EXHIBIT 10.42
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
INVESTMENT AGREEMENT
by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
and
TRISTAR CORPORATION
September 3, 1998
TABLE OF CONTENTS
PAGE
----
ARTICLE I. Sale and Transfer of Stock....................................1
1.1 Series C Senior Convertible Preferred Stock............................1
1.2 Purchase Price, and Payment............................................3
1.3 Convertible into Common................................................3
1.4 Cumulative Dividend....................................................4
1.5 Liquidation............................................................5
1.6 Reservation of Shares; Shares to be Fully Paid.........................5
1.7 Anti-Dilution Rights...................................................5
1.8 Percentage of Fully Diluted Shares.....................................7
1.9 Voting Rights and Prohibitive Covenants................................7
1.10 Voting Agreements Concerning Directors...............................8
1.11 Transfer Agent......................................................10
1.12 Use of Proceeds.....................................................10
1.13 Right of First Refusal..............................................12
1.14 Terms of Co-Investment..............................................12
1.15 Terms of Financing..................................................12
1.16 Notice of Intended Acquisitions.....................................13
1.17 Redemption..........................................................13
ARTICLE II. Registration Rights.........................................15
2.1 Demand Registration...................................................15
2.2 Piggyback Registration................................................15
2.3 Registration Covenants................................................16
2.4 Blue Sky Registration.................................................18
2.5 Deregistration........................................................18
2.6 Post-Effective Amendments.............................................18
2.7 Right to Delay........................................................18
2.8 Selection of Underwriters.............................................19
2.9 Principal Shareholders................................................19
2.10 Intentionally Omitted...............................................19
2.11 Indemnification by Company re Registration Rights...................19
2.12 Indemnification by Holder...........................................20
2.13 Notice of Indemnity and Defense.....................................21
ARTICLE III. Co-Sale Provisions..........................................21
3.1 Third-Party Offer and Notice..........................................21
3.2 Co-Sale Right of Participation........................................22
3.4 Notice of Intent to Participate in Co-Sale............................22
ARTICLE IV. Representations and Warranties of the Company...............23
4.1 Organization, Qualification and Corporate Power.......................23
4.2 Subsidiaries..........................................................23
4.3 Authorization of Agreement............................................24
4.4 Validity..............................................................25
4.5 Government Approval...................................................25
4.6 Capitalization........................................................25
Investment Agreement
Page ii
4.7 Annual Report and the Financial Statements............................26
4.8 Patents, Trademarks, Etc..............................................27
4.9 Taxes.................................................................28
4.10 Approvals...........................................................28
4.11 Litigation..........................................................29
4.12 Schedule of Documents...............................................29
4.13 No Defaults.........................................................30
4.14 Lack of Felonies....................................................30
4.15 No Judgments........................................................31
4.16 Insurance...........................................................31
4.17 No Brokers..........................................................31
4.18 Loans and Liens.....................................................31
4.19 Solvency............................................................32
4.20 Registration Rights.................................................32
4.21 Compliance with Securities Laws.....................................32
4.22 Transfer Restrictions...............................................32
4.23 Related Party Transactions..........................................33
4.24 Miscellaneous.......................................................33
4.25 Additional Representations..........................................33
4.26 Use of Proceeds.....................................................35
4.27 Industry Specific Regulations.......................................35
4.28 Wages and Salary....................................................36
4.29 ERISA...............................................................36
4.30 Core Sheth Letter of Credit.........................................36
4.31 Protest IRS Claim for Disallowance..................................36
4.32 No Restrictions on Dividends........................................37
4.33 Complete Disclosure.................................................37
ARTICLE V. Representations and Warranties of the Pioneer Partnership....37
5.1 Organization..........................................................37
5.2 No Breach.............................................................37
5.3 Authority for and Binding Nature of Agreement.........................38
5.4 Brokers...............................................................38
5.5 Securities Laws Matters...............................................38
5.6 Additional Matters....................................................41
ARTICLE VI. Covenants...................................................41
6.1 Financial.............................................................41
6.2 Access................................................................42
6.3 Books of Record and Account...........................................42
6.4 Membership on Board...................................................43
6.5 Stock Option Plan.....................................................44
6.6 Rule 144 Compliance...................................................44
6.7 Undertaking to Register its Securities................................45
6.8 Undertaking to File 34 Act Filings and to be Listed on NASDAQ.........45
6.9 Dividend Restriction Waiver...........................................45
6.10 Core Sheth Letter of Credit.........................................45
6.11 Signing Obligations.................................................46
Investment Agreement
Page iii
6.12 No Cost Licenses....................................................46
6.13 SEC Filings.........................................................46
6.14 Blue Sky............................................................46
6.15 No Breach...........................................................47
ARTICLE VII. Conditions Precedent to the Obligations of...................47
the Pioneer Partnership to Close............................................47
7.1 Representations and Warranties........................................47
7.2 Covenants.............................................................47
7.3 No Actions............................................................48
7.4 Consents, Licenses and Permits........................................48
7.5 Certificate...........................................................48
7.6 Legal Opinion.........................................................48
7.7 No Material Adverse Change............................................49
7.8 Agreements with Principals............................................49
7.9 Key Person Insurance..................................................49
7.10 Patents.............................................................49
7.11 Approval of Counsel.................................................50
7.12 Consents, Licenses and Permits......................................50
7.13 Additional Documents................................................50
ARTICLE VIII. Conditions Precedent to the Obligations of....................50
the Company to Close........................................................50
8.1 Representations and Warranties........................................50
8.2 Covenants.............................................................51
8.3 No Actions............................................................51
8.4 Additional Documents..................................................51
8.5 Approval of Counsel...................................................51
ARTICLE IX. Closing.....................................................52
9.1 Location..............................................................52
9.2 Items to be Delivered by the Company..................................52
9.3 Items to be Delivered by the Pioneer Partnership......................53
9.4 Items to be Delivered by the Company at Subsequent Closings...........53
9.5 Items to be Delivered by the Pioneer Partnership at Subsequent
Closings.............................................................54
ARTICLE X. Survival of Representations; Indemnification; Fees...........54
10.1 Survival............................................................54
10.2 Indemnification.....................................................54
10.3 Defense of Claims...................................................55
10.4 Rights without Prejudice............................................55
ARTICLE XI. Fees...........................................................55
11.1 Investment Banking Fees.............................................55
11.2 Expenses............................................................56
11.3 Legal Fees..........................................................56
11.4 Accounting Fees.....................................................56
11.4 Break-Up Fee........................................................56
ARTICLE XII. Termination and Waiver.....................................56
12.1 Termination.........................................................56
12.2 Waiver..............................................................57
Investment Agreement
Page iv
ARTICLE XIII. Miscellaneous Provisions..................................58
13.1 Expenses............................................................58
13.2 Modification, Termination or Waiver.................................58
13.3 Notices.............................................................58
13.4 Binding Effect and Assignment.......................................59
13.5 Entire Agreement....................................................59
13.6 Calendar Days.......................................................59
13.7 Exhibits............................................................59
13.8 Governing Law.......................................................60
13.9 Consent to Jurisdiction.............................................60
13.10 Counterparts........................................................60
13.11 Section Headings....................................................60
13.12 Gender..............................................................60
13.13 Controlling Document................................................60
13.14 Use of Term "Pioneer Partnership"...................................60
LIST OF EXHIBITS
EXHIBIT* TITLE SECTION
---------- ------- ---------
Exhibit 1.1 Series C Senior Convertible Preferred Stock...........1.1
Exhibit 4.7A Annual Report and the Financial Statements............4.7
Exhibit 4.7B Annual Report and the Financial Statements............4.7
Exhibit 4.8 Patents, Trademarks, Etc..............................4.8
Exhibit 4.9 Taxes.................................................4.9
Exhibit 4.11 Litigation...........................................4.11
Exhibit 4.12 Schedule of Documents................................4.12
Exhibit 4.18 Loans and Liens......................................4.18
Exhibit 4.23 Related Party Transactions...........................4.23
Exhibit 4.28 Wages and Salary.....................................4.28
Exhibit 7.7 No Material Adverse Change............................7.7
* Please note that the exhibits referenced within this Agreement utilize
the title "Schedule" rather than "Exhibit", but are intended to
correspond to the matching reference within the Agreement.
