UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-23031
DYNAMIC HEALTH PRODUCTS, INC.,
FORMERLY NU-WAVE HEALTH PRODUCTS, INC.,
SUCCESSOR TO AND FORMERLY DIRECT RX, INC.
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(Name of small business issuer in its charter)
STATE OF FLORIDA 34-1711778
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(State of or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
6950 BRYAN DAIRY ROAD, LARGO, FLORIDA 33777
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(Address of Principal Executive Officers) (Zip Code)
Issuer's telephone number: (727) 544-8866
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE.
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON CAPITAL STOCK
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(Title of Class)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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. Yes [X] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $36,397,782.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, cannot be determined. There is currently no established
trading market for the common stock of the Company, and the shares are not
presently listed, therefore aggregate market value cannot be determined.
Number of shares outstanding of the Issuer's common stock at $.01 par
value as of June 25, 1999 was 3,535,224 (exclusive of Treasury Shares).
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Dynamic Health Products, Inc. ("Company"), was incorporated on January
27, 1998, as a Florida corporation under the name Direct Rx Healthcare, Inc. In
April 1998, its name was changed to Nu-Wave Health Products, Inc. and in August
1998, its name was changed to Dynamic Health Products, Inc.
The Company's predecessor, Direct Rx, Inc., an Ohio corporation
("Direct Rx"), was formed in 1992. In September 1995, Direct Rx acquired an 80%
interest in Nu-Wave Health Products, Inc., a Florida corporation ("Nu-Wave"),
which manufactured non-prescription medications, nutritional supplements and
health and beauty care products. On July 1, 1997, Direct Rx acquired the
remaining shares of Nu-Wave. In January 1998, Direct Rx changed its domicile
from Ohio to Florida. After the domicile change, the Company changed its name to
Direct Rx Healthcare, Inc., and later to Dynamic Health Products, Inc., its
current name. After the domicile change, Nu-Wave was merged into the Company.
The Company is a "small business issuer" for purposes of disclosure and
filings under the Securities Act of 1933 and the Securities Exchange Act of
1934.
The Company through its wholly-owned subsidiary, Innovative Health
Products, Inc., acquired by the Company in June 1998, creates, manufacturers,
and packages a wide variety of proprietary and non-proprietary non-prescription
medications, nutritional supplements and health and beauty care products.
References in this Annual Report on Form 10-KSB refer to the Company and its
subsidiaries as "Company", unless otherwise indicated. Although the Company
manufactures its own "branded" products which it markets and distributes through
its system, the Company's primary business is the contract manufacture of
products for others. Some of the Company's branded products which it is
currently manufacturing and marketing are ARTH-AID arthritis cream and
easy-to-use roll-on, JUNGLE JERRY'S gummy bear vitamin supplements, NUTRI-SURE
meal replacement powder, and PHYSICIANS' PHARMACEUTICALS dietary supplements.
The channels of distribution for its proprietary products and the channels of
distribution for the products it manufactures for others include health food,
drug store, convenience and mass market stores, and direct marketing through
radio, catalog sales and infomercials. The Company has two manufacturing
facilities located in the greater Tampa Bay area and distribution centers
located in Pittsburgh, Pennsylvania and Mandeville, Louisiana.
The Company has grown primarily through acquisitions. The Company had
developed sales in excess of its manufacturing capacity and, in June 1998,
acquired through a merger with a wholly-owned subsidiary of the Company, Energy
Factors, Inc. ("Energy Factors"), a Florida corporation, which had a 33,222
square foot office, laboratory, manufacturing and warehouse facility located in
Largo, Florida, with substantial excess manufacturing capacity. After the
acquisition, the Company changed the name of Energy Factors to Innovative Health
Products, Inc. ("Innovative"). All manufacturing operations of the Company are
now operated through Innovative.
The Company's second manufacturing facility, also located in the
greater Tampa Bay area, includes 15,000 square feet of leased space, and is used
primarily to manufacture over-the-counter products, creams and lotions. This
facility is registered with the FDA to manufacture and package over-the-counter
drugs.
Currently, the Company has the manufacturing capability to produce
approximately 270 million tablets and capsules and four million bottles
annually. The Company, on average, operates its manufacturing facilities one
shift per day, five days per week. At times, certain of the Company's packaging
lines or capsule and tablet production lines run longer as demand warrants. The
Company
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believes it can double sales volumes without the necessity of expanding its
current facilities. Such an increase of production would require additional
space for warehousing and shipping operations but would not require substantial
capital investment.
The Company operates flexible manufacturing lines which enable it to
shift output efficiently among various pieces of equipment depending upon such
factors as batch size, tablets or capsule count, and labeling requirements. The
Company strives to fulfill and ship all orders within 30-45 days.
Also in June 1998, the Company acquired all of the issued and
outstanding capital stock of Becan Distributors, Inc. ("Becan"), incorporated in
November 1996, in Ohio. Becan is a wholesale distributor of pharmaceuticals,
over-the-counter drugs, and health and beauty care products. In August 1998, the
Company, through Becan, formed Discount Rx, Inc. ("Discount"), a Louisiana
corporation. Discount is a wholesale distributor of pharmaceuticals,
over-the-counter drugs, and health and beauty care products. Becan and Discount
also provide distribution channels for the Company's branded products. The
Company operates two distribution centers, one of which is a 2,600 square foot
leased facility located in Pittsburgh, Pennsylvania, used by Becan, and the
other is a 1,250 square foot leased facility located in Mandeville, Louisiana,
used by Discount. Both of these facilities are used for the wholesale
distribution of pharmaceuticals and health and beauty care products.
In September 1998, the Company formed Incredible Products of Florida,
Inc. ("Incredible"), a Florida corporation, to market nutritional supplements
through radio infomercials and distributors.
Also in September 1998, the Company acquired J.Labs, Inc. ("J.Labs"),
incorporated on April 8, 1997 as a Florida corporation. The operations of J.Labs
consist of the procurement of trademarks and product rights for the Company's
now branded products.
In December 1998, the Company formed Herbal Health Products, Inc.
("Herbal"), a Florida corporation. Herbal acquired the Florida operations of a
Colorado company which sells veterinary supplements. The Company now
manufactures most of the products sold and distributed by Incredible and Herbal.
The 1998 acquisitions have increased the Company's manufacturing capacity,
distribution channels and sales and have added to the Company's proprietary
products.
MARKETING AND SALES
The Company's branded products and the products it manufactures for
others are marketed directly to its wholesale customers by the Company's
in-house salespeople. The Company wholesales both branded products manufactured
by the Company, and pharmaceuticals and health and beauty care products
manufactured by others, to independent pharmacies, regional and national chain
drugstores, alternate care facilities, mail order facilities, mass
merchandisers, deep discounters and brokers. The products the Company
manufactures for others are distributed by them to health food and drug stores,
mass merchandisers, and by direct marketing including internet sales.
The Company's branded non-veterinary products are marketed and
distributed to health food, drug and convenience stores and directly to
consumers through radio infomercials. Its branded veterinary dietary supplement
products are marketed and distributed through veterinary clinics, feed stores,
boarding facilities, animal trainers, and mail order. The Company's veterinary
products are marketed directly to consumers by direct mail and to wholesale
purchasers by the Company's salespeople.
The Company also markets some of its branded non-veterinary products
directly to consumers utilizing radio infomercials. The Company's infomercials
currently run in between fifteen minute and one-half hour spots in approximately
one hundred markets in a thirty-day period. Through the infomercials, incentives
are offered to multiple-month purchasers and to customers who become
distributors.
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COMPETITION
The manufacturing, wholesale, retail and distribution industries in
which the Company operates are highly competitive. Numerous companies, many of
which have greater size and financial, personnel, distribution and other
resources than the Company, compete with the Company in its development,
manufacture, distribution, wholesaling and retailing businesses. The NATIONAL
BUSINESS JOURNAL estimates that there are 1,050 manufacturers and branded
marketers of dietary supplements in the United States with at least $500,000 in
annual sales. The National Business Journal's 1997 database includes 16
companies with over $100 million in revenues, representing 55% of the dietary
supplement market, up from 12 companies and 44% of the market in the 1996
analysis.
The Company's branded products face substantial competition from broad
line manufacturers, major private label manufacturers and, more recently, large
pharmaceutical companies. Increased competition from such companies could have a
material adverse effect on the Company because such companies have greater
financial and other resources available to them and possess manufacturing,
distribution and marketing capabilities far greater than those of the Company.
The Company competes on the basis of product quality, competitive
pricing, its ability to develop new products, and customer service. The
Company's ability to compete favorably with its competitors with respect to its
branded products will depend primarily upon its development of brand recognition
across multiple distribution channels, its ability to quickly develop new
products with market potential, to successfully advertise, market and promote
its products, as well as its product quality and the development of a strong and
effective distribution network.
BACKLOG
The Company's revenues are processed through its system from sales
orders generated and issued by the Company's customers. The Company fulfills the
sales orders on a turn-around time of between 30-45 days. As such, at any given
point in time, the Company experiences a backlog for future revenues. At March
31, 1999, the Company had approximately $905,000 in backlog sales orders.
PRODUCT DEVELOPMENT
Generally, the more novel and unique the Company's products are, the
greater the profit margins. The Company's product development team works closely
with its customers to understand their needs, strengths and potential, involving
the team to create products with more unique sales points. Products are
developed by applying the latest technology to solve the end user's problem. The
Company's response time in developing both its own proprietary products and
products for others is critical and enables the Company to take advantage of
consumer trends and preferences. For example, the Company developed a touch-free
roll-on for arthritis so users need not touch the irritating active ingredient
with their fingers. Dr. Sekharam, the Company's President, provides guidance and
direction for the research and development team.
RESEARCH AND DEVELOPMENT
The Company's research and development department, located in its
Largo,Florida facility, is staffed by three full-time chemists. The department
is responsible for the development of new concepts and formulations, both for
the Company's branded products and for products manufactured for others. The
technical staff prepares cost estimates and samples based on these formulations,
refining them as necessary. They also develop operational procedures and conduct
pilot operations prior to the final manufacture of the product. Nutritional
information, as well as label requirements, are prepared by the department's
regulatory staff personnel.
Research and development expenses incurred for the Company's branded
products and for products which the Company manufactures for others are either
charged directly to expense and passed on to the customer in the product cost or
are charged to the customer.
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The laboratory is equipped with modern up-to-date laboratory test
equipment, including high pressure liquid chromatography, atomic absorption
spectroscopy, as well as instruments to test pH, viscosity, moisture, gradient
sizing, ash, melting point, refractive index, tablet hardeners and
disintegration. The laboratory includes stability chambers to test both
long-term and accelerated shelf life of each product. Microbiological tests for
total plate count and coliforms are also conducted.
TRADEMARKS
The Company utilizes the following federally registered trademarks:
Florida Slim, Natur x, Euca-Rub, Lacto-Bicel, Nutrisure, Nutra-More, Physician
Pharmaceutical. The Company has applied for federal trademark registrations for
Arth-Aid and Jungle Jerry's. The Company believes that protecting some of its
trademarks is crucial to its business strategy of building strong brand name
recognition and that such trademarks have significant value in the marketing of
its products.
The Company's policy is to pursue registrations of all the trademarks
associated with its key products. The Company relies on common law trademark
rights to protect its unregistered trademarks. They include Vitality Systems,
Vitality Pets, and Liva Life. Common law trademark rights generally are limited
to the geographic area in which the trademark is actually used, while a United
States federal registration of a trademark enables the registrant to stop the
unauthorized use of the trademark by any third party anywhere in the United
States. Furthermore, the protection available, if any, in foreign jurisdictions
may not be as extensive as the protection available to the Company in the United
States.
Although the Company seeks to ensure that it does not infringe on the
intellectual property rights of others, there can be no assurance that third
parties will not assert intellectual property infringement claims against the
Company. Any infringement claims by third parties against the Company may have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRINCIPAL SUPPLIERS AND SOURCES OF SUPPLY
The Company obtains all of its raw materials for the manufacture of its
products from third-party suppliers. Many of the raw materials used in the
Company's products are harvested internationally. The Company does not have
contracts with any suppliers committing such suppliers to provide materials
required for the production of its products. There can be no assurance that
suppliers will provide raw materials needed by the Company in the quantities
requested or at a price the Company is willing to pay. Because the Company does
not control the actual production of these raw materials, it is also subject to
delays caused by interruption in production of materials based on conditions not
within its control. Such conditions include job actions or strikes by employees
of suppliers, weather, crop conditions, transportation interruptions and natural
disasters or other catastrophic events. The inability of the Company to obtain
adequate supplies of raw materials for its products at favorable prices, or at
all, could have a material adverse effect on the Company's business, financial
condition and results of operations.
The products which Becan and Discount wholesale are acquired from
various manufacturers, including Merck & Co., Abbott Labs, and Eli Lilly.
During the Yuletide season, many of the Company's suppliers are closed.
As such, the Company makes adjustments in raw material inventory levels to
minimize shortages during that time.
QUALITY CONTROL
The manufacture of the Company's products is in accordance with the
Good Manufacturing Practices prescribed by the FDA, all other applicable
regulatory standards, and the Company's own rigorous quality control procedures.
The Company places special emphasis on quality control. The Company has formal
written quality control procedures that outline specific procedures to be
followed from the acceptance of raw materials, production processes, inspections
during the manufacturing, labeling, and packaging process, through the testing
of finished products. See "Business - Government Regulation" below.
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The Company maintains a modern well-equipped manufacturing facility,
which has the capability of adhering to current and anticipated regulatory
requirements. Raw materials, when received, are initially held in quarantine
during which time the Company's quality assurance department confirms the
product against the manufacturer's certificate of analysis. Once cleared, a lot
number is assigned and required samples are retained. The material is processed
by formulating, blending, encapsulating, and tableting when required.
GOVERNMENT REGULATION
The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of the Company's products are subject to regulation by
numerous governmental agencies, the most active of which are the U.S. Food and
Drug Administration (the "FDA"), which regulates the Company's products under
the Federal Food, Drug and Cosmetic Act (the "FFDCA") and regulations
promulgated thereunder and the U.S. Federal trade Commission "(FTC") which
regulates the advertising of the Company's products under the Federal Trade
Commission Act ("FTCA"). The Company's is also subject to regulation by, among
other regulatory agencies, the Consumer Product Safety Commission, the U.S.
Department of Agriculture (the "USDA") and the Environmental Protection Agency
(the "EPA") and Occupational Safety and Health Act ("OSHA"). The manufacture,
labeling and advertising of the Company's products are also regulated under the
Federal Occupational Safety and Health Act and by various state and local
agencies as well as each foreign country to which the Company distributes its
products.
The regulation of dietary supplement labeling claims by the FDA is
governed by the FFDCA and the recent Dietary Supplement Health and Education Act
of 1994 ("DSHEA"). Under Section 6 of the DSHEA, structure/function claims are
permitted in dietary supplement labeling without prior authorization by the FDA,
provided that the manufacturer has substantiation for the claims and complies
with certain notification and disclaimer requirements. The DSHEA amended the
FTCA and set up a new framework for FDA regulation of dietary supplements. It
also created an office in the National Institutes of Health to coordinate
research on dietary supplements, and it called on President Clinton to set up an
independent dietary supplement commission to report on the use of claims in
dietary supplement labeling. In passing the DSHEA, Congress recognized first,
that many people believe that dietary supplements offer health benefits and
second, that consumers want a greater opportunity to determine whether
supplements may help them. The law essentially gives dietary supplement
manufacturers freedom to market more products as dietary supplements and provide
information about their products' benefits.
Traditionally, the term "dietary supplements" referred to products made
of one or more of the essential nutrients, such as vitamins, minerals, and
protein. But DSHEA broadened the definition to include, with some exceptions,
any product intended for ingestion as a supplement to the diet. This includes
vitamins; minerals, herbs, botanicals, and other plant-derived substances; and
amino acids and concentrates, metabolites, constituents and extracts of these
substances. DSHEA requires manufacturers to include the words "dietary
supplement" on product labels. Also, commencing in March 1999, a "Supplement
Facts" panel is required on the labels of most dietary supplements. The
substantial majority of the products marketed or manufactured by the Company are
regulated as dietary supplements under the FDCA.
The FDA oversees product safety, manufacturing and product information,
such as claims in a product's labeling, package inserts, and accompanying
literature. One of the most important functions of the FDA relates to drugs. A
drug, which sometimes can be derived from plants used as traditional medicine,
is an article that, among other things, is intended to diagnose, cure, mitigate,
treat, or prevent diseases. Before marketing, drugs must undergo clinical
studies to determine their effectiveness, safety, possible interactions with
other substances, and appropriate dosages, and the FDA must review these data
and authorize the drugs' use before they are marketed. Although the Company does
not develop drugs, it manufactures over-the-counter drugs for others, and
through Becan, it also distributes both over-the-counter drugs and prescription
drugs, including those manufactured by the Company. The Company's manufacture of
over-the-counter drugs must be in compliance with all FDA guidelines and FDA
enforced good marketing practices ("GMP's") for those products as set forth in
official monographs of the U.S. Pharmacopeia and other applicable laws enforced
by the FDA.
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The FDA does not authorize, endorse, or test dietary supplements.
However, a product sold as a dietary supplement and touted in its labeling as a
new treatment or cure for a specific disease or condition would be considered an
unauthorized - and thus illegal - drug. Labeling changes consistent with the
provisions in DSHEA would be required to maintain the product's status as a
dietary supplement.
As with food, federal law requires manufacturers of dietary supplements
to insure that the products they put on the market are safe. Dietary supplement
manufacturers wanting to market a new ingredient (that is, an ingredient not
marketed in the United States before 1994) have two options. They can first
submit to the FDA, at least 75 days before the product is expected to go to
market, information that supports their conclusion that the new ingredient can
reasonably be expected to be safe, meaning that the new ingredient does not
present a significant or unreasonable risk of illness or injury under conditions
of use recommended in the product's labeling. The information the manufacturer
submits becomes publicly available 90 days after the FDA receives it. Another
option for manufacturers is to petition the FDA to establish the condition under
which the new dietary ingredient would reasonably be expected to be safe.
Under DSHEA and previous food labeling laws, supplement manufacturers
are permitted to use, when approved by the FDA, three types of claims:
nutrient-content claims, disease claims, and nutrition-support claims, which
include "structure-function claims." Nutrient-content claims describe the level
of a nutrient in a food or dietary supplement. For example, a supplement
containing at least 200 mg of calcium per serving could carry the claim "high in
calcium." A supplement with at least 12 mg per serving of Vitamin C could state
on its label, "excellent source of Vitamin C."
Disease claims show a link between a substance and a disease or
health-related condition. The FDA authorizes disease claims based on a review of
the scientific evidence. Alternatively, after the FDA is notified, the claims
may be based on an authoritative statement from certain scientific bodies, such
as the National Academy of Sciences, that shows or describes a well-established
diet-to-health link. For instance, it is permissible to advertise a link between
calcium and a lower risk of osteoporosis, if the supplement contains sufficient
amounts of calcium.
Nutrition-support claims can describe a link between a nutrient and the
deficiency disease that can result if the nutrient is lacking in the diet. For
example, the label of a Vitamin C supplement could state that Vitamin C prevents
scurvy. When these types of claims are used, the label must mention the
prevalence of the nutrient-deficiency disease in the United States and must also
conform to applicable FDA labeling guidelines.
Claims can also refer to the supplement's effect on the body's
structure or function, including its overall effect on a person's well being.
These are known as structure-function claims. Examples of structure-function
claims are: "calcium builds strong bones"; "antioxidants maintain cell
integrity"; "fiber maintains bowel regularity".
Under DSHEA, manufacturers are also permitted to use structure-function
claims without FDA authorization. These claims are based on the manufacturer's
review and interpretation of scientific literature. Like all label claims,
structure-function claims must be true and not misleading. Structure-function
claims must be accompanied by the disclaimer "This statement has not been
evaluated by the Food and Drug Administration. This product is not intended to
diagnose, treat, cure, or prevent any disease." Manufacturers who plan to use a
structure-function claim on a particular product must inform the FDA of the use
of the claim no later than 30 days after the product is first marketed. The
manufacturer must be able to substantiate its claim. If the submitted claims
promote the product as drugs instead of supplements, the FDA can advise the
manufacturer to change or delete the claim.
Recently, the FDA has identified several problems where manufacturers
were buying herbs, plants and other ingredients without first adequately testing
them to determine whether the product they ordered was actually what they
received or whether the ingredients were free from contaminants. The FDA has
advised consumers to look for ingredients in products with the U.S.P. notation,
which indicates the manufacturer followed standards established by the U.S.
Pharmacopoeia, and to consider the name of the
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manufacturer or distributor, stating that supplements made by a nationally known
food and drug manufacturer have likely been made under tight controls because
these companies already have in place manufacturing standards for their other
products.
Claims made for the Company's dietary supplement products may include
statements of nutritional support and health and nutrient content claims when
authorized by the FDA or otherwise allowed by law. The FDA's interpretation of
what constitutes an acceptable statement of nutritional support may change in
the future thereby requiring that the Company revise its labeling. The FDA
recently issued a proposed rule on what constitutes permitted structure/function
claims as distinguished from prohibited disease claims. Although the Company
believes its product claims comply with the law, depending on the content of the
final regulation, it may need to revise its labeling.
The FDA issued final dietary supplement labeling regulations in 1997
that require a new format for product labels and necessitated revising dietary
supplement product labels by March 23, 1999. All companies in the dietary
supplement industry are required to comply with these labeling regulations. The
FDA has also announced that it is considering promulgating new GMP's, specific
to dietary supplements. Such GMP's, if promulgated, may be significantly more
rigorous than currently applicable GMP requirements and contain quality
assurance requirements similar to GMP requirements for drug products. Therefore,
the Company may be required to expend additional capital and resources on
manufacturing in the future in order to comply with the law.
The failure of the Company to comply with applicable FDA regulatory
requirements could result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines, and criminal prosecutions.
The Company cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however, require the
reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not capable of reformulation, additional
record keeping, expanded documentation of the properties of certain products,
expanded or different labeling, and/or scientific substantiation. Any or all of
such requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's advertising of its dietary supplement products is subject
to regulation by the FTC under the FTCA. The FTCA prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting commerce.
The FTCA provides that the dissemination or the causing to be disseminated of
any false advertisement pertaining to drugs or foods, which would include
dietary supplements, is an unfair or deceptive act or practice. Under the FTC's
Substantiation Doctrine, an advertiser is required to have a "reasonable basis"
for all objective product claims before the claims are made. Failure to
adequately substantiate claims may be considered either deceptive or unfair
practices. Pursuant to this FTC requirement the Company is required to have
adequate substantiation for all material advertising claims made for its
products.
In recent years the FTC has initiated numerous investigations of
dietary supplement and weight loss products and companies. The FTC is
reexamining its regulation of advertising for dietary supplements and has
announced that it may issue a guidance document to assist supplement marketers
in understanding and complying with the substantiation requirement. Upon release
of this guidance document the Company will be required to evaluate its
compliance with the guideline and may be required to change its advertising and
promotional practices. The Company may be the subject of investigation in the
future. The FTC may impose limitations on the Company's advertising of its
products. Any such limitations could materially adversely affect the Company's
ability to successfully market its products.
The FTC has a variety of processes and remedies available to it for
enforcement, both administratively and judicially, including compulsory
processes, cease and desist orders, and injunctions.
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FTC enforcement can result in orders requiring, among other things,
limits on advertising, corrective advertising, consumer redress, divestiture of
assets, rescission of contracts and such other relief as may be deemed
necessary. A violation of such orders could have a material adverse effect on
the Company's business, financial condition and results of operations.
Advertising, labeling, sales and manufacturing of dietary supplements
and conventional foods are also regulated by state and local authorities. There
can be no assurance that state and local authorities will not commence
regulatory action which could restrict the permissible scope of the Company's
product claims or its ability to sell in that state.
Governmental regulations in foreign countries where the Company may
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally the responsibility of the Company's distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control.
The Company manufactures certain products pursuant to contracts with
customers who distribute the products under their own or other trademarks. Such
private label customers are subject to government regulations in connection with
their purchase, marketing, distribution and sale of such products. The Company
is subject to government regulations in connection with its manufacture,
packaging and labeling of such products. However, the Company's private label
customers are independent companies, and their labeling, marketing and
distribution of such products is beyond the Company's control. The failure of
these customers to comply with applicable laws or regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company may be subject to additional laws or regulations by the FDA
or other federal, state or foreign regulatory authorities, the repeal of laws or
regulations which the Company considers favorable, such as the Dietary
Supplement Health and Education Act of 1994, or more stringent interpretations
of current laws or regulations, from time to time in the future. The Company is
unable to predict the nature of such future laws, regulations, interpretations
or applications, nor can it predict what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not able to be reformulated, imposition of additional record keeping
requirements, expanded documentation of the properties of certain products,
expanded or different labeling and scientific substantiation. Any or all of such
requirements could have a material adverse affect on the Company's business,
financial condition and results of operations.
In house training is provided to all applicable employees and safety
meetings are frequently held to ensure compliance with regulations. Thus far,
the Company has not incurred additional expenses in order to comply with FDA
requirements. The Company believes that it is substantially in compliance with
all FDA record keeping and reporting requirements and all environmental
regulations affecting the Company.
INDUSTRY SEGMENTS
For the year ended March 31, 1999, the Company had the following
revenues and gross profits from its distribution and manufacturing segments:
<TABLE>
<CAPTION>
REVENUE AS GROSS PROFIT AS
A PERCENTAGE A PERCENTAGE
OF TOTAL GROSS OF SEGMENT
REVENUES REVENUES PROFIT REVENUES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Distribution $31,982,000 87.9% $ 1,737,000 5.4%
Manufacturing 4,416,000 12.1% 997,000 22.6%
----------- -----------
Total $36,398,000 $ 2,734,000
=========== ===========
</TABLE>
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EMPLOYEES
As of March 31, 1999, the Company had 66 employees. Of such employees,
11 were engaged in marketing and sales, 34 were devoted to production and
distribution and 21 were responsible for management and administration. None of
the Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
In each case, the employees are permitted to participate in employee
benefit plans of the Company that may be in effect from time to time, to the
extent eligible, and each employee may be entitled to receive an annual bonus as
determined at the sole discretion of the Company's Board of Directors based on
the Board's evaluation of the employee's performance and the financial
performance of the Company. Each of the employees are eligible for grant of
stock options in accordance with the provisions of the Company's 1999 Stock
Option Plan, as determined by the Administrator of the Plan.
In March 1999, the Company's Board of Directors adopted the Company's
1999 Stock Option Plan, which has been approved by the Company's shareholders.
The purpose of the 1999 Plan is to enable the Company to attract and retain
top-quality executive employees, officers, directors and consultants and to
provide such executive employees, officers, directors and consultants with an
incentive to enhance stockholder return. The 1999 Plan provides for the grant to
officers, directors, or other key employees and consultants of the Company, of
options to purchase up to an aggregate of 1,500,000 shares of common stock.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" to encourage companies
to provide prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statement(s). The Company
desires to take advantage of the safe harbor provisions of the Act.
Except for historical information, the Company's Annual Report on Form
10-KSB for the year ended March 31, 1999, the Company's quarterly reports on
Form 10-QSB, the Company's current reports on Form 8-K, periodic press releases,
as well as other public documents and statements, may contain forward-looking
statements within the meaning of the Act.
In addition, representatives of the Company may, from time to time,
participate in speeches and calls with market analysts, conferences with
investors and potential investors in the Company's securities, and other
meetings and conferences. Some of the information presented in such speeches,
calls, meetings and conferences may be forward-looking within the meaning of the
Act.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the Company and/or the Company's industry as a
whole. In some cases, information regarding certain important factors that could
cause actual results to differ materially from those projected, forecasted,
estimated, budgeted or otherwise expressed in forward-looking statements made by
or on behalf of the Company may appear or be otherwise conveyed together with
such statements. The following additional factors (in addition to other possible
factors not listed) could affect the Company's actual results and cause such
results to differ materially from those projected, forecasted, estimated,
budgeted or otherwise expressed in forward-looking statements made by or on
behalf of the Company.
GOVERNMENT REGULATION. The manufacture, packaging, labeling,
advertising, promotion, distribution and sale of the Company's products are all
subject to extensive regulation by numerous state and government agencies.
Because of the broad language of the laws applicable to the Company's business,
it is difficult for the Company to remain in strict compliance, although the
Company employs a
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full-time compliance person for that purpose. If the Company fails to or is
unable to comply with applicable laws and governmental regulations, the
Company's business could be adversely affected. See "Business - Government
Regulation."
POSSIBLE ADVERSE PUBLICITY. The Company's is dependent on consumers'
perceptions and may be adversely affected by publicity associated with illness
or other adverse effects from the consumption of its products (or similar
products distributed by other companies) and future reports of research that are
perceived as less favorable or that question earlier research. Future scientific
research or publicity may not be favorable to the dietary supplement industry or
to any particular product, and may not be consistent with earlier favorable
research or publicity. The Company is highly dependent upon consumers'
perceptions of the safety and quality of its products as well as dietary
supplements distributed by other companies. Thus, the mere publication of
reports asserting that those products may be harmful or questioning their
efficacy could adversely effect the Company regardless of whether such reports
are scientifically supported or whether the claimed harmful effects would be
present at the dosages recommended for such products.
EXPOSURE TO PRODUCT LIABILITY. The Company faces an inherent risk of
exposure to product liability claims in the event that the use of its products
results in injury. Management believes that the Company has adequate insurance,
but if it does not, product liabilities relating to its products could adversely
effect the Company. Although many of the ingredients in the Company's products
are vitamins, minerals, herbs and other substances for which there is a long
history of human consumption, some of its products contain ingredients for which
no such history exists. In addition, although management believes all of the
Company's products are safe when taken as directed, there is little long-term
experience with human consumption of certain of these product ingredients in
concentrated form. Accordingly, the Company cannot assure that its products,
even when used as directed, will have the effects intended or will not have
harmful side effects. Any such unintended effects may result in adverse
publicity or product liability claims that could adversely effect the Company.
