-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sa6KqGad6VGFead8zGxmvv8FljNuzXEvs3AMomFuN6HhijyGieLiWMU7JI9ARHXN 5ywN/ujvauRFZLf/3prHgg== 0000950116-05-003106.txt : 20050930 0000950116-05-003106.hdr.sgml : 20050930 20050930172044 ACCESSION NUMBER: 0000950116-05-003106 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 17 REFERENCES 429: 333-126315 FILED AS OF DATE: 20050930 DATE AS OF CHANGE: 20050930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: National Health Partners Inc CENTRAL INDEX KEY: 0001306109 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-126315 FILM NUMBER: 051115055 BUSINESS ADDRESS: STREET 1: 120 GIBRALTAR RD STREET 2: SUITE 107 CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 215-682-7114 MAIL ADDRESS: STREET 1: 120 GIBRALTAR RD STREET 2: SUITE 107 CITY: HORSHAM STATE: PA ZIP: 19044 SB-2/A 1 sb2a.txt FORM SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 2005 REGISTRATION NO. 333 - 126315 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _________________________ NATIONAL HEALTH PARTNERS, INC. ----------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Indiana 7389 04-3786176 ------------------------------- ---------------------------- ------------------------------------ (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) Incorporation or Organization) Classification Code Number)
National Health Partners, Inc. 120 Gibraltar Road, Suite 107 Horsham, PA 19044 (215) 682-7114 ---------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive office and principal place of business) David M. Daniels Chief Executive Officer National Health Partners, Inc. 120 Gibraltar Road, Suite 107 Horsham, PA 19044 (215) 682-7114 ---------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box: [_]
CALCULATION OF REGISTRATION FEE Proposed Proposed Amount of Maximum Maximum Title of Each Class of Shares to be Offering Aggregate Amount of Securities to be Registered Registered (1) Price Per Share (2) Offering Price (2) Registration Fee (2)(3) - --------------------------- -------------- ------------------ ------------------ ----------------------- common stock 5,445,125 $1.50 $8,167,688 $961.34 common stock underlying options 400,000 $1.50 $600,000 $70.62 common stock underlying warrants 4,813,008 $1.50 $7,219,512 $849.74
(1) Represents shares of common stock that may be offered by certain selling security holders. Pursuant to Rule 416 under the Securities Act, this registration statement also covers an indeterminate number of additional shares of common stock issuable with respect to the shares being registered hereunder by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that increases the number of the registrant's outstanding shares of common stock. (2) Estimated pursuant to Rule 457(a) under the Securities Act for the purpose of determining the registration fee. (3) Of this amount, $401.79 was previously paid by the registrant. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. The selling security holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 2005 PRELIMINARY PROSPECTUS [GRAPHIC OMITTED] carexpress Quality Healthcare Made Easy NATIONAL HEALTH PARTNERS, INC. 10,658,133 shares of common stock The 10,658,133 shares of our common stock, $.001 par value per share, are being offered by the selling security holders identified in this prospectus. The shares were issued by us in private placement transactions. Of the shares being registered, 400,000 shares are issuable upon the exercise of options and 4,813,008 shares are issuable upon the exercise of warrants. The selling security holders may sell all or a portion of their shares at a fixed price of $1.50 per share until the shares are listed on the OTC Bulletin Board, and thereafter through public or private transactions at prevailing market prices or at privately negotiated prices. We can provide no assurance that the shares will be approved for listing on the OTC Bulletin Board or that a public market will develop for the shares. We will not receive any part of the proceeds from sales of these shares by the selling security holders. ___________________________ INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this preliminary prospectus is September 30, 2005.
TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY................................................................................................1 RISK FACTORS......................................................................................................3 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS..................................................................16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................................................17 DESCRIPTION OF BUSINESS..........................................................................................26 MANAGEMENT.......................................................................................................48 EXECUTIVE COMPENSATION...........................................................................................50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................54 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................55 DESCRIPTION OF SECURITIES........................................................................................56 SHARES ELIGIBLE FOR FUTURE SALE..................................................................................58 THE OFFERING.....................................................................................................61 DETERMINATION OF OFFERING PRICE..................................................................................66 SELLING SECURITY HOLDERS.........................................................................................67 USE OF PROCEEDS..................................................................................................77 PLAN OF DISTRIBUTION.............................................................................................77 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..................................................................................................80 LEGAL MATTERS....................................................................................................81 EXPERTS..........................................................................................................81 ABOUT THIS PROSPECTUS............................................................................................82 WHERE YOU CAN FIND MORE INFMORMATION.............................................................................82 INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
___________________________ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. ___________________________ i PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read carefully the entire prospectus, including "Risk Factors" and the financial statements and notes thereto, before making an investment decision. NATIONAL HEALTH PARTNERS, INC. The healthcare industry is in a state of turmoil. Increasing costs have forced employers to reduce or eliminate available insurance coverage and/or require employees to contribute heavily to premiums, especially for family members. As a result, more Americans are being forced to self-insure and pay a growing portion of the cost of their healthcare. We are a national healthcare savings organization that provides affordable healthcare programs to predominantly underserved markets in the healthcare industry through a national healthcare savings network called "CARExpress." CARExpress is a sophisticated network of hospitals, doctors, dentists, pharmacists and other healthcare providers comprised of an aggregate of over 1,000,000 medical professionals nationwide that have agreed to render their services and products to CARExpress members at substantially discounted prices. CARExpress enables a person to engage in point-of-service transactions directly with these providers and receive discounts from the provider that are similar to those received by a person employed by a large corporation with hundreds of thousands of employees. Our discount health membership programs provide a low-cost, non-insurance alternative to individuals who are seeking to reduce their out-of-pocket healthcare costs not covered by insurance or who are unable to obtain healthcare insurance due to their medical history, age or occupation. For a monthly fee, our members obtain discounts that are typically between 10% and 50% percent off the retail price of participating healthcare provider products and services. Acceptance into our health programs is unrestricted, and our programs may be utilized by the member's entire household. We believe our commitment to flexibility in product design, systems and operations for a range of distribution models will contribute directly to our success and help distinguish us from our competitors. Our principal executive offices are located at 120 Gibraltar Road, Suite 107, Horsham, Pennsylvania 19044, and our telephone number is (215) 682-7114. We maintain a Web site at www.carexpresshealth.com. Information contained on our Web site does not constitute part of this prospectus. THE OFFERING This prospectus covers the public sale of 10,658,133 shares of common stock to be sold by the selling security holders identified in this prospectus. Of this amount, 400,000 shares are issuable upon the exercise of options and 4,813,008 shares are issuable upon the exercise of warrants. The selling security holders may sell all or a portion of their shares at a fixed price of $1.50 per share until the shares are listed on the OTC Bulletin Board, and thereafter through public or private transactions at prevailing market prices or at privately negotiated prices. We can provide no assurance that the shares will be approved for listing on the OTC Bulletin Board or that a public market will develop for the shares. 2 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to other information in this prospectus before purchasing our common stock. The risks and uncertainties described below are those that we currently deem to be material and that we believe are specific to our company and our industry. In addition to these risks, our business may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely affected, the trading price of our common stock may decline and you may lose all or part of your investment. RISKS ASSOCIATED WITH OUR BUSINESS WE ARE AN EARLY-STAGE COMPANY WITH AN UNPROVEN BUSINESS MODEL, WHICH MAKES IT DIFFICULT FOR US TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS. We have only a limited operating history upon which to base an evaluation of our current business and future prospects. We have only been offering our CARExpress membership programs since 2003. As a result, the revenue and income potential of our business is unproven. In addition, we have very limited historical data with respect to sales of our CARExpress membership cards because we have been selling them for less than two years. Because of our limited operating history and because the health savings industry is rapidly evolving, we have limited insight into trends that may emerge and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our business. Before purchasing our common stock, you should consider an investment in our common stock in light of the risks, uncertainties and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets such as ours, including those described herein. We may not be able to successfully address any or all of these risks. Failure to adequately address such risks could cause our business, financial condition and results of operations to suffer. WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES THROUGH THE REMAINDER OF 2005. We have experienced net losses in each fiscal quarter since our inception and as of June 30, 2005, had an accumulated deficit of approximately $4.7 million. We incurred net losses to common shareholders of approximately $1.35 million during the six months ended June 30, 2005, approximately $2.6 million during the year ended December 31, 2004, and approximately $267,000 during the year ended December 31, 2003. As a result of these conditions, the report of our independent accountants issued in connection with the audit of our financial statements as of and for our fiscal year ended December 31, 2004 contained a qualification raising a substantial doubt about our ability to continue as a going concern. We expect to continue to incur net losses for the remainder of 2005. We also expect our operating expenses to increase as we: o develop new discount healthcare membership programs; 3 o recruit and hire additional personnel, including customer service and support staff and marketing representatives; o leverage and develop relationships with additional preferred provider organizations ("PPOs") and providers of healthcare services; o upgrade our operational and financial systems, procedures and controls; and o comply with Securities and Exchange Commission ("SEC") reporting requirements and fulfill the other responsibilities we will have as a public company. WE MAY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE, WHICH FUNDS MAY NOT BE AVAILABLE OR, IF AVAILABLE, MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS. We expect that our operating expenses will increase substantially over the next 12 months. In addition, we may experience a material decrease in liquidity due to unforeseen capital requirements or other events and uncertainties. As a result, we may need to raise additional funds, and such funds may not be available on favorable terms, if at all. If we cannot raise funds on acceptable terms, we may not be able to sell or create new CARExpress membership programs, execute on our business plan, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. WE MUST DEVELOP AND EXPAND OUR USE OF MARKETING REPRESENTATIVES TO INCREASE REVENUE AND IMPROVE OUR OPERATING RESULTS. Our success will depend in large part upon our ability to attract, retain and motivate the network of independent marketing representatives who principally market our CARExpress membership programs. We will need to expand our existing relationships and enter into new relationships with marketing representatives in order to increase our current and future market share and revenue. We compete with all types of network marketing companies throughout the United States for new marketing representatives. We can provide no assurance that we will be able to maintain and expand our existing relationships or enter into new relationships, or that any new relationships will be available on commercially reasonable terms. If we are unable to maintain and expand our existing relationships or enter into new relationships, we may lose customer introductions, co-marketing benefits and sales, and our operating results may suffer. OUR INCREASING RELIANCE ON MARKETING REPRESENTATIVES COULD RESULT IN REDUCED REVENUE GROWTH BECAUSE WE HAVE LITTLE CONTROL OVER THEM OR THEIR MARKETING REPRESENTATIVES. We anticipate that sales by marketing representatives will account for a larger percentage of our total revenue in future periods. None of these parties is obligated to continue selling our products or to make any purchases from us. Our ability to generate increased revenue depends significantly upon the ability and willingness of our marketing representatives to market and sell our CARExpress membership programs throughout the United States. If they are unsuccessful in their efforts or are unwilling or unable to market and sell our CARExpress membership programs, our operating results may suffer. 4 We cannot control the level of effort these parties expend or the extent to which any of them will be successful in marketing and selling our CARExpress membership programs. Our independent marketing representatives typically offer and sell our CARExpress membership programs on a part-time basis, and may engage in other business activities. These marketing representatives may give higher priority to the products or services of our competitors, reducing their efforts devoted to marketing our CARExpress membership programs. We may not be able to prevent these parties from devoting greater resources to support our competitors' products and reducing or eliminating their efforts to sell our CARExpress membership programs. DEVELOPING AND MAINTAINING RELATIONSHIPS WITH PREFERRED PROVIDER ORGANIZATIONS ARE CRITICAL TO OUR SUCCESS AND THE LOSS OF ANY SUCH RELATIONSHIPS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. As part of our business operations, we must develop and maintain relationships with preferred provider organizations and other provider networks within each market area that our services are offered. Developing and maintaining relationships with healthcare providers within a preferred provider organization is in part based on professional relationships and the reputation of our management and marketing personnel. Our preferred provider organization relationships may be adversely affected by events beyond our control, including departures of key personnel and alterations in professional relationships. The loss of a preferred provider organization within a geographic market area may not be replaced on a timely basis, if at all. The loss of a preferred provider organization for any reason could have a material adverse effect on our business, financial condition, and results of operations. WE CURRENTLY RELY HEAVILY ON A SMALL NUMBER OF PREFERRED PROVIDER ORGANIZATIONS, THE LOSS OF ANY ONE OF WHICH OR THE CHANGE IN OUR RELATIONSHIP WITH ANY ONE OF WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. PPONext, International Med-Care, CareMark, Cigna, Optum and Careington International are some of the principal preferred provider organizations through which our members receive savings on healthcare services through our CARExpress membership programs. The loss of any of these preferred provider organizations or a disruption of our members' access to any of these preferred provider organizations could adversely affect our business. While we currently enjoy a good relationship with each of these preferred provider organizations, we can provide no assurance that we will continue to have a good relationship with any of them in the future, or that they may choose to partner with one of our competitors or compete directly with our CARExpress membership programs. If, for any reason, we should lose a provider relationship and be unable to promptly replace it with a new one, we may be unable to offer certain benefits to members, which could have a negative impact on our sales. BECAUSE WE EXPECT TO DERIVE SUBSTANTIALLY ALL OF OUR FUTURE REVENUES FROM OUR CAREXPRESS MEMBERSHIP PROGRAMS, ANY FAILURE OF THESE PROGRAMS TO SATISFY CUSTOMER DEMANDS OR TO ACHIEVE MEANINGFUL MARKET ACCEPTANCE MAY SERIOUSLY HARM OUR BUSINESS. 5 Substantially all of our revenues come from fees for our CARExpress membership programs, which has not gained widespread market acceptance. We expect our CARExpress membership programs to continue to account for substantially all of our revenues for the foreseeable future. If, for any reason, revenues derived from sales of our CARExpress membership programs decline or do not grow as rapidly as we anticipate, our operating results and our business may be significantly impaired. If our CARExpress membership programs fail to meet the needs of our target customers, or if they do not compare favorably in breadth and price to competing products, our growth may be limited. We cannot assure you that our CARExpress membership programs will achieve any meaningful market acceptance. If we cannot develop a market for our products, or if they develop more slowly than expected, our business, financial condition and results of operations may suffer. Our future financial performance will also depend on our ability to diversify our program offerings by successfully designing, developing and selling new and unique enhancements to discount healthcare membership programs. We cannot assure you that we will be successful in achieving market acceptance of any new programs that we develop. Any failure or delay in diversifying our existing offering of discount healthcare membership programs could harm our business, financial condition and results of operations. WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW DISCOUNT HEALTHCARE MEMBERSHIP PROGRAMS AT A RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET. Our future success depends on our ability to develop new discount healthcare membership programs that keep pace with the rapidly evolving health savings industry and that address the changing needs of our customers. We may not be successful in either developing such programs or timely introducing them to the market. Uncertainties about the timing and nature of changes to healthcare regulations and the evolution of the health savings industry could delay our development of new programs or increase the expenses in developing them. The failure of our future discount healthcare membership programs to satisfy the needs of our customers may limit or reduce the market for these programs, result in customer dissatisfaction, and seriously harm our business, financial condition and results of operations. WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION MUCH LIKE AN INSURANCE COMPANY, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS. We offer and sell our CARExpress membership programs without license by any federal, state, or local regulatory licensing agency or commission. In addition, we intend in the future to sell our CARExpress membership programs in combination with insurance products through National Health Brokerage Group, our wholly-owned subsidiary. While we have obtained insurance licenses for National Health Brokerage Group in some states, we have not yet engaged in any insurance activities through National Health Brokerage Group. By comparison, companies that provide insurance benefits and operate healthcare management organizations and preferred provider organizations are regulated by federal and state licensing agencies and commissions and are subject to federal and state legislation, such as the Health Insurance Portability and Accountability Act of 1996. These regulations cover operations, including scope of benefits, rate formula, delivery systems, utilization review procedures, quality assurance, enrollment requirements, claim payments, marketing and advertising. Federal and state insurance regulatory agencies and commissions may, in the future, determine that our CARExpress membership programs are subject to governmental regulation, which may adversely affect or limit our future operations. 6 Compliance with these statutes and regulations is costly and may limit our operations. Statutes and regulations applicable to other healthcare organizations with which we may contract, such as patient freedom of choice rights and anti-discrimination rights, may force our healthcare management organizations and preferred provider organizations to withdraw as our network providers. OUR OPERATIONS MAY BE AFFECTED BY FUTURE CHANGES IN INSURANCE LAWS AND REGULATIONS. Our CARExpress membership programs are not regulated as insurance products, and our marketing representatives are not required to be licensed as insurance brokers to be able to sell our CARExpress membership programs. Congress or state legislatures may in the future seek to bring our CARExpress membership programs and sales activities under the jurisdiction of insurance regulators through changes to insurance laws and regulations. Should that occur, we may face material costs of compliance with the new laws and regulations, and if we cannot comply, we may be prohibited from selling our programs in certain jurisdictions. If we become subject to any insurance licensing or regulatory requirements, whether as a result of changes in insurance laws bringing our CARExpress membership programs under the jurisdiction of federal and state insurance agencies or as a result of National Health Brokerage Group becoming licensed to sell our CARExpress membership programs in combination with insurance products and engaging in insurance activities, our failure to comply with any such requirements could lead to a revocation, suspension or loss of licensing status, termination of contracts, and legal and administrative enforcement actions. In addition, the use of the internet in the marketing and distribution of our CARExpress membership programs is relatively new and presents certain regulatory issues, such as whether internet service providers, gateways or cybermalls are engaged in the solicitation or sale of insurance policies or otherwise transacting business requiring licensure under the laws of one or more states. Regulatory requirements are subject to change from time to time and may become more restrictive in the future, thereby making compliance more difficult or expensive or otherwise affecting or restricting our ability to conduct our business as now conducted or proposed to be conducted. OUR USE OF INDEPENDENT MARKETING REPRESENTATIVES COULD SUBJECT US TO ENFORCEMENT ACTIONS, PENALTIES AND NEGATIVE PUBLICITY IF ANY SUCH REPRESENTATIVES DO NOT COMPLY WITH APPLICABLE FEDERAL AND STATE REGULATIONS. The independent marketing representatives that we utilize are subject to federal and state laws and regulations administered by the Federal Trade Commission and various state agencies. These laws and regulations include securities, franchise investment, business opportunity, and criminal laws prohibiting the use of "pyramid" or "endless chain" types of selling organizations. These regulations are generally directed at ensuring that product and service sales are ultimately made to consumers (as opposed to other marketing representatives) and that advancement within the network marketing organization is based on sales of products and services, rather than on investment in the company or other non-retail sales related criteria. 7 The compensation structure of a network marketing organization is very complex. Compliance with all of the applicable regulations and laws is uncertain because of the evolving interpretations of existing laws and regulations, and the enactment of new laws and regulations pertaining in general to network marketing organizations and product and service distribution. Accordingly, there is the risk that the network marketing organizations that we use may be found to not comply with applicable laws and regulations. Such a finding could: o result in enforcement action and imposition of penalty; o require modification of the marketing representative network system; o result in negative publicity; or o have a negative effect on distributor morale and loyalty. Any of these consequences could have a material adverse effect on our business, financial condition and results of operations. OUR SYSTEMS MAY BE VULNERABLE TO SECURITY RISKS OR SERVICE DISRUPTIONS THAT COULD HARM OUR BUSINESS. Although we have taken measures to secure our systems against security risks and other causes of disruption of electronic services, our servers are vulnerable to physical or electronic break-ins and service disruptions, which could lead to interruptions, delays, loss of data or the inability to process customer requests. Such events could be very expensive to remedy, could damage our reputation and could discourage existing and potential customers from using our products. Any such events could substantially harm our business, results of operations and financial condition. OUR CONTINUED GROWTH COULD STRAIN OUR PERSONNEL AND INFRASTRUCTURE RESOURCES, AND IF WE ARE UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND PROCEDURES TO MANAGE OUR GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN. We are beginning to experience rapid growth in our operations, which is placing, and will continue to place, a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our senior management to manage growth effectively. This will require us to hire and train additional personnel to manage our expanding operations. In addition, we will be required to continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan. 8 WE FACE INCREASING COMPETITION FROM MORE ESTABLISHED COMPANIES THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE DO, WHICH MAY PLACE PRESSURE ON OUR PRICING AND WHICH COULD PREVENT US FROM INCREASING REVENUE OR ATTAINING PROFITABILITY. The health savings industry is rapidly evolving and competition for members is becoming increasingly intense. Our CARExpress membership programs are similar to or directly in competition with products and services offered by our direct competitors. Some of our healthcare providers may provide, either directly or through third parties, programs that directly compete with our programs. If discount healthcare membership products and services become standard features of healthcare companies, the demand for our CARExpress membership programs may decrease. In addition, the preferred provider organizations and provider networks that we use may decide to develop or sell competing products instead of our CARExpress membership programs. Moreover, even if our CARExpress membership programs provide a greater breadth of products and services and greater price discounts than programs offered by other companies operating in the health savings industry, potential customers might accept this limited functionality in lieu of purchasing our CARExpress membership programs due to their lack of familiarity with our programs. Some of our competitors enjoy substantial competitive advantages, such as: o programs that are functionally similar or superior to our membership programs; o established reputations relating to membership programs; o greater name recognition and larger marketing budgets and resources; o established marketing relationships and access to larger customer bases; and o substantially greater financial, personal and other resources. We compete with numerous well-established companies that design and implement membership programs. Our current principal competitors include companies that offer healthcare products and services through membership programs much like our CARExpress membership programs, as well as insurance companies, preferred provider organization networks and other organizations that offer health benefit programs to their customers. Some of our competitors may be companies that have programs that are functionally similar or superior to our health membership programs. Most of our competitors possess substantially greater financial, marketing, personnel and other resources than us. We can provide no assurance that our current or future competitors will not: o provide healthcare benefit programs comparable or superior to our programs at lower membership prices; o adapt more quickly to evolving healthcare industry trends or changing industry requirements; o respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements; 9 o increase their emphasis on programs similar to ours to more effectively compete with us; or o successfully recruit independent marketing representatives by offering more attractive sales commissions. For these and other reasons, we may not be able to compete successfully against our current and future competitors. Increased competition may result in price reductions, reduced gross margins, and loss of market share, any of which could have a material, adverse effect on our business, financial condition and results of operations. OUR FAILURE TO ADEQUATELY PROTECT OUR CAREXPRESS BRAND AND OTHER INTELLECTUAL PROPERTY COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. Intellectual property is important to our success. We generally rely upon confidentiality procedures and contractual provisions to protect our CARExpress brand and our other intellectual property, and we intend to apply for legal protection for certain of our intellectual property in the future. Any such legal protection we obtain may be challenged by others or invalidated through administrative process or litigation. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain, and adequate legal protection of our intellectual property may not be available to us in every country in which we intend to sell our products. The laws of some foreign countries may not be as protective of intellectual property rights as United States laws, and their mechanisms for enforcement of intellectual property rights may be inadequate. As a result, our means of protecting our proprietary technology and brands may be inadequate. Furthermore, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. Any such infringement or misappropriation could have a material adverse effect on our business, financial condition and results of operations. IF WE ACQUIRE ANY HEALTHCARE COMPANIES OR PRODUCTS IN THE FUTURE, SUCH COMPANIES AND PRODUCTS COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS. We may acquire or make investments in complementary healthcare companies, businesses, assets, products and services in the future. We have not made any such acquisitions or investments to date, and therefore, our ability to make acquisitions or investments is unproven. Acquisitions and investments involve numerous risks, including: o difficulties in integrating operations, technologies, services and personnel; o the diversion of financial and management resources from existing operations; o the risk of entering new markets; o the potential loss of key employees; and o the inability to generate sufficient revenue to offset acquisition or investment costs. In addition, if we finance any acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed. 10 WE ARE DEPENDENT ON OUR MANAGEMENT TEAM, AND THE LOSS OF ANY KEY MEMBER OF THIS TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY MANNER. Our success depends largely upon the continued services of our executive officers and other key management and development personnel. While we have entered into employment agreements with each of our executive officers, they may terminate their employment with us at any time without penalty. We do not maintain key person life insurance policies on any of our employees. The loss of one or more of our key employees could seriously harm our business, financial condition or results of operations. In such an event we may be unable to recruit personnel to replace these individuals in a timely manner, or at all, on acceptable terms. BECAUSE COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN THE HIGHLY-SKILLED EMPLOYEES THAT WE NEED TO SUPPORT OUR PLANNED GROWTH. To execute our growth plan, we must attract and retain highly-qualified personnel. We need to hire additional personnel in virtually all operational areas, including selling and marketing, research and development, operations and technical support, customer service and administration. Competition for these personnel remains intense, especially for individuals with high levels of experience in designing and developing health savings programs. We may not be successful in attracting and retaining qualified personnel. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we fail to attract new personnel or retain and motivate our current personnel, our business and future growth prospects could be severely harmed. RISKS ASSOCIATED WITH OUR INDUSTRY THE HEALTH SAVINGS INDUSTRY IS RAPIDLY EVOLVING, AND IF WE ARE NOT SUCCESSFUL IN PROMOTING THE BENEFITS OF OUR CAREXPRESS MEMBERSHIP PROGRAMS AND OUR CAREXPRESS BRAND, OUR GROWTH MAY BE LIMITED. Based on our experience with consumers, we believe that many consumers are not familiar with the health savings industry and the benefits provided by discount healthcare membership programs. In addition, there may be a time-limited opportunity to achieve and maintain a significant share of the market for healthcare membership programs due in part to the rapidly evolving nature of the health savings industry and the substantial resources available to our existing and potential competitors. If employers do not recognize or acknowledge these problems, then the market for our CARExpress membership programs may develop more slowly than we expect, which could adversely affect our operating results. Developing and maintaining awareness of our CARExpress brand is critical to achieving widespread acceptance of our existing and future CARExpress membership programs. Furthermore, we believe that the importance of brand recognition will increase as competition in our market develops. Successful promotion of our CARExpress brand will depend largely on the effectiveness of our marketing efforts and on our ability to develop reliable and useful CARExpress membership programs at competitive prices. If we fail to successfully promote our CARExpress brand, or if our expenses to promote and maintain our CARExpress brand are greater than anticipated, our financial condition and results of operations could suffer. 11 THE SUCCESS OF OUR BUSINESS DEPENDS UPON THE CONTINUED GROWTH AND ACCEPTANCE OF HEALTH MEMBERSHIP PROGRAMS AS A SUITABLE ALTERNATIVE OR SUPPLEMENT TO TRADITIONAL HEALTH INSURANCE. Expansion in the sales of our CARExpress membership programs depends on the acceptance of health membership programs as a suitable alternative or supplement to traditional health insurance. Health membership programs could lose their viability as an alternative to health insurance due to changes in healthcare laws and regulations, an inadequate number of healthcare providers participating in the programs, customer dissatisfaction with the method of making payments and receiving discounts, and new alternative healthcare solutions. If healthcare membership programs do not gain widespread market acceptance, the demand for our CARExpress membership programs could be significantly reduced, which could have a material adverse effect on our business, financial condition and results of operations. EVOLVING REGULATION OF THE HEALTH SAVINGS INDUSTRY MAY AFFECT US ADVERSELY. As the health savings industry continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. The delivery of discount health care products and services is subject to federal, state and local regulation, including the prohibition of business corporations from providing medical care, the fraud and abuse provisions of the Medicare and Medicaid statutes, state laws that prohibit referral fees and fee splitting, and regulations applicable to insurance companies and organizations that provide healthcare services. Compliance with changes in applicable regulations could materially increase the associated operating costs. Non-compliance with these laws and regulations could cause us to become the subject of a variety of enforcement or private actions, subject us or our management personnel to fines or various forms of civil or criminal prosecution, and result in negative publicity potentially damaging our reputation, network relationships, client relationships and the relationship with program members, representatives and consumers in general. Our failure to comply with current, as well as newly enacted or adopted federal and state regulations, could have a material adverse effect upon our business, financial condition and results of operations RISKS ASSOCIATED WITH OUR STOCK FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE. The sale of a large number of shares of our common stock available for sale in the market after this offering, or the belief that such sales could occur, could cause a drop in the market price of our common stock. We currently have 17,054,200 shares of common stock outstanding, all of which are "restricted securities" as that term is defined in Rule 144 of the Securities Act. We are registering 5,445,125 of these restricted shares in this offering. We are also registering an additional 400,000 shares of common stock underlying currently outstanding options and an additional 4,813,008 shares of common stock underlying currently outstanding warrants. The shares registered in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by our affiliates. 12 Immediately after the effectiveness of the registration statement of which this prospectus is a part, 5,445,125 shares of our outstanding shares of common stock will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by our affiliates. The remaining 11,609,075 shares of common stock outstanding after the effectiveness of the registration statement will continue to be restricted securities. None of our directors, executive officers and other stockholders are subject to lock-up agreements or market stand-off provisions that limit their ability to sell common stock. WE INTEND TO ATTEMPT TO RAISE ADDITIONAL FUNDS IN THE FUTURE, AND SUCH ADDITIONAL FUNDING MAY BE DILUTIVE TO STOCKHOLDERS OR IMPOSE OPERATIONAL RESTRICTIONS. We intend to raise additional capital in the future to help fund our operations through sales of shares of our common stock or securities convertible into shares of our common stock, as well as issuances of debt. Such additional financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants which may limit our operating flexibility. If additional capital is raised through the issuances of shares of our common stock or securities convertible into shares of our common stock, the percentage ownership of existing stockholders will be reduced. These stockholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock. In addition, certain of our outstanding warrants contain provisions that provide for a downward adjustment in the exercise price in the event that we issue shares of our common stock or securities convertible or exercisable into shares of our common stock at a price less than the exercise price in effect at the time of the issuance of such securities, which could result in additional dilution to our stockholders. THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including: o announcements of new programs or services by our competitors; o demand for our CARExpress membership programs, including fluctuations in license renewals; and o fluctuations in revenue from the network marketing organizations that we use. In addition, the market price of our common stock could be subject to wide fluctuations in response to: o quarterly variations in our revenues and operating expenses; o announcements of new programs or services by us; and 13 o our ability to accommodate the future growth in our operations. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market price of the stock of many early-stage companies and that often have been unrelated or disproportionate to the operating performance of these companies. Market fluctuations such as these may seriously harm the market price of our common stock. Further, securities class action suits have been filed against companies following periods of market volatility in the price of their securities. If such an action is instituted against us, we may incur substantial costs and a diversion of management attention and resources, which would seriously harm our business, financial condition and results of operations. OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO FALL. Our operating results will likely vary in the future primarily as the result of fluctuations in our billings, revenues and operating expenses. We expect that our operating expenses will increase substantially in the future as we expand our selling and marketing activities, increase our research and development efforts, and hire additional personnel. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline. OUR SHARES OF COMMON STOCK ARE NOT LISTED ON ANY NATIONAL SECURITIES EXCHANGE OR ESTABLISHED ELECTRONIC TRADING SYSTEM. Our shares of common stock do not currently trade on a national securities exchange or any other established electronic trading system. We intend to submit an application to the OTC Bulletin Board immediately after the effective date of the registration statement of which this prospectus is a part. We can provide no assurance, however, that such application will be submitted or, if it is, that it will be accepted by the OTC Bulletin Board or that our shares of common stock will be approved for trading on the OTC Bulletin Board. The failure of our shares to be approved for trading on the OTC Bulletin Board will have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" MAY LIMIT THE TRADING AND LIQUIDITY OF OUR COMMON STOCK WHICH MAY AFFECT THE TRADING PRICE OF OUR COMMON STOCK. In the event our shares of common stock are not listed on a national securities exchange, an electronic trading system, or the pink sheets, our common stock will very likely be considered a "penny stock" as defined under Rule 3a51-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and will be subject to SEC rules and regulations that impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser's written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. 14 IF OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CHOOSE TO ACT TOGETHER, THEY MAY BE ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS, WHICH MAY PREVENT US FROM TAKING ACTIONS THAT MAY BE FAVORABLE TO YOU. Our executive officers, directors and principal stockholders, and their respective affiliates, beneficially own approximately 47% of our outstanding common stock. These stockholders, acting together, have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, they could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of us or impeding a merger or consolidation, takeover or other business combination that could be favorable to you. 15 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this prospectus, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objective of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," or "believes" or the negative thereof or any variation thereon or similar terminology or expressions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from results proposed in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: o our ability to fund future growth and implement our business strategy; o demand for and acceptance of our CARExpress membership programs; o our dependence on a small number of preferred provider organizations and other provider networks for healthcare providers; o our ability to develop and expand the market for our CARExpress membership programs; o our ability to market our CARExpress membership programs; o growth and market acceptance of the health savings industry; o competition in the health savings industry and our markets; o our ability to attract and retain qualified personnel and marketing representatives; o legislative or regulatory changes in the healthcare industry; o the condition of the securities and capital markets; o general economic and business conditions, either nationally or internationally or in the jurisdictions in which we are doing business; and statements of assumption underlying any of the foregoing, as well as any other factors set forth under the caption "Risk Factors" on page 2 of this prospectus and "Management's Discussions an Analysis of Financial Condition and Results of Operation" below. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this prospectus are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the caption "Risk Factors" on page 2 of this prospectus and elsewhere in this prospectus. The following should be read in conjunction with our audited financial statements beginning on page F-1 of this prospectus. OVERVIEW We are a leading national healthcare savings organization that designs and offers discount healthcare membership programs to uninsured and underinsured individuals. Our membership programs encompass all aspects of healthcare, including physicians, hospitals, ancillary services, dentists, prescription drugs, vision care, hearing aids, chiropractic and alternative care, 24-hour nurseline, medical supplies and equipment, and long-term care facilities. We offer our discount healthcare membership programs through a national healthcare savings network called CARExpress. CARExpress is one of the largest and most comprehensive healthcare savings networks in the United States. Through CARExpress, we can provide members access to healthcare providers affiliated with some of the largest and most prestigious national health networks in the country. We entered the health savings industry in 2001 to address the need for affordable healthcare nationwide. From 2001 to 2004, we engaged in limited operations due to our lack of available capital. During that time, our employees performed relatively limited duties and our operations were focused almost exclusively on building CARExpress. In early 2004, we took a number of steps to increase our business and generate revenues, including hiring our current Chief Executive Officer, raising capital through private placements of our equity securities, and marketing our CARExpress membership programs to the public directly through mail, print ad, television and internet campaigns, and indirectly through independent marketing representatives, brokers and agents, retail chains and outlets, small businesses and trade associations, and unions and associations. Our strategy is to sustain and expand our position as one of the leading providers of unique healthcare membership service programs. We intend to focus predominantly in underserved markets where individuals either have limited healthcare benefits or no insurance. We have developed programs that give individuals access to healthcare providers at reduced fees, and offer value and savings to healthcare consumers throughout the country. Through product design, competitive membership pricing and strong distribution channel partners, we plan to fill a significant void in the healthcare market that insurance plans have not addressed. 17 CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. Revenue Recognition - ------------------- We electronically debit customer accounts for the monthly membership fees. These fees are typically pre-billed when received, resulting in deferred revenue. We recognize these fees as membership revenues when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable, and collectibility is reasonably assured. In the event we have sold membership programs offering a free trial period, we do not recognize membership revenue until the trial term expires, at which point membership revenues are recognized as services are rendered. Any fees the we receive in connection with the sale of our membership programs that are non-refundable are recognized when received. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS No. 123R"), which revised Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123R establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair value were required. SFAS No. 123R will be effective for small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. As a result, we will adopt SFAS No. 123R on January 1, 2006. The impact of the adoption of this new accounting pronouncement on our results of operations for our fiscal year ended December 31, 2004 and our six-month period ended June 30, 2005 would be similar to our calculation of the pro forma impact on net income of Statement of Financial Accounting Standards No. 123 included in "Note 8 - Stock Options" to our audited consolidated financial statements beginning on page F-[__] and "Note 6 - Stock Options" to our unaudited consolidated financial statements beginning on page F-[__], respectively. We are unable to determine what, if any, impact the adoption of SFAS No. 123R will have on our financial condition and results of operations for future periods. 18 For a more complete discussion of our accounting policies and procedures, see our Notes to Consolidated Financial Statements beginning on page F-8. COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 Revenues - -------- Revenues consist of the monthly membership fees that we receive from members of our CARExpress membership programs and commissions that we receive from the sale of CARExpress membership programs sold in combination with third-party insurance products. To date, revenues have consisted almost exclusively of the monthly membership fees we receive from members of our CARExpress membership programs. Revenues increased $14,784, or 72%, to $35,376 for the six months ended June 30, 2005 from $20,592 for the six months ended June 30, 2004. The increase of $14,784 was primarily a result of increased sales of our CARExpress membership programs to new customers. Approximately 79% of our revenues for the six months ended June 30, 2005 were derived from sales of our CARExpress membership programs to retailers, outlets, unions and associations, compared to 80% for the six months ended June 30, 2004. The remainder of the revenues generated during these periods were derived from sales of our CARExpress membership programs by us directly to consumers. We expect growth in revenues to accelerate over the next 12 months as we continue to enter into sales and marketing agreements with retailers, outlets, unions and associations, execute upon our advertising and marketing campaigns, and design and sell unique discount healthcare membership solutions to new and existing customers. We also expect to begin generating commissions from the sale of CARExpress membership programs sold in combination with third-party insurance products over the next 12 months. Cost of Sales - ------------- Cost of sales consists primarily of sales salaries for employees directly involved in generating and supporting sales of our CARExpress membership programs, depreciation and amortization expense relating to our computers, phone system and website, which provides broker support and information to customers and potential customers, and healthcare provider network costs, which consist of fees we pay to our various suppliers for access to their provider networks. Cost of sales increased $14,181, or 17%, to $98,161 for the six months ended June 30, 2005, from $83,980 for the six months ended June 30, 2004. The increase of $14,181 was due primarily to an increase of $19,457 in depreciation expense relating to out computers, phone system and website and an increase of $4,929 in healthcare provider network costs, partially offset by a decrease of $10,205 for sales salaries for employees directly involved in generating and supporting sales of our CARExpress membership programs. Operating Expenses - ------------------ Operating expenses consist primarily of salary expense, general and administrative expenses, professional fees and rent expenses. 19 Salary Expense. Salary expense consists of all salaries and related compensation that we pay to our employees and the payroll taxes associated therewith. Salary expense increased $263,808 to $407,752 for the six months ended June 30, 2005, from $143,944 for the six months ended June 30, 2004. The increase of $263,808 was due primarily to an increase of $236,068 for salaries and related compensation resulting from the fact that only six employees were paid for only four months in 2004 while nine employees were paid for six months in 2005, and $17,535 in additional taxes paid due to the increased payroll in 2005. Each of our executive officers is party to an employment agreement with us pursuant to which they will receive a fixed increase in salary on January 1 of each year of the remaining term of their respective agreement, and may be paid bonuses and other compensation at the discretion of our board of directors. A summary of the material terms of these employment agreements is provided below under "Executive Compensation" and under "Note 4 - Commitments and Contingencies - - Employment Agreements" of our unaudited consolidated financial statements for the six months ended June 30, 2005. In addition, we have retained additional executive management personnel subsequent to June 30, 2005 and may retain additional executive management personnel with substantial experience in the healthcare or health savings industry. As a result, we expect salary expense to increase over the next 12 months. General and Administrative Expenses. General and administrative expenses consist of computer and telecommunication equipment costs, marketing and advertising expenses, Web site development expenses, sales commissions for marketing representatives, brokers and agents, and other general and administrative expenses. General and administrative expenses increased $50,861 to $221,251 for the six months ended June 30, 2005 from $170,390 for the six months ended June 30, 2004. The increase of $50,861 resulted primarily from $28,973 for advertising and marketing campaigns that we commenced for our CARExpress membership programs, an increase of $9,377 for filing fees associated with our various business transactions and moving expenses related to our new office space in Sarasota, Florida, an increase of $7,960 in health insurance costs for the employees hired in 2004, and an increase of $7,630 for postage and supplies. We expect general and administrative expenses to continue to increase over the next 12 months as we engage in larger and more frequent marketing and advertising campaigns for our CARExpress membership programs, such as direct mail, print ad, television and internet campaigns, hire additional personnel for our customer service department, and add more personnel to support our expanding sales and marketing efforts, and as increased sales of our CARExpress membership programs result in higher overall sales commission expenses. Professional Fees. Professional fees consist of fees paid to our independent accountants, lawyers and other professionals. Professional fees increased $448,542 to $554,100 for the six months ended June 30, 2005 from $105,558 for the six months ended June 30, 2004. The increase of $448,542 was due primarily to an increase of $12,544 in fees paid to our independent accountant in connection with the preparation of our audited financial statements for our fiscal year ended December 31, 2004 and an increase of $87,960 in legal fees paid in connection with the various capital-raising and business transactions that we commenced or completed during the period, and an increase of $395,727 paid to our various consultants and advisors for financial advisory services and marketing and advisory services, partially offset by a decrease of $47,662 in computer system and hardware consulting expenses due to the costs of our new computer system being amortized in connection with the completion and proper functioning of the computer system. We expect professional fees to increase over the next 12 months as we record amortization expense for fees paid to our various consultants and advisors for financial advisory services and marketing advisory services as such services are performed, and as we continue to engage in business transactions associated with the anticipated growth of our business. 20 Rent Expense. Rent expense consists of the rent that we pay under the lease for our principal executive offices. Rent expense increased $30,272 to $74,702 for the six months ended June 30, 2005 from $44,430 for the six months ended June 30, 2004. The increase of $30,272 resulted primarily from our decision to move into a larger facility in April 2004 that provides us with 17 executive offices, a fully equipped state-of-the-art computer and telecommunications room, and the capacity to expand our customer service base to approximately 80 customer service agents. A summary of the material terms of this lease is provided under "Note 4 - Commitments and Contingencies - PA Facility Lease" of our unaudited consolidated financial statements for the six months ended June 30, 2005. We expect rent expense to increase over the next 12 months as a result of annual increases in our lease payments for this facility and the commencement of our payments under the lease that we entered into on July 1, 2005 for our facility in Sarasota, Florida, a summary of the material terms of which is provided under "Note 4 - Commitments and Contingencies - FL Facility Lease". COMPARISON OF YEARS ENDED DECEMBER 31, 2004 AND 2003 Revenue - ------- Revenues decreased $22,442 to $27,929 for the year ended December 31, 2004 from $50,371 for the year ended December 31, 2003. The decrease of $22,442 was primarily a result our decision to reduce marketing efforts on direct sales of our CARExpress membership programs to consumers and instead focus our marketing efforts on sales of our CARExpress membership programs to retailers, outlets, unions and associations. Approximately 30% of our revenues for the year ended December 31, 2004 were derived from sales of our CARExpress membership programs to retailers, outlets, unions and associations, compared to 70% for the year ended December 31, 2003. Cost of Sales - ------------- Cost of sales increased $140,233 to $237,186 for the year ended December 31, 2004, from $96,953 for the year ended December 31, 2003. The increase of $140,233 was due primarily to an increase of $154,238 in sales salaries for employees directly involved in generating and supporting sales of our CARExpress membership programs and the incurrence of $16,209 for depreciation expense relating to out computers, phone system and website, partially offset by a decrease of $30,214 in healthcare provider network costs. Operating Expenses - ------------------ Salary Expense. Salary expense increased $381,210 to $449,613 for the year ended December 31, 2004 from $68,403 for the year ended December 31, 2003. The increase of $381,210 was due primarily to an increase of $342,131 in salaries and related compensation resulting from an increase in the number of personnel from one part-time employee in 2003 to 9 full-time employees and one part-time employee during 2004 and $39,079 in additional taxes paid due to the increased payroll in 2004. 21 General and Administrative Expenses. General and administrative expenses (not including expenses for marketing and advertising campaigns, which are described below under "Advertising Expense") increased $289,464 to $368,062 for the year ended December 31, 2004 from $78,598 for the year ended December 31, 2004. The increase of $289,464 resulted primarily from an increase of $78,569 in health insurance costs for the employees hired in 2004, $100,152 of additional travel and entertainment expense associated with marketing, contract negotiation and other business activities, an increase of $45,034 for general marketing activities not described below under "Advertising Expense," $13,515 of additional supply costs as a result of increased personnel and activities, an increase of $10,006 for postage, a $5,734 increase in costs for additional computer, moving expenses of $6,618 for the move to our new offices, and $6,883 for computer repairs. Professional Fees. We incurred professional fees of $1,178,898 during our fiscal year ended December 31, 2004. We did not incur any professional fees during our fiscal year ended December 31, 2003 as we did not engage in any business transactions or activities requiring the services of independent accountants, lawyers or other professionals during that year. The $1,178,898 of professional fees that we incurred during our fiscal year ended December 31, 2004 was comprised primarily of $874,125 in stock compensation paid to David M. Daniels in connection with Mr. Daniels accepting his appointment as our Chief Executive Officer, $106,874 in legal fees incurred in connection with various business transactions that we commenced or completed during the year, $17,726 of professional fees associated with accounting and tax services performed by our independent accountants, $16,409 of consulting fees in connection with setting up the computers and computer network in our new office, and $44,256 of consulting fees for general accounting and marketing activities performed during January and February 2004 prior to the hiring of full-time employees. Advertising Expense. Advertising expense consisted of costs that we incurred in connection with the various advertising and marketing campaigns for our CARExpress membership programs, such as direct mail, print ad, television and internet campaigns. We incurred advertising expense of $170,377 during the year ended December 31, 2004. We did not incur any advertising expense during the year ended December 31, 2003 as we did not engage in any marketing and advertising activities during that year. The $170,377 of advertising expense that we incurred during the year ended December 31, 2004 was comprised primarily of the direct mail, print ad, television and internet campaigns that we commenced during the year. Rent Expense. Rent expense increased $67,737 to $119,906 for the year ended December 31, 2004 from $52,169 for the year ended December 31, 2004. The increase of $67,737 resulted primarily from our decision to move into a larger facility in April 2004 that provides us with 17 executive offices, a fully equipped state-of-the-art computer and telecommunications room, and the capacity to expand our customer service base to approximately 80 customer service agents. 22 Loss on Extinguishment of Debt - ------------------------------ Loss on extinguishment of debt consists of losses realized upon the extinguishment of our existing debt obligations and the write-off of associated unamortized debt issuance costs. We incurred loss on extinguishment of debt of $83,388 for our fiscal year ended December 31, 2004. We did not incur any loss on extinguishment of debt for our fiscal year ended December 31, 2003. The loss on extinguishment of debt of $83,388 that we incurred during our fiscal year ended December 31, 2004 consisted of losses realized upon the issuance of shares of our common stock and the payment of cash in exchange for the extinguishment of debt obligations and the write-off of unamortized debt issuance costs resulting therefrom that we had incurred in connection with the funding of our business operations. Since we do not intend to fund our future operations by means of the issuance of debt, and since we had only 80,993 in notes payable outstanding on December 31, 2004, we do not expect to incur any material loss on extinguishment of debt during the next 12 months. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have funded our operations primarily through private sales of equity securities and the use of short-term and long-term debt. As of June 30, 2005, we had a cash and cash equivalents balance of $475,482. Net cash used by operating activities was $1,035,582 for the six months ended June 30, 2005 compared to $898,856 for the six months ended June 30, 2004. The $136,726 increase in cash used in operating activities was primarily due to increased net loss of approximately $811,000, partially offset by an increase in expenses for common stock issued for services of approximately $195,000, and increase in the fair value of warrants expensed of approximately $177,000, an increase in accounts payable and accrued expenses of approximately $262,000 and a decrease in spending on current assets of approximately $57,000. Net cash used in operating activities was $1,622,875 for our fiscal year ended December 31, 2004, compared to $130,520 for our fiscal year ended December 31, 2003. The $1,492,355 increase was due primarily to and increase in net loss of approximately $2,324,000, and a decrease in accounts payable and accrued expenses of approximately $270,000 and interest payable of approximately $44,000, partially offset by an increase in noncash compensation consisting of shares of our common stock issued in exchange for professional, consulting, advisory and other services of approximately $1,049,000 and loss on the extinguishment of debt and related costs of approximately $83,000. Net cash used by investing activities was $48,359 for the six months ended June 30, 2005 compared to $67,074 for the six months ended June 30, 2004. The $18,715 decrease in cash used by investing activities was due to a decrease in purchases of fixed assets and Web site costs of approximately $44,000, partially offset by our payment of notes receivable of $25,000. Net cash used in investing activities was $161,956 for our fiscal year ended December 31, 2004. We did not have any cash flows from investing activities for our fiscal year ended December 31, 2003. The $161,956 increase was due to an increase in purchases of fixed assets and Web site costs. 23 Net cash provided by financing activities was $1,102,508 for the six months ended June 30, 2005 compared to $1,197,114 for the six months ended June 30, 2004. The $94,606 decrease in net cash provided by financing activities was due primarily to a decrease in proceeds from sales of shares of our common stock and subscriptions payable of approximately $559,000, partially offset by an increase in proceeds from sales of securities of approximately $223,000 and a decrease in payments on notes payable of approximately $241,000. Net cash provided by financing activities was $2,206,576 for our fiscal year ended December 31, 2004 compared to $114,551 for our fiscal year ended December 31, 2003. The $2,092,025 increase in cash flows from financing activities was due primarily to an increase in proceeds from sales of our common stock and subscriptions payable of approximately $2,403,000, partially offset by an increase in payments on our notes payable of approximately $203,000 and a decrease in proceeds from the issuance of notes payable of approximately $106,000. We had working capital of $572,689 at June 30, 2005. Our primary sources of capital over the past twelve (12) months are set forth below. In August 2004, we completed a private offering of 2,777,000 shares of our common stock, Class A warrants to acquire 1,388,500 shares of our common stock, and Class B warrants to acquire 1,388,500 shares of our common stock, for aggregate cash consideration of $1,388,500. These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $1.00 per share. Each Class B Warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share. In September 2004, we completed a private offering of 174,000 shares of our common stock, Class A warrants to acquire 87,000 shares of our common stock, and Class B warrants to acquire 87,000 shares of our common stock, for aggregate cash consideration of $87,000. These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $1.00 per share. Each Class B Warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share. In February 2005, we completed a private offering of 2,448,750 shares of our common stock, Class A warrants to acquire 816,252 shares of our common stock, and Class B warrants to acquire 816,252 shares of our common stock, for aggregate cash consideration of $979,500. These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $1.00 per share. Each Class B Warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share. 24 In April 2005, we completed a private offering of 1,800,000 shares of our common stock, Class A warrants to acquire 1,800,000 shares of our common stock, and Class B warrants to acquire 1,800,000 shares of our common stock, for aggregate consideration consisting of 2,740,000 shares of common stock of Infinium Labs, Inc., a Delaware corporation, that was then valued at $720,000. These securities were sold in units comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $.60 per share. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share. In May 2005, we completed a private offering of 635,750 shares of our common stock, Class A warrants to acquire 317,875 shares of our common stock, and Class B warrants to acquire 317,875 shares of our common stock, for aggregate cash consideration of $254,300. These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one and one-half shares of our common Stock at an exercise price of $.60 per share. Each Class B warrant is initially exercisable into one and one-half shares of our common stock at an exercise price of $.80 per share. In June 2005, we completed a private offering of 1,490,000 shares of our common stock, Class A warrants to acquire 1,490,000 shares of our common stock, and Class B warrants to acquire 1,490,000 shares of our common stock, for aggregate cash consideration of $596,000. These securities were sold in units comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $.60 per share. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share. The forgoing constitutes our principal sources of capital during the past twelve (12) months. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution. To date, our capital needs have been principally met through the receipt of proceeds from sales of our equity and debt securities. We believe that our current cash resources will be sufficient to sustain our current operations for the next twelve (12) months. We intend to continue to invest our cash in excess of current operating requirements in interest-bearing, investment-grade securities. We intend to obtain additional cash resources within the next twelve (12) months to finance the growth of our business through sales of debt or equity securities and through proceeds received from the exercise of outstanding options and warrants by our security holders. The sale of additional equity or convertible debt securities would result in additional dilution to our shareholders. The issuance of additional debt would result in increased expenses and could subject us to covenants that may have the effect of restricting our operations. We have not made arrangements to obtain additional financing and we can provide no assurance that financing, if required, will be available in amount or on terms acceptable to us, if at all. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms favorable to us, we may be required to delay or scale back any plans we may have to acquire such companies, businesses, assets or technologies. 25 OFF-BALANCE SHEET ARRANGEMENTS As of June 30, 2005, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. DESCRIPTION OF BUSINESS OVERVIEW National Health Partners, Inc. (d/b/a "International Health Partners, Inc.") is a national healthcare savings organization founded in 1989 and reorganized in 2001 by healthcare and finance experts to address the need for affordable healthcare nationwide. We create, market and distribute membership savings programs to predominantly underserved markets in the healthcare industry through a national healthcare savings network called CARExpress ("CARExpress"). CARExpress is a sophisticated network of hospitals, doctors, dentists, pharmacists and other healthcare providers comprised of an aggregate of over 1,000,000 medical professionals that have agreed to render their services and products to CARExpress members at substantially discounted prices. CARExpress enables a person to engage in point-of-service transactions directly with these providers and receive discounts from the provider that are similar to those received by a person employed by a large corporation with hundreds of thousands of employees. Our programs offer savings on healthcare services to persons who are uninsured, underinsured, or who have elected to purchase only high deductible or limited benefit medical insurance policies, by providing access to the same preferred provider organizations ("PPOs") that are utilized by many insurance companies and employers who self-fund at least a portion of their employees' healthcare risk. Our programs are also used to supplement benefit plans and fill in the gaps created by the need to reduce health benefits to keep the costs of health insurance reasonable. These programs are sold primarily through a network marketing strategy under the name CARExpress, but are also offered through resellers who have privately labeled or co-branded the CARExpress services and through employers as part of an employee benefit plan. HEALTHCARE INDUSTRY The healthcare industry remains in a state of turmoil and crisis. The U.S. Department of Commerce estimates that 15.6% of all Americans, or 45 million individuals, were without health insurance coverage in 2003, up from 15.2%, or 43.6 million individuals, in 2002, an increase of 1.4 million people, and that 21% of all Americans, or 61 million individuals, had only marginal coverage in 2003. The percentage of people working full-time without health insurance in 2003 was 17.5%, an increase of 16.8% from 2002. According to CMS, Office of the Actuary, National Health Statistics Group and the U.S. Census Bureau, iProceed.com, the Centers for Medicare and Medicaid Services estimates that healthcare expenditures in the United States topped $1.7 trillion in 2003. 26 Several factors have contributed to the increase in the cost of healthcare, including the following: Over Utilization of the Healthcare System. American citizens are utilizing healthcare services at an ever-increasing rate. Behind this phenomenon is the fact that insurance plans and healthcare management organizations are structured to encourage usage. Small co-payments, generally from $10 or $15 per office visit, encourage insured consumers to use the healthcare system more frequently because they do not perceive themselves ultimately as having to pay the full costs of the medical services received. Strict State Insurance Regulations. A number of insurance companies have pulled out of certain states due to state regulations that no longer provide for a viable operating environment. As a result of these health coverage cancellations, those formerly insured individuals and families are required to pay more for their insurance coverage, cannot obtain any coverage because of pre-existing conditions, or simply remain uninsured for healthcare. Escalating Tensions Between Medical Providers and Payors. Tensions between medical providers and payors are escalating. The medical decision is often no longer in the hands of the doctor and the patient. Rather, administrators at healthcare management organizations and insurance companies determine the procedures to be performed. Doctors and hospitals, having experienced decreases in their income and profits, are demanding higher compensation, particularly from the healthcare management organizations. These increasing costs have led to limitations on reimbursement from insurance companies, HMOs and government sources and have generated demand for products and services designed to control healthcare costs. Many employers have responded to the increased cost of providing health insurance to their employees by reducing or eliminating available insurance coverage and/or by requiring employees to contribute heavily to premiums, especially for family members. As a result, more Americans are being forced to self-insure and pay a growing portion of the cost of their healthcare. Some are entirely uninsured. Others can only afford or choose only a high deductible or limited benefit health insurance policy. In either case, this patient population increasingly forgoes medical procedures or relies on emergency care for its healthcare needs and often incurs prohibitive expenses. Additionally, costs of healthcare (in doctors' offices and hospitals) for this patient population are often far higher than the amount an insured and the insurance company would pay for the same healthcare services for its insureds. The uninsured and underinsured patients have had no one to negotiate healthcare service costs on their behalf. Market demand is significant for any product that can accomplish one or more of the following: o provide a low-cost alternative to health insurance for the 90-plus million Americans who have either no insurance or only catastrophic insurance coverage; 27 o provide the 65% of small businesses that do not provide health benefits to employees with an affordable way to provide benefits to their employees; o reduce the cost of claims and re-insurance premiums for large corporations, unions and insurance companies; o provide quality care at a price that is both affordable to consumers and that will pay providers a reasonable profit for their services; and o provide supplemental benefits, such as dental, vision, elective surgery, chiropractic and alternative care, that are not covered by insurance plans. HEALTH SAVINGS INDUSTRY The health savings industry is in its infancy, with annual aggregate sales of only about $1 billion to date according to data produced by the U.S. Census Bureau in its 2003 Current Population Survey. We believe, based on this data, that within the next decade more than 100 million Americans are expected to utilize some version of a health savings program and that the potential market for the healthcare savings industry for uninsured individuals alone may grow to over $27 billion a year. Membership service programs offer selected products and services from a variety of vendors with the objective of enhancing the existing relationship between businesses and their customers. When designed, marketed, and managed effectively, membership service programs can be of significant value to: o Consumers, who become members of the membership program; o Vendors, through sales and marketing of their products and services; and o Wholesale clients, through which the program memberships are offered or sold in connection with other benefits or sales. Product vendors and service providers are seeking more cost-effective and efficient methods to expand their customer base and market share, other than through the traditional mass-marketing channels of distribution. In addition, vendors are seeking to reach new customers and strengthen relationships with existing customers. OUR CAREXPRESS HEALTHCARE SOLUTION Overview - -------- We offer a discount healthcare membership solution designed in response to rising healthcare costs and the growing number of people that can no longer afford traditional insurance coverage. Our healthcare solution is based upon the following underlying principles: (i) healthcare decisions must be put back in the hands of the doctor and the patient, without undue oversight by parties with only economic interests in the decision; (ii) responsibility for over-utilization of healthcare products and services due to low co-pays and deductibles must be put back in the hands of the patient; and (iii) healthcare must be affordable for patients, while providing the medical providers with adequate payment on a timely basis for services provided. 28 Our solutions address these underlying principles in the following manner: o we assist our program members in saving between 10% and 50% on healthcare products and services by informing them who the most cost-effective healthcare providers in their area are and providing them access to these providers; o we allow the patient and the healthcare provider to decide treatment protocols with no interference from any third party, o we facilitate the financial transaction between the healthcare provider and patient-member by enabling the provider to receive prompt payment; and o we provide the patient with an incentive to minimize utilization of healthcare products and services to achieve cost savings, regardless of whether the patient has a high deductible insurance policy or is self-insured, because the patient-member is directly responsible for a significant portion of his or her medical expenses. We believe that our emphasis on discount health services addresses two significant concerns in the healthcare industry: cost containment and the rising number of people who are uninsured or underinsured. We believe that our discount health programs provide a low-cost, non-insurance alternative to individuals who are seeking to reduce their out-of-pocket healthcare costs not covered by insurance or who are unable to obtain healthcare insurance due to their medical history, age or occupation. For a monthly fee, our members obtain discounts that are typically between 10% and 50% percent off the retail price of participating healthcare provider products and services. Acceptance into our health programs is unrestricted, and our programs may be utilized by the member's entire household. Our CARExpress Membership Programs - ---------------------------------- We design and offer discount healthcare membership programs for uninsured and underinsured individuals. Our membership programs encompass all aspects of healthcare, including physicians, hospitals, ancillary services, dentists, prescription drugs, vision care, hearing aids, chiropractic and alternative care, 24-hour nurseline, medical supplies and equipment, and long term care facilities, which include skilled nursing facilities, assisted living facilities, respite care and home health care. We offer our discount healthcare membership programs through a national healthcare savings network called CARExpress ("CARExpress"). CARExpress is one of the largest and most comprehensive healthcare savings networks in the United States. Through CARExpress, we can provide members access to healthcare providers affiliated with PPONext, International Med-Care, CareMark, Cigna, Optum and Careington International, six of the largest and most prestigious national health networks in the country. Through these and other networks, we provide members access to over 1,000,000 healthcare providers in the United States, including more than 70% of practicing doctors and surgeons, 70% of all acute care hospitals and 90% of all pharmacies. Our CARExpress membership programs allow everyone in the country to utilize just about any type of healthcare service wherever it is available, whether the person needs a comprehensive healthcare package or simply needs supplemental healthcare benefits, such as dental or vision care or prescriptions. 29 Memberships in our programs are offered and sold through our direct sales force and through independent marketing consultants. Memberships in our CARExpress programs range in price from $9.95 to $39.95 per month, depending upon the program selected. Healthcare products and services are bundled, priced and marketed utilizing relationship marketing strategies to target the profiled needs of our customers. The discounts realized by our members typically range from between 10% and 50% off providers' usual and customary fees. Our CARExpress membership programs require members to pay the provider at the time of service, thereby eliminating the need for any insurance claims filing. These discounts, which are similar to managed care discounts, typically save the individual more than the cost of the program itself. Our CARExpress membership programs are not insurance. There is no undertaking by us to pay any portion of any fee for services or prescriptions purchased using our CARExpress membership cards. Rather, our CARExpress membership programs provide consumers with access to providers who are members of PPOs or other provider networks and who have agreed in advance to honor our CARExpress membership cards and accept previously-negotiated reductions in their fees from patients who pay cash for their products and services. CARExpress members simply present their CARExpress membership card to the participating provider at the time of the service to qualify for the discount. We believe that millions of Americans can benefit in some manner from joining our CARExpress membership programs, regardless of whether they have health insurance or not. In general, we believe that our CARExpress membership programs are most attractive and beneficial to the following people and organizations: o people without insurance coverage, including self-employed individuals and part-time or temporary employees; o people with gaps in their insurance coverage; o people who have been turned down for insurance coverage due to a pre-existing condition clause; o people who have been turned down for insurance because of age, occupation, medical history, lifestyle or other reasons; o people who have reached the yearly and/or lifetime benefit limits of their insurance policy; o people who choose alternative healthcare solutions that are often not covered by HMOs, PPOs, or other insurance, or who seek providers not covered by their present health plans; o small business owners who want to provide their employees with a low-cost healthcare program; o employees whose employers have terminated or curtailed employee health benefits; o people who may be underinsured because of restrictions or provisions in their managed care plans, such as limited coverage, high deductibles or co-insurance limits; 30 o small businesses, chambers of commerce, employers of temporary or part-time personnel and other businesses seeking affordable health benefits for their employees in order to promote employee loyalty and differentiate their companies in the marketplace; and o unions, associations, trade groups and other organizations seeking to increase membership and promote member/customer loyalty by providing or offering a discount health benefit. How CARExpress Works - -------------------- Most members pay for the program on a monthly basis, either through automatic bank draft or credit card. Individuals who do not wish to use either of these payment methods are required to pay annually at the time of enrollment. Groups of 20 or more can also choose to be billed on a monthly basis. Members may cancel their membership at any time by returning their identification cards, along with a written notice of cancellation. There is a 30-day money-back guarantee so that if a member is not completely satisfied with the program, the member will be refunded the program fee upon the return of the identification cards. Upon enrollment, new members receive a member kit that includes instructions on using the program, provider directories for their area and a CARExpress membership card. Except with respect to hospitals, members select a participating provider, make their appointment, present their CARExpress membership card to the provider and receive their discount at the time of service. The provider may verify an individual's membership status by calling a phone number imprinted on the CARExpress membership card or reviewing electronic files that we have submitted to the provider. There are no claim forms or bills to be processed. Both the member and provider are finished with the transaction. In order to obtain discounts from participating hospitals, our members complete a payment pre-certification process which will make their medical visit similar to other medical payment insurance plans. The member calls the plan administrator, which is currently International Med-Care, to arrange for pre-certification and prepayment using a major credit card or certified funds. The plan administrator assigns a case manager who coordinates and oversees the member's hospital stay. The member makes no payment to the provider at the time services are rendered but simply presents his CARExpress membership card. The provider bills the plan administrator and the plan administrator pays the provider and charges the discounted amount to the member. The member subsequently receives a statement of savings indicating the original amount billed, the amount charged after savings were applied and the total amount saved. Benefits of Using CARExpress - ---------------------------- Our CARExpress membership programs provide benefits to our members, unions, associations, and organizations, as well as providers and healthcare networks. 31 Benefits to Members. We believe that members will be attracted to our CARExpress membership programs because they provide members with access to healthcare products and services on a discounted basis and because of their flexibility and ease of use. Membership in our CARExpress membership programs is unrestricted and provides benefits to individuals who, because of their medical history, age or occupation, are unable to obtain health insurance. Our CARExpress membership programs cover each person in the member's immediate family and can be used as often as they wish. In addition, unlike many insurance or managed care programs, members have no paperwork or claims to prepare and no waiting periods. Benefits to Unions/Associations/Organizations. We believe that our CARExpress membership programs will be attractive to unions, associations, corporations and other organizations with large memberships or employee bases because they can assist these organizations in their efforts to attract and retain members and employees by enabling them to offer a more complete healthcare benefits package. Similarly, as competition among HMOs for participants intensifies, we believe that our CARExpress membership programs will enable HMOs to offer a more complete array of potential healthcare benefits. Due to the low cost of our CARExpress membership programs, these organizations may offer them to part-time employees who often are not eligible for healthcare benefits offered to full-time employees. Moreover, because our CARExpress membership programs are discount health programs and not insurance products, these organizations can offer discounts to their members or employees without bearing any economic risk in excess of the annual cost of the program. Benefits to Providers and Healthcare Networks. We believe that physicians, hospitals and other healthcare providers will be attracted to our CARExpress membership programs because our programs will help the providers increase their customer base. While members will pay fees and charges that are less than those paid by non-members, the incremental business from members offers an additional source of revenue to the providers, with little or no increase in their overhead costs. In addition, healthcare providers are paid at the time of service, reducing the in-office billing procedures and cost and allowing the provider to immediately collect payment. We believe that our CARExpress membership programs are also attractive to provider networks because they increase the likelihood that providers will affiliate with provider networks in order to gain access to more members. STRATEGY Our strategy is to sustain and expand our position as one of the leading providers of unique healthcare membership service programs. We intend to focus predominantly in underserved markets where individuals either have limited healthcare benefits or no insurance. We have developed programs that give individuals access to healthcare providers at reduced fees, and offer value and savings to healthcare consumers throughout the country. Through product design, competitive membership pricing and strong distribution channel partners, we plan to fill a significant void in the healthcare market that insurance plans have not addressed. Key elements of our strategy are as follows: Develop Unique Healthcare Service Programs For Broad Markets. Our focus is on the continued development and introduction of unique programs that address the health and lifestyle needs of targeted consumer groups. We continually research our markets to keep abreast of trends in the demand for consumer-paid healthcare. We intend to further develop and expand our marketing capabilities by increasing the content currently available on our Web site, developing programs to offer our CARExpress membership programs directly to affinity 32 groups, such as unions, small businesses, trade associations and charitable organizations, and expanding our in-house marketing staff. We intend to increase sales of our CARExpress membership programs by adding related discounted products and services, such as accidental death coverage. We also may acquire additional products and services complementary to our CARExpress membership programs to expand the breadth of our healthcare solutions, and may start up or acquire other companies engaged in healthcare or related industries. We anticipate that this plan will allow us to obtain a larger share of the healthcare market through existing marketing channels and through establishment of new customer relationships. Recruit Independent Marketing Representatives. Growth in sales of our CARExpress membership programs is dependent upon our independent marketing representatives continuing to market CARExpress membership programs and recruit independent marketing representatives. We intend to continually increase our support for these marketing representatives to maximize the volume generated through this sales channel by training our sales reps to completely and accurately explain the benefits, limitations, and use of our CARExpress membership programs. We also plan to improve the productivity of our existing marketing representatives through lead development, marketing support, sales assistance and training. Recurring revenue from members of unions and associations is dependent upon marketing representatives continuously marketing our products to their customer base. We intend to continue to focus our efforts on retaining our existing marketing representatives and obtaining new marketing representatives through our direct sales team. Leverage and Develop Multiple Network Partners. We are constantly seeking and negotiating new agreements with PPOs and other provider networks. While we currently have contractual relationships with several of the largest and most prestigious preferred provider organizations in the country for access to savings on healthcare provider products and services, we need to continuously assess the capabilities of that network and work towards providing alternative network solutions for our members. We believe that our large provider base enhances our CARExpress membership programs with market credibility, and we intend to leverage this credibility to further our market penetration. Provide High Quality Customer Service. In order to achieve our anticipated growth and to ensure member, provider and marketing representative loyalty, we continue to develop and invest significantly in our member service systems. We recently moved into a sophisticated customer service center from which both cardholders and providers can get prompt, courteous, and complete information about all aspects of our CARExpress membership programs. We have also developed a proprietary computer database system that provides customer service representatives immediate access to provider demographic data and member information, including the components of each member program or plan and the details a member requires to properly utilize the program. Develop a Corporate-Level Sales Team. To complement individual and group sales and lead generation accomplished through our marketing representatives, we have undertaken a strategy to promote sales to groups and self-funded employers with a corporate-level sales team having experience with the group insurance market and the operations of a third party administrator. 