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated September 3, 1998 ("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 TRISTAR CORPORATION, a Delaware corporation with
offices at 12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216 (the
"COMPANY").
WHEREAS, the Company desires to obtain funds to finance its operations,
expand its marketing activities, purchase and install lip and eye pencil and
other manufacturing equipment, make payments to vendors, acquire and/or initiate
new product brands, acquire other companies which are accretive to its existing
business and for, working capital purposes.
WHEREAS, the Pioneer Partnership desires to provide funds to the Company
for such purposes on the terms and 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
1.1 SERIES C SENIOR CONVERTIBLE PREFERRED STOCK.
(a1) Upon the terms and subject to the conditions hereinafter set forth,
at the various closings (as hereinafter defined and set forth), the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership an aggregate of one hundred thousand (*100,000*) shares
of the Company's Series C Senior Convertible Preferred Stock, $.01
par value (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
Series C Certificate of Designation to be filed and recorded with
the Secretary of State of the State of Delaware upon the occurrence
of the First Closing as set forth below.
Investment Agreement
Page 2
(b1) At the first closing ("FIRST CLOSING") on September 3, 1998, the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership seventy-eight thousand three hundred thirty-three
(*78,333*) shares of Preferred Stock upon payment of the Purchase
Price therefor and satisfaction of the conditions contemplated
herein.
(b2) At one or more subsequent closings ("SUBSEQUENT CLOSINGS"), the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership up to an additional twenty-one thousand six hundred
sixty-seven (*21,667*) shares of Preferred Stock upon payment of the
Purchase Price therefor and satisfaction of the conditions
contemplated herein and upon the conditions to be determined in
accordance herewith.
(b2) At the First Closing, the Company shall issue one hundred
twenty-five thousand (125,000) warrants each to purchase one (1)
share of Common Stock, as defined in ss.1.3 hereof, at a price four
($4.00) dollars per share, subject to adjustment as stated therein.
The warrants shall be immediately detachable and transferable; the
warrants shall be exercisable during the sixty (60) month period
commencing on the date of the First Closing.
(c) At the First Closing, the Company shall reserve twenty-one thousand
six hundred sixty-seven (*21,667*) shares to be delivered in whole
or in part at the Second Closing.
(d) Upon sale and issuance to the Pioneer Partnership each share of
Preferred Stock shall be 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 each Closing. Such
certificates shall also be accompanied by evidence satisfactory
to the Pioneer Partnership of the Company's payment of any
applicable transfer and franchise taxes. Said stock will not be
issued in a transaction registered with the U.S. Securities and
Exchange Commission ("COMMISSION") and shall, therefore, be
restricted from resale to the public. The Preferred Stock
Certificate shall be in the form annexed hereto as EXHIBIT 1.1.
Investment Agreement
Page 3
1.2 PURCHASE PRICE, AND PAYMENT.
The Purchase Price for the Preferred Stock to be sold to the Pioneer
Partnership pursuant to this Investment Agreement shall be sixty ($60) dollars
per share, aggregating $6,000,000. Upon the occurrence and consummation of the
First Closing, and in consideration therefor, the Pioneer Partnership shall pay
the Company at that Closings, by wire transfer or by check, the sum of four
million six hundred ninety-nine thousand nine hundred eighty ($4,699,980.00)
dollars as full consideration for its subscription therefor; upon the occurrence
and consummation of all of the Subsequent Closings, if so consummated, and in
consideration therefor, the Pioneer Partnership shall pay the Company at the
Subsequent Closings, by wire transfer or by check, the aggregate sum of one
million three hundred thousand ($1,300,020.00) dollars as full consideration for
its subscription therefor. Each Subsequent Closing shall be in minimum
investment amounts of five hundred thousand ($500,000) dollars. The Subsequent
Closings shall all occur no later than one year from the date hereof and upon
forty-five (45) days of notice by the Company; such notice period may be
decreased with the consent of the Pioneer Partnership. No Subsequent Closing
shall occur unless the Company has satisfied each and every term of this
Agreement. Failure of the Pioneer Partnership to close each Subsequent Closing
within such forty-five (45) days shall entitle the Company to bring an action to
enforce the remedy of specific performance; the Pioneer Partnership shall have
the right to cure without penalty of any kind by completing the Subsequent
Closing on or before the date an answer is due in litigation. See also Article
VII for the requirements of each Closing.
Investment Agreement
Page 4
1.3 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. The number of shares of the Company's
common stock, $.01 par value (the "COMMON STOCK"), that shall be issued upon
conversion of each share of Preferred Stock shall equal $60 divided by the
Conversion Price (as defined below). The Conversion Price shall be $5.4375 per
share (the "CONVERSION PRICE"). The Conversion Price and number of shares of
Common Stock issuable upon conversion of the Preferred Stock will 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 Sections 1.7 hereof.
1.4 CUMULATIVE DIVIDEND. Holders of the Preferred Stock shall also be
entitled to a cumulative cash dividend of $4.80 per share annually; the dividend
shall be payable quarterly in arrears ($1.20 per share) calculated on a 360-day
year consisting of twelve 30-day months, and payable immediately out of the
assets of the Company legally available therefor. 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 which has a preference
junior to this Preferred Stock. The Series C Preferred Stock shall be senior to
all other classes of preferred stock. If less than the full preferential
dividend is paid (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 any 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 if any dividends are
unpaid on the Preferred Stock. No class of capital stock shall be paid any
dividend unless and until all dividends accrued and unpaid are paid on the
Preferred Stock are paid in full. The dividends may be paid, in whole or in
part, by the issuance of additional shares of Series C Preferred Stock upon the
same terms as cash dividends payable hereunder except such shares shall bear a
cumulative cash dividend of $7.80 per share annually. In addition, if there is a
Dividend Arrearage (as defined in the Certificate of Designation, as hereinafter
defined) an Additional Dividend (as defined in the Certificate of Designation,
as hereinafter defined) shall be paid as set forth Company's Certificate of
Designation creating the Preferred Stock (the "CERTIFICATE OF DESIGNATION").
