SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter Ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23031
DYNAMIC HEALTH PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
STATE OF FLORIDA 34-1711778
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6950 Bryan Dairy Road, Largo, Florida 33777
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (727) 544-8866
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of the Issuer's common stock at $.01 par value
as of February 12, 1999 was 3,524,608 (exclusive of Treasury Shares).
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 353,465 $ 7,561
Accounts receivable, net 2,279,633 631,839
Inventory, net of allowance 2,828,229 620,520
Prepaids and other current assets 223,408 22,408
----------------------------
Total current assets 5,684,735 1,282,328
----------------------------
Property, plant and equipment, at cost, net 2,220,905 186,748
Deposits 50,390 16,733
Investment in LLC 5,000 --
Intangible assets, net 2,789,461 698,778
----------------------------
TOTAL ASSETS $ 10,750,491 $ 2,184,587
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,697,658 $ 807,581
Other payables 125,687 6,800
Interest payable 13,128 1,634
Notes payable 48,220 15,199
Credit line payable 1,808,451 200,000
Related party notes payable 489,572 198,324
Unearned revenue 86,025 48,522
Current portion of long-term liabilities 459,205 15,378
----------------------------
Total current liabilities 5,727,946 1,293,438
----------------------------
Long-term liabilities:
Interest payable 42,795 --
Capital lease obligations 457,916 59,337
Notes payable 283,015 --
Mortgages payable 1,144,185 --
Minority interest in subsidiary 12,261 --
Current portion of long-term liabilities (459,205) (15,378)
----------------------------
Total long-term liabilities 1,480,967 43,959
----------------------------
TOTAL LIABILITIES 7,208,913 1,337,397
----------------------------
Shareholders' equity:
Common stock, at par value 31,067 23,033
Series A Convertible Preferred stock, at face value 1,550,000 --
Series B 6% Cumulative Convertible Preferred stock, at face value 75,000 --
Additional paid-in capital 2,546,868 1,615,189
Accumulated deficit (859,783) (853,680)
Net income 198,426 62,648
----------------------------
NET SHAREHOLDERS' EQUITY 3,541,578 847,190
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,750,491 $ 2,184,587
============================
</TABLE>
See notes to consolidated financial statements
- 2 -
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Distributor sales $ 10,121,021 $ 2,397,771 $ 22,858,888 $ 6,023,447
Manufacturing 1,083,935 491,089 3,142,759 1,270,792
Other revenues 226,419 -- 285,050 --
------------------------------------------------------------
TOTAL REVENUES 11,431,375 2,888,860 26,286,697 7,294,239
------------------------------------------------------------
Cost of goods sold:
Distributor sales 9,734,340 2,226,743 22,014,417 5,718,113
Manufacturing 797,009 415,656 2,159,321 959,986
Other revenues 20,631 -- 31,508 --
------------------------------------------------------------
TOTAL OF COST OF GOODS SOLD 10,551,980 2,642,399 24,205,246 6,678,099
------------------------------------------------------------
GROSS PROFIT 879,395 246,461 2,081,451 616,140
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 891,065 235,519 1,825,362 562,600
------------------------------------------------------------
OPERATING INCOME BEFORE OTHER INCOME AND EXPENSE (11,670) 10,942 256,089 53,540
Other income (expense):
Interest income 1,495 -- 7,939 --
Gain on involuntary conversion of land -- -- 81,192 --
Other income and expenses, net 7,467 6,000 27,608 28,636
Interest expense (111,629) (6,376) (240,541) (19,528)
------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (102,667) (376) (123,802) 9,108
------------------------------------------------------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST (114,337) 10,566 132,287 62,648
Loss attributable to minority interest (62,863) -- (66,139) --
------------------------------------------------------------
NET INCOME (LOSS) (51,474) 10,566 198,426 62,648
Accrued preferred share dividends 1,142 -- 1,542 --
------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (52,616) $ 10,566 $ 196,884 $ 62,648
============================================================
Basic income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10
============================================================
Basic weighted number of common shares outstanding 3,075,482 734,096 2,352,238 612,524
============================================================
Diluted income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10
============================================================
Diluted weighted number of common shares outstanding 3,411,882 734,096 2,588,938 612,524
============================================================
</TABLE>
See notes to consolidated financial statements
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 198,426 $ 62,648
Minority interest in subsidiary (66,139) --
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 175,844 20,143
Provision for losses on accounts receivable (18,250) 11,000
Changes in operating assets and liabilities:
Accounts receivable (1,143,888) (478,292)
Inventory (1,419,501) (473,492)
Prepaid expenses (74,455) (7,160)
Accounts payable and accrued expenses 207,282 448,747
Unearned revenue (98,752) 16,333
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,239,433) (400,073)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 7,831 (4,446)
Purchases of property and equipment (214,858) (99,158)
Involuntary conversion of land 17,908 --
Decrease (increase) in intangible assets (25,767) (324)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (214,886) (103,928)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,959,527 278,835
Proceeds from shareholder loans 270,153 108,408
Distributions to stockholders (108,503) --
Proceeds from issuance of common stock 550,000 106,146
Proceeds from issuance of preferred stock 75,000 --
Principal payments of debt and capital lease obligations (392,222) (201,655)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,353,955 291,734
----------- -----------
NET INCREASE (DECREASE) IN CASH (100,364) (212,267)
CASH AT BEGINNING OF PERIOD 453,829 219,828
----------- -----------
CASH AT END OF PERIOD $ 353,465 $ 7,561
=========== ===========
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------------------- --------------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the period for interest $ 221,026 $ 33,076
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for purchase of
property and equipment $ 109,487 $ 54,628
Acquisition of minority interest through
issuance of common stock $ -- $ 10,000
Conversion of related party notes payable and
accrued interest to common stock $ 81,331 $ 85,123
Acquisition of Energy Factors, Inc. through
issuance of 310,000 shares of preferred stock $ 1,550,000 $ --
Acquisition of Becan Distributors, Inc. through
issuance of 1,500,000 shares of common stock $ 2,250,000 $ --
Acquisition of J. Labs, Inc. through
issuance of 100,000 shares of common stock $ 150,000 $ --
Acquisition of assets through
issuance of 32,243 shares of common stock $ 80,607 $ --
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
Dynamic Health Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1998
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and nine
month periods ended December 31, 1998 and 1997 are not necessarily indicative of
the results that may be expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB for the year ended March 31, 1998.
NOTE B-ACQUISITIONS AND DISPOSITIONS
On June 15, 1998, the Company acquired legal title to the net assets of
Energy Factors, Inc. In exchange for the capital stock in Energy Factors, Inc.,
310,000 shares of Series A Convertible Preferred Stock of the Company were
issued to the shareholders of Energy Factors, Inc. The transaction was accounted
for as a purchase.
The aggregate cost of this acquisition was as follows:
Assumption of liabilities $2,874,000
Issuance of preferred stock 1,550,000
----------
$4,424,000
==========
The aggregate purchase price was allocated as follows:
Accounts receivable $ 26,000
Inventory 575,000
Property, plant and equipment 1,925,000
Other assets 75,000
Goodwill 1,823,000
----------
$4,424,000
==========
- 6 -
<PAGE>
On June 26, 1998, the Company acquired all of the issued and
outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000
new shares of common stock of the Company. The merger was accounted for as a
combination of entities under common control and treated as if a "pooling of
interests". The merger resulted in goodwill of approximately $700,000 due to the
acquisition of the minority interest. The financial statements have been
retroactively adjusted to reflect the results of Becan Distributors, Inc. for
all periods presented.
The Company also made other immaterial acquisitions during the three
months and nine months ended December 31, 1998. The results of operations of the
acquired companies are included in the accompanying consolidated financial
statements since the respective date of acquisition.
NOTE C-PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include
the accounts of Dynamic Health Products, Inc. ("DHP") and its subsidiaries,
Innovative Health Products, Inc. ("IHP"), Becan Distributors, Inc. ("Becan") and
its subsidiary Discount Rx, Inc. ("Discount"), Incredible Products of Florida,
Inc. ("IP"), J.Labs, Inc. ("JL"), Herbal Health Products, Inc. ("HHP"),
(collectively the "Company"). All intercompany balances and transactions have
been eliminated.
NOTE D-STOCKHOLDERS' EQUITY
On August 11, 1998, upon the filing by the Company of Articles of
Amendment to its Articles of Incorporation, a one-for-three reverse stock split
of the Common Stock of the Company was effected. The accompanying unaudited
condensed consolidated financial statements have been retroactively restated, as
of December 31, 1997, to reflect the one-for-three reverse stock split. In
conjunction with the reverse stock split, the effect of the elimination of
fractional shares (which are being cashed out at $1.50 per new share) is not
reflected in the accompanying condensed consolidated financial statements.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
earnings per common share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share gives effect to convertible preferred
shares which are considered to be dilutive common stock equivalents. Earnings
per share was retroactively restated, as of December 31, 1997, to reflect FASB
No. 128.
Series B 6% Cumulative Convertible Preferred Stock shareholders are
entitled to cumulative annual dividends, from the date of issuance, payable
annually in arrears. The Company may make dividend payments on the Preferred
Stock in cash or by delivery of fully paid nonassessable shares of common stock
of the Company, or through a combination thereof.
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Three Months and Nine Months ended December 31, 1998 and December 31, 1997
Sales are recognized at the time the product is shipped. Net sales are
net of discounts, allowances, and returns and credits. Distributor sales
increased 322% and 279%, or $7,723,250 and $16,835,441, to $10,121,021 and
$22,858,888 for the three months and nine months ended December 31, 1998, as
compared to $2,397,771 and $6,023,447 in the three months and nine months ended
December 31, 1997. The increase was due to increased sales with existing
customers and expansion of the customer base resulting from increased marketing
efforts. Manufacturing sales increased 121% and 147%, or $592,846 and
$1,871,967, to $1,083,935 and $3,142,759, as compared to $491,089 and $1,270,792
in the corresponding period. The increase was primarily attributable to
increased volume of the Company's private label sales resulting from continued
expansion of marketing efforts and the introduction of new products. Other
revenues of $226,419 and $285,050 for the three months and nine months ended
December 31, 1998 were attributable to direct marketing efforts of Incredible
Products of Florida, Inc., a 51% owned subsidiary of the Company, incorporated
on August 20, 1998.
Gross profit from distributor sales increased 126% and 177%, or
$215,653 and $539,137, to $386,681 and $844,471 for the three months and nine
months ended December 31, 1998, as compared to $171,028 and $305,334 in the
three months and nine months ended December 31, 1997. Gross profit from
manufacturing increased 280% and 216%, or $211,493 and $672,632, to $286,926 and
$983,438, as compared to $75,433 and $310,806 in the corresponding period. Gross
profit from other revenues was $205,788 and 253,542 for the three months and
nine months ended December 31, 1998. Gross margin from distributor sales
decreased to 3.82% for the three months ended December 31, 1998 from 7.13% for
the three months ended December 31, 1997. The decline was primarily attributable
to an increase in the mix of sales, which yields a lower gross margin. For the
nine months ended December 31, 1998, the gross margin from distributor sales
decreased to 3.69% from 5.07% in the corresponding period. Gross margin from
manufacturing increased to 26.47% and 31.29% for the three months and nine
months ended December 31, 1998, from 15.36% and 24.46% in the corresponding
period. Gross margin from other revenues was 90.89% and 88.95% for the three
months and nine months ended December 31, 1998.
Selling, general and administrative expenses consist primarily of
advertising and promotional expenses, personnel costs related to general
management functions, finance, accounting and information systems, payroll
expenses and sales commissions, professional fees related to legal, audit and
tax matters, and depreciation and amortization expense. Selling, general and
administrative expenses increased 278% and 224%, or $655,546 and $1,262,762, to
$891,065 and $1,825,362 for the three months and nine months ended December 31,
1998, as compared to $235,519 and $562,600 in the corresponding period. The
increase was primarily due to additional advertising, promotional and payroll
expenses to support increased net sales and the Company's growth, as well as
additional amortization of goodwill and depreciation of fixed assets associated
with the June 15, 1998 acquisition of IHP, and the June 26, 1998 acquisition of
Becan. As a percentage of net sales, selling, general and administrative
expenses decreased to 7.79% for the three months ended December 31, 1998 from
8.15% for the three months ended December 30, 1997, and decreased to 6.94% for
the nine months ended December 31, 1998 from 7.71% in the corresponding period.
- 8 -
<PAGE>
Interest expense, net of interest income, increased $103,758 and
$213,074, to $110,134 and $232,602 for the three months and nine months ended
December 31, 1998, from $6,376 and $19,528 for the three months and nine months
ended December 31, 1997. The increase was a result of increased borrowings to
finance the purchase of additional machinery and equipment and to make necessary
plant modifications, and for financing of additional working capital needs with
the June 15, 1998 acquisition of IHP.
The Company had no income tax expenses for the three months and nine
months ended December 31, 1998 and 1997.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation for the three
months and nine months ended December 31, 1998 and 1997. Management also
believes that its business is not seasonal; however, significant promotional
activities can have a direct impact on sales volume in any given quarter.
Although in the opinion of the management of the Company, the above
data reflects positive information concerning the present operations of the
Company, there can be no assurance that the Company's results of operations will
continue to the same extent or in the same manner as reflected above.
Liquidity and Capital Resources
The Company historically has financed its operations through funds from
operations and loans from within the Company. The Company had working capital of
($43,211) at December 31, 1998, as compared to ($11,110) in working capital at
December 31, 1997. The decrease was primarily due to an increase in accounts
payable and accrued expenses, an increase in a credit line, and an increase in
current portion of long-term liabilities as a result of the IHP acquisition.
Net cash used in operating activities was ($2,239,433) for the nine
months ended December 31, 1998 as compared to net cash used in operating
activities of ($400,073) for the nine months ended December 31, 1997. The usage
of cash is primarily attributable to an increase in accounts receivable
($1,143,888), as a result of increased sales by the Company during such period,
and an increase in inventory ($1,419,501), an increase in prepaid expenses
($74,455), an increase in accounts payable and accrued expenses $207,282, and an
increase in unearned revenue ($98,752), primarily attributable to the
acquisition of IHP.
Net cash used in investing activities was ($214,886), representing the
purchase of property and equipment, plant modifications, and the acquisition of
other assets, offset by a decrease representing an involuntary conversion of
land $17,908.
Net cash provided by financing activities was $2,353,955 representing
proceeds from issuance of common stock, proceeds from issuance of preferred
stock, proceeds of long-term debt, capital lease obligations, and borrowings on
lines of credit, proceeds from shareholder loans, offset by repayments of debt
and capital lease obligations ($392,222).