IMPORTANCE OF DEVELOPMENT OF NEW PRODUCTS. Products currently
experiencing strong popularity and rapid growth may not maintain their sales
over time. As a result, it will be important for the Company to be able to
develop new products. The Company cannot assure that its efforts to develop new
produces will be successful.
COMPETITION. The dietary supplement industry is highly competitive.
Numerous companies, many of which have greater size and greater financial,
personnel, manufacturing, distribution, marketing and other resources than the
Company, compete with it in the development, manufacture and marketing of
dietary supplements. Competition from such companies could have a material
adverse effect on the Company. The Company also faces competition in both the
health food store and mass market distribution channels from private label
dietary supplements offered by health and natural food store chains, drugstore
chains, mass merchandisers and supermarket chains. See "Business - Competition."
RAW MATERIALS AVAILABILITY. The Company obtains all of the raw
materials for the manufacture of its products from third-party suppliers. Many
of the raw materials used in its products are harvested internationally. The
Company cannot assure that suppliers will provide the raw materials needed in
the quantities requested or at a price the Company is willing to pay. Because
the Company does not control the actual production of these raw materials,
delivery to the Company is also subject to delays caused by interruption in
production of materials based on conditions not within the control of the
Company. The Company's inability to obtain adequate supplies of raw materials
for its products at favorable prices, or at all, could adversely effect it.
MANUFACTURING RISKS. The Company's manufacturing operations are
dependent upon the continued operation of the Company's manufacturing facilities
in the Tampa Bay area of Florida. The operation of dietary supplement
manufacturing plants involves many risks, including the breakdown, failure or
substandard performance of equipment, natural and other disasters, and the need
to comply with the requirements of directives of government agencies, including
the FDA. In particular, our manufacturing facilities are located in central
Florida, a geographic area that has historically been prone to hurricanes,
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which in some cases have been catastrophic. Any such damage or destruction could
aversely affect the Company.
LIMITED TRADEMARK PROTECTION: NO PATENTS. The Company's policy is to
pursue registrations for all of the trademarks associated with its key
proprietary products. The Company relies on common law trademark rights to
protect its unregistered trademarks as well as its trade dress rights. Common
law trademark rights generally are limited to the geographic area in which the
trademark is actually used, while a United States federal registration of a
trademark enables the registrant to stop the unauthorized use of the trademark
by any third party anywhere in the United States. The Company intends to
register its trademarks in certain foreign jurisdictions where its products are
sold. However, the protection available, if any, in such jurisdictions may not
be as extensive as the protection available to the Company in the United States.
Also, because the Company has no patents on its proprietary products, another
company may replicate them.
INFRINGEMENT ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Although the
Company seeks to ensure that it does not infringe on the intellectual property
rights of others, the Company cannot assure that third parties will not assert
intellectual property claims against the Company. Infringement claims by third
parties against the Company may have a material adverse affect on the Company.
CONCENTRATION OF CUSTOMERS. For the year ended March 31, 1999, three
(3) customers represented approximately 32% of revenues derived from
manufacturing operations. The loss of one or more of these customers in all
likelihood would have a material adverse effect on the financial condition of
the Company, at least on a short-term basis. One (1) customer represented
approximately 10.8% of revenues derived from distribution operations.
YEAR 2000 COMPLIANCE. Many existing computer programs and databases use
only two digits to identify a year in the date field (i.e., 98 would represent
1998). These programs and databases were designed and developed without
considering the impact of the upcoming millennium. If not corrected, many
computer systems could fail or create erroneous results relating to the year
2000. The Company has updated its computer hardware and software programs, and
therefore does not anticipate internal problems relating to the year 2000. The
failure of the Company's customers or suppliers to adequately address the year
2000 issue could adversely affect the Company's business.
GENERAL RISKS
KEY PERSONNEL. As a small company with only 66 employees, the Company's
success depends on the services of its senior management team. If the Company
loses the services of one or more of these employees, the Company could be
materially adversely affected.
GROWTH MANAGEMENT. The Company believes that continued growth may
strain its management, operations, sales and administrative personnel and other
resources. In order to serve the needs of its existing and future customers the
Company intends to increase its workforce. The Company's ability to manage
further growth depends in part upon its ability to expand its operating,
management, information and financial systems, and production capacity, which
may significantly increase its future operating expenses. The Company cannot
assure that its business will grow in the future or that it will be able to
effectively manage its growth.
POSSIBLE FUTURE ACQUISITIONS. The Company expects to pursue additional
acquisitions in the future as a part of its business strategy. The Company
cannot assure that attractive acquisition opportunities will be available to it
or that it will be able to obtain financing for future acquisitions. If the
Company is unable to consummate future acquisitions, its business, financial
condition and operating results could be adversely affected.
Acquisitions involve numerous risks, including the risk that the risk
that the acquired business will not perform in accordance with expectations,
difficulties in the integration of the operations and products of the acquired
businesses with the Company's, the diversion of management's attention from
other aspects of
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the Company's business, the risks associated with entering geographic and
product markets in which the Company has limited or no direct prior experience,
and the potential loss of key employees of the acquired business arising out of
such acquired business. Future acquisitions would likely require additional
financing, which would likely result in an increase in the Company's
indebtedness or the issuance of additional capital stock, which may be dilutive
to the Company's shareholders. In addition, to the extent the Company has
outstanding indebtedness under credit facilities, the Company is required to
incur indebtedness to consummate an acquisition, the Company must obtain the
consent of the lender prior to such acquisition.
The Company's acquisition of Energy Factors and Becan in June 1998
resulted in a significant increase in the Company's intangible assets (goodwill)
included on the Company's balance sheet. Any future acquisitions may result in
additional intangible assets and related amortization expense. At March 31,
1999, the intangible assets on the Company's balance sheet were approximately
$1.8 million, representing 17% of the Company's total assets at that date. If
the Company sells or liquidates the Company or part of its assets, the Company
cannot assure that the value of its intangible assets will be realized. In
addition, the Company continually evaluates whether events and circumstances
have occurred indicating that any portion of the remaining balance of the amount
allocable to the Company's intangible assets may not be recoverable. When
factors indicate that the amount allocable to the Company's intangible assets
should be evaluated for possible impairment, the Company may be required to
reduce the carrying value of such assets. Any future determination requiring the
write-off of a significant portion of unamortized intangible assets could have a
material adverse effect on the Company.
PROVISIONS ON THE PAYMENT OF DIVIDENDS. The Company has not declared
cash dividends on its common stock and the Company does not anticipate paying
cash dividends in the foreseeable future. Under the terms of the Company's
credit facilities, the Company is precluded from paying dividends.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Articles
of Incorporation (the "Articles") and Bylaws (the "Bylaws"), certain sections of
the Florida Business Corporation Act, and the ability of the Board of Directors
to issue shares of preferred stock and to establish the voting rights,
preferences and other terms may be deemed to have an anti-takeover effect and
may discourage takeover attempts not first approved the Company's Board of
Directors, including takeovers which shareholders may deem to be in their best
interests.
CONTROL BY CERTAIN STOCKHOLDERS. Directors, executive officers and
principal shareholders beneficially owned approximately 60% of the outstanding
shares of the Company's common stock. Therefore, these stockholders will have
significant control over the election of the Company's directors and most of the
Company's corporate actions.
EXPOSURE TO NATURAL DISASTERS. The Company's Florida facilities are
located in the greater Tampa Bay area, which is prone to hurricanes. The
Company's business could be adversely affected should its ability to manufacture
products be impacted by such event.
FUTURE PLANS
Additional manufacturing and/or packaging equipment has been purchased
during fiscal year 1999 and subsequent, to help meet the expanded capacity
requirements of its current and future business.
Management of the Company is considering acquiring manufacturing
companies, distribution companies, and marketing companies. In order to
accomplish its future plans, the Company is considering raising capital either
through private placement or an initial public offering.
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ITEM 2. PROPERTIES.
The Company owns a 33,222 square foot office, manufacturing, research
and development, laboratory, packaging and warehouse facility located in Largo,
Florida. This facility serves as the Company's corporate headquarters, and is
utilized for the manufacture of tablets, capsules, liquids and powders. The
facility utilizes high speed encapsulating, tableting and production line
equipment and also houses the Company's graphic arts department which designs
and produces labels for products produced at this and the Company's
manufacturing facility in Tampa, Florida. The Largo, Florida facility is large
enough to handle large orders, but is still able to provide quick response to
customer needs. The Company's research and development department, also housed
in this facility, develops and improves both the Company's proprietary products
and customer's products.
The Company's facility in Tampa, Florida are leased pursuant to a five
year lease that expires on November 30, 2000. The Company has an option to renew
the lease at the end of the five year term. The rental under the lease is
$7,032.50 per month subject to yearly adjustment for shared property operating
expenses. Additional manufacturing, warehousing, and shipping is performed at
this facility, consisting of approximately 9,694 square feet. This facility was
also being used by Incredible and Herbal for offices, warehousing, and shipping
for their distribution operations. In June 1999, the operations of Incredible
and Herbal were relocated to the Company's facility in Largo, Florida.
The Company leases a second property in Tampa, Florida that is being
utilized for additional storage and warehousing for its manufacturing
operations, consisting of approximately 3,600 square feet. This lease is for a
term of two years that expires on December 30, 2000, with an annual rental of
$15,300.
The Company also leases a property in Largo, Florida that is being
utilized for additional storage and warehousing for its manufacturing
operations, consisting of approximately 1,500 square feet. This lease was for a
term of one year that expired on May 14, 1999. The Company has an automatic
option to renew the lease from year to year for one year terms, with an annual
rental of $6,000.
The Company leases a property in Pittsburgh, Pennsylvania that is being
utilized by Becan for offices, warehousing, and shipping for its distribution
operations, consisting of approximately 4,024 square feet. The offices are
leased pursuant to a four year lease that expires on February 28, 2003. The
Company has an option to continue the lease on a month to month basis or renew
the lease at the end of the four year term. The rental under the lease is $1,658
per month subject to yearly adjustment for tax expenses.
The Company leases a property in Mandeville, Louisiana that is being
utilized by Discount for offices, warehousing, and shipping for its distribution
operations, consisting of approximately 1,200 square feet. The offices are
leased on a month to month basis. The rental under the lease is $900 per month.
In the judgment of management, the leases described above reflect rent
at current fair market value.
As of March 31, 1999, the Company had real property, equipment,
furniture, and leasehold improvements, net of accumulated depreciation, in the
approximate amount of $2,476,000.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the company is subject to litigation incidental to
its business including possible product liability claims. Such claims, if
successful, could exceed applicable insurance coverage. The Company is not
currently a party to any legal proceedings which it believes will have a
material adverse affect on its results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 10, 1999, the holders of 2,340,541, or 60.86% of the issued
and outstanding shares of the Company's voting securities took the following
action by written consent:
1. The amendment and restatement of its Articles of Incorporation which:
- classify the Board of Directors into three classes, as nearly
equal in number as possible;
- provide that directors may be removed only with the approval
of the holders of at least 75% of the voting power of the
Company entitled to vote generally in the election of
directors;
- require that a special meeting of shareholders can only be
called by the Chairman, the Board of Directors or at the
request of the holders of at least 35% of the shares entitled
to vote at the special meeting;
- require advance notice of shareholder introduction of business
at shareholder meetings;
- increase the shareholder vote required to alter, amend or
repeal the foregoing amendments to the Articles from a
majority to 75% of the voting power of the Company;
- eliminate provisions of the Old Articles negating the
existence of preemptive rights;
- delete provisions of the Old Articles which were of historical
interest only;
- combine and reword provisions of the Old Articles to better
conform to the applicable provisions of Section 607.0202 of
the Florida Business Corporation Act; and
- eliminate provisions of the Old Articles which reduced to a
majority any requirement of the Florida Business Corporation
Act which required two-thirds vote of the Company's voting
shares.
2. The adoption of the Company's 1999 Stock Option Plan.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is not listed for trading on The NASDAQ
Stock Market or any exchange and there is currently no established trading
market for its common stock. In October 1997, the Company filed Form 10-SB with
the United States Securities And Exchange Commission. 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.
As of June 25, 1999, there were approximately 400 stockholders of the
Company's common stock.
Historically, the Company has not declared or paid any cash dividends
on the common stock. It currently intends to retain any future earnings to fund
the development and growth of its business. Any future determination to pay
dividends on the common stock will depend upon the company's results of
operations, financial condition and capital requirements, applicable
restrictions under any credit facilities or other contractual arrangements and
such other factors deemed relevant by the Company's Board of Directors. The
Company's existing bank credit facilities prohibit the payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company derives its revenues from developing, manufacturing and
wholesaling a wide variety of non-prescription nutritional supplements and
health and beauty care products, and distributing and wholesaling prescription
pharmaceuticals. Revenues are billed and recognized as product is produced and
shipped, net of discounts, allowances, returns and credits.
Cost of goods sold is comprised of direct personnel compensation,
statutory and other benefits associated with such personnel and other direct
manufacturing and material product costs. Cost of goods sold also includes
indirect costs relating to labor to support the warehousing of production and
manufacturing overhead. Research and development expenses are charged against
cost of goods sold and are not material to the Company's operations. Selling,
general and administrative costs include administrative, sales and marketing and
other indirect operating costs. Interest and other income (expense) consists
primarily of interest expense associated with borrowings to finance capital
equipment expenditures and other working capital needs.
The Company acquired Becan Distributors, Inc. on June 26, 1998. The
merger was accounted for as a combination of entities under common control and
treated as if a "pooling of interests". The financial statements have been
retroactively restated, for all periods presented, to include the results of
operations for Becan.
RESULTS OF OPERATIONS
Fiscal Year 1999 compared to Fiscal Year 1998
REVENUES. Total revenues increased $23.6 million, or 185.3%, to $36.4
million in 1999 as compared to $12.8 million in 1998. Distribution revenues
increased $21.1 million, or 194.7%, to $32.0 million in 1999 as compared to
$10.9 million in 1998. The increase was due to increased sales to existing
customers and expansion of the customer base resulting from increased marketing
efforts and acquisitions made during fiscal 1999. Manufacturing revenues
increased $2.5 million, or 131.6%, to $4.4 million in 1999 as compared to $1.9
million in 1998. The increase is primarily attributable to increased volume of
private label sales resulting from continued expansion of marketing efforts and
the introduction of new products, and increased sales associated with the June
1998 acquisition of Innovative.
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GROSS PROFIT. Total gross profit increased $1.8 million, or 189.1%, to
$2.7 million in 1999 as compared to $946,000 in 1998. Gross margin increased
from 7.4% in 1998 to 7.5% in 1999. Distribution gross profit increased $1.3
million, or 306.3%, to $1.7 million in 1999 as compared to $428,000 in 1998 and
the gross margin increased from 3.9% in 1998 to 5.4% in 1999. The increase was
primarily attributable to the addition of Incredible and Herbal, whose sales
yield a higher gross margin. Manufacturing gross profit increased $479,000, or
92.5%, to $997,000 in 1999 as compared to $518,000 in 1998 while the gross
margin decreased from 27.2% in 1998 to 22.6% in 1999. The decrease was primarily
attributable to a change in the mix of sales, which yields a lower gross margin,
and the write-down of inventory associated with Innovative.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. 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
$2.0 million, or 229.6%, to $2.9 million in 1999 as compared to $867,000 in
1998. 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 acquisitions made during 1999. As a percentage of sales,
selling, general and administrative expenses increased to 7.9% in 1999 from 6.8%
in 1998.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest
income, increased $340,000 to $358,000 in 1999, from $18,000 in 1998. The
increase in interest expense in 1999 is a result of greater borrowings to
finance the purchase of additional machinery and equipment, to make necessary
plant modifications, and for financing of additional working capital needs with
the expansion of the Company's operations.
INCOME TAXES. The Company has no income tax provision for the periods
presented due to the utilization of net operating losses not previously
recognized. These net operating losses may be carried forward for up to 15
years. As such, the Company does not anticipate any liability for income taxes
for the fiscal year ended March 31, 2000. See Note 7 to consolidated financial
statements.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation in 1999 and
1998. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through available borrowings
under its credit line facility, loans from within the Company, and the sale of
equity securities issued by the Company. The Company had working capital of
$300,000 at March 31, 1999, inclusive of current portion of long-term
obligations and credit facilities, as compared to $288,000 at March 31, 1998.
Net cash used in operating activities was ($2.8 million) for 1999, as
compared to ($241,000) for 1998. The usage of cash is primarily attributable to
an increase in accounts receivable ($1.5 million), as a result of increased
sales by the Company during such period, and an increase in inventory ($1.2
million), an increase in prepaid expenses and other current assets ($135,000),
and a decrease in accrued expenses ($34,000), partially offset by an increase in
accounts payable $183,000. In conjunction with the installation of new
manufacturing software in March and April 1999, the Company implemented
additional procedural controls in accounts receivable and inventory procurement
including requiring deposits from customers on new orders and inventory cycle
counts, which management expects will have future positive cash effects in its
operating activities.
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Net cash used in investing activities was ($264,000), representing the
purchase of property and equipment, and plant modifications ($301,000), an
increase in intangible assets ($51,000), and cash paid for acquisitions
($18,000), partially offset by proceeds from an involuntary conversion of land
$99,000 and a decrease in other assets $8,000.
Net cash provided by financing activities was $3.5 million representing
proceeds from issuance of common stock $1.6 million, proceeds from issuance of
preferred stock $58,000, proceeds of long-term obligations $761,000, borrowings
on lines of credit $2.2 million, and proceeds from shareholder loans $296,000,
offset by repayments of long-term obligations ($764,000), repayments of
shareholder loans ($590,000), and an equity distribution to the shareholders of
Becan prior to acquisition ($48,000).
Management believes that cash expected to be generated from operations,
current cash reserves, and existing financial arrangements will be sufficient
for the Company to meet its capital expenditures and working capital needs for
its operations as presently conducted. The Company's future liquidity and cash
requirements will depend on a wide range of factors, including expected results
from recent procedural changes in accounts receivable and inventory procurement,
the level of business in existing operations, expansion of facilities, and
possible acquisitions. In particular, if cash flows from operations and
available credit facilities are not sufficient, it will be necessary for the
Company to seek additional financing. While there can be no assurance that such
financing would be available in amounts and on terms acceptable to the Company,
management believes that such financing would likely be available on acceptable
terms.
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 is 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 notes may be prepaid at any time by the Company without any
penalty or premium. The accompanying stock warrant entitles the warrant holder
to purchase common stock of the Company (based on one share for each three
dollars of the principal amount reflected in the note) at a purchase price of
$1.50 per share.
In May 1998, 33,333 shares of common stock of the Company were sold to
a non-affiliated third party investor at $1.50 per share, for gross proceeds of
$50,000. Proceeds were used for capital expenditures and plant modifications.
In May 1998, the Company loaned $100,000 to Energy Factors, before
Energy Factors was acquired by the Company, for the purpose of assisting Energy
Factors with its working capital needs.
In May 1998, notes payable to related parties of $81,331, including
principal and unpaid accrued interest were converted to 271,106 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 was June 3, 1999. This line of credit was secured by $200,000 cash
maintained in a money market account with the bank. The line of credit was paid
off in January 1999.
In June 1998, the Company acquired all of the common stock of Energy
Factors in exchange for 400,000 shares of Series A Convertible Preferred Stock
of the Company. As a result of the completion of the December 31, 1997 audited
financial statements for Energy Factors the number of shares issued was reduced
to 310,000, in accordance with a right of set-off provided for in the
acquisition agreement. The Series A Convertible Preferred Stock was valued at
$2.50 per share based on several factors, including prices of recent common
stock issuances.
In June 1998, the Company acquired all of the issued and outstanding
capital stock of Becan Distributors, Inc. from related parties, in exchange for
1,500,000 shares of common stock of the Company, of which 485,000 shares were
exchanged for the minority interest with a fair value of $727,500.
In August and November 1998, 30,000 shares of Series B 6% Cumulative
Preferred Stock of the Company were sold to non-affiliated third party investors
at $2.50 per share, for gross proceeds of $75,000. Proceeds were used for the
initial capitalization of Discount Rx, Inc. and for repayment of debt incurred
by Innovative.
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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 share, for gross proceeds
of $500,000. Proceeds were used for the initial capitalization of Incredible,
and for repayment of debt incurred by Innovative.
In August 1998, the Company formed 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
Incredible in exchange for 51 shares of common stock of Incredible, representing
51% interest in Incredible.
In September 1998, the Company acquired all of the issued and
outstanding capital stock of J. Labs, Inc. from related parties, in exchange for
100,000 shares of common stock of the Company.
In November 1998, Becan Distributors, Inc. and its subsidiary, Discount
Rx, Inc. (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 the
Prime Rate of The Chase Manhattan Bank in New York, New York, plus 1.25% per
annum on the unpaid outstanding principal of each advance, payable monthly. The
note is 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. At March
31, 1999, the outstanding principal balance on the line of credit was
approximately $1,440,000.
In December 1998, the Company formed Herbal Health Products, Inc., a
Florida corporation, as a wholly-owned subsidiary of the Company, to purchase
certain assets related to the marketing of veterinary products, in return for
approximately $18,000, and 32,243 shares of common stock of the Company.
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 share,
for gross proceeds of $1,045,000. The proceeds have been used for to provide
additional working capital for the Company to support its continued growth.
In February 1999, the Company established a $2,000,000 credit facility
to provide additional working capital in support of accounts receivable and
inventory and 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
approximately $491,000, for repayment of certain capital lease obligations. The
remainder of this credit facility is in the form of a revolving line of credit.
The note bears interest at the Prime Rate of The Chase Manhattan Bank in New
York, New York, plus 2.25% per annum on the unpaid outstanding principal of each
advance, payable monthly. The note is to be secured by a blanket lien on all
assets of the Company, exclusive of certain leased assets. The note is also
secured by personal guarantee from the Company's Chairman of the Board. The
credit facility provides substantial penalties for early termination. At March
31, 1999, the outstanding principal balance on the line of credit was
approximately $949,000.
The Company has obtained preliminary approval to refinance the land and
building owned by its wholly-owned subsidiary, and to finance the construction
of expansion to the existing plant, but provides no assurance as to the success
of establishing the refinance.
YEAR 2000 STATEMENT
The Year 2000 issue encompasses the required recognition of computer
hardware and software systems and computer controlled devices, including
equipment, used in the Company's distribution and manufacturing operations to
properly acknowledge the change from Year 1999 to Year 2000. The failure of any
hardware and software systems or equipment to timely and accurately recognize
such change could result in partial or complete systems failure. In the normal
course of business, the Company relies on products and services from critical
vendors, customers and other third parties whose computer systems must also be
Year 2000 compliant in order for the Company to realize the uninterrupted flow
of its business operations. The Company is actively taking steps to ensure that
its systems and equipment will be Year 2000 compliant, including assessing the
scope of work, prioritizing, certifying compliance, and testing compliance.
- 19 -
<PAGE>
The Company has identified those systems and equipment in its
operations that are considered to be critical to the Company's day to day
operations. All of the Company's systems and equipment utilized in the its
operations was tested for Year 2000 compliance during February and March 1999,
with approximately 95% of such systems and equipment being certified as Year
2000 compliant as of March 31, 1999. The Company is in the process of obtaining
written assurances from its third-party software providers that the software
used by the Company is Year 2000 compliant. In addition, the Company is actively
seeking assurances of Year 2000 compliance from each of its key suppliers,
customers and other third parties with whom the Company conducts business. A
lack of response or inadequate or inaccurate information from such third parties
could materially affect the Company's assessment for Year 2000 readiness. Until
assessments are completed, which is expected to occur during 1999, the Company
cannot predict whether the failure of any such third party to be Year 2000
compliant will have a material adverse effect on the Company's business.
To date, the costs incurred by the Company to address Year 2000 issues
have been immaterial, and the Company expects that the costs to complete Year
2000 compliance certification, testing and verifications will also be
immaterial. Where appropriate, the Company will develop contingency plans in
areas it determines that Year 2000 readiness is insufficient. However, no
assurances can be given that the Company's Year 2000 efforts are appropriate,
adequate, or complete. In addition, the Company is unable to fully determine the
effect of a failure of its own systems or those of any third party with whom it
conducts business, but any significant failures could have a material adverse
effect on the Company's financial condition, results of operations and cash
flows.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
ADDITIONAL INFORMATION ABOUT FINANCIAL PRESENTATION
The Company effected a one-for-three reverse stock split in August
1998. Unless otherwise stated, all share information in this Annual Report on
Form 10-KSB gives retroactive effect to this reverse stock split.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not have any material market risk sensitive financial
instruments.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On April 29, 1999, the Company engaged Grant Thornton LLP as the
Company's independent auditors for the fiscal year ended March 31, 1999,
replacing the firm of Kirkland, Russ, Murphy & Tapp, CPAs, which served as the
Company's independent auditors for the fiscal year ended March 31, 1998. The
change was approved by the Company's audit committee. The reason for the change
to a national firm was to better position the Company for access to the public
capital markets.
The reports of Kirkland, Russ, Murphy & Tapp, CPAs for each of the two
fiscal years ended March 31, 1997 and March 31, 1998 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
The Company believes there were no disagreements with Kirkland, Russ,
Murphy & Tapp, CPAs within the meaning of Instruction 4 to Item 304 of
Regulation S-B on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure in connection with the
audits of the Company's financial statements for the fiscal years ended March
31, 1998 and 1997 or for any subsequent interim period, which disagreements if
not resolved to their satisfaction would have caused Kirkland, Russ, Murphy &
Tapp, CPAs to make reference to the subject matter of the disagreements in
connection with its reports.
- 20 -
<PAGE>
During the fiscal years ended 1998 and 1997, and through April 29,
1999, there have been no reportable events (as defined in Item 304(a)(1)(iv)(B)
of Regulation S-B) of the type required to be disclosed by that section. The
Company has not consulted with Grant Thornton LLP regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; or (ii) any matter that was either the
subject matter of a disagreement or an event in response to (as defined in Item
304(a)(1)(iv) of Regulation S-B and the related instructions).
A letter of Kirkland, Russ, Murphy & Tapp, CPAs addressed to the
Securities and Exchange Commission is included as Exhibit 16.1 to this Annual
Report on Form 10-KSB. Such letter states that such firm agrees with the
statements made by the Company in Form 8-K filed April 30, 1999.
- 21 -
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following are the names and certain information regarding the
current Directors and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Jugal K. Taneja 55 Chairman of the Board and Director 1992
Paul A. Santostasi 63 Vice Chairman of the Board and Director 1999
William L. LaGamba 40 Chief Executive Officer, Secretary, and Director 1999
Kotha S. Sekharam, Ph.D. 48 President, Treasurer, and Director 1995
Henry W. Brewer 49 Vice President and Chief Financial Officer N/A
Mihir K. Taneja 24 Vice President, Marketing and Assistant Secretary N/A
Martin A. Traber 53 Director 1992
Rakesh K. Sharma, M.D. 42 Director 1999
</TABLE>
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board. Some of the directors and
executive officers of the Company also serve in various capacities with
subsidiaries of the Company.
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Jugal K. Taneja has served as the Company's Chairman of the Board since
its inception. Until June 1998, he also served as the Company's Chief Executive
Officer. From November 1991 until December 1998, he also served as the Chairman
of the Board and Chief Executive Officer of NuMed Home Health Care, Inc., a
provider of home health care services and contract staffing of health care
employees. From June 1993 until March 1998, he was also the Chief Executive
Officer of National Diagnostics, Inc., a provider of medical diagnostic
services. NuMed Home Health Care, Inc and National Diagnostics, Inc., are
publicly traded companies. Mr. Taneja is also the Chairman of the Board of
Nutriceuticals.com, Inc., a private company formed to develop internet websites.
Although he devotes substantial time to the operations and business of the
Company, Mr. Taneja does not devote his full time to Company business.
Paul A. Santostasi has been the Vice Chairman of the Board of the
Company since the Company acquired Energy Factors, was the Chairman and Chief
Executive Officer of Energy Factors from 1989 until its acquisition by the
Company in June 1998. As Vice Chairman of the Company, Mr. Santostasi is
responsible for acquisitions and new business ventures. Prior to his affiliation
with Energy Factors, he was the founder, Chairman and Chief Executive Officer of
Suncoast Plastics, a public company, from 1980 until 1989. Mr. Santostasi holds
a B.S. degree in mechanical engineering.
William L. LaGamba is a director of the Company and has served as its
Chief Executive Officer since June 1998. He was a founder and the President of
Becan Distributors, Inc., a wholesaler of prescription and non-prescription
pharmaceuticals from January 1997 until June 1998. The Company acquired Becan
Distributors, Inc. in June 1998. For 14 years prior to January 1997, Mr. LaGamba
was employed in various capacities by McKesson Drug Company, a large distributor
of pharmaceuticals, health and beauty aids and services.
- 22 -
<PAGE>
Dr. Kotha S. Sekharam was a founder and director of Nu-Wave Health
Products, Inc., a developer and manufacturer of non-prescription dietary
supplements and health and beauty products. The Company acquired Nu-Wave Health
Products, Inc. in January 1998. Dr. Sekharam served as its Vice President from
September 1995 until June 1996. He has served as its President since June 1996
and serves as the President of the Company. Dr. Sekharam holds a Ph.D. in food
sciences from Central Food Technological Research Institute, Mysore, India, a
United Nations university center and has over fifteen years of experience in the
food and health industry.
Henry W. Brewer joined the Company in March 1999 as its Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Brewer was
corporate controller for Protel, Inc., a privately-held manufacturer of public
telephones, from June 1997 until January 1999. From August 1993 until June 1997,
Mr. Brewer was the corporate controller for Sykes Enterprises Incorporated, a
publicly-traded information support company. Mr. Brewer holds a B.S. degree in
accounting from the University of North Florida.
Mihir K. Taneja, the son of Jugal Taneja, served as Assistant Vice
President of Marketing from July 1996 until September 1998. Since then, he has
served as Vice President of Marketing. Mr. Taneja holds B.A. degrees in finance
and marketing from the University of Miami.
