EXHIBIT 4.1
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
Investment Agreement
by and between
Pioneer Ventures Associates Limited Partnership
and
America's Shopping Mall, Inc.
May 21, 1999
TABLE OF CONTENTS
ARTICLE I. Sale and Transfer of Stock.....................................1
1. Series A Senior Convertible Preferred Stock..................1
1.2 Purchase Price, and Payment..................................2
1.3 Preferred Convertible into Common............................2
1.4 Cumulative Dividend..........................................3
1.5 Liquidation..................................................3
1.6 Reservation of Shares; Shares to be Fully Paid; Seniority....4
1.7 Anti-Dilution Rights; Right of First Refusal.................4
1.8 Percentage of Fully Diluted Shares...........................5
1.9 Voting Rights and Prohibitive Covenants......................5
1.10 Voting Agreements Concerning Directors.......................6
1.11 Transfer Agent...............................................7
1.12 Use of Proceeds..............................................7
1.13 Redemption...................................................9
ARTICLE II. Registration Rights............................................9
2.1 Demand Registration..........................................9
2.2 Piggy-back Registration.....................................10
2.3 Registration Covenants......................................11
2.4 Blue Sky Registration.......................................11
2.5 Deregistration..............................................12
2.6 Post-Effective Amendments...................................12
2.7 Right to Delay..............................................12
2.8 Selection of Underwriters...................................12
2.9 Principal Shareholders......................................13
2.10 Transferability of Registration Rights......................13
2.11 Indemnification by Company re Registration Rights...........13
2.12 Indemnification by Holder...................................13
2.13 Notice of Indemnity and Defense.............................14
ARTICLE III. Co-Sale Provisions............................................15
3.1 Third-Party Offer and Co-Sale Notice........................15
3.2 Co-Sale Right of Participation..............................15
3.3 Excluded Sales..............................................15
3.4 Notice of Intent to Participate in Co-Sale..................15
ARTICLE IV. Representations and Warranties of the Company.................16
4.1 Organization, Qualification and Corporate Power.............16
4.2-A Subsidiaries................................................16
4.2-B Affiliates..................................................16
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4.2-C Joint Ventures..............................................17
4.3 Authorization of Agreement..................................17
4.4 Validity....................................................17
4.5 Government Approval.........................................18
4.6 Capitalization..............................................18
4.7 Annual Report and the Financial Statements..................18
4.8 Patents, Trademarks, Etc....................................19
4.9 Taxes.......................................................20
4.10 Approvals...................................................20
4.11 Litigation..................................................20
4.12 Acquisition Agreements; Schedule of Documents...............21
4.13 No Defaults.................................................22
4.14 Lack of Felonies............................................22
4.15 No Judgments................................................22
4.16 Insurance...................................................22
4.17 No Brokers..................................................22
4.18 Loans and Liens.............................................23
4.19 Solvency....................................................23
4.20 Registration Rights.........................................23
4.21 Compliance with Securities Laws.............................23
4.22 Transfer Restrictions.......................................24
4.23 Related Party Transactions..................................24
4.24 Miscellaneous...............................................24
4.25 Additional Representations..................................24
4.26 Use of Proceeds ..................................26
4.27 Industry Specific Regulations...............................26
4.28 Wages and Salary............................................27
4.29 Compliance with ERISA and other Benefit Plans...............27
4.30 Environmental Matters.......................................27
4.31 Confidentiality Agreements..................................27
4.32 Officer and Director Questionnaires.........................28
4.33 Complete Disclosure.........................................28
ARTICLE V. Representations and Warranties of the Pioneer Partnership.....28
5.1 Organization................................................28
5.2 No Breach...................................................28
5.3 Authority for and Binding Nature of Agreement...............29
5.4 Brokers.....................................................29
5.5 Securities Laws Matters.....................................29
5.6 Additional Matters..........................................30
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ARTICLE VI. Covenants.....................................................30
6.1 Financial...................................................30
6.2 Access......................................................31
6.3 Books of Record and Account.................................31
6.4 Membership on Board.........................................32
6.5 Stock Option Plan...........................................32
6.6 Rule 144 Transfers..........................................32
6.7 Undertaking to Register its Securities
pursuant to the Exchange Act..............................33
6.8 Undertaking to File Exchange Act Filings
and to be Listed on NASDAQ................................33
6.9 Dividend Restriction Waiver.................................34
6.10 Rights if Trading in Common Stock is Suspended..............34
6.11 Public Dissemination of Information; Filings & Names........35
6.12 Lock-Up.....................................................35
6.13 Notice of Material Adverse Events...........................35
6.14 Tax Return..................................................35
6.15 No Breach...................................................35
6.16 Assumption of Debt..........................................36
ARTICLE VII. Conditions Precedent to the Obligations of
the Pioneer Partnership to Close............................36
7.1 Representations and Warranties..............................36
7.2 Covenants...................................................36
7.3 No Actions..................................................36
7.4 Consents, Licenses and Permits..............................37
7.5 Certificate.................................................37
7.6 Legal Opinion...............................................37
7.7 No Material Adverse Change..................................37
7.8 Agreements with Principals..................................38
7.9 Key Person Insurance........................................38
7.10 Intellectual Property.......................................38
7.11 Approval of Counsel.........................................38
7.12 No Suspensions of Trading in Common Stock...................38
7.13 Change of Control...........................................39
7.14 Acquisition Agreements......................................39
7.15 Additional Documents........................................39
ARTICLE VIII. Conditions Precedent to the Obligations
of the Company to Close.....................................39
8.1 Representations and Warranties..............................39
8.2 Covenants...................................................40
8.3 No Actions..................................................40
8.4 Additional Documents........................................40
8.5 Approval of Counsel.........................................40
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ARTICLE IX. Closing.......................................................40
9.1 Location....................................................40
9.2 Items to be Delivered by the Company........................40
9.3 Items to be Delivered by the Pioneer Partnership............41
ARTICLE X. Survival of Representations; Indemnification..................41
10.1 Survival....................................................41
10.2 Indemnification.............................................42
10.3 Defense of Claims...........................................42
10.4 Rights without Prejudice....................................42
ARTICLE XI. Fees..........................................................42
11.1 Investment Banking Fees.....................................42
11.2 Expenses....................................................43
11.3 Legal Fees..................................................43
ARTICLE XII. Termination and Waiver........................................43
12.1 Termination.................................................43
12.2 Waiver......................................................44
ARTICLE XIII. Miscellaneous Provisions......................................44
13.1 Expenses....................................................44
13.2 Modification, Termination or Waiver.........................44
13.3 Notices.....................................................44
13.4 Binding Effect and Assignment...............................45
13.5 Entire Agreement............................................45
13.6 Calendar Days...............................................45
13.7 Exhibits....................................................45
13.8 Governing Law...............................................46
13.9 Consent to Jurisdiction.....................................46
13.10 Counterparts................................................46
13.11 Section Headings............................................46
13.12 Gender......................................................46
13.13 Use of Term "Pioneer Partnership"...........................46
SIGNATURE PAGE
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated May 21, 1999 ("Agreement") by and between
Pioneer Ventures Associates Limited Partnership, a Connecticut limited
partnership with offices at 651 Day Hill Road, Windsor, Connecticut 06095 (the
"Pioneer Partnership"), and America's Shopping Mall, Inc., a Nevada corporation
with offices at 382 Route 59 #310, Monsey, New York 10952 (the "Company").
WHEREAS, the Company is engaged in various direct marketing businesses.
WHEREAS, the Company desires to obtain funds to complete the acquisition of
all the capital stock of Remarkable Products and Creadis Promotions, Inc. and
(such transactions referred to sometimes herein as the "Acquisitions"), and for
working capital purposes.
WHEREAS, the Pioneer Partnership desires to provide funds to the Company
for such purposes through a purchase of shares of the Company's Series A Senior
Convertible Preferred Stock on the terms and subject to the conditions set forth
below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Pioneer Partnership agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK
1. Series A Senior Convertible Preferred Stock.
(a) Upon the terms and subject to the conditions hereinafter set forth, at
the Closing (as hereinafter defined and set forth), the Company shall
issue, sell, transfer and deliver to the Pioneer Partnership an
aggregate of ten thousand (10,000) shares of the Company's Series A
Senior Convertible Preferred Stock, $.001 par value per share (the
"Preferred Stock") at the Purchase Price set forth in section 1.2
hereof; the Preferred Stock shall have the terms and be issued subject
to the conditions as set forth herein and in the Certificate of
Designation of the Preferred Stock to be filed and recorded with the
Secretary of State of the State of Nevada prior to the occurrence of
the Closing as set forth below.
(b) At the closing ("Closing") on May 21, 1999 or such other date no later
than June 15, 1999 as the Company and the Pioneer Partnership may
agree (the "Closing Date"), the Company shall issue, sell, transfer
and deliver to the Pioneer Partnership ten thousand (10,000) shares of
Preferred Stock upon payment of the Purchase Price therefor and
satisfaction of the conditions contemplated herein.
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(c) At the Closing, the Company shall reserve (i) One Million Two Hundred
Thousand (1,200,000) shares of Common Stock issuable upon conversion
of all of the Preferred Stock, representing 34.1% of the Company's
Common Stock on a fully diluted basis (assuming the conversion of all
shares of Preferred Stock and any other securities convertible, and
the exercise of all options and warrants exercisable for, shares of
Common Stock other than the Warrants (as hereinafter defined)).
(d) Upon sale and issuance to the Pioneer Partnership each share of
Preferred Stock shall be fully paid, non-assessable and free and clear
of all manner of liens, pledges, encumbrances, charges and claims
thereon.
(e) Certificates evidencing the Preferred Stock shall be delivered by the
Company to the Pioneer Partnership at the Closing. Such certificates
shall also be accompanied by evidence satisfactory to the Pioneer
Partnership of the Company's payment of any applicable transfer taxes.
The Preferred Stock and the shares of Common Stock issuable upon
conversion of Preferred Stock shall be "restricted securities" as that
term is defined in Rule 144 promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"). Certificates evidencing the Preferred
Stock shall be in the form annexed hereto as Exhibit 1.1.
1.2 Purchase Price and Payment.
The Purchase Price for the Preferred Stock shall be four hundred and twenty
dollars ($420.00) per share (such amount per share being sometimes referred to
herein as the "Stated Value"), equal to an aggregate investment of four million
two hundred thousand ($4,200,000) dollars. Upon the occurrence and consummation
of the Closing, and in consideration therefor, the Pioneer Partnership shall pay
to the Company at the Closing, by method of payment selected by the Pioneer
Partnership, the sum of four million two hundred thousand ($4,200,000) dollars
as full consideration for its subscription for the Preferred Stock.
1.3 Preferred Convertible into Common.
Each share of Preferred Stock shall be convertible at the option of the
holder at any time and from time-to-time into such number of shares of the
Company's common stock, $.001 par value (the "Common Stock"), as shall be equal
to the Stated Value of such share of Preferred Stock to be converted (plus
accumulated dividends, if so elected by the Holder) divided by Three Dollars and
Fifty Cents ($3.50) (the "Conversion Price"). If the average closing bid price
of the Company's Common Stock on the NASD OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market or such other trading market or
exchange upon which the Common Stock shall then be traded for the twenty (20)
trading days immediately preceding the ninetieth (90th) day following the date
that the Company's Common Stock is eligible for public trading is below Three
Dollars and Fifty Cents ($3.50) (the "Reset Average Price"), the Conversion
Price shall be reset to a price per
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share of Common Stock equal to seventy-five percent (75%) of the Reset Average
Price. The date the Conversion Price is reset is sometimes referred to herein as
the "Reset Date." The Conversion Price and number of shares of Common Stock
issuable upon conversion of the Preferred Stock will also be subject to
adjustment in certain circumstances upon any recapitalizations, including but
not limited to stock splits, readjustments or reclassifications, to protect
against dilution, as set forth in more detail in section 1.7 hereof.