Management is hopeful liquidity and capital difficulties will be
resolved but provides no assurance. The Company expects to meet its cash
requirements from operations, current cash reserves, and existing financial
arrangements.
- 9 -
<PAGE>
In March and April 1998, the Company received $250,000 from investors
and issued non-negotiable promissory notes with stock warrants attached. The
notes bear interest at 10% per annum, compounded annually. The due date shall be
the earlier of (i) April 30, 1999, or (ii) the closing of a minimum of an
additional $1,000,000 of equity financing, by private placement or other
non-public offering. The note may be prepaid at any time by the Company to Payee
without any penalty or premium. The attached stock warrant entitles the Payee to
purchase common stock of the Company (based on one share for each one dollar
amount of the principal amount reflected in the note) at a purchase price of
$1.50 per new share. The stock warrant shall expire the earlier of, one year
from the closing of an additional $1,000,000 of equity financing, or December
31, 1999.
On March 16, 1998, Becan Distributors, Inc. established a bank line of
credit. The principal amount of the note is $700,000. The note bears interest at
1% plus the Prime Rate of the Bank per annum on the unpaid outstanding principal
of each advance payable monthly. The due date is March 1, 1999. The note or any
portion thereof may be prepaid without penalty. The line of credit is secured by
a blanket lien on all business assets of Becan and is also secured by personal
guarantees from the Company's Chairman of the Board, and the Company's Chief
Executive Officer.
In May 1998, 100,000 shares of common stock of the Company were sold to
a non-affiliated third party investor at $.50 per old share, for gross proceeds
of $50,000. Proceeds were used for capital expenditures and plant modifications.
On May 13, 1998, the Company loaned $100,000 to IHP, formerly Energy
Factors, Inc. for the purpose of assisting Energy Factors with its working
capital needs. The company has since acquired Energy Factors.
On May 29, 1998, notes payable to related parties of $81,331.80,
including principal and unpaid accrued interest were converted to 813,318 old
shares of common stock of the Company.
In June 1998, the Company established a bank line of credit. The
principal amount of the note is $200,000. The note bears interest at 4.08% per
annum on the unpaid outstanding principal of each advance, payable monthly. The
due date is June 3, 1999. The note or any portion thereof may be prepaid without
penalty. This line of credit is secured by $200,000 cash maintained in a Money
Market account with the bank.
Effective June 15, 1998, the Company acquired legal title to the net
assets of IHP, formerly Energy Factors, Inc., in exchange for 310,000 shares of
Series A Convertible Preferred Stock in the Company.
Effective June 26, 1998, the Company acquired all of the issued and
outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000
new shares of common stock in the Company.
In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $50,000. Proceeds were used for the initial
capitalization of Discount and for repayment of debt associated with IHP.
- 10 -
<PAGE>
In August, 1998, 200,000 shares of common stock of the Company were
sold to a non-affiliated third party investor at $2.50 per new share, for gross
proceeds of $500,000. Proceeds were used for the initial capitalization of IP,
and for repayment of debt associated with IHP.
Effective August 20, 1998, the Company caused the formation of
Incredible Products of Florida, Inc., a Florida corporation. Pursuant to an
Agreement to Fund Subsidiary, dated September 1, 1998, the Company agreed to
contribute $160,000 in capital to IP in exchange for 51 shares of common stock
of IP, representing 51% interest in IP.
Effective September 30, 1998, the Company acquired all of the issued
and outstanding capital stock of J.Labs, Inc. in exchange for 100,000 shares of
common stock in the Company.
In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $25,000. Proceeds were used for repayment of
debt associated with IHP.
On November 30, 1998, Becan and its subsidiary, Discount (collectively
"BecanD") established a $2,000,000 line of credit to provide additional working
capital for BecanD to support its continued growth. Proceeds from the line of
credit were also used for repayment of the $700,000 line of credit established
on March 16, 1998. The note bears interest at 1.25% plus the Prime Rate of The
Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding
principal of each advance payable monthly. The note is to be secured by a
blanket lien on all business assets of BecanD and is also secured by personal
guarantee from the Company's Chairman of the Board.
Effective December 29, 1998, the Company caused the formation of Herbal
Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase
Agreement, dated December 29, 1998, the Company agreed to purchase certain of
the assets of the Seller and Nutrapro. Inc., a Colorado corporation, and to
assume certain of the liabilities of the Seller in return for $18,309.45, and
32,243 shares of common stock of DHP.
In January and February, 1999, 418,000 shares of common stock of the
Company were sold to non-affiliated third party investors at $2.50 per new
share, for gross proceeds of $1,045,000. Proceeds are to be used for
acquisitions and to provide additional working capital for the Company to
support its continued growth.
On February 2, 1999, DHP and its subsidiary, IHP established a
$2,000,000 line of credit to provide additional working capital in support of
Accounts Receivable and Inventory, for the Company to support its continued
growth. A portion of the proceeds from the line of credit were funded in the
form of a 60 month Term Loan, for repayment of certain capital lease obligations
of the DHP and IHP. The note bears interest at 2.25% plus the Prime Rate of The
Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding
principal of each advance payable monthly. The note is to be secured by a
blanket lien on all business assets of DHP and IHP, with the exception of
certain permitted liens. The note is also secured by personal guarantee from the
Company's Chairman of the Board.
The Company is also in the process of negotiating a loan to refinance
the land and building of the Company, but provides no assurance as to the
success of establishing the refinance.
- 11 -
<PAGE>
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
From time to time the Company is subject to litigation incidental to
its business. Such claims, if successful, could exceed applicable insurance
coverage. The Company is not currently a party to any material legal
proceedings.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $25,000. Proceeds were used for repayment of
debt associated with IHP.
Effective December 29, 1998, the Company caused the formation of Herbal
Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase
Agreement, dated December 29, 1998, the Company agreed to purchase certain of
the assets of the Seller and to assume certain of the liabilities of the Seller
and Nutrapro. Inc., a Colorado corporation, in return for $18,309.45, and 32,243
shares of common stock of DHP.
In January and February, 1999, 418,000 shares of common stock of the
Company were sold to non-affiliated third party investors at $2.50 per new
share, for gross proceeds of $1,045,000. Proceeds are to be used for
acquisitions and to provide additional working capital for the Company to
support its continued growth.
Item 3. - Not applicable.
Item 4. - Not applicable.
- 12 -
<PAGE>
Item 5. OTHER INFORMATION.
The Company has determined not to complete its Form 15C211 filing with
NASDAQ at this time. However, if the Company completes a public offering of its
common stock, it intends to list its common stock for trading over the Nasdaq
Stock Market.
It was incorrectly stated in Form 10-QSB for the quarter ended
September 30, 1998 that in August, 1998, 220,000 shares of Series B 6%
Cumulative Preferred Stock of the Company was sold to non-affiliated third party
investors at $2.50 per share, for gross proceeds of $550,000. The correct
statements are as follows:
In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor
at $2.50 per share, for gross proceeds of $50,000. Proceeds were used
for the initial capitalization of Discount and for repayment of debt
associated with IHP.
In August, 1998, 200,000 shares of common stock of the Company were
sold to a non-affiliated third party investor at $2.50 per new share,
for gross proceeds of $500,000. Proceeds were used for the initial
capitalization of IP, and for repayment of debt associated with IHP.
The Company will file an amendment to its Form 10-QSB for that period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed with this report:
2.1 Agreement and Plan of Reorganization dated June 12, 1998, effective
June 15, 1998, by and among Nu-Wave Health Products, Inc., Nu-Wave
Acquisition, Inc., Energy Factors, Inc., U.S. Diversified Technologies,
Inc., Paul Santostasi, Chris Starkey, and Marvin Deutsch. (2)
2.2 Agreement and Plan of Reorganization dated June 26, 1998, effective
June 26, 1998, by and between Nu-Wave Health Products, Inc., buyer, and
Manju Taneja, Mihir K. Taneja, Mandeep K. Taneja, William LaGamba
custodian for Anthony LaGamba, William LaGamba custodian for Nicholl
LaGamba, William LaGamba custodian for Courtney LaGamba, Michele
LaGamba, and Phillip J. Laird and William LaGamba, each individually a
seller, each of which is a stockholder of Becan Distributors, Inc. (2)
2.3 Agreement to Fund Subsidiary dated September 1, 1998, by and between
Dynamic Health Products, Inc., Incredible Products of Florida, Inc.,
and Gary A. Shawkey. (3)
2.4 Agreement and Plan of Reorganization dated September 1, 1998, by and
between Incredible Products of Florida, Inc., buyer and Gary A.Shawkey,
seller. (3)
2.5 Agreement to Exchange Shares dated September 1, 1998, by and between
the Company and Gary A. Shawkey. (3)
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2.6 Stock Purchase Agreement dated September 30, 1998, by and among Dynamic
Health Products, Inc. and J. Labs, Inc. (3)
2.7 Asset Purchase Agreement dated December 29, 1998, by and between Herbal
Health Products, Inc. and Gerald Schmoling.
3.1 Articles of Incorporation of Nu-Wave Acquisition, Inc., dated June 11,
1998 and filed June 12, 1998. (2)
3.2 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., dated July 22, 1998 and filed July 23, 1998. (2)
3.3 Articles of Amendment to Articles of Incorporation of Nu-Wave Health
Products, Inc., dated August 10, 1998. (2)
3.4 Articles of Incorporation of Incredible Products of Florida, Inc. dated
August 20, 1998, filed August 20, 1998. (3)
3.5 Articles of Incorporation of Herbal Health Products, Inc. dated
December 16, 1998, filed December 29, 1998.
10.1 Promissory Note in favor of the Company from Energy Factors, Inc. dated
May 13, 1998.(1)
10.2 Revolving Line of Credit Agreement between Becan Distributors, Inc. and
Mellon Bank dated March 16, 1998. (2)
10.3 Revolving Line of Credit Agreement between the Company and Republic
Bank dated June 3, 1998. (1)
10.4 Loan And Security Agreement between Becan Distributors, Inc. and
Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November
30, 1998.
27.1 Financial Data Schedule (for SEC use only).
(1) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1998, file number 0-23031,
filed in Washington, D.C.
(2) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998, file number 0-23031, filed
in Washington, D.C.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998, file number 0-23031,
filed in Washington, D.C.
(b) Reports on Form 8-K.
During the three months ended December 31, 1998, the Company filed no
reports on Form 8-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dynamic Health Products, Inc.
Date: February 15, 1999 By: /s/William L. LaGamba
----------------------
William L. LaGamba
Chief Executive Officer
Date: February 15, 1999 By: /s/Cani I. Shuman
------------------
Cani I. Shuman
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
2.7 Asset Purchase Agreement dated December 29, 1998, by and between Herbal
Health Products, Inc. and Gerald Schmoling.
3.5 Articles of Incorporation of Herbal Health Products, Inc. dated
December 16, 1998, filed December 29, 1998.
10.4 Loan And Security Agreement between Becan Distributors, Inc. and
Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November
30, 1998.
27.1 Financial Data Schedule (for SEC use only).
EXHIBIT 2.7
ASSET PURCHASE AGREEMENT
Agreement entered into as of December 29, 1998 by and between Herbal
Health Products, Inc., a Florida corporation (the "BUYER"), and Gerald Schmoling
(the "SELLER"). The Buyer and the Seller are referred to collectively herein as
the "PARTIES."
This Agreement contemplates a transaction in which the Buyer will
purchase certain of the assets of Seller and assume certain of the liabilities
of the Seller.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACQUIRED ASSETS" means all right, title, and interest in and to all of
the assets described in Schedule 1.1 hereto.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"ASSUMED LIABILITIES" means the liabilities described in Schedule 1.2
hereto.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BUSINESS" means the sale and delivery of nutritional products under
the Vitality Systems, Vitality Pet and Vitality Health Systems trade names.
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in ss. 2(d) below.
"CLOSING DATE" means the date of this Agreement.
"COMMON STOCK" means common stock, $.01 par value of Dynamic.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in ss. 3 below.
"DYNAMIC" means Dynamic Health Products, Inc., a Florida corporation.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" shall mean all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names (including without limitation the names
"Vitality Systems," "Vitality Pet," and "Vitality Health Systems" with and
without additional words), together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (d) all computer
software (including data and related documentation), (e) all other proprietary
rights, and (f) all copies and tangible embodiments thereof (in whatever form or
medium), in all cases, used by Seller or Nutrapro in the operation of the
Business.
"KNOWLEDGE" - Seller will be deemed to have "Knowledge" of a particular
fact or other matter if: (a) Seller is actually aware of such fact or other
matter; or (b) a prudent individual would be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"NUTRAPRO" means Nutrapro, Inc., a Colorado corporation.
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
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"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN liens for Taxes not yet due and
payable.
"SELLER" has the meaning set forth in the preface above.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
2. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing in return for $18,309.45, and 32,243 shares
of common stock to be issued by Dynamic.
(b) ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for all of the Assumed Liabilities at the Closing. The Buyer will not assume or
have any responsibility, however, with respect to any other obligation or
Liability of the Seller or of Nutrapro not included within the definition of
Assumed Liabilities.
(c) LIABILITIES RETAINED BY SELLER. The Seller and the Buyer
acknowledge that notwithstanding anything to the contrary contained in this
Agreement and regardless of any disclosure to the Buyer, except as expressly set
forth in Section 2(b) hereof, the Buyer shall not assume, and shall have no
obligation to discharge, perform, fulfill or otherwise satisfy, any liabilities
or obligations of the Seller or any of its Affiliates of any nature whatsoever,
including, but not limited to, any liabilities or obligations relating to or
arising out of Nutrapro's or the Seller's operation of the Business at any time
(including but not limited to, liabilities or obligations in respect of any
employee or customer) in any jurisdiction, Nutrapro's or the Seller's ownership
or use of the Acquired Assets or any Excluded Assets at any time, any
liabilities or obligations otherwise relating to the operation of the Business
(including, but not limited to, any earnings or accrued benefits or severance
payments to any employees or liabilities relating to the termination of any
agreements, taxes, real property or personal property leases or other
arrangements), or any trade payables or other accounts payable owing by or
incurred by Nutrapro, the Seller or any of their agents or Affiliates at any
time (collectively, the "Excluded Liabilities"). Notwithstanding anything to the
contrary contained in this Agreement, the Seller hereby covenants and agrees
fully and in a timely manner, to discharge, perform, fulfill and satisfy each
and every foregoing Excluded Liability.
(d) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place simultaneously with the execution
hereof by the parties.