33 PRODUCTS We offer several distinct CARExpress membership programs that provide members with access to distinct discounted healthcare products and services, and design healthcare membership programs for unions, associations, corporations and other organizations that combine our CARExpress membership programs with certain insurance products on a co-branded basis. CARExpress Membership Programs - ------------------------------ We currently offer five standard CARExpress membership programs that provide benefits that range from prescription drug and vision care to comprehensive physician, hospital, vision, dental and other care. A description of each of these programs is provided below. Comprehensive Care Program. This program is designed for individuals and families with no health insurance. It provides members with access to all of our CARExpress products and services, including physician, hospital and ancillary care, dental and vision care, retail and mail order pharmacy, 24-hour nurseline, hearing care, chiropractic and complementary alternative care, medical supplies and equipment, and long-term care facilities. Our comprehensive care program targets those with little or no insurance, or those with just catastrophic coverage. We believe that our comprehensive care program will be of particular interest to consumers who are not covered by group health or individual benefit plans. The monthly retail price for this membership program is $39.95 per family. Supplemental Care Program. This program is designed for individuals and families who are underinsured. It offers everything that our comprehensive care program except for access to doctors and hospitals. Our supplemental care program generally presumes the member has some level of basic medical insurance coverage. It offers services that are typically not covered under a traditional health insurance plan or an insurance plan that may have certain coverage limits. This program typically is marketed as an add-on service alongside an existing health plan or as a stand-alone plan for those who have health insurance but with minimal benefits for prescription or other ancillary services. The monthly retail price for this membership program is $29.95 per family. Preferred Program. This program is designed for individuals and families who are under-insured and need to save on the basic health services not covered under a traditional health insurance plan. It offers savings on prescriptions, vision and dental care, and a 24-hour nurseline. The monthly retail price for this membership program is $19.95 per family. Dental & Vision Care Program. This program is designed for individuals and families who typically have health insurance, but who do not have either dental care or vision care. The monthly retail price for this membership program is $14.95 per family. Prescription & Vision Care Program. This program is designed to offer members an inexpensive way to save money on prescriptions and vision care. This program is our low-cost entry program from which we up-sell to our other CARExpress membership programs. The monthly retail price for this program is $9.95 per family. 34 CARExpress Insurance Programs - ----------------------------- We also design healthcare membership programs for organizations, associations and corporations that combine our CARExpress membership programs with various types of insurance products. The use of these products in conjunction with our CARExpress membership programs can provide an affordable solution to individuals and groups who previously could not afford fully inclusive medical plans, and can provide greater assurance of payment to the healthcare providers. These products are bundled, priced and marketed utilizing relationship marketing strategies or direct marketing to target the profiled needs of the clients' particular member base. Insurance products that are suitable for combination with our CARExpress membership programs include: Catastrophic Health Insurance. This type of insurance usually takes the form of a high deductible major medical policy in which the insurance company pays nothing until expenditures reach a threshold that is typically between $2,500 and $20,000. We have identified several A+ rated insurance companies that may offer the CARExpress program as a supplement to their catastrophic health insurance products. The consumer would use one of our CARExpress membership programs to reduce his or her out-of-pocket costs until he or she reaches the deductible amount and then use the insurance for all additional expenses. Mini-Med Programs. Mini-Med programs are insurance options offered by insurance companies that restrict claim losses by limiting the amount of insurance that can be paid. For example, the amount of insurance that would be payable to an individual for a particular outpatient hospital procedure could be limited to $1,000. Our CARExpress membership programs can be designed as a supplement to insurance companies' Mini-Med programs. The consumer would then use CARExpress to reduce their out-of-pocket costs and use the Mini-Med program to reimburse them a fixed amount per visit. Our CARExpress insurance programs are currently offered indirectly, through insurance companies and independent third parties. We intend to also offer our CARExpress insurance programs directly in the future through National Health Brokerage Group, Inc., our wholly-owned subsidiary. We plan to operate National Health Brokerage Group like an insurance agency with respect to our CARExpress insurance programs. We plan to obtain the necessary licenses in all states in which National Health Brokerage Group may sell our CARExpress insurance programs and offer our CARExpress insurance programs for sale through marketing representatives who are licensed insurance agents. CUSTOMERS The target customers of CARExpress products are individuals who are uninsured and underinsured. Our primary target customer group is comprised of the 45 million Americans who have no health insurance of any kind. This group includes self-employed individuals and part-time or temporary employees, and people who have been turned down for insurance because of age, occupation, medical history, lifestyle or other reasons. For this group, CARExpress is an effective and low cost alternative to health insurance. 35 Our secondary target customer group includes the approximately 61 million Americans who lack complete health insurance coverage. This group includes people with gaps in their insurance coverage, employees paying large deductibles or premiums, and employees who do not receive adequate insurance coverage for family members. It also includes people who are underinsured because of restrictions or provisions in their managed care plans, such as limited coverage, high deductibles or co-insurance limits, people who have been turned down for insurance coverage for a medical procedure due to a pre-existing condition clause, and people who have been turned down for insurance because of age, occupation, medical history, lifestyle or other reasons. The supplementary programs offered by CARExpress allow an individual to purchase whatever benefits they need to fill the gaps in their insurance coverage. We believe that our CARExpress membership programs are attractive to small businesses, chambers of commerce, employers of temporary or part-time personnel and other businesses seeking affordable health benefits for their employees in order to promote employee loyalty and differentiate their companies in the marketplace, as well as unions, associations, trade groups and other organizations seeking to increase membership and promote member and customer loyalty by providing or offering a discount health benefit. We believe our CARExpress membership programs are also attractive to people who choose alternative healthcare solutions that are often not covered by HMOs, PPOs or other insurance companies, or who seek providers not covered by their present health plans. SALES CHANNELS We sell our CARExpress membership programs through three primary sales channels: (i) retail chains and outlets, (ii) unions, associations and other organizations, and (iii) consumers. Retail Chains and Outlets. This channel is comprised of various retail chains and outlets that sell products to consumers on a retail level, such as grocery stores, pharmacy chains and convenience stores. Because the retail market offers a large target audience, immediate sales and enhanced credibility, we are committed to marketing CARExpress membership programs to the retail market. Retail distribution of our CARExpress membership programs offers us several benefits, including: (i) a large pool of potential target customers, (ii) increased credibility from being aligned with well-named retailers, (iii) private labeling opportunities with the retailers, and (iv) high visibility through in-store membership displays. Unions, Associations and Other Organizations. This channel is comprised primarily of unions, associations, trade groups, corporations and similar organizations that have a large number of employees or members. Unlike retail chains and outlets, this sales channel presents us with the opportunity to acquire a large group of members. Group accounts provide higher retention rates for memberships because of factors such as: (i) union sponsorship of its members, (ii) corporate subsidizing of monthly membership fees, and (iii) lower cost memberships to employees resulting from significantly lower prices charged to the corporation. 36 Consumers. This channel is comprised primarily of individual consumers who we target directly through television, radio, newspapers, magazines and the Internet. Direct sales to consumers provide us with higher long-term margins on sales because we do not have to pay commissions to any intermediary organization of which the consumer is a member. In addition, the advertising and marketing campaigns that we engage in to target consumers provide us with increased market awareness and support for the retail chains, outlets, unions and associations comprising our other sales channels. SUPPLIERS We do not contract directly with any physicians, dentists, hearing care specialists, eye care specialists or other healthcare providers. Instead, we contract with numerous PPOs or their affiliates and other provider networks for access to the discounted rates they have negotiated with their healthcare providers. We only select and utilize those provider networks that we believe can deliver adequate savings to our members while providing adequate support for our CARExpress membership programs with the healthcare providers. We typically pay a per member per month fee for use of a provider network which is determined in part based on the number of providers participating in the network, the number of CARExpress members accessing the network, and the particular products and services utilized by the CARExpress members. We only pay fees for those members authorized to utilize the network. The agreements through which we have contracted for access to the PPO or other provider networks are generally for a term of between one and two years, may be terminated by either party on between 45 and 180 days' prior written notice, and renew automatically for additional terms unless so terminated. Most of these agreements are not exclusive, and most contain provisions maintaining the confidentiality of the terms of the agreement. The principal suppliers of the over 1,000,000 healthcare providers that comprise CARExpress are PPONext, International Med-Care, CareMark, Cigna, Optum and Careington International, six of the largest and most prestigious preferred provider organizations in the country. Under our various agreements with these organizations or their respective affiliates, our members are guaranteed access to their network of healthcare providers in varying combinations of specialties and at varying discounts from the scheduled prices for covered services. Although we have arrangements in place with secondary networks, these PPOs currently supply the provider commitments for almost all of our members. If we lose our arrangement with any of these PPOs for any reason, we would attempt to establish a primary relationship with one of our secondary suppliers. If we are unable to replace the lost arrangement with a similar arrangement with another provider network, however, our business may be adversely affected. Below is a summary of the agreements through which we obtain access to the PPO Next, International Med-Care, CareMark, Cigna, Optum and Careington International provider networks. The summary is subject to and qualified in its entirety by reference to the agreements, a copy of which have been filed as exhibits to the registration statement of which this prospectus forms a part. 37 Our agreement with First Access, Inc. provides CARExpress with access to the network of healthcare providers of PPONext and International Medcare at discounted rates, and services consisting of pre-certification of members, re-pricing of claims, claim resolution and healthcare provider relations. The healthcare provider networks of PPONext and International Medcare are comprised of an aggregate of approximately 610,000 physicians, 5,300 hospitals and acute care facilities, and 33,000 ancillary healthcare providers, including laboratory, radiology, rehabilitation, mental health and physical therapy providers. We make monthly payments under this agreement equal to the greater of a flat fee or a monthly rate based on the number of CARExpress members utilizing the PPONext and International Medcare networks. This agreement is for an approximate 15-month term that commenced September 1, 2002 and continues indefinitely unless terminated by either party on 90 days' prior written notice. Our agreement with AdvancePCS, L.P. (now known as Caremark) provides CARExpress with access to the Caremark pharmacy network at discounted rates and provides pharmacy benefit management services, including the electronic maintenance of prescription, price, eligibility and plan information, the negotiation of discounts and rebates on pharmaceutical products with pharmaceutical companies, and the preparation of reports of services performed. The Caremark pharmacy network is comprised of an aggregate of 45,000 retail pharmacies plus a mail order pharmacy option. This agreement was entered into on July 1, 2001 and may be terminated by either party on 60 days' prior written notice. Our agreement with National Benefit Builders, Inc. provides CARExpress with access to the CIGNA dental network at discounted rates. The CIGNA dental network is comprised of an aggregate of approximately 50,000 dentists and other dental service providers. We make monthly payments under this agreement equal to the greater of a flat fee or a monthly rate based on the number of CARExpress members utilizing the CIGNA network. This agreement is for a two-year term that commenced March 1, 2004 and renews automatically for additional one-year terms unless terminated by either party pursuant to a written notice provided at least 60 days prior the expiration of the then current term. Our agreement with United HealthCare Services, Inc. provides CARExpress with access to the network of nurses of Optum at discounted rates. The Optum nurses provide a nurseline 24 hours per day for general health information, the identification of specific health-related concerns and the provision of educational information regarding those concerns. Optum also provides an audiotape library covering over 1,100 healthcare topics that are accessible by CARExpress members. We make monthly payments under this agreement equal to the greater of a flat fee or a monthly rate based on the number of CARExpress members utilizing the Optum services and the type of Optum services utilized. This agreement is for a one-year term that commenced October 1, 2001 and renews automatically for additional one-year terms unless terminated by either party on 90 days' prior written notice. Our agreement with Careington International Corporation provides CARExpress with access to its network of dentists at discounted rates. The Careington dental network is comprised of an aggregate of approximately 28,000 dentists and other dental service providers. We make monthly payments under this agreement based on the number of CARExpress members utilizing the Careington network. This agreement is for a two-year term that commenced on April 30, 2001 and renews automatically for additional two-years terms unless terminated by either party pursuant to a written notice provided at least 45 days prior the expiration of the then current term or pursuant to 180 days' prior written notice. 38 We can provide no assurance that our contracts with these PPOs and their affiliates will not expire or be terminated by us or them, nor can we provide any assurance that we will be able to replace the revenues generated under these agreements in the event they do expire or are terminated. Accordingly, the expiration or termination of these relationships may substantially reduce our revenues and, thus, have a material adverse effect on our business, financial performance and operations. MARKETING AND DISTRIBUTION Prior to 2004, we generated sales leads from brokers, agents and referrals from our executive officers and board of directors and the efforts of sales professionals. In 2004, we initiated sales and marketing programs to expand our visibility in the industry and to increase the pool of sales leads. We market our CARExpress membership programs directly through value infomercials, newspaper inserts, and strategic use of life style oriented publications. We also market and support our CARExpress membership programs through a sophisticated, interactive Web site that is accessible to members, healthcare providers and PPOs. Those accessing our Web site are able to review our CARExpress membership plans, a list of our healthcare providers and their locations, products and services provided by our healthcare providers, discounts available to members for their products and services, and special promotions. Individuals accessing our Web site can also purchase one of our CARExpress membership programs by filling out an application online. Eventually, password-protected areas of the Web site will permit members to obtain news and information specific to their interests, and sales reps to access the training materials, schedules, and individual commission information. We also market our CARExpress membership programs indirectly through: (i) independent marketing representatives, (ii) brokers and agents, (iii) retail chains and outlets, (iv) small businesses and trade associations, and (v) unions and associations. Independent Marketing Representatives. We utilize the services of approximately 25 independent marketing representatives to market our CARExpress membership programs to prospective customers. To receive the right to market and sell our CARExpress membership programs, marketing representatives sign a standard representative agreement. Marketing representatives of CARExpress membership programs are not required to be licensed insurance agents unless they are selling these programs in combination with insurance products through National Health Brokerage Group. Marketing representatives are paid fees received from each member they enroll for the life of that member's enrollment with CARExpress. Marketing representatives may also recruit other representatives and earn override commissions on sales made by those representatives. We typically pay aggregate commissions of between 40% and 50% down through five levels of marketing representatives. In addition, we have established bonus pools that allow marketing representatives who have achieved certain levels of enrollments to receive additional commissions measured by our revenues attributable to the CARExpress membership programs. 39 Brokers and Agents. Our commission-sharing arrangement with brokers and agents enables them to market and distribute our CARExpress membership programs and cards to individual consumers through large employer groups, insurance brokers and associations. Our CARExpress membership programs are not competitive with the insurance products they sell, but instead are viewed as complementary product offerings. Brokers and agents who sell healthcare benefits programs to employers and individuals may use our CARExpress membership programs as a value-added offering to the traditional insurance products that they sell. Retail Chains and Outlets. We market our CARExpress membership programs to retail chains and outlets that in turn provide or sell our CARExpress membership cards to their constituencies in a co-branded program. Our private-label program equips organizations with an added-value service that further positions them as a resource for wide-ranging healthcare. These organizations will typically market our CARExpress membership programs themselves by adding our CARExpress membership cards to floor and display racks where other prepaid, discount and gift cards are sold, and will typically earn a marketing fee of between 30% and 40% for each membership sold. The customized sales model is best suited for large pharmacy chains, as well as trade groups and healthcare provider organizations. We are offering features to encourage new subscribers to try out our CARExpress membership programs, including early cancellation privileges, refund guarantees, and "trial" periods of free or discounted membership. Small Businesses and Trade Associations. We use small businesses, trade associations, charitable organizations and other similar organizations to market our CARExpress membership programs. Under these types of arrangements, we customize our CARExpress membership cards by adding the sponsoring organization name and/or logo on the card and provide access to our networks as well as all required fulfillment services. We believe that these private label cards are attractive to these organizations because the cards will enable them to more closely identify themselves with the benefits provided to their members. Moreover, we believe that the preexisting relationship between the sponsor and its employees or members will enhance the likelihood that the employee or member will purchase our CARExpress membership cards. These organizations may purchase our CARExpress membership programs for their employees or members, or subsidize a portion of the monthly membership fees of our programs for their employees or members. No fee will typically be paid by us to the organizations if the organizations opt to purchase or subsidize our programs. Alternatively, these organizations may simply offer our programs to their employees or members, allowing their employees or members to decide whether to participate on an individual basis. In this event, we will typically pay the organizations a marketing fee of between 10% and 30% for each membership sold. Unions and Associations. We market our CARExpress membership programs to unions, associations, companies, third party administrators and similar organizations. We expect that these organizations will purchase or subsidize our CARExpress membership programs on behalf of their members or employees so that every eligible individual in the organization becomes a member. No fee will typically be paid by us to the organizations if the organizations opt to purchase or subsidize our programs. We also expect that these organizations may offer our CARExpress membership programs to their members or employees as an 40 option where each individual will be responsible for purchasing his or her CARExpress membership program and paying the monthly fee either directly or through a payroll deduction plan, in which case we will typically pay the organizations a marketing fee of between 10% and 30% for each membership sold. We also expect to market our CARExpress membership programs directly to members or employees of these organizations with the full endorsement of the sponsoring organization, particularly in cases where the organization offers our CARExpress membership programs as an option to its members or employees. CUSTOMER SERVICE, TRAINING AND SUPPORT We believe that customer support is critical to retaining and expanding our customer base and to strengthening the affinity of those individuals who are offered our CARExpress membership programs through unions, associations and other organizations. Currently, we maintain a call center at our corporate headquarters in Horsham, Pennsylvania, where we employ five full-time customer service representatives and utilize the services of several temporary customer service representatives on an as-needed basis. Our call center is available to members and may be accessed via e-mail or toll-free numbers, Monday through Friday, from 9:00 a.m. to 7:00 p.m. Eastern Standard Time. We also utilize an outside call center for after-hours calls so that we are able to provide full 24-hour toll-free coverage for our members. Our call center provides dependable and timely resolution of customer technical inquiries and is available to customers by telephone and e-mail. Our call center staff delivers education, training and pre-sales support to our members, marketing representatives and providers. We also offer online training to our customers and resellers to provide them with the knowledge and skills to successfully deploy, use and maintain our products. Our customer service team is responsible for handling general customer inquires, answering questions about the ordering process, updating and maintaining customer account information, investigating the status of orders and payments, as well as processing customer orders. In addition, our customer service team proactively updates customers on a variety of topics, including release dates of new products and updates to existing products. We provide customer service to our: o members, in order to assure that they achieve the best available savings when utilizing our CARExpress membership programs; o marketing representatives, so that they can be more effective in marketing and selling our CARExpress membership programs; and o healthcare providers, who require assistance in understanding how our CARExpress membership programs work and in verifying eligibility and arranging for the payment of the amount billed to the patient for each procedure performed. In order to achieve our anticipated growth and to ensure client, member and marketing representative loyalty, we continue to develop and invest significantly in our customer service systems and staff. We recently moved into a fully-equipped facility with a state-of-the-art computer and telecommunications room that is wired to handle our growing needs and provides us with the capacity to expand our customer service base to approximately 80 customer service agents. Our proprietary computer database system provides our 41 customer service representatives immediate access to provider demographic data and member information, including the components of each member program or plan and the details a member requires to properly utilize the program. All new customer service representatives are required to complete a training course before beginning to take calls and attend on-the-job training thereafter. Through our training programs, systems and software, we seek to provide members with friendly, rapid and effective answers to questions. We continue to work closely with our healthcare providers and organizations to ensure that their representatives are knowledgeable about our CARExpress membership programs. We provide extensive training to our marketing representatives to assure that they accurately represent our products and services. This training is available in a variety of forms, including a training manual, audio- and videotapes, local and regional training meetings and weekly conference calls. The training encompasses both product training as well as marketing training and sales techniques. We have also implemented policies and procedures in place to control any advertising or promotions that are utilized by our marketing representatives. We believe these policies and procedures are necessary to assure the proper representation of the program at all times and include the pre-approval of all advertising, adherence to anti-spamming and anti-fax blasting rules, and limits where representatives can advertise. A representative's failure to follow these rules can result in fines to the representative or termination of the representative's relationship with us. TECHNOLOGY We recently completed the installation of a state-of-the-art telecommunication network and purchased additional computers for our customer service department. Our management information systems were designed in-house and are used in most aspects of our business, including: o maintaining member eligibility and demographic information; o maintaining representative information; o paying commissions; o maintaining a database of all providers and offering provider locator services; o drafting members' accounts on a monthly basis; and o tracking of cash receipts and revenues. We have also created an extensive Web site for our CARExpress membership programs that provides information about the various services, allows for provider searches, answers questions, provides savings schedules, and allows new members and representatives to enroll online. It also allows representatives to access support and training files and to view their genealogy and commission information through a password-protected area. 42 COMPETITION The medical savings industry is rapidly evolving and competition for members is becoming increasingly intense. Competitors vary in size and in scope and breadth of the products and services they offer. We offer membership programs that provide products and services similar to or directly in competition with products and services offered by PPOs, HMOs, healthcare membership programs, retail pharmacies, mail order prescription companies, and other ancillary healthcare insurance organizations. Competition for new representatives is also intense, as these individuals have a variety of products that they can choose to market, whether competing with us in the healthcare market or not. We believe that success in the health savings industry is dependent upon the ability of companies to: o identify retail markets and outlets, unions and associations, and consumers that may benefit from health membership programs; o maintain contracts with reputable preferred provider organization networks that offer substantial healthcare savings; o identify, develop and market unique membership healthcare programs; o develop and implement effective marketing campaigns; o provide programs comparable or superior to those of competitors at competitive prices; o enhance the quality and breadth of the membership programs offered; o maintain and improve the quality and extent of customer service offered to providers and members; o offer substantial savings on the major-medical costs such as hospital and surgical costs; o combine the programs with affordable insurance plans that have high deductibles or set pre-defined payment for hospitalization; o adapt quickly to evolving industry trends or changing market requirements; o satisfy investigations on the part of state attorney generals, insurance commissioners and other regulatory bodies; and o hire and retain marketing representatives and finance promotions for the recruiting of new members. Our principal competitors include Best Benefits, Care Entree, Family Care, People's Benefit Services, AmeriPlan, Full Access Medical and New Benefits, Inc. People's Benefit Services, AmeriPlan and New Benefits focus generally on the provision of retail and mail order pharmacy services and vision and dental care, and thus compete with only a portion of our CARExpress membership programs. Best Benefits, Care Entree, Family Care and Full Access Medical provide a broader range of products and services including hospital, physician, 24-hour nurseline, chiropractic and nursing home care, and thus compete with our full range of CARExpress membership programs. Our principal competitors generally offer their discount health membership programs at a monthly or annual fee that is equal to or greater than the monthly fees that we charge for comparable CARExpress membership programs, and offer cancellation privileges, refund guarantees, and "trial" periods of free or discounted memberships similar in nature and amount to those that we offer. 43 We also face current and potential competition from insurance carriers, third-party administrators, retail pharmacies, financial institutions, federal and state governments, PPOs, HMOs and other healthcare networks. In addition, a number of companies offer medical discount programs that are localized geographically, or specialized in certain service categories such as dental, chiropractic, or pharmacy only. Recently, several of the major drug manufacturers have begun, or announced plans to begin, offering prescription discount cards applicable to their own drug brands only. Some of our current and potential competitors have longer operating histories and significantly greater financial, technical, marketing, administrative and other resources than we do. They may have significantly greater name recognition, established marketing relationships and access to a larger installed base of customers. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to design customized products to better address customer needs. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse affect on our business, financial condition and results of operations. REGULATORY AND LEGISLATIVE ISSUES We are subject to a variety of laws and regulations applicable to companies engaged in the healthcare industry. Because the nature of our services is relatively new and the health savings industry is rapidly evolving, we may not be able to accurately predict which regulations will be applied to our business and we may become subject to new or amended regulations. Insurance Regulations. The delivery of our discount healthcare products and services is subject to federal, state and local regulation, including the prohibition of business corporations from providing medical care, the fraud and abuse provisions of the Medicare and Medicaid statutes, state laws that prohibit referral fees and fee splitting, and regulations applicable to insurance companies and organizations that provide healthcare services. Our CARExpress membership programs are not insurance programs and we are not subject to regulation as an insurance company or as a seller of insurance. However, a few states, such as Florida, Illinois and Kansas, currently regulate or restrict companies offering discount health savings programs by requiring the companies to obtain a license or register with them prior to offering such programs there. Occasionally, we receive inquires from insurance commissioners in various states that require us to supply information about our CARExpress membership programs to the insurance commissioner or other state regulatory agency. To date, these agencies have concurred with our view that these programs are not a form of insurance and are being sold in a proper manner. We can provide no assurance that this situation will not change in the future, or that an insurance commissioner will not successfully challenge our ability to offer our programs without compliance with state insurance regulations. Furthermore, states may adopt regulations or enact legislation that may affect the manner by which we sell our programs or restrict or prohibit the sale of our medical discount programs. Compliance with such regulations or legislation could have a material adverse affect on our operations and financial condition. 44 Our failure to comply with current, as well as newly enacted or adopted federal and state regulations, could have a material adverse effect upon our business, financial condition and results of operations in addition to the following: o non-compliance may cause us to become the subject of a variety of enforcement or private actions; o compliance with changes in applicable regulations could materially increase the associated operating costs; o non-compliance with any rules and regulations enforced by a federal or state consumer protection authority may subject us or our management personnel to fines or various forms of civil or criminal prosecution; and o non-compliance or alleged non-compliance may result in negative publicity potentially damaging our reputation, network relationships, client relationships and the relationship with program members, representatives and consumers in general. Product Claims and Advertising Laws. The Federal Trade Commission and certain states regulate advertising, product claims, and other consumer matters. The Federal Trade Commission may institute enforcement actions against companies for false and misleading advertising of consumer products. In addition, the Federal Trade Commission has increased its scrutiny of the use of testimonials, including those used by us and our marketing representatives. We have not been the target of Federal Trade Commission enforcement action since entering the health savings industry in 2001. We can provide no assurance, however, that: o the Federal Trade Commission will not question our advertising or other operations in the future; o a state will not interpret product claims presumptively valid under federal law as illegal under that state's regulations; or o future Federal Trade Commission regulations or decisions will not restrict the permissible scope of such claims. We are also subject to the risk of claims by marketing representatives and their customers who may file actions on their own behalf, as a class or otherwise, and may file complaints with the Federal Trade Commission or state or local consumer affairs offices. These agencies may take action on their own initiative against us for alleged advertising or product claim violations, or on a referral from independent marketing representatives, customers or others. Remedies sought in these actions may include consent decrees and the refund of amounts paid by the complaining independent marketing representatives or consumer, refunds to an entire class of independent marketing representatives or customers, client refunds, or other damages, as well as changes in our method of doing business. A complaint based on the practice of one marketing 45 representative, whether or not we authorized the practice, could result in an order affecting some or all of our marketing representatives in a particular state. Also, an order in one state could influence courts or government agencies in other states considering similar matters. Proceedings resulting from these complaints could result in significant defense costs, settlement payments or judgments and could have a material adverse effect on us. Marketing Laws and Regulations. While we do not employ any network marketing personnel and do not intend to employ any such personnel in the future, we utilize the services of independent marketing representatives to market our CARExpress membership programs to the public. The marketing activities of the marketing representatives that we utilize may be subject to scrutiny by various state and federal governmental regulatory agencies to ensure compliance with securities, franchise investment, business opportunity, and criminal laws prohibiting the use of "pyramid" or "endless chain" types of selling organizations. These regulations are generally directed at ensuring that advancement within a network marketing organization is based on sales of the organization's products rather than investment in the organization or other non-sales related criteria. For instance, there are limits on the extent that marketing representatives may earn royalties on sales generated by marketing representatives that were not directly sponsored by the marketing representative. The compensation structure of these selling organizations is very complex, and compliance with all of the applicable laws is uncertain in light of evolving interpretation of existing laws and the enactment of new laws and regulations pertaining to this type of product distribution. We are not aware of any legal actions pending or threatened by any governmental authority against us regarding the legality of the network marketing operations of the marketing representatives that we utilize. Health Insurance Portability and Accountability Act. In December 2000, The Department of Health and Human Services issued final privacy regulations pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") that became effective in April 2003. HIPAA and the applicable regulations impose extensive restrictions on the use and disclosure of individually identifiable health information by certain entities. Also as part of HIPAA, the Department of Health and Human Services has issued final regulations standardizing electronic transactions between health plans, providers and clearinghouses. Health plans, providers and clearinghouses are required to conform their electronic and data processing systems with HIPAA's electronic transaction requirements. We believe that we are not currently required to comply with HIPAA since our CARExpress membership programs are not insurance. In the event we obtain the necessary insurance licenses for National Health Brokerage Group and decide to sell CARExpress membership programs in combination with insurance products, we may in the future be required to comply with HIPAA. Because these regulations are new, we do not know how the interpretation and enforcement of the regulations may affect us. Sanctions for failing to comply with standards issued pursuant to HIPAA include criminal penalties and civil sanctions. Franchise Laws and Regulations. The Federal Trade Commission, as well as the securities regulators in states having a franchise law, may assert that our relationships with marketing representatives are subject to the registration, disclosure and reporting requirements applicable to franchises. Although we intend to structure our marketing relationships so as to avoid application of franchise laws, we may from time to time have to expend resources in refuting such franchise law claims, and if we are found to be in violation may have to pay civil penalties, be enjoined from doing business in the jurisdiction, or expend funds to bring our operations into compliance with those laws. 46 INTELLECTUAL PROPERTY RIGHTS Our intellectual property rights are important to our business. We rely upon confidentiality procedures and contractual provisions to protect our business, proprietary technology and CARExpress brand. Our general policy is to enter into confidentiality agreements with our employees and consultants, and nondisclosure agreements with all other parties to whom we disclose confidential information. We do not have any trademark registrations for our CARExpress brand or patents relating to our proprietary technologies, nor do we have any applications for such rights pending. We intend to apply for legal protection for certain of our intellectual property in the future. However, we can provide no assurance that we will receive such legal protection or that, if received, such legal protection will be adequate to protect our intellectual property rights. EMPLOYEES As of September 26, 2005, we had 14 employees. Of this number, 13 were full-time employees, comprised of our management and full-time customer service personnel, and one was a part-time employee. We also utilize the services of approximately 25 independent marketing representatives. We do not employ the independent marketing representatives, the individuals working for our after-hours call center or the temporary customer service representatives that are used on an as-needed basis. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good. PROPERTIES Our corporate headquarters and principal offices are located at 120 Gibraltar Road, Suite 107, Horsham, Pennsylvania 19044, where we lease approximately 7,100 square feet of space for a monthly rent payment of approximately $13,000. This lease expires on May 30, 2007. We also entered into a lease for additional offices at 2033 Main Street, Suite 501, Sarasota, Florida 34237. We lease approximately 4,000 square feet of space for a monthly rent payment of approximately $8,200. This lease commenced on July 1, 2005 and will expire on June 30, 2010. We believe that our office space is adequate to support our current operations and that adequate additional space is available to support our operations over the next 12 months. LEGAL PROCEEDINGS We are not currently a party to any material legal proceedings. We may from time to time become involved in litigation relating to claims arising in the ordinary course of our business. 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following chart sets forth certain information about each director and executive officer of the Company.
Name Age Positions Held - ---- --- -------------- David M. Daniels 48 Chairman, Chief Executive Officer and President Roger H. Folts 67 Chief Financial Officer and Secretary Patricia S. Bathurst 51 Vice President - Marketing Alex Soufflas 31 General Counsel and Executive Vice President David A. Taylor 48 Vice President - Sales
The following is a brief summary of the business experience of each of the above-named individuals: David M. Daniels has served as our Chief Executive Officer and a member of our board of directors since February 2004, and has served as our President since February 2005. From 1998 to February 2004, Mr. Daniels provided financing and management consulting services to several companies operating in the manufacturing, technology and services industries, including Market Pathways Financial Relations, Inc., a financial consulting firm, from April 2000 until February 2004, The Research Works, Inc., an equity research firm, from April 2001 until December 2003, and XRAYMEDIA, Inc., an advertising agency, from September 2001 until February 2004. Mr. Daniels served as the Chief Financial Officer of North American Technologies Group, Inc., a research and development company, from 1994 to 1995, and served as the President and Chief Operating Officer from 1995 to 1998. Mr. Daniels founded Industrial Pipe Fittings, Inc., a manufacturer of industrial fittings for the high density polyethylene market, in 1994 and served as the Chairman, President and Chief Executive Officer until 1998. Prior to 1994, Mr. Daniels served in several capacities with Morgan Stanley Dean Witter, achieving the position of First Vice President of the company in 1986. Mr. Daniels is a graduate of the Georgia Military Academy and the University of Houston, where he received a B.A. in finance. Roger H. Folts has served as our Chief Financial Officer since March 2001 and as our Secretary since February 2004. From 1989 to 2000, Mr. Folts also served as Chief Financial Officer and Treasurer and as a member of the board of directors of National Health and Safety Corporation, a provider of healthcare services utilizing national provider networks. From 1989 to the present, Mr. Folts has served as an adjunct professor in the Business Administration Department of Philadelphia University teaching a course in business strategy. Prior to 1989, Mr. Folts served as an executive officer for various companies operating in the manufacturing, healthcare and information technology industries. Mr. Folts received a B.A. from Harvard College and an MBA from the University of Chicago with an accounting and math methods major. 48 Patricia S. Bathurst has served as our Vice President - Marketing since March 2001. From 1989 to 2000, Ms. Bathurst served as the Vice President of Marketing for National Health and Safety Corporation, where she was responsible for all of the marketing, advertising and promotional functions for the company. From 1985 to 1989, Ms. Bathurst served as the Director of Marketing of Horizon Healthcare Group, Inc., a provider of healthcare services utilizing national provider networks that she co-founded in 1985. Prior to 1985, Ms. Bathurst served as the Director of Administration and Customer Service for Phoenix International Corporation, a provider of healthcare services utilizing national provider networks. Ms. Bathurst is a graduate of Temple University with a B.A. in business administration. Alex Soufflas has served as our General Counsel and Executive Vice President since August 2005. From May 2004 to August 2005, Mr. Soufflas was an attorney at Duane Morris LLP, a national law firm, where he specialized in securities, mergers & acquisitions, contracts and general corporate counseling. Prior to that, Mr. Soufflas specialized in general corporate law as an attorney at Spector Gadon & Rosen, P.C., a Philadelphia-based law firm, from April 2004 to May 2005, and at Sullivan & Worcester, LLP, a Boston-based law firm, from September 2000 to October 2002. Mr. Soufflas received a B.S. in accounting from Purdue University and a juris doctor from Boston College Law School. David A. Taylor has served as our Vice President - Sales since August 2005. From March 2005 to August 2005, Mr. Taylor was a partner and served as the Chief Financial Officer and Senior Vice President of Trident Marketing International, Inc., a customer interaction solutions company, and from April 1998 to March 2005, Mr. Taylor served as the Vice President - Sales Operations and Systems for Z-Tel Communications, a communications service provider. Prior to that, Mr. Taylor served in various capacities for Delta Air Lines, Inc., an international airline, serving as a financial planner from 1991 to 1992, the Controller - Corporate Services from 1992 to 1994, the General Manager - Marketing Services from 1994 to 1995, and the Director - Purchasing, Contract Services and Sales from 1995 to April 1998. Mr. Taylor received a B.A. in business administration from Oswego State University and an MBA from Dowling College. BOARD OF DIRECTORS Our board of directors consists of David M. Daniels. Each director serves until the next annual meeting of shareholders or until his successor is duly elected and qualified. Officers are elected annually by our board of directors and serve at the discretion of the Board. We do not currently have any committees of our board of directors. DIRECTORS COMPENSATION We provide our non-employee directors with a standard compensation package for serving as a member of our board of directors. Non-employee directors receive an option to acquire 350,000 shares of our common stock, and $1,000 plus reasonable travel expenses for attendance in person at any meetings of the board of directors for which attendance in person was specifically requested by the chairman of the board of directors. The options have a five-year term, an exercise price of $.40 per share, and vest as follows: (i) 100,000 shares on the date of grant, and (ii) 250,000 shares on the first anniversary of the date of grant if the director is a member of the Board of Directors of the Company on the first anniversary of the date of grant and the director has been a member of the Board of Directors of the Company continuously during the period commencing on the date of grant and ending on the first anniversary of the date of grant. We do not provide any director compensation to our employee directors. 49 EXECUTIVE COMPENSATION The following table provides certain summary information concerning compensation earned by the executive officers named below during the fiscal years ended December 31, 2004, 2003 and 2002.
SUMMARY COMPENSATION TABLE Name and Fiscal Other Annual Restricted Stock Principal Position Year Salary ($) Compensation ($) (3) Awards (#) - ------------------ ---- ---------- -------------------- ----------------- David M. Daniels (1) 2004 148,000 13,748 1,748,250 President and Chief Executive Officer Roger H. Folts 2004 113,500 7,270 45,300 Chief Financial Officer and 2003 -0- 13,685 -0- Secretary 2002 -0- 31,105 -0- Patricia S. Bathurst 2004 88,000 10,000 107,600 Vice President -- Marketing 2003 -0- 60,000 -0- 2002 -0- 57,500 -0- R. Dennis Bowers (2) 2004 48,000 14,612 -0- Former President and 2003 -0- 12,476 -0- Chief Executive Officer 2002 -0- 2,611 -0-
(1) Mr. Daniels was appointed our Chief Executive Officer on February 17, 2004 and our President on February 13, 2005. (2) Mr. Bowers served as our Chief Executive Officer from March 1, 2001 until February 13, 2004, and served as our President from March 1, 2001 until January 31, 2005. (3) Consists of non-salary cash compensation earned for services performed on our behalf. We have entered into employment agreements with each of Mr. Daniels, Mr. Folts and Ms. Bathurst. Under these agreements, we agreed to pay Mr. Daniels, Mr. Folts and Ms. Bathurst an annualized base salary of $231,000, $158,400 and $132,000, respectively, for our fiscal year ended December 31, 2005, issued Mr. Daniels an option to acquire 2,500,000 shares of our common stock, and issued each of Mr. Folts and Ms. Bathurst an option to acquire 1,000,000 shares of our common stock. In addition, we have agreed to pay Mr. Soufflas and Mr. Taylor an annualized base salary of $158,400 and $132,000, respectively, for our fiscal year ended December 31, 2005, and issued each of Mr. Soufflas and Mr. Taylor an option to acquire 1,000,000 shares of our common stock. A summary of the employment agreements and arrangements and the stock options granted thereunder is provided herein under "Executive Compensation - Employment Contracts and Arrangements." 50 OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS) We did not grant any options or stock appreciation rights to any named executive officer during our fiscal year ended December 31, 2004. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table sets forth for each named executive officer, information regarding the number and value of stock options held by such officer at December 31, 2004, each on an aggregated basis. We have not issued any SARs to any of our named executive officers. No stock options were exercised by any of our executive officers during our fiscal year ended December 31, 2004.
Number Of Value Of Unexercised In- Unexercised Options The-Money Options At At Fiscal Year-End Fiscal Year-End Exercisable/ Exercisable/ Name Unexercisable (#) (1) Unexercisable ($) (2) ---- --------------------- --------------------- David M. Daniels 2,500,000 / -0- * Patricia S. Bathurst 1,000,000 / -0- * Roger H. Folts 1,000,000 / -0- * R. Dennis Bowers 2,500,000 / -0- *
* Not applicable. (1) Each of these options was subsequently cancelled by us effective February 1, 2005. New options were subsequently issued to Mr. Daniels, Ms. Bathurst and Mr. Folts, the terms of which are summarized below under "Employment Contracts and Arrangements." (2) We believe that the fair market value of the shares of our common stock issuable upon the exercise of the options granted to our named executive officers was equivalent to the $.40 per share exercise price of the options at December 31, 2004. As a result, we believe that none of the options held by our named executive officers were in-the-money at December 31, 2004. LONG-TERM INCENTIVE PLANS AND AWARDS IN LAST FISCAL YEAR We did not make any awards under long-term incentive plans to any of our named executive officers during the fiscal year ended December 31, 2004. 51 EMPLOYMENT CONTRACTS AND ARRANGEMENTS We have entered into employment agreements with David M. Daniels, Roger H. Folts and Patricia S. Bathurst, and have entered into employment arrangements with Alex Soufflas and David A. Taylor. The following summary of these employment agreements and arrangements and the stock options granted thereunder is intended as a summary only and is subject to and qualified in its entirety by reference to the employment agreements and the options, a copy of which have been filed as exhibits to the registration statement of which this prospectus forms a part. David M. Daniels On May 13, 2005, we entered into an employment agreement with David M. Daniels to serve as our Chief Executive Officer effective February 1, 2005. The agreement is for an initial term of five years and renews automatically for successive one-year periods unless earlier terminated or prior notice of non-renewal is provided by either party. Under the agreement, Mr. Daniels is entitled to an annual base salary of $231,000 with annual increases on January 1 of each year of a minimum of 10% of the annual base salary for the immediately preceding year, and is eligible for an annual bonus and incentive compensation awards in an amount and form to be determined by our board of directors in its sole discretion. Pursuant to the agreement, Mr. Daniels received an option to acquire 2,500,000 shares of our common stock. Roger H. Folts On May 13, 2005, we entered into an employment agreement with Roger H. Folts to serve as our Chief Financial Officer effective February 1, 2005. The agreement is for an initial term of three years and renews automatically for successive one-year periods unless earlier terminated or prior notice of non-renewal is provided by either party. Under the agreement, Mr. Folts is entitled to an annual base salary of $158,400 with annual increases on January 1 of each year of a minimum of 10% of the annual base salary for the immediately preceding year, and is eligible for an annual bonus and incentive compensation awards in an amount and form to be determined by our board of directors in its sole discretion. Pursuant to the agreement, Mr. Folts received an option to acquire 1,000,000 shares of our common stock. Patricia S. Bathurst On May 13, 2005, we entered into an employment agreement with Patricia S. Bathurst to serve as our Vice President - Marketing effective February 1, 2005. The agreement is for an initial term of five years and renews automatically for successive one-year periods unless earlier terminated or prior notice of non-renewal is provided by either party. Under the agreement, Ms. Bathurst is entitled to an annual base salary of $132,000 with annual increases on January 1 of each year of a minimum of 10% of the annual base salary for the immediately preceding year, and is eligible for an annual bonus and incentive compensation awards in an amount and form to be determined by our board of directors in its sole discretion. Pursuant to the agreement, Ms. Bathurst received an option to acquire 1,000,000 shares of our common stock. 52 Alex Soufflas On August 15, 2005, we entered into an employment arrangement with Alex Soufflas to serve as our General Counsel and Executive Vice President. Under the arrangement, Mr. Soufflas is entitled to an annual base salary of $158,400 and received an option to acquire 1,000,000 shares of our common stock. David A. Taylor On August 15, 2005, we entered into an employment arrangement with David A. Taylor to serve as our Vice President - Sales. Under the arrangement, Mr. Taylor is entitled to an annual base salary of $132,000 and received an option to acquire 1,000,000 shares of our common stock. The employment agreements with Mr. Daniels, Mr. Folts and Ms. Bathurst provide that if we terminate the employment of the applicable executive officer without "cause" or the officer terminates his or her employment with us for "good reason," as such terms are defined in the agreements, the officer is immediately entitled to two years' annual base salary, the full annual base salary to which the officer would otherwise have been entitled during the remainder of the initial term, and all other compensation and benefits to which the officer would have been entitled had the officer been employed by us for the remainder of the initial term. "Good reason" includes a "change in control," which includes: (i) the acquisition by any person of 30% or more of the combined voting power of our outstanding securities; (ii) a change in the majority of our board of directors that was not approved by at least 50% of our board of directors; (iii) the completion of a reorganization, merger or consolidation of us, or the sale or other disposition of at least 80% of our assets; or (iv) approval by our stockholders of a liquidation or dissolution of us. The options granted to Mr. Daniels, Mr. Folts and Ms. Bathurst under their applicable employment agreements are for a term of 10 years, have an exercise price of $.40 per share, and vest in four equal installments commencing on the date of grant and continuing on February 1 of each of the following three years. In the event the employment of the applicable executive officer is terminated for any reason other than for "cause," as such term is defined in the employment agreements, the officer's option vests in full immediately and may be exercised at any time prior to the expiration date of the option. In the event we terminate the employment of the applicable executive officer without "cause" or the officer terminates his or her employment with us for "good reason" (including a "change in control"), as such terms are defined in the employment agreements, we are required to use our best efforts to prepare and file a registration statement with the SEC within 180 days of the date of termination to register the public resale of the shares underlying the officer's option. In the event the employment of the applicable executive officer is terminated for "cause," the option terminates immediately. The options granted to Mr. Soufflas and Mr. Taylor under their applicable employment arrangements are for a term of 10 years, have an exercise price of $.40 per share, and vest in four equal annual installments commencing on February 1, 2006. In the event the employment of the applicable executive officer is terminated for any reason other than for "cause," as such term is defined in the option, the option may be exercised to the extent exercisable on the date of such termination of employment until the earlier of the date that is 90 days after the date of such termination of employment or the expiration date of the option. In the event the employment of the applicable executive officer is terminated for "cause," the option terminates immediately. 53 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 26, 2005, information with respect to the securities holdings of all persons that we have reason to believe, pursuant to filings with the SEC, may be deemed the beneficial owner of more than five percent (5%) of our outstanding common stock. The following table also sets forth, as of such date, the beneficial ownership of our common stock by all executive officers and directors, individually and as a group. The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of September 26, 2005 upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated, each person or entity named below has sole voting and investment power with respect to all common stock beneficially owned by that person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of 120 Gibraltar Road, Suite 107, Horsham, Pennsylvania 19044.
Amount and Nature of Beneficial Percentage Name and Address of Beneficial Owner Ownership (1) of Class (1) - ------------------------------------ ------------- ------------ David M. Daniels 1,633,050 (2) 9.6% Roger H. Folts 345,300 (3) 2.0% Patricia S. Bathurst 357,600 (4) 2.1% Alex Soufflas -0- * David A. Taylor -0- * Ronald F. Westman 5,680,000 (5) 33.3% R. Dennis Bowers 1,181,250 6.9% P.O. Box 74 Lahaska, PA 18974 James Creed 866,834 (7) 5.1% Ben Giese 927,000 (8) 5.4% Dennis Lastine 1,095,000 (9) 6.4% Jesus Lozano 1,650,000 (10) 9.7% Jose Lozano 1,800,000 (11) 10.6% All officers and directors as a group (7 persons) 8,015,950 (12) 47.0%
54 _____________________ * Less than 1%. (1) This table has been prepared based on 17,054,200 shares of common stock outstanding on September 26, 2005. (2) Includes 625,000 shares issuable upon the exercise of options that have an exercise price of $.40 per share. (3) Includes 250,000 shares issuable upon the exercise of options that have an exercise price of $.40 per share. (4) Includes 250,000 shares issuable upon the exercise of options that have an exercise price of $.40 per share. (5) Includes 100,000 shares issuable upon the exercise of options that have an exercise price of $.40 per share, 1,860,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share, and 1,860,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share. (6) Includes 100,000 shares issuable upon the exercise of options that have an exercise price of $.40 per share, 60,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share, and 60,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share. (7) Includes 204,167 shares issuable upon the exercise of warrants that have an exercise price of $1.00 per share and 204,167 shares issuable upon the exercise of warrants that have an exercise price of $2.00 per share. (8) Includes 150,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share, 142,000 shares issuable upon the exercise of warrants that have an exercise price of $1.00 per share, and 142,000 shares issuable upon the exercise of warrants that have an exercise price of $2.00 per share. (9) Includes 30,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share, 30,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share, 238,750 shares issuable upon the exercise of warrants that have an exercise price of $1.00 per share, and 238,750 shares issuable upon the exercise of warrants that have an exercise price of $2.00 per share. (10) Includes 550,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share and 550,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share. (11) Includes 600,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share and 600,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share. (12) Includes 1,225,000 shares issuable upon the exercise of options that have an exercise price of $.40 per shares, 1,860,000 shares issuable upon the exercise of warrants that have an exercise price of $.60 per share, and 1,860,000 shares issuable upon the exercise of warrants that have an exercise price of $.80 per share. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In April 2005, we issued 1,800,000 shares of our common stock, Class A warrants to acquire 1,800,000 shares of our common stock, and Class B warrants to acquire 1,800,000 shares of our common stock to Ronald F. Westman for aggregate consideration consisting of 2,740,000 shares of common stock of Infinium Labs, Inc., a Delaware corporation, that Mr. Westman owned and that were then valued at $720,000. Mr. Westman beneficially owns approximately 33.3% of our common stock and served as a member of our board of directors from June 29, 2005 to September 26, 2005. 55 In June 2005, we entered into a lease for additional office space in the Centerpointe Office Building located at 2033 Main Street, Suite 501, Sarasota, Florida 34237. The lease is for approximately 4,000 square feet of space for a monthly rent payment of approximately $7,500, commenced on July 1, 2005 and expires on July 1, 2010. Centerpointe Office Building is owned by Centerpointe Property, LLC. Ronald F. Westman owns all of the outstanding membership interests in Centerpointe Property, LLC jointly with his wife, beneficially owns approximately 33.3% of our common stock, and served as a member of our board of directors from June 29, 2005 to September 26, 2005. DESCRIPTION OF SECURITIES The following summary of our capital stock, our articles of incorporation, our bylaws and the Indiana Business Corporation Law ("IBCL") is intended as a summary only and is subject to and qualified in its entirety by reference to our articles of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part, and the applicable provisions of the IBCL. COMMON STOCK We are authorized to issue 100,000,000 shares of common stock, $.001 par value per share, of which 17,054,200 shares are currently outstanding. Holders of shares of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders and are not entitled to cumulative voting rights. Our shares of our common stock do not carry any preemptive, conversion or subscription rights, and there are no sinking fund or redemption provisions applicable to the shares of our common stock. Holders of our common stock are entitled to receive dividends and other distributions in cash, stock or property as may be declared by our board of directors from time to time out of our assets or funds legally available for dividends or other distributions, subject to dividend or distribution preferences that may be applicable to any then outstanding shares of our preferred stock. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of shares of our common stock are entitled to share ratably in the assets legally available for distribution to stockholders after payment of all debts and other liabilities and satisfaction of the liquidation preference, if any, granted to the holders of any of our preferred stock then outstanding. All outstanding shares of our common stock are fully paid and nonassessable. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION, OUR BYLAWS AND THE IBCL The following provisions of our articles of incorporation, our bylaws and the IBCL may discourage takeover attempts of us that may be considered by some stockholders to be in their best interest. The effect of such provisions could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors, or the assumption of control by stockholders, even if such proposed actions would be beneficial to our stockholders. Such effect could cause the market price of our common stock to decrease or could cause temporary fluctuations in the market price of our common stock that otherwise would not have resulted from actual or rumored takeover attempts. 56 Special Meetings of Shareholders Our bylaws and the provisions of the IBCL provide that special meetings of our shareholders may be called only by our Chief Executive Officer or a majority of our directors. This provision may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because the provision effectively limits stockholder election of directors to annual meetings of our stockholders Director Vacancies Our bylaws provide that any vacancies in our board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled by the board of directors or, if less than a quorum, by the vote of our remaining directors. This provision may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because the provision effectively limits stockholder election of directors to annual and special meetings of the stockholders. Amendments to Our Bylaws Our bylaws provide that they may be amended only by the vote of a majority of our board of directors. This provision may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because the provision makes it more difficult for stockholders to amend the provisions in our bylaws relating to special meetings of shareholders and director vacancies. No Cumulative Voting Our articles of incorporation and bylaws to not provide for cumulative voting in the election of directors. The absence of cumulative voting rights may limit the ability of minority stockholders to effect changes to our board of directors and delay or prevent a change in control or change in management of us. HOLDERS As of September 26, 2005, the number of stockholders of record of our common stock was 127. DIVIDENDS We have not paid any cash dividends on our common stock to date, nor do we intend to pay any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to finance the operation and development of our business. 57 TRANSFER AGENT The transfer agent for our common stock is Interwest Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100, P.O. Box 17136, Salt Lake City, UT 84117. SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for our common stock. Future market sales or the availability of shares for sale may decrease the market price of our common stock prevailing from time to time. Only a portion of our outstanding shares of common stock will be available for sale upon the completion of this offering due to contractual and legal restrictions on resale. Nevertheless, sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity or equity-related securities on a date and at a price that we deem appropriate. Upon the completion of this offering, 17,054,200 shares of our common stock will be outstanding. In addition, 8,015,000 shares of our common stock will be issuable upon the exercise of outstanding options and 15,636,004 shares of our common stock will be issuable upon the exercise of outstanding warrants. Of these shares, 5,445,125 shares of our common stock, 400,000 shares of our common stock underlying outstanding options and 4,813,008 shares of our common stock underlying outstanding warrants will be freely tradable without restriction or further registration under the Securities Act, unless held by our "affiliates" as that term is defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below, or another exemption from registration. We may issue additional shares of our common stock, or securities convertible or exercisable into shares of our common stock, from time to time for capital-raising purposes, future acquisitions or other purposes. In the event any such transactions are significant, the number of shares of common stock or securities convertible or exercisable into shares of common stock that we may issue may in turn be significant. In addition, we may grant registration rights covering any securities issued in connection with any such transactions. RULE 144 In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, any person or group of persons whose shares are required to be aggregated, including an affiliate, who has beneficially owned shares of our common stock for a period of at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: o 1% of the number of shares of our common stock then outstanding, which will equal approximately 170,542 shares immediately after this offering based on the number of shares of common stock outstanding as of September 26, 2005; or 58 o the average weekly trading volume in our common stock on the Over-the-Counter Bulletin Board during the four calendar weeks preceding the date on which a Notice on Form 144 with respect to such sale is filed with the SEC. Sales under Rule 144 are also subject to provisions relating to notice and manner of sale requirements and the availability of current public information about us. RULE 144(K) Under Rule 144(k), a person that is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale and that has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell the shares without complying with the notice, manner of sale, volume limitation or current public information provisions of Rule 144. RULE 701 Under Rule 701 of the Securities Act, as currently in effect, shares of our common stock acquired, or that may be acquired upon exercise of currently outstanding options, warrants or other rights, under our stock or other compensatory plans or agreements may be resold beginning 90 days after the effective date of the registration statement of which this prospectus is a part if such resale is conducted in accordance with the applicable provisions of Rule 144. If the security holders are not an affiliate of us, such sale may be made subject only to the manner of sale provisions of Rule 144. If such person is an affiliate of us, such sale may be made without compliance with the one-year holding period requirement of Rule 144, but subject to the notice, manner of sale, volume limitation and current public information provisions of Rule 144. Some of our officers, directors, employees and consultants who purchased shares of our common stock or securities convertible into shares of our common stock under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. COMPENSATORY PLANS AND AGREEMENTS We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock that we may reserve for issuance under stock incentive, stock option or similar plans, shares of our common stock that were previously issued to certain of our employees, consultants and advisors, and shares of our common stock that we may in the future issue to certain of our employees, consultants and advisors. The first of these registration statements is expected to be filed soon after the date of this prospectus and will be effective immediately upon filing. Shares registered under these registration statements and held by non-affiliates will be available for sale in the open market, subject to vesting and contractual restrictions. Those held by affiliates will also be subject to the volume limitation provisions of Rule 144. 59 REGISTRATION RIGHTS Most of the shares of our common stock to which this prospectus relates are being registered by us in satisfaction of our obligation to register such shares on behalf of the selling security holders. We granted these registration rights to the selling security holders prior to the date of the initial filing of the registration statement of which this prospectus is a part in connection with their prior investment in us. These security holders have certain "piggy-back" registration rights on registration statements filed subsequent to the effective date of the registration statement of which this prospectus is a part. We will bear the expenses incurred in connection with the filing of any such registration statements. OFFERING PERIOD RESTRICTIONS We are currently registering 4,813,008 shares of our common stock underlying outstanding warrants, all of which become exercisable on the effective date of the registration statement of which this prospectus forms a part. Of this amount, 4,545,508 shares underlie warrants that are exercisable for a fixed period of time commencing on the effective date of the registration statement of which this prospectus forms a part and contain varying exercise prices and expiration dates. A summary of the exercise periods, exercise prices and expiration dates of these warrants is set forth below.
Exercise Period Number of Commencing on Shares Effective Date of Underlying Exercise Registration Warrants Price ($) Statement Expiration Date -------- --------- --------- --------------- 267,500 .60 * December 31, 2006 1,330,316 1.00 180 Days November 30, 2006 1,330,316 2.00 360 Days November 30, 2006 942,438 .60 18 Months November 30, 2007 942,438 .80 3 Years November 30, 2008
_______________ * Not applicable LOCK-UP ARRANGEMENTS None of our officers, directors or employees, nor any of the selling stockholders, are parties to any agreements or arrangements relating to the disposition of any of our shares of common stock in connection with this offering, except as set forth above under "Registration Rights." 60 THE OFFERING This prospectus covers the public sale of 10,658,133 shares of common stock to be sold by the selling security holders identified in this prospectus. Of this amount, 400,000 shares are issuable upon the exercise of options and 4,813,008 shares are issuable upon the exercise of warrants. This prospectus also covers any additional shares of our common stock that we may issue or that may be issuable by reason of any stock split, stock dividend or similar transaction involving our common stock. The selling security holders may sell all or a portion of their shares at a fixed price of $1.50 per share until the shares are listed on the OTC Bulletin Board, and thereafter through public or private transactions at prevailing market prices or at privately negotiated prices. We can provide no assurance that the shares will be approved for listing on the OTC Bulletin Board or that a public market will develop for the shares. Set forth below is a description of the shares of our common stock being registered for resale hereby. August 2004 Offering of Common Stock, Class A Warrants and Class B Warrants In August 2004, we completed a private offering of 2,777,000 shares of our common stock, Class A warrants to acquire 1,388,500 shares of our common stock, and Class B warrants to acquire 1,388,500 shares of our common stock, for aggregate cash consideration of $1,388,500 (the "August 2004 Offering"). These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We originally agreed to file a registration statement with the SEC within two months of the date the investors purchased units in the offering to register 50% of the shares of our common stock issued in the offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in the offering. We subsequently extended this deadline to June 30, 2005 in exchange for the issuance of the securities described below under "March 2005 Offering of Common Stock, Class A Warrants and Class B Warrants." The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 1,388,500 shares of common stock, 694,250 shares of common stock issuable upon the exercise of the Class A warrants and 694,250 shares of common stock issuable upon exercise of the Class B Warrants. 61 September 2004 Offering of Common Stock, Class A Warrants and Class B Warrants In September 2004, we completed a private offering of 174,000 shares of our common stock, Class A warrants to acquire 87,000 shares of our common stock, and Class B warrants to acquire 87,000 shares of our common stock, for aggregate cash consideration of $87,000 (the "September 2004 Offering"). These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We originally agreed to file a registration statement with the SEC by a date that was within two months of the date the investors purchased units in the offering to register 50% of the shares of our common stock issued in the offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in the offering. We subsequently extended this deadline to June 30, 2005 in exchange for the issuance of the securities described below under "March 2005 Offering of Common Stock, Class A Warrants and Class B Warrants." The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 87,000 shares of common stock, 43,500 shares of common stock issuable upon the exercise of the Class A warrants and 43,500 shares of common stock issuable upon exercise of the Class B Warrants. February 2005 Offering of Common Stock, Class A Warrants and Class B Warrants In February 2005, we completed a private offering of 2,448,750 shares of our common stock, Class A warrants to acquire 816,252 shares of our common stock, and Class B warrants to acquire 816,252 shares of our common stock, for aggregate cash consideration of $979,500 (the "February 2005 Offering"). These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. 62 This prospectus covers the public resale of 1,224,375 shares of common stock, 408,128 shares of common stock issuable upon the exercise of the Class A warrants and 408,128 shares of common stock issuable upon exercise of the Class B Warrants. March 2005 Offering of Common Stock, Class A Warrants and Class B Warrants In March 2005, we completed a private offering of 737,750 shares of our common stock, Class A warrants to acquire 368,875 shares of our common stock, and Class B warrants to acquire 368,875 shares of our common stock (the "March 2005 Offering"). These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. These units were issued to each person that purchased units in the August 2004 Offering and the September 2004 Offering (collectively, the "August and September 2004 Offerings"), and the number of units issued was equal to 25% of the aggregate number of units purchased in the August and September 2004 Offerings. The units were issued to each person in exchange for each person agreeing to an extension of the date by which we would use our best efforts to file a registration statement with the SEC for certain of securities purchased in the August and September 2004 Offerings from a date that was within two months of the date they purchased units in the August and September 2004 Offerings to June 30, 2005. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 368,875 shares of common stock, 184,438 shares of common stock issuable upon the exercise of the Class A warrants and 184,438 shares of common stock issuable upon exercise of the Class B Warrants. April 2005 Sale of Common Stock, Class A Warrants and Class B Warrants to Ronald F. Westman In April 2005, we issued 1,800,000 shares of our common stock, Class A warrants to acquire 1,800,000 shares of our common stock, and Class B warrants to acquire 1,800,000 shares of our common stock to Ronald F. Westman, one of our former directors, for aggregate consideration consisting of 2,740,000 shares of common stock of Infinium Labs, Inc., a Delaware corporation, that Mr. Westman owned and that was then valued at $720,000. Our securities were sold in units comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. 63 Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this transaction. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 650,000 shares of common stock issued to Mr. Westman in this transaction. May 2005 Offering of Common Stock, Class A Warrants and Class B Warrants In May 2005, we completed a private offering of 635,750 shares of our common stock, Class A warrants to acquire 317,875 shares of our common stock, and Class B warrants to acquire 317,875 shares of our common stock, for aggregate cash consideration of $254,300 (the "May 2005 Offering"). These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one and one-half shares of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one and one-half shares of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 317,875 shares of common stock, 158,938 shares of common stock issuable upon the exercise of the Class A warrants and 158,938 shares of common stock issuable upon exercise of the Class B Warrants. June 2005 Offering of Common Stock, Class A Warrants and Class B Warrants In June 2005, we completed a private offering of 1,490,000 shares of our common stock, Class A warrants to acquire 1,490,000 shares of our common stock, and Class B warrants to acquire 1,490,000 shares of our common stock to a limited number of accredited investors for aggregate cash consideration of $596,000 (the "June 2005 Offering"). These securities were sold in units 64 comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of 715,000 shares of common stock, 715,000 shares of common stock issuable upon the exercise of the Class A warrants and 715,000 shares of common stock issuable upon the exercise of the Class B Warrants. June 2005 Sale of Common Stock, Class A Warrants, Class B Warrants and Class C Warrants to Consultants In June 2005, we issued an aggregate of 2,587,000 shares of our common stock, Class A warrants to acquire 737,000 shares of our common stock, Class B warrants to acquire 737,000 shares of our common stock, and Class C warrants to acquire 1,625,000 shares of our common stock to a limited number of accredited investors in exchange for various consulting services to be rendered to us. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. Each Class C warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 100% of the shares of our common stock and 100% of the shares of our common stock underlying the Class A warrants and Class B warrants with respect to an aggregate of 1,800,000 shares of common stock issued to these investors, and 50% of the shares of our common stock and 50% of the shares of our common stock underlying the Class A warrants, Class B and Class C warrants with respect to an aggregate of 3,886,000 shares of our common stock issued to these investors. The registration statement of which this prospectus is a part is being filed in part to satisfy certain of our obligations to register these shares. 65 This prospectus covers the public resale of 513,500 shares of common stock, 68,500 shares of common stock issuable upon the exercise of the Class A warrants, 68,500 shares of common stock issuable upon exercise of the Class B Warrants, and 267,500 shares of common stock issuable upon exercise of the Class C Warrants. June 2005 Issuance of Option to Trident Marketing International, Inc. In June 2005, we issued an option to acquire 400,000 shares of our common stock to Trident Marketing International, Inc., an accredited investor, in exchange for services to be rendered to us in connection with the marketing of our various CARExpress membership programs. The option is initially exercisable into shares of our common stock at an exercise price of $1.00 per share upon the achievement of various performance objectives during the remainder of 2005 and expires on June 24, 2006. We agreed to file a registration statement with the SEC within six months of the date of the option to register all of the shares of common stock underlying the option. The registration statement of which this prospectus is a part is being filed in part to satisfy our obligation to register these shares. This prospectus covers the public resale of the 400,000 shares of common stock issuable upon the exercise of the option. Shares Acquired in Private Transactions with Third Parties This prospectus covers the public resale of 180,000 shares of common stock acquired by certain of the selling security holders from third parties in privately negotiated transactions. DETERMINATION OF OFFERING PRICE The selling security holders may sell all or a portion of their shares of common stock at a fixed price of $1.50 per share until the shares are listed on the OTC Bulletin Board, and thereafter through public or private transactions at prevailing market prices or at privately negotiated prices. In determining the initial public offering price for the shares, we considered several factors including, but not limited to, the following: o Our business potential and prospects; o The industry in which we operate; o Our management; o Our relative cash requirements; o Our capital structure; o Current market conditions; and o The price we believe a purchaser will be willing to pay for our stock. The offering price of the shares offered hereby does not necessarily bear any relation to our assets, book value, financial condition or other established valuation criteria. Accordingly, the offering price of the shares may not be indicative of the actual value of our common stock or the prices that may prevail at any time or from time to time in the event a public market for our common stock develops. We can provide you with no assurance that a public market for our common stock will develop and continue or that our common stock will ever trade at a price at or higher than the offering price in this offering. 66 SELLING SECURITY HOLDERS The selling security holders identified in the following table are offering for sale 10,658,133 shares of our common stock of which 400,000 are issuable upon the exercise of options and 4,813,008 are issuable upon exercise of warrants. All of the shares of common stock, options and warrants were issued to the selling security holders in private placement transactions. A description of these transactions is set forth above under "The Offering." The following table sets forth as of September 26, 2005: o The name of each selling security holder and any material relationship between us and such selling security holder based upon information currently available to us; o The number of shares owned beneficially by each selling security holder before the offering; o The percentage ownership of each selling security holder prior to the offering; o The number of shares offered hereunder by each selling security holder; o The number of shares owned beneficially by each selling security holder after the offering; and o The percentage ownership of each selling security holder after the offering. The information presented in this table has been calculated based on the assumption that all options and warrants will be exercised prior to completion of the offering, that all shares offered hereby will be sold, and that no other shares of our common stock will be acquired or disposed of by the selling security holder prior to the termination of this offering. The beneficial ownership set forth below has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Except as indicated by footnote, and subject to applicable community property laws, we believe that the beneficial owners of the common stock listed below have sole voting power and investments power with respect to their shares.