Investment Agreement
Page 5
1.5 LIQUIDATION.
In cases 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
sixty ($60.00) dollars per share plus interest thereon from the date of date of
issue until redemption or conversion at the compounded rate of 20% per annum,
but in no event more than an aggregate of $175.00 per share (the "LIQUIDATION
PREFERENCE") plus an amount equal to any accrued and unpaid dividends to the
payment date, 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 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 will be due and
paid upon the occurrence of such event or upon the closing of a public offering
of the Company's securities.
1.6 RESERVATION OF SHARES; SHARES TO BE FULLY PAID. 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, sufficient shares to provide for the conversion of the Preferred
Stock. Before taking any action which would cause an adjustment reducing the
conversion value below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Preferred Stock, the Company shall promptly take
all corporate action which may be necessary in order that the Company may
validly and legally issue shares of such Common Stock at such adjusted
conversion price. 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.
Investment Agreement
Page 6
1.7 ANTI-DILUTION RIGHTS. In order to allow the holders of the Preferred
Stock to maintain their PRO RATA share of the Company's capital stock on a fully
diluted basis, except as set forth in the next sentence of this ss.1.7 and
solely with respect to this ss.1.7, the holders of the Preferred Stock shall be
entitled, as of right, to purchase or subscribe for PRO RATA any stock of the
Company to be issued by reason of an increase of the issued stock of the
Company, or the creation a new class of securities, and the issuance of such
securities (collectively referred to as "NEW SECURITIES"). The anti-dilution
rights set forth hereinabove shall not be applicable to, and the definition of
"New Securities" shall not include, the following securities (the "EXEMPT
SECURITIES") (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, up to a 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, and (iii)
securities issued pursuant to an acquisition of another corporation by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization whereby the Company owns not less than fifty-one (51%) percent of
the voting stock of such corporation.
(a) NOTICE AND EXERCISE OF ANTI-DILUTION RIGHTS. In the event the Company
proposes to issue New Securities, it shall give the holders of the
Preferred Stock written notice of its intention, describing the type of
New Securities, the price and general terms upon which the Company
proposes to issue the same. In exercising such anti-dilutive rights, the
holders of the Preferred Stock shall be given thirty (30) days from the
receipt of such notice to agree to purchase or subscribe for such New
Securities, at the same price and on the same terms, in the proportion
that the number of shares of Common Stock that underlies the Preferred
Stock, if converted, bears to the sum of (1) the total number of shares of
Common Stock issued and outstanding and (2) the number of such underlying
shares.
Investment Agreement
Page 7
(b) OVER-ALLOTMENT. The holders of the Preferred Stock shall have the
right of over-allotment such that, in the event other holders having
anti-dilutive rights fail to exercise such right to purchase all of the
New Securities, the remaining holders of the Preferred Stock may purchase
the non-purchasing holders' New Securities not so purchased, on a PRO RATA
basis, based upon the respective fully diluted Common Stock ownership in
the Company of each such remaining holder of Preferred Stock, within
fifteen (15) days from the date the non-purchasing holders fail to
exercise their rights hereunder. The holders of the Preferred Stock shall
be required to commit in writing, at the time they exercise their
anti-dilution rights, the maximum amount of over-allotment shares they
agree to purchase, if any become available.
1.8 PERCENTAGE OF FULLY DILUTED SHARES. The 100,000 shares of Preferred
Stock to be delivered by the Company to the Pioneer Partnership as set forth
above shall, if converted, constitute three and eight-tenths (3.8%) of one
percent of the fully diluted issued and outstanding Common Stock of the Company
as of the Closing Date, as hereinafter defined, with such percentage including
conversion of all of the Preferred Stock issuable hereunder into Common Stock.
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 upon the exercise or
conversion of all warrants, options or other securities convertible into the
Common Stock of the Company.
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 75,000
shares or more of the Common Stock, directly or through the possible conversion
of Preferred Stock, all on a fully diluted basis, are owned by the Pioneer
Partnership or its limited partners, collectively, the Company shall not without
the prior written consent of the Pioneer Partnership or its limited partners (in
the event of a distribution of such securities to such limited partners) which
consent shall not be unreasonably withheld or unduly delayed (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the bylaws of the
Company so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Preferred Stock, (ii) except
for the Exempt Securities, authorize or issue any additional equity securities
of the Company or any subsidiaries, (iii) other than the acquisition of
Fragrance Impressions, Ltd., approve any merger, consolidation, compulsory share
exchange or sale of assets to which the Company is a party, (iv) repurchase or
redeem any equity securities or pay dividends or other distributions on any
equity securities, except as provided for the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) 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, and (viii) approve the sale or transfer of any material
intangible or intellectual property, other than the issuance of licenses in the
ordinary course of business.
Investment Agreement
Page 8
1.10 VOTING AGREEMENTS CONCERNING DIRECTORS.
(a) GENERALLY. Effective immediately prior to or concurrently with the
First Closing, one (1) nominee of the Pioneer Partnership, Robert A.
Lerman or its designee, shall be elected a director of the Company for
successive one-year terms. 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 one nominee of the Pioneer Partnership. The nominee of the Pioneer
Partnership shall be reasonably acceptable to the board of directors of
the Company to serve as a director. Grounds for rejecting such nominee
shall be any matter of record of the nominee which would cause the Company
to be in violation of any order issued by the Commission or such nominee
is disqualified as a result of Rule 262(b) promulgated under the 1933 Act
provided, however, no such nominee shall be an affiliate of any competitor
of the Company. Should the Pioneer Partnership nominee decline to be
nominated or elected, another of the Pioneer Partnership's designees shall
have the right 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 Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth, Mahendra
Sheth, Viren S. Sheth, Jay J. Sheth, Transvit Manufacturing Corporation,
Starion International Limited, Starion B.V.I., Aron Zutler, Peter Liman,
Richard Howard, Robert Viola, Richard P. Rifenburgh, Robert R. Sparacino,
Nevell Investments, S.A., or any trusts, or other entities or affiliates
(collectively "PRINCIPAL SHAREHOLDERS") holding the voting rights to their
shares, shall simultaneously execute and deliver to the Pioneer
Partnership a Voting and Shareholders Agreement confirming the terms of
Sections 1.10 and 6.4 hereof.
Investment Agreement
Page 9
(b) ADDITIONAL NOMINEES OF THE PIONEER PARTNERSHIP ON DEFAULT. In the
event that the Company shall default in the due and punctual payment of
any installment of the cumulative dividends on the Preferred Stock when
and as the same shall become due and payable and such default shall
continue for 30 days and provided the Pioneer Partnership and/or its
limited partners (if such limited partners are holding such shares
directly) shall be the holder(s) of an aggregate of 75,000 shares or more
of the Common Stock, directly or through the possible conversion of
Preferred Stock, all on a fully diluted basis, in addition to the other
remedies available to the Pioneer Partnership, the Pioneer Partnership
shall nominate, and the Board of Directors of Company shall use its best
efforts to have promptly elected or appointed one (1) additional
individual to such directorship; the board of directors shall then be
comprised of members constituting at least a simple majority of directors
who are independent of the Core Sheth Families and the Company, and of
which two directors shall be the Pioneer Partnerships' nominees; such
election or appointment shall be effective no later than 30 days after and
during the continuation of any such defaults. The two directors selected
by the Pioneer Partnership together with the other independent outside
directors shall form and constitute the Company's Post-Default Executive
Committee which shall be granted full executive and operational control
over the Company's operations. To facilitate the foregoing, the Company
has, concurrently with the execution hereof, amended its by-laws in a
manner satisfactory to the Pioneer Partnership. 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.
