their water. In the United
States there are over 16 million private drinking wells which the Environmental
Protection Agency (the "EPA") recommends be tested annually for nitrates and
coliform bacteria and more frequently for pesticides if a problem is suspected.
We developed our PurTest(R) line of home water test kits to provide people
concerned with the safety of their water with an alternative to laboratory
testing:
o Our PurTest(R) Bacteria, Nitrate, Nitrite test kit utilizes EPA based
methods to determine the absence or presence of coliform bacteria and
instantly shows whether or not water is above or below the EPA safe
standards for nitrates or nitrites. This test kit typically retails
for around $13.00.
o Our PurTest(R)Pesticide test kit tests for 13 triazine elements and
produces results in less than eight minutes. This test kit typically
retails for around $13.00.
o Our PurTest(R) Iron Hardness Plus test kit instantly tests for eight
items including iron, hardness, copper, nitrates, nitrites, chlorine,
water pH, and alkalinity. This test kit typically retails for around
$6.00.
o Our PurTest(R)Lead test kit detects lead down to the EPA safe standard
of 15 ppb (parts per billion) and produces results in less than one
hour. This test kit typically retails for around $15.00.
o Our comprehensive PurTest(R) Home Water Analysis kit includes the
Bacteria, Nitrate, Nitrite kit, Iron Hardness Plus kit, and Lead test
kit, allowing the user to screen water for 12 contaminants and
conditions without needing to use a laboratory. This comprehensive
test kit typically retails for around $30.00.
We market our PurTest(R) line of products as a quick and inexpensive
alternative to laboratory testing. Recommended uses include initial and regular
follow-up testing to ensure continued water safety as well as testing following
the installation of water treatment products to verify treatment effectiveness.
Each of our test kits includes a toll-free number the customer can call to
obtain free advice from our trained employees regarding water safety and
available water treatment products.
PurTest(R) products are available through our website and nationwide at
retailers including Ace Hardware, Lowe's, HomeBase, Menards, Meijers, Savon
Drugs, Osco Drugs and many Home Depots, as well as water treatment dealers,
water well drillers and other independent retailers and
3
<PAGE> 4
building centers. Through various international distributors, PurTest(R)
products are sold internationally in 18 countries.
Component parts for PurTest(R) products are manufactured for us to our
specifications by various suppliers. Some of these components are supplied to us
on an exclusive basis pursuant to marketing and manufacturing agreements. We
believe the arrangements we have developed with our suppliers are adequate to
meet our current needs. In addition, all of these component parts can be
purchased from other manufacturers. There can be no assurance, however, that we
could obtain component parts from other manufacturers on terms as favorable as
those we have with our current suppliers. We assemble and package the final
product at our facilities in Matthews, North Carolina.
WATER TREATMENT EQUIPMENT AND SERVICES
We also sell and service water treatment products for both home and
office use. Our Puritron(TM) unit utilizes reverse osmosis technology to produce
high purity drinking water at a location's primary drinking water faucet by
filtering out contaminants such as dirt, sediment, dissolved solids, viruses,
organic molecules, pesticides and chlorine. We sell Puritron(TM) units at
wholesale to water treatment dealers for about $250 and will sell a unit to a
retail customer with installation for around $600. We also offer Puritron(TM)
service plans to customers for $20 to $30 per month. All new Puritron(TM) units
we sell to consumers come with a five year limited warranty.
Our PurGuard(R) unit utilizes ultraviolet technology to treat bacteria
in water and is designed to treat water at its entry point into a household so
that treated water is available throughout the household. We sell PurGuard(R)
units at wholesale to water treatment dealers for between $200 and $300 and will
sell a unit to a retail customer with installation for between $600 and $800. We
also offer PurGuard(R) service plans to customers for $19.95 per month. All new
PurGuard(R) units we sell come with a seven year limited warranty.
We also offer a complete line of point of entry water treatment
products including among other items softeners, neutralizers and iron filters
and sell other water treatment products including replacement bulbs and filters
and American Aqua(R) brand counter-top and shower head filtration products. We
offer financing on the installed water treatment products we sell to customers
with satisfactory credit ratings.
On a parts and labor basis, within the greater Charlotte, North
Carolina region we service all water treatment products we sell as well as all
other water treatment products available on the market.
Because we install and service most water treatment units we sell
directly, our retail water treatment equipment business is limited
geographically primarily to the greater Charlotte, North Carolina region.
However, our full line of water treatment products is available for purchase
though our website and our PurGuard(R) line of products is sold nationwide by
Lowe's and by many water treatment dealers.
4
<PAGE> 5
Our water treatment units are built for us to our specifications by
various suppliers. We believe other sources of supply for such products are
available and therefore do not believe the loss of any one of our current
suppliers would have a material adverse effect on our operations.
VENDING MACHINES AND MISTING SYSTEMS
We also sell drinking water dispensed to consumers through self-service
vending machines as well as high purity water used by grocery stores in
produce-misting systems. Our vending machines dispense high quality, low priced
drinking water under the brand name "America's Purist Water." We charge around
$.35 per gallon for water dispensed by our machines.
We place our vending machines inside or outside retail stores and have
revenue sharing arrangements with the stores. Establishments with whom we have
such agreements include K-Mart, Harris Teeter, Kroger, Winn Dixie, Hannaford and
The Pantry stores. In some locations, in addition to vending water to consumers,
our machines are used to purify water used in produce-misting systems we
maintain for grocers. In other locations, we place machines used solely to
provide water for produce-misting systems.
Our vending machines utilize a combination of reverse osmosis,
activated carbon, sediment filtration and/or ultra violet disinfection to
process and treat water.
We had approximately 200 vending and misting units in operation as of
December 31, 1999 placed in various locations in Georgia, North Carolina, South
Carolina, Tennessee, Virginia and West Virginia.
Our water vending and misting units are built for us to our
specifications by various suppliers. We believe other sources of supply are
available and therefore do not believe the loss of any one of our current
suppliers would have a material adverse effect on our operations
MAJOR CUSTOMERS
Sales to three major customers comprised approximately 18%, 13% and 13%
of our total 1999 sales. Sales to one major customer comprised approximately 15%
of our total 1998 sales.
COMPETITION
While there are various home water testing kits sold by other companies
that compete directly with individual PurTest(R) products, we are currently the
only U.S. provider of a comprehensive set of home water test kits. By adding to
their product offerings, however, other firms could develop similarly
comprehensive lines of products. Also, companies not currently involved in the
home water test kit market could enter it by developing competing lines of
products. Potential competitors could include larger companies which have
greater financial, development, marketing and distribution resources than we do.
In addition, laboratory testing which is available nationwide competes
directly with our water test kit business. In many locations, laboratory testing
is offered by health departments and
5
<PAGE> 6
other governmental agencies or by local commercial laboratories that will test
water for a fee. There are also a number of laboratories that offer mail-order
water testing services. In many areas water treatment equipment dealers offer
free home water testing as a part of their marketing efforts.
We believe our home water test kits offer significant competitive
advantages over laboratory testing. Our test kits are generally less expensive
than other available testing services and are also more convenient since the
user performs the test right at the source without needing to bring or mail a
sample to a laboratory or schedule an appointment with a technician. Our
PurTest(R) products also generally produce results much more quickly than
laboratory alternatives. Because PurTest(R) products are utilized at the home
there is no danger of sample contamination as can happen when samples are sent
through the mail to laboratories. Also, users of our PurTest(R) products, unlike
users of the free water testing performed by water treatment dealers, can
quickly and inexpensively test their water without being subject to any unwanted
sales pitch.
The water treatment industry is highly competitive. Our water treatment
equipment business competes with many local, regional and national water
treatment dealers and their franchisees. Some of our competitors are larger
companies which have significantly greater resources than we do. We believe that
because our current supply arrangements are favorable we are able to offer more
competitive prices on our water treatment products than many of our competitors
and that our PurGuard(R) unit features technology superior to that of many
competing products. We also believe our ability to service all makes and models
of water treatment equipment gives us a competitive advantage over many other
water treatment equipment servicers.
Our water vending business competes in the non-sparkling segment of the
highly competitive bottled water market with companies that deliver water to
homes and offices, off-the-shelf marketers and other vending machine operators
as well as with water treatment products similar to our Puritron(TM) and
PurGuard(R) units available on the market. Many of our vending business's
competitors, including water vending companies like Glacier Water Services
(Glacier), as well as bottled water companies like the Perrier Group (Poland
Spring), have significantly greater resources than we do. In addition, there are
a number of smaller companies that place water vending machines in territories
we serve and compete directly with our vending business. Because our vending
business's primary competitive advantage over water delivery services and
off-the-shelf marketers is price, a substantial decline in the price of either
delivered or off-the-shelf bottled water could adversely affect the demand for
water dispensed from our vending machines.
REGULATION
The water industry is subject to a variety of federal, state and local
laws and regulations. Various state laws and regulations require us to obtain
licenses for our vending machines, pay annual license and inspection fees,
comply with certain detailed design and quality standards regarding our vending
machines and our vended water, and continuously control the quality of our
vended water. In some states our vending machines are subject to routine and
random state-conducted regulatory quality inspections. Installation of our water
treatment products is generally subject to local plumbing codes. Although we
believe we are operating in substantial compliance with these laws and
regulations, they and their interpretations and enforcement are subject to
change. There can be no assurance that additional or more stringent requirements
will
6
<PAGE> 7
not be imposed on our operations in the future. Failure to comply with such
current or future laws and regulations could result in the imposition of fines,
a temporary shutdown of our vending operations, the loss of certification to
sell our vended water or, even in the absence of governmental action, a
reduction in our profit margins based on increases in licensing or inspection
fees payable by us or other additional compliance costs.
EMPLOYEES
As of December 31, 1999, we had a total of 20 full time employees and
two part time employees. None of our employees is covered by a collective
bargaining agreement. We believe that our relations with our employees are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's Financial Statements and the related notes thereto attached hereto
beginning at page F-1.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1999
Increasing sales of our PurTest(R) line of products was our primary
focus in 1998 and 1999. We sought to increase sales primarily by developing
relationships with national chain stores like Menards, which began selling
PurTest(R) products in September 1999, and regional chain stores like HomeBase,
which began selling PurTest(R) products in August 1999. We also sought to
increase consumer awareness of PurTest(R) products by obtaining endorsements
from organizations like the American Quality Institute, which awarded the
PurTest(R) product line its "Consumer Product Award" for 1999 and 2000, and
"Today's Homeowner" magazine which selected our PurTest(R) product line as one
of its "Best New Products for 2000."
Revenues from operations for 1999 increased 39% to $1,947,021 from
$1,396,112 in 1998. The large increase in operating revenues was primarily the
result of a 104 % increase in sales of our PurTest(R) line of products, which
grew from $586,451 in 1998 to $1,196,090 in 1999. Revenues from the sales and
service of water treatment equipment decreased 7% from $436,048 in 1998 to
$405,319 in 1999. Revenues from our water vending and misting operations
decreased 4% from $352,871 in 1998 to $339,367 in 1999.
Loss from operations only was reduced to $398,432 in 1999 from $572,889
in 1998. Expense items contributing to this loss included product development
costs of $47,000 in 1999, up from $0 in 1998; sales and marketing costs for our
PurTest(R) line totaling $304,936 in 1999, up 63% from $187,605 in 1998; and
professional fees, primarily associated with the Company's debt restructuring
which were $91,161 in 1999, up from $53,309 in 1998. We anticipate incurring a
relatively high level of sales and marketing costs as we continue to focus on
increasing sales of our PurTest(R) line of products and anticipate incurring a
relatively high level of professional fees associated with our becoming a public
reporting company. We also may incur further development costs in connection
with the expansion of our PurTest(R) product line.
7
<PAGE> 8
Net income for the year ended December 31, 1999, was $2,699,525,
reflecting $3,461,504 of debt forgiveness income mitigated by losses from
operations. On June 30, 1999, C. Wilbur Peters, chairman of our board and our
primary lender, forgave a portion of our debt including interest and lease
expenses resulting in approximately $2,150,000 of debt forgiveness income. On
November 5, 1999, we issued 31,290 shares of our Series B, Class B preferred
stock to Mr. Peters in exchange for all of the equipment leased by us from Mr.
Peters and the release of the balance due on a promissory note to Mr. Peters,
resulting in approximately $1,312,000 of additional debt forgiveness income.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred operating losses each year since our inception.
Throughout that time C. Wilbur Peters, chairman of our board, or entities
controlled by Mr. Peters have funded our operations by lending money to us and
by leasing equipment to us used in our business. Under a $400,000 promissory
note dated September 1, 1992 issued by us to CTF, Inc., a non-profit corporation
controlled by Mr. Peters, we owed approximately $403,500 at December 31, 1999.
This note is payable on demand and bears interest at prime plus 2%. As of June
30, 1999 our total indebtedness to Mr. Peters for money borrowed and for accrued
and unpaid amounts due under equipment leases was approximately $5,180,000. On
June 30, 1999 Mr. Peters forgave approximately $2,150,000 of our debt to him and
on November 5, 1999 Mr. Peters forgave the balance due on our $3,035,529
promissory note to him in exchange for our issuing 31,290 shares of our Series
B, Class B preferred stock to Mr. Peters. On July 1, 1999, we established a line
of credit with Mr. Peters in the amount of $750,000 evidenced by a promissory
note bearing interest at the LIBOR Market Index Rate plus 1.50%, due and payable
on June 30, 2001. At December 31, 1999, the outstanding balance of that note was
$37,752. Mr. Peters has no legal obligation to make advances upon that note.
We believe that our cash on hand, cash generated from operations, and
advances on our current line of credit (which Mr. Peters is not obligated to
make) will enable us to continue our operations through July 2001. No assurance
can be given, however, that Mr. Peters will continue to advance funds under the
line of credit, that such funds will satisfy our needs for such period or that,
if needed, additional funds will be available. If we are unable to obtain any
such additional necessary financing our financial condition and results of
operations could be materially adversely affected.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements in this report as to projections of future financial or
economic performance of the Company, and statements of our plans and objectives
for future operations are "forward looking" statements, and are being provided
in reliance upon the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Important factors that could cause actual results
or events to differ materially from those projected, estimated, assumed or
anticipated in any such forward looking statements include: general economic
conditions in our markets including inflation; recession; increased competition
from existing competitors and from any new entrants in our markets; any loss of
key management personnel; changes in governmental regulations applicable to
8
<PAGE> 9
our business; and the availability of additional funding necessary to support
our operations in the event our currently available funding sources prove
inadequate or unavailable.
ITEM 3. DESCRIPTION OF PROPERTY
Our principal office and operating facilities are located in Matthews,
North Carolina, in a building that we lease. The building, which contains
approximately 2,300 square feet of office and 10,700 square feet of warehouse
space, is in good condition. Our lease is for a term ending March 31, 2002,
subject to extension at our option for an additional two years, at a monthly
rate of $3,400. We believe that our current facilities will be adequate to meet
our needs for the foreseeable future and that suitable additional or alternative
space will be available if needed.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 15, 2000, certain
information regarding beneficial ownership of our common stock by:
o each person or group of affiliated persons we know to be the
beneficial owner of 5% or more of our outstanding shares of
common stock
o each director
o each executive officer; and
o all directors and executive officers as a group
9
<PAGE> 10
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON PERCENT OF COMMON
OF BENEFICIAL OWNER(1) STOCK OWNED(2) STOCK OUTSTANDING
---------------------- ---------------- -----------------
<S> <C> <C>
C. Wilbur Peters 2,294,057(3) 52.69%
2004 Valencia Terrace
Charlotte, NC 28226
Donald R. Podrebarac 622,200(4) 17.79%
1154 Baron Road
Weddington, NC 28173
Larry C. Pratt 373,888(5) 11.00%
5001 Smith Farm Road
Matthews, NC 28104
Duane G. Hansen -- --
1999 Candlewick Drive
Fort Mill, SC 29715
Phil Divine -- --
2235 Ramblewood Lane
Charlotte, NC 28210
CTF, Inc. 1,294,056(6) 38.58%
2004 Valencia Terrace
Charlotte, NC 28226
Brian E. Huey 230,000 7.42%
1629 Stevens Ridge Road
Matthews, NC 28105
Gary Moore 160,000(7) 5.16%
c/o McKinney Reese McAlister
& Company
P.O. Box 25579
Greenville, SC 29616-0579
All Directors and executive 3,290,144(3)(4)(5) 65.10%
officers as a group (5 persons)
</TABLE>
- --------------------------------
(1) The information about ownership was furnished to the Company by the
indicated beneficial owners, except for information with respect to
Gary Moore which was provided to us by our transfer agent.
(2) All shares are owned directly and with sole voting and dispositive
power except as otherwise noted.
(3) Includes 1,038,501 shares held by CTF, Inc. and 255,556 shares issuable
upon conversion of the 575,000 shares of Series A, Class B preferred
stock owned by CTF, Inc. as well as 1,000,000 shares subject to
presently exercisable options owned directly by Mr. Peters. Mr. Peters
and his wife are the sole directors of CTF, Inc., a non-profit
corporation. As such they have the sole power to vote and dispose of
the shares owned by CTF, Inc.
(4) Includes 212,200 shares owned jointly by Mr. Podrebarac and his wife
and 400,000 shares subject to presently exercisable options held by Mr.
Podrebarac.
(5) Includes 300,000 shares subject to presently exercisable options held
by Mr. Pratt.
10
<PAGE> 11
(6) Includes 255,556 shares obtainable upon conversion of the 575,000
shares of Series A, Class B preferred stock owned by CTF, Inc.
(7) Includes shares registered in the name of Gary Moore, which are the
only shares known by us to be owned by Mr. Moore.
SERIES A PREFERRED STOCKHOLDERS RIGHT TO ELECT MAJORITY OF BOARD OF DIRECTORS
Pursuant to the terms of our Certificate of Incorporation, if by June
30, 1996 we have not redeemed all outstanding shares of Series A, Class B
preferred stock or if we fail to make two quarterly dividend payments in any one
year on such shares, the holders of our shares of Series A, Class B preferred
stock are entitled to elect a majority of our board of directors. Currently all
our outstanding shares of Series A, Class B preferred stock are owned by CTF,
Inc., a non-profit corporation controlled by C. Wilbur Peters, chairman of our
board. We have not redeemed any shares of our Series A, Class B preferred stock
and have not made any quarterly dividend payments on such shares since June
1992. As a result, since January 1993 CTF, Inc. has been entitled to elect a
majority of our board of directors. CTF, Inc. will continue to have the right to
elect a majority of our board of directors until we have redeemed all
outstanding shares of our Series A, Class B preferred stock.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME &
DIRECTOR SINCE AGE POSITION
-------------- --- --------
<S> <C> <C>
Donald R. Podrebarac 50 Chief Executive Officer, President and Director
1993
C. Wilbur Peters 77 Chairman of the Board, Treasurer and Director
1990
Larry C. Pratt 50 Vice President, Secretary and Director
1990
Duane G. Hansen 69 Director
1993
Phil Divine 54 Director
1993
</TABLE>
Our board of directors has five members. All directors currently hold
office until the next annual meeting of stockholders or until their successors
have been elected and qualified. There are no family relationships between any
of our directors or executive officers.
Donald R. Podrebarac has served as our Chief Executive Officer and
President since 1996 and has also served on our board of directors since 1993.
Mr. Podrebarac served as Executive Vice President from 1994 to 1996. From 1992
to 1994 Mr. Podrebarac served as a consultant to the Company. From 1991 to 1992
Mr. Podrebarac served as President of Alsaka Falls Bottling Company, a bottled
water company and a wholly-owned subsidiary of Liqui-box Corporation, a
11
<PAGE> 12
publicly-traded bottled water company. From 1982 to 1989 Mr. Podrebarac served
as President of Ambrosia Premium Water Company, a bottled water company founded
by Mr. Podrebarac.
C. Wilbur Peters has served as a director since our inception in 1990.
He has served as Chairman of the Board and Treasurer since 1993. From 1993 to
1996 Mr. Peters served as Chief Executive Officer and President. Mr. Peters was
the founder, Chief Executive Officer and President of Minnesota Fabrics, Inc., a
publicly-traded piece goods retail company which was acquired by Hancock
Fabrics, Inc., a fabric retailer, in 1985. Since 1985 Mr. Peters has been
President and director of CTF, Inc., a non-profit corporation.
Larry C. Pratt has served as a director since our inception in 1990. He
has served as Vice President and Secretary since 1993. Since 1989 Mr. Pratt has
served as a venture consultant for C. Wilbur Peters in connection with Mr.
Peters' private investments. From 1985 to 1989 Mr. Pratt served as
Administrative Manager of Hancock Fabrics, Inc, a fabric retailer.
Duane G. Hansen joined our board of directors in 1993. Mr. Hansen was
Group Vice President of Minnesota Fabrics, Inc. at the time of its acquisition
by Hancock Fabrics, Inc. in 1985 and continued as Vice President until 1987.
Since 1987 Mr. Hansen has been self-employed and from 1991 to 1996 he served as
York County (S.C.) Republican Chairman.
Phil Divine joined our board of directors in 1993. Since 1999 Mr.
Divine has served as Director of Management Development and Training for Osprey
Systems, Inc., an electronic commerce consulting firm. From 1997 to 1999 Mr.
Divine served as Chief Information Officer for Osprey Systems. From 1996 to 1997
Mr. Divine served as Practice Manager for Osprey Systems. From 1995 to 1996 Mr.
Divine was a consultant for Phil Divine, Inc., a management consulting firm.
ITEM 6. EXECUTIVE COMPENSATION
EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation. Mr. Podrebarac is our only employee who
receives compensation in excess of $100,000 per year. Mr. Podrebarac's salary is
$122,751 per year. We pay the premiums on a $500,000 term life insurance for the
benefit of Mr. Podrebarac and reimburse him for operating and maintenance
expenses on his vehicle. We also may from time to time in our discretion pay
performance bonuses to Mr. Podrebarac. Mr. Podrebarac is eligible to receive
options to purchase shares of our common stock pursuant to our 1991 Stock Option
Plan.
