AGREEMENT
THIS AGREEMENT is entered into and effective this 21st day of August
2001 by and between Vital Living, Inc., a Nevada corporation ("VL") and
Arizona Heart Institute, Inc., an Arizona corporation ("AHI").
Recitals
A. VL is in the business of among other things developing and
distributing nutritional products. VL wishes to develop a proprietary line
of nutritional products for use by heart and vascular patients superior to
other products currently on the market (the "Products").
B. AHI and AHI affiliates operate medical facilities for heart and
vascular patients. AHI wishes to assist VL in developing the Products to
support innovative nutritional regimes directed toward facilitating patient
recovery and improving pre-operative and post-operative health of AHI
patients. AHI also wishes to assist in distributing the Products through AHI
and AHI affiliates medical facilities. The parties therefore agree to the
following terms and conditions:
Terms and Conditions
1. Product Development. VL and AHI will work together to develop the
Products in accordance with specifications and guidelines mutually agreed to
by the parties. Product development, including product formulation, will be
directed by an advisory board consisting of outside supplement experts in the
cardio-vascular field mutually agreed to by the parties and selected
representatives of VL and AHI. VL will make final decisions as to product
formulations subject to approval by AHI. The initial Product formulations
will include (a) a general nutrition dietary supplement that will be mutually
determined to be of better quality than current over-the-counter or store-
bought brands and (b) a cardio product which will be subject to a clinical
trial in accordance with Paragraph 5 below prior to general manufacture,
marketing and distribution by VL. VL may begin general manufacture and
marketing of the general nutrition dietary supplement upon completion and
approval of product formulation. VL and AHI, with assistance from the
advisory board, will complete Product formulation within ninety (90) days of
the date of this Agreement. The parties may, upon mutual agreement, expand
the Product line to focus outside the heart and cardio-vascular field. VL
will own all Product formulations and any other intellectual property arising
out of the development process, including any patents or copyrights. AHI
agrees to assign any rights therein to VL and to execute any additional
documents necessary to perfect VL's rights in the Product formulations or
other intellectual property.
2. Product Manufacture. VL will be responsible for manufacturing the
Products in accordance with the specified Product formulations. VL, or VL's
subcontractor, will manufacture all Products in accordance with industry
standards for similar products. VL will ensure that the Products meet all
government standards or other regulations for such products, if any. VL will
maintain a reasonable inventory of the Products for marketing and promotional
purposes.
3. Product Marketing. VL will develop the Product packaging with
assistance from AHI as necessary. VL will have the Products available for
distribution within sixty (60) days of completion of the Products'
formulation in accordance with Paragraph 1 above. Upon satisfactory
completion of the research study as provided in Paragraph 5 below supporting
the efficacy of the Products for the intended applications, VL may include an
approved AHI logo or other endorsement by AHI on all Product packaging and
in connection with marketing the Products and AHI hereby grants VL a license
to use such logo or endorsement for such purposes. During the term of this
Agreement, AHI will not endorse or promote any other line of nutritional
products. VL will own all trademarks and other intellectual property
related to the Products, packaging and marketing except for any AHI logo
or trademark incorporated in the Product packaging. VL, with cooperation of
AHI, will develop a marketing program focusing on education of medical
personnel and patients regarding the Products. AHI, specifically Xx. Xxx
Xxxxxxxxx and his staff, will develop a nutritional regime for AHI patients
that incorporates the Products and will be supplemented by educational
programs. Initial marketing activities will be directed to active patients
of AHI or AHI affiliates and AHI's existing database of applicable patients.
AHI will also make available existing AHI marketing and educational forums,
including but not limited to newsletters, patient mailings, on-line
health assessment questionnaire and AHI's annual heart symposium, for the
purpose of marketing the Products. AHI will also prominently display the
Products at AHI's facilities and the facilities of AHI's affiliates,
display and distribute Product information literature, provide education and
information to assist physicians and medical personnel in promoting the
Products to patients, and participate in the production of educational video
and audiotapes regarding the Products. As applicable, VL will expand its
existing programs to include the Products. VL will be responsible for all
costs related to preparation of marketing materials and all marketing
activities related to the Products and set forth in this paragraph.