Beneficial Ownership of Beneficial Ownership of Selling Security Holders Selling Security Holders Prior to the Offering After the Offering ----------------------------- ------------------------------- Number of Shares Offered Name of Selling Security Holder Number Percent Hereby Number Percent - ------------------------------- ------ ------- ------ ------ ------- Steve Adelstein (1) 628,500 3.7% 296,250 332,250 2.0% B. Alink (2) 112,500 * 56,250 56,250 * M.T. Anthesia (3) 75,000 * 37,500 37,500 * H. Baas (4) 208,334 1.2% 104,168 104,166 * Thomas Barker (5) 60,000 * 30,000 30,000 *
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Beneficial Ownership of Beneficial Ownership of Selling Security Holders Selling Security Holders Prior to the Offering After the Offering ----------------------------- ------------------------------- Number of Shares Offered Name of Selling Security Holder Number Percent Hereby Number Percent - ------------------------------- ------ ------- ------ ------ ------- Frederick Bates (6) 5,000 * 2,500 2,500 * Marco Boschetti (7) 50,000 * 25,000 25,000 * Maya Boschetti (8) 50,000 * 25,000 25,000 * Gordon Cantley (9) 606,000 3.6% 87,500 518,500 3.0% Renee Carrell (10) 160,000 * 80,000 80,000 * Andrew Catignani (11) 50,000 * 25,000 25,000 * Mark Clark (12) 20,000 * 10,000 10,000 * Charles Cleland, Jr. (13) 390,000 2.3% 180,000 210,000 1.2% Charles Cleland, Sr. (14) 180,000 1.1% 90,000 90,000 * Evans Connelly (15) 60,000 * 30,000 30,000 * Freeman Correa, Jr. (16) 60,000 * 30,000 30,000 * James Creed (17) 866,834 5.1% 422,918 443,916 2.6% Gertrude Daniels (18) 20,000 * 10,000 10,000 * Julia Daniels (19) 20,000 * 10,000 10,000 * Andreas Eggenberger (20) 150,000 * 75,000 75,000 * Daniel Eggenberger (21) 725,000 4.3% 75,000 650,000 3.8% Elsid IV (22) 780,000 4.6% 390,000 390,000 2.3% Federal Corp (23) 120,000 * 60,000 60,000 * Jon Fisher (24) 50,000 * 25,000 25,000 * Gwen and Louis Forman (25) 50,000 * 25,000 25,000 * Lukas Frei (26) 50,000 * 25,000 25,000 * Lukas and Luzia Weber Frei (27) 50,000 * 25,000 25,000 * GE Global Entertainment (28) 575,000 3.4% 287,500 287,500 1.7% Ben Giese (29) 927,000 5.4% 292,500 634,500 3.7% Michael Gillis (30) 165,000 * 82,500 82,500 * Basil and Susan Gray (31) 25,000 * 12,500 12,500 * Basil Gray (32) 22,498 * 11,249 11,249 * Susan Gray (33) 6,702 * 1,251 5,451 * Edward Harris (34) 110,534 * 47,918 62,616 * Gunther Heinkel (35) 160,000 * 80,000 80,000 * Walter Hill (36) 375,200 2.2% 150,000 225,200 1.3% Jean Hill (37) 100,000 * 50,000 50,000 * Robert Hillier (38) 320,000 1.9% 135,000 185,000 1.1% Ramon Huber (39) 150,000 * 75,000 75,000 * Rita Huerzeler (40) 50,000 * 25,000 25,000 * RWA Huuskes-Krabbe (41) 62,500 * 31,250 31,250 * Lawrence Jellen (42) 255,000 1.5% 125,000 130,000 * Marold Kamai (43) 100,000 * 50,000 50,000 * L&L Investments (44) 202,000 1.2% 95,000 107,000 * Paul Langton (45) 37,500 * 18,751 18,749 * H.T. Larzelere (46) 338,000 2.0% 62,500 275,500 1.6%
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Beneficial Ownership of Beneficial Ownership of Selling Security Holders Selling Security Holders Prior to the Offering After the Offering ----------------------------- ------------------------------- Number of Shares Offered Name of Selling Security Holder Number Percent Hereby Number Percent - ------------------------------- ------ ------- ------ ------ ------- Dennis Lastine (47) 1,095,000 6.4% 547,500 547,500 3.2% Jesus Lozano (48) 1,650,000 9.7% 825,000 825,000 4.8% T. Lustgarten (49) 50,000 * 25,000 25,000 * Thoney Martin (50) 150,000 * 75,000 75,000 * Jorg Meier (51) 50,000 * 25,000 25,000 * Richard Merrit (52) 25,000 * 12,500 12,500 * Michael Mitsuka (53) 310,000 1.8% 155,000 155,000 * Thomas Moser (54) 210,000 1.2% 105,000 105,000 * Claire Mumenthaler (55) 50,000 * 25,000 25,000 * Freek Nietsch (56) 112,500 * 56,250 56,250 * Rene Ortega, Jr. (57) 470,000 2.8% 205,000 265,000 1.6% Park Financial Group, Inc. (58) 411,000 2.4% 205,500 205,500 1.2% Philipp Portenier (59) 110,000 * 55,000 55,000 * Guy Quigley (60) 100,000 * 50,000 50,000 * Suzi Ragsdale (61) 208,334 1.2% 104,168 104,166 * Michael Reichstein (62) 50,000 * 25,000 25,000 * William Ritger (63) 800,000 4.7% 400,000 400,000 2.4% Jay Rosen (64) 280,000 1.6% 90,000 190,000 1.1% Robert Sage (65) 670,000 3.9% 275,000 395,000 2.3% Martin Salm (66) 50,000 * 25,000 25,000 * Peter Schaetti (67) 100,000 * 50,000 50,000 * Thomas Schaetti ((68)) 50,000 * 25,000 25,000 * Ernst Schoenbaechler ((69)) 600,000 3.5% 125,000 475,000 2.8% Keith Shelly (70) 815,000 4.8% 175,000 640,000 3.8% Kenneth Shelly ((71)) 145,068 * 70,834 74,234 * Tammi Shnider ((72)) 180,000 1.1% 90,000 90,000 * J. Kimo Spencer ((73)) 120,000 * 60,000 60,000 * Adrian Spring ((74)) 100,000 * 50,000 50,000 * James Sutherland ((75)) 5,000 * 2,500 2,500 * John Szychowski ((76)) 85,000 * 37,500 47,500 * Nathanne Tankersley ((77)) 300,000 1.8% 150,000 150,000 * Stuart Tiplitsky ((78)) 247,700 1.5% 87,500 160,200 * Manuel Torres, Jr. ((79)) 62,500 * 31,251 31,249 * Trident Marketing 400,000 2.4% 400,000 0 * International, Inc. (80) Marvin Vaught (81) 236,000 1.4% 110,000 126,000 * Gabriel Vidales (82) 1,350,000 7.9% 675,000 675,000 4.0% Stefan Waldner (83) 50,000 * 25,000 25,000 * Wegelin & Co. (84) 250,000 1.5% 125,000 125,000 * Sandra Weibel (85) 100,000 * 50,000 50,000 * Ronald Westman (86) 5,680,000 33.3% 650,000 5,030,000 29.5%
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Beneficial Ownership of Beneficial Ownership of Selling Security Holders Selling Security Holders Prior to the Offering After the Offering ----------------------------- ------------------------------- Number of Shares Offered Name of Selling Security Holder Number Percent Hereby Number Percent - ------------------------------- ------ ------- ------ ------ ------- Ronda Westman (87) 300,000 1.8% 150,000 150,000 * Urs Wigger (88) 100,000 * 50,000 50,000 * Warren Wise (89) 295,250 1.7% 147,625 147,625 * Julie Wukie (90) 25,000 * 12,500 12,500 * Jerome Ziarko (91) 286,000 1.7% 137,500 148,500 *
* Represents less than one percent (1%) of our shares outstanding. (1) The registered shares consist of: (i) 117,000 shares of common stock, 58,500 shares underlying Class A warrants and 58,500 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 29,250 shares of common stock, 14,625 shares underlying Class A warrants and 14,625 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 56,250 shares of common stock, 18,750 shares underlying Class A warrants and 18,750 shares underlying Class B warrants acquired in the February 2005 Offering; less (iv) 90,000 shares of common stock transferred to a third party in a privately negotiated transaction. Mr. Adelstein served as a director of the Company from February 13, 2005 until April 4, 2005. (2) The registered shares consist of: (i) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the September 2004 Offering; (ii) 3,750 shares of common stock, 1,875 shares underlying Class A warrants and 1,875 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 11,250 shares of common stock, 3,750 shares underlying Class A warrants and 3,750 shares underlying Class B warrants acquired in the February 2005 Offering. (3) The registered shares consist of: (i) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 3,750 shares of common stock, 1,875 shares underlying Class A warrants and 1,875 shares underlying Class B warrants acquired in the March 2005 Offering. (4) The registered shares consist of: (i) 25,000 shares of common stock, 12,500 shares underlying Class A warrants and 12,500 shares underlying Class B warrants acquired in the September 2004 Offering; (ii) 6,250 shares of common stock, 3,125 shares underlying Class A warrants and 3,125 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 25,000 shares of common stock, 8,334 shares underlying Class A warrants and 8,334 shares underlying Class B warrants acquired in the February 2005 Offering. (5) The registered shares consist of 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (6) The registered shares consist of: (i) 1,000 shares of common stock, 500 shares underlying Class A warrants and 500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 250 shares of common stock, 125 shares underlying Class A warrants and 125 shares underlying Class B warrants acquired in the March 2005 Offering. (7) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. 70 (8) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (9) The registered shares consist of: (i) 25,000 shares of common stock, 12,500 shares underlying Class A warrants and 12,500 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 6,250 shares of common stock, 3,125 shares underlying Class A warrants and 3,125 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. Mr. Cantley is an affiliate of Park Financial Group, Inc., a registered broker-dealer. (10) The registered shares consist of: (i) 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (ii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (11) The registered shares consist of: (i) 10,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 2,500 shares of common stock, 1,250 shares underlying Class A warrants and 1,250 shares underlying Class B warrants acquired in the March 2005 Offering. (12) The registered shares consist of 10,000 shares of common stock acquired from a third party in a privately negotiated transaction. (13) The registered shares consist of 60,000 shares of common stock, 60,000 shares underlying Class A warrants and 60,000 shares underlying Class B warrants acquired in the June 2005 Offering. (14) The registered shares consist of 30,000 shares of common stock, 30,000 shares underlying Class A warrants and 30,000 shares underlying Class B warrants acquired in the June 2005 Offering. (15) The registered shares consist of 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (16) The registered shares consist of 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (17) The registered shares consist of: (i) 140,000 shares of common stock, 70,000 shares underlying Class A warrants and 70,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 35,000 shares of common stock, 17,500 shares underlying Class A warrants and 17,500 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 43,750 shares of common stock, 14,584 shares underlying Class A warrants and 14,584 shares underlying Class B warrants acquired in the February 2005 Offering. (18) The registered shares consist of 10,000 shares of common stock acquired from a third party in a privately negotiated transaction. (19) The registered shares consist of 10,000 shares of common stock acquired from a third party in a privately negotiated transaction. (20) The registered shares consist of 45,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the February 2005 Offering. (21) The registered shares consist of 45,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the February 2005 Offering. (22) The registered shares consist of 240,000 shares of common stock and 150,000 shares underlying Class C warrants acquired in June 2005 in exchange for marketing and advisory services. The power to vote and dispose of these shares is controlled by Andrea Vargas. 71 (23) The registered shares consist of 30,000 shares of common stock and 30,000 shares underlying Class C warrants acquired in June 2005 in exchange for marketing and advisory services. The power to vote and dispose of these shares is controlled by Robert Sage. (24) The registered shares consist of: (i) 10,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 2,500 shares of common stock, 1,250 shares underlying Class A warrants and 1,250 shares underlying Class B warrants acquired in the March 2005 Offering. (25) The registered shares consist of: (i) 10,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 2,500 shares of common stock, 1,250 shares underlying Class A warrants and 1,250 shares underlying Class B warrants acquired in the March 2005 Offering. (26) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (27) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (28) The registered shares consist of: (i) 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (ii) 175,000 shares of common stock and 87,500 shares underlying Class C warrants acquired in June 2005 in exchange for marketing and advisory services. The power to vote and dispose of these shares is controlled by Daniel Eggenberger. (29) The registered shares consist of: (i) 100,000 shares of common stock, 50,000 shares underlying Class A warrants and 50,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 25,000 shares of common stock, 12,500 shares underlying Class A warrants and 12,500 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 25,500 shares of common stock, 8,500 shares underlying Class A warrants and 8,500 shares underlying Class B warrants acquired in the February 2005 Offering. (30) The registered shares consist of: (i) 33,000 shares of common stock, 16,500 shares underlying Class A warrants and 16,500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 8,250 shares of common stock, 4,125 shares underlying Class A warrants and 4,125 shares underlying Class B warrants acquired in the March 2005 Offering. (31) The registered shares consist of 7,500 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the February 2005 Offering. (32) The registered shares consist of: (i) 4,500 shares of common stock, 2,250 shares underlying Class A warrants and 2,250 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 1,125 shares of common stock, 562 shares underlying Class A warrants and 562 shares underlying Class B warrants acquired in the March 2005 Offering. (33) The registered shares consist of: (i) 500 shares of common stock, 250 shares underlying Class A warrants and 250 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 125 shares of common stock, 63 shares underlying Class A warrants and 63 shares underlying Class B warrants acquired in the March 2005 Offering. (34) The registered shares consist of: (i) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 3,750 shares of common stock, 1,875 shares underlying Class A warrants and 1,875 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 6,250 shares of common stock, 2,084 shares underlying Class A warrants and 2,084 shares underlying Class B warrants acquired in the February 2005 Offering. 72 (35) The registered shares consist of: (i) 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (ii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (36) The registered shares consist of: (i) 60,000 shares of common stock, 30,000 shares underlying Class A warrants and 30,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the March 2005 Offering. (37) The registered shares consist of: (i) 20,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the March 2005 Offering. (38) The registered shares consist of 45,000 shares of common stock, 45,000 shares underlying Class A warrants and 45,000 shares underlying Class B warrants acquired in the June 2005 Offering. (39) The registered shares consist of 45,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the February 2005 Offering. (40) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (41) The registered shares consist of 18,750 shares of common stock, 6,250 shares underlying Class A warrants and 6,250 shares underlying Class B warrants acquired in the February 2005 Offering. (42) The registered shares consist of: (i) 50,000 shares of common stock, 25,000 shares underlying Class A warrants and 25,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 12,500 shares of common stock, 6,250 shares underlying Class A warrants and 6,250 shares underlying Class B warrants acquired in the March 2005 Offering. (43) The registered shares consist of: (i) 20,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the March 2005 Offering. (44) The registered shares consist of: (i) 20,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the March 2005 Offering; (iii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering; and (iv) 15,000 shares of common stock acquired from a third party in a privately negotiated transaction. The power to vote and dispose of these shares is controlled by H.T. Larzelere. (45) The registered shares consist of: (i) 7,500 shares of common stock, 3,750 shares underlying Class A warrants and 3,750 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 1,875 shares of common stock, 938 shares underlying Class A warrants and 938 shares underlying Class B warrants acquired in the March 2005 Offering. (46) The registered shares consist of: (i) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 3,750 shares of common stock, 1,875 shares underlying Class A warrants and 1,875 shares underlying Class B warrants acquired in the March 2005 Offering; (iii) 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (iv) 7,500 shares of common stock, 3,750 shares underlying Class A warrants and 3,750 shares underlying Class B warrants acquired in the May 2005 Offering; less (v) 15,000 shares of common stock transferred to a third party in a privately negotiated transaction. 73 (47) The registered shares consist of: (i) 175,000 shares of common stock, 87,500 shares underlying Class A warrants and 87,500 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 43,750 shares of common stock, 21,875 shares underlying Class A warrants and 21,875 shares underlying Class B warrants acquired in the March 2005 Offering; (iii) 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (iv) 30,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the May 2005 Offering. (48) The registered shares consist of 275,000 shares of common stock, 275,000 shares underlying Class A warrants and 275,000 shares underlying Class B warrants acquired in the June 2005 Offering. (49) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (50) The registered shares consist of 45,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the February 2005 Offering. (51) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (52) The registered shares consist of: (i) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 1,250 shares of common stock, 625 shares underlying Class A warrants and 625 shares underlying Class B warrants acquired in the March 2005 Offering. (53) The registered shares consist of: (i) 50,000 shares of common stock, 25,000 shares underlying Class A warrants and 25,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 12,500 shares of common stock, 6,250 shares underlying Class A warrants and 6,250 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (54) The registered shares consist of: (i) 45,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (ii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (55) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (56) The registered shares consist of: (i) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the September 2004 Offering; (ii) 3,750 shares of common stock, 1,875 shares underlying Class A warrants and 1,875 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 11,250 shares of common stock, 3,750 shares underlying Class A warrants and 3,750 shares underlying Class B warrants acquired in the February 2005 Offering. (57) The registered shares consist of: (i) 70,000 shares of common stock, 35,000 shares underlying Class A warrants and 35,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 17,500 shares of common stock, 8,750 shares underlying Class A warrants and 8,750 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. 74 (58) The registered shares consist of 68,500 shares of common stock, 68,500 shares underlying Class A warrants and 68,500 shares underlying Class B warrants acquired in June 2005 in exchange for acting as financial advisor and placement agent in connection with the June 2005 Offering. Park Financial Group, Inc. is a registered broker-dealer. The power to vote and dispose of these shares is controlled by Gordon Cantley. (59) The registered shares consist of: (i) 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering; and (ii) 15,000 shares of common stock, 7,500 shares underlying Class A warrants and 7,500 shares underlying Class B warrants acquired in the May 2005 Offering. (60) The registered shares consist of: (i) 20,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the March 2005 Offering. (61) The registered shares consist of 62,500 shares of common stock, 20,834 shares underlying Class A warrants and 20,834 shares underlying Class B warrants acquired in the February 2005 Offering. (62) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (63) The registered shares consist of: (i) 100,000 shares of common stock, 50,000 shares underlying Class A warrants and 50,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 25,000 shares of common stock, 12,500 shares underlying Class A warrants and 12,500 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 75,000 shares of common stock, 37,500 shares underlying Class A warrants and 37,500 shares underlying Class B warrants acquired in the May 2005 Offering. (64) The registered shares consist of 30,000 shares of common stock, 30,000 shares underlying Class A warrants and 30,000 shares underlying Class B warrants acquired in the June 2005 Offering. Mr. Rosen served as a director of the Company from June 29, 2005 to September 26, 2005. (65) The registered shares consist of: (i) 100,000 shares of common stock, 50,000 shares underlying Class A warrants and 50,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 25,000 shares of common stock, 12,500 shares underlying Class A warrants and 12,500 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (66) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (67) The registered shares consist of 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering. (68) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (69) The registered shares consist of 75,000 shares of common stock, 25,000 shares underlying Class A warrants and 25,000 shares underlying Class B warrants acquired in the February 2005 Offering. (70) The registered shares consist of: (i) 70,000 shares of common stock, 35,000 shares underlying Class A warrants and 35,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 17,500 shares of common stock, 8,750 shares underlying Class A warrants and 8,750 shares underlying Class B warrants acquired in the March 2005 Offering. Mr. Shelly served as a director of the Company from February 13, 2005 until June 1, 2005. 75 (71) The registered shares consist of: (i) 10,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 2,500 shares of common stock, 1,250 shares underlying Class A warrants and 1,250 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 27,500 shares of common stock, 9,167 shares underlying Class A warrants and 9,167 shares underlying Class B warrants acquired in the February 2005 Offering. (72) The registered shares consist of 90,000 shares of common stock acquired from a third party in a privately negotiated transaction. (73) The registered shares consist of 30,000 shares of common stock, 15,000 shares underlying Class A warrants and 15,000 shares underlying Class B warrants acquired in the May 2005 Offering. (74) The registered shares consist of 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering. (75) The registered shares consist of: (i) 1,000 shares of common stock, 500 shares underlying Class A warrants and 500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 250 shares of common stock, 125 shares underlying Class A warrants and 125 shares underlying Class B warrants acquired in the March 2005 Offering. (76) The registered shares consist of: (i) 10,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 2,500 shares of common stock, 1,250 shares underlying Class A warrants and 1,250 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 7,500 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the February 2005 Offering. (77) The registered shares consist of 150,000 shares of common stock acquired from a third party in a privately negotiated transaction. (78) The registered shares consist of: (i) 35,000 shares of common stock, 17,500 shares underlying Class A warrants and 17,500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 8,750 shares of common stock, 4,375 shares underlying Class A warrants and 4,375 shares underlying Class B warrants acquired in the March 2005 Offering. (79) The registered shares consist of 15,625 shares of common stock, 7,813 shares underlying Class A warrants and 7,813 shares underlying Class B warrants acquired in the May 2005 Offering. (80) The registered shares consist of an option to acquire 400,000 shares of our common stock acquired in June 2005 in exchange for marketing services related to our CARExpress membership programs. The power to vote and dispose of these shares is controlled by David Reilly. (81) The registered shares consist of: (i) 44,000 shares of common stock, 22,000 shares underlying Class A warrants and 22,000 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 11,000 shares of common stock, 5,500 shares underlying Class A warrants and 5,500 shares underlying Class B warrants acquired in the March 2005 Offering. (82) The registered shares consist of 225,000 shares of common stock, 225,000 shares underlying Class A warrants and 225,000 shares underlying Class B warrants acquired in the June 2005 Offering. (83) The registered shares consist of 15,000 shares of common stock, 5,000 shares underlying Class A warrants and 5,000 shares underlying Class B warrants acquired in the February 2005 Offering. (84) The registered shares consist of 75,000 shares of common stock, 25,000 shares underlying Class A warrants and 25,000 shares underlying Class B warrants acquired in the February 2005 Offering. The power to vote and dispose of these shares is controlled by Marcel Ruegg. 76 (85) The registered shares consist of 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering. (86) The registered shares consist of 650,000 shares of common stock acquired in April 2005 in connection with the acquisition of 1,800,000 shares of common stock, Class A warrants to acquire 1,800,000 shares of common stock and Class B warrants to acquire 1,800,000 shares of common stock in exchange for aggregate consideration of $720,000. Mr. Westman served as a director of the Company from June 29, 2005 to September 26, 2005. (87) The registered shares consist of 50,000 shares of common stock, 50,000 shares underlying Class A warrants and 50,000 shares underlying Class B warrants acquired in the June 2005 Offering. (88) The registered shares consist of 30,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the February 2005 Offering. (89) The registered shares consist of: (i) 32,000 shares of common stock, 16,000 shares underlying Class A warrants and 16,000 shares underlying Class B warrants acquired in the September 2004 Offering; (ii) 8,000 shares of common stock, 4,000 shares underlying Class A warrants and 4,000 shares underlying Class B warrants acquired in the March 2005 Offering; (iii) 28,875 shares of common stock, 9,625 shares underlying Class A warrants and 9,625 shares underlying Class B warrants acquired in the February 2005 Offering; and (iv) 9,750 shares of common stock, 4,875 shares underlying Class A warrants and 4,875 shares underlying Class B warrants acquired in the May 2005 Offering. (90) The registered shares consist of: (i) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the August 2004 Offering; and (ii) 1,250 shares of common stock, 625 shares underlying Class A warrants and 625 shares underlying Class B warrants acquired in the March 2005 Offering. (91) The registered shares consist of: (i) 20,000 shares of common stock, 10,000 shares underlying Class A warrants and 10,000 shares underlying Class B warrants acquired in the August 2004 Offering; (ii) 5,000 shares of common stock, 2,500 shares underlying Class A warrants and 2,500 shares underlying Class B warrants acquired in the March 2005 Offering; and (iii) 52,500 shares of common stock, 17,500 shares underlying Class A warrants and 17,500 shares underlying Class B warrants acquired in the February 2005 Offering. USE OF PROCEEDS We will not receive any proceeds from the sale of common stock by the selling security holders. If all of the options and warrants for which the underlying shares of common stock that are being registered hereby are exercised by the applicable selling security holders, we will receive approximately $5,870,860 in proceeds upon the exercise thereof. We intend to use the proceeds from any such exercises for general working capital purposes. PLAN OF DISTRIBUTION We are registering all of the shares of common stock offered by this prospectus on behalf of the selling security holders. The selling security holders may sell any or all of the shares, subject to federal and state securities law, but are under no obligation to do so. The selling security holders will act independently of us in making decisions with respect to the timing, manner and size of each sale of the common stock covered hereby. 77 The selling security holders, or their pledges, donees, transferees or any of their other successors-in-interest, may sell all or a portion of the common stock offered hereby from time to time in one or more transactions directly or through one or more underwriters, brokers, dealers or agents at a fixed price of $1.50 per share until the shares are listed on the OTC Bulletin Board. Thereafter, the shares may be sold at fixed prices, at market prices prevailing at the time of the sale, at varying prices determined at the time of sale, or at privately negotiated prices. These sales may be effected in any one or more of the following methods: o cross trades or block trades in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker, dealer or underwriter as principal and resale by such broker, dealer or underwriter for its own account pursuant to this prospectus; o an exchange distribution in accordance with the rules of any stock exchange on which the securities may be listed; o ordinary brokerage transactions and transactions in which the broker solicits purchases; o privately negotiated transactions; o short sales; o through the writing of options, swaps or other derivatives on the securities, regardless of whether the options, swaps or derivatives are listed on an exchange; o through the distribution of the securities by any selling security holder to its partners, members or stockholders; o any combinations of any of these methods of sale; and o any other manner permitted by law. The selling security holders may also sell shares under Rule 144 of the Securities Act, if available, rather than under this prospectus. The selling security holders may sell their shares to or through underwriters, brokers, dealers or agents, in which event the underwriters, brokers, dealers or agents may receive discounts, concessions, commissions or other fees from the selling security holders, or discounts, concessions, commissions or other fees from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal. These discounts, concessions, commissions or fees as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved. The selling security holders may also enter into hedging transactions with brokers or dealers that may in turn engage in short sales of the common stock in the course of hedging in positions they assume. The selling security holders may also sell shares of common stock short and deliver shares of our common stock covered by this prospectus to close out short positions and loan or pledge shares of our common stock to brokers or dealers that in turn may sell such shares. 78 The selling security holders may additionally pledge, hypothecate or grant a security interest in some or all of the shares of our common stock owned by them and, if such holders default in the performance of their secured obligations, the pledges or secured parties may offer and sell the shares of our common stock from time to time under this prospectus or any amendment to this prospectus, if necessary, to include the pledge, transferee or other successors in interest as selling security holders under this prospectus. The selling security holders may also transfer or donate their shares of our common stock in other circumstances, in which case the transferees, donees, pledges or other successors in interest will be the selling beneficial owners for purposes of this prospectus. The selling security holders and any underwriters, brokers, dealers or agents that participate in the distribution of the shares offered hereby may be deemed "underwriters" within the meaning of the Securities Act. In that event, any discounts, concessions, commissions or fees received by them and any profit on the resale of the shares sold by them may be deemed to be underwriting discounts or commissions under the Securities Act. The selling security holders and any other person participating in the distribution of the shares of our common stock being offered hereby will be subject to applicable provisions of the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, including, without limitation, Regulation M. These regulations may limit the timing of purchases and sales of any of the shares of our common stock by the selling security holders and may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to our common stock. We have agreed to indemnify certain of the selling security holders against liabilities, including certain liabilities under the Securities Act, pursuant to the terms of the agreements by which the selling securities holders purchased their shares of our common stock being registered hereby. We may be indemnified by certain of the selling security holders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished by such selling security holders specifically for use in this prospectus, pursuant to the terms of the agreements by which the selling securities holders purchased their shares of our common stock being registered hereby. We will not receive any proceeds from the sale of the shares of our common stock registered hereby. We will pay all expenses incurred in connection with this registration of the shares of our common stock under the Securities Act, including registration and filing fees, fees an expenses of compliance with securities or blue sky laws, listing fees, printing and engraving expenses, messenger and delivery expenses, and fees and disbursements of our counsel, accountants and other persons retained by us, but excluding commissions and discounts incurred by the selling security holders in connection with the resale of such shares. We cannot assure you that the selling security holders will sell all or any portion of the securities offered hereby. 79 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The Indiana Business Corporation Law (the "IBCL") provides that an Indiana corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Unless limited by its articles of incorporation, an Indiana corporation must indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding. Our articles of incorporation do not limit our obligations to so indemnify our directors. The IBCL also provides that, unless the corporation's articles of incorporation provide otherwise: (i) an officer of an Indiana corporation, whether or not a director, is entitled to mandatory indemnification and is entitled to apply for court-ordered indemnification to the same extent as a director; (ii) the corporation may indemnify and advance expenses to an officer, employee or agent of the corporation, whether or not a director, to the same extent as to a director; and (iii) the corporation may also indemnify and advance expenses to an officer, employee or agent, whether or not a director, to the extent, consistent with public policy, it is permitted to do so by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract. Our articles of incorporation do not limit our ability to so indemnify our officers. We are authorized to enter into indemnification agreements with our directors, officers, employees and agents, and those serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, which may, in some cases, be broader than the specific indemnification provisions set forth in the IBCL. In addition, we are authorized to purchase and maintain insurance on behalf of these persons to indemnify them for expenses and liabilities incurred by them by reason of their being or having been such a director, officer, employee or agent, regardless of whether we have the power to indemnify such persons against such expenses and liabilities under our articles of incorporation, our bylaws, the IBCL, or otherwise. We have not entered into any such agreements or obtained such insurance. The limitation of liability and indemnification provisions of the IBCL may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty of care. These provisions may also reduce the likelihood of derivative litigation against our directors, officers, employees and agents, and those serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, even though an action, if successful, might benefit us and our stockholders. The price of our shares may be adversely affected to the extent we pay the costs of settlement and damage awards against such persons pursuant to these indemnification provisions. We believe that the limitation of liability, indemnification and insurance provisions of the IBCL are useful to attract and retain qualified officers, directors, employees and agents. No material litigation or proceeding involving any of our officers, directors, employees or agents is currently pending for which indemnification or advancement of expenses is being sought. 80 The effect of these indemnification provisions is to authorize indemnification for liabilities arising under the Securities Act and the Exchange Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors and controlling persons pursuant to our articles of incorporation, our bylaws, the IBCL or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. LEGAL MATTERS The validity of the shares of common stock offered hereby is being passed upon for us by Carson Boxberger LLP, 1400 One Summit Square, Fort Wayne, Indiana 46802. EXPERTS The audited consolidated financial statements as of December 31, 2004 and for the year then ended have been audited by HJ Associates, our independent accountants. We have included these financial statements in this registration statement in reliance upon the reports of such firm given their authority as experts in accounting and auditing. 81 ABOUT THIS PROSPECTUS This prospectus is part of a registration statement we filed with the United States Securities and Exchange Commission. You should rely only on the information provided in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling security holders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Applicable SEC rules may require us to update this prospectus in the future. This preliminary prospectus is subject to completion prior to this offering. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any report, statement or other information that we file with the SEC at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information on the operation of the Public Reference room by calling the SEC at 1-800-SEC-0330. These SEC filings are also available to the public at the SEC's Internet site at http://www.sec.gov, as well as our Internet site at http://www.carexpresshealth.com. Information contained on our Web site does not constitute part of this prospectus. This prospectus is part of a registration statement that we filed with the SEC. This prospectus and any accompanying prospectus supplement do not contain all of the information included in the registration statement, and certain statements contained in this prospectus and any accompanying prospectus supplement about the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete. For each of these contracts, agreements or documents filed as an exhibit to the registration statement, we refer you to the actual exhibit for a more complete description of the matters involved. In addition, we have omitted certain parts of the registration statement in accordance with the rules and regulations of the SEC. To obtain all of the information that we filed with the SEC in connection herewith, we refer you to the registration statement, including its exhibits and schedules. You should assume that the information contained in this prospectus and any accompanying prospectus supplement is accurate only as of the date appearing on the front of the prospectus or prospectus supplement, respectively. Since our shares of common stock are not currently listed on a national securities exchange or any other established electronic trading system, we are not required to deliver an annual report to our shareholders. While we intend to submit an application to the OTC Bulletin Board immediately after the effective date of the registration statement of which this prospectus is a part, we will not be required to deliver an annual report to our shareholders, even if our shares of common stock are approved for listing on the OTC Bulletin Board. However, we intend to provide an annual report to our shareholders containing audited financial statements in connection with the annual meeting of shareholders that we intend to hold following the completion of our fiscal year ended December 31, 2005. 82 C O N T E N T S Report of Independent Registered Public Accounting Firm..................... F-2 Consolidated Balance Sheet at December 31, 2004............................. F-3 Consolidated Statements of Operations For the Years Ended December 31, 2004 and 2003................................................ F-4 Consolidated Statements of Stockholders, Equity For the Years Ended December 31, 2004 and 2003................................................ F-5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2004 and 2003................................................ F-6 Notes to the Consolidated Financial Statements - December 31, 2004 and 2003 F-8 Consolidated Balance Sheet at June 30, 2005 (Unaudited).....................F-22 Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)..................................F-24 Consolidated Statements of Stockholders' Equity For the Six Months Ended June 30, 2005 (Unaudited)...........................................F-25 Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (Unaudited)..................................F-26 Notes to the Consolidated Financial Statements - June 30, 2005..............F-27 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM National Health Partners, Inc. and Subsidiary Board of Directors Horsham, Pennsylvania We have audited the accompanying consolidated balance sheet of National Health Partners, Inc. and Subsidiary as of December 31, 2004 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2004 and 2003. 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 audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). 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 consolidated 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 audits provide 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 National Health Partners, Inc. and Subsidiary as of December 31, 2004 and the results of their operations and their cash flows for the years ended December 31, 2004 and 2003 in conformity with United States generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the consolidated financial statements, the Company's recurring losses and cash used by operations raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 6. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. HJ & Associates, LLC Salt Lake City, Utah February 9, 2005 F-2 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Balance Sheet ASSETS December 31, 2004 ------------ CURRENT ASSETS Cash $ 421,915 ----------- Total Current Assets 421,915 ----------- FIXED ASSETS, NET (Note 2) 142,454 ----------- OTHER ASSETS Deposits 19,000 ----------- Total Other Assets 19,000 ----------- TOTAL ASSETS $ 583,369 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 41,649 Accrued expenses (Note 3) 75,955 Notes payable (Note 4) 57,251 Deferred revenue (Note 1) 7,093 ----------- Total Current Liabilities 181,948 ----------- LONG TERM LIABILITIES Notes payable 23,742 ----------- Total Long Term Liabilities 23,742 ----------- Total Liabilities 205,690 ----------- COMMITMENTS AND CONTINGENCIES (NOTE 5) STOCKHOLDERS' EQUITY Common stock, $0.001, 100,000,000 shares authorized, 9,636,200 shares issued and outstanding 9,637 Additional paid in capital 3,727,874 Stock subscriptions payable 14,650 Accumulated deficit (3,374,482) ----------- Total Stockholders' Equity 377,679 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 583,369 =========== The accompanying notes are an integral part of these consolidated financial statements. F-3 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Operations For the Years Ended December 31, --------------------------- 2004 2003 ----------- ---------- REVENUE $ 27,929 $ 50,371 COST OF SALES 237,186 96,953 ----------- ---------- Gross Deficit (209,257) (46,582) ----------- ---------- EXPENSES Professional fees 1,178,898 - Rent expense 119,906 52,169 Advertising expense 170,377 - Salary expense 449,613 68,403 Depreciation expense 3,293 - General and administrative 368,062 78,598 ----------- ---------- Total Expenses 2,290,149 199,170 ----------- ---------- Loss from Operations (2,499,406) (245,752) ----------- ---------- OTHER (EXPENSE) Loss on extinguishment of debt (83,388) - Interest expense (7,106) (20,422) ----------- ---------- Total Other (Expense) (90,494) (20,422) ----------- ---------- NET LOSS $(2,589,900) $ (266,174) =========== ========== BASIC LOSS PER SHARE $ (0.42) $ (0.16) =========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,233,471 1,687,500 =========== ========== The accompanying notes are an integral part of these consolidated financial statements. F-4 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity
Common Stock Additional ---------------------- Paid in Accumulated Shares Amount Capital Deficit --------- --------- ------------ ------------- Balance, December 31, 2002 1,687,500 $ 1,687 $ 14,568 $ (518,408) Net loss for the year ended December 31, 2003 - - - (266,174) --------- --------- ------------ ------------- Balance, December 31, 2003 1,687,500 1,687 14,568 (784,582) Common stock issued for extinguishments of debt at an average price of $0.46 per share 618,200 618 283,512 - Common stock issued for services at an average price of $0.50 per share 2,098,250 2,099 1,047,027 - Units issued for cash at an average price of $0.47 per unit 5,232,250 5,233 2,382,767 - Net loss for the year ended December 31, 2004 - - - (2,589,900) --------- --------- ------------ ------------- Balance, December 31, 2004 9,636,200 $ 9,637 $ 3,727,874 $ (3,374,482) ========= ========= ============ =============
The accompanying notes are an integral part of these consolidated financial statements. F-5 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows
For the Years Ended December 31, -------------------------------- 2004 2003 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,589,900) $ (266,174) Adjustments to reconcile net loss to net cash used by operating activities: Common stock issued for services 1,049,126 - Depreciation expense 19,502 - Loss on extinguishments of debt 83,393 - Changes in operating assets and liabilities: Increase in deposits (15,000) - Increase (decrease) in deferred revenue 7,093 (1,162) Increase in interest payable (23,529) 20,272 Increase (decrease) in accounts payable - related party (16,350) 30,893 Increase (decrease) in accounts payable and accrued expenses (137,210) 85,651 ------------ ----------- Net Cash Used by Operating Activities (1,622,875) (130,520) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets and website costs (161,956) - ------------ ----------- Net Cash Used by Investing Activities (161,956) - ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in cash overdraft (840) 840 Proceeds from notes payable 11,000 116,711 Payments on notes payable (196,234) - Payments on notes payable - related party (10,000) (3,000) Proceeds from common stock and subscription payable 2,402,650 - ------------ ----------- Net Cash Provided by Financing Activities 2,206,576 114,551 ------------ ----------- NET INCREASE (DECREASE) IN CASH 421,745 (15,969) CASH AT BEGINNING OF YEAR 170 16,139 ------------ ----------- CASH AT END OF YEAR $ 421,915 $ 170 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, ------------------------ 2004 2003 ----------- --------- CASH PAID DURING THE PERIOD FOR: Interest $ - $ - Income taxes $ - $ - SCHEDULE OF NON CASH FINANCING ACTIVITIES Common stock issued for services $ 1,049,126 $ - Common stock issued for extinguishment of debt $ 284,130 $ - The accompanying notes are an integral part of these consolidated financial statements. F-7 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION This summary of significant accounting policies of National Health Partners, Inc. is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. a. Organization and Business Activities National Health Partners, Inc. (Hereinafter referred to as the Company) was organized on March 10, 1989, under the laws of the State of Indiana. The Company was incorporated under the name of Spectrum Vision Systems of Indiana, Inc. on March 13, 2001, the Company changed its name to National Health Partners, Inc. On December 15, 2004, National Health Brokerage Group, Inc (Brokerage) was organized as a wholly owned subsidiary of National Health Partners, Inc. The Company is a national healthcare savings organization that designs and offers discount healthcare membership programs to uninsured and underinsured individuals through a national healthcare savings network called "CARExpress." CARExpress is a sophisticated network of hospitals, doctors, dentists, pharmacists and other healthcare providers comprised of an aggregate of over 1,000,000 medical professionals nationwide that have agreed to render their services and products to CARExpress members at substantially discounted prices. The Company's discount health membership programs provide a low-cost, non-insurance alternative to individuals who are seeking to reduce their out-of-pocket healthcare costs not covered by insurance or who are unable to obtain healthcare insurance due to their medical history, age or occupation. For a monthly fee, CARExpress members obtain discounts that are typically between 10% and 50% percent off the retail price of participating healthcare provider products and services. CARExpress enables its members to engage in point-of-service transactions directly with participating healthcare providers and receive the agreed-upon discounts. The Company's membership programs encompass all aspects of healthcare, including physicians, hospitals, ancillary services, dentists, prescription drugs, vision care, hearing aids, chiropractic and alternative care, 24-hour nurse line, medical supplies and equipment, and long-term care facilities, and consist of a comprehensive care program, a supplemental care program, a preferred program, a dental and vision care program, and a prescription and vision care program. The Company markets its programs directly through infomercials, newspapers, publications and its website, and indirectly through independent marketing representatives, brokers and agents, retail chains and outlets, small businesses and trade associates, and unions and associations. The Company derives almost all of its revenue from the monthly membership fees it receives from members of its membership programs. It also receives commissions from the sale of its membership programs that are sold in combination with third-party insurance products. F-8 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) a. Organization and Business Activities (Continued) The Company does not contract directly with any physicians, dentists, hearing care specialists, eye care specialists or other healthcare providers. Instead, it contracts with PPOs and other provider networks, or their affiliates, for access to the discounted rates they have negotiated with their healthcare providers. The principal suppliers of the healthcare providers that comprise CARExpress are PPONext, International Med-Care, CareMark, Cigna, Optum and Careington International. The Company selects and utilizes only those provider networks that it believes can deliver adequate savings to its members while providing adequate support for its CARExpress membership programs with the healthcare providers. The Company typically pays a per member per month fee for use of a provider network which is determined in part based on the number of providers participating in the network, the number of CARExpress members accessing the network, and the particular products and services utilized by the CARExpress members. The agreements through which the Company has contracted for access to the PPO or other provider networks are generally for a term of between one and two years, may be terminated by either party on between 45 and 180 days' prior written notice, and renew automatically for additional terms unless so terminated. Most of these agreements are not exclusive, and most contain provisions maintaining the confidentiality of the terms of the agreement. b. Accounting Method The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end. c. Cash and Cash Equivalents For the purpose of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. d. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. e. Basic Loss Per Share The computation of basic loss per share of common stock is based on the weighted average number of shares of common stock outstanding during the periods presented. The Company, because of its net loss, has excluded 10,724,791, and -0- common stock equivalents for the years ended December 31, 2004 and 2003, respectively because they are anti-dilutive in nature. F-9 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) e. Basic Loss Per Share (Continued) For the Years Ended December 31, ------------------------------ 2004 2003 ------------ ------------ Loss $ (2,589,900) $ (266,174) Shares 6,233,471 1,687,500 ------------ ------------ Per Share Amount $ (0.42) $ (0.16) ============ ============ f. Income Taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Net deferred tax assets consist of the following components as of December 31, 2004 and 2003: December 31, ------------------------------ 2004 2003 ------------ ------------ Deferred tax assets: NOL Carryover $ 862,385 $ 295,800 Deferred tax liabilities: Depreciation (29,630) - Valuation allowance (832,755) (295,800) ------------ ------------ Net deferred tax asset $ - $ - ============ ============ F-10 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) f. Income Taxes (continued) The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2004 and 2003 due to the following: December 31, ------------------------------ 2004 2003 ------------ ------------ Book Income $ (1,000,900) $ (103,850) Meals and Entertainment 22,275 2,750 Loss on Extinguishment of Debt 32,520 - Stock for Services/Options Expense 409,150 - Valuation allowance 536,955 101,100 ------------ ------------ $ - $ - ============ ============ At December 31, 2004, the Company had net operating loss carryforwards of approximately $2,200,000 that may be offset against future taxable income from the year 2004 through 2024. No tax benefit has been reported in the December 31, 2004 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. g. Revenue Recognition The Company provides discount health care memberships. The Company's cost of sales consists of health care provider costs as well as associated payroll, depreciation, and amortization costs. The Company recognizes revenue when 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the price is fixed and determinable, 4) collectibility is reasonably assured. The Company electronically debits customer accounts for the monthly service fees. These fees are typically pre-billed and received, resulting in deferred revenue. At December 31, 2004 there was deferred revenue of $7,093. The Company has experienced minimal refunds. Customers can cancel services at the end of any 30-day period. If a customer calls to cancel services and the credit card has already been processed for the next 30-days, a refund check will be issued. As noted previously, revenue is recognized as services are provided, accordingly if a customer cancels the next months services, no revenue will be recognized. For the years ended December 31, 2004 and 2003, the Company had minimal cancellations or refunds. F-11 NATIONAL HEALTH PARTNERS, INC. AND SUBISIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) h. Newly Issued Accounting Pronouncements During the year ended December 31, 2004, the Company adopted the following accounting pronouncements: On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based Compensation. This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for awards that are granted, modified or settled in cash in interim and annual periods beginning after June 15, 2005. In addition, this new standard will apply to unvested options granted prior to the effective date. We will adopt this new standard effective for the fiscal year ended December 31, 2006, and have not yet determined what impact this standard will have on our financial position or results of operations. In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this Statement will have any immediate material impact on the Company. In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-sharing Transactions, which amends FASB statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this Statement will have no impact on the financial statements of the Company. F-12 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) h. Newly Issued Accounting Pronouncements (Continued) In December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary Assets. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetrary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this Statement will have no impact on the financial statements of the Company. The implementation of the provisions of these pronouncements are not expected to have a significant effect on the Company's consolidated financial statement presentation. i. Advertising and Marketing The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the year ended December 31, 2004 and 2003 was $170,371 and $-, respectively. j. Stock Options As permitted by FASB Statement 148 "Accounting for Stock Based Compensation", the Company elected to measure and record compensation cost relative to employee stock option costs in accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations and make proforma disclosures of net income and earnings per share as if the fair value method of valuing stock options had been applied. Under APB Opinion 25, compensation cost is recognized for stock options granted to employees when the option price is less than the market price of the underlying common stock on the date of grant. F-13 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 1 - NATURE OF ORGANIZATION (Continued) j. Stock Options (Continued) Had compensation cost for the Company's stock options granted to directors and employees been based on the fair value as determined by the Black-Scholes option pricing model at the grant date under the accounting provisions of SFAS No. 123, the Company would have recorded an additional expense of $2,805,985 for the year ended December 31, 2004. Also under these same provisions, the Company's net loss would have been changed by the pro forma amounts indicated below: For the Years Ended December 31, ------------------------------ 2004 2003 ------------ ------------ Net loss: As reported $ (2,589,900) $ (266,174) Pro forma $ (5,395,885) $ (266,174) Basic loss per share: As reported $ (0.42) $ (0.16) Pro forma $ (0.87) $ (0.16) k. Fixed Assets Fixes assets are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful lives of the assets are expensed as incurred. Depreciation expense is calculated on a straight line basis over the useful lives of the fixed assets as follows: Computers 3 years Furniture 5 years Telephone 5 years Website 3 years l. Principles of Consolidation The financial statements include the balances of National Health Partners, Inc. and its wholly owned subsidiary, National Health Brokerage Group, Inc. All material balances have been eliminated in consolidation. F-14 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 2 - FIXED ASSETS Fixed assets consisted of the following at December 31, 2004: Computer equipment $ 22,024 Furniture 7,572 Telephone system 43,153 Website 89,207 Less accumulated depreciation (19,502) ----------- Net Fixed Assets $ 142,454 =========== Depreciation expense for the years ended December 31, 2004 and 2003 was $19,502 and $-, respectively. NOTE 3 - ACCRUED EXPENSES Accrued expenses are amounts due to U.S. Script for services provided to the Company. Balance at December 31, 2004 was $75,955. U.S. Script is not a related party to the Company. U.S. Script had paid some of the Company's accounts payable in 2001 and 2002 and, in conjunction with the note payable (Note 4) has agreed to take payments of $5,000 per month until all amounts are paid in full. U.S. Script has provided no other services to the Company. NOTE 4 - NOTES PAYABLE Note payable to U.S. Script bearing interest at 5.00% per annum requiring monthly payments of $5,000, unsecured. $ 80,993 Less current portion (57,251) ----------- Long term portion $ 23,742 =========== Future maturities of long term debt are as follows: 2005 $ 57,251 2006 23,742 ----------- $ 80,993 =========== F-15 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 5 - COMMITMENTS AND CONTINGENCIES Facility Lease The Company entered into a facility lease on December 1, 2001 which was amended on April 22, 2004. This is a three year lease expiring on May 30, 2007. This lease required a deposit of $19,000. The starting monthly payment, including operating expenses is $12,579 for the first year and increases each subsequent year. Future minimum lease payments under this facility lease are as follows: Facility Lease -------------- Year ended December 31, 2005 $ 154,064 2006 158,356 2007 66,598 ------------ $ 379,018 ============ Equipment Leases On July 8, 2004, the Company entered into an equipment lease for a period of 60 months. The monthly lease payment is $131. Future minimum payments under this operating lease is as follows: Year ended December 31, 2005 $ 1,572 2006 1,572 2007 1,572 2008 1,572 2009 524 ------------ $ 6,812 ============ Employment Agreements The Company has entered into the following employment agreements with the following officers of the Company on August 1, 2004.
Per Year Amount ------------------------------------------------------------- Officer Term 2005 2006 2007 2008 2009 - ----------------------- ------- --------- ---------- ---------- --------- --------- Chief Executive Officer 5 years $ 282,000 $ 310,200 $ 341,220 $ 375,342 $ 240,844 President 5 years $ 282,000 $ 310,200 $ 341,220 $ 375,342 $ 240,844 Chief Financial Officer 3 years $ 188,400 $ 207,240 $ 132,979 $ - $ - Vice President Marketing 5 years $ 162,000 $ 178,000 $ 195,800 $ 215,380 $ 138,202 --------- ---------- ---------- --------- --------- $ 914,400 $1,005,640 $1,011,219 $ 966,064 $ 613,819 ========= ========== ========== ========= =========
Additionally the officers as a combined group are eligible for bonuses of up to 7% of the pretax profit of the Company. F-16 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 6 - GOING CONCERN The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has historically incurred significant losses, which raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Management intends to raise over $1,000,000 in a private placement. The Company has started a marketing campaign through several major chains. The Company has upgraded its computer and phone systems in anticipation of increased business. NOTE 7 - EQUITY TRANSACTIONS Share Issuances On February 17, 2004, the Company entered into an agreement to issue 150,000 shares of common stock for the extinguishment of debt. The shares were valued at $0.50 per share and resulted in an extinguishment of debt of $66,117 and a loss on extinguishment of debt of $8,883. On February 17, 2004, the Company issued 1,748,250 shares of common stock as an incentive for employment to the Chief Executive Officer. The shares valued at $0.50 per share for total consideration of $874,125 and are included in professional fees. On February 17, 2004, the Company issued 100,000 shares of common stock for consulting services. The shares were valued at $0.50 per share for total consideration of $50,000. On March 4, 2004, the Company issued 95,300 shares of common stock to the Company's CFO for unpaid consulting fees. The shares were valued at $0.50 per share and resulted in the extinguishment of $35,940 of debt. The loss on extinguishment of debt of $11,710 was debited to additional paid in capital because of the related party nature of the stock issuance. On March 4, 2004, the Company issued 107,600 shares of common stock to a related party for unpaid consulting fees. The shares were valued at $0.50 per share and resulted in the extinguishment of $40,540 of debt. The loss on extinguishment of debt of $13,260 was debited to additional paid in capital because of the related party nature of the stock issuance. On March 4, 2004, the Company issued 175,000 shares of common stock for unpaid consulting fees. The shares were valued at $0.50 per share and resulted in the extinguishment of $22,294 of debt and a loss on extinguishment of debt of $65,206. F-17 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 7 - EQUITY TRANSACTIONS (Continued) Share Issuances (Continued) On March 19, 2004, the Company issued 100,000 shares of common stock for services. The shares were valued at $0.50 per share for total consideration of $50,000. On March 31, 2004, the Company entered into an agreement to issue 59,600 share of common stock and pay $10,000 as a partial payment on an outstanding loan. The shares were valued at $0.50 per share and resulted in an extinguishment of debt of $25,960 and a loss on extinguishment of debt of $3,840. On March 31, 2004, the Company entered into an agreement to issue 5,200 shares of common stock for the extinguishment of debt. The shares were valued at $0.50 per share and resulted in the extinguisment of debt of $2,104 and a loss on extinguishment of debt of $496. On March 31, 2004, the Company entered into an agreement to issue 25,500 shares of common stock for the extinguishment of debt. The shares were valued at $0.50 per share and resulted in the extinguisment of debt of $7,782 and a loss on extinguishment of debt of $4,963. On March 31, 2004 the Company issued 50,000 shares of common stock for services rendered. The shares were valued at $0.50 per share for total consideration of $25,000. On August 24, 2004, the Company issued 100,000 shares of common stock as payment for legal services. The shares were valued at $0.50 per share for total consideration of $50,000. Private Placements On February 18, 2004, the Company approved a private placement to issue up to 5,000,000 shares of common stock at $0.50 per share. The Company will issue 7,500,000 units at $1.00 each. Each unit will consist of 2 shares of common stock, 1 Class A Warrant, 1 Class B Warrant. Each warrant gives the holder the right to purchase 1 share of common stock up to 2,500,000 shares for Class A Warrants and 2,500,000 shares for Class B Warrants. The Company issued 2,777,000 shares of common stock and received $1,388,500 during the period of February 18, 2004 through August 17, 2004. On May 2004, the Company approved a private placement to issue up to 5,000,000 shares of common stock at $0.50 per share. The Company will issue 7,500,000 units at $1.00 each. Each unit will consist of 2 shares of common stock, 1 Class A Warrant, 1 Class B Warrant. Each warrant give the holder the right to purchase 1 share of common stock up to 2,500,000 shares for Class A Warrants and 2,500,000 shares for Class B Warrants. The Company issued 174,000 shares of common stock and received $87,000 during the period from August 30, 2004 to September 8, 2004. F-18 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 7 - EQUITY TRANSACTIONS (Continued) Private Placements (Continued) In September 2004, the Company approved a private placement to issue up to 9,000,000 shares of common stock and 3,000,000 Class A warrants as well as 3,000,000 Class B warrants. The shares and warrants were to be sold in units comprised of 3 shares of common stock, 1 Class A warrant and 1 Class B warrant for $1.20 per unit. The Company issued 2,281, 250 shares of common stock and received $912,500 of cash during the period from September 30, 2004 to December 13, 2004. All Class A warrants issued in these three private placements have an exercise price of $1.00 per share, are exercisable for a period of 180 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. All Class B warrants issued in these three private placements have an exercise price of $2.00 per share, are exercisable for a period of 360 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. The Company granted registration rights in these three private placements covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. Amendments to Articles of Incorporation On February 17, 2004, the Company approved a forward stock split of 3,375 to 1. At the same time, the Company amended its Articles of Incorporation to increase the number of authorized shares from 1,000 no par common stock to 10,000,000 no par common stock. On June 30, 2004 the Company amended its Articles of Incorporation to reflect a par value of $0.001 per share and increase the number of authorized shares to 100,000,000. All references to common stock have been retroactively restated. NOTE 8 - STOCK OPTIONS On September 28, 2004, the Company granted 7,000,000 options to officers and directors of the Company. All of the options are exercisable at $0.40 per share, vest immediately and expire on September 28, 2014. On December 23, 2004, the Company granted 15,000 options to employees of the Company. All of the options are exercisable at $0.40 per share, vest immediately and expire on December 23, 2007. Under FASB Statement 148, the Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants, respectively; dividend yield of zero percent for all years; expected volatility of 359%; risk-free interest rates of 3.5 percent and expected lives of 9.75 years, for the year ended December 31, 2004. F-19 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 8 - STOCK OPTIONS (Continued) A summary of the status of the Company's stock option as of December 31, 2004:
2004 ----------------------------- Weighted Average Exercise Shares Price ------------ --------- Outstanding, beginning of year - $ - Granted 7,015,000 0.40 Exercised - - ------------ --------- Outstanding, end of year 7,015,000 $ 0.40 ------------ --------- Exercisable, end of year 7,015,000 $ 0.40 ------------ --------- Outstanding ----------------------------------------------- Weighted Average Weighted Number Remaining Average Range of Outstanding Contractual Exercise Exercise Prices at 12/31/04 Life Price --------------- ----------- ------------ --------- 0.40 7,015,000 9.95 0.40 =========== ============ =========
NOTE 9 - RELATED PARTY TRANSACTIONS During the years ended December 31, 2004 and 2003, related parties were paid $10,000 and $3,000 in cash as payments on notes payable. See also Note 7 for related party equity transactions. NOTE 10 - SUBSEQUENT EVENTS On January 27, 2005 the Board of Directors passed a resolution to conduct a private offering of securities to the participants in the February and August Offerings pursuant to which the Company will issue to each participant that number of additional shares of Common Stock, Class A Warrants and Class B Warrants that is equal to twenty-five percent of the number of shares of Common Stock, Class A Warrants and Class B Warrants purchased by the participants in the February and August Offerings as consideration for the participants agreeing to the amendment of the Offering Documents. On January 31, 2005 a letter of termination was sent to Ronald B. King. On January 31, 2005 a letter of termination was sent to R. Dennis Bowers. Shareholders voted to replace King and Bowers as Directors with outside shareholders Steve Adelstein and Keith Shelly. F-20 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements December 31, 2004 and 2003 NOTE 10 - SUBSEQUENT EVENTS (Continued) On February 2, 2005 a Board of Directors meeting was held and Steve Adelstein was unanimously elected Chairman and David Daniels was elected Chief Executive Officer and President. An additional $40,000 has been raised as part of the Private Placement authorized in September 2004. F-21 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Balance Sheet June 30, 2005 ASSETS June 30, 2005 ------------ (Unaudited) CURRENT ASSETS Cash $ 440,482 Certificate of deposit 35,000 Note receivable 25,000 Securities and investments 177,163 Other current assets 20,040 ------------ Total Current Assets 697,685 ------------ FIXED ASSETS, NET (Note 2) 141,088 ------------ OTHER ASSETS Deposits 19,000 ------------ Total Other Assets 19,000 ------------ TOTAL ASSETS $ 857,773 ============ The accompanying notes are an integral part of these consolidated financial statements F-22 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Balance Sheet (Continued) June 30, 2005 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) June 30, 2005 ------------ (Unaudited) CURRENT LIABILITIES Accounts payable $ 11,285 Accrued expenses 76,265 Notes payable (Note 3) 33,974 Deferred revenue 3,472 ------------ Total Current Liabilities 124,996 ------------ LONG TERM LIABILITIES Notes payable 23,742 ------------ Total Long Term Liabilities 23,742 ------------ Total Liabilities 148,738 ------------ COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.001, 100,000,000 shares authorized, 17,054,200 shares issued and outstanding 17,054 Additional paid in capital 7,631,966 Stock subscriptions receivable (319,702) Deferred consulting expense (Note 4) (1,902,351) Accumulated deficit (4,717,932) ------------ Total Stockholders' Equity (Deficit) 709,035 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 857,773 ============ The accompanying notes are an integral part of these consolidated financial statements. F-23 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Operations June 30, 2005 (Unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2005 2004 2005 2004 ------------ ----------- ------------ ----------- REVENUE $ 16,997 $ 12,108 $ 35,376 $ 20,592 COST OF SALES 45,673 67,532 98,161 83,980 ------------ ----------- ------------ ----------- Gross Deficit (28,676) (55,424) (62,785) (63,388) ------------ ----------- ------------ ----------- EXPENSES Professional fees 438,911 64,601 554,100 105,558 Rent expense 23,789 25,442 74,702 44,430 Salary expense 203,036 113,100 407,752 143,944 Depreciation expense 1,693 438 2,989 438 General and administrative 124,177 169,421 221,251 170,390 ------------ ----------- ------------ ----------- Total Expenses 791,606 373,002 1,260,794 464,760 ------------ ----------- ------------ ----------- Loss From Operations (820,282) (428,426) (1,323,579) (528,148) ------------ ----------- ------------ ----------- OTHER (EXPENSE) Interest expense (785) (913) (1,722) (4,271) Other expense (18,149) - (18,149) - ------------ ----------- ------------ ----------- Total Other (Expense) (18,934) (913) (19,871) (4,271) ------------ ----------- ------------ ----------- NET LOSS $ (839,216) $ (429,339) $ (1,343,450) $ (532,419) ------------ ----------- ------------ ----------- BASIC LOSS PER SHARE $ (0.06) $ (0.07) $ (0.11) $ (0.12) ============ =========== ============ =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 13,174,236 5,912,818 11,696,858 4,443,368 ============ =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-24 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Equity June 30, 2005 (Unaudited)
Common Stock Additional Stock Deferred ----------------------- Paid in Subscription Consulting Accumulated Shares Amount Capital Receivable Expense Deficit ---------- ----------- -------------- ------------- ------------- -------------- Balance, December 31, 2004 9,636,200 $ 9,636 $ 3,727,874 $ - $ - $ (3,374,482) Common stock issued for cash at an average price of $0.40 per share (unaudited) 2,293,250 2,293 915,007 - - - Common stock issued to amend prior issuance to $0.40 per share (unaudited) 737,750 738 (738) - - - Common stock issued for stock swap 1,800,000 1,800 718,200 (319,702) - - Common stock issued for consulting agreements at $0.40 per share (unaudited) 2,587,000 2,587 1,032,214 - (840,000) - Fair value of warrants granted with consulting agreements (unaudited) - - 1,239,409 - (1,062,351) - Net loss for the six months ended June 30, 2005 (unaudited) - - - - - (1,343,450) ---------- ----------- -------------- ------------- ------------- -------------- Balance, June 30, 2005 (unaudited) 17,054,200 $ 17,054 $ 7,631,966 $ (319,702) $ (1,902,351) $ (4,717,932) ========== =========== ============== ============= ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. F-25 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows June 30, 2005 (Unaudited)
For the Six Months Ended June 30, -------------------------------- 2005 2004 ------------- ------------ CASH FLOW FROM OPERATING ACTIVITIES Net loss $ (1,343,450) $ (532,419) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 24,725 2,717 Common stock issued for services 194,800 - Fair value of warrants expensed 177,058 - Changes in operating assets and liabilities: Increase in other current assets (20,040) (77,382) Increase in certificate deposits (35,000) - Increase (decrease) in deferred revenue (3,621) - Increase (decrease) in accounts payable and accrued expenses (30,054) (291,772) ------------- ------------ Net Cash Used by Operating Activities (1,035,582) (898,856) ------------- ------------ CASH FLOW FROM INVESTING ACTIVITIES Note receivable (25,000) - Purchase of fixed assets and website costs (23,359) (67,074) ------------- ------------ Net Cash Used by Investing Activities (48,359) (67,074) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in cash overdraft - (840) Payments on notes payable (23,278) (210,128) Payments on notes payable - related party - (53,980) Proceeds from common stock and subscription payable 902,651 1,462,062 Proceeds from sale of securities 223,135 - ------------- ------------ Net Cash Provided (Used) by Financing Activities 1,102,508 (1,197,114) ------------- ------------ NET INCREASE (DECREASE) IN CASH 18,567 (231,184) CASH AT BEGINNING OF PERIOD 421,915 170 ------------- ------------ CASH AT END OF PERIOD $ 440,482 $ 231,352 ============= ============ CASH PAID DURING THE PERIOD FOR: Interest $ 1,722 $ 6,551 Income tax $ - $ - SCHEDULE OF NON CASH FINANCING ACTIVITIES Common stock issued for services $ 194,800 Common stock issued for deferred consulting expense $ 840,000 Fair value of warrants granted for consulting agreements $ 1,239,409
The accompanying notes are an integral part of these consolidated financial statements. F-26 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION a. Summary of Significant Accounting Policies The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim financial statements include normal recurring adjustment and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto. Operating results for the three months ended June 30, 2005 and six months ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. Certain amounts have been reclassified to conform with current period presentation. b. Revenue Recognition The Company provides discount health care memberships. The Company's cost of sales consists of health care provider network costs as well as associated payroll, depreciation, and amortization costs. The Company recognizes revenue when 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the price is fixed and determinable, and 4) collectibility is reasonably assured. The Company electronically debits customer accounts for the monthly membership fees. These fees are typically pre-billed and received, resulting in deferred revenue. As of June 30, 2005 there was deferred revenue of $3,472. The Company has a 12-day free trial at the cost of shipping and handling only. Because of the free 12-day trial associated with some new memberships the Company does not recognize membership revenue until the trial term expires. At that point the Company will recognize the revenue over the period of the services. A member can cancel services at the end of any 30-day period. If a customer calls to cancel a membership and their credit card has already been processed for the next 30-day period, a refund check will be issued. As noted previously, revenue is recognized as services are provided. Accordingly, if a customer cancels the next month's membership, no revenue will be recognized. F-27 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 2 - FIXED ASSETS Fixed assets consisted of the following at June 30, 2005: Computer equipment $ 32,524 Furniture 11,322 Telephone System 52,262 Website 89,207 Less accumulated depreciation (44,227) ----------- Net Fixed Assets $ 141,088 =========== Depreciation expense for the six months ended June 30, 2005 and 2004 was $24,725 and $2,727, respectively. NOTE 3 - NOTES PAYABLE Note payable to U. S. Script bearing interest at 5.00% per annum requiring monthly payments of $5,000, unsecured. $ 57,716 Less current portion (33,974) ----------- Long term portion $ 23,742 =========== Future maturities of long term debt are as follows: 2005 $ 33,974 2006 23,742 ----------- $ 57,716 =========== NOTE 4 - COMMITMENTS AND CONTINGENCIES PA Facility Lease The Company entered into a facility lease on December 1, 2001, which was amended on April 22, 2004. This is a three-year lease expiring May 30, 2007. This lease required a deposit of $19,000. The starting monthly payment, including operating expenses is $12,579 for the first year and increases each subsequent year. Future minimum lease payments under this facility lease are as follows: PA Facility Lease ----------------- Year ended December 31, 2005 $ 78,143 2006 158,356 2007 66,598 ----------- Total $ 303,097 =========== F-28 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued) FL Facility Lease The Company entered into a FL facility lease on July 1, 2005. This lease is a five-year lease expiring on June 30, 2010. This lease requires an $18,000 security deposit to be paid on October 1, 2005. The starting monthly payment, including parking and Florida tax is $8,186. Future minimum lease payments under this facility lease are as follows: FL Facility Lease ----------------- Year ended December 31, 2005 $ 49,116 2006 100,197 2007 104,205 2008 108,373 2009 112,708 2010 59,757 ----------- Total $ 534,356 =========== Equipment Leases Only July 8, 2004, the Company entered into an equipment lease for a period of 60 months. The monthly lease payment is $131. Future minimum payments under this operating lease are as follows: Year ended December 31, 2005 $ 1,572 2006 1,572 2007 1,572 2008 1,572 2009 524 ----------- Total $ 6,812 =========== F-29 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued) Employment Agreements The Company had entered into employment agreements with the officers of the Company on September 28, 2004. These contracts were cancelled and new contracts entered into effective February 1, 2005.
Per Year Amount --------------------------------------------------------------------------- Officer Term 2005 2006 2007 2008 2009 2010 - --------------- ---- --------- --------- --------- --------- ---------- -------- Chief Executive Officer 5 yr. $ 211,750 $ 254,100 $ 279,510 $ 307,461 $ 338,207 $ 31,002 Chief Financial Officer 3 yr. $ 145,400 $ 174,240 $ 191,664 $ 17,569 $ - $ - VP Marketing 5 yr. $ 121,100 $ 145,200 $ 159,720 $ 175,692 $ 193,261 $ 17,716 --------- --------- --------- --------- ---------- -------- Total $ 478,150 $ 573,540 $ 630,894 $ 500,722 $ 531,468 $ 48,718 ========= ========= ========= ========= ========== ========
Additionally the officers as a combined group are eligible for bonuses at the discretion of the board of directors. F-30 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued) In May and June 2005, the Company entered into several consulting agreements, whereby the consultants would provide marketing and advisory services to the Company on an as requested basis during the term of the agreement. With the exception of one agreement, which has been performed in full, the agreements terminate on December 30, 2005 unless extended by mutual agreement of the parties.
Common Total Deferred Stock Shares Consulting Accumulated Consulting Name Price Issued Expense Amortization Expense - ---------------------- ------- --------- ---------- ------------ ---------- Lozano, Jose $ 0.40 600,000 $ 240,000 $ 34,286 $ 205,714 Park Financial 0.40 100,000 40,000 40,000 - Park Financial 0.40 37,000 14,800 14,800 - Elsid IV Corp. 0.40 480,000 192,000 27,429 164,571 FDRL Corp. 0.40 60,000 24,000 3,429 20,571 GE Global 0.40 350,000 140,000 20,000 120,000 Giese, Ben 0.40 150,000 60,000 8,571 51,429 Ortega, Rene 0.40 30,000 12,000 1,714 10,286 Schoenbaichler, Ernst 0.40 175,000 70,000 10,000 60,000 Schulte, Hans 0.40 100,000 40,000 5,714 34,286 Shelly, Keith 0.40 300,000 120,000 17,143 102,857 Tiplitsky, Stuart 0.40 25,000 10,000 1,429 8,571 Verhunce, Michael 0.40 180,000 72,000 10,286 61,714 ------ --------- --------- ---------- ---------- Total 2,587,000 1,034,800 194,800 840,000 ========= ========= ========== ========== Series A Warrants ---------------------------- Fair Value Deferred Exercise Per Shares Total Accumulated Consulting Name Price Share Granted Fair Value Amortization Expense - -------------- -------- ------- -------- ---------- ------------ ----------- Lozano, Jose $ 0.60 $ 0.40 600,000 $ 239,928 $ 34,275 $ 205,653 Park Financial 0.60 0.40 100,000 39,988 5,713 34,275 Park Financial 0.60 0.40 37,000 14,796 2,114 12,682 ------- ---------- -------- ---------- Total 737,000 $ 294,712 $ 42,102 $ 252,610 ======= ========== ======== ========== Series B Warrants ---------------------------- Fair Value Deferred Exercise Per Shares Total Accumulated Consulting Name Price Share Granted Fair Value Amortization Expense - -------------- -------- ------- -------- ---------- ------------ ----------- Lozano, Jose $ 0.80 $ 0.40 600,000 $ 239,917 $ 34,274 $ 205,643 Park Financial 0.80 0.40 100,000 39,986 5,712 34,274 Park Financial 0.80 0.40 37,000 14,795 2,114 12,681 ------- ---------- -------- ---------- Total 737,000 $ 294,698 $ 42,100 $ 252,598 ======= ========== ======== ==========
F-31 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
Series C Warrants ---------------------------- Fair Value Deferred Exercise Per Shares Total Accumulated Consulting Name Price Share Granted Fair Value Amortization Expense - -------------- -------- ------- -------- ---------- ------------ ----------- Elsid IV Corp. $ 0.60 $ 0.40 300,000 $ 120,000 $ 17,143 $ 102,857 FDRL Corp. 0.60 0.40 60,000 24,000 3,429 20,571 GE Global 0.60 0.40 175,000 70,000 10,000 60,000 Giese, Ben 0.60 0.40 150,000 60,000 8,571 51,429 Hill, Walter 0.60 0.40 50,000 20,000 2,857 17,143 Hillier, Bob 0.60 0.40 50,000 20,000 2,857 17,143 Ortega, Rene 0.60 0.40 30,000 12,000 1,714 10,286 Schoenbaichler, Ernst 0.60 0.40 175,000 70,000 10,000 60,000 Schulte, Hans 0.60 0.40 50,000 20,000 2,857 17,143 Shelly, Keith 0.60 0.40 150,000 60,000 8,571 51,429 Tiplitsky, Stuart 0.60 0.40 25,000 10,000 1,429 8,571 Verhunce, Michael 0.60 0.40 180,000 72,000 10,286 61,714 Cleland, Charles Jr. 0.60 0.40 30,000 12,000 1,714 10,286 Farrow, Eric A. 0.60 0.40 200,000 80,000 11,429 68,571 --------- ---------- -------- ---------- Total 1,625,000 $ 650,000 $ 92,857 $ 557,143 ========= ========== ======== ==========
NOTE 5 - EQUITY TRANSACTIONS Share Issuances Between January and April 2005, the Company issued 167,500 shares of common stock for $67,000 or $0.40 per share. The shares were issued pursuant to the private placement approved in September 2004. The shares were sold in units consisting of 3 shares of common stock, 1 Class A warrant and 1 Class B warrant for $1.20 per unit. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $1.00 per share, are exercisable for a period of 180 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. All Class B warrants have an exercise price of $2.00 per share, are exercisable for a period of 360 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. The Company granted registration rights covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. F-32 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 5 - EQUITY TRANSACTIONS (Continued) Share Issuances (Continued) In March 2005, the Company issued 737,750 shares of common stock to previous investors participating in the private placements approved in February and May 2004 in consideration for the investors agreeing to amendments to their offering documents. The shares were issued pursuant to a private placement approved in January 2005. No value was ascribed to the shares because no additional cash or services were received by the Company. The shares were sold in units consisting of 2 shares of common stock, 1 Class A warrant and 1 Class B warrant. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $1.00 per share, are exercisable for a period of 180 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. All Class B warrants have an exercise price of $2.00 per share, are exercisable for a period of 360 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on November 30, 2006. The Company granted registration rights covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. In April 2005, the Company issued 1,800,000 shares to an investor in exchange for 2,740,000 shares of Infinium Labs, Inc. then valued at $720,000. The shares were sold in units consisting of 3 shares of common stock, 3 Class A warrants and 3 Class B warrants for $1.20 per unit. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $.60 per share, are exercisable for a period of 18 months commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2007. All Class B warrants have an exercise price of $.80 per share, are exercisable for a period of three years commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2008. The Company granted registration rights covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. If the proceeds from the sale of the Infinium shares do not equal $720,000, then the investor is required to make up the difference in either additional Infinium stock or cash. If the proceeds exceed $720,000, then the Company is required to return to the investor any excess proceeds over $720,000. As of June 30, 2005, the Company has received $221,039 from the sale of Infinium shares. F-33 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 5 - EQUITY TRANSACTIONS (Continued) Share Issuances (Continued) Between April and May 2005, the Company issued 635,750 shares of common stock for $254,300 or $.40 per share. These shares were issued pursuant to a private placement approved in April 2005. The shares were sold in units consisting of 3 shares of common stock, 1 Class A warrant and 1 Class B warrant for $1.20 per unit. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $.60 per share, are exercisable for a period of 18 months commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2007. All Class B warrants have an exercise price of $.80 per share, are exercisable for a period of three years commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2008. The Company granted registration rights covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. Between May and June 2005, the Company issued 1,490,000 shares of common stock for $596,000 or $.40 per share. These shares were issued pursuant to a private placement approved in May 2005. These shares were issued pursuant to a private placement approved in April 2005. The shares were sold in units consisting of 3 shares of common stock, 3 Class A warrants and 3 Class B warrants for $1.20 per unit. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $.60 per share, are exercisable for a period of 18 months commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2007. All Class B warrants have an exercise price of $.80 per share, are exercisable for a period of three years commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2008. The Company granted registration rights covering fifty percent of all shares issued and fifty percent of all shares underlying the Class A warrants and Class B warrants. In June the Company issued 2,587,000 shares of common stock, Class A warrants to acquire 737,000 shares, Class B warrants to acquire 737,000 shares, and Class C warrants to acquire 1,625,000 shares to consultants for services per several consulting agreements. Each warrant gives the holder the right to purchase 1 share of common stock. All Class A warrants have an exercise price of $.60 per share, are exercisable for a period of 18 months commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2007. All Class B warrants have an exercise price of $.80 per share, are exercisable for a period of three years commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2008. All Class C warrants have an exercise price of $.60 per share, are exercisable for a period of 180 days commencing on the effective date of a registration statement covering certain of the shares underlying the warrants, and expire on December 31, 2006. The Company granted registration rights covering one hundred percent of the shares issued and one hundred percent of the shares underlying the Class A warrants and Class B warrants with respect to an aggregate of 1,800,000 shares of common stock, and fifty percent of the shares issued and fifty percent of all shares underlying the Class A warrants, Class B warrants and Class C warrants with respect to an aggregate of 3,886,000 shares of common stock. F-34 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 6 - STOCK OPTIONS Under FASB Statement 148, the Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants, respectively; dividend yield of zero percent for all years; expected volatility of 298%; risk-free interest rates of 3.5 percent and expected lives of 9.18 years, for the period ended June 30, 2005. Effective February 1, 2005, the Company cancelled 7,000,000 options which had been granted to officers and directors of the Company. The Company granted 4,500,000 options as part of the new employment agreements. The options are exercisable at $0.40 per option and vest as follows: 25% immediately and 25% per year for the next 3 years. The options have a term of ten years from the grant date. On May 1, 2005, the Company granted an option to acquire 150,000 shares of common stock to a new employee of the Company. The option has an exercise price of $.40 per share and vested in full on the date of grant. The option has a term of five years. On June 29, 2005, the Company granted an option to acquire 350,000 shares of common stock to each of two of its directors. The options have an exercise price of $.40 per share and vest as follows: 100,000 shares on the date of grant and 250,000 shares on the first anniversary of the date of grant if the director is a member of the board of directors on the first anniversary of the date of grant and the director has been a member of the board of directors continuously during the period commencing on the date of grant and ending on the first anniversary of the date of grant. The options have a term of five years. Had compensation cost for the Company's stock options granted to directors and employees been based on the fair value as determined by the Black-Scholes option pricing model at the grant date under the accounting provisions of SFAS No. 123, the Company would have recorded an additional expense of $595,950 for the six months ended June 30, 2005. Also under these same provisions, the Company's net loss would have been changed to the pro forma amounts indicated below: For the Six Months Ended June 30, --------------------------------- 2005 2004 ------------- ----------- Net loss: As reported $ (1,343,450) $ (532,419) Pro forma $ (1,934,450) $ (532,419) Basic loss per share: As reported $ (0.11) $ (0.12) Pro forma $ (0.17) $ (0.12) F-35 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 6 - STOCK OPTIONS (Continued) A summary of the status of the Company's stock options as of June 30, 2005:
2005 ----------------------------- Weighted Average Exercise Shares Price ------------ --------- Outstanding, beginning of period 7,015,000 $ 0.40 Granted 5,350,000 0.40 Cancelled (7,000,000) 0.40 ------------ --------- Outstanding, end of year 5,365,000 $ 0.40 ------------ --------- Exercisable, end of year 1,490,000 $ 0.40 ------------ --------- Outstanding ----------------------------------------------- Weighted Average Weighted Number Remaining Average Range of Outstanding Contractual Exercise Exercise Prices at 6/30/05 Life Price --------------- ----------- ------------ --------- 0.40 5,365,000 9.18 0.40 =========== ============ =========
On June 24, 2005, a Marketing Incentive Plan was agreed to between Company and Trident Marketing International, Inc., whereby Trident Marketing International, Inc. has the opportunity to earn options to purchase up to 400,000 shares of common stock at $.50 per share. The options will have a term of one year and must be earned no later than December 31, 2005. The rights to exercise are as follows: (a) 50,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $100,000 during its fiscal quarter ended September 30, 2005; (b) 50,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $150,000 during its fiscal quarter ended September 30, 2005; (c) 50,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $200,000 during its fiscal quarter ended December 31, 2005; (d) 50,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $300,000 during its fiscal quarter ended December 31, 2005; (e) 100,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $500,000 during its fiscal year ended December 31, 2005; (f) 100,000 Shares upon the Company receiving aggregate Net Monthly Revenues of at least $750,000 during its fiscal year ended December 31, 2005. F-36 NATIONAL HEALTH PARTNERS, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2005 NOTE 6 - STOCK OPTIONS (Continued) In the event the Company receives aggregate Net Monthly Revenues of at least $750,000 during its fiscal year ended December 31, 2005, this Option shall be immediately exercisable into 400,000 Shares. In no event shall this Option be exercisable into more than 400,000 Shares. NOTE 7 - SIGNIFICANT ACTIVITY On June 30, 2005, the Company filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission. NOTE 8 - SUBSEQUENT EVENTS On August 15, 2005, the Company hired Alex Soufflas as General Counsel and Executive Vice President and David A. Taylor as Vice President - Sales. On September 7, 2005, the Company completed the sale of all of its remaining shares of common stock of Infinium Labs, Inc. On September 16, 2005, the company received the remaining funds owed by the investor under the agreement, resulting in aggregate cash proceeds of $720,000 to the Company. As of September 30, 2005, the Company was in negotiations with its former President concerning a proposed severance package that would include a payment of $10,000 by the company upon signing. In addition, it is anticipated that the former President will be retained in a consulting capacity and both parties will execute a 15-month consulting agreement for a maximum aggregate of consulting fees of approximately $160,000. The parties have not entered into a definitive agreement as of this date. F-37 10,658,133 SHARES [GRAPHIC OMITTED] NATIONAL HEALTH PARTNERS, INC. COMMON STOCK __________________________ P R O S P E C T U S __________________________ SEPTEMBER ___, 2005 UNTIL ____ (THE 90TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Indiana Business Corporation Law (the "IBCL") provides that an Indiana corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Unless limited by its articles of incorporation, an Indiana corporation must indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding. Our articles of incorporation do not limit our obligations to so indemnify our directors. The IBCL also provides that, unless the corporation's articles of incorporation provide otherwise: (i) an officer of an Indiana corporation, whether or not a director, is entitled to mandatory indemnification and is entitled to apply for court-ordered indemnification to the same extent as a director; (ii) the corporation may indemnify and advance expenses to an officer, employee or agent of the corporation, whether or not a director, to the same extent as to a director; and (iii) the corporation may also indemnify and advance expenses to an officer, employee or agent, whether or not a director, to the extent, consistent with public policy, it is permitted to do so by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract. Our articles of incorporation do not limit our ability to so indemnify our officers. We are authorized to enter into indemnification agreements with our directors, officers, employees and agents, and those serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, which may, in some cases, be broader than the specific indemnification provisions set forth in the IBCL. In addition, we are authorized to purchase and maintain insurance on behalf of these persons to indemnify them for expenses and liabilities incurred by them by reason of their being or having been such a director, officer, employee or agent, regardless of whether we have the power to indemnify such persons against such expenses and liabilities under our articles of incorporation, our bylaws, the IBCL, or otherwise. We have not entered into any such agreements or obtained such insurance. Reference is made to Item 28 for our undertakings with respect to indemnification of liabilities arising under the Securities Act of 1933, as amended. II-1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses payable by us in connection with the sale of the common stock being registered by this registration statement. All amounts shown are estimates, except for the Securities and Exchange Commission ("SEC") registration fee. SEC registration fee.................................. $1,882 Printing and engraving expenses....................... 5,000 Accounting fees and expenses.......................... 5,000 Legal fees and expenses............................... 35,000 Miscellaneous expenses................................ 5,000 ------------ Total............................................ $51,882 ============ ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Since June 1, 2002, we have issued and sold the following securities without registration under the Securities Act of 1933, as amended (the "Securities Act"): In February 2004, we issued 100,000 shares of our common stock to an individual in connection with consulting and advisory services that were rendered to us. The securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In February 2004, we issued 1,748,250 shares of our common stock to David M. Daniels in connection with Mr. Daniels accepting his appointment as our Chief Executive Officer. The securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In February and March 2004, we issued an aggregate of 618,200 shares of our common stock to certain of our debt holders in partial consideration for the extinguishment of our debt obligations to them. The securities were issued to a limited number of accredited investors in private placement transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In March 2004, we issued 150,000 shares of our common stock to two individuals in exchange for marketing services that were rendered to us. The securities were issued to a limited number of accredited investors in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. II-2 In August 2004, we issued 100,000 shares of our common stock to an individual in connection with consulting and advisory services that were rendered to us. The securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In August 2004, we completed a private offering of 2,777,000 shares of our common stock, Class A warrants to acquire 1,388,500 shares of our common stock, and Class B warrants to acquire 1,388,500 shares of our common stock, for aggregate cash consideration of $1,388,500. These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC within two months of the date the investors purchased units in the offering to register 50% of the shares of our common stock issued in the offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in the offering. We issued these securities to a limited number of accredited investors in a private offering exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder without engaging in any advertising or general solicitation of any kind. In September 2004, we completed a private offering of 174,000 shares of our common stock, Class A warrants to acquire 87,000 shares of our common stock, and Class B warrants to acquire 87,000 shares of our common stock, for aggregate cash consideration of $87,000. These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.00 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC within two months of the date the investors purchased units in the offering to register 50% of the shares of our common stock issued in the offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in the offering. We issued these securities to a limited number of accredited investors in a private offering exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder without engaging in any advertising or general solicitation of any kind. II-3 In February 2005, we completed a private offering of 2,448,750 shares of our common stock, Class A warrants to acquire 816,252 shares of our common stock, and Class B warrants to acquire 816,252 shares of our common stock, for aggregate cash consideration of $979,500. These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. We issued these securities to a limited number of accredited investors in a private offering exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder without engaging in any advertising or general solicitation of any kind. In March 2005, we completed a private offering of 737,750 shares of our common stock, Class A warrants to acquire 368,875 shares of our common stock, and Class B warrants to acquire 368,875 shares of our common stock. These securities were sold in units comprised of two shares of common stock, one Class A warrant and one Class B warrant. These units were issued to each person that purchased units in our private offering of units completed in August 2004 (the "August 2004 Offering") and our private offering of units completed in September 2004 (the "September 2004 Offering"; together with the August 2004 Offering, the "Offerings"), and the number of units issued was equal to 25% of the aggregate number of units purchased in the Offerings. The units were issued to each person in exchange for each person agreeing to an extension of the date by which we would use our best efforts to file a registration statement with the SEC for certain of securities purchased in the Offerings from a date that was within two months of the date they purchased units in the Offerings to June 30, 2005. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $1.00 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $2.00 per share during a period of 360 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on November 30, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. We issued these securities to a limited number of accredited investors in a private offering exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act without engaging in any advertising or general solicitation of any kind. II-4 In April 2005, we issued 1,800,000 shares of our common stock, Class A warrants to acquire 1,800,000 shares of our common stock, and Class B warrants to acquire 1,800,000 shares of our common stock to an accredited investor for aggregate consideration consisting of 2,740,000 shares of common stock of Infinium Labs, Inc., a Delaware corporation, that the accredited investor owned and that was then valued at $720,000. Our securities were sold in units comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this transaction. These securities were issued to one accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In May 2005, we completed a private offering of 635,750 shares of our common stock, Class A warrants to acquire 317,875 shares of our common stock, and Class B warrants to acquire 317,875 shares of our common stock, for aggregate cash consideration of $254,300. These securities were sold in units comprised of three shares of common stock, one Class A warrant and one Class B warrant. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one and one-half shares of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one and one-half shares of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. We issued these securities to a limited number of accredited investors in a private offering exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder without engaging in any advertising or general solicitation of any kind. II-5 In June 2005, we completed a private offering of 1,490,000 shares of our common stock, Class A warrants to acquire 1,490,000 shares of our common stock, and Class B warrants to acquire 1,490,000 shares of our common stock to a limited number of accredited investors for aggregate cash consideration of $596,000. These securities were sold in units comprised of three shares of common stock, three Class A warrants and three Class B warrants. The units were sold at a purchase price of $1.20 per unit. Each Class A warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. We agreed to file a registration statement with the SEC by June 30, 2005 to register 50% of the shares of our common stock issued in this offering and 50% of the shares of our common stock underlying the Class A warrants and Class B warrants issued in this offering. These securities were issued to a limited number of accredited investors in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. In June 2005, we issued an aggregate of 2,587,000 shares of our common stock, Class A warrants to acquire 737,000 shares of our common stock, Class B warrants to acquire 737,000 shares of our common stock, and Class C warrants to acquire 1,625,000 shares of our common stock to a limited number of accredited investors in exchange for various consulting services to be rendered to us. Each Class A warrant is initially exercisable into one share of our common Stock at an exercise price of $.60 per share during a period of 18 months beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2007. Each Class B warrant is initially exercisable into one share of our common stock at an exercise price of $.80 per share during a period of three years beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2008. Each Class C warrant is initially exercisable into one share of our common stock at an exercise price of $.60 per share during a period of 180 days beginning on the date a registration statement covering the public resale of certain of the shares underlying the warrants is declared effective by the SEC and expires on December 31, 2006. We agreed to file a registration statement with the SEC by June 30, 2005 to register 100% of the shares of our common stock and 100% of the shares of our common stock underlying the Class A warrants and Class B warrants with respect to an aggregate of 1,800,000 shares of common stock issued to these investors, and 50% of the shares of our common stock and 50% of the shares of our common stock underlying the Class A warrants, Class B and Class C warrants with respect to an aggregate of 3,886,000 shares of our common stock issued to these investors. The securities were issued to a limited number of accredited investors in private placement transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. II-6 In June 2005, we issued an option to acquire 400,000 shares of our common stock to Trident Marketing International, Inc., an accredited investor, in exchange for services to be rendered to us in connection with the marketing of our various CARExpress membership programs. The option is initially exercisable into shares of our common stock at an exercise price of $.50 per share upon the achievement of various performance objectives during the remainder of 2005, and expires on June 24, 2006. We agreed to file a registration statement with the SEC within six months of the date of the option to register all of the shares of common stock underlying the option. These securities were issued to one accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. ITEM 27. EXHIBITS The following exhibits are filed as part of this registration statement: Exhibit No. Exhibit ----------- ------- 3.1* Articles of Incorporation 3.2 Amended and Restated Bylaws 4.1 Specimen Stock Certificate 5.1* Opinion of Carson Boxberger LLP 10.1** Employment Agreement, dated May 13, 2005, by an between the Company and David M. Daniels 10.2** Employment Agreement, dated May 13, 2005, by an between the Company and Roger H. Folts 10.3** Employment Agreement, dated May 13, 2005, by an between the Company and Patricia S. Bathurst 10.4** Option to Acquire Shares of Common Stock, dated May 13, 2005, issued by the Company to David M. Daniels 10.5** Option to Acquire Shares of Common Stock, dated May 13, 2005, issued by the Company to Roger H. Folts 10.6** Option to Acquire Shares of Common Stock, dated May 13, 2005, issued by the Company to Patricia S. Bathurst 10.7+ Network Access Agreement, dated April 30, 2001, between the Company and Careington International Corporation 10.8+ Optum Services Agreement, dated October 1, 2001, between the Company and United HealthCare Services, Inc. 10.9+ Network Access and Repricing Agreement, dated September 1, 2002, between the Company and First Access, Inc. 10.10+ Network Leasing Agreement, dated December 18, 2003, between the Company and National Benefit Builders, Inc. II-7 10.11+ AdvancePCS, L.P. Managed Pharmaceutical Benefit Agreement, dated July 1, 2001, between the Company and AdvancePCS, L.P. 10.12 Agreement of Lease, dated April 22, 2004, between Liberty Property Limited Partnership and the Company 10.13 Commercial Office Lease, dated June 13, 2005, between Centerpointe Property, LLC and the Company 10.14 Form of Securities Purchase Agreement by and between the Company and shareholders participating in the August 2004 Offering, September 2004 Offering, March 2005 Offering, February 2005 Offering, May 2005 Offering and June 2005 Offering 10.15 Securities Purchase Agreement, dated April 12, 2005, by and between the Company and Ronald F. Westman 10.16 Option to Acquire Shares of Common Stock, dated June 29, 2005, issued by the Company to Ronald F. Westman 10.17 Option to Acquire Shares of Common Stock, dated June 29, 2005, issued by the Company to Jay Rosen 10.18 Option to Acquire Shares of Common Stock, dated August 15, 2005, issued by the Company to Alex Soufflas 10.19 Option to Acquire Shares of Common Stock, dated August 15, 2005, issued by the Company to David A. Taylor 21.1** Subsidiaries of the Company 23.1 Consent H J & Associates, LLC 23.2* Consent of Carson Boxberger LLP (included in Exhibit 5.1) 24.1** Power of Attorney (included on the signature page) * To be filed by amendment. ** Previously filed. + Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. II-8 ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes to: 1. file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) reflect in the prospectus any facts or events arising after the effective date of the registration statement which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) include any additional or changed material information on the plan of distribution. 2. for the purpose of determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of such securities at that time to be the initial bona fide offering thereof. 3. file a post-effective amendment to remove from registration any of the securities being registered that remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-9 SIGNATURES In accordance with the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Horsham, Commonwealth of Pennsylvania, on September 30, 2005. NATIONAL HEALTH PARTNERS, INC. By: /s/ David M. Daniels ------------------------------- David M. Daniels Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates stated:
Signature Title Date - --------- ----- ----- /s/ David M. Daniels Chief Executive Officer and Chairman September 30, 2005 - -------------------------- of the Board (Principal Executive David M. Daniels Officer) /s/ Roger H. Folts Chief Financial Officer (Principal September 30, 2005 - -------------------------- Financial and Accounting Officer) Roger H. Folts
EXHIBIT INDEX Exhibit Exhibit Description - ------- ------------------- 3.2 Amended and Restated Bylaws 4.1 Specimen Stock Certificate 10.7+ Network Access Agreement, dated April 30, 2001, between the Company and Careington International Corporation 10.8+ Optum Services Agreement, dated October 1, 2001, between the Company and United HealthCare Services, Inc. 10.9+ Network Access and Repricing Agreement, dated September 1, 2002, between the Company and First Access, Inc. 10.10+ Network Leasing Agreement, dated December 18, 2003, between the Company and National Benefit Builders, Inc. 10.11+ AdvancePCS, L.P. Managed Pharmaceutical Benefit Agreement, dated July 1, 2001, between the Company and AdvancePCS, L.P. 10.12 Agreement of Lease, dated April 22, 2004, between Liberty Property Limited Partnership and the Company 10.13 Commercial Office Lease, dated June 13, 2005, between Centerpointe Property, LLC and the Company 10.14 Form of Securities Purchase Agreement by and between the Company and shareholders participating in the August 2004 Offering, September 2004 Offering, March 2005 Offering, February 2005 Offering, May 2005 Offering and June 2005 Offering 10.15 Securities Purchase Agreement, dated April 12, 2005, by and between the Company and Ronald F. Westman 10.16 Option to Acquire Shares of Common Stock, dated June 29, 2005, issued by the Company to Ronald F. Westman 10.17 Option to Acquire Shares of Common Stock, dated June 29, 2005, issued by the Company to Jay Rosen 10.18 Option to Acquire Shares of Common Stock, dated August 15, 2005, issued by the Company to Alex Soufflas 10.19 Option to Acquire Shares of Common Stock, dated August 15, 2005, issued by the Company to David A. Taylor 23.1 Consent of H J & Associates, LLC + Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EX-3 2 ex3-2.txt EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF NATIONAL HEALTH PARTNERS, INC. (AN INDIANA CORPORATION) EFFECTIVE AS OF FEBRUARY 13, 2005 --------------------------------------------------- ARTICLE I MEETINGS OF SHAREHOLDERS AND OTHER SHAREHOLDER MATTERS SECTION 1. Annual Meeting. An annual meeting of the shareholders of National Health Partners, Inc. (hereinafter, the "Corporation") shall be held for the election of directors and for the transaction of such other proper business at such time, date and place, either within or without the State of Indiana, as shall be designated by resolution of the Board of Directors from time to time. SECTION 2. Special Meetings. Special meetings of shareholders for any purpose or purposes may be called by the majority of the directors or the Chief Executive Officer, or as otherwise permitted by Indiana corporate law. SECTION 3. Notice of Meetings. Written notice of each meeting of the shareholders, which shall state the time, date and place of the meeting and in the case of a special meeting, the purpose or purposes for which it is called, shall, unless otherwise provided by applicable law, the articles of incorporation or these bylaws, be given not less than ten (10) nor more than sixty (60) days before the date of such meeting to each shareholder entitled to vote at such meeting, and, if mailed, it shall be deposited in the United States mail, postage prepaid, directed to the shareholder at such shareholder's address as it appears on the records of the Corporation. Whenever notice is required to be given, a written waiver thereof signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted nor the purpose of any annual meeting of the shareholders need be specified in any written waiver of notice. A shareholder's attendance at a meeting: (i) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. SECTION 4. Adjournments. Any meeting of the shareholders may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. At any such adjourned meeting at which a quorum may be present, the Corporation may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is or must be fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record as of the new record date entitled to vote at the meeting. SECTION 5. Quorum. Except as otherwise provided by Indiana law, the articles of incorporation or these bylaws, at any meeting of the shareholders, the holders of a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. In the absence of a quorum, the holders of a majority of the shares present in person or represented by proxy and entitled to vote may adjourn the meeting from time to time in the manner described in Section 4 of this Article I. SECTION 6. Organization. At each meeting of the shareholders, the Chairman of the Board, or in his absence or inability to act, the Chief Executive Officer or, in his absence or inability to act, any person designated by the Board of Directors, or in the absence of such designation, any person chosen by a majority of those shareholders present in person or represented by proxy, shall act as chairman of the meeting. The Secretary or, in his absence or inability to act, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 7. Order of Business; Conduct of Meetings. The order of business at all meetings of the shareholders shall be as determined by the chairman of the meeting. SECTION 8. Voting; Proxies. Unless otherwise provided by Indiana law or in the articles of incorporation, each shareholder entitled to vote at any meeting of shareholders shall be entitled to one vote for each share of capital stock that has voting power upon the matter in question held by such shareholder either: (i) on the date fixed pursuant to the provisions of Section 10 of Article I of these bylaws as the record date for the determination of the shareholders to be entitled to notice of or to vote at such meeting; or (ii) if no record date is fixed, then at the close of business on the day next preceding the day on which notice is given. Each shareholder entitled to vote at any meeting of the shareholders may authorize another person or persons to act for him by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. At all meetings of the shareholders for the election of directors, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election. On all other matters, except as otherwise required by Indiana law or the articles of incorporation, an action by the shareholders will be approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action. Unless required by Indiana law, or determined by the chairman of the meeting to be advisable, the vote on any question other than the election of directors need not be by written ballot. On a vote by written ballot, each written ballot shall be signed by the shareholder voting, or by his proxy if there be such proxy, and shall state the number of shares voted. -2- SECTION 9. Action by Written Consent. Unless otherwise provided by Indiana law or in the articles of incorporation, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting, without prior notice and without a vote, if a written consent or written consents thereto is signed by shareholders holding a least the minimum number of votes necessary to authorize the action at a meeting at which all shareholders entitled to vote were present and voted, except that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required. SECTION 10. Fixing of Record Date for Shareholder Meetings and Action by Written Consent of Shareholders. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date, in the case of a meeting, shall not be more than seventy (70) nor less than ten (10) days before the date of such meeting, and in the case of consent to corporate action in writing without a meeting, shall not be more than ten (10) days after the date on which the resolution fixing the record date for the consent of shareholders to consent to corporate action without a meeting is adopted by the Board of Directors. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If no record date is fixed by the Board of Directors for any meeting of shareholders, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. If no record date is fixed by the Board of Directors for determining shareholders entitled to consent to corporate action in writing without a meeting and no prior action by the Board of Directors is required by applicable Indiana law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with the provisions of Section 9 of Article I of these Bylaws. SECTION 11. Fixing a Record Date for Other Purposes. In order that the Corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than seventy (70) days prior to the meeting or action requiring a determination by the shareholders. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 12. List of Shareholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least five (5) days before every meeting of the shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least five (5) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder of the Corporation who is present. -3- SECTION 13. Inspectors. The Board of Directors may, in advance of any meeting of shareholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting shall appoint inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the chairman of the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be shareholders. ARTICLE II BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not, by Indiana law or the articles of incorporation, directed or required to be exercised or done by the shareholders. SECTION 2. Number And Qualification. Except as set forth to the contrary in the Corporation's articles of incorporation, the initial Board of Directors shall consist of one (1) member. Thereafter, the Board of Directors shall consist of no less than one (1) member nor more than eleven (11) members, which number may be increased or decreased by resolution of the Board of Directors or by the shareholders at any annual or special meeting. SECTION 3. Elections And Terms. The directors shall be elected at the annual meeting of the shareholders, except as provided in Section 4 of this Article II. The directors shall be nominated and elected in the manner set forth in the manner prescribed by applicable Indiana law unless otherwise provided in the Corporation's articles of incorporation. Each director elected shall hold office until such director's successor is elected and qualified or until such director's earlier resignation or removal. -4- SECTION 4. Vacancies. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the board of directors or, if the directors remaining in office constitute fewer than a quorum of the board, by the affirmative vote of a majority of all the directors remaining in office. Any director elected in accordance with this Section 4 shall hold office until the next annual meeting of shareholders and until such director's successor shall have been elected and qualified, or until such director's earlier resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any director then in office. SECTION 5. Removal and Resignation. A director may only be removed from the Corporation's Board of Directors in the manner set forth in the Corporation's articles of incorporation. In addition, the shareholders or directors may remove one (1) or more directors with or without cause unless the articles of incorporation provide otherwise. Any director may resign at any time upon written notice to the board of directors, its chairman, or the secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its delivery. SECTION 6. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Indiana and at such times as the Board of Directors may from time to time determine. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by Indiana law or these bylaws. SECTION 7. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Indiana whenever called by the Chairman of the Board of Directors. SECTION 8. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Chief Executive Officer, the President or any Vice President, or the Secretary or any assistant Secretary, or such other person or persons as the directors may designate, in which notice shall be stated the time and place of the meeting. Except as otherwise required by the Corporation's articles of incorporation or these bylaws, such notice need not state the purpose(s) of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to such director at such director's residence or usual place of business, by registered mail, return receipt requested delivered at least two (2) days before the day on which such meeting is to be held, or shall be sent addressed to such director at such place by telegraph, telex, cable or wireless, or be delivered to such director personally, by facsimile or by telephone, at least twenty-four (24) hours before the time at which such meeting is to be held. A written waiver of notice, signed by the director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him. Neither the business to be transacted nor the purpose of any meeting of the Board of Directors need be specified in any written waiver of notice. -5- SECTION 9. Quorum and Manner of Acting. Except as hereinafter provided, a majority of the directors in office immediately before the meeting begins shall be present in person or by means of a conference telephone or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting; and, except as otherwise required by Indiana law, the articles of incorporation or these bylaws, the vote of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. SECTION 10. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors. SECTION 11. Telephonic Participation. Members of the Board of Directors may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in such a meeting shall constitute presence in person at such meeting. SECTION 12. Organization. At each meeting of the Board, the Chairman of the Board or, in his absence or inability to act, the Chief Executive Officer or, in his absence or inability to act, another director chosen by a majority of the directors present shall act as chairman of the meeting and preside thereat. The Secretary or, in his absence or inability to act, any person appointed by the Chairman shall act as secretary of the meeting and keep the minutes thereof. SECTION 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. SECTION 14. Committees. The Board of Directors may, by resolution adopted by a majority of the directors then in office, designated one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. Any such committee shall have and may exercise all of the powers and authority of the board of directors to the extent permitted under Indiana law and provided in such resolution or in the bylaws. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. -6- ARTICLE III OFFICERS SECTION 1. Offices. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chief Executive Officer, a Chief Financial Officer or Treasurer, and a Secretary, and may also include a President, one (1) or more Vice Presidents, Assistant Treasurers and Assistant Secretaries. The Board of Directors may, if it so determines, choose such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period that it may deem advisable unless otherwise required by Indiana law. SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected by the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. SECTION 3. Resignations. Any officer may resign at any time upon written notice to the board of directors, its chairman or the secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its delivery; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Removal. Any officer or agent of the Corporation may be removed, with or without cause, at any time, by the Board of Directors. An officer who appoints another officer or assistant officer may remove the appointed officer or assistant officer at any time with or without cause. SECTION 5. Vacancies. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled for the unexpired portion of the term of the office which shall be vacant by the Board of Directors at any special or regular meeting. SECTION 6. Powers and Duties of Executive Officers. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties. SECTION 7. Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the shareholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall have the power to appoint and remove such subordinate officers and agents, including the Chief Financial Officer, Secretary and the President, if any, as the business of the Corporation may require. In the absence or disability of the Chief Executive Officer, the President or, if there is no President, the most senior in rank of the Vice Presidents, if any, shall perform the duties of the President. -7- SECTION 8. President. The President, if any, shall perform such duties as may be assigned to him or her by the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, the President or, if there is no President, the most senior in rank of the vice presidents, if any, shall perform the duties of the Chief Executive Officer. SECTION 9. Vice Presidents. Each Vice President, if any, shall perform such duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. SECTION 10. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Board of Directors and the shareholders in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall be the custodian of the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. He or she shall perform such other duties as may be prescribed by the Board of Directors or President. SECTION 11. Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the Secretary may from time to time prescribe. SECTION 12. Chief Financial Officer. The Chief Financial Officer shall be the Treasurer of the Corporation and shall have custody of the corporate funds and securities and shall keep, or cause to be kept, full and accurate amounts of receipts and disbursements in books kept for that purpose. He shall deposit all monies, and other valuable effects, in the name and to the credit of the Corporation, in such depository as the Board of Directors shall designate. As directed by the Board of Directors or the Chief Executive Officer, he shall disburse monies of the Corporation, taking proper vouchers for such disbursements and shall render to the Chief Executive Officer and directors an account of all his transactions as the treasurer and of the financial condition of the Corporation. In addition, he shall perform all of the usual duties incident to the office of treasurer. In the absence or disability of the Chief Financial Officer, Treasurer, or, if there is no Treasurer, the most senior in rank of the Assistant Treasurers, if any, shall perform the duties of the Chief Financial Officer. SECTION 13. Treasurer. The Treasurer, if any, shall perform such duties as may be assigned to him or her by the Chief Financial Officer. In the absence or disability of the Treasurer, the most senior in rank of the Assistant Treasurers, if any, shall perform the duties of the Treasurer. SECTION 14. Assistant Treasurer. The Assistant Treasurer, or if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer and Treasurer, if any, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as the Board of Directors or the Chief Financial Officer may from time to time prescribe. -8- ARTICLE IV SHARES OF STOCK SECTION 1. Stock Certificates. The Corporation shall provide shareholders with a certificate signed by or in the name of the Corporation by the Chief Executive Officer and the Chief Financial Officer, Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by such holder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 2. Books of Account and Record of Shareholders. The books and records of the Corporation may be kept at such places, within or without the State of Indiana, as the Board of Directors may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board of Directors. SECTION 3. Transfer of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his attorney hereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by Indiana law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of shareholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such shareholder of record liable for calls and assessments and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof. Whenever any transfers of shares shall be made for collateral security and not absolutely, and both the transferor and transferee request the Corporation to do so, such fact shall be stated in the entry of the transfer. SECTION 4. Restrictions on Transfer. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. -9- SECTION 5. Lost, Stolen or Destroyed Stock Certificates. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Anything herein to the contrary notwithstanding, the Board of Directors, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to judicial proceedings under the laws of the State of Indiana. ARTICLE V GENERAL PROVISIONS SECTION 1. Registered Office. The registered office and registered agent of the Corporation will be as specified in the articles of incorporation of the Corporation. SECTION 2. Other Offices. The Corporation may also have such offices, both within or without the State of Indiana, as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be so determined by the Board of Directors. SECTION 4. Seal. The Corporation is not required to have a seal. In the event that the Board of Directors determines that the Corporation should have a seal, the seal of the Corporation shall be circular in form, shall bear the name of the Corporation and shall include the words and numbers "Corporate Seal," "Indiana" and the year of incorporation. SECTION 5. Voting Securities Owned By Corporation. Voting securities in any other entity held by the Corporation shall be voted by the Chief Executive Officer in accordance with a resolution of the Board of Directors, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer of the Corporation. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. SECTION 6. Inspection of Books and Records. Any shareholder of record may inspect and copy, during regular business hours at the Corporation's principal office, any of the records of the Corporation set forth in IC 23-1-52-1(e) if the shareholder gives the Corporation written notice of the shareholder's demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy. Any shareholder of record may inspect and copy, during regular business hours at the Corporation's principal office, any of the records of the Corporation set forth in IC 23-1-52-2(b) if the shareholder gives the Corporation written notice of the shareholder's demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy if the shareholder's demand is made in good faith and for a proper purpose, the shareholder describes with reasonable particularity the shareholder's purpose and the records the shareholders desires to inspect, and the records are directly connected with the shareholder's purpose. The demand shall be directed to the Corporation at its principal place of business. -10- SECTION 7. Section Headings. Section headings in these bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. SECTION 8. Inconsistent Provisions. In the event that any provision of these bylaws is or becomes inconsistent with any provision of the articles of incorporation, the general corporation law of the State of Indiana or any other applicable law, the provision of these bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. SECTION 9. Construction. Within these bylaws, any gender shall include all other genders, as the meaning and the context of these bylaws shall require. SECTION 10. Amendment. These bylaws may be adopted, amended or repealed, and new bylaws made, by the Board of Directors of the Corporation. These Amended and Restated Bylaws of National Health Partners, Inc. were duly adopted by the Board of Directors on February 13, 2005. /s/ Roger H. Folts --------------------------- Roger H. Folts Secretary -11- EX-4 3 ex4-1.txt EXHIBIT 4.1 EXHIBIT 4.1 NUMBER SHARES 0 INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA NATIONAL HEALTH PARTNERS, INC. TOTAL AUTHORIZED ISSUE 100,000,000 SHARES WITHOUT PAR VALUE COMMON STOCK See Reverse for Certain Definitions SPECIMEN THIS IS TO CERTIFY THAT ________________________________________ IS THE OWNER OF _________________________________________________fully paid and non-assessable shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. WITNESS, the seal of the Corporation and the signatures of its duly authorized officers. DATED [SEAL] ________________________ ___________________________ PRESIDENT SECRETARY/TREASURER The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF TRANSFERS MIN ACT - Custodian ----------------- (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Transfers to Minors Act______________________________ (State) JT TEN - as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list For value received ______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________ ________________________________________________ _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated________________________ __________ In presence of ____________________________________ ___________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-10 4 ex10-7.txt EXHIBIT 10.7 EXHIBIT 10.7 [CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.] - -------------------------------------------------------------------------------- USER'S NOTE: THIS FORM IS A TEMPLATE FOR CAREINGTON'S STANDARD NETWORK ACCESS AGREEMENT. IT SHOULD NEVER BE MODIFIED. A NEW VERSION OF THIS DOCUMENT SHOULD BE CREATED IN EACH INSTANCE. OPTIONAL LANGUAGE IS HIGHLIGHTED IN BOLD TEXT AND SURROUNDED BY BRACKETS. THE RESPONSIBLE OFFICER OF CAREINGTON SHOULD BE CONSULTED AS TO THE APPROPRIATENESS OF ANY OPTIONAL LANGUAGE. - -------------------------------------------------------------------------------- NETWORK ACCESS AGREEMENT THIS NETWORK ACCESS AGREEMENT (this "Agreement") dated this 30th day of April 2001 is between CARExpress, a Pennsylvania corporation ("Client"), and CAREINGTON INTERNATIONAL CORPORATION, a corporation organized under the laws of the State of Texas (hereinafter "CAREINGTON"). RECITALS WHEREAS, CAREINGTON has developed a panel of dentists in private practice who have agreed to provide dental services on a discounted fee-for-service basis according to CAREINGTON's applicable fee schedules, as the same may change from time to time; and WHEREAS, Client is an insurance company, third party administrator, health care plan, employer, broker or membership or employee organization which underwrites, brokers, sponsors or administers dental health coverage for its customers, employees or members; and WHEREAS, Client desires to provide its Members access to CAREINGTON's dentists pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the promises and mutual covenants herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, Client and CAREINGTON agree as follows: I. DEFINITIONS ----------- Terms not otherwise defined herein shall have the meanings set forth below: "Access Fee" means the monthly fee paid to CAREINGTON by Client as set forth in Attachment B attached hereto. "Dental Services" means those Dental Services ordinarily provided by general dentists, participating specialists, and paradental personnel in conformity with accepted dental practice. "Dental Plan" means a dental services plan that utilized CAREINGTON's Panel and pursuant to which Participating Providers provide services in accordance with the Fee Schedule. "Fee Schedule" means the Schedule of Discounted Fees for Service attached hereto as Attachment A and made a part hereof for all purposes. "General Dentist" means a dentist participating on the Panel that provides general dentistry services. NETWORK ACCESS AGREEMENT - PAGE 1 "Members" means those individuals (1) determined by Client to be eligible to participate in the Dental Plan at the time services are rendered; and (2) who have elected to receive Dental Services provided by the Participating Providers. "Network Access Fee" means the fee to paid to CAREINGTON for providing Members access to its Panel as set forth on Attachment B attached hereto and made a part hereof for all purposes. "Panel" means the network of Participating Providers established by CAREINGTON. "Participating Provider" means a licensed General Dentist or Specialist who has agreed in writing to participate in CAREINGTON's Dental Plan and to provide Dental Services for the fees set forth in the Dental Plan. "Participating Specialist" means a dentist participating on the Panel that possesses an advanced degree with specialized training in either Oral Surgery, Orthodontics, Periodontics, Pedodontics, or Endodontics and providing Dental Services in such specialty. II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CAREINGTON ------------------------------------------------------- 2.1 Representations and Warranties. CAREINGTON represents and warrants that (a) it has the authority to enter into this Agreement and (b) each Participating Provider contracted with CAREINGTON to render services pursuant to that contract is to the best knowledge of CAREINGTON duly licensed to practice dentistry and is credentialed by CAREINGTON. CAREINGTON shall be solely responsible for credentialing Participating Providers. 2.2 Participating Status. CAREINGTON shall periodically notify Client of the addition or termination of Participating Providers from the Panel. 2.3 Participating Provider Services. CAREINGTON shall require Participating Providers to use their best efforts to deliver prompt necessary Dental Services to Members and to provide such Dental Services within the parameters of his or her practice or specialty with the same care and attention, office schedules and physical settings which he or she customarily provides patients who are not Members. Only Participating Providers will provide services or supplies pursuant to the Fee Schedule. 2.4 Referrals to Other Participating Providers. CAREINGTON will recommend to its Participating Providers, but not require, that referrals be made to other Participating Providers, unless (a) such referral would be inappropriate for the care and treatment of Members, consistent with sound dental practice in accordance with generally accepted dental practices and professional dentistry standards for rendering Dental Services, or (b) in the event of a dental emergency a Participating Provider is unavailable to provide a required dental service. 2.5 Dentist-Patient Relationship. The traditional between dentist and patient will be respected and maintained at all times, and Client shall not have control over patient care. Client shall not intervene or interfere in any way or manner with the rendition of Dental Services to Members. The decision or determination to obtain or deliver any Dental Service or supply is made only by the patient (or the patients' parent or legal guardian) and/or the patient's dentist. Each Participating Provider shall remain solely responsible for the quality of Dental Services provided and shall render such services in accordance with generally accepted dental practices and professional dentistry standards. NETWORK ACCESS AGREEMENT - PAGE 2 2.6 No Guarantee of Utilization. CAREINGTON acknowledges Client neither warrants nor guarantees to CAREINGTON that the Panel will be utilized by a Member or any number of Members. 2.7 Cooperation. Client will determine the eligibility of Members under criteria developed by Client. CAREINGTON will cooperate to the extent possible with Client in preparation of data management reports and other administration, management or reporting services required by Client regarding the Dental Plan. CAREINGTON will (a) assign key personnel of its Member Services staff to work with Client; (b) meet [QUARTERLY] with Client to review the Dental Plan; and (c) furnish updates of the Participating Provider lists to Client, or its interface administrator, according to Client's specific time frame. 2.8 Dental Panel. CAREINGTON shall use reasonable efforts to maintain a sufficiently extensive Panel to serve Client's Members. CAREINGTON may contract with other networks to provide a dental panel in those states where it has not contracted with Participating Providers; provided that such panel will provide Dental Services in accordance with the Fee Schedule. III. COVENANTS OF CLIENT ------------------- 3.1 Product Implementation. Client, effective May 1, 2001, will implement the Dental Plan for all its newly recruited Members and for its existing group accounts upon the anniversary of its existing contracts. Clients shall offer the Dental Plan as a value-added item to Client's [HEALTHCARE] services products, and shall not advertise the Dental Plan as a stand-alone product; provided, however, that Client may sell the Dental Plan as a stand-alone service to its Members. 3.2 Materials. Any materials describing the Dental Plan that Client makes available to its Members shall maintain the same form and content as shown in the Fee Schedule. 3.3 Eligibility. Client is responsible for eligibility verification. Client will supply CAREINGTON with Member eligibility data. The data shall reflect additions, changes or deletions. Data transfer shall be in a format mutually agreed upon by Client and CAREINGTON. 3.4 Patient Identification. [CLIENT] [CAREINGTON] will provide its Members identification cards identifying the participant in the Dental Plan. [CAREINGTON] [CLIENT] will supply toll free Member Services to the Members. IV. NETWORK ACCESS FEE ------------------ 4.1 Access Fee. Client agrees to pay CAREINGTON the Network Access Fee with respect to each Member on or before the fifteenth (15th) day of each month. [Monthly payments will include all adjustments for current and retroactive additions and deletions. No more than two (2) months retroactive adjustments shall be permitted with respect any Members.] V. PARTICIPATING PROVIDER CHARGES ------------------------------ 5.1 Participating Provider Charges. A Participating Provider's charges or fees for Dental Services provided by General Dentists shall be the amount set forth in the Fee Schedule. For any procedures not listed in the Fee Schedule, the charges or fees for Dental Services provided by General Dentists shall be eighty percent (80%) of the General Dentist's usual and customary charges or fees. Charges or fees for Dental Services provided by a Participating Specialist shall be eighty percent (80%) of the Participating Specialist's usual and customary charges or fees. The fees for Dental Services set forth on the Fee Schedule for General Dentists and Participating Specialists shall be increased, in whole or in part, NETWORK ACCESS AGREEMENT - PAGE 3 only as necessary to maintain the Panel with a sufficient number of Participating Providers to service the needs of the Members. When the fee increase is instituted, the maximum increase for any market will be agreed to by the parties. The Member shall be responsible for paying the Participating Provider for all Dental Services received by such Member. 5.2 Payments in Full. Participating Providers shall accept the fees described in Section 5.1 as full compensation for all Dental Services provided to Members. 5.3 Payments. Participating Providers shall bill and collect any applicable fees or charges directly from the Member. A Participating Provider, at his or her option, and in accordance with his or her standard billing practices, may request from the Member the payment of all or a portion of fees at the time service is rendered. In the event a Participating Provider collects an amount from a Member for Dental Services which exceeds the amount he or she would be entitled to receive under the terms specified in Section 5.1, such Participating Provider must reimburse the Member for such excess within thirty (30) days. A Participating Provider may bill and collect his or her usual, reasonable, and customary fees for non-scheduled Dental Services from the Member or other responsible party subject to the limitation of Sections 5.1, 5.2 and 5.3. 5.4 Billing Forms. Participating Providers will use their own customary billing form to bill the Member. VI. PATIENT RECORDS AND CONFIDENTIALITY ----------------------------------- 6.1 Property of Participating Providers. Except as expressly set forth in this Agreement, the dental records of Participating Providers shall be and remain their property and shall not be removed or transferred from their custody or control except in accordance with applicable law. Notwithstanding the above and subject to applicable disclosure and confidentiality laws, upon the request of a Member (or the Member's parent or legal guardian) or pursuant to the Member's (or the Member's parents or legal guardian) consent, Participating Providers shall promptly provide Members or other providers or third parties the Member's dental records or copies thereof at no more than reasonable costs. The obligation shall survive the termination of this Agreement. 6.2 Client Business Information. CAREINGTON and its Participating Providers may, from time to time, receive confidential and proprietary business information from Client. Such information shall be maintained as confidential and proprietary and shall not be made available for review and/or duplication unless so specified by Client or otherwise required by law. CAREINGTON agrees not to solicit Client's Members directly or provide any Member information to any third party for the purposes of solicitation. This confidentiality provision shall remain in effect notwithstanding termination of this Agreement. 6.3 CAREINGTON Business Information. Client and its Members may, from time to time, receive confidential information and proprietary business information from CAREINGTON. Such information shall be maintained as confidential and proprietary and shall not be made available for review and/or duplication unless so specified by CAREINGTON or otherwise required by law. This provision shall survive termination of this Agreement. VII. RELATIONSHIP BETWEEN THE PARTIES -------------------------------- 7.1 Independent Relationship. No provision in this Agreement is intended to create nor shall be deemed or construed to create any relationship between Client and CAREINGTON other than that of independent entities contracting with each other hereunder solely for the purpose of effecting the provisions of this Agreement. The parties hereto are not and shall not be deemed for any purpose to be joint venturers. NETWORK ACCESS AGREEMENT - PAGE 4 Neither of the parties to this Agreement nor any of their respective officers, directors, or employees shall hold themselves out as the employee, partner, or agent of the other party and shall not be deemed or construed to be the agent, employee or partner of the other party. Neither CAREINGTON nor Client is authorized to represent to the other for any purpose whatsoever without the prior written consent of that party. 7.2 Covenant Not to Tamper. During the term of this Agreement and for a period of twelve (12) months after termination of this Agreement, Client will not, directly or indirectly, through or on behalf of itself or any other entity or individual, solicit or contract with, or attempt to solicit or contract with, any CAREINGTON provider to provide Dental Services to any Member. Client also agrees during the term of this Agreement not to contract with or join any dental panel or network other than the CAREINGTON panel without the prior written consent of CAREINGTON, provided, however, that Client shall have the right to contract with other provider networks if (1) CAREINGTON has an insufficient number of providers in a geographical area to service a particular client, or (2) Client's group account or other customer insists on using a different dental network with which it has had previous a business relationship. [VIII. INSURANCE REQUIREMENTS ---------------------- 8.1 Participating Provider Insurance. CAREINGTON shall require each Participating Provider at his or her sole cost and expense, to obtain and maintain during their participation in the Panel, a policy or policies of professional liability insurance in an amount of not less than $200,000 per claim with a $600,00 yearly aggregate, or such greater amount as CAREINGTON in its sole discretion may require, and to obtain and maintain comprehensive general liability and such other insurance as shall be necessary to insure Participating Provider and his or her employees and agents against any claim or claims for damages arising by reason of personal injuries or death occasioned directly or indirectly in connection with the performance of any service provided hereunder, and the use of any property and facilities provided by Participating Provider and his or her employees or agents in connection with this Agreement.] IX. TERM AND TERMINATION -------------------- 9.1 Term. This Agreement shall become effective on the date of this Agreement and shall continue in effect through the 30th day of April, 2003. Thereafter, this Agreement shall be renewed automatically for a two (2) year term effective May 1 of each year, unless written notice of non-renewal is given by either party at least forty-five (45) days prior to the renewal date or the Agreement is otherwise terminated as provided herein. 9.2 Termination. (a) Notwithstanding any other term or provision hereof, this Agreement may be terminated by either Client or CAREINGTON without cause by written notice via certified mail, return receipt requested, to the other party at least one hundred and eighty (180) days in advance of the effective date of termination without the consent of or notice to any Member, Participating Provider, or other third party. (b) Either party may terminate this Agreement upon sixty (60) days' prior written notice to the other in the event of a material breach of this Agreement that remains uncured sixty (60) days after such notice. NETWORK ACCESS AGREEMENT - PAGE 5 (c) Either party may terminate this Agreement at any time without advance written notice upon the occurrence of a bankruptcy event. A bankruptcy event occurs if: (i) the other party suspends or goes out of business, substantially reduces business operations, becomes insolvent or unable to meet its debts as they mature, calls a meeting of its creditors, sends notice of a proposed bulk sale of all or a substantial part of its business, makes any general assignment for the benefit of its creditors, or commits an act of bankruptcy; or (ii) any petition is filed by the other party initiating a bankruptcy, arrangement, reorganization, or other proceeding under any provision of the U.S. Bankruptcy Code or similar law or such a proceeding is filed against such party and is not removed or discharged within sixty (60) days after the filing thereof; or (iii) a receiver or trustee is appointed for the other party or for any or all of its property. 9.3 Immediate Termination. This Agreement shall be terminated immediately if all or substantially all Participating Providers terminate participation in the Panel or in the event of the passage of a law or promulgation or a regulation or action or investigation by any regulatory body which would prohibit or materially or adversely affect this Agreement, the relationship between the parties, or operations of CAREINGTON or Client with regard to the subject of this Agreement. Notice of immediate termination shall be in writing via certified mail, return receipt requested, effective upon receipt or as otherwise designated in writing. 9.4 Requests for Participating Provider Termination. In cases where Client determines in good faith the health, safety or welfare of its Members is jeopardized by a Participating Provider under this Agreement, Client may request termination of such Provider's participation under this Agreement by written notice to CAREINGTON specifying the basis for the request and the specific facts and circumstances justifying such request, subject to applicable disclosure and confidentiality laws, via certified mail, return receipt requested. 9.5 Rights After Termination. Termination of this Agreement shall have no affect upon the rights and obligations of the parties hereto, Participating Providers, or Members arising out of any transactions occurring prior to the effective date of termination of this Agreement or termination of his or her participation under this Agreement. Dental Services to be rendered will continue to be governed by the applicable terms of this Agreement for the duration of the treatment of the condition existing as of the date of termination. 9.6 Abandonment. Nothing herein shall be construed as authorizing or permitting a Participation Provider to abandon any Member due to termination of this Agreement or such Member's participation in the Panel. However, Client's Members are not to be solicited directly or indirectly by CAREINGTON or any of its agents, contractors or other business entities prior to or following termination of this Agreement. X. INDEMNITY --------- (A) EACH PARTY WILL AND DOES HEREBY INDEMNIFY AND HOLD HARMLESS THE OTHER PARTY, ITS PARENT AND AFFILIATED CORPORATIONS, AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES, FROM AND AGAINST ANY AND ALL CLAIMS AND DEMANDS OF EVERY KIND AND NATURE ASSERTED BY A THIRD PARTY, NETWORK ACCESS AGREEMENT - PAGE 6 WHETHER GROUNDLESS OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL ACTIONS, CAUSES OR ACTION, SUITS, JUDGMENTS, CONTROVERSIES, LOSSES, DAMAGES, COSTS, LIENS, CHARGES, COURT COSTS, REASONABLE ATTORNEY FEES, PAYMENTS, LIABILITIES AND EXPENSES, OCCASIONED BY, RESULTING FROM, ARISING OUT OF, RELATED TO, OR IN CONNECTION WITH ANY ACT OR OMISSION OF THE INDEMNIFYING PARTY, ITS EMPLOYEES, OFFICERS, DIRECTORS, AGENTS OR REPRESENTATIVES, OR ANY OF THEM, IN PERFORMANCE OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, OPERATION OF THE NETWORK AND THE PLAN, AS APPLICABLE, OR ANY FAILURE OF THE INDEMNIFYING PARTY TO COMPLY WITH THE TERMS OF THIS AGREEMENT. (B) EACH PARTY WILL NOTIFY THE OTHER PARTY OF ANY CLAIM, DEMAND, SUIT OR THREAT OF SUIT FOR WHICH IT INTENDS TO SEEK INDEMNIFICATION, UNDER THIS SECTION PROMPTLY UPON RECEIPT OF NOTICE OF ANY SUCH CLAIM, DEMAND, SUIT OR THREAT OF SUIT. NEITHER PARTY WILL SETTLE AN INDEMNIFIED CLAIM WITHOUT THE CONSENT OF THE INDEMNIFIED PARTY, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD OR DELAYED. (C) THE PROVISIONS OF THIS SECTION WILL SURVIVE TERMINATION OF THIS AGREEMENT. XI. ADVERTISING REFERENCE --------------------- 11.1 No advertising, promotional, or other materials using the name, address, telephone number or description of facilities or services of CAREINGTON, Client, or a Participating Provider shall be released without the identified person, entity, or party's prior written consent. XII. GENERAL PROVISIONS ------------------ 12.1 Time of Essence. Time is hereby expressly declared to be of the essence of this Agreement. 12.2 Notices. Any notice to be given pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered upon personal delivery against written receipt or when mailed by certified mail, return receipt requested, postage prepaid to the receiving party at such party's address set forth on the signature page of this Agreement, which address for notice may be changed by either party by written notice under this Agreement. 12.3 Amendments. Except as otherwise provided in this Agreement, no amendment shall become effective unless and until it is reduced in writing and signed by CAREINGTON and Client. 12.4 Compliance. CAREINGTON shall require that all Participating Providers agree to all policies, rules and regulations adopted by CAREINGTON from time to time in connection with is Panel, including amendments thereto. 12.5 Third Parties. This Agreement is entered into by and between CAREINGTON and Client, the parties signing it, and for their benefit. Except as specifically provided in this Agreement, there is no intent by either party to create or establish third party beneficiary status or rights or their equivalent in any Member, Participating Provider, subcontractor or other party which may be affected by the operation of this Agreement. 12.6 Nonassignability. This Agreement may not be assigned, delegated or transferred by NETWORK ACCESS AGREEMENT - PAGE 7 either CAREINGTON or Client without the express written consent of the other party; provided however, Client may assign this Agreement to an affiliated entity, subsidiary, or parent company without CAREINGTON's consent upon written notification of the assignment. 12.7 Governing Law. This Agreement shall be governed in all respects by the laws of the State of Texas. 12.8 Legal Compliance. Each Participating Provider shall comply with all applicable federal, state, local and municipal laws, orders and regulations relating to the subject matter of this Agreement. CAREINGTON and Client shall comply with all applicable federal, state, local, and municipal laws, orders and regulations relating to the subject matter of this Agreement. 12.9 Severance of Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable. This Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision has never comprised a part hereof and the remaining provisions shall remain in force and effect, unaffected by such severance. 12.10 Waiver. The waiver by either CAREINGTON or Client of any breach of any provision, warranty, or representation set forth in this Agreement shall not be construed as a waiver of any subsequent breach. Further, failure to exercise any right hereunder shall not operate as a waiver of such right and all rights and remedies provided for herein are cumulative. 12.11 Inconsistent Terms. The terms of this Agreement shall apply where there is any inconsistency or conflict between this Agreement and terms of any agreement between CAREINGTON and Participating Providers. This provision shall supersede similar provisions in any agreement between CAREINGTON and Participating Providers. IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date first written above. Client CARExpress By: Name: R D Bowers Title: CEO /s/ R D Bowers _____________________________ ADDRESS FOR NOTICE: 120 Gibraltar Road, Suite 120 Horsham, Pennsylvania 19044 CAREINGTON INTERNATIONAL CORPORATION By: /s/ Barbara Flood - -------------------------------------- NETWORK ACCESS AGREEMENT - PAGE 8 Name: Title: CEO___________________________ ADDRESS FOR NOTICE: 13155 Noel Road, 15th Floor Dallas, Texas 75240 - ---------------------------------------------------------- NETWORK ACCESS AGREEMENT - PAGE 9 ATTACHMENT A Schedule of Discounted Fees for Service POCI NETWORK ACCESS AGREEMENT - PAGE 10 ATTACHMENT B Access Fees ----------- CAREINGTON and CARExpress both recognize that a ramp-up period is necessary before larger group accounts can be enrolled and/or before current group accounts can be transferred from other vendor network. As an incentive to encourage CARExpress to utilize CAREINGTON and its preferred dental network providers, CAREINGTON agrees to make its discount work available to CARExpress for a ramp-up period of six months at the volume rate of [**] per enrolled family per month. After a period of six months, the rate paid to CAREINGTON by CARExpress will reflect the following volume pricing schedule: 1-5,000 lives [**]/month/family 5,001-10,000 lives [**]/month/family 10,001-25,000 lives [**]/month/family 25,001-50,000 lives [**]/month/family 50,001-100,000 lives [**]/month/family 100,001 plus lives [**]/month/family ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. NETWORK ACCESS AGREEMENT - PAGE 11 EX-10 5 ex10-8.txt EXHIBIT 10.8 EXHIBIT 10.8 [CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.] OPTUM(R) SERVICES AGREEMENT THIS AGREEMENT, effective October 1, 2001, (Effective Date) is between Optum, a division of United HealthCare Services, Inc., (Optum) and CARExpress (Client). This Agreement and the Services Addenda describe the services Optum shall provide to Client and Participants. For services provided on or after its Effective Date, this Agreement supersedes and replaces any existing agreements between the parties relating to the same subject matter. ARTICLE 1 DEFINITIONS MEMBER: An individual who has paid a membership fee to Client, or on who's behalf a membership fee has been paid to Client and who's account is in good standing. OPTUM SERVICES: The services to be provided to Client and Participants that are described in this Agreement and any Service Addenda. PARTICIPANT: A Member and a Member's dependents who are eligible to receive services under this Agreement. PLAN: A health care membership program marketed and administered by Client. The Plan may be marketed and sold to individuals, businesses, insurers or other entities providing services to health benefit plans. SERVICES ADDENDUM: A document that describes in detail the Optum Services purchased by Client under this Agreement. There may be more than one Services Addendum. All applicable Services Addenda are listed in Section 2.1. ARTICLE 2 OPTUM SERVICES SECTION 2.1 DESCRIPTION OF SERVICES. Optum shall provide the Optum Services described in the following Services Addenda: Optum Assistance, NurseLine and Care24 Services Addenda. Each Services Addendum includes the Effective Date and pricing for the Optum Services. SECTION 2.2 HEALTH INFORMATION WEB SITE. Optum shall maintain a Web site that contains health and well-being information (Web site) in accordance with Optum's browser and other internet standards. Client's Participants will be able to access the Web site directly or through a link from Client's proprietary web site. Optum will own or license the content on the Web site. The Web site content shall not be subject to Client's review or approval and may be modified without prior notification to Client. The Web site will allow Participants to establish a password protected custom profile, in which Participants may: (1) select health, behavioral and lifestyle topics; (2) receive updated information on the selected topics; (3) have access to certain reference and interactive tools; and (4) sign-up to receive periodic e-mail notices and reminders. Client acknowledges that by maintaining the Web site, Optum is not providing internet access to Client or Client's Participants. In the event that Client is required to obtain any regulatory approvals for the Web site, Client is responsible for obtaining any and all such regulatory approvals, including any necessary approvals of the content. Optum shall not be required to modify content of the Web site to obtain such regulatory approval, but Optum shall work with Client to make other modifications that may result in regulatory approval, such as requiring a password for access to the entire Web site. 1 SECTION 2.3 OTHER REQUESTED SERVICES. If Client requests Optum to provide services in addition to those described in this Agreement, including all Services Addenda, Optum shall provide such services upon mutual agreement of the parties at Optum's then current rates for such services. Such rates shall not include any related travel, food and lodging expenses, which are Client's responsibility. SECTION 2.4 REPORTS. Optum shall provide Client with the standard annual Optum Service reports. Optum shal1 provide Client the reports within 45 days after the end of the reporting period. Except as otherwise provided in this Agreement, no reports shall include confidential information, including Participant identifying information. ARTICLE 3 COMMUNICATIONS MATERIALS SECTION 3.1 COMMUNICATIONS MATERIALS AND ACTIVITIES. Client is responsible for the costs of all materials it produces that describe Optum and Optum Services. Such materials must contain any necessary and appropriate disclosures in accordance with Section 8.6 of this Agreement. Client shall submit to Optum for review and approval all materials produced by Client that describe Optum and Optum Services. If Client produces its own communications materials, Client shall not copyright any materials describing Optum Services. Client must receive Optum's permission before using any of Optum's copyrighted materials in Client's communications materials. Client shall pay Optum's standard fee in the event Client requests marketing materials from Optum not specifically identified in the Services Addenda as being included in Optum's compensation. Client shall not reproduce any marketing, advertising, or promotional materials, including but not limited to, videos, brochures, posters, newsletters and any other Optum copyrighted materials provided to Client without Optum's prior written consent, unless expressly permitted by this Agreement. SECTION 3.2 PRODUCT NAMES. Optum shall use its standard product names when providing Optum Services under this Agreement. Optum may change such product names from time to time at its sole discretion. ARTICLE 4 RESPONSIBILITY FOR DAMAGES AND INSURANCE SECTION 4.1 RESPONSIBILITY FOR DAMAGES. Each party shall be responsible for any and all damages, claims, liabilities, or judgments it incurs that arise as a result of its own acts or omissions. Any costs for damages, claims liabilities or judgments incurred at any time by one party as a result of the other party's negligence or intentional wrongdoing shall be paid for or reimbursed by the other party. SECTION 4.2 INSURANCE. During the term of this Agreement, Optum shall maintain in effect commercial general liability insurance in the amount $1,000,000 per occurrence, and $2,000,000 aggregate and professional liability insurance coverage in the amount of $5,000,000 per occurrence and $5,000,000 aggregate. ARTICLE 5 REGULATORY COMPLIANCE SECTION 5.1 ERISA AND COBRA. The services set forth in this Agreement may or may not be subject to the federal Employee Retirement Income Security Act, 29 U.S.C., Section 1001, et seq. (ERISA) and/or the Consolidated Omnibus Budget Reconciliation Act of 1985, Public Law 99-272, including any state continuation laws (COBRA). Client and Optum agree that in any event Optum shall not be identified as, or understood to be, a Plan Sponsor, Plan Administrator, Administrator or Named Fiduciary, as those terms are defined in ERISA. Optum shall have no responsibility for the preparation or distribution of any plan description or summary plan descriptions or for the provision of any notices or disclosures or for the filing of any returns or reports or information required to be filed pursuant to ERISA, COBRA or the Internal Revenue Code. SECTION 5.2 REGULATORY FILING. In the event that Client is required to file this Agreement with federal, state and local governmental authorities, Client shall be responsible for filing the Agreement with such authorities as required by any applicable law or regulation. If, following any such filing, the governmental authority requests changes to this Agreement, Optum and Client shall jointly discuss Client's response to the governmental authority. In the event 2 any federal, state or local governmental authority requires a change to this Agreement that either Optum or Client deems to be material, either parry may request renegotiation of the affected provisions of this Agreement pursuant to Section 8.8 of this Agreement. ARTICLE 6 BOOKS AND RECORDS SECTION 6.1 MAINTAINING RECORDS. Optum shall maintain records that are usual and customary for the services provided under this Agreement and/or as required by law. Any such records shall remain the property of Optum, subject to any rights of the Participant. SECTION 6.2 PRIVACY OF RECORDS. Optum and Client shall maintain the confidentiality of all information regarding Participants in accordance with any applicable statutes and regulations. Optum is not obligated to provide Client any information Optum obtains as a result of providing Optum Services to a Participant, unless: (1) the Participant consents to the disclosure of such information; or (2) Optum determines the disclosure of such information to Client is permitted, required, or otherwise appropriate under applicable law. Optum acknowledges that in receiving, storing, processing or otherwise dealing with information about Participants it may be fully bound by the provisions of the federal regulations governing Confidentiality of Alcohol and Drug Abuse Patient Records, 42 C.F.R. Part 2, and agrees that, if so, it shall resist, in judicial proceedings, any effort to obtain access to information pertaining to Participants that is expressly provided for in the Federal Confidentiality Regulations, 42 C.F.R. Part 2. During and after the term of this Agreement, Optum and its related entities may use and transfer any and all information gathered under this Agreement, for research and analytical purposes. SECTION 6.3 EXAMINATION OF RECORDS. Upon reasonable notice, during normal business hours and at a reasonable time and place, each party shall have the right to examine any records of the other party that relate to its obligations under this Agreement, including any of Client's records relating to the compensation owed Optum under this Agreement. All records maintained by either party relating to their responsibilities under this Agreement shall be kept for at least five years after the date the records were created or any applicable period required by law, whichever is longer. A party shall pay the cost of copies of any records that it requests from the other party. If one party examines the records of the other party, the examining party shall pay the examined party: (1) the examined party's employee time spent on the examination in excess of 16 hours, (2) any other costs incurred by the examined party in complying with the examination request. No third party may conduct an examination without the prior written consent of the examined party. Neither party shall disclose any confidential business information of the other party without the prior written consent of that party. SECTION 6.4 GOVERNMENT AND ACCREDITING AGENCY ACCESS TO RECORDS. The federal, state and local government and any accrediting agencies, including but not limited to The American Accreditation HealthCare Commission/URAC, and any of their authorized representatives, shall have access to, and Optum is authorized to release all information and records or copies of such, within its possession, that are pertinent to and involve transactions related to this Agreement if such access is necessary to comply with accreditation standards, statutes or regulations applicable to Optum. 3 ARTICLE 7 TERM AND TERMINATION SECTION 7.1 TERM OF THE AGREEMENT. This Agreement is for a term of one year starting on the Effective Date, and automatically renews for additional one year terms until either party terminates this Agreement pursuant to Section 7.2. SECTION 7.2 TERMINATION OF THE AGREEMENT. This Agreement may be terminated as follows: (1) by either party upon at least 90 days prior written notice to the other party; provided, however, that the effective date of such termination shall in no case be earlier than one year from the Effective Date, (2) by either party, in the event of material breach by the other party, except as provided in Section 7.2 (3) below, upon at least 30 days prior written notice to the other party, unless the material breach has been cured before the end of the 30 days, (3) by Optum, upon at least 10 days prior written notice to Client, in the event Client does not pay Optum any amount owed within 30 days of the date of an invoice, (4) pursuant to Sections 8.6 and 8.8, (5) pursuant to the terms of the Adjustment of Fees Section in the Services Addenda, (6) automatically in the event of termination of all of the Services Addenda. Client shall pay all fees owing under this Agreement and Optum shall provide Optum Services until the expiration of the notice period. SECTION 7.3 NOTICE TO MEMBERS. Immediately upon final notice of termination of this Agreement, Client shall notify Members of such termination. Client and Optum must review and consent to any written notice to Members regarding such termination. Neither party shall unreasonably withhold its consent to such notices proposed by the other party. ARTICLE 8 MISCELLANEOUS SECTION 8.1 ASSIGNMENT. Except as provided in this Section, neither party may assign any of its rights and responsibilities under this Agreement to any person or entity without the prior written consent of the other party, which shall not be unreasonably withheld. Client and Optum acknowledge that persons and entities under contract with or affiliated with them may perform certain administrative services under this Agreement. Client acknowledges that assignment by Optum of all or any of its rights and responsibilities under this Agreement to any entity controlling, controlled by or under common control with Optum shall not require Client's prior written consent. SECTION 8.2 ENTIRE AGREEMENT AND AMENDMENT. This Agreement constitutes the entire agreement between the parties in regard to its subject matter, and, except as provided in the Adjustment of Fees Section of the Services Addenda, may be amended only by a written amendment executed by both parties. SECTION 8.3 USE OF NAMES. During the term of this Agreement, Client shall have the right to designate and make public reference to "Optum" by name in an accurate, factual manner, as the provider of Optum Services. Optum shall have the right to make public reference to Client by name in the course of identifying itself as the provider of Optum Services. Optum and Client shall not otherwise use the other's name, trademarks, or service marks without prior written approval. SECTION 8.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. 4 SECTION 8.5 NOTICES. Any notice under this Agreement shall be hand delivered or sent by pre-paid, first class mail to the addresses listed below. The addresses to which notices are sent may be changed by proper notice. SECTION 8.6 COMPLIANCE WITH LAWS. Client shall substantially comply with and ensure the Plan substantially complies with all applicable laws and regulations. Except as provided below, Optum shall obtain and maintain any applicable licenses or regulatory approvals necessary for it to perform its services under this Agreement and shall substantially comply with all applicable laws and regulations. Optum shall notify Client if Optum or a governmental authority determines that Optum must be licensed as an insurer, health service plan, health maintenance organization, prepaid limited health services organization, or other type of licensed insurer to provide Optum Services. In such event, Optum may cease providing the services that would subject Optum to such licensure, unless Optum and Client can agree upon an amendment to this Agreement that would make such licensure unnecessary. Any such cessation of services shall be effective the earlier of the date required by the governmental authority or after at least 60 days prior written notice to Client. Due to regulatory requirements, Optum may be unable to provide its full services to all clients in all states. For example, Optum may not provide master's level counselor services in California and Nevada. In the event such restrictions are applicable to the Optum Services provided to Client, Optum will notify Client of such restrictions. Client shall make all necessary and appropriate disclosures to Participants regarding any restrictions on Optum Services. Such disclosures shall be subject to Optum's review and approva1 in accordance with Section 3.1 of this Agreement. SECTION 8.7 RESOLUTION OF DISPUTES. In the event a dispute arises relating to this Agreement or the Services Addenda, the parties shall meet and confer in good faith in an attempt to resolve the dispute. If the dispute is not resolved within 30 days after the parties first met to discuss it and a party wishes to pursue the dispute, the party shall refer the dispute to binding arbitration in accordance with the rules established by the American Arbitration Association. Judgment upon the award rendered may be entered in any court of competent jurisdiction. The arbitrators shall have no power to award any punitive damages or exemplary damages or to ignore or vary the terms of this Agreement and shall be bound by controlling law. Any arbitration under this provision must be initiated within at least one year from the date the parties first met to discuss the dispute. The parties shall equally share the arbitrator's fees and other costs of the arbitration. Nothing in this Section shall be construed to limit, or preclude either party from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief as the party may deem to be necessary or appropriate against conduct, or threatened conduct by the other party. Any arbitration proceeding under this Agreement shall be conducted in Minneapolis, Minnesota. SECTION 8.8 RENEGOTIATION OF THIS AGREEMENT. Except as provided in Section 8.6, the parties shall renegotiate this Agreement if either party would be materially adversely affected by continued performance as a result of: (1) a change in law or regulation, (2) a requirement that either party comply with an existing law or regulation contrary to the party's prior reasonable understanding, or (3) pursuant to Section 5.2. The affected party must promptly notify the other party of the change or compliance requirement and its desire to renegotiate this Agreement. If a new agreement is not executed within 60 days of the receipt of the renegotiation notice, the party adversely affected shall have the right to terminate this Agreement upon 30 days prior written notice to the other party. Any such notice of termination must be given within 15 days of the end of the 60 day renegotiation period. SECTION 8.9 CONFIDENTIAL BUSINESS INFORMATION. Client and Optum shall take all necessary steps to provide the maximum protection to the other party's trade secrets and confidential business information and records. Such information shall not be disclosed to third parties without the express written consent of the party to whom the information belongs. The parties shall not utilize any trade secrets or confidentia1 business information, including customer lists, or patented, trademarked, trade-named, service-marked or copyrighted material or property 5 belonging to the other party other than is expressly permitted by this Agreement or otherwise in writing. Promotional videos may be rebroadcast and brochures made available via Client's intranet solely for the purpose of providing information about Optum's Services to Participants and provided such materials contain an appropriate copyright acknowledgment. SECTION 8.10 CLIENT RESPONSIBILITY FOR PAYMENT OF BENEFITS. Optum is not responsible, under any circumstance for the payment of any medical expenses incurred by a Participant in the course of his or her treatment, or for coverage determinations or determinations regarding eligibility, benefits, benefit limitations, and exclusions. Client shall hold harmless and indemnify Optum from any liability of any type arising from a claim by a Participant for payment of benefits under a Plan or from a claim for the payment of expenses for health care services rendered by such provider to Participant. SECTION 8.11 NON-WAIVER. The failure of either party to insist upon the strict observance or performance of any provision of this Agreement or to exercise any right or remedy shall not impair or waive any such right or remedy. SECTION 8.12 RELATIONSHIP BETWEEN PARTIES. The relationship between Optum and Client is solely that of independent contractors. Nothing in this Agreement or otherwise shall be construed or deemed to create any other relationship, including one of employment, agency or joint venture. SECTION 8.13 SURVIVAL OF TERMS. Any provisions of this Agreement which, by their nature, extend beyond the expiration, or termination of this Agreement, shall survive the termination of this Agreement, and shall remain in effect until all such obligations are satisfied. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES.
UNITED HEALTHCARE SERVICES, INC. CAREXPRESS 6300 Olson Memorial Highway 120 Gilbraltar Road, Suite 107 Golden Valley, Minnesota 55427 Horsham, Pennsylvania 19044 By /s/ R. Edward Bergmark By /s/ R. D. Bowers ---------------------------------------------- -------------------------------------------------- R. Edward Bergmark Print Name R. D. Bowers ---------------------------------------- CEO, Optum Division Print Title CEO ---------------------------------------- Date 9/5/01 Date 7/26/01 -------------------------------------------- ------------------------------------------------
6 OPTUM(R) ASSISTANCE SERVICES ADDENDUM This Addendum to the October 1, 2001 Optum Services Agreement (Agreement) is effective September 1, 2001, (Addendum Effective Date). This Addendum is effective until the Agreement or this Addendum is terminated. This Addendum sets forth the specific services and the compensation arrangement between Optum and Client for Assistance Services. For purposes of this Addendum, Members who are covered under Client's Plan and their family members. ARTICLE 1 DEFINITIONS ASSISTANCE SERVICES: Education, information, problem assessment, assistance, crisis management and referral for a Participant's personal problems relating to issues including, but not limited to, marital/family relations, financial and/or non-employment related legal issues, chemical or alcohol dependency, illnesses, and work related problems. Assistance Services shall be provided by master's degree level Optum Staff counselors. OPTUM STAFF: An Optum professional employee who provides to Participants the services described in Article 2 of this Addendum. ARTICLE 2 PROVISION OF ASSISTANCE SERVICES SECTION 2.1 ASSISTANCE SERVICES. Optum shall provide Assistance Services to Participants by telephone. Optum is available toll free 24 hours per day, 365 days per year. Optum may refer Participants to community resources for additional services, the cost of which are the responsibility of the Participant. Optum shall follow-up with Participants periodically, as determined by Optum to be clinically appropriate. Assistance Services include only those services described in this Addendum and specifically excludes the provision of information concerning Plan eligibility requirements, the content of a Plan, and the health care coverage available to a Participant. ARTICLE 3 CLIENT RESPONSIBILITIES SECTION 3.1 TRANSFER OF PHONE LINES. If Client requests Optum to provide Optum Services via a toll free number transferred from Client's previous vendor, Client shall be responsible for obtaining all approvals and making all arrangements to transfer the toll free number from the previous vendor to Optum. Optum shall not be responsible for any delay in Optum Services due to the toll free number not being transferred to Optum in a timely manner, however, Optum shall use its best efforts to assist Client, if necessary, in completing the transfer process. ARTICLE 4 COMPENSATION FOR ASSISTANCE SERVICES SECTION 4.1 ASSISTANCE SERVICE FEE. Client sha1l pay Optum the rates as outlined in the attached Care24 Services Product Addendum. Client shall pay all Monthly Payments on or before the 20th day of each month for which such Monthly Payment is due. Client shall calculate Monthly Payments using an estimate of the number of Members. Client shall adjust a subsequent Monthly Payment to reflect the difference between the estimated and actual number of Members. In the event Client paid the Monthly Rate for a Member who was not eligible to receive Assistance Services, Client may adjust a subsequent Monthly Payment to deduct up to, but not more than, two of the Monthly Rates paid after Member ceased to be eligible. Client and Optum may make other corrective adjustments to the Monthly Payment; provided, however, any corrective adjustments must be made within 60 days of the date on which the Monthly Payment was due to Optum. SECTION 4.2 LATE PAYMENT CHARGE. A 1% per month finance fee shall be charged on any outstanding balance after 30 days. 7 SECTION 4.3 ADJUSTMENT OF FEES. Prior to each anniversary of the Effective Date, referred to in this Section as the "Renewal Date," Optum shall initiate discussions with Client regarding Optum's compensation for the next term of this Addendum. At least 90 days before the Renewal Date, Optum shall mail to Client written notice regarding their Services, rates and/or fees for the next term of this Addendum (Renewal Notice). Client may terminate the Agreement and/or this Addendum by issuing written notice of termination within 30 days after the date of the Renewal Notice. Such termination is effective on the Renewal Date. If Client does not issue a written notice of termination, the new Optum Services, rates, and fees are effective on the Renewal Date, and the Agreement and this Addendum shall renew for an additional term. ARTICLE 5 TERMINATION OF THIS ADDENDUM SECTION 5.1 TERMINATION. This Addendum may be terminated in accordance with Section 7.2 of the Agreement. Unless otherwise provided in the notice of termination or in this Addendum, termination of this Addendum in accordance with Section 7.2 of the Agreement shall not result in termination of the Agreement. SECTION 5.2 TERMINATION OF THE AGREEMENT. This Addendum automatically terminates on the date of termination of the Agreement. SECTION 5.3 EFFECT OF TERMINATION OF THIS ADDENDUM ON THE AGREEMENT. In the event this Addendum is the only Addendum to the Agreement, the Agreement automatically terminates on the date termination of this Addendum. ARTICLE 6 MISCELLANEOUS SECTION 6.1 RELATIONSHIP BETWEEN OPTUM STAFF COUNSELORS AND PARTICIPANTS. Nothing in the Agreement or this Addendum shall change, alter, or interfere with any professional relationship that exists between any Optum Staff counselor providing Assistance Services and any Participant. SECTION 6.2 COMPLIANCE WITH CALIFORNIA AND NEVADA LAW. In the event Client has Participants located in California or Nevada, Client acknowledges that Optum is not licensed in California pursuant to the California Knox-Keene Act or in Nevada pursuant to the Prepaid Limited Health Services Organization Act. The terms of this Agreement that are subject to the laws of the State of California or the State of Nevada are automatically modified to the extent necessary to comply with California's Knox-Keene Exemption regulations or Nevada's Prepaid Limited Health Services Organization Exemption regulations, including, but not limited to the number of Assistance Services for problem assessment, assistance or crisis management provided to a Participant and the pre-payment of any fees. In the event that Optum claims a similar exemption in any other state, the terms of this Agreement subject to such laws are automatically modified to the extent necessary to comply with such laws. 8 OPTUM(R) NURSELINE SERVICES ADDENDUM This Addendum to the October 1, 2001 Optum Services Agreement (Agreement) is effective September 1, 2001 (Addendum Effective Date). This Addendum is effective until the Agreement or this Addendum is terminated. This Addendum sets forth the specific services and the compensation arrangement between Optum and Client for NurseLine Services. For purposes of this Addendum, Members who are covered under Client's Plan and their family members. ARTICLE 1 DEFINITIONS NURSELINE SERVICES: General health information, identification of specific health-related concerns, and provision of educational information regarding those concerns. NurseLine Services shall be provided by Optum Staff nurses. OPTUM STAFF: An Optum professional employee who provides to Participants the services described in Article 2 of this Addendum. ARTICLE 2 PROVISION OF NURSELINE SERVICES SECTION 2.1 NURSELINE SERVICES. Optum shall provide NurseLine Services to Participants by telephone. Optum is available toll free 24 hours per day, 365 days per year. NurseLine Services include only those services described in this Addendum and specifically excludes the provision of information concerning Plan eligibility requirements, the content of a Plan, and the health care coverage available to a Participant. ARTICLE 3 GUIDELINES SECTION 3.1 MAINTENANCE OF GUIDELINES. Optum shall establish and maintain medical guidelines used by Optum Staff nurses, in a written and electronic format, for the most common types of inquiries from Participants. Such guidelines shall specify the health information to be provided to a Participant presenting such an inquiry. ARTICLE 4 CLIENT RESPONSIBILITIES SECTION 4.1 TRANSFER OF PHONE LINES. If Client requests Optum to provide Optum Services via a toll free number transferred from Client's previous vendor, Client shall be responsible for obtaining all approvals and making all arrangements to transfer the toll free number from the previous vendor to Optum. Optum shall not be responsible for any delay in Optum Services due to the toll free number not being transferred to Optum in a timely manner, however, Optum shall use its best efforts to assist Client, if necessary, in completing the transfer process. ARTICLE 5 COMPENSATION FOR NURSELINE SERVICES SECTION 5.1 NURSELINE SERVICE FEE. Client shall pay Optum the rates as outlined in the attached Care24 Services Product Addendum. Client shall pay all Monthly Payments on or before the 20th day of each month for which such Monthly Payment is due. Client shall calculate Monthly Payments using an estimate of the number of Members. Client shall adjust a subsequent Monthly Payment to reflect the difference between the estimated and actual number of Members. In the event Client paid the Monthly Rate for a Member who was not eligible to receive NurseLine Services, Client may adjust a subsequent Monthly Payment to deduct up to, but not more than, two of the Monthly Rates paid after Member ceased to be eligible. Client and Optum may make other corrective adjustments to the Monthly Payment; provided, however, any corrective adjustments must be made within 60 days of the date on which the Monthly Payment was due to Optum. 9 SECTION 5.2 LATE PAYMENT CHARGE. A 1% per month finance fee shall be charged on any outstanding balance after 30 days. SECTION 5.3 ADJUSTMENT OF FEES. Prior to each anniversary of the Effective Date, referred to in this Section as the "Renewal Date," Optum shall initiate discussions with Client regarding Optum's compensation for the next term of this Addendum. At least 90 days before the Renewal Date, Optum shall mail to Client written notice regarding their Services, rates and/or fees for the next term of this Addendum (Renewal Notice). Client may terminate the Agreement and/or this Addendum by issuing written notice of termination within 30 days after the date of the Renewal Notice. Such termination is effective on the Renewal Date. If Client does not issue a written notice of termination, the new Optum Services, rates and fees are effective on the Renewal Date, and the Agreement and this Addendum shall renew for an additional term. ARTICLE 6 TERMINATION OF THIS ADDENDUM SECTION 6.1 TERMINATION. This Addendum may be terminated in accordance with Section 7.2 of the Agreement. Unless otherwise provided in the notice of termination or in this Addendum, termination of this Addendum in accordance with Section 7.2 of the Agreement shall not result in termination of the Agreement. SECTION 6.2 TERMINATION OF THE AGREEMENT. This Addendum automatically terminates on the date of termination of the Agreement. SECTION 6.3 EFFECT OF TERMINATION OF THIS ADDENDUM ON THE AGREEMENT. In the event this Addendum is the only Addendum to the Agreement, the Agreement automatically terminates on the date of termination of this Addendum. ARTICLE 7 MISCELLANEOUS SECTION 7.1 RELATIONSHIP BETWEEN OPTUM STAFF NURSES AND PARTICIPANTS. Nothing contained in the Agreement or this Addendum shall constitute or be construed to create a nurse-patient relationship between Participants and the Optum Staff nurses providing NurseLine Services to such Participants. 10 OPTUM(R) CARE24 SERVICES ADDENDUM This Addendum to the October 1, 2001 Optum Services Agreement (Agreement) is effective September 1, 2001 (Addendum Effective Date). This Addendum is effective until the Agreement or this Addendum is terminated. This Addendum sets forth the specific services and the compensation arrangement between Optum and Client for Care24 Services. For purposes of this Addendum, Members who are covered under Client's Plan and their family members. ARTICLE 1 DEFINITIONS CARE24 SERVICES: Education, information, problem assessment, assistance, crisis management and referral for a Participant's personal problems relating to issues including, but not limited to, marital/family relations, financial and/or non-employment related legal issues, chemical or alcohol dependency, illnesses, work related problems, general health information, identification of specific health-related concerns, and provision of educational information regarding those concerns. Care24 Services shall be provided by master's degree level Optum Staff counselors and/or by Optum Staff nurses, as Optum determines appropriate. OPTUM STAFF: An Optum professional employee who provides to Participants the services described in Article 2 of this Addendum. ARTICLE 2 PROVISION OF CARE24 SERVICES SECTION 2.1 CARE24 SERVICES. Optum shall provide Care24 Services to Participants by telephone. Optum is available toll free 24 hours per day, 365 days per year. Optum may refer Participants to community resources for additional services, the cost of which are the responsibility of the Participant. Optum shall follow-up with Participants periodically, as determined by Optum to be clinically appropriate. Care24 Services include only those services described in this Addendum and specifically excludes the provision of information concerning Plan eligibility requirements, the content of a Plan, and the health care coverage available to a Participant. ARTICLE 3 GUIDELINES SECTION 3.1 MAINTENANCE OF GUIDELINES. Optum shall establish and maintain medical guidelines used by Optum Staff nurses, in a written and electronic format, for the most common types of inquiries from Participants. Such guidelines shall specify the health information to be provided to a Participant presenting such an inquiry. ARTICLE 4 CLIENT RESPONSIBILITIES SECTION 4.1 TRANSFER OF PHONE LINES. If Client requests Optum to provide Optum Services via a toll free number transferred from Client's previous vendor, Client shall be responsible for obtaining all approvals and making all arrangements to transfer the toll free number from the previous vendor to Optum. Optum shall not be responsible for any delay in Optum Services due to the toll free number not being transferred to Optum in a timely manner, however, Optum shall use its best efforts to assist Client, if necessary, in completing the transfer process. 11 ARTICLE 5 COMPENSATION FOR CARE24 SERVICE SECTION 5.1 CARE24 SERVICE FEE. Client shall pay Optum per Member per month (Monthly Rate) for each Member that month (Monthly Payment) or [**] per month (Minimum Monthly Payment), whichever is greater as outlined in the table below. The Monthly Minimum Payment shall become effective 90 days after the Effective Date of the Agreement. - ------------------------------------------------------------------------------- OPTUM SERVICE MONTHLY RATE - ------------------------------------------------------------------------------- Assistance Services [**] - ------------------------------------------------------------------------------- NurseLine Services [**] - ------------------------------------------------------------------------------- Care24 Services [**] - ------------------------------------------------------------------------------- Client shall pay all Monthly Payments on or before the 20th day of each month for which such Monthly Payment is due. Client shall calculate Monthly Payments using an estimate of the number of Members. Client shall adjust a subsequent Monthly Payment to reflect the difference between the estimated and actual number of Members. In the event Client paid the Monthly Rate for a Member who was not eligible to receive Care24 Services, Client may adjust a subsequent Monthly Payment to deduct up to, but not more than, two of the Monthly Rates paid after Member ceased to be eligible. Client and Optum may make other collective adjustments to the Monthly Payment; provided, however, any corrective adjustments must be made within 60 days of the date on which the Monthly Payment was due to Optum. SECTION 5.2 LATE PAYMENT CHARGE. A 1% per month finance fee shall be charged on any outstanding balance after 30 days. SECTION 5.3 ADJUSTMENT OF FEES. Prior to each anniversary of the Effective Date, referred to in this Section as the "Renewal Date," Optum shall initiate discussions with Client regarding Optum's compensation for the next term of this Addendum. At least 90 days before the Renewal Date, Optum shall mail to Client written notice regarding their Services, rates, and/or fees for the next term of this Addendum (Renewal Notice). Client may terminate the Agreement and/or this Addendum by issuing written notice of termination within 30 days after the date of the Renewal Notice. Such termination is effective on the Renewal Date. If Client does not issue a written notice of termination, the new Optum Services, rates, and fees are effective on the Renewal Date, and the Agreement and this Addendum shall renew for an additional term. ARTICLE 6 TERMINATION OF THIS ADDENDUM SECTION 6.1 TERMINATION. This Addendum may be terminated in accordance with Section 7.2 of the Agreement. Unless otherwise provided in the notice of termination or in this Addendum, termination of this Addendum in accordance with Section 7.2 of the Agreement shall not result in termination of the Agreement. SECTION 6.2 TERMINATION OF THE AGREEMENT. This Addendum automatically terminates on the date of termination of the Agreement. SECTION 6.3 EFFECT OF TERMINATION OF THIS ADDENDUM ON THE AGREEMENT. In the event this Addendum is the only Addendum to the Agreement, the Agreement automatically terminates on the date of termination of this Addendum. ARTICLE 7 MISCELLANEOUS SECTION 7.1 RELATIONSHIP BETWEEN OPTUM STAFF COUNSELORS AND PARTICIPANTS. Nothing in the Agreement or this Addendum shall change, alter, or interfere with any professional relationship that exists between any Optum Staff counselor providing Care24 Services and any Participant. SECTION 7.2 RELATIONSHIP BETWEEN OPTUM STAFF NURSES AND PARTICIPANTS. Nothing contained in the Agreement or this Addendum shall constitute or be construed to create a nurse-patient relationship between Participants and the ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 12 Optum Staff nurses providing Care24 Services to such Participants. SECTION 7.3 COMPLIANCE WITH CALIFORNIA AND NEVADA LAW. In the event Client has Participants located in California or Nevada, Client acknowledges that Optum is not licensed in California pursuant to the California Knox-Keene Act or in Nevada pursuant to the Prepaid Limited Health Services Organization Act. The terms of this Agreement that are subject to the laws of the State of California or the State of Nevada are automatically modified to the extent necessary to comply with California's Knox-Keene Exemption regulations or Nevada's Prepaid Limited Health Services Organization Exemption regulations, including, but not limited to the number of Care24 or Assistance Services for problem assessment, assistance or crisis management provided to a Participant and the prepayment of any fees. In the event that Optum claims a similar exemption in any other state, the terms of this Agreement subject to such laws are automatically modified to the extent necessary to comply with such laws. 13 EX-10 6 ex10-9.txt EXHIBIT 10.9 EXHIBIT 10.9 [CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.] NETWORK ACCESS AND REPRICING AGREEMENT THIS NETWORK ACCESS AND REPRICING AGREEMENT (this "Agreement") is made and entered into as of the first day of September 2002 by and between International Health Partners, Inc., an Indiana corporation located at 120 Gibraltar Road, Suite 107, Horsham Pennsylvania ("CARExpress"), and First Access, Inc. ("FA"), a California corporation located at 25108 Marguerite Parkway, # 214, Mission Viejo, California 92692. WHEREAS, FA has arranged for CARExpress to access networks of credentialed providers (a list of provider networks contracted with FA and with which CAREXPRESS will be leasing from FA under this agreement is listed and each is described under Exhibit B of this Agreement.); and WHEREAS, CAREXPRESS desires to enjoy the benefit of the network's negotiated contracted rates for purposes of providing individuals affiliated with CAREXPRESS and who (or whose dependents) are entitled to such contracted rates hereunder ("Cardholders") with the right to take the difference between the contracted rates off of customary charges for services rendered by the preferred providers in accordance with agreements between the Network(s) and such providers; WHEREAS, FA is in the business of automating the re-pricing of charges of preferred provider (the "Network") -time using FA's patent pending repricing system; and WHEREAS, CAREXPRESS desires to purchase access to FA's patent pending repricing system and services; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, CAREXPRESS and FA agree as follows: 1. CAREXPRESS RESPONSIBILITIES 1.01. CAREXPRESS shall purchase FA's repricing services and access to the Network(s) for its specified Cardholders by (1) paying the fees specified in Article 4 below, (2) submitting to FA, no later than the last day of the preceding month, a "full file" eligibility statement (the "Statement") for the entire eligibility record which shall set forth (a) the total number of Cardholders, including any deletions with the appropriate termination dates and (b) the monthly fee due FA hereunder, which fee shall be calculated in accordance with Section 4.02 below, and (3) submitting to FA no later than the last day of the month, the name and identification number of each Cardholder for the following month. All information required by this section shall be provided in a form that is reasonably acceptable to FA. 1.02. At any time, CAREXPRESS may amend the Statement for the current month to include the names of additional Cardholders of CAREXPRESS by submitting to FA either a list of the name and identification number of each such additional Cardholder or a new Statement reflecting the names of such additional Cardholders. CAREXPRESS shall not be entitled to prorate the fees due FA hereunder-in connection with any such additional Cardholder; for each Cardholder listed on a Statement (including any Cardholder added pursuant to this Section 1.01), CAREXPRESS shall pay the applicable fee for the full calendar month in accordance with Section 4.02 below. 1.03. CAREXPRESS may delete Cardholders from the Statement at any time by submitting a Statement specifying the name and identification number of any Cardholder to be so deleted; provided however that CAREXPRESS shall not be entitled to prorate the monthly fee due FA hereunder with respect to any such deleted Cardholder and shall pay FA the full monthly fee for such deleted Cardholder for the month in which such Statement was submitted. 1.04. CAREXPRESS agrees to communicate with and educate its Cardholders in connection with the right to access the Network(s) and to obtain the repricing services provided by FA hereunder. 1.05. Within two (2) business days after receipt by FA of any Statement from CAREXPRESS satisfying the requirements set forth in Section 1.01 above or any amended Statement from CAREXPRESS satisfying the requirements set forth in Section 1.03 above, any and all Cardholders of CAREXPRESS included in such Statement (or amended Statement) shall be entitled to visit any provider in the Network(s) and to receive the contracted prices for services rendered by such provider in accordance with the contract between the Network(s) and such provider. 1.06. FA reserves the right to terminate any individual enrollment of a CAREEXPRESS member for failure to pay a medical provider accessed under FA's program in a timely manner and/or in a manner consistent with that agreed upon between the member and the provider. In such a situation, FA will contact CARExpress with the details of the situation and allow CARExpress to intervene and communicate with the member, and strive to resolve the problem prior to cancellation of the member's access to the networks. 1.07. In order to receive the contracted rates from FA's hospital PPO partners, CAREXPRESS members must follow the pre-certification procedure as outlined in the "NOTICE REGARDING HOSPITAL ACCESS" exhibit C of this contract. Members who failure to follow these procedures will not be entitled to receive the contracted rate. 2. FA RESPONSIBILITIES 2.01. FA agrees to provide to CAREXPRESS access to the FA Network(s) described in Exhibit B of this agreement for CAREXPRESS' Cardholders in accordance with this Agreement. FA warrants that all providers participating in FA networks meet the following criteria: i. Preferred providers are currently licensed and in good standing in the states in which they practice and have had no significant disciplinary history that will affect the equality of patient care. ii. Preferred providers are credentialed, at a minimum, according to the principles of NCQA credentialling standards. iii. Preferred providers carry professional liability insurance consistent with the greater of state law or Professional Association requirements or overwhelming regional standards of Insurance coverage. iv. Preferred providers shall call a toll free number to access the "First Access" re-pricing system in order to obtain the applicable fee schedule and collect the entire allowable amount from the cardholder at the point of service. v. Preferred providers shall accept the Network(s) allowable amount for services provided in the provider's office as payment in full. Preferred Providers are not obligated to accept to the contracted rate if the member did not follow the Hospital Pre-Certification or the member's terms and conditions procedures as outlined in the attached Exhibit C. vi. Alpha-numeric, CPT4 codes and provider offices with remote administration may require a paper claim submission either from the provider or the patient. In these instances, FA shall reprice the provider encounter and communicate to both the provider and the cardholder the contracted rate with an Explanation of Benefits letter. The submission of a paper claim, shall not release the provider from it's contractual obligation of providing the cardholder the contracted rate. 2.03 FA shall provide repricing services for CAREXPRESS' Cardholders in accordance with this Agreement. 2.04 FA shall provide CAREXPRESS with information on a monthly basis regarding the amount of savings realized by Cardholders based on the network's contracted rates for providers in the Network(s) which were repriced using CAREXPRESS' dedicated toll-free number, including the number of calls made using such number. 2.05 FA shall provide CARExpress with the option of using any or all of the multiple networks listed in Exhibit B of this Agreement (including their various sub-networks and contracted networks) throughout the country. The FA Network(s) chosen can be on the basis of optimal provider coverage for any CARExpress member or group account, most competitive provider contract fees and/or most competitive access fees. FA shall work with CAREXPRESS to identify the most appropriate Network(s) for CAREXPRESS' cardholders. 3. TERM AND TERMINATION The term of this Agreement shall commence upon execution by both parties hereto and shall continue until terminated upon ninety days written notice (however such notice may not be given until one (1) year after the effective date of this Agreement) from one party to the other or until terminated in accordance with Section 4.03 below; provided however that this Agreement shall be immediately terminable by either party (in which event such party shall promptly notify the other party) in the event the other party breaches any material obligation hereunder. In the event of termination, all rights and obligations hereunder shall cease, except for the provisions of Article 13 and Article 16, each of which shall survive the termination of this Agreement. Notwithstanding the preceding sentence, in the event this Agreement shall be terminated by either party as permitted herein, CAREXPRESS shall remain liable for the payment of all fees due FA for services furnished hereunder prior to such termination. 4. COMPENSATION & PRICING 4.01. MONTHLY MINIMUM: CARExpress shall pay to FA a monthly minimum equal to [**] per month, regardless of the number of CARExpress members actively using FA's services. Minimum fees shall accrue if not used and may be applied toward all access fees or retained savings fees due to FA from CARExpress. This monthly minimum shall commence on or before October 15, 2002. ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.02. FA will provide the following services as a part of the paid fees: toll-free provider referral service, pre-certification service, physician, ancillary and facilities, repricing of all claims, claim resolution and provider relations: HOSPITAL, EMERGENCY ROOM AND ANCILLARY FACILITIES DISCOUNTS ARE SEPARATELY NEGOTIATED AND ARE NOT A PART OF THIS AGREEMENT. Monthly fee per cardholder per month: Actual fees will be credited toward the monthly minimum 0-20,000 [**] 20,001 to 50,000 [**] 50,001 to 75,000 [**] 75,001 to 100,000 [**] 100,001 to 250,000 [**] A. Monthly fees, to be paid no later than the 10th day of each month for the month immediately preceding, based on the aggregate number of all Cardholders listed on the Statements submitted for such preceding month by CAREXPRESS to FA in accordance with Section 1.01 and 1.02 above, which fees shall be calculated by multiplying such total number of Cardholders by the applicable monthly fee. 4.03. Retention of Earned Savings: CARExpress and FA have not completed negotiations yet on the sharing of retained savings when CARExpress group accounts choose to retain a percentage of the savings achieved from use of the FA network. This contract will include those fees in a separate exhibit when both parties have agreed on the terms. 4.04. FA may adjust its fees due hereunder after receiving an increase notice from the Network(s). FA will provide written notice to CAREXPRESS at least 60 days prior to the date of such adjustment. For a period of fifteen days after the date of any such notice, CAREXPRESS shall have the option to terminate this Agreement by giving written notice to FA of the exercise of such option, such termination to be effective as of the business day immediately preceding the effective date of the proposed fee adjustment. FA will be limited, however, to a maximum of 10% increase once each year. 4.05. Subject to 4.06 below, in the event of any material breach of any term of this Agreement by either party hereto which remains uncured after thirty (30) days written notice by the non-breaching party to the breaching party, or if such breach cannot be cured within said thirty (30) day period, then the non-breaching party shall have the right to terminate this Agreement by delivery of written notice to the other party in the manner provided by this Agreement. ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.06. If CAREXPRESS fails to pay within ten (10) days of receipt of billing, FA may notify CAREXPRESS in writing of such failure to pay and issue warning to CAREXPRESS that if payment in full for all previously billed amounts is not received within fourteen (14) days from date of notice, the Agreement may be terminated. If CAREXPRESS fails to pay in full all previously billed invoices within the fourteen- (14) day period following notification, FA may notify CAREXPRESS of such failure to pay and immediately terminate this Agreement. Termination of the Agreement does not relieve CAREXPRESS of the obligation to pay all moneys due. 5. COMMUNICATIONS FA will cooperate with CAREXPRESS in the preparation and dissemination of the materials required by Section 1.05 above. CAREXPRESS shall not use the First AccessTM, ANY DOCTORTM or the Network(s)'s trademarks, service marks or tradenames in any advertisement or publication without the written consent of FA. CAREXPRESS will submit all communications materials, including but not limited to, I.D. cards, enrollment, and marketing materials, to FA for written approval before distribution to any client or Cardholder. 6. NOTICES Any notice required or given under this Agreement shall be in writing and delivered in person, sent by certified or registered mail, return receipt requested, or next day mail or courier, and addressed to the other party at the address set forth below, or at such other address as the party may designate in writing. Notices delivered in person or sent by next day mail or courier shall be deemed to have been given on the day actually received. Notices sent by registered or certified mail shall be deemed to have been given on the earlier of the third day after the date such notice was sent or the day actually received; provided however that if such day falls on a weekend or legal holiday, receipt shall be deemed to occur on the business day following such weekend or legal holiday. International Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA. 19044 Attn: Dr. Dennis Bowers, CEO First Access, Inc. 25108 Marguerite Parkway, # 214 Mission Viejo, CA 92691 Attn: Kimberly Darling, President 7. ASSIGNMENT The rights and duties of either party shall not be transferred or assigned in whole or in part without the prior written consent of the other; provided however that either party may assign this Agreement to a present or future affiliate, subsidiary or successor in interest who succeeds to all or substantially all of the assets and operations of such party. 8. FORCE MAJEURE Neither party shall be responsible for delays or failures of performance resulting from acts beyond the control of such party. Such acts include, but are not limited to, acts of god, strikes, lockouts, riots, acts of war, epidemics, government regulations imposed after the effective date hereof, fire, communication line failures, power failures, earthquakes or other disasters. 9. OWNERSHIP CAREXPRESS acknowledges that all right, title and interest in and to the proprietary concepts, methods, techniques, processes, adaptations and ideas that pertain to FA's First Access patent pending repricing system or any derivative work associated therewith (collectively, "Proprietary Information") shall remain with FA. CAREXPRESS acknowledges that the Proprietary Information was developed or acquired by FA through the expenditure of substantial time and expense, and CAREXPRESS agrees, that without the prior written consent of FA, it shall not copy or otherwise reproduce, misappropriate, distribute, disclose, transfer or use any Proprietary Information except as expressly contemplated in this Agreement. 10. RESPONSIBILITY TO AND RIGHTS OF THIRD PARTIES CAREXPRESS acknowledges and agrees that (a) FA does not practice medicine or any other profession, (b) FA does not control the provision of services to CAREXPRESS' Cardholders, (c) FA has no responsibility for the care and treatment of CAREXPRESS' Cardholders rendered by preferred providers in the Network(s), such care and treatment being the sole responsibility of the preferred providers in the Network(s), and (d) FA has no responsibility for any activities related to the credentialing of preferred providers in the Network(s). 11. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same instrument. 12. SEVERABILITY Should any provision of this Agreement be adjudged unlawful or invalid by any court of competent jurisdiction, the remaining provisions shall remain in full force and effect. 13. ATTORNEY'S FEES In the event of any action or threatened action between the parties to enforce the terms of this Agreement, in addition to any other relief it may be awarded, the prevailing party shall be entitled to be reimbursed by the other party for the prevailing party's costs incurred in connection therewith, including but not limited to legal and expert witness fees. 14. ARBITRATION 14.01. Any controversy, dispute or claim arising out of or in connection with this Agreement shall be resolved, upon the request of either party hereto ("Request"), by final and binding arbitration ("Arbitration") conducted in Orange County, California, in accordance with the provisions hereof. Except as otherwise provided herein, the Arbitration shall be commenced and conducted in accordance with the Rules of Practice and Procedures of the Judicial Arbitration and Mediation Services, Inc. ("JAMS") as in effect at the time ("JAMS Rules"). The exact time and location of the Arbitration proceeding will be determined by the arbitrator. The parties shall jointly select one arbitrator from the Orange County JAMS panel of arbitrators. If the parties are unable to agree upon an arbitrator within sixty (60) days of the Request for Arbitration, the arbitrator shall be selected in accordance with the JAMS Rules. All testimony in the Arbitration proceeding shall be given under oath. 14.02. Commencement of any Arbitration pursuant hereto shall be subject to the same statutes of limitations as would apply if the matter were to be filed in a court of law or equity. 14.03. The arbitrator shall have the power to grant all legal and equitable remedies provided by California or federal law, provided however, that the arbitrator (a) shall not have the power to award punitive or exemplary damages and (b) shall be bound by applicable statutory and case law in rendering a decision. The decision of the arbitrator shall be in writing and shall include written findings of fact and conclusions of law. The decision of the arbitrator shall be final and unreviewable for any error of any kind, except (i) if the Arbitration was not conducted in accordance with the provisions hereof or the JAMS Rules (except to the extent the JAMS Rules are not provided for herein), or (ii) for those reasons set forth in California Code of Civil Procedure Section 1286.2, provided, however, that the arbitrator's decision shall not be subject to review because of any claimed error in interpreting, following or applying applicable law in deciding the matter subject to the Arbitration. 14.04. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof and the award may be judicially enforced. 15. GOVERNING LAW The laws of the State of California shall govern this Agreement, without giving effect to its conflicts of law provisions. 16. CONFIDENTIALITY AND NON-COMPETITION 16.01. Each party may, in the course of the relationship established by this Agreement, disclose to the other party in confidence non-public information concerning such party's earnings, volume of business, methods, systems, practices, plans and other confidential or commercially valuable proprietary information, including any confidential and proprietary information of third parties which FA is contractually obligated to protect, such as information regarding negotiated contracted rates of preferred providers in the Network(s) and information related to the methodology of re-pricing claims hereunder (collectively, "Confidential Information"). Each party acknowledges that the disclosing party (or if applicable, a third party to whom FA is contractually obligated) shall at all times be and remain the owner of all Confidential Information disclosed by or on behalf of such party, and that the party to whom Confidential Information is disclosed may use such Confidential Information only in furtherance of the purposes and obligations of this Agreement. The party to whom any Confidential Information is disclosed shall use its best efforts, consistent with the manner in which it protects its own Confidential Information, to preserve the confidentiality of any such Confidential Information which such party knows or reasonably should know that the other party (or if applicable, a third party to whom FA is contractually obligated) deems to be Confidential Information. Neither party shall use for its own benefit, or disclose to third parties any Confidential Information of the other party without such other party's written consent. 16.02. CAREXPRESS agrees that, during the term of this Agreement and for a period of eighteen months after the termination thereof by either party, CAREXPRESS shall not influence or seek to influence, directly or indirectly, any of FA's customers, business partners, vendors and affiliates to avoid, discontinue or limit such entity's business relationship with FA, (2) enter into any business relationship with FA's business partners, vendors and affiliates who are involved with FA's patent pending telephonic repricing services or whose names and roles may be disclosed to CAREXPRESS under this Agreement. FA agrees that, during the term of this Agreement and for a period of eighteen months after the termination thereof by either party, FA shall not influence or seek to influence, directly or indirectly, any of CAREXPRESS' customers, business partners, vendors and affiliates to avoid, discontinue or limit such entity's business relationship with CAREXPRESS, (2) enter into any business relationship with CAREXPRESS' business partners, vendors and affiliates who are involved with CAREXPRESS' contracted card services or whose names and roles may services or whose names and roles may be disclosed to FA under this Agreement. 16.03. This Agreement and the terms hereof shall remain confidential and neither party shall disclose this Agreement or the terms hereof to any other party, except as required by law. 17. ARTICLE HEADINGS The Article headings included in this Agreement are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. 18. ENTIRE AGREEMENT This Agreement contains the entire agreement and understanding of the parties' subject matter hereof and shall supersede any and all prior and concurrent agreements, whether oral or written, between the parties regarding the subject matter hereof. The parties acknowledge and agree that neither of them has made any representations with respect to the subject matter of this Agreement, or any representation inducing the execution and delivery hereof except such representations as are specifically set forth herein, and each of the parties hereto acknowledges that it has relied on its own judgment in entering into the same. 19. NO AGENCY No agency is created by the terms of this Agreement, and CAREXPRESS shall have no authority to obligate FA in any way, contractually or otherwise. 20. AUTHORITY Each person signing this Agreement on behalf of a party hereto represents that he or she is duly authorized to do so on behalf of such party and that such party has taken all necessary action in order to be bound by the terms hereof. In witness whereof, this Agreement is executed this 18th day of September, 2002. International Health Partners, Inc. By: /s/ R. Dennis Bowers ----------------------------------- Dr. R. Dennis Bowers: Title: CEO First Access, Inc. By: /s/ Kimberly Darling ----------------------------------- Kimberly Darling Title: President Exhibit B Provider Networks Following are the summary descriptors of each of the PPO networks that comprise the FA networks that CARExpress will be leasing from FA. These networks will be amalgamated into an overall data base on the CARExpress website, allowing CARExpress members to identify participating providers, their location and specialty descriptors.