Director Compensation. We pay each outside director a $500 fee for each
meeting of the board of directors attended. Directors who are officers or
employees of the Company receive no additional compensation for serving as
directors. We reimburse all directors for all reasonable out-of-pocket expenses
incurred in attending meetings of our board of directors and any of its
committees.
12
<PAGE> 13
The following table shows the compensation paid by us for each of the
years ended December 31, 1999, December 31, 1998 and December 31, 1997,
respectively, to or for the account of Donald R. Podrebarac, our Chief Executive
Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS ------------- COMPENSATION
POSITION YEAR ($) ($) OPTIONS (#) ($)
- ------------------ ---- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Donald R. Podrebarac 1999 121,962 -- -- 998(1)
President & CEO 1998 116,234 5,000 -- 998(1)
1997 110,450 -- 500,000 998(1)
</TABLE>
- --------------------
(1) Represents value of term life insurance premiums paid by us for the
benefit of Mr. Podrebarac.
The following table sets forth information relating to the exercise of
options by Mr. Podrebarac during the year ended December 31, 1999 and the
year-end value of his unexercised stock options.
AGGREGATED OPTION EXERCISES IN
1999 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS
SHARES AT YEAR-END (#) AT YEAR-END ($)
ACQUIRED ------------------- -------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Donald R. Podrebarac -- -- 500,000/0 1,000,000(1)/0
</TABLE>
- -------------------
(1) Based on the closing price of the Company's common stock as quoted on
the Nasdaq OTC Bulletin Board on December 31, 1999 ($2.13 per share).
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception our primary lender has been C. Wilbur Peters,
chairman of our board, or entities controlled by Mr. Peters. Under a $400,000
promissory note dated September 1, 1992 issued by us to CTF, Inc., a non-profit
corporation controlled by Mr. Peters, we owed approximately $403,500 at December
31, 1999. This note is payable on demand and bears interest at prime plus 2%. As
of June 30, 1999, our total indebtedness to Mr. Peters for money borrowed and
for accrued and unpaid amounts due under equipment leases with Mr. Peters was
approximately $5,180,000. Effective June 30, 1999 and as an accommodation to the
Company, Mr. Peters executed an Instrument of Forgiveness of Indebtedness in
favor of the Company pursuant to which Mr. Peters released and discharged
approximately $2,150,000 of the Company's indebtedness to him.
13
<PAGE> 14
On November 5, 1999, Mr. Peters and the Company entered into an
Exchange Agreement pursuant to which the balance due under our $3,035,535
promissory note to Mr. Peters and title to certain equipment being leased by the
Company from Mr. Peters were exchanged for the issuance of 31,290 shares of the
Company's Series B, Class B preferred stock to Mr. Peters.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 20,000,000
shares of common stock, par value $0.01 per share, 3,303,375 shares of Class A
preferred stock, par value $.01 per share), and 1,000,000 shares of Class B
preferred stock, par value $0.01 per share. Our Certificate of Incorporation
provides that shares of Class B preferred stock may be issued in one or more
series with relative rights, preferences and limitations as fixed by our board
of directors. To date our board of directors has established two different
series of shares of Class B preferred stock, denominated Series A, Class B
preferred stock and Series B, Class B preferred stock, respectively. 575,000
shares of Series A, Class B preferred stock have been authorized, 31,290 shares
of Series B, Class B preferred stock have been authorized and 393,710 shares of
Class B preferred stock remain undesignated and are available for issuance. As
of February 15, 2000 we had 3,320,298 shares of common stock outstanding,
3,303,375 shares of Class A preferred stock outstanding, 575,000 shares of
Series A, Class B preferred stock outstanding and 31,290 shares of Series B,
Class B preferred stock outstanding.
VOTING RIGHTS
Each holder of common stock is entitled to one vote per share on any
matter requiring a shareholder vote. Our shares of common stock do not have
cumulative voting rights in the election of directors, and directors are elected
by a plurality of the votes cast for nominees for the positions to be filled by
shareholder vote. Holders of shares of preferred stock have no general voting
rights other than as required by law. If, however, by June 30, 1996 we have not
redeemed all outstanding shares of Series A, Class B preferred stock or if we
fail to make two quarterly dividend payments in any one year on such shares, the
holders of our shares of Series A, Class B preferred stock are entitled to elect
a majority of our board of directors. We have not redeemed any shares of our
Series A, Class B preferred stock and have not made any quarterly dividend
payments on such shares since June 1992. As a result, since January 1993 the
sole holder of our shares of Series A, Class B Preferred stock, CTF, Inc., a
non-profit corporation controlled by the chairman of our board, C. Wilbur
Peters, has been entitled to elect a majority of our board of directors. CTF,
Inc. will continue to have the right to elect a majority of our board of
directors until we have redeemed all outstanding shares of our Series A, Class B
preferred Stock. Consequently, the holders of our shares of common stock are
entitled to elect only two members of our five member board of directors.
DIVIDEND RIGHTS
Holders of our shares of Class A preferred stock are not entitled to
receive any dividends on such shares.
14
<PAGE> 15
Holders of our shares of Series A, Class B preferred stock are entitled
to a cumulative quarterly dividend of 12% per year based on a per share value of
$2.00 per share ("Series A, Class B Dividends"). Series A, Class B Dividends
accrue on a daily basis whether or not declared and whether or not we have
sufficient legally available funds to pay them. Series A, Class B Dividends are
payable prior and in preference to any other distributions payable with respect
to any other classes or series of our capital stock.
After all accrued Series A, Class B Dividends have been paid, holders
of our Series B, Class B preferred stock are entitled to dividends of up to
$12.00 per share per calendar year (noncumulative) as declared by our board of
directors and prior and in preference to any other distributions payable with
respect to any other classes or series of our capital stock ("Series B, Class B
Dividends").
After payment of all accrued Series A, Class B Dividends and payment of
$12.00 per share of Series B, Class B Dividends in a calendar year, and any
preferred dividends declared on any other series of Class B preferred stock that
may be designated in the future, holders of our shares of common stock are
entitled to dividends as declared by our board of directors. The determination
and declaration of dividends on our shares of Series B, Class B preferred stock
and our shares of common stock is within the discretion of the board of
directors subject to legal limitations.
LIQUIDATION RIGHTS
Upon our liquidation holders of our shares of Series A, Class B
preferred stock are entitled to a liquidation preference of $.01 per share prior
and in preference to any other distributions payable with respect to any other
classes or series of our capital stock (the "Series A, Class B Liquidation
Preference").
Upon our liquidation and following payment of the Series A, Class B
Liquidation Preference, holders of our shares of Series B, Class B preferred
stock are entitled to a liquidation preference of $10.00 per share prior and in
preference to any other distributions payable with respect to any other classes
or series of our capital stock (the "Series B, Class B Liquidation Preference").
Upon our liquidation and following payment of the Series A, Class B
Liquidation Preference and the Series B, Class B Liquidation Preference, holders
of our shares of Class A preferred stock are entitled to a liquidation
preference of $.01 per share prior and in preference to any other distributions
payable with respect to any other classes or series of our capital stock (the
"Class A Liquidation Preference").
Upon our liquidation and following payment of the Series A, Class B
Liquidation Preference, the Series B, Class B Liquidation Preference and the
Class A Liquidation Preference, and any liquidation preference on any other
series of Class B preferred stock that may be designated in the future, our
remaining assets are available for distribution to holders of our shares of
common stock.
15
<PAGE> 16
CONVERSION RIGHTS; COMPANY'S RIGHT TO REDEEM SHARES OF PREFERRED STOCK
Our Certificate of Incorporation provides that, subject to adjustment
for stock dividends, subdivisions, combinations, reorganizations and
reclassifications, each share of our Class A preferred stock is convertible at
the holder's election into one share of our common stock. However, all 3,220,298
outstanding shares of our Class A preferred stock are currently being held in
escrow pursuant to an Escrow Agreement (the "Escrow Agreement") dated March 31,
1992 by and among us, all the original holders of outstanding shares of Class A
preferred stock, J.W. Gant & Associates, Inc. (the underwriter for our 1992
initial public offering) and First Union National Bank ("Escrow Agent") under
which the original holders have agreed that during the escrow period provided
for in the Escrow Agreement they will not exercise any conversion rights with
respect to the shares of Class A preferred stock held in escrow thereunder.
Under the terms of the Escrow Agreement, the Escrow Agent was required to
release the shares of Class A preferred stock held in escrow thereunder to the
original holders only upon the Company's achieving certain performance targets
during its first five full fiscal years following March 31, 1992. None of such
performance targets were met. The Escrow Agreement further provided that
following the Company's failure to meet such performance targets and the
expiration of the escrow period, the Escrow Agent was to release the shares of
Class A preferred stock held under the Escrow Agreement to the Company and the
Company was to redeem such shares at par value ($.01 per share, or an aggregate
of $32,203). The shares of Class A preferred stock held under the Escrow
Agreement have not yet been released to the Company. At the board meeting held
March 7, 2000, our board of directors resolved that the Company should take
action to cause all outstanding shares of Class A preferred stock to be released
from escrow so that such shares may be redeemed by the Company pursuant to the
terms of the Escrow Agreement or on such other terms as may be agreed upon
between the Company and the original holders of the Class A preferred stock.
Such original holders include CTF, Inc. (a non-profit corporation of which Mr.
Peters and his wife are the sole directors) and Mr. Pratt, who hold 1,156,182
and 165,169 shares, respectively, of the Class A preferred stock.
Subject to adjustment for stock dividends, subdivisions, combinations,
reorganizations and reclassifications, each share of our Series A, Class B
preferred stock is convertible at the holder's election into four-ninths (4/9)
of a share of our common stock (or an aggregate of 255,556 shares of common
stock). Subject to adjustment for stock dividends, subdivisions, combinations,
reorganizations and reclassifications, following November 5, 2000 each share of
our Series B, Class B preferred stock is convertible at the holder's election
into fifty shares of our common stock (or an aggregate of 1,564,500 shares of
common stock).
At any time, we may redeem all outstanding shares of our Series A,
Class B preferred stock for $2.00 per share (or an aggregate of $1,150,000). At
any time, we may redeem all outstanding shares of our Series B, Class B
preferred stock for $100.00 per share (or an aggregate of $3,129,000), provided
we have paid all declared dividends on the Series B, Class B preferred stock.
16
<PAGE> 17
NO PREEMPTIVE RIGHTS
Holders of the shares of capital stock do not have preemptive rights to
subscribe for additional shares on a pro rata basis if and when additional
shares are offered for sale by the Company.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
As of February 15, 2000, the Company had issued and outstanding
3,098,326 shares of common stock held by approximately 157 holders of record.
Since March 1994 our Company's common stock has been quoted on the
Nasdaq OTC Bulletin Board under the symbol "VLPI". The range of high and low
sales prices for the common stock as quoted on the OTC Bulletin Board are listed
below for the periods indicated. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
High Low
---- ---
Fiscal Year 1998: Quarter Ended:
- ----------------- --------------
First Quarter March 31, 1998 $0.45 $0.17
Second Quarter June 30, 1998 $0.48 $0.22
Third Quarter September 30, 1998 $0.38 $0.27
Fourth Quarter December 31, 1998 $0.34 $0.23
Fiscal Year 1999: Quarter Ended:
- ----------------- --------------
First Quarter March 31, 1999 $0.75 $0.25
Second Quarter June 30, 1999 $0.56 $0.40
Third Quarter September 30, 1999 $0.69 $0.44
Fourth Quarter December 31, 1999 $3.00 $0.44
We have never declared or paid any cash dividends on our common stock.
We currently anticipate that we will retain any future earnings to fund the
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Our Certificate of Incorporation provides
that we may not pay dividends on our common stock unless we have first paid all
accrued dividends on our Series A, Class B preferred stock and have first paid
dividends of $12.00 per share during the calendar year on our Series B, Class B
preferred stock. Accrued dividends on our Series A, Class B preferred stock
totaled $1,035,000 at December 31, 1999, and no dividends have been paid on our
Series B, Class B preferred stock during 2000 through February 29, 2000. Payment
of future dividends, if any, will be at the discretion of our board of directors
17
<PAGE> 18
after taking into account various factors, including our earnings, financial
conditions, operating results and current and anticipated cash needs.
ITEM 2. LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings. However,
we are currently and may from time to time in the future become a party to
various legal proceedings incidental to our business.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On November 5, 1999 and pursuant to an Exchange Agreement with C.
Wilbur Peters, chairman of our board and our primary lender, we issued 31,290
shares of our Series B, Class B preferred stock to Mr. Peters in exchange for
the release and discharge indebtedness totaling $3,035,535. The transaction was
deemed to be exempt from registration under the Securities Act of 1933 (the
"Securities Act") in reliance on Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering
Since January 1, 1997 and pursuant to our 1991 Stock Option Plan we
have issued options to purchase an aggregate of 1,828,875 shares of our common
stock. On January 18, 2000 and in connection with the exercise of a stock option
granted pursuant to our 1991 Stock Option Plan, we issued 100,000 shares of our
common stock to Donald R. Podrebarac, our president and chief executive officer,
for aggregate consideration of $12,500. On January 18, 2000 and in connection
with the exercise of a stock option granted pursuant to our 1991 Stock Option
Plan, we issued 1,875 shares of our common stock to Sandra Miller for aggregate
consideration of $468.75. These transactions were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated under
Section 3(b) of the Securities Act, as transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
rule.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation provides that no director shall be
liable to the Company for monetary damages for breach of fiduciary duty as a
director except for liability for:
o any breach of the duty of loyalty to the Company or its
stockholders
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law
o unlawful dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper
personal benefit
18
<PAGE> 19
Our Certificate of Incorporation and our Bylaws require us to indemnify
our officers and directors to the fullest extent permitted by the Delaware
General Corporation Law. The Delaware General Corporation Law permits a
corporation to indemnify a person for expenses, judgments, fines and amounts
paid in settlement incurred in connection with actions, suits or proceedings
(other than any actions by or in right of the corporation) brought against the
person because the person was an officer or director of the corporation so long
as the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action the person had no reasonable cause to believe his
or her conduct was unlawful. The Delaware General Corporation Law permits a
corporation to indemnify a person for expenses incurred in connection with
actions, suits or proceedings by or in right of the corporation brought against
the person because the person was an officer or director of the corporation so
long as the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that any such indemnity may be provided only to the extent the court in
which such action or suit was brought determines that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification.
19
<PAGE> 20
PART F/S
The following financial statements are included herein:
Page
----
Independent Auditor's Report F-1
Balance Sheet F-2
Statement of Operations F-4
Statement of Changes in Stockholders' Equity F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-9
20
<PAGE> 21
WAGNER NOBLE & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of Vital Living Products, Inc.
We have audited the accompanying balance sheet of Vital Living Products, 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vital Living Products, 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Wagner Noble & Company
Charlotte, North Carolina,
March 1, 2000.
F-1
<PAGE> 22
VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $661
Accounts receivable, less allowance for doubtful accounts of $12,075 150,855
Installment accounts receivable 19,191
Inventory 280,072
-----------
Total current assets 450,779
PROPERTY AND EQUIPMENT:
Office furniture and equipment 37,215
Warehouse equipment 94,600
Computer equipment 126,577
Vehicles 99,833
Water service equipment 443,141
Leasehold improvements 22,433
-----------
823,799
Less accumulated depreciation 645,917
-----------
Net property and equipment 177,882
OTHER ASSETS:
Installment accounts receivable 18,736
Deferred costs, net of accumulated amortization of $45,852 19,444
-----------
38,180
-----------
$666,841
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-2
<PAGE> 23
VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Bank overdrafts $38,626
Trade accounts payable 85,583
Accrued interest payable to related party 3,709
Demand notes payable to related parties 437,752
Accrued dividends 1,035,000
Accrued payroll taxes 16,800
Current portion of long-term notes payable 6,450
Other accrued liabilities 73,473
-----------
Total current liabilities 1,697,393
LONG-TERM NOTES PAYBLE 6,137
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized;
3,320,298 shares issued and 2,996,451 shares outstanding 33,203
Preferred stock - Class A, $.01 par value, 3,303,375 shares
authorized, issued and outstanding 33,034
Preferred stock - Class B, convertible, $.01 par value,
1,000,000 shares authorized
Series A - 575,000 shares outstanding 1,150,000
Series B - 31,290 shares outstanding 1,783,935
Paid-in capital 4,196,852
Treasury stock, 323,847 shares, at cost (75,000)
Retained earnings (deficit) (8,158,713)
-----------
Total stockholders' equity (1,036,689)
-----------
$666,841
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-3
<PAGE> 24
VITAL LIVING PRODUCTS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
REVENUES:
Product sales $1,521,004 $949,472
Service revenues 426,017 446,640
----------- -------------
Total revenues 1,947,021 1,396,112
COST OF GOODS SOLD:
Direct material costs 747,137 529,405
Labor, taxes and fringes 293,785 365,395
Travel, vehicle and other costs 82,812 119,680
Lawsuit settlement costs 62,407 -
Research and development costs 47,000 -
Depreciation 94,302 89,016
----------- -------------
Total cost of goods sold 1,327,443 1,103,496
----------- -------------
GROSS MARGIN 619,578 292,616
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries, taxes and fringes 318,821 308,523
Sales commissions and brokerage costs 111,616 78,560
Marketing, advertising and promotion 304,936 187,605
Travel and vehicle costs 47,051 39,801
Professional fees and costs 91,161 53,309
Bad debt expense 5,198 26,202
Office and telephone costs 110,959 106,585
Depreciation and amortization 12,206 45,224
Insurance and other 16,062 19,696
----------- -------------
Total selling, general and administrative expenses 1,018,010 865,505
INCOME (LOSS) FROM OPERATIONS ($398,432) ($572,889)
----------- -------------
</TABLE>
Continued
F-4
<PAGE> 25
VITAL LIVING PRODUCTS, INC.
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
INCOME (LOSS) FROM OPERATIONS ($398,432) ($572,889)
OTHER REVENUES (EXPENSES):
Interest expense (369,951) (479,796)
Other 6,404 7,897
----------- -------------
Total other revenues (expenses) (363,547) (471,899)
----------- -------------
NET INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (761,979) (1,044,788)
INCOME TAX (PROVISION) BENEFIT - -
----------- -------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (761,979) (1,044,788)
EXTRAORDINARY ITEM :
Forgiveness of debt, income tax effect is zero
($1.16 per common share in year ended December 31, 1999) 3,461,504 -
----------- -------------
NET INCOME (LOSS) $2,699,525 ($1,044,788)
=========== =============
BASIC INCOME (LOSS) PER COMMON SHARE $0.85 ($0.39)
=========== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,996,451 2,996,451
=========== =============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-5
<PAGE> 26
VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock
---------------------- Retained Class A Class B Class B, Ser B
Number of $.01 Paid-in Treasury Earnings Preferred Preferred Preferred
Shares Par Value Capital Stock (Deficit) Stock Stock Stock
----------- --------- ------------ ---------- ------------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 3,320,298 $33,203 $4,196,852 ($75,000) ($9,537,450) $33,034 $1,150,000 $ -
Dividends accrued on Series A,
Class B, preferred stock at
$.16 per share - - - - (138,000) - - -
Net loss for the year ended
December 31, 1998 - - - - (1,044,788) - - -
----------- --------- ------------ ---------- ------------- --------- ------------ ----------
BALANCE, December 31, 1998 3,320,298 $33,203 $4,196,852 ($75,000) ($10,720,238) $33,034 $1,150,000 $ -
=========== ========= ============ ========== ============= ========= ============ ==========
Dividends accrued on Series A,
Class B, preferred stock at
$.16 per share - - - - (138,000) - - -
Issue of Series B, Class B
Preferred stock, 31,290 shares
in exchange for debt - - - - - - - 1,783,935
Net income for the year ended
December 31, 1999 - - - - 2,699,525 - - -
----------- --------- ------------ ---------- ------------- --------- ----------- ----------
BALANCE, December 31, 1999 3,320,298 $33,203 $4,196,852 ($75,000) ($8,158,713) $33,034 $1,150,000 $1,783,935
=========== ========= ============ ========== ============= ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
BALANCE, December 31, 1997 ($4,199,361)
Dividends accrued on Series A,
Class B, preferred stock at
$.16 per share (138,000)
Net loss for the year ended
December 31, 1998 (1,044,788)
-------------
BALANCE, December 31, 1998 ($5,382,149)
=============
Dividends accrued on Series A,
Class B, preferred stock at
$.16 per share (138,000)
Issue of Series B, Class B
Preferred stock, 31,290 shares
in exchange for debt 1,783,935
Net income for the year ended
December 31, 1999 2,699,525
-------------
BALANCE, December 31, 1999 ($1,036,689)
=============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-6
<PAGE> 27
VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $2,001,000 $1,410,661
Cash paid to suppliers and employees (2,200,108) (1,802,104)
Interest paid (52,069) (38,890)
----------- -------------
Net cash used by operating activities (251,177) (430,333)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (54,740) (60,202)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from demand notes payable to related parties 316,252 508,669
Payments on notes payable (6,203) (2,979)
Payments on obligations under capital leases payable to
related party (8,997) (16,953)
----------- -------------
Net cash provided by financing activities 301,052 488,737
----------- -------------
NET DECREASE IN CASH (4,865) (1,798)
CASH, beginning of year 5,526 7,324
----------- -------------
CASH, end of year $661 $5,526
=========== =============
</TABLE>
NON-CASH TRANSACTIONS:
Preferred Series A, Class B dividends of $138,000 were accrued during each of
the years ended December 31, 1999 and 1998.