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(e) DELIVERIES AT THE CLOSING. At the Closing in addition to the
documents provided for herein, (i) the Seller shall deliver to the Buyer the
various certificates, instruments, and documents referred to in ss. 5(a) below
and (ii) the Buyer shall deliver to the Seller $18,309.45 by check drawn on the
account of Buyer, and the various certificates, and documents referred to in ss.
5(b) below.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this ss. 3 are
correct and complete as of the date of this Agreement, except as set forth in
the disclosure schedule accompanying this Agreement and initialed by the Parties
(the "DISCLOSURE SCHEDULE"). The Disclosure Schedule is arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this ss. 3.
(a) ORGANIZATION OF THE SELLER. Nutrapro is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSFER OF ACQUIRED ASSETS. Nutrapro had full
power and authority (including full corporate power and authority) to transfer
the Acquired Assets to Seller. Without limiting the generality of the foregoing,
the board of directors and the shareholders of Nutrapro duly authorized and
approved the transfer of the Acquired Assets to Seller.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss. 2 above), will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which the Seller is a party or by which he is bound or
to which any of the Acquired Assets is subject (or result in the imposition of
any Security Interest upon any of the Acquired Assets). The Seller is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in ss. 2
above).
(d) BROKERS' FEES. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(e) TITLE TO ASSETS; BOOK VALUE. The Seller has good and marketable
title to all of the Acquired Assets, free and clear of any Security Interest or
restriction on transfer. The Acquired Assets have a book value of at least
$161,219.
(f) FINANCIAL STATEMENTS. Seller has delivered to Buyer the following
financial statements of Nutrapro (the "Financial Statements"): unaudited balance
sheets and statements of
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profit and loss for the ten months ended October 31, 1998. The Financial
Statements (including the Notes thereto) have been prepared in accordance with
GAAP applied on a consistent Basis throughout the period covered thereby,
present fairly the financial condition of the Nutrapro as of such date and the
results of operations of Nutrapro for such period, are correct and complete, and
are consistent with the books and records of Nutrapro (which books and records
are correct and complete).
(g) LEGAL COMPLIANCE. Nutrapro and Seller have complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against Nutrapro or Seller alleging any failure so
to comply.
(h) TAX MATTERS.
(i) The Seller and Nutrapro have filed all Tax Returns that
they were required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Seller and all taxes
owed by Nutrapro (whether or not shown on any Tax Return) have been
paid. No claim has ever been made by an authority in a jurisdiction
where Nutrapro does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction. There are no Security Interests on
any of the assets of Nutrapro that arose or will arise in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Seller and Nutrapro have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(iii) Seller does not have any reason to believe that any
authority might assess against Seller or Nutrapro any additional Taxes
for any period for which Tax Returns have been filed.
(i) INTELLECTUAL PROPERTY.
(i) The Seller owns all Intellectual Property necessary or
desirable for the operation of the Business as conducted by Nutrapro
prior to the transfer by Nutrapro to Seller of the Acquired Assets.
Each item of Intellectual Property owned by Nutrapro in its operation
of the Businesses immediately prior to its sale of the Acquired Assets
to Seller will be owned by the Buyer immediately subsequent to the
Closing hereunder. Nutrapro has taken all necessary and desirable
action to maintain and protect each item of Intellectual Property
included in the Acquired Assets.
(ii) Neither Seller nor Nutrapro has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of third parties, and neither Seller
nor any of the directors and officers (and employees with
responsibility for intellectual Property matters) of Nutrapro have ever
received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement,
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misappropriation, or violation (including any claim that Nutrapro must
license or refrain from using any Intellectual Property rights of any
third party). No third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights included in the Acquired Assets.
(iii) ss. 3(k)(iii) of the Disclosure Schedule identifies each
registration which has been issued to Nutrapro or the Seller with
respect to any of the Intellectual Property, identifies each
application for registration which Nutrapro or the Seller has made with
respect to any of the Intellectual Property, and identifies each
license, agreement, or other permission which Nutrapro or the Seller
has granted to any third party with respect to any of the Intellectual
Property (together with any exceptions). The Seller has delivered to
the Buyer correct and complete copies of all such registrations,
applications, licenses, agreements, and permissions (as amended to
date) and has made available to the Buyer correct and complete copies
of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. ss. 3(k)(iii) of the Disclosure
Schedule also identifies each trade name or unregistered trademark used
by Nutrapro or the Seller in connection with the Businesses. With
respect to each item of Intellectual Property required to be identified
in ss. 3(k)(iii) of the Disclosure Schedule:
(A) the Seller possess all right, title, and interest
in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of Seller is threatened which challenges
the legality, validity, enforceability, use, or ownership of
the item;
(D) neither Nutrapro nor the Seller has ever agreed
to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect
to the item; and
(E) with respect to the "Vitality Systems," "Vitality
Pet," and Vitality Health Systems" names, prior to the
transfer to Seller, Nutrapro used such names continuously
since prior to 1993 to offer and sell products in the United
States.
(iv) The Buyer will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any intellectual
property rights of third parties as a result of the continued operation
of the Businesses as conducted by Nutrapro and Seller.
(j) TANGIBLE ASSETS. The Acquired Assets include all tangible assets
necessary for the conduct of the Businesses as conducted by Nutrapro. Each such
tangible asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in
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good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(k) INVENTORY. The inventory included in the Acquired Assets consists
of raw materials, finished goods, labels and packaging, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective.
(l) CONTRACTS. ss. 3(n) of the Disclosure Schedule lists the following
contracts and other agreements to which Nutrapro or Seller is a Party and which
relates to the Business:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $5,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products, or other personal property, or for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a loss to any of the
Seller and its Subsidiaries, or involve consideration in excess of
$5,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation or under which
it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement under which the consequences of a default
or termination could have an adverse effect on the Business or future
prospects of the Business; or
(vii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in ss. 3(n) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss. 3(n) of the Disclosure Schedule. With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby (including
the assignments and assumptions referred to in ss. 2 above); (C) no Party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no Party has repudiated any provision
of the agreement.
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(m) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Seller are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject to the reserve for bad debts set forth on the face of the Financial
Statements as subject to normal returns and credits consistent with Seller's and
Nutrapro's prior operating history.
(n) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of Nutrapro or the Seller relating to the Business.
(o) LITIGATION. sS. 3(q) of the Disclosure Schedule sets forth each
instance in which Nutrapro or the Seller (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a Party or, to
the Knowledge of the Seller is threatened to be made a Party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in ss. 3(q) of the Disclosure Schedule
could result in any adverse change in the Business, financial condition,
operations, results of operations, or future prospects of the Business. The
Seller has no reason to believe that any such action, suit, proceeding, hearing,
or investigation may be brought or threatened.
(p) PRODUCT WARRANTY. With respect to the Business, each product sold
or delivered by Nutrapro and the Seller has been in conformity with all
applicable contractual commitments and all express and implied warranties, and
neither Nutrapro nor the Seller has any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against either of them giving rise to any Liability)
for replacement thereof or damages in connection therewith. No product sold or
delivered by Nutrapro or the Seller is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of sale. ss.
3(r) of the Disclosure Schedule includes copies of the standard terms and
conditions of sale for Nutrapro and the Seller (containing applicable guaranty,
warranty, and indemnity provisions).
(q) PRODUCT LIABILITY. Neither Nutrapro nor the Seller has any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the consumption, possession, or use of
any product of the Business sold or delivered by Nutrapro or the Seller.
(r) ENVIRONMENT, HEALTH, AND SAFETY. Each of Nutrapro, the Seller, and
their respective predecessors and Affiliates has complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
Without limiting the generality of the preceding sentence, each of Nutrapro, the
Seller, and their respective predecessors and Affiliates has obtained and been
in compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and
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has complied with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.
(s) INSOLVENCY. No filing of a voluntary or involuntary petition in
bankruptcy has been made by or against Nutrapro or the Seller or any Affiliates
of the Seller, and neither Nutrapro, the Seller nor any of their Affiliates is
contemplating the making of any such filing. Neither Nutrapro nor the Seller has
admitted in writing its inability to pay its or his debts generally as they
become due. No receiver, trustee, assignee, liquidator, sequestrator or similar
official of Nutrapro or the Seller or of all or any substantial portion of its
or his assets or any of its or his properties has been appointed in any
proceeding brought against Nutrapro or the Seller, nor has any such official
been applied for, and neither Nutrapro, the Seller nor any of its Affiliates is
contemplating the appointment or application for the same. Neither Nutrapro nor
the Seller has made, nor does either of them contemplate that they will make,
any assignment for the benefit of any of its or his creditors, and neither
Nutrapro nor the Seller has entered into nor are Nutrapro or Seller
contemplating the entering into, any agreement of composition with any of its or
his creditors. Neither Nutrapro nor the Seller is insolvent or unable to pay its
or his debts as they become due.
(t) USE OF NAME. From and after the date hereof, Nutrapro, the Seller
and its and his Affiliates and agents shall cease to use the name Vitality
Systems, Vitality Pet and Vitality Health in any form or combination.
(u) DISCLOSURE BY SELLER. The representations and warranties contained
in this ss. 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this ss. 3 not misleading.
(v) DISCLOSURE TO SELLER. Seller acknowledges that he has received
copies of all Forms 10-K and 10-Q filed by Dynamic with the Securities and
Exchange Commission and a copy of Dynamic's Information Statement dated July 21,
1998, that he has been given an opportunity to ask questions of and receive
answers from Dynamic with respect to Dynamic's business, financial condition,
management and any other relevant matters. Seller has not requested any
additional information from Dynamic and has made his decision to accept the
Common Stock and the Option in reliance solely upon the foregoing documents.
Seller has such knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of an investment in the Common
Stock and is able to bear the economic risk of such investment for an indefinite
period of time. Seller understands that the Common Stock to be received by
Seller is restricted and that Seller is acquiring the Common Stock without the
expectation or desire of a resale or distribution with respect thereto and has
no need for liquidity with respect to the Common Stock. Seller recognizes that
an investment in the Common Stock involves risks and that he may not be able to
sell or dispose of the Common Stock readily. Seller understands that the
Certificates evidencing the shares of Common Stock will bear a restrictive
legend providing that they may not be transferred in the absence of an opinion
of counsel satisfactory to Dynamic that a transfer may be made without
registration under the Securities Act of 1933 and also referring to the rights
of set-off provided for in this Agreement. Seller is familiar with the
9
<PAGE>
resale requirements of Rule 144 of the Securities and Exchange Commission and
understands that one of those requirements is a holding period of one or two
years.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Seller that the statements contained in this ss. 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this ss. 4).
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss. 2 above), will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a Party or by which it is bound or to which any of its assets is
subject. The Buyer does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement (including the assignments and assumptions referred to in ss. 2
above).
(d) BROKERS FEES. The Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
5. DOCUMENTS DELIVERED AT CLOSING.
(a) DOCUMENTS DELIVERED BY SELLER. At the Closing, the Seller shall
deliver to the Buyer the following:
(i) a bill of sale dated the Closing Date in form and
substance acceptable to the Buyer whereby the Seller transfers to the
Buyer all of the Seller's right, title and interest in and to the
Acquired Assets (the "Bill of Sale");
(ii) a trademark assignment dated the Closing Date in form and
substance acceptable to Buyer, whereby the Seller assigns to the Buyer
all of the Seller's right, title
10
<PAGE>
and interest in and to all trademarks, service marks, trade dress,
logos, trade names and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all
goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith (the "Trademark Assignment"); and
(iii) such other documents as are required by Buyer.
The Buyer may waive any condition specified in this ss. 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall
deliver to Seller a written assumption of the Assumed Liabilities and an
Employment Agreement between Buyer and Seller. A certificate evidencing 32,243
shares of Common Stock will be delivered to Seller within a reasonable time
after the Closing.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLER. From and after the Closing, the Seller
agrees to indemnify, defend and hold harmless Buyer its affiliates and their
respective officers, directors, stockholders, agents, insurers, representatives
and employees (the "Buyer Indemnitees") from and against, and pay or reimburse
the Buyer Indemnitees for, any and all claims, actions, proceedings, demands,
obligations, fines, deficiencies, costs, losses, damages or liabilities
(including, but not limited to, reasonable attorneys' fees incurred in the
investigation or defense of any of the same or in asserting any of their
respective rights hereunder, interest and any penalties) (collectively, "Losses"
and individually, a "Loss"), whether or not resulting from any third party
claims incurred or suffered by any of the Buyer Indemnitees arising out of, with
respect to or in connection with:
(i) the breach of any representation or warranty made by, or
any breach or nonfulfillment of any covenant, agreement or obligation
of, the Seller in, pursuant to, or under this Agreement or in the
schedules or exhibits attached hereto or any document delivered
pursuant hereto; or
(ii) any claim made against any Buyer Indemnitee with respect
to any matter relating to or arising out of the ownership, possession,
use or operation of (i) any Acquired Assets on or prior to the Closing
Date, or (ii) any Excluded Assets or Excluded Liabilities at any time.
(b) RIGHT OF SET-OFF AND CANCELLATION. Upon notice to Seller specifying
in reasonable detail the basis for such cancellation, Buyer may set-off any
amount to which Buyer may be entitled to under this Section 6 against the shares
of Common Stock of Dynamic (and any shares of Common Stock of Dynamic to which
Seller is entitled pursuant to the exercise, in whole or in part, of the Option
provided for in Section 2(a) hereof) by canceling that number of shares or
fractional shares of such Common Stock equal in value (at the time of such
claim) to the amount of such claim. Neither the exercise nor the failure to
exercise such right of set-off and
11
<PAGE>
cancellation will constitute an election of remedies or limit Seller in any
manner in the enforcement of any other remedies that may be available to it.
(c) INDEMNIFICATION BY BUYER. From and after the Closing, Buyer agrees
to indemnify, defend and hold harmless Seller from and against, and pay or
reimburse the Seller for, any and all claims, actions, proceedings, demands,
obligations, fines, deficiencies, costs, losses, damages or liabilities
(including, but not limited to, reasonable attorney's fees incurred in the
investigation or defense of any of the same or in asserting any of his rights
hereunder, interest and any penalties) (collectively, "Losses" and individually,
a "Loss") whether or not resulting from any third party claims, incurred or
suffered by the Seller arising out of, with respect to or in connection with:
(i) the breach of any representation or warranty made by, or
any breach or nonfulfillment of any covenant, agreement or obligation
of, Buyer in, pursuant to, or under this Agreement or in the schedules
or exhibits attached hereto; or
(ii) any claim made against the Seller with respect to any
matter relating or arising out of the ownership, possession, use or
operation of (a) any Acquired Assets after the Closing Date or (b) any
Assumed Liabilities.
