SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
[ ] Confidential, for the Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
INITIO, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Initio, Inc.
10 Henry Street
Teterboro, New Jersey 07608
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 8, 2002
To the Shareholders of
INITIO,INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Sharehol
ders of INITIO, INC. (the "Company"), a Nevada corporation, will
be held at the Company's office at 10 Henry Street, Teterboro,
New Jersey 07608, on Monday, July 8, 2002, at 11:00 a.m., local
time, for the following purposes:
I. To elect one director to serve a term of three years
subject to the provisions of the By-laws, and until his
successor has been duly elected and qualified;
II. To consider and act upon a proposal to approve an
agreement between the Company and Pioneer Ventures
Associates Limited Partnership;
III. To consider and act upon a proposal to approve the
selection of Rogoff & Co. P.C. as the Company's
independent auditors for the fiscal year ending April
30, 2002; and
IV. To transact such other business as may properly come
before the meeting or an adjournment or adjournments
thereof.
The Board of Directors has fixed the close of business
on May 29, 2002 as the record date for the meeting and only
holders of shares of record at that time will be entitled to
notice of and to vote at the Annual Meeting of Shareholders or
any adjournment or adjournments thereof.
By order of the Board of Directors.
/s/ Martin Fox
Martin Fox
President
Teterboro, New Jersey
June 11, 2002
IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS
REQUESTED THAT YOU INDICATE YOUR VOTE ON THE ISSUES
INCLUDED ON THE ENCLOSED PROXY AND DATE, SIGN AND MAIL
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES
INITIO, INC.
2500 Arrowhead Drive
Carson City, Nevada 89706
P R O X Y S T A T E M E N T
for
ANNUAL MEETING OF SHAREHOLDERS
to be held July 8, 2002
June 11, 2002
The enclosed proxy is solicited by the Board of Directors of
Initio, Inc., a Nevada corporation (the "Company"), in connection
with the Annual Meeting of Shareholders to be held at the
Company's office at 10 Henry Street, Teterboro, New Jersey 07608
on Monday, July 8, 2002, at 11:00 a.m., local time, and any
adjournments thereof, for the purposes set forth in the
accompanying Notice of Meeting. Unless instructed to the
contrary on the proxy, it is the intention of the persons named
in the proxy to vote the proxies in favor of:
electing Robert A. Lerman, the nominee listed below, as a
director;
approval of the agreement between the Company and Pioneer
Ventures Associates Limited Partnership; and
approval of the selection of Rogoff & Co. P.C. as the
Company's independent auditors for the fiscal year ending
April 30, 2002.
The record date with respect to this solicitation is the
close of business on May 29, 2002 and only shareholders of record
at that time will be entitled to vote at the meeting. The
principal executive office of the Company is 10 Henry Street,
Teterboro, New Jersey 07608, and its telephone number is (201)
462 - 9000. The shares represented by all validly executed
proxies received in time to be taken to the meeting and not
previously revoked will be voted at the meeting. This proxy may
be revoked by the shareholder at any time prior to its being
voted. This proxy statement and the accompanying proxy were
mailed to you on or about June 11, 2002.
The cost of preparing, assembling and mailing this Proxy
Statement, the Notice of Annual meeting of Shareholders and the
enclosed proxy is to be borne by the Company. In addition to the
use of mail, employees of the Company may solicit proxies
personally and by telephone. The Company's employees will
receive no compensation for soliciting proxies other than their
regular salaries. The Company may request banks, brokers and
other custodians, nominees and fiduciaries to forward copies of
the proxy material to their principals and to request authority
for the execution of proxies. The Company may reimburse such
persons for their expenses in so doing.
OUTSTANDING SHARES
The number of outstanding shares entitled to vote at the
meeting is 4,646,004 common shares, par value $.01 per share.
Each common share is entitled to one vote. The presence in
person or by proxy at the Annual Meeting of the holders of a
majority of such shares shall constitute a quorum. There is no
cumulative voting. Assuming the presence of a quorum at the
Annual Meeting, the affirmative vote of a majority of the common
shares present at the meeting and entitled to vote on each matter
is required for the approval of the election as a director of the
nominee listed below, approval of the agreement between the
Company and Pioneer Ventures Associates Limited Partnership and
approval of the Company's auditors, Rogoff & Co. P.C. as the
Company's auditors for fiscal 2002. Votes shall be counted by
one or more persons who shall serve as the inspectors of
election. The inspectors of election will canvas the
shareholders present in person at the meeting, count their votes
and count the votes represented by proxies presented.
Abstentions and broker nonvotes are counted for purposes of
determining the number of shares represented at the meeting, but
are deemed not to have voted on the proposal. Broker nonvotes
occur when a broker nominee (which has voted on one or more
matters at the meeting) does not vote on one or more other
matters at the meeting because it has not received instructions
to so vote from the beneficial owner and does not have
discretionary authority to so vote.
ELECTION OF DIRECTORS
The person named below, who is currently a member of the
Board of Directors, has been nominated for election to serve for
a term of three years and until his successor has been elected
and qualified. Unless specified to be voted otherwise, each
proxy will be voted for the nominee named below. The nominee has
consented to serve as a director if elected.
If at the time of the Annual Meeting, the nominee is unable
or declines to serve, the present Board of Directors shall
nominate another person to fill the vacancy and the proxies may
be voted for any other person nominated.
Name and Age Positions with Director Number of Shares Current Percent
the Company Since Beneficially Owned Term of Class
as of Expires
May 28, 2002
Robert A. Lerman, 67 Director 1998 893,495 4/30/02 19.24%
*Mr. Lerman owns 4,400 of these shares directly and 889,095 shares are owned
indirectly.
Meetings and Committees of the Board of Directors.
The Board of Directors of the Company met four times during
the fiscal year which ended on April 30, 2002. All of the
directors attended more than 75% of the total number of meetings
of the Board of Directors and committees on which he serves.
The Company has an Audit Committee which consists of Mr.
Robert Lerman, Dr. Paul Lerman and Mr. James Holzinger and has
the obligations specified in the Audit Committee Charter
(attached hereto as Appendix A). All of the members of the
Company's Audit Committee are independent as independence is
defined in Rule 4200 of the Nasdaq Stock market rules.
Report of the Audit Committee
The following shall not be deemed to be soliciting
material or to be filed with the Commission nor shall such
information be incorporated by reference into any future filing
of the Company under the Securities Act of 1933 or the Securities
and Exchange Act of 1934.
With respect to the audit of the fiscal year ended April 30,
2002, the Audit Committee met one time.
In the course of the meeting, the Audit Committee discussed
with the Companys independent auditors those matters required to
be discussed by Statement on Accounting Standards No. 61, as
amended, Communication with Audit Committees, by the Auditing
Standards Board of the American Institute of Certified Public
Accountants. The Audit Committee also reviewed and discussed the
audited financial statements with the Company's management.
We have received and reviewed the written disclosures and
the letter from the independent auditors required by Independence
Standard No. 1, as amended, Independence Discussions with Audit
Committee, by the Independence Standards Board and have
discussed with the auditors the auditors independence.
Based on the reviews and discussions referred to above, we
recommend to the Board of Directors that the consolidated
financial statements referred to above be included in the
Companys Annual Report on Form 10-KSB for the fiscal year ended
April 30, 2002.
Audit Committee
Robert Lerman
Dr. Paul Lerman
James Holzinger
Fiscal 2002 Audit Firm Fee Summary
During fiscal year ended April 30, 2002, the Company retained its
principal auditor, Rogoff & Co. P.C., to provide services in the
following categories and amounts:
Audit Fees $21,338.00
All Other Fees $ 6,000.00
The Company also has a Compensation Committee, the current
members of which are Messrs. DeStefano and Fox. Subject to
existing contractual obligations, the Compensation Committee is
responsible for setting and administering the policies which
govern annual and long-term compensation for the Company's
executives. The Compensation Committee is also empowered to
grant Stock Options pursuant to the Company's Stock Option Plans
and to administer such Plans. The Compensation Committee did not
formally meet during fiscal 2002.