In June 1999, approximately $2,150,000 of capital lease obligations and
related accrued interest along with accrued interest on a demand note payable
were all forgiven by the related party to whom these amounts were owed.
In November 1999, a demand note with a related party for approximately
$3,036,000, related accrued interest of approximately $64,000, and certain
equipment were exchanged for 31,290 shares of Preferred Series B, Class B
stock. This stock was discounted to its fair market value of approximately
$1,784,000.
Continued
F-7
<PAGE> 28
VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED
BY OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Net income (loss) $2,699,525 ($1,044,788)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 106,507 133,945
Decrease in accounts receivable 52,773 32,853
Increase in inventory (47,594) (2,306)
(Increase) decrease in prepaid expenses 28,247 (6,733)
Increase (decrease) in bank overdrafts (8,844) 45,103
Increase (decrease) in trade accounts payable 7,961 (5,661)
Increase (decrease) in accrued interest payable
to related party (6,425) 440,906
Decrease in accrued payroll taxes (18,624) (976)
Increase (decrease) in other accrued liabilities 72,494 (22,676)
Debt forgiveness income (3,137,197) -
----------- -------------
Net cash used by operating activities ($251,177) ($430,333)
=========== =============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-8
<PAGE> 29
VITAL LIVING PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS - Vital Living Products, Inc. sells various water
testing materials, including kits which test for lead, pesticides,
bacteria, iron and other substances and conditions; vending machines,
which dispense purified and filtered water at various locations,
including grocery stores and shopping centers; and misting apparatus.
It also sells and services water treatment equipment and water
softeners and filters. The Company operates under the name American
Water Service.
FISCAL YEAR END CHANGE - Vital Living Products, Inc. has changed its
fiscal year end to December 31 effective for the year ended December
31, 1998, and the accompanying financial statements for 1998 reflect
operations for the twelve months then ended. The Company believes this
change will better reflect the natural year end of its business cycle.
INVENTORY - Inventories include both raw materials and finished goods,
each at first-in first-out cost, which is not in excess of market. The
valuation of finished goods inventory includes the labor and overhead
required for its production.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided by using both straight-line and accelerated
methods over the estimated useful lives of the assets, which are:
Office furniture and equipment 5 to 7 years
Computer equipment 5 years
Warehouse and rental equipment 4 to 7 years
Vehicles 5 years
Leasehold improvements 39 years
DEFERRED COSTS - The Company has incurred certain costs related to
product design, patents and trademarks. Management believes that these
costs will be recovered through future operations, and accordingly, has
capitalized them as described in Note 6.
SERVICE REVENUES - Service revenues are from equipment which is installed
in customers' facilities. This equipment may be rented from
month-to-month and service revenues are recognized as billed monthly.
WARRANTY COSTS - The Company sells certain water purification equipment
subject to warranties which extend to five to seven years. Warranty
costs are nominal and are recorded in the period in which they are
incurred.
F-9
<PAGE> 30
MARKETING, ADVERTISING AND PROMOTION COSTS - The Company expenses all
marketing, advertising and promotion costs as incurred.
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to certain related
party payables not currently deductible for tax return purposes and to
net operating loss carryforwards available to offset income in future
years. The deferred tax assets represent the future tax return
consequences of those differences. Valuation allowances are
established, if necessary, to reduce the deferred tax assets to the
amount that will more likely than not be realized.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments to be cash
equivalents.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN:
As shown in the accompanying financial statements the Company has
incurred recurring losses from operations and resulting cash flow
deficits. It also has current liabilities significantly in excess of
current assets and a significant deficit in total stockholders' equity.
These factors raise substantial doubt about the Company's ability to
continue as a going concern as of December 31, 1999.
Management continues to focus on its marketing and sales of water testing
kits, which represent a relatively new product line. Management
believes that this new line will help the Company to achieve
profitability. The Company's ultimate ability to become profitable,
however, is contingent on its achieving significantly higher sales
levels. Until that occurs and until the Company generates positive cash
flow from operations, additional outside funding will continue to be
required. There is no guarantee that such funding will be available.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
3. EXTRAORDINARY ITEM - FORGIVENESS OF DEBT:
In June 1999, the Company entered into an agreement with Wilbur Peters, a
related party and stockholder, under which it agreed to issue a new
note to Mr. Peters for $3,035,535 in exchange for various notes,
accrued interest, and other obligations totaling approximately
$5,180,000. As a part of this transaction, Mr. Peters released the
Company from approximately $2,150,000 in obligations (net), and the
Company recorded debt forgiveness income of that amount. This note
F-10
<PAGE> 31
provided for the payment of interest at 6% per year. Interest was to be
paid semiannually, and the note was to mature on June 30, 2001.
In November 1999, Mr. Peters and the Company agreed to exchange this
note, accrued interest on this note since June 30, and certain
equipment for 31,290 shares of the Company's Class B, Series B
preferred stock (see Note 10). The Company estimated the fair market
value of the stock to be $1,783,395, which represented a discount of
approximately 40% from its redemption price. It recorded the shares
issued at that value and recorded an additional amount of debt
forgiveness income for the difference. Debt forgiveness income for the
year ended December 31, 1999, totaled $3,461,504, and it is reflected
in the statement of operations as an extraordinary item.
4. RELATED PARTY TRANSACTIONS:
Through December 31, 1999, the Company had approximately $37,800 in
borrowings outstanding on a $750,000 revolving line of credit from
Wilbur Peters. This line of credit provides that advances will be made
at the discretion of the lender and requires monthly interest payments
at the LIBOR rate plus 1.5%. Interest accrued at December 31, 1999, was
approximately $200. Interest expense on this note totals approximately
$3,600 in the year ended December 31, 1999.
The Company had borrowings from CTF, Inc., an affiliate of Mr. Peters,
for $400,000 with accrued interest of approximately $3,500 at December
31, 1999. Interest expense for this note of approximately $41,100 and
$42,400 was recorded during the years ended December 31, 1999 and 1998,
respectively. The note is due on demand and has an interest rate of
prime plus 2%.
The Company leased vending machines, misting machinery and purification
equipment, and four service vans from Mr. Peters through June 30, 1999.
These obligations including accrued interest were forgiven by Mr.
Peters in the agreement described in Note 3.
CTF, Inc. owns the preferred Series A Class B stock and is owed
$1,035,000 in accrued dividends. (See Note 10.)
The salaries for the chief financial officer and vice-president of the
Company and certain accounting personnel are paid by companies with
which Mr. Peters is affiliated. These have not been reflected on the
Company's financial statements.
5. INVENTORY:
The Company's inventories as of December 31, 1999, consist of the
following components:
Water testing kits $197,021
Water treatment parts 63,931
Bottles and other 19,120
---------
$280,072
=========
F-11
<PAGE> 32
6. DEFERRED COSTS:
Deferred costs as of December 31, 1999, consists of the items shown
below. These are being amortized on a straight-line basis over their
estimated useful lives of from 5 to 17 years. Amortization expense
recorded during the year ended December 31, 1999, totaled approximately
$5,200.
Product design costs $8,558
Patents and trademarks 36,038
Non-compete agreement 14,500
Other 6,200
---------
65,296
Less accumulated amortization 45,852
---------
Net deferred costs $19,444
=========
7. LONG-TERM DEBT:
The Company has a note payable to a bank at December 31, 1999, totaling
$12,587. The interest rate on the note is 3.9%. Monthly payments of
principal and interest total $569. This loan, which is secured by a
vehicle at December 31, 1999, matures as follows:
Year Amount
------------- -------------
2000 $6,450
2001 6,137
-------------
$12,587
=============
See Note 4 for discussion of related party notes payable.
8. OBLIGATIONS UNDER CAPITAL LEASE:
The Company leased four service vans from Wilbur Peters, a related party
and stockholder, under capital lease agreements through June 1999, when
these obligations were forgiven (see Note 3). Each of these leases
required monthly payments of $416 of principal and interest at 8%.
Interest expense incurred during the six months ended June 30, 1999,
and the year ended December 31, 1998, was $975 and $1,845,
respectively.
In addition, the Company also leased certain vending machines, misting
machines and water purification equipment from Mr. Peters under
revolving five year lease agreements. At June 30, 1999, these leases
were also forgiven (see Note 3). During the six months ended June 30,
1999, and year ended December 31, 1998, the Company accrued interest of
$5,007 and $15,822, respectively, on these leases. Mr. Peters forgave
the remaining lease obligations, all accrued interest, and all
deliquent payments of principal and interest.
Substantially all of this equipment is leased to the Company's customers
on a month-to-month basis. As such, there are no minimum future rentals
related to these leases.
F-12
<PAGE> 33
9. COMMON STOCK OUTSTANDING, STOCK OPTION PLAN AND LOSS PER COMMON SHARE:
The Company has 20,000,000 shares of authorized common stock, of which
2,996,451 shares are issued and outstanding and 323,847 shares are
issued and held as treasury shares. A total of 4,970,056 common shares
have been reserved for future issuance of stock through the exercise of
stock options and the conversion of Class B preferred stock, as
described below.
The 1991 Stock Option Plan provides for granting options for up to
3,150,000 shares of the Company's common stock to key employees,
directors, consultants, and agents of the Company. Options to be
granted may be either incentive or non-statutory stock options, and
restrictions apply to both the grant and exercise of options. As of the
date of this report, options for 1,980,543 shares have been granted to
key employees and agents.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- ---------------------------------
Exercise Exercise
Shares Price* Shares Price*
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,992,168 $0.188 1,941,668 $0.187
Granted 10,000 1.000 50,500 0.250
Exercised - - - -
Expired or forfeited (21,625) 0.250 - -
---------------- ----------------
Outstanding at end of year 1,980,543 0.192 1,992,168 0.188
================ ================
Exercisable at end of year 1,961,793 $0.192 1,943,668 $0.187
================ ================
*weighted average
</TABLE>
The Company estimates that there has been no compensation provided under
this plan during 1999 or 1998, as options have been granted at prices
which approximate fair market value of the stock at dates of grant.
Since the Company is not required to adopt the fair value based
recognition provisions prescribed under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,
it has elected only to comply with the disclosure requirements set
forth in the statement. The Company believes it is not possible to
estimate the value of options granted during 1999 or 1998. Based on the
value of the Company's stock and the small number of options granted
during these periods, any compensation cost to be recorded under the
fair value based method of accounting would be nominal. Accordingly, no
pro-forma presentation is provided.
Basic earnings (loss) per common share has been computed based on the
weighted average number of common shares outstanding. As there were no
changes in common stock outstanding during the years ended December 31,
1999 and 1998, the weighted average number of common shares outstanding
is the same as common shares issued and outstanding at year end 1999.
No calculation has been presented for diluted earnings per share for
either period. The inclusion of shares for the effect of any options or
preferred stock would be anti-dilutive at the income from continuing
operations [income (loss) before extraordinary item] level because the
Company has losses at that level for both years. The calculation of
basic earnings (loss) per common share is
F-13
<PAGE> 34
based on the Company's net income (loss) adjusted for the amount of
preferred dividends accrued ($138,000) during each of the years ended
December 31, 1999 and 1998.
Earnings (loss) per share for key elements of the statement of operations
are as follows:
1999 1998
------------- ------------
Income (loss) before extraordinary item ($0.31) ($0.39)
Extraordinary item - forgiveness of debt 1.16 -
------------- ------------
Net income (loss) $0.85 ($0.39)
============= ============
10. PREFERRED STOCK:
The Company has authorized 3,303,375 shares of class A preferred stock
with a par value of one cent per share. This class of stock, which is
nonvoting and has no dividend rights, has a liquidation preference of
$.01 per share and is redeemable at the Company's option at $.01 per
share ($33,034 in aggregate). This stock is currently held in escrow
under an agreement with its original holders. At this time, the Company
has the right to request that it be released to the Company, and they
may redeem this stock in a future period.
Also, the Company has authorized 1,000,000 shares of Class B preferred
stock with a par value of one cent per share. Its Series A shares have
a liquidation preference of $.01 per share ($5,750 in aggregate),
provide for the payment of dividends at 12% per annum, are redeemable
at any time at the Company's option at $2.00 per share ($1,150,000 in
aggregate), and are convertible by the holder into shares of common
stock at a ratio of 4/9 of a share of common for each preferred share
tendered. Dividends accrued on these shares through December 31, 1999,
totaled $1,035,000 ($1.80 per share), including accrued dividends of
$138,000 in both 1999 and 1998.
In November 1999, the Company issued 31,290 shares of its new Class B,
Series B preferred shares in exchange for a note payable and equipment
held by Wilbur Peters. The note totaled $3,035,535, and the Company
discounted the preferred stock exchanged for these to $1,783,935, to
reflect the estimated fair market value of the stock. This new series
of stock is non-voting. Dividends are non-cumulative, and any dividends
to be paid on these shares are subordinate to all accrued dividends on
the Company's Series A, Class B preferred stock. Dividends on these
shares may not exceed $12 per year per share.
The Class B, Series B shares carry a $10 per share ($312,900 in
aggregate) liquidation preference, and they may be redeemed by the
Company at $100 per share ($3,129,000 in aggregate). After one year
from the date of issuance, each share is convertible by the holder into
50 shares of the Company's common stock. No dividends have been
declared on this class of stock since its issuance.
F-14
<PAGE> 35
11. FINANCIAL INSTRUMENTS:
Except for accrued dividends, the Company estimates the fair value of all
financial instruments to be equal to the book value reflected in the
accompanying financial statements. The Company estimates that the fair
value of accrued dividends is less than their carrying amount as they
will not be paid until future periods. As the timing of such payment
cannot presently be determined, it is not practicable to calculate a
net present value of the liability or to estimate its fair value.
12. OPERATING LEASES:
The Company exercised an option to extend its existing lease for office
and warehouse space through March 31, 2002. This extension requires
monthly lease payments of $3,400 beginning April 1, 2000 through March
31, 2002. Rent expense, for the years ended December 31, 1999 and 1998,
was approximately $38,000 and 37,000, respectively. Future rent
payments under the terms of the extended lease agreement for the years
ending December 31, 2000, 2001, and 2002 is approximately $40,000,
$41,000 and $10,000, respectively.
13. INCOME TAXES:
At December 31, 1999, net noncurrent deferred tax assets of approximately
$2,610,000 resulted mainly from net operating losses. A valuation
allowance for the entire $2,610,000 has also been established due to
the Company's uncertain financial condition (See Note 2).
The components of the net noncurrent deferred tax assets and related
valuation allowance are as follows:
Deferred tax assets:
Federal $2,550,000
State 60,000
----------
Total deferred tax assets 2,610,000
Valuation allowance 2,610,000
----------
Net deferred tax assets $ --
==========
At December 31, 1998, the Company had net noncurrent deferred tax assets
of approximately $3,882,000, along with a corresponding valuation
allowance of the same amount. The $1,272,000 decrease in the noncurrent
deferred tax assets as of December 31, 1999, and the deferred tax
provision which would be reflected on the Company's statement of
operations has been offset by a corresponding decrease in the valuation
allowance. The statement of operations therefore reflects no deferred
tax provision.
As the Company has substantially no taxable income to date, it has
recorded no current provision for income taxes for the years ended
December 31, 1999 and 1998. Significant differences existed in the year
ending December 31, 1999, between the income reported in the Company's
financial statements and its tax returns. These include the debt
forgiveness income from a related party and the utilization of net
operating loss carryforwards.
F-15
<PAGE> 36
As of December 31, 1999, the Company has net operating loss carryforwards
of approximately $7,505,000 for federal income tax purposes.
Net operating loss
Year of expiration amount
---------------------- -------------------------
2007 $1,034,000
2008 3,573,000
2009 835,000
2010 541,000
2011 559,000
2012 242,000
2013 441,000
2014 280,000
-------------------------
$7,505,000
=========================
Various state net operating loss carryforwards are also available for use
in reducing apportioned state taxable income. The most significant of
these is approximately $850,000 in North Carolina.
The deferred tax benefit (provision) for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
From net loss before extraordinary item-
Deferred tax benefit -
Federal $ 221,000 $ 272,000
State 50,000 61,000
----------- ---------
271,000 333,000
Change in valuation allowance (271,000) (333,000)
----------- ---------
Net deferred tax benefit generated before
extraordinary item -- --
----------- ---------
From extraordinary item-
Deferred tax provision -
Federal (1,159,000) --
State (384,000) --
----------- ---------
(1,543,000) --
Change in valuation allowance 1,543,000 --
----------- ---------
Net deferred tax provision from extraordinary
income -- --
----------- ---------
Net deferred tax provision $ -- $ --
=========== =========
</TABLE>
F-16
<PAGE> 37
The deferred provisions for 1999 and 1998 differ from amounts which would
be calculated at statutory rates due to changes in the valuation
allowance and the expiration of loss carryforwards for state purposes.
14. SUPPLEMENTARY FINANCIAL INFORMATION:
Marketing, advertising and promotion costs include the following for the
years ended December 31, 1999 and 1998:
1999 1998
-------- --------
Advertising $ 49,625 $101,015
Promotions 162,545 21,016
Trade shows 43,077 45,710
Public relations and other 49,689 19,864
-------- --------
$304,936 $187,605
======== ========
15. MAJOR CUSTOMERS:
Sales to three major customers comprised approximately 18%, 13% and 13%
of total sales for the year ended December 31, 1999. Sales to one major
customer comprised approximately 15% of total sales for the year ended
December 31, 1998.
16. CONTINGENCIES:
The Company is involved in commercial litigation in the normal course of
its business. The Company does not expect any losses which would
materially affect the financial statements for the year ended December
31, 1999 as presented.
A significant portion of the Company's sales market is in hardware and
home center stores. Therefore, the Company's ability to make future
sales is dependent upon these retail markets.
F-17
<PAGE> 38
PART III
ITEM 1. INDEX TO EXHIBITS
The following exhibits required by Part III of Form 1-A are filed
herewith:
Exhibit No. Document Description
----------- --------------------
2.1 Certificate of Incorporation
2.2 Certificate of Designation Setting Forth the Preferences,
Rights and Limitations of Series A, Class B Preferred Stock of
Vital Living Products, Inc.
2.3 Certificate of Designation of Series B, Class B Preferred
Stock Setting Forth the Powers, Preferences, Rights,
Qualifications, Limitations and Restrictions of such Series of
Class B Preferred Stock
2.4 Bylaws of Vital Living Products, Inc.
6.1 Vital Living Products, Inc. 1991 Stock Option Plan
6.2 Instrument of Forgiveness of Indebtedness dated June 30, 1999
by C. Wilbur Peters
6.3 Note in favor of C. Wilbur Peters dated June 30, 1999
6.4 Revolving Credit Note dated July 1, 1999 in favor of C. Wilbur
Peters
6.5 Exchange Agreement dated November 5, 1999 between the Company
and C. Wilbur Peters
6.6 Promissory Note in favor of CTF, Inc. dated September 1, 1992
6.7 Escrow Agreement dated March 31, 1992 between the Company,
Henry H. Mummaw, Brian E. Huey, Joseph W. Mummaw, Larry C.
Pratt, CTF, Inc., J.W. Gant & Associates, Inc. and First Union
National Bank
27 Financial Data Schedule (filed in electronic format only)
ITEM 2. DESCRIPTION OF EXHIBITS
See Part III, Item 1.
21
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 13,
2000.
VITAL LIVING PRODUCTS, INC.
By: /s/ Donald R. Podrebarac
Donald R. Podrebarac
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 2.1
As amended March 3, 1992 and July 25, 1997
CERTIFICATE OF INCORPORATION
OF
VITAL LIVING PRODUCTS, INC.
----------
THE UNDERSIGNED, in order to form a corporation under the General
Corporation Law of the State of Delaware, certifies as follows:
1. Name. The name of the corporation is: VITAL LIVING PRODUCTS, INC.
(hereinafter the "Corporation").
2. Address; Registered Agent. The Corporation's registered office is to
be located at 1013 Centre Road, in the City of Wilmington, in the County of New
Castle, Delaware, 19805. The name of its registered agent at that address is
Corporate Agents, Inc.
3. Purposes. The nature of the business and purposes to be conducted or
promoted by the Corporation are to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
4. Number of Shares. The Corporation is authorized to issue 24,303,375
shares of stock, of which 20,000,000 shall be common stock with a par value of
one cent ($.01) per share (`Common Stock'), 3,303,375 shares shall be Class A
preferred stock with a par value of one cent ($.01) per share (`Class A
Preferred Stock') and 1,000,000 shares shall be Class B Preferred Stock with a
par value of one cent ($.01) per share (`Class B Preferred Stock'). The
designations, relative rights, preferences and limitations of the Common Stock
and the Class A Preferred Stock shall be as follows and the designation,
relative rights, preferences and limitations of the Class B Preferred Stock
shall be as set forth in Section 4(e) below:
(a) Voting Rights. On all matters, the Common Stock shall be
entitled to one (1) vote per share, and the Class A Preferred Stock
shall have no voting rights with respect to any matter other than as
may be required by the Delaware General Corporation Law.
(b) Conversion Rights. The Common Stock shall have no
conversion rights. Each share of Class A Preferred Stock shall be
convertible, at the option of the holder thereof, into one (1) fully
paid and nonassessable share of Common Stock (the "Conversion Rate"),
subject to adjustment as follows:
(i) Stock Dividends, Subdivisions, Combinations. If
the Corporation shall at any time (A) take a record of the
holders of its Common Stock for the
<PAGE> 2
purpose of entitling them to receive a dividend payable in, or
other distribution of, Common Stock; (B) subdivide its
outstanding shares of Common Stock into a larger number of
shares of Common Stock; or (C) combine its outstanding shares
of Common Stock into a smaller number of shares of Common
Stock, the Conversion Rate in effect immediately prior thereto
shall be adjusted so that each issued and outstanding share of
Class A Preferred Stock on the date of the happening of such
event shall thereafter be convertible into the number of
shares of Common Stock which the holder of such shares of
Class A Preferred Stock would have been entitled to receive
after the happening of such event. An adjustment made pursuant
to this subparagraph (i) shall become effective retroactively
to the record date in the case of a dividend and shall become
effective on the effective date in the case of a subdivision
or combination.