Investment Agreement
Page 10
1.11 TRANSFER AGENT. The Company shall act as transfer agreement for the
Preferred Stock.
1.12 USE OF PROCEEDS. (A) The net proceeds to be received by the Company,
after deduction of all applicable expenses of the Closings will be approximately
$4,200,000, and the gross proceeds shall be used and applied only as follows:
AMOUNT WHICH MAY BE
USED FROM
CLOSING FUNDS:
-----------------------
FIRST SUBSEQUENT
USE OF PROCEEDS CLOSING CLOSINGS
---------- ----------
(a) Capital Equipment:
lip and eye pencil
manufacturing
equipment, other major
equipment purchases. $ 450,000 $ 300,000
(b) Costs of Closings:
i. Finder's Fee $ 200,000 0
ii. Investment Banking Fee $ 100,000 0
iii. Audit, Legal, Other $ 115,000 0
(c) Payments to Vendors:
a. Affiliated Companies $ 400,000 0
b. Unaffiliated $ 600,000 0
(d) Working Capital: $ 850,000 $1,000,000
(e) Marketing: $ 500,000 0
(f) Brands/Competitor Acquisition: $1,500,000 0
---------- ----------
$4,700,000 $1,300,000
========== ==========
Investment Agreement
Page 11
The Company shall expend these funds for the purposes indicated. No
portion of the gross proceeds will be paid to the principal stockholders,
officers, directors, or their affiliates or associates except as provided below.
No portion of the net proceeds of any Closing may be paid to those persons,
directly or indirectly, as consultant fees, advisor fees, officer salaries or
director fees or for the purchase of shares or other payments, or to make loans.
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. Without the prior approval of the Compensation Committee of the board of
directors of the Company, 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 disclosed in either the offering document
issued and delivered to the Pioneer Partnership, if any, or in the annual report
on Form 10-K or 10-KSB most recently filed with the SEC and delivered to the
Pioneer Partnership, whichever is most recent. Material increases for purposes
of this section 1.12 shall mean a ten (10%) percent or greater increase. No
portion of the proceeds of any Closing will be used to pay cash finder's fees
nor will the Company issue securities in payment of finder's fees to the
principal stockholders, officers, directors, or their affiliates or associates.
(B) No proceeds of any Closing shall be paid to or used for Nevell
Investments S.A. or any of its shareholders, officers, directors, subsidiaries
or affiliates to pay, directly or indirectly, principal or interest on any loans
or advances made by such party to the Company or its Subsidiaries.
(C) No proceeds of any Closing shall be paid to or used for the Core Sheth
Families, Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth, Mahendra Sheth,
Viren S. Sheth, Jay J. Sheth, Transvit Manufacturing Corporation, Starion
International Limited, Starion B.V.I., Ibrahhim Ahmed Al-Musbahi, Aron Zutler,
Peter Liman, Robert Viola, Richard Howard, or Nevell Investments S.A. or any of
their subsidiaries or affiliates to pay, directly or indirectly, principal or
interest on any loans or advances made by such party to the Company or its
Subsidiaries, unless specifically allocated in this ss.1.12.
Investment Agreement
Page 12
(D) No proceeds of any Closing shall be paid to or used for Transvit
Manufacturing Corporation or any of its shareholders, officers, directors,
subsidiaries or affiliates to pay, directly or indirectly, principal or interest
on any loans or advances made by such party to the Company or its Subsidiaries.
(E) Notwithstanding anything herein to the contrary, proceeds from any
Closing may be used to purchase merchandise and other goods from the operating
affiliates of the Core Sheth Families in the ordinary course of business.
1.13 RIGHT OF FIRST REFUSAL. For so long as an aggregate of 75,000 shares
or more of Common Stock, directly or through the possible conversion of
Preferred Stock, all on a fully diluted basis, are owned by the Pioneer
Partnership, the Pioneer Partnership, shall have the right to co-invest along
with the Company (a) as an equity participant in any acquisitions on mutually
acceptable terms, or (b) the right of first refusal to provide financing subject
to ss.1.15. for any potential acquisition. All acquisitions which are
synergistic with current activities of the Company shall be excluded from the
right to co-invest and the right of first refusal.
1.14 TERMS OF CO-INVESTMENT. In the event the Pioneer Partnership
co-invests along with the Company as an equity participant in an acquisition,
the co-investment shall be on mutually acceptable terms.
1.15 TERMS OF FINANCING. In the event the Company has secured a commitment
for the financing of an acquisition, the Pioneer Partnership shall have the
right of first refusal to match such financing terms and thereafter to finance
the acquisition, to the extent that such acquisition is not funded by BNY
Financial Corporation, for so long as an aggregate of 75,000 shares or more of
Common Stock, directly or through the possible conversion of Preferred Stock,
all on a fully diluted basis, are owned by the Pioneer Partnership or its
limited partners. The Pioneer Partnership shall be required to commit to fund
either its co-investment right or its right of first refusal, as set forth
herein, within thirty (30) days of its receipt of notice given under ss.1.16.
Investment Agreement
Page 13
1.16 NOTICE OF INTENDED ACQUISITIONS. The Company shall forward to the
Pioneer Partnership notice at least 30 days prior to the closing of all
acquisitions, for so long as an aggregate of 75,000 shares or more of Common
Stock, directly or through the possible conversion of Preferred Stock, all on a
fully diluted basis, are owned by the Pioneer Partnership.
1.17 REDEMPTION.
(A) The Company, and Manhendra Sheth, Shashikant S. Sheth, Jammadas
Sheth, Kirit Sheth, Jay J. Sheth, and Viren S. Sheth (such individuals are
herein referred to as collectively the "CORE SHETH FAMILIES") shall have the
right to compel each holder of the Series C Preferred Stock to redeem any or all
of the shares of Series C Preferred Stock held by such holder on any Quarterly
Dividend Payment Date (for purposes of this ss.1.17 such date shall be the
"REDEMPTION DATE"), provided written demand as set forth below is given. The
redemption price for each share to be redeemed shall be paid by the Company
and/or the Core Sheth Families in cash in an amount equal to (i) the price in
the first (1st) year following the date of this Agreement to be the higher of
the closing market price of the Common Stock on the Date of Redemption or $12
per share of Common Stock, on a post-conversion basis; (ii) the price in the
second (2nd) year following the date of this Agreement to be the higher of the
closing market price of the Common Stock on the Date of Redemption or $14 per
share of Common Stock, on a post-conversion basis; (iii) the price in the third
(3rd) year following the date of this Agreement to be the higher of the closing
market price of the Common Stock on the Date of Redemption or $16 per share of
Common Stock, on a post-conversion basis; (iv) the price in the fourth (4th)
year following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $18 per share of Common
Stock, on a post-conversion basis; (v) the price in the fifth (5th) year
following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $20 per share of Common
Stock, on a post-conversion basis; (all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) (the "REDEMPTION PRICE").