1.4 Cumulative Dividend.
Holders of the Preferred Stock shall be entitled to an eight (8%) percent
cumulative annual cash dividend ($33.60 per share of Preferred Stock) calculated
on the basis of a 360-day year consisting of twelve 30-day months, and shall be
payable quarterly ($8.40 per share of Preferred Stock) in arrears on each March
31, June 30, September 30, and December 31 out of the assets of the Company
legally available therefor. Dividends shall accrue daily commencing on the Issue
Date whether or not earned or declared and whether or not there are profits,
surplus or other funds of the Company legally available for the payment of
dividends. The Preferred Stock dividend shall be paid before any dividend shall
be set apart or paid on the Common Stock for such quarter or for any other class
of capital stock. If less than the full preferential dividend is paid (whether
as a partial payment or if no dividend is paid) to the holders of the Preferred
Stock in any quarter, the unpaid amount shall accumulate and be added to the
preferential dividends due in the immediately subsequent quarter, in which case
such unpaid amounts shall be paid first and the newly accrued dividends of the
then current quarter, to the extent are unpaid, shall accumulate until paid. No
dividends shall be paid to the holders of the Common Stock or any other security
of the Company if any dividends are unpaid on the Preferred Stock. No dividends
shall be paid to the holders of any class of capital stock of the Company unless
and until all dividends accrued and unpaid on the Preferred Stock are paid in
full. The Company may, upon approval by a majority of its entire Board of
Directors, elect to pay dividends upon the Preferred Stock, by the issuance of
additional shares of Preferred Stock which shall have terms and conditions
identical to other shares of Preferred Stock. If the Company elects to pay any
dividend by the issuance of Preferred Stock in lieu of a cash dividend, the
amount of such dividend shall be thirteen (13%) percent ($54.60 per share of
Preferred Stock per annum; or $13.65 per share per quarter) based on the Stated
Value thereof. The failure to pay any dividend when due shall be an Event of
Default under the Certificate of Designation of the Preferred Stock and shall
result in additional dividend payments at the default rates as set forth
therein.
1.5 Liquidation.
In the event of the voluntary or involuntary liquidation, bankruptcy,
receivership, dissolution or winding up of the Company, holders of shares of the
Preferred Stock shall be entitled to receive a liquidation preference equal to
one thousand dollars ($1,000) per share and, subject to the adjustments as
provided in this section, an amount equal to any accrued and unpaid dividends to
the payment date (the "Liquidation Preference"), before any payment or
distribution is made to the holders of Common Stock or any other securities of
the Company. Neither a consolidation or merger of the Company with another
corporation nor a sale or transfer of all or part of the
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Company's assets for cash, securities or other property will be considered a
liquidation, dissolution or winding up of the Company, provided that all accrued
but unpaid dividends on the Preferred Stock (including any interest due thereon)
are paid upon the occurrence of such event.
1.6 Reservation of Shares; Shares to be Fully Paid; Seniority.
As of the date hereof, the Company has reserved, free from preemptive
rights, out of its authorized but unissued shares of Common Stock, or out of
shares of Common Stock held in its treasury, such number of shares of its Common
Stock as would be issuable upon conversion of all shares of Preferred Stock. The
Company covenants that all shares of Common Stock which may be issued upon
conversion of the Preferred Stock will upon issue be fully paid and
nonassessable, and free of all preemptive rights, liens and encumbrances. So
long as there are any shares of Preferred Stock outstanding, the Preferred Stock
shall be senior to all other classes of stock and/or securities issued or to be
issued by the Company.
1.7 Anti-Dilution Rights; Right of First Refusal.
The Pioneer Partnership, so long as it, its partners or affiliates owns any
Preferred Stock, (and, if applicable, the Common Stock acquired pursuant to the
conversion of the Preferred Stock) shall be entitled, as of right, (i) to
purchase or subscribe for any capital stock or equity or debt securities or any
options, warrants, rights to purchase any such securities or rights of the
Company proposed to be issued by the Company (collectively referred to as "New
Securities") and (ii) provide any debt financing proposed to be obtained by the
Company. The Company acknowledges that the Pioneer Partnership shall have the
right of first refusal under this section 1.7. The right of first refusal set
forth hereinabove shall not be applicable to (i) securities issued to employees,
consultants or directors of the Company pursuant to any stock option plan or
stock purchase or stock bonus arrangement approved by the Board of Directors of
the Company; provided, however, such plan, purchase or arrangement shall not
exceed the maximum amount as provided in section 6.5, (ii) securities offered to
the public pursuant to a registration statement filed pursuant to the Securities
Act, (iii) securities issued pursuant to an acquisition of another corporation
by the Company by merger, share exchange, purchase of all or substantially all
of the assets or other reorganization whereby the Company is the surviving
corporation, in the case of a merger or consolidation, and the then existing
shareholders of the Company own not less than fifty-one percent (51%) of the
voting stock of the Company on a fully diluted basis following such merger or
consolidation, or in the case of a share exchange, the Company owns not less
than fifty-one (51%) percent of the voting stock of such acquired corporation,
(iv) any shares of Common Stock issued pursuant to the exercise of options,
warrants or other securities outstanding on the Closing Date, (v) any shares of
Common Stock or warrants, options, rights or securities convertible into or
exchangeable for capital stock of the Company in connection with any stock
split, stock dividend or similar event affecting the Company Common Stock, and
(vi) the Preferred Stock and the Common Stock to be issued pursuant to
conversion of the Preferred Stock under this Investment Agreement.
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The rights of the Pioneer Partnership under this section 1.7 may, in the
discretion of the Pioneer Partnership, be assigned pro rata to any transferees
of the Preferred Stock.
(a) Notice and Exercise of Rights. In the event the Company proposes to
issue New Securities or to obtain any financing, it shall give to the Pioneer
Partnership and any other holders of Preferred Stock (and holders of any Common
Stock received upon conversion of the Preferred Stock) written notice of its
intention, describing the type of New Securities to be issued or debt to be
incurred, the price and general terms upon which the Company proposes to issue
the same. In exercising their rights, the Pioneer Partnership (or, if
applicable, the transferees of such Preferred Stock to whom shares of Preferred
Stock have been assigned) shall be given thirty (30) days from the receipt of
such notice to agree to purchase or subscribe for such New Securities or make or
arrange such loan, in whole or in part, at the same price and/or on the same
terms as proposed.
(b) Over-Allotment. The Pioneer Partnership shall have the right of
over-allotment to purchase all of the New Securities or to make or arrange a
loan to purchase such New Securities. The Company shall provide notice to the
Pioneer Partnership of the availability of such over-allotment, and the Pioneer
Partnership shall be required to exercise its over-allotment rights, in whole or
in part within fifteen (15) business days from the date of receipt of such
notice. The Pioneer Partnership shall be required to commit in writing, at the
time it exercises its rights under this section 1.7, the maximum amount of
over-allotment of New Securities it agrees to purchase or the amount of loans(s)
it intends to make or arrange, if any become available.
(c) Nothing herein shall prevent the Pioneer Partnership, or its respective
partners, shareholders or affiliates from purchasing additional securities of
the Company from the Company, in the open market or otherwise, thereby
increasing its ownership percentage.
1.8 Percentage of Fully Diluted Shares.
The shares of Preferred Stock to be delivered by the Company to the Pioneer
Partnership as set forth above shall, if converted, constitute thirty-four and
one-tenth percent (34.1%) percent of the fully diluted issued and outstanding
Common Stock of the Company as of the Closing Date. The term "fully diluted" as
used in this Agreement shall mean the number of shares of the Common Stock of
the Company to be outstanding assuming the exercise or conversion of all
warrants, options or other securities convertible into or exchangeable for the
Common Stock of the Company as of the Closing Date, including the Preferred
Stock to be issued on the Closing Date, but not the Warrants.
1.9 Voting Rights and Prohibitive Covenants.
The Preferred Stock shall have full voting rights and shall be voted
together with the Common Stock as one class, and the shares of Preferred Stock
shall entitle the holder thereof to the number of votes as if the Preferred
Stock had been converted into shares of Common Stock on the appropriate record
date. So long as an aggregate of at least five percent (5%) of the outstanding
Preferred Stock (included in such 5% calculation for the denominator shall be
any Preferred Stock
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which has then been converted into Common Stock) is held by the Pioneer
Partnership, the Company shall not without the affirmative vote or consent of
the holders of a majority of all outstanding shares of the Preferred Stock
voting separately as a class (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the By-Laws of the Company so as to adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Preferred Stock, (ii) authorize or issue any additional
equity securities of the Company or of any subsidiaries other than those
issuable (x) upon the conversion, exchange or exercise of securities or rights
outstanding on the Closing Date and (y) pursuant to grants of options previously
granted and outstanding on the Closing Date under the Company's Stock Option
plan; provided, however, that such consent shall not be unreasonably withheld,
(iii) approve any merger, consolidation, compulsory share exchange or sale of
assets to which the Company is a party; provided, however that such consent
shall not be unreasonably withheld, (iv) repurchase or redeem any equity
securities or pay dividends or other distributions on any equity securities,
except as provided pursuant to the terms of the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) incur any indebtedness
for borrowed money, or guarantee indebtedness, of other persons, directly or
indirectly except with respect to any wholly owned subsidiaries, (vii) effect
any fundamental changes in the nature of the Company's business, including but
not limited to acquiring or investing in another business entity; provided,
however that such consent shall not be unreasonably withheld, or (viii) approve
the sale or transfer of any material intangible or intellectual property, other
than the issuance of licenses or sales of equipment in the ordinary course of
business; provided, however, that such approval shall not be unreasonably
withheld.
1.10 Voting Agreements Concerning Directors.
(a) Generally. On the Closing Date, one (1) nominee of the Pioneer
Partnership (who may be John F. Ferraro or another designee of the Pioneer
Partnership) shall be elected a director of the Company for a period from the
Closing Date until the next regularly scheduled annual meeting of the
shareholders of the Company (or longer if the applicable terms of directors are
set for longer periods). So long as the Pioneer Partnership shall own any
Preferred Stock or Common Stock, the Board of Directors of the Company shall
nominate and include in the list of candidates for directors recommended by the
Board of Directors, and use its best efforts to have elected by the shareholders
at least one nominee of the Pioneer Partnership. Should any Pioneer Partnership
nominee decline to be nominated or elected, another of the Pioneer Partnership's
designees shall have the right to receive notice of and to attend any and all
meetings of the Board of Directors of the Company, and the Company shall be
required to deliver notice to such designee as if such designee were a director.
In furtherance of the foregoing, the persons named in Exhibit 1.10(a) hereto,
and any trusts, or other entities or affiliates related to them (collectively
"Principal Shareholders") holding the voting rights to their shares, shall at
the Closing execute and deliver to the Pioneer Partnership a Voting and
Shareholders' Agreement in the form annexed hereto as Exhibit 1.10(a) hereto.
(b) Additional Nominees of the Pioneer Partnership On Default. In the event
that (i) the Company shall default in the due and punctual payment of any
installment of the cumulative
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dividends on the Preferred Stock when and as the same shall become due and
payable, (ii) such default shall continue for 30 days and (iii) provided the
Pioneer Partnership and/or its limited partners and affiliates shall be the
holder(s) of an aggregate of at least five (5%) percent of the outstanding
Preferred Stock (included in such 5% calculation for the denominator shall be
any Preferred Stock which has then been converted into Common Stock), in
addition to the other remedies available to the Pioneer Partnership, the Pioneer
Partnership shall have the right to nominate, and the Board of Directors of the
Company shall use its best efforts to have promptly elected or appointed such
number of individuals nominated by the Pioneer Partnership such additional
number of designees of the Pioneer Partnership as shall be necessary to ensure
that the Pioneer Partnership designees on the Board shall constitute a simple
majority of the Board of Directors. Upon such appointment, the Pioneer
Partnership shall have the right to continue to appoint a simple majority of the
Board of Directors for so long thereafter as the Pioneer Partnership, and its
partners and affiliates shall own any Preferred Stock or Common Stock acquired
upon conversion of any Preferred Stock. To facilitate the foregoing, the Company
has, concurrently with the execution hereof, amended its by-laws to provide for
the terms of this section 1.10(b). A copy of the Company's By-Laws, as amended
to the Closing Date, is annexed hereto as Exhibit 4.1(b). The Company hereby
covenants it shall not change such amended provision of its By-Laws without the
Pioneer Partnership's prior written consent. Failure to obtain such prior
written consent to any such change shall constitute an additional Event of
Default under the Preferred Stock.