The Company does not have a nominating committee.
Directors and Executive Officers of the Company
The Company's Board of Directors is a classified board,
with one-third of the directors being elected each year for a
term of three years. The following table sets forth certain
information with respect to each director and executive officer
of the Company:
Name and Age Positions with Current Served As
the Company Term Director Since
Expires
Daniel A. DeStefano, Chairman of 2003 1969
69 the Board,
Director
Martin Fox, 67 President, 2003 1978
Secretary,
Director
James J. Holzinger, Director 2004 1998
66
Dr. Paul Lerman, 61 Director 2004 1999
Robert A. Lerman, 67 Director 2002 1998
Paul Lerman and Robert Lerman are cousins.
Mr. DeStefano is a founder of the Company and has been
Chairman of the Board of the Company since 1969.
Mr. Fox joined the Company in 1972 and has been President of
the Company for more than five years.
Mr. Holzinger is, since 1996, retired. From 1993 - 1996 he
was an Executive Vice President in the commercial lending
department of Summit Bank.
Dr. Lerman became a Director in April, 1999. Dr. Lerman has
been the Dean of the Samuel J. Silberman College of Business
Administration at Fairleigh Dickinson University since 1990 and a
Professor of Business Administration since 1970. Dr. Lerman is
also a Director of NeuroCorp., Ltd. a provider of contract
medical research and data analysis, and non-medical manager of
facilities treating memory disorders.
Mr. Lerman has been President and a Director of Pioneer
Ventures Corp., the manager of the general partner of Pioneer
Ventures Associates Limited Partnership, since 1997. Mr. Lerman
is also the President and a Director of Pioneer Capital Corp., an
investment banking company.
Each officer's term expires at each annual meeting of the
Board of Directors of the Company, or when their successors are
elected and qualified to serve in their stead.
The Company pays directors, other than full time employees,
an annual retainer of $3,000 plus $500 and out-of-pocket expenses
for each Board meeting attended in person or $250 if a non-
employee director attends a Board meeting via telephone.
COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth cash compensation (consisting
entirely of salary) paid (or accrued for) by the Company to its
President and Chairman of the Board. Except as set forth in the
following table, none of the executive officer's aggregate
remuneration exceeded $100,000 for the three fiscal years ended
April 30, 2002:
SUMMARY COMPENSATION TABLE
Name and Year Annual
Principal Position Compensation
Martin Fox, 2002 $1.00
President 2001 36,000.00
2000 150,000.00
Daniel DeStefano, 2002 $1.00
Chairman of the 2001 36,000.00
Board 2000 150,000.00
On March 25, 1998, the Company granted 125,000 stock options
to each of Mr. Fox and Mr. DeStefano at an exercise price of
$1.95 pursuant to the Company's 1996 Employee Stock Option Plan.
These options are presently exercisable.
In order to conserve the Company's cash, Messrs. Fox and
DeStefano each agreed to reduce their compensation to $1.00 for
the fiscal year ended April 30, 2002. In May 2002, the Board of
Directors of the Company granted Messrs. Fox and DeStefano stock
options for each to purchase 150,000 shares of the Company's
common stock at an exercise price of $.95 per share. One half of
the options granted to each of Messrs. Fox and DeStefano are
currently exercisable and the balance of the options are
exercisable in May, 2003.
The Company does not have employment agreements with any of
its executive officers.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 28, 2002. certain
information concerning stock ownership of the Company by (i) each
person who is known by the Company to own beneficially more than
5% of the outstanding common shares of the Company, (ii) each of
the Company's directors and (iii) all current directors and
officers of the Company as a group. Except as otherwise
indicated, all such persons have both sole voting and investment
power over the shares shown as being beneficially owned by them.
Name and Address of Amount and Nature Percent
Beneficial Owner of Beneficial of Class
Ownership
Martin Fox 1,563,585 (1) 33.65%
2500 Arrowhead Drive
Carson City, Nevada 89706
Daniel A. DeStefano 939,999 (2) 20.23%
2500 Arrowhead Drive
Carson City, Nevada 89706
DeStefano Children Trust 530,546 (3) 11.42%
c/o John McConeghy
42 Sterling Lane
Wayne, New Jersey 07470
Melvyn I. Weiss 248,650 (4) 5.35%
One Pennsylvania Plaza
New York, New York 10119
Pioneer Ventures 880,000 (5) 18.94%
Associates
Limited Partnership
651 Day Hill Road
Windsor, Connecticut
06095
Robert A. Lerman 893,495 (6) 19.23%
651 Day Hill Road
Windsor, Connecticut
06095
James J. Holzinger 10,000 *
7 Canterbury Way
Wayne, New Jersey 07470
Dr. Paul Lerman -- --
1000 River Road
Teaneck, New Jersey 07666
All Executive Officers 3,407,079 73.33%
and Directors as a Group
(5 persons)
* Less than 1%.
(1) This amount includes 101,984 Shares owned by trusts for
the benefit of Mr. Fox's children of which Mr. Fox is a
trustee and of which Mr. Fox disclaims beneficial
ownership. Mr. Fox has shared voting and investment power
over the Shares owned by such trusts. This amount also
includes 101,796 Shares owned by the Martin Fox Retirement
Trust. This amount does not include 53,433 Shares owned
by a trust for the benefit of unrelated persons of which
Mr. Fox is a trustee and of which Mr. Fox disclaims
beneficial ownership. This amount also includes 325,000
shares which Mr. Fox has the right to acquire pursuant to
a currently exercisable stock option.
(2) This amount includes 72,638 Shares owned by the Daniel
DeStefano Retirement Trust. This amount also includes
325,000 shares which Mr. DeStefano has the right to
acquire pursuant to a currently exercisable stock option.
(3) Owned by the DeStefano Children Trust for the benefit
of Mr. DeStefano's adult children, of which the trustees
are Messrs. John McConeghy and Fred DeStefano (Mr. Daniel
A. DeStefano's brother).
(4) This amount also includes 101,984 Shares owned by
trusts for the benefit of Mr. Fox's adult children of
which Mr. Weiss is a trustee and of which Mr. Weiss
disclaims beneficial ownership. Mr. Weiss has shared
voting and investment power over the Shares owned by such
trusts.
(5) Pursuant to an agreement (the "Agreement") between the
Company and Pioneer Ventures Associates Limited
Partnership ("Pioneer"), Pioneer agreed to convert
Convertible Debentures having an aggregate principal
amount of $1,500,000 into 880,000 shares of the common
stock of the Company. Pursuant to the Agreement, Pioneer
received a value support right which gives it the right to
receive a minimum of 120,000 shares of the Company's
common stock and, under certain circumstances, the right
to receive up to a maximum of 820,000 shares of the
Company's common stock. The Agreement and the
transactions contemplated therein are subject to approval
of the Company's shareholders at the annual meeting of the
Company's shareholders on July 8, 2002. The holders of a
majority of the Company's common stock have contractually
agreed to vote in favor of the approval of the Agreement.
(6) This amount includes (i) 880,000 shares held by Pioneer
Ventures Associates Limited Partnership as described in
footnote (5) above; (ii) 4,400 shares held by Robert
Lerman, (iii) 3,500 shares held by Pioneer Capital Corp.,
a corporation which Mr. Lerman is the owner of 50% of the
issued shares of, (iv) 5,495 shares held by the Robert A.
Lerman Money Pension Plan & Trust, and (v) 100 shares held
by Ellen Lerman, his wife which Mr. Lerman disclaims
beneficial ownership of.
Certain Relationships and Related Transactions
See the "Proposal to Approve the Agreement with Pioneer
Ventures Associates Limited Partnership".