PPO Name #Hospitals #doctors #ancillary facilities - ----------------------------------------------------------------------------------------------- 1. PPO NEXT 3,700 337,307 3,800 2. International Med Care 4,000 350,000 75,000
Omitted Exhibits The following exhibits to the Network Access and Repricing Agreement have been omitted: Exhibit Exhibit Description ------- -------------------- A CARExpress Cardholder Obligations C Member Terms and Conditions The Company agrees to furnish supplementally a copy of the foregoing omitted exhibits to the Securities and Exchange Commission upon request. EX-10 7 ex10-10.txt EXHIBIT 10.10 EXHIBIT 10.10 [CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.] NETWORK LEASING AGREEMENT This NETWORK LEASING AGREEMENT is made as of the 18th day of December, between National Benefit Builders, Inc. (NBBI), Inc a New Jersey corporation ("NBBI"); located at 248 Columbia Turnpike, Florham Park, NJ 07932 and International Health Partners, Inc. ("LESSEE") located at 120 Gibraltar Road, Suite 107, Horsham, PA and provides as follows: RECITALS NBBI is a service and marketing organization engaged in the business of providing certain products and services (hereinafter collectively referred to as ("Network(s)") to groups and consumers. LESSEE, an independent contractor as to NBBI, markets programs and services to utility companies, insurance companies, businesses, financial institutions, marketing companies associations and individuals, which become Clients of LESSEE ("Clients"). LESSEE desires to make certain NBBI Networks, more particularly described in Schedule A, available to certain Clients of LESSEE. Client's customers and employees who are eligible to access the Networks are hereinafter referred to as "Member(s)". NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants hereinafter contained, NBBI and LESSEE, each intending to be legally bound hereby agree as follows: I. OBLIGATIONS OF NBBI NBBI agrees to render the services specified in this Agreement regardless of whether the Networks are supplied by NBBI, an affiliate, or other service company represented by NBBI. To this end, NBBI shall: (A) Provide the Networks in the United States of America where permitted by local, state and federal laws. (B) Provide LESSEE with updated information regarding the Networks in a timely manner whenever such information is made available to NBBI. NBBI shall not be responsible for providing such updated material directly to Members or Clients. LESSEE shall use such information only to print materials concerning Networks for dissemination to Members or for an Internet based search. (C) Ensure that service for all aspects applicable to the Networks is provided to the LESSEE during the term of this Agreement commonly referred to as Level 2 service. II. OBLIGATIONS OF LESSEE LESSEE shall: (A) Be responsible for notifying any Member in the event the LESSEE or LESSEE's Client wishes to terminate the Networks described herein for that Member. 1 (B) Forward or cause to be forwarded immediately to NBBI notice of complaints or correspondence arising pursuant to any of the Networks described herein and which are received by LESSEE. (C) Assume responsibility for administration of any inquiry that may occur in relation to the Networks as may be applicable to this Agreement and which is under the control and administration of LESSEE. (D) Render customer service and general program administration for complaints, notifications, updates and other Member inquiries commonly referred to as level 1 service. (E) Promptly after enrollment of any new Members for the Membership Services described herein, LESSEE shall send to NBBI the appropriate documentation as determined by NBBI as defined in Schedule (C). An example of the file format that NBBI accepts is set forth in Schedule (C). (F) Provide or require its Clients to provide its Members identification cards that display a mark or logo identifying the Networks and prominently displays the phrase "THIS IS NOT INSURANCE". (G) LESSEE shall be responsible for complying with all laws, rules and regulations applicable to the marketing and use of the Networks. III. FULFILLMENT AND PROMOTIONAL MATERIALS (A) LESSEE shall use only those materials referencing the Networks approved in writing by NBBI, which approval shall not be unreasonably withheld, when describing or making any reference to the Networks contained in this Agreement. (B) NBBI shall use its best efforts to respond to all proposed printed materials within seven (7) business days of NBBI's receipt of such materials. (C) After making copy corrections, LESSEE shall promptly forward to NBBI the final copy to be printed, for NBBI's final approval. (D) LESSEE shall insure that any name/phrase/symbol that LESSEE elects or chooses to refer to the Networks is approved by proper local, state and federal authorities. IV. COMPENSATION (A) LESSEE shall pay to NBBI a monthly fee as set forth in Schedule B attached hereto ("Access Fee"). The Access Fee shall include coverage for the Member and such Member's dependents, persons who reside in such Member's household or others who are included within the Member's plan as determined by NBBI. Such payments shall be made by LESSEE to NBBI on or before the fifteenth (15th) day of each month following the month in which a Member is eligible for network services, and shall be based on the total number of new and renewal Members eligible as of the last day of the previous month. No retroactive adjustments shall be permitted with respect to any Members. Any past due Access Fees shall be subject to a monthly late payment fee equal to the greater of (i) 1.5% of the past due amount or (ii) 2 $50.00, provided that in no event shall such fee exceed the maximum amount permitted under applicable law. (B) NBBI shall have the right to increase the per membership unit fee on any renewal fee at the end of the first Agreement term, or any time thereafter, with not less than ninety (90) days notice to LESSEE prior to the effective date of such increase. Such increase shall be in effect for a period of at least one (1) year from the effective date. V. AUDIT NBBI shall have the right for an independent third party auditor to review the books and records of LESSEE for the purpose of auditing the payments made or required to be made to NBBI by LESSEE under this agreement. NBBI may exercise such right of audit during normal business hours, upon reasonable notice to LESSEE. LESSEE shall cooperate with NBBI's auditor in the performance of any audit. NBBI shall be responsible for the cost of the audit unless the audit reveals a discrepancy of more than ten percent (10%) in the amount of fees owing NBBI, in which case LESSEE shall be responsible for the cost of such audit. VI. TERM AND TERMINATION (A) The initial term of this Agreement shall begin on the 1st day of March, 2004 (the "Commencement" date) and continue for two (2) years or until terminated sooner as provided herein (the "Initial Term"). Provided NBBI or LESSEE, respectively, is not in default under this Agreement, the Initial Term shall be automatically renewed for additional terms of one (1) year each, unless either party gives written notice of its intention to terminate the Agreement at least sixty (60) days prior to the expiration of the then current term. Except as otherwise provided herein, all the terms of this Agreement shall remain in full force and effect during such renewal term(s). (B) Either party may terminate this Agreement by giving the other party at least sixty (60) days written notice prior to the expiration of the current term of this Agreement. This Agreement may only be amended from time to time by a writing signed by authorized officers of both parties. (C) If either party shall fail to perform any of its obligations hereunder, of if any warranty made by either party is breached, and such status shall continue to exist for thirty (30) days after the other party has given written notice thereof, then such other party may declare this Agreement terminated. (D) Either party may terminate this Agreement at any time without advance written notice upon the occurrence of a bankruptcy event. A bankruptcy event occurs if: (i) the other party suspends or goes out of business, substantially reduces business operations, becomes insolvent or unable to meet its debts as they mature, calls a meeting of its creditors, sends notice of a proposed bulk sale of all or a substantial part of its business, makes any general assignment for the benefit of its creditors, or commits an act of bankruptcy; or 3 (ii) any petition is filed by the other party initiating a bankruptcy, arrangement, reorganization, or other proceeding under any provision of the U.S. Bankruptcy Code or similar law or such a proceeding is filed against such party and is not removed or discharged within sixty (60) days after the filing thereof; or (iii) a receiver or trustee is appointed for the other party or for any or all of its property. (E) The termination or modification of any Network shall not affect nor prohibit the enforcement of this Agreement as it applies to any remaining Networks. (F) All obligations of LESSEE or NBBI incurred under this Agreement as of the date of termination shall survive such termination and shall not affect the rights of the LESSEE or NBBI, as the case may be, in the performance of this Agreement. VII. INDEMNIFICATION Each party shall hold harmless and indemnify the other party against any and all claims, actions, proceedings, expenses, damages, judgments and liabilities, including reasonable attorney's fees and court costs, arising in connection with this Agreement and/or the services to be provided hereunder due to the other's negligence, breach of this Agreement or failure to perform in accordance with the provisions of this Agreement. The indemnity contained in this paragraph shall survive the termination of this Agreement. VIII. ASSIGNMENT The rights and obligations of the assigning party under this Agreement shall not be assigned to any other individual, firm, corporation, association or other entity without the prior written approval of the non-assigning party which consent shall not be unreasonably withheld. IX. INDEPENDENT CONTRACTOR STATUS LESSEE hereby acknowledges that its relationship with NBBI is that of an independent contractor and not that of an employee, agent, joint venture or partner. With respect to the performances covered by this Agreement, NBBI and LESSEE agree that LESSEE, its employees, agents, sales representatives and Clients shall not be treated as an employee for any purpose. X. AUTHORITY OF LESSEE LESSEE acknowledges that this Agreement does not constitute LESSEE as an agent or legal representative of NBBI for any purpose other than those express purposes contained in this Agreement. Other than expressly provided herein, LESSEE is not granted any right or authority to assume or create any obligation or responsibility express or implied, on behalf of or in the name of NBBI or to bind NBBI in any manner. 4 XI. CONFIDENTIALITY (A) The parties each acknowledge and agree that all information revealed, obtained, or developed in the course of or in connection with the performance of this Agreement, which is designated in writing as confidential or proprietary information, shall be considered as confidential or proprietary information which shall not be disclosed by either party to any third party without the prior written consent of the other party. Each party also agrees that any dissemination of the aforementioned information shall be restricted to a "need to know basis" within its own business entity for the purpose of performance hereunder. (B) Each party further agrees to maintain and cause its employees, agents, representatives and officers to keep confidential the nature of each party's obligations hereunder and not to disclose any confidential or proprietary information with respect thereto to any third party or entity. The foregoing obligations of the parties shall not apply to any information that is or becomes known in the public domain other than as a consequence of a breach by one of the parties of its obligations hereunder, is independently developed by a party or is rightly obtained by a party from third parties. XII. COVENANT NOT TO DISCLOSE OR SOLICIT (A) In performing its obligations pursuant to this Agreement, each party may have access to and receive disclosure from the other of certain proprietary and confidential information, including, but not limited to, financial records, technological developments, marketing strategies, Member lists, Participating Provider lists, employee lists, and other information considered by the disclosing party to be confidential and proprietary (herein collectively referred to as "Confidential Information"). For purposes of this Section, the financial terms of this Agreement are Confidential Information of each party. Confidential Information does not include: (i) information learned from a third party entitled to disclose it and who is not in violation of a contractual, legal or fiduciary obligation to either party, (ii) information which is or becomes known publicly through no fault of either party or, (iii) information already known by either party prior to disclosure from the other party, as shown by the receiving party's records. (B) Each party will receive Confidential Information in confidence, will use it solely for the purpose of and as necessary to fulfill its obligations under this Agreement and will not reveal it to any third party, other than a corporate affiliate, without the express written consent of the other party. Each party will take appropriate measures to prevent its agents, employees and subcontractors from using or disclosing any Confidential Information, except as is expressly permitted under this Agreement. (C) Injunctive Relief. NBBI hereby consents and agrees that for any violation of any of the provisions of this section of the Agreement, a restraining order and/or an injunction may issue against it or its Agents, employees, and independent contractors in addition to any other rights that LESSEE may have. In the event that LESSEE is successful on the verdict in any suit or proceeding brought or instituted by LESSEE to enforce any of the provisions of this Agreement or on account of any damages sustained by LESSEE by reason of violation by NBBI of any of the terms and/or provisions of this Agreement to be performed by NBBI, NBBI agrees to pay to LESSEE reasonable attorneys' fees. Similarly, NBBI may recover its 5 reasonable attorneys' fees if it successfully defends any lawsuit brought by LESSEE or if NBBI brings and is successful on the verdict in any lawsuit it brings against LESSEE. LESSEE hereby consents and agrees that for any violation of any of the provisions of this section of this Agreement, a restraining order and/or an injunction may issue against it or its Agents, employees, Clients, and independent contractors in addition to any other rights that NBBI may have. In the event that NBBI is successful on the verdict in any suit or proceeding brought or instituted by NBBI to enforce any of the provisions of this Agreement or on account of any damages sustained by NBBI by reason of the violation of LESSEE of any of the terms and/or provisions of this Agreement to be performed by LESSEE, LESSEE agrees to pay to NBBI reasonable attorneys' fees. Similarly, LESSEE may recover its reasonable attorneys' fees if it successfully defends any lawsuit brought by NBBI or if LESSEE brings and is successful on the verdict in any lawsuit it brings against NBBI. XIII. NOTICES (A) All notices under this Agreement shall be in writing and shall be sufficiently given and served upon the other party if given personally or mailed by certified mail to the following addresses:
IF TO NBBI: IF TO THE LESSEE: Barry Forester Dr. Dennis Bowers National Benefit Builders, Inc. Int'l Health Partners, Inc. 248 Columbia Turnpike 120 Gibraltar Road, Suite 107 Florham Park, NJ 07932 Horsham, PA 19044
(B) Any notice mailed by certified mail or registered mail, return receipt requested, postage prepaid to the above addresses shall be effective forty eight (48) hours after deposit in the United States mail, duly addressed and with postage prepaid. Such addresses may be changed from time to time upon written notice to the other party. XIV. CONTINUED RESPONSIBILITIES UPON TERMINATION Notwithstanding any termination of this Agreement at LESSEE's or NBBI's option, NBBI shall continue to honor Members membership and provide the negotiated prices to LESSEE for Members holding such membership after any expiration or termination of the Agreement (unless such termination is for a material breach, in which case, continuance shall be at the option of the terminating party) until the expiration date of the Members current contract period up to one year for those Members covered prior to the termination date. All accounts of this Agreement shall continue in effect with respect to those Members for whom NBBI's services shall continue under this section. XV. EXCLUSIVE RIGHT TO MARKET LESSEE acknowledges that during the term of this Agreement and for a period of twelve (12) months after termination of this Agreement for any reason, that it shall not provide the Networks that have been obtained by any means, through any source other than from NBBI to its Clients and Members. 6 XVI. MISCELLANEOUS (A) Section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. (B) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, all of which together shall constitute one and the same instrument. (C) Whenever the singular number is used in this Agreement and when required by the context, the same shall include the feminine and neuter genders, and the word "person" shall include corporations, firms or associations. (D) Both parties shall fully comply with all applicable federal, state and local laws, ordinances and regulations, as they may be applicable to this Agreement. (E) References herein to LESSEE and NBBI shall be deemed to include its employees, agents, sales representatives and sales force. (F) This Agreement sets forth the entire Agreement and understanding of the parties with respect to the matters covered hereby and supersedes all prior agreements, arrangements and understanding relating to such matters. (G) No representation, promise, inducement or statement of intention has been made by NBBI or LESSEE that is not embodied in this Agreement. (H) This Agreement may be amended, modified, superseded or canceled, and any of the terms, provisions and conditions may be waived, only by a written instrument executed by NBBI and LESSEE. Failure of either party at any time or times to require performance of any provision herein shall not be construed to be a waiver of any succeeding breach of such provision by such party. (I) If any provision of this Agreement shall at any time be deemed to be invalid or illegal by the entry of a final judgment from a court of competent jurisdiction, which judgment is not subject to appeal, then, in that event, this Agreement shall continue in full force and effect with respect to the remaining provisions of this Agreement as if the invalidated provision had not been contained herein. (J) This Agreement has been negotiated and entered into by each party with the independent advice of counsel and shall not be construed against one party or the other based on which party drafted any portion of this Agreement. (K) NBBI shall not be responsible for delays in performance due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations, restrictions, transportation conditions, products/service suppliers or any other causes whatsoever that are beyond the reasonable control of NBBI. (L) NBBI and LESSEE are performing the services hereunder as independent contractors and no joint venture, partnership, employment, agency or any other relationship is created by this Agreement. Neither NBBI nor LESSEE is authorized to represent the other for purpose, except as specifically provided in this Agreement. 7 (M) The parties hereby agree that this Agreement shall be interpreted, construed and enforced exclusively according to the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers the day and year first written above. NATIONAL BENEFIT BUILDERS, INC. Printed Name: Kevin Faherty ---------------------- By: /s/ Kevin Faherty --------------------------------- Title: President Date: 1/4/04 ------------------------------ LESSEE Int'l Health Partners, Inc. Printed Name: Dr. R. D. Bowers ----------------------- By: /s/ R. D. Bowers --------------------------------- Title: CEO ------------------------------- Date: 12/18/03 ------------------------------- 8 SCHEDULE A - MEMBER SERVICES NBBI shall make available to LESSEE the following Networks: CIGNA Dental Network Access A discounted dental network containing approximately 50,000 providers nationally, who have agreed to provide their services at pre-determined, discounted rates in consideration for a co-payment of 100% from their patients. 9 SCHEDULE B (REVISED 12/29/03) NETWORK ACCESS FEES* Total Number of Monthly Access Fee Members Per Month CIGNA Dental Network Access Network Up to 10,000 [**] 10,001 - 25,000 [**] 25,001- 50,000 [**] 50,001 - 100,000 [**] 100,001 - 250,000 [**] 250,001 - 500,000 [**] over 500,000 [**] THE MINIMUM MONTHLY PAYMENT SHALL BE [**] In the event that LESSEE enrolls a total of 3,000 members after this contract is in effect for ninety (90) days, NBBI shall issue a credit for the difference between the actual amount billed and the amount that would have been billed had the minimum monthly payment not been invoked for that period. * MONTHLY ACCESS FEE PRICING EXCLUDES PRINTING AND FULFILLMENT. ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 10 Omitted Schedule The following schedule to the Network Leasing Agreement has been omitted: Schedule Schedule Description -------- -------------------- C Eligibility File Format The Company agrees to furnish supplementally a copy of the foregoing omitted schedule to the Securities and Exchange Commission upon request. EX-10 8 ex10-11.txt EXHIBIT 10.11 EXHIBIT 10.11 [CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.] ADVANCEPCS, L.P. MANAGED PHARMACEUTICAL BENEFIT AGREEMENT CONSUMER CARD PROGRAM THIS AGREEMENT (the "AGREEMENT") is made as of July 1, 2001 (the "EFFECTIVE DATE") by and between INTERNATIONAL HEALTH PARTNERS, INC. ("CUSTOMER") and AdvancePCS, L.P., a Delaware limited partnership, together with its affiliates ("ADVANCEPCS"), for the purpose of delineating the terms and conditions under which AdvancePCS will provide certain managed pharmaceutical benefit services to Customer. 1. DEFINITIONS As used in this Agreement, the following terms and phrases, when capitalized, shall have the meanings set forth below. 1.1. "ADVANCEPCS" shall mean the corporation AdvancePCS and any subsidiaries or affiliates thereof. 1.2. "BASE SERVICES" means those Services described in Exhibit A--Sections 1, 3A, 4 and such other services listed in Exhibit A hereto which are selected by Customer pursuant to the implementation documents (collectively the "SERVICES"). 1.3. "BENEFITS" means the prescription drug discounts for which Members are eligible pursuant to the Plan. 1.4. "CHANGE IN LAW" means any change in any Law, or change in the judicial or administrative interpretation of, or adoption of, any Law occurring after the Implementation Date or the date this Agreement is executed, whichever is earlier. 1.5. "CLAIMS" shall mean claims processed by AdvancePCS in connection with the Plan. 1.6. "IMPLEMENTATION DATE" means the date on which AdvancePCS begins processing Claims under this Agreement. 1.7. "LAW" means any federal, state, local or other constitution, charter, act, statute, law, ordinance, code, rule, regulation, order, specified standards or objective criteria contained in any applicable permit or approval, or other legislative or administrative action of the United States of America, or any state or any agency, department, authority, political subdivision or other instrumentality of either thereof or a decree or judgment or order of a court. 1.8. "MEMBER" means an individual who has been designated by Customer in writing (or by electronic, tape or other means approved by AdvancePCS) to AdvancePCS as eligible for Benefits under the terms of the Plan. 1.9. "NETWORK PROVIDER" means a provider that has agreed to provide certain pharmacy services to Members in accordance with the terms of its agreement with AdvancePCS. Page 1 1.10. "PLAN" means the processing parameters and other information concerning Customer's prescription discount plan, as disclosed by Customer to AdvancePCS pursuant to Section 4.1 hereof, which will be used by AdvancePCS to process Claims under this Agreement. 1.11. "RECORDS" means any records the parties have regarding the Claims Information in connection with this Agreement. 1.12. "SERVICES" shall have the meaning used in Section 2.2. 1.13. "SYSTEM" means AdvancePCS' proprietary remote electronic claims adjudication process. 2. STATEMENT OF SERVICES 2.1. GENERAL. AdvancePCS shall provide Services to Customer under this Agreement under AdvancePCS' "Consumer Card Program" (the "Program"), a pharmaceutical benefit management program pursuant to which a Member pays one hundred percent (100%) of the applicable Network prescription price at the point of sale. 2.2. SERVICES. AdvancePCS shall provide to Customer the Base Services and such other Services listed in Exhibit A hereto which are selected by Customer (collectively, "SERVICES"). 2.3. ADDITIONAL SERVICES. If (i) Customer requests AdvancePCS to provide services other than the Services, including but not limited to special research projects, reports not included in Services, additional identification cards or other tasks to be specifically performed for or on behalf of Customer, (ii) to initially implement the Plan or to implement changes to the Plan AdvancePCS is required to make system changes, or (iii) AdvancePCS incurs costs or charges necessitated by the acts or omissions of Customer, then, in any event, Customer shall pay to AdvancePCS an additional charge to be mutually agreed upon by the parties in writing before such services ("Additional Services") are provided. 2.4. COMPLIANCE WITH LAW. Customer acknowledges that AdvancePCS shall have no responsibility to advise Customer regarding Customer's compliance with any applicable federal, state or local law, including, without limitation, the Employee Retirement Income Security Act ("ERISA") and the Americans With Disabilities Act ("ADA"). Upon Customer's request and at its expense, AdvancePCS shall cooperate and take reasonable steps to comply with any Laws applicable to the creation or maintenance of a pharmacy network, including any willing provider Laws. Customer shall furnish AdvancePCS, in a timely manner, all information necessary for such cooperation and compliance efforts. 3. FEES AND PAYMENT 3.1. FEES. As consideration for the Services (including, but not limited to, Formulary Services), Customer shall pay to AdvancePCS or shall require Member to pay to AdvancePCS the applicable fees for such Services specified in Exhibit B. [**] ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 2 [**] AdvancePCS shall invoice Customer for any fees (for services other than Base Services) monthly, and payment shall be due within twenty (20) days of Customer's receipt of the invoice. Customer agrees to make any necessary disclosures to, and obtain any necessary authorization from, Members as required by Law to properly authorize payment to AdvancePCS. 3.2. LATE PAYMENTS. If at any time Customer shall fail to pay AdvancePCS on or prior to the due date any amount owing to AdvancePCS hereunder, Customer shall pay to AdvancePCS an amount (the "FINANCE CHARGES") equal to interest on such overdue amount(s) at the Periodic Rate; provided, however, that if the Periodic Rate exceeds the maximum legal rate permitted by Law, the Periodic Rate shall be reduced to the maximum amount permitted by Law. 3.3. CERTAIN REMEDIES. Notwithstanding Section 9, if at any time Customer shall fail to pay AdvancePCS on or prior to the due date any amount owing to AdvancePCS hereunder, AdvancePCS shall have the right, upon written notice to Customer via facsimile to the facsimile number provided in the Agreement, to (1) suspend performance of any and all of AdvancePCS' obligations under or in connection with this Agreement, including AdvancePCS' obligation to process Claims, (2) immediately advise Network Providers that the AdvancePCS prescription adjudication system is not available in connection with the Plan, (3) apply all or any portion of any security posted by Customer with AdvancePCS to Customer's delinquent account and (4) set off against any amounts otherwise payable to Customer under this Agreement any amounts due from Customer under this Agreement. Customer shall be responsible for all costs of collection and agrees to reimburse AdvancePCS for such costs and expenses, including reasonable attorneys' fees. Nothing in this Agreement shall limit, and the parties agree that in addition to the rights specified in this Section, AdvancePCS shall retain, any and all rights AdvancePCS may have at law, equity or under this Agreement. 3.4. SECURITY. If at any time and from time to time during the term of this Agreement AdvancePCS shall determine, based on Claims volume, payment record and/or Customer's latest financial information, that there are reasonable grounds for insecurity on the part of AdvancePCS as to the ability of Customer to meet its financial commitments hereunder as they become due, AdvancePCS shall have the right to require Customer to provide security in such amount and form and at such time as AdvancePCS deems necessary. Customer shall provide such security within ten (10) days of AdvancePCS' request. Customer agrees to furnish audited financial statements to AdvancePCS from time to time upon AdvancePCS' request. Such financial statements shall be kept confidential by AdvancePCS and used solely for internal review purposes to determine credit requirements. 4. CUSTOMER OBLIGATIONS 4.1. PLAN INFORMATION; MEMBER ELIGIBILITY. Throughout the term of this Agreement, Customer, at Customer's expense, shall provide to AdvancePCS any and all information concerning Customer's Plan and Members needed by AdvancePCS to perform the Services or any Additional Services, including, without limitation, processing parameters ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 3 and Member enrollment and eligibility updates. All such information shall be complete and accurate and shall be provided in a format and media approved by AdvancePCS. 4.2. CONFIRMATION REPORTS. From time to time, AdvancePCS may provide Customer with reports confirming (i) all or some portion of the Plan information submitted to AdvancePCS, (ii) Member enrollment or eligibility data, (iii) Claims or billing activity during a specific period, and/or (iv) any action or actions taken by AdvancePCS in performing Services or Additional Services hereunder. Customer shall review such report and notify AdvancePCS in writing of any errors or objections within twenty (20) days of receipt of the report. Until Customer notifies AdvancePCS of any errors or objections, AdvancePCS shall be entitled to rely on the information contained in the report. If Customer does not notify AdvancePCS of any errors or objections within such twenty (20) day period, the information contained in the report shall be deemed accurate, complete and acceptable to Customer. 4.3. DRUG CLASSIFICATION/PRICING. Customer agrees to accept the drug average wholesale price source(s) selected by AdvancePCS for purposes of pricing and classifying (e.g., legend vs. over-the-counter, brand vs. generic) drugs in connection with this Agreement. 4.4. MEMBER AUTHORIZATIONS. Customer represents to AdvancePCS that it has or shall obtain any Member authorizations required by Law, if any, for AdvancePCS to perform the Services or any Additional Services under this Agreement or under any Implementation Document. 4.5. MARKETING MATERIALS. Customer agrees to use only AdvancePCS' approved marketing brochures and other advertising materials (in any medium) that has been approved by AdvancePCS. Customer agrees to pay a reasonable charge, as established by AdvancePCS, for such materials that are provided by AdvancePCS. AdvancePCS may terminate this Agreement immediately as provided in Section 8.2.6 in the event Customer fails to comply with the provisions of this Section 4.5. 4.6. COMPLIANCE WITH LAW. Customer agrees to comply with all Laws applicable to its Program, including without limitation insurance licensing, antitrust, consumer protection, and any other Laws that may apply. AdvancePCS shall have no responsibility for determining the applicability or effect of any such Laws. 4.7. MINIMUM MEMBERSHIP. Customer agrees that at all times during the term of this Agreement, there shall be a minimum of ten thousand (10,000) Members in Customer's Program. If, as of the effective date of this Agreement, there are less than ten thousand (10,000) Members in Customer's Programs, Customer shall have a period of one hundred and twenty (120) days from the effective date to reach the minimum membership as described herein. If, after this Agreement has been in effect for one hundred and twenty (120) days, Customer has not reached the required ten thousand (10,000) minimum number of Members, AdvancePCS may elect to terminate this Agreement pursuant to Section 8.2.7. 4.8. OTHER OBLIGATIONS OF CUSTOMER. In addition to the obligations of Customer specified in this Agreement, Customer shall satisfy any and all obligations in any exhibits, schedules and attachments hereto or in any Implementation Document. Page 4 4.9. INDEMNITY. Customer agrees to indemnify and hold harmless AdvancePCS for, from and against any and all costs, losses or damages AdvancePCS may incur as a result of (i) Customer's failure to perform any of its obligations under this Agreement, (ii) the late receipt of information or the receipt of any inaccurate or incomplete information provided by Customer under Section 4.2, or (iii) any claim by an employee or former employee of Customer or any of its affiliates under any federal, state or local law that protects the rights of such employees or their beneficiaries, including, without limitation, ERISA and the ADA. 5. USE AND ACCESS TO INFORMATION 5.1. USE OF PRESCRIPTION INFORMATION. Subject to the provisions of Section 6 regarding AdvancePCS' proprietary rights, each party shall be entitled to use the information provided to AdvancePCS by Network Providers and Members in connection with Claims ("CLAIMS INFORMATION") in any manner such party deems appropriate; provided, however, that each party shall maintain the confidentiality of such information (including the identity of any Member) to the extent required by applicable Law, and shall refrain from any use of such information for improper employment or other purposes. Each party shall be solely responsible for its own use of the Claims Information, and shall indemnify and hold harmless the other party for, from and against any and all costs, losses and damages incurred by such other party as a result of such use. 5.2. THIRD PARTY RECORDS REQUEST. If a Member or a Member's agent or designee shall request to review or duplicate any Records, AdvancePCS shall refer such Member to Customer. If AdvancePCS receives a court order, subpoena or governmental request for Records, AdvancePCS may comply with such order, subpoena or request and, if such order, subpoena or request relates to Records of Customer or any Member and not to AdvancePCS' business generally, Customer shall reimburse AdvancePCS for all costs incurred in connection therewith. 6. INTELLECTUAL PROPERTY 6.1. PROPRIETARY INFORMATION. Customer acknowledges that in connection with providing Services under this Agreement, AdvancePCS may disclose to Customer certain proprietary or confidential technical and business information, databases, trade secrets, and innovations belonging to AdvancePCS (collectively, "ADVANCEPCS INFORMATION"), the value of which might be lost if the proprietary nature or confidentiality of such AdvancePCS Information is not maintained. Customer hereby agrees to the following provisions: 6.1.1. AdvancePCS reserves all rights to the AdvancePCS Information, including the proprietary and novel features contained therein. Customer will not disclose any of the AdvancePCS Information nor will Customer use any of the AdvancePCS Information to benefit itself or others except to the extent expressly authorized hereunder. 6.1.2. Customer will treat all such AdvancePCS Information as confidential, will disclose such AdvancePCS Information only to those employees of Customer who have a need to know in order to accomplish the purposes Page 5 permitted hereunder and who themselves agree not to disclose it to anyone; will not (except to the extent expressly authorized hereunder) disclose it to anyone outside of Customer; and will not copy or reproduce any written materials or tangible items provided by AdvancePCS unless expressly authorized in writing to do so by AdvancePCS. Customer will take reasonable measures, including, without limitation, all measures it employs with respect to information of its own that it regards as confidential and proprietary, to preserve and protect the confidentiality or proprietary nature of said AdvancePCS Information and to prevent it from falling into the public domain or into the possession of persons not bound to maintain its confidentiality. 6.1.3. All written materials, computer programs, manuals and other tangible items disclosed or provided to Customer in any medium are and will remain the property of AdvancePCS. Customer will return all such materials, and all copies thereof, to AdvancePCS when AdvancePCS so requests. 6.1.4. Customer shall not be liable for any disclosure or use of any AdvancePCS Information disclosed or communicated by Customer if such AdvancePCS Information is publicly available or later becomes publicly available other than through a breach of this Agreement, or if such AdvancePCS Information is shown by written documentation to be known to Customer on the date of execution of this Agreement. Nothing contained in this Agreement shall prevent Customer from disclosing AdvancePCS Information pursuant to any bona fide subpoena provided that Customer shall give AdvancePCS immediate written notice of any such subpoena so that AdvancePCS may make such objections or otherwise intervene in the appropriate governmental proceedings as it deems proper. 6.2. FORMULARY. Customer acknowledges that the Formulary contains AdvancePCS proprietary information and agrees that AdvancePCS owns all rights to the Formulary, including but not limited to, rights associated with publication, trade secrets, copyrights, trademarks and patents, and any rights that Customer may have in the Formulary are hereby assigned to AdvancePCS. Accordingly, distributed copies of the Formulary remain the property of AdvancePCS and may be used only for the purposes and transactions contemplated by this Agreement. No copies shall be distributed or disclosed except as reasonably necessary for performance of this Agreement and, in particular, no copy shall be distributed or disclosed to any competitor of AdvancePCS. 6.3. SECTION 6 REMEDIES. Customer acknowledges that any unauthorized disclosure or use of AdvancePCS Information would cause AdvancePCS immediate and irreparable injury or loss. Accordingly, should Customer fail to comply with this Section 6, AdvancePCS shall be entitled to specific performance including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages (including attorneys' fees) caused by the breach and to any other remedies provided by applicable law. Page 6 7. WARRANTY, LIMITATION OF LIABILITY 7.1. WARRANTY. Customer acknowledges that this Agreement is not a contract for the sale of goods. AdvancePCS shall perform the services to be provided hereunder in a good and workmanlike manner. AdvancePCS does not warrant that the services will be uninterrupted or error-free. EXCEPT AS WARRANTED IN THIS SECTION 7.1, ADVANCEPCS DISCLAIMS ALL EXPRESS AND ALL IMPLIED WARRANTIES OF ANY KIND, INCLUDING THE SUITABILITY FOR ANY PARTICULAR PURPOSE OF THE DATA GENERATED THROUGH ADVANCEPCS'S CLAIMS PROCESSING AND ADJUDICATION SYSTEM. 7.2. FORCE MAJEURE. AdvancePCS shall be excused from performance hereunder for any period and to the extent that AdvancePCS is prevented from performing any services, in whole or in part, as a result of causes beyond AdvancePCS' reasonable control, including, acts of God, war, civil disturbance, court order, governmental intervention, Change in Law, nonperformance by Customer or any third party, failures or fluctuations in electrical power, heat, light, air conditioning or telecommunications equipment, and any such nonperformance by AdvancePCS shall not be a default or a ground for termination hereunder by Customer. 7.3. CHANGE IN LAW. If there occurs any Change in Law which materially alters the rights or obligations of either party under this Agreement, the parties shall equitably adjust the terms of this Agreement to take into account such Change in Law. If the parties are unable to agree upon an equitable adjustment within sixty (60) days after either party notifies the other of such a Change in Law, this Agreement shall terminate. 7.4. LIMITATIONS. In no event shall AdvancePCS or any of its affiliates, directors, employees, agents, successors or assigns be liable to Customer under or in connection with this Agreement (or any third party claiming rights under or in connection with this Agreement) (i) for the acts or omissions of any providers which, or any pharmacists or provider who, performs any services in connection with this Agreement, or (ii) for any indirect, special, incidental or consequential damages, even if AdvancePCS is informed of their possibility. Furthermore, AdvancePCS shall have no liability for any claim which is asserted by Customer or any third party more than ninety (90) days after Customer or such third party is or reasonably should have been aware of such claim; provided, however, that if Customer has chosen not to receive those reports described in Section 4.2 and/or Exhibit A, AdvancePCS shall have no liability whatsoever for any claim which Customer would have been reasonably aware of if Customer were receiving such reports. 7.5. FORMULARY SERVICES. 7.5.1. As used herein and in Exhibit A, (i) "MANUFACTURERS" shall mean a pharmaceutical company which has entered into an agreement with AdvancePCS or an affiliate or agent of AdvancePCS to offer discounts for pharmaceutical products in connection with AdvancePCS' Formulary Services and (ii) "REBATES" shall mean, for any period, all rebates, reimbursements or other discounts received under a Manufacturer's discount program with respect to Page 7 pharmaceutical products dispensed to a Member under the Plan during such period. 7.5.2. Neither party shall be responsible to the other party, its affiliates, directors, employees, agents, successors and permitted assigns for, and each hereby waives, releases and forever discharges the other party from, any and all claims, demands, losses, attorneys' fees, costs, expenses and liabilities of any nature whatsoever, whether or not now existing, known or unknown, suspected or claimed, arising from and Customer agrees that it will require all Members to waive, release, and forever discharge AdvancePCS from any and all claims, demands, losses, attorneys' fees, costs, expenses and liabilities of any nature whatsoever, whether or not now existing, known or unknown, suspected or claimed, arising from: 7.5.2.1. any failure by any Manufacturer to pay any Rebate; 7.5.2.2. any breach of an agreement related to the transactions contemplated by or otherwise relating to this Agreement by any Manufacturer; or 7.5.2.3. any negligence or misconduct of any Manufacturer. 7.5.3. Customer acknowledges that "Rebate" shall not include any fees or other compensation paid by a Manufacturer to AdvancePCS for its own account, including without limitation administrative fees not exceeding three percent (3%) of the cost of the pharmaceutical products dispensed to Members, or fees for services rendered or property provided to a Manufacturer (to the extent permitted by this Agreement and applicable Law), which fees shall be retained by AdvancePCS. 7.5.4. In addition to those rights to terminate this Agreement specified in Section 8.2, either party shall have the right to terminate Formulary Services and those provisions of this Agreement relating thereto upon written notice to the other party if, after the date of this Agreement, there occurs (i) any Change in Law which materially affects AdvancePCS' ability to perform such Formulary Services or (ii) a substantial change in drug industry practice regarding Rebates which causes the Rebates available under this Agreement for any year, after AdvancePCS exercises diligent efforts to obtain such Rebates, to be less than 80% of the actual Rebates paid or payable for the initial year in which this Agreement is in effect. Such termination shall not operate to terminate this Agreement, and all other provisions of this Agreement shall remain in full force and effect. 7.5.5. To the extent that ERISA or any other Law requires any disclosure to or consent from Members regarding Rebates or other discounts on pharmaceutical products, customer acknowledges that it has the sole responsibility for such disclosures to its Members, irrespective of whether it retains or allows AdvancePCS or others to retain all or a portion of such Rebates or discounts. Page 8 8. TERMINATION OF AGREEMENT 8.1. TERM. This Agreement shall be in effect subject to the remaining provisions of this Section 8. 8.2. TERMINATION. This Agreement may be terminated as follows: 8.2.1. By either party, with or without cause, on sixty (60) days' prior written notice to the other, given at any time; 8.2.2. By either party if the other party shall default in its performance of this Agreement. The terminating party shall provide the other party thirty (30) days' prior written notice, specifying the nature of the default. Such notice shall not be effective and this Agreement shall not terminate if the other party shall cure that default within the thirty (30) day period; 8.2.3. Notwithstanding subsection 8.2.2, by AdvancePCS, on two (2) days' prior written notice to Customer, if Customer shall fail at any time (i) to make any payment required pursuant to this Agreement by the due date, unless Customer shall cure that default within the two-day period, or (ii) to provide or maintain security as required by Section 3.4; 8.2.4. By either party immediately on written notice to the other, if the other party shall make an assignment for the benefit of creditors, file a petition in bankruptcy (whether voluntary or involuntary), is adjudicated insolvent or bankrupt, a receiver or trustee is appointed with respect to a substantial part of its property or a proceeding is commenced against it which will substantially impair its ability to perform hereunder; 8.2.5. If any court, governmental or regulatory agency shall issue to Customer an order or finding of impairment or insolvency or an order to cease and desist from writing business, written notice thereof shall be given to AdvancePCS by Customer within two (2) business days thereafter and upon receipt of such notice AdvancePCS shall have the option to terminate this Agreement immediately; or 8.2.6. By AdvancePCS, immediately on written notice to Customer, if (i) Customer fails to comply with the provisions of Section 4.5 of this Agreement, or (ii) AdvancePCS determines, in its sole discretion, that Customer's Program may not fully comply with all applicable Laws. 8.2.7. By AdvancePCS, within sixty (60) day's prior written notice to Customer if Customer fails to meet its minimum number of Members, pursuant to Section 4.7 of this Agreement 8.3. EFFECT OF TERMINATION. In the event of a termination hereunder: 8.3.1. In addition to any and all rights and remedies AdvancePCS may have at law, equity, or hereunder, AdvancePCS shall have the right to notify its Network Providers that the claims adjudication system is no longer available in connection with the Plan; and Page 9 8.3.2. Sections 5, 6 and 7 of this Agreement, and obligations arising under this Agreement prior to the effective date of termination, shall survive termination. 9. NOTICES All notices pertaining to this Agreement shall be in writing and shall be delivered in person, sent by certified mail, delivered by air courier, or transmitted by facsimile and confirmed in writing (sent by air courier or certified mail) to a party at the address or facsimile number shown in this Agreement, or such other address or facsimile number as a party may notify the other party from time to time in accordance with the provisions of this Section. Notices may also be transmitted electronically between the parties, provided that proper arrangements are made in advance to facilitate such communications and provide for their security and verification. All notices shall be effective upon receipt. Notices to AdvancePCS shall be addressed as follows: AdvancePCS 11350 McCormack Road Executive Plaza II, Suite 1000 Hunt Valley, MD 21031 Attn: Executive Vice President, Client Management Fax No.: (410) 785-2595 With a copy to the General Counsel at AdvancePCS, 9501 East Shea Boulevard, Scottsdale, AZ 85260-6719 address and the following Fax No.: (480) 314-8231. Notices to Customer shall be addressed as follows: International Health Partners, Inc. 120 Gibraltar Road, Suite 107 Horsham, PA 19044 Attn: R. Dennis Bowers, Ph.D. Fax No.: (215) 682-7116 10. MISCELLANEOUS 10.1. INTERPRETATION; AMENDMENT; COUNTERPARTS. This Agreement, including the exhibits, schedules and attachments, together with the Implementation Documents, constitutes the entire understanding of the parties with respect to the Services and supersedes any and all prior agreements, writings and understandings. This Agreement is the result of negotiations between the parties and, accordingly, shall not be construed for or against either party regardless of which party drafted this Agreement or any portion thereof. The Article and Section headings contained in this Agreement are for convenience of reference only, and shall not affect the meaning or interpretation of any provision hereof. Except as otherwise stated in this Agreement, this Agreement may only be amended by a writing properly executed by duly authorized representatives of both parties. This Agreement may be executed in several counterparts, all of which taken together shall constitute a single agreement between the parties. Page 10 10.2. BINDING EFFECT; ASSIGNMENT. The Agreement shall be binding on the parties and their respective successors and permitted assigns. Neither party may assign this Agreement, in whole or in part, without the prior written consent of the other (which consent shall not be unreasonably withheld); provided, however, AdvancePCS may assign this Agreement, in whole or in part, to any entity that controls, is controlled by, or is under common control with AdvancePCS. 10.3. INDEPENDENT CONTRACTOR; THIRD PARTIES. The parties to this Agreement are to be considered independent contractors, and they shall have no other legal relationship under or in connection with this Agreement. No term or provision of this Agreement is for the benefit of any person who is not a party hereto (including, without limitation, any Member or broker), and no such party shall have any right or cause of action hereunder. 10.4. WAIVERS. Any failure by a party to comply with any covenant, agreement or condition herein or in any other agreements or instruments executed and delivered hereunder may be waived in writing by the party in whose favor such obligation or condition runs; provided, however, that failure to insist upon strict compliance with any such covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 10.5. SEVERABILITY. In the event any term or provision of this Agreement is declared to be invalid or illegal for any reason, this Agreement shall remain in full force and effect and the same shall be interpreted as though such invalid and illegal provision were not a part thereof. The remaining provisions shall be construed to preserve the intent and purpose of this Agreement and the parties shall negotiate in good faith to modify the provisions held to be invalid or illegal to preserve each party's anticipated benefits thereunder. 10.6. ENFORCEMENT COSTS. If either party institutes an action or proceeding to enforce any rights arising under this Agreement, the party prevailing in such action or proceeding shall be paid all reasonable attorneys' fees and costs to enforce such rights by the other party, such fees and costs to be set by the court, not by a jury, and to be included in the judgment entered in such proceeding. 10.7. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to applicable conflict of law rules. [This space intentionally left blank] Page 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers or agents as of the date first above written. INTERNATIONAL HEALTH ADVANCEPCS HEALTH, L.P. PARTNERS, INC. By: AdvancePCS Health Systems, L.L.C., its General Partner By: /s/ D. Bowers By: /s/ David George ------------------------------ --------------------------- R. Dennis Bowers, Ph. D. David A. George Title: President & CEO Title: President ------------------------------ --------------------------- Date: 8/22/01 Date: 9/12/01 ------------------------------ --------------------------- Page 12 EXHIBIT A DESCRIPTION OF SERVICES Below is a listing of services provided under the base administrative fee or available for an additional fee. The services are subject to change from time to time, at AdvancePCS' discretion, as provided in the Agreement. Capitalized terms not defined herein shall have the meanings used in the Agreement. 1. PHARMACY MANAGEMENT A. NETWORK PROVIDERS. Members will have access to Network Providers that (i) have executed Network Provider Agreements required by AdvancePCS (as amended from time to time by AdvancePCS), and (ii) have agreed to perform pharmacy services for Members in accordance with the provider pricing schedule and the Plan. Network Providers may choose not to perform provider services for Members under this Agreement; however, no Network Provider may serve only some Members or provide only certain drugs (unless such Network Provider does not provide such drugs to any persons). AdvancePCS may provide Network Providers with Plan information in such format and media as AdvancePCS deems appropriate for the purpose of assisting such Network Providers in providing Benefits to Members. B. PHARMACY HELP DESK AND VOICE RESPONSE UNIT. AdvancePCS will provide assistance to Network Providers through the pharmacy help desk and AdvancePCS' voice response unit during those hours of operation established by AdvancePCS from time to time. 2. CUSTOMER SERVICE AdvancePCS shall make available to Members a toll free customer service number during those hours of operation established by AdvancePCS from time to time. Staff will be available to answer Members' questions on Plan eligibility, Plan guidelines, and status of an identification card order. 3. ELIGIBILITY SERVICES A. IDENTIFICATION CARDS. AdvancePCS will design one identification card layout and provide Customer with a proof of final design layout. Customer shall provide AdvancePCS with camera-ready artwork for the logo or logos that Customer wants to appear on the identification card. All identification cards shall include the AdvancePCS name and logo. For each Member, AdvancePCS will generate standard AdvancePCS cards in such final design. B. ELIGIBILITY FILE. Based upon the information provided by Customer to AdvancePCS pursuant to Section 4.1, AdvancePCS shall maintain an eligibility file identifying current Members and certain other information regarding such Members. 4. CLAIMS PROCESSING A. SUBMISSION OF CLAIMS. AdvancePCS will adjudicate Claims submitted by Network Providers to AdvancePCS and process such Claims in accordance with this Section 4A as follows: Page 13 EXHIBIT A DESCRIPTION OF SERVICES - AdvancePCS shall enter into its prescription processing system those portions of the Plan information as are necessary for AdvancePCS to perform automated Claims processing services in accordance with this Agreement (collectively, "PROCESSING PARAMETERS"). - AdvancePCS will instruct Network Providers to transmit certain prescription, eligibility, and Plan information to AdvancePCS when the Member presents a Plan identification card, and if the system is unavailable, as soon as possible after the system becomes available. - AdvancePCS will instruct the Network Provider to collect one hundred percent (100%) of the applicable network prescription price from the Member. 5. DRUG UTILIZATION REVIEW ("DUR") A. DUR SERVICES. AdvancePCS will provide its prospective DUR services, in which Network Providers are provided with educational materials and programs regarding topics such as appropriate drug therapy duration, appropriate "dispense as written" frequencies, optimal generic prescribing, appropriate prescribing of selected drug groups, Formulary compliance issues, and such other topics as may be identified through AdvancePCS' Retrospective DUR Program. AdvancePCS will provide its automated concurrent DUR services for POS transactions. These services include, but are not limited to edits relating to drug-drug interactions; therapeutic duplications; insufficient drug doses; excessive drug doses; drug-age conflicts; drug-pregnancy advisories; drug-disease contraindications; late refills; and controlled substance issues. Clinical and quality of care issues detected by the other DUR edits do not result in Claim denial, but result in transmission of a warning or alert message transmitted at the time of dispensing to the pharmacist as part of the Claim response from AdvancePCS. Network Providers are directed to review the alert messages as they are received and to use their professional judgment as to whether action is required. B. LIMITATIONS. The information generated in connection with DUR services is intended as an economical supplement to, and not a substitute for, the knowledge, expertise, skill, and judgment of physicians, pharmacists, or other health care providers in patient care. Providers are individually responsible for acting or not acting upon information generated and transmitted through the DUR services, and for performing services in each jurisdiction consistent with the scope of their licenses. AdvancePCS shall not, and is not required by this Agreement to deny Claims or require physician, pharmacist or patient compliance with any norm or suggested drug regimen, or in any way substitute AdvancePCS' judgment for the professional judgment or responsibility of the physician or pharmacist. AdvancePCS' DUR services are highly automated, without any individual review in most circumstances. Any focused professional review would also be based upon automated analysis of Members' profiles. Therefore, the DUR services are necessarily limited by the amount of patient information available to AdvancePCS. Meaningful patient information which may not be available to AdvancePCS includes, but is not Page 14 EXHIBIT A DESCRIPTION OF SERVICES limited to, patient diagnoses, utilization of drugs obtained without utilizing the System or otherwise not included in the patients' profile or Claim data. AdvancePCS shall have no obligation to acquire information concerning any patient beyond the information that is included in Customer's eligibility records or the Claim data submitted by Network Providers in connection with the Plan. AdvancePCS shall update DUR databases on a reasonable basis to reflect changes in available standards for pharmaceutical prescribing; provided, however, no database will contain all currently available information on accepted medical practice or prescribing practices. 6. MAXIMUM ALLOWABLE COST ("MAC") A. MAC LIST. AdvancePCS will use one or more of its proprietary maximum allowable cost pricing schedules ("MAC Lists") to establish an upper limit price for certain multiple-source drugs dispensed under the Plan without regard to the specific Manufacturer whose product is dispensed. The MAC List shall include generic drugs based on their common substitution, bioequivalency rating, and general availability. Customer agrees to accept anyone of AdvancePCS' MAC lists, as amended from time to time in AdvancePCS' discretion, for purposes of pricing and classifying (e.g. brand vs. generic) drugs in connection with this Agreement. Customer acknowledges that certain of AdvancePCS' national provider networks may utilize one or more of AdvancePCS' MAC Lists. 7. MANAGEMENT REPORTING A. STANDARD MANAGEMENT REPORTS. AdvancePCS will provide Customer with AdvancePCS' standard management reports in connection with the Services provided hereunder, which reports may change from time to time at AdvancePCS' discretion. Customer may elect to receive some or all of the standard management reports made available by AdvancePCS. 8. FORMULARY/REBATE SERVICE A. ESTABLISHMENT OF FORMULARY. AdvancePCS shall work with Customer to effect the adoption, distribution and implementation of a drug formulary based on the AdvancePCS formulary (the "Formulary"). AdvancePCS and Customer will use diligent efforts to ensure the prompt adoption and distribution of the Formulary. Charges for AdvancePCS' production and distribution or shipping of Formulary are set forth in Exhibit A. - ADVANCEPCS' CLINICAL FORMULARY AND PRESCRIBING GUIDELINES ("NATIONAL FORMULARY"). For customers adopting AdvancePCS' National Formulary as the Formulary, AdvancePCS shall distribute each edition of the Formulary and updates to its providers. - CUSTOM FORMULARY. For customers utilizing a custom formulary, AdvancePCS will ship the custom formularies to Customer. Customer will use diligent, good faith efforts to ensure the prompt distribution of the formulary and updates to its Page 15 EXHIBIT A DESCRIPTION OF SERVICES chosen providers. The cost of postage and distribution of the Formulary and any subsequent updates thereto or reports hereunder, to Customer's chosen providers, will be borne by Customer. If Customer fails to distribute such formulary updates in a timely manner, Customer shall be liable to AdvancePCS for any loss of Rebates and shall hold AdvancePCS harmless for, from and against the same. B. UPDATING OF FORMULARY. AdvancePCS will work with Customer to provide for the annual review, updating, and distribution of the Formulary, to address changes to the Formulary made desirable by changes in the pharmaceutical industry, new legislation and regulations, the experience of Customer and its providers with the Formulary, current medical literature and new recommendations developed by AdvancePCS based on its research and experience. C. REBATE RELATED UTILIZATION REVIEW. To obtain Rebates from Manufacturers, AdvancePCS will perform on behalf of Customer, AdvancePCS' Quantum Plus Retrospective DUR program as described in Section 5C. In addition to the Quantum Plus Retrospective DUR Program, AdvancePCS may propose other interventions from time to time which are designed to increase Rebates and/or reduce the costs of Benefits under this Agreement. Customer may decline to allow such interventions, but in such event AdvancePCS shall not be responsible for any loss of economic benefit which results from the failure to implement the proposed interventions. D. REBATE CONTRACTS. AdvancePCS will attempt to contract with certain Manufacturers for Rebate programs. Customer acknowledges that whether and to what extent Manufacturers are willing to provide Rebates to Customers will depend upon the Plan design adopted by Customer, and other aspects of Customer's Plan, as well as AdvancePCS receiving sufficient information regarding each Claim submitted to Manufacturers for Rebates. E. OTHER REBATE ARRANGEMENTS. With respect to Members covered under this Agreement, Customer will not participate in any other formulary or similar discount during the term of the Agreement and shall not itself create any formulary during the term of the Agreement. Also, with respect to such Members, Customer agrees not to enter into any direct or indirect contracts with Manufacturers for discounts during the term of the Agreement or any extension thereof. Nothing in this section shall prohibit Customer from entering into arrangements with other pharmaceutical management companies offering formulary services after the term of the Agreement. F. REBATES. - [**] ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 16 EXHIBIT A DESCRIPTION OF SERVICES 9. OTHER SERVICES Upon request from Customer, AdvancePCS shall perform the following services for the fees set forth on Exhibit B attached hereto. A. CARD REISSUANCE. AdvancePCS shall reissue cards for Members upon request. If cards are reissued to an entire group within a 24-month period, Customer shall pay the fee set forth in Exhibit B. B. CAT/BAT TAPES. AdvancePCS will provide Customer with detailed Claim and/or administrative billing information through AdvancePCS' standard claims activity tape ("CAT") and/or billing activity tape ("BAT"). C. CUSTOMER-SPECIFIC PROGRAMMING. If Customer shall request services or changes to services that require customized programming or systems work, AdvancePCS shall attempt to estimate to Customer the time and cost for completion of such work. If Customer authorizes AdvancePCS to perform such work, Customer shall pay AdvancePCS the cost of performing such work at the programming rate set forth on Exhibit B. Page 17 EXHIBIT B ADMINISTRATIVE FEES INTERNATIONAL HEALTH PARTNERS, INC. EFFECTIVE JULY 1, 2001 As consideration for the services selected by Customer pursuant to the Implementation Documents and described in Exhibit A, Customer shall pay to AdvancePCS the fees set forth below: Base Services - Per Processed POS Claim [**] Services Fee AdvancePCS' Rebate Percentage [**] Card issuance (bulk shipped to Customer) [**]/Card Carrier/Group Rebate Reports on Tape [**]/Each Case-Set Up [**]/Group Customer Specific Programming [**]/Hour CAT/BAT Tapes [**]/Each Retail Network Rates: Brand: AWP-[**] + [**] dispensing fee Generic: AWP-[**] + [**] dispensing fee, MAC + [**] dispensing fee or Usual & Customary (U&C) Tiered Transaction Fees reimbursed to Customer (when a dispensing fee is applied): 1 - 50,000 annual Claims = [**]/Claim 50,001 - 500,000 annual Claims = [**]/Claim 500,001 - 1.0 million annual Claims = [**]/Claim over 1.0 million annual Claims = [**]/Claim Note: Charges not identified above will be quoted upon request. Periodic Rate: Invoices are assessed finance charges at the rate of 1.5% per month on the amounts not paid within terms of the Agreement. All prices are contingent upon Customer's current Plan design, full adoption of AdvancePCS' Performance Drug List, Member pricing, formulary management and intervention programs, as well as representations made by Customer regarding Member enrollment and utilization of pharmacy services. Customer shall in all events be responsible for any postage costs or other mailing and handling-related costs incurred by AdvancePCS in connection with the provision of Services or Additional Services. ** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 18 ADDENDUM TO AGREEMENT FOR ADDITION OF ON-LINE CONNECTION SERVICES (INQUIRY AND UPDATE) This Addendum dated as of this 16 day of August, 2001 (the "ADDENDUM") is entered into by and between International Health Partners, Inc. ("CUSTOMER") and AdvancePCS Health, L.P., a Delaware limited partnership, as an indirect wholly owned subsidiary of AdvancePCS, a Delaware corporation, together with its affiliates ("ADVANCEPCS"). RECITALS WHEREAS, AdvancePCS and Customer have entered into that certain Agreement, as amended from time to time, under which AdvancePCS is providing prescription benefit management services to Customer (the "Benefit Agreement"); and WHEREAS. AdvancePCS and Customer desire to amend the Benefit Agreement to allow AdvancePCS to issue log-on identification numbers ("Log-On IDs") that will permit Customer to make on-line inquiries, and to update portions of Customer's group eligibility, benefit design, coverage, and related data information and, if applicable, to directly input member claims information ("Direct Claims") into AdvancePCS' information system directly from Customer's location on-line, as outlined in Exhibit A, attached hereto. AGREEMENTS NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, AdvancePCS and Customer agree as follows: 1. AdvancePCS shall make available to Customer the on-line services set forth in Exhibit A (the "Services") only for those blocks of business specifically requested by Customer. AdvancePCS will assign an initial password for each Log-On ID. Within seven (7) calendar days after the initial password has been set, Customer must change the password. Thereafter, Customer is responsible for changing the password to a unique alpha/numeric scheme every thirty (30) days. If the password is not changed within the initial seven (7) day time period, on the eighth (8th) calendar day, AdvancePCS will suspend the corresponding Log-On ID. 2. Customer may change the Log-On ID list by making an appropriate written or electronic mail request to AdvancePCS. AdvancePCS requires an additional charge for the assignment of more than 25 Log-On IDs. 3. AdvancePCS may modify the Services from time to time at its discretion. AdvancePCS may terminate this Addendum and discontinue Services: a. Upon seven (7) calendar days' prior notice to Customer; or b. Immediately in the event Customer's use of the Services is consistently or materially inaccurate or otherwise adversely affects the proper functioning or maintenance of AdvancePCS' information database or if the Customer otherwise breaches the terms of this Addendum or the Benefit Agreement. AdvancePCS shall provide the Services in a good and workmanlike manner, but does not warrant that the Services will be free of interruption. ADVANCEPCS DOES NOT MAKE ANY OTHER WARRANTIES OR 2 REPRESENTATIONS WITH RESPECT TO THE SERVICES PROVIDED PURSUANT TO THIS ADDENDUM, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 4. The Services will be available to Customer during those hours of operation as established by AdvancePCS from time to time. 5. AdvancePCS will notify Customer when a password expires. If a Log-On ID is not used for sixty (60) consecutive days, AdvancePCS will suspend the Log-On ID. AdvancePCS will delete from its system any Log-On ID not used for one hundred eighty (180) consecutive days. 6. Customer will comply with all rules AdvancePCS may establish from time to time in connection with the Services. Customer is responsible for all telephone charges or other telecommunication charges incurred by Customer with respect to its use of the Services. 7. Customer is responsible for the accuracy and completeness of any information entered into AdvancePCS' information database by Customer including, but not limited to, Direct Claims, plan design changes, eligibility edits, claim edits, and benefit number or design changes. AdvancePCS may rely on Customer's input information without further corroboration or inquiry. Customer agrees to indemnify AdvancePCS for, from, and against any and all claims, losses, or expenses that may be charged against AdvancePCS that arise, or are alleged to arise, as the result of: (i) AdvancePCS' reliance on Customer input information; (ii) Customer's use of the Services; (iii) Customer's failure to perform or properly perform a Direct Claim Processing Requirement (as defined in Section 8); or (iv) a breach of the representations and warranties contained in Section 11. 8. Customer may, upon the prior written consent of AdvancePCS, be authorized to input Direct Claims into AdvancePCS' information database. If authorized, Customer is responsible for each of the following related tasks with respect to a Direct Claim: (i) receiving the claim form reflecting the Direct Claim (the "Direct Claim Form") from the member; (ii) returning to members any claim requests submitted on ineligible forms; (iii) preparing Direct Claim Forms for microfilming; (iv) microfilming Direct Claim Forms; (v) assigning document numbers to Direct Claim Forms; (vi) batching the Direct Claim Forms; (vii) keying the Direct Claim Forms into AdvancePCS' information database; (viii) resolving Direct Claims; (ix) conducting research necessary on any Direct Claim; (x) retaining any and all documents that evidence the Direct Claims, including the Direct Claim Forms, for such period of time as AdvancePCS is required under the Agreement to retain such or similar documents; and (xi) such other matters as AdvancePCS and Customer may mutually agree upon from time to time (the foregoing clauses (i) through (xi) are collectively called the "Direct Claim Processing Requirements"). AdvancePCS will be responsible for mailing checks, explanation of benefits, and denials to plan members related to Direct Claims after such time as Customer has completed the appropriate Direct Claim Processing Requirements. AdvancePCS shall charge an Administrative Fee (as defined in the Benefit Agreement) for each Direct Claim that Customer processes. If Customer fails to perform or incorrectly or inadequately performs a Direct Claim Processing Requirement, AdvancePCS may, in its sole discretion but without any obligation, perform the Direct Claim Processing Requirement. AdvancePCS will charge Customer a fee for each Direct Claim Processing Requirement that AdvancePCS performs. 3 9. AdvancePCS has the right to use, reproduce, and adapt all information obtained pursuant to this Addendum, subject to any restrictions imposed by applicable law. 10. In connection with the Services, Customer may have access to information regarding AdvancePCS' business or its customers and to other proprietary or confidential technical and business information, databases, trade secrets, and innovations (collectively, the "AdvancePCS Information"), the value of which might be lost if the proprietary nature or confidentiality of the AdvancePCS Information is not maintained. AdvancePCS reserves all rights to the AdvancePCS Information, including the proprietary and novel features contained therein. Customer agrees: (i) to treat al1 AdvancePCS Information with confidentiality and to not disclose any AdvancePCS Information to any third party or to any of its employees without a job-related need; and (ii) to refrain from using any AdvancePCS Information for any purpose other than the purpose described in Section 1 of this document. Customer will take reasonable measures, inc1uding, but not limited to, all measures it employs with respect to information of its own that it regards as confidential and proprietary, to preserve and protect the confidentiality or proprietary nature of the AdvancePCS Information and to prevent it from falling into the public domain or into the possession of persons not bound to maintain its confidentiality. In addition to the foregoing, Customer further agrees that the compilations of information contained in the systems to which the Log-On ID will provide access, including the AdvancePCS Claims adjudication system, all print-outs and copies therefrom, and any prior and future versions thereof by any name, and in all other databases developed by AdvancePCS or its designees in connection with performing drug benefit and utilization review services are the property of AdvancePCS and may be protected by copyright owned by AdvancePCS. The databases may not be used, reproduced, or disclosed to any third party, in whole or in part, without prior written permission from AdvancePCS. Customer acknowledges that any unauthorized disclosure or use of AdvancePCS Information would cause AdvancePCS immediate and irreparable injury or loss. Accordingly, should Customer fai1 to comply with this Section 10, AdvancePCS will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Addendum, and to a judgment for damages (including attorneys' fees) caused by the breach, together with any other remedies provided under applicable law. 11. Customer represents and warrants to AdvancePCS that: (i) it has lawfully obtained any and all information that it inputs into AdvancePCS' information database; and (ii) prior to receiving, reviewing, or using any information provided through AdvancePCS' information database pursuant to the Services, Customer shall have received appropriate authorizations from the members if required by applicable law. 12. Except as specifically amended hereby, all provisions of the Benefit Agreement shall remain in full force and effect. Except as expressly provided herein, all capitalized terms used in this Addendum shall have the meaning set forth in the Benefit Agreement. 4 IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly executed as of the date first set forth above. ADVANCEPCS HEALTH, L.P. By: AdvancePCS Health Systems, L.L.C., its General Partner /s/ D. Bowers /s/ David George - ------------------------------ ------------------------------- R. Dennis Bowers, Ph.D. David A. George President & CEO President - ------------------------------ ------------------------------- Title Title 8/22/01 9-12-01 - ------------------------------ ------------------------------- Date Date 5 EX-10 9 ex10-12.txt EXHIBIT 10.12 EXHIBIT 10.12 AGREEMENT OF LEASE BETWEEN LIBERTY PROPERTY LIMITED PARTNERSHIP ("LANDLORD") AND INTERNATIONAL HEALTH PARTNERS, INC. ("TENANT") FOR 120 GIBRALTAR ROAD, SUITE 107 PENNSYLVANIA BUSINESS CAMPUS HORSHAM, PENNSYLVANIA 19044 LEASE AGREEMENT (MULTI-TENANT OFFICE)
INDEX - ----- SS. SECTION PAGE - -- ------- ---- 1. Summary of Terms and Certain Definitions.................................................................1 2. Premises.................................................................................................2 3. Acceptance of Premises...................................................................................2 4. Use; Compliance..........................................................................................2 5. Term.....................................................................................................3 6. Minimum Annual Rent......................................................................................4 7. Operation of Property; Payment of Expenses...............................................................4 8. Signs....................................................................................................7 9. Alterations and Fixtures.................................................................................7 10. Mechanics' Liens.........................................................................................8 11. Landlord's Right to Relocate Tenant; Right of Entry......................................................8 12. Damage by Fire or Other Casualty.........................................................................9 13. Condemnation.............................................................................................9 14. Non-Abatement of Rent...................................................................................10 15. Indemnification of Landlord.............................................................................10 16. Waiver of Claims........................................................................................10 17. Quiet Enjoyment.........................................................................................10 18. Assignment and Subletting...............................................................................11 19. Subordination; Mortgagee's Rights.......................................................................12 20. Recording; Tenant's Certificate.........................................................................12 21. Surrender; Abandoned Property...........................................................................12
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22. Curing Tenant's Defaults................................................................................13 23. Defaults - Remedies.....................................................................................13 24. Representations of Tenant...............................................................................16 25. Liability of Landlord...................................................................................17 26. Interpretation; Definitions.............................................................................17 27. Notices.................................................................................................18 28. Security Deposit........................................................................................18 ADDENDUM - -------- SS. SECTION PAGE - -- ------- ---- 29. Tenant Improvements....................................................................................A-1 30. Furniture..............................................................................................A-1 31. Tenant's Release If Expands............................................................................A-1 32. Termination of Existing Lease..........................................................................A-1
-ii- THIS LEASE AGREEMENT is made by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership ("LANDLORD") with its address at 5 Walnut Grove Drive, Suite 200, Horsham, PA 19044, and INTERNATIONAL HEALTH PARTNERS, INC., an Indiana corporation ("TENANT") with an address at 120 Gibraltar Road, Suite 107, Horsham, PA 19044, and is dated as of the date on which this lease has been fully executed by Landlord and Tenant. 1. SUMMARY OF TERMS AND CERTAIN DEFINITIONS. (a) "PREMISES": Approximate rentable square feet: 7,097 (Section 2) Suite: 107 (b) "BUILDING": Approximate rentable square feet: 49,119 (ss.2) Address: 120 Gibraltar Road, Suite 107 Pennsylvania Business Campus Horsham, PA 19044 (c) "TERM": Thirty-six (36) months plus any partial month from the Commencement Date until the first day of the first full calendar month during the Term (i) "COMMENCEMENT DATE": May 15, 2004 (ii) "COMMENCEMENT DATE": See Section 5 (iii) "EXPIRATION DATE": See Section 5 (D) MINIMUM RENT (SS.6) & OPERATING EXPENSES (SS.7) (i) "MINIMUM ANNUAL RENT": Lease Year Annual Monthly ---------- ------ ------- 1 $83,389.75 $6,949.15 2 $86,938.25 $7,244.85 3 $90,486.75 $7,540.56 (ii) ESTIMATED "ANNUAL OPERATING EXPENSES": $67,563.44 (Sixty-Seven Thousand Five Hundred Sixty-Three and 44/100 Dollars), payable in monthly installments of $5,630.29 (Five Thousand Six Hundred Thirty and 29/100 Dollars), subject to adjustment (ss.7(a)) (e) "PROPORTIONATE SHARE" (ss.7(a)): 14.45% (Ratio of approximate rentable square feet in the Premises to approximate rentable square feet in the Building) (F) "USE" (ss.4): General office purposes (excluding any "place of public accommodation") (G) "SECURITY DEPOSIT" (ss.28): $19,000.00 (Nineteen Thousand and 00/100 Dollars) (H) CONTENTS: This lease consists of the Index, pages 1 through 13 containing Sections 1 through 28 and the following, all of which are attached hereto and made a part of this lease: Addendum with Sections 29 through 32. Exhibits: "A" - Plan showing Premises "B" - Commencement Certificate "C" - Building Rules "D" - Cleaning Schedule "E" - Estoppel Certificate "F" - Description of Improvements "G" - List of Furniture 2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises as shown on attached Exhibit "A" within the Building (the Building and the lot on which it is located, the "PROPERTY"), together with the non-exclusive right with Landlord and other occupants of the Building to use all areas and facilities provided by Landlord for the use of all tenants in the Property including any lobbies, hallways, driveways, sidewalks and parking, loading and landscaped areas (the "COMMON AREAS"). 3. ACCEPTANCE OF PREMISES. Tenant has examined and knows the condition of the Property, the zoning, streets, sidewalks, parking areas, curbs and access ways adjoining it, visible easements, any surface conditions and the present uses, and Tenant accepts them in the condition in which they now are, without relying on any representation, covenant or warranty by Landlord, except as to the work to be performed by Landlord pursuant to Section 29 below. Tenant's occupancy of the Premises shall constitute acceptance of such work by Landlord. Tenant and its Agents shall have the right, at Tenant's own risk, expense and responsibility, at all reasonable times prior to the Commencement Date, to enter the Premises for the purpose of taking measurements and installing its furnishings and equipment; provided that Tenant does not interfere with or delay the work to be performed by Landlord, Tenant uses contractors and workers compatible with the contractors and workers engaged by Landlord, and Tenant obtains Landlord's prior written consent. 4. USE; COMPLIANCE. (A) PERMITTED USE. Tenant shall occupy and use the Premises for and only for the Use specified in Section 1(f) above and in such a manner as is lawful, reputable and will not create any nuisance or otherwise interfere with any other tenant's normal operations or the management of the Building. Without limiting the foregoing, such Use shall exclude any use that would cause the Premises or the Property to be deemed a "place of public accommodation" under the Americans with Disabilities Act (the "ADA") as further described in the Building Rules (defined below). All Common Areas shall be subject to Landlord's exclusive control and management at all times. Tenant shall not use or permit the use of any portion of the Common Areas for other than their intended use. 2 (B) COMPLIANCE. From and after the Commencement Date, Tenant shall comply promptly, at its sale expense, (including making any alterations or improvements) with all laws (including the ADA), ordinances, notices, orders, rules, regulations and requirements regulating the Property during the Term which impose any duty upon Landlord or Tenant with respect to Tenant's use, occupancy or alteration of, or Tenant's installations in or upon, the Property including the Premises, (as the same may be amended, the "LAWS AND REQUIREMENTS") and the building rules attached as Exhibit "C", as amended by Landlord from time to time, (the "BUILDING RULES"). Provided, however, that Tenant shall not be required to comply with the Laws and Requirements with respect to the footings, foundations, structural steel columns and girders forming a part of the Property unless the need for such compliance arises out of Tenant's use, occupancy or alteration of the Property, or by any act or omission of Tenant or any employees, agents, contractors, licensees or invitees ("AGENTS") of Tenant. With respect to Tenant's obligations as to the Property, other than the Premises, at Landlord's option and at Tenant's expense, Landlord may comply with any repair, replacement or other construction requirements of the Laws and Requirements and Tenant shall pay to Landlord all costs thereof as additional rent. (C) ENVIRONMENTAL. Tenant shall comply, at its sale expense, with all Laws and Requirements as set forth above, all manufacturers' instructions and all requirements of insurers relating to the treatment, production, storage, handling, transfer, processing, transporting, use, disposal and release of hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum products, toxic or radioactive matter (the "RESTRICTED ACTIVITIES"). Tenant shall deliver to Landlord copies of all Material Safety Data Sheets or other written information prepared by manufacturers, importers or suppliers of any chemical and an notices, filings, permits and any other written communications from or to Tenant and any entity regulating any Restricted Activities. (D) NOTICE. If at any time during or after the Term, Tenant becomes aware of any inquiry, investigation or proceeding regarding the Restricted Activities or becomes aware of any claims, actions or investigations regarding the ADA, Tenant shall give Landlord written notice, within 5 days after first learning thereof, providing all available information and copies of any notices. 5. TERM. The Term of this lease shall commence on the later of (a) the Completion Date or (b) the date of substantial completion of the improvements to be constructed by Landlord under Section 29 below, but in any event no later than the date on which Tenant occupies the Premises (the "COMMENCEMENT DATE") and shall end at 11:59 p.m. on the last day of the Term (the "EXPIRATION DATE"), without the necessity for notice from either party, unless sooner terminated in accordance with the terms hereof; however, if the date of substantial completion is delayed by Tenant, the Term shall commence as if the Premises were substantially complete on the Completion Date, as extended for reasons other than those caused by Tenant. Landlord shall confirm the Commencement Date and the Expiration Date by executing a lease commencement certificate in the form attached as Exhibit "B". 3 6. MINIMUM ANNUAL RENT. Tenant agrees to pay to Landlord the Minimum Annual Rent in equal monthly installments in the amount set forth in Section 1(d) (as increased at the beginning of each lease year as set forth in Section 1(d)), in advance, on the first day of each calendar month during the Term, without notice, demand or setoff, at Landlord's address designated at the beginning of this lease unless Landlord designates otherwise; provided that rent for the first full month shall be paid at the signing of this lease. If the Commencement Date falls on a day other than the first day of a calendar month, the rent shall be apportioned pro rata on a per diem basis for the period from the Commencement Date until the first day of the following calendar month and shall be paid on or before the Commencement Date. As used in this lease, the term "LEASE YEAR" means the period from the Commencement Date through the succeeding 12 full calendar months (including for the first lease year any partial month from the Commencement Date until the first day of the first full calendar month) and each successive 12 month period thereafter during the Term. 7. OPERATION OF PROPERTY; PAYMENT OF EXPENSES. (A) PAYMENT OF OPERATING EXPENSES. Tenant shall pay to Landlord the Annual Operating Expenses in equal monthly installments in the amount set forth in Section 1(d) (prorated for any partial month), from the Commencement Date and continuing throughout the Term on the first day of each calendar month during the Term, as additional rent, without notice, demand or setoff; provided that the monthly installment for the first full month shall be paid at the signing of this lease. Landlord shall apply such payments to the annual operating costs to Landlord of operating and maintaining the Property during each calendar year of the Term, which costs may include by way of example rather than limitation: insurance premiums, fees, impositions, costs for repairs, maintenance, service contracts, management and administrative fees, governmental permits, overhead expenses, costs of furnishing water, sewer, gas, fuel, electricity, other utility services, janitorial service, trash removal, security services, landscaping and grounds maintenance, and the costs of any other items attributable to operating or maintaining any or all of the Property excluding any costs which under generally accepted accounting principles are capital expenditures; provided, however, that annual operating costs also shall include the annual amortization (over an assumed useful life of ten years) of the costs (including financing charges) of building improvements made by Landlord to the Property that are required by any governmental authority or for the purpose of reducing operating expenses or directly enhancing the safety of tenants in the Building generally. The amount of the Annual Operating Expenses set forth in Section l(d) represents Landlord's estimate of Tenant's share of the estimated operating costs during the first calendar year of the Term on an annualized basis; from time to time Landlord may adjust such estimated amount if the estimated operating costs increase. Tenant's obligation to pay the Annual Operating Expenses pursuant to this Section 7 shall survive the expiration or termination of this lease. (i) COMPUTATION OF TENANT'S SHARE OF ANNUAL OPERATING COSTS. After the end of each calendar year of the Term, Landlord shall compute Tenant's share of the annual operating costs described above incurred during such calendar year by (A) calculating an appropriate adjustment, using generally accepted accounting principles, to avoid allocating to Tenant or to any other tenant (as the case may be) those specific costs which Tenant or any other tenant has agreed to pay; (B) calculating an appropriate adjustment, using generally accepted accounting principles, to avoid allocating to any vacant space those specific costs which were not incurred for such space; and (C) multiplying the adjusted annual operating costs by Tenant's Proportionate Share. 4 (ii) RECONCILIATION. By April 30th of each year (and as soon as practical after the expiration or termination of this lease or at any time in the event of a sale of the Property), Landlord shall provide Tenant with a statement of the actual amount of such annual operating costs for the preceding calendar year or part thereof. Landlord or Tenant shall pay to the other the amount of any deficiency or overpayment then due from one to the other or, at Landlord's option, Landlord may credit Tenant's account for any overpayment Tenant shall have the right to inspect the books and records used by Landlord in calculating the annual operating costs within 60 days of receipt of the statement during regular business hours after having given Landlord at least 48 hours prior written notice; provided, however, that Tenant shall make all payments of additional rent without delay, and that Tenant's obligation to pay such additional rent shall not be contingent on any such right. (B) IMPOSITIONS. As used in this lease the term "impositions" refers to all levies, taxes (including sales taxes and gross receipt taxes) and assessments, which are applicable to the Term, and which are imposed by any authority or under any law, ordinance or regulation thereof, or pursuant to any recorded covenants or agreements, and the reasonable cost of contesting any of the foregoing, upon or with respect to the Property or any part thereof, or any improvements thereto. Tenant shall pay to Landlord with the monthly payment of Minimum Annual Rent any imposition imposed directly upon this lease or the Rent (defined in Section 7(g)) or amounts payable by any subtenants or other occupants of the Premises, or against Landlord because of Landlord's estate or interest herein. (i) Nothing herein contained shall be interpreted as requiring Tenant to pay any income, excess profits or corporate capital stock tax imposed or assessed upon Landlord, unless such tax or any similar tax is levied or assessed in lieu of all or any part of any imposition or an increase in any imposition. (ii) If it shall not be lawful for Tenant to reimburse Landlord for any of the impositions, the Minimum Annual Rent shall be increased by the amount of the portion of such imposition allocable to Tenant, unless prohibited by law. (C) INSURANCE. (i) PROPERTY. Landlord shall keep in effect insurance against loss or damage to the Building or the Property by fire and such other casualties as may be included within fire, extended coverage and special form insurance covering the full replacement cost of the Building (but excluding coverage of Tenant's personal property in, and any alterations by Tenant to, the Premises), and such other insurance as Landlord may reasonably deem appropriate or as may be required from time-to-time by any mortgagee. (ii) LIABILITY. Tenant, at its own expense, shall keep in effect comprehensive general public liability insurance with respect to the Premises and the Property, including contractual liability insurance, with such limits of liability for bodily injury (including death) and property damage as reasonably may be required by Landlord from time-to-time, but not less than a combined single limit of $1,000,000 per occurrence and a general aggregate limit of not less than $2,000,000 (which aggregate limit shall apply separately to each of Tenant's locations if more than the Premises); however, such limits shall not limit the liability of Tenant hereunder. The policy of comprehensive general public liability insurance also shall name Landlord and Landlord's agent as insured parties with respect to the Premises, shall be written on an "occurrence" basis and not on a "claims made" basis, shall provide that it is primary with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, shall provide that it shall not be cancelable or reduced without at least 30 days prior written notice to Landlord and shall be issued in form satisfactory to Landlord. The insurer shall be a responsible insurance carrier which is authorized to issue such insurance and licensed to do business in the state in which the Property is located and which has at all times during the Term a rating of no less than A VII in the most current edition of Best's Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date, and subsequently renewals of, a certificate of insurance evidencing such coverage and the waiver of subrogation described below. 5 (iii) WAIVER OF SUBROGATION. Landlord and Tenant shall have included in their respective property insurance policies waivers of their respective insurers' right of subrogation against the other party. If such a waiver should be unobtainable or unenforceable, then such policies of insurance shall state expressly that such policies shall not be invalidated if, before a casualty, the insured waives the right of recovery against any party responsible for a casualty covered by the policy. (iv) INCREASE OF PREMIUMS. Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord's insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. If any breach of the preceding sentence by Tenant causes the rate of fire or other insurance to be increased, Tenant shall pay the amount of such increase as additional rent promptly upon being billed. (D) REPAIRS AND MAINTENANCE; COMMON AREAS; BUILDING MANAGEMENT. (i) Tenant at its sole expense shall maintain the Premises in a neat and orderly condition. (ii) Landlord, shall make all necessary repairs to the Premises, the Common Areas and any other improvements located on the Property, provided that Landlord shall have no responsibility to make any repair until Landlord receives written notice of the need for such repair. Landlord shall operate and manage the Property and shall maintain all Common Areas and any paved areas appurtenant to the Property in a clean and orderly condition. Landlord reserves the right to make alterations to the Common Areas from time to time. (iii) Notwithstanding anything herein to the contrary, repairs and replacements to the Property including the Premises made necessary by Tenant's use, occupancy or alteration of, or Tenant's installation in or upon the Property or by any act or omission of Tenant or its Agents shall be made at the sole expense of Tenant to the extent not covered by any applicable insurance proceeds paid to Landlord. Tenant shall not bear the expense of any repairs or replacements to the Property arising out of or caused by any other tenant's use, occupancy or alteration of, or any other tenant's installation in or upon, the Property or by any act or omission of any other tenant or any other tenant's Agents. 