1.11 Transfer Agent.
Continental Stock Transfer & Trust Company has been engaged and charged as
the transfer agent for the Common Stock and with the duties of the transfer
agent and registrar of the Preferred Stock (the "Transfer Agent").
1.12 Use of Proceeds.
(a) The net proceeds to be received by the Company, after deduction of all
applicable (and previously unpaid) expenses of the Closing will be approximately
$4,020,000, and the gross proceeds shall be used and applied substantially as
follows:
Costs of Closing:
Pioneer Partnership's
Attorneys fees: $40,000
Company's Attorney's fees: $25,000
Company's Accounting Fees: $5,000
Pioneer Partnership's Non-
accountable expense allowance: $5,000
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Investment Banking Fees: $105,000
Net Proceeds: $4,020,000
Acquisition of Remarkable Products, Inc.
Payoff existing loan - Sterling Carl Marks $800,000
Payoff existing loan - Officer loans 300,000
Payoff existing loan - Paul Elmowsky 80,000
Payoff existing loan - Roy Failla 15,000
Legal Fees Caro & Associates 5,000
----------
$1,200,000
==========
Acquisition of Creadis Promotions, Inc.
Repayment to shareholders for funds and
working capital used to purchase business $400,000
Audit-fees - Arthur Yorkes & Company 12,500
Legal fees Caro & Associates 5,000
--------
$417,500
========
Working Capital $2,402,500
TOTAL $4,200,000
(b) The Company shall expend these funds for the purposes indicated. No
portion of the proceeds will be paid to the Principal Shareholders, officers,
directors, or their affiliates or associates. However, funds allocated generally
to working capital may be used for salaries and wages of the general employee
population, and for board approved salaries of its executive officers and board
approved consulting, directors' and advisors' fees either (i) at rates currently
in effect at the Closing Date or (ii) as are ratified at one or more board
meetings at which the Pioneer Partnership nominee is in attendance. Without the
approval of the Compensation Committee of the Company's Board of Directors
(which committee shall have at least one Pioneer Partnership designee as a
voting member), the Company and its officers and directors shall not authorize
or implement any material increases in compensation for salaries, wages or fees
as compared to those in effect on the Closing Date, as disclosed in Exhibit
4.28. Material increases for purposes of this section 1.12 shall mean an annual
increase of ten (10%) percent or greater. No portion of the proceeds of the
Closing will be used to pay cash finder's fees with respect to this investment,
nor will the Company issue securities in payment of finder's fees with respect
to the investment to any person including the Principal Shareholders, officers,
directors, or their affiliates or associates.
(c) Margin Requirements. The Company does not intend to, and will not, use
the proceeds of the offer and sale of the Preferred Stock hereunder, directly or
ultimately, (i) to purchase or carry Margin Stock (as such term is defined under
Regulation U of the Board of Governors of the Federal Reserve System, as in
effect from time to time) or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose,
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or (ii) for any purpose which entails a violation of, or which is inconsistent
with, the provisions of Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System.
1.13 Redemption.
The Company shall have the right to redeem any or all of the shares of
Preferred Stock on any Quarterly Dividend Payment Date (for purposes of this
section 1.13 such date shall be the "Redemption Date"), provided written demand
as set forth below is given. The redemption price for each share of Preferred
Stock to be redeemed shall be paid by the Company in cash in an amount equal to
the stated value of such share, plus an amount sufficient such that the holder
thereof receives an annual rate of return equal to twenty-five percent (25%),
for the period from the original Issue Date of such share until the Redemption
Date, on a compounded basis.
Thirty (30) days prior to the Redemption Date, the Company shall provide
each holder of Preferred Stock with a written demand ("Redemption Notice")
(addressed to the holder at its address as it appears on the stock transfer
books of the Company) to redeem shares of Preferred Stock as provided above,
which notice shall specify the estimated Redemption Price and the number of
shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
On or prior to the Redemption Date, each holder of Preferred Stock shall
surrender his or its certificate or certificates representing the shares of
Preferred Stock to be redeemed, in the manner and at the place designated in the
Redemption Notice. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price and interest at the rate of 8%
per annum, on the basis of a 360-day year for the actual number of days elapsed
from the Redemption Date to the date the Redemption Price is actually paid in
the event payment is not made within 20 days after the Redemption Date), and
such shares shall not be deemed to be outstanding for any purpose whatsoever.
ARTICLE II. REGISTRATION RIGHTS
2.1 Demand Registration.
The Company agrees that, on one (1) occasion from any date that is six (6)
months from the initial Issue Date in any eighteen (18) month period, it shall
promptly upon the written request of the Pioneer Partnership, at the Company's
sole cost and expense, file such registration statement pursuant to the
Securities Act to register the shares of Common Stock into which the Preferred
Stock may be converted (the "Registrable Securities") for continuous resale
under Rule 415 promulgated by the Commission under the Securities Act. The
Company shall use its best efforts to cause such registration statement to
become and remain effective (including the taking of such steps as are
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reasonably necessary to obtain the removal of any stop order) on a timely basis.
The Company shall also execute an undertaking to file post-effective amendments,
appropriate qualification filings under applicable state securities (blue sky)
laws and appropriate compliance with applicable regulations issued under the
Securities Act.
2.2 Piggy-back Registration.
(a) So long as the Pioneer Partnership or its partners or affiliates are
the holders of Preferred Stock or Common Stock, if the Company shall register
any of its securities for sale pursuant to any appropriate registration
statement under the Securities Act, the Company shall be required to offer to
such holders the opportunity to register any or all the Registrable Securities,
without cost to the holders thereof. In connection with these piggy-back
registration rights, the Company shall give all of the Holders notice by
certified mail at least thirty (30) business days prior to the filing of such
Registration Statement under the Act. The holders shall then have twenty-five
(25) days to elect to include all or a portion of its Registrable Securities for
sale in the Registration Statement.
(b) The registration requirement shall not apply to a Registration
Statement filed by the Company pursuant to Form S-8 or S-4 or any successor form
or forms with the sole and express purpose of registering shares for employees
or for stock incentive plans, or any other inappropriate form.
(c) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company will so advise
the holders. In such event, these registration rights shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting to the extent provided
herein. All holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter selected by the Company. In the event that the lead or managing
underwriter in its good faith judgment determines that material adverse market
factors require a limitation on the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities. In such event, the
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated pro rata among all holders and
other participants, including the Company, in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration
statement at the time of filing the registration statement. If any holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter, provided such
notice is delivered within 60 days of full disclosure of such terms to such
holder, without thereby affecting the right of such holder to participate in
subsequent offerings hereunder.
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2.3 Registration Covenants.
In the case of each registration effected by the Company pursuant to this
Article II, the Company will keep each Holder advised in writing as to the
initiation, progress, and declaration of effectiveness of each registration and
as to the completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a minimum period of two (2) years
or until the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that in the case of any registration of Registrable Securities on Form
S-3 which are intended to be offered on a continuous or delayed basis, such two
(2) year period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment, permit, in lieu of filing a post-effective amendment which (1)
includes any prospectus required by section 10(a)(3) of the Securities Act, or
(2) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (1) and (2) above to be
contained in periodic reports filed pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act') in the
registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(c) Furnish the Pioneer Partnership with copies of all correspondence with
the Commission; and
(d) In connection with any underwritten offering, the Company and the
Holders will enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Registrable Securities, provided such agreement
contains customary underwriting provisions.
2.4 Blue Sky Registration.
(a) The Company will use its best efforts to register or qualify the
Registrable Securities covered by any registration statement under the
Securities Act and under such securities or blue sky laws in such jurisdictions
within the United States as the Pioneer Partnership may reasonably request;
provided, however, that the Company reserves the right, in its sole discretion,
not to register or qualify such shares of Common Stock in any jurisdiction in
which such shares of Common Stock do not satisfy the requirements of such
jurisdiction. The Company covenants that notwithstanding the above, that it
shall use its best efforts, at a minimum, to register or qualify the Registrable
Securities in the States of Connecticut and New York.
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(b) The Company shall (i) advise the Pioneer Partnership promptly after
obtaining knowledge thereof, and, if requested by the Pioneer Partnership,
confirm such advice in writing, of the issuance by the Commission or any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Registrable Securities for offer or sale in
any jurisdiction, or the initiation of any proceeding for such purpose the
Commission or by any state securities commission or other regulatory authority,
(ii) use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Registrable
Securities under any state securities or Blue Sky laws, and (iii) if at any time
the Commission or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Registrable Securities under any such laws, use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
2.5 Deregistration.
In the event the Pioneer Partnership has not sold all of the Registrable
Securities included in the registration statement prior to the second
anniversary of the effective date of such registration statement, the Pioneer
Partnership hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of the Pioneer Partnership covered by the
registration statement but not sold on or prior to such date.
2.6 Post-Effective Amendments.
The Company agrees that it will notify the Pioneer Partnership of the
filing and effective date of each such post-effective amendment.
2.7 Right to Delay.
The Company shall have the one-time right, after it shall have received
written notice pursuant to section 2.1, to elect not to file or to delay any
such proposed registration statement by not more than 60 days, or to withdraw
the same after the filing but prior to the effective date if the Company
determines in good faith that the filing or amendment of the registration
statement would require the disclosure of non-public material information that,
in its judgment, would be detrimental to the Company if so disclosed or would
otherwise adversely affect a financing, acquisition, disposition, merger or
other material transaction. Any withdrawal of a registration statement under
this section 2.7 shall renew the Demand Registration rights under section 2.1.
2.8 Selection of Underwriters.
If a Demand Registration pursuant to section 2.1 hereof involves an
underwritten offering, either the Pioneer Partnership or the Company shall have
the right to select the investment banker or investment bankers and manager or
managers that will serve as the underwriter with respect to the underwritten
offering; provided, however that the party not selecting such underwriter shall
have the
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right to approve the underwriter and such approval shall not be unreasonably
withheld or delayed without a material reason stated in writing.
2.9 Principal Shareholders.
For so long as the Pioneer Partnership, its partners or affiliates owns any
Preferred Stock or any Common Stock received upon conversion of Preferred Stock,
the Company will not file a registration statement on behalf of any Principal
Shareholder (as that term is defined in the Voting and Shareholders' Agreement
between the Pioneer Partnership and certain shareholders of the Company, dated
as of the Closing Date) as selling shareholders without the prior written
approval of the Pioneer Partnership.
2.10 Transferability of Registration Rights.
The registration rights described in section 2.1 and section 2.2 are freely
transferable by the holders of Registrable Securities to any person to whom such
holder transfers its Registrable Securities.
2.11 Indemnification by Company re Registration Rights.
The Company will indemnify each Holder, each of its officers, directors and
partners, and each person controlling such Holder, with respect to which
registration, qualification or compliance has been effected pursuant to this
Article II, and each underwriter, if any, and each person who controls any
underwriter against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
statement, notification or the like incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
2.12 Indemnification by Holder.
Each Holder will, if Registrable Securities or other securities held by him
are included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities
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covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each other such Holder and each of their officers,
directors, and partners, and each person controlling such Holder, for a period
of one (1) year from the effective date of such registration statement, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the proceeds to each such Holder of securities sold pursuant to
a registration statement required by this Article II.
2.13 Notice of Indemnity and Defense.
Each party entitled to indemnification under this Article II (the
"Indemnified Party") shall give notice to the party requiring to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Article II. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
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ARTICLE III. CO-SALE PROVISIONS
3.1 Third-Party Offer and Co-Sale Notice.
Any proposed sale of the capital stock of the Company by any Principal
Shareholder will be subject to a participation right of co-sale by the Pioneer
Partnership and its assigns on a pro rata fully diluted basis. If any one or
more of the Principal Shareholders obtains from a third party ("Third Party
Purchaser") an offer to purchase any amount of their shares of capital stock of
the Company, such Principal Shareholders shall submit a written notice (the
"Co-Sale Notice") to the Pioneer Partnership disclosing the amount of shares
proposed to be sold, the offered purchase price, the proposed closing date, and
the total number of shares owned by the Principal Shareholders.