Martin A. Traber has served as a director of the Company since its
inception. He has been a partner in the law firm of Foley & Lardner since August
1994. Prior to joining Foley & Lardner, Mr. Traber was a partner in the law firm
of Ardor & Hadden were he served for 10 years on the firm's management committee
and was national chairman of the business and corporate departments and of the
marketing and business development committee. Mr. Traber has over 27 years of
experience in corporate finance and securities law.
Rakesh K. Sharma, M.D., became a director of the Company in March 1999.
Dr. Sharma is a cardiologist and is a member of the medical staff of several
hospitals in the Tampa Bay, Florida area.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1998, the Company filed a Form 10-SB under Section 12 of the
Securities And Exchange Act of 1934, which was amended twice, with the last
amendment filed in March 1999. The Company's common stock is not traded in the
"pink sheets" or on the OTC Bulletin Board or listed for trading on any stock
exchange. None of the Company's directors or officers and no person who was the
beneficial owner of more than ten percent of the Company's common stock has
filed a Form 3 as required by Section 16(a) of the Securities And Exchange Act
of 1934.
- 23 -
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------
NAME AND
PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
William L. LaGamba, CEO 1999 $106,735 $ -0-
1998 $110,485 $ -0-
Jugal K. Taneja, Chairman(2) 1999 $ 75,000 $ -0-
1998 $ 75,000 $ 5,414
1997 $ -0- $ -0-
Paul A. Santostasi, Vice Chairman 1999 $121,711 $ -0-
Kotha S. Sekharam, Ph.D., President 1999 $ 75,000 $ -0-
1998 $ 75,000 $ 5,414
1997 $ 52,500 $ -0-
</TABLE>
(1) All employees of Dynamic, Innovative, and Herbal, including their
executive officers, are paid by Dynamic. Employees of Becan are paid by
Becan, employees of Discount are paid by Discount, and employees of
Incredible are paid by Incredible. For fiscal 1998 and from April 1,
1998 through August 31, 1998, employees of Dynamic were deemed leased
employees, pursuant to a Service Agreement by and between the Company
and Nations Staffing, Inc., a non-affiliated company. The agreement was
terminated on August 31, 1998.
(2) Mr. Taneja served as the Company's Chief Executive Officer until
June 1998.
Historically, no director of the Company received any compensation or
other remuneration for serving on the Board of Directors, except for the
reimbursement for reasonable expenses incurred in attending meetings of the
Company's Board of Directors. Commencing March 1999, the Company pays each
non-employee director a fee of $500 for each meeting attended by such director,
but not less than $2,000 per year if they attend at least three meetings during
the year. Outside directors who serve on board committees will be paid a fee of
$100 for each committee meeting attended by such director.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME # YEAR ($/SH) DATE 5% ($) 10% ($) VALUE $
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J. K. Taneja 500,000 54.95% $ 2.50
P. A. Santostasi 200,000 21.98% $ 9.00
H. W. Brewer 30,000 3.30% $ 2.50
M. K. Taneja 30,000 3.30% $ 2.50
</TABLE>
- 24 -
<PAGE>
EMPLOYMENT AGREEMENTS
On March 15, 1999, the Company entered into Employment Agreements with
Messrs. Jugal Taneja, LaGamba, Sekharam, and Mihir Taneja. Each of the March 15,
1999 Employment Agreements are for a term of three years and renew automatically
for successive periods of one year after their expiration unless, not less than
30 days prior to the end of the initial term or any one-year renewal period, one
of the parties sends written notice to the other party of its intent to
terminate the agreement. On May 1, 1998, the Company entered into an Employment
Agreement with Mr. Santostasi, which ends on June 13, 2001. Salaries payable
under the agreements are: Jugal Taneja - $150,000, Santostasi - $125,000,
LaGamba - $125,000, Sekharam - $90,000, and Mihir Taneja - $60,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of June 25, 1999
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's executive
officers and directors; and (iii) the directors and executive officers of the
Company as a group. An asterick indicates beneficial ownership of less than 1%
of the outstanding Common Stock. Except as otherwise indicated, each of the
shareholders listed below has sole voting and investment power over the shares
beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF APPROXIMATE
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OF CLASS
- ----- ---------------------- ------------ --------
<S> <C> <C> <C>
Common Jugal K. Taneja(3) 1,172,927 33.2%
Common Manju Taneja(4) 1,032,851 29.2%
Common William L. LaGamba(5) 435,000 12.3%
Common Michele LaGamba(6) 435,000 12.3%
Common Mihir K. Taneja 369,999 10.5%
Common Mandeep K. Taneja 369,999 10.5%
Common EuroFactores International, Inc. 200,000 5.7%
c/o Kraus
140 Birmensdorfer Str.
Zurich 8003 Switzerland
Common Kotha S. Sekharam, Ph.D. (7) 115,616 3.3%
Common Paul A. Santostasi(8) -0- -0-
Common Henry W. Brewer -0- -0-
Common Martin A. Traber 10,000 *
Foley & Lardner
100 North Tampa Street, 27th Floor
Tampa, FL 33602
Common Rakesh K. Sharma, M.D. -0- -0-
1107 S. Myrtle Avenue
Clearwater, FL 33756
</TABLE>
- 25 -
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common All officers and directors as
a group (9 persons) 2,103,542 (8) 59.5%
</TABLE>
- -----------------------------
*Less than one percent.
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o Dynamic Health Products, Inc. at 6950 Bryan Dairy Road, Largo, FL
33777.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to the shares shown. Except where indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of
voting securities shown as beneficially owned by them.
(3) Includes 1,013,185 shares beneficially owned by Manju Taneja, Jugal K.
Taneja's wife, as to which Mr. Taneja exercises no investment or voting
power and disclaims beneficial ownership. Also includes (i) 70,076 shares
owned by Carnegie Capital, Ltd. and (ii) 70,000 shares owned by First
Delhi Family Partnership, Ltd. Mr. Taneja is the general partner of
Carnegie Capital, Ltd. and First Delhi Family Partnership, Ltd. As such,
Mr. Taneja holds sole voting and investment power with respect to the
shares held of record by Carnegie Capital, Ltd. and First Delhi Family
Partnership, Ltd.
(4) Includes 19,666 shares beneficially owned by Jugal K. Taneja, as to which
Manju Taneja exercises no investment or voting power and disclaims
beneficial ownership. Excludes (i) 70,076 shares owned by Carnegie
Capital, Ltd., and (ii) 70,000 shares owned by First Delhi Family
Partnership, Ltd., as to which Mrs. Taneja exercises no investment or
voting power and disclaims beneficial ownership.
(5) Includes 196,000 shares owned by Michele LaGamba, Mr. LaGamba's wife, as
to which Mr. LaGamba exercises no investment or voting power and
disclaims beneficial ownership. Also includes and 126,000 shares held by
Mr. LaGamba as custodian for their minor children.
(6) Includes 113,000 shares owned by William L. LaGamba, and 126,000 shares
held by Mr. LaGamba as custodian for their minor children, as to which
Mrs. LaGamba exercises no investment or voting power and disclaims
beneficial ownership.
(7) Includes 10,000 shares owned by Dr. Sekharam's wife, as to which Dr.
Sekharam exercises no investment or voting power and disclaims beneficial
ownership.
(8) Paul A. Santostasi, a director and the Vice Chairman of the Company, does
not beneficially own any common stock. Mr. Santostasi holds options to
purchase 200,000 shares of common stock, none of which may be exercised
within 60 days. Mr. Santostasi is a director, the president and the owner
of 30% of the outstanding voting securities of U.S. Diversified
Technologies, Inc. U.S. Diversified Technologies, Inc. owns 310,000
shares of Company Series A Convertible Preferred Stock, each of which is
entitled to one vote. As such, Mr. Santostasi shares investment and
voting power with respect to the shares of Series A Convertible Preferred
Stock held of record by U.S. Diversified Technologies, Inc. as to which
he disclaims beneficial ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year 1998, the Company issued 520,488 shares of
common stock of the Company to Manju Taneja in exchange for and as a conversion
of $156,000, including principal and accrued interest, of the indebtedness of
the Company to her evidenced by promissory notes in the principal amount of
$210,000 which were convertible at the option of the holder, into common stock
of the company based on a price of $.30 per share. The remaining principal and
accrued interest on this indebtedness of $81,000 was converted into 271,106
shares of common stock on May 29, 1998.
- 26 -
<PAGE>
Mr. Taneja, the Company's Chairman, loaned the company $50,000 in
January 1999, which the Company repaid with interest at 10% per annum in
February 1999. Also, Dr. Sekharam and Carnegie Capital, Ltd., an affiliate of
Mr. Taneja, had outstanding loans to the Company in the principal amount of
$203,000 as of March 1, 1999 evidenced by demand promissory notes dated July 15,
1998, July 21, 1998, August 6, 1998, August 14, 1998 and August 21, 1998. In
March 1999, the Company issued 10,616 shares of common stock to Dr. Sekharam as
payment in full of principal and accrued interest in the amount of $27,000 due
under the promissory note dated July 21, 1998. All of the other promissory notes
were repaid in full in cash in March 1999. Interest on the notes accrued at the
rate of 10% per annum.
As a condition of making the Company's credit facilities available, the
Company's lender required Mr. Taneja to personally guarantee the Company's
credit facilities in the aggregate maximum amount of $4,000,000. In March 1999,
the Company granted to Mr. Taneja, in return for such guarantee, an option to
purchase 500,000 shares of common stock of the Company at an exercise price of
$2.50 per share. The option vests over three years. As of March 31, 1999, the
outstanding balance on the credit facilities was approximately $2.9 million.
In September 1998, Jugal K. Taneja, the Chairman of the Company, formed
Nutriceuticals.com Corporation for the purpose of selling vitamins, nutritional
supplements and health-related products through an internet site. In March 1999,
Jugal K. Taneja, the Chairman of the Company, invested in Java Sports.com formed
for the purpose of marketing a sports drink through internet media.
Nutriceuticals.com Corporation and Java Sports.com intend to enter into
exclusive supply agreements with the Company under which the Company will
manufacture for them all products which are offered by them and which the
Company is capable of manufacturing. Other officers of the Company are also
investors in Neutriceuticals.com Corporation.
The Company believes that material affiliated transactions and loans,
and business relationships entered into by the Company or its subsidiaries with
certain of its officers, directors and principal stockholders or their
affiliates were on terms no less favorable than the Company could have obtained
from independent third parties. Any future transactions between the Company and
its officers, directors or affiliates will be subject to approval by a majority
of disinterested directors or stockholders in accordance with Florida law.
In May 1995, Direct Rx, Inc. (the Company's predecessor) formed
Solstice, Inc. and in September 1995, Solstice, Inc. changed its name to Nu-Wave
Health Products, Inc. and issued 80% of its shares to Direct Rx, Inc. and 11% of
its shares to Dr. Sekharam in return for nominal capital. At the same time,
Nu-Wave Health Products, Inc. acquired certain assets of a manufacturing company
and commenced operations. In July 1997, Nu-Wave Health Products, Inc. acquired
from Dr. Sekharam his shares of Nu-Wave Health Products, Inc. in return for
55,000 shares of Nu-Wave Health Products, Inc. common stock which, in January
1998, were exchanged for 55,000 shares of Company common stock when Nu-Wave
Health Products, Inc. was merged into the Company.
In June 1998, the Company, through a newly-formed wholly-owned
subsidiary, acquired Energy Factors, Inc. ("Energy Factors"), a corporation
wholly-owned by U.S. Diversified Technologies, Inc. ("USDTI") in return for
310,000 shares (after the exercise of a set-off) of Company Series A Convertible
Preferred Stock, which is convertible into 310,000 shares of Company common
stock. Shortly before the acquisition was consummated, the Company loaned
$100,000 to Energy Factors, which was used as working capital. Paul A.
Santostasi, the Company's Vice Chairman, is the President and the owner of
approximately 30% of the issued and outstanding equity securities of USDTI and
was the President and a director of Energy Factors. At the time of the
acquisition, the Company entered into an employment agreement with Mr.
Santostasi and granted to Mr. Santostasi an option to purchase 200,000 shares of
Company common stock at a purchase price of the greater of $9 per share or the
price at which the common stock would be offered at the completion of a
successful Initial Public Offering. The options vest over a period of three
years, commencing on June 12, 1999.
In June 1998, the Company acquired from Manju Taneja (the wife of Jugal
K. Taneja, the Company's Chairman), Mihir and Mandeep Taneja (Mr. Taneja's
sons), Mr. LaGamba (individually and as
- 27 -
<PAGE>
custodian for his children), the Company's Chief Executive Officer, and Phillip
J. Laird, the President of Becan Distributors, Inc., all of the issued and
outstanding shares of capital stock of Becan in return for 1,500,000 shares of
Company common stock, of which 485,000 shares were exchanged for the minority
interest.
In September 1998, the Company acquired from Manju Taneja, Mandeep
Taneja, Mihir Taneja, Dr. Sekharam, and Madhavi Sekharam all of the issued and
outstanding shares of capital stock of J. Labs, Inc. in return for 100,000
shares of Company common stock.
In March 1999, the Company granted options to purchase a total of
210,000 shares of common stock to eight of its employees under its 1999 Stock
Option Plan. All of the foregoing options vest equally over three years.
- 28 -
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
See pages F-1 through F-26.
(a)(2) 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. (1)
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. (1)
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. (2)
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. (2)
2.5 Agreement to Exchange Shares dated September 1, 1998, by and between
the Company and Gary A. Shawkey. (2)
2.6 Stock Purchase Agreement dated September 30, 1998, by and among Dynamic
Health Products, Inc. and J. Labs, Inc. (2)
2.7 Asset Purchase Agreement dated December 29, 1998, by and between Herbal
Health Products, Inc. and Dr. Gerald Schmoling. (3)
3.1 Articles of Incorporation of Direct Rx Healthcare, Inc., filed January
27, 1998. (4)
3.2 Articles of Incorporation of Nu-Wave Acquisition, Inc., dated June 11,
1998 and filed June 12, 1998. (1)
3.3 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., dated July 22, 1998 and filed July 23, 1998. (1)
3.4 Articles of Amendment to Articles of Incorporation of Nu-Wave Health
Products, Inc., dated August 11, 1998. (1)
3.5 Articles of Incorporation of Incredible Products of Florida, Inc. dated
August 20, 1998, filed August 20, 1998. (2)
3.6 Articles of Incorporation of Herbal Health Products, Inc. dated
December 16, 1998, filed December 29, 1998. (3)
- 29 -
<PAGE>
3.7 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., filed September 1, 1998.
3.8 Articles of Restatement of the Articles of Incorporation of Dynamic
Health Products, Inc., filed April 16, 1999.
10.1 Service Agreement between the Company and Nations Staffing, Inc. dated
December 23, 1996.(4)
10.2 Employment Agreement between the Company and Paul Santostasi dated June
12, 1998.
10.3 Employment Agreement between the Company and Jugal K. Taneja dated
March 15, 1999.
10.4 Employment Agreement between the Company and William L. LaGamba dated
March 15, 1999.
10.5 Employment Agreement between the Company and Dr. Kotha S. Sekharam
dated March 15, 1999.
10.6 Employment Agreement between the Company and Mihir Taneja dated March
15, 1999.
10.7 Revolving Line of Credit Agreement between Becan Distributors, Inc. and
Mellon Bank dated March 16, 1998. (1)
10.8 Promissory Note in favor of the Company from Energy Factors, Inc. dated
May 13, 1998.(4)
10.9 Revolving Line of Credit Agreement between the Company and Republic
Bank dated June 3, 1998. (4)
10.10 Loan And Security Agreement between Becan Distributors, Inc. and
Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November
30, 1998. (3)
10.11 Loan And Security Agreement between Dynamic Health Products, Inc. and
Innovative Health Products, Inc. and The CIT Group/Credit Finance, Inc.
dated February 2, 1999.
10.12 Dynamic Health Products, Inc. 1999 Stock Option Plan.
10.13 Stock Option Agreement between Dynamic Health Products, Inc. and Jugal
K. Taneja dated March 12, 1999.
16.1 Letter of Kirkland, Russ, Murphy & Tapp, CPAs to the Securities and
Exchange Commission pursuant to the requirements of Item 304(a)(3) of
Regulation S-K. (5)
21.1 Dynamic Health Products, Inc. - List of Subsidiaries.
27.1 Financial Data Schedule (for SEC use only).
(1) 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.
(2) 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.
(3) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 30, 1998, file number
0-23031, filed in Washington, D.C.
(4) 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.
- 30 -
<PAGE>
(5) Incorporated by reference to the Company's Current Report on Form
8-K, dated April 29, 1999, file number 0-23031, filed in
Washington, D.C.
(b) REPORTS ON FORM 8-K.
The Company filed a report on Form 8-KA/2, dated March 15, 1999, in
connection with the acquisition of Energy Factors, Inc. and the acquisition of
Becan Distributors, Inc.
The Company filed a report on Form 8-K, dated April 29, 1999, in
connection with the change of auditors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DYNAMIC HEALTH PRODUCTS, INC.
DATED: July 6, 1999 By: /s/ WILLIAM L. LAGAMBA
---------------------------------------
William L. LaGamba, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JUGAL K. TANEJA Chairman of the Board, July 6, 1999
- ---------------------------- and Director
Jugal K. Taneja
/s/ PAUL A. SANTOSTASI Vice Chairman of the Board, July 6, 1999
- ---------------------------- and Director
Jugal K. Taneja
/s/ KOTHA S. SEKHARAM, Ph.D. President, Treasurer, and Director July 6, 1999
- ----------------------------
Kotha S. Sekharam
/s/ MARTIN A. TRABER Director July 6, 1999
- ----------------------------
Martin A. Traber
/s/ WILLIAM L. LAGAMBA Chief Executive Officer, July 6, 1999
- ---------------------------- Secretary, and Director
William L. LaGamba
/s/ HENRY W. BREWER Chief Financial Officer, July 6, 1999
- ---------------------------- and Vice President
Henry W. Brewer
/s/ MIHIR K. TANEJA Assistant Secretary, July 6, 1999
- ---------------------------- and Vice President, Marketing
Mihir K. Taneja
</TABLE>
- 31 -
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Reports F-2 - F-4
Consolidated Balance Sheets as of March 31, 1999 and 1998 F-5
Consolidated Statements of Operations for the years ended
March 31, 1999 and 1998 F-6
Consolidated Statements of Shareholders' Equity for
the years ended March 31, 1999 and 1998 F-7
Consolidated Statements of Cash Flows for the years ended
March 31, 1999 and 1998 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-26
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Dynamic Health Products, Inc.:
We have audited the accompanying consolidated balance sheet of Dynamic Health
Products, Inc. and Subsidiaries as of March 31, 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended March 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dynamic
Health Products, Inc. and Subsidiaries as of March 31, 1999 and the consolidated
results of operations and cash flows for the year ended March 31, 1999, in
conformity with generally accepted accounting principles.
We also have audited the combination of the financial statements as of and for
the year ended March 31, 1998 of Dynamic Health Products, Inc. and Becan
Distributors, Inc., both of which were audited and reported on separately by
other auditors whose reports are included herein, resulting in the accompanying
consolidated balance sheet as of March 31, 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended; in our opinion, such consolidated statements have been properly combined
on the basis described in Note 2 of the notes to the consolidated financial
statements.
By: /s/ GRANT THORNTON LLP
- --------------------------
Grant Thornton LLP
Tampa, Florida
June 26, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Dynamic Health Products, Inc.
We have audited the accompanying consolidated balance sheet of Dynamic Health
Products, Inc. and Subsidiary as of March 31, 1998 and the related consolidated
statement of operations, shareholders' equity (deficit), and cash flows for the
year then ended prior to the restatements. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dynamic
Health Products, Inc. and Subsidiary as of March 31, 1998 and the results of its
consolidated operations and its consolidated cash flows for the year then ended
prior to the restatements, in conformity with generally accepted accounting
principles.
By: /s/ KIRKLAND, RUSS, MURPHY & TAPP
- -------------------------------------
Kirkland, Russ, Murphy & Tapp
May 7, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Becan Distributors, Inc.
Pittsburgh, PA
We have audited the balance sheet of Becan Distributors, Inc. as of March 31,
1998, and the related statement of operations, retained earnings, and cash flows
for the year then ended, which are not included herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Becan Distributors, Inc. as of
March 31, 1998 and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The Company, with consent of its shareholders, has elected under the Internal
Revenue Code to be an S corporation. In lieu of the corporation income taxes,
the shareholders of an S corporation are taxed on their proportionate share of
the Company's taxable income. Therefore, no provision or liability for Federal
income taxes has been included in these financial statements.
By: /s/ SHALEK & ASSOCIATES, CPA'S INC.
- ---------------------------------------
Shalek & Associates, CPA's Inc.
Independence, Ohio
January 25, 1999
F-4
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31,
1999 1998
----------- -----------
ASSETS (RESTATED)
<S> <C> <C>
Current assets:
Cash $ 899,951 $ 454,325
Accounts receivable, net 2,535,274 1,070,334
Inventories 2,580,753 742,418
Prepaid expenses and other current assets 221,726 20,492
----------- -----------
Total current assets 6,237,704 2,287,569
Property, plant and equipment, at cost, net 2,476,357 181,078
Intangible assets (primarily goodwill), net 1,769,153 17,869
Other assets 57,619 28,034
----------- -----------
TOTAL ASSETS $10,540,833 $ 2,514,550
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,495,648 $ 1,417,389
Accrued expenses 371,556 89,535
Current portion of long-term obligations 643,243 28,927
Credit lines payable 2,388,729 185,000
Obligations to related parties 38,434 279,145
----------- -----------
Total current liabilities 5,937,610 1,999,996
Long-term obligations, less current portion 1,392,793 258,974
----------- -----------
TOTAL LIABILITIES 7,330,403 2,258,970
Minority interest -- 39,102
Commitments and contingencies -- --
Shareholders' equity:
Series A Convertible Preferred stock,
$.01 par value; 400,000 shares
authorized; 310,000 shares issued
and outstanding, at face value 775,000 --
Series B 6% Cumulative Convertible Preferred
stock, $.01 par value; 800,000 shares
authorized; 30,000 shares issued and
outstanding, at face value 75,000 --
Common stock, $.01 par value; 20,000,000
shares authorized; 3,535,224 and
1,984,926 shares issued and outstanding 35,352 19,849
Additional paid-in capital 3,400,615 972,807
Accumulated deficit (1,075,537) (776,178)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 3,210,430 216,478
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,540,833 $ 2,514,550
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1999 1998
------------ ------------
(RESTATED)
<S> <C> <C>
Revenues:
Distribution $ 31,981,531 $ 10,850,867
Manufacturing 4,416,251 1,906,936
------------ ------------
TOTAL REVENUES 36,397,782 12,757,803
Cost of goods sold:
Distribution 30,244,272 10,423,250
Manufacturing 3,419,046 1,388,816
------------ ------------
TOTAL COST OF GOODS SOLD 33,663,318 11,812,066
------------ ------------
GROSS PROFIT 2,734,464 945,737
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,858,389 867,170
------------ ------------
OPERATING INCOME (LOSS) BEFORE OTHER INCOME AND EXPENSE (123,925) 78,567
Other income (expense):
Interest income 15,673 --
Other income and expenses, net 118,932 40,161
Interest expense (373,489) (18,272)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (238,884) 21,889
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES (362,809) 100,456
(Income) loss attributable to minority interest 63,450 (28,692)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (299,359) 71,764
Income taxes -- --
------------ ------------
NET INCOME (LOSS) (299,359) 71,764
Preferred stock dividends 2,535 --
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (301,894) $ 71,764
============ ============
Basic and diluted income (loss) per share $ (0.11) $ 0.04
============ ============
Basic and diluted weighted number of common
shares outstanding 2,865,190 1,701,074
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999 AND 1998
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL NET
------------------ ---------------- ------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS CAPITAL DEFICIT EQUITY
------- -------- ------ ------- --------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1997 - $ - - $ - 1,431,105 $14,311 $ 812,199 $ (847,942) $ (21,432)
(RESTATED)
Acquisition of minority
interest at $.30
per share (Restated) - - - - 33,333 333 9,667 - 10,000
Conversion of note payable
to common stock at
$.30 per share
(Restated) - - - - 520,488 5,205 150,941 - 156,146
Net income (Restated) - - - - - - - 71,764 71,764
------- -------- ------ ------- --------- ------- --------- ----------- ----------
BALANCES AT MARCH 31, 1998
(RESTATED) - - - - 1,984,926 19,849 972,807 (776,178) 216,478
Issuance of common stock at
$1.50 per share for cash - - - - 33,333 333 49,667 - 50,000
Conversion of note payable to
common stock at $.30 per
share - - - - 271,106 2,711 78,620 - 81,331
Distributions to Becan
shareholders - - - - - - (48,407) - (48,407)
Issuance of preferred stock
for acquisition of Energy
Factors, Inc. 310,000 775,000 - - - - - - 775,000
Issuance of common stock for
minority interest
acquisition of Becan
Distributors, Inc. - - - - 485,000 4,850 722,650 - 727,500
Issuance of common stock
at $2.50 per share for cash - - - - 200,000 2,000 498,000 - 500,000
Issuance of preferred stock
at $2.50 per share for
cash, net of offering
costs - - 30,000 75,000 - - (17,226) - 57,774
Issuance of common stock for
acquisition of J.Labs, Inc. - - - - 100,000 1,000 (500) - 500
Issuance of common stock for
asset purchase - - - - 32,243 323 80,285 - 80,608
Issuance of common stock at
$2.50 per share for cash - - - - 418,000 4,180 1,040,820 - 1,045,000
Conversion of note payable
to common stock at
$2.50 per share - - - - 10,616 106 26,434 - 26,540
Dividends on preferred stock - - - - - - (2,535) - (2,535)
Net loss - - - - - - - (299,359) (299,359)
------- -------- ------ ------- --------- ------- --------- ----------- ----------
BALANCES AT MARCH 31, 1999 310,000 $775,000 30,000 $75,000 3,535,224 $35,352 $3,400,615 $(1,075,537) $3,210,430
======= ======== ====== ======= ========= ======= ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (299,359) $ 71,764
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 271,458 34,424
Gain on involuntary conversion of
property (81,192) --
Minority interest (63,450) 28,692
Changes in operating assets and liabilities
(exclusive of effect of business
acquisitions):
Accounts receivable (1,470,593) (905,787)
Inventory (1,171,789) (595,390)
Prepaid expenses and other current
assets (135,205) (7,612)
Accounts payable 182,742 1,113,977
Accrued expenses (34,483) 18,712
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (2,801,871) (241,220)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (301,041) (42,767)
Proceeds from involuntary conversion of
property 99,100 --
Increase in intangible assets (51,263) --
Cash paid for acquisitions, net (18,309) --
Decrease (increase) in other assets 7,940 (13,199)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (263,573) (55,966)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving line of credit agreements 2,203,728 93,000
Proceeds from issuance of long-term obligations 760,991 240,200
Payments of long-term obligations (763,527) (21,567)
Proceeds from issuance of shareholder loans 295,500 220,000
Payments of shareholder loans (589,989) --
Distributions to shareholders, net (48,407) --
Proceeds from issuance of common stock 1,595,000 50
Proceeds from issuance of preferred stock 57,774 --
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,511,070 531,683
NET INCREASE IN CASH 445,626 234,497
CASH AT BEGINNING OF PERIOD 454,325 219,828
----------- -----------
CASH AT END OF PERIOD $ 899,951 $ 454,325
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1999 1998
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 382,869 $ 46,728
Capital lease obligations incurred for purchase
of property and equipment $ 127,568 $ 63,635
Acquisition of minority interest through
issuance of common stock $ - $ 10,000
Conversion of related party notes payable and
accrued interest to common stock $ 107,871 $ 156,146
Cash paid during the period for income taxes $ - $ -
During 1999, the Company completed several acquisitions in exchange for
approximately $1,600,000 of the Company's stock. The Company assumed
approximately $3,200,000 of liabilities and allocated approximately $3,000,000
to tangible assets (see Note 2).
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dynamic Health Products, Inc. ("Company") creates, manufactures, and packages a
wide variety of proprietary and non-proprietary non-prescription medications,
nutritional supplements and health and beauty care products. The Company's
primary business segments are the contract manufacture of products for others
throughout the United States and a wholesale distributor of pharmaceuticals,
over-the-counter drugs, and health and beauty care products throughout the
United States. The channels of distribution for its proprietary products and the
channels of distribution for the products it manufactures for others in the
distribution business segment include health food, drug, convenience and mass
market stores, and direct marketing through radio, catalog sales and
infomercials.
A. RESTATEMENTS
During 1999, the Company acquired Becan Distributors, Inc. ("Becan") in a
transaction accounted as if a "pooling of interests" (see Note 2). Accordingly,
the accompanying 1998 financial statements have been restated to reflect this
1999 acquisition of Becan.
Unless otherwise noted, all information has been adjusted to retroactively
reflect the one-for-three reverse common stock split on August 11, 1998.
B. PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Dynamic Health Products, Inc.
and its principally wholly-owned subsidiaries, Innovative Health Products, Inc.
("Innovative"), Becan Distributors, Inc. and its subsidiary Discount Rx, Inc.
("Discount"), Incredible Products of Florida, Inc. ("Incredible"), J. Labs, Inc.
("J.Labs"), and Herbal Health Products, Inc. ("Herbal"). Significant
intercompany balances and transactions have been eliminated in consolidation.
There were no minority interests at March 31, 1999 and the effect of minority
interests during the year is not material.
On August 12, 1997, the Company entered into a joint venture agreement with a
group to form an Ohio limited liability company to market one of its products.
Under the terms of the agreement, the Company has a 50% ownership and shares
profits and losses equally. The Company is required to contribute half of the
costs incurred in the initial marketing of the product. The Company accounts for
the investment under the equity method of accounting. At March 31, 1999 and
1998, the investment on the records of the Company and the operations of the
joint venture were not material.
C. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
D. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method (see Note 4).
F-10
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
E. PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided for using the straight-line method, in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives (buildings 20 years, all other asset categories range
from three to seven years). Leasehold improvements are amortized using the
straight-line method over the lives of the respective leases or the service
lives of the improvements, whichever is shorter. Leased equipment under capital
leases is amortized using the straight-line method over the lives of the
respective leases or over the service lives of the assets for those leases that
substantially transfer ownership. Accelerated methods are used for tax
depreciation.