4. Product Education. The parties acknowledge that the success of
the nutritional program incorporating the Products is dependent on the
efficacy of the Products and the education and compliance of the patients
using them. AHI agrees that it, with assistance of Xx. Xxx Xxxxxxxxx and AHI
support staff, will assist in developing and implementing a focused
educational support program to familiarize the patients with the Products and
the importance of daily nutritional supplementation. In addition, VL will be
responsible for developing a national education and awareness program that
may include talk radio, televisions, and national and local news media to
teach the scientific benefits of the Products. Subject to Xx. Xxxxxxxxx'x
approval and availability, VL may present opportunities for Xx. Xxxxxxxxx to
participate in such educational forums, including serving as a national
spokesperson pioneering these nutritional supplementations in preoperative
and postoperative environments.
5. Product Testing. AHI, with participation by VL, will undertake a
clinically driven research study of the cardio Product on the AHI patients or
patients of AHI affiliate. VL and AHI will jointly develop the scope of the
clinical study including the parameters and goals attempting to be achieved
in the study. AHI will obtain appropriate releases from patients in the
research program to allow VL access to such information. AHI and VL, or
designated independent third parties, will compile research and testing
results. Upon mutual agreement of the parties, such results may be publicly
disclosed. Any direct costs related to data collection and the research
efforts by mutually agreed third parties would be borne by VL.
6. Payment Terms. In consideration for AHI's services in developing
and marketing the Products and for its endorsement of the Products, AHI will
receive a royalty of 12% of the Net Revenue received by VL for sales of the
Products to AHI's or AHI affiliate's current patients or patients on AHI's,
AHI affiliates' databases or databases developed through programs instituted
by AHI or an AHI affiliate. Net Revenue shall be defined as the gross sales
less (a) the actual product cost and (b) any marketing or sales expense
directly related to the sales of the Products to AHI's or AHI affiliates'
current patients or to patient on AHI's or AHI's affiliates' databases or
databases developed through programs instituted by AHI or an AHI affiliate.
In addition, AHI will receive 6% of the Net Revenue received by VL for sales
of Products to unrelated heart institutes or hospitals that were introduced
to VL by AHI. Any royalty paid to AHI on Products returned will be charged
back to AHI. All royalty payments will be made quarterly on the tenth
business day following the close of the calendar quarter. Each payment will
include a report of the Product sales for the preceding quarter and a
calculation of the royalty due to VL. AHI may audit VL's books and records
relating to sales of the Products during regular business hours and upon
reasonable notice.
7. Additional Consideration. As additional consideration for AHI's
services, VL will grant AHI, the option to purchase 1 million shares of
common stock of VL at $.35 per share, of which (i) 600,000 shares will vest
upon AHI specifically agreeing in writing to place the AHI logo and endorse
the Vital Living product line as detailed in this agreement in Paragraph 3
above, (ii) an additional 200,000 shares will vest when gross aggregate sales
of the Products to AHI or AHI affiliates equal or exceed $1 million, and
(iii) the remaining 200,000 shares will vest when gross aggregate sales of
the Products to AHI or AHI affiliates equal or exceed $1.5 million. All
vested shares will be exercisable but subject to a lock-up for trading for
twelve months from the date on which such shares vest. All options granted
to AHI will be governed by the option agreement attached hereto as Exhibit A.
AHI may assign the rights under this paragraph 7 upon prior written notice to
VL provided that such assignee becomes a party to this Agreement and agrees
to be bound by the terms of this Agreement and VL consent to such assignment,
which consent will not be unreasonably withheld. Assignment of the rights
under this paragraph 7 does not relieve AHI from any obligations under this
Agreement and AHI continues to be bound to all the terms herein unless agreed
to in writing by VL.
