-----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, BZPII+nGNVQI6mjvqc0HgLx5o1jn7CaBaFr4o4ZNT3kda24cZiTev3zyQ9Vy0OVQ TQzT7O87r52WYKsIHMfbjg== 0001016843-00-000159.txt : 20000221 0001016843-00-000159.hdr.sgml : 20000221 ACCESSION NUMBER: 0001016843-00-000159 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRUGMAX COM INC CENTRAL INDEX KEY: 0000921878 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 341755390 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-15445 FILM NUMBER: 548885 BUSINESS ADDRESS: STREET 1: 12505 STARKEY RD STREET 2: SUITE A CITY: LARGO STATE: FL ZIP: 33773 BUSINESS PHONE: 2165736522 MAIL ADDRESS: STREET 1: 6950 BRYAN DAIRY ROAD CITY: LARGO STATE: FL ZIP: 33777 FORMER COMPANY: FORMER CONFORMED NAME: NUTRICEUTICALS COM CORP DATE OF NAME CHANGE: 19990629 FORMER COMPANY: FORMER CONFORMED NAME: NUMED SURGICAL INC DATE OF NAME CHANGE: 19940419 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter Ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-24362 DRUGMAX.COM, INC., FORMERLY KNOWN AS NUTRICEUTICALS.COM CORPORATION ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) STATE OF NEVADA 34-1755390 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 12505 STARKEY ROAD, SUITE A, LARGO, FLORIDA 33773 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (727) 533-0431 Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the Issuer's common stock at $.001 par value as of February 14, 2000 was 6,076,707. PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
DRUGMAX.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, MARCH 31, 1999 1999 ------------ ------------ (UNAUDITED) (AUDITED) ASSETS Current assets: Cash $ 8,200,631 $ 56,986 Accounts receivable, net 5,353,906 9,278 Due from affiliate 36,487 5,171 Inventory 1,291,968 16,303 Prepaid expenses and other current assets 225,973 -- ------------ ------------- Total current assets 15,108,965 87,738 ------------ ------------ Property and equipment, net 90,138 47,500 Intangible assets (primarily goodwill), net 11,765,246 -- Other assets 13,963 380 ------------ ------------ TOTAL ASSETS $ 26,978,312 $ 135,618 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUIT Current liabilities: Accounts payable $ 3,803,479 $ 80,186 Accrued expenses 129,734 17,505 Due to affiliates 31,330 -- Credit line payable 1,752,785 -- ------------ ------------ Total current liabilities 5,717,328 97,691 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock, $.001 par value; 2,000,000 shares authorized; no preferred shares issued or outstanding -- -- Common stock, $.001 par value; 24,000,000 shares authorized; 6,076,707 and 2,676,707 shares issued and outstanding 6,077 2,677 Additional paid-in capital 22,034,926 139,725 Deficit (780,019) (104,475) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 21,260,984 37,927 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,978,312 $ 135,618 ============ ============ See accompanying notes to condensed consolidated financial statements.
-2-
DRUGMAX.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1999 1999 ------------------ ----------------- Net revenues $ 7,170,581 $ 7,221,279 Cost of goods sold 7,112,971 7,139,562 ----------- ----------- GROSS PROFIT 57,610 81,717 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 458,800 728,918 ----------- ----------- OPERATING LOSS BEFORE OTHER INCOME AND EXPENSE (401,190) (647,201) Other income (expense): Interest income 38,981 39,539 Other income and expenses, net (31,667) (31,307) Interest expense (32,159) (36,575) ----------- ----------- TOTAL OTHER EXPENSE (24,845) (28,343) ----------- ----------- NET LOSS $ (426,035) $ (675,544) =========== =========== Basic and diluted net loss per share $ (0.10) $ (0.21) =========== =========== Basic and diluted weighted average number of common shares outstanding 4,085,185 3,151,616 =========== =========== See accompanying notes to condensed consolidated financial statements.
-3-
DRUGMAX.COM, INC. AND SUBSIDIARIES STATEMENTS OF CHANGES IN NET DEFICIENCY IN LIQUIDATION (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ----------------- ----------------- Decreases in net liabilities in liquidation: Sales $ -- $ -- Bad debt recovery -- -- Increases in net liabilities in liquidation: Professional fees 500 4,375 Office expense 115 175 --------- --------- Increase in net liabilities in liquidation (615) (4,550) Beginning net liabilities in liquidation (12,598) (8,663) --------- --------- Ending net liabilities in liquidation $ (13,213) $ (13,213) ========= ========= Loss per share: Loss attributable to common stockholders $ (615) $ (4,550) ========= ========= Basic and diluted loss per share $ -- $ -- ========= ========= Basic and diluted weighted average number of common shares outstanding 175,514 175,514 ========= ========= See accompanying notes to condensed consolidated financial statements.
-4-
DRUGMAX.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED DECEMBER 31, 1999 ----------------- CASH FLOWS USED IN OPERATING ACTIVITIES: Net loss $ (675,544) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 90,077 Impairment of intangible asset 31,667 Changes in operating assets and liabilities: Accounts receivable (3,077,922) Inventory (64,287) Prepaid expenses and other current assets (159,080) Increase in other assets (12,243) Accounts payable 2,547,156 Accrued expenses (438,738) ------------ NET CASH USED IN OPERATING ACTIVITIES (1,758,914) ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (32,783) Increase in intangible assets (67,162) Cash paid for acquisition (2,000,000) ------------ NET CASH USED IN INVESTING ACTIVITIES (2,099,945) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in revolving line of credit agreement 61,269 Proceeds from related party obligations 200,000 Payments of related party obligations (200,000) Proceeds from issuance of common stock 11,898,601 ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 11,959,870 ------------ NET INCREASE IN CASH 8,101,011 CASH AT BEGINNING OF PERIOD 99,620 ------------ CASH AT END OF PERIOD $ 8,200,631 ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 49,739 ============ In November 1999, the Company issued 2,000,000 shares of its common stock for the acquisition of Becan Distributors, Inc. $ 10,000,000 ============ See accompanying notes to condensed consolidated financial statements.
- 5 - DrugMax.com, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) For the Three Months and Nine Months Ended December 31, 1999 and 1998 NOTE A-BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of DrugMax.com, Inc. and its subsidiaries, Healthseek.com Corp., and Becan Distributors, Inc. and its subsidiary Discount Rx, Inc. (collectively the "Company"). All intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instruction to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month periods ended December 31, 1999 and 1998 are not necessarily indicative of the results that may be expected for the year ending March 31, 2000. For further information, refer to the consolidated financial statements and footnotes included in the Company's Form 10-KSB for the year ended March 31, 1999. NOTE B-ACQUISITIONS On November 26, 1999, the Company acquired all of the issued and outstanding capital stock of Becan Distributors, Inc. and its subsidiary Discount Rx, Inc. (collectively "Becan") from Dynamic Health Products, Inc. ("Dynamic"), an affiliate of Jugal K. Taneja, a principal shareholder and director of the Company, in exchange for 2,000,000 shares of restricted common stock of the Company (with an estimated fair value of $5.00 per share) and $2,000,000 cash. Additional consideration of 1,000,000 shares of common stock of the Company was placed into escrow for future issuance to Dynamic, upon the attainment by Becan of certain financial targets for the fiscal years ending March 31, 2000 and 2001. The acquisition was accounted for using the purchase method of accounting and, accordingly, the total purchase price has been allocated to assets and liabilities of Becan based upon their estimated fair values. - 6 - The aggregate cost of this acquisition was as follows: Cash $ 2,000,000 Issuance of common stock 10,000,000 Fees and expenses incurred in connection with the acquisition 20,197 ------------ Purchase price to be allocated to individual assets and liabilities acquired $ 12,020,197 ============ The aggregate purchase price was allocated as follows: Cash $ 42,635 Accounts receivable 2,266,706 Inventory 1,211,378 Property and equipment 25,175 Other assets 113,898 Goodwill 11,811,397 Assumption of liabilities (3,450,992) ------------ $ 12,020,197 ============
NINE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, 1999(1) DECEMBER 31, 1998(2) -------------------- -------------------- (Unaudited) (Unaudited) Pro Forma Statements of Operations Data: Net revenues $ 40,942,672 $ 22,299,035 ================= ============ Net loss $ (1,155,923) $ (457,664) ================= ============ Basic and diluted net loss per share $ (0.37) $ (0.15) ================= ============ Basic and diluted weighted average common shares outstanding 3,151,616 3,151,616 ================= ============ (1) The December 31, 1999 financial data includes the operations of DrugMax.com, Inc., Becan Distributors, Inc., and Discount Rx, Inc. for the nine month period. (2) The December 31, 1998 financial data includes Becan Distributors, Inc. from April 1, 1998 through December 31, 1998 and Discount Rx, Inc. from September 1, 1998 (date of inception) through December 31, 1998.