7. MISCELLANEOUS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; PROVIDED, HOWEVER, that the Buyer may (i)
12
<PAGE>
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLER:
Gerald Schmoling
16511 Blemheim Drive
Lutz, FL 33549
IF TO THE BUYER: COPY TO:
Jugal K. Taneja Philip M. Shasteen, Esq.
5770 Roosevelt Blvd., Suite 700 100 N. Tampa St., Suite 1800
Clearwater, FL 33760 Tampa, FL 33602
Phone: (813) 524-3227 Phone: (813) 225-2500
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Florida without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Florida or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Florida.
13
<PAGE>
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. The Seller may consent to any such amendment at any time
prior to the Closing with the prior authorization of its board of directors. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Buyer and the Seller, will bear its own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement
14
<PAGE>
and the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter (subject to the provisions set forth in ss. 8(p) below), in addition to
any other remedy to which it may be entitled, at law or in equity.
(p) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Pinellas County, Florida,
and any federal court sitting in Hillsborough County, Florida in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each party also agrees not to bring any action or proceeding arising
out of or relating to this Agreement in any other court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Each Party agrees that a
final judgment in any action or proceeding so brought shall be conclusive and
may be enforced by suit on the judgment or in any other manner provided by law
or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
HERBAL HEALTH PRODUCTS, INC.,
a Florida corporation
By: /s/ PAUL SANTOSTASI
---------------------------------
Paul Santostasi as Vice President
--------------- --------------
/s/ GERALD SCHMOLING
--------------------------------
Gerald Schmoling
15
<PAGE>
SCHEDULE 1.1
ASSETS
All right, title, and interest in and to all of the assets of the
Business (as defined in the Asset Purchase Agreement), including all (a)
tangible personal property (such as equipment, inventories of supplies, finished
goods and furniture), including all of the inventory of the Business, (b)
Intellectual Property (as defined in the Asset Purchase Agreement), goodwill
associated therewith, licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all jurisdiction,
(c) agreements, contracts and rights thereunder, (d) accounts, notes, and other
receivables, which shall include accounts receivable in the amount of at least
$69,076.68, (e) claims, deposits, prepayments, refunds, causes of action,
chooses in action, rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment of Taxes), (f)
franchises, approvals, permits, licenses, orders, registrations, certificates,
variances, and similar rights obtained from governments and governmental
agencies, and (g) books, records, ledgers, files, documents, correspondence,
lists, advertising and promotional materials, studies, reports, and other
printed or written materials.
Without limiting the generality of the foregoing, the term "Acquired
Assets" shall include: (1) all customer and supply lists; (2) labels, finished
product and marketing and promotional materials; (3) cash of approximately
$3,000 in Tampa bank accounts relating to the business; (4) all accounts
receivables on the books of the Business in Tampa as of the date hereof; (5) all
office equipment and machinery of the Business located in Tampa; (6) one Prodigy
Max (SN 97364024) label printer; and (7) and the property listed on the attached
inventory and list of assets, Seller's interest in Charter One truck lease.
<PAGE>
<TABLE>
<CAPTION>
VITALITY
ASSET DEPRECIATION SCHEDULE
1998
DESCRIPTION IN SERVICE LIFE COST ACCUM DEP BOOK VALUE
- ----------- ---------- ---- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Desks 08/28/97 5 $ 921.00 $ 199.55 $ 721.45
Computer P5-120 06/24/96 5 $ 2,775.00 $ 1,248.75 $ 1,526.25
Epson Scanner 06/24/96 5 $ 356.00 $ 160.20 $ 195.80
Office Furniture 06/30/95 5 $ 2,225.00 $ 1,446.25 $ 778.75
Paper Folder 06/30/95 5 $ 538.00 $ 349.70 $ 188.30
Metal Shelving 01/30/97 5 $ 470.00 $ 156.67 $ 313.33
Microwave 04/12/97 5 $ 130.00 $ 36.83 $ 93.17
Office Furniture-chair 05/09/97 5 $ 191.00 $ 50.93 $ 140.07
Refrigerator 05/24/97 5 $ 275.00 $ 73.33 $ 201.67
Phones 05/19/97 5 $ 453.00 $ 120.80 $ 332.20
Konica Copier 03/19/96 5 $ 2,350.00 $ 1,135.83 $ 1,214.17
HP 6P Printer 04/23/97 5 $ 806.00 $ 228.37 $ 577.63
Laptop Computer 03/31/97 5 $ 1,700.00 $ 510.00 $ 1,190.00
Computer Uptech 09/22/97 5 $ 1,654.00 $ 385.37 $ 1,295.63
Computer Equipment 06/26/97 5 $ 712.00 $ 178.00 $ 534.00
Computer GW2000 11/17/97 5 $ 2,113.00 $ 422.60 $ 1,690.40
Dodge P/U Truck 12/20/96 5 $24,503.00 $ 9,392.82 $15,110.18
Shipping Equipment 06/30/95 5 $ 2,000.00 $ 900.00 $ 1,100.00
Display Booth 01/09/98 5 $ 5,651.00 $ 941.83 $ 4,709.17
Label Printer 02/13/98 5 $ 3,807.00 $ 571.05 $ 3,235.95
Computer CTS 03/15/97 5 $ 1,250.00 $ 375.00 $ 875.00
Fax Machine 06/15/98 5 $ 350.00 $ 23.33 $ 326.67
Epson Color Printer 01/09/97 5 $ 385.00 $ 128.33 $ 256.67
Mixer 09/09/95 5 $ 490.00 $ 294.00 $ 196.00
Nikkon Camera 09/13/96 5 $ 247.00 $ 98.80 $ 148.20
Label Printer 04/16/98 5 $ 3,807.00 $ 444.15 $ 3,362.85
Fork Lift (ACR-1586) 12/14/98 5 $ 600.00 $ 0.00 $ 600.00
Dock Plate 12/14/98 5 $ 50.00 $ 0.00 $ 50.00
Pallet Jack (346) 12/14/98 5 $ 100.00 $ 0.00 $ 100.00
Large Cubicle 12/14/98 5 $ 300.00 $ 0.00 $ 300.00
Round Table 12/14/98 5 $ 50.00 $ 0.00 $ 50.00
Chairs Stacking (6) 12/14/98 5 $ 60.00 $ 0.00 $ 60.00
Norstar Phone 7324 12/14/98 5 $ 125.00 $ 0.00 $ 125.00
Norstar Phone 7208 (4) 12/14/98 5 $ 300.00 $ 0.00 $ 300.00
Wing Back Chairs (2) 12/14/98 5 $ 80.00 $ 0.00 $ 80.00
Bunn Coffee Center 12/14/98 5 $ 100.00 $ 0.00 $ 100.00
Printer Table 12/14/98 5 $ 15.00 $ 0.00 $ 15.00
Secretary Chair 12/14/98 5 $ 40.00 $ 0.00 $ 40.00
TOTAL $61,979.00 $19,845.50 $42,133.50
</TABLE>
<PAGE>
SCHEDULE 1.2
ASSUMED LIABILITIES
Buyer will assume:
1. trade payables of the Business in the amount of $67,879.63.
2. Remaining balance due on Promissory Note dated November 30, 1998 in the
original principal balance of $34,286.17 payable by Seller to Oskar
Schmoling.
3. Payments due under Charter One truck lease.
4. Payments due under Berthel-Fisher display case lease.
EXHIBIT 3.5
[SEAL]
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
December 29, 1998
JOHNSON BLAKELY POPE BOKOR RUPPEL
% PHILIP M. SHASTEEN
100 NORTH TAMPA STREET SUITE 1800
TAMPA, FL 33602
The Articles of Incorporation for HERBAL HEALTH PRODUCTS, INC. were filed on
December 29, 1998 and assigned document number P98000107578. Please refer to
this number whenever corresponding with this office regarding the above
corporation.
PLEASE NOTE: COMPLIANCE WITH THE FOLLOWING PROCEDURES IS ESSENTIAL TO
MAINTAINING YOUR CORPORATE STATUS. FAILURE TO DO SO MAY RESULT IN DISSOLUTION OF
YOUR CORPORATION.
A CORPORATION ANNUAL REPORT MUST BE FILED WITH THIS OFFICE BETWEEN JANUARY 1 AND
MAY 1 OF EACH YEAR BEGINNING WITH THE CALENDAR YEAR FOLLOWING THE YEAR OF THE
FILING DATE NOTED ABOVE AND EACH YEAR THEREAFTER. FAILURE TO FILE THE ANNUAL
REPORT ON TIME MAY RESULT IN ADMINISTRATIVE DISSOLUTION OF YOUR CORPORATION.
A FEDERAL EMPLOYER IDENTIFICATION (FEI) NUMBER MUST BE SHOWN ON THE ANNUAL
REPORT FORM PRIOR TO ITS FILING WITH THIS OFFICE. CONTACT THE INTERNAL REVENUE
SERVICE TO INSURE THAT YOU RECEIVE THE FEI NUMBER IN TIME TO FILE THE ANNUAL
REPORT. TO OBTAIN A FEI NUMBER, CONTACT THE IRS AT 1-800-829-3676 AND REQUEST
FORM SS-4.
SHOULD YOUR CORPORATE MAILING ADDRESS CHANGE, YOU MUST NOTIFY THIS OFFICE IN
WRITING, TO INSURE IMPORTANT MAILINGS SUCH AS THE ANNUAL REPORT NOTICES REACH
YOU.
Should you have any questions regarding corporations, please contact this office
at the address given below.
Sharon Davis, Document Specialist Supervisor
New Filings Section Letter Number: 098A00060864
Division of Corporations - P.O. BOX 6327 - Tallahassee, Florida 32314
<PAGE>
ARTICLES OF INCORPORATION
of
HERBAL HEALTH PRODUCTS, INC.
ARTICLE I - NAME AND MAILING ADDRESS
The name of this corporation is Herbal Health Products, Inc. and the
mailing address of this corporation is 5770 Roosevelt Blvd., Suite 700,
Clearwater, FL 33760.
ARTICLE II - DURATION; EFFECTIVE DATE
This corporation shall have perpetual existence, commencing upon the filing
of these Articles of Incorporation.
ARTICLE III - CAPITAL STOCK
This corporation is authorized to issue one hundred shares which shall be
designated as "Common Stock," having a par value of $.01 per share.
ARTICLE IV - INITIAL REGISTERED OFFICE AND AGENT
The street address of the initial registered office of this corporation is
100 North Tampa Street, Suite 1800, Tampa, FL 33602, and the name of the initial
registered agent of this corporation at that address is Philip M. Shasteen.
ARTICLE V - BOARD OF DIRECTORS
The Board of Directors of this corporation shall consist of not less than
three directors.
ARTICLE VI - INCORPORATOR
The name and address of the person signing these Articles of Incorporation
is Philip M. Shasteen, 100 North Tampa Street, Suite 1800, Tampa, Florida 33602.
<PAGE>
ARTICLE VII - INDEMNIFICATION
The corporation shall indemnify any officer or director, or any former
officer or director, to the fullest extent permitted by law.
ARTICLE VIII - AMENDMENT
This corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, or any amendment thereto, and any
right conferred upon the shareholders is subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 16th day of December, 1998.
/s/ PHILIP M. SHASTEEN
----------------------------
Philip M. Shasteen
INCORPORATOR
2
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND STREET ADDRESS FOR SERVICE OF PROCESS
WITHIN FLORIDA
Pursuant to Florida Statutes Section 48.091 Herbal Health Products, Inc.
desiring to organize under the laws of the State of Florida, hereby designates
Philip M. Shasteen, 100 North Tampa Street, Suite 1800, Tampa, Florida 33602, as
its registered agent to accept service of process within the State of Florida.
ACCEPTANCE OF DESIGNATION
The undersigned hereby accepts the above designation as registered agent to
accept service of process for the above-named corporation, at the place
designated above, and agrees to comply with the provisions of Florida Statutes
Section 48.091(2) relative to maintaining an office for the service of process.
/s/ PHILIP M. SHASTEEN
----------------------------
Philip M. Shasteen
3
<PAGE>
BYLAWS
OF
HERBAL HEALTH PRODUCTS, INC.
PAGE
----
ARTICLE ONE - SEAL AND FISCAL YEAR
1.1 Seal.....................................................................1
1.2 Fiscal Year..............................................................1
ARTICLE TWO - SHAREHOLDER MEETINGS
2.1 Place of Meetings........................................................1
2.2 Annual Meeting...........................................................1
2.3 Special Meetings.........................................................1
2.4 Notice...................................................................1
2.5 Notice of Adjourned Meetings.............................................1
2.6 Fixing of Record Date....................................................2
2.7 Voting Record............................................................2
2.8 Shareholder Quorum and Voting............................................2
2.9 Voting of Shares.........................................................3
2.10 Waiver of Notice of Meeting..............................................4
2.11 Proxies..................................................................4
2.12 Action by Shareholders Without a Meeting.................................5
2.13 Voting for Directors.....................................................5
2.14 Inspectors of Election...................................................5
ARTICLE THREE - DIRECTORS
3.1 Function.................................................................6
3.2 Qualification............................................................6
3.3 Compensation.............................................................6
3.4 Presumption of Assent....................................................6
3.5 Number...................................................................6
3.6 Election and Term........................................................6
3.7 Vacancies................................................................7
3.8 Resignation..............................................................7
3.9 Removal..................................................................7
3.10 Quorum and Voting........................................................7
3.11 Executive and Other Committees...........................................7
<PAGE>
PAGE
----
ARTICLE THREE - DIRECTORS (CONTINUED)
3.12 Regular Meetings.........................................................7
3.13 Special Meetings.........................................................8
3.14 Waiver of Notice of Meeting..............................................8
3.15 Action Without A Meeting.................................................8
ARTICLE FOUR - OFFICERS
4.1 Officers.................................................................8
4.2 Appointment and Term of Office...........................................9
4.3 Resignation..............................................................9
4.4 Removal..................................................................9
4.5 Compensation.............................................................9
4.6 President................................................................9
4.7 Vice Presidents..........................................................9
4.8 Secretary................................................................9
4.9 Treasurer................................................................9
4.10 Other Officers, Employees, and Agents...................................10
ARTICLE FIVE - STOCK CERTIFICATES
5.1 Certificates for Shares.................................................10
5.2 Transfer of Shares; Ownership of Shares.................................10
5.3 Lost, Stolen, or Destroyed Certificates.................................10
ARTICLE SIX - ACTIONS WITH RESPECT TO SECURITIES
OF OTHER CORPORATIONS...................................................10
ARTICLE SEVEN - AMENDMENT....................................................11
ARTICLE EIGHT - FLORIDA LAW..................................................11
<PAGE>
BYLAWS
OF
HERBAL HEALTH PRODUCTS, INC.