3.2 Co-Sale Right of Participation.
Upon receipt of a Co-Sale Notice from any Principal Shareholder, the
Pioneer Partnership and its assigns may elect to participate in such transaction
and shall have the right to offer its securities, at the same price and on the
same terms as contained in the Co-Sale Notice. Each participating selling party
who elects to participate in such sale shall be entitled to sell his Pro Rata
Share (as herein defined) of the number of shares the Third Party Purchaser is
willing to purchase. "Pro Rata Share" as used in the preceding sentence means
the product of the number of shares owned by such selling shareholder and a
fraction, the numerator of which is the number of fully diluted shares held by
such selling shareholder participating in a subject sale, and the denominator of
which is the total number of fully diluted shares held by all shareholders
participating in a subject sale. Each participating selling party shall in turn
be entitled to receive at the applicable closing the net proceeds of the sale
allocable to the securities sold on behalf of such selling shareholder, after
deduction of such selling shareholder's proportionate share of the reasonable
expenses of the sale.
3.3 Excluded Sales.
These co-sale provisions will not apply to any sale of securities pursuant
to a distribution to the public, whether pursuant to a registered public
offering, Rule 144 under the Securities Act or otherwise.
3.4 Notice of Intent to Participate in Co-Sale.
If the Pioneer Partnership and/or its assignees wish to participate in any
sale under this Article III, then the Pioneer Partnership and/or its assignees
shall notify the selling Principal Shareholders in writing of such intention
within fifteen (15) business days after the Pioneer Partnership's receipt of the
Co-Sale Notice made pursuant to section 3.1. Such notification shall be
delivered in person or by facsimile to the Principal Shareholders at the
Company's offices.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to the
Pioneer Partnership each of which shall be deemed material, and the Pioneer
Partnership, in executing, delivering and consummating this Agreement, has
relied and will rely upon the correctness and completeness of each of such
representations and warranties:
4.1 Organization, Qualification and Corporate Power.
The Company (i) is a corporation duly organized and validly existing and in
good standing under the laws of the State of Nevada; (ii) is duly qualified to
transact business as a foreign corporation and in good standing in the State of
New York, being all states or foreign jurisdictions in which its activities
require qualification and the failure to be so qualified would have a material
adverse effect on the business and operations of the Company; and (iii) has all
corporate power necessary to engage in the business in which it is presently
engaged and to enter into and consummate the transactions contemplated by this
Agreement. Annexed hereto as Exhibit 4.1(a) and 4.1(b), respectively, are true,
accurate and complete copies of the Certificate of Incorporation and the By-Laws
of the Company, each as amended to date.
4.2-A Subsidiaries.
The Company has no subsidiaries, nor is it the subsidiary of any other
corporation or entity except for Creadis Promotions, Inc. (collectively
"Subsidiaries"). The Subsidiaries are all wholly owned by the Company. The
Subsidiaries and affiliates are entities duly organized and validly existing and
in good standing under the laws of the State set forth on Exhibit 4.2-A.
The Subsidiaries are controlled by the Company, as such term is defined in
section 20(a) of the Securities Act. For purposes of this section, the term
"Subsidiary" is defined to mean any corporation or other business entity, a
majority of whose outstanding voting stock or ownership interests entitled to
vote for the election of directors or such other governing body is, at the time,
owned by the Company and/or one or more other subsidiaries.
4.2-B Affiliates.
The Company has no affiliated entities, nor is it the affiliate of any
other corporation or entity except for the affiliates listed on Exhibit 4.2-B
(collectively "Affiliates"). The Affiliates are wholly owned by the Company
and/or by the Principal Shareholders. The term "affiliate" is defined as that
term is defined in the federal securities laws and the regulations of the
Commission pursuant to those laws, and any entity in which the Company is (or
the Principal Shareholders are) the beneficial owner(s) of five (5%) or more
such affiliate. Upon the completion of the Acquisitions, Creadis, and Remarkable
will be the only Affiliates of the Company.
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4.2-C Joint Ventures.
Except as set forth in Exhibit 4.2-C, the Company is not a party to any
partnership, management, shareholder, joint venture, or similar agreements.
4.3 Authorization of Agreement.
The execution, delivery and performance by the Company of this Investment
Agreement and all other documents and instruments contemplated hereby have been
duly authorized by all requisite corporate action. A true, correct and valid
copy of the Company's Board of Director's resolution(s) authorizing the
transactions and securities to be issued hereunder, in the form annexed as
Exhibit 4.3 hereto, has been delivered to the Pioneer Partnership. Neither the
execution and delivery of this Agreement nor compliance by the Company with any
of the provisions hereof nor the consummation of the transactions contemplated
hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of the Company or its Subsidiaries or Affiliates or any
contract to which the Company or any of its Subsidiaries or Affiliates or any of
the properties or assets is bound;
(b) violate or, alone or with notice or the passage of time or both, result
in the material breach or termination of, or otherwise give any contracting
party the right to terminate, or declare a material default under, the terms of
any material agreement or other document or undertaking, oral or written to
which the Company or any of its Subsidiaries or Affiliates is a party or by
which it or its or their properties or assets may be bound (except for such
violations, conflicts, breaches or defaults as to which required waivers or
consents by other parties have been, or will be obtained, prior to the Closing);
(c) result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its Subsidiaries or Affiliates pursuant to the terms of any such agreement or
instrument;
(d) violate any judgment, order, injunction, decree or award against, or
binding upon the Company or any of its Subsidiaries or Affiliates or upon its or
their properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to either
the Company any Subsidiary or Affiliate or any of their respective securities,
assets or properties.
4.4 Validity.
This Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms.
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4.5 Government Approval.
Except for filing a Form D with the Commission (to the extent necessary)
and any applicable Blue Sky filings, including the State of Connecticut, and
filing the Certificate of Designation of the Preferred Stock with the Secretary
of State of the State of Nevada, no registration or filing with, or consent or
approval of, or other action by, any federal, state or other governmental agency
or instrumentality is or will be necessary for the valid execution, delivery and
performance of this Investment Agreement or any other document or transaction
contemplated hereby.
4.6 Capitalization.
The authorized capital stock of the Company consists of: (a) Twenty Million
(20,000,000) shares of Common Stock, $.001 par value, and (b)Twenty Thousand
(20,000) shares of Preferred Stock, $.001 par value, authorized for issuance
under the Company's certificate of incorporation, as amended. One share of
Common Stock was issued to Advanced Medical Sciences, Inc. ("Advanced") so that
the Company is currently a wholly owned subsidiary of Advanced. The Company and
Advanced are parties to an Agreement and Plan of Merger dated as of May 21, 1999
pursuant to which Advanced will be merged with and into the Company. In
connection with that merger, 1,379,740 shares of the Company's Common Stock have
been reserved for issuance to the shareholders of Advanced. The Company has also
reserved for issuance 700,000 shares of its Common Stock in connection with its
acquisition of all the issued and outstanding shares of Common Stock of Creadis
Promotions, Inc. and 240,000 shares are reserved for issuance in connection with
the Company's acquisition of substantially all the assets of Remarkable
Products, Inc. Accordingly, if converted at the Conversion Price of $3.50 per
share, the 10,000 shares of Preferred Stock would be convertible into 1,200,000
shares of Common Stock or 34.1% of the outstanding shares of Common Stock, on a
fully diluted basis. Upon consummation of the merger of Advanced into the
Company, the one share held by Advanced will be returned to the Company's
treasury. Except as set forth in Exhibit 4.6, no shares of Common Stock are
issuable pursuant to existing agreements and there are no outstanding warrants,
options or other securities convertible into or exchangeable for the Common
Stock of the Company, and no other shares of Common Stock are issued or
outstanding or committed for issuance except those committed for issuance upon
conversion of the Preferred Stock to be issued hereunder.
4.7 Annual Report and the Financial Statements.
(a) The Company has heretofore furnished to the Pioneer Partnership copies
of (i) the Company's consolidated audited financial statements for its fiscal
year ended December 31, 1998 (hereinafter the "Audited Financial Statements"),
and (ii) the Company's consolidated unaudited interim financial statement as at
and for the three months ended March 31, 1999 (hereinafter collectively referred
to as the "Interim Financial Statements"); if the term "Audited Financial
Statements" is used herein, then the unaudited Interim Financial Statements are
excluded from such reference. However, reference to "Financial Statements" shall
mean both the Audited Financial Statements, and all of the Interim Financial
Statements, collectively. Such Financial Statements are
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true, correct and complete in all material respects, and accurately set forth,
in all material respects, the financial condition of the Company and its
Subsidiaries as of their respective dates, and the results of operations for the
fiscal periods involved, and were prepared in conformity with generally accepted
accounting principles and practices consistently applied ("GAAP") and are
annexed hereto as Exhibit 4.7-A. The Financial Statements fairly present in all
material respects the financial condition and results of operations of the
Company and its Subsidiaries at the dates thereof and for the periods covered
thereby. Except as set forth in Exhibit 4.7 hereto, since March 31, 1999, the
Company and/or its Subsidiaries has incurred no material (defined as $10,000 or
more for purpose of this section 4.7) obligation or liability, whether absolute,
accrued, contingent or otherwise, that is not set forth in the Financial
Statements.
(b) The Company and/or its Subsidiaries have good and marketable title to
all of its property and assets and such property and assets are not subject to
any mortgage, pledge, lien or other encumbrance except as disclosed in Exhibit
4.7-B annexed hereto and made a part hereof.
(c) The Company and/or its Subsidiaries had no obligations, liabilities or
commitments, contingent or otherwise, of a material nature which were not
provided for except as set forth in Exhibit 4.7-C and except those not exceeding
$10,000 in the aggregate and which were incurred in the normal course of
business since March 31, 1999.
(d) Since March 31, 1999, there has been no materially adverse change in
the nature of the business of the Company and/or its Subsidiaries nor in any of
their financial condition or property, other than changes in the usual or
ordinary course of business, and the Company has incurred no obligations or
liabilities nor made any commitments other than in the usual and ordinary course
of business or as disclosed in Exhibit 4.7-D.
(e) The Company and/or its Subsidiaries are not a party to any employment
contract with any officer, director, or stockholder, or to any lease, agreement
or other commitment not in the usual and ordinary course of business, nor to any
pension, insurance, profit-sharing or bonus plan, except as disclosed in Exhibit
4.7-E.
4.8 Patents, Trademarks, Etc.
All of the officers, directors, principals and employees of and consultants
to the Company have assigned and transferred all of their Intellectual Property
as defined below, to the Company, and are contractually bound to assign or
transfer all of their Patents to the Company whether now existing or hereafter
created or acquired, all in connection with their duties to the Company. The
Company and/or its Subsidiaries own or possess, without any adverse claims with
respect thereto, and without known conflict with the rights of others, except as
disclosed in Exhibit 4.8, the rights to the patents, trademarks, service marks,
trade names, copyrights and licenses listed in Exhibit 4.8 hereto and the same
constitute all of the patents, trademarks, service marks, service names,
copyrights, and licenses necessary, used or useful in the conduct of the
business of the Company (collectively the "Intellectual Property"). The Company
protects all technical, trade secret and
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confidential information developed by and belonging to the Company and/or its
Subsidiaries, which has not been patented, by maintaining the secrecy relating
thereto, and the Company and/or its Subsidiaries will continue to seek to
protect all such information, technology and intellectual property by
maintenance of secrecy related thereto.
4.9 Taxes.
Except as set forth in Exhibit 4.9 annexed hereto, the Company and each of
the Subsidiaries has filed all applicable federal, state, county and local tax
and franchise returns and reports required to be filed by it and has paid (or,
as to taxes not currently due and payable, has 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 all federal, state, local and other taxes accruable since the filing
of such returns have been properly accrued. No adverse proceedings or other
actions are pending or have been taken for the assessment or collection of
additional taxes of any kind from the Company and/or its Subsidiaries for any
period, and to the Company's knowledge, no investigation by the Internal Revenue
Service or any taxing authority affecting the Company and/or its Subsidiaries is
now pending. All taxes that the Company and/or its Subsidiaries are required by
law to withhold or collect have been withheld or collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment.