F. INTANGIBLE ASSETS
Intangible assets consist primarily of the excess of cost over the net assets
acquired relating to the acquisitions (see Note 2). The excess of cost over net
assets acquired (goodwill) is amortized over a 20-year period using the
straight-line method. Accumulated amortization totaled approximately $87,000 and
$9,000 at March 31, 1999 and 1998, respectively.
G. IMPAIRMENT OF ASSETS
The Company's policy is to evaluate whether there has been a permanent
impairment in the value of long-lived assets, certain identifiable intangibles
and goodwill when certain events have taken place that indicate that the
remaining balance may not be recoverable. When factors indicate that the
intangible assets should be evaluated for possible impairment, the Company uses
an estimate of related undiscounted cash flows. Factors considered in the
valuation include current operating results, trends and anticipated undiscounted
future cash flows. There have been no impairment losses in 1999 or 1998.
H. INCOME TAXES
The Company utilizes the guidance provided by Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes" (SFAS 109). Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
I. EARNINGS PER COMMON SHARE
Earnings per share are computed using the basic and diluted calculations on the
face of the statement of operations. Basic earnings per share is calculated by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. Diluted earnings per share is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method (see Note 13).
F-11
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
J. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at March 31, 1999 and 1998, as well as the
reported amounts of revenues and expenses for the years then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.
K. REVENUE RECOGNITION
Revenues are recognized for the distribution and manufacturing segments when the
merchandise is shipped to the customer.
L. STOCK BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation", but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for options
issued to employees, which uses the intrinsic method to determine compensation
expense when the fair market value of the stock exceeds the exercise price on
the date of grant. No compensation expense has been recognized for stock options
granted in 1999 and 1998. If the Company had elected to recognize compensation
expense for stock options based on the fair value at grant date consistent with
the method prescribed by SFAS No. 123, net income and earnings per share would
have been reduced (see Note 12).
M. ADVERTISING COSTS
The Company charges advertising costs to expense as incurred. Advertising
expense was $170,000 and $41,000 for the years ended March 31, 1999 and 1998,
respectively.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company, in estimating its fair value disclosures for financial instruments,
uses the following methods and assumptions:
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES: The
carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses approximate their fair
value due to their relatively short maturity.
LONG-TERM OBLIGATIONS: The fair value of the Company's fixed-rate
long-term obligations is estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements. At March 31, 1999, the fair value of the
Company's long-term obligations approximated its carrying value.
CREDIT LINES PAYABLE: The carrying amount of the Company's credit lines
payable approximates fair market value since the interest rate on these
instruments changes with market interest rates.
F-12
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
O. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
year ended March 31, 1998 to conform to the presentation at March 31, 1999.
NOTE 2 - ACQUISITIONS AND MERGERS
On July 15, 1997, the Company acquired the remaining 20% interest in its
subsidiary through a stock exchange. The Company exchanged 100,000 shares of its
common stock (valued at $.30 per share, its fair market value) for the
outstanding stock held by the minority interest. The transaction was accounted
for by the purchase method of accounting. Effective April 1, 1998, the Company
merged with its subsidiary.
On June 12, 1998, the Company acquired Innovative Health Products, Inc.,
formerly Energy Factors, Inc., a wholly-owned subsidiary of U.S. Diversified
Technologies, Inc. U.S. Diversified Technologies, Inc. received in exchange for
its capital stock in Energy Factors, 310,000 shares of Series A Convertible
Preferred Stock of the Company representing a fair market value of approximately
$775,000. The Preferred Stock valuation of $2.50 per share is based on several
factors, including prices of recent common stock issuances. In addition, 200,000
options to purchase common stock of the Company at $9 per share, vesting over
three years, were issued to an employee. The acquisition was accounted for under
the purchase method of accounting. Management has determined that the goodwill
of approximately $880,000 associated with this transaction will be amortized
over a 20-year life. The results of operations of Innovative have been reflected
in the Company's results of operations beginning immediately subsequent to the
acquisition date of June 12, 1998.
The Company previously reported that 400,000 shares of Series A Convertible
Preferred Stock were exchanged. The reduction of shares was a result of a "right
of set-off" provision in the acquisition agreement based on the final evaluation
of the net assets acquired.
The aggregate purchase price of $775,000 was allocated as follows:
Inventory $ 575,000
Property, plant and equipment 2,167,000
Other assets 82,000
Goodwill 881,000
----------
3,705,000
Less: Liabilities assumed (2,930,000)
----------
$ 775,000
==========
F-13
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 2 - ACQUISITIONS AND MERGERS - (CONTINUED)
The following pro forma information has been derived from the historical
financial statements of the Company and Innovative and such information has been
adjusted to give effect to the acquisition of Innovative, assuming that the
acquisition of Innovative occurred on April 1, 1997. The unaudited pro forma
financial information is not necessarily indicative of the results which would
actually have occurred had the transaction been in effect on the dates and for
the periods indicated or which may result in the future.
YEARS ENDED MARCH 31,
-------------------------
1999 1998
----------- -----------
Revenues $37,597,000 $13,906,000
Operating loss $ (184,000) $ (68,000)
Net loss $ (365,000) $ (278,000)
Net loss per common share $ (0.13) $ (0.16)
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 shares of common
stock of the Company. The majority owners of Becan were also the majority
shareholders of the Company and, as a result, the majority interest was
accounted for as a combination of entities under common control and treated as
if a "pooling of interests". 485,000 shares of common stock with a fair value of
$727,500 (as estimated by the Board of Directors based on common stock sales to
third parties) were exchanged for the minority interest and resulted in goodwill
of approximately $700,000. Management has determined that the goodwill
associated with this transaction will be amortized over a 20-year life. The
results of operations of Becan for the twelve months ended March 31, 1999 and
1998 have been reflected in the Company's results of operations for the fiscal
year ended March 31, 1999 and 1998.
Revenues, net income, earnings per share, and shareholders' equity as previously
reported for the year ended March 31, 1998 and as of March 31, 1998 and as
restated for the transaction treated as if a "pooling of interests" is as
follows:
SHAREHOLDERS'
NET EARNINGS EQUITY
REVENUES INCOME PER SHARE AT APRIL 1, 1997
----------- -------- --------- ----------------
Dynamic Health
Products, Inc., as
previously reported $ 2,368,285 $ 11,718 $0.01 $(43,217)
=====
Becan Distributors,
Inc., as previously 10,389,518 88,738 32,195
reported
Less: Minority Interest - (28,692) (10,410)
----------- -------- --------
Restated $12,757,803 $ 71,764 $0.04 $(21,432)
=========== ======== ===== ========
F-14
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 2 - ACQUISITIONS AND MERGERS - (CONTINUED)
On August 20, 1998, the Company formed Incredible Products of Florida, Inc. and
contributed $160,000 capital to Incredible. Incredible acquired approximately
$80,000 of assets and assumed approximately $100,000 of liabilities of
Incredible Products, Inc. in exchange for 49% of Incredible Products of Florida.
The acquisition was accounted for under the purchase method of accounting and
resulted in goodwill of approximately $100,000. The results of operations of
Incredible have been reflected in the Company's results of operations beginning
immediately subsequent to the acquisition date of September 1, 1998. Subsequent
to year end, the 49% minority interest was returned to the Company for a nominal
amount. Pro forma information for Incredible is not provided due to its
immateriality.
On 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 of
the Company. The merger was accounted for as a combination of entities under
common control and treated as if a "pooling of interests", as the ownership of
J.Labs was also the majority ownership of the Company. The results of operations
of J.Labs, which are immaterial for the twelve months ended March 31, 1999, have
been reflected in the Company's results of operations for the fiscal year ended
March 31, 1999. J.Labs had no operations for the year ended March 31, 1998 and
had net assets of less than $1,000 at March 31, 1998.
On December 29, 1998, the Company formed Herbal Health Products, Inc. Herbal
acquired approximately $160,000 of the assets of Dr. Gerald Schmoling and
Nutrapro, Inc. and assumed approximately $120,000 of the liabilities of Dr.
Gerald Schmoling in return for approximately $18,000 and 32,243 shares of common
stock of the Company valued at $80,608 (the fair value as determined by the
board of Directors based on sales to third parties). Dr. Schmoling also agreed
to receive options to purchase 32,243 additional shares of common stock of the
Company, at $5 per share, which grant and immediately vest upon the attainment
of certain sales and profit goals. The acquisition was accounted for under the
purchase method of accounting and resulted in goodwill of approximately $60,000.
The results of operations of Herbal have been reflected in the Company's results
of operations beginning immediately subsequent to the acquisition date of
December 29, 1998. Pro forma information for Herbal is not provided due to its
immateriality.
NOTE 3 - RECEIVABLES
At March 31, 1999 and 1998, receivables of the Company consist of the following:
1999 1998
---------- ----------
Distribution $1,782,404 $ 876,505
Manufacturing 872,541 227,329
---------- ----------
2,654,945 1,103,834
Less allowance for doubtful accounts (119,671) (33,500)
---------- ----------
Total $2,535,274 $1,070,334
========== ==========
F-15
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 4 - INVENTORIES
At March 31, 1999 and 1998, inventories of the Company consist of the following:
1999 1998
---------- --------
Distribution:
Finished goods $1,300,182 $445,776
Manufacturing:
Raw materials 1,100,823 156,247
Work in process 150,721 56,048
Finished goods 29,027 84,347
---------- --------
$2,580,753 $742,418
========== ========
In conjunction with the implementation of new manufacturing software during the
fourth quarter 1999, the Company analyzed its manufacturing inventory, which
resulted in a reduction of $660,000 for pricing adjustments. The effect this
adjustment may have on the previous two quarters is not determinable.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
At March 31, 1999 and 1998, property, plant and equipment consist of the
following:
1999 1998
----------- -----------
Land and building $ 1,421,460 $ --
Machinery and equipment 1,035,042 202,404
Furniture, fixtures and equipment 214,597 14,997
Vehicles 27,215 --
Leasehold improvements 21,854 13,766
----------- -----------
2,720,168 231,167
Less accumulated depreciation and
amortization (243,811) (50,089)
----------- -----------
Total $ 2,476,357 $ 181,078
=========== ===========
NOTE 6 - RELATED PARTY TRANSACTIONS
On May 29, 1998, approximately $81,000 of demand notes payable and unpaid
interest payable to the spouse of the Chairman of the Company, was converted
into 271,106 shares of the common stock of the Company. The notes and unpaid
accrued interest at 8.5% were to be repaid in cash or, at the holder's option,
converted into common stock at $.30 per share (which was the fair value of the
common stock at the time of the note, as determined by the Board of Directors).
Interest expense on these notes totaled $1,000 and $12,000 for the years ended
March 31, 1999 and 1998, respectively.
F-16
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 6 - RELATED PARTY TRANSACTIONS - (CONTINUED)
Throughout 1999, the Company's Chairman and an affiliate of the Chairman, loaned
the Company an aggregate of approximately $228,000, which loans were repaid in
February and March 1999. Interest on these loans accrued at a rate of 10% per
annum and totaled $11,000 for the year ended March 31, 1999.
Also during 1999, the Company repaid $200,000 in loans made to one of its
subsidiaries by an affiliate of the Chairman during fiscal 1998. Interest on
these loans accrued at the rate of 10% per annum and totaled approximately
$20,000 for the year ended March 31, 1999.
In 1999, the Company's President loaned $25,000 to the Company. In March 1999,
the Company issued 10,616 shares of common stock to its President, valued at
$2.50 per share, as payment in full of principal and accrued interest in the
amount of approximately $27,000 due under the promissory note dated July 21,
1998. Interest on the note accrued at the rate of 10% per annum, and totaled
$1,500 for the year ended March 31, 1999.
In June 1998, the Company assumed a $25,000 note payable to the Company's Vice
Chairman, associated with the June 12, 1998 Energy Factors acquisition. The note
bears interest at 10.8% per annum and interest totaled $2,000 for the year ended
March 31, 1999.
See the acquisitions of related parties at Note 2.
NOTE 7 - INCOME TAXES
Income taxes for the years ended March 31, 1999 and 1998 differ from the amounts
computed by applying the effective U.S. federal income tax rate of 34% to income
before income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computed tax expense at the statutory rate $(112,000) $ 4,000
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit (11,000) 1,000
Effect of permanent differences, principally
non-deductible goodwill 47,000 --
Deferred tax assets not recognized 76,000 (5,000)
--------- ---------
Income tax expense $ -- $ --
========= =========
</TABLE>
F-17
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 7 - INCOME TAXES - (CONTINUED)
Temporary differences that give rise to deferred tax assets and liabilities are
as follows:
1999 1998
-------- --------
Deferred tax assets:
Bad debts $ 45,000 $ 13,000
Inventories 54,000 2,000
Deposits 32,000 -
Net operating loss carryforwards 294,000 294,000
-------- --------
Gross deferred tax assets 425,000 309,000
Less: valuation allowance (371,000) (295,000)
-------- --------
$ 54,000 $ 14,000
======== ========
Deferred tax liabilities:
Depreciation $ 54,000 $ 14,000
======== ========
At March 31, 1999 and 1998, the Company has a tax net operating loss
carryforward of approximately $750,000, to offset future taxable income. The tax
net operating loss carryforwards begin to expire in 2007. Realization of any
portion of the deferred tax assets is uncertain. Accordingly, a valuation
allowance has been established for the full amount of the deferred tax asset.
In conjunction with the acquisitions, the Company acquired tax operating loss
carryforwards of approximately $600,000. The use of pre-acquisition losses is
subject to limitations imposed by the Internal Revenue Code. As a result, their
tax operating loss carryforwards were assigned a fair value of $-0- at
acquisition and are not included in the Company's net operating loss
carryforwards.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has operating leases for facilities and certain machinery and
equipment that expire at various dates through 2004. Certain leases provide an
option to extend the lease term. Certain leases provide for payment by the
Company of any increases in property taxes, insurance, and common area
maintenance over a base amount and others provide for payment of all property
taxes and insurance by the Company.
F-18
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Future minimum lease payments, by year and in aggregate under non-cancelable
operating leases, consist of the following at March 31, 1999:
YEAR ENDING MARCH 31,
---------------------
2000 $150,866
2001 118,711
2002 50,978
2003 49,318
2004 25,900
--------
Total minimum lease payments $395,773
========
Total rent expense for the years ended March 31, 1999 and 1998 was approximately
$119,000 and $107,000, respectively.
EMPLOYMENT AGREEMENTS
In March 1999, the Company entered into Employment Agreements with certain
members of management. Each employment agreement has a term of three years and
are renewed automatically for successive periods of one year after their
expiration unless, not less than 30 days prior to the end of the initial term or
any one-year renewal period, one of the parties sends written notice to the
other party of its intent to terminate the agreement. In conjunction with the
acquisition of Energy Factors in June 1998, the company entered into a
three-year Employment Agreement with Energy Factors' former President, who is
currently Vice Chairman of the Company. Annual salaries payable under these
contracts amount to $550,000 plus an annual bonus at the discretion of the Board
of Directors.
LITIGATION
The Company is, from time to time, involved in litigation relating to claims
arising out of its operations in the ordinary course of business. The Company
believes that none of the claims that were outstanding as of March 31, 1999
should have a material adverse impact on its financial condition or results of
operations.
YEAR 2000 ISSUE
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company will not be fully determinable until the Year
2000 and thereafter. The Company has completed the installation of a new
financial accounting software package and replaced or updated all of the
hardware associated with the operations that could have had a material effect
due to the Year 2000 issue. The Company is currently requesting that all
suppliers supply certification statements that comply with the Year 2000
requirements. If the Year 2000 modifications are not properly completed either
by the Company or entities with which the Company conducts business, the
Company's revenues and financial condition could be adversely impacted.
F-19
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 9 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at March 31, 1999 and 1998:
1999 1998
---------- --------
Notes payable collateralized by real
property, due in monthly principal
payments of $12,256 plus interest at
a rate of 12% through October 2002,
requiring a balloon payment due
October 2002. $ 839,276 $ -
Note payable collateralized by certain
equipment, due in monthly principal
payments of $8,192 plus interest
through February 2004, interest
rate at prime (7.75% at March 31,
1999) plus 2.25%. 483,328 -
Capitalized lease obligations for
equipment, due in monthly principal
and interest payments of approximately
$7,499 through 2004. 264,551 54,314
Unsecured 10% notes payable due at
April 30, 1999 125,000 225,000
Unsecured 10% notes payable due at
the closing of an IPO with interest. 125,000 -
Other 198,881 8,587
---------- --------
2,036,036 287,901
Less current maturities 643,243 28,927
---------- --------
Total $1,392,793 $258,974
========== ========
At March 31, 1999, aggregate maturities of long-term obligations are as follows:
YEAR ENDING MARCH 31,
---------------------
2000 $ 643,243
2001 245,282
2002 221,359
2003 807,185
2004 118,967
-----------
Total $2,036,036
===========
In April 1998, the holders of unsecured 10% notes payable were issued common
stock purchase warrants. No value was assigned to the warrants as the value was
insignificant. Each stock warrant entitles the holder to purchase one (1) share
of common stock for each $3 of principal amount lent at $1.50 per share. In
March 1999, the note/warrant holders agreed to repayment of the notes upon the
closing of the Company's initial public offering. The warrants expire December
31, 1999.
F-20
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 10 - CREDIT LINES PAYABLE
In February 1999, the Company established a $2 million revolving credit facility
scheduled to mature in February 2002. The credit available to the Company is
based on a percentage of eligible accounts receivable and inventory. A portion
of the proceeds from the line of credit were funded in the form of a 60-month
term loan for approximately $491,000 (see Note 9). The credit available to the
Company under this line was approximately $949,000 at March 31, 1999. The
facility imposes no financial covenants. Minimum borrowing under the agreement
is $1,000,000. The agreement places limitations on disposition of assets and
debt funding to transactions within the normal course of business and restricts
the payment of dividends to any shareholder of record of any class of Company
stock during the term of the agreement. All borrowings accrue interest at prime
(7.75% at March 31, 1999) plus 2.25% and are secured by all assets of the
company except those of Becan and Discount. At March 31, 1999, the Company had
borrowed $949,139 under this facility.
In November 1998, the Company established a $2.0 million revolving credit
facility scheduled to mature in November 2001. The credit available to the
Company is based on a percentage of eligible accounts receivable and inventory.
The credit available to the company under this line was approximately $1,440,000
at March 31, 1999. The facility imposes no financial covenants. Minimum
borrowing under the agreement is $1,000,000. The agreement places limitations on
disposition of assets and debt funding to transactions within the normal course
of business and restricts the payment of dividends to any shareholder of record
of any class of Company stock during the term of the agreement. All borrowings
accrue interest at prime (7.75% at March 31, 1999) plus 1.25% and are secured by
all assets of Becan and Discount. At March 31, 1999, the Company had borrowed
$1,439,590 under this facility.
The credit lines payable are included with current liabilities instead of
long-term liabilities as management believes that this presentation better
reflects the utility of the current assets as the source of repayment for the
credit lines payable.
NOTE 11 - SHAREHOLDERS' EQUITY
In August 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.
In August 1998, upon the filing by the Company of Articles of Amendment to its
Articles of Incorporation, the Company established Series A Convertible
Preferred Stock. The Series A Preferred was issued in conjunction with the
Company's acquisition of Energy Factors. Terms associated with the issuance of
the Series A Preferred are: (1) Shareholders are not entitled to receive
dividends, (2) Liquidation preference of $5 per share over any junior stock,
including common stock, (3) Automatic conversion to one share of common stock if
the average closing price of the common stock for any five consecutive trading
day period is $5 per share or more, and (4) Holders of Series A Preferred are
entitled to the same voting rights as shareholders of common stock as a single
class.
F-21
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 11 - SHAREHOLDERS' EQUITY - (CONTINUED)
In September 1998, upon the filing by the Company of Articles of Amendment to
its Articles of Incorporation, the Company established Series B 6% Cumulative
Convertible Preferred Stock. The Series B Cumulative Convertible Preferred Stock
was issued for cash used in the operations of the Company. Terms associated with
the issuance of Series B Preferred are: (1) Shareholders are entitled to receive
dividends on each outstanding share at an annual rate of 6%, (2) Liquidation
preference of $2.50 per share over any junior stock, including common stock, (3)
Automatic conversion to one share of common stock if the average closing price
of the common stock for any five consecutive trading day period is $5 per share
or more, and (4) Holders of Series B Preferred have no voting rights.
NOTE 12 - STOCK OPTIONS
EMPLOYEE STOCK OPTION PLAN
The Company's Stock Option Plan ("SOP") was adopted in March 1999 to provide for
the grant to employees up to 1,500,000 incentive stock options within the
meaning of Section 422 of the Internal Revenue Code. The SOP is intended to
provide incentives to directors, officers, and other key employees and to
enhance the Company's ability to attract and retain qualified employees. Stock
options are granted for the purchase of Common Stock at a price not less than
the fair market on the date of grant. In March 1999, options were granted, under
the SOP, to purchase 210,000 shares of common stock of the Company at $2.50 per
share, vesting equally over a three year period from the date of grant.
OTHER TRANSACTIONS
In March 1999, the Company granted the Chairman options to purchase 500,000
shares of common stock at $2.50 per share, which is the fair value as determined
by the Board of Directors. The options were granted in return for the guarantee
of the credit lines payable by the Chairman, and vest equally over a three year
period from the date of grant.
In conjunction with an acquisition, the Company issued options to purchase
200,000 shares at $9.00 per share (See Note 2).
F-22
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 12 - STOCK OPTIONS - (CONTINUED)
The following table summarizes information about the aggregate stock option
activity for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -- $-- -- $--
Granted 910,000 3.93 600,000 .23
Exercised -- -- -- --
Expired -- -- 600,000 .23
-------- ----- -------- ----
Outstanding, end of year 910,000 $3.93 -- $--
-------- ===== -------- ====
Options vested, end of year -- $-- -- $--
======== ===== ======== ====
</TABLE>
The weighted average fair value of options granted during 1999 on granted
options whose exercise price exceeds the market price of the stock on the grant
date is $0.07. The weighted average fair value of options granted during 1999 on
granted options whose exercise price is the market price of the stock on the
grant date is $1.22.
The weighted average fair value of options granted during 1998 on granted
options whose exercise price equals the market price of the stock on the grant
date was immaterial. There were no granted options whose exercise price is less
than the market price of the stock on the grant date in 1998.
The following table summarizes information concerning currently outstanding and
exercisable stock options:
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL AVERAGE
RANGE OF NUMBER LIFE EXERCISE
EXERCISE PRICES OUTSTANDING (YEARS) PRICE
------------------- ----------- ----------- ---------
Outstanding Shares
$2.50 710,000 4.66 $2.50
$9.00 200,000 4.25 $9.00
F-23
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 12 - STOCK OPTIONS - (CONTINUED)
The Company has adopted only the disclosure provision of SFAS No. 123, as it
related to employee awards. APB No. 25 is applied in accounting for the plan.
Accordingly, no compensation expense is recognized related to the stock based
compensation plans. The pro forma net earnings per common share, if the Company
had elected to account for its plan consistent with the methodology prescribed
by SFAS No. 123, are shown in the following table:
1999 1998
--------- --------
Net earnings (loss):
As reported $(301,894) $ 71,764
Pro forma $(330,000) $ 71,764
Net earnings (loss) per common share -
basic and diluted:
As reported $(0.11) $0.04
Pro forma $(0.12) $0.04
The fair value of each option grant is estimated on the date of grant using the
Binomial options pricing model with the following weighted average assumptions
used for grants in 1999: no dividend yields; expected volatility of 50%; risk
free interest rates of 5.6%; and expected lives of 4.5 years. The weighted
average fair value of options granted in 1999 is $.97.
NOTE 13 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings
per common share:
1999 1998
--------- ----------
Numerator:
Net earnings (loss) $ (299,359) $ 71,764
Less: preferred stock dividends (2,535) -
--------- ---------
$ (301,894) $ 71,764
========= =========
Denominator:
For basic earnings per share - weighted and
dilutive average shares 2,865,190 1,701,074
Effect of dilutive securities:
Employee stock options - -
Series A Convertible Preferred Stock - -
Series B Cumulative Convertible
Preferred Stock - -
- -
--------- ---------
For diluted earnings per share 2,865,190 1,701,071
========= =========
Net earnings (loss) per common share - Basic $(0.11) $0.04
Net earnings (loss) per common share - Diluted $(0.11) $0.04
The effect of all dilutive securities for 1999 (see Notes 9, 11 and 12) were not
included in the calculation of diluted net loss per share, as the effect would
have been anti-dilutive. There were no dilutive securities in 1998.
F-24
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 14 - CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are limited due
to the distribution of sales over a large customer base as of March 31, 1999.
For the year ended March 31, 1999, one customer represented approximately 10.8%
of revenues derived from distribution while three customers represented
approximately 32% of revenues derived from manufacturing operations. No
customers represented 10% or more of consolidated revenues as of March 31, 1999.
For the year ended March 31, 1998, one customer represented 16% of revenues
derived from distribution while four customers represented approximately 67% of
revenues derived from manufacturing operations.
The Company has no concentration of customers within specific geographic areas
outside the United States that would give rise to significant geographic credit
risk.
NOTE 15 - FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has two industry segments: Distribution and Manufacturing. The
channels of distribution for its proprietary products and the channels of
distribution of the products it manufactures for others include health food,
drug, convenience and mass-market stores, and direct marketing through radio,
catalog sales and infomercials throughout the United States. The Company has two
manufacturing facilities located in the greater Tampa Bay, Florida area and
distribution centers located in Pittsburgh, Pennsylvania and Mandeville,
Louisiana. Intersegment sales include a margin, based on market pricing, which
is eliminated in consolidation.
The following table shows net sales, gross profit, operating income and assets,
which are the areas management uses in its business segment analysis. Amounts
shown below are as of and for the years ended March 31, 1999 and 1998.
1999 1998
------- -------
(in thousands)
Revenues
Distribution $31,982 $10,851
Manufacturing 4,416 1,907
------- -------
36,398 12,758
Intersegment sales 2,750 -
------- -------
Total $39,148 $12,758
======= =======
Gross profit
Distribution $ 1,737 $ 428
Manufacturing 997 518
------- -------
Total $ 2,734 $ 946
======= =======
F-25
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999 AND 1998
NOTE 15 - FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - (CONTINUED)
1999 1998
------- ------
(in thousands)
Operating income (loss)
Distribution $ (5) $ 65
Manufacturing (119) 14
------- ------
Total $ (124) $ 79
======= ======
Assets
Distribution $ 4,736 $1,641
Manufacturing 4,618 874
Corporate 1,187 -
------- ------
Total $10,541 $2,515
======= ======
F-26
<PAGE>
REPORT OF MANAGEMENT
The management of Dynamic Health Products, Inc. is responsible for the
preparation of the consolidated financial statements in accordance with
generally accepted accounting principles and for the integrity and objectivity
of all the financial data included in this annual report. In preparing the
consolidated financial statements, management makes informed judgments and
estimates as to the expected effects of events and transactions currently being
reported.
To meet this responsibility, the Company maintains a system of internal
accounting controls to provide reasonable assurance that assets are safeguarded
and transactions are properly executed and recorded. The system includes
policies and procedures, and reviews by officers of the Company.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's consolidated financial statements and the system of internal
accounting controls. The Audit Committee meets periodically and, when
appropriate, separately with representatives of the independent accountants and
officers of the Company to monitor the activities of each.
Grant Thornton LLP, the independent accountants, have been selected by the Board
of Directors to examine the Company's financial statements as of and for the
year ended March 31, 1998. Their report appears herein.
Jugal K. Taneja William L. LaGamba
Chairman Of The Board Chief Executive Officer
June 26, 1999
F-27
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.7 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., filed September 1, 1998.
3.8 Articles of Restatement of the Articles of Incorporation of Dynamic
Health Products, Inc., filed April 16, 1999.
10.2 Employment Agreement between the Company and Paul Santostasi dated June
12, 1998.
10.3 Employment Agreement between the Company and Jugal K. Taneja dated
March 15, 1999.
10.4 Employment Agreement between the Company and William L. LaGamba dated
March 15, 1999.
10.5 Employment Agreement between the Company and Dr. Kotha S. Sekharam
dated March 15, 1999.
10.6 Employment Agreement between the Company and Mihir Taneja dated March
15, 1999.
10.11 Loan And Security Agreement between Dynamic Health Products, Inc. and
Innovative Health Products, Inc. and The CIT Group/Credit Finance, Inc.
dated February 2, 1999.
10.12 Dynamic Health Products, Inc. 1999 Stock Option Plan.
10.13 Stock Option Agreement between Dynamic Health Products, Inc. and Jugal
K. Taneja dated March 12, 1999.
21.1 Dynamic Health Products, Inc. - List of Subsidiaries.
27.1 Financial Data Schedule (for SEC use only).
EXHIBIT 3.7
STATE OF FLORIDA
[GRAPHIC OMITTED]
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of Amendment,
filed on September 1, 1998, to Articles of Incorporation for DYNAMIC HEALTH
PRODUCTS, INC., a Florida Corporation, as shown by the records of this office.
The document number of this corporation is P98000009368.
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Fourth day of September, 1998
[SEAL]
CR2E022 (2-95)
/s/ SANDRA B. MORTHAM
SANDRA B. MORTHAM
SECRETARY OF STATE
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES INCORPORATION
OF
DYNAMIC HEALTH PRODUCTS, INC.
(FORMERLY KNOWN AS NU-WAVE HEALTH PRODUCTS, INC.)
The corporation is filing these articles of amendment to articles of
incorporation pursuant to F.S. 607.0602 to establish a series of preferred
stock.
1. The name of the corporation is Dynamic Health Products, Inc.
2. Article III of the articles of incorporation of Nu-Wave Health
Products, Inc. was amended to add the following provisions:
ESTABLISHMENT OF SERIES B 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
1.1 "ACCRUED DIVIDENDS" shall mean, with respect to any share of
Preferred Stock, as of any date, the accrued and unpaid dividends on such share
from and including the most recent Dividend Payment Date (or the Issue Date, if
such date is prior to the first Dividend Payment Date) to but not including such
date.