Investment Agreement
Page 14
(B) Thirty (30) days prior to the Redemption Date, the Company and/or the
Core Sheth Families, as applicable, shall provide each holder of Series C
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 Series C Preferred Stock as provided above, which notice
shall specify the 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.
(C) On or prior to the Redemption Date, each holder of Series C Preferred
Stock shall surrender his or its certificate or certificates representing the
shares 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 Series C Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price and interest at
the rate of 13% 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. Such shares of Series C Preferred Stock shall not be
reissued.
Investment Agreement
Page 15
ARTICLE II. REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION. The Company agrees that after January 31, 1999 it
shall promptly upon the request of the Pioneer Partnership or its limited
partners (each such holder of such securities a "HOLDER" and collectively
"HOLDERS") for so long as such Holders in the aggregate, are holders of 75,000
shares or more of the Company's Common Stock, directly or through the possible
conversion of Preferred Stock, all on a fully diluted basis, on one (1)
occasion, shall, at the Company's sole cost and expense, use its best efforts to
cause any or all of the Preferred Stock and/or the underlying securities
issuable upon conversion of the Preferred Stock (collectively the "REGISTRABLE
SECURITIES"), to be the subject of an appropriate Registration Statement, so as
to enable the requesting Holders ("INITIATING HOLDERS") to publicly offer
without restriction such securities. Upon receipt of a written request by the
Initiating Holders, the Company will promptly give written notice of the
proposed registration to all other Holders and as soon as practicable, use its
diligent best efforts to effect such registration with the Commission
(including, without limitation, the execution of 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 1933 Act). The Company shall file such registration
statement pursuant to the Securities Act of 1933, as amended (the "1933 ACT") to
register the Registrable Securities for resale. 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 reasonably necessary to obtain the
removal of any stop order) on a timely basis.
2.2 PIGGYBACK REGISTRATION. (A) So long as the Pioneer Partnership or its
limited partners are the holders of 75,000 shares or more of the Company's
Common Stock, directly or through the possible conversion of Preferred Stock,
all on a fully diluted basis, if the Company shall register any of its
securities for sale pursuant to any appropriate Registration Statement under the
1933 Act, the Company shall be required to offer the Holders the opportunity to
register any or all the Registrable Securities, without
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Page 16
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 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 other than 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.
Investment Agreement
Page 17
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 of each registration and as to the
completion thereof. At its expense, the Company will:
(i) Keep such registration effective for a minimum period of 270
days 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 270
day 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 Exchange Act in the
registration statement;
(ii) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably
request; and
(iii) 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.
Investment Agreement
Page 18
2.4 BLUE SKY REGISTRATION. The Company will use its best efforts to
register or qualify the Registrable Securities covered by any registration
statement under the 1933 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 or in which the Company would be required to
qualify as a foreign corporation to do business in such jurisdiction and is not
so qualified therein. 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.
2.5 DEREGISTRATION. In the event the Pioneer Partnership has not sold all
of the Registrable Securities included in the registration statement or prior to
the expiration of the 270 day registration period under section 2.3, 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
thereof; such withdrawal shall renew the demand registration rights under
section 2.1. In addition, the Company may delay the filing of any registration
statement requested pursuant to section 2.1 hereof by not more than 60 days if
the Company, prior to the time it would otherwise have been required to file
such registration statement, determines in good faith that the filing 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.
Investment Agreement
Page 19
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; however the party not selecting such
underwriter shall have the 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. 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 on or about the date hereof) as selling
shareholders without the prior written approval of the Pioneer Partnership.
2.10 INTENTIONALLY OMITTED.
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
Investment Agreement
Page 20
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 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, 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 this Article II.
Investment Agreement
Page 21
2.13 NOTICE OF INDEMNITY AND DEFENSE. Each party entitled to
indemnification under this Section (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.
Investment Agreement
Page 22
ARTICLE III. CO-SALE PROVISIONS
3.1 THIRD-PARTY OFFER AND NOTICE. Any 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 or its limited partners 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, 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 or its limited partners 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. 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 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 party and a fraction, the
numerator of which is the number of fully diluted shares held by such party 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 each 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 or otherwise.
3.4 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If the Pioneer Partnership
wishes to participate in any sale under this Article III, then the Pioneer
Partnership shall notify the selling Principal Shareholders in writing of such
intention as soon as practicable after such the Pioneer Partnership's receipt of
the Co-Sale Notice made pursuant to Section 3.1, and in any event within fifteen
(15) days after the date of such Co-Sale Notice has been received. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholders at the Company's offices.
Investment Agreement
Page 23
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, have
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 is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware; is duly qualified to transact business as a
foreign corporation and in good standing in the state(s) of Texas, New York, and
California, being all states 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 has all corporate power necessary to
engage in the business in which it is presently engaged.
4.2 SUBSIDIARIES. The Company has no subsidiaries nor is it the subsidiary
of any other corporation or business entity EXCEPT for (a) Tristar de Mexico
S.A. de C.V. ("SUBSIDIARY" or "SUBSIDIARIES"). The Subsidiaries are all wholly
owned by the Company. The Subsidiary is an entity duly organized and validly
existing under the laws of the country of Mexico being all states or
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 or Subsidiary and have all corporate power necessary
to engage in the business in which it is presently engaged. The Subsidiary is
controlled by the Company, as such term is governed by section 20(a) of the 1933
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.
Investment Agreement
Page 24
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
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 bylaws of the Company or its Subsidiaries or any contract
to which the Company or any of its Subsidiaries is bound;
(b) violate or, alone or with notice or the passage of time, 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 is a party or by which it
or its 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 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 upon their
properties or assets; or
Investment Agreement
Page 25
(e) violate any law or regulation of any jurisdiction relating to either
the Company or any of its respective securities, assets or properties or
of any of its Subsidiaries.
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.
4.5 GOVERNMENT APPROVAL. Except for filing of a Form D with the Securities
and Exchange Commission, filing a Form D and a consent to service of process
with the Connecticut Department of Banking, and the filing of the Certificate of
Designation, 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 contemplated hereby.
4.6 CAPITALIZATION. There are (a) thirty million (30,000,000) shares of
Common Stock, $.01 par value, and (b) six hundred sixty-six thousand five
hundred twenty-nine (666,529) shares of Series A Preferred Stock, $.05 par
value, and (c) one hundred twenty thousand six hundred ninety (120,690) shares
of Series B Preferred Stock, $0.05 par value, authorized for issuance under the
Company's certificate of incorporation, as amended (delivered along with the
Company's bylaws to the Pioneer Partnership). Immediately prior to the First
Closing Date, there will be sixteen million seven hundred twenty-nine thousand
seventy-four (16,729,074) shares of Common Stock issued and outstanding, six
hundred sixty-six thousand five hundred twenty-nine (666,529) shares of Series A
Preferred Stock issued and outstanding, and one hundred twenty thousand six
hundred ninety (120,690) shares of Series B Preferred Stock issued and
outstanding. No shares of Common Stock are issuable pursuant to existing
Investment Agreement
Page 26
agreements and there are no outstanding warrants, options or other securities
convertible into the Common Stock of the Company, EXCEPT the Class A Preferred
Stock and the Class B Preferred Stock each share of which is convertible into
one (1) share of Common Stock at an exercise price of $7.00 per share and four
(4) shares of Common Stock at an exercise price of $7.25 per share of Common
Stock, respectively, options to purchase in aggregate of (i) 156,000 shares of
Common Stock granted pursuant to the Company's Amended and Restated Stock Option
Plan, (ii) 634,000 shares of Common Stock granted pursuant to the Company's 1997
Long Term Incentive Plan and (iii) 605,000 shares of Common Stock granted
outside either of the foregoing plans and warrants to purchase (a) 2,000,000
shares of Common Stock at a price per share of $5.34, (b) 50,000 shares of
Common Stock and (c) 400,000 shares of Common Stock at a price per share of
$2.75. 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 to the Pioneer Partnership hereunder.