(ii) Reorganization or Reclassification. In case of
any capital reorganization or any reclassification of the
capital stock of the Corporation, each share of Class A
Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property
receivable with respect to each outstanding share of Common
Stock upon such capital reorganization or reclassification of
capital stock; and, in any case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors)
shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of
the holders of Class A Preferred Stock to the end that the
provisions set forth herein (including the specified changes
in and other adjustments of the Conversion Rate) shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other securities or other
property thereafter deliverable upon the conversion of the
Class A Preferred Stock. For any holder of outstanding Class A
Preferred Stock to convert any of its shares of Class A
Preferred Stock as described above, such holder shall notify
the Corporation in writing, which writing (the "Conversion
Notice") shall be duly signed by or on behalf of such holder,
shall specify the number of shares of the Class A Preferred
Stock being so converted, and shall be accompanied by the
certificate or certificates for the Class A Preferred Stock
being so converted, and such conversion shall be effective
upon receipt by the Corporation of such Conversion Notice. As
soon as practicable after such conversion, the Corporation
shall issue, or cause to be issued, at its own expense, a
certificate or certificates for the shares of Common Stock
issuable upon the conversion and, if less than all the shares
represented by any tendered certificate are converted, a new
certificate representing the unconverted shares of Class A
Preferred Stock.
(c) Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, after payment to satisfy the claims of any creditors
of the Corporation but before any payment or distribution shall be made
to the holders of Common Stock with respect to their shares of Common
Stock, the holders of Class A Preferred Stock shall be entitled to
receive an amount equal to ($.01) cent per share; provided, however,
that holders of Class A Preferred Stock shall be junior to any holders
of preferred stock now or in the future
2
<PAGE> 3
issued by the Corporation which are senior in priority with respect to
any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation.
(d) Dividends and Other Distributions. Except as otherwise
provided in paragraph 4(c) above with respect to liquidating
distributions, the holders of Class A Preferred Stock shall have no
right to receive any dividends or other distributions that may be paid
or distributed by the Corporation. Subject to paragraph 4(c) above, the
holders of Common Stock shall be entitled to receive dividends and
other distributions that may be paid or distributed by the Corporation.
(e) Class B Preferred Stock. The Board of Directors is
authorized to provide for the issuance of shares of Class B Preferred
Stock, in one or more series and to fix the relative rights,
preferences and limitations of such series, by filing a certificate
pursuant to the applicable laws of the State of Delaware setting forth
the number of shares to be included in such series and fixing such
voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or
other special rights, and qualifications, or restrictions thereof, as
shall be stated and expressed in such certificate or any amendment
thereto.
5. Name and Address of Incorporator. The name and mailing address of
the sole incorporator are: Warshaw Burstein Cohen Schlesinger & Kuh, Vida B.
Harband, Esq., 555 Fifth Avenue, New York, New York 10017.
6. Election of Directors. Members of the Board of directors may be
elected either by written ballot or by voice vote.
7. Adoption, Amendment and/or Repeal of By-Laws. The Board of Directors
may from time to time (after adoption by the undersigned of the original by-laws
of the Corporation) make, alter, or repeal the by-laws of the Corporation;
provided, that any by-laws made, amended or repealed, by the Board of Directors
may be amended or repealed, and any by-laws may be made, by the stockholders of
the Corporation.
8. Compromise and Arrangements. Whenever a compromise or arrangement is
proposed between the Corporation and its creditors (or any class of them) and/or
between the Corporation and its stockholders (or any class of them), any court
of equitable jurisdiction within the State of Delaware may, on the application
in a summary way of the Corporation or of any creditor or stockholder thereof,
or on the application of any receiver or receivers appointed for the Corporation
under the provisions of section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders of class of stockholders of the Corporation as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made,
3
<PAGE> 4
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
9. Indemnification. The Corporation shall, to the full extent permitted
by Section 145 of the Delaware General Corporation Law, indemnify all persons
whom it may indemnify pursuant thereto.
10. Liability of Directors to Corporation. No director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for the payment of
unlawful dividends or unlawful stock repurchases or redemptions under Section
174 of the Delaware General Corporation Law; or (iv) for any transaction from
which the director derived an improper/personal benefit.
IN WITNESS WHEREOF, this Certificate has been signed on this 17th day
of December, 1991, and the signature of the undersigned constitutes the
affirmation and acknowledgement of the undersigned, under penalties of perjury,
that this Certificate is the act and deed of the undersigned and that the facts
stated in this Certificate are true.
/s/ Vida B. Harband
Vida B. Harband, Incorporator
4
<PAGE> 1
EXHIBIT 2.2
As amended March 3, 1992
CERTIFICATE OF DESIGNATION
SETTING FORTH THE PREFERENCES, RIGHTS
AND LIMITATIONS OF SERIES A, CLASS B PREFERRED
STOCK OF VITAL LIVING PRODUCTS, INC.
VITAL LIVING PRODUCTS, INC., a Delaware corporation (this
"Corporation"), certifies that pursuant to the authority contained in Article 4
of its Certificate of Incorporation and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, this
Corporation has the authority to issue 1,000,000 shares of Class B Preferred
Stock. The Board of Directors of this Corporation has the authority to issue any
or all of said shares in one or more series and by resolution provide for the
designation of each series to be issued pursuant to the foregoing authority. The
Board of Directors has adopted the following resolution creating a series of its
Class B Preferred Stock to be designated Series A, Class B Preferred Stock:
RESOLVED, that a series of the authorized Class B Preferred
Stock of this Corporation be hereby created, and that the designation
and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitation and restrictions thereof are
as follows:
Section 1. Designation and Amount; Par Value.
The shares of such series shall be designated as Class B, Series A
Preferred Stock (the "Series A Stock") and the number of shares constituting
such series shall be 575,000. The par value of such share of the series shall be
$.01.
Section 2. Dividends.
This Corporation shall pay preferential dividends to the
holders of the Series A Shares. Such dividends shall accrue cumulatively on a
daily basis at the rate of 12% per annum based on a per share value of $2.00.
Such dividends shall accrue whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. Dividends shall be paid to the holders
of the Series A Shares within ten days following the end of each quarter;
provided, however, that the payment of dividends for any period of time shorter
than a quarter shall be pro-rated. If this Corporation fails to make two
quarterly dividend payments in any one year, the holders of the Series A
<PAGE> 2
Shares shall be entitled to elect a majority of the Board of Directors of this
Corporation at the next Annual Meeting of Stockholders; provided such default
shall not have been cured prior to such meeting.
Section 3. Liquidation Rights.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of this Corporation, before any payment
or distribution shall be made to the holders of any shares of the Common Stock,
$.01 par value, of this Corporation (the "Common Stock") or to the holders of
any shares of the Class A Preferred Stock, $.01 par value, of this Corporation
(the "Class A Preferred Stock"), the holders of the Series A Shares shall be
entitled to receive an amount equal to the par value thereof or $.01 per share.
After the payment or the setting apart for payment of amounts so payable to the
holders of the Series A Shares, the remaining assets of this Corporation shall
be available for distribution to the holders of shares of the Common Stock and
the Class A Preferred Stock. If the assets or surplus funds to be distributed to
the holders of the Series A Shares are insufficient to permit the payment to
such holders of the full amounts to which they are entitled the assets and
surplus funds available for distribution shall be distributed first prorata to
the holders of the Series A Shares.
Section 4. Voting Rights.
The holders of Series A Shares shall not be entitled to vote.
Section 5. Redemption.
(a) This Corporation may at any time and from time to time redeem all
or a portion of the outstanding Series A Shares at the redemption price of $2.00
per share (the "Redemption Price"). This Corporation shall provide notice of any
redemption pursuant to Section 5 hereof specifying the date (the "Redemption
Date") and the place of redemption, by first class or registered mail, postage
prepaid, to each holder of Series A Shares at the address for such holder last
shown on the records of this Corporation, not more than 60 nor less than 5 days
before the applicable Redemption Date. The notice shall specify the number of
shares that are to be redeemed. Upon mailing of any such notice of redemption,
this Corporation shall become obligated on the applicable Redemption Date to
carry out the redemption specified in such notice. If less than all of the
Series A Shares represented by any certificate are redeemed in any redemption,
this Corporation shall, at its own expense and upon the surrender of such
certificate, issue to the holder thereof a new certificate representing such
holder's unredeemed shares.
(b) No Series A Shares designated for redemption pursuant to any notice
of redemption ("Redemption Shares") shall be entitled to any dividends declared
after the applicable Redemption Date. All voting rights of the holders of
Redemption Shares as stockholders of this Corporation by reason of the ownership
of Redemption Shares shall cease as of the date on which written notice of
redemption has been sent to holders thereof and a sum sufficient to redeem the
Redemption Shares has been irrevocably deposited or set aside to pay the
Redemption Price to the holders of the Redemption Shares upon surrender of
certificate therefor, except the right to receive the Redemption Price of such
shares upon presentation and
2
<PAGE> 3
surrender of the certificate representing such shares. No Redemption Shares
shall be deemed to be outstanding after the Redemption Date.
(c) If this Corporation fails to redeem all of the issued and
outstanding Series A Shares on or before June 30, 1996, the holders of
unredeemed Series A Shares shall be entitled to elect a majority of the Board of
Directors of this Corporation.
6. Conversion.
(a) Holders of Series A Shares are entitled to exchange all or part of
such shares (the "Tendered Shares") commencing one year from the issuance
thereof for shares of Common Stock at an initial purchase price of $6.00 per
share, which price shall decrease by $.50 each year on the anniversary of the
issuance of the Series A Shares to a minimum of $4.50 per share (the "Conversion
Rate"), such number of shares of Common Stock to be received upon conversion to
be calculated by dividing the Redemption Price of $2.00 per share by the
Conversion Rate in effect at the time of conversion, and such Conversion Rate to
be subject to adjustment as follows:
(1) Stock Dividends, Subdivisions, Combinations. If this
Corporation shall at any time (i) take record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock; (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock; or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Rate in effect immediately prior thereto shall be adjusted
so that each Series A Share issued and outstanding on the date thereof shall
thereafter be convertible into the number of shares of Common Stock which the
holder of such Series A Shares would have been entitled to receive after the
happening of such event. An adjustment made pursuant to this subparagraph (1)
shall become effective retroactively to the record date in the case of a
dividend and shall become effective on the effective date in the case of a
subdivision or combination.
(2) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification of the capital stock of this Corporation,
each Series A Share issued and outstanding on the date thereto shall thereafter
be convertible into the number of shares of stock or other securities or
property receivable with respect to each outstanding share of Common Stock upon
such capital reorganization or reclassification of capital stock; and, in any
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
the Series A Shares to the end that the provisions set forth herein (including
the specified changes in and other adjustments of the Conversion Rate) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other securities or other property thereafter deliverable
upon the conversion of the Series A Shares.
(b) If any holder of outstanding Series A Shares shall elect to convert
any Series A Shares as described in Section 6(a), such holder shall notify this
Corporation in writing, which
3
<PAGE> 4
writing (the "Conversion Notice") shall be duly signed by or on behalf of such
holder, shall specify the number of Series A Shares being so converted, shall be
accompanied by the certificate or certificates for the Series A Shares being so
converted and such conversion shall be effective upon receipt by this
Corporation of such Conversion Notice. As soon as practicable after such
conversion, this Corporation shall issue or cause to be issued, at its own
expense, a certificate or certificates representing the shares of Common Stock
issuable upon the conversion, and, if less than all the shares represented by
any tendered certificate are converted, a new certificate representing the
unconverted Series A Shares.
IN WITNESS WHEREOF, VITAL LIVING PRODUCTS, INC. has caused this
Certificate of Designation to be executed by its President and attested to by
its Secretary this 12th day of February, 1992.
VITAL LIVING PRODUCTS, INC.
/s/ Henry H. Mummaw
Henry H. Mummaw
President
ATTEST:
/s/ Joseph W. Mummaw
Joseph W. Mummaw
Secretary
4
<PAGE> 1
EXHIBIT 2.3
VITAL LIVING PRODUCTS, INC.
CERTIFICATE OF DESIGNATION
OF SERIES B, CLASS B PREFERRED STOCK
SETTING FORTH THE POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF SUCH SERIES OF CLASS B PREFERRED STOCK
VITAL LIVING PRODUCTS, INC., a Delaware corporation (this
"Corporation"), hereby certifies that pursuant to the authority contained in
Article 4 of its Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, (a) this Corporation has the authority to issue 1,000,000 shares of
Class B Preferred Stock, (b) the Board of Directors of this Corporation has the
authority to issue any or all of said shares in one or more series and by
resolution provide for the designation of each series to be issued pursuant to
the foregoing authority and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and other qualifications, limitations and restrictions thereof, and (c) the
Board of Directors has adopted the following resolution creating a series of its
Class B Preferred Stock to be designated Series B, Class B Preferred Stock:
RESOLVED, that a series of the authorized Class B Preferred Stock of
this Corporation be and hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and other qualifications,
limitations and restrictions thereof are as follows:
SECTION 1. DESIGNATION AND AMOUNT; PAR VALUE
The shares of such series shall be designated as Series B, Class B
Preferred Stock (the "Series B Shares") and the number of shares constituting
such series shall be 31,290. The par value of each share of such series shall be
$.01.
SECTION 2. DIVIDENDS
This Corporation shall be authorized to pay dividends to the holders of
the Series B Shares, from any lawful source therefor, when, as and if declared
by the Board of Directors, in preference (as herein provided) to the payment of
dividends on the common stock of this Corporation (the "Common Stock") and the
Class A preferred stock of this Corporation (the "Class A Preferred Stock")
(which has no dividend rights except as to liquidating distributions) and any
other shares of any other class or series of preferred stock of this Corporation
hereafter created which is by its terms expressly made junior and subordinate to
the Series B Shares as to the payment of dividends (referred to in this Section
2 as "Other Junior Preferred Stock"), but junior and subordinate to the payment
of preferential dividends to the holders of Series A, Class B Preferred Stock
(the "Series A Shares"), or any other shares of any other class or series of
<PAGE> 2
preferred stock of this Corporation hereafter created which is not by its terms
expressly made junior and subordinate to the Series B Shares as to the payment
of dividends (referred to in this Section 2 as "Other Senior Preferred Stock").
The amount of such dividends paid on the Series B Shares in any one calendar
year shall not be greater than $12.00 per share, and such dividends shall not be
cumulative so that accrued and unpaid dividends on the Series B Shares for any
calendar year shall not be payable in a subsequent calendar year. No dividends
may be paid on the Series B Shares unless and until all accrued and unpaid
dividends on the Series A Shares and any Other Senior Preferred Stock to which
the holders thereof shall be entitled shall have been paid in full. No dividends
may be paid on the Common Stock or any Other Junior Preferred Stock in any
calendar year unless and until dividends on the Series B Shares in the amount of
$12.00 per share shall have first been paid during such calendar year.
SECTION 3. LIQUIDATION RIGHTS
As to liquidation rights, the Series B Shares shall rank senior, as
herein provided, to the Common Stock and the Class A Preferred Stock and to any
other shares of any other class or series of preferred stock of this Corporation
hereafter created which is by its terms expressly made junior and subordinate to
the Series B Shares as to liquidation rights (referred to in this Section 3 as
"Other Junior Preferred Stock"), and shall rank junior and subordinate, as
herein provided, to the Series A Shares and to any other shares of any other
class or series of preferred stock of this Corporation hereafter created which
is not by its terms expressly made junior and subordinate to the Series B Shares
as to the liquidation rights (referred to in this Section 3 as "Other Senior
Preferred Stock"). In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of this Corporation, before any payment
or distribution shall be made to the holders of any shares of the Common Stock,
the Class A Preferred Stock or any Other Junior Preferred Stock, but after all
payments and distributions required to be made to the holders of the Series A
Shares and any Other Senior Preferred Stock in accordance with their respective
liquidation rights, the holders of the Series B Shares shall be entitled to
receive an amount equal to $10.00 per share. After the payment or the setting
apart for payment of amounts so payable to the holders of the Series B Shares,
the remaining assets of this corporation shall be available for distribution to
the holders of shares of the Common Stock, the Class A Preferred Stock and any
Other Junior Preferred Stock in accordance with their respective liquidation
preferences. If the assets or surplus funds to be distributed to the holders of
the Series B Shares are insufficient to permit the payment to such holders of
the full amounts to which they are entitled, the assets and surplus funds
available for such distribution shall be distributed pro-rata to the holders of
the Series B Shares.
SECTION 4. VOTING RIGHTS
The holders of Series B Shares shall not be entitled to vote, except to
the extent otherwise required by the Delaware General Corporation Law.
SECTION 5. REDEMPTION
(a) This Corporation may at any time and from time to time redeem all
or a portion of the outstanding Series B Shares at the redemption price of
$100.00 per share (the "Redemption
2
<PAGE> 3
Price"), provided that this Corporation has paid all of the declared dividends
corresponding to the Shares being redeemed (the "Redemption Shares"). This
Corporation shall provide notice of any redemption pursuant to Section 5 hereof
specifying the date (the "Redemption Date") and the place of redemption, by
first class or registered mail, postage prepaid, to each holder of Series B
Shares at the address for such holder last shown on the records of this
Corporation, not more than 60 nor less than 5 days before the applicable
Redemption Date. The notice shall specify the number of shares that are to be
redeemed. Upon mailing of any such notice of redemption, this Corporation shall
become obligated an the applicable Redemption Date to carry out the redemption
specified in such notice. If less than all of the Series B Shares are to be
redeemed, such redemption shall be made from the respective holders thereof on a
pro rata basis, and the Board of Directors may fix a record date for purposes of
determining such proration and the particular shares to be redeemed. If less
than all of the Series B Shares represented by any certificate are redeemed in
any redemption, this corporation shall, at its own expense and upon the
surrender of such certificate, issue to the holder thereof a new certificate
representing such holder's unredeemed shares.
(b) No Series B Shares designated for redemption pursuant to any notice
of redemption shall be entitled to any dividends declared after the applicable
Redemption Date. All rights of the holders of Redemption Shares as stockholders
of this Corporation by reason of the ownership of Redemption Shares shall cease
as of the date on which written notice of redemption has been sent to holders
thereof and a sum sufficient to redeem the Redemption Shares has been
irrevocably deposited or set aside to pay the Redemption Price to the holders of
the Redemption Shares upon surrender of the certificate therefor, except the
night to receive the Redemption Price of such shares upon presentation and
surrender of the certificate representing such shares. No Redemption Shares
shall be deemed to be outstanding after the Redemption Date.
SECTION 6. CONVERSION
(a) Holders of Series B Shares are entitled to convert such shares
commencing one year from the issuance thereof into shares of Common Stock at the
rate of 50 shares of Common Stock for each Series B Share so converted (the
"Conversion Rate"), such Conversion Rate to be subject to adjustment as follows:
(1) Stock Dividends, Subdivisions, Combinations. If this
Corporation shall at any time (i) take a record of the holders
of its Common Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of,
Common Stock; (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock; or (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Rate shall be
adjusted so that each Series B Share issued and outstanding on
the date thereof shall thereafter be convertible into the
number of shares of Common Stock which the holder of such
Series B Shares would have been entitled to receive after the
happening of such event had
3
<PAGE> 4
such Series B Shares been so converted immediately prior to
the happening of such event. An adjustment made pursuant to
this Subparagraph 6(a)(1) shall become effective retroactively
to the record date in the case of a dividend and shall become
effective on the effective date in the case of a subdivision
or combination.
(2) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification of the capital stock of
this Corporation, each Series B Share issued and outstanding
on the date thereof shall thereafter be convertible into the
number of shares of stock or other securities or property that
would have been receivable with respect to the shares of
Common Stock into which the Series B Shares were convertible
immediately prior to such capital reorganization or
reclassification of capital stock; and, in any case,
appropriate adjustment (as reasonably determined in good faith
by the Board of Directors) shall be made in application of the
provisions herein set forth with respect to the rights and
interests there after of the holders of the Series B Shares to
the end that the provisions set forth herein (including any
adjustments of the Conversion Rate) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
shares of stock or other securities or other property
thereafter deliverable upon the conversion of the Series B
Shares.
(b) If any holder of outstanding Series B Shares shall elect to convert
any Series B Shares as described in Section 6(a), such holder shall notify this
Corporation in writing, which writing (the "Conversion Notice") shall be duly
signed by or on behalf of such holder, shall specify the number of Series B
Shares being so converted, shall be accompanied by the certificate or
certificates for the Series B Shares being so converted, and such conversion
shall be effective upon receipt by this Corporation of such Conversion Notice
and certificate or certificates. As soon as practicable after such conversion,
this Corporation shall issue or cause to be issued, at its own expense, a
certificate or certificates representing the shares of Common Stock issuable
upon the conversion, and, if less than all the shares represented by any
tendered certificates are converted, shall issue a new certificate representing
the unconverted Series B Shares.
4
<PAGE> 5
IN WITNESS WHEREOF, VITAL LIVING PRODUCTS, INC., has caused this
Certificate of Designation to be executed by its President and attested to by
its Secretary this 5th day of November, 1999.
VITAL LIVING PRODUCTS, INC.
/s/ Donald R. Podrebarac
Donald R. Podrebarac, President
ATTEST:
/s/ Larry C. Pratt
Larry C. Pratt, Secretary
5
<PAGE> 1
EXHIBIT 2.4
As amended, March 2, 1992
BY-LAWS
OF
VITAL LIVING PRODUCTS, INC.