Proposal to Approve the Agreement with Pioneer Ventures
Associates Limited Partnership
On February 25, 1998, the Company entered into the Debenture
Commitment Agreement (the "Debenture Commitment Agreement") with
Pioneer Ventures Associates Limited Partnership ("PVALP")
pursuant to which PVALP agreed to make certain loans to the
Company to be repaid by the Company in accordance with the terms
of convertible subordinated debentures (the "Debentures"). PVALP
initially loaned $3,000,000 to the Company and the Company issued
the First Subordinated Debenture due May 1, 2003 (the "First
Debenture").
In December 1998, pursuant to the terms of the Debenture
Commitment Agreement, PVALP loaned an additional $500,000 to the
Company and the Company issued to PVALP the Second Subordinated
Debenture due December 23, 2003 (the "Second Debenture").
The terms of the Debenture Commitment Agreement included the
condition that the principal stockholders of the Company (the
"Principal Stockholders"), which include Messrs. DeStefano and
Fox, enter into a voting agreement (the "Voting Agreement"). The
Voting Agreement provided that so long as there is any unpaid
principal amount or interest due on either of the First or Second
Debentures, the Principal Stockholders would vote all of their
Common stock for the election of PVALP designee as a director of
the Company.
In May 1999, the Company completed the sale of certain
operating assets of Deerskin Trading Post, Inc. to Advanced
Medical Sciences, Inc. ("AMDS"). The purchase price included the
issuance of a $2,000,000 debenture by AMDS to PVALP and the
concurrent cancellation of $2,000,000 principal amount of the
First Debenture. Additionally, as a result of this transaction,
the conversion price on the remaining principal amount of the
First Debenture was adjusted to $2.50 per share.
In April 2002, the Company and PVALP entered into an
agreement (the "2002 Agreement") pursuant to which PVALP agreed
to convert its remaining debentures having an aggregate principal
amount of $1,500,000 into 880,000 shares of the common stock of
the Company (the "Conversion Shares"). The 2002 Agreement is
subject to the approval of the Shareholders of the Company and,
if so approved, will be effective as of April 26, 2002. In
addition, under the 2002 Agreement PVALP will receive 880,000
value support rights (the "Value Support Right"). The Value
Support Right provides that, subject to the terms and conditions
of the Value Support Rights certificate (the "Rights
Certificate") PVALP is entitled to receive a minimum of 120,000
shares of the Company's common stock, and may receive on April
29, 2004 an additional 720,000 shares of the Company's common
stock. The value of each right shall, subject to adjustment as
provided in the Rights Certificate, be equal to the difference
between $1.70 and the average last sale price for the Company's
common stock (or the average of the last bid and last ask
price for such Shares with respect to any trading day on which
the Company's common stock does not trade) on the Nasdaq SmallCap
market during the last 10 consecutive trading days ending on
April 29, 2004.
Pursuant to the 2002 Agreement, the Voting Agreement was
amended. The Amended Voting Agreement requires the Principal
Stockholders to vote all of their common stock for the election
of Robert A. Lerman and Dr. Paul Lerman or the two nominees of
PVALP 's general partner, Venture Management Partners LLC, so
long as PVALP owns Conversion Shares that are equal to or greater
than 5% of the issued and outstanding common stock of the
Company. The amended Voting Agreement also provides that the
Principal Shareholders may not transfer any Common Stock to any
affiliate without PVALP's prior written consent.
The Principal Stockholders and certain others who in the
aggregate hold a majority of the Company's common stock have,
pursuant to the 2002 Agreement, agreed to vote in favor of
approval of the 2002 Agreement.
The Board of Directors of the Company is recommending the
approval of the 2002 Agreement and the transactions contemplated therein.
If the 2002 Agreement is not approved by the Company's shareholders,
the First and Second Debentures will be reinstated and will be in
full force andeffect in accordance with their respective terms. The
description of the 2002 Agreement set forth above is qualified in
its entirety by reference to the text of the 2002 Agreement set
forth in Exhibit A.
SELECTION OF AUDITORS
The Company's financial statements for the fiscal year ended
April 30, 2002 were examined by Rogoff & Co. P.C. The Board of
Directors recommends the selection of Rogoff & Co. P.C. as
independent auditors to examine the company's financial
statements for the fiscal year ended April 30, 2002.
Representatives of Rogoff & Co. P.C. are expected to be
present at the annual meeting of Shareholders and will have the
opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any matters other
than those mentioned above to be presented to the meeting.
UNDERTAKING
The Company undertakes to provide without charge to each
person solicited by this proxy statement a copy of the Company's
Annual Report on Form 10-KSB including the financial statements
and financial statement schedules required to be filed with the
Securities and Exchange Commission for the Company's most recent
fiscal year. The request made in writing shall be addressed to
Martin Fox, Initio, Inc., 10 Henry Street, Teterboro, New Jersey
07608.
SHAREHOLDER PROPOSALS
Proposals by any shareholders intended to be presented at
the 2003 Annual Meeting of Shareholders must be received by the
Corporation for inclusion in material relating to such meeting
not later than March 15, 2003.
By Order of the Board of Directors,
/s/ Martin Fox
Martin Fox
President
APPENDIX A
INITIO, INC.
Audit Committee of the Board of Directors
CHARTER
__________________________
I. PURPOSE
The primary function of the Audit Committee is to assist the
Board of Directors in fulfilling its oversight responsibilities
by reviewing: the financial reports and other financial
information provided by Initio, Inc. (the "Corporation") to any
governmental body or the public; the Corporation's systems of
internal controls regarding finance, accounting, legal compliance
and ethics that management and the Board have established; and
the Corporation's auditing, accounting and financial reporting
process generally. Consistent with this function, the Audit
Committee should encourage continuous improvement of and foster
adherence to, the Corporation's policies, procedures and
practices at all levels. The Audit Committee's primary duties
and responsibilities are to:
Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal
control system.
1 Review and appraise the audit efforts of the
Corporation's independent accountants.
2 Provide an open avenue of communication among the
independent accountants, financial and senior management
and the Board of Directors.
The Audit Committee will primarily fulfill these
responsibilities by carrying out the activities enumerated in
Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall be
independent directors, and free from any relationship that, in
the opinion of the Board, would interfere with the exercise of
his or her independent judgment as a member of the Committee. A
director is precluded from Committee membership if, among other
things, he or she has:
been employed by the Corporation or its affiliates in the
current or past three years;
accepted any compensation from the Corporation or its
affiliates in excess of $60,000 during the previous fiscal year
(except for board service, retirement plan benefits, or
non-discretionary compensation);
an immediate family member who is, or has been in the past
three years, employed by the Corporation or its affiliates as an
executive officer;
been a partner, controlling shareholder or an executive
officer of any for-profit business to which the Corporation made,
or from which it received, payments (other than those which arise
solely from investments in the corporations securities) that
exceed five percent of the organizations consolidated gross
revenues for that year, or $200,000, whichever is more, in any of
the past three years; or
been employed as an executive of another entity where any of
the Corporation's executives serve on that entitys compensation
committee.
All members of the Committee shall have a working familiarity
with basic finance and accounting practices, and at least one
member of the Committee shall have accounting or related
financial management expertise.
The members of the Committee shall be elected by the Board
at the annual meeting of the Board to serve until the next annual
meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full
Board, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.
III. MEETINGS
1.The Committee shall meet at least four times annually, or
more frequently as circumstances dictate. As part of its
job to foster open communication, the Committee should
meet at least annually with management and the independent
accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believe
should be discussed privately. In addition, the Committee
or at least its Chair should meet with the independent
accountants and management quarterly to review the
Corporation's financials consistent with Section IV.3
below.
2.A majority of the entire Committee membership shall
constitute a quorum for the transaction of business and
the vote of a majority of the Committee members present at
the taking of the vote, if a quorum is then present, shall
be the act of the Committee. Committee members may
neither be present nor vote by proxy.
3.Any action by the Committee may be taken without a meeting
if all Committee members consent in writing to the
adoption of a resolution authorizing the action. The
resolution and consent shall be filed with the Committee
minutes.