- 7 - NOTE C-INCOME TAXES The Company has adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the Company uses the asset and liability method which recognizes the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and as measured by the provisions of enacted tax laws. The Company has a gross deferred tax asset as of December 31, 1999 that is comprised of the potential future tax benefit of its operating losses to date. Management has evaluated the available evidence regarding the future taxable income and other possible sources of realization of deferred tax assets. A 100 percent valuation allowance has been established by management against the gross deferred tax asset as it is more likely than not that the deferred tax asset will not be realized. NOTE D-COMMITMENTS The Company has entered into an operating lease for office and warehouse facilities in Largo, Florida that expires on November 30, 2002. Monthly rental payments under the lease are approximately $3,800 through November 30, 2001 and approximately $3,950 thereafter through November 30, 2002. NOTE E-STOCKHOLDERS' EQUITY In October 1999, the Company effected a one-for-two reverse stock split of the Common Stock of the Company. The accompanying unaudited condensed consolidated financial statements have been retroactively restated, as of December 31, 1999, to reflect the one-for-two reverse stock split. Basic and diluted net loss per common share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding during the period. - 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company derives its revenues from traditional and online sales of pharmaceuticals, over-the-counter products, health and beauty care products, and nutritional supplements. Revenues are billed and recognized as product is shipped to the customer, net of discounts, allowances, returns and credits. Cost of goods sold is comprised of product costs. Selling, general and administrative costs include administrative, sales and marketing and other indirect operating costs. The Company acquired Becan Distributors, Inc. on November 26, 1999. The acquisition was accounted for under the purchase method of accounting (see Note B). The results of operations of the Company for the three months and nine months ended December 31, 1999 include the results of operations of Becan from November 27, 1999 through December 31, 1999. RESULTS OF OPERATIONS Three Months and Nine Months ended December 31, 1999 and December 31, 1998 In March 1997, the Company adopted a plan of liquidation by which it sold its major product line and subsequently disposed of all of its operating assets by March 31, 1998. In March 1999, the Company acquired all of the outstanding common stock of Nutriceuticals.com Corporation ("Nutriceuticals"), a Florida corporation, which was organized in September 1998. The Company then merged with Nutriceuticals and changed its name to Nutriceuticals.com Corporation. For the three months and nine months ended December 31, 1998 and prior to the acquisition of Nutriceuticals in March 1999, the Company was accounted for on the liquidation basis of accounting. On November 26, 1999, the Company acquired all of the common stock of Becan Distributors, Inc. ("Becan"), a wholesale distributor of pharmaceuticals, over-the-counter drugs, and health and beauty care products. In connection with the acquisition, the Company paid Becan's parent company, Dynamic Health Products, Inc. ("Dynamic") the sum of $2,000,000 in cash and 2,000,000 shares of the Company's restricted common stock in exchange for all of the outstanding shares of Becan common stock. In addition, the Company deposited 1,000,000 shares of common stock of the Company into escrow for future issuance to Dynamic upon the attainment by Becan of certain financial targets for the fiscal years ending March 31, 2000 and 2001. The Company had revenues of $7,170,581 and $7,221,279 for the three months and nine months ended December 31, 1999. Gross profit was $57,610 and $81,717 respectively, for the three month and nine month periods ended December 31, 1999. Gross margin was .8% and 1.16% for the three months and nine months ended September 30, 1999. The decline was primarily attributable to an increase in the mix of sales associated with the acquisition of Becan, which yields a lower gross margin. Selling, general and administrative expenses were $458,800 and $728,918 respectively, for the three month and nine month periods ended December 31, 1999. The Company has no income tax provision for the periods presented due to its net operating losses. These net operating losses may be carried forward for up to 15 years to offset future taxable income. - 9 - Management believes that there was no material effect on operations or the financial condition of the Company as a result of inflation for the three months and nine months ended December 31, 1999. Management also believes that its business is not seasonal; however, significant promotional activities can have a direct impact on sales volume in any given quarter. Interest expense was $32,159 and $36,575 for the three months and nine months ended December 31, 1999 and was a result of increased borrowings for financing of additional working capital needs prior to the success of a public offering during such periods. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations through proceeds received from a public offering. The Company had working capital of $9,391,637 at December 31, 1999. The Company estimates that it will need the proceeds from its public offering for on-going Web site development, marketing, promotions, and for general working capital purposes over the next twelve to eighteen months. Net cash used in operating activities was $1,758,914 for the nine months ended December 31, 1999. The usage of cash is primarily attributable to the net operating loss as well as an increase in accounts receivable ($3,077,922), as a result of increased sales associated with the Becan acquisition, an increase in inventory ($64,287), an increase in prepaid expenses and other current assets ($159,080), an increase in other assets ($12,243), and an increase in accrued expenses ($438,738), partially offset by an increase in accounts payable $2,547,156 associated with the Becan acquisition. Net cash used in investing activities was $2,099,945, representing purchases of property and equipment ($32,783), an increase in intangible assets ($67,162), and cash paid for the acquisition of Becan ($2,000,000). Net cash provided by financing activities was $11,959,870 representing the net change in a revolving line of credit agreement $61,269, proceeds from related party obligations $200,000, and proceeds from the issuance of common stock $11,898,601, partially offset by repayments of related party obligations ($200,000). In November 1998, Becan Distributors, Inc. and its subsidiary, Discount Rx, Inc. established a $2,000,000 line of credit to provide additional working capital to support its continued growth. The note bears interest at the Prime Rate of The Chase Manhattan Bank in New York, New York, plus 1.25% per annum on the unpaid outstanding principal of each advance, payable monthly. The note is secured by a blanket lien on all business assets of Becan and is also secured by personal guarantee from a Director of the Company, Jugal K. Taneja. At December 31, 1999, the outstanding principal balance on the line of credit was approximately $1,750,000. Availability under the line is limited to certain percentages of eligible Inventory and Accounts Receivable as defined. In May 1999, 21st Century Healthcare Fund, LLC, an affiliate of a director of the Company, Jugal K. Taneja, loaned $50,000 to the Company for the purpose of assisting the Company with its working capital needs. The principal sum, together with interest on the unpaid principal balance at an annual rate equal to prime plus one percent, is due and payable on demand at any time following the earlier to occur of either (i) a public offering of the Company's common stock pursuant to a registration statement filed with the Securities and Exchange Commission, or (ii) December 31, 1999. This note has since been repaid. - 10 - In July 1999, Stephen M. Watters, the President of the Company, loaned $70,000 to the Company for the purpose of assisting the Company with its working capital needs. The principal sum, together with interest on the unpaid principal balance at an annual rate equal to prime plus one percent, is due and payable on demand at any time following the earlier to occur of either (i) a public offering of the Company's common stock pursuant to a registration statement filed with the Securities and Exchange Commission, or (ii) December 31, 1999. This note has since been repaid. In August 1999, Carnegie Capital, Ltd., an affiliate of a director of the Company, Jugal K. Taneja, loaned $20,000 to the Company for the purpose of assisting the Company with its working capital needs. The principal sum, together with interest on the unpaid principal balance at an annual rate equal to prime plus one percent, is due and payable on demand at any time following the earlier to occur of either (i) a public offering of the Company's common stock pursuant to a registration statement filed with the Securities and Exchange Commission, or (ii) December 31, 1999. This note has since been repaid. In August 1999, a director of the Company, Howard Howell D.D.S., loaned $50,000 to the Company for the purpose of assisting the Company with its working capital needs. The principal sum, together with interest on the unpaid principal balance at an annual rate equal to prime plus one percent, is due and payable on demand at any time following the earlier to occur of either (i) a public offering of the Company's common stock pursuant to a registration statement filed with the Securities and Exchange Commission, or (ii) December 31, 1999. This note has since been repaid. On September 8, 1999, the Company entered into an Agreement and Plan of Reorganization with Dynamic Health Products, Inc., a Florida corporation, to acquire its wholly-owned subsidiary, Becan Distributors, Inc., an Ohio corporation. On November 26, 1999, the Company acquired Becan in exchange for 2,000,000 shares of restricted common stock and $2,000,000 cash. An additional 1,000,000 shares of common stock are held in escrow in connection with the acquisition to be issued pending the attainment, by Becan, of certain financial targets, for the fiscal years ending March 31, 2000 and 2001. In October 1999, the Company established a $100,000 revolving line of credit with First Community Bank of America, to provide additional working capital for the Company. In November 1999, the borrowing limit on the line of credit was increased to $250,000. The note bears interest at 6.5% per annum on the unpaid outstanding principal of each advance, payable monthly. The note is secured by a guarantee in the form of a Third Party Pledge Agreement in favor of First Community Bank of America, from Dynamic Health Products, Inc., of which Jugal K. Taneja is Chairman and a 33.18% shareholder. The principal on the note is due and payable on October 10, 2000. At December 31, 1999, there was no outstanding principal balance on the line of credit. On November 22, 1999, the Company successfully completed a public offering. Gross proceeds of the offering from the sale of common stock of the Company were $13.8 million and net offering proceeds received by the Company were approximately $11.9 million after payment of underwriting discounts and commissions and other offering expenses totaling $1,931,500. The Company estimates that proceeds received from the offering should be sufficient to satisfy the Company's cash requirements in the next twelve to eighteen months. - 11 - On November 23, 1999, the Company entered into an operating lease for office and warehouse facilities in Largo, Florida that expires on November 30, 2002. Monthly rental payments under the lease are approximately $3,800 through November 30, 2001 and approximately $3,950 thereafter through November 30, 2002. The Company has obtained a commitment for a new line of credit to refinance its existing line of credit and to provide additional working capital for the Company. The new line of credit will enable the Company to borrow a maximum of $5 million, with borrowings limited to 80% of eligible Accounts Receivable and 50% of Inventory (capped at $1 million). Under the terms of the commitment, interest will be variable at a per annum rate equal to the sum of 2.50% plus the 30-day Dealer Commercial Paper Rate (as published in THE WALL STREET JOURNAL). - 12 - PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company may become involved in litigation arising in the ordinary course of its business. The Company is not presently subject to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. - NOT APPLICABLE. ITEM 4. - NOT APPLICABLE. ITEM 5. OTHER INFORMATION. In October 1999, the Company effected a one-for-two reverse stock split of the Common Stock of the Company. The accompanying unaudited condensed consolidated financial statements have been retroactively restated, as of December 31, 1999, to reflect the one-for-two reverse stock split. The Company completed a public offering pursuant to a Registration Statement on Form SB-2 (Registration Statement No. 333-81835) that was declared effective on November 19, 1999. Kashner Davidson Securities Corporation was the managing underwriter and the offering price was $10.00 per share of common stock. A total of 1,380,000 shares of common stock, $.001 par value, were registered and sold for the account of the Company, including 180,000 shares sold upon exercise of the underwriters' over-allotment option. Prior to November 22, 1999, the Company's common stock was quoted on the OTC Electronic Bulletin Board and was traded under the symbol "JCOM". Commencing on November 22, 1999, the Company's common stock is quoted on the Nasdaq SmallCap Market and is traded under the symbol "DMAX". The Company's common stock is also listed on the Boston Stock Exchange under the symbol "DMA". Pursuant to a meeting of the shareholders on January 11, 2000, the name of the Company was changed to DrugMax.com, Inc., by the filing of Articles of Amendment to Articles of Incorporation of Nutriceuticals.com, Corporation. On February 4, 2000, the Company engaged Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ended March 31, 2000, replacing the firm of Kirkland, Russ, Murphy & Tapp, CPAs, which served as the Company's independent auditors for the fiscal year ended March 31, 1999. The change was approved by the Company's audit committee. The reason for the change to a global firm was to better position the Company for access to the public capital markets. - 13 - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. The following exhibits are filed with this report: 2.1 Agreement And Plan Of Reorganization, dated September 8, 1999, by and between Nutriceuticals.com Corporation and Dynamic Health Products, Inc, the sole stockholder of Becan Distributors, Inc. (1) 2.2 Addendum To Agreement And Plan Of Reorganization, dated September 8, 1999, by and between Nutriceuticals.com Corporation and Dynamic Health Products, Inc. 3.1 Articles Of Amendment To Articles Of Incorporation Of Nutriceuticals.com Corporation, dated January 11, 2000 and filed January 11, 2000. 