6 (E) UTILITIES. (i) Landlord will furnish the Premises with electricity, heating and air conditioning for the normal use and occupancy of the Premises as general offices between 8:00 a.m. and 6:00 p.m., Monday through Friday (legal holidays excepted). If Tenant shall require electricity or install electrical equipment including but not limited to electrical heating, refrigeration equipment, electronic data processing machines, or machines or equipment using current in excess of 110 volts, which will in any way increase the amount of electricity usually furnished for use as general office space, or if Tenant shall attempt to use the Premises in such a manner that the services to be furnished by Landlord would be required during periods other than or in addition to business hours referred to above, Tenant will obtain Landlord's prior written approval and will pay for the resulting additional direct expense, including the expense resulting from the installation of such equipment and meters, as additional rent promptly upon being billed. Landlord shall not be responsible or liable for any interruption in utility service, nor shall such interruption affect the continuation or validity of this lease. (ii) If at any time utility services supplied to the Premises are separately metered, the cost of installing Tenant's meter and the cost of such separately metered utility service shall be paid by Tenant promptly upon being billed. (F) JANITORIAL SERVICES. Landlord will provide Tenant with trash removal and janitorial services pursuant to a cleaning schedule attached as Exhibit "D". (G) "RENT." The term "RENT" as used in this lease means the Minimum Annual Rent, Annual Operating Expenses and any other additional rent or sums payable by Tenant to Landlord pursuant to this lease, all of which shall be deemed rent for purposes of Landlord's rights and remedies with respect thereto. Tenant shall pay all Rent to Landlord within 30 days after Tenant is billed, unless otherwise provided in this lease, and interest shall accrue on all sums due but unpaid. 8. SIGNS. Landlord, at Landlord's expense, will place Tenant's name and suite number on the Building standard sign and on or beside the entrance door to the Premises. Except for signs which are located wholly within the interior of the Premises and not visible from the exterior of the Premises, no signs shall be placed on the Property without the prior written consent of Landlord. All signs installed by Tenant shall be maintained by Tenant in good condition and Tenant shall remove all such signs at the termination of this lease and shall repair any damage caused by such installation, existence or removal. 9. ALTERATIONS AND FIXTURES. (a) Subject to Section 10, Tenant shall have the right to install its trade fixtures in the Premises, provided that no such installation or removal thereof shall affect any structural portion of the Property nor any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant. At the expiration or termination of this lease and at the option of Landlord or Tenant, Tenant shall remove such installation(s) and, in the event of such removal, Tenant shall repair any damage caused by such installation or removal; if Tenant, with Landlord's written consent, elects not to remove such installation(s) at the expiration or termination of this lease, all such installations shall remain on the Property and become the property of Landlord without payment by Landlord. 7 (b) Except for non-structural changes which do not exceed $5000 in the aggregate, Tenant shall not make or permit to be made any alterations to the Premises without Landlord's prior written consent. Tenant shall pay the costs of any required architectural engineering reviews. In making any alterations, (i) Tenant shall deliver to Landlord the plans, specifications and necessary permits, together with certificates evidencing that Tenant's contractors and subcontractors have adequate insurance coverage naming Landlord and Landlord's agent as additional insureds, at least 10 days prior to commencement thereof, (ii) such alterations shall not impair the structural strength of the Building or any other improvements or reduce the value of the Property or affect any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant, (iii) Tenant shall comply with Section 10 and (iv) the occupants of the Building and of any adjoining property shall not be disturbed thereby. All alterations to the Premises by Tenant shall be the property of Tenant until the expiration or termination of this lease; at that time all such alterations shall remain on the Property and become the property of Landlord without payment by Landlord unless Landlord gives written notice to Tenant to remove the same, in which event Tenant will remove such alterations and repair any resulting damage. At Tenant's request prior to Tenant making any alterations, Landlord shall notify Tenant in writing, whether Tenant is required to remove such alterations at the expiration or termination of this lease. 10. MECHANICS' LIENS. Tenant shall pay promptly any contractors and materialmen who supply labor, work or materials to Tenant at the Property and shall take all steps permitted by law in order to avoid the imposition of any mechanic's lien upon all or any portion of the Property. Should any such lien or notice of lien be filed for work performed for Tenant other than by Landlord, Tenant shall bond against or discharge the same within 5 days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim. Nothing in this lease is intended to authorize Tenant to do or cause any work to be done or materials to be supplied for the account of Landlord, all of the same to be solely for Tenant's account and at Tenant's risk and expense. Throughout this lease the term "MECHANIC'S LIEN" is used to include any lien, encumbrance or charge levied or imposed upon all or any portion of, interest in or income from the Property on account of any mechanic's, laborer's, materialman's or construction lien or arising out of any debt or liability to or any claim of any contractor, mechanic, supplier, materialman or laborer and shall include any mechanic's notice of intention to me a lien given to Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of refusal to pay naming Landlord or Tenant and any injunctive or equitable action brought by any person claiming to be entitled to any mechanic's lien. 11. LANDLORD'S RIGHT TO RELOCATE TENANT; RIGHT OF ENTRY. (a) Landlord may cause Tenant to relocate from the Premises to a comparable space ("RELOCATION SPACE") within the Building by giving written notice to Tenant at least 60 days in advance, provided that Landlord shall pay for all reasonable costs of such relocation. Such a relocation shall not terminate, modify or otherwise affect this lease except that "Premises" shall refer to the Relocation Space rather than the old location identified in Section l(a). 8 (b) Tenant shall permit Landlord and its Agents to enter the Premises at all reasonable times following reasonable notice (except in the event of an emergency), for the purpose of inspection, maintenance or making repairs, alterations or additions as well as to exhibit the Premises for the purpose of sale or mortgage and, during the last 12 months of the Term, to exhibit the Premises to any prospective tenant. Landlord will make reasonable efforts not to inconvenience Tenant in exercising the foregoing rights, but shall not be liable for any loss of occupation or quiet enjoyment thereby occasioned. 12. DAMAGE BY FIRE OR OTHER CASUALTY. (a) If the Premises or Building shall be damaged or destroyed by fire or other casualty, Tenant promptly shall notify Landlord and Landlord, subject to the conditions set forth in this Section 12, shall repair such damage and restore the Premises to substantially the same condition in which they were immediately prior to such damage or destruction, but not including the repair, restoration or replacement of the fixtures or alterations installed by Tenant. Landlord shall notify Tenant in writing, within 30 days after the date of the casualty, if Landlord anticipates that the restoration will take more than 180 days from the date of the casualty to complete; in such event either Landlord or Tenant may terminate this lease effective as of the date of casualty by giving written notice to the other within 10 days after Landlord's notice. Further, if a casualty occurs during the last 12 months of the Term or any extension thereof, Landlord may cancel this lease unless Tenant has the right to extend the Term for at least 3 more years and does so within 30 days after the date of the casualty. (b) Landlord shall maintain a 12 month rental coverage endorsement or other comparable form of coverage as part of its fire, extended coverage and special form insurance. Tenant will receive an abatement of its Minimum Annual Rent and Annual Operating Expenses to the extent the Premises are rendered untenantable as determined by the carrier providing the rental coverage endorsement. 13. CONDEMNATION. (A) TERMINATION. If (i) all of the Premises are taken by a condemnation or otherwise for any public or quasi-public use, (ii) any part of the Premises is so taken and the remainder thereof is insufficient for the reasonable operation of Tenant's business or (iii) any of the Property is so taken, and, in Landlord's opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder of the Property, then this lease shall terminate and all unaccrued obligations hereunder shall cease as of the day before possession is taken by the condemnor. (B) PARTIAL TAKING. If there is a condemnation and this lease has not been terminated pursuant to this Section, (i) Landlord shall restore the Building and the improvements which are a part of the Premises to a condition and size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the date upon which the condemnor took possession and (ii) the obligations of Landlord and Tenant shall be unaffected by such condemnation except that there shall be an equitable abatement of the Minimum Annual Rent according to the rental value of the Premises before and after the date upon which the condemnor took possession and/or the date Landlord completes such restoration. 9 (C) AWARD. In the event of a condemnation affecting Tenant, Tenant shall have the right to make a claim against the condemnor for moving expenses and business dislocation damages to the extent that such claim does not reduce the sums otherwise payable by the condemnor to Landlord. Except as aforesaid and except as set forth in (d) below, Tenant hereby assigns all claims against the condemnor to Landlord. (D) TEMPORARY TAKING. No temporary taking of the Premises shall terminate this lease or give Tenant any right to any rental abatement. Such a temporary taking will be treated as if Tenant had sublet the Premises to the condemnor and had assigned the proceeds of the subletting to Landlord to be applied on account of Tenant's obligations hereunder Any award for such a temporary taking during the Term shall be applied first to Landlord's costs of collection and, second, on account of sums owing by Tenant hereunder, and if such amounts applied on account of sums owing by Tenant hereunder should exceed the entire amount owing by Tenant for the remainder of the Term, the excess will be paid to Tenant. 14. NON-ABATEMENT OF RENT. Except as otherwise expressly provided as to damage by fire or other casualty in Section 12(b) and as to condemnation in Section 13(b), there shall be no abatement or reduction of the Rent for any cause whatsoever, and this lease shall not terminate, and Tenant shall not be entitled to surrender the Premises. 15. INDEMNIFICATION OF LANDLORD. Subject to Sections 7(c)(iii) and 16, Tenant will protect, indemnity and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liability and expense (including fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property in or about the Premises or arising out of the occupancy or use of the Premises by Tenant or its Agents or occasioned wholly or in part by any act or omission of Tenant or its Agents, whether prior to, during or after the Term, except to the extent such loss, injury or damage was caused by the negligence of landlord or its Agents. In case any action or proceeding is brought against Landlord and/or its Agents by reason of the foregoing, Tenant at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Landlord and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Tenant and approved by Landlord and its Agents. Tenant's obligations pursuant to this Section 15 shall survive the expiration or termination of this lease. 16. WAIVER OF CLAIMS. Landlord and Tenant each hereby waives all claims for recovery against the other for any loss or damage which may be inflicted upon the property of such party even if such loss or damage shall be brought about by the fault or negligence of the other party or its Agents; provided, however, that such waiver by Landlord shall not be effective with respect to any liability of Tenant described in Sections 4(c) and 7(d)(iii). 17. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the exceptions, reservations and conditions of this lease. 10 18. ASSIGNMENT AND SUBLETTING. (A) LIMITATION. Tenant shall not transfer this lease, voluntarily or by operation of law, without the prior written consent of Landlord which shall not be withheld unreasonably. However, landlord's consent shall not be required in the event of any transfer by Tenant to an affiliate of Tenant which is at least as creditworthy as Tenant as of the date of this lease and provided Tenant delivers to Landlord the instrument described in Section (c)(iii) below, together with a certification of such creditworthiness by Tenant and such affiliate. Any transfer not in conformity with this Section 18 shall be void at the option of Landlord, and Landlord may exercise any or all of its rights under Section 23. A consent to one transfer shall not be deemed to be a consent to any subsequent transfer. "Transfer" shall include any sublease, assignment, license or concession agreement, change in ownership or control of Tenant, mortgage or hypothecation of this lease or Tenant's interest therein or in all or a portion of the Premises. (B) OFFER TO LANDLORD. Tenant acknowledges that the terms of this lease, including the Minimum Annual Rent, have been based on the understanding that Tenant physically shall occupy the Premises for the entire Term. Therefore, upon Tenant's request to transfer all or a portion of the Premises, at the option of Landlord, Tenant and Landlord shall execute an amendment to this lease removing such space from the Premises, Tenant shall be relieved of any liability with respect to such space and Landlord shall have the right to lease such space to any party, including Tenant's proposed transferee. (C) CONDITIONS. Notwithstanding the above, the following shall apply to any transfer, with or without Landlord's consent: (i) As of the date of any transfer, Tenant shall not be in default under this lease nor shall any act or omission have occurred which would constitute a default with the giving of notice and/or the passage of time. (ii) No transfer shall relieve Tenant of its obligation to pay the Rent and to perform all its other obligations hereunder. The acceptance of Rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this lease or to be a consent to any transfer. (iii) Each transfer shall be by a written instrument in form and substance satisfactory to Landlord which shall (A) include an assumption of liability by any transferee of all Tenant's obligations and the transferee's ratification of and agreement to be bound by all the provisions of this lease, (B) afford Landlord the right of direct action against the transferee pursuant to the same remedies as are available to Landlord against Tenant and (C) be executed by Tenant and the transferee. (iv) Tenant shall pay, within 10 days of receipt of an invoice which shall be no less than $250, Landlord's reasonable attorneys' fees and costs in connection with the review, processing and documentation of any transfer for which Landlord's consent is requested. 11 19. SUBORDINATION; MORTGAGEE'S RIGHTS. (a) This lease shall be subordinate to any first mortgage or other primary encumbrance now or hereafter affecting the Premises. Although the subordination is self-operative, within 10 days after written request, Tenant shall execute and deliver any further instruments confirming such subordination of this lease and any further instruments of attornment that may be desired by any such mortgagee or Landlord. However, any mortgagee may at any time subordinate its mortgage to this lease, without Tenant's consent, by giving written notice to Tenant, and thereupon this lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery; provided, however, that such subordination shall not affect any mortgagee's right to condemnation awards, casualty insurance proceeds, intervening liens or any right which shall arise between the recording of such mortgage and the execution of this lease. (b) It is understood and agreed that any mortgagee shall not be liable to Tenant for any funds paid by Tenant to Landlord unless such funds actually have been transferred to such mortgagee by Landlord. (c) Notwithstanding the provisions of Sections 12 and 13 above, Landlord's obligation to restore the Premises after a casualty or condemnation shall be subject to the consent and prior rights of Landlord's first mortgagee. 20. RECORDING; TENANT'S CERTIFICATE. Tenant shall not record this lease or a memorandum thereof without Landlord's prior written consent. Within 10 days after Landlord's written request from time to time: (a) Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying the Commencement Date and Expiration Date of this lease, that this lease is in full force and effect and has not been modified and otherwise as set forth in the form of estoppel certificate attached as Exhibit "E" or with such modifications as may be necessary to reflect accurately the stated facts and/or such other certifications as may be requested by a mortgagee or purchaser. Tenant understands that its failure to execute such documents may cause Landlord serious financial damage by causing the failure of a financing or sale transaction. (b) Tenant shall furnish to Landlord, Landlord's mortgagee, prospective mortgagee or purchaser reasonably requested financial information. 21. SURRENDER; ABANDONED PROPERTY. (a) Subject to the terms of Sections 9(b), 12(a) and 13(b), at the expiration or termination of this lease, Tenant promptly shall yield up in the same condition, order and repair in which they are required to be kept throughout the Term, the Premises and all improvements thereto, and all fixtures and equipment servicing the Building, ordinary wear and tear excepted. (b) Upon or prior to the expiration or termination of this lease, Tenant shall remove any personal property from the Property. Any personal property remaining thereafter shall be deemed conclusively to have been abandoned, and Landlord, at Tenant's expense, may remove, store, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property as its property. If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage and any Rent due under this lease. 12 (c) If Tenant, or any person claiming through Tenant, shall continue to occupy the Premises after the expiration or termination of this lease or any renewal thereof, such occupancy shall be deemed to be under a month-to-month tenancy under the same terms and conditions set forth in this lease, except that the monthly installment of the Minimum Annual Rent during such continued occupancy shall be double the amount applicable to the last month of the Term. Anything to the contrary notwithstanding, any holding over by Tenant without Landlord's prior written consent shall constitute a default hereunder and shall be subject to all the remedies available to Landlord. 22. CURING TENANT'S DEFAULTS. If Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without any obligation to do so, in addition to any other rights it may have in law or equity, may elect to cure such default on behalf of Tenant after written notice (except in the case of emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including interest thereon from the respective dates of Landlord's incurring such costs, which sums and costs together with interest shall be deemed additional rent. 23. DEFAULTS - REMEDIES. (A) DEFAULTS. It shall be an event of default: (i) If Tenant does not pay in full when due any and all Rent; (ii) If Tenant fails to observe and perform or otherwise breaches any other provision of this lease; (iii) If Tenant abandons the Premises, which shall be conclusively presumed if the Premises remain unoccupied for more than 10 consecutive days, or removes or attempts to remove Tenant's goods or property other than in the ordinary course of business; or (iv) If Tenant becomes insolvent or bankrupt in any sense or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant's assets is commenced, or if any of the real or personal property of Tenant shall be levied upon; provided, however, that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute a default until such proceeding has continued unstayed for more than 60 consecutive days. (B) REMEDIES. Then, and in any such event, Landlord shall have the following rights: 13 (i) To charge a late payment fee equal to the greater of $100 or 5% of any amount owed to Landlord pursuant to this lease which is not paid within 5 days after the due date. (ii) To enter and repossess the Premises, by breaking open locked doors if necessary, and remove all persons and all or any property therefrom, by action at law or otherwise, without being liable for prosecution or damages therefor, and Landlord may, at Landlord's option, make alterations and repairs in order to relet the Premises and relet all or any part(s) of the Premises for Tenant's account. Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. In the event of reletting without termination of this lease, Landlord may at any time thereafter elect to terminate this lease for such previous breach. (iii) To accelerate the whole or any part of the Rent for the balance of the Term, and declare the same to be immediately due and payable. (iv) To terminate this lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken. (v) When this lease and the Term or any extension thereof shall have been terminated on account of any default by Tenant, or when the Term or any extension thereof shall have expired, Tenant hereby authorizes any attorney of any court of record of the Commonwealth of Pennsylvania to appear for Tenant and for anyone claiming by, through or under Tenant and to confess judgment against all such parties, and in favor of Landlord, in ejectment and for the recovery of possession of the Premises, for which this lease or a true and correct copy hereof shall be good and sufficient warrant. AFTER THE ENTRY OF ANY SUCH JUDGMENT, A WRIT OF POSSESSION MAY BE ISSUED THEREON WITHOUT FURTHER NOTICE TO TENANT AND WITHOUT A HEARING. If for any reason after such action shall have been commenced it shall be determined and possession of the Premises remain in or be restored to Tenant, Landlord shall have the right for the same default and upon any subsequent default(s) or upon the termination of this lease or Tenant's right of possession as herein set forth, to again confess judgment as herein provided, for which this lease or a true and correct copy hereof shall be good and sufficient warrant. (vi) If Tenant shall default in the payment of the Rent due hereunder, Tenant hereby authorizes any attorney of any court of record of the Commonwealth of Pennsylvania to appear for Tenant and to confess judgment against Tenant, and in favor of Landlord, for all sums due hereunder plus interest, costs and an attorney's collection commission equal to the greater of 10% of all such sums or $1,000, for which this lease or a true and correct copy hereof shall be good and sufficient warrant. TENANT UNDERSTANDS THAT THE FOREGOING PERMITS LANDLORD TO ENTER A JUDGMENT AGAINST TENANT WITHOUT PRIOR NOTICE OR HEARING. ONCE SUCH A JUDGMENT HAS BEEN ENTERED AGAINST TENANT, ONE OR MORE WRITS OF EXECUTION OR WRITS OF GARNISHMENT MAY BE ISSUED THEREON WITHOUT FURTHER NOTICE TO TENANT AND WITHOUT A HEARING, AND, PURSUANT TO SUCH WRITS, LANDLORD MAY CAUSE THE SHERIFF OF THE COUNTY IN WHICH ANY PROPERTY OF TENANT IS LOCATED TO SEIZE TENANT'S PROPERTY BY LEVY OR ATTACHMENT. IF THE JUDGMENT AGAINST TENANT REMAINS UNPAID AFTER SUCH LEVY OR ATTACHMENT, LANDLORD CAN CAUSE SUCH PROPERTY TO BE SOLD BY THE SHERIFF EXECUTING THE WRITS, OR, IF SUCH PROPERTY CONSISTS OF A DEBT OWED TO TENANT BY ANOTHER ENTITY, LANDLORD CAN CAUSE SUCH DEBT TO BE PAID DIRECTLY TO LANDLORD IN AN AMOUNT UP TO BUT NOT TO EXCEED THE AMOUNT OF THE JUDGMENT OBTAINED BY LANDLORD AGAINST TENANT, PLUS THE COSTS OF THE EXECUTION. Such authority shall not be exhausted by one exercise thereof, but judgment may be confessed as aforesaid from time to time as often as any of said rental and other sums shall fall due or be in arrears, and such powers may be exercised as well after the expiration of the initial Term of this lease and during any extended or renewal Term of this lease and after the expiration of any extended or renewal Term of this lease. 14 (vii) The warrants of attorney to confess judgment set forth above shall continue in full force and effect and be unaffected by amendments to this lease or other agreements between Landlord and Tenant even if any such amendments or other agreements increase Tenant's obligations or expand the size of the Premises. Tenant waives any procedural errors in connection with the entry of any such judgment or in the issuance of any one or more writs of possession or execution or garnishment thereon. (viii) TENANT KNOWINGLY AND EXPRESSLY WAIVES (i) ANY RIGHT, INCLUDING, WITHOUT LIMITATION, UNDER ANY APPLICABLE STATUTE, WHICH TENANT MAY HAVE TO RECEIVE A NOTICE TO QUIT PRIOR TO LANDLORD COMMENCING AN ACTION FOR REPOSSESSION OF THE PREMISES AND (ii) ANY RIGHT WHICH TENANT MAY HAVE TO NOTICE AND TO HEARING PRIOR TO A LEVY UPON OR ATTACHMENT OF TENANT'S PROPERTY OR THEREAFTER. INTERNATIONAL HEALTH PARTNERS, INC By: /s/ David M. Daniels ---------------------------------- Name: David M. Daniels Title: CEO (C) GRACE PERIOD. Notwithstanding anything hereinabove stated, neither party will exercise any available right because of any default of the other, except those remedies contained in subsection (b)(i) of this Section, unless such party shall have first given 10 days written notice thereof to the defaulting party, and the defaulting party shall have failed to cure the default within such period; provided, however, that: (i) No such notice shall be required if Tenant fails to comply with the provisions of Sections 10 or 20(a), in the case of emergency as set forth in Section 22 or in the event of any default enumerated in subsections (a)(iii) and (iv) of this Section. 15 (ii) Landlord shall not be required to give such 10 days notice more than 2 times during any 12 month period. (iii) If the default consists of something other than the failure to pay money which cannot reasonably be cured within 10 days, neither party will exercise any right if the defaulting party begins to cure the default within the 10 days and continues actively and diligently in good faith to completely cure said default. (iv) Tenant agrees that any notice given by Landlord pursuant to this Section which is served in compliance with Section 27 shall be adequate notice for the purpose of Landlord's exercise of any available remedies. (D) NON-WAIVER; NON-EXCLUSIVE. No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant's default shall not constitute a waiver of Landlord's right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this lease shall be deemed to be other than on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of Rent due, or Landlord's right to pursue any other available remedy. (E) COSTS AND ATTORNEYS' FEES. If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party attorneys' fees, costs of suit, investigation expenses and discovery costs, including costs of appeal. 24. REPRESENTATIONS OF TENANT. Tenant represents to Landlord and agrees that: (a) The word "TENANT" as used herein includes the Tenant named above as well as its successors and assigns, each of which shall be under the same obligations and liabilities and each of which shall have the same rights, privileges and powers as it would have possessed had it originally signed this lease as Tenant. Each and every of the persons named above as Tenant shall be bound jointly and severally by the terms, covenants and agreements contained herein. However, no such rights, privileges or powers shall inure to the benefit of any assignee of Tenant immediate or remote, unless Tenant has complied with the terms of Section 18 and the assignment to such assignee is permitted or has been approved in writing by Landlord. Any notice required or permitted by the terms of this lease may be given by or to any one of the persons named above as Tenant, and shall have the same force and effect as if given by or to all thereof. 16 (b) If Tenant is a corporation, partnership or any other form of business association or entity, Tenant is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this lease constitutes a valid and binding obligation enforceable in accordance with its terms. Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of this lease at the time of such execution. 25. LIABILITY OF LANDLORD. The word "LANDLORD" as used herein includes the Landlord named above as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this lease as Landlord. Any such person or entity, whether or not named herein, shall have no liability hereunder after it ceases to hold title to the Premises except for obligations already accrued (and, as to any unapplied portion of Tenant's Security Deposit, Landlord shall be relieved of all liability therefor upon transfer of such portion to its successor in interest) and Tenant shall look solely to Landlord's successor in interest for the performance of the covenants and obligations of the Landlord hereunder which thereafter shall accrue. Neither Landlord nor any principal of Landlord nor any owner of the Property, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this lease or the Premises, and if Landlord is in breach or default with respect to Landlord's obligations under this lease or otherwise, Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of Tenant's claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding to the interest of Landlord hereunder (either in terms of ownership or possessory rights) shall be (a) liable for any previous act or omission of a prior landlord, (b) subject to any rental offsets or defenses against a prior landlord or (c) bound by any amendment of this lease made without its written consent or by payment by Tenant of Minimum Annual Rent in advance in excess of one monthly installment. 26. INTERPRETATION; DEFINITIONS. (A) CAPTIONS. The captions in this lease are for convenience only and are not a part of this lease and do not in any way define, limit, describe or amplify the terms and provisions of this lease or the scope or intent thereof. (B) ENTIRE AGREEMENT. This lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises or the Property. No rights, easements or licenses are acquired in the Property or any land adjacent to the Property by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. This lease shall not be modified in any manner except by an instrument in writing executed by the parties. The masculine (or neuter) pronoun and the singular number shall include the masculine, feminine and neuter genders and the singular and plural number. The word "INCLUDING" followed by any specific item(s) is deemed to refer to examples rather than to be words of limitation. Both parties having participated fully and equally in the negotiation and preparation of this lease, this lease shall not be more strictly construed, nor any ambiguities in this lease resolved, against either Landlord or Tenant. 17 (C) COVENANTS. Each covenant, agreement, obligation, term, condition or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this lease unless otherwise expressly provided. All of the terms and conditions set forth in this lease shall apply throughout the Term unless otherwise expressly set forth herein. (D) INTEREST. Wherever interest is required to be paid hereunder, such interest shall be at the highest rate permitted under law but not in excess of 15% per annum. (E) SEVERABILITY; GOVERNING LAW. If any provisions of this lease shall be declared unenforceable in any respect, such unenforceability shall not affect any other provision of this lease, and each such provision shall be deemed to be modified, if possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth herein. This lease shall be construed and enforced in accordance with the laws of the state in which the Property is located. (F) "MORTGAGE" AND "MORTGAGEE." The word "MORTGAGE" as used herein includes any lien or encumbrance on the Premises or the Property or on any part of or interest in or appurtenance to any of the foregoing, including without limitation any ground rent or ground lease if Landlord's interest is or becomes a leasehold estate. The word "MORTGAGEE" as used herein includes the holder of any mortgage, including any ground lessor if Landlord's interest is or becomes a leasehold estate. Wherever any right is given to a mortgagee, that right may be exercised on behalf of such mortgagee by any representative or servicing agent of such mortgagee. (G) "PERSON." The word "person" is used herein to include a natural person, a partnership, a corporation, an association and any other form of business association or entity. 27. NOTICES. Any notice or other communication under this lease shall be in writing and addressed to Landlord or Tenant at their respective addresses specified at the beginning of this lease, except that after the Commencement Date Tenant's address shall be at the Premises, (or to such other address as either may designate by notice to the other) with a copy to any mortgagee or other party designated by Landlord. Each notice or other communication shall be deemed given if sent by prepaid overnight delivery service or by certified mail, return receipt requested, postage prepaid or in any other manner, with delivery in any case evidenced by a receipt, and shall be deemed received on the day of actual receipt by the intended recipient or on the business day delivery is refused. The giving of notice by Landlord's attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord; however, the foregoing provisions governing the date on which a notice is deemed to have been received shall mean and refer to the date on which a party to this lease, and not its counselor other recipient to which a copy of the notice may be sent, is deemed to have received the notice. 28. SECURITY DEPOSIT. At the time of signing this lease, Tenant shall deposit with Landlord the sum of $15,000 to be retained by Landlord, together with the $4,000 security deposit under the Existing Lease (as defined in Section 32) which will be transferred by Landlord to this lease on the Commencement Date, as cash security for the faithful performance and observance by Tenant of the provisions of this lease. Tenant shall not be entitled to any interest whatever on the Security Deposit. Landlord shall have the right to commingle the Security Deposit with its other funds. Landlord may use the whole or any part of the Security Deposit for the payment of any amount as to which Tenant is in default hereunder or to compensate Landlord for any loss or damage it may suffer by reason of Tenant's default under this lease. If Landlord uses all or any portion of the Security Deposit as herein provided, within 10 days after written demand therefor, Tenant shall pay Landlord cash in amount equal to that portion of the Security Deposit used by Landlord. If Tenant shall comply fully and faithfully with all of the provisions of this lease, the Security Deposit shall be returned to Tenant after the Expiration Date and surrender of the Premises to Landlord. 18 IN WITNESS WHEREOF, and in consideration of the mutual entry into this lease and for other good and valuable consideration, and intending to be legally bound, Landlord and Tenant have executed this lease
Date signed: LANDLORD: 4/22/04 LIBERTY PROPERTY LIMITED PARTNERSHIP - ------- By: Liberty Property Trust, Sole General Partner By: /s/ Ward J. Fitzgerald ------------------------------------------------ Name: Ward J. Fitzgerald Title: Senior Vice President, Regional Director Date signed: TENANT: 4/20/04 INTERNATIONAL HEALTH PARTNERS, INC. - ------- Attest: /s/ R. H. Folts By: /s/ David M. Daniels ---------------------- ------------------------------------------------ Name: R. H. Folts Name: David M. Daniels Title: Title: CEO
19 ADDENDUM 29. TENANT IMPROVEMENTS. Landlord shall complete the Premises in accordance with the description of improvements attached as Exhibit "F". All necessary construction shall be substantially completed ready for use and occupancy by Tenant on the Completion Date, subject to extension for delays due to any cause beyond the reasonable control of Landlord or Landlord's contractors or suppliers. All construction shall be done in a good and workmanlike manner and shall comply at the time of completion with all applicable Laws and Requirements of the governmental authorities having jurisdiction. 30. FURNITURE. The lease of the Premises includes the right of Tenant to use the furniture listed on Exhibit "G" attached hereto (the "Furniture"). The Furniture will be accepted by Tenant in its "as is" "where is" condition and without representation or warranty, express or implied, as to its condition, merchantability or fitness for a particular purpose. Tenant shall comply with all Laws and Requirements in connection with the installation and use of the Furniture in the Premises. During the Term, Tenant shall maintain the Furniture in its present condition, reasonable wear and tear excepted, and upon the expiration or earlier termination of this lease shall surrender the Furniture to Landlord in such condition. 31. TENANT'S RELEASE IF EXPANDS. If at any time during the term of this lease Tenant desires to lease at least 75% more square feet than the then current square footage of the Premises and Tenant enters into a lease with Landlord for such larger space in any of Landlord's buildings, Landlord agrees that, at Tenant's request, Landlord will enter into an agreement with Tenant to terminate this lease as of the commencement date of the lease for the larger space. 32. TERMINATION OF EXISTING LEASE. (a) Landlord and Tenant are parties to a Lease Agreement dated December 1, 2001, as amended by Amendment to Lease Agreement dated February 25, 2004 (collectively, the "Existing Lease") with respect to premises containing approximately 2,045 rentable square feet in the Building (the "Existing Premises"). (b) Upon substantial completion of the Premises, Tenant shall vacate and surrender the Existing Premises leaving same in the condition it is required to be surrendered under the Existing Lease, at which time the Existing Lease shall terminate and all covenants and obligations of the parties with respect to the Existing Lease shall cease; provided, however, that all covenants, obligations and indemnifications set forth in the Existing Lease (as the same pertain to the leasing of the Existing Premises prior to the termination of the Existing Lease) shall survive and remain in full force and effect and shall be paid or performed by the applicable party when due or owing. A-1 Omitted Exhibits The following exhibits to the Agreement of Lease have been omitted: Exhibit Exhibit Description ------- ------------------- A Plan Showing Premises B Commencement Certificate C Building Rules D Cleaning Schedule E Estoppel Certificate F Description of Improvements G List of Furniture The Company agrees to furnish supplementally a copy of the foregoing omitted exhibits to the Securities and Exchange Commission upon request. EX-10 10 ex10-13.txt EXHIBIT 10.13 EXHIBIT 10.13 COMMERCIAL OFFICE LEASE BETWEEN CENTERPOINTE PROPERTY, LLC AND NATIONAL HEALTH PARTNERS, INC. Premises designated as Suite No. 501 Situated on Floor(s) No. 5 FOR TENANCY AT CENTERPOINTE OFFICE BUILDING Sarasota, Florida TABLE OF CONTENTS
Page 1. DEFINITIONS AND TERMS....................................................................................1 2. PREMISES.................................................................................................2 3. TERM.....................................................................................................3 4. RENT.....................................................................................................4 5. TENANT'S SHARE OF EXPENSES...............................................................................5 6. SECURITY DEPOSIT.........................................................................................7 7. ADDITIONS AND ALTERATIONS................................................................................7 8. PERMITTED USE............................................................................................9 9. UTILITIES...............................................................................................10 10. INDEMNIFICATION; INSURANCE..............................................................................11 11. ASSIGNMENT OR SUBLETTING................................................................................13 12. SIGNS; ADVERTISING......................................................................................14 13. MAINTENANCE OF INTERIOR OF PREMISES.....................................................................14 14. DAMAGE OR DESTRUCTION...................................................................................14 15. DEFAULT.................................................................................................15 16. REMEDIES................................................................................................16 17. LANDLORD'S RIGHT OF ENTRY...............................................................................18 18. NOTICES.................................................................................................18 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED AGAINST RENTALS..................................18 20. ATTORNEY'S FEES AND COSTS OF COLLECTION.................................................................19 21. PRIOR AGREEMENTS........................................................................................19 22. FLOOR PLANS.............................................................................................19 23. NO AUTOMATIC RENEWAL....................................................................................19 24. CONDITIONS OF PREMISES; NO WARRANTIES...................................................................20 25. TERMS, HEADINGS AND JURISDICTION........................................................................20 26. CONDEMNATION............................................................................................20 27. SUBORDINATION TO MORTGAGES..............................................................................20 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..........................................................21 29. QUIET ENJOYMENT.........................................................................................21 30. PARKING SPACES..........................................................................................22 31. LANDLORD'S RIGHT TO ALTER COMMON AREAS..................................................................22 32. EXCULPATION.............................................................................................22 33. SUCCESSORS AND ASSIGNS..................................................................................22 34. BUILDOUT ALLOWANCE......................................................................................22 35. REAL ESTATE COMMISSIONS.................................................................................22 36. RADON AND HAZARDOUS WASTE...............................................................................23 37. COMPLIANCE WITH LAWS INCLUDING THE AMERICANS WITH DISABILITIES ACT......................................23 38. BUILDING RULES AND REGULATIONS..........................................................................23 39. PERFORMANCE.............................................................................................24 40. SHORT FORM OF LEASE.....................................................................................24 41. RIGHT TO RELOCATE TENANT................................................................................24 EXHIBIT A: FLOOR PLAN OF PREMISES EXHIBIT B: BUILDING RULES AND REGULATIONS EXHIBIT C: SHORT FORM LEASE EXHIBIT D: BUILDOUT ALLOWANCE EXHIBIT E: LANDLORD'S WORK GUARANTY
-i- ______________________________________ SARASOTA, FLORIDA COMMERCIAL LEASE AGREEMENT THIS LEASE ("Lease") is entered into the 13th day of June, 2005 between CENTERPOINTE PROPERTY, LLC, as the authorized agent for PMW HOSPITALITY, LLC and RFW HOSPITALITY, LLC, hereinafter referred to as the "Landlord", and NATIONAL HEALTH PARTNERS, INC, hereinafter referred to as the "Tenant"; WITNESSETH: As mutual consideration for entering into this Lease the Landlord and Tenant agree to the following covenants, terms and conditions: 1. DEFINITIONS AND TERMS As Used in this Lease Agreement, the terms enumerated below as items 1.1 to 1.21 inclusive shall have only the meaning set forth in this section unless expressly modified, limited or expanded elsewhere in the Lease, in which event, such modification, limitation and/or expansion shall supersede the meaning set forth below: 1.1 EXHIBITS: The following Exhibits attached to this Lease are incorporated herein and made a part hereof: Exhibit A: Floor Plan of Premises Exhibit B: Building Rules and Regulations Exhibit C: Short Form of Lease Exhibit D: Buildout Allowance Exhibit E: Landlord's Work 1.2 BUILDING: Centerpointe Office Building located at 2033 Main Street, Sarasota, Florida 34237, containing approximately 97,207 rentable square feet. 1.3 PREMISES: Suite 501, see 1.12 Rentable Area of Premises. 1.4 TERM: The Term of this Lease commences on the Commencement Date and expires on the Termination Date unless terminated sooner or extended as provided in this Lease. 1.5 COMMENCEMENT DATE: July 1, 2005 1.6 TERMINATION DATE: June 30, 2010 1.7 ANNUAL BASE RENT: $13.02 per rentable square foot, plus applicable taxes 1.8 INITIAL MONTHLY BASE RENT: $4328.07, plus applicable taxes 1.9 INITIAL ANNUAL CAM CHARGE: $ 9.68 per rentable square foot, plus applicable taxes. 1.10 INITIAL MONTHLY CAM CHARGE: $3217.79, plus applicable taxes 1.11 INITIAL MONTHLY RENT (BASE RENT AND CAM CHARGE): $ 7545.86 plus applicable taxes 1.12 RENTABLE AREA OF PREMISES: 3989 square feet. 1.13 TENANT'S PROPORTIONATE SHARE ("PROPORTIONATE SHARE"): 4.10 % 1.14 SECURITY DEPOSIT: $ 18,000 - to be paid to landlord no later than October 1, 2005. 1.15 PERMITTED USE: General Office 1.16 TENANT'S ADDRESS: 2033 Main Street, Suite 501 Sarasota, Florida 34237 1.17 LANDLORD'S ADDRESS: Centerpointe Property, LLC 2033 Main St, Suite 405 Sarasota, Florida 34237 1.18 GUARANTOR: N/A 1.19 OPTIONS TO RENEW: 1-5 year option to renew with 120 days written notice provided to Landlord. 1.20 PARKING: Tenant is allocated ten (10) parking space(s) in the attached parking garage at the rate of $35.00 per space, per month plus applicable sales tax for the first year of the initial term. Parking rate to be increased annually at the rate of four percent (4%) per space per month, plus applicable taxes. 1.21 PROPERTY: The real property commonly known as 2033 Main Street, Sarasota, Florida 34237. 2. PREMISES 2.1 AGREEMENT TO LEASE: Landlord leases the Premises to the Tenant and Tenant leases the Premises from the Landlord for the Term of this Lease. 2.2 EXCEPTIONS: Tenant acknowledges that this lease is subject to all existing liens, encumbrances, deeds of trust, reservations, restrictions and other matters of record and to zoning, building and fire ordinances and all governmental statutes, rules and regulations relating to the use or occupancy of the Premises, as they may hereafter be amended from time to time. -2- 3. TERM 3.1 INITIAL TERM: The initial Term of this lease shall commence on the Commencement Date and shall terminate on the Termination Date, unless terminated sooner in accordance with the terms of this Lease. As used herein, Term shall include any renewal term for which Tenant duly exercises its option to renew in accordance with Section 3.4 below. 3.2 EARLY COMMENCEMENT: Notwithstanding the Commencement Date, the Term shall commence earlier than the Commencement Date if Tenant occupies the Premises prior to the stated Commencement Date. "Occupancy", "occupy" or "occupies" as used in this lease shall mean use of the Premises for any reason by Tenant or Tenant's agents, licensees, employees, directors, officers, partners, trustees, and invitees (collectively, "Tenant's Agents"). 3.3 DELAYED COMMENCEMENT: Landlord shall deliver possession of the Premises to Tenant on or within 30 days of the Commencement Date. If Landlord, through no fault of Tenant, cannot deliver possession of the Premises to Tenant on the Commencement Date, such delay shall not affect the validity of this Lease, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but there shall be a proportionate reduction of rent covering the period between the Commencement Date and the time when Landlord delivers possession of the Premises to Tenant. 3.4 OPTION TO RENEW: Tenant shall have the option, exercisable by written notice to Landlord, sent by certified mail or recognized overnight mail delivery service, and received by Landlord not later than one hundred twenty (120) days prior to the expiration of the initial Term and/or any exercised renewal term, to extend the Lease, for the renewal term(s) set forth in Section 1.19 on the same terms and conditions as provided in the Lease, except that; a. Landlord shall have no obligations to make any improvements to the Premises; and b. There shall be no option to further extend the Term. Notwithstanding the foregoing, the option to renew the lease shall be deemed null and void if one more of the following has occurred: a. Tenant has been late in the payment of rent on three (3) or more occasions within any twelve (12) month period. For this purpose, a payment shall be deemed to be late if it is received by Landlord after the fifth day of the month in which such rent is due. b. Tenant is or has been in default in the performance of any of its other obligations under the Lease. -3- c. Tenant has failed to give written notice by certified or overnight mail to Landlord one hundred twenty (120) days prior to the expiration of the Initial Term, or any subsequent renewal term. d. The Lease has been assigned. 4. RENT 4.1 RENT DETERMINATION: Tenant agrees to pay to Landlord each year during the Term (as the Term may be adjusted pursuant to Section 3.2 or 3.3) the Annual Rent (Annual Base Rent plus applicable CAM charges) for the Premises. Annual Rent shall be paid in monthly installments in advance, on or before the first day of each calendar month during the Term; provided that Tenant shall pay to the Landlord prior to Commencement Date the prorated Monthly Rent attributable to the month in which the Commencement Date occurs if other than the first day of a month. The Monthly Rent shall include Florida State Sales Tax thereon and any other tax applicable to said Monthly Rent. Concurrently with the execution of this Lease, Tenant shall pay to Landlord the Monthly Rent for the first month's rent. All rent payable by Tenant to Landlord under this Lease shall be paid to Landlord in lawful money of the United States of America at Landlord's address on Page 1 herein, or to any other person or at any place Landlord may designate in writing. Unless otherwise specified, the term "rent" or "Rent" as used in this Lease shall include Base Rent plus CAM charges (as described in Section 5.1 below), and any other additional rent payable hereunder, plus all applicable taxes. All rent shall be paid without prior demand, deduction, setoff or counterclaim. 4.2 ADDITIONAL SERVICES: Tenant agrees to pay to Landlord as additional rent upon demand (but not more frequently than monthly) all charges for any services, goods or materials furnished by Landlord at Tenant's written request which are not required to be furnished by Landlord under this Lease without separate charge or reimbursement. Such charges are due and payable in full, upon demand after the services, goods, or materials are furnished. 4.3 PRORATIONS: Any rent for any fractional month shall be prorated based on a thirty (30) day month, and for any fractional year shall be prorated based on a three hundred sixty (360) day year. 4.4 ANNUAL RENT INCREASE: The Monthly Base Rent shall be increased beginning on the first anniversary of the Commencement Date and on each anniversary thereafter by a sum equal to 4% of the Monthly Base Rent for the last month of the previous year or the increase in the CPI Index during the prior year, whichever is greater. "CPI Index" means the "Consumer Price Index for Urban Wage Earners and Clerical Workers, Revised Series, CPI-W (all items 1982-1984=100) published by the Bureau of Labor Statistics, United States Department of Labor, or any successor to such agency for the standard metropolitan statistical area in which the Premises are located. If the CPI Index shall cease to be published, Landlord shall replace it for purposes of this Lease with a reasonable substitute index. If the CPI Index shall be reconstituted or the basis for its calculation shall be changed, then the new index shall be employed under this Lease. -4- 4.5 SALES TAX: Tenant shall pay to Landlord concurrently with the payment of the Monthly Rent, any additional rent and other sums, all Florida State sales tax and any other tax which is applicable to such payment. 4.6 NO SET-OFF: Tenant waives all rights (whether statutory or otherwise) to make repairs at the expense of Landlord, to cure any alleged defaults by Landlord at the expense of Landlord, or to deduct the cost thereof from rent or other sums due Landlord hereunder. 4.7 LATE PAYMENT PENALTY: A late payment penalty shall be added to any rent not received by Landlord within ten (10) days of the due date. Such penalty shall be five percent (5%) of the monthly rent or additional rent due. 4.8 LATE PAYMENT INTEREST: If any installment of Monthly Rent, additional rent or other amount due hereunder is not paid within ten (10) days after it is due, then such payment shall bear interest at the lower rate of either eighteen percent (18%) per annum or the maximum rate permitted by law, from the date on which it was due until the date on which it is paid, regardless of whether any notice has been given by Landlord to Tenant. This provision shall not relieve Tenant from payment of any Monthly Rent, additional rent or other amounts due hereunder at the time and in the manner herein specified nor waive any other right or remedy of Landlord hereunder. 4.9 ACCEPTANCE OF LATE PAYMENTS: The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default. No payment by Tenant or receipt by Landlord of a lesser amount than the Monthly Rent, Additional Rent or other sums due shall be deemed to be other than on account of the earliest stipulated amounts so due, nor shall any endorsement or statement on any check or any letter or other writing accompanying any check or payment as rent be deemed in accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's rights to recover the balance of such rent or to pursue any other right or remedy provided herein or at law or in equity. 5. TENANT'S SHARE OF EXPENSES 5.1 ADDITIONAL RENT: Tenant shall pay, as additional rent hereunder, Tenant's Proportionate Share of CAM costs (as defined in 5.3 below) in monthly installments during the term of this Lease. The initial estimated CAM cost is set forth in Section 1.9 of this Lease. Tenant's share of the CAM costs shall be an amount equal to the product obtained by multiplying the total CAM costs paid or incurred by Landlord during the year by Tenant's Proportionate Share. As soon as practicable after December 31st of each year, Landlord shall estimate the total of CAM costs for the succeeding year ("Calculation Period") and Tenant agrees to pay one twelfth (1/12th) of Tenant's Proportionate Share thereof, together with applicable tax thereon, concurrently with each monthly rental payment. As soon as practicable after the end of each Calculation Period, Landlord shall furnish to Tenant a statement of Tenant's Proportionate Share of each year's actual CAM costs. In the event that the actual CAM costs exceed Landlord's estimate for that year, Tenant shall pay Landlord such excess within 30 days of receipt of the statement of actual CAM costs. In the event that the actual CAM costs are less than the estimated CAM costs and Tenant has paid all CAM costs installments, then Tenant shall be given a credit for such overpayment applicable to the next year's CAM charges. -5- 5.2 COMMON AREAS: The term "Common Areas" (as initially constructed or as the same may at any time thereafter be enlarged or reduced) shall mean all areas from time to time made available by Landlord for the common and joint use and benefit of Landlord, Tenant and other tenants and occupants of the Building, and their respective employees, agents, subtenants, licensees, customers and other invitees, which may include as applicable (but shall not be deemed a representation as to their availability) the sidewalks, parking areas, driveways, landscaped areas, hallways, stairways, lobbies, restrooms, courts, ramps, elevators, electrical, sanitary, sewer and waterlines and facilities, roof, foundation, and all other portions of the Premises and the Property which is not otherwise maintained by Tenant. The Landlord shall maintain and operate the Common Areas in a manner consistent with the maintenance and operation of similar office buildings within the community wherein the Premises are located Landlord grants Tenant and its agents and invitees a nonexclusive right to use, in common with others, the Common Areas during the Term. Tenant's use of the Common Areas is subject to whatever rules Landlord may establish from time to time. 5.3 COMMON AREA MAINTENANCE AND OPERATING EXPENSES: Common Area Maintenance and Operating Expense costs (referred to herein as "CAM") shall mean the cost of electrical and water/sewer service to the Building, including the Premises and other tenant premises. 5.4 CAPITAL IMPROVEMENTS: N/A 5.5 LIMITATION OF LANDLORD LIABILITY: Landlord shall have no liability to Tenant on account of any temporary failure, modification or interruption of any service to the Building or Premises which arises out of any act of God, which is required by applicable law or is otherwise beyond Landlord's reasonable control. 5.6 INSPECTION OF BOOKS: Tenant shall have the right, at Tenant's sole expense, upon reasonable prior notice to Landlord and no more often than once per year, to perform an audit of the CAM costs for the preceding calendar year as well as the calculations of Tenant's Proportionate Share thereof unless Landlord has provided Tenant with an audited statement of such expenses prepared by a certified public accountant. -6- 5.7 PRORATION: If this Lease shall commence on any day other than the first day of the month or terminate on a day other than the last day of the month, the amount of any additional rent payable by Tenant for the month in which this lease commences or terminates shall be prorated and payable in advance of that prorated period. 6. SECURITY DEPOSIT The Security Deposit specified in paragraph 1.14 shall be held by Landlord as security for the full and faithful performance by Tenant of each and every term, covenant and condition of this Lease on the part of Tenant to be observed and performed, and Landlord shall have no liability to pay interest thereon unless required by law. If any rent or Additional Rent herein reserved or any other sums payable by Tenant hereunder shall be overdue and unpaid or should Landlord make payments on behalf of Tenant, or should Tenant fail to perform any of the terms of this Lease, then Landlord may, at its option, and without prejudice to any other remedy which Landlord may have on account thereof, apply the Security Deposit or so much thereof as may be necessary to compensate Landlord toward the payment of the rents or other sums due from Tenant, or towards any loss, damage or expense sustained by Landlord resulting from such default on the part of Tenant; and in such event Tenant shall forthwith upon demand restore the Security Deposit to its original amount, and the sum required to so restore the Security Deposit shall be Additional Rent hereunder. In the event Tenant shall have fully and faithfully complied with all of the terms, covenants and conditions of this Lease, the Security Deposit shall be returned in full to Tenant within thirty (30) days following the end of the Term or earlier termination of this Lease. In the event that any bankruptcy, insolvency, reorganization or other creditor/debtor proceedings shall be instituted by or against Tenant or its successors or assigns, Landlord may apply the Security Deposit first to the payment of any rent, Additional Rent, and other amounts due Landlord hereunder, and the balance, if any, of the Security Deposit may be retained by Landlord in partial Liquidation of Landlord's damages. Landlord may deliver the Security Deposit to the purchaser of Landlord's interest in the Premises, in the event that such interest is sold, and Landlord shall thereupon be discharged from any further liability with respect to the Security Deposit. 7. ADDITIONS AND ALTERATIONS 7.1 ADDITIONS AND ALTERATIONS BY TENANT: No changes, alterations, improvements or additions shall be made to the Premises or any part thereof without first obtaining the written consent of the Landlord. All changes, alterations, additions and improvements made or placed in or upon the Premises by the Tenant and which by operation of law would become a part of the real estate, shall immediately upon being made or placed thereon become the property of the Landlord and shall remain upon and be surrendered with the Premises as a part thereof, at the termination by lapse of time or otherwise, of the Term herein granted provided, however, that, if Landlord so requests in writing not later than 30 days prior to the expiration of the Term, Tenant shall remove all or any part of the improvements it made to the Premises and repair any damage caused by the removal. Any such changes, alterations, improvements, or additions shall be done in a good and workmanlike manner, in conformity with any applicable governmental laws, ordinances and regulations and any criteria as set forth herein and with the prior written consent of the Landlord, not to be unreasonably withheld. -7- 7.2 EQUIPMENT AND TRADE FIXTURES: Tenant may install or affix to the Premises such equipment and trade fixtures as are reasonably necessary for the conduct of Tenant's business operations therein with Landlord's prior written consent; and, upon termination of this lease for any reason other than Tenants default, Tenant may remove the same provided that, after such removal, Tenant restores the Premises at Tenants expense to the same condition as existed prior to the installation of such equipment or fixtures. It is understood and agreed, however, that any floor and wall coverings or other appurtenances attached to the floor or any part of the Premises by Tenant shall at the termination of this lease or any renewal hereof, remain the property of Landlord and shall not be removed unless Landlord requests Tenant to remove the same. Tenant shall promptly pay and discharge and shall indemnify and hold landlord harmless of and from, all tangible personal property taxes and assessments now or hereafter taxed, assessed, imposed, or levied by any lawful authority against or upon any trade fixtures, equipment, or personal property located in the Premises during the Term of this lease. 7.3 NO LIENS: Landlord's interest in the Premises shall not be subject to liens for improvements made by Tenant. Tenant shall notify all contractors making Tenant improvements of this provision. a. Tenant agrees that it shall not enter into any contract for Tenant's Improvements unless the following language is included in such contract: "Notwithstanding anything herein contained to the contrary, the contractor acknowledges that (Tenant) holds only a leasehold interest in the property which is the subject of this contract. (Tenant) is not the agent of the owner of the property, and no lien resulting from work performed under this contract shall attach to the interest of such owner." b. Tenant agrees that it will not permit any worn to be commenced until such time as Tenant has provided Landlord with a fully executed copy of the construction contract evidencing incorporation of the aforesaid language. In addition, prior to commencement of the work, Tenant shall post the following notice in a conspicuous place on the leased premises, and shall assure that such notice is maintained throughout the entire course of construction: "NOTICE TO CONTRACTORS, SUBCONTRACTORS, MATERIAL MEN AND LABORERS" -8- Notice is hereby given that work on these premises is being performed for (Tenant). (Tenant) is not the agent of the owner of this property, and any lien rights shall in no event attach to the interest of the owner." c. If, for whatever reason, any mechanic's or other lien shall be filed against the premises, purporting to be for labor or material furnished or to be furnished at the request of Tenant, then Tenant shall, at its expense, cause such lien to be discharged of record by payment, bond or otherwise as allowed by law, within ten (10) days after the filing thereof. If Tenant shall fail to cause such lien to be discharged of record within such ten (10) day period, Landlord, in addition to any other rights and remedies, may, but shall not be obligated to, cause such lien to be discharged by payment, bond or otherwise, without investigation as to the validity thereof or as to any offsets or defenses thereto, and Tenant shall, upon demand, promptly within ten (10) days, reimburse Landlord for all amounts paid and costs incurred, including attorneys' fees and interest thereon at the maximum legal rate from the respective dates of Landlord's payments therefor, in having such lien discharged of record, and, further, Tenant also shall otherwise indemnify, protect, defend and save Landlord harmless from any claims, actions or damage resulting therefrom. d. The Landlord may require the Tenant and/or the Tenant's contractor to post or deposit a performance bond, a payment bond or other form of security to ensure the timely and full completion of any improvements to the Premises undertaken by Tenant, the removal of any construction or other liens and the timely and full payment of all costs and expenses thereof. e. The Tenant shall indemnify and hold the Landlord harmless against all claims, actions, judgments, damages, liabilities, payments, liens, costs and expenses, including, but not limited to actual attorney's fees, legal assistant fees and paralegal fees and costs that the Landlord may suffer or Incur and that result, directly or indirectly, from the design or construction of the Tenant's Improvements. f. Prior to commencement of the construction of any of the Tenant's improvements, the Tenant's general contractor shall secure Builders Risk Insurance (Fire with Extended Coverage and Vandalism Endorsement) on a Completed Value Form with Landlord and Tenant as named insureds, in an amount not less than 100% of the value of the work. 8. PERMITTED USE 8.1 PERMITTED USES: The Premises shall be used only for the Permitted Use and for no other purpose. The Tenant, shall, at its own cost and expense, obtain any and all licenses and permits necessary for such use. The Tenant shall comply with all governmental laws, ordinances and regulations applicable from time to time to its use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at the Tenant's sole expense. -9- 8.2 USES NOT PERMITTED: Notwithstanding anything herein to the contrary, Tenant shall not use the Premises, nor permit the Premises to be used, for any of the following purposes: retail securities brokerage; or a banking, trust company or savings and loan business. The Tenant shall comply with the Building Rules and Regulations attached as Exhibit B which are incorporated herein and shall not do, suffer or permit anything to be done in, on or about the Premises or the Property, nor bring, nor keep anything therein which will in any way affect fire or other insurance upon the Building or any of its contents or which will in anyway conflict with any law, ordinance, rule or regulation now or hereafter in force or effect relating to the occupancy and use of the Premises or the Property. Tenant shall not in any way obstruct or interfere with the rights of other tenants or users of the Property, or injure or annoy them, nor use, nor allow the Premises or the Building to be used for any improper, immoral, unlawful or objectionable purpose. 8.3 MACHINERY OPERATION: The Tenant will not, without the written consent of the Landlord, use any apparatus, machinery, equipment or devices in, on or about the Premises which may cause, alone or in the aggregate, any excessive noise or may set up any excessive vibration or excessive floor loads or which in any way would increase the normal amount of electricity agreed to be furnished or supplied under this Lease, or as specified in the Building Standards Criteria, and further, the Tenant shall not connect with water any apparatus, machinery, equipment or device without the prior written consent of the Landlord. The Tenant shall, at the Tenants sole cost and expense, comply with all requirements of municipal, state and federal authorities now or hereafter in force, pertaining to said Premises, and shall faithfully observe in the use of said Premises and Property such laws, ordinances, regulations and other requirements now or hereafter in force and effect 8.4 CHANGE IN LAW: Any change in law or otherwise which may make Tenant's use of the Premises impracticable or impossible shall not affect Tenant's obligations under this Lease 9. UTILITIES 9.1 GENERAL: Subject to Tenant's obligation to pay its Proportionate Share of CAM expenses and perform Tenant's other obligations, the Landlord agrees to furnish in connection with the Premises: electricity for lights and other usual and ordinary office purposes (commensurate with the Landlord's electrical system and wiring in the Building of which the Premises are a part, supplying approximately 120 volts) and for heat and air conditioning, subject to government authority regulations from time to time in effect, during normal business hours; (8 A.M. to 6 P.M. Monday through Friday, except holidays and from 8 A.M. to 1 P.M. on Saturdays); janitorial services In the Common Areas as specified in the Building Standards Criteria; and provide for use in common with Landlord and other tenants of the elevators and other like facilities of the Building. Landlord reserves the right to establish special charges to be paid by Tenant for additional non-standard services provided. -10- 9.2 ELECTRICAL SERVICE: If, in Landlord's reasonable judgment, Tenant is using electrical service in a disproportionate amount, for example, because of high electricity consumption installations (other than the types and quantities of equipment normally used in general office settings) or because of use during nonbusiness hours, Landlord shall directly charge Tenant for such excess use and exclude those charges from CAM. 9.3 NO LANDLORD LIABILITY: The Landlord shall not be liable for the failure to furnish any of the items or services herein mentioned when such failure is caused by or results from accidents, conditions or matters beyond the reasonable ability of the Landlord to control, or caused by or resulting from lack of utility services, breakdown of mechanical equipment, repairs, labor disturbances, or labor disputes of any character, whether resulting from or caused by acts of the Landlord or otherwise, nor shall the Landlord be liable under any circumstances for loss of or injury to property or persons, however occurring, through or in connection with or incidental to the furnishing of any such items or services, nor shall any such failure relieve the Tenant from the duty to pay the full amount of rent and other amounts herein provided to be paid by the Tenant, or constitute or be construed as a constructive or other eviction of the Tenant. 10. INDEMNIFICATION; INSURANCE 10.1 INDEMNIFICATION BY TENANT: Tenant does hereby indemnify and agree to hold Landlord and Landlord's agents, contractors, licensees, employees, directors, officers, partners, trustees and invitees (collectively, "Landlord's Agents") harmless from and against any and all damages, claims, losses, demands, costs, expenses (including actual attorneys' fees and costs), obligations, liens, liabilities, actions and causes of action, threatened or actual, for bodily injury or property damage which Landlord may suffer or incur arising out of or in connection with this Lease, or Tenant's business, or any activity, work or things done, permitted or suffered by Tenant or Tenant's agents, contractors, licensees, employees, directors, officers, partners, guests and invitees (collectively, "Tenant's Agents") in or about the Premises or the Property, Tenant's or Tenant's Agents' nonobservance or non performance of any statute, law, ordinance, rule or regulation, any negligence of the Tenant or Tenant's Agents, or any other event on the Premises, whatever the cause. Tenant's indemnification does not extend to liability for damages resulting from the sole or gross negligence of Landlord or for Landlord's intentional misconduct. Tenant further agrees that if, in case of any claim, demand, action or cause of action, threatened or actual, against Landlord, as a result of action or inaction by Tenant or Tenant's Agents, and Tenant does not provide a defense against any and all such claims, demands, actions or causes of action threatened or actual, the Tenant will, in addition to the above, pay Landlord the actual attorney's fees, other legal expenses and costs incurred by Landlord in providing or preparing such defense, and Tenant agrees to cooperate with Landlord in such defense, including, but not limited to, the providing of affidavits and testimony upon request of Landlord. -11- 10.2 INSURANCE: a. Tenant shall, at Tenant's expense, obtain and keep in force during the term of this Lease a policy of commercial general liability insurance insuring Landlord and Tenant against any liability arising out of Tenant's use, occupancy or maintenance of the Premises and all Common Areas with a combined single limit per occurrence of $1,000,000 exclusive of defense costs and any deductible or self-insured retention, or such other limits as Landlord may from time to time reasonably require. The limit of such insurance shall not, however, limit the liability of the Tenant hereunder. If Tenant shall fail to procure and maintain such insurance, Landlord may, but shall not be required to, procure and maintain same, but at the expense of Tenant. b. Tenant shall maintain a policy of insurance against risk of loss from any cause whatsoever to all of its personal property upon the Premises, to the full extent of replacement cost, which policy of insurance shall contain a standard waiver of subrogation clause or endorsement. Upon request, Tenant shall provide evidence of its insurance coverage. c. All insurance required hereunder shall be with companies approved by Landlord, which approval shall not be unreasonably withheld. Tenant shall deliver to Landlord, prior to occupancy of the Premises, copies of any policy of liability insurance required herein or certificates evidencing the existence and amounts of such insurance with Landlord named as an additional insured, and thereafter shall deliver any replacement policies to Landlord prior to expiration of the current policy. No policy shall be cancelable or subject to reduction of coverage except after 30 days prior written notice to Landlord. If any policy that Tenant is required to maintain is written on a claims-made Insurance form, each policy must have a retroactive date that is not later than the Commencement Date. Furthermore, if insurance coverage is written on a claims-made basis, Tenant's obligation to provide insurance will be extended for an additional period equal to the statute of limitations for such claims plus one year. Insurance may be provided in the form of blanket insurance policies covering properties in addition to the Premises or entities in addition to Tenant. All blanket policies must provide that the overall aggregate limit of liability that applies to Landlord or the Premises is independent from any overall or annual aggregate that applies to other entities or properties. -12- 10.3 ASSUMPTION OF RISK: Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises from any cause, and Tenant hereby waives all claims in respect thereof against Landlord. Landlord and Landlord's Agents shall not be liable for any damage to property entrusted to Landlord or Landlord's Agents, from any cause whatsoever, unless caused by or due to the gross negligence of Landlord or Landlord's Agents or Employees. Landlord and Landlord's Agents shall not be liable for any latent defect in the Premises or in the Building. 10.4 NOTICE TO LANDLORD: Tenant shall give prompt notice to Landlord in case of fire or accidents, or needed repair in the Premises or, if known by the Tenant, in other parts of the Building. 10.5 CHATTEL PLEDGE: Tenant hereby pledges and assigns the Landlord all furniture and fixtures, goods and chattels of the Tenant, which may be brought or put on the Premises, as security for the payment of Rent herein reserved, and agrees that the Landlord's lien for the payment of Rent may be enforced by distress, foreclosure or otherwise, at the option of the Landlord, and Tenant agrees that such lien is granted to the Landlord and vested in Landlord, and the Tenant further agrees that in case of the failure of Tenant to pay the Rent herein when the same shall become due, and it becomes necessary for the Landlord to collect Rent by suit or through an attorney, or should Landlord employ an attorney because of the breach of any of the terms, covenants or agreements contained in this lease, the Tenant will pay the Landlord its actual attorney's fee together with all costs and charges incurred by, through or in connection with such collection or in any other suit or action or appeal which may be brought in any court because of a breach of any terms, covenants or agreements contained in this Lease. 10.6 MUTUAL WAIVER OF SUBROGATION: Landlord and Tenant hereby mutually release and waive their respective rights of recovery and subrogation against each other for any loss insured by fire, extended coverage and other property insurance policies existing for the benefit of the respective parties to the extent such waiver is permitted by such policies or insurance carriers. If either party fails to obtain insurance required hereunder, it bears the full risk of its own loss. 11. ASSIGNMENT OR SUBLETTING 11.1 TENANT: The Tenant shall not sell, assign, transfer, mortgage, hypothecate or otherwise encumber this Lease or the leasehold interest granted hereby, or any other interest therein, or permit the use of the Premises or any part thereof by any person or persons other than the Tenant and Tenant's Agents and business invitees, or sublet the Premises, or any part thereof, without the prior written consent of the Landlord in Landlord's sole discretion in each such case. Notwithstanding any such assignment, mortgage, hypothecation, encumbrance or subletting, the Tenant shall at all times remain fully responsible and liable for the payment of the rent and Additional Rent and (or compliance with all of the obligations -13- of the Tenant under the terms, provisions and covenants of this Lease. If Tenant is a corporation, unincorporated association, trust or general or limited partnership, the sale, new issue, assignment, transfer or hypothecation of any stock or other ownership interest of such entity which from time to time in the aggregate exceeds twenty-five percent (25%) of such interest shall be deemed an assignment subject to the provisions of this Section 11.1. If Tenant subleases or assigns any portion of the Premises and whether or not such sublease or assignment was consented to, and the rental exceeds the amount of rent due hereunder, Tenant shall pay to Landlord one-half (1/2) of all such excess rent as Additional Rent. In no event shall Tenant be permitted to sublease or assign any portion of the Premises at a rental amount less than the amount due under the terms of this Lease. Any act described in this Section 11.1 which is done without the consent of the Landlord shall be null and void and shall be an Event of Default. 11.2 LANDLORD: Landlord shall have the right to sell, transfer or assign any of its rights and obligations under this Lease. 12. SIGNS; ADVERTISING The Tenant shall not place or maintain or permit to be placed or maintained any signs or advertising of any kind whatsoever on the exterior of the Building (except as may be expressly provided for herein), or on any exterior windows in the Building, or elsewhere within the Premises so as to be visible from the public hallways or other public areas of the Building except such numerals and lettering on doorways as may be approved and permitted by the Landlord. 13. MAINTENANCE OF INTERIOR OF PREMISES The Tenant shall take good care of the Premises and shall, at the Tenant's own cost and expense, keep them in good and sanitary condition and repair and shall promptly make all repairs to the same to the satisfaction of the Landlord, and at the end, or earlier termination, of the Term, shall deliver the Premises to Landlord in the same condition as received, wear and tear by ordinary use thereof, fire and other casually excepted. Landlord may, but shall not be obligated to, make any repairs which are not promptly made by Tenant and charge Tenant for the cost thereof as Additional Rent. 14. DAMAGE OR DESTRUCTION If the Building is damaged by fire or other peril not caused in whole or in part by Tenant, to the extent that the entire Premises are rendered untenantable and cannot be reasonably rendered in as good a condition as existed prior to the damage within ninety (90) days from the date that Landlord secures permits for the reconstruction of the Premises, the Term of this Lease may be terminated by the Landlord or the Tenant by giving written notice to the other party; but if such damage is not such as to permit termination of the Lease as above provided, then if such damage is not caused by Tenant or Tenants Agents, employees, or invitees, a proportionate reduction shall be made in the rent corresponding to the time during which and to the portions of the Premises of which the Tenant shall hereby be deprived of -14- possession. Landlord shall use commercially reasonable efforts to secure the requisite permits and governmental approvals to reconstruct the Premises in a timely manner. If Landlord is unable to secure the requisite permits and governmental approvals within six (6) months of the date of the damage, then either Landlord or Tenant may elect to terminate this Lease by giving written notice to the other party. The Tenant agrees that Landlord shall not be responsible or liable for any loss due to business interruption occasioned by such fire, casually or other cause which renders the Premises untenantable nor shall Landlord be liable for any damage to Tenants property or persons. Tenant may not terminate this Lease on account of any damage caused by Tenant or Tenant's agents, employees, guests or invitees. 15. DEFAULT The following shall constitute "Events of Default" and in any such events, Tenant shall be deemed to be in default under the terms of this Lease and shall be subject to Landlord's remedies as set forth herein: a. Tenants failure to pay, when due, any rent or other payments due hereunder, including without limitation Additional Rent, taxes and sales tax or any other payment due Landlord under any other agreement or contract between Landlord and Tenant; or b. Tenant's abandoning or vacating of the Premises without prior written consent of Landlord, it being agreed that non-occupation of the Premises for a period often (10) consecutive days, without written consent of Landlord, shall be conclusively deemed an abandonment, notwithstanding anything contained in Florida Statute Chapter 83 to the contrary; or c. Tenant's voluntarily petitioning for relief under or otherwise seeking the benefit of any bankruptcy, reorganization or insolvency law; or d. A receiver or trustee being appointed for Tenant or its property; or e. The filing of an involuntary bankruptcy, arrangement, or reorganization petition against Tenant; or f. Tenants making an assignment for the benefit of creditors; or g. Any of the goods, chattels, rights, credits, or effects of Tenant used in or incident to the occupation of the Premises being seized, sequestered, or impounded by virtue of or under the authority of any legal proceedings; or h. Tenant's interest under this Lease being sold under execution or other legal process; or i. Any act or omission of Tenant which results in the filing of a lien against the Premises; or -15- j. Any transfer, assignment, subletting or encumbering of Tenant's interest under this Lease or the Premises, by operation of law or otherwise without the prior written consent of Landlord, which consent shall be in the sole and absolute discretion of Landlord; or k. Tenant's continued default in the performance or observance of any of the other covenants or agreements contained in this Lease and not specifically set forth above for a period often (10) days after the date of mailing written notice thereof by Landlord to Tenant l. Tenant's repeated violation of any covenant or agreement contained in this Lease. "Repeated Violation" shall mean violating any covenant or agreement for which written notice of violation was given by Landlord on more than two (2) occasions within a twelve (12) month period 16. REMEDIES Landlord may, at its option, in addition to all other remedies provided by law, exercise anyone or more of the following remedies which are not mutually exclusive and are consistent with the laws of the State of Florida: 16.1 ACCELERATION: Declare the entire remaining unpaid rent (whether monthly, Additional Rent or otherwise) for the balance of the term of this Lease immediately due and payable and take action to recover and collect the same either by distress or otherwise, and/or, 16.2 TERMINATION OF POSSESSION: Terminate Tenant's right to possession under this Lease and re-enter and take possession of the Premises, and relet or attempt to relet the Premises, or any part thereof, on behalf of and as the agent of Tenant, at such rental and under such terms and conditions as Landlord may, in the exercise of Landlord's sole and absolute discretion, deem best under the circumstances for the purpose of reducing Tenant's liability, and Landlord shall not be deemed to have thereby accepted a surrender of the Premises, and Tenant shall remain liable for all Rent, Additional Rent and all other sums due under this Lease and for all damages suffered by Landlord because of Tenant's breach of any of the covenants of this Lease. Landlord shall apply any rent received from such reletting first to the expenses of Landlord, if any, incurred by re-entering and placing the Premises in condition for reletting, and then to the payment of Rent due hereunder and other obligations of Tenant to Landlord arising under this Lease. In the event Landlord is successful in reletting the Premises at a rental rate in excess of that agreed to be paid by Tenant, Tenant shall not be entitled, under any circumstances, to such excess rent, and Tenant does hereby waive any claim to such excess rent. At any time during such repossession or reletting, Landlord may, by delivering written notice to Tenant, elect to exercise its option under the following subparagraph to accept a surrender of the Premises, terminate and cancel this Lease, and retake possession and occupancy of the Premises -16- 16.3 TERMINATION AND POSSESSION: Declare this Lease terminated, whereupon the Term herein granted and all right, title, and interest of Tenant in and to the Premises shall end. Such termination shall be without prejudice to Landlord's right to enforce the collection of any Rent, Additional Rent or other amounts due or accrued at the termination thereof, and for such time as shall be required to evict Tenant, together with all other damages suffered by Landlord as a result of Tenant's default. Upon such termination Landlord shall have the right to immediately re-enter the Premises and take possession thereof, and Tenant shall thereupon be deemed to have surrendered the Premises to Landlord. 16.4 TENANT'S ACCOUNT: Landlord may pay or perform any obligation of Tenant for Tenant's account, without prejudice to any other right or remedy of Landlord. All damages, costs and expenses so incurred by Landlord, including any interest, penalties and actual attorneys' fees, shall be due and payable to Landlord on demand. 16.5 LANDLORD'S LIEN: Enforce by any means available by law or in equity, a Landlord's lien upon any or all of Tenants equipment, furnishings, furniture trade fixtures, inventory, and other personal property of Tenant situated on, affixed to, or kept on the Premises. Tenant hereby grants Landlord an express Landlord's lien upon all such property and in furtherance thereof, Tenant agrees to execute and record such UCC-1 financing statements as Landlord may deem necessary to perfect its Landlord's lien. 16.6 TRIAL WAIVER: THE PARTIES HERETO SHALL, AND THEY HEREBY DO, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF, OR IN ANYWAY CONNECTED WITH, THIS LEASE, THE PREMISES AND/OR ANY CLAIM OF INJURY OR DAMAGE. Tenant hereby consents to the jurisdiction of any state court whose jurisdiction includes the county in which the Premises are located 16.7 SERVICE ADDRESS: In the event of any action or proceeding arising from this Lease or any other agreement to which Landlord and Tenant are a party, Tenant hereby stipulates that service of process upon Tenant shall be effective at the following address: Sargon Capital, Inc. 2033 Main Street, Suite 400 Sarasota, FL 34237 Tenant covenants that it shall, within five (5) days of change, notify Landlord of any new address for service of process. In the event that the foregoing address shall conflict with or otherwise be different from any address designating a registered agent with the Secretary of State of the State of Florida, then Landlord, at Landlord's election, may elect to serve Tenant utilizing either address. -17- 16.8 CUMULATIVE REMEDIES: The remedies of Landlord herein are cumulative and the election to proceed by forfeiture or surrender or otherwise shall not preclude the exercise of any other remedies herein described or otherwise provided by statute or general law, including at law or in equity, at the same time or in subsequent times or actions. 17. LANDLORD'S RIGHT OF ENTRY The Tenant agrees that the Landlord, its agents and employees may enter the Premises at any hour to protect the same against the elements, accidents, or to effect repairs or replacements, and at any reasonable hour for the purpose of examining the same, showing the same to prospective purchasers or tenants, or for any other reasonable purpose. 18. NOTICES Any bill, statement, notice or communication which the Landlord may desire or be required to give to Tenant shall be deemed sufficiently given and rendered if, in writing, personally delivered or sent by first class mail, postage prepaid, certified return receipt requested or by recognized overnight carrier addressed to the Tenant, at the address set forth in paragraph 1.16 (or such different address as Tenant may notify Landlord), and the time of the rendition of such bill, statement, or notice shall be deemed to be the time when the same is mailed or sent by overnight carrier to the Tenant, or delivered as herein provided. Any notice to Landlord shall be in writing, addressed to Landlord at Landlord's Address (or such different address as Landlord may notify Tenant) and shall be sent first class mail, postage prepaid, certified return receipt requested or by recognized overnight carrier and the time of the rendition of such bill, statement, or notice shall be deemed to be the time when the same is mailed or sent overnight carrier to the Landlord. 19. TAXES ON TENANT'S PERSONAL PROPERTY AND TAXES ASSESSED AGAINST RENTALS 19.1 PERSONAL PROPERTY TAXES: The Tenant shall pay promptly when due any and all taxes and assessments that may be levied or assessed against Tenant's personal property located in, on or about the Premises and will cause such personal property to be assessed directly to the Tenant. If for any reason such personal property cannot, or is not assessed separately and is included with the Landlord's real or personal property tax assessments, the Tenant will upon demand pay to the Landlord the amount of taxes levied or assessed against the personal property, using for such purpose the valuation and rate of tax placed thereon by the taxing authority, if the same can be determined and if not, using a reasonable valuation. 19.2 SALES TAX: In addition to the rent provided for above, the Tenant shall pay to the Landlord, promptly as and when due, all sales, use or excise taxes, levied, assessed or payable on or on account of the leasing or renting provided for hereunder, or on account for the rent payable hereunder. -18- 20. ATTORNEY'S FEES AND COSTS OF COLLECTION The Tenant shall promptly pay to the Landlord all actual costs and expenses of enforcement of this Lease and of collection, including appeals, including without limitation attorneys' fees, paralegal fees, and costs, with respect to any part of said Rent and other charges and sums of money herein reserved or required by the Tenant to be paid and met, which may be sustained or incurred by the Landlord after the date the same, or any portion thereof, becomes due; and the Tenant further agrees to pay all costs and expenses, including attorneys' fees and paralegal fees, (prior to suit, during suit, and on appeal, if applicable), which may be sustained or incurred by the Landlord in or about the enforcement or declaration of any of the rights or remedies of the Landlord or obligations of the Tenant, whether arising under this Lease or granted, permitted or imposed by law or otherwise. 21. PRIOR AGREEMENTS This Lease supersedes and revokes any and all prior written agreements between the parties relating to the Premises, and all oral agreements between the parties relating to the Premises are hereby merged into this Lease; and no amendment, modification or variation of this Lease or of any terms or provisions of this Lease, shall be effectual, binding or valid unless and until the same is reduced to writing and signed by the party to be charged thereby. No notice, request or demand in this Lease provided for may be waived except by written waiver thereof signed by the party waiving the same. Submission of this Lease to or by Tenant shall not create any rights in favor of Tenant until this Lease has been executed by both Landlord and Tenant. 22. FLOOR PLANS Any floor plan or other plan, drawing or sketch which is attached to or made part of this Lease is used solely for the purpose of a reasonable approximate identification and location of the demised Premises, and any markings, measurements, dimensions or notes of any kind contained therein (other than the outline of the Premises as an approximate identification and location thereof) have no bearing with respect to the terms and conditions of this Lease. The design, layout, materials, structure or other aspects of the Building and Property may be altered hereafter without affecting Tenants obligations hereunder. 23. NO AUTOMATIC RENEWAL There shall be no extension or automatic renewal of the terms of this Lease unless otherwise agreed in writing by the parties hereto. Tenant shall have no right to hold over, but if Tenant does so with Landlord's written consent, the holdover shall be a tenancy from month-to-month terminable at will by either Landlord or Tenant, and monthly Rent shall be five (5) percent higher than the amount due in the last month preceding the holdover period (unless Landlord specifies a higher or lower rent in the written consent). If Tenant holds over without Landlord's written consent, then Tenant shall be a tenant-at sufferance. Tenant shall pay by the first day of each month during the holdover period twice the amount of Monthly Rent due in the last full month immediately preceding the holdover period and shall be liable for any damages suffered by Landlord because of Tenant's holdover. Landlord shall also retain its remedies if Tenant holds over without written consent. -19- 24. CONDITIONS OF PREMISES; NO WARRANTIES Except as otherwise expressly provided in this Lease, the Premises is leased in "as is" condition without any modification or fit out required of the Landlord Tenant acknowledges that neither Landlord nor any agent or employee of Landlord has made any representation or warranty with respect to the Premises, the Building or the Property or with respect to the suitability of the Premises for Tenant's intended use unless such are expressly set forth in this Lease. Tenant further acknowledges that no representations or warranties as to the state of construction or repair of the Premises, nor promises to alter, remodel, improve, repair decorate or paint the Premises, have been made by Landlord. 25. TERMS, HEADINGS AND JURISDICTION As used herein the singular shall include the plural, the plural shall include the singular, and each gender shall include the other where the context shall so require. The headings in this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. This Lease shall be governed by the laws of the State of Florida. 26. CONDEMNATION In the event the whole or any part of the Building of which the Premises are a part, other than a part not interfering with the maintenance or operation thereof shall be taken or condemned for any public or quasi-public use or purpose, the Landlord may, at its option, terminate this Lease from the time title to or right to possession shall vest in or be taken for such public or quasi-public use or purpose. The Landlord shall be entitled to any and all income, rent, awards or any interest therein whatsoever which may be paid or made in connection with the condemnation or threat of condemnation of all or any part of the Building. 27. SUBORDINATION TO MORTGAGES This Lease is hereby made expressly subject and subordinate at all times to any and all mortgages, deeds of trust, ground or underlying leases affecting the Premises which have been executed and delivered or which will hereafter be executed and delivered and any and all extensions and renewals thereof and substitutions therefor and to any and all advances made or to be made under or upon said mortgages, deeds of trust, ground or underlying leases. Tenant agrees to execute any instrument or instruments which the Landlord may deem necessary or desirable to effect the subordination of this lease to any or all such mortgages, deeds of trust, ground or underlying leases within 10 days of Landlord's request. In the event that the Tenant shall refuse, after 10 days following Landlord's request, to execute such instrument or instruments which the Landlord may deem necessary or desirable to effect the subordination of the Lease to any or all such mortgages, deeds of trust, ground or underlying leases, the Landlord may, in addition to any right or remedy accruing hereunder, terminate this Lease without incurring any liability whatsoever and the estate hereby granted is expressly limited accordingly. The Tenant hereby agrees to attorn to any future owner of the Landlord's interest in the Premises under this Lease, whether such occurs by reason of the dispossession of the Landlord or otherwise, and such shall not constitute a default by Landlord hereunder. -20- 28. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 28.1 Within ten (10) days after request of Landlord, Tenant shall deliver to Landlord a duly executed certificate stating the Termination Date, the Monthly Rent and Additional Rent, the amount of any prepaid rent and security deposit, the fact that this Lease is in full force and effect, the fact that this Lease is unmodified (or if modified, the date of the modification), and the fact that Landlord is not in default (or if a default exists, the nature thereof). Failure to timely deliver same shall constitute a default under the terms of this Lease. Such certificate may be relied on by Landlord, prospective lenders or prospective purchasers. 28.2 During the Term of this Lease and any extensions thereto, Tenant (and Tenants Guarantor) shall produce current financial statements as requested by Landlord, any prospective purchaser or lender or any lender of record within thirty (30) days of written notification from Landlord, together with an opinion of an independent certified public accountant of recognized standing to the effect that such financial statements have been prepared in conformity with generally accepted accounting methods consistently applied and fairly present the financial condition and results of operations of Tenant as of and for the periods covered. Landlord agrees to limit any such requests for the production of internal financial statements from the Tenant to a maximum of one request in each twelve month period of the Lease Term. Tenant acknowledges that this provision is a material element of the Lease without which Landlord would not have entered into this Lease. If Tenant (or Tenant's Guarantor) is a company which is required to make periodic reports to the Securities and Exchange Commission, a copy of Tenant's (or Tenant's Guarantor) most recent publicly disclosed financial statement shall be sufficient for purposes of this Lease. 29. QUIET ENJOYMENT Landlord agrees that Tenant, upon paying the Monthly Rent, all Additional Rent, and all other sums and charges then due and upon performing the covenants and conditions of this Lease to be performed by the Tenant, may enjoy peaceful and quiet possession of the Premises during the Term. -21- 30. PARKING SPACES Tenant shall be entitled to such parking spaces located in the attached parking garage as are provided for in Section 1.20. 31. LANDLORD'S RIGHT TO ALTER COMMON AREAS Without abatement or diminution in rent, Landlord reserves and shall have the right to change the street address and/or the name of the Building and/or the arrangement and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, or other Common Areas of the Building or the complex without liability to Tenant. 32. EXCULPATION Notwithstanding anything to the contrary set forth in this Lease, it is specifically understood and agreed by Tenant that there shall be absolutely no personal liability on the part of Landlord, or Landlord's successors or assigns with respect to any of the terms, covenants and conditions of this Lease, and Tenant shall look solely to the equity of the current or future owner in the Property for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any of the terms, covenants and conditions of this Lease to be performed by Landlord. This exculpation of personal liability is absolute and without any exception whatsoever. The covenants and obligations contained in this Lease on the part of Landlord shall be binding on the Landlord, its successors and assigns only during and in respect to their respective successive periods of ownership. 33. SUCCESSORS AND ASSIGNS Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. 34. BUILDOUT ALLOWANCE N/A 35. REAL ESTATE COMMISSIONS Tenant states affirmatively that it has not had dealings of any nature with any real estate broker or salesperson with respect to this Lease other than _________ N/A ______________, for whose commission _______ N/A __________ is solely responsible. Tenant agrees to hold Landlord harmless and indemnify Landlord from and against any claim for commission, fees, or expenses of any other party, including but not limited to, any real estate brokers or salespersons in regard to the obtaining of the Lease. Landlord shall not be responsible for any claims for commission, fees or other expenses of any broker or salesperson in connection with Tenant's exercise of any option to renew or extend this Lease, unless Landlord has otherwise agreed in writing. -22- 36. RADON AND HAZARDOUS WASTE 36.1 RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT IS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY HEALTH DEPARTMENT. THE FOREGOING NOTICE IS PROVIDED PURSUANT TO SS. 404.056(6), FLORIDA STATUTES (2001), WHICH REQUIRES THAT SUCH NOTICE BE INCLUDED IN CERTAIN REAL ESTATE DOCUMENTS. 36.2 Tenant shall not place in nor store on or about the Premises or Building nor discharge, emit, dispose or release from on or about the Premises or Building, nor allow to be placed onto, stored on or about, or be discharged, emitted, disposed or released from on or about the Premises or Building, any pollutants, hazardous substances or hazardous waste; (as defined by and/or as prohibited by any common law or any federal, state or local statute, regulation, ordinance or other regulatory requirement including without limitation, any so-called "Superfund" or "Super Lien" legislation, relating to the presence of hazardous waste on, in or about the Premises) and shall indemnify and hold Landlord harmless from and against any and all expense, damage, loss or liability incurred by Landlord as a result of Tenants breach of this covenant, including, without limitation, any response costs, cleanup costs, environmental investigation and/or feasibility costs, and any and all fines or penalties imposed as a result thereof. Tenant further agrees that, upon request, it shall furnish Landlord with such estoppel or other written information as Landlord may reasonably request with regard to Tenant's compliance with this representation and Tenant acknowledges that the covenants in this Section comprise a material inducement for Landlord to enter into this Lease without which Landlord would not have done so. 37. COMPLIANCE WITH LAWS INCLUDING THE AMERICANS WITH DISABILITIES ACT The Tenant, at Tenant's sole cost and expense, shall comply with the requirements of all municipal, state and federal authorities now or hereafter in force, pertaining to the Premises, and shall faithfully observe in the use of the Premises and Common Areas all municipal ordinances and regulations and state and federal statutes and regulations now or hereafter in force and effect, including but not limited to The Americans With Disabilities Act, 28 CFR Part 36. Such compliance shall be at the expense of the Tenant. 38. BUILDING RULES AND REGULATIONS Tenant agrees that it shall at all times abide with the Building Rules and Regulations attached hereto as "Exhibit B" as they may be modified by Landlord from time to time. -23- 39. PERFORMANCE TIME IS OF THE ESSENCE OF THIS LEASE. 40. SHORT FORM OF LEASE This Lease shall not be recorded. However, the Landlord may record a Short Form of this Lease, the form of which is attached hereto as Exhibit C. 41. RIGHT TO RELOCATE TENANT Landlord reserves the right to relocate any Tenant whose Premises is less than 3,000 square feet of rentable area during the term of this Lease or any renewal thereof, to similar quality office space within the Building; if Landlord shall exercise this right to relocate Tenant, then any and all costs incident to said relocation shall be the responsibility of the Tenant. Landlord shall provide Tenant at least sixty (60) days written notice of Landlord's intention to relocate the Premises; the physical relocation shall take place on a weekend and shall be completely accomplished before Monday following the weekend in which the relocation takes place. If the relocated Premises are smaller than the original Premises as they existed before the relocation, the annual base rent shall be reduced pro rata. -24- IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the day and year first above written.