(A Delaware Corporation)
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the
term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as amended
from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Corporation" means VITAL LIVING PRODUCTS, INC.
1.7 "Directors" means directors of the Corporation.
1.8 "General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.9 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.10 "President" means the President of the Corporation.
1.11 "Secretary" means the Secretary of the Corporation.
<PAGE> 2
1.12 "Stockholders" means stockholders of the Corporation.
1.13 "Total number of directors" means the total number of directors
determined in accordance with Section 141(b) of the General Corporation Law and
Section 3.2 of the By-Laws.
1.14 "Treasurer" means the Treasurer of the Corporation.
1.15 "Vice President" means a Vice President of the Corporation.
1.16 "Whole Board" means the total number of directors of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of stockholders shall be held at
the office of the Corporation or at such other place within or without the State
of Delaware as shall be specified or fixed in the notice of such meeting or in
the waiver of notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually
for the election of directors and the transaction of other business at such hour
and on such business day in January or February as may be determined by the
Board and designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual
meeting of stockholders for the election of directors and the transaction of
other business is not held within the months specified in Section 2.2, the Board
shall call a meeting of stockholders for the election of directors and the
transaction of other business as soon thereafter as convenient.
2.4 Other Special Meetings. A special meeting of stockholders (other
than a special meeting for the election of directors), unless otherwise
prescribed by statute, may be called at any time by the Board, by the President,
by the Secretary or by 10% or more of the outstanding shares of stock entitled
to vote at a meeting of stockholders.*
2.5 Fixing Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
may fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. If no such record date is fixed:
- -----------------------
*As amended on March 2, 1992
2
<PAGE> 3
2.5.1 The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
2.5.2 The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board is necessary, shall be the day on which
the first written consent is expressed;
2.5.3 The record date for determining stockholders for any
purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be
at the close of business on the day on which the Board adopts the
resolution relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.5 such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
2.6 Notice of Meetings of Stockholders. Except as otherwise provided in
Sections 2.5 and 2.7 of the By-laws, whenever under the General Corporation Law
or the Certificate of Incorporation or the By-laws, stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. A copy of the notice of
any meeting shall be given, personally or by mail, not less than ten nor more
than sixty days before the date of the meeting, to each stockholder entitled to
notice of or to vote at such meeting. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, with postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice required by this section has
been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted at the
meeting as originally called. If, however, the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.7 Waivers of Notice. Whenever notice is required to be given to any
stockholder under any provision of the General Corporation Law or the
Certificate of Incorporation or the By-laws, a written waiver thereof, signed by
the stockholder entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a stockholder at a
meeting shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
3
<PAGE> 4
2.8 List of Stockholders. The Secretary shall prepare and make, or
cause to be prepared and made, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2.9 Quorum of Stockholders; Adjournment. The holders of one-third of
the shares of stock entitled to vote at any meeting of stockholders, present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at such meeting. When a quorum is once present to organize a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholders. The holders of a majority of the shares of stock present in person
or represented by proxy at any meeting of stockholders, including an adjourned
meeting, whether or not a quorum is present, may adjourn such meeting to another
time and place.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation every stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share of capital stock standing in his name on
the record of stockholders determined in accordance with Section 2.5 of the
By-laws. If the Certificate of Incorporation provides for more or less than one
vote for any share, on any matter, every reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in treating
the persons in whose names shares of capital stock stand on the record of
stockholders as owners thereof for all purposes. At any meeting of stockholders
(at which a quorum was present to organize the meeting), all matters, except as
otherwise provided by law or by the Certificate of Incorporation or by the
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of directors shall be by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
vote by ballot is required by law or is demanded by any stockholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed by the
stockholder voting or by his proxy, and shall state the number of shares voted.
On all other questions, the voting may be viva voce. Every stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy. The validity and enforceability of any proxy
shall be determined in accordance with Section 212 of the General Corporation
Law.
2.11 Selection and Duties of Inspectors at Meetings of Stockholders.
The Board, in advance of any meeting of stockholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at
4
<PAGE> 5
such meeting may, and on the request of any stockholder entitled to vote thereat
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder entitled to vote thereat, the inspector or inspectors shall
make a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them. Any report
or certificate made by the inspector or inspectors shall be prima facie evidence
of the facts stated and of the vote as certified by him or them.
2.12 Organization. At every meeting of stockholders, the President, or
in the absence of the President a Vice President, and in case more than one Vice
President shall be present, that Vice President designated by the Board (or in
the absence of any such designation, the most senior Vice President, based on
age, present), shall act as chairman of the meeting. The Secretary, or in his
absence one of the Assistant Secretaries, shall act as secretary of the meeting.
In case none of the officers above designated to act as chairman or secretary of
the meeting, respectively, shall be present, a chairman or a secretary of the
meeting, as the case may be, shall be chosen by a majority of the votes cast at
such meeting by the holders of shares of capital stock present in person or
represented by proxy and entitled to vote at the meeting.
2.13 Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Written Consent of Stockholders Without a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
5
<PAGE> 6
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or the
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by the By-laws, the Board may exercise all powers and
perform all acts which are not required, by the By-laws or the Certificate of
Incorporation or by law, to be exercised and performed by the stockholders.
3.2 Number; Qualification; Term of Office. The Board shall consist of
one or more members. The total number of directors shall be fixed initially by
the incorporator and may thereafter be changed from time to time by action of
the stockholders or by action of the Board. Directors need not be stockholders.
Each director shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.
3.3 Election. Directors shall, except as otherwise required by law or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise
provided in the Certificate of Incorporation, newly created directorships
resulting from an increase in the number of directors and vacancies occurring in
the Board for any other reason, including the removal of directors without cause
may be filled by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director, or may be elected by a
plurality of the votes cast by the holders of shares of capital stock entitled
to vote in the election at a special meeting of stockholders called for that
purpose. A director elected to fill a vacancy shall be elected to hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
3.5 Resignations. Any director may resign at any time by written notice
to the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective.
3.6 Removal of Directors. Subject to the provisions of Section 141(k)
of the General Corporation Law, any or all of the directors may be removed with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
3.7 Compensation. Each director, in consideration of his service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance
6
<PAGE> 7
of his duties. Each director who shall serve as a member of any committee of
directors in consideration of his serving as such shall be entitled to such
additional amount per annum or such fees for attendance at committee meetings,
or both, as the Board may from time to time determine, together with
reimbursement for the reasonable expenses incurred by him in the performance of
his duties. Nothing contained in this section shall preclude any director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.8 Place and Time of Meetings of the Board. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Delaware. The times and places for holding meetings of the Board may be fixed
from time to time by resolution of the Board or (unless contrary to resolution
of the Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.11
of the By-laws for special meetings of the Board or in a waiver of notice
thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held at
such times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting of the Board shall be a
Saturday or Sunday or a legal holiday at the place where such meeting is to be
held, then such meeting shall be held at the same hour at the same place on the
first business day thereafter which is not a Saturday, Sunday or legal holiday.
3.11 Special Meetings. Special meetings of the Board shall be held
whenever called by the President or the Secretary or by any two or more
directors. Notice of each special meeting of the Board shall, if mailed, be
addressed to each director at the address designated by him for that purpose or,
if none is designated, at his last known address at least two days before the
date on which the meeting is to be held; or such notice shall be sent to each
director at such address by telegraph, cable or wireless, or be delivered to him
personally, not later than the day before the date on which such meeting is to
be held. Every such notice shall state the time and place of the meeting but
need not state the purposes of the meeting, except to the extent required by
law. If mailed, each notice shall be deemed given when deposited, with postage
thereon prepaid, in a post office or official depository under the exclusive
care and custody of the United States post office department. Such mailing shall
be by first class mail.
3.12 Adjourned Meetings. A majority of the directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any director whether or not
present at the time of the adjournment. Any business may be transacted at any
adjourned meeting that might have been transacted at the meeting as originally
called.
7
<PAGE> 8
3.13 Waiver of Notice. Whenever notice is required to be given to any
director or member of a committee of directors under any provision of the
General Corporation Law or of the Certificate of Incorporation or By-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice.
3.14 Organization. At each meeting of the Board, the President of the
Corporation, or in the absence of the President, a chairman chosen by a majority
of the directors present, shall preside. The Secretary shall act as secretary at
each meeting of the Board. In case the Secretary shall be absent from any
meeting of the Board, an Assistant Secretary shall perform the duties of
secretary at such meeting; and in the absence from any such meeting of the
Secretary and all Assistant Secretaries, the person presiding at the meeting may
appoint any person to act as secretary of the meeting.
3.15 Quorum of Directors. One-third of the total number of directors
shall constitute a quorum for the transaction of business or of any specified
item of business at any meeting of the Board.
3.16 Action by the Board. All corporate action taken by the Board or
any committee thereof shall be taken at a meeting of the Board, or of such
committee, as the case may be, except that any action required or permitted to
be taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee. Members of the Board, or any
committee designated by the Board, may participate in a meeting of the Board, or
of such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all per sons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 3.16 shall constitute presence in person at such meeting. Except as
otherwise provided by the Certificate of Incorporation or by law, the vote of a
majority of the directors present (including those who participate by means of
conference telephone or similar communications equipment) at the time of the
vote, if a quorum is present at such time, shall be the act of the Board.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence
8
<PAGE> 9
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
"management of the business and affairs of the corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation; and, unless the
resolution designating it expressly so provides, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
ARTICLE 5
OFFICERS
5.1 Officers. The Board shall elect a President, a Secretary and a
Treasurer, and may elect or appoint one or more Vice Presidents and such other
officers as it may determine. The Board may designate one or more Vice
Presidents as Executive Vice Presidents, and may use descriptive words or
phrases to designate the standing, seniority or area of special competence of
the Vice Presidents elected or appointed by it. Each officer shall hold his
office until his successor is elected and qualified or until his earlier death,
resignation or removal in the manner provided in Section 5.2 of the By-laws. Any
two or more offices may be held by the same person. The Board may require any
officer to give a bond or other security for the faithful performance of his
duties, in such amount and with such sureties as the Board may determine. All
officers as between themselves and the Corporation shall have such authority and
perform such duties in the management of the Corporation as may be provided in
the By-laws or as the Board may from time to time determine.
5.2 Removal of Officers. Any officer elected or appointed by the Board
may be removed by the Board with or without cause. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.3 Resignations. Any officer may resign at any time by so notifying
the Board or the President or the Secretary in writing such resignation shall
take effect at the date of receipt of such notice or at such later time as is
therein specified, and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective. The resignation of an
officer shall be without prejudice to the contract rights of the Corporation, if
any.
5.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in the By-laws for the regular
election or appointment to such office.
9
<PAGE> 10
5.5 Compensation. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
director.
5.6 President. The President shall be the chief executive officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of directors. The President shall, if present, preside at
all meetings of the stockholders and at all meetings of the Board. He may, with
the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, sign certificates for shares of capital stock of the Corporation. He
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts and other instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by the By-laws to some
other officer or agent of the Corporation, or shall be required by law otherwise
to be signed or executed; and, in general, he shall perform all duties incident
to the office of President and such other duties as from time to time may be
assigned to him by the Board.
5.7 Vice Presidents. At the request of the President, or, in his
absence, at the request of the Board, the Vice Presidents shall (in such order
as may be designated by the Board or, in the absence of any such designation, in
order of seniority based on age) perform all of the duties of the President and
so acting shall have all the powers of and be subject to all restrictions upon
the President. Any Vice President may also, with the Secretary or the Treasurer
or an Assistant Secretary or an Assistant Treasurer, sign certificates for
shares of capital stock of the Corporation; may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board, except in cases where the signing and execution thereof
shall be expressly delegated by the Board or by the By-laws to some other
officer or agent of the Corporation, or shall be required by law otherwise to be
signed or executed; and shall perform such other duties as from time to time may
be assigned to him by the Board or by the President.
5.8 Secretary. The Secretary, if present, shall act as secretary of all
meetings of the stockholders and of the Board, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given and
served; he may, with the President or a Vice President, sign certificates for
shares of capital stock of the Corporation; he shall be custodian of the seal of
the Corporation and may seal with the seal of the Corporation, or a facsimile
thereof, all certificates for shares of capital stock of the Corporation and all
documents the execution of which on behalf of the Corporation under its
corporate seal is authorized in accordance with the provisions of the By-laws;
he shall have charge of the stock ledger and also of the other books, records
and papers of the Corporation relating to its organization and management as a
Corporation, and shall see that the reports, statements and other documents
required by law are properly kept and filed; and shall, in general, perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board or by the President.
5.9 Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys in the
10
<PAGE> 11
name of the Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with these By-laws; against proper vouchers,
cause such funds to be disbursed by checks or drafts on the authorized
depositaries of the Corporation signed in such manner as shall be determined in
accordance with any provisions of the By-laws, and be responsible for the
accuracy of the amounts of all moneys so disbursed; regularly enter or cause to
be entered in books to be kept by him or under his direction full and adequate
account of all moneys received or paid by him for the account of the
Corporation; have the right to require, from time to time, reports or statements
giving such information as he may desire with respect to any and all financial
transactions of the Corporation from the officers or agents transacting the
same; render to the President or the Board, whenever the President or the Board,
respectively, shall require him so to do, an account of the financial condition
of the Corporation and of all his transactions as Treasurer; exhibit at all
reasonable times his, books of account and other records to any of the directors
upon application at the office of the Corporation where such books and records
are kept; and, in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or by the President; and he may sign with the President or a Vice
President certificates for shares of capital stock of the Corporation.
5.10 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the President. Assistant Secretaries and Assistant Treasurers may,
with the President or a Vice President, sign certificates for shares of capital
stock of the Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board may authorize any officer,
employee or agent, in the name and on behalf of the Corporation, to enter into
any contract or execute and satisfy any instrument, and any such authority may
be general or confined to specific instances, or otherwise limited.
6.2 Loans. The President or any other officer, employee or agent
authorized by the By-Laws or by the Board may effect loans and advances at any
time for the Corporation from any bank, trust company or other institutions or
from any firm, corporation or individual and for such loans and advances may
make, execute and deliver promissory notes bonds or other certificates or
evidences of indebtedness of the Corporation, and, when authorized by the Board
so to do, may pledge and hypothecate or transfer any securities or other
property of the Corporation as security for any such loans or advances. Such
authority conferred by the Board may be general or confined to specific
instances or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
11
<PAGE> 12
6.4 Deposits. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation in such banks,
trust companies or other depositaries as the Board may select or as may be
selected by an officer, employee or agent of the Corporation to whom such power
may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and may be sealed with the seal of the Corporation or
a facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles, if the certificate is countersigned by a transfer agent or registrar
other than the Corporation itself or its employee. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon any certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may, unless
otherwise ordered by the Board, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly authorized attorney appointed by a power of attorney duly
executed and filed with the Secretary or a transfer agent of the Corporation,
and on surrender of the certificate or certificates representing such shares of
capital stock properly endorsed for transfer and upon payment of all necessary
transfer taxes. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or an Assistant Secretary or the transfer agent of the Corporation. A
person in whose name shares of capital stock shall stand on the books of the
Corporation shall be deemed the owner thereof to receive dividends, to vote as
such owner and for all other purposes as respects the Corporation. No transfer
of shares of capital stock shall be valid as against the Corporation, its
stockholders and creditors for any purpose, except to render the transferee
liable for the debts of the Corporation to the extent provided by law, until
such transfer shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of
any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new
12
<PAGE> 13
certificate, require the owner of the lost, destroyed, stolen or mutilated
certificate, or his legal representatives, to make proof satisfactory to the
Board of such loss, destruction, theft or mutilation and to advertise such fact
in such manner as the Board may require, and to give the Corporation and its
transfer agents and registrars, or such of them as the Board may require, a bond
in such form, in such sums and with such surety or sureties as the Board may
direct, to indemnify the Corporation and its transfer agents and registrars
against any claim that may be made against any of them on account of the
continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Regulations. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the By-laws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of certificates
representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
7.7.1 May declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such
amounts and at such time or times as, in its discretion, the condition
of the affairs of the Corporation shall render advisable;
7.7.2 May use and apply, in its discretion, any of the surplus
of the Corporation in purchasing or acquiring any shares of capital
stock of the Corporation, or purchase warrants therefor, in accordance
with law, or any of its bonds, debentures, notes, scrip or other
securities or evidences of indebtedness;
7.7.3 May set aside from time to time out of such surplus or
net profits such sum or sums as, in its discretion, it may think
proper, as a reserve fund to meet contingencies, or for equalizing
dividends or for the purpose of maintaining or increasing the property
or business of the Corporation, or for any purpose it may think
conducive to the best interests of the Corporation.
13
<PAGE> 14
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification of Officers and Directors. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a director
or an officer of the Corporation, against expenses including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
and in the manner set forth in and permitted by the General Corporation Law, and
any other applicable law, as from time to time in effect, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
foregoing provisions of this Section 8.1 shall be deemed to be a contract
between the Corporation and each director and officer who serves in such
capacity at any time while this Article 8 and the relevant provisions of the
General Corporation Law and other applicable law, if any, are in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts.
8.2 Indemnification of Other Persons. The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the General Corporation Law, and any other applicable law, as from
time to time in effect, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
8.3 Advancement of Expenses. Expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of such officer, director, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation under Section 145 of the General Corporation Law. Such right of
indemnification and advancement expenses shall not be deemed exclusive of any
other rights to which any such person may be entitled apart from the foregoing
provisions.
14
<PAGE> 15
8.4 Continuation of Indemnification. The indemnification and
advancement expenses provided by these Sections 8.1 and 8.2 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
8.5 Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Sections 8.1 and
8.2 of the By-laws or under Section 145 of the General Corporation Law or any
other provision of law.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shal1
keep at the office designated in the Certificate of Incorporation or at the
office of the transfer agent or registrar of the Corporation, a record
containing the names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof.
9.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
inspection of the stockholders.
ART1CLE 10
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of its
incorporation and the word "Delaware."
15
<PAGE> 16
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be determined, and may be
changed, by resolution of the Board.
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, the President
may, from time to time, appoint one or more attorneys or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of stock or other securities of such
other corporation, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the President may himself
attend any meeting of the holders of the stock or other securities of any such
other corporation and thereat vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
AMENDMENTS
The By-laws may be altered, amended, supplemented or repealed, or new
By-laws may be adopted, by vote of the holders of the shares entitled to vote in
the election of directors. The By-laws may be altered, amended, supplemented or
repealed, or new By-laws may be adopted, by the Board. Any By-laws adopted,
altered, amended, or supplemented by the Board may be altered, amended, or
supplemented or repealed by the stockholders entitled to vote thereon.
16
<PAGE> 1
EXHIBIT 6.1
VITAL LIVING PRODUCTS, INC.
1991 STOCK OPTION PLAN
---------------------------------------------------------------------------
1. PURPOSES
The 1991 Stock Option Plan of Vital Living Products, Inc. is intended
to advance the interests of Vital Living Products, Inc. and its
shareholders by encouraging and enabling officers, directors, key
employees, independent consultants, independent contractors or agents,
upon whose judgment, initiative and effort the Corporation is largely
dependent for the successful conduct of its business, to acquire and
retain a proprietary interest in the Corporation by ownership of its
stock through the exercise of stock options.
2. DEFINITIONS
(a) "BOARD" shall mean the Board of Directors of the Corporation.
(b) "CODE" shall mean the Internal Revenue Code of 1986.
(c) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with Section 4 of the Plan.
(d) "COMMON STOCK" shall mean the $.01 par value common stock of
the Corporation.
(e) "CORPORATION" shall mean Vital Living Products, Inc., a North
Carolina Corporation, or its Subsidiaries, if any, unless the
context implies otherwise.
(f) "DISABILITY" shall mean the condition of an Employee who is
unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment
which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months or can be expected
to result in death within such twelve (12) month period.
(g) "EMPLOYEE" shall mean an individual (who may be an officer or
a director of the Corporation) employed by the Corporation
(within the meaning of Section 3401(c) of the Code and the
regulations promulgated thereunder), or any successor
corporation by merger or consolidation. For these purposes,
the employment relationship will be treated as continuing
intact while the Optionee is on military, sick leave or other
bona fide leave of absence (such as temporary employment by
the Government) if the period of such leave does not exceed 90
days or, if longer, so long as the Optionee's right to
employment with the Corporation is guaranteed either by
statute or by contract. Where the period of leave exceeds 90
days and where the Employee's right to reemployment is not
<PAGE> 2
guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day
of such leave.
(h) "EXERCISE PRICE" shall mean the price per Share of Common
Stock, determined by the Committee or the Board, at which an
Option may be exercised.
(i) "FAIR MARKET VALUE" of a Share as of a specified date shall
mean the closing price of a Share on the principal securities
exchange on which such Shares are traded on the day
immediately preceding the date as of which Fair Market Value
is being determined, or on the next preceding date on which
such Shares are traded if no Shares were traded on such
immediately preceding day. If the Shares are not traded on a
securities exchange, but are reported by the National
Association of Securities Dealers, Inc. Automated Quotation
System and market information is published on a regular basis
in The New York Times or The Wall Street Journal, then Fair
Market Value shall be deemed to be the average of the
published high and low sales price or the published daily bid
and asked prices of the Shares, as so published, on the day
immediately preceding the date as of which Fair Market Value
is being determined or on the next preceding date on which
such prices are published. If market information is not so
published on a regular basis, then Fair Market Value shall be
deemed to be the average of the high bid and low asked prices
of the Shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value
is being determined or on the next preceding date on which
such high bid and low asked prices were recorded as reported
by the National Association of Securities Dealers Automated
Quotation System, or, if not so reported, by a generally
accepted reporting service. If the Shares are not publicly
traded, Fair Market Value shall be determined by the Committee
or the Board. In no case shall Fair Market Value be less than
the par value of a share of Common Stock.