4.Any one or more Committee members may participate in a
Committee meeting by means of a conference telephone or
similar communications equipment allowing all persons
participating to hear each other at the same time.
Participation by such means shall constitute presence in
person at a meeting.
IV. RESPONSIBILITIES
To fulfill its responsibilities and duties the Audit
Committee shall:
Documents/Reports Review
1.Review and assess the adequacy of this Charter
periodically, at least annually, and update it as
conditions dictate. Ensure that eligibility to serve on
this Committee remains consistent with any rulemaking
promulgated by the Securities and Exchange Commission or
Nasdaq, as appropriate.
2.Review the Corporation's annual audited financial
statements and any reports or other financial information
submitted to any governmental body, or the public,
including any audit or review opinion, certification or
report rendered by the independent accountants.
3.Review with financial management and the independent
accountants the 10-Q prior to its filing or prior to the
release of earnings. The Chair of the Committee may
represent the entire Committee for purposes of this
review.
Independent Accountants
4.Recommend to the Board of Directors the selection of the
independent accountants, considering independence and
effectiveness.
5.Review the performance of the independent accountants and
approve any proposed reappointment or discharge of the
independent accountants when circumstances warrant.
6.Review types of services rendered to the Corporation by
the independent accountants and approve the fees and other
compensation to be paid to the independent accountants.
7.On an annual basis, the Committee should review and
discuss with the independent accountants the scope of the
annual audit and quarterly reviews and all significant
relationships the independent accountants have with the
Corporation to ensure their independence. The Committee
is responsible for assuring the accountants' independence.
8.Periodically consult with the independent accountants out
of the presence of management about internal controls and
the adequacy and accuracy of the Corporation's financial
statements and disclosures.
Financial Reporting Process
9.In consultation with the independent accountants, review
the integrity of the Corporation's financial reporting
process, both internal and external.
10. Consider the independent accountant's judgments about
the quality and appropriateness of the Corporation's
accounting principles as applied to its financial
reporting.
11. Consider and approve, if appropriate, major changes to
the Corporation's accounting principles and practice as
suggested by the independent accountants or management.
Process Improvement
12. Establish regular and separate systems of reporting to
the Audit Committee by each of management and the
independent accountants regarding any significant
judgments made in management's preparation of the
financial statements and the view of each as to the
appropriateness of such judgments.
13. Following completion of the annual audit, review
separately with each of management and the independent
accountants any significant difficulties encountered
during the course of the audit, including any
restrictions on the scope of work or access to required
information.
14. Review any significant disagreement among management
and the independent accountants in connection with the
preparation of the financial statements.
15. Review with the independent accountants and management
the extent to which changes or improvements in
financial or accounting practices, as approved by the
Audit Committee, have been implemented.
Ethical and Legal Compliance
16. Establish, review and update periodically a Code of
Ethical Conduct and ensure that management has
established a system to disseminate and enforce this
Ethical Code.
17. Review managements' monitoring of the Corporation's
compliance with the Ethical Code, and ensure that
management has the proper review system in place to
ensure that the Corporation's financial statements,
reports and other financial information disseminated to
governmental organizations, and the public satisfy
legal requirements.
18. Review, with the Corporation's counsel, legal
compliance matters including corporate securities
trading policies.
19. Review with the Corporation's counsel, any legal matter
that could have a significant impact on the
Corporation's financial statements.
Other
20. Perform any other activities consistent with this
Charter, the Corporation's By-laws and governing law,
as the Committee or Board deems necessary or
appropriate.
1
Exhibit A
AGREEMENT
AGREEMENT DATED as of the 26th day of April, 2002 by and
between PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, having
an office at 651 Day Hill Road, Windsor, Connecticut 06095
("Pioneer") and INITIO , INC. having an office at 10 Henry
Street, Teterboro, New Jersey 07608 ("Initio").
WHEREAS, as evidenced by those certain convertible
debentures, dated December 23, 1998 and May 1, 1999,
respectively Pioneer loaned Initio, $500,000 and $1,000,000 (each
a "Debenture" and collectively hereinafter referred to as the
"Debentures"); and
WHEREAS, Pioneer and Initio agree that the Debentures shall
be converted pursuant to the terms and conditions herein;
NOW THEREFORE, in consideration of the mutual promises
contained herein, the parties agree as follows:
1 Exercise of Debentures. Subject to the terms and
conditions of this Agreement, Pioneer hereby irrevocably
exercises its option to convert the Debentures into 880,000
shares of the Common Stock of Initio (the "Conversion Shares")
and Pioneer hereby waives any and all accrued but unpaid interest
due on the Debentures.
2 Stock Certificates for Conversion Shares. Each
certificate evidencing the Conversion Shares shall bear the
following legend:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as
amended, and may not be offered, sold, transferred
or otherwise disposed of except in compliance with
such laws."
Initio hereby confirms its understanding that under Rule
144, of the General Rules and Regulations under the Securities
Act of 1933, as amended, Pioneer's holding period with respect to
the Conversion Shares began when the respective Debentures were
issued.
3 Issuance of Conversion Shares. In order to exercise
the conversion privilege, Pioneer is, concurrently with the
execution hereof, surrendering the Debentures to Initio and such
Debentures will be canceled and will no longer be obligations of
Initio subject to the return of the Debentures as provided in
section 4 below. Immediately after the approval of this
Agreement and the transactions contemplated hereby at the meeting
of shareholders referred to in Section 4, below, Initio shall
issue and deliver to Pioneer certificate(s) for the 880,000
Conversion Shares. The conversion of the Debentures shall be
deemed to have been effected on the date hereof.
4 Shareholders Meeting; Value Support Right. After the
execution of this Agreement, and prior to July 10, 2002, Initio
will hold a meeting of its shareholders and will include as one
of the matters submitted to a vote of its shareholders, this
Agreement and the transactions contemplated hereby, including,
the issuance of one value support right with respect to each
Conversion Share evidenced by certificate(s) substantially in the
form of Exhibit A to this Agreement (the "Value Support Right").
Initio will issue Pioneer certificate(s) evidencing such Value
Support Rights immediately after shareholder approval, provided,
however, if Initio's Shareholders do not approve this Agreement
and the transaction contemplated hereby, Initio will immediately
reissue and deliver the Debentures to Pioneer as of the original
dates thereof with all prior accrued and unpaid interest, and
interest which would have accrued between the commencement of
this Agreement and the reissuance of the Debentures. Upon the
return of the Debentures, the Debentures will be fully reinstated
and continue to be in full force and effect in accordance with
their respective original terms.
5 Agreements Concerning Directors. So long as Pioneer
owns Conversion Shares that are equal to or greater than 5% of
the issued and outstanding common stock of Initio, Initio shall
nominate to include in the list of candidates for directors
recommended by the Board of Directors, and use its best efforts
to have elected, both Robert A. Lerman and Dr. Paul Lerman or the
two nominees of Pioneer's general partner, Ventures Management
Partners LLC. In furtherance of the foregoing, Pioneer, Martin
Fox, Daniel DeStefano and certain other Shareholders of Initio
shall simultaneously with the execution of this Agreement,
execute an Amended and Restated Voting Agreement in substantially
the form of Exhibit B attached hereto.
6 Representations of Initio. Initio, except as set forth
herein or in documents that it has filed with the Securities and
Exchange Commission (the "SEC"), hereby represents and warrants
to Pioneer as follows:
a Corporate Organization, Standing and Subsidiaries.