4.7 ANNUAL REPORT AND THE FINANCIAL STATEMENTS. The Company has heretofore
furnished to the Pioneer Partnership copies of (a) the Company's annual report
on Form 10-K for fiscal year ended December 31, 1997 including the Company's
consolidated audited financial statements for its fiscal year ended December 31,
1997, and (b) the Company's consolidated unaudited interim financial statement
for the six months ended June 30, 1998, (hereinafter collectively referred to as
the "FINANCIAL STATEMENTS"). Such financial statements are 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 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 such financial statements, the Company and/or its Subsidiaries had,
as of September 3, 1998, no material obligation or liability, whether absolute,
accrued, contingent or otherwise.
Investment Agreement
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(a) The Company and/or its Subsidiaries have good and marketable title to
all of its property and assets subject to no mortgage, pledge, lien or
other encumbrance except as disclosed in EXHIBIT 4.7-B annexed hereto and
made a part hereof.
(b) 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-A and EXHIBIT 4.7-B and
except those incurred in the normal course of business since December 31,
1997 and March 31, 1998.
(c) Since December 31, 1997 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-A and
EXHIBIT 4.7-B.
(d) 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-A and EXHIBIT 4.7-B.
4.8 PATENTS, TRADEMARKS, ETC. All of the officers, directors, principals
and the affiliates of the Company have assigned and transferred all of their
Patents, as defined below, 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
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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 or used in the
conduct of the business of the Company (collectively the "PATENTS"). The Company
protects all technical, trade secret and confidential information developed by
and belonging to the Company and/or its Subsidiaries, which has not been
patented, by maintenance of 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 on EXHIBIT 4.9, 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. Except as set forth on Exhibit 4.9, 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. Except as set forth on Exhibit 4.9, 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. 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 by filing a Form
D and a consent to service of process with the Connecticut Department of
Banking, 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.
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4.11 LITIGATION. Except as set forth in EXHIBIT 4.11, the Company and its
Subsidiaries are not 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
$10,000 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, not covered by insurance, or which question or seek to prevent
consummation of the transactions provided for in this Agreement, whether at law
or in equity, or before or by any Federal, state, local, foreign or other
governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. Except as set forth in Exhibit 4.11, the
Company and the Subsidiaries are not bound or adversely affected by or in
default with respect to any judgment, order, writ, injunction or decree of any
court or of any governmental department, agency or instrumentality.
4.12 SCHEDULE OF DOCUMENTS. The schedule of contracts including a summary
in tabular form of all material terms attached hereto as EXHIBIT 4.12 lists any
and all material (material for purposes of this paragraph only shall mean
$25,000) 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
Investment Agreement
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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. Except as listed on EXHIBIT 4.12,, neither the
Company nor any of its Subsidiaries are a party to or bound by any material
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. On or
prior to the date hereof, the Company has delivered to the Pioneer Partnership
or a representative thereof, a true and correct copy or a summary of each of the
documents listed in EXHIBIT 4.12.
4.13 NO DEFAULTS. The Company and the Subsidiaries are not in violation
of, breach of or default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in this
Agreement) has occurred which with the passage of time or notice from or action
by any party thereto or otherwise could result in a violation of or default
under, or give any other person the right to terminate, as the case may be, any
indenture, mortgage, security, loan, lease or other material agreement to which
the Company or any of the Subsidiaries is a party or by which it is bound or
result in the creation, imposition or acceleration of any material lien of any
nature in favor of any other person.
4.14 LACK OF FELONIES. Except as disclosed in the proxy statement dated
January 14, 1998, as filed with the SEC, neither the Company nor its
Subsidiaries nor any of their respective principals, directors, or executive
officers have been convicted of or pled guilty 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.
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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, 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 the Pioneer Ventures Corp.), or other third party, and
except for Greater Metropolitan who shall receive $200,000 payable by the
Company as a finder's fee. The Company has not engaged, consented to, or
authorized any broker, finder, investment banker or other third party to act on
its or his 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 current date within 30 days hereof, the current standing of such
obligation, the due date, the interest rate, the amount of interest due with in
a recent date, and a summary of any material provisions not requested herein.
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4.19 SOLVENCY. The Company has not admitted in writing 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 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 or of the United States or
any other jurisdiction.
4.20 REGISTRATION RIGHTS. Except as provided for herein, the Company is
not a party to any agreement or commitment that obligates the Company to
register under the Securities Act of 1933, as amended (the "1933 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. Assuming the accuracy of the
representations contained in ss.5.5 hereof, the offer, grant, sale, and/or
issuance of the Shares shall not be in violation of the 1933 Act, the Securities
Exchange Act of 1934, as amended, (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 issued in accordance with
this Agreement.
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 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.
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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 1933 Act)
which involve transactions exceeding $5,000, 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 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, and (e) there has been no
assertion of any breach of product or service warranties that could have a
material adverse affect on the business, financial condition or prospects of the
Company. 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, 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;
(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;
Investment Agreement
Page 34
(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 as amended, 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
Debentures 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;
6) abolishing job reservations; apprenticeship restrictions and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin;
Investment Agreement
Page 35
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 ss.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; and
(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.
(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 acceptable
to the Pioneer Partnership and its Investor Committee, 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; and
(k) The Company covenants it shall obtain a cold comfort written opinion
of counsel, which counsel and opinion letter shall be acceptable to the
Pioneer Partnership, to confirm the representations within this ss.4.25
and the legality thereof.
4.26 USE OF PROCEEDS. The Company represents it shall use and apply the
proceeds from the stock purchase through the First and Second Closings 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 U.S. Food and
Drug Administration; 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 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.
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4.28 WAGES AND SALARY. As of the Closing Date the level of wages, salaries
and fees payable to the officers and directors of the Company is set forth in
EXHIBIT 4.28 hereto.
4.29 ERISA. The Company and all of its employee plans are in full
compliance with ERISA and no ERISA plan of the Company is in default.
4.30 CORE SHETH LETTER OF CREDIT. The Core Sheth Families provided a $1.5
million letter of credit for the Company in May 1998. The letter of credit is in
good standing and may not be withdrawn without the written approval of the BNY
Financial Corporation. The Core Sheth Families and their principals or
affiliates received no compensation, directly or indirectly, as a result of
entering into the letter of credit arrangement and/or supplying collateral
thereunder.