10.1 Loan And Security Agreement between Becan Distributors, Inc. and Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November 30, 1998. 10.2 Line of Credit Agreement in favor of First Community Bank of America, from the Company, dated October 4, 1999. (2) 10.3 Line of Credit Agreement in favor of First Community Bank of America, from the Company, dated November 10, 1999. (2) 10.4 Lease Agreement between Pinellas Center Limited and Becan Distributors, Inc., dated November 23, 1999. 27.1 Financial Data Schedule (for SEC use only). - ----------------- (1) Incorporated by reference to the Company's Registration Statement on Form SB-2, Amendment No. 1, filed September 13, 1999, Registration Statement No. 333-81835. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999, file number 0-24362, filed in Washington, D.C. (b) REPORTS ON FORM 8-K. During the nine months ended December 31, 1999, the Company filed one report on Form 8-K. Form 8-K dated December 10, 1999, with respect to the Company's November 26, 1999 acquisition of Becan Distributors, Inc. - 14 - SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DRUGMAX.COM, INC. Date: February 17, 2000 By: /s/STEPHEN M. WATTERS ---------------------- Stephen M. Watters President, Chief Executive Officer, Chief Financial Officer, and Director EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 2.2 Addendum To Agreement And Plan Of Reorganization, dated September 8, 1999, by and between Nutriceuticals.com Corporation and Dynamic Health Products, Inc. 3.1 Articles Of Amendment To Articles Of Incorporation Of Nutriceuticals.com Corporation, dated January 11, 2000 and filed January 11, 2000. 10.1 Loan And Security Agreement between Becan Distributors, Inc. and Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November 30, 1998. 10.4 Lease Agreement between Pinellas Center Limited and Becan Distributors, Inc., dated November 23, 1999. 27.1 Financial Data Schedule (for SEC use only). EX-2.2 2 EXHIBIT 2.2 ADDENDUM TO AGREEMENT AND PLAN OF REORGANIZATION WHEREAS, September 8, 1999 Nutriceuticals.com Corporation, a Nevada corporation ("Nutriceuticals") entered into an Agreement and Plan of Reorganization with Dynamic Health Products, Inc., a Florida corporation ("Dynamic"), whereby Nutriceuticals agreed to purchase all of the outstanding shares of capital stock of Becan Distributors, Inc., an Ohio corporation ("Becan") with the intent to consummate a tax free reorganization under Internal Revenue Section 368(a)(2)(E) and Section 368(a)(1)(A). In order to carry out the merger, Java Sports.com, Inc. , a recently formed corporation and wholly owned subsidiary of Nutriceuticals with no operations ("Java"), will consummate the merger with Becan, a wholly owned subsidiary of Dynamic. WHEREAS, the Board of Directors of each of Dynamic, Java, Nutriceuticals and Becan have approved and deems it advisable and in the best interest of its respective shareholders to consummate the acquisition of Becan by Nutriceuticals upon the terms and subject to the conditions set forth herein: and NOW, THEREFORE, the parties agree as follows: Java will enter into a merger agreement with Becan whereby Java will merge into Becan and Becan will continue as the surviving corporation. As a result of the Merger, Becan will become a wholly owned subsidiary of Nutriceuticals. This Addendum is dated as of September 8, 1999. NUTRICEUTICALS.COM CORPORATION By: /s/ STEPHEN M. WATTERS ---------------------- Name: Stephen M. Watters Title: President DYNAMIC HEALTH PRODUCTS, INC. By: /s/ KOTHA S. SEHARAM ---------------------- Name: Kotha S. Seharam Title: President EX-3.1 3 EXHIBIT 3.1 FILED THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF NUTRICEUTICALS.COM CORPORATION JAN 11 2000 NO. C 12813-95 /s/ DEAN HELLER - ------------------------------- DEAN HELLER, SECRETARY OF STATE Pursuant to the provisions of the Nevada Revised Statutes, the undersigned corporation does hereby adopt these Articles of Amendment to the Articles of Incorporation and the undersigned officers do hereby certify individually and on behalf of the undersigned corporation as follows: 1. The name of the corporation is Nutriceuticals.com Corporation (the "Company"). The Articles of Incorporation were filed by the Department of the State of Nevada and became effective on October 18, 1999. 2. A new Article One in the Articles of Incorporation of this Corporation shall be as follows: ARTICLE ONE The name of the corporation is DrugMax.com, Inc. 3. This amendment was recommended by the Board of Directors to the Corporation's shareholders on December 6, 1999. 4. On January 11, 2000, the holders of a majority of the outstanding shares of Common Stock of the Corporation, the only class of securities outstanding, adopted this amendment to the Corporation's Articles of Incorporation as a special duly called and convened meeting of such shareholders. The number of votes --- for the amendment by the shareholders was --- for approval. IN WITNESS WHEREOF, the Company has caused these Articles of Amendment to the Articles of Incorporation to be executed this 11th day of January, 2000. NUTRICEUTICALS.COM CORPORATION By: /s/ STEPHEN M. WATTERS ----------------------- Stephen M. Watters, President By: /s/ WILLIAM L. LAGAMBA ---------------------- William L. LaGamba, Secretary ACKNOWLEDGMENT STATE OF FLORIDA COUNTY OF HILLSBOROUGH On this 11th day of January, 2000 before me personally appeared Stephen Watters, who acknowledged to me that he is the President and William LaGamba , who acknowledged to me that he is the Secretary of Nutriceuticals.com Corporation (the "Corporation"), a Florida corporation, and that they have executed the foregoing Articles of Amendment to the Articles of Incorporation of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal on this 11th day of January, 2000. [SEAL] /s/ AMY [ILLEGIBLE] ----------------------- Amy [ILLEGIBLE], Notary Public EX-10.1 4 EXHIBIT 10.1 LOAN AND SECURITY AGREEMENT This Agreement is between the undersigned Borrower and the undersigned Lender concerning loans and other credit accomodations to made by Lender to Borrower. SECTION I. PARTIES 1.1 The "BORROWER" is identified in Section 10.5(c) and its successors and assigns. If more than one Borrower is specified in Section 10.5(c), all references to Borrower shall mean each of them, jointly and severally, individually and collectively, and the successors and assigns of each. 1.2 The "LENDER" is THE CIT GROUP/CREDIT FINANCE, INC. and its agents, designess, representatives, successors and assigns. SECTION 2. LOANS AND OTHER CREDIT ACCOMODATIONS 2.1 REVOLVING LOANS. Lender shall, subject to the terms and conditions contained herein, make revolving loans to Borrower ("REVOLVING LOANS") in amounts requested by Borrower from time to time, but not in excess of the Net Availability existing immediately prior to the making of the requested loan would not cause the outstanding Obligations to exceed the Maximum Credit. (a) The "MAXIMUM CREDIT" is set forth in Section 10.1(a). (b) The "GROSS AVAILABILY" IS at any time (i) the product of the outstanding amount of Eligible Accounts, multiplied by the Eligible Accounts Percentage set forth in Section 10.1(b), PLUS: (ii) the product(s) obtained by multiplying the applicable Eligible Inventory Percentage(s), if any, set forth in Section 10.1(b) by the values (based on the lower of cost, market or appraised value) of Eligible Inventory, but the amount so added shall not exceed any sublimits set forth in Section 10.1(c). (c) The "NET AVAILABILTY" shall be calculated at any time as an amount equal to the Gross Availability minus the aggregate amount of all then-outstanding Obligations to Lender other than the then outstanding principal balance of the Term Loan, if any. (d) "ELIGIBLE ACCOUNTS" are accounts created by Borrower in the ordinary course of its business which are and remain acceptable to Lender for lending purposes. General criteria for Eligible Accounts are set forth below but may be revised from time to time by Lender, in its sole judgment, on fifteen (15) days' prior written notice to Borrower. Lender shall, in general, deem and continue to deem accounts to be Eligible Accounts if: (1) such accounts arise from bona fide completed transactions and have not remained unpaid for more than the number of days after the invoice date set forth in Section 10.1(d); (2) the amounts of the accounts reported to Lender are absolutely owing to Borrower and payment is not conditional or contingent, (such as contingents, guaranteed sales or right of return or other similar terms); (3) the account debtor's chief executive office or place of business is located in the United States; (4) such accounts do not arise from progress billings, retainages or bill and hold sales; (5) there are no contra relationships, setoffs, counterclaims or disputes existing with respect thereto and there are no other facts existing or threatened which would impair or delay the collectibility of all or any portion thereof; (6) the goods giving rise thereto were not at the time of the sale subject to any luens except those permitted in this Agreement; (7) such accounts are not accounts with respect to which account debtor or any officer or employee thereof is an officer, employee or agent of or is affiliated with Borrower, directly or indirectly, whether by virtue of family membership, ownership, control, management or otherwise; (8) there has been compliance with the Assignment of Claims Act or similar State or local law, if applicable, if the account debtor is the United States or any domestic governmental unit; (9) Borrower has delivered to Lender such documents as Lender may have requested pursuant to Section 5.9 hereof in connection with such accounts and Lender shall have received verifications of such accounts, satisfactory to it, if sent to the account debtors or any other obligors or any bailees pursuant to Section 5.5 hereof; (10) there are no facts existing or threatened which might result in any adverse change in the account debtor's financial condition; (11) accounts owed by an account debtor and its affiliates do not represent more than twenty percent (20%) of all otherwise Elibile Accounts (the amount exceeding twenty percent (20%) shall not be eligible); (12) not more than fifty percent (50%) of the accounts of an account debtor or its affiliates owed to Borrower are more than the number of days set forth in Section 10.1(d); (13) such accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the amount of any customer credit limits as established from time to time on notice to Borrower (the amount exceeding the credit limit shall not be eligible); and (14) such accounts are owed by account debtors deemed creditworthy at all times by Lender. (e) "ELIGIBLE INVENTORY" is inventory owned by Borrower which is and remains acceptable to Lender for lending purposes and is located at one of the addresses set forth in Section 10.5(e). (f) Lender shall have a continuing right to reduce the Gross Availability by implementing Reserves ("RESERVES"), and to increase and decrease such Reserves from time to time, if and to the extent that, in Lender's sole judgment, such Reserves are necessary to protect Lender against any state of facts which does, or would, with notice or passage of time or both, constitute an Event of Default or have an adverse effect on any collateral. (g) If a voluntary or involuntary petition under the Bankruptcy Code is filed against the Borrower, then Lender need not make loans. (h) Revolving Loans will not at any time exceed the Gross Availability unless Lender has consented. 2 2.2 TERM LOAN. Lender shall make Term Loans to Borrower on the terms and conditions set forth in Section 10.2 ("TERM LOAN"). The Term Loan balance shall automatically be accelerated and become due and payable upon termination of this Agreement. 2.3 ACCOMMODATIONS. Lender may, in its sole discretion, issue or cause to be issued, from time to time at Borrower's request and on terms and conditions and for purposes satisfactory to Lender, credit accommodations consisting of letters of credit, bankers' acceptances, merchandise purchasing guaranties or other guaranties or indemnities for Borrower's account ("ACCOMMODATIONS"). Borrower shall execute and perform additional agreements relating to the Accommodations in form and substance acceptable to Lender and the issuer of any Accommodations, all of which shall supplement the rights and remedies granted herein. Any payments made by Lender or any affiliate of Lender in connection with the Accommodations shall constitute additional Revolving Loans to Borrower. SECTION 3. INTEREST AND FEES 3.1 INTEREST. (a) Interest on the Revolving Loans and Term Loans shall be payable by Borrower on the first day of each month, calculated upon the closing daily balances in the loan account of Borrower for each day during the immediately preceding month, at the per annum rate set forth as the Interest Rate in Section 10.3(a). The Interest Rate shall increase or decrease by an amount equal to each increase or decrease, respectively, in the Prime Rate (as defined below), effective as of the date of each such change. On and after any Event of Default or termination or non-renewal hereof, interest on all unpaid Obligations shall accrue at a rate equal to two percent (2%) per annum in excess of the Interest Rate otherwise payable until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against Borrower or the exercise of any other right or remedy by Lender), and all such interest shall be payable on demand. Interest shall in no month be less than the Interest Rate multiplied by the Minimum Borrowing set forth in Section 10.1(e). In no event shall charges constituting interest exceed the rate permitted under any applicable law or regulation, and if any provision of this Agreement is in contravention of any such law or regulation, such provision shall be deemed amended to conform thereto. (b) The "PRIME RATE" is the rate of interest publicly announced by The Chase Manhattan Bank in New York, New York, or its successors and assigns from time to time as its prime rate. 3.2 FEES. Borrower shall pay to Lender: (a) CLOSING FEE. At closing, payable in the amount set forth in SECTION 10.3(c)., (b) FACILITY FEE. A Facility Fee (fully earned at closing or the beginning of any renewal term) payable as set forth in Section 10.3(d). 