Initio is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and has all
requisite corporate power, legal right and authority to conduct
its business and own, lease and operate its properties as and in
the places where such business is now conducted and such
properties are now owned, leased or operated except as stated in
4(d) below. Initio has only one subsidiary, Initio Acquisition
Corp. (the Subsidiary). The Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate
power, legal right and authority to conduct its business and own,
lease and operate its properties as and in the places where such
business is now conducted and such properties are now owned,
leased or operated. The Subsidiary is wholly owned by Initio.
b Property. Initio, either directly or indirectly
through the Subsidiary, has good and marketable title to all its
material assets in each case free and clear of all liens, except
(i) liens disclosed in documents filed with the SEC, (ii) the
lien, if any, of current taxes not yet due and payable, (iii)
such minor imperfections in title and encumbrances, if any, as do
not materially detract from the value or interfere with the
present use thereof and (iv) liens created pursuant to equipment
finance leases not exceeding $100,000 in total.
c Default. Other than with respect to the Debentures,
Initio and the Subsidiary are not in violation of, breach of or
default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in
this Agreement) has occurred which with the passage of time or
notice from or action by any party thereto or otherwise could
result in a violation of or default under, or give any other
person the right to terminate, as the case may be, any indenture,
mortgage, security, loan, lease or other material agreement to
which Initio or the Subsidiary is a party or by which it is bound
or result in the creation, imposition or acceleration of any
material lien of any nature in favor of any other person.
d Permits; Compliance with Laws. Other than as disclosed
herein, Initio and the Subsidiary possess all necessary valid
licenses, permits, franchises, consents, authorizations and
approvals of or from governmental departments, agencies and
instrumentalities for the business and operations of Initio and
the Subsidiary as presently conducted and are not in material
default with respect to nor in violation of, and have not
received notice of any violation of or any proceedings for the
termination or revocation of, any such license, permit,
franchise, consent, authorization or approval or, to the best of
its knowledge, any applicable Federal, state, local or foreign
law, statute, ordinance, regulation, order or requirement
relating to its business, operations or assets, or the use
thereof, which default or violation could have a materially
adverse affect upon its business or operation, provided, however,
although Subsidiary is an active business in the State of New
Jersey, its Annual Report for 1999 is listed by the State of New
Jersey as having not been filed (the "Status"). To the best of
Subsidiary's knowledge, such report has been filed and Subsidiary
hereby agrees to attempt to rectify the Status as soon as
practicable. Without limiting the generality of the foregoing,
Initio has not received any notice of delisting from Nasdaq.
e Litigation. There are no actions, suits, claims,
arbitrations, administrative or other proceedings or governmental
investigations seeking $10,000 or more in damages pending or, to
the best of Initio's knowledge, threatened against, relating to
or affecting Initio or the Subsidiary, or their respective
business, operations or assets, whether or not fully covered by
insurance or which question or seek to prevent consummation of
the transactions provided for in this Agreement, whether at law
or in equity, or before or by any Federal, state, local, foreign
or other governmental department, agency or instrumentality nor
to the best of its knowledge is there any basis therefore.
Initio and the Subsidiary are not bound or adversely affected by
or in default with respect to any judgment, order, writ,
injunction or decree of any court or of any governmental
department, agency or instrumentality.
f Financial Statements. The Financial Statements (as
that term is hereinafter defined) are true, correct and complete
in all material respects and in conformity with the books and
records of Initio, have been prepared in accordance with
generally accepted accounting principles and practices
consistently applied through the periods covered (except as
otherwise stated therein) and fairly present in all material
respects the financial condition and results of operations of
Initio, as at the dates thereof and for the periods covered
thereby.
g No Adverse Changes. Since January 31, 2002, there have
been no changes in the financial condition, assets, liabilities,
operating results or business of Initio or the Subsidiary, other
than changes in the ordinary course of business, which have been,
individually or in the aggregate, materially adverse, nor has
there been any material damage, destruction or loss of any of its
property, and the business and operations of the Initio and the
Subsidiary have been conducted only in the usual, regular and
ordinary course.
h Taxes. Initio and the Subsidiary (i) have filed all
applicable federal, state, county and local tax and franchise
returns and reports required to be filed by it and have paid (or,
as to taxes not currently due and payable, have made adequate
provision in accordance with generally accepted accounting
principles for the payment of) all income and other taxes,
assessments, franchise fees and other governmental charges
required by law (including, without limitation, withholding,
social security, payroll and similar taxes) and all interest and
penalties, if any, thereon and (ii) is not a party to any pending
action or proceeding by any governmental authority for the
assessment or collection of any taxes, assessments, franchise
fees or other governmental charges and no claim for any thereof
is pending.
i Authorization Validity. Other than as provided in
Section 4 above, this Agreement has been duly authorized and
constitutes the valid and legally binding obligations of Initio
in accordance with its terms except as enforcement may be limited
by applicable bankruptcy, insolvency and other laws relating to
or affecting creditors' rights generally and subject also to
general principles of equity affecting the right to specific
performance and injunctive relief.
j Approvals. Other than the filing of a notification
form for the listing of additional shares with Nasdaq or as
stated in Section 4 above, no authorization or approval of, or
filing with, or compliance with any applicable order, judgment,
decree, statute, rule or regulation of, any court or governmental
authority, or approval, consent, release or action of any third
party is required in connection with the execution and delivery
by Initio of or the performance or satisfaction of any agreement
of Initio contained in or contemplated by this Agreement.
k Capital Stock; Ownership. The authorized securities of
Initio consists of 10,000,000 shares of Common Stock, $.01 par
value, of which, as of the date hereof, 4,646,004 are
outstanding. Other than as set forth in documents that it has
filed with the SEC, (i) no other shares of Common Stock of Initio
or other securities are issued or outstanding or committed for
issuance and (ii) Initio has no other outstanding stock options,
warrants or other convertible securities, except for the
Debentures.
l Complete Disclosure. No representation, warranty or
statement, written or oral, made by Initio in this document
furnished or to be furnished to Pioneer including any and all
documents filed with the SEC within the past 12 months, pursuant
hereto or otherwise, in connection with the transactions
contemplated hereby, has contained, contains or will contain at
the closing date any untrue statement of a material fact or has
omitted, omits or will omit at the closing date a material fact
required to be stated therein or necessary to make the statements
contained therein not misleading. Without limiting the
generality of the foregoing, Initio is current in all filings
required under the Securities Exchange Act of 1934, as amended.
m Additional Representations. Initio represents and
warrants that:
i0 The investment to be consummated by Pioneer in
Initio has been approved by it board of directors;
ii0 Initio is NOT a real estate or real estate
operating company;
iii0 Initio is NOT undergoing a bankruptcy liquidation;
iv0 Initio and the Subsidiary are NOT domiciled in any
country that is, at the time of the execution of
this Agreement, a participant in an international
boycott illegal under United States law or opposed
by the United States government;
v0 Initio is not an investment company or required to
be registered under the Investment Company Act of
1940; as amended;
vi0 Initio conducts NO operations in Northern Ireland.
For purposes of this Certificate, a corporation
will be considered to be conducting operations in
Northern Ireland if it has facilities and
employees in Northern Ireland, either directly or
through one or more subsidiaries and
vii0 Initio is NOT and shall NOT be engaged in any form
of business in Iran which could be considered
contrary to the foreign policy or national
interests of the United States.
7 Receipt of Disclosure Documents. Pioneer acknowledges
that it has received and reviewed copies of the following (the
Financial Statements) from Initio: (i) its Annual Report on
Form 10-KSB for the fiscal year ended April 30, 2001, and (ii)
its Quarterly Report on Form 10-QSB for the quarter ended January
31, 2002.
8 Representations of Pioneer. Pioneer hereby represents
and warrants the following to Initio:
(1) Accredited Investor. It is an accredited investor within
the meaning of Rule 501 of the SEC under the Securities Act of
1933, as amended (the Securities Act).