1.2 "AVERAGE CLOSING PRICE" shall mean the average closing price
of the Common Stock on the Applicable Trading Market.
1.3 "APPLICABLE TRADING MARKET" shall mean the OTC Bulletin Board
or, if the Common Stock is listed for trading thereon, The Nasdaq Stock Market,
operated by the National Association of Securities Dealers, Inc., or if neither
of the foregoing is the principal market on which the Common Stock is then
Traded or quoted any principal successor stock exchange or market where the
Common Stock is listed or included
1.4 "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or, with respect to any action to be taken by the Board of Directors,
any committee of the Board of Directors duly authorized to take such action.
1.5 "COMMON STOCK" shall mean the common stock, par value $.01 per
share , of the Company, or any other class of stock resulting from successive
changes or reclassifications of such common stock consisting solely of changes
in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Company is a constituent corporation.
<PAGE>
1.6 "COMPANY" shall mean Nu-Wave Health Products, Inc., a Florida
corporation.
1.7 "CONVERSION DATE" shall mean the date upon which the Company
receives the Notice of Conversion provided for in Section 5.2.
1.8 "CONVERSION RATE" shall have the meaning provided for in
Section 5.1.
1.9 "DIVIDEND PAYMENT DATE" shall mean August 15 of each year,
commencing August 15, 1999.
1.10 "DIVIDEND RECORD DATE" shall mean, with respect to each
Dividend Payment Date, a date not more than 60 days nor less than 10 days
preceding a Dividend Payment Date, as shall be fixed by the Board of Directors.
1.11 "ISSUE DATE" shall mean the date a share of Preferred Stock is
issued by the Company.
1.12 "JUNIOR STOCK" shall mean the Common Stock and the shares of
any other class or series of stock of the Company created on or after the
issuance of the Series A Preferred Stock that, by the terms of the Articles of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Articles of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series A Preferred Stock in respect of the right to receive dividends or to
participate in any other distribution of assets.
1.13 "LIQUIDATION PREFERENCE" shall mean, with respect to each
share of Series B Preferred Stock, $2.50.
1.14 "MARKET VALUE" shall mean the Average Closing Price for a five
consecutive trading day period.
1.15 "PARI PASSU STOCK" shall mean the shares of any class or
series of stock of the Company created on or after the issuance of the Series B
Preferred Stock that, by the terms of the Articles of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Articles of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall, in the event that the amounts payable thereon in
liquidation are not paid in full, be entitled to share ratably with the Series B
Preferred Stock in any other distribution of assets in accordance with the sums
or other consideration which would be payable in such distribution if all sums
payable were discharged in full.
1.16 "PERSON" shall mean any individual, corporation, general
partnership, limited partnership, limited liability Partnership, joint venture,
association, joint-stock company, trust, limited liability Company,
unincorporated organization or government or any agency or political subdivision
thereof.
1.17 "SERIES B PREFERRED STOCK" shall mean the Series B 6%
Cumulative Convertible Preferred Stock designated and created hereby.
2
<PAGE>
2. CREATION AND DESIGNATION OF SERIES B 6% CUMULATIVE CONVERTIBLE
PREFERRED STOCK.
2.1 Pursuant to the authority conferred upon the Board of
Directors by Article III of the Articles of Incorporation of the Company, as
amended, there is hereby created and the Company is hereby authorized to issue
800,000 shares of a second series of preferred stock, designated "Series B 6%
Cumulative Convertible Preferred Stock," par value $.01 per share, which shall
have the terms, conditions, designation, preferences and privileges, relative,
participating, optional and other special rights, qualifications, limitations
and restrictions as provided for herein.
2.2 The shares of Series B Preferred Stock shall have no voting
rights except as required by law.
2.3 Each share of Series B Preferred Stock shall have the same
rights and preferences as and be identical in all respects with each other share
of Series B Preferred Stock.
2.4 The shares of Series B Preferred Stock shall share ratably
with the shares of Series A Convertible Preferred Stock of the Company ("Series
A Preferred Stock") in amounts payable upon liquidation of the Company as
provided for in Section 4 hereof.
2.5 The Company may create, authorize or issue any shares of
Junior Stock or Pari Passu Stock or increase or decrease the amount of
authorized capital stock of any class without the consent of the holders of
Series B Preferred Stock and in taking such actions the Company shall not be
deemed to have affected adversely the rights, preferences, privileges or voting
rights of holders of shares of Series B Preferred Stock.
3. DIVIDENDS.
3.1 The holders of shares of the outstanding Preferred Stock on
the Dividend Record date shall be entitled, out of funds legally available
therefor, to receive dividends on each outstanding share of Preferred Stock,
payable annually, in arrears, at the annual rate of 6% of the Liquidation
Preference (the "Dividend Rate"). Such dividends shall be cumulative from the
Issue Date and shall accrue on a day-to-day basis, whether or not earned or
declared, from and after the Issue Date. Dividends payable for any partial
dividend period shall be computed on the basis of actual days elapsed over a
360-day year consisting of twelve 30-day months.
3.2 Dividends may, at the option of the Company, be paid on any
Dividend Payment Date either in cash, by issuing fully paid and nonassessable
shares of Common Stock or a combination thereof. If the Company elects to pay
dividends in shares of Common Stock, the number of shares of Common Stock to be
distributed will be calculated by dividing such payment by the Market Value
ending on the Dividend Payment Date. If the shares of Common Stock issued
hereunder are not subject to an effective registration statement under the
Securities Act of
3
<PAGE>
1933, such shares shall be "restricted securities" and shall bear a restrictive
legend prohibiting transfer without an opinion of counsel that registration is
not required.
3.3 No dividends or other distributions (other than a dividend or
distribution in Junior Stock, other than the Common Stock) may be declared, made
or paid or set apart for payment on the Common Stock, Junior Stock or PARI PASSU
Stock , unless full cumulative dividends shall have been or contemporaneously
are paid or declared and a sum sufficient for the payment thereof is set apart
for such payment on all outstanding shares of Preferred Stock and such other
PARI PASSU Stock. Notwithstanding the foregoing, if full dividends have not been
paid on the Preferred Stock or on any PARI PASSU Stock, dividends may be
declared and paid on the Preferred Stock and such PARI PASSU Stock so long as
the dividends are declared and paid pro rata so that the amounts of dividends
declared per share of the Preferred Stock and such PARI PASSU Stock will in all
cases bear to each other the same ratio that Accrued Dividends on the shares of
Preferred Stock and such PARI PASSU Stock bear to each other.
3.4 Holders of shares of Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Preferred Stock. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Preferred Stock which may be in arrears.
3.5 Accrued and unpaid dividends, with respect to converted shares
shall be prorated based on a 360 day year and paid upon conversion.
3.6 To the extent that the amount of any dividend payable to a
holder of Preferred Stock (in respect of all shares held by such holder) is
payable in shares of Common Stock and does not equal a whole number of shares of
Common Stock, such fractional amount shall be paid in cash to such holder of
Preferred Stock.
4. LIQUIDATION RIGHTS.
4.1 Subject to the provisions of Section 2.4 hereof, in the event
of any liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary, the holders of the shares of Series B Preferred Stock shall be
entitled to receive out of the assets of the Company available for distribution
to stockholders the Liquidation Preference plus Accrued Dividends thereon in
preference to the holders of, and before any distribution is made on, any Junior
Stock, including, without limitation, on any Common Stock.
4.2 Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Company nor the merger or consolidation of the
Company into or with any other corporation, or the merger or consolidation of
any other corporation into or with the Company, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, for the
purposes of this Section 4.
4
<PAGE>
4.3 After the payment to the holders of the shares of Series A
Preferred Stock and Series B Preferred Stock of full preferential amounts
provided for in this Section 4, the holders of Series A Preferred Stock and
Series B Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Company.
4.4 In the event the assets of the Company available for
distribution to the holders of shares of Series A Preferred Stock and Series B
Preferred Stock upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which holders are entitled pursuant to Section 4.1, no such
distribution shall be made on account of any shares of any Pari Passu Stock upon
such liquidation, dissolution or winding up unless proportionate distributable
amounts shall be paid on account of the shares of Series A Preferred Stock and
Series B Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all Series A Preferred Stock and Series B Preferred
Stock and Pari Passu Stock are entitled upon such liquidation, dissolution or
winding up.
5. CONVERSION.
5.1 The holder of Series B Preferred Stock shall have the right,
at its option, at any time and from time to time to convert, subject to the
terms and provisions of this Section 5, any or all of the holder's shares of
Series B Preferred Stock. In such case, each share of Series B Preferred Stock
shall be converted into one (1) (the "Conversion Rate") fully paid and
nonassessable shares of Common Stock. No payment or adjustment shall be made in
respect of dividends on the Common Stock or the Series B Preferred Stock upon
conversion. In the event that the Average Closing Price of the Common Stock for
any five consecutive trading day period after the date hereof is $5.00 per share
or more (subject to adjustment upon the occurrence of the same events and in the
same manner as is provided for in this Section 5.1), each holder of Series B
Preferred Stock shall be deemed, on the first day after such five-day period, to
have automatically given notice of the conversion of all of such holder's shares
of Series B Preferred Stock and in that event all holders shall follow the
procedure set forth in Section 5.2.
5.2 The conversion right of a holder of Series B Preferred Stock
shall be exercised by the holder by the surrender of the certificates
representing shares to be converted to the Company at any time during usual
business hours at its principal place of business, accompanied by written notice
(the "Notice of Conversion") that the holder elects to convert all or a portion
of the shares of Series B Preferred Stock represented by such certificate. The
Notice of Conversion shall read substantially as follows:
The undersigned holder (the "Holder") is surrendering to Nu-Wave
Health Products, Inc., a Florida corporation (the "Company"), one or
more certificates representing shares of Series B 6% Cumulative
Convertible Preferred Stock of the Company (the "Series B Preferred
Stock") in connection with the Conversion of all or a portion of the
Series B Preferred Stock into shares of Common Stock, $.01 par value
per share, of the Company (the "Common Stock") as set forth below.
5
<PAGE>
1. The Holder understands that the Series B Preferred Stock
was issued by the Company pursuant to the exemption from
registration under the United States Securities Act of 1933, as
amended (the "Securities Act").
2. The Holder represents and warrants that all offers and
sales of the Common Stock issued to the Holder upon such conversion
of the Series B Preferred Stock shall be made either pursuant to an
effective registration statement under the Securities Act, in
compliance with Rule 144, or pursuant to some other exemption from
registration.
Number of shares of Series B Preferred Stock being converted:
___________.
Applicable Conversion Price: _______.
Number of shares of Common Stock issuable: __________.
Name of Holder:
_____________________________________
(Signature of Holder)
5.3 Immediately prior to the close of business on the date of
receipt by the Company of Notice of Conversion, the converting holder of Series
B Preferred Stock shall be deemed to be the holder of record of Common Stock
issuable upon conversion of such holder's Series B Preferred Stock
notwithstanding that certificates representing such Common Stock shall not then
be actually delivered to such person. On the Conversion Date, all rights with
respect to the shares of Series B Preferred Stock so converted, including the
rights, if any, to receive dividends and notices, will terminate, except only
the rights of holders thereof to (i) receive certificates for the number of
shares of Common Stock into which such shares of Series B Preferred Stock have
been converted; and (ii) exercise the rights to which they are entitled as
holders of Common Stock.
5.4 The Conversion Rate shall be subject to adjustment in case the
Company shall at any time or from time to time (A) make a redemption payment or
pay a dividend (or other distribution) payable in shares of Common Stock on any
class of capital stock (which, for purposes of this Section 5.4 shall include,
without limitation, any dividends or distributions in the form of options,
warrants or other rights to acquire capital stock) of the Company; (B) subdivide
the outstanding shares of Common Stock into a larger number of shares; (C)
combine the outstanding shares of Common Stock into a smaller number of shares;
(D) issue any shares of its capital stock in a reclassification of the Common
Stock; or (E) pay a dividend or make a distribution to all holders of shares of
Common Stock pursuant to a stockholder rights plan, "poison pill" or similar
arrangement then, and in each such case, the Conversion Rate in effect
6
<PAGE>
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any share of Series
B Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such holder would have owned
or would have been entitled to receive upon or by reason of any of the events
described above, had such share of Series B Preferred Stock been converted
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 5.4 shall become effective retroactively (x) in the case of any
such dividend or distribution, to the day immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.5 Upon any increase or decrease in the Conversion Rate, then, and
in each such case, the Company promptly shall deliver to each holder of Series B
Preferred Stock a certificate signed by an authorized officer of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased Conversion Rate then in effect following such adjustment.
5.6 No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of any shares of Series B
Preferred Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at one time by the same holder the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Series B
Preferred Stock so surrendered. If the conversion of any share or shares of
Series B Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the last reported closing bid price of the Common Stock on the
Applicable Trading Market at the close of business on the trading day next
preceding the day of conversion shall be paid to such holder in cash by the
Company.
5.7 In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in case of any consolidation or merger of the Company with or into another
Person (other than a consolidation or merger in which the Company is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Company (any of the foregoing, a "Transaction"), each share of Series B
Preferred Stock then outstanding shall, without the consent of any holder of
Series B Preferred Stock, become convertible only into the kind and amount of
shares of stock or other securities (of the Company or another issuer) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Series B Preferred Stock could
have been converted immediately prior to such Transaction after giving effect to
any adjustment event. The provisions of this Section 5.7 and any equivalent
thereof in any such certificate similarly shall apply to successive
Transactions. The provisions of this Section 5.7 shall be the sole right of
holders of Series B Preferred Stock in connection with any Transaction and such
holders shall have no separate vote thereon.
7
<PAGE>
5.8 In the case of any distribution by the Company to its
stockholders of substantially all of its assets, each holder of Series B
Preferred Stock will participate PRO RATA in such distribution based on the
number of shares of Common Stock into which such holders' shares of Series B
Preferred Stock would have been convertible immediately prior to such
distribution.
5.9 The Company shall at all times reserve and keep available for
issuance upon the conversion of the Series B Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series B
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series B Preferred Stock.
5.10 The issuance or delivery of certificates for Common Stock upon
the conversion of shares of Series B Preferred Stock shall be made without
charge to the converting holder of shares of Series B Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Series B Preferred Stock converted;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the holder of the shares of
Series B Preferred Stock converted, and the Company shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Company the
amount of such tax or shall have established to the reasonable satisfaction of
the Company that such tax has been paid.
6. OTHER PROVISIONS.
6.1 With respect to any notice to a holder of shares of Series B
Preferred Stock required to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any such action. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
6.2 Shares of Series B Preferred Stock issued and reacquired will
be retired and canceled promptly after reacquisition thereof and, upon
compliance with the applicable requirements of Florida law, have the status of
authorized but unissued shares of Series B Preferred Stock of the Company
undesignated as to series and may with any and all other authorized but unissued
shares of Series B Preferred Stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of Series B
Preferred
8
<PAGE>
Stock of the Corporation, except that any issuance or reissuance of shares of
Series B Preferred Stock must be in compliance with these Articles of Amendment.
6.3 All notices periods referred to herein shall commence on the
date of the mailing of the applicable notice.
3. The foregoing amendment to articles of incorporation was duly
adopted by the board of directors on July 22, 1998.
Signed this 20th day of August, 1998.
DYNAMIC HEALTH PRODUCTS, INC.
By: /s/ KOTHA S. SEKHARAM
-------------------------------
Kotha S. Sekharam, as President
9
EXHIBIT 3.8
STATE OF FLORIDA
[GRAPHIC OMITTED]
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Restated Articles of
Incorporation, filed on April 16, 1999, for DYNAMIC HEALTH PRODUCTS, INC.,
a Florida corporataion, as shown by the records of this office.
I further certify the document was electronically received under FAX audit
number H99000008978. This certificate is issued in accordance with
section 15.16, Florida Statutes, and authenticated by the code noted below.
The document number of this corporation is P98000009368.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Nineteenth day of April, 1999
Authentication Code: 799A00020166-041999-P98000009368-1/1
[SEAL] /s/ KATHERINE HARRIS
-------------------------------------
Katherine Harris
Secretary of State
<PAGE>
ARTICLES OF RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
DYNAMIC HEALTH PRODUCTS, INC.
PURSUANT to Section 607.1007 of the Florida Business Corporation Act,
this Corporation adopts the following Articles of Restatement of its Articles of
Incorporation as follows:
1. The name of the corporation before and after restatement is Dynamic
Health Products, Inc.
2. The text of the restated Articles of Incorporation is attached
hereto.
3. The restated Articles of Incorporation contain amendments to the
Corporation's Articles of Incorporation requiring shareholder approval. These
Articles of Restatement were duly adopted pursuant to Sections 607.1003 and
607.1007 of the Florida Business Corporation Act by the Board of Directors of
the Corporation on March 10, 1999 and by the Shareholder Written Consent to
Action dated as of March 10, 1999. The number of votes cast in favor of these
Articles of Restatement by the holders of the shares of Common Stock and Series
A Convertible Preferred Stock, voting together as a class, was sufficient for
the approval by such holders.
4. The date of the adoption of the Restated Articles of Incorporation
was March 10, 1999.
5. These Articles of Restatement shall be effective upon filing.
Date: April 19, 1999.
Prepared by: /s/ JUGAL K. TANEJA
Philip M. Shasteen, Esq. --------------------------------------
100 N. Tampa St., Ste. 1800 Jugal K. Taneja, Chairman of the Board
Tampa, FL .33602
813-225-2500
Florida Bar Number: 0194712
<PAGE>
ARTICLES OF RESTATEMENT
TO THE
ARTICLES OF INCORPORATION
OF
DYNAMIC HEALTH PRODUCTS, INC.
ARTICLE I
NAME
The name of the Corporation is Dynamic Health Products, Inc.
ARTICLE II
PRINCIPAL OFFICE
The Corporation shall maintain its principal office at 6950 Bryan Dairy
Road, Largo, FL 33777, or at such other place as the Board of Directors may
designate from time to time.
ARTICLE III
AUTHORIZED SHARES
The total number of shares which the corporation shall have the
authority to issue shall be twenty two million (22,000,000) shares, consisting
of twenty million (20,000~000) shares of Common Stock and two million
(2,000,000) shares of Preferred Stock, all having a par value of $0.01 per
share. The preferred stock may be issued from time to time in one or more
series, each of such series to have such terms as stated or expressed herein and
in the resolution or resolutions providing for the issue of such series adopted
by othe Board of Directors of the Corporation as hereinafter provided. Any
shares of preferred stock which may be redeemed, purchased or acquired by the
Corporation may be reissued except as otherwise provided by law. Different
shares of preferred stock shall not be construed to constitute different classes
of shares for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to provide for the issuance of preferred stock in one or more
series, and in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to determine and fix
such voting powers. full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof including without
limitation, dividend rights, special voting rights, conversion rights,
redemption privileges and liquidation preferences. as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter permitted
by the Florida Business Corporation Act. Without limited the generality of the
foregoing, the resolutions providing for issuance of any series of preferred
stock may provide that such series
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shall be superior or ranked equally or be junior to the Preferred Stock of any
other series to the extent permitted by law. Except as otherwise specifically
provided in a resolution establishing a series of Preferred Stock, no vote of
the holders of the preferred stock or common stock shall be a prerequisite to
the issuance of any shares of any series of the Preferred Stock authorized by
and complying with the conditions of these Articles of Incorporation.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any respect. The Board of
Directors may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board of Directors may decrease the number of shares
of the Preferred Stock designated for any existing class or series of the
Preferred Stock and the shares so subtracted shall become authorized, unissued
and undesignated shares of the Preferred Stock.
Prior to the issuance of any shares of a series, but after adoption by
the Board of Directors of the resolution establishing such series, the
appropriate officers of the Corporation shall file such documents with the State
of Florida as may be required by the Florida Business Corporation Act including,
without limitation, an amendment to the Articles of Incorporation.
ESTABLISHMENT OF SERIES A CONVERTIBLE PREFERRED STOCK.
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
1.1 "AVERAGE CLOSING PRICE" shall mean the average closing price
of the Common Stock on the Applicable Trading Market.
1.2 "APPLICABLE TRADING MARKET" shall mean the OTC Bulletin Board
or, if the Common Stock is listed for trading thereon, The Nasdaq Stock Market,
operated by the National Association of Securities Dealers, Inc., or if neither
of the foregoing is the principal market on which the Common Stock is then
Traded or quoted any principal successor stock exchange or market where the
Common Stock is listed or included
1.3 "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or, with respect to any action to be taken by the Board of Directors,
any committee of the Board of Directors duly authorized to take such action.
1.4 "COMMON STOCK" shall mean the common stock, par value $.0l per
share, of the Company, or any other class of stock resulting from successive
changes or reclassifications of such common stock consisting solely of changes
in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Company is a constituent corporation.
1.5 "COMPANY" shall mean Dynamic Health Products, Inc., a Florida
corporation.
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1.6 "CONVERSION DATE" shall mean the date upon which the Company
receives the Notice of Conversion provided for in Section 5.2.
1.7 "CONVERSION RATE" shall have the meaning provided for in
Section 5.1.
1.8 "JUNIOR STOCK" shall mean the Common Stock and the shares of
any other class or series of stock of the Company created on or after the
issuance of the Series A Preferred Stock that, by the terms of the Articles of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Articles of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series A Preferred Stock in respect of the right to receive dividends or to
participate in any other distribution of assets.
1.9 "LIQUIDATION PREFERENCE" shall mean, with respect to each
share of Series B Preferred Stock, $5.00.
1.10 "MARKET VALUE" shall mean the Average Closing Price for a
five consecutive trading day period.
1.11 "PARI PASSU STOCK" shall mean the shares of any class or
series of stock of the Company created on or after the issuance of the Series A
Preferred Stock that, by the terms of the Articles of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Articles of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall, in the event that the amounts payable thereon in
liquidation are not paid in full, be entitled to share ratably with the Series A
Preferred Stock in any other distribution of assets in accordance with the sums
or other consideration which would be payable in such distribution if all sums
payable were discharged in full.
1.12 "PERSON" shall mean any individual, corporation, general
partnership, limited partnership, limited liability Partnership, joint venture,
association, joint-stock company, trust, limited liability Company,
unincorporated organization or government or any agency or political subdivision
thereof.
1.13 "SERIES A PREFERRED STOCK" shall mean the Series A
Convertible Preferred Stock designated and created hereby.
Section 2. CREATION AND DESIGNATION OF SERIES A CONVERTIBLE PREFERRED
STOCK.
2.1 Pursuant to the authority conferred upon the Board of
Directors by Article III of the Amended and Restated Articles of Incorporation
of the Company, as amended, there is hereby created and the Company is hereby
authorized to issue 400,000 shares of a first series of preferred stock,
designated "Series A Convertible Preferred Stock," par value $.O1 per share
which shall have the terms, conditions, designation, preferences and privileges,
relative, participating, optional and other special rights, qualifications,
limitations and restrictions as provided for herein.
2.2 Each share of Series A Preferred Stock shall have the same
rights and preferences as and be identical in all respects with each other share
of Series A Preferred Stock.
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2.3 The Company may create, authorize or issue any shares of
Junior Stock or Pari Passu Stock or increase or decrease the amount of
authorized capital stock of any class without the consent of the holders of
Series A Preferred Stock and in taking such actions the Company shall not be
deemed to have affected adversely the rights, preferences, privileges or voting
rights of holders of shares of Series A Preferred Stock.
Section 3. Voting.
The holders of record shares of Series A Preferred Stock and the
holders of record of the Common Stock, voting as a single class, shall be
entitled to one vote for each share on all matters submitted to the
shareholders, subject to the right of the Board of Directors to fix a record
date for the determination of shareholders entitled to notice of and to vote at
any meeting.
Section 4. LIQUIDATION RIGHTS.
4.1 In the event of any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the shares of
Series A Preferred Stock shall be entitled to receive out of the assets of the
Company available for distribution to stockholders the Liquidation Preference in
preference to the holders of, and before any distribution is made on, any Junior
Stock, including, without limitation, on any Common Stock.
4.2 Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Company nor the merger or consolidation of the
Company into or with any other corporation, or the merger or consolidation of
any other corporation into or with the Company, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, for the
purposes of this Section 4.
4.3 After the payment to the holders of the shares of Series A
Preferred Stock of full preferential amounts provided for in this Section 4, the
holders of Series A Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Company.
4.4 In the event the assets of the Company available for
distribution to the holders of shares of Series A Preferred Stock upon any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which holders
are entitled pursuant to Section 4.1, no such distribution shall be made on
account of any shares of any Pari Passu Stock upon such liquidation, dissolution
or winding up unless proportionate distributable amounts shall be paid on
account of the shares of Series A Preferred Stock, ratably, in proportion to the
full distributable amounts for which holders of all Series A Preferred Stock and
Pari Passu Stock are entitled upon such liquidation, dissolution or winding up.
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Section 5. CONVERSION.
5.1 The holder of Series A Preferred Stock shall have the right,
at its option, at any time and from time to time to convert, subject to the
terms and provisions of this Section 5, any or all of the holder's shares of
Series A Preferred Stock. In such case, each share of Series A Preferred Stock
shall be converted into one (1) (the "Conversion Rate") fully paid and
nonassessable shares of Common Stock. In the event that the Average Closing
Price of the Common Stock for any five consecutive trading day period after the
date hereof is $5.00 per share or more (subject to adjustment upon the
occurrence of the same events and in the same manner as is provided for in this
Section 5.1), each holder of Series A Preferred Stock shall be deemed to have
automatically given notice of the conversion of all of such holder's shares of
Series A Preferred Stock.
5.2 The conversion right of a holder of Series A Preferred Stock
shall be exercised by the holder by the surrender of the certificates
representing shares to be converted to the Company at any time during usual
business hours at its principal place of business, accompanied by written notice
(the "Notice of Conversion") that the holder elects to convert all or a portion
of the shares of Series A Preferred Stock represented by such certificate. The
Notice of Conversion shall read substantially as follows:
The undersigned holder (the "Holder") is surrendering to
Dynamic Health Products, Inc., a Florida corporation (the
"Company"), one or more certificates representing shares of
Series A Convertible Preferred Stock of the Company (the
"Series A Preferred Stock") in connection with the Conversion
of all or a portion of the Series A Preferred Stock into
shares of Common Stock, $.01 par value per share, of the
Company (the "Common Stock") as set forth below.
1. The Holder understands that the Series A Preferred
Stock was issued by the Company pursuant to the exemption from
registration under the United States Securities Act of 1933,
as amended (the "Securities Act").
2. The Holder represents and warrants that all offers
and sales of the Common Stock issued to the Holder upon such
conversion of the Series A Preferred Stock shall be made
either pursuant to an effective registration statement under
the Securities Act, in compliance with Rule 144, or pursuant
to some other exemption from registration.
3. The Holder is subject to a lockup agreement dated
June 12, 1998.
Number of shares of Series A Preferred Stock being converted:______
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Applicable Conversion Price: ________
Number of shares of Common Stock issuable: ___________
Name of Holder:
___________________________________
(Signature of Holder)
5.3 Immediately prior to the close of business on the date of
receipt by the Company of Notice of Conversion, the converting holder of Series
A Preferred Stock shall be deemed to be the holder of record of Common Stock
issuable upon conversion of such holder's Series A Preferred Stock
notwithstanding that certificates representing such Common Stock shall not then
be actually delivered to such person. On the Conversion Date, all rights with
respect to the shares of Series A Preferred Stock so converted, including the
rights, if any, to receive notices, will terminate, except only the rights of
holders thereof to (i) receive certificates for the number of shares of Common
Stock into which such shares of Series A Preferred Stock have been converted;
and (ii) exercise the rights to which they are entitled as holders of Common
Stock.
5.4 The Conversion Rate shall be subject to adjustment in case the
Company shall at any time or from time to time (A) make a redemption payment or
pay a dividend (or other distribution) payable in shares of Common Stock on any
class of capital stock (which, for purposes of this Section 5.4 shall include,
without limitation, any dividends or distributions in the form of options,
warrants or other rights to acquire capital stock) of the Company; (B) subdivide
the outstanding shares of Common Stock into a larger number of shares; (C)
combine the outstanding shares of Common Stock into a smaller number of shares;
(D) issue any shares of its capital stock in a reclassification of the Common
Stock; or (B) pay a dividend or make a distribution to all holders of shares of
Common Stock pursuant to a stockholder rights plan, "poison pill" or similar
arrangement then, and in each such case, the Conversion Rate in effect
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any share of Series
A Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such holder would have owned
or would have been entitled to receive upon or by reason of any of the events
described above, had such share of Series A Preferred Stock been converted
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 5.4 shall become effective retroactively (x) in the case of any
such dividend or distribution, to the day immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.5 Upon any increase or decrease in the Conversion Rate, then,
and in each such case, the Company promptly shall deliver to each holder of
Series B Preferred Stock a certificate signed by an authorized officer of the
Company, setting forth in reasonable detail the
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event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Rate then in
effect following such adjustment.
5.6 No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon the conversion of any shares of Series A
Preferred Stock. If more than one share of Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Series A
Preferred Stock so surrendered. If the conversion of any share or shares of
Series A Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the last reported closing bid price of the Common Stock on the
Applicable Trading Market at the close of business on the trading day next
preceding the day of conversion shall be paid to such holder in cash by the
Company.
5.7 In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in case of any consolidation or merger of the Company with or into another
Person (other than a consolidation or merger in which the Company is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Company (any of the foregoing, a "Transaction"), each share of Series A
Preferred Stock then outstanding shall, without the consent of any holder of
Series A Preferred Stock, become convertible only into the kind and amount of
shares of stock or other securities (of the Company or another issuer) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Series A Preferred Stock could
have been converted immediately prior to such Transaction after giving effect to
any adjustment event. The provisions of this Section 5.7 and any equivalent
thereof in any such certificate similarly shall apply to successive
Transactions. The provisions of this Section 5.7 shall be the sole right of
holders of Series A Preferred Stock in connection with any Transaction and such
holders shall have no separate vote thereon.