ARTICLE ONE - SEAL AND FISCAL YEAR
1.1 SEAL. The Board of Directors shall provide for a corporate seal which
shall be circular and shall have the name of the corporation, the year of its
incorporation, and the state of incorporation inscribed on it.
1.2 FISCAL YEAR. The fiscal year of this corporation shall be determined by
the Board of Directors upon filing the tax return of the corporation.
ARTICLE TWO - SHAREHOLDER MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the shareholders shall be held at the
office of the corporation or at any other place (within or without the State of
Florida) the Board of Directors may from time to time select. If no designation
is made, the place of meeting shall be the principal office of the corporation.
2.2 ANNUAL MEETING. The annual meeting of the shareholders of this
corporation shall be held at the time and place designated by the Board of
Directors of the corporation. Business transacted at the annual meeting shall
include the election of directors of the corporation.
2.3 SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose
or purposes, shall be held when directed by the President or by the Board of
Directors, or at the request of the holders of not less than one-tenth (1/10) of
all outstanding shares of the corporation entitled to vote at the meeting.
2.4 NOTICE. Except as provided in Chapter 607, Florida Statutes, written
notice stating the date, time, and place of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered not less than ten (10) nor more than sixty (60) days before the
meeting, either personally, by telegraph, teletype, facsimile, or other form of
electronic communication, or by first class mail, by or at the direction of the
President, the Secretary, or the officer or persons calling the meeting to each
shareholder of record entitled to vote as such meeting. If the notice is mailed
at least 30 days before the date of the meeting, it may be affected by a class
of United States mail other than first class. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
2.5 NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to another
time or place, it shall not be necessary to give any notice of the adjourned
meeting if the time and place to which the meeting is adjourned 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 on the original date
of the meeting. If, however, after the adjournment the Board of
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Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given as provided in this section to each shareholder
of record on the new record date entitled to vote at such meeting.
2.6 FIXING OF RECORD DATE.
(a) For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or to demand a
special meeting, the Board of Directors may fix in advance a date as the record
date for any determination of shareholders, such date in any case to be not more
than seventy (70 days) before the meeting or action requiring a determination of
shareholders.
(b) When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting, which it must do if
the meeting is adjourned to a date more than one hundred twenty (120) days after
the date fixed for the original meeting.
2.7 VOTING RECORD.
(a) After fixing a record date for a meeting, the corporation shall
prepare an alphabetical list of the names of all its shareholders who are
entitled to notice of a shareholders meeting, arranged by voting group, if any,
with the address of, and the number and class and series, if any, of shares held
by, each.
(b) The shareholders list shall be available for inspection by any
shareholder for a period of ten (10) days prior to the meeting or such shorter
time as exists between the record date and the meeting and continuing through
the meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3), Florida Statutes) during regular business
hours, and at his expense, during the period it is available for inspection.
(c) The corporation shall make the shareholders list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
2.8 SHAREHOLDER QUORUM AND VOTING.
(a) Unless otherwise required to the Articles of Incorporation, a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at any meeting of shareholders. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
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meeting unless a new record date is or must be set for that adjourned meeting.
If less than a majority of outstanding shares entitled to vote are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. When a specified item of business is
required to be voted on by a class or series of stock, unless otherwise required
in the Articles of Incorporation, a majority of the shares of such class or
series shall constitute a quorum for the transaction of such item of business by
that class or series.
(b) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Florida Business
Corporation Act or the Articles of Incorporation.
(c) After a quorum has been established at a shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of
shareholders entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
2.9 VOTING OF SHARES.
(a) Each outstanding share shall be entitled to one (1) vote on each
matter submitted to a vote at a meeting of shareholders.
(b) The shares of this corporation are not entitled to vote if they
are owned, directly or indirectly, by a second corporation, domestic or foreign,
and this corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation. Provided, however,
that the foregoing shall not limit the power of this corporation to vote any
shares, including its own shares, held by it in a fiduciary capacity.
(c) Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent, or proxy designated by the bylaws
of the corporate shareholder; or, in the absence of any applicable bylaw, by
such person as the board of directors of the corporate shareholder may
designate. Proof of such designation may be made by presentation of a certified
copy of the bylaws or other instrument of the corporate shareholder. In the
absence of any such designation, or in case of conflicting designation by the
corporate shareholder, the president, any vice president, secretary, and
treasurer of the corporate shareholder shall be presuWave to possess, in that
order, authority to vote such shares.
(d) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or in the name of his nominee.
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(e) Shares held by or in the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(f) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee or his nominee shall be entitled to vote the shares
so transferred.
2.10 WAIVER OF NOTICE OF MEETING. Whenever any notice is required to be
given to any shareholder, a waiver in writing signed by the person or persons
entitled to such notice, whether signed before, during, or after the time of the
meeting and delivered to the corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Attendance of a person at a meeting shall constitute a waiver of (a) lack of or
defective notice of the meeting, unless the person objects at the beginning of
the meeting to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of or defective notice of a particular matter at a
meeting that is not within the purpose or purposes described in the meeting
notice, unless the person objects to considering the matter when it is
presented.
2.11 PROXIES
(a) Every shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent without a meeting or a shareholders' duly
authorized attorney-in-fact may authorize another person or persons to act for
him by proxy.
(b) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney-in-fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form. An appointment of a proxy is
effective when received by the Secretary or other officer or agent authorized to
tabulate votes. An appointment is valid for up to eleven (11) months unless a
longer period is expressly provided in the appointment form. An appointment of a
proxy is revocable by the shareholder unless the appointment form conspicuously
states that it is irrevocable and the appointment is coupled with an interest.
Appointments coupled with an interest include the appointment of: (i) a pledgee;
(ii) a person who purchased or agreed to purchase the shares; (iii) a creditor
of the corporation who extended credit to the corporation under terms requiring
the appointment; (iv) an employee of the corporation whose employment contract
requires the appointment; or (v) a party to a voting agreement created under
Section 607.0731, Florida Statutes, as amended.
(c) The death or incapacity of the shareholder appointment a proxy
does not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the Secretary or other
officer or agent authorized to tabulate votes before the proxy exercises his
authority under the appointment.
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(d) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
2.12 ACTION BY SHAREHOLDERS WITHOUT A MEETING
(a) Any action required by law, by these Bylaws, or by the Articles of
Incorporation of this corporation to be taken at any annual or special meeting
of shareholders of the corporation, or any action which may be taken at any
annual or special meeting of such shareholders, may be taken without a meeting,
without prior notice, and without a vote, if the action is taken by the holders
of outstanding shares of each voting group entitled to vote on it having not
less than the minimum number of votes with respect to each voting group that
would be necessary to authorize or take such action at a meeting at which all
voting groups and shares entitled to vote were present and voted. In order to be
effective, the action must be evidenced by one or more written consents
describing the action taken, dated and signed by approving shareholders having
the requisite number of votes of each voting group entitled to vote, and
delivered to the corporation at its principal office in Florida or its principal
place of business, or to the corporate Secretary or other officer or agent of
the corporation having custody of the book in which proceedings of meetings of
shareholders are recorded. No written consent shall be effective to take
corporate action unless, within sixty (60) days after the date of the earliest
dated consent delivered in the manner required by this Section, written consents
signed by the number of holders required to take action are delivered to the
corporation. Any written consent may be revoked before the date that the
corporation receives the required number of consents to authorize the proposed
action. No revocation is effective unless in writing and until received by the
corporation at its principal office or its principal place of business, or
received by the corporate Secretary or other officer or agent of the corporation
having custody of the book in which proceedings of meetings of shareholders are
recorded. A consent signed as required by this Section has the effect of a
meeting vote and may be described as such in any document. Whenever action is
taken as provided in this Section, the written consent of the shareholders
consenting or the written reports of inspections appointed to tabulate such
consents shall be filed with the minutes of proceedings of shareholders.
(b) Within ten (10) days after obtaining such authorization by written
consent, notice shall be given to those shareholders who have not consented in
writing or who are not entitled to vote on the action. The notice shall fairly
summarize the material features of the authorized action and, if the action is
one for which dissenters' rights are provided under the Articles of
Incorporation or by law, the notice shall contain a clear statement of the
right of shareholders dissenting therefrom to be paid the fair value of their
shares upon compliance with applicable law.
2.13 VOTING FOR DIRECTORS. Unless otherwise provided in the Articles of
Incorporation, directors will be elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
2.14 INSPECTORS OF ELECTION. Before each shareholders meeting, the Board of
Directors or President shall appoint one or more Inspectors of Election. Upon
appointment, each inspector
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shall take and sign an oath faithfully to execute the duties of inspector at the
meeting with strict impartiality and to the best of his or her ability. The
inspectors shall determine the number of shares outstanding, the number of
shares present at the meeting, and whether a quorum is present. The inspectors
shall receive votes and ballots and determine all challenges and questions as to
the right to vote. The inspectors shall count and tabulate all votes and ballots
and determine the result. The inspectors shall perform other duties as are
proper to conduct elections of directors and votes on other matters with
fairness to all shareholders. The inspectors shall make a certificate of the
results of elections of directors and votes on all other matters. No inspector
shall be a candidate for election as a director of the corporation.
ARTICLE THREE - DIRECTORS
3.1 FUNCTION. Except as provided in the Articles of Incorporation and by
law, all corporate powers shall be exercised by or under the authority of, and
the business and affairs of this corporation shall be managed under the
direction of, the Board of Directors.
3.2 QUALIFICATION. Directors must be natural persons of at least 18 years
of age, but need not be citizens of the United States, residents of Florida, nor
shareholders of this corporation.
3.3 COMPENSATION. Each director may be paid the expenses, if any, of
attendance at each meeting of the Board of Directors, and may be paid a stated
salary as a director or a fixed sum for attendance at each meeting of the Board
of Directors, or both, as may from time to time be determined by action of the
Board of Directors. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.4 PRESUMPTION OF ASSENT. A director of the corporation who is present at
a meeting of its Board of Directors at which action on any corporate matter is
taken is deemed to have assented to the action taken unless he objects at the
beginning of the meeting, or promptly upon arrival, to holding the meeting or
transacting specific business at the meeting, or he votes against such action or
abstains from the action taken.
3.5 NUMBER. This corporation shall have three (3) directors initially.
Subject to the provisions of the corporation's Articles of Incorporation, the
number of directors may be increased or decreased from time to time by action of
either the shareholders of the Board of Directors, but no decrease shall have
the effect of shortening the terms of any incumbent director.
3.6 ELECTION AND TERM.
(a) Each person named in the Articles of Incorporation as a member of
the initial Board of Directors shall hold office until the first annual meeting
of shareholders, and until his successor shall have been elected and qualified
or until his earlier resignation, removal from office, or death.
(b) At the first annual meeting of shareholders and at each annual
meeting thereafter, the shareholders shall elect directors to hold office until
the next succeeding annual
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meeting. Each director shall hold office for the term for which he is elected
and until his successor shall have been elected and qualified or until his
earlier resignation, removal from office, or death.
3.7 VACANCIES. Any vacancy occurring in the Board of Directors, including
any vacancy created by reason of an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors or by the shareholders.
3.8 RESIGNATION. Any director may resign at any time by giving written
notice to the corporation, the Board of Directors, or its chairman. The
resignation of any director shall take effect when the notice is delivered
unless the notice specifies a later effective date, in which event the Board may
fill the pending vacancy before the effective date if the Board provides that
the successor does not take office until the effective date.
3.9 REMOVAL. Any director, or the entire Board of Directors, may be removed
at any time, with or without cause, by action of the shareholders, unless the
Articles of Incorporation provide that directors may be removed only for cause.
If a director was elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove that
director. A director may be removed only if the number of votes cast to remove
him exceeds the number of votes cast not to remove him. The notice of the
meeting at which a vote is taken to remove a director must state that the
purpose or one of the purposes of the meeting is the removal of the director or
directors.
3.10 QUORUM AND VOTING. A majority of the number of directors fixed by
these Bylaws shall constitute a quorum for the transaction of business;
provided, however, that whenever, for any reason, a vacancy occurs in the Board
of Directors, a quorum shall consist of a majority of the remaining directors
until the vacancy has been filled. If a quorum is present, the affirmative vote
of a majority of the directors present at a meeting is the act of the Board of
Directors.
3.11 EXECUTIVE AND OTHER COMMITTEES
(a) The Board of Directors, by resolution adopted by a majority of the
full Board of Directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution, shall have and may exercise all the authority of the Board
of Directors, except as prohibited by Section 607.0825(1), Florida Statutes.
(b) Each committee must have two or more members who serve at the
pleasure of the Board. The Board of Directors, by resolution adopted in
accordance with this section, may designate one or more directors as alternate
members of any such committee, who may act in the place and stead of any absent
member or members at any meeting of such committee.
3.12 REGULAR MEETINGS. An annual regular meeting of the Board of Directors
shall be held without notice imWaveiately after, and at the same place as, the
annual meeting of the
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shareholders and at such other time and place as may be determined by the Board
of Directors. The Board may, at any time and from time to time, provide by
resolution the time and place, either within or without the State of Florida,
for the holding of the annual regular meeting or additional regular meetings of
the Board without other notice than the resolution.
3.13 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President, or any two directors. The
person or persons authorized to call special meetings of the Board may designate
any place, either within or without the State of Florida, as the place for
holding any special meeting of the Board called by them. If no designation is
made, the place of meeting shall be the principal office of the corporation in
Florida. Notice of any special meeting of the Board may be given by any
reasonable means, oral or written, and at any reasonable time before the
meeting. The reasonableness of notice given in connection with any special
meeting of the Board shall be determined in light of all pertinent
circumstances. It shall be presumed that notice of any special meeting given at
least two (2) days before the meeting either orally (by telephone or in person),
or by written notice delivered personally or mailed to each director at his or
her business or residence address, is reasonable. If mailed, the notice of any
special meeting shall be deemed to be delivered on the second day after it is
deposited in the United States mail, so addressed, with the postage prepaid. If
notice is given by telegram, it shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Neither the business to be
transacted at, nor the purpose or purposes of, any special meeting need be
specified in the notice or in any written waiver of notice of the meeting.
3.14 WAIVER OF NOTICE OF MEETING. Notice of a meeting of the Board of
Directors need not be given to any director who signs a written waiver of notice
before, during, or after the meeting. Attendance of a director at a meeting
shall constitute a waiver of notice of the meeting and a waiver of any and all
objections to the place of the meeting, the time of the meeting, and the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.