3 (c) ACCOUNT SERVICING FEE. Monthly, on the first day of each month during the initial and each renewal Term an Account Servicing Fee for the immediately preceeding month (or part thereof) in the amount set forth in Section 10.3(e). (d) UNUSED LINE FEE. Monthly, on the first day of each month, in arrears, an Unused Line Fee for each month during the initial and each renewal Term at the rate per annum set forth in Section 10.3(f), calculated upon the amount, if any, by which the Maximum Credit exceeds the greater of the Minimum Borrowing or the average outstanding daily principal balance during the preceding month of all Revolving Loans, Accommodations and any Term Loan. SECTION 4. GRANT OF SECURITY INTEREST 4.1 GRANT OF SECURITY INTEREST. To secure the payment and performance in full of all Obligations, Borrower hereby grants to Lender a continuing security interest in and lien upon, and a right of setoff against, and Borrower hereby assigns and pledges to Lender, all of the Collateral, including any Collateral not deemed eligible for lending purposes. 4.2 "OBLIGATIONS" shall mean any and all Revolving Loans, Term Loans, Accommodations and all other indebtedness, liabilities and obligations of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended and whether arising directly or howsoever acquired by Lender including from any other entity outright, conditionally or as collateral security, by assignment, merger with any other entity, participations or interests of Lender in the obligations of Borrower to others, assumption, operation of law, subrogation or otherwise and shall also include all amounts chargeable to Borrower under this Agreement or in connection with any of the foregoing. 4.3 "COLLATERAL" shall mean all of the following property of Borrower: (a) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of all: accounts, interests in goods represented by accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; chattel paper; investment property; general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill processes, drawings, blueprints, customer lists, licences, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment and fixtures); documents; instruments; letters of credit, bankers' acceptances or guaranties; cash moneys, deposits, securities, bank acccounts, deposit accounts, credit and other property now or hereafter held in any capacity by Lender, its affiliates or any entity which, at any time, participates in Lender's financing of Borrower or at any other 4 depository or other institution; agreements or property securing or relating to any of the items referred to above; (b) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of goods, including, but not limited to: (i) All inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials; work-in-process, finished goods, and materials to be used or consumed in Borrower's business; and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof; (ii) All equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, equipment, motor vehicles, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto; and (iii) All consumer goods, farm products, crops, timber, minerals or the like (including oil and gas), wherever located, whether now owned or hereafter acquired, or whatever kind, nature or description; (c) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of any personal property in or upon which Borrower has or may hereafter have a security interest, lien or right of setoff; (d) All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Borrower, any computer service bureau or other third party; and (e) All products and proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing. SECTION 5. COLLECTION AND ADMINISTRATION 5.1 COLLECTIONS. Borrower will, at its expense as Lender requests, direct that all remittances and all other proceeds of accounts and other Collateral be sent to a lock box designated by Lender, and deposited into a bank account selected by Lender with arrangements with the bank providing that all funds deposited in the bank account are to be transferred solely to Lender. Borrower shall bear all risk of loss of any funds deposited into such account. In connection therewith, Borrower shall execute such lock box and bank account agreements as Lender shall specify. Any collections or other proceeds received by Borrower shall be held in trust for Lender and immediately remitted to Lender in kind. 5.2 CHARGES TO LOAN ACCOUNT. At Lender's option, all payments of principal, interest, fees, costs, expenses and other charges provided for in this Agreement, or in any other 5 agreement now or hereafter existing between Lender and Borrower, may be charged on the date when due, as principal to any loan account of Borrower maintained by Lender. Interest, fees for Accomodations, the Unused Line Fee and any other amounts payable by Borrower to Lender based on a per annum rate shall be calculated on the basis of actual days elapsed over a 360-day year. 5.3 PAYMENTS. All Obligations shall be payable at Lender's Office set forth in Section 10.5(a) or at Lender's bank designated in Section 10.5(b) or at such other bank or place as Lender may expressly designate from time to time for purposes of this Section. Lender shall apply all proceeds of accounts or other Collateral received by Lender and all other payments in respect of the Obligations to the Revolving Loans or to any other Obligations then due, in whatever order or manner Lender shall determine. For purposes of determining Gross Availability and Net Availability and for the calculation of the Minimum Borrowing remittances and other payments will be treated as credited to the loan account of Borrower maintained by Lender and Collateral balances to which they relate, upon the date of Lender's receipt of advice from Lender's bank that such remittances or other payments have been credited to Lender's account or in the case of remittances or other payments received directly in kind by Lender, upon the date of Lender's deposit thereof at Lender's bank, subject to final payment and collection. In computing interest charges, the loan account of Borrower will be credited with remittances and other payments for the number of days set forth in Section 10.3(b) after the day Lender has received advice of receipt of remittances in Lender's account at Lender's Bank. For purposes of this Agreement " BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which Lender or banks located in states where Lender has its offices, are authorized to close. 5.4 LOAN ACCOUNT STATEMENTS. Lender shall render to Borrower monthly a loan account statement. Each statement shall be considered correct and binding upon Borrower as an account stated, except to the extent that Lender receives, within sixty (60) days after the mailing of such statement, written notice from Borrower of any specific exceptions by Borrower to that statement. 5.5 DIRECT COLLECTIONS. Lender may, at any time, (a) notify any account debtor that the accounts and other Collateral which includes a monetary obligation have been assigned to Lender by Borrower and that payment thereof is to be made to the order of and directly to Lender, (b) send, or cause to be sent by its designee, requests (which may identify the sender by a pseudonym) for verification by telephone, in writing or otherwise of accounts and other Collateral directly to any account debtor or any other obligor or any bailee with respect thereto, (c) demand, collect or enforce payment of any accounts or such other Collateral, but without any duty to do so, and Lender shall not be liable for any failure to collect or enforce payment thereof, (d) take or bring, in the name of Lender or Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or desirable to effect collection of or other realization upon the accounts and other Collateral, (e) after an Event of Default, change the address for delivery of mail to Borrower and to receive and open mail addressed to Borrower, and (f) after an Event of Default, extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all accounts or other Collateral which includes a monetary obligation and discharge or release the account debtor or other obligor, without affecting any of the Obligations. At Lender's request, all invoices and statements sent to 6 any account debtor, other obligor or bailee, shall state that the accounts and such other Collateral have been assigned to Lender and are payable directly and only to Lender. 5.6 ATTORNEY-IN-FACT. Borrower hereby irrevocable appoints Lender as Borrower's attorney-in-fact and authorizes Lender at Borrower's sole expense, to exercise at any times in Lender's discretion all or any of the powers necessary for Lender to obtain information about the Collateral or to enforce Lender's rights. 5.7 LIABILITY. Borrower hereby releases and exculpates Lender, its officers and employees from any liability arising from any acts under this Agreement or in furtherance thereof, except for gross negligence or willful misconduct. Lender will not have any liability to Borrower for lost profits or other special or consequential damages. 5.8 ADMINISTRATION OF ACCOUNTS. After written notice by Lender to Borrower or without notice after an Event of Default, Borrower shall not, (a) amend, modify, settle or compromise any of the accounts or any other Collateral which includes a monetary obligation, (b) release in whole or in part any account debtor or other person liable for the payment of any of the accounts or any such other Collateral, or (c) grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of the accounts or any such other Collateral. 5.9 DOCUMENTS. Borrower shall deliver to Lender, as Lender may request, all documents, schedules, invoices, proofs of delivery, purchase orders, statements, contracts and all other information evidencing or relating to the Collateral, in form and substance satisfactory to lender and duly executed by Borrower. Without limiting the provisions of Section 5.5., Borrower's granting of credits, discounts, allowances, deductions, return authorizations or the like will be promptly reported to Lender in writing. In no event shall any schedule or confirmatory assignment (or the absence thereof or omission of any of the accounts or other Collateral therefrom) limit or in any way be construed as a waiver, limitation or modification of the security interests or rights of Lender or the warranties, representations and covenants of Borrower under this Agreement. Any documents, schedules, invoices or other paper delivered to Lender by Borrower may be destroyed or otherwise disposed of by Lender six (6) months after receipt by Lender, unless Borrower requests their return in writing in advance and makes prior arrangements for their return at Borrower's expense. 5.10. ACCESS. Lender shall have access, prior to an Event of Default during reasonable business hours and on or after an Event of Default at any time, to all of the premises where Collateral is located for the purposes of inspecting or copying the Collateral, and all Borrower's books and records. Lender, at no charge, may use such of Borrower's personnel, equipment, including computer equipment, programs, printed output and computer readable media, supplies and premises for the collection of accounts and realization on other Collateral as Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Lender at Borrower's expense all financial information, books and records, work papers, management reports and other information in their possession regarding Borrower. 7 5.11 ENVIRONMENTAL AUDITS. Fom time to time, but not more frequently than semi-annually (provided Borrower is not in default) as requested by Lender, at the sole expense of Borrower, Borrower shall provide Lender, or its designee, complete access to all of Borrower's facilities for the purpose of conducting an environmental audit of such facilities as Lender may deem necessary. SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Borrower hereby represents, warrants and covenants to lender the following, the truth and accuracy of which, and compliance with which, shall be continuing conditions of the making of loans or other credit accommodations by Lender to Borrower: 6.1 FINANCIAL AND OTHER REPORTS. Borrower shall keep and maintain its books and records in accordance with generally accepted accounting principles, consistently applied. Borrower shall, at its expense, deliver to Lender (a) true and complete monthly agings of its accounts receivable, accounts payable and notes payable on or before the fifteenth (15th) day of each month; (b) weekly inventory reports within 2 business days after the end of each week; and (c) monthly internally prepared interim financial statements on or before the twenty-fifth day (25th) of the following month. Annually, Borrower shall deliver audited financial statements of Borrower accompanied by the report and opinion thereon of independent certified public accounts acceptable to Lender, as soon as available, but in such form and together with such information with respect to the business of Borrower or any Guarantor, as Lender may in each case request. 6.2 TRADE NAMES. Borrower may from time to time render invoices under its trade names set forth in Section 10.5(g) and, Borrower represents that: (a) each trade name does not refer to another corporation or other legal entity, (b) all accounts and proceeds thereof (including any returned merchandise) invoiced under any such trade names are owned exclusively by Borrower and (c) Lender may receive, endorse and deposit to any loan account of Borrower maintained by Lender all checks or other remittances made payable to any trade name of Borrower representing payment with respect to such sales or services. 6.3 LOSSES. Borrower shall promptly notify Lender in writing of any loss, damage, investigation, action, suit, proceeding or claim relating to a material portion of the Collateral or which may result in any material adverse change in Borrower's business, assets, liabilities or condition, financial or otherwise. 