(j) "INCENTIVE STOCK OPTION" shall mean an Option granted under
the Plan which is designated as an incentive stock option and
which is intended to qualify as such within the meaning of
Section 422A(b) of the Code.
(k) "NON-STATUTORY STOCK OPTION" shall mean an Option granted
under the Plan which is designated as a non-qualified stock
option and which is not intended to qualify as an Incentive
Stock Option.
(l) "OPTION" shall mean an option to purchase Shares granted
pursuant to the Plan.
(m) "OPTIONEE" shall mean an Employee or, in the case of a
Non-Statutory Stock Option, any individual whom the Committee
or the Board selects, to whom an Option has been granted.
(n) "PLAN" shall mean this Vital Living Products, Inc. 1991 Stock
Option Plan, as amended from time to time.
2
<PAGE> 3
(o) "PURCHASE PRICE" shall mean the Exercise Price multiplied by
the number of whole Shares with respect to which an Option is
exercise.
(p) "RULE 16B-3" shall mean Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 or any successor rule.
(q) "SECTION 16(B)" shall mean Section 16(b) of the Securities
Exchange Act of 1934.
(r) "SHARE" shall mean one share of common Stock, adjusted in
accordance with Section 10 hereof (if applicable).
(s) "SUBSIDIARY" shall mean one or more subsidiaries of the
Corporation as defined in Section 425(f) of the Code.
3. DATE(S) OF ADOPTION AND AMENDMENT
This Plan was originally approved by the Board and by the Shareholders
of the Corporation on December 11, 1991. The Plan was later amended by
the Board with the approval of the Shareholders at the May 29, 1997,
Annual Shareholders Meeting.
4. ADMINISTRATION
The Plan shall be administered by the Board or by a Committee
consisting of not less than two "disinterested" persons, as defined in
Rule 16b-3, appointed by the Board from its members to administer the
Plan; provided, however, that if a majority of the Board are not
disinterested persons within the meaning of such definition, the Board
shall appoint such a Committee. The Board, from time to time, may
remove members from the Committee, fill vacancies in the Committee,
however caused, and may select one of the members of the Committee as
its Chairman.
If the Committee is appointed by the Board, the Committee shall hold
meetings at such times and places as it may determine. Acts of a
majority of the Committee at which a quorum is present, or acts reduced
to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The Committee or
the Board, as the case may be, shall from time to time at its
discretion make determinations with respect to Employees or other
individuals who shall be granted Options, the number of Shares with
respect to which Options shall be granted, and the designation of such
Options as Incentive Stock Options or Non-Statutory Stock Options.
The interpretation and construction by the Committee or the Board, as
the case may be, of any provisions of the Plan or of any Option granted
hereunder shall be final. No member of the Committee or the Board, as
the case may be, shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted hereunder.
3
<PAGE> 4
5. ELIGIBILITY
(a) INCENTIVE STOCK OPTIONS: Optionees of Incentive Stock Options
shall be such key Employees (including Employees who are
officers and/or directors of the Corporation) who have
performed, or reasonably may be expected to perform, services
of special importance to the management, operation or
development of the business of the Corporation as the
Committee or the Board, as the case may be, shall select, but
subject to the terms and conditions set forth below.
(b) NON-STATUTORY STOCK OPTIONS: Optionees of Non-Statutory Stock
Options shall be such key Employees or other individuals
(including officers and/or directors of the Corporation and
consultants and agents to the Corporation) who have performed,
or reasonably may be expected to perform, services of special
importance to the management, operation or development of the
business of the Corporation as the Committee or the Board, as
the case may be, shall select, but subject to the terms and
conditions set forth below.
An Employee may be granted Non-Statutory Stock Options or
Incentive Stock Options or both under the Plan; provided,
however, that the grant of Non-Statutory Stock Options and
Incentive Stock Options to an Optionee shall be a grant of
separate Options and each Non-Statutory Stock Option and each
Incentive Stock Option shall be specifically designated as
such in accordance with applicable regulations promulgated
under the Code.
An Employee who owns, directly, indirectly or constructively,
at the time of the grant of an Incentive Stock Option, more
than ten (10%) percent of the total combined voting power of
all classes of outstanding stock of the Corporation (a "10%
shareholder") shall be eligible to receive the grant of an
Incentive Stock Option pursuant to the Plan only if:
1. the Exercise Price of the Incentive Stock Option
shall be at least 110% of the Fair Market Value of a
Share on the Date of Grant (as hereinafter defined);
and
2. the Incentive Stock Option, by its terms, shall not
be exercisable after the expiration of five (5) years
from the Date of Grant.
6. STOCK
The stock subject to Options granted under the Plan shall be shares of
the Corporation's authorized but unissued Common Stock or shares of
Common Stock held as treasury shares. The aggregate number of Shares
which may be issued under Options exercised under this Plan shall not
exceed 3,150,000 Shares. The number of Shares subject to Options
outstanding under the Plan at any time may not exceed the number of
shares remaining available for issuance under the Plan. In the event
that any Option outstanding under the Plan shall, for any reason,
expire or terminate or be surrendered without having
4
<PAGE> 5
been exercised in full, the Shares allocable to the unexercised portion
of such Option may again be subjected to an Option under the Plan.
The limitation established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified, and in the
manner provided, in Section 10 hereof.
7. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be evidenced by written
agreements in such form as the Committee or the Board, as the case may
be, from time to time shall determine, which agreements shall comply
with and be subject to the terms and conditions of the Plan, including
the following:
(a) DATE OF GRANT. Each Option shall specify its effective date
(the "Date of Grant"), which shall be the date specified by
the Committee or the Board, as the case may be, in its action
relating to the grant of the Option.
(b) CONDITIONS OF OPTION EXERCISE. In no event shall an Incentive
Stock Option be exercisable until after one year from the Date
of Grant. In no event shall an Incentive Stock Option be
exercisable by an Optionee unless he or she was an Employee of
the Corporation at all times from the Date of Grant through
the date three months prior to the date of exercise of such
Option, or three (3) months prior to the date of exercise in
the event such Optionee ceased employment as a result of a
Disability.
(c) NUMBER OF SHARES. Each Option shall state the number of Shares
to which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 10
hereof.
(d) EXERCISE PRICE. Each Option shall state the Exercise Price,
which price, in the case of an Incentive Stock Option, shall
not be less than the Fair Market Value of a Share on the Date
of Grant. In the case of a Non-Statutory Stock Option, the
Exercise Price may be any amount determined by the Committee
or the Board, as the case may be, on the Date of Grant, but
not less than the par value of the Common Stock.
(e) MEDIUM AND TIME OF PAYMENT. The Purchase Price shall be
payable in full in United States dollars upon the exercise of
the Option; provided, however, that, with the consent of the
Committee or the Board, as the case may be, the Purchase Price
may be paid by the surrender of Shares in good form for
transfer, owned by the Optionee and having a Fair Market Value
on the date of exercise equal to the Purchase Price or in any
combination of cash and Shares, so long as the total of the
cash so paid and the Fair Market Value of the Shares
surrendered equals the Purchase Price. No Shares shall be
issued until full payment therefor has been made.
5
<PAGE> 6
(f) TERM AND EXERCISE OF OPTIONS; NONTRANSFERABILITY OF OPTIONS.
Each Option shall state the time or times when it becomes
exercisable. No option shall be exercisable after the
expiration of ten (10) years from the Date of Grant. During
the lifetime of the Optionee, the Option shall be exercisable
only by the Optionee and shall not be assignable or
transferable. In the event of the Optionee's death, no Option
shall be transferable otherwise than by will or the laws of
descent and distribution.
(g) TERMINATION OF EMPLOYMENT (EXCEPT DEATH). In the case of
Incentive Stock Options, in the event that an Optionee shall
cease to be employed by the Corporation for any reason other
than his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (f) hereof, to
exercise the Option at any time within three (3) months after
such termination of employment, or within twelve (12) months
if termination was due to Disability, to the extent that, on
the day preceding the date of termination of employment, the
Option was exercisable pursuant to the terms of the option
agreement pursuant to which such Option was granted, and had
not previously been exercised.
In the case of a Non-Statutory Stock Option, in the event that
an Optionee shall cease to be employed by the Corporation (if
an Employee of the Corporation) or shall cease to render
services to the Corporation, in each case other than by his or
her death, such Optionee's rights, if any, to exercise the
Option shall be determined by the Board or the Committee and
shall be set forth in the option agreement.
(h) DEATH OF OPTIONEE. If an Optionee shall die while in the
employ of, or while rendering services to, the Corporation, or
within three (3) months thereafter, and shall not have fully
exercised his or her Option, such Option may be exercised in
full, subject to the restrictions of Subsection (f) hereof, to
the extent it had not previously been exercised, at any time
within twelve (12) months after the Optionee's death, by the
executors or administrators of his or her estate or by any
person or persons who shall have acquired the Option by
bequest or inheritance from the Optionee.
(i) RIGHTS OF SHAREHOLDER. An Optionee or a transferee of an
Optionee shall have no rights as a shareholder with respect to
any Shares covered by his or her Option until the issuance of
a stock certificate for such Shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such
stock certificate is issued, except as provided in Section 10
hereof.
(j) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan,
the Committee or the Board, as the case may be, may modify,
extend or renew outstanding Options granted under the Plan, or
accept the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options in
substitution therefor.
6
<PAGE> 7
Notwithstanding the foregoing, however, no modification of an
Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option theretofore
granted under the Plan.
(k) NO SEQUENTIAL EXERCISE. An Incentive Stock Option shall be
exercisable with respect to all or any part of the Shares
subject thereto without the need to first exercise any other
outstanding Incentive Stock Option previously granted to the
Optionee.
(l) ALTERNATIVE RIGHTS. No Incentive Stock Option shall be issued
which includes an alternative right prohibited by Section
422A(b) of the Code or the regulations promulgated thereunder.
(m) OTHER PROVISIONS. The option agreements authorized under the
Plan shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation,
restrictions upon the exercise of the Option, as the Committee
or the Board, as the case may be, shall deem advisable.
(n) EXTENSION OF EXPIRATION OR TERMINATION DATE OF OPTION. If on
the date an Option is due to expire or terminate the exercise
of such Option would subject the Optionee to liability under
Section 16(b), the expiration or termination date of such
Option shall be extended automatically and such Option shall
instead expire or, in the case of an Option due to terminate,
terminate on the earlier to occur of three (3) months
thereafter or on the tenth day after the date on which the
exercise of such Option would not subject the Optionee to
liability under Section 16(b). Notwithstanding the foregoing,
(i) where a Non-Statutory Stock Option is due to expire by
reason of Subsection 7(f), the extension provided for in this
Subsection 7(n) shall not exceed twelve (12) months, and (ii)
where an Incentive Option is due to expire by reason of
Subsection 5B(b) or 7(f), there shall be no extension.
8. LIMITATION ON ANNUAL EXERCISE OF OPTIONS
The aggregate Fair Market Value (determined as of the date an Option is
granted) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee in any calendar year
under the Plan and all other plans maintained by the Corporation or any
Parent or Subsidiary shall not exceed $100,000.
9. TERM OF THE PLAN
No Option shall be granted pursuant to the Plan more than ten (10)
years after the date the Plan was adopted.
10. ADJUSTMENTS
Subject to any required action by the shareholders of the Corporation
and, in the case of Incentive Stock Options, to the requirements of
Section 425 of the Code, the number of
7
<PAGE> 8
Shares covered by each outstanding Option and the Exercise Price
thereof shall be proportionately adjusted by the Committee or the
Board, as the case may be, for any change in corporate structure or
capitalization of the Corporation affecting the Shares, including any
increase or decrease in the number of issued Shares resulting from a
subdivision or consolidation of Shares, stock split or the payment of a
stock dividend.
Subject to any required action by the shareholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding Option shall pertain and apply to the securities to which a
holder of the number of Shares subject to the Option would have been
entitled to receive as a result of such merger or consolidation. Unless
the agreement of merger or consolidation shall otherwise provide, in
the event of a dissolution or liquidation of the Corporation, or a
merger or consolidation in which the Corporation is not the surviving
corporation or in which its outstanding Common Stock is converted into
securities of another corporation or are exchanged for other
consideration, all outstanding Options shall terminate unless the
Committee or the Board, as the case may be, shall either (a) make all
Options outstanding immediately exercisable, or (b) arrange that any
successor or surviving corporation, if any, grant replacement options.
In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all authorized shares with par value
into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to
be the common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to capital stock or
other securities of the Corporation, such adjustments shall be made by
the Committee or the Board, as the case may be, whose determination in
that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10, the
Optionee shall have no rights by reason of any subdivision or
consolidation of shares of capital stock of any class, stock split, or
the payment of any stock dividend or any other increase or decrease in
the number of shares of capital stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of
assets or capital stock of another corporation. No issue by the
Corporation of (i) shares of capital stock of any class, or (ii) other
securities convertible into shares of capital stock of any class, shall
affect, nor shall any adjustment by reason thereof be made with respect
to, the number or price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
8
<PAGE> 9
11. SECURITIES LAW REQUIREMENTS
No Shares shall be issued upon the exercise of any Option unless and
until the Corporation has determined that: (i) it and the Optionee have
taken all actions required to register the Shares under the Securities
Act of 1933 and any applicable State securities statutes or perfect any
necessary exemption from the registration requirements thereof; (ii)
any applicable listing requirement of any stock exchange on which the
Common Stock is listed has been satisfied; and (iii) any other
applicable provision of State or Federal law has been satisfied. If
required, certificates representing Shares issued upon the exercise of
an Option shall contain a legend restricting transfer of the Shares
except in compliance with Federal and State securities statutes.
12. AMENDMENT OF THE PLAN
The Board, insofar as permitted by law, from time to time, with respect
to any Shares at the time not subject to Options, may suspend or
discontinue the Plan or revise or amend it in any respect whatsoever
except that, without approval of the shareholders of the Corporation,
no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan;
(b) Change the designation in Section 5 of the Plan of the class
of Employees or other individuals eligible to receive Options;
or
(c) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general
corporate purposes.
14. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option.
15. INTERPRETATION OF THE PLAN, CONFORMING AMENDMENTS
It is the intention of the Board that Incentive Stock Options granted
under the Plan constitute "incentive stock options" as defined in
Section 422A(b) of the Code and in the regulations promulgated
thereunder from time to time. Notwithstanding any other provision
contained herein, the terms of the Plan and any Incentive Stock Option
granted hereunder shall be construed so as to effectuate this intention
and shall be deemed modified to the extent, if any, necessary to
conform to the requirements and limitations of such Code section and
regulations applicable to incentive stock options. Terms used but
9
<PAGE> 10
not otherwise defined herein shall have the same meanings as terms used
in Section 422A of the Code and the regulations promulgated thereunder.
10
<PAGE> 1
EXHIBIT 6.2
INSTRUMENT OF FORGIVENESS OF INDEBTEDNESS
As an accommodation to VITAL LIVING PRODUCTS, INC., a Delaware
corporation ("Debtor"), and to induce Debtor to account for its indebtedness to
the undersigned creditor, C. WILBUR PETERS ("Creditor"), for loans, advances and
forbearances and to issue its Note of even date herewith payable to the order of
Creditor in the principal amount of $3,035,535.00 (the "Note"), such principal
amount being the amount of its total indebtedness to Creditor for loans,
advances and forbearances as of the date hereof, less the amount of indebtedness
of Debtor to Creditor that is forgiven hereby, Creditor hereby forgives and
forever releases and discharges Debtor from its obligation to pay $2,042,244.00
of Debtor's total indebtedness to Creditor for loans, advances and forbearances
as of the date hereof (the portion of the total indebtedness to Creditor that is
so forgiven being referred to herein as the "Discharged Indebtedness").
Creditor further acknowledges and agrees that, after giving effect to
the forgiveness of indebtedness effected hereby, the total indebtedness of
Debtor to Creditor as of the date hereof for loans, advances and forbearances is
equal to and represented by the principal amount of the Note.
This instrument may be entered as proof of the satisfaction and
discharge of the Discharged Indebtedness.
IN WITNESS WHEREOF, Creditor has duly executed and delivered this
instrument, under seal as a sealed instrument, this 30th day of June, 1999.
/s/ C. Wilbur Peters [SEAL]
C. Wilbur Peters
<PAGE> 1
EXHIBIT 6.3
NOTE
$3,035,535.00 Matthews, North Carolina
June 30, 1999
FOR VALUE RECEIVED, money borrowed or credit otherwise extended, VITAL
LIVING PRODUCTS, INC., a Delaware corporation ("Borrower"), does hereby promise
to pay to the order of C. WILBUR PETERS ("Lender"), at Borrower's principal
office at 5001 Smith Farm Road, Matthews, North Carolina 28104, the principal
sum of THREE MILLION THIRTY-FIVE THOUSAND FIVE HUNDRED THIRTY FIVE DOLLARS
($3,035,535.00), together with interest on the principal amount hereof from time
to time outstanding at the rate of 6% per annum, as follows:
(a) Principal shall be payable in full on June 30, 2001, subject
to prepayment or acceleration as provided herein; and
(b) Interest shall be payable in arrears semiannually on each June
30 and December 31, commencing December 31, 1999, and also at
any other time at which principal is payable, paid or prepaid.
This Note may be prepaid at any time in whole or in part without
penalty or premium. Each payment or prepayment hereof shall be applied first to
interest accrued and previously unpaid and then to principal, unless and except
to the extent that Lender shall agree to apply it first to principal.
If any payment hereunder is due on any day other than a Business Day,
then such payment may be made on the next Business Day with the same effect as
though made on such due date, except that interest shall continue to accrue to
the date payment is actually made. "Business Day" means any day other than a
Saturday, Sunday, or day when commercial banks located in Charlotte, North
Carolina are generally closed for commercial banking business.
The following shall constitute "Events of Default" hereunder:
(a) The failure of Borrower to pay any installment of principal or
interest hereunder when due, and the continuation of such
failure for five (5) days after written notice thereof,
demanding such payment, is given by the holder hereof to
Borrower; or
(b) The commencement of any proceedings by or against Borrower,
and with respect to Borrower as debtor, under any applicable
bankruptcy, insolvency or similar laws for the relief of
debtors, other than an involuntary proceeding that is
dismissed within 60 days after commencement, or any assignment
by Borrower for the benefit of creditors, or any other action
taken by Borrower or its creditors resulting in the
marshalling of the assets and liabilities of Borrower.
<PAGE> 2
Upon the occurrence of an Event of Default and during the continuation
thereof, the holder hereof may at such holder's option declare the entire
principal balance of this Note and all interest accrued to the date of payment
to be immediately due and payable, whereupon (or automatically upon the
occurrence of an Event of Default described in clause (b) above) the same shall
be immediately due and payable, and the holder hereof shall also have such other
rights and remedies as may be available under applicable law, all of which shall
be cumulative.
Demand, presentment for payment, protest, notice of protest and notice
of dishonor are hereby waived by Borrower. If this Note is not paid when due,
then Borrower shall also pay or reimburse the holder hereof for all costs of
collection, including reasonable attorney's fees. This Note is made and
delivered in, and is payable in, North Carolina and shall be governed by and
construed in accordance with the laws of the State of North Carolina.
Any notice to be given to Borrower hereunder shall be deemed
sufficiently given if addressed to Borrower and delivered (whether by mail,
courier or otherwise) to the address of its principal office set forth in the
first paragraph hereof (or such other address in the State of North Carolina as
may be hereafter specified in writing by Borrower to the holder hereof and
actually received by such holder).
IN WITNESS WHEREOF, Borrower has caused this instrument to be duly
executed in its name under seal as a sealed instrument, as of the day and year
first above written.
VITAL LIVING PRODUCTS, INC.
[CORPORATE SEAL]
By: /s/ Donald R. Podrebarac
Title: President
2
<PAGE> 1
EXHIBIT 6.4
REVOLVING CREDIT NOTE
$750,000.00 Matthews, North Carolina
July 1, 1999
FOR VALUE RECEIVED, money borrowed, VITAL LIVING PRODUCTS, INC., a
Delaware corporation ("Borrower"), does hereby promise to pay to the order of C.
WILBUR PETERS ("Lender"), at Borrower's principal office at 5001 Smith Farm
Road, Matthews, North Carolina 28104, the principal sum of SEVEN HUNDRED FIFTY
THOUSAND DOLLARS ($750,000.00), or such other amount as shall have been advanced
and be outstanding hereunder, together with interest on the principal amount
hereof from time to time outstanding at the Interest Rate (hereinafter defined),
as follows:
(a) Principal shall be payable in full on June 30, 2001, subject
to prepayment or acceleration as provided herein; and
(b) Interest shall be payable in arrears monthly on the last day
of each month, commencing July 31, 1999, and also at the time
principal is payable, paid or prepaid.
"Interest Rate" means that fluctuating rate of interest per annum equal
to one and one half of one percent (1 1/2 %) plus the LIBOR Market Index Rate,
which Interest Rate shall change daily with any change in the LIBOR Market Index
Rate. "LIBOR Market Index Rate," for any day, is the rate for one-month U.S.
dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time,
on such day, or if such day is not a London business day, then the immediately
preceding London business day (or if not so reported, then as determined by
Lender from another recognized source or interbank quotation). If at any time
the LIBOR Market Index Rate shall not be published or determinable, Lender may
by notice to Borrower substitute therefor for purposes of determining the
Interest Rate another index rate reasonably comparable to the LIBOR Market Index
Rate, and pending such substitution the Interest Rate shall be based upon the
LIBOR Market Index Rate as most recently in effect.