8. Term. The Agreement will continue for three years from the
effective date of this Agreement and will automatically renew for additional
one-year terms unless either party gives notice of its intent not to renew
the agreement not less than sixty (60) days prior to the end of the then
current term. Either party may terminate the Agreement upon thirty (30)
days written notice of material breach and the breaching party's failure to
cure the breach within such thirty-day period. Upon termination of this
Agreement during the Product development phase, all work completed as of the
date of termination will be provided to and owned by VL and neither party
will have any continuing obligation to the other. If the agreement is
terminated after distribution of the Products has begun, VL may have 180 days
to distribute any Product inventory bearing the AHI logo or endorsement and
will pay any royalty due to AHI under the terms of the Agreement on such
inventory. Thereafter, no additional royalties will be due to AHI. AHI's
sole right and exclusive remedy for breach of this Agreement by VL is to
terminate this Agreement as provided herein and to recover any amounts
paid to VL for the Products during the preceding three (3) months. IN NO
EVENT IS VL LIABLE TO AHI FOR AN DIRECT OR CONSEQUENTIAL DAMAGES INCURRED IN
CONNECTIONS WITH OR ARISING OUT OF USE OR DISTRIBUTION OF THE PRODUCTS OR ANY
BREACH OF THIS AGREEMENT BY VL, REGARDLESS OF THE FORM OF ACTION AND EVENT IF
VL HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR LOSS. VL's sole
right and exclusive remedy for breach of the Agreement by AHI is to terminate
this Agreement. IN NO EVENT IS AHI LIABLE TO VL FOR ANY DIRECT OR
CONSEQUENTIAL DAMAGES INCURRED IN CONNECTION WITH OR ARISING OUT OF USE OR
DISTRIBUTION OF THE PRODUCTS OR ANY BREACH OF THIS AGREEMENT BY AHI,
REGARDLESS OF THE FORM OF ACTION AND
EVEN IF AHI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR LOSS.
9. Liability. VL will maintain product liability insurance in such
amounts agreed to by the parties.
AHI will be named as an additional insured under any policy related to
manufacture and sale of the
Products. VL will further indemnify all AHI officers, directors, employees
and contractors from any
liability relating to third-party use of the Products. IN NO EVENT WILL VL BE
LIABLE TO AHI
FOR ANY DIRECT OR CONSEQUENTIAL DAMAGES INCURRED IN CONNECTION
WITH OR ARISING OUT OF THE PRODUCTS OR ANY BREACH OF THIS
AGREEMENT BY VL, REGARDLESS OF THE FORM OF ACTION AND EVEN IF VL
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR LOSS. . AHI
will indemnify and hold VL, its authorized sublicenses, successors and
assign, and its directors, officers, employees and agents, harmless for, from
and against all claims, liabilities, damages, costs and expenses, including
without limitation reasonable attorneys' fees, arising from or in connection
with any breach or alleged breach by AHI of any agreement made by AHI
hereunder, or arising from or in connection with AHI;s distribution of the
Products pursuant hereto. VL will have the right of approval, not to be
unreasonably withheld, of any attorneys or other counsel retained by AHI for
the performance of AHI's obligations pursuant to this Paragraph 9. The terms
and provisions of this Paragraph 9 will survive termination or expiration of
this Agreement. VL will indemnify and hold AHI, its authorized sublicenses,
successors and assigns, and its directors, officers, employees and agents,
harmless for, from and against all claims, liabilities, damages, costs and
expenses, including without limitation reasonable attorneys' fees, arising
from or in connection with any breach or alleged breach by VL of any
agreement made by VL hereunder. The terms and provisions of this Paragraph 9
will survive termination or expiration of this Agreement.
10. Confidentiality. Need to add - In connection with this Agreement,
the parties will develop, acquire, or be granted access to trade secrets and
other information that is confidential and proprietary to the parties or to
third parties. Such information includes but is not limited to patient lists
and information, costs of manufacturing, product formulations, technical
data, methods, processes, know-how, business and marketing strategies,
operations, research and development, business opportunities, and financial
data. The parties will not at any time during or after termination of this
Agreement, directly or indirectly, divulge, use or permit the use of any
confidential or proprietary information of the other, except as required in
the course of this Agreement. Upon termination of this Agreement, the parties
will immediately turn over to the other all confidential information
materials belong to such part, including all copies thereof or notes relating
thereto, in such party's possession or otherwise subject to its control.