6.4 BOOKS AND RECORDS. Borrower's books and records concerning accounts and its chief executive office are and shall be maintained only at the address set forth in Section 10.5(d). Borrower's only other places of business and the only other locations of Collateral, if any, are and shall be the addresses set forth in Section 10.5(f) hereof, except Borrower may change such locations or open a new place of business after thirty (30) days prior written notice to Lender. Borrower shall execute and deliver or cause to be executed and delivered to Lender 8 such financing statements, amendments, financing documents and security and other agreements as Lender may reasonably require. 6.5 TITLE. Borrower has and at all times will continue to have good and marketable title to all of the Collateral, free and clean of all liens, security interests, claims or encumbrances of any kind in favor of Lender and except, if any, those set forth on Schedule A hereto. 6.6 DISPOSITION OF ASSETS. Borrower shall not directly or indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of any part of the Collateral or any material portion of its other assets (other than sales of inventory to buyers in the ordinary course of business) or (b) consolidate with or merge with or into any other entity, or permit any other entity to consolidate with or merge with or into Borrower or (c) form or acquire any interest in any firm, corporation or other entity. 6.7 INSURANCE. Borrower shall at all times maintain, with financially sound and reputable insurers, adequate insurance (including, without limitation, at the option of Lender, earthquake and flood insurance) with respect to the Collateral and other assets. All such insurance policies shall be in such form, substance, amounts and coverage as may be satisfactory to Lender and shall provide for thirty (30) days' prior written notice to Lender of cancellation or reduction of coverage. Lender may obtain at Borrower's expense, any such insurance should Borrower fail to do so and adjust or settle any claim or other matter under or arising pursuant to such insurance or to amend or cancel such insurance. Borrower shall provide evidence of such insurance and a lender's loss payable endorsement satisfactory to Lender. Borrower shall deliver to Lender, in kind, all istruments representing proceeds of insurance received by Borrower. Lender may apply any insurance proceeds received at any time to the cost of repairs to or replacement of any portion of the Collateral and/or, at Lender's option, to payment of or a security for any of the Obligations in any order or manner as Lender determines. 6.8. COMPLIANCE WITH LAWS. Borrower is and at all times will continue to be in compliance with the requirements of all material laws, rules, regulations and orders of any governmental authority relating to its business (including laws, rules, regulations and orders relating to income, withholding, excise, property and social security taxes, minimum wages, employee retirement and welfare benefits, employee health and safety, or environmental matters) and all material agreements or other instruments binding on Borrower or its property. Borrower shall pay and discharge all taxes, assessments and governmental charges against Borrower or any Collateral when due, unless the same are being contested in good faith. Lender may establish Reserves for the amount contested and penalties which may accrue thereon. 6.9 ACCOUNTS. With respect to each account deemed an Eligible Account, except as reported in writing to Lender, Borrower has no knowledge that any of the criteria for eligibility are not or are no longer satisfied and the Eligibility criteria will continue to be satisfied. All statements made and all unpaid balances and other information appearing in the invoices, agreements, proofs of rendition of services and delivery of goods and other documentation relating to the accounts, and all confirmatory assignments, schedules, statements of account and books and records with respect thereto, are true and correct and in all respects what they purport to be. 9 6.10 EQUIPMENT. With respect to Borrower's equipment, Borrower shall keep the equipment in good order and repair, and in running and marketable condition, ordinary wear and tear expected. 6.11 FINANCIAL COVENANTS. Borrower shall at all times maintain working capital and net worth (each as determined in accordance with generally accepted accounting principles, in effect on the date hereof, consistently applied) in the amounts set forth in Section 10.4(a) and (b) respectively and Borrower shall not, directly or indirectly, expend or commit to expend, for fixed or capital assets (including capital lease obligations) an amount in excess of the capital expenditure limit set forth in Section 10.4(c) in any fiscal year of Borrower. 6.12 AFFILIATED TRANSACTIONS. Borrower will not, directly or indirectly: (a) lend or advance money or property to, guarantee or assume indebtedness of, or invest (by capital contribution or otherwise) in any person, firm, corporation or other entity; or (b) declare, pay or make any dividend, redemption or other distribution on account of any shares of any class of stock of Borrower now or hereafter outstanding; or (c) make any payment of the principal amount of or interest on any indebtedness owing to any officer, director, shareholder, or affiliate of Borrower; or (d) make any loans or advances to any officer, director, employee, shareholder or affiliate of Borrower, (e) enter into any sale, lease or other transaction with any officer, director, employee, shareholder or affiliate of Borrower on terms that are less favorable to Borrower than those which might be obtained at the time from persons who are not an officer, director, employee, shareholder or affiliate of Borrower. 6.13 FEES AND EXPENSES. Borrower shall pay, on Lender's demand, all costs, expenses, filing fees and taxes payalbe in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement and all other existing and future agreements or documents contemplated herein or related hereto, including any amendments, waivers, supplements or consents which may hereafter be made or entered into in respect hereof, or in any way involving claims or defense asserted by Lender or claims or defense against Lender asserted by Borrower, any guarantor or any third party directly or indirectly arising out of or related to the relationship between Borrower and Lender or any guarantor and Lender, including, but not limited to the following, whether incurred before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower or any guarantor under the United States Backruptcy Code or any similar statute: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees, fees incurred in connection with any environmental report, audit or survey and search fees; (c) all fees as then in effect relating to the wire transfer of loan proceeds and other funds and fees then in effect for returned checks and credit reports; (d) all expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations including field examiner travel, food and lodging, plus a per diem charge at the rate set forth in Section 10.3(g) for Lender's examiners in the field and office; and (e) the costs, disbursements and fees of in-house and outside counsel to Lender, including but not limited to such fees and disbursements incurred as a result of a workout, restructuring, reorganization, 10 liquidation, insolvency proceeding or litigation between the parties hereto, any third party and in any appeals arising therefrom. 6.14 FURTHER ASSURANCES. At the request of Lender, at any time and from time to time, at Borrower's sole expense, Borrower shall execute and deliver or cause to be executed and delivered to Lender, such agreements, documents and instruments, including waivers, consents and subordination agreements from mortgages or other holders of security interests or liens, landlords or bailees, and do or cause to be done such further acts as Lender, in its discretion, deems necessary or desirable to create, preserve, perfect or validate any security interest of Lender in the Collateral and otherwise to effectuate the provisions and purposes of this Agreement. Borrower hereby authorizes Lender to file financing statements or amendments against Borrower in favor of Lender with respect to the Collateral, without Borrower's signature and to file as financing statements any carbon, photographic or other reproductions of this Agreement or any financing statements signed by Borrower. 6.15 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets has ever been designated or identified in any mannner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Aency or any other federal or state governmental agency any action or omission by Borrower resulting in the releasing, or otherwise exposing of hazardous waste or hazardous substances into the environment. Borrower is and will continue to be in compliance (in all material respects) with all statutes, regulations, ordinances and other legal requirements pertaining to the production, storage, handling, treatment, release, transportation or disposal of any hazardous waste or hazardous substance. 6.16 YEAR 2000 COMPLIANCE. The Borrower shall take all action necessary to assure that its computer-based systems are able to effectively process data including dates and date sensitive functions. The Borrower represents and warrants that the Year 2000 problem will not result in a material adverse effect on the Borrowers's business condition. Upon request, the Borrower shall provide assurance acceptable to the Lender that the Borrower's computer systems and software are or will be Year 2000 compliant on a timely basis. The Borrower shall immediately advise Lender in writing of any material changes in the Borrower's Year 2000 plan, timetable or budget. 6.17 STATE OF INCORPORATION. If Borrower is a corporation, it is duly organized, existing and in good standing under the laws of the state set forth in Section 10.5(h). SECTION 7. EVENTS OF DEFAULT AND REMEDIES 7.1 EVENTS OF DEFAULT. All Obligations shall be immediately due and payable, without notice or demand, and any provisions of this Agreement as to future loans and credit accommodations by Lender shall terminate automatically, upon the termination or non-renewal of 11 this Agreement or, at Lender's option, upon or at any time after the occurrence or existence of any one or more of the following "EVENTS OF DEFAULT": (a) Borrower fails to pay when due any of the Obligations or fails to perform any of the terms of this Agreement or any other existing or future financing, security or other agreement between Borrower and Lender or any affiliate of Lender; (b) Any representation, warranty or statement of fact made by Borrower to Lender in this Agreement or any other agreement, schedule, confirmatory assignment or otherwise, or to any affiliate of Lender, shall prove inaccurate or misleading; (c) Any guarantor revokes, terminates or fails to perform any of the terms of any guaranty, endorsement or other agreement of such party in favor of lender or any affiliate of Lender; (d) Any judgment or judgments aggregating in excess of the amount set forth in Section 10.5 (i) or any injunction or attachment is obtained against Borrower or any guarantor, which remains unstayed for a period of ten (10) days or is enforced; (e) Borrower or any guarantor dies or ceases to exist or the usual business of Borrower or any guarantor ceases or is suspended; (f) Any change in the chief executive officer, chief operating officer, or controlling ownership of Borrower; (g) Borrower or any guarantor becomes insolvent, makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a general meeting of its creditors or principal creditors; (h) Any petition or application for any relief under the bankruptcy laws of the United States now or hereafter in effect or threatened commencement of criminal or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed by or against Borrower or any guarantor; (i) The indictment or threatened indictment of Borrower or any guarantor under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower or any guarantor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such guarantor which Lender believes may have a material adverse effect on the Collateral or Borrower's business; (j) Any default or event of default occurs on the part of Borrower under any material agreement, document or instrument to which Borrower is a party or by which Borrower or any of its property is bound; 12 (k) Lender in good faith believes that either (i) the prospect of payment or performance of the Obligations is impaired or (ii) the Collateral is not sufficient to secure fully the Obligations; or (l) Any material change occurs in the nature or conduct of Borrower's business. 7.2 REMEDIES. Upon the occurrence of an Event of Default and at any time thereafter, Lender shall have all rights and remedies provided in this Agreement, any other agreements between Borrower and Lender, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to Borrower, all such notices being hereby waived, except such notice as is expressly provided for hereunder or is not waivable under applicable law. All rights and remedies of lender are cumulative and not exclusive and are enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions and in any order Lender may determine. Without limiting the foregoing, Lender may (a) accelerate the payment of all Obligations and demand immediate payment thereof to Lender, (b) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Colleteral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (c) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (e) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, by public or private sales at any exchange, broker's board, any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or eqity of redemption is hereby expressly waived and released by Borrower. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, then (10) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. 7.3 APPLICATION OF PROCEEDS. Lender may apply the cash proceeds of Collateral other than accounts actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of any of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrower shall remain liable to Lender for the payment of any deficiency together with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including reasonable attorneys' fees and legal expenses. 