5.8 In the case of any distribution by the Company to its
stockholders of substantially all of its assets, each holder of Series A
Preferred Stock will participate PRO RATA in such distribution based on the
number of shares of Common Stock into which such holders' shares of Series A
Preferred Stock would have been convertible immediately prior to such
distribution.
5.9 The Company shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series A Preferred Stock.
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5.10 The issuance or delivery of certificates for Common Stock
upon the conversion of shares of Series A Preferred Stock shall be made without
charge to the converting holder of shares of Series A Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Series A Preferred Stock converted;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the holder of the shares of
Series A Preferred Stock converted, and the Company shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Company the
amount of such tax or shall have established to the reasonable satisfaction of
the Company that such tax has been paid.
Section 6. OTHER PROVISIONS.
6.1 With respect to any notice to a holder of shares of Series B
Preferred Stock required to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any such action. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
6.2 Shares of Series A Preferred Stock issued and reacquired will
be retired and canceled promptly after reacquisition thereof and, upon
compliance with the applicable requirements of Florida law, have the status of
authorized but unissued shares of Series A Preferred Stock of the Company
undesignated as to series and may with any and all other authorized but unissued
shares of Series A Preferred Stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of Series A
Preferred Stock of the Corporation, except that any issuance or reissuance of
shares of Series A Preferred Stock must be in compliance with these Articles of
Amendment.
6.3 All notices periods referred to herein shall commence on the
date of the mailing of the applicable notice.
ESTABLISHMENT OF SERIES B 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
1.1 "ACCRUED DIVIDENDS" shall mean, with respect to any share of
Preferred Stock, as of any date, the accrued and unpaid dividends on such share
from and including the most recent Dividend Payment Date (or the Issue Date, if
such date is prior to the first Dividend Payment Date) to but not including such
date.
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1.2 "AVERAGE CLOSING PRICE" shall mean the average closing price
of the Common Stock on the Applicable Trading Market.
1.3 "APPLICABLE TRADING MARKET" shall mean the OTC Bulletin Board
or, if the Common Stock is listed for trading thereon, The Nasdaq Stock Market,
operated by the National Association of Securities Dealers, Inc., or if neither
of the foregoing is the principal market on which the Common Stock is then
Traded or quoted any principal successor stock exchange or market where the
Common Stock is listed or included
1.4 "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or, with respect to any action to be taken by the Board of Directors,
any committee of the Board of Directors duly authorized to take such action.
1.5 "COMMON STOCK" shall mean the common stock, par value $.0 1
per share, of the Company, or any other class of stock resulting from successive
changes or reclassifications of such common stock consisting solely of changes
in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Company is a constituent corporation.
1.6 "COMPANY" shall mean Dynamic Health Products, Inc., a Florida
corporation.
1.7 "CONVERSION DATE" shall mean the date upon which the Company
receives the Notice of Conversion provided for in Section 5.2.
1.8 "CONVERSION RATE" shall have the meaning provided for in
Section 5.1.
1.9 "DIVIDEND PAYMENT DATE" shall mean August 15 of each year,
commencing August 15, 1999.
1.10 "DIVIDEND RECORD DATE" shall mean, with respect to each
Dividend Payment Date, a date not more than 60 days nor less than 10 days
preceding a Dividend Payment Date, as shall be fixed by the Board of Directors.
1.11 "ISSUE DATE" shall mean the date a share of Preferred Stock
is issued by. the Company.
1.12 "JUNIOR STOCK" shall mean the Common Stock and the shares of
any other class or series of stock of the Company created on or after the
issuance of the Series A Preferred Stock that, by the terms of the Articles of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Articles of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series A Preferred Stock in respect of the right to receive dividends or to
participate in any other distribution of assets.
1.13 "LIQUIDATION PREFERENCE" shall mean, with respect to each
share of Series B Preferred Stock, $2.50.
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1.14 "MARKET VALUE" shall mean the Average Closing Price for a
five consecutive trading day period.
1.15 "PARI PASSU STOCK" shall mean the shares of any class or
series of stock of the Company created on or after the issuance of the Series B
Preferred Stock that, by the terms of the Articles of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Articles of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall, in the event that the amounts payable thereon in
liquidation are not paid in full, be entitled to share ratably with the Series B
Preferred Stock in any other distribution of assets in accordance with the sums
or other consideration which would be payable in such distribution if all sums
payable were discharged in full.
1.16 "PERSON" shall mean any individual, corporation, general
partnership, limited partnership, limited liability Partnership, joint venture,
association, joint-stock company, trust, limited liability Company,
unincorporated organization or government or any agency or political subdivision
thereof.
1.17 "SERIES B PREFERRED STOCK" shall mean the Series B 6%
Cumulative Convertible Preferred Stock designated and created hereby.
Section 2. CREATION AND DESIGNATION OF SERIES B 6% CUMULATIVE
CONVERTIBLE PREFERRED STOCK.
2.1 Pursuant to the authority conferred upon the Board of
Directors by Article III of the Amended and Restated Articles of Incorporation
of the Company, as amended, there is hereby created and the Company is hereby
authorized to issue 800,000 shares of a second series of preferred stock,
designated "Series B 6% Cumulative Convertible Preferred Stock," par value $.01
per share, which shall have the terms, conditions, designation, preferences and
privileges, relative, participating, optional and other special rights,
qualifications, limitations and restrictions as provided for herein.
2.2 The shares of Series B Preferred Stock shall have no voting
rights except as required by law.
2.3 Each share of Series B Preferred Stock shall have the same
rights and preferences as and be identical in all respects with each other share
of Series B Preferred Stock.
2.4 The shares of Series B Preferred Stock shall share ratably
with the shares of Series A Convertible Preferred Stock of the Company ("Series
A Preferred Stock") in amounts payable upon liquidation of the Company as
provided for in Section 4 hereof.
2.5 The Company may create, authorize or issue any shares of
Junior Stock or Pai-i Passu Stock or increase or decrease the amount of
authorized capital stock of any class without the consent of the holders of
Series B Preferred Stock and in taking such actions the Company shall not be
deemed to have affected adversely the rights, preferences, privileges or voting
rights of holders of shares of Series B Preferred Stock.
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Section 3. DIVIDENDS.
3.1 The holders of shares of the outstanding Preferred Stock on
the Dividend Record date shall be entitled, out of funds legally available
therefor, to receive dividends on each outstanding share of Preferred Stock,
payable annually, in arrears, at the annual rate of 6% of the Liquidation
Preference (the "Dividend Rate"). Such dividends shall be cumulative from the
Issue Date and shall accrue on a day-to-day basis, whether or not earned or
declared, from and after the Issue Date. Dividends payable for any partial
dividend period shall be computed on the basis of actual days elapsed over a
360-day year consisting of twelve 30-day months.
3.2 Dividends may, at the option of the Company, be paid on any
Dividend Payment Date either in cash, by issuing fully paid and nonassessable
shares of Common Stock or a combination thereof. If the Company elects to pay
dividends in shares of Common Stock, the number of shares of Common Stock to be
distributed will be calculated by dividing such payment by the Market Value
ending on the Dividend Payment Date. If the shares of Common Stock issued
hereunder are not subject to an effective registration statement under the
Securities Act of 1933, such shares shall be "restricted securities" and shall
bear a restrictive legend prohibiting transfer without an opinion of counsel
that registration is not required.
3.3 No dividends or other distributions (other than a dividend or
distribution in Junior Stock, other than the Common Stock) may be declared, made
or paid or set apart for payment on the Common Stock, Junior Stock or Pail Passu
Stock, unless full cumulative dividends shall have been or contemporaneously are
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment on all outstanding shares of Preferred Stock and such other Pail
Passu Stock. Notwithstanding the foregoing, if full dividends have not been paid
on the Preferred Stock or on any Pari Passu Stock, dividends may be declared and
paid on the Preferred Stock and such Pail Passu Stock so long as the dividends
are declared and paid pro rata so that the amounts of dividends declared per
share of the Preferred Stock and such Pan Passu Stock will in all cases bear to
each other the same ratio that Accrued Dividends on the shares of Preferred
Stock and such Pail Passu Stock bear to each other.
3.4 Holders of shares of Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Preferred Stock. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Preferred Stock which may be in arrears.
3.5 Accrued and unpaid dividends, with respect to converted shares
shall be prorated based on a 360 day year and paid upon conversion.
3.6 To the extent that the amount of any dividend payable to a
holder of Preferred Stock (in respect of all shares held by such holder) is
payable in shares of Common Stock and does not equal a whole number of shares of
Common Stock, such fractional amount shall be paid in cash to such holder of
Preferred Stock.
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Section 4. LIQUIDATION RIGHTS.
4.1 Subject to the provisions of Section 2.4 hereof, in the event
of any liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary, the holders of the shares of Series B Preferred Stock shall be
entitled to receive out of the assets of the Company available for distribution
to stockholders the Liquidation Preference plus Accrued Dividends thereon in
preference to the holders of, and before any distribution is made on, any Junior
Stock, including, without limitation, on any Common Stock.
4.2 Neither the sale, conveyance, exchange or transfer. (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Company nor the merger or consolidation of the
Company into or with any other corporation, or the merger or consolidation of
any other corporation into or with the Company, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, for the
purposes of this Section 4.
4.3 After the payment to the holders of the shares of Series A
Preferred Stock and Series B Preferred Stock of full preferential amounts
provided for in this Section 4, the holders of Series A Preferred Stock and
Series B Preferred Stock. as such shall have no right or claim to any of the
remaining assets of the Company.
4.4 In the event the assets of the Company available for
distribution to the holders of shares of Series A Preferred Stock and Series B
Preferred Stock upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which holders are entitled pursuant to Section 4.1, no such
distribution shall be made on account of any shares of any Pan Passu Stock upon
such liquidation, dissolution or winding up unless proportionate distributable
amounts shall be paid on account of the shares of Series A Preferred Stock and
Series B Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all Series A Preferred Stock and Series B Preferred
Stock and Pari Passu Stock are entitled upon such liquidation, dissolution or
winding up.
Section 5. CONVERSION.
5.1 The holder of Series B Preferred Stock shall have the right,
at its option, at any time and from time to time to convert, subject to the
terms and provisions of this Section 5, any or all of the holder's shares of
Series B Preferred Stock. In such case, each share of Series B Preferred Stock
shall be converted into one (1) (the "Conversion Rate") fully paid and
nonassessable shares of Common Stock. No payment or adjustment shall be made in
respect of dividends on the Common Stock or the Series B Preferred Stock upon
conversion. In the event that the Average Closing Price of the Common Stock for
any five consecutive trading day period after the date hereof is $5.00 per share
or more (subject to adjustment upon the occurrence of the same events and in the
same manner as is provided for in this Section 5.1), each holder of Series B
Preferred Stock shall be deemed, on the first day after such five-day period, to
have automatically given notice of the conversion of all of such holder's shares
of Series B Preferred Stock and in that event all holders shall follow the
procedure set forth in Section 5.2.
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5.2 The conversion right of a holder of Series B Preferred Stock
shall be exercised by the holder by the surrender of the certificates
representing shares to be converted to the Company at any time during usual
business hours at its principal place of business, accompanied by written notice
(the "Notice of Conversion") that the holder elects to convert all or a portion
of the shares of Series B Preferred Stock represented by such certificate. The
Notice of Conversion shall read substantially as follows:
The undersigned holder (the "Holder") is surrendering to
Dynamic Health Products, Inc., a Florida corporation (the
"Company"), one or more certificates representing shares of
Series B 6% Cumulative Convertible Preferred Stock of the
Company (the "Series B Preferred Stock") in connection with
the Conversion of all or a portion of the Series B Preferred
Stock into shares of Common Stock. $.01 par value per share,
of the Company (the "Common Stock") as set forth below.
1. The Holder understands that the Series B Preferred
Stock was issued by the Company pursuant to the exemption from
registration under the United States Securities Act of 1933,
as amended (the "Securities Act").
2. The Holder represents and warrants that all offers
and sales of the Common Stock issued to the Holder upon such
conversion of the Series B Preferred Stock shall be made
either pursuant to an effective registration statement under
the Securities Act, in compliance with Rule 144, or pursuant
to some other exemption from registration.
Number of shares of Series B Preferred Stock being converted:
Applicable Conversion Price: ________
Number of shares of Common Stock issuable: __________
Name of Holder:
___________________________________
(Signature of Holder)
5.3 Immediately prior to the close of business on the date of
receipt by the Company of Notice of Conversion, the converting holder of Series
B Preferred Stock shall be deemed to be the holder of record of Common Stock
issuable upon conversion of such holder's Series B Preferred Stock
notwithstanding that certificates representing such Common Stock shall not then
be actually delivered to such person. On the Conversion Date, all rights with
respect to the
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shares of Series B Preferred Stock so converted, including the rights, if any,
to receive dividends and notices, will terminate, except only the rights of
holders thereof to (i) receive certificates for the number of shares of Common
Stock into which such shares of Series B Preferred Stock have been converted;
and (ii) exercise the rights to which they are entitled as holders of Common
Stock.
5.4 The Conversion Rate shall be subject to adjustment in case the
Company shall at any time or from time to time (A) make a redemption payment or
pay a dividend (or other distribution) payable in shares of Common Stock on any
class of capital stock (which, for purposes of this Section 5.4 shall include,
without limitation, any dividends or distributions in the form of options,
warrants or other rights to acquire capital stock) of the Company; (B) subdivide
the outstanding shares of Common Stock into a larger number of shares; (C)
combine the outstanding shares of Common Stock into a smaller number of shares;
(D) issue any shares of its capital stock in a reclassification of the Common
Stock; or (E) pay a dividend or make a distribution to all holders of shares of
Common Stock pursuant to a stockholder rights plan, "poison pill" or similar
arrangement then, and in each such case, the Conversion Rate in effect
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any share of Series
B Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such holder would have owned
or would have been entitled to receive upon or by reason of any of the events
described above, had such share of Series B Preferred Stock been converted
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 5.4 shall become effective retroactively (x) in the case of any
such dividend or distribution, to the day immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.5 Upon any increase or decrease in the Conversion Rate, then,
and in each such case, the Company promptly shall deliver to each holder of
Series B Preferred Stock a certificate signed by an authorized officer of the
Company, setting forth in reasonable detail the event requiring the adjustment
and the method by which such adjustment was calculated and specifying the
increased or decreased Conversion Rate then in effect following such adjustment.
5.6 No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon the conversion of any shares of Series B
Preferred Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at one time by the same holder the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Series B
Preferred Stock so surrendered. If the conversion of any share or shares of
Series B Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the last reported closing bid price of the Common Stock on the
Applicable Trading Market at the close of business on the trading day next
preceding the day ~f conversion shall be paid to such holder in cash by the
Company.
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5.7 In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in case of any consolidation or merger of the Company with or into another
Person (other than a consolidation or merger in which the Company is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Company (any of the foregoing, a "Transaction"), each share of Series B
Preferred Stock then outstanding shall, without the consent of any holder of
Series B Preferred Stock, become convertible only into the kind and amount of
shares of stock or other securities (of the Company or another issuer) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Series B Preferred Stock could
have been converted immediately prior to such Transaction after giving effect to
any adjustment event. The provisions of this Section 5.7 and any equivalent
thereof in any such certificate similarly shall apply to successive
Transactions. The provisions of this Section 5.7 shall be the sole right of
holders of Series B Preferred Stock in connection with any Transaction and such
holders shall have no separate vote thereon.
5.8 In the case of any distribution by the Company to its
stockholders of substantially all of its assets, each holder of Series B
Preferred Stock will participate PRO RATA in such distribution based on the
number of shares of Common Stock into which such holders shares of Series B
Preferred Stock would have been convertible immediately prior to such
distribution.
5.9 The Company shall at all times reserve and keep available for
issuance upon the conversion of the Series B Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series B
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series B Preferred Stock.
5.10 The issuance or delivery of certificates for Common Stock
upon the conversion of shares of Series B Preferred Stock shall be made without
charge to the converting holder of shares of Series B Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Series B Preferred Stock converted;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of othe holder of the shares
of Series B Preferred Stock converted, and the Company shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Cbmpany the
amount of such tax or shall have established to the reasonable satisfaction of
the Company that such tax has been paid.
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Section 6. OTHER PROVISIONS.
6.1 With respect to any notice to a holder of shares of Series B
Preferred Stock required to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any such action. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
6.2 Shares of Series B Preferred Stock issued and reacquired will
be retired and canceled promptly after reacquisition thereof and, upon
compliance with the applicable requirements of Florida law, have the status of
authorized but unissued shares of Series B Preferred Stock of the Company
undesignated as to series and may with any and all other authorized but unissued
shares of Series B Preferred Stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of Series B
Preferred Stock of the Corporation, except that any issuance or reissuance of
shares of Series B Preferred Stock must be in compliance with these Articles of
Amendment.
6.3 All notices periods referred to herein shall commence on the
date of the mailing of the applicable notice.
ARTICLE IV
REGISTERED AGENT AND OFFICE
The registered agent. of the Corporation is CT Corporation System
and its address is 1200 S. Pine Island Road, Plantation, Florida 33324.
ARTICLE V
BOARD OF DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERMS OF DIRECTORS. EXCEPT AS otherwise
fixed by or pursuant to the provisions of Article III hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, the number of the Directors of the
Company shall be fixed from time to time by or pursuant to the Bylaws of the
Company. The Directors, other than those who may be elected by the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
~vhich they severally hold office, into three classes, as nearly equal in number
as possible, as shall be provided in the manner specified in the Bylaws of the
Company, one class to be originally classified for a term expiring at the annual
meeting of shareholders to be held in 1999, another class to be originally
classified for a term
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expiring at the annual meeting of shareholders to be held in 2000, and another
class to be originally classified for a term expiring at the annual meeting of
shareholders to be held in 2001, with each director to hold office until his or
her successor shall have been duly elected and qualified. At each meeting of the
shareholders of the Company, the successors of the class of Directors whose tern
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year following the year of
their etection.
Section 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise provided for or fixed by or pursuant to the provisions of Article III
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, newly created
directorships resulting from any increase in the number of Directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled only by the affirmative
vote of a majority of the remaining Directors then in office, even though less
than a quorum of the Board of Directors. Any Director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duty elected and
qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
Section 3. REMOVAL. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect Directors under specified circumstances, any Director may
be removed from office, with or without cause, only by the affirmative vote of
the holders of 75% of the voting power of all shares of the Company entitled to
vote generally in the election of Directors, voting together as a single class.
Section 4. AMENDMENT, REPEAL, OR ALTERATION. Notwithstanding anything
contained in these Amended and restated Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least 75% of the voting
power of all shares of the Company entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal this Article V.
ARTICLE VI
Section 1. CALLING OF SPECIAL SHAREHOLDERS MEETINGS. Subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, special meetings of
shareholders of the Company may be called only by the Chairman of the Board, by
the Board of Directors pursuant to a resolution approved by a majority of the
entire Board of Directors or by written requests signed, dated and delivered to
the Secretary of the Company by the holders of record of at least 35% of all the
votes entitled to be cast on the issues proposed to be considered at the meeting
and describing the purposes for which it is to be held.
Section 2. AMENDMENT, REPEAL, OR ALTERATION. Notwithstanding anything
contained in these Articles of Incorporation to the contrary, the affirmative
vote of the holders of at least 75% of the voting power of all shares of the
Company entitled to vote generally in the election of
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directors, voting together as a single class, shall be required to alter, amend
or repeal this Article VI.
ARTICLE VII
Section 1. NOTICE OF SHAREHOLDER BUSINESS. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company, not less than 60 days prior to the meeting. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Company's books, of the shareholder proposing such business, (c) the class and
number of shares of the Company which are beneficially owned by the shareholder,
and (d) any material interest of the shareholder in such business.
Notwithstanding anything in this Articles to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Article VII. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this Article
VII and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 2. AMENDMENT, REPEAL, OR ALTERATION. Notwithstanding anything
contained in these Amended and Restated Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least 75% of the voting
power of all shares of the Company entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal this Article VII.
ARTICLE VIII
Section 1. ELIGIBILITY TO MAKE NOMINATIONS. Nominations of candidates
for election as directors of the Company at any meeting of shareholders called
for election of directors, in whole or in part (an "Election Meeting"), may be
made by the Board of Directors ("Board") or by any shareholder entitled to vote
at such Election Meeting.
Section 2. PROCEDURE FOR NOMINATIONS BY THE BOARD OF DIRECTORS.
Nominations made by the Board shall be made as provided in the Bylaws.
Section 3. PROCEDURE FOR NOMINATIONS BY SHAREHOLDERS. Not less than 60
days prior to the date of the Election Meeting any shareholder who intends to
make a nomination at
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the Election Meeting shall deliver a notice to the Secretary of the Company
setting forth (i) the name, age, business address and residence address of each
nominee proposed in such notice, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of capital stock of the Company
which are beneficially owned by each such nominee and (iv) such other
information concerning each such nominee as would be required, under the rules
of the U.S. Securities and Exchange Commission, in a proxy statement soliciting
proxies for the election of such nominees. Such notice shall include a signed
consent to serve as a director of the Company, if elected, of each such nominee.
Section 4. SUBSTITUTION OF NOMINEES. In the event that a person is
validly designated as a nominee in accordance with Section 2 or Section 3 hereof
and shall thereafter become unable or unwilling to stand for election to the
Board, the Board or the shareholder who proposed such nominee, as the case
maybe, may designate a substitute nominee.
Section 5. DETERMINATION OF COMPLIANCE WITH PROCEDURES. If the Chairman
of the Election Meeting determines that a nomination was not made in accordance
with the foregoing procedures, such nomination shall be void.
Section 6. AMENDMENT, REPEAL, OR ALTERATION. Notwithstanding anything
contained in these Amended and Restated Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least 75% of the voting
power of all shares of the Company entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal this Article VIII, unless such alteration, amendment, or repeal is
unanimously recommended by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify such persons as it is permitted to
indemnify by Section 607.0850 of the Florida Business Corporation Act, and the
heirs, executors, and administrators of such persons, to the full extent
permitted by, but in accordance with the provisions of that Section. Reference
to Section 607.0850 in the previous sentence shall constitute a reference to any
legislation hereafter enacted by the Florida Legislature on the same general
subject as present Section 607.0850, whether by amendment of that Section or by
substitution of differently numbered material for it. Notwithstanding the
foregoing, except as otherwise required by Section 607.0850, a person who would
be entitled to indemnity only as an agent (a director, officer, employee or
trustee not to be considered an "agent" for purposes of this sentence) of the
corporation or only as an agent of another entity, shall not be entitled to
indemnity.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 12th day
of June, 1998, by and between Nu-Wave Health Products, Inc., a Florida
corporation (the "Employer") and Paul Santostasi, residing at 3651 Torrey Pines
Blvd., Sarasota, FL 34238 (the "Employee").
WITNESSETH:
1. EMPLOYMENT. The Employer hereby employs the Employee as the
Vice Chairman of the Board of Directors of the Employer, and the Employee hereby
accepts such employment, upon the terms and subject to the conditions set forth
in this Agreement.
2. TERM. Subject to the provisions of termination as hereinafter
provided, the term of employment under this Agreement shall begin as of June 12,
1998, and terminate on June 13, 2001.
3. COMPENSATION; REIMBURSEMENT, ETC.
(a) The compensation payable to the Employee shall be
fixed at an annual salary of $125,000. Such compensation may be paid in weekly
or in other convenient installments, as determined by the Employer. In addition,
the Board of Directors of Employer may, in its discretion, establish a bonus
plan which may include the Employee. The terms of any such bonus plan shall be
in the discretion of the Employer.
(b) The Employer shall reimburse the Employee on a
monthly basis for all reasonable expenses incurred by the Employee in the
performance of his duties under this Agreement; provided, however, that the
Employer will not reimburse the Employee for any expense which had not been
approved by the Employer prior to such expense; and provided further, that the
Employee shall have previously furnished to the Employer an itemized account,
satisfactory to the Employer, in substantiation of such expenditures.
(c) The Employer currently provides to the Employee a
leased automobile, with 15 months remaining on such lease. The Employer shall
maintain such lease until its expiration, at which time such vehicle shall be
returned to the lessor. Thereafter, Employer shall pay to Employee an automobile
allowance of $750 per month for each month during the term hereof.
(d) The Employer shall maintain a life insurance policy
on the life of the Employee during the term of this Agreement in the face amount
of $500,000. The Employee, his designee or estate shall be the beneficiary of
$250,000 of the death benefit of such life insurance policy and, until the date
that the Employer refinances its existing note and mortgage encumbering its
facilities (the "Note"), $250,000 of the death benefit shall be payable to the
Employer, but pledged as additional security for the Note. After the Note is
refinanced, the death benefit previously pledged as additional security for the
Note shall be payable to the Employee's designated beneficiary.
<PAGE>
4. DUTIES. The Employee is engaged as the Vice Chairman of the
Board of the Employer. Employee shall report to and take direction from
Employer's Chairman of the Board. Employee's primary responsibility shall be
business development and acquisitions. The Employee shall adhere to the minimum
performance standards set forth in Exhibit "A" hereto. In addition, the Employee
shall have such other duties and hold such offices as may from time to time be
reasonably assigned to him by the Board of Directors of the Employer.
5. EXTENT- OF SERVICES. During the term of his employment under
this Agreement, the Employee shall devote his entire time, attention, energies
and skill to the benefit and business of the Employer, and shall not during the
term of this Agreement be employed by any other person without board approval.
6. BENEFITS. The Employee shall be entitled to the same benefits
package made available by the Employer to its management personnel, including
health insurance for employee and his immediate family. The Employee shall be
entitled to four (4) weeks vacation time during each fiscal year of the
Employer.
7. DISABILITY, ILLNESS OR INCAPACITY.
(a) The Employee shall receive full compensation for any
period of disability, illness or incapacity during the term hereof which renders
the Employee at least temporarily unable to perform the services required under
this Agreement, provided, however, that if the Employee's disability, illness or
incapacity extends beyond a period of one hundred twenty (120) days, the
Employee shall not be entitled, after the expiration of such one hundred twenty
(120) day period, to any further compensation hereunder until he returns to full
time service hereunder, but he shall be entitled only to such disability
payments as may be provided by a disability insurance policy or policies
purchased by the Employer.
(b) Successive periods of disability, illness or
incapacity will be considered separate periods unless the later period of
disability, illness or incapacity is due to the same or related cause and
commences less than six (6) months after the ending of the previous period of
disability.
(c) If and when the period of disability, illness or
incapacity of the Employee totals six (6) months, his employment with the
Employer may be terminated by the Board. If the Employee and the Employer agree,
the Employee may thereafter be employed by the Employer upon such terms as may
be mutually agreeable.
(d) Any dispute regarding the existence, extent or
continuance of the disability, illness or incapacity shall be resolved by the
determination of a majority of three competent doctors who are not employees of
the Employer, one of which shall be selected by the Employer, one of which shall
be selected by the Employee and a third selected by the other two doctors.
8. DEATH OR RETIREMENT.
(a) All rights of the Employee hereunder (other than
rights accrued prior thereto) shall terminate upon his death, except that the
Employer shall pay to the estate of the
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Employee such compensation as would otherwise have been payable to the Employee
up to six months after the death occurs. The Employer shall. have no additional
financial obligation under this Agreement to the Employee or his estate.
(b) All rights of the Employee hereunder (other than
rights accrued prior thereto) shall terminate upon his retirement, except that
the Employer shall pay to the Employee such compensation as would otherwise have
been payable to the Employee up to the end of the month in which his retirement
occurs. The Employer shall have no additional financial obligation under this
Agreement to the Employee.
9. OTHER TERMINATIONS.
(a) (i) The Employer may terminate the employment of the
Employee hereunder without notice (1) upon the Employee's breach of any
provision of this Agreement, or (2) for good cause (as defined below).
(ii) The term "good cause" as used in this
Agreement shall include, but shall not necessarily be limited to fraud, habitual
absenteeism, a pattern of conduct which tends to hold the Employer up to
ridicule in the community, conduct disloyal to the Employer, conviction of any
crime of moral turpitude and substantial dependence, as determined by the Board
of Directors of the Employer, on any addictive substance, including but not
limited to alcohol, amphetamines, barbiturates, methadone, cannabis, cocaine,
PCP, THC, LSD or other illegal or narcotic drugs. If any determination of
substantial dependence by the Board of Directors is disputed by the Employee,
the parties hereto agree to abide by the decision of a panel of three physicians
selected in the manner provided in Section 7(d) of this Agreement. The Employee
agrees to make himself available for and submit to examinations by such
physicians as may be directed by the Employer. Failure to submit to any such
examination shall constitute a breach of a material part of this Agreement.
(b) If the employment of the Employee is terminated
pursuant to this Section 9, the Employer shall pay to the Employee any
compensation earned but not paid to the Employee prior to such termination. Such
payment shall be in full and complete discharge of any and all liabilities or
obligations of the Employer to the Employee hereunder, and the Employee shall be
entitled to no further benefits under this Agreement, except as provided in
Section 9 of this Agreement.
(c) In the event termination for reasons other than those
pursuant to this Section 9 the Employer will pay the balance of compensation due
pursuant to that contact, less any bonus, up to the termination date of this
contract.
10. DISCLOSURE.
(a) The Employee agrees that he will fully disclose and
disclose only to the Employer all ideas, methods, plans, developments,
improvements or patentable inventions, of any kind, which relate directly or
indirectly to the business of the Employer and which are known, made or
discovered by him during the performance of his duties under this Agreement. All
disclosures are to be made promptly after conception or discovery of the idea,
method, plan,
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development, improvement or invention. Nothing in this Section 10 shall be
construed as requiring any communication to the Employer of the idea, method,
plan, development, improvement or invention if lawfully protected by any other
lawful prohibition against such communication.
(b) Any idea, method, plan, development, improvement or
invention which the Employee is obligated to disclose to the Employer under this
Section 10 shall be the property of the Employer, regardless of whether it is
disclosed by the Employee to the Employer. The Employee agrees that he will
provide any and all assistance to the Employer in making any patent applications
or other applications for obtaining exclusive rights in, and will do all other
things that may be reasonably necessary to vest in the Employer or its assigns,
the ideas, methods, plans, developments, improvements or inventions.