(1) (2) Investment Purpose. It is acquiring the Conversion
Shares for its own account and not on behalf of others (except
its limited partners) and has not granted any other person any
right or option or any participation or beneficial interest in
any of the Conversion Shares. Pioneer acknowledges it
understanding that the Conversion Shares constitute restricted
securities within the meaning of Rule 144 of the SEC under the
Securities Act, and that none of the Conversion Shares may be
sold except pursuant to an effective registration statement under
the Securities Act or in a transaction exempt from registration
under the Securities Act, and acknowledges that it understands
the meaning and effect of such restriction. Pioneer is aware
that no federal or state regulation agency or authority has
passed upon the sale of the Conversion Shares or the terms of the
sale or the accuracy or adequacy of any material being provided
to Pioneer and that the price of the Conversion Shares was
negotiated between Pioneer and Initio and does not necessarily
bear any relationship to the underlying assets or value of
Initio. Pioneer understands that an investment in the Conversion
Shares involves a high degree of risk.
(c) Authorization; Validity. This Agreement has been
duly authorized and constitutes the valid and legally binding
obligation of Pioneer in accordance with its terms except as
enforcement may be limited by applicable bankruptcy, insolvency
and other laws relating to or affecting creditors' rights
generally and subject also to general principles of equity
affecting the right to specific performance and injunctive
relief.
(d) Approvals. No authorization or approval of, or
filing with, or compliance with any applicable order, judgment,
decree, statute, rule or regulation of, any court or governmental
authority, or approval, consent, release or action of any third
party, is required in connection with the execution and delivery
by Pioneer of, or the performance or satisfaction of any
agreement of Pioneer contained in or contemplated by, this
Agreement.
90 Modifications. This Agreement may not be modified or
discharged orally, but only in writing duly executed by the party
to be charged.
100 Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Agreement shall
bind the parties' respective successors and assigns, whether so
expressed or not.
110 Headings. The headings of the various sections of this
Agreement are for convenience of reference only and shall in no
way modify any of the terms or provisions of this Agreement.
120 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
130 Pronouns. All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine,
feminine or neutral, singular or plural, as the identity of the
parties hereto may require.
140 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall
be in writing and shall be deemed to have been duly given if
delivered by overnight delivery service and telecopier, addressed
to the parties at their respective addresses set forth or
referred to on the first page of this Agreement, with copies to
their respective counsel, Milberg Weiss Bershad Hynes & Lerach
LLP, Attention: Arnold N. Bressler, Esq., One Pennsylvania Plaza,
New York, New York 10119 (fax no. (212) 868-1229), in the case of
Initio; and Kenneth Lerman, Esq., 651 Day Hill Road, Windsor,
Connecticut 06095 (fax no. (860) 285-0139) in the case of
Pioneer, or to such other person or address as may be designated
by like notice hereunder. The current fax numbers of Initio and
Pioneer are (201) 462-9047 and (860) 285-0139, respectively.
[THIS SPACE INTENTIONALLY LEFT BLANK]
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
INITIO INC.
PIONEER VENTURES ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ Martin Fox
Martin Fox, President By: Ventures Management
Partners, LLC, Its
General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By: /s/ John F. Ferraro
John F. Ferraro
Managing Director
Exhibit A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH SUCH LAWS.
NEITHER THIS CERTIFICATE NOR ANY RIGHTS GRANTED OR ANY INTEREST
EVIDENCED THEREBY IS TRANSFERABLE EXCEPT AS EXPRESSLY PROVIDED IN
THIS CERTIFICATE
No. 1
880,000 Rights
VALUE SUPPORT RIGHTS WITH RESPECT TO
THE COMMON SHARES OF
INITIO INC.
(A Nevada Corporation)
MANDATORILY REDEEMABLE AFTER 5:00 P.M. EASTERN TIME, ON APRIL 29,
2004.
Initio Inc., a Nevada corporation (the "Company"), hereby
certifies that Pioneer Ventures Associates Limited Partnership
(the "Registered Holder"), is the owner of 880,000 Value Support
Rights ("Rights") with respect to the market price of Common
Shares, par value $.01 per share, of the Company (the "Shares"),
as represented by this Certificate, but subject to the terms set
forth below:
Rights.
The Rights have been issued to the Registered Holder as
additional consideration pursuant to the Agreement between the
Company and the Registered Holder dated the date hereof (the
"Agreement"). The Rights are subject to the terms of this
Certificate and to the terms of the Agreement. In the event of
any inconsistency between the terms of this Certificate, on one
hand, and the terms of the Agreement, on the other hand, the
latter shall control. The Rights granted hereby are non-
transferable, except to the general partner of the Registered
Holder and the limited partner of the Registered Holder. In the
event that prior to the Redemption Date (as defined below), the
Registered Holder sells, assigns, transfers or disposes in any
way of any of the Conversion Shares (as defined in the Agreement)
except to the general partner of the Registered Holder, and the
limited partner of the Registered Holder, the Rights that relate
to such Conversion Shares so disposed of will be automatically
canceled and will be of no further force or effect without the
necessity of any action by the Company or the Registered Holder.
Redemption.
On April 29, 2004 (the "Redemption Date"), the Rights reduced
in proportion to the number of Conversion Shares (as defined in
the Agreement) then held by the Registered Holder will, if and
only to the extent such Rights have value according to their
terms, entitle the Registered Holder to receive from the Company
in redemption of such Right a consideration payable in cash or
Shares at the Option of the Company equal in value to the
Redemption Rate (as defined below).
Election by the Company to Redeem in Cash, Shares or Other
Securities.
(a) Within ten (10) business days following the Redemption
Date, the Company, in its sole discretion, shall elect with
respect to the Rights of the Registered Holder to make payment,
if any is due and payable with respect to this Certificate,
either _ in cash or _ by issuing Shares, by written notice given
within such 10-day period to the Registered Holder at its last
address on the books and records of the Company. The date of
such election by the Company is hereinafter referred to as the
"Rights Election Date."
(b) In the event the Company elects to make payment in Shares,
such Shares shall be valued at the average last sale price for
the Shares or the average of the last bid and last ask price for
such Shares with respect to any trading day on which the Shares
were not traded, on the Nasdaq SmallCap Market, or such other
market as shall then constitute the primary market for Shares
(the "Primary Market"), during the last ten consecutive trading
days ending on the Redemption Date (the "10-Day Average").
Redemption Rate.
The value of each Right (the "Redemption Rate") shall, subject
to adjustment as provided in section 8 below, be equal to the
difference between (i) $1.70 and (ii) the 10-Day Average.
Maximum/Minimum Number of Shares that can be Issued.
(a) If the last sale price per share of the Shares, or the
average of the last bid and last ask price for such Shares with
respect to any trading day on which the Shares were not traded,
is at least $1.75 (as adjusted pursuant to section 8 below) for
five of eight consecutive trading days on the Primary Market
during the period beginning on the date of this Certificate and
ending on the Redemption Date (the "Performance Period"), the
Company shall, subject the last sentence of this section 5 (a)
issue and deliver to the Registered Holder 120,000 shares of its
common stock, provided, however, if by the Redemption Date, the
no shares of the Company's common stock have been issued to the
Registered Holder, then the Company shall, subject to the last
sentence of this section 5 (a), promptly issue and deliver to
the Registered Holder 120,000 shares (as adjusted pursuant to
section 8 below). Any shares of the Company's common stock
issued pursuant to this Section 5 (a) shall hereinafter be
referred to as "Additional Shares". Any Additional Shares issued
pursuant to the forgoing sentence shall be reduced in proportion
to the Conversion Shares issued to the Registered Holder as of
the date hereof and then held by it. To receive the Additional
Shares, the Registered Holder shall surrender this Certificate to
the Company and provide the Company with such evidence as it
shall reasonably require showing that the Registered Holder is
still the owner of the Conversion Shares to which this
Certificate relates, and the Company shall, promptly after the
receipt of this Certificate and the evidence required by this
section, deliver to the Registered Holder the Additional Shares
and this Certificate shall have no value and shall be
automatically canceled and the Company shall have no liability
under this Certificate.
(b) Notwithstanding anything to the contrary herein, the total
number of Shares issued under this Certificate will not exceed
820,000 shares of the Company's common stock (including the
issuance of the Additional Shares) and shall not be less than
120,000 shares of the Company's common stock reduced in
proportion to the number of Conversion Shares issued to the
Registered Holder as of the date hereof and then held by the
Registered Holder.