7.4 LENDER'S CURE OF THIRD PARTY AGREEMENT DEFAULT. Lender may, at its option, cure any default by Borrower under any agreement with a third party or pay or bond on appeal any 13 judgment entered against Borrower, discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and pay any amount, incur any expense or perform any act which, in Lender's sole judgment, is necessary or appropriate to preserve, protect, insure, maintain, or realize upon the Collateral. Lender may charge Borrower's loan account for any amounts so expended, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect sure cure, payment, bonding or discharge, and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS 8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES. 8.2 COUNTERCLAIMS. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any kind, nature or description in any action or proceeding instituted by Lender with respect to this Agreement, the Obligations, the Collateral or any matter arrising therefrom or relating thereto, except compulsory counterclaims. 8.3 JURISDICTION. Borrower hereby irrevocably submits and consents to the conexclusive jurisdiction of the State and Federal Courts located in the State in which the office of Lender designated in Section 10.5(a) is located and any other State where any Collateral is located with respect to any action or proceeding arising out of this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating thereto. In any such action or proceeding, Borrower waives personal service of the summons and compalint or other process and papers therein and agrees that the service thereof may be made by mail directed to Borrower at its chief executive office set forth herein or other address thereof of which Lender has received notice as provided herein, service to be deemed complete five (5) days after mailing, or as permitted under the rules of either of said Courts. Any such action or proceeding commenced by Borrower against Lender will be litigated only in a Federal Court located in the district, or a State Court in the State and County, in which the office of Lender designated in Section 10.5(a) is located and Borrower waives any objection based on FORUM NON CONVENIENS and any objection to venue in connection therewith. 8.4 NO WAIVER BY LENDER. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. A waiver by Lender of any right or remedy on any one occasion shall be construed as a bar to or waiver of any such right 14 or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS 9.1 TERM. This agreement shall only become effective upon execution and delivery by Borrower and Lender and shall continue in full force and effect for a term set forth in Section 10.6 from the date thereof and shall be deemed automatically renewed, based upon all of the terms and provisions of this Agreement, for successive terms of equal duration thereafter unless terminated as of the end of the initial or any renewal term (each a "TERM") by either party giving the other written notice at least sixty (60) days' prior to the end of the then current Term. 9.2 EARLY TERMINATION. Borrower may also terminate this Agreement by giving Lender at least thirty (30) days prior written notice and payment in full of all of the Obligations as provided herein, including the Early Termination Fee, unpaid Facility Fee and any other fees. Thirty days after receipt of such early termination notice, Lender need not make any further loans or accommodations. Lender shall also have the right to terminate this Agreement at any time upon or after the occurrence of an Event of Default. If Lender terminates this Agreement upon or after the occurrence of an Event of Default, Borrower shall pay Lender forthwith, in full, payment in all Obligations, including Early Termination Fee, Facility Fee and any other fees. In view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits, the Early Termination Fee shall be the percentage of the Maximum Credit set forth in Section 10.3(h). 9.3 TERMINATION INDEMNITY DEPOSIT. Upon termination of this Agreement by Borrower, as permitted herein, in addition to payment of all Obligations which are not contingent, Borrower shall deposit such amount of cash collateral as Lender determines is necessary to secure Lender from loss, cost, damage or expense, including reasonable attorneys' fees, in connection with any open Accommodations or remittance items or other payments provisionally credited to the Obligations and/or to which Lender has not yet received final and indefeasible payment. 9.4 NOTICES. Except as otherwise provided, all notices, requests and demands hereunder shall be (a) made to Lender at its address set forth in Section 10.5(a) and to Borrower at its chief executive office set forth in Section 10.5(d), or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if by hand, immediately upon delivery; if by telex, telegram or telecopy (fax), immediately upon receipt; if by overnight delivery service, one day after dispatch; and if by first class or certified mail, three (3) days after mailing. 9.5 SEVERABILITY. If any provision of this Agreement is held to be invalid or unenforceable, such provision shall not affect this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable. 15 9.6 ENTIRE AGREEMENT; AMENDMENTS; ASSIGNMENTS. This Agreement contains the entire agreement of the parties as to the subject matter hereof, all prior commitments, proposals and negotiations concerning the subject matter hereof being merged herein. Neither this Agreement nor any provision hereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns, except that any obligation of Lender under this Agreement shall not be assignable nor inure to the sucessors and assigns of Borrower. 9.7 DISCHARGE OF BORROWER. No termination of this Agreement shall relieve or discharge Borrower of its Obligations, grants of Collateral, duties and covenants hereunder or otherwise until such time as all Obligations to Lender have been indefeasibly paid and satisfied in full, including, without limitation, the continuation and survival in full force and effect of all security interest and liens of Lender in and upon all then existing and thereafter-arising or acquired Collateral and all warranties and waivers of Borrower. 9.8 USAGE. All terms used herein which are defined in the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement and all references to the singular or plural herein shall also mean the plural or singular, respectively. 9.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State in which the office of Lender set forth in Section 10.5(a) below is located. SECTION 10. ADDITIONAL DEFINITIONS AND TERMS 10.1 (a) Maximum Credit $2,000,000 (b) Gross Availability Formulas: Eligible Accounts Percentage: 85% provided that the Dilution Percentage does not exceed 4%. The Dilution Percentage is the sum of Borrower's credits, allowances, discounts, write-offs, contra-accounts and offsets and deductions which reduce the value of accounts receivable divided by gross invoices. The Dilution Percentage shall be calculated on a rolling 90 day average. If the Dilution Percentage exceeds 4% then Lender may reduce the Eligible Accounts Percentage to a percentage satisfactory to Lender. Eligible Inventory Percentages: Finished Goods 60% (c) Inventory Sublimit(s): Not to exceed 50% of the outstanding advances against the Accounts (d) Maximum days after Invoice Date for Eligible Accounts: 90 Days 16 (e) Minimum Borrowing: $750,000 10.2 Term Loan: (a) amount N/A (b) monthly amortization N/A (c) maturity date N/A 10.3 Interest, Fees & Charges: (a) Interest Rate: Prime Rate plus 1.25% per annum (b) Clearance: 3 Business Days (c) Closing Fee: $5,000 (d)(1) Facility Fee for Initial Term: First Anniversary: 0.5% of the Maximum Credit Second Anniversary 0.5% of the Maximum Credit (2) Facility Fee for Renewal Term: Renewal Date: 0.5% of the Maximum Credit First Anniversary: 0.5% of the Maximum Credit Second Anniversary: 0.5% of the Maximum Credit (e) Account Servicing Fee: N/A (f) Unused Line Fee: per annum N/A (g) Legal Documentation Fee in connection with Closing $3,500.00 plus out-of-pocket expenses (g) Field Examination per diem charge per examiner $650.00 (h) Early Termination Fee: First year: 3% of the Maximum Credit Second year: 2% of the Maximum Credit Third year and thereafter: 1% of the Maximum Credit 10.4 Financial Covenants: (a) Working Capital: N/A (b) Net Worth: N/A (c) Capital Expenditures; per fiscal year N/A 10.5 (a) Lender's Office: 10 S. LaSalle Street Chicago, Illinois 60603 (b) Lender's Bank: Bank of America Illinois 231 S. LaSalle Street Chicago, IL 60697 (c) Borrower: Becan Distributors, Inc. Discount RX, Inc. (d) Borrower's Chief Executive Office: Becan Distributors, Inc. 275 Curry Hollow Road 17 Pittsburgh, PA 15236 Discount RX, Inc. 5200 Hwy. 22, Suite 12 Mandeville, LA 70471 (e) Locations of Eligible Inventory Collateral: Becan Distributors, Inc. 275 Curry Hollow Road Pittsburgh, PA 15236 Discount RX, Inc. 5200 Hwy. 22, Suite 12 Mandeville, LA 70471 (f) Borrower's Other Offices and Locations of Collateral: N/A (g) Borrower's Trade Names for Invoicing: N/A (h) Borrower's State of Incorporation: Becan Distributors, Inc.: Ohio Discount RX, Inc.: Louisiana (i) Judgment Amount $25,000 10.6 Term: 3 Years 10.7 MULTIPLE BORROWERS: The "Borrower" as defined in Section 1.1 and identified in Section 10.5(c) consists of two "Borrowers". A request for a Revolving Loan shall be made by a particular Borrower, with all relevant determinations with respect to such request to be based on such Borrower's individual criteria, such as the amount of its Eligible Accounts, Eligible Inventory, and Net Availability. Notwithstanding the foregoing, the maximum aggregate amount outstanding for all Borrowers shall at no time exceed $2,000,000. Except as provided in this Section 10.7 and as otherwise specifically provided, "Borrower" shall be defined as set forth in Section 1.1 hereof. 18 IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement this 30th day of November, 1998. LENDER BORROWER: THE CIT GROUP/CREDIT BECAN DISTRIBUTO5RS, INC. FINANCE, INC. By: /s/ RICHARD A. SIMONS By: /s/ PHILLIP LAIRD --------------------------- -------------------------- Phillip Laird Title: S.V.P. President ------------------------ DISCOUNT RX, INC. By: /s/ PHILLIP LAIRD -------------------------- Phillip Laird Treasurer 19 SCHEDULE A PERMITTED LIENS NONE 20 EX-10.4 5 EXHIBIT 10.4 PINELLAS CENTER LIMITED LEASE This lease ("Lease") is made this 23rd day of November, 1999, by and between PINELLAS CENTER LIMITED, ("Landlord"), whose address is 15201 Roosevelt Boulevard, Suite 112, Clearwater, FL 33760, and BECAN DISTRIBUTORS, INC., ("Tenant"), whose address is 6950 Bryan Dairy Road, Largo, Florida 33777. 1. TERM. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the following property ("Premises"): Aproximately 6,500 square feet comprised of 3,550 square feet of air conditioned office space and 2,950 square feet of air conditioned warehouse space located at 12505 Starkey Road, Suite A, Largo, FL 33773 for a term ("Term") of three (3) years commencing on the 1st day of December, 1999 ("Commencement Date") and ending on the 30th day of November, 2002 ("Expiration Date"). 2. RENT: Tenant agrees to pay Landlord without demand, deduction or offset, together with all sales and use taxes levied upon the use and occupancy of the Premises, at the address of Landlord hereinabove set forth or at such other place as Landlord may in writing designate, an initial annual rent ("Rent") of SEE ATTACHED ADDENDUM TO LEASE #1, plus applicable sales tax, payable in equal monthly installments of SEE ATTACHED ADDENDUM TO LEASE #1, plus applicable sales tax. Tenant shall pay the first monthly installment of Rent (and any pro-rated amounts) on the execution hereof. All Rent is payable in advance, on the first day of each month and without demand, deduction or offset. If any monthly payment of Rent is not received by Landlord within seven (7) days from the date it is due, a "late charge" of six percent (6%) of such payment shall be due Landlord as "Additional Rent" and to compensate Landlord administratively for its having to receive and handle monies untimely paid. 3. USE. Tenant shall use and occupy the Premises only for office and storage of pharmaceuticals incidental to the normal and customary conduct of its current business operation and for absolutely no other purpose. NO USE CONSIDERED HAZARDOUS BY LANDLORD'S INSURER SHALL BE PERMITTED. 4. DELAY. If Landlord is unable to deliver possession of the Premises on the anticipated date of the commencement of the term (see Paragraph 1), because the occupant refuses to give up possession, or for any other reason whatsoever, Landlord shall not be liable for failure to deliver possession on said date, but the Rent payable shall be abated until Landlord tenders possession to Tenant. The Expiration Date of the Lease shall not be extended as a result thereof. 5. SECURITY DEPOSIT. Tenant has delivered to Landlord the sum of $3,800.00 as a security deposit for the full and faithful performance by Tenant of the terms hereof, such security deposit to be returned, less any sums required to enforce the terms of this Lease, to Tenant after the Expiration Date and after Tenant has vacated the Premises and upon the full and timely performance by Tenant of the provisions of the Lease on its part to be performed. Tenant may not under any circumstances use the security deposit as Rent. Landlord shall have the right to apply any part of the security deposit to cure any non-performance by Tenant and if Landlord does so, Tenant shall upon demand deposit with Landlord the amount so applied, in order to restore the deposit to its original amount. The Real Estate Broker(s) involved in this Lease transaction shall not be in receipt of the security deposit and shall not be responsible for the care, deposit or return of same. 6. UTILITIES AND SERVICE AND TAXES. Landlord will only pay for normal water consumption, and sewer charges for washroom facilities. Tenant shall pay for all other utilities, including, but not limited to, all other water and sewer charges (as Additional Rent) and electricity. Landlord shall not be liable for damages to Tenant's business and/or inventory or for any other claim by or through Tenant resulting from an interruption in utility services. Landlord will pay all real property taxes and assessments. 