4.10 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 the Company
of, or the performance or satisfaction of any agreement of the Company contained
in or contemplated by, this Agreement, except for claiming an exemption from
section 5 of the Securities Act of 1993 by filing a Form D or otherwise, and by
claiming an exemption from registration from applicable state Blue Sky laws
(including but not limited to the laws of Connecticut) and any filings required
thereunder.
4.11 Litigation.
Except as set forth on Exhibit 4.11 hereto, neither the Company nor any of
its Subsidiaries, or affiliates is a defendant, nor are they a plaintiff against
whom a counter-claim has been asserted in any actions, suits, claims,
arbitrations, administrative or other proceedings or governmental investigations
seeking $5,000 or more in damages, or any equitable relief, pending or, to the
best of the Company's knowledge, threatened against, relating to or affecting
the Company or any of the Subsidiaries, 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
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governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. Neither the Company nor any Subsidiary is
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.
4.12 Acquisition Agreements; Schedule of Documents.
The Acquisition Agreements set forth in Exhibit 4.12 have been duly
authorized, executed and delivered by all of the parties thereto and each of the
Acquisition Agreements is valid, binding and enforceable against all the parties
thereto. No breach, or state of facts that with the lapse of time would
constitute a breach, exists under any Acquisition Agreement. No condition to
Closing under any Acquisition Agreement remains unfulfilled other than the
payment of the purchase price thereunder utilizing the sale of the proceeds of
the Preferred Stock under this Agreement in accordance with section 1.12 hereof.
The schedule of contracts including a summary in tabular form of all
material terms (including but not limited to the purpose of the contract,
economic terms, covenants, warranties, representations, restrictions) attached
hereto as Exhibit 4.12 lists any and all material (material for purposes of this
paragraph only shall mean $10,000) contracts or other material commitments or
obligations relating to the Company and its Subsidiaries, (a) to which a
Principal Shareholder and/or officer or director of the Company or any
Subsidiary is a party, (b) all leases of real and/or personal property, (c)
union collective bargaining, employment, management and consulting agreements to
which the Company or any Subsidiary is a party, (d) compensation plans, bonus
plans, deferred compensation arrangements, pension and retirement plans, profit
sharing plans, stock purchase and stock option plans, (e) loan agreements and
notes, (f) options to purchase property, (g) stockholder agreements, and (h) all
other material contracts or commitments to which the Company is a party
(collectively, the "Material Agreements"). Except as listed on Exhibit 4.12,,
neither the Company nor any of its Subsidiaries is a party to or bound by any
contract or commitment (or group of related contracts or commitments), other
than contracts, or agreements in the ordinary course of business; nor is the
Company nor any of its Subsidiaries bound by any charter, contractual or other
corporate restriction that materially and adversely affect or could affect its
business, financial condition or prospects, or which restricts its right or
ability to operate its business as conducted or proposed to be conducted or to
pay dividends on the Preferred Stock. On or prior to the date hereof, the
Company has delivered to the Pioneer Partnership or a representative thereof, a
true and correct copy of each of the documents listed in Exhibit 4.12.
All Material Agreements are in full force and effect, are the legal, valid
and binding obligations of the Company and the other parties thereto,
enforceable in accordance with their terms (except as such enforceability may be
limited by bankruptcy and insolvency laws or by general principles of equity,
whether consolidated in a proceeding in law or in equity).
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4.13 No Defaults.
Neither the Company nor any Subsidiary is 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 the Company or any of
the Subsidiaries is a party or by which any of them is bound or result in the
creation, imposition or acceleration of any material lien of any nature in favor
of any other person, other than defaults that will be cured (within the terms of
the applicable agreements) with the application of proceeds set forth in section
1.12 hereof.
4.14 Lack of Felonies.
Neither the Company nor its Subsidiaries nor any of their respective
principals, directors, or executive officers have ever been convicted of or pled
guilty at any time within the past (10) years to any felony under the laws of
the United States or any state thereof. No criminal arrests, proceedings or
actions are pending, nor have any been threatened in the last thirty-six (36)
months against any of such persons.
4.15 No Judgments.
There are no judgments, decrees, binding decisions outstanding against the
Company or any of its Subsidiaries which were issued in any legal proceeding of
any kind by any court, arbitrator, panel, or other governing or determining
authority.
4.16 Insurance.
The Company and its Subsidiaries are covered by policies of general
liability insurance with coverage of at least $2,000,000 with a deductible of
$1,000, and workers' compensation insurance and extended coverage on its
property. There does not exist, nor has there been, any lapse in the coverage
under such insurance policies. Such policies are carried by a reputable and
financially stable insurance company and are sufficient to cover risks as are
customarily insured against by similar businesses. The Company represents it has
adequate insurance to replace a substantial amount of its assets.
4.17 No Brokers.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on directly with the Pioneer Partnership
by the Company, without the intervention of any broker, finder, investment
banker (except Ventures Management Partners LLC or Pioneer Ventures Corp.), or
other third party. The Company has not engaged, consented to, or authorized
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any broker, finder, investment banker or other third party to act on its behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
4.18 Loans and Liens.
Attached hereto as Exhibit 4.18 is a complete and accurate list of all
secured and unsecured loans to which the Company or any of its Subsidiaries is a
party as a borrower, debtor, guarantor or as a party obligated thereunder and
all other financial obligations or judgments to which they are subject. Such
schedule sets forth in tabular form the identity of the borrower, lender, any
guarantors, the original principal amount, the principal amount due at a date
within 90 days hereof, the interest rate, the current standing of such
obligation, the next payment due date, the amount of principal and interest next
due, the maturity date, and a summary of any other material provisions not
requested herein.
4.19 Solvency.
The Company has not admitted in writing or otherwise an inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had ever a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other laws of the United
States or any other jurisdiction.
4.20 Registration Rights.
Except as provided for herein and as otherwise provided on Exhibit 4.20
annexed hereto, the Company is not a party to any agreement or commitment that
obligates the Company to register under the Securities Act any of the Company's
presently outstanding securities or any of the Company's securities that may
hereafter be issued.
4.21 Compliance with Securities Laws.
The offer, grant, sale, and/or issuance of the Preferred Stock and the
Common Stock issuable upon conversion of the Preferred Stock shall not be in
violation of the Securities Act, the Exchange Act, any state securities or "blue
sky" laws, or the Company's organization documents such as the certificate of
incorporation or bylaws, when offered, sold and/or issued in accordance with
this Agreement. The Company has not (i) distributed any offering materials in
connection with the offering and sale of the Preferred Stock or (ii) solicited
any offer to buy or sell the Preferred Stock by means of any form of general
solicitation or advertising.
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4.22 Transfer Restrictions.
There are no restrictions on the transfer of capital stock of the Company
imposed by its certificate of incorporation, bylaws, other organization
documents, any agreement to which the Company is a party (other than those
agreements expressly contemplated by, or disclosed in the Exhibits to, this
Agreement), any order of any court or any governmental agency to which the
Company is subject, or any statute other than those imposed by relevant state
and federal securities laws.
4.23 Related Party Transactions.
There are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors or other "affiliates" (as defined
in Rule 405 promulgated under the Securities Act) which involve transactions
exceeding $5,000 in amount, except as outlined on Exhibit 4.23.
4.24 Miscellaneous.
Except as set forth in Exhibit 4.12, Exhibit 4.7-A or Exhibit 4.7-B or the
Audited Financial Statements or notes thereto, (a) the Company is not a party to
or bound by any distribution, sales agency, franchise or similar agreement or
understanding that relates to the sale or distribution of its products and
services, (b) the Company does not have a sole-source supplier of significant
goods and services (other than utilities) with respect to which practical
alternative sources are not available on comparable terms and conditions, (c)
there are neither pending, nor threatened, any labor negotiations involving or
affecting the Company, and no organizing activities involving union
representation exists in respect of any of its employees, (d) except in the
ordinary course of business, the Company is not bound by any warranties relating
to its products or services, such warranties include those for merchantability
and fitness for a particular purpose, and (e) there has been no assertion of any
breach of product or service warranties that could have a material (greater than
$10,000) adverse affect on the business, financial condition or prospects of the
Company and its Subsidiaries, considered in the aggregate. Neither the Company
nor any of its employees, consultants, officers or directors is prohibited from
engaging in any business activity that is currently carried on or contemplated
by the Company or any Subsidiary, by reason of any restrictive covenant or
agreement, including but not limited to, a covenant not-to-compete.
4.25 Additional Representations. The Company represents and warrants that:
(a) The investment to be consummated by the Pioneer Partnership in the
Company is NOT opposed by its board of directors;
(b) The Company is NOT engaged as a business in real estate investments,
and is not a real estate operating company;
11249/436.3
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(c) The Company is NOT undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the investment are
either exercisable for, or convertible into, equity securities at a
pre-determined exercise price or conversion ratio, except for the reset
provisions of this Agreement;
(e) The Company is NOT offering as an investment or otherwise any uncovered
options, or any transaction in which securities are sold short in an uncovered
transaction or which would be in violation of section 16(c) of the Exchange Act,
provided, however, that nothing in this subsection (e) shall prevent the Pioneer
Partnership from acquiring options or warrants exercisable for, or other
securities convertible into, equity securities or assets at a pre-determined
exercise price or conversion ratio;
(f) The Company and its subsidiaries are NOT domiciled in any country that
is, at the time of the closing of the investment and will ensure that, at the
time of the conversion or partial conversion of any of the securities, a
participant in an international boycott illegal under United States law or
opposed by the United States government;
(g) The Company is NOT an investment company registered or required to be
registered under the Investment Company Act of 1940, as amended;
(h) The Company conducts NO operations in Northern Ireland and will ensure
that at the time of the conversion or partial conversion of any of the shares of
Preferred Stock that it conducts NO operations in Northern Ireland unless the
Company complies with the McBride principles to the satisfaction of the Pioneer
Partnership. The McBride principles consist of, but are not limited to, the
following:
1) increasing the representation of individuals from under-represented
religious groups in the workforce, including managerial, supervisory,
administrative, clerical and technical jobs;
2) providing adequate security for the protection of minority employees
at the workplace and while traveling to and from work;
3) banning provocative religious or political emblems from the workplace;
4) publicly advertising all job openings and making special recruitment
efforts to attract applicants from under-represented religious groups;
5) layoff, recall and termination procedures which do not in practice
favor particular religious groupings;
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6) abolishing job reservations, apprenticeship restrictions and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin;
7) developing training programs that will prepare substantial numbers of
current minority employees for skilled jobs, including the expansion
of existing programs and the creation of new programs to train,
upgrade and improve the skills of minority employees;
8) establishing procedures to assess, identify and actively recruit
minority employees with potential for further advancement; and
9) appointing a senior management staff member to oversee the company's
affirmative action efforts and the setting up of timetables to carry
out affirmative action principles.
For purposes of this section 4.25, 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;
(i) The Company 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; and
(j) The Company, if it is an entity organized outside of the United States,
covenants that it shall obtain, on or before closing, a written opinion of
counsel, which counsel and opinion letter shall be addressed to and be
acceptable to the Pioneer Partnership (in addition to that opinion required by
section 7.6 or incorporated within such opinion), to the effect that as a result
of the investment in the Company by the Pioneer Partnership neither the limited
partners, the general partner nor the Pioneer Partnership will be liable, either
directly or indirectly, for any claim, obligation, or liability of the Company.
4.26 Use of Proceeds.
The Company represents it shall use and apply the proceeds from the Closing
only for such purposes as set forth in section 1.12 hereof.
4.27 Industry Specific Regulations.
The Company and the Subsidiaries and their operations do not violate any
state or federal laws or regulations with respect to the U.S. Environmental
Protection Agency, OSHA, or the FCC, and or their state corollary agencies, or
any other laws or regulations to which the Company or its Subsidiaries are
subject. No notices of deficiency or notices of any kind which may inhibit the
operations of the Company or its Subsidiaries has been received from any
governmental agency
11249/436.3
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including but not limited to the U.S. Environmental Protection Agency, OSHA, or
the U.S. Food and Drug Administration, or their state corollary agencies, or any
other governmental agency or authority.
4.28 Wages and Salary.
Appended hereto as Exhibit 4.28 is a listing of wages, salaries and fees of
all officers, directors and Principal Shareholders and all other parties whose
compensation from the Company and/or any Subsidiary exceeds $50,000 per year.