Lender may, in his sole discretion, from time to time on or after the
date hereof make loans and advances to Borrower, with Borrower's obligation to
repay such loans and advances to be evidenced by this Note. The principal amount
of this Note at any time shall be equal to the aggregate amount of all such
loans and advances made to Borrower through such time (including advances to pay
interest hereon), less the aggregate amount of all repayments of principal of
this Note made by Borrower through such time. Lender shall record on the advance
and payment record attached to this Note all advances upon this Note and all
payments of the principal of and interest on this Note. The failure of Lender to
properly record any such advance shall not preclude Lender from otherwise
proving such advance. The failure of Lender to properly record any such payment
shall not preclude Borrower from otherwise proving such payment, but any
notation of payment so recorded shall be conclusive proof that such payment was
made, absent manifest error.
<PAGE> 2
This Note may be prepaid at any time in whole or in part without
penalty or premium. Each payment or prepayment hereof shall be applied first to
interest accrued and previously unpaid and then to principal, unless and except
to the extent that Lender shall agree to apply it first to principal.
If any payment hereunder is due on any day other than a Business Day,
then such payment may be made on the next Business Day with the same effect as
though made on such due date, except that interest shall continue to accrue to
the date payment is actually made. "Business Day" means any day other than a
Saturday, Sunday, or day when commercial banks located in Charlotte, North
Carolina are generally closed for commercial banking business.
The following shall constitute "Events of Default" hereunder:
(a) The failure of Borrower to pay any installment of principal or
interest hereunder when due, and the continuation of such
failure for five (5) days after written notice thereof,
demanding such payment, is given by the holder hereof to
Borrower; or
(b) The commencement of any proceedings by or against Borrower,
and with respect to Borrower as debtor, under any applicable
bankruptcy, insolvency or similar laws for the relief of
debtors, other than an involuntary proceeding that is
dismissed within 60 days after commencement, or any assignment
by Borrower for the benefit of creditors, or any other action
taken by Borrower or its creditors resulting in the
marshalling of the assets and liabilities of Borrower.
Upon the occurrence of an Event of Default and during the continuation
thereof, the holder hereof may at such holder's option declare the entire
principal balance of this Note and all interest accrued to the date of payment
to be immediately due and payable, whereupon (or automatically upon the
occurrence of an Event of Default described in clause (b) above) the same shall
be immediately due and payable, and the holder hereof shall also have such other
rights and remedies as may be available under applicable law, all of which shall
be cumulative.
Demand, presentment for payment, protest, notice of protest and notice
of dishonor are hereby waived by Borrower. If this Note is not paid when due,
then Borrower shall also pay or reimburse the holder hereof for all costs of
collection, including reasonable attorney's fees. This Note is made and
delivered in, and is payable in, North Carolina and shall be governed by and
construed in accordance with the laws of the State of North Carolina.
Any notice to be given to Borrower hereunder shall be deemed
sufficiently given if addressed to Borrower and delivered (whether by mail,
courier or otherwise) to the address of its principal office set forth in the
first paragraph hereof (or such other address in the State of North Carolina as
may be hereafter specified in writing by Borrower to the holder hereof and
actually received by such holder).
2
<PAGE> 3
IN WITNESS WHEREOF, Borrower has caused this instrument to be duly
executed in its name under seal as a sealed instrument, as of the day and year
first above written.
VITAL LIVING PRODUCTS, INC.
[CORPORATE SEAL]
By: /s/ Donald R. Podrebarac
Title: President
3
<PAGE> 1
EXHIBIT 6.5
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement"), made and entered into as of
the 5th day of November, 1999 by and between VITAL LIVING PRODUCTS, INC., a
Delaware corporation (the "Company"), and C. WILBUR PETERS ("Peters")
WITNESSETH:
WHEREAS, Peters has from time to time extended credit to the Company in
the form of loans, advances, and forbearances, and has also leased equipment to
the Company; and
WHEREAS, as of June 30, 1999, the total indebtedness of the Company to
Peters for money borrowed and for the accrued and unpaid amounts due under
equipment leases to the Company was $5,077,779.00, and as of such date Peters
agreed to forgive an aggregate amount of $2,042,244.00 of such total
indebtedness in consideration of the Company's acknowledging its obligation to
pay the remaining $3,035,535.00 and issuing its promissory note in such
remaining principal amount dated June 30, 1999 (the "Note"); and
WHEREAS, Peters has agreed to exchange the Note, including all interest
accrued thereon, together with the items of equipment listed Schedule 1 to the
Bill of Sale in the form attached hereto as Exhibit A (the "Equipment"), which
Equipment the parties have agreed has a value of $93,467.00, for an aggregate of
31,290 shares of a new series of the Company's Class B Preferred Stock,
designated as Series B, Class B Preferred Stock (the "Series B Shares"), which
Series B Shares shall have the terms set forth in a Certificate of Designation
in substantially the form of Exhibit B hereto, with only such changes to which
Peters and the Company may mutually agree (the "Certificate of Designation");
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. EXCHANGE OF INDEBTEDNESS AND EQUIPMENT FOR SERIES B SHARES. At the Closing
(hereinafter defined), (a) the Company shall issue to Peters 31,290 of the
Series B Shares in exchange for the Note and the Equipment, and (b) Peters
shall surrender the Note to the Company for cancellation and convey the
Equipment to the Company in exchange for the issuance to Peters of such
31,290 Series B Shares. To effect such exchange, the Company shall deliver
to Peters a certificate or certificates for the 31,290 Series B Shares and
Peters shall execute and deliver the Bill of Sale in the form of Exhibit A
hereto (the "Bill of Sale") and possession and control of the Equipment to
the Company and shall surrender the Note to the Company for cancellation.
2. CLOSING. The consummation of the exchange described in Section 1 above (the
"Closing") shall occur at the Company's principal offices at 10:00 a.m.,
local time, on November 5, 1999, or at such other time and place as the
parties may mutually agree. The obligations of
<PAGE> 2
the respective parties to complete such exchange are conditioned upon (a)
the accuracy, as of the time of the Closing, of the other party's
representations and warranties, (b) the performance in all material
respects by the other party of such other party's obligations hereunder to
be performed at or prior to the Closing, (c) the approval of this Agreement
and the Certificate of Designation by the Company's Board of Directors, (d)
the filing of the Certificate of Designation with the Delaware Secretary of
State, (e) there not having occurred any loss of or damage to the Equipment
that materially effects its value (other than loss or damage for which the
Company is responsible), and (f) the absence of any litigation or other
judicial, administrative, regulatory or other proceedings seeking to enjoin
such exchange or seeking damages from either party or, in the case of the
Company, its directors or officers, in connection therewith. If the Closing
does not occur on or before December 1, 1999 because the necessary
conditions have not been met, then either party may terminate this
Agreement unless the reason such conditions have not been met is a breach
by such party of such party's representations, warranties or obligations
under this Agreement.
3. REPRESENTATIONS OF THE COMPANY. The Company represents and warrants to
Peters that the Series B Shares, when issued at the Closing, will be duly
and validly authorized and issued, fully paid and nonassessable, will have
the terms set forth in the Certificate of Designation, and will be issued
free and clear of any and all liens, encumbrances and adverse claims, other
than restrictions on transfer imposed by applicable securities laws.
4. REPRESENTATIONS OF PETERS. Peters represents and warrants to the Company
that: (a) good and valid title to the Equipment will be conveyed to the
Company at the Closing, free and clear of any and all liens, encumbrances
and adverse claims; (b) he is the current holder of the Note, and the
surrender of the Note to the Company for cancellation at the Closing shall
extinguish the Company's obligations under the Note; and (c) he is familiar
with the business and affairs and condition, financial and otherwise of the
Company, is acquiring the Series B Shares (and any shares of the Company's
Common Stock into which such Series B Shares are convertible) for purposes
of investment, and understands that such shares have not been registered
under the federal Securities Act of 1933 or any state securities laws, that
the transferability thereof is restricted and such shares may be required
to be held by him indefinitely, and hereby agrees that the certificates for
such shares may bear an appropriate legend to such effect, restricting the
transfer thereof in the absence of registration under such laws or the
availability of an applicable exemption therefrom, as proven to the
reasonable satisfaction of the Company.
5. REASONABLE EFFORTS AND FURTHER ASSURANCES. Each of the parties shall use
commercially reasonable efforts to cause all of the conditions to the
Closing to be met as soon as practicable, to the extent within such party's
control, and shall provide to the other party, at such other party's
reasonable request, such further instruments, proofs, evidence and other
assurances as such other party may reasonably request in order to effect or
evidence the exchange described herein.
2
<PAGE> 3
IN WITNESS WHEREOF, the Company and Peters have duly executed this
Agreement, effective as of the day and year first above written.
VITAL LIVING PRODUCTS, INC.
By: /s/ Donald R. Podrebarac
Title: President
/s/ C. Wilbur Peters
C. Wilbur Peters
3
<PAGE> 4
EXHIBIT A
BILL OF SALE
FOR VALUE RECEIVED, C. WILBUR PETERS ("Seller") hereby bargains, sells,
conveys, transfers, sets over and assigns unto VITAL LIVING PRODUCTS, INC.
("Purchaser") all of the items of machinery and equipment described on Schedule
1 hereto (the "Equipment").
Seller represents and warrants to Purchaser that Seller has good and
valid title to the Equipment and full power and authority to sell the Equipment
to Purchaser hereby, and that Seller is hereby transferring to Purchaser good
and valid title to the Equipment free and clear of any and all liens and
encumbrances. Except as stated in the preceding sentence, SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO THE EQUIPMENT, EXPRESS OR IMPLIED, AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
ANY PARTICULAR PURPOSE OR OTHERWISE. The Equipment is sold "AS IS, WHERE IS."
Made and delivered in the State of North Carolina, this 5th day of
November, 1999.
/s/ C. Wilbur Peters [SEAL]
C. Wilbur Peters
<PAGE> 5
SCHEDULE 1
Description of Equipment
1. All Water Vending and All Mount Units
2. All Puritron Water Treatment Units
3. All Water Cooler Units
4. Four (4) 1995 Chevrolet Vans Model CG 113
<PAGE> 6
EXHIBIT B
VITAL LIVING PRODUCTS, INC.
CERTIFICATE OF DESIGNATION
OF SERIES B, CLASS B PREFERRED STOCK
SETTING FORTH THE POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF SUCH SERIES OF CLASS B PREFERRED STOCK
VITAL LIVING PRODUCTS, INC., a Delaware corporation (this
"Corporation"), hereby certifies that pursuant to the authority contained in
Article 4 of its Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, (a) this Corporation has the authority to issue 1,000,000 shares of
Class B Preferred Stock, (b) the Board of Directors of this Corporation has the
authority to issue any or all of said shares in one or more series and by
resolution provide for the designation of each series to be issued pursuant to
the foregoing authority and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and other qualifications, limitations and restrictions thereof, and (c) the
Board of Directors has adopted the following resolution creating a series of its
Class B Preferred Stock to be designated Series B, Class B Preferred Stock:
RESOLVED, that a series of the authorized Class B Preferred Stock of
this Corporation be and hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and other qualifications,
limitations and restrictions thereof are as follows:
SECTION 1. DESIGNATION AND AMOUNT; PAR VALUE
The shares of such series shall be designated as Series B, Class B
Preferred Stock (the "Series B Shares") and the number of shares constituting
such series shall be 31,290. The par value of each share of such series shall be
$.01.
SECTION 2. DIVIDENDS
This Corporation shall be authorized to pay dividends to the holders of
the Series B Shares, from any lawful source therefor, when, as and if declared
by the Board of Directors, in preference (as herein provided) to the payment of
dividends on the common stock of this Corporation (the "Common Stock") and the
Class A preferred stock of this Corporation (the "Class A Preferred Stock")
(which has no dividend rights except as to liquidating distributions) and any
other shares of any other class or series of preferred stock of this Corporation
hereafter created which is by its terms expressly made junior and subordinate to
the Series B Shares as to the payment of dividends (referred to in this Section
2 as "Other Junior Preferred Stock"), but junior and subordinate to the payment
of preferential dividends to the holders of Series A, Class B Preferred Stock
(the "Series A Shares"), or any other shares of any other class or series of
<PAGE> 7
preferred stock of this Corporation hereafter created which is not by its terms
expressly made junior and subordinate to the Series B Shares as to the payment
of dividends (referred to in this Section 2 as "Other Senior Preferred Stock").
The amount of such dividends paid on the Series B Shares in any one calendar
year shall not be greater than $12.00 per share, and such dividends shall not be
cumulative so that accrued and unpaid dividends on the Series B Shares for any
calendar year shall not be payable in a subsequent calendar year. No dividends
may be paid an the Series B Shares unless and until all accrued and unpaid
dividends on the Series A Shares and any Other Senior Preferred Stock to which
the holders thereof shall be entitled shall have been paid in full. No dividends
may be paid on the Common Stock or any Other Junior Preferred Stock in any
calendar year unless and until dividends on the Series B Shares in the amount of
$12.00 per share shall have first been paid during such calendar year.
SECTION 3. LIQUIDATION RIGHTS
As to liquidation rights, the Series B Shares shall rank senior, as
herein provided, to the Common Stock and the Class A Preferred Stock and to any
other shares of any other class or series of preferred stock of this Corporation
hereafter created which is by its terms expressly made junior and subordinate to
the Series B Shares as to liquidation rights (referred to in this Section 3 as
"Other Junior Preferred Stock"), and shall rank junior and subordinate, as
herein provided, to the Series A Shares and to any other shares of any other
class or series of preferred stock of this Corporation hereafter created which
is not by its terms expressly made junior and subordinate to the Series B Shares
as to the liquidation rights (referred to in this Section 3 as "Other Senior
Preferred Stock"). In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of this Corporation, before any payment
or distribution shall be made to the holders of any shares of the Common Stock,
the Class A Preferred Stock or any Other Junior Preferred Stock, but after all
payments and distributions required to be made to the holders of the Series A
Shares and any Other Senior Preferred Stock in accordance with their respective
liquidation rights, the holders of the Series B Shares shall be entitled to
receive an amount equal to $10.00 per share. After the payment or the setting
apart for payment of amounts so payable to the holders of the Series B Shares,
the remaining assets of this corporation shall be available for distribution to
the holders of shares of the Common Stock, the Class A Preferred Stock and any
Other Junior Preferred Stock in accordance with their respective liquidation
preferences. If the assets or surplus funds to be distributed to the holders of
the Series B Shares are insufficient to permit the payment to such holders of
the full amounts to which they are entitled, the assets and surplus funds
available for such distribution shall be distributed pro-rata to the holders of
the Series B Shares.
SECTION 4. VOTING RIGHTS
The holders of Series B Shares shall not be entitled to vote, except to
the extent otherwise required by the Delaware General Corporation Law.
SECTION 5. REDEMPTION
(a) This Corporation may at any time and from time to time redeem all
or a portion of the outstanding Series B Shares at the redemption price of
$100.00 per share (the "Redemption
2
<PAGE> 8
Price"), provided that this Corporation has paid all of the declared dividends
corresponding to the Shares being redeemed (the "Redemption Shares"). This
Corporation shall provide notice of any redemption pursuant to Section 5 hereof
specifying the date (the "Redemption Date") and the place of redemption, by
first class or registered mail, postage prepaid, to each holder of Series B
Shares at the address for such holder last shown on the records of this
Corporation, not more than 60 nor less than 5 days before the applicable
Redemption Date. The notice shall specify the number of shares that are to be
redeemed. Upon mailing of any such notice of redemption, this Corporation shall
become obligated an the applicable Redemption Date to carry out the redemption
specified in such notice. If less than all of the Series B Shares are to be
redeemed, such redemption shall be made from the respective holders thereof on a
pro rata basis, and the Board of Directors may fix a record date for purposes of
determining such proration and the particular shares to be redeemed. If less
than all of the Series B Shares represented by any certificate are redeemed in
any redemption, this corporation shall, at its own expense and upon the
surrender of such certificate, issue to the holder thereof a new certificate
representing such holder's unredeemed shares.
(b) No Series B Shares designated for redemption pursuant to any notice
of redemption shall be entitled to any dividends declared after the applicable
Redemption Date. All rights of the holders of Redemption Shares as stockholders
of this Corporation by reason of the ownership of Redemption Shares shall cease
as of the date on which written notice of redemption has been sent to holders
thereof and a sum sufficient to redeem the Redemption Shares has been
irrevocably deposited or set aside to pay the Redemption Price to the holders of
the Redemption Shares upon surrender of the certificate therefor, except the
night to receive the Redemption Price of such shares upon presentation and
surrender of the certificate representing such shares. No Redemption Shares
shall be deemed to be outstanding after the Redemption Date.
SECTION 6. CONVERSION
(a) Holders of Series B Shares are entitled to convert such shares
commencing one year from the issuance thereof into shares of Common Stock at the
rate of 50 shares of Common Stock for each Series B Share so converted (the
"Conversion Rate"), such Conversion Rate to be subject to adjustment as follows:
(1) Stock Dividends, Subdivisions, Combinations. If this
Corporation shall at any time (i) take a record of the holders
of its Common Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of,
Common Stock; (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock; or (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Rate shall be
adjusted so that each Series B Share issued and outstanding on
the date thereof shall thereafter be convertible into the
number of shares of Common Stock which the holder of such
Series B Shares would have been entitled to receive after the
happening of such event had
3
<PAGE> 9
such Series B Shares been so converted immediately prior to
the happening of such event. An adjustment made pursuant to
this Subparagraph 6(a)(1) shall become effective retroactively
to the record date in the case of a dividend and shall become
effective on the effective date in the case of a subdivision
or combination.
(2) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification of the capital stock of
this Corporation, each Series B Share issued and outstanding
on the date thereof shall thereafter be convertible into the
number of shares of stock or other securities or property that
would have been receivable with respect to the shares of
Common Stock into which the Series B Shares were convertible
immediately prior to such capital reorganization or
reclassification of capital stock; and, in any case,
appropriate adjustment (as reasonably determined in good faith
by the Board of Directors) shall be made in application of the
provisions herein set forth with respect to the rights and
interests there after of the holders of the Series B Shares to
the end that the provisions set forth herein (including any
adjustments of the Conversion Rate) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
shares of stock or other securities or other property
thereafter deliverable upon the conversion of the Series B
Shares.
(b) If any holder of outstanding Series B Shares shall elect to convert
any Series B Shares as described in Section 6(a), such holder shall notify this
Corporation in writing, which writing (the "Conversion Notice") shall be duly
signed by or on behalf of such holder, shall specify the number of Series B
Shares being so converted, shall be accompanied by the certificate or
certificates for the Series B Shares being so converted, and such conversion
shall be effective upon receipt by this Corporation of such Conversion Notice
and certificate or certificates. As soon as practicable after such conversion,
this Corporation shall issue or cause to be issued, at its own expense, a
certificate or certificates representing the shares of Common Stock issuable
upon the conversion, and, if less than all the shares represented by any
tendered certificates are converted, shall issue a new certificate representing
the unconverted Series B Shares.
4
<PAGE> 10
IN WITNESS WHEREOF, VITAL LIVING PRODUCTS, INC., has caused this
Certificate of Designation to be executed by its President and attested to by
its Secretary this 5th day of November, 1999.
VITAL LIVING PRODUCTS, INC.
/s/ Donald R. Podrebarac
Donald R. Podrebarac, President
ATTEST:
/s/ Larry C. Pratt
Larry C. Pratt, Secretary
5
<PAGE> 1
EXHIBIT 6.6
PROMISSORY NOTE
$400,000.00 SEPTEMBER 1, 1992
CHARLOTTE, NORTH CAROLINA
FOR VALUE RECEIVED, the undersigned, Vital Living Products, Inc., a
Delaware Corporation ("Maker"), hereby promises to pay to CT F, a Minnesota
Corporation ("Holder"), at 2004 Valencia Terrace, Charlotte, North Carolina
28226, or at such other address as Holder may designate in writing, the
principal sum of FOUR HUNDRED THOUSAND ($400,000) DOLLARS, together with accrued
interest thereon from the date hereof until paid at a fluctuating rate per annum
equal to the "prime rate" (as hereinafter defined) per annum plus two percent
(2%) per annum. As used herein, the term "prime rate" shall mean that rate
announced from time to time by NationsBank of North Carolina, Charlotte, North
Carolina ("NationsBank") as its prime rate. The "prime rate" shall be determined
each business day and any change in NationsBank's prime rate shall be effective
hereunder the same business day.
All unpaid principal and all accrued interest on this Note shall be
payable in full on May May 7, 1993. Interest shall be payable on the first day
of every month, commencing on September 1, 1992.
Maker may prepay the unpaid principal and accrued interest hereunder,
without penalty, at any time and from time to time.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
Maker shall be in the default hereunder, upon the occurrence of any of
the following events:
(i) the failure by Maker to make any payment of principal or
interest when due hereunder, and such failure shall have
continued for a period of more than fifteen (15) consecutive
days;
(ii) the entering into a decree or order by a court of competent
jurisdiction adjudicating Maker a bankrupt or the appointing
of a receiver or trustee of Maker upon the application of any
creditor in an insolvency or bankruptcy proceeding or other
creditor's suit, or a court of competent jurisdiction
approving as properly filed, a petition for reorganization or
arrangement filed against Maker under the federal bankruptcy
laws and such degree or order not being vacated within sixty
(60) days, or the pendency of any bankruptcy proceeding or
other creditors' suit against Maker or a petition or answer
seeking reorganization or arrangement under the federal
bankruptcy laws with respect to Maker and such proceeding,
suit or petition not being dismissed within sixty (60) days or
an assignment for the benefit
<PAGE> 2
of creditors by Maker or if maker should consent to the
appointment of a receiver or trustee in an insolvency or
bankruptcy proceeding or other creditor's suit; or
(iii) the existence of any uncured event of default under the terms
of any instrument in writing evidencing a debt to someone
other than Holder, provided that Maker is not contesting in
good faith by appropriate proceedings such uncured event of
default.