Notwithstanding the above, the following materials will not be deemed
confidential:
(i) Information which was in the public domain at the time of
disclosure (provided, however, that collection or compilation of publicly
available information will be considered proprietary if the disclosing
party's collection or organization of the material would be difficult or time-
consuming to replicate);
(ii) Information which was published or otherwise became part of
the public domain after disclosure to the receiving party through no fault of
the receiving party (but only after, and only to the extent that, it is
published or otherwise becomes a part of the public domain); and
(iii) Information, which was, received from a third party who did
not acquire it, directly or indirectly, from the disclosing party under an
obligation of confidence except where required by law.
The receiving party will have the burden of establishing the existence of
these conditions by objective or verifiable evidence.
11. Notice. Any notice or other communications required or that may be
given pursuant to this Agreement will be in writing and will be delivered
personally, or sent by facsimile or electronic mail with confirmation by
recognized overnight carrier, to the address of the party as set forth below
or to any other address requested by the respective parties after giving
written notice to the other party.
12. Governing Law. This Agreement will be governed by and
construed in accord with the laws of the State of Arizona. All disputes
will be resolved by binding arbitration under the Commercial Arbitration
Rules of the American Arbitration Association in Phoenix, Arizona, except
that either party may apply to a court of competent jurisdiction solely for
interlocutory injunctive relief to maintain the status quo pending the
results of the arbitration. The prevailing party in any dispute will be
entitled to recover its reasonable attorneys' fees and related costs and
expenses incurred in connection therewith.
13. Severability. If any court of competent jurisdiction rules any
provision of this Agreement invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions will not be affected
or impaired in any way.
14. Entire Agreement. This Agreement constitutes the entire,
integrated agreement among the parties regarding the subject matter hereof
and supersedes any and all prior and contemporaneous agreements,
representations, and understandings of the parties.
15. Assignment. Except as specifically provided in paragraph 7 above,
neither party will assign this Agreement or any of its rights or obligations
hereunder without the prior consent of the other party; provided, however,
that either party may assign this Agreement and its rights and
obligations hereunder, with prior notice to the other party, to any person
or entity that purchases all or substantially all of its assets, or that
merges with or into such assigning party, or that is under common ownership
or control of the assigning party, and that agrees in writing to be bound by
the terms hereof.
Vital Living, Inc., Arizona Heart Institute, Inc.
a Nevada corporation an Arizona corporation
By: /S/ Xxxxxxx X. Xxxxx By: /S/ Xxx Xxxxxxxxx
Printed Name: Xxxxxxx X. Xxxxx Printed Name: Xxx Xxxxxxxxx
Its: C.E.O. Its: Founder
Address: Address:
0000 Xxxxx Xxxxx Xxxx 0000 Xxxxx 00xx Xxxxxx,
Xxxxx, Xxxxxxx 00000 Xxxxxxx, Xxxxxxx 00000
EXHIBIT A
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is entered into as of August
21, 2001, between Vital Living, Inc., a Delaware corporation ("VL"), and
Arizona Heart Institute, Inc., an Arizona corporation ("AHI").
RECITALS
WHEREAS, VL and AHI have entered into an Agreement of even date herewith
(the "Development Agreement") and unless otherwise defined herein, the terms
defined in the Development Agreement shall have the same defined meanings in
this Stock Option Agreement (the "Option Agreement"); and
WHEREAS, as consideration for AHI's performance under the terms of the
Development Agreement, VL has agreed to grant the AHI an option to purchase
certain shares of its common stock.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, VL hereby grants an Option to
acquire certain shares of its common stock on the terms and conditions
hereinafter set forth:
TERMS AND CONDITIONS
1. Grant of Option. VL irrevocably grants to AHI the right and option
(the "Option Right") to purchase all or any part of an aggregate of up to One
Million (1,000,000) shares of common stock (the "Shares") on the terms and
conditions set forth herein.