Other than as set forth in Exhibit 4.28 hereto, at no time since the date of the
fiscal year end of the Audited Financial Statements has the Company or its
officers or directors authorized or implemented any material increases in
compensation for salaries, wages or fees in excess of whichever is most recent.
Material increases for purposes of this section shall mean a ten (10%) percent
or greater increase.
4.29 Compliance with ERISA and other Benefit Plans.
Neither the Company nor any of its Subsidiaries has any employee benefit or
pension plans or arrangements that are covered by ERISA or is subject to the
minimum funding standards under section 412 of the Internal Revenue Code of
1986, as amended. The Company's existing benefit plans (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans), relating to the employees of the Company
are duly registered where required by, and are in good standing in all material
respects under, all applicable laws; all required employer and employee
contributions and premiums under such benefit plans to the date hereof have been
made; the respective fund or funds established under such benefit plans are
funded in accordance with applicable laws; and no past service funding
liabilities exist thereunder.
4.30 Environmental Matters.
The costs and liabilities associated with Environmental Laws (including the
cost of compliance therewith) will not have a Material Adverse Effect on the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary. Each of the Company
and the Subsidiaries conducts its businesses in compliance in all material
respects with all applicable Environmental Laws currently in effect.
4.31 Confidentiality Agreements.
Except as set forth in Exhibit 4.31, all employees of the Company and its
Subsidiaries have executed and delivered to the Company a non-compete and
confidentiality agreement (the "Confidentiality Agreement") in the form
previously provided to the Pioneer Partnership and have assigned to the Company
all rights, title and interest in and to any inventions, copyrights, patents,
trademarks and similar intellectual property relating in any way to business of
the Company and its Subsidiaries. The Confidentiality Agreements constitute the
legal, valid and binding obligations of
11249/436.3
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the respective employees who have executed and delivered them and are
enforceable by the Company in accordance with their terms. Neither the Company
nor any Subsidiary has taken any action to waive any rights of the Company under
any Confidentiality Agreement or to publish any confidential information of the
Company in any way so as to render any Confidentiality Agreement unenforceable.
The Company covenants to obtain the signatures of the remaining employees named
in Exhibit 4.31 as soon as practicable, but in no event more than thirty (30)
days, following the Closing Date.
4.32 Officer and Director Questionnaires.
To the best knowledge of the Company, after due inquiry, the officer and
directors questionnaires delivered to the Pioneer Partnership in connection with
the transactions contemplated by this Agreement are true, accurate and complete
and contain no material misstatements of fact, nor do they fail to state any
fact required to make the facts stated therein not misleading.
4.33 Complete Disclosure.
No representation, warranty or statement, written or oral, made by the
Company in this Agreement or in any schedule, exhibit, certificate or other
document furnished or to be furnished to the Pioneer Partnership, 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.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PIONEER PARTNERSHIP
The Pioneer Partnership represents and warrants as follows:
5.1 Organization.
The Pioneer Partnership is a limited partnership duly organized and validly
existing under the laws of the State of Connecticut.
5.2 No Breach.
The execution and delivery of this Agreement by the Pioneer Partnership and
the consummation of the transactions contemplated hereby will not violate any
judgment, order, injunction, decree, or award against, or binding upon, the
Pioneer Partnership or upon its properties or assets.
11249/436.3
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5.3 Authority for and Binding Nature of Agreement.
This Agreement and the documents delivered pursuant hereto have been duly
executed and delivered by the Pioneer Partnership and are valid and binding upon
it in accordance with their respective terms.
5.4 Brokers.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on directly with the Company by the
Pioneer Partnership without the intervention of any broker, finder, investment
banker (except Ventures Management Partners LLC or Pioneer Ventures Corp.), or
other third party. The Pioneer Partnership has not engaged, consented to, or
authorized any broker, finder, investment banker (except Pioneer Ventures
Corp.), or other third party to act on its behalf, directly or indirectly, as a
broker or finder in connection with the transactions contemplated by this
Agreement.
5.5 Securities Laws Matters.
(a) The Pioneer Partnership recognizes and understands that the Preferred
Stock and the Common Stock into which the Preferred Stock is convertible
(collectively, the "Securities") will not on the Closing Date be registered
under the Securities Act, or under the securities laws of any state (the
"Securities Laws").
(b) The Pioneer Partnership represents and warrants that (i) Pioneer
Partnership has business knowledge and experience, such experience being based
on actual participation therein, (ii) Pioneer Partnership is capable of
evaluating the merits and risks of an investment in the Securities and the
suitability of an investment therein, (iii) the securities to be acquired by the
Pioneer Partnership in connection with this Agreement will be acquired solely
for investment and not with a view toward resale or redistribution in violation
of the securities laws, and (iv) Pioneer Partnership is an "accredited investor"
within the meaning of Regulation D promulgated by the Commission pursuant to the
Securities Act.
(c) The Pioneer Partnership has consulted with Pioneer Partnership's own
counsel in regard to the Securities Laws and is aware (i) of the circumstances
under which the Pioneer Partnership is required to hold the Securities, (ii) of
the limitations on the transfer or disposition of the Securities, (iii) that the
Securities must be held indefinitely unless the transfer thereof is registered
under the Securities Laws or an exemption from registration is available, and
(iv) that no exemption from registration is likely to become available for at
least one year from the date of acquisition of the Securities. The Pioneer
Partnership has been advised by Pioneer Partnership's counsel as to the
provisions of Rules 144 and 145 as promulgated by the Commission under the
Securities Act and has been advised of the applicable limitations thereof. The
Pioneer Partnership acknowledges that the Company is relying upon the truth and
accuracy of the representations and warranties in this
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section 5.5 by the Pioneer Partnership in consummating the transactions
contemplated by this Agreement without registering the Securities under the
Securities Laws.
(d) The Pioneer Partnership and the Company agree that the certificates
representing the securities to be acquired pursuant to this Agreement will be
imprinted with the following legend, the terms of which are specifically agreed
to:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND ARE
"RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
The Pioneer Partnership understands and agrees that appropriate stop transfer
notations will be placed in the records of the Company and with its transfer
agent in respect of the Securities which are to be issued to the Pioneer
Partnership.
5.6 Additional Matters.
The Pioneer Partnership agrees that neither the Pioneer Partnership nor its
general partner shall sell any shares of the Common Stock or otherwise engage in
short-selling efforts during the 90 days prior to the Closing Date or the twenty
(20) trading days immediately preceding the Reset Date.
ARTICLE VI. COVENANTS
The Company hereby warranties and covenants that:
6.1 Financial.
Since the date of its Audited Financial Statements, except as contemplated
or disclosed in Exhibit 6.1 hereto or elsewhere in this Agreement, the Company
has not (i) paid or declared any
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dividends on, or made any distributions in respect of, or issued, purchased or
redeemed, any of the outstanding shares of its capital stock, or (ii) made or
authorized any changes in its Certificate of Incorporation or in any amendment
thereto or in its bylaws, or (iii) made any commitments or disbursements or
incurred any obligations or liabilities of a substantial nature and which are
not in the usual and ordinary course of business, or (iv) other than as set
forth in Exhibit 4.7-B mortgaged or pledged or subjected to any lien, charge or
other encumbrance any of its assets, tangible or intangible, or (v) sold,
leased, or transferred or contracted to sell, lease or transfer any assets,
tangible or intangible or entered into any other transactions, except in the
usual and ordinary course of business, or (vi) made any loan or advance to any
stockholder, officer or director of the Company or to any other person, firm, or
corporation, or (vii) other than disclosed in Exhibit 4.28, made any material
change in any existing employment agreement or materially increased the
compensation payable or made any arrangement for the payment of any bonus to any
officer, director, employee or agent.
6.2 Access.
For so long as either the Pioneer Partnership and/or its partners own five
(5%) percent or more of the Company's Common Stock directly or through the
possible conversion of its Preferred Stock on a fully diluted basis, the Company
shall afford, at its sole cost and expense, to the officers, attorneys,
accountants and other authorized representatives of the Pioneer Partnership
and/or its assigns free and full access, during regular business hours and upon
reasonable notice, to the books, records, personnel, accountants, attorneys, and
properties of the Company so that the Pioneer Partnership may have full
opportunity to make such review, examination and investigation as it may desire
of its respective business and affairs. The Company will cause its employees,
accountants, and attorneys to cooperate fully with said review, examination and
investigation and to make full disclosure to the Pioneer Partnership of all
material facts affecting its financial condition and business operation. Nothing
herein shall limit the rights of the Pioneer Partnership and/or its assigns
which are available under or granted by applicable statutes with respect to
access, review, examination and investigations. Interference with said rights or
delay in accommodating such rights by the Company shall be an Event of Default
of the terms of the Preferred Stock.
6.3 Books of Record and Account.
The Company shall maintain at all times proper books of record and account
in accordance with GAAP. For so long as either the Pioneer Partnership or its
partners own five (5%) percent or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock on a fully diluted basis,
the Company will provide the Pioneer Partnership, within 45 days of the end of
each fiscal quarter, copies of quarterly unaudited financial statements, within
90 days of the end of each fiscal year, copies of annual audited financial
statements consisting of balance sheets, statements of operations, statements of
cash flows, statements of changes in stockholders' equity, notes, and the
accountants' or auditors' opinions thereto, all prepared in accordance with GAAP
and copies of any periodic reports or other filings required to be filed with
the Commission under the Securities Act and the Exchange Act. The annual
financial statements shall be audited by an accounting firm acceptable to the
Pioneer Partnership. Interference with said rights or delay in
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accommodating such rights by the Company, or in providing such reports, shall be
an Event of Default of the terms of the Preferred Stock.
6.4 Membership on Board.
The Company's By-laws provide for a three (3) person Board of Directors
subject to increase pursuant to the By-Laws. Promptly upon the Closing Date and
for so long as the Pioneer Partnership or its partners own any shares of the
Company's Preferred Stock or Common Stock directly or through the possible
conversion of Preferred Stock all on a fully diluted basis, the Company's
Principal Shareholders shall cause one (1) designee from the Pioneer Partnership
to be nominated and elected to serve as a director of the Company. Except as
provided for in section 1.10(b) in connection with an Event of Default or
elsewhere in this Agreement, additional membership on the Board shall require
majority approval of the remaining members of the Board of Directors or election
at a meeting of shareholders. Both a Compensation Committee and an Audit
Committee of the Board of Directors shall have been established prior to the
Closing Date. The Compensation Committee shall consist of a maximum of three
directors, including a designee of the Pioneer Partnership. The Audit Committee
shall consist of a maximum of three directors, including a designee of the
Pioneer Partnership. The Compensation Committee shall be maintained to consider
and recommend to the Board of Directors matters concerning the compensation of
executives, awards of stock options, and other incentive compensation.
6.5 Stock Option Plan.
The Company may retain its current stock option, bonus or stock incentive
plan(s), or cancel such plan(s) and adopt a new stock incentive plan in order to
have the ability to provide incentives to its key employees, future employees
and others. The aggregate stock incentive pool shall consist of that number of
shares of the Common Stock of the Company as is approved by the Compensation
Committee. Except as set forth in Exhibit 6.5 annexed hereto, no person
beneficially owning more than ten percent (10%) of the Company's fully diluted
capital stock shall be eligible to participate in such plan.
6.6 Rule 144 Transfers.
(a) Rule 144 Compliance. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the shares to the public without registration, at all times after ninety
(90) days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
or at all times after the Company has a class of Securities registered under the
Exchange Act, the Company agrees to use its best efforts to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144 under the Securities Act; (ii) use its best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; (iii) furnish to each
holder of Registrable Securities forthwith upon request, a written statement by
the Company as to the Company's compliance with
11249/436.3
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the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration; and (iv) use the Company's best efforts to satisfy the
requirements of all such rules and regulations (including the requirements for
current public information, registration under the Exchange Act and timely
reporting to the Commission) at the earliest possible date after its first
registered public offering.