Upon the occurrence of any event or condition of default hereunder, the
maturity of the Note, at Holder's option, shall be automatically accelerated and
all of the indebtedness hereunder shall be immediately due and payable, together
with accrued interest thereon, and payment thereof may be enforced by suit or
other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection and such
costs shall include without limitation all costs, reasonable attorneys' fees and
expenses incurred by Holder hereof, in connection with any insolvency,
bankruptcy, reorganization, arrangement or similar proceedings involving Maker,
or involving any endorser or guarantor hereof, which in any way affect the
exercise by Holder of its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
This Note shall be enforceable in accordance with the laws of the State
of North Carolina and shall be construed in accordance therewith.
VITAL LIVING PRODUCTS, INC.
By: /s/ Henry H. Mummaw
Henry H. Mummaw, President
2
<PAGE> 1
EXHIBIT 6.7
ESCROW AGREEMENT
AGREEMENT made this 31st day of March, 1992 by and among Vital Living
Products, Inc., a Delaware corporation (the "Company"), with its offices at 2300
Sardis Road North, Suite V, Charlotte, North Carolina 28227, Henry H. Mummaw, of
218 Benton Woods Drive, Matthews, North Carolina 28105, Brian E. Huey, of 8017
Crocket Court, Charlotte, North Carolina 28227, Joseph W. Mummaw, of 218 Benton
Woods Drive, Matthews, North Carolina 28105, Larry C. Pratt, of 1025 Holleybank
Drive, Matthews, North Carolina 28105, CTF, Inc., a Minnesota corporation, with
its offices at 20004 Valencia Terrace, Charlotte, North Carolina 28270, J.W.
Gant & Associates, Inc., an Illinois Corporation ("Gant" or the
"Representative") with its offices at 7600 East Orchard Road, Englewood,
Colorado 80111, and First Union National Bank of North Carolina, with its
offices at Two First Union Center, Charlotte, North Carolina 28288 as escrow
agent (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Company has filed a registration statement, as amended
from time to time, on Form S-18 (the "Registration Statement"), with the
Securities and Exchange Commission (the "Commission") in connection with the
Company's proposed public offering of Units, each Unit consisting of three
shares of Common Stock, $0.01 par value per share, and one warrant to purchase
one share of Common Stock;
WHEREAS, the Company has agreed to sell the Units pursuant to its
Registration Statement to the underwriters, for whom Gant will serve as the
representative, subject to the terms and conditions set forth in the
Underwriting Agreement of even date herewith (the "Underwriting Agreement");
WHEREAS, the Representative has requested, and the Underwriting
Agreement will provide as one of the conditions thereof, that Henry H. Mummaw,
Brian E. Huey, Joseph W. Mummaw, Larry C. Pratt and CTF, Inc. (collectively, the
"Stockholders") as principal stockholders of the Company, deposit into escrow in
accordance with the terms and conditions hereof an aggregate of 3,303,375 shares
of Class A Preferred Stock, par value $.01 per share, (the "Class A Preferred
Stock") of the Company beneficially owned by them;
WHEREAS, the parties hereto desire to have the Class A Preferred Stock
owned by the Stockholders, together with any Distributions (as hereinafter
defined) (collectively, the "Escrowed Items") held in escrow and then released
by the Escrow Agent in accordance with the terms set forth herein;
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and promises contained herein and as an inducement for the
Representative to execute a certain Underwriting Agreement by and between the
Company and the Representative, the parties hereby agree as follows:
<PAGE> 2
1. Appointment of the Escrow Agent. The parties hereto appoint and
designate First Union National Bank of North Carolina as the Escrow Agent to
serve as escrow agent with respect to the Escrowed Items subject to the terms
and conditions of this Escrow Agreement, and the Escrow Agent hereby accepts
that appointment.
2. Delivery of Escrowed Items to the Escrow Agent.
(a) The Stockholders hereby assign to the Escrow Agent the number of
shares of Class A Preferred Stock of the Company owned by them set forth below:
Henry H. Mummaw 660,675 shares
Brian E. Huey 660,675 shares
Joseph W. Mummaw 660,675 shares
Larry C. Pratt 165,169 shares
CTF, Inc. 1,156,181 shares
A certificate or certificates representing such Class A Preferred Stock shall be
delivered to the Escrow Agent concurrent with the execution hereof and shall be
accompanied by blank stock powers duly signed and with signature guarantees.
(b) The Escrow Agent will hold the Escrowed Items in escrow for the
benefit of the Representative, the Company and the holders of record of all of
the Company's outstanding securities at the date hereof and during the Escrow
Period according to the terms and subject to the conditions contained in this
Escrow Agreement.
(c) During the Escrow Period, the Escrow Agent shall receive all of the
money, stock dividends, additional shares and distributions of stock or noncash
property of every kind, hereafter distributed on or in respect of the Class A
Preferred Stock ("Distributions"), whether in addition to or in substitution for
the Class A Preferred Stock, in connection with any merger, consolidation, sale
of assets, exchange of shares, reclassification or otherwise, and such
Distributions are hereby deemed assigned, transferred and delivered to the
Escrow Agent to be held pursuant to this Escrow Agreement.
(d) For so long as the Escrowed Items are held by the Escrow Agent, the
respective Stockholders shall each be entitled to all of the rights and
privileges accorded record and beneficial owners of the securities of the
Company with respect to the Class A Preferred Stock deposited by each
Stockholder as set forth above and any additional shares or securities pursuant
to any Distribution, provided, however, the Stockholders each agree that during
the Escrow Period, such shares of Class A Preferred Stock shall not be
converted, in whole or in part, into shares of Common Stock of the Company.
3. Representations and Warranties of Stockholders. The Stockholders
each represent and warrant, but only as to himself or itself, that:
2
<PAGE> 3
(a) Such Stockholder has all right, title and interest in and to his or
its shares of the Class A Preferred Stock deposited into escrow hereby free and
clear of any liens, claims, security interests and other encumbrances.
(b) The shares of Class A Preferred Stock owned by such Stockholder are
duly authorized and issued, validly outstanding, and fully paid and
nonassessable and are not subject to any unfulfilled contract, agreement or
commitment made by such Stockholder or to which such Stockholder is a party.
(c) The Escrowed Items deposited by or on behalf of such Stockholder
shall not be assigned, sold, hypothecated, pledged, transferred or otherwise
disposed of (except by will, descent, or operation of law) until released from
escrow.
4. Term. This Escrow Agreement shall become effective upon the closing
of the initial public offering of the Company's securities pursuant to the
Company's Registration Statement and shall continue in effect until the earlier
of: (i) the disbursement by the Escrow Agent of all of the Escrowed Items in
accordance with the terms hereof, or (ii) completion by the Company of its
audited financial statements for the fiscal year ended April 30, 1997 (the
"Escrow Period").
5. Escrow Terms.
(a) The Escrow Agent shall be instructed to release the Escrowed Items,
or the appropriate portion thereof, to the respective Stockholders in accordance
with joint written instructions executed by the Company and Gant
("Instructions"), upon the occurrence of the following:
(i) In the event that the Company's audited financial
statements for any two of its first five full fiscal years hereafter
(ending on April 30 of any such year which fiscal year may not be
changed hereafter without the consent of Gant) reflect net income,
determined in accordance with generally accepted accounting principles
applied on a consistent basis, of at least $1,250,000 per annum, one
third (1/3) of the Escrowed Items deposited by or on behalf of each
Stockholder shall be released from escrow and returned to the
Stockholder who originally deposited the Class A Preferred Stock in
escrow hereunder.
(ii) In the event that the Company's audited financial
statements for any two of its first five full fiscal years beginning
with the fiscal year ending April 30, 1993 (ending on April 30 of any
such year which fiscal year may not be changed hereafter without the
consent of Gant) reflect net income, determined in accordance with
generally accepted accounting principles applied on a consistent basis,
of at least $2,500,000 per annum, all of the remaining Escrowed Items
deposited by or on behalf of each Stockholder shall be released from
escrow and returned to the Stockholder who originally deposited the
Class A Preferred Stock in escrow hereunder.
3
<PAGE> 4
(iii) The Escrow Agent shall be instructed to release any
Escrowed Items, including any Distributions, remaining in escrow at the
expiration of the Escrow Period to the Company. Any shares released to
the Company in accordance with this Section 5 shall be redeemed by the
Company at par value ($.01 per share) and any other moneys or property
comprising a portion of the Distributions shall be and become the sole
property of the Company.
(b) In the event the Escrow Agent receives Instructions for the
disposition of any or all of the Escrowed Items, the Escrow Agent shall give
written notice of the receipt of such Instructions to the Stockholders (the
"Disposition Notice"). If a written notification objecting to the Disposition
Notice is not received by the Escrow Agent within ten (10) business days after
the giving of the Disposition Notice by the Escrow Agent, time being of the
essence, the Escrow Agent is hereby authorized and empowered to deliver the
Escrowed Items in accordance with the Instructions. In the event that the Escrow
Agent receives written notice objecting to the Disposition Notice within the
aforementioned ten (10) day period, then the Escrow Agent shall continue to hold
such Escrowed Items until the Escrow Agent receives written notice from the
objecting party withdrawing such objection or the Escrow Agent receives a
writing signed by all of the parties directing the disposition of the disputed
Escrowed Items. Alternatively, the Escrow Agent shall be entitled, at its
option, to refuse to take any action unless and until a court of competent
jurisdiction ultimately settles the dispute among the parties. In such event,
the Escrow Agent shall be entitled to refrain from acting, or refuse to act,
until the matter shall have been finally determined by a court of competent
jurisdiction or shall have been settled by agreement of the parties to such
controversy, in which case the Escrow Agent shall be notified thereof by such
parties. The Escrow Agent is expressly authorized at its option to interplead
all interested parties in any such proceeding in a court of competent
jurisdiction, and to deposit the Escrowed Items with the clerk of such court.
(c) Upon delivery of all of the Escrowed Items as provided herein, or
the deposit of the Escrowed Items with the clerk of the court, all obligations
of the Escrow Agent shall thereupon cease, and the Escrow Agent shall be
released from any and all liability directly or indirectly relating to this
Escrow Agreement or the administration of the escrow without any further action
on behalf of any party hereto.
(d) In the event any term or condition of this Escrow Agreement
conflicts or is inconsistent with any other term or condition of any other
agreement, then in such event, the terms or conditions of this Escrow Agreement
shall be controlling.
6. Further Assurances. The Company and each Stockholder agrees to do
such further acts and things and to execute and deliver such statements,
assignments, agreements, instruments and other documents as the Escrow Agent
from time to time reasonably may request in connection with the administration,
maintenance, enforcement or adjudication of this Escrow Agreement.
7. Invalidation of Releases from Escrow. Etc. In the event the release
of any of the Escrowed Items to the Stockholders under this Escrow Agreement is
invalidated, declared to be fraudulent or preferential or must for any reason be
restored or returned to the Escrow Agent
4
<PAGE> 5
whether by agreement, order of or settlement before any court or other authority
or otherwise, then in such event, each such Stockholder shall contribute back to
the Escrow Agent such Escrowed Item so affected, together with any related
assignment, release or other instrument or document the Escrow Agent may request
to restore the status quo ante.
8. Reliance on Documents and Experts. The Escrow Agent shall be
entitled to rely upon any Instruction, notice, consent, certificate, affidavit,
statement, paper, document, writing or communication (which unless otherwise
provided herein, may be by telegram, cable, telex, telecopier, or telephone)
reasonably believed by it to be genuine and to have been signed, sent or made by
the proper person or persons, and upon opinions and advice of legal counsel
(including counsel for any party hereto), independent public accountants and
other experts selected by the Escrow Agent.
9. Status of the Escrow Agent, Etc. The Escrow Agent is acting under
this Escrow Agreement as a stakeholder only and shall be considered an
independent contractor with respect to each Stockholder. No term or provision of
this Escrow Agreement is intended to create, nor shall any such term or
provision be deemed to have created, any principal-agent, trust, joint venture,
partnership, debtor-creditor or attorney-client relationship between or among
the Escrow Agent and any of the Stockholders. This Escrow Agreement shall not be
deemed to prohibit or in any way restrict the Escrow Agent's representation of
any of the Company or the Representative who may be advised by the Escrow Agent
on any and all matters pertaining to this Escrow Agreement and the Escrowed
Items. To the extent one or more of the Stockholders are or have been
represented by the Escrow Agent, each such Stockholder hereby waives any
conflict of interest and irrevocably authorizes and directs the Escrow Agent to
carry out the terms and provisions of this Escrow Agreement fairly as to all
parties, without regard to any such representation and irrespective of the
impact upon any such Stockholder. The Escrow Agent's only duties are those
expressly set forth in this Escrow Agreement, and each Stockholder authorizes
the Escrow Agent to perform those duties in accordance with its usual practices
in holding documents of its own or those of other escrows. The Escrow Agent may
exercise or otherwise enforce any of its rights, powers, privileges, remedies
and interests under this Escrow Agreement and applicable law or perform any of
its duties under this Escrow Agreement by or through its partners, employees,
attorneys, agents or designees.
10. Consent to Jurisdiction Etc. Each Stockholder hereby covenants and
agrees that the Superior Court of the State of North Carolina or the United
States District Court for North Carolina, at the election of the Escrow Agent,
shall have personal jurisdiction and proper venue over any dispute with the
Escrow Agent; provided that the foregoing consent to jurisdiction and venue by
the other parties shall not deprive the Escrow Agent of the right in its
discretion voluntarily to commence or participate in any action, suit or
proceeding in any other court having jurisdiction and venue over the
Stockholders. Each Stockholder hereby waives personal service of any summons,
complaint or other process, which may be delivered by any of the means permitted
for notices under Section 16 hereof. Within thirty (30) days after service of
process, the Stockholders agree to appear or answer and if no appearance or
answer is made within such period, that party shall be deemed in default and
judgment may be entered by the Escrow Agent against that party for the relief
demanded in any complaint so served. In any action or proceeding involving the
Escrow Agent in any jurisdiction, Stockholders each waive trial by jury.
5
<PAGE> 6
11. Exculpation. The Escrow Agent and its partners, employees,
attorneys and agents, shall not incur any liability whatsoever for the holding
or delivery of documents or the taking of any other action in accordance with
the terms and provisions of this Escrow Agreement, for any mistake or error in
judgment, for compliance with any applicable law or any attachment, order or
other directive of any court or other authority (irrespective of any conflicting
term or provision of this Escrow Agreement), or for any act or omission of any
other person engaged by the Escrow Agent in connection with this Escrow
Agreement; and each Stockholder hereby waives any and all claims and actions
whatsoever against the Escrow Agent and its designees, and their respective
directors, officers, partners, employees, attorneys and agents, arising out of
or related directly or indirectly to any and all of the foregoing acts,
omissions and circumstances. Furthermore, the Escrow Agent and its designees,
and their respective directors, officers, partners, employees, attorneys and
agents, shall not incur any liability (other than for a person's own acts or
omissions amounting to gross negligence or willful misconduct as finally
determined pursuant to applicable law by a governmental authority having
jurisdiction) for other acts and omissions arising out of or related directly or
indirectly to this Escrow Agreement or the Escrowed Items; and each Stockholder
hereby expressly waives and releases any and all claims and actions (other than
those attributable to a person's own acts or omissions amounting to gross
negligence or willful misconduct as finally determined pursuant to applicable
law by a governmental authority having jurisdiction) against the Escrow Agent
and its designees, and their respective directors, officers, partners,
employees, attorneys and agents, arising out of or related directly or
indirectly to any and all of the foregoing acts, omissions and circumstances.
12. Indemnification. The Escrow Agent and its partners, employees,
attorneys and agents, shall be indemnified, reimbursed, held harmless and, at
the request of the Escrow Agent, defended by the Company and the Stockholders,
jointly and severally, from and against any and all claims, liabilities, losses
and expenses (including, without limitation, the disbursements, expenses and
fees of their respective attorneys) that may be imposed upon, incurred by, or
asserted against any of them, or any of their respective directors, officers,
partners, employees, attorneys or agents, arising out of or related directly or
indirectly to this Escrow Agreement or the Escrowed Items, except such as are
occasioned by the indemnified person's own gross negligence or willful
misconduct as finally determined pursuant to applicable law by a governmental
authority or court having jurisdiction.
13. Successor to the Escrow Agent.
(a) The Escrow Agent shall have the right to resign upon notice to the
remaining parties; and the remaining parties shall jointly appoint a successor
escrow agent by notice to the Escrow Agent.
(b) Upon the resignation of the Escrow Agent and the designation of a
successor escrow agent, the Escrow Agent (or its legal representative) shall
deliver to the successor escrow agent a copy of this Escrow Agreement and the
Escrowed Items. Any successor escrow agent shall have all the rights and shall
be subject to all of the obligations of the Escrow Agent.
6
<PAGE> 7
(c) Upon the dissolution, disqualification or refusal of the Escrow
Agent (or any successor escrow agent) to serve, or continue to serve under this
Escrow Agreement, and should the parties hereto fail to agree upon a successor
escrow agent, the parties hereto or the Escrow Agent shall have the right to
make application for the appointment of such successor escrow agent in a court
of equity.
14. Expenses of the Escrow Agent. The Company shall promptly pay all
reasonable fees, expenses (including attorneys' fees of itself or other
attorneys it may retain), disbursements and advances charged, incurred or made
by the Escrow Agent in the performance of its duties hereunder. The charges so
payable shall be paid to the Escrow Agent from time to time upon the Escrow
Agent's written request to the Company.
15. Expenses of the Company and the Stockholders. The Company and the
respective Stockholders shall pay his, her or its respective fees and expenses,
including any counsel or accounting fees incurred by him, her or it in
connection with this Escrow Agreement, it being specifically agreed that each
shall have no obligation to any other in such regard.
16. Notices. Any notice and other communication hereunder shall be in
writing and shall be deemed to be given on the date the same is deposited in the
United States mail, certified or registered mail, postage prepaid, as follows:
(i) If to the Company, addressed to:
Henry H. Mummaw, President
Vital Living Products, Inc.
2300 Sardis Road, Suite V
Charlotte, North Carolina 28227
With copies contemporaneously by like means to:
Elliot B. Newman, Esq.
Warshaw Burnstein Cohen Schlesinger & Kuh
555 Fifth Avenue
New York, New York 10017
(ii) If to the Escrow Agent, addressed to:
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288
7
<PAGE> 8
(iii) If to Gant, addressed to:
Don Shek, Sr. Vice President
J.W. Gant & Associates, Inc.
7600 East Orchard Road
Englewood, Colorado 80111
With copies contemporaneously by like means to:
Ralph V. De Martino, Esq.
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
(iv) If to any Stockholder at the respective addresses set forth above
or to any other address or addresses which shall hereafter be filed from time to
time by the respective parties with the Escrow Agent for such purposes.
17. Cumulative Rights. The rights and remedies granted in this Escrow
Agreement are cumulative and not exclusive, and are in addition to any and all
other rights and remedies granted and permitted under and pursuant to law.
18. Assignment and Delegation of Duties. This Escrow Agreement may not
be assigned by the parties hereto, and any attempted assignment hereof shall be
void and of no effect, and the duties imposed hereby are non-delegable.
19. Section Headings. The section headings herein have been inserted
for convenience of reference only, and shall in no way modify or restrict any of
the terms or provisions hereof.
20. Gender and Number. The masculine, feminine or neuter gender and the
singular or plural number shall each be deemed to include the others whenever
the context so indicates.
21. Binding Effect. This Escrow Agreement shall bind and inure to the
benefit of the parties, their successors and assigns.
22. General. This Escrow Agreement shall be governed by, and construed
and enforced in accordance with the laws of the State of Delaware. This Escrow
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
This Escrow Agreement contains the entire agreement among the parties hereto
with respect to the transactions referred to herein or contemplated hereby. This
Escrow Agreement cannot be amended, modified, or supplemented, nor can any
provision hereof be waived, except by a written instrument signed by the parties
hereto.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement the day and year first above written.
VITAL LIVING PRODUCTS, INC.
By:/s/ Henry H. Mummaw
(Authorized Officer)
/s/ Henry H. Mummaw
Henry H. Mummaw
/s/ Brian E. Huey
Brian E. Huey
/s/ Joseph W. Mummaw
Joseph W. Mummaw
/s/ Larry C. Pratt
Larry C. Pratt
CTF, INC.
By: /s/ C. Wilbur Peters
(Authorized Officer)
J.W. GANT & ASSOCIATES, INC.
By: /s/ Donald Shek
(Authorized Officer)
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/Eleanor G. Autry
(Authorized Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 661
<SECURITIES> 0
<RECEIVABLES> 182,121
<ALLOWANCES> (12,075)
<INVENTORY> 280,072
<CURRENT-ASSETS> 450,779
<PP&E> 823,799
<DEPRECIATION> 645,917
<TOTAL-ASSETS> 666,841
<CURRENT-LIABILITIES> 1,697,393
<BONDS> 0
0
2,966,969
<COMMON> 33,203
<OTHER-SE> (4,036,861)
<TOTAL-LIABILITY-AND-EQUITY> 666,841
<SALES> 1,527,004
<TOTAL-REVENUES> 1,947,021
<CGS> 1,327,443
<TOTAL-COSTS> 1,327,443
<OTHER-EXPENSES> 1,018,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369,951
<INCOME-PRETAX> (761,979)
<INCOME-TAX> 0
<INCOME-CONTINUING> (761,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,461,504
<CHANGES> 0
<NET-INCOME> 2,699,525
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>NO CALCULATION IS PRESENTED FOR DILUTED EARNINGS PER SHARE AS THE INCLUSION
OF SHARES FOR THE EFFECT OF ANY OPTIONS OR PREFERRED STOCK WOULD BE
ANTIDILUTIVE AT THE INCOME FROM CONTINUING OPERATIONS [INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM] LEVEL BECAUSE THE COMPANY HAD LOSSES AT THAT LEVEL.
</FN>
</TABLE>