11. CONFIDENTIALITY. The Employee agrees to keep in strict secrecy
and confidence any and all information the Employee assimilates or to which he
has access during his employment by the Employer and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Employer. The Employee agrees that both during and after the term of his
employment by the Employer, lie will not, without prior written consent of the
Employer, disclose any such confidential information to any third person,
partnership, joint venture, company, corporation or other organization.
12. NONCOMPETITION AND NONSOLICITATION.
(a) During the term of this Agreement, except as
contemplated herein, and for a period of three (3) years after the termination
of his employment with the Employer, regardless of the reason for such
termination, the Employee shall not, directly or indirectly, within Florida,
enter into, engage in, be employed by, or consult with any business in
competition with the business of the Employer or Nu-Wave Health Products, Inc.,
a Florida corporation ("Nu-Wave") as it is then carried on (except for vitamin
outlets); further, the Employee shall not sell to, market, produce or otherwise
deal with any customer of the Employer or Nu-Wave. The restrictions of this
Section 12 shall extend to any and all activities of the Employee, whether as an
independent contractor, partner or joint venturer, or as an officer, director,
stockholder, agent, employee or salesman for any person, firm, partnership,
corporation or other entity, or otherwise. The restrictions of this Section 12
shall not be violated by the ownership of no more than 2% of the outstanding
securities of any company whose stock is traded on a national securities
exchange or is quoted in the Automated Quotation System of the National
Association of Securities Dealers (NASDAQ). Solicitation or acceptance of orders
outside of any prohibited territory as described above for shipment to, delivery
in or service in any restricted territory shall also constitute engaging in
business within the restricted territories in violation of this Section 12.
(b) During his employment with the Employer, except as
contemplated herein, and for a period of one (1) year after the termination of
his employment with the Employer, regardless of the reason for such termination,
the Employee agrees he will refrain from and will not, directly or indirectly,
as independent contractor, employee, consultant, agent, partner, joint venturer,
or otherwise, (1) solicit any of the employees of the Employer or Nu-Wave to
terminate their employment or (2) accept employment with or seek remuneration by
any of the customers
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of the Employer or Nu-Wave with whom the Employer or Nu-Wave did business during
the term of the Employee's employment.
(c) The period of time during which the Employee is
prohibited from engaging in certain business practices pursuant to Sections
12(a) or (b) shall be extended by any length of time during which the Employee
is in breach of such covenants.
(d) It is understood by and between the parties hereto
that the foregoing restrictive covenants set forth in Sections 12(a) through (c)
are essential elements of this Agreement, and that, but for the agreement of the
Employee to comply with such covenants, the Employer would not have agreed to
enter into this Agreement. Such covenants by the Employee shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Employee against the Employer, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Employer of such covenants.
(e) It is agreed by the Employer and the Employee that if
any portion of the covenants set forth in this Section 12 are held to be
invalid, unreasonable, arbitrary or against public policy, then such portion of
such covenants shall be considered divisible both as to time and geographical
area. The Employer and Employee agree that, if any court of competent
jurisdiction determines the specified time period or the specified geographical
area applicable to this Section 12 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against the Employee. The Employer and the Employee agree that the
foregoing covenants are appropriate and reasonable when considered in light of
the nature and extent of the business conducted by the Employer.
13. SPECIFIC PERFORMANCE. The Employee agrees that damages at law
will be an insufficient remedy to the Employer if the Employee violates the
terms of Sections 10, 11 or 12 of this Agreement and that the Employer would
suffer irreparable damage as a result of such violation. Accordingly, it is
agreed that the Employer shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce the provisions of
such Sections, which injunctive relief shall be in addition to any other rights
or remedies available to the Employer. The Employee agrees to pay to the
Employer all costs and expenses incurred by the Employer relating to the
enforcement of the terms of Sections 10, 11 or 12 of this Agreement, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings).
14. COMPLIANCE WITH OTHER AGREEMENTS. The Employee represents and
war-rants that the execution of this Agreement by him and his performance of his
obligations hereunder will not conflict with, result in the breach of any
provisions of or the termination of or constitute a default under any Agreement
to which the Employee is a party or by which the Employee is or may be bound.
15. WAIVER OR BREACH. The waiver by the Employer of a breach of
any of the provisions of this Agreement by the Employee shall not be construed
as a waiver of any subsequent breach by the Employee.
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16. BINDING EFFECT ASSIGNMENT. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Employer. This Agreement is a personal
employment contract and the rights, obligations and interests of the Employee
hereunder may not be sold, assigned, transferred, pledged or hypothecated.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement
and supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
18. HEADINGS. The headings contained in this Agreement are for
reference purposes and shall not affect the meaning or interpretation of this
Agreement.
19. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Florida. 20. NOTICES. Any notice
required or permitted to be given under this Agreement shall Sufficient if in
writing and if sent by certified or registered mail, first class, return receipt
requested, to the parties at the following addresses:
To the Employer: Nu-Wave Health Products, Inc.
c/o Nu-Wave Health Products, Inc.
5770 Roosevelt Boulevard, Suite 700
Clearwater, Florida 34620
Attention: Kotha S. Sekharam, President
To the Employee at his address herein first above written.
The parties hereto have executed this Agreement the day and year first
above written.
EMPLOYER:
NU-WAVE HEALTH PRODUCTS, INC.
By: /s/ KOTHA S. SEKHARAM
-------------------------------------
Kotha S. Sekharam, President
EMPLOYEE:
/s/ PAUL SANTOSTASI
-------------------------------------
Paul Santostasi
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EXHIBIT "A"
I have committed 100% of my time to the success of this program to include the
following areas:
1) A major effort to identify and bring to conclusion one or more acquisitions
that would increase shareholders value.
2) To transfer management skill and knowledge with respect to the business of
all new executives that are involved in our business.
3) To identify new product opportunities that can be manufactured and marketed
with our companies.
4) To assist in investors relations in a positive way to effect investor
interest.
5) To help formulate business plans and assist in raising capital via private
placement and secondary public offering.
6) To be available for assignments by the Chairman that will benefit the
company.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of March 15,
1999 by Dynamic Health Products, Inc., a Florida corporation (the "Employer"),
and Jugal K. Taneja (the "Executive").
BACKGROUND
The Employer and the Executive entered into an Employment Agreement
dated July 15, 1997. This Agreement supersedes that Employment Agreement in its
entirety.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" -- this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION" -- Salary and Benefits.
"BENEFITS" -- as defined in Section 3.1(b).
"BOARD OF DIRECTORS" -- the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" -- any and all:
(a) trade secrets concerning the business and affairs of
the Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information, and any other information, however documented, that is a trade
secret within the meaning of Chapter 688, Florida Statutes;
(b) information concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and
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projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials, however
documented;
(c) notes, analysis, compilations, studies, summaries,
and other material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing, and
(d) any and all of the foregoing as it relates to Dynamic
Health Products, Inc., a Florida corporation and any of its affiliates.
"DISABILITY" -- as defined in Section 5.2.
"EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION" -- any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" -- the term of the Executive's employment under
this Agreement.
"FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
effective date or is changed from time to time.
"FOR CAUSE" -- as defined in Section 5.3.
"FOR GOOD REASON" -- as defined in Section 5.4.
"INCENTIVE COMPENSATION" -- as defined in Section 3.2.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2.
"PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv).
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"SALARY" -- as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the
Executive, and the Executive hereby accepts employment by the Employer, upon the
terms and conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the
term of the Executive's employment under this Agreement will be three years,
beginning on the Effective Date and ending on the third anniversary of the
Effective Date. This Agreement will be renewed automatically thereafter for
successive periods of one year, unless not less than 30 days prior to the end of
the initial three year period or prior to the end of any one-year renewal
period, one of the parties sends written notice to the other party of its intent
to terminate this Agreement at the end of such period.
2.3 DUTIES. The Executive will have such duties as are
assigned or delegated to the Executive by the Board of Directors and will
initially serve as the Chairman of the Board of the Employer. The Executive will
not devote his entire business time, attention, skill, and energy to the
business of the Employer. The Executive will, however, use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the Employer.
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual
salary of $150,000, (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices. The
Executive's base salary shall increase annually by an amount to be determined in
the sole discretion of the Board of Directors based on the Board's review of the
Executive's performance and the financial performance of the Employer.
(b) BENEFITS. The Executive will, during the
Employment Period, be permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and other employee
benefit plans of the Employer that may be in effect from time to time, to the
extent the Executive is eligible under the terms of those plans (collectively,
the "Benefits"). The Employer will pay 100% of the monthly health and disability
insurance benefits (including major medical and dental) for the Executive and
his immediate family members.
3.2 INCENTIVE COMPENSATION. As additional compensation
(the "Incentive Compensation") for the services to be rendered by the Executive
pursuant to this Agreement, the Employer will pay the Executive an annual bonus
as determined in the sole discretion of the
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Board of Directors based on the Board's evaluation of the Executive's
performance and the financial performance of the Employer.
3.3 STOCK OPTIONS. The Executive shall be eligible for
the grant of stock options in accordance with the provisions of the Company's
1999 Stock Option Plan, as determined by the Administrator of such Plan.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies. The Executive must file expense reports with respect to such expenses
in accordance with the Employer's policies.
5. TERMINATION
5.1 EVENTS OF TERMINATION. The Employment Period, the
Executive's Basic Compensation and Incentive Compensation, and any and all other
rights of the Executive under this Agreement or otherwise as an employee of the
Employer will terminate (except as otherwise provided in this Section 5):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as
defined in Section 5.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 5.3),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(d) for good reason (as defined in Section 5.4)
upon not less than thirty days' prior notice from the Executive to the Employer.
5.2 DEFINITION OF DISABILITY. For purposes of Section
5.1, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the Executive's duties under
this Agreement for 30 consecutive days, or 90 days during any twelve month
period, as determined in accordance with this Section 5.2. The disability of the
Executive will be determined by a medical doctor selected by written agreement
of the Employer and the Executive upon the request of either party by notice to
the other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
Executive has a disability. The determination of the medical doctor
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selected under this Section 5.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 5.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 5.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 5.2.
5.3 DEFINITION OF "FOR CAUSE." For purposes of Section
5.1, the phrase "for cause" means: (a) the Executive's material breach of this
Agreement (b) the Executive's failure to adhere to any written Employer policy
if the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer (it being understood that the sale of products
through the internet is not an opportunity of the Employer), including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer; (d) the misappropriation (or
attempted misappropriation) of any of the Employer's funds or property; or (e)
the conviction of, the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is a
possible punishment.
5.4 DEFINITION OF "FOR GOOD REASON." For purposes of
Section 5.1, the phrase "for good reason" means the Employer's material breach
of this Agreement.
5.5 TERMINATION PAY. Effective upon the termination of
this Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 5.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 5.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD
REASON. If the Executive terminates this Agreement for good reason, the Employer
will pay the Executive (i) the Executive's Salary for the remainder, if any, of
the calendar month in which such termination is effective and for three
consecutive calendar months thereafter, and (ii) that portion of the
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Executive's Incentive Compensation (including the number of shares included in
the option provided for herein), if any, for the year during which the
termination is effective, prorated through the date of termination based on the
number of days in the year.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If
the Employer terminates this Agreement for cause, the Executive will be entitled
to receive his Salary only through the date such termination is effective, but
will not be entitled to any Incentive Compensation for the year during which
such termination occurs or any subsequent year.
(c) TERMINATION UPON DISABILITY. If this
Agreement is terminated by either party as a result of the Executive's
disability, as determined under Section 5.2, the Employer will pay the Executive
his Salary through the remainder of the calendar month during which such
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits commence
under the disability insurance coverage furnished by the Employer to the
Executive.
(d) TERMINATION UPON DEATH. If this Agreement is
terminated because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which his death
occurs, and that part of the Executive's Incentive Compensation (including the
number of shares included in the option provided for herein), if any, for the
year during which his death occurs, prorated through the end of the month during
which his death occurs.
(e) BENEFITS. The Executive's accrual of, or
participation in plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
Section 5, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the date the notice of termination is given
under this Agreement.
6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that (a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Employee Invention; (d) the
Buyer has required that the Executive make the covenants in this Section 6 as a
condition to its purchase of the Assets; and (e) the provisions of this Section
6 are reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive ownership of
all Employee Inventions.
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6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment
Period, the Executive will hold in confidence the Confidential Information and
will not disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer
will be entitled to all of the protections and benefits under Chapter 688,
Florida Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations
and restrictions applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
(iv) The Executive will not remove from
the Employer's premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the "Proprietary Items").
The Executive recognizes that, as between the Employer and the Executive, all of
the Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention
will belong exclusively to the Employer. The Executive acknowledges that all of
the Executive's writing, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants that he will
promptly:
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(i) disclose to the Employer in writing
any Employee Invention;
(ii) assign to the Employer or to a
party designated by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer
such applications, assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to
carry out the above obligations; and
(v) give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes
that should a dispute or controversy arising from or relating to this Agreement
be submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
7. NON-COMPETITION AND NON-INTERFERENCE
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 7 as a
condition to the Buyer's purchase of the Assets; and (e) the provisions of this
Section 7 are reasonable and necessary to protect the Employer's business.
7.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the
course of his employment hereunder, and during the Post-Employment Period,
engage or invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation,
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financing, or control of, be employed by, associated with, or in any manner
connected with, lend the Executive's name or any similar name to, lend
Executive's credit to or render services or advice to, any business whose
products or activities compete in whole or in part with the products or
activities of the Employer anywhere within the United States; provided, however,
that the Executive may purchase or otherwise acquire up to (but not more than)
one percent of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or
for the account of any other person, at any time during the Employment Period
and the Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the Executive to be a
customer of the Employer, whether or not the Executive had personal contact with
such person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or
the account of any other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment
Period, disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 7.2, the term "Post-Employment
Period" means the three year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 7.2 is held to be
unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section
7.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 7.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the
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Executive is bound by this Agreement and, at the Employer's election, furnish
such employer with a copy of this Agreement or relevant portions thereof.
8. GENERAL PROVISIONS
8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The
Executive acknowledges that the injury that would be suffered by the Employer as
a result of a breach of the provisions of this Agreement (including any
provision of Sections 6 and 7) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 8 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 6 or 7, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
8.2 COVENANTS OF SECTIONS 6 AND 7 ARE ESSENTIAL AND
INDEPENDENT COVENANTS. The covenants by the Executive in Sections 6 and 7 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Buyer would not have purchased the Assets and
the Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 6 and 7 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement, will not excuse the Executive's breach of any covenant in
Section 6 or 7.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 6 and 7.
8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
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8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
8.5 WAIVER. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
8.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
8.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nation-ally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: William L. LaGamba
Facsimile No.: (813) 544-4386
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With a copy to: Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A.
100 North Tampa Street
Suite 1800
Tampa, FL 33602
Attention: Philip M. Shasteen, Esq.
Facsimile No.: (813) 225-1857
If to the Executive: Jugal K. Taneja
6950 Bryan Dairy Road
Largo, FL 33777
Facsimile No.: (727) 548-1917
8.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
8.9 GOVERNING LAW. This Agreement will be governed by the
laws of the State of Florida without regard to conflicts of laws principles.
8.10 JURISDICTION. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against either of the parties in the courts of the State of
Florida, County of Pinellas, or, if it has or can acquire jurisdiction, in the
United States District Court for the Middle District of Florida, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.
8.11 SECTION HEADINGS, CONSTRUCTION. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
8.12 SEVERABILITY. If any provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable
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only in part or degree will remain in full force and effect to the extent not
held invalid or unenforceable.
8.13 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
8.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE
A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: EXECUTIVE:
DYNAMIC HEALTH PRODUCTS, INC.
By: /s/ WILLIAM LAGAMBA /s/ JUGAL K. TANEJA
------------------------------- --------------------------------
As: CEO Jugal K. Taneja
-------------------------------
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of March 15,
1999 by Dynamic Health Products, Inc., a Florida corporation (the "Employer"),
and William L. LaGamba (the "Executive").
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" -- this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION" -- Salary and Benefits.
"BENEFITS" -- as defined in Section 3.1(b).
"BOARD OF DIRECTORS" -- the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" -- any and all:
(a) trade secrets concerning the business and affairs of
the Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information, and any other information, however documented, that is a trade
secret within the meaning of Chapter 688, Florida Statutes;
(b) information concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials, however documented;
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(c) notes, analysis, compilations, studies, summaries,
and other material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing, and
(d) any and all of the foregoing as it relates to Dynamic
Health Products, Inc., a Florida corporation and any of its affiliates.
"DISABILITY" -- as defined in Section 6.2.
"EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION" -- any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" -- the term of the Executive's employment under
this Agreement.
"FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
effective date or is changed from time to time.
"FOR CAUSE" -- as defined in Section 6.3.
"FOR GOOD REASON" -- as defined in Section 6.4.
"INCENTIVE COMPENSATION" -- as defined in Section 3.2.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" -- as defined in Section 8.2.
"PROPRIETARY ITEMS" -- as defined in Section 7.2(a)(iv).
"SALARY" -- as defined in Section 3.1(a).
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2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the
Executive, and the Executive hereby accepts employment by the Employer, upon the
terms and conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the
term of the Executive's employment under this Agreement will be three years,
beginning on the Effective Date and ending on the third anniversary of the
Effective Date. This Agreement will be renewed automatically thereafter for
successive periods of one year, unless not less than 30 days prior to the end of
the initial three year period or prior to the end of any one-year renewal
period, one of the parties sends written notice to the other party of its intent
to terminate this Agreement at the end of such period.
2.3 DUTIES. The Executive will have such duties as are
assigned or delegated to the Executive by the Board of Directors and will
initially serve as the Chief Executive Officer of the Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of the Employer. The Executive will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the Employer.
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual
salary of $125,000, (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices. The
Executive's base salary shall increase annually by an amount to be determined in
the sole discretion of the Board of Directors based on the Board's review of the
Executive's performance and the financial performance of the Employer.
(b) BENEFITS. The Executive will, during the
Employment Period, be permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and other employee
benefit plans of the Employer that may be in effect from time to time, to the
extent the Executive is eligible under the terms of those plans (collectively,
the "Benefits").
3.2 INCENTIVE COMPENSATION. As additional compensation
(the "Incentive Compensation") for the services to be rendered by the Executive
pursuant to this Agreement, the Employer will pay the Executive an annual bonus
as determined in the sole discretion of the Board of Directors based on the
Board's evaluation of the Executive's performance and the financial performance
of the Employer.
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3.3 STOCK OPTIONS. The Executive shall be eligible for
the grant of stock options in accordance with the provisions of the Company's
1999 Stock Option Plan, as determined by the Administrator of such Plan.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies. The Executive must file expense reports with respect to such expenses
in accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to four weeks paid vacation each Fiscal
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or Chief Executive
Officer. The Executive will also be entitled to the paid holidays set forth in
the Employer's policies. Vacation days and holidays during any Fiscal Year that
are not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year.
6. TERMINATION
6.1 EVENTS OF TERMINATION. The Employment Period, the
Executive's Basic Compensation and Incentive Compensation, and any and all other
rights of the Executive under this Agreement or otherwise as an employee of the
Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as
defined in Section 6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(d) for good reason (as defined in Section 6.4)
upon not less than thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY. For purposes of Section
6.1, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the Executive's duties under
this Agreement for 30 consecutive days, or 90 days during
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any twelve month period, as determined in accordance with this Section 6.2. The
disability of the Executive will be determined by a medical doctor selected by
written agreement of the Employer and the Executive upon the request of either
party by notice to the other. If the Employer and the Executive cannot agree on
the selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section
6.1, the phrase "for cause" means: (a) the Executive's material breach of this
Agreement (b) the Executive's failure to adhere to any written Employer policy
if the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of
Section 6.1, the phrase "for good reason" means the Employer's material breach
of this Agreement.
6.5 TERMINATION PAY. Effective upon the termination of
this Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
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(a) TERMINATION BY THE EXECUTIVE FOR GOOD
REASON. If the Executive terminates this Agreement for good reason, the Employer
will pay the Executive (i) the Executive's Salary for the remainder, if any, of
the calendar month in which such termination is effective and for three
consecutive calendar months thereafter, and (ii) that portion of the Executive's
Incentive Compensation (including the number of shares included in the option
provided for herein), if any, for the year during which the termination is
effective, prorated through the date of termination based on the number of days
in the year.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If
the Employer terminates this Agreement for cause, the Executive will be entitled
to receive his Salary only through the date such termination is effective, but
will not be entitled to any Incentive Compensation for the year during which
such termination occurs or any subsequent year.
(c) TERMINATION UPON DISABILITY. If this
Agreement is terminated by either party as a result of the Executive's
disability, as determined under Section 6.2, the Employer will pay the Executive
his Salary through the remainder of the calendar month during which such
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits commence
under the disability insurance coverage furnished by the Employer to the
Executive.
(d) TERMINATION UPON DEATH. If this Agreement is
terminated because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which his death
occurs, and that part of the Executive's Incentive Compensation (including the
number of shares included in the option provided for herein), if any, for the
year during which his death occurs, prorated through the end of the month during
which his death occurs.
(e) BENEFITS. The Executive's accrual of, or
participation in plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
Section 6, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the date the notice of termination is given
under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that (a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Employee Invention; (d) the
Buyer has required that the Executive make the
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covenants in this Section 7 as a condition to its purchase of the Assets; and
(e) the provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment
Period, the Executive will hold in confidence the Confidential Information and
will not disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer
will be entitled to all of the protections and benefits under Chapter 688,
Florida Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations
and restrictions applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
(iv) The Executive will not remove from
the Employer's premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the "Proprietary Items").
The Executive recognizes that, as between the Employer and the Executive, all of
the Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention
will belong exclusively to the Employer. The Executive acknowledges that all of
the Executive's writing, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining
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thereto. If it is determined that any such works are not works made for hire,
the Executive hereby assigns to the Employer all of the Executive's right,
title, and interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The Executive
covenants that he will promptly:
(i) disclose to the Employer in writing
any Employee Invention;
(ii) assign to the Employer or to a
party designated by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer
such applications, assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to
carry out the above obligations; and
(v) give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes
that should a dispute or controversy arising from or relating to this Agreement
be submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 8 as a
condition to the Buyer's purchase of the Assets; and (e) the provisions of this
Section 8 are reasonable and necessary to protect the Employer's business.
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8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the
course of his employment hereunder, and during the Post-Employment Period,
engage or invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services or advice to,
any business whose products or activities compete in whole or in part with the
products or activities of the Employer anywhere within the United States;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or
for the account of any other person, at any time during the Employment Period
and the Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the Executive to be a
customer of the Employer, whether or not the Executive had personal contact with
such person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or
the account of any other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment
Period, disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment
Period" means the three year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be
unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against the
Executive.
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The period of time applicable to any covenant in this Section
8.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The
Executive acknowledges that the injury that would be suffered by the Employer as
a result of a breach of the provisions of this Agreement (including any
provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 9 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND
INDEPENDENT COVENANTS. The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Buyer would not have purchased the Assets and
the Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement, will not excuse the Executive's breach of any covenant in
Section 7 or 8.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both:
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(a) violate any judgment, writ, injunction, or order of any court, arbitrator,
or governmental agency applicable to the Executive; or (b) conflict with, result
in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which the Executive is a party or by which the
Executive is or may be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nation-ally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: Jugal K. Taneja
Facsimile No.: (813) 544-4386
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With a copy to: Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A.
100 North Tampa Street
Suite 1800
Tampa, FL 33602
Attention: Philip M. Shasteen, Esq.
Facsimile No.: (813) 225-1857
If to the Executive: William L. LaGamba
6950 Bryan Dairy Road
Largo, FL 33777
Facsimile No.: (727) 544-4386
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the
laws of the State of Florida without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against either of the parties in the courts of the State of
Florida, County of Pinellas, or, if it has or can acquire jurisdiction, in the
United States District Court for the Middle District of Florida, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will
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remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE
A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: EXECUTIVE:
DYNAMIC HEALTH PRODUCTS, INC.
By: /s/ JUGAL K. TANEJA /s/ WILLIAM L. LAGAMBA
--------------------------------- -------------------------------------
as CHAIRMAN William L. LaGamba
------------------------------
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of March 15 ,
1999 by Dynamic Health Products, Inc., a Florida corporation (the "Employer"),
and Dr. Kotha S. Sekharam (the "Executive").
BACKGROUND
The Employer and the Executive have entered into Employment Agreement
dated September 15, 1995. This Agreement supersedes that Employment Agreement in
its entirety.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" -- this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION" -- Salary and Benefits.
"BENEFITS" -- as defined in Section 3.1(b).
"BOARD OF DIRECTORS" -- the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" -- any and all:
(a) trade secrets concerning the business and affairs of
the Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information, and any other information, however documented, that is a trade
secret within the meaning of Chapter 688, Florida Statutes;
(b) information concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and
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projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials, however
documented;
(c) notes, analysis, compilations, studies, summaries,
and other material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing, and
(d) any and all of the foregoing as it relates to Dynamic
Health Products, Inc., a Florida corporation and any of its affiliates.
"DISABILITY" -- as defined in Section 6.2.
"EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION" -- any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" -- the term of the Executive's employment under
this Agreement.
"FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
effective date or is changed from time to time.
"FOR CAUSE" -- as defined in Section 6.3.
"FOR GOOD REASON" -- as defined in Section 6.4.
"INCENTIVE COMPENSATION" -- as defined in Section 3.2.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" -- as defined in Section 8.2.
"PROPRIETARY ITEMS" -- as defined in Section 7.2(a)(iv).
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"SALARY" -- as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the
Executive, and the Executive hereby accepts employment by the Employer, upon the
terms and conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the
term of the Executive's employment under this Agreement will be three years,
beginning on the Effective Date and ending on the third anniversary of the
Effective Date. This Agreement will be renewed automatically thereafter for
successive periods of one year, unless not less than 30 days prior to the end of
the initial three year period or prior to the end of any one-year renewal
period, one of the parties sends written notice to the other party of its intent
to terminate this Agreement at the end of such period.
2.3 DUTIES. The Executive will have such duties as are
assigned or delegated to the Executive by the Board of Directors and will
initially serve as the President of the Employer. The Executive will devote his
entire business time, attention, skill, and energy exclusively to the business
of the Employer, will use his best efforts to promote the success of the
Employer's business, and will cooperate fully with the Board of Directors in the
advancement of the best interests of the Employer.
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual
salary of $90,000, (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices, but no
less frequently than every two weeks. The Executive's base salary shall increase
annually by an amount to be determined in the sole discretion of the Board of
Directors based on the Board's review of the Executive's performance and the
financial performance of the Employer.
(b) BENEFITS. The Executive will, during the
Employment Period, be permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and other employee
benefit plans of the Employer that may be in effect from time to time, to the
extent the Executive is eligible under the terms of those plans (collectively,
the "Benefits").
3.2 INCENTIVE COMPENSATION. As additional compensation
(the "Incentive Compensation") for the services to be rendered by the Executive
pursuant to this Agreement, the Employer will pay the Executive an annual bonus
as determined in the sole discretion of the
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Board of Directors based on the Board's evaluation of the Executive's
performance and the financial performance of the Employer.
3.3 STOCK OPTIONS. The Executive shall be eligible for
the grant of stock options in accordance with the provisions of the Company's
1999 Stock Option Plan, as determined by the Administrator of such Plan.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies. The Executive must file expense reports with respect to such expenses
in accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to three weeks paid vacation each Fiscal
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or Chief Executive
Officer. The Executive will also be entitled to the paid holidays set forth in
the Employer's policies. Vacation days and holidays during any Fiscal Year that
are not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year.
6. TERMINATION
6.1 EVENTS OF TERMINATION. The Employment Period, the
Executive's Basic Compensation and Incentive Compensation, and any and all other
rights of the Executive under this Agreement or otherwise as an employee of the
Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as
defined in Section 6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(d) for good reason (as defined in Section 6.4)
upon not less than thirty days' prior notice from the Executive to the Employer.
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6.2 DEFINITION OF DISABILITY. For purposes of Section
6.1, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the Executive's duties under
this Agreement for 30 consecutive days, or 90 days during any twelve month
period, as determined in accordance with this Section 6.2. The disability of the
Executive will be determined by a medical doctor selected by written agreement
of the Employer and the Executive upon the request of either party by notice to
the other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
Executive has a disability. The determination of the medical doctor selected
under this Section 6.2 will be binding on both parties. The Executive must
submit to a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section
6.1, the phrase "for cause" means: (a) the Executive's material breach of this
Agreement (b) the Executive's failure to adhere to any written Employer policy
if the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of
Section 6.1, the phrase "for good reason" means the Employer's material breach
of this Agreement.
6.5 TERMINATION PAY. Effective upon the termination of
this Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence
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of any trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD
REASON. If the Executive terminates this Agreement for good reason, the Employer
will pay the Executive (i) the Executive's Salary for the remainder, if any, of
the calendar month in which such termination is effective and for three
consecutive calendar months thereafter, and (ii) that portion of the Executive's
Incentive Compensation (including the number of shares included in the option
provided for herein), if any, for the year during which the termination is
effective, prorated through the date of termination based on the number of days
in the year.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If
the Employer terminates this Agreement for cause, the Executive will be entitled
to receive his Salary only through the date such termination is effective, but
will not be entitled to any Incentive Compensation for the year during which
such termination occurs or any subsequent year.
(c) TERMINATION UPON DISABILITY. If this
Agreement is terminated by either party as a result of the Executive's
disability, as determined under Section 6.2, the Employer will pay the Executive
his Salary through the remainder of the calendar month during which such
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits commence
under the disability insurance coverage furnished by the Employer to the
Executive.
(d) TERMINATION UPON DEATH. If this Agreement is
terminated because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which his death
occurs, and that part of the Executive's Incentive Compensation (including the
number of shares included in the option provided for herein), if any, for the
year during which his death occurs, prorated through the end of the month during
which his death occurs.