Redemption Procedures.
Not later than twenty (20) days after the Rights Election Date
(the "Deposit Date"), the Registered Holder shall surrender this
Certificate to the Company, together with such evidence as the
Company shall reasonably require showing that the Registered
Holder is still the owner of the Conversion Shares to which this
Right relates, and the Company shall then promptly deliver such
cash or Shares (or Other Securities), in accordance with its
election, to the Registered Holder for payment of the Redemption
Rate for each Right in accordance with the terms of this
Certificate and this Certificate shall thereupon be deemed fully
paid and shall be null and void and.
Distribution of the Common Stock of Initio Acquisition Corp.
In the event that the common sock of Initio Acquisition Corp.
("Acquisition Corp."), the Company's wholly owned subsidiary, is
distributed to the shareholders of the Company, the Company will
notify the Registered Holder, in writing, to surrender this
Certificate. Upon the surrender of the Certificate, the Company
will issue to the Registered Holder two Certificates (one
representing rights to shares of the common sock of Initio Inc.
and one certificate representing rights to shares of the common
sock of Acquisition Corp.) that will have substantially the same
terms as the surrendered Certificate, provided, however, the
Redemption Rate and the number of shares of the common stock of
the Company that could be issued hereunder will be adjusted in
proportion to the relative book values of the Company and
Acquisition Corp. immediately prior to such distribution.
Adjustments.
(a) If, at any time during the Performance Period, the Company
shall pay or make a dividend or other distribution with respect
to Shares (including by way of reclassification of any Shares),
the Redemption Rate shall be calculated by multiplying the
Redemption Rate otherwise determined in accordance with section 4
above by a fraction, (i) of which the numerator shall be the sum
of the number of Shares outstanding at the close of business on
the date fixed for such determination, excluding the effect of
such dividend or distribution, plus the total number of Shares
constituting such dividend or other distribution, and (ii) of
which the denominator shall be the number of Shares outstanding
at the close of business on the date fixed for such
determination, excluding the effect of such dividend or
distribution.
(b) In the event that, at any time during the Performance
Period, all Shares outstanding shall be subdivided or split into
a greater number of Shares, the amounts used to calculate the
Redemption Rate in accordance with section 4 shall be
proportionately decreased, and, conversely, in the event that,
during such period, all outstanding Shares shall be combined into
a lesser number of Shares, the amounts used to calculate the
Redemption Rate in accordance with section 4 above shall be
proportionately increased.
(c) For the purposes of this section, the number of Shares at
any time outstanding shall not include shares held in the
treasury of the Company and the number of shares constituting any
such dividend or other distribution shall include shares
represented by cash issued in lieu of fractional Shares.
(d) The Company shall provide the Registered Holder with its
calculation of any adjustments made pursuant to this section at
least ten days before the Deposit Date.
Replacement of Certificates.
Prior to the Redemption Date, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Certificate and (in the case of
loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of
mutilation) upon surrender and cancellation this Certificate, the
Company will issue, in lieu thereof, a new Certificate of like
tenor.
No Transfers, etc.
(a) The Registered Holder may change its address as shown on
the rights register by written notice to the Company requesting
such change.
(b) The Rights represented by this Certificate shall not be
transferable by the Registered Holder and shall be redeemed only
in favor of the Registered Holder, except as expressly provided
in section 1,above. The Rights represented by this Certificate
shall not be assigned, pledged or hypothecated in any way (other
than by operation of law prior to the Redemption Date) and shall
not be subject to execution, attachment or similar process. In
the event of a transfer of the Rights to the General Partner or
the Limited Partner prior to the Redemption Date, the transferee
must give notice to the Company of such transfer including the
name of the transferee and the number of Rights so transferred
and surrender this Certificate to the Company and provide such
other documents as the Company shall reasonably require to assure
compliance with this section. The Company will then in accordance
with the notice of such transfer promptly issue new certificates
having substantially the same terms as the surrendered
certificates, provided the number of Rights and Additional Shares
represented by the new certificates shall be adjusted in
proportion to the number of Rights transferred. Any attempted
transfer, assignment, pledge, hypothecation or other disposition
of this Certificate or of any Rights granted hereunder contrary
to the provisions of this section, or the levy of any attachment
or similar process upon this Certificate or any Rights granted
thereby, shall be null and void.
Mailing of Notices, etc.
All notices and other communications from the Company to the
Registered Holder with respect to this Certificate or any Rights
granted thereby shall be mailed by first-class certified or
registered mail, postage prepaid, to the address furnished to the
Company in writing by the Registered Holder of this Certificate.
All notices and other communications from the Registered Holder
of this Certificate or in connection herewith to the Company
shall be mailed by first-class certified or registered mail,
postage prepaid, to the Company at 10 Henry Street, Teterboro,
New Jersey 07608 with a copy to counsel for the Company, Milberg
Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New
York, New York 10119 Attn.: Arnold N. Bressler, Esq.
No Rights as Stockholder.
The Registered Holder of this Right shall not have or exercise
any rights as a stockholder of the Company by virtue of this
Certificate or any Rights granted thereby.
Governing Law.
This Certificate and the Rights granted thereby shall be
governed by and construed in accordance with the laws of the
State of Nevada without regard to its conflict of law rules.
Acceleration of Liability and Liquidation of Damages.
Unless earlier canceled pursuant to the provisions in section 4
of this Certificate, the Rights shall mature and become
immediately payable upon (i) the filing by the Company of a
voluntary petition for relief in bankruptcy or (ii) the filing of
an involuntary petition against the Company for relief in
bankruptcy by three or more creditors (the "Accelerated
Redemption Date"). Notwithstanding anything provided in the
previous sentence, in the event that the Company obtains an order
dismissing such involuntary petition from the bankruptcy court in
which the involuntary filing is made within ninety (90) days from
the filing of the involuntary petition, the Redemption Date shall
automatically be reinstated as the date upon which the Rights
shall mature and become payable. Upon the Accelerated Redemption
Date the Rights shall be immediately payable as a fully
liquidated claim in the amount of $1.70 per Right, except to the
extent provided in the second sentence of this section.
INITIO INC.
Dated: April 26, 2002 By: /s/ Martin Fox
Martin Fox, President
Exhibit B
AMENDED AND RESTATED VOTING AGREEMENT
AMENDED and RESTATED VOTING AGREEMENT dated as of the 26th day
of April, 2002 by and between PIONEER VENTURES ASSOCIATES LIMITED
PARTNERSHIP, having an office at 651 Day Hill Road, Windsor,
Connecticut 06095 ("PVALP"), and the persons and entities set
forth on the signature page hereof (collectively hereinafter
referred to as the "Principal Shareholders").
WHEREAS, the Principal Shareholders have sole or shared voting
power over the common shares, $.01 par value per share ("Common
Shares"), of Initio, Inc. (the "Company") as more specifically
set forth in Exhibit A attached hereto;
WHEREAS, PVALP and the Principal Shareholders are parties to
the Voting Agreement dated as of the 25th day of February, 1998
(the "Voting Agreement");
WHEREAS, pursuant to a certain agreement dated the date hereof
between PVALP and the Company (the "Agreement"), PVALP is
exercising its option to convert the Debentures (as defined in
the Agreement);
WHEREAS, the execution of this Amended and Restated Voting
Agreement is a condition to the transactions provided for in the
Agreement.
WHEREAS, PVALP and the Principal Shareholders desire to amended
and restate the Voting Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
1. Voting Agreement. The Voting Agreement is amended and
restated as provided herein.
2.Voting by Principal Shareholders.
(a) Each of the Principal Shareholders hereby agree to vote
to approve the Agreement and the transactions contemplated
thereby.