3.15 ACTION WITHOUT A MEETING. Any action required or permitted to be taken
at a meeting of the directors of this corporation, or any action taken which may
be taken at a meeting of the directors or a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action to be taken,
is signed by all of the directors, or all the members of the committee, as the
case may be. Action taken under this Section is effective when the last director
signs the consent, unless the consent specifies a different effective date. Such
consent shall have the same effect as a unanimous vote and may be described as
such in any document.
ARTICLE FOUR - OFFICERS
4.1 OFFICERS. The Officers of this corporation shall consist of a
President, Secretary and Treasurer and such other officers and assistant
officers and agents as may be deemed necessary may be elected or appointed by
the Board of Directors from time to time. Any two or more offices may be held by
the same person.
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4.2 APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall
be appointed annually by the Board of Directors at the first meeting of the
Board held after the shareholders' annual meeting. If the appointment of
officers does not occur at this meeting, the appointment shall occur as soon
thereafter as practicable. Each officer shall hold office until a successor has
been duly appointed and qualified, or until an earlier resignation, removal from
office, or death.
4.3 RESIGNATION. Any officer of the corporation may resign from his or her
respective office or position by delivering notice to the corporation. The
resignation is effective when delivered unless the notice specifies a later
effective date. If a resignation is made effective at a later date and the
corporation accepts the future effective date, the Board of Directors may fill
the pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date.
4.4 REMOVAL. Any officer of the corporation may be removed from his or her
respective office or position at any time, with or without cause, by the Board
of Directors.
4.5 COMPENSATION. The compensation of the officers of the corporation shall
be fixed from time to time by the Board of Directors.
4.6 PRESIDENT. The President shall be the Chief Operating Officer of the
Corporation and shall, subject to the control of the Board of Directors
generally supervising control of the operations of the Corporation. In addition,
the President shall possess, and may exercise, such power and authority, and
shall perform such duties, as may form time to time be assigned to him or her by
the Board of Directors, and as are incident to the offices of President.
4.7 VICE PRESIDENTS. Any Vice President shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him or her by the Board of Directors.
4.8 SECRETARY. The Secretary shall keep the minutes of the proceedings of
the shareholders and of the Board of Directors in one or more books provided for
that purpose; see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; be custodian of the corporate
records and of the seal of the corporation; and keep a register of the post
office address of each shareholder of the corporation. In addition, the
Secretary shall possess, and may exercise, such power and authority, and shall
perform such duties, as may from time to time be assigned to him or her by the
Board of Directors and as are incident to the office of secretary.
4.9 TREASURER. The Treasurer shall have charge and custody of, and be
responsible for, all funds and securities of the corporation; receive and give
receipts for money due and payable to the corporation from any source
whatsoever; and deposit all such money in the name of the corporation in such
banks, trust companies, or other depositories as shall be used by the
corporation. In addition, the Treasurer shall possess, and may exercise, such
power and
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authority, and shall perform such duties, as may from time to time be assigned
to him or her by the Board of Directors and as are incident to the office of
treasurer.
4.10 OTHER OFFICERS, EMPLOYEES, AND AGENTS. Each and every other officer,
employee, and agent of the corporation shall possess, and may exercise, such
power and authority, and shall perform such duties, as may from time to time be
assigned to him or her by the Board of Directors, the officer appointing him or
her, and such officer or officers who may from time to time be designated by the
Board to exercise supervisory authority.
ARTICLE FIVE - STOCK CERTIFICATES
5.1 CERTIFICATES FOR SHARES. The Board of Directors shall determine whether
shares of the corporation shall be uncertificated or certificated. If
certificated shares are issued, certificates representing shares in the
corporation shall be signed (either manually or by facsimile) by the President
or Vice President and the Secretary or an Assistant Secretary and may be sealed
with the seal of the corporation or a facsimile thereof. A certificate that has
been signed by an officer or officers who later ceases to be such officer shall
be valid.
5.2 TRANSFER OF SHARES; OWNERSHIP OF SHARES. Transfer of shares of stock of
the corporation shall be made only on the stock transfer books of the
corporation, and only after the surrender to the corporation of the certificates
representing such shares. Except as provided by Section 607.0721, Florida
Statutes, the person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes and
the corporation shall not be bound to recognize any equitable or other claim to,
or interest in, such shares on the part of any other person, whether or not it
shall have express or other notice thereof.
5.3 LOST, STOLEN, OR DESTROYED CERTIFICATES. The corporation shall issue a
new stock certificate in the place of any certificate previously issued if the
holder of record of the certificate: (a) makes proof in affadavit form that it
has been lost, destroyed, or wrongfully taken; (b) requests the issue of a new
certificate before the corporation has notice that the certificate has been
acquired by a purchaser for value in good faith and without notice of any
adverse claim; (c) at the discretion of the Board of Directors, gives bond in
such form and amount as the corporation may direct, to indemnify the
corporation, the transfer agent, and registrar against any claim that may be
made on account of the alleged loss, destruction, or theft of a certificate; and
(d) satisfies any other reasonable requirements imposed by the corporation.
ARTICLE SIX - ACTIONS WITH RESPECT TO SECURITIES OF OTHER
CORPORATIONS
Unless otherwise directed by the Board of Directors, the President or a
designee of the President shall have power to vote and otherwise act on behalf
of the corporation, in person or by proxy, at any meeting of shareholders of,
or with respect to any action of shareholders of, any other corporation in which
this corporation may hold securities and to otherwise exercise any and
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all rights and powers that the corporation may possess by reason of its
ownership of securities in other corporations.
ARTICLE SEVEN - AMENDMENT
These Bylaws may be altered, repealed, or amended, and new bylaws may be
adopted only, by a vote of not less than two directors, subject to the
limitations of Section 607.1020(1), Florida Statutes. The shareholders of the
corporation may alter, amend, or repeal these Bylaws or adopt new bylaws even
though those Bylaws may also be amended or repealed by the Board of Directors.
ARTICLE EIGHT - FLORIDA LAW
These Bylaws shall be construed in accordance with Florida law and shall be
subject to the Florida Business Corporation Act (Florida Statutes, Section 607),
as amended from time to time. These Bylaws shall not be construed to restrict or
limit any right or power given to the Board of Directors or the shareholders by
the Florida Business Corporation Act, unless such restriction is expressly
stated herein. The omission from these Bylaws of any right or power given by the
Florida Business Corporation Act to the Board of Directors or shareholders shall
not be construed to be a restriction or limitation of such right or power.
DATED: December 16, 1998
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ORGANIZATIONAL WRITTEN CONSENT OF
THE INCORPORATOR
OF
HERBAL HEALTH PRODUCTS, INC.
The incorporator named in the Articles of Incorporation of Herbal Health
Products, Inc. (the "Corporation"), acting without meeting pursuant to Section
607.0205(2) of the Florida Business Corporation Act, hereby consents to and
adopts the following actions, preambles, and resolutions:
1. ARTICLES OF INCORPORATION. It is noted that the Corporation's Articles
of Incorporation were duly filed in the office of the Secretary of State of the
State of Florida. An acknowledged copy thereof are to be filed in the minute
book.
2. DATE OF ACTIVATION. It is noted that pursuant to such filing with the
Secretary of State of Florida, the effective date of incorporation is December
29, 1998.
3. BYLAWS.
RESOLVED, that the proposed form of Bylaws for the regulation and
management of the affairs of the Corporation which has been read, section by
section, is hereby unanimously adopted and ordered to be made a part of the
permanent records to follow the Articles of Incorporation in the Minute Book.
4. STOCK CERTIFICATE.
RESOLVED, that the form of stock certificate attached to these minutes
is adopted and approved.
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5. ELECTION OF DIRECTORS.
RESOLVED, that the following persons are hereby elected to be
Directors of the Corporation to assume the duties and responsibilities fixed by
the Bylaws and to serve until their respective successor or successors are
chosen and qualified:
Jugal K. Taneja Paul Santostasi
Gerald Schmoling
6. ELECTION OF OFFICERS.
RESOLVED, that the following persons are hereby elected to be officers of the
Corporation to assume the duties and responsibilities fixed by the Bylaws and to
serve until their respective successor or successors are chosen and qualified:
Gerald Schmoling President
Paul Santostasi Vice President
Jugal K. Taneja Secretary, Treasurer
7. REGISTERED OFFICE/AGENT.
RESOLVED, that the registered office and registered agent of the
Corporation, initially designated in the Articles of Incorporation, are hereby
approved and ratified.
8. RATIFICATION OF ACTS.
RESOLVED, that the acts of the incorporator from the date of
incorporation to the present date be the same and hereby are ratified and
confirmed.
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9. OFFERS FOR STOCK.
WHEREAS, the Corporation has received an offer from Dynamic Health
Products, Inc., a Florida Corporation (the "Parent") to purchase 100 shares of
stock of the Corporation having a par value of $.01 per share, for $1.00.
RESOLVED, that upon receipt of the consideration a stock certificate
shall be issued to the Parent described above as soon as possible to reflect the
ownership of the shares so purchased.
10. MINUTE BOOK.
RESOLVED, that the Corporation shall maintain as part of its corporate
records, a corporate minute book which shall include a record of its Articles of
Incorporation and Amendments thereto, its Bylaws and Amendments thereto, minutes
of all meetings, or written actions in lieu thereof of its Directors and
Shareholders, and its stock transfer agent.
11. ORGANIZATIONAL EXPENSES.
RESOLVED, the Treasurer be and hereby is authorized to pay all
expenses incident to and necessary for the organization of the Corporation.
The undersigned, being the incorporator of Herbal Health Products, Inc.,
does hereby ratify, approve, consent to, and confirm all of the above preambles,
resolutions, and actions.
DATED as of the 29th day of December, 1998.
/s/ PHILIP M. SHASTEEN
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Philip M. Shasteen, Incorporator
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EXHIBIT 10.4
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accomodations to made by Lender to
Borrower.
SECTION I. PARTIES
1.1 The "BORROWER" is identified in Section 10.5(c) and its successors and
assigns. If more than one Borrower is specified in Section 10.5(c), all
references to Borrower shall mean each of them, jointly and severally,
individually and collectively, and the successors and assigns of each.
1.2 The "LENDER" is THE CIT GROUP/CREDIT FINANCE, INC. and its agents,
designess, representatives, successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMODATIONS
2.1 REVOLVING LOANS. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("REVOLVING LOANS") in
amounts requested by Borrower from time to time, but not in excess of the
Net Availability existing immediately prior to the making of the requested
loan would not cause the outstanding Obligations to exceed the Maximum
Credit.
(a) The "MAXIMUM CREDIT" is set forth in Section 10.1(a).
(b) The "GROSS AVAILABILY" IS at any time (i) the product of the
outstanding amount of Eligible Accounts, multiplied by the Eligible
Accounts Percentage set forth in Section 10.1(b), PLUS: (ii) the
product(s) obtained by multiplying the applicable Eligible Inventory
Percentage(s), if any, set forth in Section 10.1(b) by the values
(based on the lower of cost, market or appraised value) of Eligible
Inventory, but the amount so added shall not exceed any sublimits set
forth in Section 10.1(c).
(c) The "NET AVAILABILTY" shall be calculated at any time as an amount
equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding
principal balance of the Term Loan, if any.
(d) "ELIGIBLE ACCOUNTS" are accounts created by Borrower in the ordinary
course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth
below but may be revised from time to time by Lender, in its sole
judgment, on fifteen (15) days' prior written notice to Borrower.
Lender shall, in general, deem and continue to deem accounts to be
Eligible Accounts if: (1) such accounts arise from bona fide completed
transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (2) the
amounts of the accounts reported to Lender are absolutely owing to
Borrower and payment is not conditional or contingent, (such as
contingents, guaranteed sales or right of
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return or other similar terms); (3) the account debtor's chief
executive office or place of business is located in the United States;
(4) such accounts do not arise from progress billings, retainages or
bill and hold sales; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there are
no other facts existing or threatened which would impair or delay the
collectibility of all or any portion thereof; (6) the goods giving
rise thereto were not at the time of the sale subject to any luens
except those permitted in this Agreement; (7) such accounts are not
accounts with respect to which account debtor or any officer or
employee thereof is an officer, employee or agent of or is affiliated
with Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8) there has
been compliance with the Assignment of Claims Act or similar State or
local law, if applicable, if the account debtor is the United States
or any domestic governmental unit; (9) Borrower has delivered to
Lender such documents as Lender may have requested pursuant to Section
5.9 hereof in connection with such accounts and Lender shall have
received verifications of such accounts, satisfactory to it, if sent
to the account debtors or any other obligors or any bailees pursuant
to Section 5.5 hereof; (10) there are no facts existing or threatened
which might result in any adverse change in the account debtor's
financial condition; (11) accounts owed by an account debtor and its
affiliates do not represent more than twenty percent (20%) of all
otherwise Elibile Accounts (the amount exceeding twenty percent (20%)
shall not be eligible); (12) not more than fifty percent (50%) of the
accounts of an account debtor or its affiliates owed to Borrower are
more than the number of days set forth in Section 10.1(d); (13) such
accounts are owed by account debtors whose total indebtedness to
Borrower does not exceed the amount of any customer credit limits as
established from time to time on notice to Borrower (the amount
exceeding the credit limit shall not be eligible); and (14) such
accounts are owed by account debtors deemed creditworthy at all times
by Lender.
(e) "ELIGIBLE INVENTORY" is inventory owned by Borrower which is and
remains acceptable to Lender for lending purposes and is located at
one of the addresses set forth in Section 10.5(e).
(f) Lender shall have a continuing right to reduce the Gross Availability
by implementing Reserves ("RESERVES"), and to increase and decrease
such Reserves from time to time, if and to the extent that, in
Lender's sole judgment, such Reserves are necessary to protect Lender
against any state of facts which does, or would, with notice or
passage of time or both, constitute an Event of Default or have an
adverse effect on any collateral.
(g) If a voluntary or involuntary petition under the Bankruptcy Code is
filed against the Borrower, then Lender need not make loans.
(h) Revolving Loans will not at any time exceed the Gross Availability
unless Lender has consented.
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2.2 TERM LOAN. Lender shall make Term Loans to Borrower on the terms and
conditions set forth in Section 10.2 ("TERM LOAN"). The Term Loan
balance shall automatically be accelerated and become due and payable
upon termination of this Agreement.