WITNESS: Landlord: CENTERPOINTE PROPERTY, LLC, as agent for PMW Hospitality and RFW Hospitality LLC - ---------------------------------------------------- /s/ Robert Hillier By: /s/ Don Wilson - ---------------------------------------------------- -------------------------------------------- Robert Hillier Print Name: Don Wilson Its: Manager WITNESS: Tenant: National Health Care, Inc. - ---------------------------------------------------- /s/ Robert Hillier By: /s/ David Daniels - ---------------------------------------------------- ------------------------------------------- Robert Hillier Print Name: David Daniels ----------------------------------- Its: CEO ------------------------------------------
-25- Omitted Exhibits The following exhibits to the Commercial Office Lease have been omitted: Exhibit Exhibit Description ------- -------------------- A Floor Plan of Premises B Building Rules and Regulations C Short Form Lease D Buildout Allowance E Landlord's Work The Company agrees to furnish supplementally a copy of the foregoing omitted exhibits to the Securities and Exchange Commission upon request. EX-10 11 ex10-14.txt EXHIBIT 10.14 EXHIBIT 10.14 [FORM OF SECURITIES PURCHASE AGREEMENT] SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated [_____________], [_____], is entered into by and between NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), and the purchaser or purchasers identified on the signature page hereof ("Purchaser"). R E C I T A L S: WHEREAS, Purchaser desires to purchase, and the Company desires to sell, shares of the Company's common stock on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises hereof and the agreements set forth herein below, the parties hereto hereby agree as follows: 1. The Offering. (a) Private Offering. The securities offered by this Agreement are being offered in a private offering (the "Offering") of up to [__________] shares ("Shares") of common stock, $.001 par value per share ("Common Stock"), Class A Warrants ("Class A Warrants") to acquire up to [__________] shares of Common Stock, and Class B Warrants ("Class B Warrants"; together with the Class A Warrants, the "Warrants") to acquire up to [__________] shares of Common Stock. The Shares and Warrants will be sold in units ("Units") comprised of [_______] ([__]) shares of Common Stock, [_______] ([__]) Class A Warrant, and [________] ([__]) Class B Warrant. A maximum of [__________] Units are being offered hereby. The Units are being sold on a reasonable "best efforts" basis at a purchase price of $[_______] per Unit pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D thereunder. The Units are being offered solely to a limited number of "accredited investors" as that term is defined in Rule 501(a) of the Securities Act during an offering period commencing [__________], and terminating at the sole discretion of the Company. The terms of the Class A Warrants are set forth in the Form of Class A Warrant, attached hereto and made a part hereof as Exhibit A (the "Class A Warrant Certificate"). The terms of the Class B Warrants are set forth in the Form of Class B Warrant, attached hereto and made a part hereof as Exhibit B (the "Class B Warrant Certificate"; together with the Class A Warrant Certificate, the "Warrant Certificates"). The Shares, Warrants and shares of Common Stock issuable upon exercise of the Warrants are hereinafter referred to collectively as the "Securities." (b) Use of Proceeds. Assuming all of the Units in the Offering are sold, the net proceeds to the Company will be approximately $[__________] (after deducting offering expenses payable by the Company estimated at $[__________]). The Company intends to use the net proceeds for general working capital purposes and other general corporate purposes. 2. Sale and Purchase of Units. (a) Sale and Purchase of Units. Subject to the terms and conditions hereof, the Company agrees to sell, and Purchaser agrees to purchase, the number of Units specified on the signature page of this Agreement at a purchase price of $[_______] per Unit. The aggregate purchase price for the Units shall be as set forth on the signature page hereto (the "Purchase Price") and shall be payable upon execution hereof by check or wire transfer of immediately available funds. (b) Subscription Procedure. In order to purchase Units, Purchaser shall deliver to the Company, at its principal executive office identified in Section 15 hereof: (i) one completed and duly executed copy of this Agreement; and (ii) immediately available funds in an amount equal to the Purchase Price. Execution and delivery of this Agreement shall constitute an irrevocable subscription for that number of Units set forth on the signature page hereto. Payment for the Units may be made by wire transfer to: [___________________] [___________________] [___________________] [___________________] [___________________] or by check made payable to "National Health Partners, Inc." The minimum purchase that may be made by a Purchaser is [________] Units for a purchase price of $[________], although the Company may, in its sole discretion, accept Agreements for a lesser number of Units. This Agreement may be rejected by the Company, in whole or in part, in its sole discretion, in which event the Purchase Price will be returned by mail to Purchaser within ten (10) business days thereafter. Unless the Offering is otherwise terminated by the Company, as soon as possible after the receipt and acceptance by the Company of this Agreement and collection of the funds paid for the Units, the Company will issue certificates for the Shares to Purchaser, together with a copy of Purchaser's executed Agreement countersigned by the Company. (c) Closing. (i) Closing Date. The closing of the transactions (the "Closing") shall take place at such time, on such date and in such manner as the parties may agree. (ii) Closing Transactions. At the Closing, the Company shall execute and deliver to Purchaser a certificate representing the number of Shares underlying the number of Units specified on the signature page of this Agreement, against payment of the Purchase Price specified on the signature page of this Agreement by wire transfer or check payable to the Company. 3. Representations and Warranties of Purchaser. Purchaser represents and warrants to the Company as follows: 2 (a) Organization and Qualification. (i) If Purchaser is an entity, Purchaser is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate or other entity power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on Purchaser, and Purchaser is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on it. (ii) If Purchaser is an entity, the address of its principal place of business is as set forth on the signature page hereto, and if Purchaser is an individual, the address of its principal residence is as set forth on the signature page hereto. (b) Authority; Validity and Effect of Agreement. (i) If Purchaser is an entity, Purchaser has the requisite corporate or other entity power and authority to execute and deliver this Agreement and perform its obligations under this Agreement. The execution and delivery of this Agreement by Purchaser, the performance by Purchaser of its obligations hereunder and all other necessary corporate or other entity action on the part of Purchaser have been duly authorized by its Boards of Directors or similar governing body, and shareholders or similar interest holders, if necessary, and no other corporate or other entity proceedings on the part of Purchaser is necessary for Purchaser to execute and deliver this Agreement and perform its obligations hereunder. (ii) This Agreement has been duly and validly authorized, executed and delivered by Purchaser and, assuming it has been duly and validly executed and delivered by the Company, constitutes a legal, valid and binding obligation of Purchaser, in accordance with its terms. (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by Purchaser nor the performance by Purchaser of its obligations hereunder will: (i) if Purchaser is an entity, conflict with Purchaser's Articles of Incorporation or Bylaws, or other similar organizational documents; (ii) violate any statute, law, ordinance, rule or regulation, applicable to Purchaser or any of the properties or assets of Purchaser; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of Purchaser under, or result in the creation or imposition of any lien upon any properties, assets or business of Purchaser under, any material contract or any order, judgment or decree to which Purchaser is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement. 3 (d) Accredited Investor. Purchaser is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act. If Purchaser is an entity, Purchaser was not formed for the specific purpose of acquiring the Securities, and, if it was, all of Purchaser's equity owners are "accredited investors" as defined above. (e) No Government Review. Purchaser understands that neither the United States Securities and Exchange Commission ("SEC") nor any securities commission or other governmental authority of any state, country or other jurisdiction has approved the issuance of the Securities or passed upon or endorsed the merits of the Securities, or this Agreement, the Warrant Certificates or any of the other documents relating to the proposed Offering (collectively, the "Offering Documents"), or confirmed the accuracy of, determined the adequacy of, or reviewed this Agreement or the other Offering Documents. (f) Investment Intent. The Securities are being acquired for the Purchaser's own account for investment purposes only, not as a nominee or agent and not with a view to the resale or distribution of any part thereof, and Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or third person with respect to any of the Securities. (g) Restrictions on Transfer. Purchaser understands that the Securities are "restricted securities" as such term is defined in Rule 144 under the Securities Act and have not been registered under the Securities Act or registered or qualified under any state securities law, and may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws or the availability of an exemption therefrom. In any case where such an exemption is relied upon by Purchaser from the registration requirements of the Securities Act and the registration or qualification requirements of such state securities laws, Purchase shall furnish the Company with an opinion of counsel stating that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and will not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and opinion to be satisfactory to the Company. Purchaser acknowledges that it is able to bear the economic risks of an investment in the Securities for an indefinite period of time, and that its overall commitment to investments that are not readily marketable is not disproportionate to its net worth. (h) Investment Experience. Purchaser has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and Purchaser has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. In making its decision to acquire the Securities, Purchaser has not relied upon any information other than information provided to Purchaser by the Company or its representatives and contained herein and in the other Offering Documents. 4 (i) Access to Information. Purchaser acknowledges that it has had access to and has reviewed all documents and records relating to the Company that it has deemed necessary in order to make an informed investment decision with respect to an investment in the Securities; that it has had the opportunity to ask representatives of the Company certain questions and request certain additional information regarding the terms and conditions of such investment and the finances, operations, business and prospects of the Company and has had any and all such questions and requests answered to its satisfaction; and that it understands the risks and other considerations relating to such investment. (j) Reliance on Representations. Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. Purchaser represents and warrants to the Company that any information that Purchaser has heretofore furnished or furnishes herewith to the Company is complete and accurate, and further represents and warrants that it will notify and supply corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company's issuance of the Securities. Within five (5) days after receipt of a request from the Company, Purchaser will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is subject. (k) No General Solicitation. Purchaser is unaware of, and in deciding to participate in the Offering is in no way relying upon, and did not become aware of the Offering through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media, or broadcast over television or radio or the internet, in connection with the Offering. (l) Placement and Finder's Fees. No agent, broker, investment banker, finder, financial advisor or other person acting on behalf of Purchaser or under its authority is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the Offering, and no person is entitled to any fee or commission or like payment in respect thereof based in any way on agreements, arrangements or understanding made by or on behalf of Purchaser. (m) Offering Risks. Purchaser understands that purchasing Units in the Offering will subject Purchaser to certain risks, including, but not limited to, each of the following: (i) The Company is a development-stage company with a limited operating history and an unproven business model, which makes it difficult for Purchaser to evaluate the Company's current business and future prospects. As a result, the revenue and income potential of the Company's business and market are unproven. 5 (ii) The Company has experienced net losses in each fiscal quarter since its inception and expects to continue to incur significant net losses for the foreseeable future. While the Company is unable to predict accurately its future operating expenses, it currently expects these expenses to increase substantially as it implements its business plan. (iii) The Company is in need of substantial additional capital to fund its current and future operations. In order to satisfy such obligations, attract and retain employees, consultants and other service providers, and satisfy other obligations, the Company may be required to issue additional shares of Common Stock, securities convertible into Common Stock, or debt. Such shares may be issued for a purchase price consisting of cash, services or other consideration that may be materially different than the purchase price of the Units. The forgoing may result in substantial dilution to the relative ownership interests of the Company's existing shareholders and substantial reduction in net book value per share. Additional equity securities may have rights, preferences and privileges senior to those of the holders of Common Stock and any debt financing may involve restrictive covenants that may limit the Company's operating flexibility. (iv) The offering price of the Units offered hereby has been determined solely by the Company in its sole discretion and does not necessarily bear any relationship to the value of the Company's assets, current or potential earnings of the Company, or any other recognized criteria used for measuring value, and therefore, there can be no assurance that the offering price of the Units is representative of the actual value of the underlying Securities. (v) The Company has provided herein that it intends to use the net proceeds from the Offering for general working capital purposes and other general corporate purposes. Thus, Purchaser is making its investment in the Securities based in part upon very limited information regarding the specific uses to which the net proceeds will be applied. (vi) An investment in the Securities may involve certain material legal, accounting and federal and state tax consequences. Purchaser should consult with its legal counsel, accountant and/or business adviser as to the legal, accounting, tax and related matters accompanying such an investment. (n) Legends. The certificates and agreements evidencing the Securities shall have endorsed thereon the following legend (and appropriate notations thereof will be made in the Company's stock transfer books), and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 6 4. Representations and Warranties of the Company. The Company represents and warrants to Purchaser as follows: (a) Organization and Qualification. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on the Company. The Company is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on the Company. (b) Authority; Validity and Effect of Agreement. (i) The Company has the requisite corporate power and authority to execute and deliver this Agreement, perform its obligations under this Agreement, and conduct the Offering. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder, the Offering and all other necessary corporate action on the part of the Company have been duly authorized by its Board of Directors, and no other corporate proceedings on the part of the Company is necessary to authorize this Agreement or the Offering. This Agreement has been duly and validly executed and delivered by the Company and, assuming that it has been duly authorized, executed and delivered by Purchaser, constitutes a legal, valid and binding obligation of the Company, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (ii) The Shares have been duly authorized and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. The shares of Common Stock issuable upon exercise of the Warrants have been duly reserved for issuance upon exercise of the Warrants and, when issued and paid for in accordance with the Warrants, will be duly authorized, validly issued, fully paid and non-assessable shares of Common Stock, with no personal liability resulting solely from the ownership of such shares, and will be free and clear of all liens, charges, restrictions, claims and in encumbrances imposed by or through the Company. 7 (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by the Company nor the performance by the Company of its obligations hereunder will: (i) conflict with the Company's Articles of Incorporation or Bylaws; (ii) violate any statute, law, ordinance, rule or regulation, applicable to the Company or any of the properties or assets of the Company; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of the Company, or result in the creation or imposition of any lien upon any properties, assets or business of the Company under, any material contract or any order, judgment or decree to which the Company is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement; and (d) Placement and Finder's Fees. Neither the Company nor any of its respective officers, directors, employees or managers, has employed any broker, finder, advisor or consultant, or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees, advisory fees or consulting fees in connection with the Offering for which the Company has or could have any liability. 5. Indemnification. Purchaser agrees to indemnify, defend and hold harmless the Company and its respective affiliates and agents from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements incurred by the Company that arise out of or result from a breach of any representations or warranties made by Purchaser herein, and Purchaser agrees that in the event of any breach of any representations or warranties made by Purchaser herein, the Company may, at its option, forthwith rescind the sale of the Units to Purchaser. 6. Confidentiality. Purchaser acknowledges and agreements that: (a) This Agreement and the other Offering Documents have been furnished to Purchaser by the Company for the sole purpose of enabling Purchaser to consider and evaluate an investment in the Company, and will be kept confidential by Purchaser and not used for any other purpose. (b) The information contained herein shall not, without the prior written consent of the Company, be disclosed by Purchaser to any person or entity, other than Purchaser's personal financial and legal advisors for the sole purpose of evaluating an investment in the Company, and will not, directly or indirectly, disclose or permit Purchaser's personal financial and legal advisors to disclose any of such information without the prior written consent of the Company. 8 (c) Purchaser shall make its representatives aware of the terms of this section and to be responsible for any breach of this Agreement by such representatives. (d) Purchaser shall not, without the prior written consent of the Company, directly or indirectly, make any statements, public announcements or release to trade publications or the press with respect to the subject matter of this Agreement and the other Offering Documents. (e) If Purchaser decides to not pursue further investigation of the Company or to not participate in the Offering, Purchaser will promptly return this Agreement, the other Offering Documents and any accompanying documentation to the Company. 7. Registration Rights. The Company covenants and agrees as follows: 7.1 For the purpose of this Section 7, the following definitions shall apply: (a) "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. (b) "Register," "registered," and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or order of effectiveness of such registration statement or document. (c) "Registration Statement" shall mean any registration statement of the Company filed with the SEC pursuant to the provisions of Section 7.2 of this Agreement, but excluding registration statements on SEC Forms S-4, S-8 or any similar or successor forms, that covers the resale of the Restricted Stock on an appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including any pre- and post- effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. (d) "Restricted Stock" shall mean (i) 50% of the Shares purchased hereunder; (ii) 50% of the shares of Common Stock issuable upon exercise of the Warrants; and (iii) any additional shares of Common Stock of the Company issued or issuable after the date hereof in respect of any of the foregoing securities, by way of a stock dividend or stock split; provided that, as to any particular shares of Restricted Stock, such securities shall cease to constitute Restricted Stock when (x) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder, (y) such securities are permitted to be transferred pursuant to Rule 144 (or any successor provision to such rule) under the Securities Act, or (z) such securities are otherwise freely transferable to the public without further registration under the Securities Act. 9 (e) "Selling Stockholders" shall mean Purchaser and any other purchaser of Units in the Offering, and their respective successors and assigns. 7.2. Registration of the Shares. (a) The Company shall use its reasonable best efforts to prepare and file with the SEC, within six (6) months of the date of termination of the Offering, a Registration Statement under the Act to permit the public sale of the Restricted Stock purchased hereby, and to cause such Registration Statement to be declared effective as soon as reasonably practicable thereafter. Purchaser shall furnish such information as may be reasonably requested by the Company in order to include such Restricted Stock in such Registration Statement. If Purchaser decides not to include all of its Restricted Stock in any registration statement thereafter filed by the Company, such Purchaser shall nevertheless continue to have the right to include any Restricted Stock in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. In the event that any registration pursuant to this Section 7.2(a) is terminated or withdrawn, the Company shall use its reasonable best efforts to prepare and file with the SEC, within 180 days thereafter, a Registration Statement under the Act to permit the public sale of the Restricted Stock purchased hereby. (b) In the event that any registration pursuant to Section 7.2(a) shall be, in whole or in part, an underwritten public offering of Common Stock on behalf of the Company, all Purchasers proposing to distribute their Restricted Stock through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If the managing underwriter thereof advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the Restricted Stock and any other registrable securities eligible and requested to be included in such registration to the extent that the number of shares to be registered under this clause (ii) will not, in the opinion of the managing underwriter, adversely affect the offering of the securities pursuant to clause (i). In such a case, shares shall be registered pro rata among the holders of such Restricted Stock and registrable securities on the basis of the number of shares eligible for registration that are owned by all such holders and requested to be included in such registration. (c) Notwithstanding anything to the contrary contained herein, the Company's obligation in Sections 7.2(a) and (b) above shall extend only to the inclusion of the Restricted Stock in a Registration Statement. The Company shall have no obligation to assure the terms and conditions of distribution, to obtain a commitment from an underwriter relative to the sale of the Restricted Stock or to otherwise assume any responsibility for the manner, price or terms of the distribution of the Restricted Stock. (d) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 7.2 prior to the effectiveness of such registration without thereby incurring liability to the holders of the Restricted Stock, regardless of whether any holder has elected to include securities in such registration. The Registration Expenses (as defined in Section 7.5) of such withdrawn registration shall be borne by the Company in accordance with Section 7.4 hereof. 10 7.3. Registration Procedures. Whenever it is obligated to register any Restricted Stock pursuant to this Agreement, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to the Restricted Stock in the manner set forth in Section 7.2 hereof and use its reasonable best efforts to cause such Registration Statement to become effective as promptly as possible and to remain effective until the earlier of (i) the sale of all shares of Restricted Stock covered thereby, (ii) the availability under Rule 144 for the Selling Stockholder to immediately, freely resell without restriction all Restricted Stock covered thereby, or (iii) one (1) year from the effective date of the first Registration Statement filed by the Company with the SEC pursuant to this Agreement or, with respect to any subsequent Registration Statement, 180 days from the effective date of such Registration Statement; (b) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 7.3(a) above and to comply with the provisions of the Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the intended method of disposition set forth in such Registration Statement for such period; (c) furnish to the Selling Stockholders such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such person may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use its reasonable best efforts to register or qualify the Restricted Stock covered by such Registration Statement under the state securities laws of such jurisdictions as any Selling Stockholder shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Purchaser participating in such underwriting shall also enter into and perform its obligations under such an agreement, as described in Section 7.2(b); (f) immediately notify each Selling Stockholder at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; 11 (g) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; (h) use its reasonable best efforts to list the Restricted Stock covered by such Registration Statement on each exchange or automated quotation system on which similar securities issued by the Company are then listed (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable); (j) notify each Selling Stockholder of any threat by the SEC or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and (k) cooperate in the timely removal of any restrictive legends from the shares of Restricted Stock in connection with the resale of such shares covered by an effective Registration Statement. 7.4. Delay of Registration. No Selling Stockholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 7. 7.5 Expenses. (a) For the purposes of this Section 7.5, the term "Registration Expenses" shall mean: all expenses incurred by the Company in complying with Section 7.2 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, reasonable fees and disbursements of a single special counsel for the Selling Stockholders, fees under state securities laws, fees of the National Association of Securities Dealers, Inc., fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents and registrars. The term "Selling Expenses" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock and all accountable or non-accountable expenses paid to any underwriter in respect of such sale. (b) Except as otherwise provided herein, the Company will pay all Registration Expenses in connection with the Registration Statements filed pursuant to Section 7.2 of this Agreement. All Selling Expenses in connection with any Registration Statements filed pursuant to Section 7.2 of this Agreement shall be borne by the Selling Stockholders pro rata on the basis of the number of shares registered by each Selling Stockholder whose shares of Restricted Stock are covered by such Registration Statement, or by such persons other than the Company (except to the extent the Company may be a seller) as they may agree. 12 7.6. Obligations of the Selling Stockholders. (a) In connection with each registration hereunder, each Selling Stockholder shall furnish to the Company in writing such information with respect to it and the securities held by it and the proposed distribution by it, as shall be reasonably requested by the Company in order to assure compliance with applicable federal and state securities laws as a condition precedent to including the Selling Stockholder's Restricted Stock in the Registration Statement. Each Selling Stockholder shall also promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. (b) In connection with the filing of the Registration Statement, each Selling Stockholder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with such Registration Statement or prospectus. (c) In connection with each registration pursuant to this Agreement, each Selling Stockholder agrees that it will not effect sales of any Restricted Stock until notified by the Company of the effectiveness of the Registration Statement, and thereafter will suspend such sales after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, each Selling Stockholder shall discontinue sales of Restricted Stock pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the Restricted Stock covered by such Registration Statement which remains unsold, and each Selling Stockholder shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 7.7. Information Blackout and Holdbacks. (a) At any time when a Registration Statement effected pursuant to Section 7.2 is effective, upon written notice from the Company to Purchaser that the Company has determined in good faith that the sale of Restricted Stock pursuant to the Registration Statement would require disclosure of non-public material information, Purchaser shall suspend sales of Restricted Stock pursuant to such Registration Statement until such time as the Company notifies Purchaser that such material information has been disclosed to the public or has ceased to be material, or that sales pursuant to such Registration Statement may otherwise be resumed. (b) Notwithstanding any other provision of this Agreement, Purchaser shall not effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act), if and when available, of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the thirty (30) days prior to the commencement of any primary offering to be undertaken by the Company of shares of its unissued Common Stock ("Primary Offering"), which may also include other securities, and ending one hundred twenty (120) days after completion of any such Primary Offering, unless the Company, in the case of a non-underwritten Primary Offering, or the managing underwriter, in the case of an underwritten Primary Offering, otherwise agree. 13 7.8. Indemnification. (a) The Company agrees to indemnify, to the extent permitted by law, each Selling Stockholder, such Selling Stockholder's respective partners, officers, directors, underwriters and each Person who controls any Selling Stockholder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by (i) any untrue statement of or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto, (ii) any omission of or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement ("Violations"); provided, however, that the indemnity agreement contained in this Section 7.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Selling Stockholder, partner, officer, director, underwriter or controlling person of such Selling Stockholder. (b) To the extent permitted by law, each Selling Stockholder shall indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Selling Stockholder selling securities under such registration statement or any of such other Selling Stockholder's partners, directors or officers or any person who controls such Selling Stockholder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Selling Stockholder, or partner, director, officer or controlling person of such other Selling Stockholder, may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation (i) occurs in reliance upon and in conformity with written information furnished by such Selling Stockholder under an instrument duly executed by such Selling Stockholder for use in connection with such registration; (ii) occurs as a result of any failure to deliver a copy of the prospectus relating to such Registration Statement, or (iii) occurs as a result of any disposition of the Restricted Stock in a manner that fails to comply with the permitted methods of distribution identified within the Registration Statement. 14 (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) If the indemnification provided for in this Section 7.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the violation(s) described in Section 7.8(a) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Selling Stockholder hereunder exceed the net proceeds from the offering received by such Selling Stockholder. (e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company's indemnification is unavailable for any reason. 8. Entire Agreement. This Agreement contains the entire agreement between the parties and supercedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereto, and no party shall be liable or bound to any other party in any manner by any warranties, representations, guarantees or covenants except as specifically set forth in this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement contained herein. 15 9. Amendment and Modification. This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. 10. Extensions and Waivers. At any time prior to the Closing, the parties hereto entitled to the benefits of a term or provision may (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such extension or waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement. 11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto. Except as provided in Section 5, nothing in this Agreement is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement. 12. Survival of Representations, Warranties and Covenants. The representations and warranties contained herein shall survive the Closing and shall thereupon terminate eighteen (18) months from the Closing, except that the representations contained in Sections 3(a), 3(b), 3(d), 4(a), and 4(b) shall survive indefinitely. All covenants and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. All other covenants and agreements contained herein shall not survive the Closing and shall thereupon terminate. 13. Headings; Definitions. The Section headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections contained herein mean Sections of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 14. Severability. If any provision of this Agreement or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties hereto. 16 15. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David W. Daniels Chief Executive Officer with a copy to: [_______________________] [_______________________] [_______________________] [_______________________] [_______________________] If to Purchaser: To that address indicated on the signature page hereof. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 17. Arbitration. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in the Commonwealth of Pennsylvania. The decision of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties hereto shall share equally the costs of the arbitration. 18. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] 17 IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be executed as of the date set forth below. PURCHASER Date: __________________________________ _____________________________________ By:__________________________________ Name: Title: Address:__________________________ __________________________________ __________________________________ Number of Units Purchased: __________ Purchase Price @ $[____] per Unit: $________________ NATIONAL HEALTH PARTNERS, INC. Date:__________________________________ By:__________________________________ Name: Title: 18 EXHIBIT A CLASS A WARRANT NO.: [__________] FORM OF CLASS A WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS. CLASS A WARRANT TO PURCHASE COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. Void after 5:00 p.m. Eastern Standard Time on [_____________] This Class A Warrant ("Warrant") confirms that, FOR VALUE RECEIVED, [_____________________________] ("Holder") is entitled to purchase, subject to the terms and conditions hereof, from NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), [_____________] shares of common stock, $.001 par value per share, of the Company (the "Common Stock"), at any time during the period commencing on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern Standard Time on the date that is [___________] after the Commencement Date (the "Termination Date"), at an exercise price of $[_____] per share of Common Stock (the "Exercise Price"). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Exercise Price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below. The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof, then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as "Exercise Shares". The exercise price per share as from time to time in effect is referred to hereinafter as the "Exercise Price". 1. Exercise of Warrant; Issuance of Exercise Shares. (a) Exercise of Warrant. Subject to the terms hereof, the purchase rights represented by this Warrant are exercisable by Holder in whole or in part, at any time, or from time to time, after the Commencement Date by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to Holder at the address of Holder appearing on the books of the Company) accompanied by payment of the Exercise Price in full either (i) in cash or by bank or certified check for the Exercise Shares with respect to which this Warrant is exercised; (ii) by delivery to the Company of shares of the Company's Common Stock having a Fair Market Value (as defined below) equal to the aggregate Exercise Price of the Exercise Shares being purchased that Holder is the record and beneficial owner of and, if Holder was subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time such shares were purchased, that have been held by the Holder for at least six (6) months; (iii) provided that the sale of the Exercise Shares are covered by an effective registration statement, by delivering to the Company a duly executed Notice of Exercise in the form attached hereto as Appendix A ("Notice of Exercise") together with an irrevocable direction to a broker-dealer registered under the Exchange Act, to sell a sufficient portion of the Exercise Shares and deliver the sales proceeds directly to the Company to pay the Exercise Price; or (iv) by any combination of the procedures set forth in subsections (i), (ii) and (iii) of this Section 1(a); provided, however, that in no event may Holder exercise. For the purposes hereof, "Commencement Date" shall mean the date that any registration statement filed by the Company with the SEC pursuant to Section 7 of that certain Securities Purchase Agreement dated on or about the date hereof by and between the Company and the Holder (the "Securities Purchase Agreement") is declared effective by the SEC, and "Fair Market Value" shall be an amount equal to the average of the Current Market Value (as defined below) for the ten (10) days preceding the Company's receipt of the duly executed Notice of Exercise. In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased. (b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The Company shall, within ten (10) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder one or more certificates representing the Exercise Shares to which the Holder shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become the record holder of the Exercise Shares as of the date of the proper exercise of this Warrant. (c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant certificate ("Warrant Certificate") will, upon issuance and payment therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Section 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof. 2 (d) Reservation of Exercise Shares. The Company covenants that during the term that this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Exercise Shares upon the exercise of this Warrant, and from time to time will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon the exercise of the Warrant. (e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subsection (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Current Market Value of the Exercise Share on the last business day prior to the date on which this Warrant is exercised. For purposes hereof, the "Current Market Value" for any day shall be determined as follows: (i) if the Exercise Shares are listed or traded on a national securities exchange or the NASDAQ Reporting System, the closing price on the principal national securities exchange on which they are so listed or traded, on the NASDAQ Reporting System, as the case may be, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (i) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting System; or (ii) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange and not on the NASDAQ National Market System or NASDAQ Small Cap Market (together, the "NASDAQ Reporting System"), the average of the mean between the last bid and asked prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (iii) if no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company. 2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Exercise Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes that may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Exercise Shares in a name other than that of the holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 3 3. Mutilated or Missing Warrant Certificates. In case any Warrant shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe. 4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant or otherwise, be entitled to any right whatsoever, either at law or in equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter. 5. Registration of Transfers and Exchanges. The Warrant shall be transferable, subject to the provisions of Section 7 hereof, upon the books of the Company, if any, to be maintained by it for that purpose, upon surrender of the Warrant Certificate to the Company at its principal office accompanied (if so required by the Company) by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by Holder or by the duly appointed legal representative thereof or by a duly authorized attorney and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any such registration of transfer, a new Warrant shall be issued to the transferee named in such instrument of transfer, and the surrendered Warrant shall be canceled by the Company. Any Warrant may be exchanged, at the option of the Holder thereof and without charge, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant surrendered for exchange or transfer, and the Warrant so surrendered shall be canceled by the Company or transfer agent, as the case may be. 6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (a) In case of any consolidation or merger of the Company with another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change - other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination - of outstanding Common Stock issuable upon such exercise), the rights of the Holder of this Warrant shall be adjusted in the manner described below: 4 (i) In the event that the Company is the surviving corporation, this Warrant shall, without payment of additional consideration therefor, be deemed modified so as to provide that the Holder of this Warrant, upon the exercise thereof, shall procure, in lieu of each share of Common Stock theretofore issuable upon such exercise, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by the holder of each share of Common Stock, had exercise of this Warrant occurred immediately prior to such reclassification, change, consolidation or merger. This Warrant (as adjusted) shall be deemed to provide for further adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this clause (i) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (ii) In the event that the Company is not the surviving corporation, Holder shall be given at least fifteen (15) days prior written notice of such transaction and shall be permitted to exercise this Warrant, to the extent it is exercisable as of the date of such notice, during this fifteen (15) day period. Upon expiration of such fifteen (15) day period, this Warrant and all of Holder's rights hereunder shall terminate. (b) If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6. (c) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, shall be proportionally adjusted so that the holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares that, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to this subsection (c), the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. 5 (d) In the event that at any time, as a result of an adjustment made pursuant to subsection (a), (b) or (c) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a), (b) or (c) above. (e) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (f) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by Holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to Holder. (g) All calculations under this Section 6 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 7. Restrictions on Transferability: Restrictive Legend. Neither this Warrant nor the Exercise Shares shall be transferable except in accordance with the provisions of this Section. (a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any Exercise Share may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless (i) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities, or (ii) exemptions from the registration requirements of the Securities Act and the registration or qualification requirements of all such state securities laws are available, and the Company shall have received an opinion of counsel satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. 6 (b) Restrictive Legends. Unless and until otherwise permitted by this Section 7, this Warrant Certificate, each Warrant Certificate issued to the Holder or to any transferee or assignee of this Warrant Certificate, and each certificate representing Exercise Shares issued upon exercise of this Warrant or to any transferee of the person to whom the Exercise Shares were issued, shall bear a legend setting forth the requirements of subsection (a) of this Section 7, together with such other legend or legends as may otherwise be deemed necessary or appropriate by counsel to the Company. (c) Removal of Legend. The Company shall, at the request of any registered holder of a Warrant or Exercise Share, exchange the certificate representing such security for a certificate representing the same security not bearing the restrictive legend required by subsection (b) if, in the opinion of counsel acceptable to the Company, such restrictive legend is no longer necessary. (d) The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of this Section 7. 8. Registration Rights. The Holder shall be entitled to the rights and subject to the obligations set forth in Section 7 of the Securities Purchase Agreement. 9. Restrictions on Exercise. The Holder may not acquire a number of Exercise Shares to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, (including shares held by any "group" of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) exceeds 19.99% of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities Exchange Commission (the "Commission"), and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. 10. Notices. All notices or other communications under this Warrant shall be in writing and shall be deemed to have been given on the day of delivery if delivered by hand, on the fifth day after deposit in the mail if mailed by certified mail, postage prepaid, return receipt requested, or on the next business day after mailing if sent by a nationally recognized overnight courier such as federal express, addressed as follows: If to the Company: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David W. Daniels Chief Executive Officer 7 with a copy to: [_______________________] [_______________________] [_______________________] [_______________________] [_______________________] and if to Holder, at the address of Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Section 10. 11. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. 12. Successors and Assigns. This Warrant shall inure to the benefit of and be binding upon the respective successors, assigns and legal representatives of Holder and the Company. 13. Severability. If for any reason any provision, paragraph or terms of this Warrant is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable. 14. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said jurisdiction without regard to such jurisdiction's conflicts of laws provisions. 15. Headings. Section and subsection headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant nor constitute a part of this Warrant for any other purpose. [Remainder of page intentionally left blank] 8 IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the [___] day of [______________], [_______]. NATIONAL HEALTH PARTNERS, INC. By: [___________________________] Name: Title: 9 APPENDIX A NOTICE OF EXERCISE TO: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Executive Officer (1) The undersigned hereby elects to purchase [_______________] shares of Common Stock (as defined in the attached Class A Warrant) of NATIONAL HEALTH PARTNERS, INC. pursuant to the terms of the attached Class A Warrant, and tenders herewith payment of the Exercise Price (as defined in the attached Warrant) for such shares in full in the following manner (please check one of the following choices): [ ] In Cash; [ ] Cashless exercise through a broker; or [ ] Delivery of previously owned shares of Common Stock. (2) In exercising the Class A Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. HOLDER [__________________________] [__________________________________] (Date) (Signature) EXHIBIT B CLASS B WARRANT NO.: [__________] FORM OF CLASS B WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS. CLASS B WARRANT TO PURCHASE COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. Void after 5:00 p.m. Eastern Standard Time on [______________] This Class B Warrant ("Warrant") confirms that, FOR VALUE RECEIVED, [_____________________________] ("Holder") is entitled to purchase, subject to the terms and conditions hereof, from NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), [_____________] shares of common stock, $.001 par value per share, of the Company (the "Common Stock"), at any time during the period commencing on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern Standard Time on the date that is [____________] after the Commencement Date (the "Termination Date"), at an exercise price of $[______] per share of Common Stock (the "Exercise Price"). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Exercise Price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below. The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof, then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as "Exercise Shares". The exercise price per share as from time to time in effect is referred to hereinafter as the "Exercise Price". 1. Exercise of Warrant; Issuance of Exercise Shares. (a) Exercise of Warrant. Subject to the terms hereof, the purchase rights represented by this Warrant are exercisable by Holder in whole or in part, at any time, or from time to time, after the Commencement Date by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to Holder at the address of Holder appearing on the books of the Company) accompanied by payment of the Exercise Price in full either (i) in cash or by bank or certified check for the Exercise Shares with respect to which this Warrant is exercised; (ii) by delivery to the Company of shares of the Company's Common Stock having a Fair Market Value (as defined below) equal to the aggregate Exercise Price of the Exercise Shares being purchased that Holder is the record and beneficial owner of and, if Holder was subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time such shares were purchased, that have been held by the Holder for at least six (6) months; (iii) provided that the sale of the Exercise Shares are covered by an effective registration statement, by delivering to the Company a duly executed Notice of Exercise in the form attached hereto as Appendix A ("Notice of Exercise") together with an irrevocable direction to a broker-dealer registered under the Exchange Act, to sell a sufficient portion of the Exercise Shares and deliver the sales proceeds directly to the Company to pay the Exercise Price; or (iv) by any combination of the procedures set forth in subsections (i), (ii) and (iii) of this Section 1(a). For the purposes hereof, "Commencement Date" shall mean the date that any registration statement filed by the Company with the SEC pursuant to Section 7 of that certain Securities Purchase Agreement dated on or about the date hereof by and between the Company and the Holder (the "Securities Purchase Agreement") is declared effective by the SEC, and "Fair Market Value" shall be an amount equal to the average of the Current Market Value (as defined below) for the ten (10) days preceding the Company's receipt of the duly executed Notice of Exercise. In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased. (b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The Company shall, within ten (10) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder one or more certificates representing the Exercise Shares to which the Holder shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become the record holder of the Exercise Shares as of the date of the proper exercise of this Warrant. (c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant certificate ("Warrant Certificate") will, upon issuance and payment therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Section 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof. 2 (d) Reservation of Exercise Shares. The Company covenants that during the term that this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Exercise Shares upon the exercise of this Warrant, and from time to time will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon the exercise of the Warrant. (e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subsection (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Current Market Value of the Exercise Share on the last business day prior to the date on which this Warrant is exercised. For purposes hereof, the "Current Market Value" for any day shall be determined as follows: (i) if the Exercise Shares are listed or traded on a national securities exchange or the NASDAQ Reporting System, the closing price on the principal national securities exchange on which they are so listed or traded, on the NASDAQ Reporting System, as the case may be, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (i) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting System; or (ii) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange and not on the NASDAQ National Market System or NASDAQ Small Cap Market (together, the "NASDAQ Reporting System"), the average of the mean between the last bid and asked prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (iii) if no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company. 2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Exercise Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes that may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Exercise Shares in a name other than that of the holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 3 3. Mutilated or Missing Warrant Certificates. In case any Warrant shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe. 4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant or otherwise, be entitled to any right whatsoever, either at law or in equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter. 5. Registration of Transfers and Exchanges. The Warrant shall be transferable, subject to the provisions of Section 7 hereof, upon the books of the Company, if any, to be maintained by it for that purpose, upon surrender of the Warrant Certificate to the Company at its principal office accompanied (if so required by the Company) by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by Holder or by the duly appointed legal representative thereof or by a duly authorized attorney and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any such registration of transfer, a new Warrant shall be issued to the transferee named in such instrument of transfer, and the surrendered Warrant shall be canceled by the Company. Any Warrant may be exchanged, at the option of the Holder thereof and without charge, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant surrendered for exchange or transfer, and the Warrant so surrendered shall be canceled by the Company or transfer agent, as the case may be. 6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (a) In case of any consolidation or merger of the Company with another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change - other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination - of outstanding Common Stock issuable upon such exercise), the rights of the Holder of this Warrant shall be adjusted in the manner described below: 4 (i) In the event that the Company is the surviving corporation, this Warrant shall, without payment of additional consideration therefor, be deemed modified so as to provide that the Holder of this Warrant, upon the exercise thereof, shall procure, in lieu of each share of Common Stock theretofore issuable upon such exercise, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by the holder of each share of Common Stock, had exercise of this Warrant occurred immediately prior to such reclassification, change, consolidation or merger. This Warrant (as adjusted) shall be deemed to provide for further adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this clause (i) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (ii) In the event that the Company is not the surviving corporation, Holder shall be given at least fifteen (15) days prior written notice of such transaction and shall be permitted to exercise this Warrant, to the extent it is exercisable as of the date of such notice, during this fifteen (15) day period. Upon expiration of such fifteen (15) day period, this Warrant and all of Holder's rights hereunder shall terminate. (b) If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6. (c) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, shall be proportionally adjusted so that the holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares that, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to this subsection (c), the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. 5 (d) In the event that at any time, as a result of an adjustment made pursuant to subsection (a), (b) or (c) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a), (b) or (c) above. (e) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (f) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by Holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to Holder. (g) All calculations under this Section 6 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant nor the Exercise Shares shall be transferable except in accordance with the provisions of this Section. (a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any Exercise Share may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless (i) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities, or (ii) exemptions from the registration requirements of the Securities Act and the registration or qualification requirements of all such state securities laws are available, and the Company shall have received an opinion of counsel satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. 6 (b) Restrictive Legends. Unless and until otherwise permitted by this Section 7, this Warrant Certificate, each Warrant Certificate issued to the Holder or to any transferee or assignee of this Warrant Certificate, and each certificate representing Exercise Shares issued upon exercise of this Warrant or to any transferee of the person to whom the Exercise Shares were issued, shall bear a legend setting forth the requirements of subsection (a) of this Section 7, together with such other legend or legends as may otherwise be deemed necessary or appropriate by counsel to the Company. (c) Removal of Legend. The Company shall, at the request of any registered holder of a Warrant or Exercise Share, exchange the certificate representing such security for a certificate representing the same security not bearing the restrictive legend required by subsection (b) if, in the opinion of counsel acceptable to the Company, such restrictive legend is no longer necessary. (d) The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of this Section 7. 8. Registration Rights. The Holder shall be entitled to the rights and subject to the obligations set forth in Section 7 of the Securities Purchase Agreement. 9. Restrictions on Exercise. The Holder may not acquire a number of Exercise Shares to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, (including shares held by any "group" of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) exceeds 19.99% of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities Exchange Commission (the "Commission"), and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. 10. Notices. All notices or other communications under this Warrant shall be in writing and shall be deemed to have been given on the day of delivery if delivered by hand, on the fifth day after deposit in the mail if mailed by certified mail, postage prepaid, return receipt requested, or on the next business day after mailing if sent by a nationally recognized overnight courier such as federal express, addressed as follows: If to the Company: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David W. Daniels Chief Executive Officer 7 with a copy to: [_______________________] [_______________________] [_______________________] [_______________________] [_______________________] and if to Holder, at the address of Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Section 10. 11. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. 12. Successors and Assigns. This Warrant shall inure to the benefit of and be binding upon the respective successors, assigns and legal representatives of Holder and the Company. 13. Severability. If for any reason any provision, paragraph or terms of this Warrant is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable. 14. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said jurisdiction without regard to such jurisdiction's conflicts of laws provisions. 15. Headings. Section and subsection headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant nor constitute a part of this Warrant for any other purpose. [Remainder of page intentionally left blank] 8 IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the [___] day of [______________], [_____]. NATIONAL HEALTH PARTNERS, INC. By: [_____________________________] Name: Title: 9 APPENDIX A NOTICE OF EXERCISE TO: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Executive Officer (1) The undersigned hereby elects to purchase [_______________] shares of Common Stock (as defined in the attached Class B Warrant) of NATIONAL HEALTH PARTNERS, INC. pursuant to the terms of the attached Class B Warrant, and tenders herewith payment of the Exercise Price (as defined in the attached Class B Warrant) for such shares in full in the following manner (please check one of the following choices): [ ] In Cash; [ ] Cashless exercise through a broker; or [ ] Delivery of previously owned shares of Common Stock. (2) In exercising the Class B Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. HOLDER __________________________] [________________________________] [(Date) (Signature) EX-10 12 ex10-15.txt EXHIBIT 10.15 EXHIBIT 10.15 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated April 12, 2005, is entered into by and between NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), and Ronald F. Westman, an individual with a principal residence located at 4425 Thomas Drive, Panama City Beach, Florida 32408 ("Purchaser"). R E C I T A L S: WHEREAS, Purchaser desires to exchange shares of common stock of Infinium Labs, Inc. for shares of the Company's common stock, and the Company desires to exchange shares of its common stock for shares of common stock of Infinium Labs, Inc., on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Purchase and Sale of Units. (a) Sale and Purchase of Units. Subject to the terms and conditions hereof, the Company agrees to sell, and Purchaser agrees to purchase, 600,000 units ("Units") at a purchase price of $1.20 per Unit for aggregate consideration (the "Purchase Price") of $720,000 (the "Transactions"). Each Unit shall be comprised of three (3) shares ("Shares") of the Company's common stock, $.001 par value per share ("Common Stock"), three (3) Class A Warrants, each exercisable into one (1) share of Common Stock ("Class A Warrants"), and three (3) Class B Warrants, each exercisable into one (1) share of Common Stock ("Class B Warrants"). The terms of the Class A Warrants are set forth in the Form of Class A Warrant, attached hereto and made a part hereof as Exhibit A (the "Class A Warrant Certificate"). The terms of the Class B Warrants are set forth in the Form of Class B Warrant, attached hereto and made a part hereof as Exhibit B (the "Class B Warrant Certificate"; together with the Class A Warrant Certificate, the "Warrant Certificates"). The Class A Warrants and Class B Warrants are hereinafter referred to collectively as the "Warrants." This Agreement and the Warrants Certificates are hereinafter referred to collectively as the "Purchase Documents." The Shares, Warrants and shares of Common Stock issuable upon exercise of the Warrants are hereinafter referred to collectively as the "Securities." (b) Purchase Price. The Purchase Price for the purchase of the Units shall consist of 2,740,000 shares ("Infinium Shares") of common stock, $.0001 par value per share ("Infinium Common Stock"), of Infinium Labs, Inc., a Delaware corporation ("Infinium"). The Infinium Shares shall be delivered to the Company in accordance with the following schedule: (i) 1,440,000 shares on or before April 12, 2005; and (ii) 1,300,000 shares on or before April 29, 2005. If the aggregate gross proceeds realized by the Company upon the sale of the Infinium Shares is less than $720,000, then, at the Purchaser's sole and absolute discretion, either: (x) Purchaser shall deliver to the Company that number of additional shares of Infinium Common Stock having a Fair Market Value equal to the amount by which $720,000 exceeds the aggregate gross proceeds realized by the Company upon the sale of the Infinium Shares; or (y) Purchaser shall pay the Company cash equal to the amount by which $720,000 exceeds the aggregate gross proceeds realized by the Company upon the sale of the Infinium Shares. If the aggregate gross proceeds realized by the Company upon the sale of the Infinium Shares is greater than $720,000, then the Company shall return to Purchaser cash equal to the amount by which the aggregate gross proceeds realized by the Company upon the sale of the Infinium Shares exceeds $720,000. For purposes of this subsection 1(b), the "Fair Market Value" for any day shall be determined as follows: (i) If the Infinium Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be the average of the highest bid and lowest asked prices of the Infinium Common Stock as reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported; (ii) If the Infinium Common Stock is admitted to trading on a United States securities exchange or the NASDAQ National Market System, the Fair Market Value on any date shall be the closing price reported for the Infinium Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported; (iii) If the Infinium Common Stock is traded in the over-the-counter market and not on NASDAQ, the NASDAQ National Market System or any national securities exchange, the Fair Market Value shall be the average of the mean between the last bid and ask prices per share as reported by the National Quotation Bureau, Inc. or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices of the Infinium Common Stock as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (iv) If the Fair Market Value of the Infinium Common Stock cannot be determined on the basis previously set forth in this definition on the date that the Fair Market Value is to be determined, the Board of Directors of the Company shall in good faith determine the Fair Market Value of the Infinium Common Stock on such date. (c) Closing. The closing of the Transactions (the "Closing") shall take place at such time, on such date and in such manner as the parties may agree. At the Closing: (i) Purchaser shall deliver or cause to be delivered to the Company certificates evidencing 1,440,000 Infinium Shares; (ii) Purchaser shall deliver to Infinium and the transfer agent of Infinium a legal opinion of Infinium's counsel to permit the public sale of the 1,440,000 Infinium Shares pursuant to Rule 144 under the Securities Act; (iii) the Company shall deliver or cause to be delivered to Purchaser certificates evidencing the number of Shares and Warrants underlying 300,000 of the Units purchased hereby, and (iv) each of the parties to this Agreement shall have executed any and all additional documents and agreements, provided any and all additional consents and approvals, and taken all such other actions as are required under this Agreement to complete the transactions contemplated hereby. Upon the receipt by the Company of the remaining 1,300,000 Infinium Shares purchased hereby, the Company shall issue certificates to Purchaser representing the number of Shares and Warrants underlying the remaining 300,000 Units purchased hereby. 2 2. Representations and Warranties of Purchaser. Purchaser represents and warrants to the Company as follows: (a) Organization and Qualification. (i) If Purchaser is an entity, Purchaser is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate or other entity power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on Purchaser, and Purchaser is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on it. (ii) If Purchaser is an entity, the address of its principal place of business is as set forth on the signature page hereto, and if Purchaser is an individual, the address of its principal residence is as set forth on the first page of this Agreement. (b) Authority; Validity and Effect of Agreement. (i) If Purchaser is an entity, Purchaser has the requisite corporate or other entity power and authority to execute and deliver this Agreement and perform its obligations under this Agreement. The execution and delivery of this Agreement by Purchaser, the performance by Purchaser of its obligations hereunder and all other necessary corporate or other entity action on the part of Purchaser have been duly authorized by its boards of directors or similar governing body, and shareholders or similar interest holders, if necessary, and no other corporate or other entity proceedings on the part of Purchaser is necessary for Purchaser to execute and deliver this Agreement and perform its obligations hereunder. (ii) This Agreement has been duly and validly authorized, executed and delivered by Purchaser and, assuming it has been duly and validly executed and delivered by the Company, constitutes a legal, valid and binding obligation of Purchaser, in accordance with its terms. (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by Purchaser nor the performance by Purchaser of its obligations hereunder will: (i) if Purchaser is an entity, conflict with Purchaser's articles of incorporation or bylaws, or other similar organizational documents; (ii) violate any statute, law, ordinance, rule or regulation, applicable to Purchaser or any of the properties or assets of Purchaser; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of Purchaser under, or result in the creation or imposition of any lien upon any properties, assets or business of Purchaser under, any material contract or any order, judgment or decree to which Purchaser is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement. 3 (d) Investment Intent. The Securities being acquired in connection with the Transactions are being acquired for Purchaser's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Securities. Purchaser acknowledges and agrees that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act") or under any state securities laws, and that the Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and applicable state securities laws, except pursuant to an available exemption from such registration. Purchaser also acknowledges and agrees that neither the SEC nor any securities commission or other governmental authority has (a) approved the transfer of the Securities or passed upon or endorsed the merits of the transfer of the Securities or the Purchase Documents; or (b) confirmed the accuracy of, determined the adequacy of, or reviewed the Purchase Documents. Purchaser has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and Purchaser has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. Purchaser is an "accredited investor" within the meaning of Rule 501 promulgated under the Securities Act. (e) Investment Risks. Purchaser understands that purchasing the Units will subject Purchaser to certain risks, including, but not limited to, each of the following: (i) The Company is a development-stage company with a limited operating history and an unproven business model, which makes it difficult for Purchaser to evaluate the Company's current business and future prospects. As a result, the revenue and income potential of the Company's business and market are unproven. (ii) The Company has experienced net losses in each fiscal quarter since its inception and expects to continue to incur significant net losses for the foreseeable future. While the Company is unable to predict accurately its future operating expenses, it currently expects these expenses to increase substantially as it implements its business plan. (iii) The Company is in need of substantial additional capital to fund its current and future operations. In order to satisfy such obligations, attract and retain employees, consultants and other service providers, and satisfy other obligations, the Company may be required to issue additional shares of Common Stock, securities convertible into Common Stock, or debt. Such securities may be issued for a purchase price consisting of cash, services or other consideration that may be materially different than the purchase price of the Units. The forgoing may result in substantial dilution to the relative ownership interests of the Company's existing shareholders and substantial reduction in net book value per share. Additional equity securities may have rights, preferences and privileges senior to those of the holders of Common Stock and any debt financing may involve restrictive covenants that may limit the Company's operating flexibility. 4 (iv) The purchase price of the Units offered hereby has been determined solely by the Company in its sole discretion and does not necessarily bear any relationship to the value of the Company's assets, current or potential earnings of the Company, or any other recognized criteria used for measuring value, and therefore, there can be no assurance that the offering price of the Units is representative of the actual value of the underlying Securities. (v) An investment in the Securities may involve certain material legal, accounting and federal and state tax consequences. Purchaser should consult with its legal counsel, accountant and/or business adviser as to the legal, accounting, tax and related matters accompanying such an investment. (f) Placement and Finder's Fees. No agent, broker, investment banker, finder, financial advisor or other person acting on behalf of Purchaser or under its authority is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the Transactions, and no person is entitled to any fee or commission or like payment in respect thereof based in any way on agreements, arrangements or understanding made by or on behalf of Purchaser. (g) Rule 144 Representations, Covenants and Agreements. During the three months prior to the date of this Agreement, no shares of Infinium Common Stock have been sold by Purchaser or by any person whose sales must be aggregated with Purchaser's as provided in paragraphs (a) and (e) of Rule 144 under the Securities Act. Neither Purchaser nor any person whose shares must be aggregated with Purchaser's as provided in paragraphs (a) and (e) of Rule 144 under the Securities Act will sell any additional shares of Infinium Common Stock until after the Company has sold all of the Infinium Shares. Purchaser is not an officer, a director, the owner of greater than 10% of any class of securities or an affiliate, as such term is defined under the Securities Act and the rules thereunder, of Infinium. Purchaser knows of no important developments affecting Infinium or its business or products that has not been made public. Purchaser has been the beneficial owner of the Infinium Shares for a period of at least one year prior to the date of this Agreement and paid the full purchase price for such shares at least one year prior to the date of this Agreement. Purchaser has made this agreement available to counsel to Infinium in connection with such counsel's delivery of the legal opinion identified in Section 1(c)(ii) above. 3. Representations and Warranties of the Company. The Company represents and warrants to Purchaser as follows: (a) Organization and Qualification. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on the Company. The Company is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on the Company. 5 (b) Authority; Validity and Effect of Agreement. (i) The Company has the requisite corporate power and authority to execute and deliver this Agreement, perform its obligations under this Agreement, and engage in the Transactions. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder, the Transactions and all other necessary corporate action on the part of the Company have been duly authorized by its board of directors, and no other corporate proceedings on the part of the Company is necessary to authorize this Agreement or the Transactions. This Agreement has been duly and validly executed and delivered by the Company and, assuming that it has been duly authorized, executed and delivered by Purchaser, constitutes a legal, valid and binding obligation of the Company, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (ii) The Shares have been duly authorized and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. The shares of Common Stock issuable upon exercise of the Warrants have been duly reserved for issuance upon exercise of the Warrants and, when issued and paid for in accordance with the Warrants, will be duly authorized, validly issued, fully paid and non-assessable shares of Common Stock, with no personal liability resulting solely from the ownership of such shares, and will be free and clear of all liens, charges, restrictions, claims and in encumbrances imposed by or through the Company. (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by the Company nor the performance by the Company of its obligations hereunder will: (i) conflict with the Company's Articles of Incorporation or Bylaws; (ii) violate any statute, law, ordinance, rule or regulation, applicable to the Company or any of the properties or assets of the Company; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of the Company, or result in the creation or imposition of any lien upon any properties, assets or business of the Company under, any material contract or any order, judgment or decree to which the Company is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement; and (d) Placement and Finder's Fees. Neither the Company nor any of its respective officers, directors, employees or managers, has employed any broker, finder, advisor or consultant, or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees, advisory fees or consulting fees in connection with the Transactions for which the Company has or could have any liability. 6 4. Indemnification. Purchaser agrees to indemnify, defend and hold harmless the Company and its respective affiliates and agents from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements incurred by the Company that arise out of or result from a breach of any representations or warranties made by Purchaser herein, and Purchaser agrees that in the event of any breach of any representations or warranties made by Purchaser herein, the Company may, at its option, forthwith rescind the sale of the Units to Purchaser. 5. Confidentiality. Purchaser acknowledges and agreements that: (a) The Purchase Documents have been furnished to Purchaser by the Company for the sole purpose of enabling Purchaser to consider and evaluate an investment in the Company, and will be kept confidential by Purchaser and not used for any other purpose. (b) The information contained herein shall not, without the prior written consent of the Company, be disclosed by Purchaser to any person or entity, other than Purchaser's personal financial and legal advisors for the sole purpose of evaluating an investment in the Company, and will not, directly or indirectly, disclose or permit Purchaser's personal financial and legal advisors to disclose any of such information without the prior written consent of the Company. (c) Purchaser shall make its representatives aware of the terms of this section and to be responsible for any breach of this Agreement by such representatives. (d) Purchaser shall not, without the prior written consent of the Company, directly or indirectly, make any statements, public announcements or release to trade publications or the press with respect to the subject matter of the Purchase Documents. (e) If Purchaser decides to not pursue further investigation of the Company or to not participate in the Transactions, Purchaser will promptly return the Purchase Documents and any accompanying documentation to the Company. 6. Registration Rights. The Company covenants and agrees as follows: 6.1 For the purpose of this Section 6, the following definitions shall apply: (a) "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. (b) "Register," "registered," and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or order of effectiveness of such registration statement or document. (c) "Registration Statement" shall mean any registration statement of the Company filed with the SEC pursuant to the provisions of Section 6.2 of this Agreement, but excluding registration statements on SEC Forms S-4, S-8 or any similar or successor forms, that covers the resale of the Restricted Stock on an appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including any pre- and post- effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. 7 (d) "Restricted Stock" shall mean (i) 50% of the Shares purchased hereunder; (ii) 50% of the shares of Common Stock issuable upon exercise of the Warrants; and (iii) any additional shares of Common Stock of the Company issued or issuable after the date hereof in respect of any of the foregoing securities, by way of a stock dividend or stock split; provided that, as to any particular shares of Restricted Stock, such securities shall cease to constitute Restricted Stock when (x) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder, (y) such securities are permitted to be transferred pursuant to Rule 144 (or any successor provision to such rule) under the Securities Act, or (z) such securities are otherwise freely transferable to the public without further registration under the Securities Act. (e) "Selling Stockholders" shall mean Purchaser and Purchaser's successors and assigns. 6.2. Registration of the Shares. (a) The Company shall use its reasonable best efforts to prepare and file with the SEC, within six (6) months of the Closing Date, a Registration Statement under the Act to permit the public sale of the Restricted Stock purchased hereby, and to cause such Registration Statement to be declared effective as soon as reasonably practicable thereafter. Purchaser shall furnish such information as may be reasonably requested by the Company in order to include such Restricted Stock in such Registration Statement. If Purchaser decides not to include all of its Restricted Stock in any registration statement thereafter filed by the Company, such Purchaser shall nevertheless continue to have the right to include any Restricted Stock in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. In the event that any registration pursuant to this Section 6.2(a) is terminated or withdrawn, the Company shall use its reasonable best efforts to prepare and file with the SEC, within 180 days thereafter, a Registration Statement under the Act to permit the public sale of the Restricted Stock purchased hereby. (b) In the event that any registration pursuant to Section 6.2(a) shall be, in whole or in part, an underwritten public offering of Common Stock on behalf of the Company, all Purchasers proposing to distribute their Restricted Stock through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If the managing underwriter thereof advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the Restricted Stock and any other registrable securities eligible and requested to be included in such registration to the extent that the number of shares to be registered under this clause (ii) will not, in the opinion of the managing underwriter, adversely affect the offering of the securities pursuant to clause (i). In such a case, shares shall be registered pro rata among the holders of such Restricted Stock and registrable securities on the basis of the number of shares eligible for registration that are owned by all such holders and requested to be included in such registration. 8 (c) Notwithstanding anything to the contrary contained herein, the Company's obligation in Sections 6.2(a) and (b) above shall extend only to the inclusion of the Restricted Stock in a Registration Statement. The Company shall have no obligation to assure the terms and conditions of distribution, to obtain a commitment from an underwriter relative to the sale of the Restricted Stock or to otherwise assume any responsibility for the manner, price or terms of the distribution of the Restricted Stock. (d) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 6.2 prior to the effectiveness of such registration without thereby incurring liability to the holders of the Restricted Stock, regardless of whether any holder has elected to include securities in such registration. The Registration Expenses (as defined in Section 6.5) of such withdrawn registration shall be borne by the Company in accordance with Section 6.4 hereof. 