(b) Each of the Principal Shareholders agrees that, so long
as PVALP shall own Conversion Shares (as defined in the
Agreement) that are equal to or greater than 5% of the issued and
outstanding common stock of the Company, each of them shall vote
all of his or its Common Shares, whether now owned or hereafter
acquired, for the election as a director(s) of the Company of the
designee(s) of PVALP in accordance with paragraph 5 entitled
"Agreements Concerning Directors" of the Agreement at any meeting
of the Company's shareholders (or by written consent in lieu of a
shareholder meeting) at which such designee shall be nominated as
a director.
3.Transfer of Common Shares to Affiliates. During the term of
this Amended and Restated Voting Agreement, neither the Principal
Shareholders nor any other person who shall become a party to or
bound hereby shall transfer any Common Shares, whether now or
hereafter acquired by him, (i) to any affiliate, as hereinafter
defined, without first obtaining the written agreement of such
affiliate to be bound by and subject to the terms and conditions
of this Amended and Restated Agreement, with the same force and
effect as if such person were named as a party to this Amended
and Restated Agreement or as a Principal shareholder hereunder or
(ii) pursuant to a registration statement without the prior
written approval of PVALP, which approval shall not be
unreasonably withheld. The term "affiliate" shall mean (a) any
spouse, parent, parent-in-law, grandparent, child, grandchild,
sibling, uncle, aunt, niece, nephew or first cousin of the
transferor or (b) any person which the transferor directly or
indirectly controls or (c) any transfer to a person if the
transferor remains a beneficial owner, as that term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended,
of the transferred shares.
4.Other Transfers of Common Shares. Except for a transfer
pursuant to Paragraph 3 of this Amended and Restated Voting
Agreement, nothing herein shall be construed to prohibit any
transfer of Common Shares owned by any party hereto.
5.Violation of Agreement; Consent to Injunctive Relief. Each
of the Principal Shareholders recognizes and agrees that any
violation of any of his obligations set forth herein would cause
irreparable damage which could not be compensated by monetary
damages. Accordingly, in the event of any breach of a Principal
Shareholder's obligations under this Amended and Restated Voting
Agreement, such Principal Shareholder consents to the entry of
injunctive relief by a court of competent jurisdiction
restraining any such violation or threatened violation in
addition to any other remedies available at law or in equity.
6.Representations. Each of the Principal Shareholders
represents and warrants that, at the date hereof, he or it is the
sole record and beneficial owner of the Common Shares set forth
opposite his or its name on Exhibit A to this Amended and
Restated Voting Agreement. Each of the Principal Shareholders
represents that it is not the beneficial owner of any Common
Shares not disclosed herein, whether held directly or through any
affiliate, other than Common Shares, which the trustee (other
than Martin Fox and Daniel DeStefano) of a trust which is a
Principal Shareholder may own for his own account or which a
Principal Shareholder may own as a trustee for unrelated third
parties.
7.Further Assurances. From and after the date of this Amended
and Restated Voting Agreement, the parties hereto shall from time
to time, at the request of any other party and without further
consideration, do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, things and
instruments as may be reasonably requested or required more
effectively to evidence and give effect to the transactions
provided for in this Agreement.
8.Notices. All notices, requests, demands and other
communications required or permitted under this Amended and
Restated Voting Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or if mailed by
first class registered or certified mail return receipt request,
or by first class mail or overnight courier if received,
addressed to the parties at their respective addresses set forth
on this first page of this Amended and Restated Voting Agreement,
or to such other person or address as may be designed by like
notice hereunder.
9.Modifications. This Amended and Restated Voting Agreement
may not be modified or discharged orally, but only in writing
duly executed by the party to be discharged.
10. Successors and Assigns. All the covenants, stipulations,
promises and agreements in this Amended and Restated Voting
Agreement shall bind the parties' respective heirs, successors
and assigns, whether so expressed or not.
11. Headings. The headings of the various sections of this
Amended and Restated Voting Agreement are for convenience of
reference only and shall in no way modify any of its terms or
provisions.
12. Governing Law. This Amended and Restated Voting Agreement
shall be governed by and construed in accordance with the laws of
the State of Nevada applicable to instruments made and to be
performed entirely within such State.
13. Counterparts. This Amended and Restated Voting Agreement
may be executed in two or more counterparts, each of which shall
be deemed an original but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date and year first above written.
PIONEER VENTURES ASSOCIATES
LIMITED PARTNERSHIP
By: Ventures Management
Partners, LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By: /s/ Robert A. Lerman
Robert A. Lerman,
President
/s/ Martin Fox
Martin Fox
/s/ Daniel DeStefano
Daniel DeStefano
DANIEL DESTEFANO RETIREMENT PLAN TRUST
By: /s/ Daniel DeStefano
Daniel DeStefano, Trustee
MARTIN FOX RETIREMENT PLAN TRUST
By: /s/ Martin Fox
Martin Fox, Trustee
LFM ASSOCIATES, INC. RETIREMENT TRUST
By: /s/ Martin Fox
Martin Fox, Trustee
SAMANTHA FOX TRUST
By: /s/ Martin Fox
Martin Fox, Trustee
JOSHUA FOX TRUST
By: /s/ Martin Fox
Martin Fox, Trustee
DeSTEFANO CHILDREN'S TRUST
By: /s/ Alfred DeStefano
Alfred DeStefano, Trustee
EXHIBIT A
to
AMENDED AND RESTATED VOTING AGREEMENT
Principal Shareholders
Name No. of Shares
Daniel DeStefano 577,362
Daniel DeStefano Retirement Plan Trust 72,638
Trustee: Daniel DeStefano
DeStefano Children Trust 530,546
c/o John McConeghy
42 Sterling Lane
Wayne, New Jersey 07470
Trustees: John McConeghy
Alfred DeStefano
Martin Fox 1,034,808
Martin Fox Retirement Plan Trust 101,796
LFM Associates, Inc. Retirement Trust
Samantha Fox Trust 45,449
Trustees: Martin Fox, Rita Fox, Melvyn
I. Weiss
Joshua Fox Trust 56,535
Trustees: Martin Fox, Rita Fox, Melvyn
I. Weiss
INITIO, INC.
PROXY
Annual Meeting of Shareholders - Monday, July 8, 2002
The undersigned shareholder of Initio, Inc. (the "Company")
hereby appoints Martin Fox and Daniel DeStefano, and each of
them, the attorneys and proxies of the undersigned, with full
power of substitution, to vote, as indicated herein, all the
common shares of the Company standing in the name of the
undersigned at the close of business on May 29, 2002 at the
Annual Meeting of Shareholders of the Company to be held at the
office of Initio, Inc., 10 Henry Street, Teterboro, New Jersey
07608, at 11:00 a.m., local time, on Monday, July 8, 2002, and at
any and all adjournments thereof, with all the powers the
undersigned would possess if then and there personally present
and especially (but without limiting the general authorization
and power hereby given) to vote as indicated on the proposals, as
more fully described in the Proxy Statement for the meeting.
(Please fill in the reverse side and return promptly in the
enclosed envelope.)
Please mark boxes o or x in blue or black ink.
1. Election of Directors.
FOR the nominee o
WITHHOLD authority for the nominee o
Nominee for Director: Robert Lerman.
2.Proposal to approve the agreement between the Company and
Pioneer Venture Associates Limited Partnership.
For o Against o Abstain o
3.Proposal to approve the selection of Rogoff & Co. P.C. as the
Company's independent auditors for the fiscal year ending
April 30, 2002.
For o Against o Abstain o
4.In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE
VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND FOR THE
ABOVE PROPOSAL UNLESS OTHERWISE INDICATED.
[Sign, Date and Return the SIGNATURE(S) should be exactly
Proxy Card Promptly Using as name or names appear on this
the Enclosed Envelope.] proxy. If stock is held
jointly, each holder should
sign. If signing is by
attorney, executor,
administrator, trustee or
guardian, please give full
title.
Dated ______________________
___________________________
Signature
____________________________
Signature
_______________________________