7. ASSIGNMENT/SUBLEASE. Neither Tenant nor Tenant's legal representatives or successors in interest, by operation of law or otherwise, may or shall assign this Lease, or sublet or permit all or any part of the Premises to be used by others, without the prior written consent of Landlord in each instance. Landlord agrees that it will not unreasonably withhold or delay its consent to such a subletting or such an assignment. Despite any such assignment or subletting, Tenant shall continue to remain completely liable for the performance of all of the obligations of Tenant under this Lease. Landlord, at its option, may reasonably prescribe the substance and form of such assignment or sublease documents. In the event of the transfer and assignment of Landlord of its interest in this Lease and/or sale of the building containing the Premises, either of which it may do at its sole option, Landlord shall thereby be released from any further obligations hereunder, and Tenant agrees to look solely to Landlord's successor in interest for performance of such obligations. 8. DEFAULT. Tenant will become in default of the Lease: (a) if Rent or Additional Rent (which term as used heretofore and hereinafter shall mean all monies not designated as "Rent" in the Lease but which are nevertheless payable by Tenant to Landlord under the terms and provisions of the Lease) is not paid within three (3) days after written notice from Landlord; or (b) if Tenant shall have failed to cure a default in the performance of any obligation of Tenant under the Lease (except the payment of Rent and Additional Rent) within ten (10) days after written notice thereof from Landlord; or (c) if a petition in bankruptcy shall be filed by Tenant or if Tenant shall make a general assignment for the benefit for creditors; or (d) if a petition in bankruptcy shall be filed against Tenant and such proceeding is not vacated within thirty (30) days; or (e) if the Premises become and remain vacant 1 for a continuous period of ten (10) days during the Term of the Lease; or (f) if the Premises are used for some purpose other than the authorized use; or (g) if the Lease is in any way mortgaged or encumbered; or (h) if the Premises or any portion thereof is assigned or sublet without the prior written consent of Landlord. In the event of one or more of the foregoing happenings, Landlord may exercise any one or more of the remedies or rights available to it under law or in equity, to include the right to accelerate and declare the entire remaining unpaid Rent and Additional Rent for the balance of the Lease term to be immediately due and payable forthwith. No re-entry or retaking possession of the Premises by Landlord shall be construed as an election on its part to terminate the Lease, unless a written notice of such election is given to Tenant, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Rent, Additional Rent or other monies due to Landlord hereunder or any damages accruing to Landlord by reason of the violations of any of the terms, provisions and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of that or any other violation or default. Legal actions to recover for loss or damage that Landlord may suffer by reason of termination of this Lease or the deficiency from any reletting as provided for above shall include the expense of repossession or reletting and any repairs or remodeling undertaken by Landlord following repossession. The parties hereto shall, and they hereby do, waive trial by jury in action, proceeding, or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of, or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 9. CURE BY LANDLORD. If Tenant shall default in performing any obligation or condition of this Lease, other than the payment of rent, Landlord may perform the same for the account of the Tenant, and Tenant shall reimburse Landlord for any expense incurred therefor. Landlord shall provide Tenant with notice (as prescribed herein) of any such obligation or condition and allow Tenant fifteen (15) days to satisfy the obligation or condition. 10. REPAIRS, ALTERATIONS AND ADDITIONS. Except as otherwise conditioned herein and in ADDENDUM to Lease of even date herewith (if any), Tenant accepts the Premises in "as is" condition and Tenant shall take good care of and maintain in a good condition the Premises and the fixtures, equipment and furnishings therein, and at Tenant's sole cost shall make all repairs necessary to keep them in good working order and condition. It is Tenant's sole responsibility to maintain, repair and replace, whether interior or exterior, all glass and doors in or on the Premises. The heating and air conditioning system shall be under the control of Tenant and Tenant agrees that all operation, upkeep and repairs will be at Tenant's expense, except where the repairs or replacements are covered under a warranty running in favor of Landlord, or are due to fire or other casualty covered by Landlord's insurance in which latter event, said repairs or replacements shall be done at its expense. During the term of this Lease and any extension thereof, Tenant shall enter into and maintain a service agreement with a licensed air conditioning contractor, providing routine maintenance to the air conditioning equipment. A copy of this maintenance agreement shall be provided to Landlord within thirty (30) days after the commencement of the term of this Lease. Landlord shall make, but Tenant shall reimburse Landlord therefor, repairs necessitated by the fault or negligence of Tenant, or that of Tenant's agents, employees, contractors, consultants or invitees. Tenant shall not make any alterations, additions, or improvements to the Premises without the prior written consent of the Landlord. LANDLORD WARRANTS THE HEATING AND AIR CONDITIONING SYSTEM IS IN GOOD WORKING ORDER AT THE TIME OF OCCUPANCY. TENANTS ANNUAL LIABILITY FOR HVAC SYSTEM SHALL NOT EXCEED THE COST OF A TWELVE (12) MONTH MAINTENANCE CONTRACT AS PER THE CRITERIA LISTED IN EXHIBIT "B". 11. MECHANIC LIENS. Tenant agrees that Tenant will pay or cause to be paid all costs for work done by Tenant or caused to be done by Tenant on the Premises of a character which could, but for the prohibitions hereinafter contained, result in liens on Landlord's interest therein, and Tenant will keep the Premises" free and clear of all mechanic's liens and other liens on account of work done for Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify and save Landlord free and harmless against liability, loss, damage, costs or expenses, including attorney's fees and costs of discovery and suit, on account of claims of liens of laborers or materialmen or others for work performed for, or materials or supplies furnished to, Tenant or persons claiming under Tenant THE INTEREST OF THE Landlord SHALL NOT, UNDER ANY CIRCUMSTANCES, BE SUBJECT TO LIENS FOR IMPROVEMENTS MADE BY THE Tenant. A notice concerning this provision of this Lease has been executed by Landlord and has been recorded with the Clerk of the Court of Pinellas County. This Notice reads as follows: NOTICE REGARDING MECHANIC LIENS Notice is hereby given of certain Lease provisions contained in the Lease between PINELLAS CENTER LIMITED, as Landlord, and the Tenant of the Premises on property hereinafter described. This notice is given pursuant to 713.10, Florida Statutes, (1989). PINELLAS CENTER LIMITED, as Landlord, hereby gives notice as follows: 1. The name of the Landlord is PINELLAS CENTER LIMITED. 2 2. The legal description of the parcel of land to which this notice applies is described in Exhibit "A" attached hereto and by this reference made a part hereof. 3. MECHANIC'S LIEN. Tenant agrees that Tenant will pay or cause to be paid all costs for work done by Tenant or caused to be done by Tenant on the Premises of a character which could, but for the prohibitions hereinafter contained result in liens on Landlord's interest therein, and Tenant will keep the Premises free and clear of all mechanic's liens and other liens on account of work done for Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify and save Landlord free and harmless against liability, loss, damage, costs or expenses, including attorney's fees and costs of discovery and suit, on account of claims of liens of laborers or materialmen or others for work performed for, or materials or supplies furnished to, Tenant or persons claiming under tenant. THE INTEREST OF THE Landlord SHALL NOT, UNDER ANY CIRCUMSTANCES, BE SUBJECT TO LIENS FOR IMPROVEMENTS MADE BY THE TENANT. 4. All Leases entered into for space in the Premises on the parcel of land described in Exhibit "A" attached hereto contain the language identified in Paragraph 3 above. LANDLORD: PINELLAS CENTER LIMITED Leslie A. Rubin, General Partner Of Rubin Associates Limited General Partner of Pinellas Center Limited STATE OF FLORIDA COUNTY OF PINELLAS: The foregoing instrument was acknowledged before me by ____________________ this ___________________ day of __________________.19___. _______________________________ Notary Public My Commission Expires: Tenant agrees that the Public Notice contained above which has been recorded in the public records of the county where the leased Premises are located, may be effectively discharged, released and removed from said public records by Landlord alone executing and recording in the public records a notice that the leased Premises are discharged and released from the terms of this paragraph, as well as all other provisions of this Lease. 12. SIGNS AND ADVERTISING AND PERMITS. Any signs will be at Tenant's sole expense and will precisely conform to specifications and locations prescribed and approved by Landlord according to the Sign Standard Agreement attached hereto. No other signs or advertising shall be placed on the Premises or in windows by Tenant. All required licenses and permits pertaining to Tenant's use and occupancy of the Premises shall be obtained at Tenant's sole expense. 13. HAZARDOUS MATERIALS. Tenant shall not (either with or without negligence) cause or permit the escape, disposal or release of any biologically or chemically active or other hazardous substances, or materials. Tenant shall not allow the storage, use or disposal of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage, use or disposal of such substances or materials, nor allow to be brought into the Premises or on to its grounds any such materials or substances except to use in the ordinary course of Tenant's business, and the only after both written notice is given to Landlord of the identity of such substances or materials and such use is registered with, as may be required by, the appropriate governmental agencies. Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended 42 U.S.C. Section 6901 et seq., any applicable state or local laws and regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous materials, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges if such requirement applies to the Premises. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. Landlord shall have the right to periodically, or upon expiration or earlier termination of this Lease, to undertake an environmental audit of the Premises to determine Tenant's compliance with this Paragraph. Tenant shall promptly comply with all requirements of such audit and sure all matters raised therein at Tenant's sole cost. In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease for all damages associated with the existence, storage, use, release or disposal of hazardous materials in the Premises occurring while Tenant is in possession, or elsewhere if caused by Tenant or persons acting under Tenant. The covenants within shall survive the expiration or earlier termination of the Lease Term 14. NOTIFICATION. As required by F.S. 404.056(8), Landlord notified Tenant as follows: "RADON GAS -Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in 3 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 unit." 15. REQUIREMENTS OF LAW. Tenant at its expense shall observe and comply with all present and future (a) laws, rules, codes, orders, regulations, etc., of any governmental authority having jurisdiction with respect to the Premises or the use or occupancy thereof; (b) requirements of the Board of Fire Underwriters, or any other similar body affecting the Premises; and (c) Rules and Regulations promulgated from time to time by Landlord. Tenant shall not use the Premises in a manner which will increase the rate of fire insurance of Landlord over that in effect prior to the Lease. 16. SUBORDINATION. This Lease is subject and subordinate in all respects to all matters of record and all mortgages, any of which may now or hereafter be placed on or affect such Leases and/or real property of which the Premises are a part, or any part of such real property, and/or Landlord's interest or estate therein, and to each advance made and/or hereafter to be made under such mortgages, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefore. This paragraph shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall execute and deliver promptly any estoppel agreement or certificate that Landlord and/or any mortgagee and/or their respective successors in interest may request. 17. DAMAGE AND DESTRUCTION. If the Premises are damaged or destroyed so that the premises are rendered wholly untenantable, the Rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the Premises have been repaired or restored by Landlord. If the Premises shall be partially damaged or partially destroyed, the damages shall be repaired by and at the expense of the Landlord and the Rent, until such repairs are made, shall be apportioned according to the pan of the Premises which are useable by Tenant. Landlord shall not be liable for any inconvenience or annoyance to Tenant resulting from such destruction or damage or the repair thereof, and shall not be liable for any delay in restoring the Premises. If, anything to the contrary above in this paragraph notwithstanding, the Premises are damaged or destroyed as a result of the wrongful or negligent act of Tenant or any person on the Premises with Tenant's consent, there shall be no apportionnment or abatement of Rent. 18. CONDEMNATION. If the whole or any substantial (more than 25%) pan of the Premises shall be condemned by eminent domain for any public or quasi-public purpose, this Lease shall terminate on the date of the vestng of title, and Tenant shall have no claim against Landlord for the value of any unexpired portion of the Term of the Lease, nor shall Tenant be entitled to any part of the condemnation award. Tenant specifically reserves the right to recover from the condemning authority any and all damages relating to any and all impact on Tenant's business resulting from the condemnation, and any and all other damages allowed under Chapters 73 and 74, Florida Statues. If less than a substantial part of the Premises is condemned, this Lease shall not terminate, but Rent shall abate in proportion to the portion of the Premises condemned. 