2.3 ACCOMMODATIONS. Lender may, in its sole discretion, issue or cause to
be issued, from time to time at Borrower's request and on terms and
conditions and for purposes satisfactory to Lender, credit
accommodations consisting of letters of credit, bankers' acceptances,
merchandise purchasing guaranties or other guaranties or indemnities
for Borrower's account ("ACCOMMODATIONS"). Borrower shall execute and
perform additional agreements relating to the Accommodations in form
and substance acceptable to Lender and the issuer of any
Accommodations, all of which shall supplement the rights and remedies
granted herein. Any payments made by Lender or any affiliate of Lender
in connection with the Accommodations shall constitute additional
Revolving Loans to Borrower.
SECTION 3. INTEREST AND FEES
3.1 INTEREST.
(a) Interest on the Revolving Loans and Term Loans shall be payable by
Borrower on the first day of each month, calculated upon the closing daily
balances in the loan account of Borrower for each day during the immediately
preceding month, at the per annum rate set forth as the Interest Rate in Section
10.3(a). The Interest Rate shall increase or decrease by an amount equal to each
increase or decrease, respectively, in the Prime Rate (as defined below),
effective as of the date of each such change. On and after any Event of Default
or termination or non-renewal hereof, interest on all unpaid Obligations shall
accrue at a rate equal to two percent (2%) per annum in excess of the Interest
Rate otherwise payable until such time as all Obligations are indefeasibly paid
in full (notwithstanding entry of any judgment against Borrower or the exercise
of any other right or remedy by Lender), and all such interest shall be payable
on demand. Interest shall in no month be less than the Interest Rate multiplied
by the Minimum Borrowing set forth in Section 10.1(e). In no event shall charges
constituting interest exceed the rate permitted under any applicable law or
regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto.
(b) The "PRIME RATE" is the rate of interest publicly announced by The
Chase Manhattan Bank in New York, New York, or its successors and assigns from
time to time as its prime rate.
3.2 FEES. Borrower shall pay to Lender:
(a) CLOSING FEE. At closing, payable in the amount set forth in SECTION
10.3(c).,
(b) FACILITY FEE. A Facility Fee (fully earned at closing or the beginning
of any renewal term) payable as set forth in Section 10.3(d).
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(c) ACCOUNT SERVICING FEE. Monthly, on the first day of each month during
the initial and each renewal Term an Account Servicing Fee for the
immediately preceeding month (or part thereof) in the amount set forth in
Section 10.3(e).
(d) UNUSED LINE FEE. Monthly, on the first day of each month, in arrears,
an Unused Line Fee for each month during the initial and each renewal Term
at the rate per annum set forth in Section 10.3(f), calculated upon the
amount, if any, by which the Maximum Credit exceeds the greater of the
Minimum Borrowing or the average outstanding daily principal balance during
the preceding month of all Revolving Loans, Accommodations and any Term
Loan.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. To secure the payment and performance in
full of all Obligations, Borrower hereby grants to Lender a continuing security
interest in and lien upon, and a right of setoff against, and Borrower hereby
assigns and pledges to Lender, all of the Collateral, including any Collateral
not deemed eligible for lending purposes.
4.2 "OBLIGATIONS" shall mean any and all Revolving Loans, Term Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "COLLATERAL" shall mean all of the following property of Borrower:
(a) All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of all: accounts, interests in goods represented
by accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights; chattel paper; investment property;
general intangibles (including, but not limited to, tax and duty refunds,
registered and unregistered patents, trademarks, service marks, copyrights,
trade names, applications for the foregoing, trade secrets, goodwill processes,
drawings, blueprints, customer lists, licences, whether as licensor or licensee,
choses in action and other claims, and existing and future leasehold interests
in equipment and fixtures); documents; instruments; letters of credit, bankers'
acceptances or guaranties; cash moneys, deposits, securities, bank acccounts,
deposit accounts, credit and other property now or hereafter held in any
capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other
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depository or other institution; agreements or property securing or relating to
any of the items referred to above;
(b) All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of goods, including, but not limited to:
(i) All inventory, wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description, including all raw
materials; work-in-process, finished goods, and materials to be used
or consumed in Borrower's business; and all names or marks affixed to
or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof;
(ii) All equipment and fixtures, wherever located, whether now owned
or hereafter acquired, including, without limitation, all machinery,
equipment, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and
accessions thereof and thereto; and
(iii) All consumer goods, farm products, crops, timber, minerals or
the like (including oil and gas), wherever located, whether now owned
or hereafter acquired, or whatever kind, nature or description;
(c) All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of any personal property in or upon which
Borrower has or may hereafter have a security interest, lien or right of setoff;
(d) All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and
(e) All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 COLLECTIONS. Borrower will, at its expense as Lender requests, direct
that all remittances and all other proceeds of accounts and other Collateral be
sent to a lock box designated by Lender, and deposited into a bank account
selected by Lender with arrangements with the bank providing that all funds
deposited in the bank account are to be transferred solely to Lender. Borrower
shall bear all risk of loss of any funds deposited into such account. In
connection therewith, Borrower shall execute such lock box and bank account
agreements as Lender shall specify. Any collections or other proceeds received
by Borrower shall be held in trust for Lender and immediately remitted to Lender
in kind.
5.2 CHARGES TO LOAN ACCOUNT. At Lender's option, all payments of principal,
interest, fees, costs, expenses and other charges provided for in this
Agreement, or in any other
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agreement now or hereafter existing between Lender and Borrower, may be charged
on the date when due, as principal to any loan account of Borrower maintained by
Lender. Interest, fees for Accomodations, the Unused Line Fee and any other
amounts payable by Borrower to Lender based on a per annum rate shall be
calculated on the basis of actual days elapsed over a 360-day year.
5.3 PAYMENTS. All Obligations shall be payable at Lender's Office set forth
in Section 10.5(a) or at Lender's bank designated in Section 10.5(b) or at such
other bank or place as Lender may expressly designate from time to time for
purposes of this Section. Lender shall apply all proceeds of accounts or other
Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross Availability and Net Availability and for the calculation of the Minimum
Borrowing remittances and other payments will be treated as credited to the loan
account of Borrower maintained by Lender and Collateral balances to which they
relate, upon the date of Lender's receipt of advice from Lender's bank that such
remittances or other payments have been credited to Lender's account or in the
case of remittances or other payments received directly in kind by Lender, upon
the date of Lender's deposit thereof at Lender's bank, subject to final payment
and collection. In computing interest charges, the loan account of Borrower will
be credited with remittances and other payments for the number of days set forth
in Section 10.3(b) after the day Lender has received advice of receipt of
remittances in Lender's account at Lender's Bank. For purposes of this Agreement
" BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other
day on which Lender or banks located in states where Lender has its offices,
are authorized to close.
5.4 LOAN ACCOUNT STATEMENTS. Lender shall render to Borrower monthly a loan
account statement. Each statement shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender receives, within
sixty (60) days after the mailing of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement.
5.5 DIRECT COLLECTIONS. Lender may, at any time, (a) notify any account
debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrower and that payment thereof is
to be made to the order of and directly to Lender, (b) send, or cause to be sent
by its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) demand, collect or enforce payment of any accounts or
such other Collateral, but without any duty to do so, and Lender shall not be
liable for any failure to collect or enforce payment thereof, (d) take or bring,
in the name of Lender or Borrower, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of or other
realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower, and (f) after an Event of Default, extend the
time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations. At
Lender's request, all invoices and statements sent to
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any account debtor, other obligor or bailee, shall state that the accounts and
such other Collateral have been assigned to Lender and are payable directly
and only to Lender.
5.6 ATTORNEY-IN-FACT. Borrower hereby irrevocable appoints Lender as
Borrower's attorney-in-fact and authorizes Lender at Borrower's sole expense, to
exercise at any times in Lender's discretion all or any of the powers necessary
for Lender to obtain information about the Collateral or to enforce Lender's
rights.
5.7 LIABILITY. Borrower hereby releases and exculpates Lender, its
officers and employees from any liability arising from any acts under this
Agreement or in furtherance thereof, except for gross negligence or willful
misconduct. Lender will not have any liability to Borrower for lost profits or
other special or consequential damages.
5.8 ADMINISTRATION OF ACCOUNTS. After written notice by Lender to Borrower
or without notice after an Event of Default, Borrower shall not, (a) amend,
modify, settle or compromise any of the accounts or any other Collateral which
includes a monetary obligation, (b) release in whole or in part any account
debtor or other person liable for the payment of any of the accounts or any
such other Collateral, or (c) grant any credits, discounts, allowances,
deductions, return authorizations or the like with respect to any of the
accounts or any such other Collateral.
5.9 DOCUMENTS. Borrower shall deliver to Lender, as Lender may request, all
documents, schedules, invoices, proofs of delivery, purchase orders, statements,
contracts and all other information evidencing or relating to the Collateral, in
form and substance satisfactory to lender and duly executed by Borrower.
Without limiting the provisions of Section 5.5., Borrower's granting of credits,
discounts, allowances, deductions, return authorizations or the like will be
promptly reported to Lender in writing. In no event shall any schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of
Lender or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to
Lender by Borrower may be destroyed or otherwise disposed of by Lender six (6)
months after receipt by Lender, unless Borrower requests their return in
writing in advance and makes prior arrangements for their return at Borrower's
expense.
5.10. ACCESS. Lender shall have access, prior to an Event of Default
during reasonable business hours and on or after an Event of Default at any
time, to all of the premises where Collateral is located for the purposes of
inspecting or copying the Collateral, and all Borrower's books and records.
Lender, at no charge, may use such of Borrower's personnel, equipment,
including computer equipment, programs, printed output and computer readable
media, supplies and premises for the collection of accounts and realization on
other Collateral as Lender, in its sole discretion, deems appropriate.
Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender at Borrower's expense all financial information,
books and records, work papers, management reports and other information in
their possession regarding Borrower.
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5.11 ENVIRONMENTAL AUDITS. Fom time to time, but not more frequently than
semi-annually (provided Borrower is not in default) as requested by Lender, at
the sole expense of Borrower, Borrower shall provide Lender, or its designee,
complete access to all of Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender may deem necessary.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 FINANCIAL AND OTHER REPORTS. Borrower shall keep and maintain its books
and records in accordance with generally accepted accounting principles,
consistently applied. Borrower shall, at its expense, deliver to Lender (a) true
and complete monthly agings of its accounts receivable, accounts payable and
notes payable on or before the fifteenth (15th) day of each month; (b) weekly
inventory reports within 2 business days after the end of each week; and (c)
monthly internally prepared interim financial statements on or before the
twenty-fifth day (25th) of the following month. Annually, Borrower shall deliver
audited financial statements of Borrower accompanied by the report and opinion
thereon of independent certified public accounts acceptable to Lender, as soon
as available, but in such form and together with such information with respect
to the business of Borrower or any Guarantor, as Lender may in each case
request.
6.2 TRADE NAMES. Borrower may from time to time render invoices under its
trade names set forth in Section 10.5(g) and, Borrower represents that: (a) each
trade name does not refer to another corporation or other legal entity, (b) all
accounts and proceeds thereof (including any returned merchandise) invoiced
under any such trade names are owned exclusively by Borrower and (c) Lender may
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.
6.3 LOSSES. Borrower shall promptly notify Lender in writing of any loss,
damage, investigation, action, suit, proceeding or claim relating to a material
portion of the Collateral or which may result in any material adverse change in
Borrower's business, assets, liabilities or condition, financial or otherwise.
6.4 BOOKS AND RECORDS. Borrower's books and records concerning accounts
and its chief executive office are and shall be maintained only at the address
set forth in Section 10.5(d). Borrower's only other places of business and the
only other locations of Collateral, if any, are and shall be the addresses set
forth in Section 10.5(f) hereof, except Borrower may change such locations or
open a new place of business after thirty (30) days prior written notice to
Lender. Borrower shall execute and deliver or cause to be executed and
delivered to Lender
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such financing statements, amendments, financing documents and security and
other agreements as Lender may reasonably require.
6.5 TITLE. Borrower has and at all times will continue to have good and
marketable title to all of the Collateral, free and clean of all liens,
security interests, claims or encumbrances of any kind in favor of Lender and
except, if any, those set forth on Schedule A hereto.
6.6 DISPOSITION OF ASSETS. Borrower shall not directly or indirectly: (a)
sell, lease, transfer, assign, abandon or otherwise dispose of any part of the
Collateral or any material portion of its other assets (other than sales of
inventory to buyers in the ordinary course of business) or (b) consolidate with
or merge with or into any other entity, or permit any other entity to
consolidate with or merge with or into Borrower or (c) form or acquire any
interest in any firm, corporation or other entity.
6.7 INSURANCE. Borrower shall at all times maintain, with financially sound
and reputable insurers, adequate insurance (including, without limitation, at
the option of Lender, earthquake and flood insurance) with respect to the
Collateral and other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' prior written notice to Lender of cancellation or
reduction of coverage. Lender may obtain at Borrower's expense, any such
insurance should Borrower fail to do so and adjust or settle any claim or other
matter under or arising pursuant to such insurance or to amend or cancel such
insurance. Borrower shall provide evidence of such insurance and a lender's loss
payable endorsement satisfactory to Lender. Borrower shall deliver to Lender, in
kind, all istruments representing proceeds of insurance received by Borrower.
Lender may apply any insurance proceeds received at any time to the cost of
repairs to or replacement of any portion of the Collateral and/or, at Lender's
option, to payment of or a security for any of the Obligations in any order or
manner as Lender determines.
6.8. COMPLIANCE WITH LAWS. Borrower is and at all times will continue to be
in compliance with the requirements of all material laws, rules, regulations and
orders of any governmental authority relating to its business (including laws,
rules, regulations and orders relating to income, withholding, excise, property
and social security taxes, minimum wages, employee retirement and welfare
benefits, employee health and safety, or environmental matters) and all material
agreements or other instruments binding on Borrower or its property. Borrower
shall pay and discharge all taxes, assessments and governmental charges against
Borrower or any Collateral when due, unless the same are being contested in
good faith. Lender may establish Reserves for the amount contested and penalties
which may accrue thereon.
6.9 ACCOUNTS. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that any of
the criteria for eligibility are not or are no longer satisfied and the
Eligibility criteria will continue to be satisfied. All statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
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6.10 EQUIPMENT. With respect to Borrower's equipment, Borrower shall keep
the equipment in good order and repair, and in running and marketable condition,
ordinary wear and tear expected.
6.11 FINANCIAL COVENANTS. Borrower shall at all times maintain working
capital and net worth (each as determined in accordance with generally accepted
accounting principles, in effect on the date hereof, consistently applied) in
the amounts set forth in Section 10.4(a) and (b) respectively and Borrower shall
not, directly or indirectly, expend or commit to expend, for fixed or capital
assets (including capital lease obligations) an amount in excess of the capital
expenditure limit set forth in Section 10.4(c) in any fiscal year of Borrower.