2. Purchase Price. The purchase price of the Shares acquired pursuant
to the exercise of an Option Right shall be thirty-five cents ($0.35) per
Share. The purchase price shall be paid in the manner set forth in Section 8
hereof.
3. Vesting. Subject to the terms of this Agreement, AHI's right to
acquire Shares pursuant to the exercise of an Option Right as provided herein
shall initially fully vest in the amount of 600,000 shares upon AHI's
agreement in writing to place the AHI logo and endorse the VL products line
in accordance with paragraph 7 of the Development Agreement. An additional
200,000 shares will vest when gross aggregate sales of the Products to AHI or
an AHI affiliate equals or exceeds $1 million and the remaining 200,000
shares will vest when gross aggregate sales of the Products to AHI or an AHI
affiliate equals or exceeds $1.5 million, as provided in paragraph 7 of the
Development Agreement.
4. Term of Option. The Option Right for vested shares shall expire
two years from the date AHI becomes vested in the right to acquire the Shares
to the extent any of the Shares are not acquired pursuant to the Option Right
as of that date.
5. Transferability. The Option Right may be transferred by AHI upon
prior written notice to VL provided that the transferee becomes a party to
this Option Agreement and the Development Agreement and agrees to be bound by
the terms thereof and VL consents to such transfer, which consent will not be
unreasonably withheld. Otherwise, the Option Right may not be sold,
assigned, transferred, pledged, hypothecated, or disposed of in any manner,
such not be assignable by operation of law, and shall not be subject to
execution, attachment, or similar process. Any attempted prohibited sale,
assignment, transfer, pledge, hypothecation, or other disposition contrary to
the provisions hereof, and the levy of execution, attachment, or similar
process upon the Option Right, shall be null and void and without effect.
6. Additional Agreements. AHI understands that the Common Shares
subject to the Option Right have not been registered under the Securities Act
of 1933, as amended (the "Securities Act"), and are subject to substantial
restrictions on transfer set forth in the Securities Act and the rules and
regulations of the Securities and Exchange Commission adopted thereunder.
AHI acknowledges and agrees that VL is under no obligation to register the
Shares. AHI represents and warrants, and shall be deemed to have affirmed
such representations and warranties upon each exercise of an Option Right
hereunder, that AHI is acquiring the Shares for his account for investment
purposes and not with a view to the distribution of such shares within the
meaning of the Securities Act. All certificates for Shares issued pursuant
to the exercise of Option Rights granted hereunder shall bear a legend
evidencing and restricted nature of the Shares. Without limiting the
foregoing, upon each exercise of all or any portion of the Option Right, AHI
agrees to execute and deliver to VL a subscription offer in form and
substance reasonably accepted to VL.
7. Lock-Up Period. AHI hereby agrees that, if so requested by VL or
any representative of the underwriters (the "Managing Underwriter") in
connection with any registration of the offering of any securities of VL
under the Securities Act, AHI shall not sell or otherwise transfer any Shares
or other securities of VL during the 180-day period (or such other period as
may be requested in writing by the Managing Underwriter and agreed to in
writing by VL) (the "Market Standoff Period") following the effective date of
a registration statement of VL filed under the Securities Act. Such
restriction shall apply only to the first registration statement of VL to
become effective under the Securities Act that includes securities to be sold
on behalf of VL to the public in an underwritten public offering under the
Securities Act. VL may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
8. Method of Exercising.
(a) Notice of Exercise/Payment of Purchase Price. The Option
Right may be exercised by written notice to the Board of Directors of VL, at
VL's main office, or at such other address as VL, by notice to AHI, may
designate from time to time. The notice from AHI shall state the election to
exercise the Option Right and the number of Shares with respect to which the
Option Right is being exercised, and shall be signed by the person or persons
exercising the Option Right. Such notice shall be accompanied by payment or
the full purchase price of such Shares, in cash or by cashier's or certified
check, or other cash equivalent acceptable to VL, in an amount equal to the
full Option Price of the Shares for which the Option Right is being
exercised. The Option Right must be exercised in minimum blocks of 10,000
or more Shares. AHI shall be permitted to exercise his Option Right once per
calendar year without incurring any expenses associated with the exercise of
the option, except those expenses provided in Sections 2 of his Agreement.