19. RIGHT OF ENTRY. Landlord or its agents or contractors may enter the Premises at any reasonable time for the purpose of inspection or making such repairs as Landlord deems necessary or desirable. Landlord may show the Premises to prospective purchasers or mortgagees and, during the six (6) months prior to expiration of the Lease, to prospective tenants. 20. INDEMNITY. Tenant shall indemnify, defend and save Landlord harmless from and against any liability or expense arising from the use of occupation of the Premises by Tenant, or anyone on or about the Premises with Tenant's permission. Tenant shall provide on or before the Commencement Date and keep in force during the Term (and any extensions or renewals thereof) a comprehensive liability policy of insurance insuring Tenant and Landlord against any liability whatsoever occasioned by accident on or about the Premises. Such policy shall be written by an insurance company authorized to do business in Florida and having a BEST'S rating of "A" in the amount of One Million Dollars combined single limit bodily injury and property damage. Evidence of such insurance shall be delivered to Landlord by Tenant no later than thirty (30) days following the Commencement Date of this Lease. 21. END OF TERM. At the end of the Term, Tenant shall vacate and surrender the Premises to Landlord, broom clean, and in as good condition as they were upon the Commencement Date, ordinary wear and tear excepted, and Tenant shall remove all of the Tenant's moveable property therefrom. All property, furniture, fixtures, equipment, installations and additions which remain in or on the Premises after Tenant has vacated shall be considered abandoned by Tenant and, at the option of Landlord, may either be retained as Landlord's property or may be removed by Landlord at Tenant's expense. All alterations, additions, improvements and fixtures, anything in this particular paragraph to the contrary notwithstanding, which have been or will be installed by either party in or upon the Premises during the Term of the Lease, and which, in any manner are attached to the floors, walls or ceilings, shall be and become the property of Landlord and upon the Expiration Date or any earlier termination of this Lease shall be surrendered with the Premises as a part thereof. Alternatively, Landlord may elect to have Tenant return the Premises to their original condition prior to any buildout thereof by either party. 22. HOLDING OVER. Any holding over after the Expiration Date of the Term or any extended term shall be construed to be a tenancy from month to month at a monthly Rent equal to twice the amount of Rent applicable to the final month of the Term of this Lease (or any previous renewal or extension of same) (pro rated on a monthly basis) and shall otherwise be on the terms herein specified so far as applicable. 23. NOTICES. Any notice by either party to the other shall be in writing and mailed by registered or certified mail, return receipt requested, to the address set forth, or to such other address as either party may hereafter designate in writing. Each notice shall be deemed given on the next business day following the date of 4 mailing. Any notice by Landlord to Tenant shall be deemed given if personally delivered to Tenant at the Premises. 24. RISK OF LOSS. All personal property placed or moved in the Premises shall be at the sole risk of Tenant or the owner thereof. 25. FORCE MAJEURE. Whenever a period of time is herein prescribed for action to be taken by Landlord, Landlord shall not be liable, or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to acts of God or any other causes of any kind whatsoever which are beyond the control of Landlord. 26. VENUE. The parties hereto agree that any and all suits for any and every breach of this Lease shall be instituted and maintained only in those courts of competent jurisdiction in the county or municipality in which the Premises are located. 27. CORPORATE TENANCY. If Tenant is a corporation, the undersigned officer of Tenant hereby warrants and certifies to Landlord that Tenant is a corporation in good standing and is authorized to do business in the State of Florida. The undersigned officer of Tenant hereby further warrants and certifies to Landlord that he or she, as such officer, is authorized and empowered to bind the corporation to the terms of this Lease by his or her signature thereto. Landlord, before it accepts and delivers this Lease, may require Tenant to supply a certified copy of the corporate resolution authorizing the execution of this Lease by Tenant. 28. NO ORAL AGREEMENTS; SUCCESSOR INTERESTS. The agreements contained in the Lease set forth the entire understanding and contract of the parties, shall be binding upon and shall inure to the benefit of the respective heirs, successors, assigns and legal representatives of the parties hereto and shall and may not be changed or terminated orally. IN WITNESS WHEREOF, the parties have executed the Lease as of the day and year first above written. W1INESSES FOR LANDLORD: /s/ DONNA LANCE - -------------------------- LANDLORD: PINELLAS CENTER LIMITED A FLORIDA LIMITED PARTNERSHIP /s/ DIANA CARMEL - -------------------------- BY: /s/ LESLIE A. RUBIN ------------------------------------- Leslie A. Rubin, President of Rubin Development Corporation, General Partner of Rubin Associates Limited, General Partner of Pinellas Center Limited WITNESSES FOR TENANT: /s/ [ILLEGIBLE] TENANT: BECAN DISTRIBUTORS, lNC. - -------------------------- /s/ DONNA LANCE BY: /s/ WILLIAM LAGAMBA - -------------------------- ---------------------------------------- ITS: President/CEO --------------------------------------- 5 UNCONDITIONAL GUARANTY In consideration of the letting of the Premises described in this Lease to the Tenant and in further consideration of the sum of One Dollar (S1.00) and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, if default shall at any time be made by Tenant in the payment of the Rent and Additional Rent, or in the Tenant's performance of the covenants or obligations contained within the Lease on Tenant's part to be paid or performed, the undersigned corporation, and not the individual signatories, nor any principal, officer, director, shareholder, employee, agent, attorney and/or representative of the undersigned-corporation will pay to the Landlord, the said Rent, Additional Rent and any damages that may arise in consequence of the default or nonperformance by Tenant, including attorneys' fees. No notice of any such default or non-performance is required of Landlord, and the liability of the undersigned corporation shall continue notwithstanding any prior forbearance or waiver, any amendment of the Lease, or the insolvency or bankruptcy of Tenant. The undersigned corporation, hereby expressly agrees that the Landlord, its successors or assigns, may make such changes, as may be agreed upon between Landlord, its successors or assigns and Tenant, with respect to any of the terms, covenants, conditions, agreements, or provisions of the Lease without notice to or consent from the undersigned as guarantor(s). The undersigned corporation hereby further covenants and agrees with Landlord, its successors, and assigns, that the undersigned corporation and not the individual signatories, nor any principal, officer, director, shareholder, employee, agent, attorney and/or representative of the undersigned corporation may be joined in any action against Tenant in connection with said Lease, and that recovery may be had against the undersigned corporation in such action or any independent action against the undersigned corporation without Landlord having first exhausted any remedy or claim against Tenant, its successors or assigns. It is understood that other agreements similar to this agreement may be executed by other persons with respect to the Lease. This agreement shall be cumulative of any such agreements and the liabilities and obligations of the undersigned corporation hereunder shall in no event be affected or diminished by reason of such other agreement. This agreement shall be binding upon the undersigned corporation only and not the individual signatories, nor any principal, officer, director, shareholder, employee, agent, attorney and/or representative of the undersigned corporation and shall inure to the benefit of Landlord and its successors and assigns. In any action or proceeding to enforce this guaranty, the prevailing party shall recover from the other party, its costs and attorney's fees, including through all bankruptcy and appellate proceedings. Signed, sealed and delivered GUARANTOR(S) in the presence of: /s/ [ILLEGIBLE] /s/ WILLIAM LAGAMBA - ---------------------------- ------------------------------ AS PRESIDENT OF BECAN DISTRIBUTORS, INC. ONLY, AND NOT AS THE INDIVIDUAL 6 SIGN STANDARD AGREEMENT PINELLAS CENTER LIMITED 1. A lighted over suite sign 8' wide x 2' high x 5" deep. The electric can/shall be dark bronze and contain a back light with fluorescent lighting. The lettering shall be black with a white background. The sign shall be installed by the sign company and be hooked up to the existing electrical wiring, or 2. A wooden sign maximum of 70" long x 18" high x 1 5/8" thick, with rounded corners, stained a dark walnut. Lettering shall be routed and may be painted a color of Tenant's choice. Designed graphics are allowed with prior approval of the Landlord. The sign shall be installed by the sign company. A mail box label with the Tenant's suite number and company name will be provided and installed by the Landlord, at Landlord's expense. 7 EXHIBIT "A'' PINELLAS CENTER LIMITED The North 100 feet of Lot 8, all of Lots 9, 18, 19 and 20 and the South 130 feet of Lot 21, PINELLAS CENTER, according to the map or plat thereof as recorded in Plat Book 78, page 71 and 72, of the public records of Pinellas County, Florida. 8 ADDENDUM TO LEASE #1 Attached to and forming a part of the Lease Agreement between PINELLAS, CENTER LIMITED, Landlord and BECAN DISTRIBUTORS, INC., Tenant, dated the 23rd day of November, 1999 (the "Lease"). Landlord and Tenant hereby agree to the following: 1. The Lease relates to the following leasehold premises: Approximately 6,500 square feet comprised of 3,550 square feet of air conditioned office space and 2,950 square feet of air conditioned warehouse space located at 12505 Starkey Road, Suite A, Largo, FL 33773 2. Landlord and Tenant hereby agree that the following amendment will be made to said Lease, namely: A. The monthly rent shall be in accordance with the following Schedule (the "Monthly Rent Schedule"): December 11 1999 thru November 30, 2000 $3,791.66 per month December 1, 2000 thru November 30, 2001 $3,791.66 per month December 1, 2001 thru November 30, 2002 $3,943.33 per month All rates quoted are subject to applicable sales and use taxes. B. Landlord shall be responsible for the following improvements 1. Add interior partitions to separate existing offices as per attached drawing (see attached Exhibit "C").] 2. Enclose window and door in SW office (see #1, Exhibit "C"). 3. Remove storage area (see #2, Exhibit "C"). 4. Remove wall covering and paint front office area. 5. Patch and paint walls, not wallpapered, as needed. 6. Shampoo all carpeting, if stains are not removed, Landlord will evaluate and replace on a room by room basis. 7. Repair vinyl floor in breakroom. 8. Inspect and repair as necessary all plumbing, electrical and mechanical equipment, and overhead doors, to ensure in good working condition. 9. General cleaning throughout the Premises. C. OPTION TO RENEW: Provided Tenant is not in default of terms and conditions of this Lease and any subsequent Addendum(s), Tenant shall have the right, but not the obligation, upon giving one-hundred and eighty (180) days prior written notice to Landlord to extend this Lease for a period of one (1) three (3) year term at four percent (4%) escalations per year. 9 3. The effective date of this Addendum is the 23rd day of November, 1999. 4. Landlord and Tenant ratify and affirm all other provisions of the Lease dated the 23rd day of November, 1999. IN WITNESS WHEREOF, the Landlord and Tenant executed the foregoing Addendum to Lease #1 on the 23rd day of November, 1999 first written above. In the presence of: LANDLORD: PINELLAS CENTER LIMITED /s/ DONNA LANCE - ----------------------- /s/ DIANA CARMEL BY: /s/ LESLIE A. RUBIN - ----------------------- --------------------------------------- As to Landlord Leslie A. Rubin, President of Rubin Associates Limited, General Partner of Pinellas Center Limited /s/ [ILLEGIBLE] - ----------------------- TENANT: BECAN DISTRIBUTORS, INC. /s/ DONNA LANCE BY: WILLIAM LAGAMBA - ----------------------- --------------------------------------- As to Tenant ITS: President/CEO -------------------------------------- 10 EXHIBIT "B" AIR CONDITIONING MAINTENANCE PROPOSAL CRITERIA As per your lease agreement, a service maintenance contract for the air conditioning equipment located at your premises is required. For your convenience, listed below is the minimum maintenance required by the Rubin Center - Pinellas Center. This service is to be completed at least six (6) times per year. Inspections will include the following: (6 per Year) 1. Clean or replace all filters 2. Clean all drain pans and drain lines 3. Install time releasing Flow Plus Drain Tablets 4. Inspect and clean coils (Evaporator & Condenser) 5. Inspect and replace belts as needed 6. Oil all motors and tighten motor mounts and brackets 7. Tighten all electrical connections and check voltage 8. Check refrigeration pressures 9. Inspect all duct work and make minor repairs and adjustments 11 EXHIBIT "C" [BLUEPRINT OF PREMISES] EX-27 6
5 The schedule contains summary financial information extracted from the financial statements and is qualified in its entirety by reference to such financialstatements. 3-MOS MAR-31-1999 DEC-31-1999 8,200,631 0 5,381,128 27,222 1,291,968 15,108,965 107,958 17,820 26,978,312 5,717,328 0 0 0 6,077 21,254,907 26,978,312 7,170,581 7,170,581 7,112,971 7,112,971 0 0 32,159 (426,035) 0 (426,035) 0 0 0 (426,035) (.10) (.10)
-----END PRIVACY-ENHANCED MESSAGE-----