(e) BENEFITS. The Executive's accrual of, or
participation in plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
Section 6, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the date the notice of termination is given
under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that (a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the
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Executive possesses substantial technical expertise and skill with respect to
the Employer's business, the Employer desires to obtain exclusive ownership of
each Employee Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each Employee
Invention; (d) the Buyer has required that the Executive make the covenants in
this Section 7 as a condition to its purchase of the Assets; and (e) the
provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment
Period, the Executive will hold in confidence the Confidential Information and
will not disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer
will be entitled to all of the protections and benefits under Chapter 688,
Florida Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations
and restrictions applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
(iv) The Executive will not remove from
the Employer's premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the "Proprietary Items").
The Executive recognizes that, as between the Employer and the Executive, all of
the Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.
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(b) EMPLOYEE INVENTIONS. Each Employee Invention
will belong exclusively to the Employer. The Executive acknowledges that all of
the Executive's writing, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants that he will
promptly:
(i) disclose to the Employer in writing
any Employee Invention;
(ii) assign to the Employer or to a
party designated by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer
such applications, assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to
carry out the above obligations; and
(v) give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes
that should a dispute or controversy arising from or relating to this Agreement
be submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 8 as a
condition to the Buyer's
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purchase of the Assets; and (e) the provisions of this Section 8 are reasonable
and necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the
course of his employment hereunder, and during the Post-Employment Period,
engage or invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services or advice to,
any business whose products or activities compete in whole or in part with the
products or activities of the Employer anywhere within the United States;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or
for the account of any other person, at any time during the Employment Period
and the Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the Executive to be a
customer of the Employer, whether or not the Executive had personal contact with
such person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or
the account of any other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment
Period, disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment
Period" means the three year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be
unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and
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geographic area, and such lesser scope, time, or geographic area, or all of
them, as a court of competent jurisdiction may determine to be reasonable, not
arbitrary, and not against public policy, will be effective, binding, and
enforceable against the Executive.
The period of time applicable to any covenant in this Section
8.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The
Executive acknowledges that the injury that would be suffered by the Employer as
a result of a breach of the provisions of this Agreement (including any
provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 9 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND
INDEPENDENT COVENANTS. The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Buyer would not have purchased the Assets and
the Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement, will not excuse the Executive's breach of any covenant in
Section 7 or 8.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 7 and 8.
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9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nation-ally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
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If to Employer: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: William L. LaGamba
Facsimile No.: (813) 544-4386
With a copy to: Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A.
100 North Tampa Street
Suite 1800
Tampa, FL 33602
Attention: Philip M. Shasteen, Esq.
Facsimile No.: (813) 225-1857
If to the Executive: Dr. Kotha S. Sekharam
6950 Bryan Dairy Road
Largo, FL 33777
Facsimile No.: (727) 544-4386
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the
laws of the State of Florida without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against either of the parties in the courts of the State of
Florida, County of Pinellas, or, if it has or can acquire jurisdiction, in the
United States District Court for the Middle District of Florida, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or
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interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE
A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: EXECUTIVE:
DYNAMIC HEALTH PRODUCTS, INC.
By: /s/ WILLIAM LAGAMBA /s/ DR. KOTHA S. SEKHARAM
-------------------------- -----------------------------------
As: CEO Dr. Kotha S. Sekharam
-------------------------
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of March 15,
1999 by Dynamic Health Products, Inc., a Florida corporation (the "Employer"),
and Mihir Taneja (the "Executive").
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" -- this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION" -- Salary and Benefits.
"BENEFITS" -- as defined in Section 3.1(b).
"BOARD OF DIRECTORS" -- the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" -- any and all:
(a) trade secrets concerning the business and affairs of
the Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information, and any other information, however documented, that is a trade
secret within the meaning of Chapter 688, Florida Statutes;
(b) information concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials, however documented;
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(c) notes, analysis, compilations, studies, summaries,
and other material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing, and
(d) any and all of the foregoing as it relates to Dynamic
Health Products, Inc., a Florida corporation and any of its affiliates.
"DISABILITY" -- as defined in Section 6.2.
"EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION" -- any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" -- the term of the Executive's employment under
this Agreement.
"FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
effective date or is changed from time to time.
"FOR CAUSE" -- as defined in Section 6.3.
"FOR GOOD REASON" -- as defined in Section 6.4.
"INCENTIVE COMPENSATION" -- as defined in Section 3.2.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" -- as defined in Section 8.2.
"PROPRIETARY ITEMS" -- as defined in Section 7.2(a)(iv).
"SALARY" -- as defined in Section 3.1(a).
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2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the
Executive, and the Executive hereby accepts employment by the Employer, upon the
terms and conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the
term of the Executive's employment under this Agreement will be three years,
beginning on the Effective Date and ending on the third anniversary of the
Effective Date. This Agreement will be renewed automatically thereafter for
successive periods of one year, unless not less than 30 days prior to the end of
the initial three year period or prior to the end of any one-year renewal
period, one of the parties sends written notice to the other party of its intent
to terminate this Agreement at the end of such period.
2.3 DUTIES. The Executive will have such duties as are
assigned or delegated to the Executive by the Board of Directors and will
initially serve as the Chief Executive Officer of the Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of the Employer. The Executive will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the Employer.
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual
salary of $60,000, (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices. The
Executive's base salary shall increase annually by an amount to be determined in
the sole discretion of the Board of Directors based on the Board's review of the
Executive's performance and the financial performance of the Employer.
(b) BENEFITS. The Executive will, during the
Employment Period, be permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and other employee
benefit plans of the Employer that may be in effect from time to time, to the
extent the Executive is eligible under the terms of those plans (collectively,
the "Benefits").
3.2 INCENTIVE COMPENSATION. As additional compensation
(the "Incentive Compensation") for the services to be rendered by the Executive
pursuant to this Agreement, the Employer will pay the Executive an annual bonus
as determined in the sole discretion of the Board of Directors based on the
Board's evaluation of the Executive's performance and the financial performance
of the Employer.
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3.3 STOCK OPTIONS. The Executive shall be eligible for
the grant of stock options in accordance with the provisions of the Company's
1999 Stock Option Plan, as determined by the Administrator of such Plan.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies. The Executive must file expense reports with respect to such expenses
in accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to four weeks paid vacation each Fiscal
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or Chief Executive
Officer. The Executive will also be entitled to the paid holidays set forth in
the Employer's policies. Vacation days and holidays during any Fiscal Year that
are not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year.
6. TERMINATION
6.1 EVENTS OF TERMINATION. The Employment Period, the
Executive's Basic Compensation and Incentive Compensation, and any and all other
rights of the Executive under this Agreement or otherwise as an employee of the
Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as
defined in Section 6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(d) for good reason (as defined in Section 6.4)
upon not less than thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY. For purposes of Section
6.1, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the Executive's duties under
this Agreement for 30 consecutive days, or 90 days during
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any twelve month period, as determined in accordance with this Section 6.2. The
disability of the Executive will be determined by a medical doctor selected by
written agreement of the Employer and the Executive upon the request of either
party by notice to the other. If the Employer and the Executive cannot agree on
the selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section
6.1, the phrase "for cause" means: (a) the Executive's material breach of this
Agreement (b) the Executive's failure to adhere to any written Employer policy
if the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of
Section 6.1, the phrase "for good reason" means the Employer's material breach
of this Agreement.
6.5 TERMINATION PAY. Effective upon the termination of
this Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
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(a) TERMINATION BY THE EXECUTIVE FOR GOOD
REASON. If the Executive terminates this Agreement for good reason, the Employer
will pay the Executive (i) the Executive's Salary for the remainder, if any, of
the calendar month in which such termination is effective and for three
consecutive calendar months thereafter, and (ii) that portion of the Executive's
Incentive Compensation (including the number of shares included in the option
provided for herein), if any, for the year during which the termination is
effective, prorated through the date of termination based on the number of days
in the year.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If
the Employer terminates this Agreement for cause, the Executive will be entitled
to receive his Salary only through the date such termination is effective, but
will not be entitled to any Incentive Compensation for the year during which
such termination occurs or any subsequent year.
(c) TERMINATION UPON DISABILITY. If this
Agreement is terminated by either party as a result of the Executive's
disability, as determined under Section 6.2, the Employer will pay the Executive
his Salary through the remainder of the calendar month during which such
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits commence
under the disability insurance coverage furnished by the Employer to the
Executive.
(d) TERMINATION UPON DEATH. If this Agreement is
terminated because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which his death
occurs, and that part of the Executive's Incentive Compensation (including the
number of shares included in the option provided for herein), if any, for the
year during which his death occurs, prorated through the end of the month during
which his death occurs.
(e) BENEFITS. The Executive's accrual of, or
participation in plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
Section 6, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the date the notice of termination is given
under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that (a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Employee Invention; (d) the
Buyer has required that the Executive make the
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covenants in this Section 7 as a condition to its purchase of the Assets; and
(e) the provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment
Period, the Executive will hold in confidence the Confidential Information and
will not disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer
will be entitled to all of the protections and benefits under Chapter 688,
Florida Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations
and restrictions applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
(iv) The Executive will not remove from
the Employer's premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the "Proprietary Items").
The Executive recognizes that, as between the Employer and the Executive, all of
the Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention
will belong exclusively to the Employer. The Executive acknowledges that all of
the Executive's writing, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining
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thereto. If it is determined that any such works are not works made for hire,
the Executive hereby assigns to the Employer all of the Executive's right,
title, and interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The Executive
covenants that he will promptly:
(i) disclose to the Employer in writing
any Employee Invention;
(ii) assign to the Employer or to a
party designated by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer
such applications, assignments, and
other documents as the Employer may request in order to apply for and obtain
patents or other registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to
carry out the above obligations; and
(v) give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes
that should a dispute or controversy arising from or relating to this Agreement
be submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 8 as a
condition to the Buyer's purchase of the Assets; and (e) the provisions of this
Section 8 are reasonable and necessary to protect the Employer's business.
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8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the
course of his employment hereunder, and during the Post-Employment Period,
engage or invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services or advice to,
any business whose products or activities compete in whole or in part with the
products or activities of the Employer anywhere within the United States;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or
for the account of any other person, at any time during the Employment Period
and the Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the Executive to be a
customer of the Employer, whether or not the Executive had personal contact with
such person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or
the account of any other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment
Period, disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment
Period" means the three year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be
unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against the
Executive.
9
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The period of time applicable to any covenant in this Section
8.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The
Executive acknowledges that the injury that would be suffered by the Employer as
a result of a breach of the provisions of this Agreement (including any
provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 9 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND
INDEPENDENT COVENANTS. The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Buyer would not have purchased the Assets and
the Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement, will not excuse the Executive's breach of any covenant in
Section 7 or 8.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both:
10
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(a) violate any judgment, writ, injunction, or order of any court, arbitrator,
or governmental agency applicable to the Executive; or (b) conflict with, result
in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which the Executive is a party or by which the
Executive is or may be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nation-ally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: Jugal K. Taneja
Facsimile No.: (813) 544-4386
11
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With a copy to: Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A.
100 North Tampa Street
Suite 1800
Tampa, FL 33602
Attention: Philip M. Shasteen, Esq.
Facsimile No.: (813) 225-1857
If to the Executive: Mihir Taneja
6950 Bryan Dairy Road
Largo, FL 33777
Facsimile No.: (727) 544-4386
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the
laws of the State of Florida without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against either of the parties in the courts of the State of
Florida, County of Pinellas, or, if it has or can acquire jurisdiction, in the
United States District Court for the Middle District of Florida, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will
12
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remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE
A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: EXECUTIVE:
DYNAMIC HEALTH PRODUCTS, INC.
By: /s/ WILLIAM LAGAMBA /s/ MIHIR TANEJA
---------------------------------- ---------------------------------
as CEO Mihir Taneja
-----------------------------
EXHIBIT 10.11
LOAN AND SECURiTY AGREEMENT
This Agreement is between to undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. 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(e), aU 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, designees, representatives, successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
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 to requested loan and
provided 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 Availability" 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 Availability" 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
<PAGE>
reported to Lender arc absolutely owing to Borrower
and payment is not conditional or contingent, (such
as consignments, guaranteed sales or right of return
or other similar terms); (3) the account debtor's
chief executive office or principal 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 arc 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 liens except
those permitted in this Agreement (7) such accounts
are not accounts with respect to which the 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 53
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 arc no facts existing or
threatened which might result in any adverse change
in the accound 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 Eligible Accounts (the amount exceeding
twenty percent (20%) shall not be eligible); (12) not
more than fifty percent (5 0%) of the accounts of an
account debtor or its affiliates owed to Borrower
remain unpaid after the invoice date for 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
doomed 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.
<PAGE>
(h) Revolving Loans will not at any time exceed the Gross
Availability unless Lender has consented-
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 saiisfactory to Lender, credit
accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase 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 Accomodations, 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 Obligation' 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).,
<PAGE>
(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).
(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 preceding 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 afflulates,
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, licenses, whether as
licensor or licensee, chosen in action and other claims, and existing and future
leasehold interests in equipment and fixtures); documents; instruments; letters
of credit,
<PAGE>
bankers' acceptances or guaranties; cash moneys, deposits, securities, bank
accounts, deposit accounts, credits and other property now or hereafter held in
any capacity by Lender, its affiliates or any entity which, at any time,
participates in Lenders financing of Borrower or at any other 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 vehicies, 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, of whatever
kind, nature or description;
(c) All now owned and hereafter acquired right, title and interests 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
wberever 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.
<PAGE>
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 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
Accommodations, 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 an 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
<PAGE>
merchandise, and upon any terms or conditions, 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 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 irrevocably 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 futherance 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 satistkctory 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
<PAGE>
information, books and records, work papers, management reports and other
infonuation in their possession regarding Borrower.
5.11 ENVIRONMENTAL AUDITS. From t~rnc 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 accountants acceptable to Lender, as
soon as available, but in no event later than ninety (90) days after the end of
Borrower's fiscal year. All of the foregoing shall be 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. Borrowers 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 Sections 10.5(e) and (1) hereof, except Borrower
<PAGE>
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 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 clear of all liens, security
interests, claims or encumbrances of any kind except 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 fai1 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 instruments 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
<PAGE>
books and records with respect thereto, are true and correct and in all respects
WHAT they purport to be.
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 excepted.
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; or (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 Lenders demand, all
costs, expenses, filing fees and taxes payable 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,
waiver;, 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 Bankruptcy 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
Borrowers 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,
<PAGE>
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, 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
mortgagees 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, deem 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 manner 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 receive a summons, citation, notice, or directive
from the Environmental Protection Agency 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 Borrower'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
<PAGE>
accommodations by Lender shall terminate automatically, upon the termination or
non-renewal of this Agreement or, at Lender's option, upon or at any time after
the occurrence or existence of arty 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 (1) 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 us 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 under any insolvency, reorganization. receivership,
readjustment of debt, dissolution or liquidation Jaw 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 stature, 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:
<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 Collateral 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 Borrowers
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, and (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 bond, 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 equity 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 finure 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, ten (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.
<PAGE>
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 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
such 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 N 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 TORTIOTJS 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 arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 JURISDICTION. Borrower hereby irrevocably submits and consents to
the nonexclusive 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 complaint or other process
and papers Therein and agrees that the service thereof may be made by mall
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 lO.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
<PAGE>
right or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right 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 hereof 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 of 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.
<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 successors 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 interests 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:
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 80% provided that the Dilution
Percentage does not exceed 7%. The Dilution Percentage is the
sum of Borrower's credits, allowances, discounts, write-offs,
contra-accounts and offsets and deduction, 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 7% then Lender may
reduce the Eligible Accounts Percentage to a percentage
satisfactory to Lender.
Eligible Inventory Percentages:
Finished Goods 50%
Raw Materials 50%
(c) Inventory Sublimit(s): $500,000
(d) Maximum days after Invoice
Date for Eligible Accounts 90 DAYS
<PAGE>
(e) Minimum Borrowing: $1,000,000
10.2 Term Loan:
(a) amount $491,539.50
(b) monthly amortization $8,192.33
(c) maturity date 60 months from closing
10.3 Interest, Fees & Charges;
(a) Interest Rate: Prime Rate plus 2.25% per
annum
Clearance: 3 Business Days
Closing Fee: $20,000 LESS ANY PART THAT WAS
PREPAID AT THE TIME OF EXECUTION
OF THE COMMITMENT LETTER
(d)(1)Facility Fee for Initial Term:
First Anniversary: 1% of the Maximum Credit
Second Anniversary: 1% of the Maximum Credit
(2) Facility Fee for Renewal Term:
Renewal Date: 1% of the Maximum Credit
First Anniversary: 1% of the Maximum Credit
Second Anniversary: 1% of the Maximum Credit
(e) Account Servicing Fee: n/a
(f) Unused Line Fee: per annum n/a
(g) Field Examination per diem charge
per examiner $650
(h) Early Termination Fee:
First year: 2% of the Maximum Credit
Second year: 1% of the Maximum Credit
Third year and thereafter: 1% of the Maximum Credit
10.4 Financial Covenants:
(a) Working Capital: na
(b) Net Worth: na
(c) Capital Expenditures: per fiscal
year na
10.5 (a) Lender's Office: 10 S. LaSalle Street
Chicago, Illinois 60603
(b) Lenders Bank: Bank of America Illinois
231 S. LaSalle Street
Chicago, IL 60697
(c) Borrower: Innovative Health Products, Inc.
<PAGE>
(d) Borrower's Chief Executive Office: DYNAMIC HEALTH PRODUCTS, INC.
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(e) Locations of Eligible Inventory
Collateral; 6950 BRYAN DAIRY ROAD
LARGO, FL 33777
5905-A HAMPTON OAKS PKWY
TAMPA, FL 33610
(f) Borrowers Other Offices and
Locations of Collateral: 5905-A HAMPTON OAKS PKWY
TAMPA, FL 33610
5905-E HAMPTON OAKS PKWY
TAMPA, FL 33610
7000 BRYAN DAIRY ROAD
LARGO, FL 33777
(g) Borrower's Trade Names for Invoicing:
NU-WAVE HEALTH PRODUCTS, INC.
ENERGY FACTORS, INC.
(h) Borrower's State of Incorporation: FLORIDA
(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 A11 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 AVALLABILTY.
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.
IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this 2nd day of February, 1999.
<PAGE>
LENDER BORROWER:
THE CIT GROUP/CREDIT INNOVATIVE HEALTH
FINANCE, INC. PRODUCTS, INC.
By: /s/ R. A. SIMMONS By: /s/ ILLEGIBLE
--------------------------------- ---------------------------
Title: Senior V.P. Title: President
DYNAMIC HEALTH
PRODUCTS, INC.
By: /s/ ILLEGIBLE
---------------------------
Title: President
(Leave spaces for multiple Borrowers)
<PAGE>
SCHEDULE A
PERMITTED LIENS
EXHIBIT 10.12
DYNAMIC HEALTH PRODUCTS, INC.
1999 STOCK OPTION PLAN
AS AMENDED ON MAY 5, 1999
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan (the
"Plan") are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Non-statutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Dynamic Health Products, Inc., a Florida
corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider (defined below) shall not cease to be an Employee in the case of (i)
any leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Non statutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
<PAGE>
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Values
hall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "NON-STATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION GRANT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Grant is subject to the terms and conditions of the Plan.
(s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option.
(u) "OPTIONEE" means the holder of an outstanding Option granted
under the Plan.
(v) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this Dynamic Health Products, Inc. 1999 Stock
Option Plan.
(x) "SECTION 16(B)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
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<PAGE>
(y) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(z) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(aa) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 1,500,000 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock. If an Option expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board or
a Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion: (i) to determine the
Fair Market Value; (ii) to select the Service Providers to whom Options may from
time to time be granted hereunder; (iii) to determine the number of Shares to be
covered by each such award granted hereunder; (iv) to approve forms of Option
Grants for use under the Plan; (v) to determine the terms and conditions of any
Option granted hereunder. Such terms and conditions include, but are not limited
to, the exercise price, the time or times when Options may be exercised (which
may be based on performance criteria), any vesting, acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine; (vi) to determine
whether and under what circumstances an Option may be settled in cash under
subsection 9(e) instead of Common Stock; (vii) to reduce the exercise price of
any Option to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option has declined since the date the Option was
granted; (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend
and rescind rules and regulations relating to the Plan; (x) to allow Optionees
to satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Option that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and (xi)
to construe and interpret the terms of the Plan and awards granted pursuant to
the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
3
<PAGE>
5. ELIGIBILITY.
(a) Non-statutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Grant as either
an Incentive Stock Option or a Non-statutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Non-statutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee
any right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate such relationship at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the
Option Grant; provided, however, that the term shall be no more than ten (10)
years after the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years after the date of grant or such shorter term as may be
provided in the Option Grant.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant
of such Option, owns stock representing more than 10% of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Non-Statutory Stock Option, the
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (l)
4
<PAGE>
cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which such Option shall be exercised, (5) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (6) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTIONS.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Grant. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share. An Option shall be deemed
exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance
with the Option Grant) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the
Option is exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option Grant and
the Plan. Shares issued upon exercise of an Option shall be issued in the name
of the Optionee or, if requested by the Optionee, in the name of the Optionee
and his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Shares, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 11 of the Plan. Exercise of an
Option in any manner shall result in a decrease in the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Grant (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Grant). In the absence of a specified time in the
Option Grant, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Grant (of
at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Grant). In the absence of a specified time in
the Option Grant, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If on the date of termination, the
Optionee is
5
<PAGE>
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Grant (of at least six (6) months) to the extent that the Option
is vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Grant) by the Optionee's estate
or by a person who acquires the right to exercise the Option by bequest or
inheritance. In the absence of a specified time in the Option Grant, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. The Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the
6
<PAGE>
extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of all or substantially all of the
assets of the Company, each outstanding Option shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully exercisable for a period of fifteen (15) days after the
date of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger or sale of assets, the option or right confers
the right to purchase or receive, for each Share of Optioned Stock subject to
the Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with
7
<PAGE>
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
15. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
18. RESTRICTION ON DISPOSITION OF SHARES. Shares acquired upon the
exercise of Options shall not be disposed of by an Optionee before the
expiration of six months after the Option was acquired.
Adopted by the Board of Directors on March 10, 1999.
8
EXHIBIT 10.13
DYNAMIC HEALTH PRODUCTS, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of this 12th day of March, 1999, between Dynamic
Health Products, Inc., a corporation existing under the laws of the State of
Florida (hereinafter referred to as the "Company"), and Jugal K. Taneja
(hereinafter referred to as "Optionee").
In consideration of the guarantee by Optionee of the Company's credit
facilities in the aggregate principal amount of $4,000,000, the parties hereto
agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the
right and option hereinafter called "Option" to purchase all or any part of an
aggregate of 500,000 shares of its Common Stock (the "Shares") on the terms and
conditions herein set forth.
2. PURCHASE PRICE. The purchase price of the Shares covered by
the Option granted hereunder shall be the greater of Two Dollars fifty cents
($2.50) per Share.
3. EXPIRATION. Anything to the contrary contained therein
notwithstanding, the Option contained herein shall expire and shall in no event
be exercisable after five years after the date hereof
4. VESTING; EXERCISE RIGHTS; TERMINATION.
(a) The Option shall vest and shall be exercisable in two
equal annual installments of 166,666 shares each and one final annual
installment of 166,668, with the first installment vesting on April 1, 2000, the
second installment vesting April 1, 2001, and the third and final installment
vesting April 1, 2002.
(b) Anything to the contrary contained in this paragraph
4 notwithstanding, in the event that the Employment Agreement between the
Company and Optionee dated March 15th, 1999 is terminated for any reason other
than the death or disability of Optionee, all Options not vested at the time of
such termination shall automatically terminate.
5. RECAPITALIZATION, ETC. In the event after the date hereof of
any change in the outstanding Common Stock of the Corporation by reason of any
stock dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, rights offering to purchase the
Common Stock at a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares which
thereafter may be purchased hereunder and the purchase price per share thereof
shall be appropriately adjusted consistent with such change in such manner as
the Company's Board of Directors may deem equitable to prevent substantial
dilution or enlargement of the rights granted hereunder. The decision of the
Board of Directors in this respect shall be final and binding as Optionee.
6. DEATH. In the event of the death of the Optionee any option or
unexercised portion thereof granted to him, if otherwise vested and exercisable
by the Optionee at the date of death, may be exercised by his personal
representative, heirs, or legatees at any time prior to the expiration of twelve
(12) months after the date of the death of the Optionee, but in any event not
later than five years after the date hereof. All Options unvested at the time of
death shall terminate.
7. METHOD OF EXERCISE; PAYMENT. Vested options may be exercised
in whole at any time, or in part from time to time with respect to whole shares
only, within the period permitted for the
<PAGE>
exercise thereof, and shall be exercised by delivery of written notice of intent
to exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office accompanied by payment in full to the
Company at said office of the amount of the purchase price for the number of
shares of Stock with respect to which the Option is then being exercised, which
payment may be by any of the following means or any combination thereof: cash,
or certified or cashier's check payable to the Company or by cashless exercise.
8. RESTRICTIONS ON TRANSFERABILITY OF OPTION. This Option shall
not be transferable other than by a will of the Optionee or by the laws of
descent and distribution. During his lifetime, the Option shall be exercisable
only by the Optionee or by the Optionee's attorney-in-fact or conservator.
9. RIGHTS IN STOCK BEFORE ISSUANCE AND DELIVERY. No person shall
be entitled to the privileges of stock ownership in respect of any Shares
issuable upon exercise of this Option, unless and until such Shares have been
issued to such person as fully paid Shares.
10. REQUIREMENTS OF LAW. By accepting this Option, the Optionee
represents and agrees for himself or herself and his or her transferees by will
or the laws of descent and distribution that, unless a registration statement
under the Securities Act of 1933 is in effect as to Shares purchased upon
exercise of this Option, (a) any and all Shares so purchased shall be acquired
for his or her personal account and not with a view to or for a sale in
connection with any distribution, and (b) each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Shares are
being so acquired in good faith for his or her personal account and not with a
view to or for a sale in connection with any distribution. No certificate or
certificates for shares of stock purchased upon exercise of this Option shall be
issued and delivered unless and until, in the opinion of legal counsel for the
Company, such Shares may be issued and delivered without causing the Company to
be in violation of or incur any liability under any federal, state or other
securities law or other requirement of law or any regulatory body having
jurisdiction over the Company. Unless registered under applicable securities
laws, certificates evidencing shares of stock purchased upon exercise of this
Option shall bear a customary restrictive legend. Optionee understands that the
Common Stock of the Company issued upon exercise of the Option will not be
registered under applicable federal and state securities laws and will therefore
constitute "restricted securities" under applicable securities laws. Such common
stock may not be resold in the absence of registration under applicable
securities laws or exemption therefrom. The Company may require an opinion of
counsel acceptable to it that registration is not required upon any transfer of
the Shares. The undersigned understands that as a condition of exemption from
registration under federal securities laws, Optionee may be required to hold the
Common Stock for a period of one year after such Common Stock is issued and that
Optionee may be required to comply with other applicable provisions of
Securities and Exchange Commission Rule 144.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereot and
supersede all prior agreements, memoranda, correspondence, conversations and
negotiations.
12. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Florida as to all matters, including but not limited to matters of
validity, construction, effect, performance, and remedies. This Agreement shall
be binding upon the successors, assigns, and transferees of the undersigned.
13. NOTICES. All notices given hereunder must be in writing and
shall be deemed to have been properly given if: (i) personally delivered; (ii)
deposited for delivery by federal express or other nationally recognized
overnight courier services; or (iii) sent by registered or certified mail,
return
2
<PAGE>
receipt requested, first class postage prepaid; in each case addressed to the
party entitled to receive the same at the address specified below:
If to the Company: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: William L. LaGamba,
Chief Executive Officer
If to Optionee: Jugal K. Taneja
7270 Sawgrass Point Drive.
Pinellas Park, FL 38782
Either party may alter the address to which notice is to be sent by
giving notice of such change of address in conformity with the provisions set
forth above providing for the giving of notice.
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement
to be duly executed by its officer thereunto duly authorized, and Optionee has
hereunto set his hand upon this Agreement to be effective as of the date and
year first written above.
OPTIONEE: COMPANY:
Dynamic Health Products, Inc.
/s/ JUGAL K. TANEJA By: /s/ WILLIAM L. LAGAMBA
- ----------------------------------- --------------------------------
(Signature) William L. LaGamba,
Chief Executive Officer
7270 Sawgrass Point Dr.
- -----------------------------------
(Street Address)
Pinellas Park FL 33782
- -----------------------------------
(City) (State) (Zip Code)
###-##-####
- -----------------------------------
(Social Security Number)
3
EXHIBIT 21.1
DYNAMIC HEALTH PRODUCTS, INC. -
LIST OF SUBSIDIARIES
Innovative Health Products, Inc., a Florida corporation.
Becan Distributors, Inc., an Ohio corporation.
Discount Rx, Inc., a Louisiana corporation.
J.Labs, Inc., a Florida corporation.
Incredible Products of Florida, Inc., a Florida corporation.
Herbal Health Products, Inc., a Florida corporation.
<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 financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 899,951
<SECURITIES> 0
<RECEIVABLES> 2,654,945
<ALLOWANCES> (119,671)
<INVENTORY> 2,580,753
<CURRENT-ASSETS> 6,237,704
<PP&E> 2,720,168
<DEPRECIATION> (243,811)
<TOTAL-ASSETS> 10,540,833
<CURRENT-LIABILITIES> 5,937,610
<BONDS> 0
850,000
0
<COMMON> 35,352
<OTHER-SE> 2,325,078
<TOTAL-LIABILITY-AND-EQUITY> 10,540,833
<SALES> 36,397,782
<TOTAL-REVENUES> 36,397,782
<CGS> 33,663,318
<TOTAL-COSTS> 33,663,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 373,489
<INCOME-PRETAX> (299,359)
<INCOME-TAX> 0
<INCOME-CONTINUING> (299,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (301,894)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