For any additional exercises of AHI's Option Rights during the same calendar
year, AHI shall pay all reasonable costs incurred by VL in connection with
fulfilling its obligations in accordance with this Agreement.
(b) Stock Certificates. As soon as practicable after the exercise
of an Option Right, and following VL's receipt of notice and payment of the
exercise price and AHI's payment of all expenses to be borne by AHI, VL shall
deliver a certificate or certificates representing any Shares acquired
hereunder. All Shares that shall be purchased upon the exercise of an Option
Right as provided herein shall be fully paid and nonassessable.
9. Reservation of Shares. VL shall at all times during the term of
the Option Right reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirement of this Agreement,
shall pay all fees, expenses, and taxes necessarily incurred by VL in
connection therewith, and shall use its good faith efforts to comply with all
laws, rules, and regulations which, in the opinion of counsel for VL, shall
be applicable thereto.
10. Adjustment for Recapitalization. In the event of any stock
dividend or stock split made by the Board of Directors of VL, to the number
and kind of Shares and the price per Share subject to this Agreement, then
any new or additional shares of Common Stock or different shares to which AHI
may become entitled shall be subject to the terms, conditions and
restrictions herein contained relating to the Shares, and such shares shall
contain a legend indicating that they are subject to the restrictions set
forth herein.
11. Action Taken in Good Faith. No member of the Board of Directors,
nor any officer or employee of VL acting on behalf of the Board, shall be
personally liable for any action, determination or interpretation taken or
made in good faith with respect to this Agreement.
12. Rights as Shareholder. AHI shall not be reason of the Option Right
have any rights of a shareholder of VL until AHI shall, from time to time,
have duly exercised the Option Right, and upon each such exercise, AHI shall
have, with respect to the number of Common Shares as to which the Option
Right is then exercised, all rights of a shareholder of record from the date
of such exercise, irrespective of whether certificates to evidence the Common
Shares with respect to which the Option Right was exercised shall have been
issued on such date.
13. Miscellaneous.
(a) Waiver. The waiver of any provision of this Agreement will
not be effective unless in writing and executed b the party against whom
enforcement of the waiver is sought.
(b) Entire Agreement. This Agreement and the Development
Agreement constitute the entire integrated agreement among the parties
pertaining to the subject matter hereof, and supercede all prior and
contemporaneous agreements, representations, and understandings of the
parties. This Agreement may not be amended except by written instrument
executed by the parties.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona, without regard
to its conflict of laws principles.
(d) Severability. If any provision of this Agreement is held to
be unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall be severable and no affected thereby.
(e) Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
(f) Delays or Omissions. No delay or omission to exercise any
right, power, or remedy accruing to any party hereunder or any breach or
default under this Agreement shall impair any such right, power, or remedy,
nor shall it be construed as a waiver of or acquiescence to any such breach
or default or of or in any similar breach or default occurring later; nor
shall any waiver or any single breach or default be deemed a waiver of any
other breach or default occurring before or after the waiver. Any waiver,
permit, consent, or approval of any kind of any breach or default under this
Agreement or of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically stated in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any part shall be cumulative.
(g) Headings. The headings in this Agreement have been inserted
for convenience only and shall not affect the meaning or interpretation of
any provision in this Agreement.
(h) Assignment. The rights and obligations of VL and AHI
hereunder shall inure to the benefit of and shall be binding on their
successors and assigns. This provision in no way modifies the
transferability of this Agreement as set forth in Section 5.
IN WITNESS WHEREOF, the undersigned have duly executed this Option
Agreement effective as of the day and year first above written.
Vital Living, Inc., Arizona Heart Institute, Inc.,
a Delaware corporation an Arizona corporation
By: /S/ Xxxxxxx X. Xxxxx By: /S/ Xxx Xxxxxxxxx
Printed Name: Xxxxxxx X. Xxxxx Printed Name: Xxx XXxxxxxxx
Its: C.E.O. Its: Founder