6.12 AFFILIATED TRANSACTIONS. Borrower will not, directly or indirectly:
(a) lend or advance money or property to, guarantee or assume indebtedness of,
or invest (by capital contribution or otherwise) in any person, firm,
corporation or other entity; or (b) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any class of
stock of Borrower now or hereafter outstanding; or (c) make any payment of the
principal amount of or interest on any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower; or (d) make any loans or
advances to any officer, director, employee, shareholder or affiliate of
Borrower, (e) enter into any sale, lease or other transaction with any officer,
director, employee, shareholder or affiliate of Borrower on terms that are less
favorable to Borrower than those which might be obtained at the time from
persons who are not an officer, director, employee, shareholder or affiliate of
Borrower.
6.13 FEES AND EXPENSES. Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payalbe in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defense asserted by Lender or claims
or defense against Lender asserted by Borrower, any guarantor or any third party
directly or indirectly arising out of or related to the relationship between
Borrower and Lender or any guarantor and Lender, including, but not limited to
the following, whether incurred before, during or after the initial or any
renewal Term or after the commencement of any case with respect to Borrower or
any guarantor under the United States Backruptcy Code or any similar statute:
(a) all costs and expenses of filing or recording (including Uniform Commercial
Code financing statement filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if applicable); (b) all title
insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey and search fees; (c)
all fees as then in effect relating to the wire transfer of loan proceeds and
other funds and fees then in effect for returned checks and credit reports; (d)
all expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic field examinations of the Collateral and
Borrower's operations including field examiner travel, food and lodging, plus a
per diem charge at the rate set forth in Section 10.3(g) for Lender's examiners
in the field and office; and (e) the costs, disbursements and fees of in-house
and outside counsel to Lender, including but not limited to such fees and
disbursements incurred as a result of a workout, restructuring, reorganization,
10
<PAGE>
liquidation, insolvency proceeding or litigation between the parties hereto, any
third party and in any appeals arising therefrom.
6.14 FURTHER ASSURANCES. At the request of Lender, at any time and from
time to time, at Borrower's sole expense, Borrower shall execute and deliver or
cause to be executed and delivered to Lender, such agreements, documents and
instruments, including waivers, consents and subordination agreements from
mortgages or other holders of security interests or liens, landlords or bailees,
and do or cause to be done such further acts as Lender, in its discretion, deems
necessary or desirable to create, preserve, perfect or validate any security
interest of Lender in the Collateral and otherwise to effectuate the provisions
and purposes of this Agreement. Borrower hereby authorizes Lender to file
financing statements or amendments against Borrower in favor of Lender with
respect to the Collateral, without Borrower's signature and to file as financing
statements any carbon, photographic or other reproductions of this Agreement or
any financing statements signed by Borrower.
6.15 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets has
ever been designated or identified in any mannner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute. No
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower. Borrower has
not received a summons, citation, notice, or directive from the Environmental
Protection Aency or any other federal or state governmental agency any action or
omission by Borrower resulting in the releasing, or otherwise exposing of
hazardous waste or hazardous substances into the environment. Borrower is and
will continue to be in compliance (in all material respects) with all statutes,
regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release, transportation or disposal of
any hazardous waste or hazardous substance.
6.16 YEAR 2000 COMPLIANCE. The Borrower shall take all action necessary to
assure that its computer-based systems are able to effectively process data
including dates and date sensitive functions. The Borrower represents and
warrants that the Year 2000 problem will not result in a material adverse effect
on the Borrowers's business condition. Upon request, the Borrower shall provide
assurance acceptable to the Lender that the Borrower's computer systems and
software are or will be Year 2000 compliant on a timely basis. The Borrower
shall immediately advise Lender in writing of any material changes in the
Borrower's Year 2000 plan, timetable or budget.
6.17 STATE OF INCORPORATION. If Borrower is a corporation, it is duly
organized, existing and in good standing under the laws of the state set forth
in Section 10.5(h).
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of
11
<PAGE>
this Agreement or, at Lender's option, upon or at any time after the occurrence
or existence of any one or more of the following "EVENTS OF DEFAULT":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms of this Agreement or any other existing or
future financing, security or other agreement between Borrower and
Lender or any affiliate of Lender;
(b) Any representation, warranty or statement of fact made by Borrower to
Lender in this Agreement or any other agreement, schedule, confirmatory
assignment or otherwise, or to any affiliate of Lender, shall prove
inaccurate or misleading;
(c) Any guarantor revokes, terminates or fails to perform any of the terms
of any guaranty, endorsement or other agreement of such party in favor
of lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of the amount set forth
in Section 10.5 (i) or any injunction or attachment is obtained against
Borrower or any guarantor, which remains unstayed for a period of ten
(10) days or is enforced;
(e) Borrower or any guarantor dies or ceases to exist or the usual business
of Borrower or any guarantor ceases or is suspended;
(f) Any change in the chief executive officer, chief operating officer, or
controlling ownership of Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an assignment for
the benefit of creditors, makes or sends notice of a bulk transfer or
calls a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the bankruptcy laws of
the United States now or hereafter in effect or threatened commencement
of criminal or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in equity)
is filed by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or any guarantor
under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any guarantor,
pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of
Borrower or such guarantor which Lender believes may have a material
adverse effect on the Collateral or Borrower's business;
(j) Any default or event of default occurs on the part of Borrower under
any material agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound;
12
<PAGE>
(k) Lender in good faith believes that either (i) the prospect of payment
or performance of the Obligations is impaired or (ii) the Collateral is
not sufficient to secure fully the Obligations; or
(l) Any material change occurs in the nature or conduct of Borrower's
business.
7.2 REMEDIES. Upon the occurrence of an Event of Default and at any time
thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and remedies may
be exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Colleteral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (c) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (e) sell,
lease, transfer, assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with respect thereto,
by public or private sales at any exchange, broker's board, any office of Lender
or elsewhere) at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrower,
which right or eqity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, then (10) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
7.3 APPLICATION OF PROCEEDS. Lender may apply the cash proceeds of
Collateral other than accounts actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment of any of the
Obligations, in whole or in part and in such order as Lender may elect, whether
or not then due. Borrower shall remain liable to Lender for the payment of any
deficiency together with interest at the highest rate provided for herein and
all costs and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses.
7.4 LENDER'S CURE OF THIRD PARTY AGREEMENT DEFAULT. Lender may, at its
option, cure any default by Borrower under any agreement with a third party
or pay or bond on appeal any
13
<PAGE>
judgment entered against Borrower, discharge taxes, liens, security interests or
other encumbrances at any time levied on or existing with respect to the
Collateral and pay any amount, incur any expense or perform any act which, in
Lender's sole judgment, is necessary or appropriate to preserve, protect,
insure, maintain, or realize upon the Collateral. Lender may charge Borrower's
loan account for any amounts so expended, such amounts to be repayable by
Borrower on demand. Lender shall be under no obligation to effect sure cure,
payment, bonding or discharge, and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE
OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS,
THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 COUNTERCLAIMS. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arrising therefrom or relating
thereto, except compulsory counterclaims.
8.3 JURISDICTION. Borrower hereby irrevocably submits and consents to the
conexclusive jurisdiction of the State and Federal Courts located in the State
in which the office of Lender designated in Section 10.5(a) is located and any
other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and compalint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.5(a) is located and Borrower waives any
objection based on FORUM NON CONVENIENS and any objection to venue in connection
therewith.
8.4 NO WAIVER BY LENDER. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall be construed as a bar to or waiver of any such right
14
<PAGE>
or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 TERM. This agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.6 from the date thereof and shall be deemed
automatically renewed, based upon all of the terms and provisions of this
Agreement, for successive terms of equal duration thereafter unless terminated
as of the end of the initial or any renewal term (each a "TERM") by either party
giving the other written notice at least sixty (60) days' prior to the end of
the then current Term.
9.2 EARLY TERMINATION. Borrower may also terminate this Agreement by giving
Lender at least thirty (30) days prior written notice and payment in full of all
of the Obligations as provided herein, including the Early Termination Fee,
unpaid Facility Fee and any other fees. Thirty days after receipt of such early
termination notice, Lender need not make any further loans or accommodations.
Lender shall also have the right to terminate this Agreement at any time upon or
after the occurrence of an Event of Default. If Lender terminates this Agreement
upon or after the occurrence of an Event of Default, Borrower shall pay Lender
forthwith, in full, payment in all Obligations, including Early Termination Fee,
Facility Fee and any other fees. In view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits, the Early Termination
Fee shall be the percentage of the Maximum Credit set forth in Section 10.3(h).
9.3 TERMINATION INDEMNITY DEPOSIT. Upon termination of this Agreement by
Borrower, as permitted herein, in addition to payment of all Obligations which
are not contingent, Borrower shall deposit such amount of cash collateral as
Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 NOTICES. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.5(a) and to Borrower at its chief executive office set forth in
Section 10.5(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable, such provision shall not affect this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the particular
provision held to be invalid or unenforceable.
15
<PAGE>
9.6 ENTIRE AGREEMENT; AMENDMENTS; ASSIGNMENTS. This Agreement contains the
entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the sucessors and
assigns of Borrower.
9.7 DISCHARGE OF BORROWER. No termination of this Agreement shall relieve
or discharge Borrower of its Obligations, grants of Collateral, duties and
covenants hereunder or otherwise until such time as all Obligations to Lender
have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interest and liens of Lender in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 USAGE. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall
also mean the plural or singular, respectively.
9.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth
in Section 10.5(a) below is located.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit $2,000,000
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 85% provided that the Dilution
Percentage does not exceed 4%. The Dilution Percentage is the
sum of Borrower's credits, allowances, discounts, write-offs,
contra-accounts and offsets and deductions which reduce the
value of accounts receivable divided by gross invoices. The
Dilution Percentage shall be calculated on a rolling 90 day
average. If the Dilution Percentage exceeds 4% then Lender may
reduce the Eligible Accounts Percentage to a percentage
satisfactory to Lender.
Eligible Inventory Percentages:
Finished Goods 60%
(c) Inventory Sublimit(s): Not to exceed 50% of the
outstanding advances against the Accounts
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 Days
16
<PAGE>
(e) Minimum Borrowing: $750,000
10.2 Term Loan:
(a) amount N/A
(b) monthly amortization N/A
(c) maturity date N/A
10.3 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate plus 1.25% per
annum
(b) Clearance: 3 Business Days
(c) Closing Fee: $5,000
(d)(1) Facility Fee for Initial Term:
First Anniversary: 0.5% of the Maximum Credit
Second Anniversary 0.5% of the Maximum Credit
(2) Facility Fee for Renewal Term:
Renewal Date: 0.5% of the Maximum Credit
First Anniversary: 0.5% of the Maximum Credit
Second Anniversary: 0.5% of the Maximum Credit
(e) Account Servicing Fee: N/A
(f) Unused Line Fee: per annum N/A
(g) Legal Documentation Fee in connection
with Closing $3,500.00 plus out-of-pocket
expenses
(g) Field Examination per diem charge
per examiner $650.00
(h) Early Termination Fee:
First year: 3% of the Maximum Credit
Second year: 2% of the Maximum Credit
Third year and thereafter: 1% of the Maximum Credit
10.4 Financial Covenants:
(a) Working Capital: N/A
(b) Net Worth: N/A
(c) Capital Expenditures; per fiscal year N/A
10.5 (a) Lender's Office: 10 S. LaSalle Street
Chicago, Illinois 60603
(b) Lender's Bank: Bank of America Illinois
231 S. LaSalle Street
Chicago, IL 60697
(c) Borrower: Becan Distributors, Inc.
Discount RX, Inc.
(d) Borrower's Chief Executive Office: Becan Distributors, Inc.
275 Curry Hollow Road
17
<PAGE>
Pittsburgh, PA 15236
Discount RX, Inc.
5200 Hwy. 22, Suite 12
Mandeville, LA 70471
(e) Locations of Eligible Inventory
Collateral: Becan Distributors, Inc.
275 Curry Hollow Road
Pittsburgh, PA 15236
Discount RX, Inc.
5200 Hwy. 22, Suite 12
Mandeville, LA 70471
(f) Borrower's Other Offices and
Locations of Collateral: N/A
(g) Borrower's Trade Names for Invoicing: N/A
(h) Borrower's State of Incorporation: Becan Distributors, Inc.: Ohio
Discount RX, Inc.: Louisiana
(i) Judgment Amount $25,000
10.6 Term: 3 Years
10.7 MULTIPLE BORROWERS: The "Borrower" as defined in Section 1.1 and identified
in Section 10.5(c) consists of two "Borrowers". A request for a Revolving Loan
shall be made by a particular Borrower, with all relevant determinations with
respect to such request to be based on such Borrower's individual criteria, such
as the amount of its Eligible Accounts, Eligible Inventory, and Net
Availability. Notwithstanding the foregoing, the maximum aggregate amount
outstanding for all Borrowers shall at no time exceed $2,000,000. Except as
provided in this Section 10.7 and as otherwise specifically provided, "Borrower"
shall be defined as set forth in Section 1.1 hereof.
18
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement
this 30th day of November, 1998.
LENDER BORROWER:
THE CIT GROUP/CREDIT BECAN DISTRIBUTO5RS, INC.
FINANCE, INC.
By: /s/ RICHARD A. SIMONS By: /s/ PHILLIP LAIRD
--------------------------- --------------------------
Phillip Laird
Title: S.V.P. President
------------------------
DISCOUNT RX, INC.
By: /s/ PHILLIP LAIRD
--------------------------
Phillip Laird
Treasurer
19
<PAGE>
SCHEDULE A
PERMITTED LIENS
NONE
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such
financialstatements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 353,465
<SECURITIES> 0
<RECEIVABLES> 2,318,883
<ALLOWANCES> (39,250)
<INVENTORY> 2,828,229
<CURRENT-ASSETS> 5,684,735
<PP&E> 2,372,702
<DEPRECIATION> 151,797
<TOTAL-ASSETS> 10,750,491
<CURRENT-LIABILITIES> 5,727,946
<BONDS> 0
1,625,000
0
<COMMON> 31,067
<OTHER-SE> 1,885,510
<TOTAL-LIABILITY-AND-EQUITY> 10,750,491
<SALES> 10,347,440
<TOTAL-REVENUES> 11,431,375
<CGS> 10,551,980
<TOTAL-COSTS> 10,551,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,629
<INCOME-PRETAX> (51,474)
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,474)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,474)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