6.3. Registration Procedures. Whenever it is obligated to register any Restricted Stock pursuant to this Agreement, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to the Restricted Stock in the manner set forth in Section 6.2 hereof and use its reasonable best efforts to cause such Registration Statement to become effective as promptly as possible and to remain effective until the earlier of (i) the sale of all shares of Restricted Stock covered thereby, (ii) the availability under Rule 144 for the Selling Stockholder to immediately, freely resell without restriction all Restricted Stock covered thereby, or (iii) one (1) year from the effective date of the first Registration Statement filed by the Company with the SEC pursuant to this Agreement or, with respect to any subsequent Registration Statement, 180 days from the effective date of such Registration Statement; (b) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 6.3(a) above and to comply with the provisions of the Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the intended method of disposition set forth in such Registration Statement for such period; (c) furnish to the Selling Stockholders such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such person may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use its reasonable best efforts to register or qualify the Restricted Stock covered by such Registration Statement under the state securities laws of such jurisdictions as any Selling Stockholder shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; 9 (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Purchaser participating in such underwriting shall also enter into and perform its obligations under such an agreement, as described in Section 6.2(b); (f) immediately notify each Selling Stockholder at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (g) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; (h) use its reasonable best efforts to list the Restricted Stock covered by such Registration Statement on each exchange or automated quotation system on which similar securities issued by the Company are then listed (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable); (i) notify each Selling Stockholder of any threat by the SEC or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and (j) cooperate in the timely removal of any restrictive legends from the shares of Restricted Stock in connection with the resale of such shares covered by an effective Registration Statement. 6.4. Delay of Registration. No Selling Stockholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 6. 6.5 Expenses. (a) For the purposes of this Section 6.5, the term "Registration Expenses" shall mean: all expenses incurred by the Company in complying with Section 6.2 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, reasonable fees and disbursements of a single special counsel for the Selling Stockholders, fees under state securities laws, fees of the National Association of Securities Dealers, Inc., fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents and registrars. The term "Selling Expenses" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock and all accountable or non-accountable expenses paid to any underwriter in respect of such sale. 10 (b) Except as otherwise provided herein, the Company will pay all Registration Expenses in connection with the Registration Statements filed pursuant to Section 6.2 of this Agreement. All Selling Expenses in connection with any Registration Statements filed pursuant to Section 6.2 of this Agreement shall be borne by the Selling Stockholders pro rata on the basis of the number of shares registered by each Selling Stockholder whose shares of Restricted Stock are covered by such Registration Statement, or by such persons other than the Company (except to the extent the Company may be a seller) as they may agree. 6.6. Obligations of the Selling Stockholders. (a) In connection with each registration hereunder, each Selling Stockholder shall furnish to the Company in writing such information with respect to it and the securities held by it and the proposed distribution by it, as shall be reasonably requested by the Company in order to assure compliance with applicable federal and state securities laws as a condition precedent to including the Selling Stockholder's Restricted Stock in the Registration Statement. Each Selling Stockholder shall also promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. (b) In connection with the filing of the Registration Statement, each Selling Stockholder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with such Registration Statement or prospectus. (c) In connection with each registration pursuant to this Agreement, each Selling Stockholder agrees that it will not effect sales of any Restricted Stock until notified by the Company of the effectiveness of the Registration Statement, and thereafter will suspend such sales after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, each Selling Stockholder shall discontinue sales of Restricted Stock pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the Restricted Stock covered by such Registration Statement which remains unsold, and each Selling Stockholder shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 6.7. Information Blackout and Holdbacks. (a) At any time when a Registration Statement effected pursuant to Section 6.2 is effective, upon written notice from the Company to Purchaser that the Company has determined in good faith that the sale of Restricted Stock pursuant to the Registration Statement would require disclosure of non-public material information, Purchaser shall suspend sales of Restricted Stock pursuant to such Registration Statement until such time as the Company notifies Purchaser that such material information has been disclosed to the public or has ceased to be material, or that sales pursuant to such Registration Statement may otherwise be resumed. 11 (b) Notwithstanding any other provision of this Agreement, Purchaser shall not effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act), if and when available, of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the thirty (30) days prior to the commencement of any primary offering to be undertaken by the Company of shares of its unissued Common Stock ("Primary Offering"), which may also include other securities, and ending one hundred twenty (120) days after completion of any such Primary Offering, unless the Company, in the case of a non-underwritten Primary Offering, or the managing underwriter, in the case of an underwritten Primary Offering, otherwise agree. 6.8. Indemnification. (a) The Company agrees to indemnify, to the extent permitted by law, each Selling Stockholder, such Selling Stockholder's respective partners, officers, directors, underwriters and each Person who controls any Selling Stockholder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by (i) any untrue statement of or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto, (ii) any omission of or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement ("Violations"); provided, however, that the indemnity agreement contained in this Section 6.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished by such Selling Stockholder, partner, officer, director, underwriter or controlling person of such Selling Stockholder. (b) To the extent permitted by law, each Selling Stockholder shall indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Selling Stockholder selling securities under such registration statement or any of such other Selling Stockholder's partners, directors or officers or any person who controls such Selling Stockholder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Selling Stockholder, or partner, director, officer or controlling person of such other Selling Stockholder, may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation (i) occurs in reliance upon and in conformity with written information furnished by such Selling Stockholder under an instrument duly executed by such Selling Stockholder for use in connection with such registration; (ii) occurs as a result of any failure to deliver a copy of the prospectus relating to such Registration Statement, or (iii) occurs as a result of any disposition of the Restricted Stock in a manner that fails to comply with the permitted methods of distribution identified within the Registration Statement. 12 (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) If the indemnification provided for in this Section 6.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the violation(s) described in Section 6.8(a) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Selling Stockholder hereunder exceed the net proceeds from the offering received by such Selling Stockholder. (e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company's indemnification is unavailable for any reason. 7. Entire Agreement. This Agreement contains the entire agreement between the parties and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereto, and no party shall be liable or bound to any other party in any manner by any warranties, representations, guarantees or covenants except as specifically set forth in this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement contained herein. 13 8. Amendment and Modification. This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto. Except as provided in Section 4, nothing in this Agreement is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement. 10. Survival of Representations, Warranties and Covenants. The representations and warranties contained herein shall survive the Closing and shall thereupon terminate eighteen (18) months from the Closing, except that the representations contained in Sections 3(a), 3(b), 3(d), 4(a), and 4(b) shall survive indefinitely. All covenants and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. 11. Headings; Definitions. The Section headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections contained herein mean Sections of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 12. Severability. If any provision of this Agreement or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties hereto. 13. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David M. Daniels Chief Executive Officer 14 with a copy to: --------------- Duane Morris LLP The American Metro Center 240 Princeton Avenue, Suite 150 Hamilton, NJ 08619 Attention: Alex Soufflas, Esquire If to Purchaser: ---------------- ____________________________ ____________________________ ____________________________ Attention: ____________________ 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 15. Arbitration. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in the Commonwealth of Pennsylvania. The decision of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties hereto shall share equally the costs of the arbitration. 16. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] 15 IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have executed this Agreement as of the date first above written. PURCHASER /s/ Ronald F. Westman ------------------------------ Ronald F. Westman NATIONAL HEALTH PARTNERS, INC. By: /s/ David M. Daniels -------------------------- David M. Daniels Chief Executive Officer 16 EXHIBIT A --------- CLASS A WARRANT NO.: [__________] FORM OF CLASS A WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS. CLASS A WARRANT TO PURCHASE COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. Void after 5:00 p.m. Eastern Standard Time on December 31, 2007 This Class A Warrant ("Warrant") confirms that, FOR VALUE RECEIVED, [_____________________________] ("Holder") is entitled to purchase, subject to the terms and conditions hereof, from NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), [_____________] shares of common stock, $.001 par value per share, of the Company (the "Common Stock"), at any time during the period commencing on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern Standard Time on the date that is 18 months after the Commencement Date (the "Termination Date"), at an exercise price of $.60 per share of Common Stock (the "Exercise Price"). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Exercise Price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below. The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof, then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as "Exercise Shares". The exercise price per share as from time to time in effect is referred to hereinafter as the "Exercise Price". 1. Exercise of Warrant; Issuance of Exercise Shares. (a) Exercise of Warrant. Subject to the terms hereof, the purchase rights represented by this Warrant are exercisable by Holder in whole or in part, at any time, or from time to time, after the Commencement Date by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to Holder at the address of Holder appearing on the books of the Company) accompanied by payment of the Exercise Price in full either (i) in cash or by bank or certified check for the Exercise Shares with respect to which this Warrant is exercised; (ii) by delivery to the Company of shares of the Company's Common Stock having a Fair Market Value (as defined below) equal to the aggregate Exercise Price of the Exercise Shares being purchased that Holder is the record and beneficial owner of and, if Holder was subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time such shares were purchased, that have been held by the Holder for at least six (6) months; (iii) provided that the sale of the Exercise Shares are covered by an effective registration statement, by delivering to the Company a duly executed Notice of Exercise in the form attached hereto as Appendix A ("Notice of Exercise") together with an irrevocable direction to a broker-dealer registered under the Exchange Act, to sell a sufficient portion of the Exercise Shares and deliver the sales proceeds directly to the Company to pay the Exercise Price; or (iv) by any combination of the procedures set forth in subsections (i), (ii) and (iii) of this Section 1(a); provided, however, that in no event may Holder exercise For the purposes hereof, "Commencement Date" shall mean the date that any registration statement filed by the Company with the SEC pursuant to Section 7 of that certain Securities Purchase Agreement dated on or about the date hereof by and between the Company and the Holder (the "Securities Purchase Agreement") is declared effective by the SEC, and "Fair Market Value" shall be an amount equal to the average of the Current Market Value (as defined below) for the ten (10) days preceding the Company's receipt of the duly executed Notice of Exercise. In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased. (b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The Company shall, within ten (10) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder one or more certificates representing the Exercise Shares to which the Holder shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become the record holder of the Exercise Shares as of the date of the proper exercise of this Warrant. (c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant certificate ("Warrant Certificate") will, upon issuance and payment therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Section 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof. 2 (d) Reservation of Exercise Shares. The Company covenants that during the term that this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Exercise Shares upon the exercise of this Warrant, and from time to time will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon the exercise of the Warrant. (e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subsection (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Current Market Value of the Exercise Share on the last business day prior to the date on which this Warrant is exercised. For purposes hereof, the "Current Market Value" for any day shall be determined as follows: (i) if the Exercise Shares are listed or traded on a national securities exchange or the NASDAQ Reporting System, the closing price on the principal national securities exchange on which they are so listed or traded, on the NASDAQ Reporting System, as the case may be, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (i) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting System; or (ii) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange and not on the NASDAQ National Market System or NASDAQ Small Cap Market (together, the "NASDAQ Reporting System"), the average of the mean between the last bid and asked prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (iii) if no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company. 2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Exercise Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes that may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Exercise Shares in a name other than that of the holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 3 3. Mutilated or Missing Warrant Certificates. In case any Warrant shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe. 4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant or otherwise, be entitled to any right whatsoever, either at law or in equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter. 5. Registration of Transfers and Exchanges. The Warrant shall be transferable, subject to the provisions of Section 7 hereof, upon the books of the Company, if any, to be maintained by it for that purpose, upon surrender of the Warrant Certificate to the Company at its principal office accompanied (if so required by the Company) by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by Holder or by the duly appointed legal representative thereof or by a duly authorized attorney and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any such registration of transfer, a new Warrant shall be issued to the transferee named in such instrument of transfer, and the surrendered Warrant shall be canceled by the Company. Any Warrant may be exchanged, at the option of the Holder thereof and without charge, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant surrendered for exchange or transfer, and the Warrant so surrendered shall be canceled by the Company or transfer agent, as the case may be. 6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (a) In case of any consolidation or merger of the Company with another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change - other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination - of outstanding Common Stock issuable upon such exercise), the rights of the Holder of this Warrant shall be adjusted in the manner described below: 4 (i) In the event that the Company is the surviving corporation, this Warrant shall, without payment of additional consideration therefor, be deemed modified so as to provide that the Holder of this Warrant, upon the exercise thereof, shall procure, in lieu of each share of Common Stock theretofore issuable upon such exercise, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by the holder of each share of Common Stock, had exercise of this Warrant occurred immediately prior to such reclassification, change, consolidation or merger. This Warrant (as adjusted) shall be deemed to provide for further adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this clause (i) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (ii) In the event that the Company is not the surviving corporation, Holder shall be given at least fifteen (15) days prior written notice of such transaction and shall be permitted to exercise this Warrant, to the extent it is exercisable as of the date of such notice, during this fifteen (15) day period. Upon expiration of such fifteen (15) day period, this Warrant and all of Holder's rights hereunder shall terminate. (b) If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6. (c) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, shall be proportionally adjusted so that the holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares that, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to this subsection (c), the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. 5 (d) In the event that at any time, as a result of an adjustment made pursuant to subsection (a), (b) or (c) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a), (b) or (c) above. (e) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (f) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by Holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to Holder. (g) All calculations under this Section 6 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 7. Restrictions on Transferability: Restrictive Legend. Neither this Warrant nor the Exercise Shares shall be transferable except in accordance with the provisions of this Section. (a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any Exercise Share may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless (i) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities, or (ii) exemptions from the registration requirements of the Securities Act and the registration or qualification requirements of all such state securities laws are available, and the Company shall have received an opinion of counsel satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (b) Restrictive Legends. Unless and until otherwise permitted by this Section 7, this Warrant Certificate, each Warrant Certificate issued to the Holder or to any transferee or assignee of this Warrant Certificate, and each certificate representing Exercise Shares issued upon exercise of this Warrant or to any transferee of the person to whom the Exercise Shares were issued, shall bear a legend setting forth the requirements of subsection (a) of this Section 7, together with such other legend or legends as may otherwise be deemed necessary or appropriate by counsel to the Company. 6 (c) Removal of Legend. The Company shall, at the request of any registered holder of a Warrant or Exercise Share, exchange the certificate representing such security for a certificate representing the same security not bearing the restrictive legend required by subsection (b) if, in the opinion of counsel acceptable to the Company, such restrictive legend is no longer necessary. (d) The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of this Section 7. 8. Registration Rights. The Holder shall be entitled to the rights and subject to the obligations set forth in Section 6 of the Securities Purchase Agreement. 9. Restrictions on Exercise. The Holder may not acquire a number of Exercise Shares to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, (including shares held by any "group" of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) exceeds 19.99% of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities Exchange Commission (the "Commission"), and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. 10. Notices. All notices or other communications under this Warrant shall be in writing and shall be deemed to have been given on the day of delivery if delivered by hand, on the fifth day after deposit in the mail if mailed by certified mail, postage prepaid, return receipt requested, or on the next business day after mailing if sent by a nationally recognized overnight courier such as federal express, addressed as follows: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David W. Daniels Chief Executive Officer 7 with a copy to: --------------- Duane Morris LLP The American Metro Center 240 Princeton Avenue, Suite 150 Hamilton, NJ 08619 Attention: Alex Soufflas, Esquire and if to Holder, at the address of Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Section 10. 11. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. 12. Successors and Assigns. This Warrant shall inure to the benefit of and be binding upon the respective successors, assigns and legal representatives of Holder and the Company. 13. Severability. If for any reason any provision, paragraph or terms of this Warrant is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable. 14. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said jurisdiction without regard to such jurisdiction's conflicts of laws provisions. 15. Headings. Section and subsection headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant nor constitute a part of this Warrant for any other purpose. 8 IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the [___] day of [______________], [_______]. NATIONAL HEALTH PARTNERS, INC. By: [_________________________________] Name: Title: 9 APPENDIX A NOTICE OF EXERCISE TO: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Executive Officer (1) The undersigned hereby elects to purchase [_______________] shares of Common Stock (as defined in the attached Class A Warrant) of NATIONAL HEALTH PARTNERS, INC. pursuant to the terms of the attached Class A Warrant, and tenders herewith payment of the Exercise Price (as defined in the attached Warrant) for such shares in full in the following manner (please check one of the following choices): / / In Cash; / / Cashless exercise through a broker; or / / Delivery of previously owned shares of Common Stock. (2) In exercising the Class A Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. HOLDER [__________________________] [____________________________] (Date) (Signature) EXHIBIT B --------- CLASS B WARRANT NO.: [__________] FORM OF CLASS B WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS. CLASS B WARRANT TO PURCHASE COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. Void after 5:00 p.m. Eastern Standard Time on December 31, 2008 This Class B Warrant ("Warrant") confirms that, FOR VALUE RECEIVED, [_____________________________] ("Holder") is entitled to purchase, subject to the terms and conditions hereof, from NATIONAL HEALTH PARTNERS, INC., an Indiana corporation (the "Company"), [_____________] shares of common stock, $.001 par value per share, of the Company (the "Common Stock"), at any time during the period commencing on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern Standard Time on the third (3rd) anniversary of the Commencement Date (the "Termination Date"), at an exercise price of $.80 per share of Common Stock (the "Exercise Price"). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Exercise Price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below. The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof, then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as "Exercise Shares". The exercise price per share as from time to time in effect is referred to hereinafter as the "Exercise Price". 1. Exercise of Warrant; Issuance of Exercise Shares. (a) Exercise of Warrant. Subject to the terms hereof, the purchase rights represented by this Warrant are exercisable by Holder in whole or in part, at any time, or from time to time, after the Commencement Date by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to Holder at the address of Holder appearing on the books of the Company) accompanied by payment of the Exercise Price in full either (i) in cash or by bank or certified check for the Exercise Shares with respect to which this Warrant is exercised; (ii) by delivery to the Company of shares of the Company's Common Stock having a Fair Market Value (as defined below) equal to the aggregate Exercise Price of the Exercise Shares being purchased that Holder is the record and beneficial owner of and, if Holder was subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time such shares were purchased, that have been held by the Holder for at least six (6) months; (iii) provided that the sale of the Exercise Shares are covered by an effective registration statement, by delivering to the Company a duly executed Notice of Exercise in the form attached hereto as Appendix A ("Notice of Exercise") together with an irrevocable direction to a broker-dealer registered under the Exchange Act, to sell a sufficient portion of the Exercise Shares and deliver the sales proceeds directly to the Company to pay the Exercise Price; or (iv) by any combination of the procedures set forth in subsections (i), (ii) and (iii) of this Section 1(a). For the purposes hereof, "Commencement Date" shall mean the date that any registration statement filed by the Company with the SEC pursuant to Section 7 of that certain Securities Purchase Agreement dated on or about the date hereof by and between the Company and the Holder (the "Securities Purchase Agreement") is declared effective by the SEC, and "Fair Market Value" shall be an amount equal to the average of the Current Market Value (as defined below) for the ten (10) days preceding the Company's receipt of the duly executed Notice of Exercise. In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased. (b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The Company shall, within ten (10) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder one or more certificates representing the Exercise Shares to which the Holder shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become the record holder of the Exercise Shares as of the date of the proper exercise of this Warrant. (c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant certificate ("Warrant Certificate") will, upon issuance and payment therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Section 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof. (d) Reservation of Exercise Shares. The Company covenants that during the term that this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Exercise Shares upon the exercise of this Warrant, and from time to time will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon the exercise of the Warrant. 2 (e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subsection (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Current Market Value of the Exercise Share on the last business day prior to the date on which this Warrant is exercised. For purposes hereof, the "Current Market Value" for any day shall be determined as follows: (i) if the Exercise Shares are listed or traded on a national securities exchange or the NASDAQ Reporting System, the closing price on the principal national securities exchange on which they are so listed or traded, on the NASDAQ Reporting System, as the case may be, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (i) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting System; or (ii) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange and not on the NASDAQ National Market System or NASDAQ Small Cap Market (together, the "NASDAQ Reporting System"), the average of the mean between the last bid and asked prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (iii) if no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company. 2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Exercise Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes that may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Exercise Shares in a name other than that of the holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 3 3. Mutilated or Missing Warrant Certificates. In case any Warrant shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe. 4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant or otherwise, be entitled to any right whatsoever, either at law or in equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter. 5. Registration of Transfers and Exchanges. The Warrant shall be transferable, subject to the provisions of Section 7 hereof, upon the books of the Company, if any, to be maintained by it for that purpose, upon surrender of the Warrant Certificate to the Company at its principal office accompanied (if so required by the Company) by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by Holder or by the duly appointed legal representative thereof or by a duly authorized attorney and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any such registration of transfer, a new Warrant shall be issued to the transferee named in such instrument of transfer, and the surrendered Warrant shall be canceled by the Company. Any Warrant may be exchanged, at the option of the Holder thereof and without charge, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant surrendered for exchange or transfer, and the Warrant so surrendered shall be canceled by the Company or transfer agent, as the case may be. 6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (a) In case of any consolidation or merger of the Company with another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change - other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination - of outstanding Common Stock issuable upon such exercise), the rights of the Holder of this Warrant shall be adjusted in the manner described below: 4 (i) In the event that the Company is the surviving corporation, this Warrant shall, without payment of additional consideration therefor, be deemed modified so as to provide that the Holder of this Warrant, upon the exercise thereof, shall procure, in lieu of each share of Common Stock theretofore issuable upon such exercise, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by the holder of each share of Common Stock, had exercise of this Warrant occurred immediately prior to such reclassification, change, consolidation or merger. This Warrant (as adjusted) shall be deemed to provide for further adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this clause (i) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (ii) In the event that the Company is not the surviving corporation, Holder shall be given at least fifteen (15) days prior written notice of such transaction and shall be permitted to exercise this Warrant, to the extent it is exercisable as of the date of such notice, during this fifteen (15) day period. Upon expiration of such fifteen (15) day period, this Warrant and all of Holder's rights hereunder shall terminate. (b) If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6. (c) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, shall be proportionally adjusted so that the holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares that, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to this subsection (c), the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. 5 (d) In the event that at any time, as a result of an adjustment made pursuant to subsection (a), (b) or (c) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a), (b) or (c) above. (e) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (f) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by Holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to Holder. (g) All calculations under this Section 6 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant nor the Exercise Shares shall be transferable except in accordance with the provisions of this Section. (a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any Exercise Share may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless (i) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities, or (ii) exemptions from the registration requirements of the Securities Act and the registration or qualification requirements of all such state securities laws are available, and the Company shall have received an opinion of counsel satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (b) Restrictive Legends. Unless and until otherwise permitted by this Section 7, this Warrant Certificate, each Warrant Certificate issued to the Holder or to any transferee or assignee of this Warrant Certificate, and each certificate representing Exercise Shares issued upon exercise of this Warrant or to any transferee of the person to whom the Exercise Shares were issued, shall bear a legend setting forth the requirements of subsection (a) of this Section 7, together with such other legend or legends as may otherwise be deemed necessary or appropriate by counsel to the Company. 6 (c) Removal of Legend. The Company shall, at the request of any registered holder of a Warrant or Exercise Share, exchange the certificate representing such security for a certificate representing the same security not bearing the restrictive legend required by subsection (b) if, in the opinion of counsel acceptable to the Company, such restrictive legend is no longer necessary. (d) The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of this Section 7. 8. Registration Rights. The Holder shall be entitled to the rights and subject to the obligations set forth in Section 6 of the Securities Purchase Agreement. 9. Restrictions on Exercise. The Holder may not acquire a number of Exercise Shares to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, (including shares held by any "group" of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) exceeds 19.99% of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities Exchange Commission (the "Commission"), and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. 10. Notices. All notices or other communications under this Warrant shall be in writing and shall be deemed to have been given on the day of delivery if delivered by hand, on the fifth day after deposit in the mail if mailed by certified mail, postage prepaid, return receipt requested, or on the next business day after mailing if sent by a nationally recognized overnight courier such as federal express, addressed as follows: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: David W. Daniels Chief Executive Officer 7 with a copy to: --------------- Duane Morris LLP The American Metro Center 240 Princeton Avenue, Suite 150 Hamilton, NJ 08619 Attention: Alex Soufflas, Esquire and if to Holder, at the address of Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Section 10. 11. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. 12. Successors and Assigns. This Warrant shall inure to the benefit of and be binding upon the respective successors, assigns and legal representatives of Holder and the Company. 13. Severability. If for any reason any provision, paragraph or terms of this Warrant is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable. 14. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of said jurisdiction without regard to such jurisdiction's conflicts of laws provisions. 15. Headings. Section and subsection headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant nor constitute a part of this Warrant for any other purpose. 8 IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the [___] day of [______________], [________]. NATIONAL HEALTH PARTNERS, INC. By: [______________________________] Name: Title: 9 APPENDIX A NOTICE OF EXERCISE TO: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Executive Officer (1) The undersigned hereby elects to purchase [_______________] shares of Common Stock (as defined in the attached Class B Warrant) of NATIONAL HEALTH PARTNERS, INC. pursuant to the terms of the attached Class B Warrant, and tenders herewith payment of the Exercise Price (as defined in the attached Class B Warrant) for such shares in full in the following manner (please check one of the following choices): / / In Cash; / / Cashless exercise through a broker; or / / Delivery of previously owned shares of Common Stock. (2) In exercising the Class B Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. HOLDER __________________________] [_________________________________] [(Date) (Signature) EX-10 13 ex10-16.txt EXHIBIT 10.16 EXHIBIT 10.16 OPTION TO ACQUIRE SHARES OF COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. WHEREAS, Ronald F. Westman ("Holder") accepted his or her appointment as a member of the board of directors of National Health Partners, Inc., an Indiana corporation (the "Company"), in partial consideration for which the Company agreed to grant the Holder an option to acquire shares of the Company's common stock, $.001 par value per share ("Common Stock"); and WHEREAS, the Company wishes to grant this option to the Holder in satisfaction of its obligation to provide the Holder with such an option. NOW, THEREFORE, in consideration of the foregoing, the agreement set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Holder on the date hereof (the "Grant Date") an option (this "Option") to purchase 350,000 shares ("Shares") of Common Stock, on the terms and subject to the conditions set forth herein. 2. Term of Option. This option shall have a maximum term of five (5) years measured from the Grant Date (the "Expiration Date") and shall accordingly expire at 5:00 p.m. eastern standard time on the Expiration Date. 3. Right to Exercise. This Option may be exercised in whole or in part in accordance with the following schedule: (i) 100,000 shares on or after the date hereof; and (ii) 250,000 shares on or after the first anniversary of the date hereof if: (x) the Holder is a member of the Board of Directors of the Company on the first anniversary of the date hereof, and (y) the Holder has been a member of the Board of Directors of the Company continuously during the period commencing on the date hereof and ending on the first anniversary of the date hereof. 4. Exercise Price. The exercise price per Share ("Exercise Price") at which this Option may be exercised shall be forty cents ($.40) per Share. 5. Method of Exercise. (a) This Option shall be exercised by execution and delivery of the Notice of Exercise attached hereto as Appendix A ("Notice of Exercise") or any other written notice approved for such purpose by the Company that shall state the election of the Holder to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares as may be required by the Company. The Notice of Exercise shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of the Notice of Exercise accompanied by payment of the Exercise Price. (b) No Shares shall be issued pursuant to the exercise of this Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Holder on the date on which this Option is exercised with respect to such Shares. (c) This Option may not be exercised for a fractional Share or scrip representing a fractional Share. In lieu of any fractional Share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. (d) In no event may this Option be exercised after the Expiration Date. 6. Methods of Payment. Shares of Common Stock purchased upon the exercise of this Option may be paid for as follows: (a) in cash or by check, payable to the order of the Company; (b) if the shares of Common Stock underlying the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), by: (i) delivery by the Holder to the Company of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding, or (ii) delivery by the Holder to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company the exercise price and any required tax withholding; (c) if the shares of Common Stock underlying the Option are registered under the Securities Act, by delivery of such shares of Common Stock owned by the Holder valued at their Fair Market Value (as defined below), provided: (i) such method of payment is then permitted under applicable law, (ii) such shares of Common Stock have been owned by the Holder at least six months prior to the date of such delivery, and (iii) such shares of Common Stock are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements or restrictions; (d) by reducing the number of shares of Common Stock otherwise issuable under this Option to the Holder upon the exercise of this Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; provided, however, that such method of payment is then permitted under applicable law; (e) to the extent permitted by applicable law and by the board of directors of the Company (the "Board"), in its sole discretion, by: (i) delivery of a promissory note of the Holder to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or 2 (f) by any combination of the above permitted forms of payment. For the purpose of this Agreement, "Fair Market Value" shall mean: (i) If the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be the average of the highest bid and lowest ask prices of the Common Stock as reported for such date or, if no bid and ask prices were reported for such date, for the last day preceding such date for which such prices were reported; (ii) If the Common Stock is admitted to trading on a United States national securities exchange or the NASDAQ National Market System, the Fair Market Value on any given date shall be the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported; (iii) If the Common Stock is traded in the over-the-counter market and not on NASDAQ, the NASDAQ National Market System or any United States national securities exchange, the Fair Market Value on any given date shall be the average of the mean between the last bid and ask prices per share as reported by the National Quotation Bureau, Inc. or an equivalent generally accepted reporting service for such date or, or if not so reported, the average of the closing bid and ask prices of the Common Stock for such date as furnished to the Company by any member of the National Association of Securities Dealers, Inc. selected by the Company for that purpose; or (iv) If the Fair Market Value of the Common Stock cannot be determined on the basis previously set forth in this definition on the date that the Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Common Stock on such date. The delivery of certificates representing the shares of Common Stock to be purchased pursuant to the exercise of this Option will be contingent upon receipt from the Holder (or a purchaser acting in his stead in accordance with the provisions of this Option) by the Company of the full purchase price for the Shares and the fulfillment of any other requirements contained in this Option or imposed by applicable law. 7. Rights of Stockholder. The Holder shall not have any stockholder rights with respect to any Shares until such Holder shall have exercised this Option, paid the Exercise Price and become a holder of record of the purchased Shares. 8. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon exercise of this Option and the Exercise Price shall be subject to adjustment from time to time as follows: 3 (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the expiration of this Option subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock or any preferred stock as a dividend with respect to any shares of its Common Stock, then the number of Shares issuable on the exercise of this Option shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, but the aggregate purchase price payable for the total number of Shares purchasable under this Option (as adjusted) shall remain the same. Any adjustment under this Section 8(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. (b) Reclassification, Reorganization and Consolidation. In the case of any reclassification, capital reorganization or change in the Common Stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 8(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Option to purchase, at a total price equal to that payable upon the exercise of this Option, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization or change. In any such case, appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price payable hereunder, provided the aggregate purchase price shall remain the same. (c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Option or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Option. (d) No Impairment. The Company and the Holder will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company or the Holder, respectively, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights or the Company and the Holder against impairment. 9. Investment Intent. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof (collectively, the "Securities") are being acquired for the Holder's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Securities. The Holder acknowledges and agrees that the Securities have not been registered under the Securities Act or under any state securities laws, and that the Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws, except pursuant to an available exemption from such registration. The Holder also acknowledges and agrees that neither the Securities Exchange Commission ("SEC") nor any securities commission or other governmental authority has: (i) approved the transfer of the Securities or passed upon or endorsed the merits of the transfer of the Securities; or (ii) confirmed the accuracy of, determined the adequacy of, or reviewed this Option. The Holder has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and the Holder has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. (b) The certificates evidencing any Shares issued upon the exercise of this Option shall have endorsed thereon (except to the extent that the restrictions described in any such legend are no longer applicable) the following legend, appropriate notations thereof will be made in the Company's stock transfer books, and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 10. Covenants of the Company. The Company covenants and agrees that the Shares have been duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. 11. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 5 12. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer If to the Holder: ----------------- To the address specified for Holder in the Company's records. 13. Amendment and Waiver. This Option may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. The parties hereto entitled to the benefits of a term or provision may waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement contained herein. 14. Headings; Definitions. The section headings contained in this Option are inserted for convenience of reference only and will not affect the meaning or interpretation of this Option. All references to sections contained herein mean sections of this Option unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 15. Successors and Assigns. This Option shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that the Holder may not assign his or her rights or delegate his or her obligations under this Option without the express prior written consent of the Company. Nothing in this Option is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Option. 16. Severability. If any provision of this Option or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Option shall remain in full force and effect and shall be reformed to render this Option valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 6 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 18. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the Company and Holder have caused this Option to be executed this 29th day of June, 2005. National Health Partners, Inc. By: /s/ David M. Daniels -------------------------- David M. Daniels Chief Executive Officer AGREED AND ACCEPTED: By: /s/ Ronald F. Westman --------------------------- Ronald F. Westman 8 APPENDIX A NOTICE OF EXERCISE To: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer (1) The undersigned hereby elects to purchase _____________ shares of Common Stock of the Company pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full in accordance with the terms of the Option in the following manner (please check one or more of the following choices): / / in cash or by check; / / an irrevocable and unconditional undertaking by a creditworthy broker to deliver sufficient funds to pay the exercise price and any required tax withholding; / / a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver the exercise price and any required tax withholding; / / a promissory note; / / a reduction of the number of shares of Common Stock otherwise issuable under the Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; or / / the following consideration: _______________________________. (2) In exercising the Option, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion thereof are being acquired solely for the account of the undersigned for investment purposes only (unless such shares are subject to resale pursuant to an effective registration statement or an exemption from registration under applicable federal and state securities laws), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act or any state securities laws. (3) Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Option. (4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. __________________________ __________________________ __________________________ (Date) (Signature) EX-10 14 ex10-17.txt EXHIBIT 10.17 EXHIBIT 10.17 OPTION TO ACQUIRE SHARES OF COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. WHEREAS, Jay Rosen ("Holder") accepted his or her appointment as a member of the board of directors of National Health Partners, Inc., an Indiana corporation (the "Company"), in partial consideration for which the Company agreed to grant the Holder an option to acquire shares of the Company's common stock, $.001 par value per share ("Common Stock"); and WHEREAS, the Company wishes to grant this option to the Holder in satisfaction of its obligation to provide the Holder with such an option. NOW, THEREFORE, in consideration of the foregoing, the agreement set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Holder on the date hereof (the "Grant Date") an option (this "Option") to purchase 350,000 shares ("Shares") of Common Stock, on the terms and subject to the conditions set forth herein. 2. Term of Option. This option shall have a maximum term of five (5) years measured from the Grant Date (the "Expiration Date") and shall accordingly expire at 5:00 p.m. eastern standard time on the Expiration Date. 3. Right to Exercise. This Option may be exercised in whole or in part in accordance with the following schedule: (i) 100,000 shares on or after the date hereof; and (ii) 250,000 shares on or after the first anniversary of the date hereof if: (x) the Holder is a member of the Board of Directors of the Company on the first anniversary of the date hereof, and (y) the Holder has been a member of the Board of Directors of the Company continuously during the period commencing on the date hereof and ending on the first anniversary of the date hereof. 4. Exercise Price. The exercise price per Share ("Exercise Price") at which this Option may be exercised shall be forty cents ($.40) per Share. 5. Method of Exercise. (a) This Option shall be exercised by execution and delivery of the Notice of Exercise attached hereto as Appendix A ("Notice of Exercise") or any other written notice approved for such purpose by the Company that shall state the election of the Holder to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares as may be required by the Company. The Notice of Exercise shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of the Notice of Exercise accompanied by payment of the Exercise Price. (b) No Shares shall be issued pursuant to the exercise of this Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Holder on the date on which this Option is exercised with respect to such Shares. (c) This Option may not be exercised for a fractional Share or scrip representing a fractional Share. In lieu of any fractional Share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. (d) In no event may this Option be exercised after the Expiration Date. 6. Methods of Payment. Shares of Common Stock purchased upon the exercise of this Option may be paid for as follows: (a) in cash or by check, payable to the order of the Company; (b) if the shares of Common Stock underlying the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), by: (i) delivery by the Holder to the Company of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding, or (ii) delivery by the Holder to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company the exercise price and any required tax withholding; (c) if the shares of Common Stock underlying the Option are registered under the Securities Act, by delivery of such shares of Common Stock owned by the Holder valued at their Fair Market Value (as defined below), provided: (i) such method of payment is then permitted under applicable law, (ii) such shares of Common Stock have been owned by the Holder at least six months prior to the date of such delivery, and (iii) such shares of Common Stock are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements or restrictions; (d) by reducing the number of shares of Common Stock otherwise issuable under this Option to the Holder upon the exercise of this Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; provided, however, that such method of payment is then permitted under applicable law; (e) to the extent permitted by applicable law and by the board of directors of the Company (the "Board"), in its sole discretion, by: (i) delivery of a promissory note of the Holder to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or (f) by any combination of the above permitted forms of payment. 2 For the purpose of this Agreement, "Fair Market Value" shall mean: (i) If the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be the average of the highest bid and lowest ask prices of the Common Stock as reported for such date or, if no bid and ask prices were reported for such date, for the last day preceding such date for which such prices were reported; (ii) If the Common Stock is admitted to trading on a United States national securities exchange or the NASDAQ National Market System, the Fair Market Value on any given date shall be the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported; (iii) If the Common Stock is traded in the over-the-counter market and not on NASDAQ, the NASDAQ National Market System or any United States national securities exchange, the Fair Market Value on any given date shall be the average of the mean between the last bid and ask prices per share as reported by the National Quotation Bureau, Inc. or an equivalent generally accepted reporting service for such date or, or if not so reported, the average of the closing bid and ask prices of the Common Stock for such date as furnished to the Company by any member of the National Association of Securities Dealers, Inc. selected by the Company for that purpose; or (iv) If the Fair Market Value of the Common Stock cannot be determined on the basis previously set forth in this definition on the date that the Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Common Stock on such date. The delivery of certificates representing the shares of Common Stock to be purchased pursuant to the exercise of this Option will be contingent upon receipt from the Holder (or a purchaser acting in his stead in accordance with the provisions of this Option) by the Company of the full purchase price for the Shares and the fulfillment of any other requirements contained in this Option or imposed by applicable law. 7. Rights of Stockholder. The Holder shall not have any stockholder rights with respect to any Shares until such Holder shall have exercised this Option, paid the Exercise Price and become a holder of record of the purchased Shares. 8. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon exercise of this Option and the Exercise Price shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the expiration of this Option subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock or any preferred stock as a dividend with respect to any shares of its Common Stock, then the number of Shares issuable on the exercise of this Option shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, but the aggregate purchase price payable for the total number of Shares purchasable under this Option (as adjusted) shall remain the same. Any adjustment under this Section 8(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. 3 (b) Reclassification, Reorganization and Consolidation. In the case of any reclassification, capital reorganization or change in the Common Stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 8(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Option to purchase, at a total price equal to that payable upon the exercise of this Option, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization or change. In any such case, appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price payable hereunder, provided the aggregate purchase price shall remain the same. (c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Option or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Option. (d) No Impairment. The Company and the Holder will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company or the Holder, respectively, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights or the Company and the Holder against impairment. 9. Investment Intent. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof (collectively, the "Securities") are being acquired for the Holder's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Securities. The Holder acknowledges and agrees that the Securities have not been registered under the Securities Act or under any state securities laws, and that the Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws, except pursuant to an available exemption from such registration. The Holder also acknowledges and agrees that neither the Securities Exchange Commission ("SEC") nor any securities commission or other governmental authority has: (i) approved the transfer of the Securities or passed upon or endorsed the merits of the transfer of the Securities; or (ii) confirmed the accuracy of, determined the adequacy of, or reviewed this Option. The Holder has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and the Holder has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. 4 (b) The certificates evidencing any Shares issued upon the exercise of this Option shall have endorsed thereon (except to the extent that the restrictions described in any such legend are no longer applicable) the following legend, appropriate notations thereof will be made in the Company's stock transfer books, and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 10. Covenants of the Company. The Company covenants and agrees that the Shares have been duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. 11. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 5 12. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer If to the Holder: ----------------- To the address specified for Holder in the Company's records. 13. Amendment and Waiver. This Option may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. The parties hereto entitled to the benefits of a term or provision may waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement contained herein. 14. Headings; Definitions. The section headings contained in this Option are inserted for convenience of reference only and will not affect the meaning or interpretation of this Option. All references to sections contained herein mean sections of this Option unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 15. Successors and Assigns. This Option shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that the Holder may not assign his or her rights or delegate his or her obligations under this Option without the express prior written consent of the Company. Nothing in this Option is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Option. 16. Severability. If any provision of this Option or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Option shall remain in full force and effect and shall be reformed to render this Option valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 6 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 18. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the Company and Holder have caused this Option to be executed this 29th day of June, 2005. National Health Partners, Inc. By: /s/ David M. Daniels -------------------------- David M. Daniels Chief Executive Officer AGREED AND ACCEPTED: By: /s/ Jay Rosen ----------------------- Jay Rosen 8 APPENDIX A NOTICE OF EXERCISE To: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer (1) The undersigned hereby elects to purchase _____________ shares of Common Stock of the Company pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full in accordance with the terms of the Option in the following manner (please check one or more of the following choices): / / in cash or by check; / / an irrevocable and unconditional undertaking by a creditworthy broker to deliver sufficient funds to pay the exercise price and any required tax withholding; / / a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver the exercise price and any required tax withholding; / / a promissory note; / / a reduction of the number of shares of Common Stock otherwise issuable under the Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; or / / the following consideration: _______________________________. (2) In exercising the Option, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion thereof are being acquired solely for the account of the undersigned for investment purposes only (unless such shares are subject to resale pursuant to an effective registration statement or an exemption from registration under applicable federal and state securities laws), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act or any state securities laws. (3) Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Option. (4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. __________________________ __________________________ __________________________ (Date) (Signature) EX-10 15 ex10-18.txt EXHIBIT 10.18 EXHIBIT 10.18 OPTION TO ACQUIRE SHARES OF COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. WHEREAS, National Health Partners, Inc., an Indiana corporation (the "Company"), and Alex Soufflas ("Holder") entered into an employment arrangement on August 15, 2005 pursuant to which the Holder agreed to be employed by the Company in partial consideration for which the Company agreed to grant the Holder an option to acquire shares of the Company's common stock, $.001 par value per share ("Common Stock"); and WHEREAS, the Company wishes to grant this option to the Holder in satisfaction of its obligation to provide the Holder with such an option. NOW, THEREFORE, in consideration of the foregoing, the agreement set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Holder on the date hereof (the "Grant Date") an option (this "Option") to purchase 1,000,000 shares ("Shares") of Common Stock, on the terms and subject to the conditions set forth herein. 2. Term of Option. This option shall have a maximum term of ten (10) years measured from the Grant Date (the "Expiration Date") and shall accordingly expire at 5:00 p.m. eastern standard time on the Expiration Date. 3. Right to Exercise. This Option may be exercised in whole or in part in accordance with the following schedule: (i) 250,000 shares on or after February 1, 2006; (ii) 250,000 shares on or after February 1, 2007; (iii) 250,000 shares on or after February 1, 2008; and (iv) 250,000 shares on or after February 1, 2009. 4. Exercise Price. The exercise price per Share ("Exercise Price") at which this Option may be exercised shall be forty cents ($.40) per Share. 5. Method of Exercise. (a) This Option shall be exercised by execution and delivery of the Notice of Exercise attached hereto as Appendix A ("Notice of Exercise") or any other written notice approved for such purpose by the Company that shall state the election of the Holder to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares as may be required by the Company. The Notice of Exercise shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of the Notice of Exercise accompanied by payment of the Exercise Price. (b) No Shares shall be issued pursuant to the exercise of this Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Holder on the date on which this Option is exercised with respect to such Shares. (c) This Option may not be exercised for a fractional Share or scrip representing a fractional Share. In lieu of any fractional Share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. (d) In no event may this Option be exercised after the Expiration Date. 6. Methods of Payment. Shares of Common Stock purchased upon the exercise of this Option may be paid for as follows: (a) in cash or by check, payable to the order of the Company; (b) if the shares of Common Stock underlying the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), by: (i) delivery by the Holder to the Company of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding, or (ii) delivery by the Holder to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company the exercise price and any required tax withholding; (c) if the shares of Common Stock underlying the Option are registered under the Securities Act, by delivery of such shares of Common Stock owned by the Holder valued at their Fair Market Value (as defined below), provided: (i) such method of payment is then permitted under applicable law, (ii) such shares of Common Stock have been owned by the Holder at least six months prior to the date of such delivery, and (iii) such shares of Common Stock are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements or restrictions; (d) by reducing the number of shares of Common Stock otherwise issuable under this Option to the Holder upon the exercise of this Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; provided, however, that such method of payment is then permitted under applicable law; (e) to the extent permitted by applicable law and by the board of directors of the Company (the "Board"), in its sole discretion, by: (i) delivery of a promissory note of the Holder to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or 2 (f) by any combination of the above permitted forms of payment. For the purpose of this Agreement, "Fair Market Value" shall mean: (i) If the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be the average of the highest bid and lowest ask prices of the Common Stock as reported for such date or, if no bid and ask prices were reported for such date, for the last day preceding such date for which such prices were reported; (ii) If the Common Stock is admitted to trading on a United States national securities exchange or the NASDAQ National Market System, the Fair Market Value on any given date shall be the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported; (iii) If the Common Stock is traded in the over-the-counter market and not on NASDAQ, the NASDAQ National Market System or any United States national securities exchange, the Fair Market Value on any given date shall be the average of the mean between the last bid and ask prices per share as reported by the National Quotation Bureau, Inc. or an equivalent generally accepted reporting service for such date or, or if not so reported, the average of the closing bid and ask prices of the Common Stock for such date as furnished to the Company by any member of the National Association of Securities Dealers, Inc. selected by the Company for that purpose; or (iv) If the Fair Market Value of the Common Stock cannot be determined on the basis previously set forth in this definition on the date that the Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Common Stock on such date. The delivery of certificates representing the shares of Common Stock to be purchased pursuant to the exercise of this Option will be contingent upon receipt from the Holder (or a purchaser acting in his stead in accordance with the provisions of this Option) by the Company of the full purchase price for the Shares and the fulfillment of any other requirements contained in this Option or imposed by applicable law. 7. Rights of Stockholder. The Holder shall not have any stockholder rights with respect to any Shares until such Holder shall have exercised this Option, paid the Exercise Price and become a holder of record of the purchased Shares. 8. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon exercise of this Option and the Exercise Price shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the expiration of this Option subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock or any preferred stock as a dividend with respect to any shares of its Common Stock, then the number of Shares issuable on the exercise of this Option shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, but the aggregate purchase price payable for the total number of Shares purchasable under this Option (as adjusted) shall remain the same. Any adjustment under this Section 8(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. 3 (b) Reclassification, Reorganization and Consolidation. In the case of any reclassification, capital reorganization or change in the Common Stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 8(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Option to purchase, at a total price equal to that payable upon the exercise of this Option, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization or change. In any such case, appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price payable hereunder, provided the aggregate purchase price shall remain the same. (c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Option or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Option. (d) No Impairment. The Company and the Holder will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company or the Holder, respectively, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights or the Company and the Holder against impairment. 9. Termination of Option. (a) Termination by Death. If Holder's employment by, or other relationship with, the Company terminates by reason of death, this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, by the legal representative or legatee of the Holder until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. 4 (b) Termination by Reason of Disability or Retirement. (i) Disability. If Holder's employment by, or other relationship with, the Company terminates by reason of disability as set forth in Section 22(e)(3) of the Internal Revenue Code ("Disability"), this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. (ii) Retirement. If Holder retires in good standing from active employment or service with the Company in accordance with the retirement policies of the Company then in effect ("Retirement"), this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. (iii) Disability and Retirement Determination. The Board shall have sole authority and discretion to determine whether the Holder's employment or services has been terminated by reason of Disability or Retirement. (c) Termination for Cause. If the Holder's employment by, or other relationship with, the Company terminates for "Cause," this Option shall immediately terminate and be of no further force and effect; provided, however, that the Board may, in its sole discretion, provide that this Option may be exercised until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. Termination for "Cause" shall mean and be limited to the following conduct of the Holder: (i) Intentional misconduct as an employee of the Company, including but not limited to any intentional misappropriation of funds or property of the Company, any intentional attempt to obtain any personal profit from any transaction in which the Holder has an interest that is materially adverse to the Company, any intentional breach of the duty of care or loyalty owed by the Holder to the Company, or any other intentional act or intentional omission of the Holder that substantially impairs the Company's ability to conduct its ordinary business in its usual manner; (ii) Material neglect or refusal to perform Holder's duties as an employee of the Company if not reasonably cured within two (2) weeks after receiving notice thereof; (iii) Conviction of a felony or plea of guilty or nolo contendere to a felony; (iv) Intentional acts of dishonesty by the Holder as an employee of the Company having a material adverse effect on the Company, including any intentional act or intentional omission that subjects the Company to public scandal or ridicule, or that causes the Company to be sanctioned by a governmental authority as a result of a violation of governmental regulations; and (v) Intentional disclosure or use of material confidential information of the Company, other than as specifically authorized and required in the performance of Holder's duties as an employee of the Company, having a material adverse effect on the Company. (d) Other Termination. If the Holder's employment by, or other relationship with, the Company terminates for any reason other than death, Disability, Retirement or for Cause, this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment (unless otherwise extended by the Board to a later date) or the Expiration Date. 5 (e) Transfer and Leave of Absence. For purposes of this Option, the following events shall not be deemed a termination of employment: (i) a transfer of employment between any of the Company, a parent, a subsidiary or any other affiliate of the Company, and (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Board, if the Holder's right to re-employment is guaranteed by a statute, by contract or under the policy pursuant to which the leave of absence was granted, or if the Board otherwise so provides in writing. 10. Investment Intent. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof (collectively, the "Securities") are being acquired for the Holder's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Securities. The Holder acknowledges and agrees that the Securities have not been registered under the Securities Act or under any state securities laws, and that the Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws, except pursuant to an available exemption from such registration. The Holder also acknowledges and agrees that neither the Securities Exchange Commission ("SEC") nor any securities commission or other governmental authority has: (i) approved the transfer of the Securities or passed upon or endorsed the merits of the transfer of the Securities; or (ii) confirmed the accuracy of, determined the adequacy of, or reviewed this Option. The Holder has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and the Holder has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. (b) The certificates evidencing any Shares issued upon the exercise of this Option shall have endorsed thereon (except to the extent that the restrictions described in any such legend are no longer applicable) the following legend, appropriate notations thereof will be made in the Company's stock transfer books, and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 6 11. Covenants of the Company. The Company covenants and agrees that the Shares have been duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. 12. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 13. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer If to the Holder: ----------------- To the address specified for Holder in the Company's records. 14. Amendment and Waiver. This Option may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. The parties hereto entitled to the benefits of a term or provision may waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement contained herein. 7 15. Headings; Definitions. The section headings contained in this Option are inserted for convenience of reference only and will not affect the meaning or interpretation of this Option. All references to sections contained herein mean sections of this Option unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 16. Successors and Assigns. This Option shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Option without the express prior written consent of the other party hereto. Nothing in this Option is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Option. 17. Severability. If any provision of this Option or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Option shall remain in full force and effect and shall be reformed to render this Option valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 19. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] 8 IN WITNESS WHEREOF, the Company and Holder have caused this Option to be executed this 15th day of August, 2005. National Health Partners, Inc. By: /s/ David M. Daniels -------------------------- David M. Daniels Chief Executive Officer AGREED AND ACCEPTED: By: /s/ Alex Soufflas ---------------------- Alex Soufflas 9 APPENDIX A NOTICE OF EXERCISE To: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer (1) The undersigned hereby elects to purchase _____________ shares of Common Stock of the Company pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full in accordance with the terms of the Option in the following manner (please check one or more of the following choices): / / in cash or by check; / / an irrevocable and unconditional undertaking by a creditworthy broker to deliver sufficient funds to pay the exercise price and any required tax withholding; / / a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver the exercise price and any required tax withholding; / / a promissory note; / / a reduction of the number of shares of Common Stock otherwise issuable under the Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; or / / the following consideration: ______________________________. (2) In exercising the Option, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion thereof are being acquired solely for the account of the undersigned for investment purposes only (unless such shares are subject to resale pursuant to an effective registration statement or an exemption from registration under applicable federal and state securities laws), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act or any state securities laws. (3) Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Option. (4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. ___________________________ __________________________ ___________________________ (Date) (Signature) EX-10 16 ex10-19.txt EXHIBIT 10.19 EXHIBIT 10.19 OPTION TO ACQUIRE SHARES OF COMMON STOCK OF NATIONAL HEALTH PARTNERS, INC. WHEREAS, National Health Partners, Inc., an Indiana corporation (the "Company"), and David A. Taylor ("Holder") entered into an employment arrangement on August 15, 2005 pursuant to which the Holder agreed to be employed by the Company in partial consideration for which the Company agreed to grant the Holder an option to acquire shares of the Company's common stock, $.001 par value per share ("Common Stock"); and WHEREAS, the Company wishes to grant this option to the Holder in satisfaction of its obligation to provide the Holder with such an option. NOW, THEREFORE, in consideration of the foregoing, the agreement set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Holder on the date hereof (the "Grant Date") an option (this "Option") to purchase 1,000,000 shares ("Shares") of Common Stock, on the terms and subject to the conditions set forth herein. 2. Term of Option. This option shall have a maximum term of ten (10) years measured from the Grant Date (the "Expiration Date") and shall accordingly expire at 5:00 p.m. eastern standard time on the Expiration Date. 3. Right to Exercise. This Option may be exercised in whole or in part in accordance with the following schedule: (i) 250,000 shares on or after February 1, 2006; (ii) 250,000 shares on or after February 1, 2007; (iii) 250,000 shares on or after February 1, 2008; and (iv) 250,000 shares on or after February 1, 2009. 4. Exercise Price. The exercise price per Share ("Exercise Price") at which this Option may be exercised shall be forty cents ($.40) per Share. 5. Method of Exercise. (a) This Option shall be exercised by execution and delivery of the Notice of Exercise attached hereto as Appendix A ("Notice of Exercise") or any other written notice approved for such purpose by the Company that shall state the election of the Holder to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares as may be required by the Company. The Notice of Exercise shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of the Notice of Exercise accompanied by payment of the Exercise Price. (b) No Shares shall be issued pursuant to the exercise of this Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Holder on the date on which this Option is exercised with respect to such Shares. (c) This Option may not be exercised for a fractional Share or scrip representing a fractional Share. In lieu of any fractional Share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. (d) In no event may this Option be exercised after the Expiration Date. 6. Methods of Payment. Shares of Common Stock purchased upon the exercise of this Option may be paid for as follows: (a) in cash or by check, payable to the order of the Company; (b) if the shares of Common Stock underlying the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), by: (i) delivery by the Holder to the Company of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding, or (ii) delivery by the Holder to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company the exercise price and any required tax withholding; (c) if the shares of Common Stock underlying the Option are registered under the Securities Act, by delivery of such shares of Common Stock owned by the Holder valued at their Fair Market Value (as defined below), provided: (i) such method of payment is then permitted under applicable law, (ii) such shares of Common Stock have been owned by the Holder at least six months prior to the date of such delivery, and (iii) such shares of Common Stock are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements or restrictions; (d) by reducing the number of shares of Common Stock otherwise issuable under this Option to the Holder upon the exercise of this Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; provided, however, that such method of payment is then permitted under applicable law; (e) to the extent permitted by applicable law and by the board of directors of the Company (the "Board"), in its sole discretion, by: (i) delivery of a promissory note of the Holder to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or 2 (f) by any combination of the above permitted forms of payment. For the purpose of this Agreement, "Fair Market Value" shall mean: (i) If the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be the average of the highest bid and lowest ask prices of the Common Stock as reported for such date or, if no bid and ask prices were reported for such date, for the last day preceding such date for which such prices were reported; (ii) If the Common Stock is admitted to trading on a United States national securities exchange or the NASDAQ National Market System, the Fair Market Value on any given date shall be the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported; (iii) If the Common Stock is traded in the over-the-counter market and not on NASDAQ, the NASDAQ National Market System or any United States national securities exchange, the Fair Market Value on any given date shall be the average of the mean between the last bid and ask prices per share as reported by the National Quotation Bureau, Inc. or an equivalent generally accepted reporting service for such date or, or if not so reported, the average of the closing bid and ask prices of the Common Stock for such date as furnished to the Company by any member of the National Association of Securities Dealers, Inc. selected by the Company for that purpose; or (iv) If the Fair Market Value of the Common Stock cannot be determined on the basis previously set forth in this definition on the date that the Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Common Stock on such date. The delivery of certificates representing the shares of Common Stock to be purchased pursuant to the exercise of this Option will be contingent upon receipt from the Holder (or a purchaser acting in his stead in accordance with the provisions of this Option) by the Company of the full purchase price for the Shares and the fulfillment of any other requirements contained in this Option or imposed by applicable law. 7. Rights of Stockholder. The Holder shall not have any stockholder rights with respect to any Shares until such Holder shall have exercised this Option, paid the Exercise Price and become a holder of record of the purchased Shares. 8. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon exercise of this Option and the Exercise Price shall be subject to adjustment from time to time as follows: 3 (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the expiration of this Option subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock or any preferred stock as a dividend with respect to any shares of its Common Stock, then the number of Shares issuable on the exercise of this Option shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, but the aggregate purchase price payable for the total number of Shares purchasable under this Option (as adjusted) shall remain the same. Any adjustment under this Section 8(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. (b) Reclassification, Reorganization and Consolidation. In the case of any reclassification, capital reorganization or change in the Common Stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 8(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Option to purchase, at a total price equal to that payable upon the exercise of this Option, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization or change. In any such case, appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price payable hereunder, provided the aggregate purchase price shall remain the same. (c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Option or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Option. (d) No Impairment. The Company and the Holder will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company or the Holder, respectively, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights or the Company and the Holder against impairment. 9. Termination of Option. (a) Termination by Death. If Holder's employment by, or other relationship with, the Company terminates by reason of death, this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, by the legal representative or legatee of the Holder until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. 4 (b) Termination by Reason of Disability or Retirement. (i) Disability. If Holder's employment by, or other relationship with, the Company terminates by reason of disability as set forth in Section 22(e)(3) of the Internal Revenue Code ("Disability"), this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. (ii) Retirement. If Holder retires in good standing from active employment or service with the Company in accordance with the retirement policies of the Company then in effect ("Retirement"), this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. (iii) Disability and Retirement Determination. The Board shall have sole authority and discretion to determine whether the Holder's employment or services has been terminated by reason of Disability or Retirement. (c) Termination for Cause. If the Holder's employment by, or other relationship with, the Company terminates for "Cause," this Option shall immediately terminate and be of no further force and effect; provided, however, that the Board may, in its sole discretion, provide that this Option may be exercised until the earlier of the date that is 90 days after the date of such termination of employment or the Expiration Date. Termination for "Cause" shall mean and be limited to the following conduct of the Holder: (i) Intentional misconduct as an employee of the Company, including but not limited to any intentional misappropriation of funds or property of the Company, any intentional attempt to obtain any personal profit from any transaction in which the Holder has an interest that is materially adverse to the Company, any intentional breach of the duty of care or loyalty owed by the Holder to the Company, or any other intentional act or intentional omission of the Holder that substantially impairs the Company's ability to conduct its ordinary business in its usual manner; (ii) Material neglect or refusal to perform Holder's duties as an employee of the Company if not reasonably cured within two (2) weeks after receiving notice thereof; (iii) Conviction of a felony or plea of guilty or nolo contendere to a felony; (iv) Intentional acts of dishonesty by the Holder as an employee of the Company having a material adverse effect on the Company, including any intentional act or intentional omission that subjects the Company to public scandal or ridicule, or that causes the Company to be sanctioned by a governmental authority as a result of a violation of governmental regulations; and (v) Intentional disclosure or use of material confidential information of the Company, other than as specifically authorized and required in the performance of Holder's duties as an employee of the Company, having a material adverse effect on the Company. (d) Other Termination. If the Holder's employment by, or other relationship with, the Company terminates for any reason other than death, Disability, Retirement or for Cause, this Option may thereafter be exercised, in whole or in part to the extent exercisable on the date of such termination of employment, until the earlier of the date that is 90 days after the date of such termination of employment (unless otherwise extended by the Board to a later date) or the Expiration Date. 5 (e) Transfer and Leave of Absence. For purposes of this Option, the following events shall not be deemed a termination of employment: (i) a transfer of employment between any of the Company, a parent, a subsidiary or any other affiliate of the Company, and (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Board, if the Holder's right to re-employment is guaranteed by a statute, by contract or under the policy pursuant to which the leave of absence was granted, or if the Board otherwise so provides in writing. 10. Investment Intent. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof (collectively, the "Securities") are being acquired for the Holder's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Securities. The Holder acknowledges and agrees that the Securities have not been registered under the Securities Act or under any state securities laws, and that the Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws, except pursuant to an available exemption from such registration. The Holder also acknowledges and agrees that neither the Securities Exchange Commission ("SEC") nor any securities commission or other governmental authority has: (i) approved the transfer of the Securities or passed upon or endorsed the merits of the transfer of the Securities; or (ii) confirmed the accuracy of, determined the adequacy of, or reviewed this Option. The Holder has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and the Holder has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. (b) The certificates evidencing any Shares issued upon the exercise of this Option shall have endorsed thereon (except to the extent that the restrictions described in any such legend are no longer applicable) the following legend, appropriate notations thereof will be made in the Company's stock transfer books, and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 6 11. Covenants of the Company. The Company covenants and agrees that the Shares have been duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. 12. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 13. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ------------------ National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer If to the Holder: ----------------- To the address specified for Holder in the Company's records. 14. Amendment and Waiver. This Option may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. The parties hereto entitled to the benefits of a term or provision may waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement contained herein. 7 15. Headings; Definitions. The section headings contained in this Option are inserted for convenience of reference only and will not affect the meaning or interpretation of this Option. All references to sections contained herein mean sections of this Option unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 16. Successors and Assigns. This Option shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Option without the express prior written consent of the other party hereto. Nothing in this Option is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Option. 17. Severability. If any provision of this Option or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Option shall remain in full force and effect and shall be reformed to render this Option valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 19. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] 8 IN WITNESS WHEREOF, the Company and Holder have caused this Option to be executed this 15th day of August, 2005. National Health Partners, Inc. By: /s/ David M. Daniels -------------------------- David M. Daniels Chief Executive Officer AGREED AND ACCEPTED: By: /s/ David A. Taylor --------------------------- David A. Taylor 9 APPENDIX A NOTICE OF EXERCISE To: National Health Partners, Inc. 120 Gibraltar Road Suite 107 Horsham, PA 19044 Attention: Chief Financial Officer (1) The undersigned hereby elects to purchase _____________ shares of Common Stock of the Company pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full in accordance with the terms of the Option in the following manner (please check one or more of the following choices): / / in cash or by check; / / an irrevocable and unconditional undertaking by a creditworthy broker to deliver sufficient funds to pay the exercise price and any required tax withholding; / / a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver the exercise price and any required tax withholding; / / a promissory note; / / a reduction of the number of shares of Common Stock otherwise issuable under the Option by a number of shares of Common Stock having a Fair Market Value equal to such aggregated exercise price; or / / the following consideration: _______________________________. (2) In exercising the Option, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion thereof are being acquired solely for the account of the undersigned for investment purposes only (unless such shares are subject to resale pursuant to an effective registration statement or an exemption from registration under applicable federal and state securities laws), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act or any state securities laws. (3) Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Option. (4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. __________________________ __________________________ __________________________ (Date) (Signature) EX-23 17 ex23-1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Registration Statement of National Health Partners, Inc. and Subsidiaries on Form SB-2/A of our audit report, dated February 9, 2005 of National Health Partners, Inc. and Subsidiaries which includes an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going concern appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the captions "Experts" in the Prospectus. /s/ HJ & Associates, LLC HJ & Associates, LLC Salt Lake City, Utah September 29, 2005 -----END PRIVACY-ENHANCED MESSAGE-----