(b) Supplemental Information. If at any time the Company is not subject to
the requirements of section 13 or 15(d) of the Exchange Act, the Company will
promptly furnish at its expense, upon request, for the benefit of the Pioneer
Partnership or its partners, and prospective purchasers of the Preferred Stock
or the Common Stock issuable upon conversion of the Preferred Stock, information
satisfying the information requirements of Rule 144 under the Securities Act.
(c) Acceptable Counsel. The Company acknowledges and agrees that counsel to
the Pioneer Partnership, including, but not limited to Kenneth B. Lerman,
Esquire, and Harrington, Ocko & Monk, LLP, shall be acceptable counsel to the
Company for purposes of issuing an opinion of counsel with respect to transfers
of securities to its affiliates, or with respect to transfers of securities
under Rule 144 or such successor regulation.
6.7 Undertaking to Register its Securities pursuant to the Exchange Act.
In the event the Company shall not have its Common Stock registered under
section 12 of the Exchange Act, the Company undertakes to use its best efforts
to register the Common Stock under the Exchange Act no later than the date that
is six (6) months from the Closing Date. The Company shall (i) advise the
Pioneer Partnership promptly after obtaining knowledge thereof, and, if
requested by the Pioneer Partnership, confirm such advice in writing, of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Preferred Stock or the
Common Stock for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, or (ii) use its best efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption from
qualification of the Preferred Stock or the Common Stock under any state
securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Preferred Stock under any
such laws, use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
6.8 Undertaking to File Exchange Act Filings and to be Listed on NASDAQ.
Provided the Company has securities which are publicly traded, or has one
or more classes of securities registered under the Exchange Act or subject to an
undertaking to file periodic reports with the Commission: (a) The Company
undertakes to continue filing its proxy statement, its annual
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reports on Form 10-K and its quarterly reports on Form 10-Q, or on such other
appropriate forms, with the Commission for so long as the Pioneer Partnership or
its partners hold any Preferred Stock or Common Stock received upon the
conversion of Preferred Stock; (b) Once the Company qualifies, the Company
undertakes to use its best efforts to obtain and maintain a listing on the
Nasdaq SmallCap Stock Market, the NASDAQ National Market System, or such other
national stock exchange upon which the Common Stock shall be qualified for so
long as the Pioneer Partnership holds any Preferred Stock, or Common Stock
obtained through conversion of the Preferred Stock. The Company shall take all
reasonable action to maintain such listing after it is so approved and listed. A
delisting from the NASD OTC Bulletin Board, the Nasdaq SmallCap Stock Market,
the NASDAQ National Market System, or such other national stock exchange upon
which the Common Stock is listed, and without the simultaneous listing on
another national stock exchange, shall be an Event of Default of the terms of
the Preferred Stock; and (c) The Company agrees that any and all future filings
(e.g. Schedule 13D or 13G) required to be made by the Pioneer Partnership or its
nominees as directors shall be prepared by and filed by the Company on such
parties behalf with such parties' consent and cooperation; the expense of such
filings including the legal fees incurred therewith shall be borne by the
Company.
6.9 Dividend Restriction Waiver.
The Company (and its Subsidiaries if applicable) shall obtain prior to the
Closing a signed original waiver and estoppel certificate (addressed to each of
them and to the Pioneer Partnership) from each of its lenders, certifying and
agreeing either that the issuance and delivery of the Preferred Stock, the
declaration and payment of dividends on the Preferred Stock, the conversion of
Preferred Stock into shares of Common Stock, the issuance and delivery of the
Common Stock and the full compliance of the Company with the terms of this
Agreement and the Certificate of Designation of the Preferred Stock shall not
constitute an event of default or require or enable the lender to accelerate any
indebtedness of the Company.
6.10 Rights if Trading in Common Stock is Suspended.
In the event that at any time within the period commencing when the first
Registration Statement is declared effective under the Securities Act by the
Commission and ending three years after the Closing Date, trading in the shares
of the Common Stock is suspended on the NASD OTC Bulletin Board, the Nasdaq
Small Cap Stock Market, the Nasdaq National Market or such other stock exchange
upon which the Common Stock shall then be listed for trading (other than as a
result of the suspension of trading in securities on such market generally or
temporary suspensions pending the release of material information), then, at the
Pioneer Partnership's option exercisable by written notice to the Company, the
Company shall redeem, as applicable, all of the Preferred Stock and converted
Common Stock owned by the Pioneer Partnership at an aggregate purchase price
equal to the Redemption Price set forth in the Certificate of Designation for
the Preferred Stock, plus interest at the rate of 13% per annum on such amount
accruing from the 7th day after such notice until the Redemption Price is paid
in full.
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6.11 Public Dissemination of Information; Filings & Names.
Prior to the inclusion of any name associated with the Pioneer Partnership
in any notice, filing, press release, other public communication or
communication with any governmental entity, a draft shall be submitted to the
Pioneer Partnership for prior written approval and such draft shall have all
incidences of such affiliated names highlighted and clearly marked. The
associated names are: Pioneer Ventures Associates Limited Partnership, Pioneer
Ventures 1st Parallel Limited Partnership, any other Pioneer Ventures
partnership, which may hereafter be formed and becomes a record holder of the
Company's securities, Ventures Management Partners LLC, Pioneer Ventures Corp.,
Robert A. Lerman, John F. Ferraro, and James M. Coady. Additional names
affiliated with the Pioneer Partnership are: Allied Capital Management, LLC and
Geoffrey Rowntree, and any Pioneer Partnership nominee to the Company's Board of
Directors.
6.12 Lock-Up.
The Principal Shareholders shall agree to restrict all sales of their
securities of the Company for a period of not less than one (1) year from the
date of the Closing. However, the Pioneer Partnership, in its sole discretion,
may waive such restriction for a particular transfer upon request, prior to such
transaction.
6.13 Notice of Material Adverse Events.
The Company undertakes to notify the Pioneer Partnership within twenty (20)
days of the occurrence of a material adverse event which has not been cured
within said 20 days. A material adverse event shall include but not be limited
to: litigation or other legal proceeding involving $10,000 or greater in claims
or subject matter, bankruptcy, receivership, insolvency, a change in
circumstances that, if the representations in Article IV hereof were required to
be made on such future date, such representation could no longer truthfully or
accurately be made.
6.14 Tax Return.
The Company shall, on or prior to December 31, 1999, file any tax returns
required to be filed for the current and prior periods.
6.15 No Breach.
The Company will (i) use its best efforts to assure that all of its
representations and warranties contained herein are true in all material
respects as of the Closing Date as if repeated at and as of such time, and that
no material breach or default shall occur with respect to any of its covenants,
representations or warranties contained herein that has not been cured by the
Closing Date; (ii) not voluntarily take any action or do anything which will
cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify the Pioneer Partnership of any event or
fact which represents, or is likely to cause, such a breach or default.
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6.16 Assumption of Debt.
On or prior to the Closing Date, the Company shall have entered into an
agreement with Initio, Inc. ("Initio") pursuant to which the Company shall have
agreed to assume the obligation to pay $2,000,000 of the principal amount (and
associated interest) of Initio's Debenture dated as of February 25, 1998 to the
Pioneer Partnership, and have agreed to be bound by the terms and conditions of
the Debenture Commitment Agreement.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE PIONEER PARTNERSHIP TO CLOSE
Conditions Precedent to the Obligations of the Pioneer Partnership to
Close. The obligation of the Pioneer Partnership to enter into and complete the
Closing is subject to the fulfillment, prior to or on the Closing Date, of each
of the following conditions, any one or more of which may be waived by the
Pioneer Partnership (except when the fulfillment of such condition is a
requirement of law), as well as the satisfactory completion (in the sole opinion
of the Pioneer Partnership) of (i) an audit or review of the books, records and
accounts of the Company, and (ii) legal and other due diligence.
7.1 Representations and Warranties.
All representations and warranties of the Company contained in this
Agreement and in any written statement, exhibit, certificate, schedule or other
document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.
7.2 Covenants.
The Company shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed or
complied with by it prior to or at the Closing.
7.3 No Actions.
No action, suit, proceeding or investigation shall have been instituted,
and be continuing before a court or before or by a governmental body or agency,
or shall have been threatened and be unresolved, to restrain or to prevent or to
obtain damages in respect of, the carrying out of the transactions contemplated
hereby, or which might materially affect the right of the Pioneer Partnership to
own the Company's stock or to operate or control the assets, properties and
business of the Company after the Closing Date, or which might have a materially
adverse effect thereon.
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7.4 Consents, Licenses and Permits.
The Company shall have obtained all consents, licenses and permits of third
parties necessary for the performance of its obligations under this Agreement,
and such other consents, if any, to prevent (i) agreements of the Company from
terminating, the termination of which, in the aggregate, would have a material
adverse effect on the business, financial condition or assets of the Company, or
(ii) any material indebtedness of the Company from becoming due or being subject
to becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provision of this Agreement to the
contrary notwithstanding.
7.5 Certificate.
The Pioneer Partnership shall have received a certificate in form
satisfactory to its counsel, dated at the Closing Date, signed by an authorized
representative of the Company, confirming the substance and effect of the
representations and warranties set forth in Article IV hereto, and as to the
satisfaction of the conditions contained in Article VII.
7.6 Legal Opinion.
(a) The Pioneer Partnership shall have received a written opinion of the
Company's Counsel, dated the Closing Date, in form and substance satisfactory to
the Pioneer Partnership and its counsel, confirming the substance and effect of
certain of the representations and warranties set forth in Articles II and IV
hereto, that the Acquisition Agreements, any agreements associated with the
assumption of the Initio debt under section 7.14 hereof, and this Agreement are
the valid and binding obligation of the Company, enforceable in accordance with
its terms, and as to such other matters as the Pioneer Partnership may request.
Such opinion shall be substantially in the form of Exhibit 7.6 hereto.
(b) The Pioneer Partnership shall have received a written opinion of
counsel to the Principal Shareholders, dated the Closing Date, in form and
substance satisfactory to the Pioneer Partnership and its counsel, confirming
the substance and effect of the representations and warranties set forth in the
Voting and Shareholders' Agreement, and any modification, supplements or
subsequent agreements thereto confirming that such agreement is the valid and
binding obligation of the Principal Shareholders, enforceable in accordance with
its terms, and as to such other matters as the Pioneer Partnership may request.
7.7 No Material Adverse Change.
There shall have been no materially adverse change at the Closing Date in
the business, assets, properties, financial status or prospects of the Company
from March 31, 1999, except as disclosed in Exhibit 7.7 hereof.
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7.8 Agreements with Principals.
The Company shall have received and presented to the Pioneer Partnership
agreements, in the form contained in Exhibit 7.8, from all officers, directors
and the Principal Shareholders of the Company containing the substantive
provisions of this Agreement with respect to registration rights, co-sale
rights, voting agreement as to Board membership, lock-up, restricted stock,
restricted transfer provisions as well as customary and satisfactory
non-competition and confidentiality agreements between the Company and its
officers and key employees. Reference is hereby made to the Voting and
Shareholders' Agreement between the Pioneer Partnership and the Principal
Shareholders named therein. Exhibit 7.8 shall provide that any amendment,
renewal or extension to said agreements shall require the written consent of the
Pioneer Partnership. Further, any shares which are acquired as a result of such
agreements or are subject to a proxy or voting agreement shall otherwise be
subject to the substantive provisions of this Agreement with respect to
anti-dilution rights, voting agreement as to Board membership, restricted stock,
registration rights and co-sale provisions.
7.9 Key Person Insurance.
The Company shall have applied for Key-Person term life insurance, from a
licensed and reputable insurance company in the minimum face amount of at least
$1,000,000 each, insuring the lives of the President and CEO, COO, Executive
Vice President and/or chairman for a minimum of three (3) years. The Company
shall be the designated beneficiary. Renewal of the policies after the first
three years shall be at the discretion of the Company's Board of Directors.
7.10 Intellectual Property.
All of the officers, directors, principals and the affiliates of the
Company shall have assigned and transferred all of the Intellectual Property to
the Company.
7.11 Approval of Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement, or incidental thereto, and all other related legal matters shall
have been approved as to form and substance by the Pioneer Partnership's
counsel, which approval shall not be unreasonably withheld or delayed.