4.31 PROTEST IRS CLAIM FOR DISALLOWANCE. The facts as stated in the June
26, 1998 letter from Coopers & Lybrand addressed to Mr. Edward C. Hernandez of
the Internal Revenue Service ("IRS") office in San Antonio, Texas protesting the
disallowance of certain deductions for taxable years ending August 31, 1990
through 1995, are true, accurate and correct. The shares alleged by the IRS to
have been purchased at artificially inflated prices were NOT sold to the
plaintiffs in the Stockholder Class Action Lawsuit by the Company; the sales
actually occurred between buyers and sellers in the open marketplace, and not
between the Company and the plaintiffs. The entire settlement was paid by the
Company because the Company was bound to indemnify and hold the officers and
directors as there was joint and several liability. The Company intends to
vigorously defend this entire matter.
Investment Agreement
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4.32 NO RESTRICTIONS ON DIVIDENDS. There are no restrictions on the
payment of dividends if paid in the form of stock of the Company.
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, including any and all documents filed with the Commission
within the past 12 months, pursuant hereto or otherwise, in connection with the
transactions contemplated hereby, has contained, contains or will contain at the
closing date any untrue statement of a material fact or has omitted, omits or
will omit at the closing date a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. Without
limiting the generality of the foregoing, the Company is current in all filings
required under the Exchange Act.
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.
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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 are valid and binding upon it in accordance with its 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 Pioneer Ventures Corp.), or other third party, and
except for Greater Metropolitan who shall receive $200,000 payable by the
Company as a finder's fee. 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
and Common Stock into which the Preferred Stock is convertible to be issued to
the Pioneer Partnership pursuant to this Agreement (collectively, the
"SECURITIES") will not be registered under the 1933 Act, or under the securities
laws of any state (the "SECURITIES LAWS"). The securities are not being so
registered in reliance upon exemptions from the 1933 Act and the securities laws
which are predicated, in part, on the representations, warranties and agreements
of the Pioneer Partnership contained herein.
(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 thereof as an investment therefor, (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, (iv) in connection with the
transactions contemplated hereby, no assurances have been made concerning the
future results of the Company and its subsidiaries or as to the value of the
securities and (vi) Pioneer Partnership is an "accredited investor" within the
meaning of Regulation D promulgated by the Securities and Exchange Commission
(the "COMMISSION") pursuant to the 1933 Act. The Pioneer Partnership understands
that none of the Company or its subsidiaries or affiliates is under any
obligation to file a registration statement or to take any other action under
the securities laws with respect to any such securities EXCEPT as expressly set
forth in ARTICLE II hereof.
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(c) The Pioneer Partnership has consulted with Pioneer Partnership's own
counsel in regard to the securities laws and is fully 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 1933 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 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 has been furnished with (i) the definitive
proxy statement filed with the Commission in connection with the annual meeting
of stockholders of the Company held on February 12, 1998 and (ii) copies of the
Company's Annual Report on Form 10-K for the year ended August 30, 1997, and
Quarterly Reports on Form 10-Q for the quarters ended November 29, 1997,
February 28, 1998 and May 30, 1998 filed with the Commission under the Exchange
Act (collectively, the "SEC REPORTS"). The Pioneer Partnership has been
furnished with the complete financial statements of the Company for the fiscal
years ended August 30, 1997, August 31, 1996 and 1995, and the quarters ended
November 29, 1997, February 28, 1998 and May 30, 1998, respectively. The Pioneer
Partnership has been furnished with a summary description of the terms of the
securities and the Company has made available to the Pioneer Partnership the
opportunity to ask questions and receive answers concerning the terms and
conditions of the transactions contemplated by this Agreement and to obtain any
additional information which they possess or could reasonably acquire for the
purpose of verifying the accuracy of information furnished to the Pioneer
Partnership as set forth herein or for the purpose of considering the
transactions contemplated hereby. The Company has offered to make available to
the Pioneer Partnership upon request at any time all exhibits filed by the
Company with the Commission as part of any of the reports filed therewith.
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(e) The Pioneer Partnership agrees 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 SHARES NOR ANY
INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED 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.
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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 any other holder of any shares of Series C Preferred
Stock shall convert or sell any shares of the Common Stock or otherwise engage
in short-selling efforts during the 90 days prior to the First Closing Date.
ARTICLE VI. COVENANTS
The Company hereby warranties and covenants that:
6.1 FINANCIAL. Since December 31, 1997 except as contemplated or disclosed
in this Agreement, the Company shall not have (i) paid or declared any 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) 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 for the sale of Tristar do Brasil and otherwise in the
usual and ordinary course of business, or (vi) made any advance to any
stockholder, officer or director of the Company or to any other person, firm, or
corporation other than in the ordinary course of business or any loan to such
persons except as summarized on EXHIBIT 4.12 hereof, or (vii) except for a new
employment agreement with Robert Viola and/or an amendment to Richard Howard's
employment agreement, made any material change in any existing employment
agreement or increased the compensation payable or made any arrangement for the
payment of any bonus to any officer, director, employee or agent, except as set
forth in EXHIBIT 2.10 hereof.
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6.2 ACCESS. For so long as either the Pioneer Partnership or its limited
partners own 10,000 shares or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock all 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 limited partners 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 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 generally accepted
accounting principles ("GAAP"), consistently applied. For so long as either the
Pioneer Partnership or its limited partners own 10,000 shares or more of the
Company's Common Stock directly or through the possible conversion of its
Preferred Stock all on a fully diluted basis, it will permit any of the Pioneer
Partnership's officers or any of their authorized representatives or accountants
to visit, upon reasonable notice, and inspect offices and properties, examine
its books of account and other records, and discuss its affairs, finances and
accounts with its appropriate officers, accountants and auditors, all at such
reasonable times and reasonable frequency as the Pioneer Partnership may
request. In addition, the Pioneer Partnership shall be provided with copies of
quarterly, within 45 days of the end of each fiscal quarter, and annual, within
90 days of the end of each fiscal year, financial statements consisting of
balance sheets, statements of operations, statements of cash flows, statements
of changes in stockholders equity and notes thereto all prepared in accordance
with GAAP. The annual financial statements shall be audited in accordance with
GAAP by an accounting firm acceptable to the Pioneer Partnership. 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. No limitation in either
ss.6.3 or ss.6.2 shall constitute a waiver of any rights granted under any
applicable statute.
Investment Agreement
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6.4 MEMBERSHIP ON BOARD. The Company's bylaws shall provide for a maximum
of a nine (9) person Board of Directors. Promptly upon the Closing Date and for
so long as the Pioneer Partnership owns any Common Stock or Preferred Stock, the
Principal Shareholders shall cause one (1) designee from the Pioneer Partnership
to be nominated and elected to serve as directors of the Company. The nominee of
the Pioneer Partnership shall be reasonably acceptable to the board of directors
of the Company to serve as a director. Grounds for rejecting such nominee shall
be any matter of record of the nominee which would cause the Company to be in
violation of any order issued by the Commission or such nominee is disqualified
as a result of Rule 262(b) promulgated under the 1933 Act; provided, however, no
such nominee shall be an affiliate of any competitor of the Company. Except as
provided for herein, 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. At the next meeting of the Board of Directors, a
Compensation Committee of the Board shall be established. The Compensation
Committee shall consist of three directors; a designee of the Pioneer
Partnership, a designee of the Principal Stockholders, and one other person
selected by the Board. The Compensation Committee shall be maintained to
consider and recommend to the Board of Directors matters concerning the
compensation of executives and employee awards of stock options and other
incentive compensation.