7.12 No Suspensions of Trading in Common Stock.
The trading in the Common Stock shall not have been suspended by the
Commission or by the National Association of Securities Dealers, Inc. or any
federal or state regulatory authority having jurisdiction over the Common Stock.
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7.13 Change of Control.
No Change of Control shall have occurred prior to or on the Closing Date.
"Change of Control" means the occurrence of any of the following: (i) an
acquisition after the date hereof by an individual or legal entity of in excess
of 50% of the voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's Board of Directors which is not
approved by those individuals who are members of the board of directors on the
date hereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
7.14 Acquisition Agreements; Assumption of Debt.
The Company shall have, on or prior to May 21, 1999 entered into each of
the Acquisition Agreements and any and all agreements necessary to evidence the
Company's assumption of Initio's debt to the Pioneer Partnership as set forth in
section 6.16, above, and the sole condition to the closing of the Acquisition
Agreements and any agreements associated with the assumption of the Initio debt
shall be the payment of the purchase price under the Acquisition Agreements
through the application of the proceeds of the sale of the Preferred Stock under
and in conformance with the terms of this Agreement.
7.15 Additional Documents.
The Company shall have delivered all such other certificates and documents
as the Pioneer Partnership or their counsel may have reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE
Conditions Precedent to the Obligations of the Company to Close. The
obligation of the Company to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 Representations and Warranties.
All representations and warranties of the Pioneer Partnership contained in
this Agreement and in any written statement, exhibit, certificate, schedule or
other document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.
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8.2 Covenants.
The Pioneer Partnership shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing.
8.3 No Actions.
No action, suit, proceeding, or investigation shall have been instituted,
and be continuing before a court or before a governmental body or agency, or
have been threatened and be unresolved, to restrain or prevent, or obtain
damages in respect of, the carrying out of the transactions contemplated hereby.
8.4 Additional Documents.
The Pioneer Partnership shall have delivered all such other certificates
and documents as the Company or its counsel may have reasonably requested.
8.5 Approval of Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement or incidental thereto, and all other related legal matters, shall
have been approved as to form and substance by the Company's counsel, which
approval shall not be unreasonably withheld or delayed.
ARTICLE IX. CLOSING
9.1 Location.
The Closing provided for herein (the "Closing") shall occur at the offices
of the attorneys for the Pioneer Partnership, or at such place and upon such
date as the Company and the Pioneer Partnership may mutually agree.
9.2 Items to be Delivered by the Company.
At the Closing, the Company will deliver or cause to be delivered to the
Pioneer Partnership:
(a) duly executed Investment Agreement;
(b) duly executed Voting and Shareholders' Agreement;
(c) duly executed resolutions;
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(d) duly executed and recorded Certificate of Designation of the Preferred
Stock;
(e) validly issued original certificates representing the Preferred Stock
in accordance with Article I hereof.
(f) the certificate required by section 7.5 hereof;
(g) the opinions of the Company's counsel and counsel to the Principal
Shareholders, as required by section 7.6 hereof;
(h) the agreements required by sections 7.8, 7.11 and 7.14 hereof;
(i) the insurance binder and paid receipt required by section 7.9 hereof;
(j) separate checks for $5,000 and $95,000 payable to Ventures Management
Partners LLC (the General Partner of the Pioneer Partnership) as
required by sections 11.1, 11.2, and 11.3 hereof;
(k) a check payable to Harrington, Ocko & Monk, LLP in the amount of
$30,000 plus out-of-pocket expenses as required by section 11.3
hereof;
(l) such other certified resolutions, exhibits, instruments, documents and
certificates as are required to be delivered by the Company pursuant
to the provisions of this Agreement and pursuant to the checklists
presented by the Pioneer Partnership or its counsel.
9.3 Items to be Delivered by the Pioneer Partnership.
At the Closing, the Pioneer Partnership will deliver or cause to be
delivered to the Company a check or checks in the aggregate amount of four
million two hundred thousand dollars ($4,200,000) dollars, as specified in
Article I hereof.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
10.1 Survival.
The parties hereto agree that their respective representations, warranties,
covenants and agreements contained in this Agreement shall survive the Closing
for a period of six (6) years.
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10.2 Indemnification.
The Company agrees to save, defend and indemnify the Pioneer Partnership
and its limited and general partners and their respective officers, directors,
managing members and the agents, as well as the attorneys, accountants, or other
representatives of such parties (jointly or severally "indemnified parties")
against, and hold them harmless from any and all liabilities, of every kind,
nature and description, fixed or contingent (including, without limitation,
reasonable counsel fees, expert witness fees, and expenses in connection with
any action, claim or proceeding relating to such liabilities) arising out of a
breach of any of the representations and warranties contained herein and/or any
transaction or event commencing or occurring on or prior to the Closing Date,
which is not fully disclosed or provided for in this Agreement or in the
exhibits hereto.
10.3 Defense of Claims.
The Pioneer Partnership agrees to notify the Company promptly of any claim
asserted against it in which the Company may be liable under this Agreement,
which notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of calculation thereof. The Company shall
have the right to defend any such claim(s) at its own expense and with counsel
of its choice; provided that the Pioneer Partnership may participate in such
defense, if it so chooses, with its own counsel and at its expense. The Company
agrees that if any of the representations and warranties made by it in this
Agreement shall be finally determined not to have been true, correct or complete
when made, then the Company shall pay to the Pioneer Partnership at the time of
such final determination an amount sufficient to indemnify the Pioneer
Partnership and the other indemnified parties hereto to the full extent of its
losses and expenses sustained by reason thereof, including attorneys,
accountants, expert witnesses, and other professional fees and expenses.
10.4 Rights without Prejudice.
The rights of the Pioneer Partnership under this Article are without
prejudice to any other rights or remedies that it may have by reason of this
Agreement or as otherwise provided by law.
ARTICLE XI. FEES
11.1 Investment Banking Fees.
At the Closing, the Company shall pay an investment banking fee of one
hundred and five thousand dollars ($105,000) to Ventures Management Partners
LLC, the General Partner of the Pioneer Partnership, concurrently with its
execution and delivery of this Agreement. Such General Partner hereby
acknowledges receipt from the Company of a check in the amount of $10,000 in
payment of the commitment fee (the "Commitment Fee") which shall be credited
against the Investment Banking fee set forth in this section 11.1. In the event
that this Agreement is terminated
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as described in Article XII, the Commitment Fee shall be forfeited by the
Company and retained by the General Partner of the Pioneer Partnership.
11.2 Expenses.
At the Closing, the Company shall pay and reimburse the General Partner of
the Pioneer Partnership a non-accountable expense allowance of $5,000 for its
out-of-pocket expenses incurred in connection with visits to the Company's
facilities and other costs and expenses in connection with its due diligence
investigation of the Company.
11.3 Legal Fees.
The Company shall pay at the Closing the attorneys fees plus out-of-pocket
expenses of counsel for the Pioneer Partnership in connection with the
transactions contemplated hereby; such attorneys fees shall equal Forty Thousand
($40,000) dollars, excluding out-of-pocket expenses which are to be billed at or
after the Closing in addition to the legal fees. It is acknowledged that $10,000
has been paid prior to the Closing. In addition, the Company shall pay its own
counsel's fees and all of the expenses of the Closing, including all search
fees, filing fees, governmental certification fees, third party investigation or
other due diligence fees for reports, filings or certifications requested by the
Pioneer Partnership to effect the Closing.
ARTICLE XII. TERMINATION AND WAIVER
12.1 Termination.
Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and the transactions provided for herein abandoned
at any time prior to the Closing Date:
(a) by mutual consent of the Pioneer Partnership and the Company;
(b) by the Pioneer Partnership if any of the conditions set forth in
Article VII and Sections 1.12 and 1.13 hereof, in its sole opinion, shall not
have been fulfilled on or prior to Closing, or shall become incapable of
fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to Closing, or shall have
become incapable of fulfillment, and shall not have been waived;
(d) by any party if any material legal action or proceeding shall have been
instituted or threatened seeking to restrain, prohibit, invalidate or otherwise
affect the consummation of the transactions contemplated by this Agreement.
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In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
sections 11.1 and 11.3 hereof.
12.2 Waiver.
Any condition to the performance of the Company or of the Pioneer
Partnership which legally may be waived on or prior to the Closing Date may be
waived at any time by the party entitled to the benefit thereof by action taken
or authorized by an instrument in writing executed by the relevant party or
parties. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver by any party of the breach of any
term, covenant, representation or warranty contained in this Agreement as a
condition to such party's obligations hereunder shall release or affect any
liability resulting from such breach, and no waiver of any nature, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or of any
breach of any other term, covenant, representation or warranty of this
Agreement.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 Expenses.
Except as set forth in Article XI, each of the parties hereto shall bear
its own expenses in connection herewith.
13.2 Modification, Termination or Waiver.
This Agreement may be amended, modified, superseded or terminated, and any
of the terms, covenants, representations, warranties or conditions hereof may be
waived, but only by a written instrument executed by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same.
13.3 Notices.
Any notice or other communication required or which may be given hereunder
shall be in writing and either be delivered personally or be mailed, certified
or registered mail, postage prepaid, and shall be deemed given when so delivered
personally, or if mailed, five (5) days after the date of mailing, as follows:
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If to the Pioneer Partnership, to: Copies to:
Pioneer Ventures Associates Martin W. Enright, Esquire
Limited Partnership Harrington, Ocko & Monk, LLP
651 Day Hill Road 81 Main Street
P.O. Box 40 White Plains, New York 10601
Windsor, Connecticut 06095
Attn: John F. Ferraro
Director
If to the Company, to: Copies to:
America's Shopping Mall, Inc. Caro & Associates, P.C.
382 Route 59 #310 60 East 42nd St., Suite 2001
Monsey, New York 10952 New York, New York 10165
Attn: Irwin Schneidmill, President
and Chief Executive Officer
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 Binding Effect and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 Entire Agreement.
This Agreement, including the Exhibits hereto and the agreements entered
into in connection herewith, contains the entire Agreement between the parties
with respect to the subject matter hereof.
13.6 Calendar Days.
All references to "days" in this agreement with respect to the amount of
time allocated for notices, performance or other periods shall mean calendar
days, unless otherwise specified.
13.7 Exhibits.
All Exhibits annexed hereto and the documents and instruments referred to
herein or required to be delivered simultaneously herewith or at the Closing are
expressly made a part of this Agreement as fully as though completely set forth
herein, and all references to this Agreement herein or in any such Exhibits,
documents or instruments shall be deemed to refer to and include all such
Exhibits, documents and instruments. Any execution of this Agreement is subject
to the receipt of current and complete exhibits.
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13.8 Governing Law.
This Agreement shall be governed by, and construed in accordance with
the laws of the State of New York.
13.9 Consent to Jurisdiction.
The parties hereto consent to the jurisdiction of the Courts of the States
of Connecticut and New York and to the U.S. District Court in the Southern
District of New York and the District Court of Connecticut.
13.10 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but which together shall constitute one and the same
instrument.
13.11 Section Headings.
The section headings contained in this Agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
13.12 Gender.
Whenever the content of this Agreement permits, the masculine, neuter or
third person genders shall include the feminine, third person and neuter
genders, and reference to singular or plural shall be interchangeable with the
other.
13.13 Use of Term "Pioneer Partnership".
Notwithstanding any provision of this Agreement to the contrary, included
in the definition and meaning of the "Pioneer Partnership" shall be any one or
more parallel limited partnerships which have been or shall be organized by
Ventures Management Partners LLC as the general partner to invest in parallel
with Pioneer Ventures Associates Limited Partnership on the same economic terms
and pro rata based upon their aggregate subscriptions. The limited partners of
Pioneer Ventures Associates Limited Partnership and the parallel partnerships
shall be referred to herein as the "limited partners".
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Pioneer Ventures Associates Limited Partnership
By: Pioneer Ventures Corp.
Managing Member of the
Partnership's General Partner,
Ventures Management Partners LLC
By: /s/ John F. Ferraro
---------------------------
John F. Ferraro, Director
America's Shopping Mall, Inc.
By: /s/ Irwin Schneidmill
---------------------------
Irwin Schneidmill, President
and Chief Executive Officer
Attest:
By:
---------------------------
Secretary
11249/436.3
47