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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 incentivize 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 which, without the
prior written consent of the Pioneer Partnership, shall not exceed thirteen and
fifty-two one hundredths of one percent (13.52%) the Common Stock of the Company
immediately following the investment herein. No person beneficially owning five
hundred thousand (500,000) shares or more of the Company's stock shall be
eligible to participate in such plans.
6.6 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 1933 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 1933 Act; (ii) use its best efforts to file with the Commission
(as hereinafter defined) in a timely manner all reports and other documents
required of the Company under the 1933 Act and the Exchange Act of 1934; (iii)
furnish to each holder of Registrable Securities forthwith upon request, a
written statement by the Company as to the Company's compliance with the
reporting requirements of Rule 144 and of the 1933 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.
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6.7 UNDERTAKING TO REGISTER ITS SECURITIES. Not applicable.
6.8 UNDERTAKING TO FILE 34 ACT FILINGS AND TO BE LISTED ON NASDAQ. (A) The
Company undertakes to continue filing its proxy statement, its annual reports on
Form 10-K and its quarterly reports on Form 10-Q, or on such other appropriate
forms, with the SEC for so long as the Pioneer Partnership holds a five (5%)
percent or greater equity interest in the Company. (B) The Company undertakes to
use its best efforts to maintain its present listing on the NASDAQ Small Cap
market for so long as the Pioneer Partnership holds any Preferred Stock, or
Common Stock obtained through conversion of the Preferred Stock. Once the
Company qualifies for a period of six (6) consecutive months subsequent to the
date of the First Closing, the Company undertakes to apply to be listed on the
NASDAQ National Market System, the American Stock Exchange or such other
national stock exchange. The Company shall take all reasonable action to
maintain such listing after it is so approved and listed.
6.9 DIVIDEND RESTRICTION WAIVER. The Company shall obtain prior to the
First Closing a signed original waiver (addressed to the Company) from each of
its lenders, including BNY Financial Corporation, certifying and agreeing either
that (a) there are no restrictions on the declaration and payment of dividends
on the Series C Preferred Stock, or (b) the declaration and payment of any and
all cash dividends on the Series C Preferred Stock are permitted in accordance
with its terms and no such declaration or payment shall constitute an event of
default so long as the Company is in compliance with all other provisions
(including without limitation the financial covenants) of the loan agreement
between the Company and BNY Financial Corporation. It is expressly understood
and represented by the Company that there are no restrictions on the payment of
dividends if paid in the form of stock of the Company.
6.10 CORE SHETH LETTER OF CREDIT. The Company shall obtain prior to the
First Closing a written warranty and covenant (addressed to it and to the
Pioneer Partnership) of the Core Sheth Families that the May 1998 letter of
credit delivered to the BNY Financial Corporation and the collateral in support
thereof shall be renewed by the Core Sheth Families as may be necessary to
support the present lending relationship with the BNY Financial Corporation.
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6.11 SIGNING OBLIGATIONS. The Company covenants that it shall require
that: (a) all checks, notes, drafts, wire fund transfers, withdrawals of funds,
or other obligations or money transfers in excess of $20,000 shall be manually
signed by at least two (2) officers, directors and/or authorized employees; and
(b) unless otherwise pre-approved by the board of directors with respect to such
specific instrument or agreement, all agreements, notes, indentures, instruments
or other documents incurring obligations, liability, responsibility or
agreements on the part of the Company valued in excess of $20,000 shall be
manually signed by at least two (2) officers, directors and/or authorized
employees. A breach of these covenants shall constitute a default under the
Preferred Stock.
6.12 NO COST LICENSES. Unless such patents or trademarks are owned by the
Company, the Company shall obtain prior to the First Closing no-cost licenses
for commercial use of all of the patents and trademarks listed in EXHIBIT 4.8
from each and every patent or trademark owner. Such agreement shall provide that
all future patents and trademarks of such owners shall similarly be subject to
such no-cost license agreement.
6.13 SEC FILINGS. The Company shall pay all legal fees and filing expenses
of all filings made with the Commission on behalf of the director(s) nominated
by the Pioneer Partnership pursuant to ss.1.10 and/or ss.6.4 hereof. Such
filings shall include but not be limited to those maDE under Sections 13 and 16
of the Exchange Act.
6.14 BLUE SKY. The Company shall file a form D and a consent to service of
process with the Connecticut Department of Banking.
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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 each Closing 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 each Closing; (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.
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 each Closing is
subject to the fulfillment, prior to or on each 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 each Closing Date, as if made at each Closing and
as of each 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 each of them prior to or at each Closing.
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Page 48
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 (i) the right
of the Pioneer Partnership to own the Company's Stock, or (ii) the Company to
operate or control the assets, properties and business of the Company after each
Closing Date, or which might have a materially adverse effect thereon.
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 the form satisfactory to its counsel, dated each 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 sections 7.1 and 7.2.
7.6 LEGAL OPINION. (A) The Pioneer Partnership shall have received the
written opinion of the Company's Counsel, dated each 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 Article II hereto, that this Agreement is 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.
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Page 49
(B) The Pioneer Partnership shall have received the written opinion of
counsel to the Principal Shareholders, dated each 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 each Closing Date in the business, assets, and properties,
financial status or prospects of the Company from December 31, 1997, except as
disclosed in EXHIBIT 7.7 hereof.
7.8 AGREEMENTS WITH PRINCIPALS. The Company shall have received and
delivered to the Pioneer Partnership the Voting and Shareholder Agreement
referred to in Section 1.10(a).
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 $5,000,000 each, insuring the lives of the president,
Richard Howard, CEO, Viren Sheth, CFO, Robert Viola. The Company shall be the
designated beneficiary and the Pioneer Partnership shall be the designated loss
payee. Renewal of the policies after the first year term shall be at the
discretion of the Company's Board of Directors.
7.10 PATENTS. All of the officers, directors, principals and the
affiliates of the Company shall have assigned and transferred all of the Patents
to the Company or provided to the Company for a no-cost license in form and of
substance approved by the Pioneer Partnership.
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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 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.
7.13 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 each Closing is subject to
the fulfillment, prior to or on each 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 each Closing Date, as if made at each
Closing and as of each 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 each 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 Company's counsel, which approval shall not be unreasonably withheld or
delayed.
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ARTICLE IX. CLOSING
9.1 LOCATION. Each Closing shall occur the offices of the Pioneer
Partnership or at such place and upon such date as the Company and the Pioneer
Partnership mutually agree.
9.2 ITEMS TO BE DELIVERED BY THE COMPANY. At the First 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;
(d) duly executed and recorded Certificate of Designation;
(e) validly issued original certificates representing the Preferred
Stock in accordance with Article I hereof.
(f) the certificates required by section 7.5 hereof;
(g) the opinion of the Company's counsel, as required by section 7.6
hereof;
(h) the agreements required by section 7.8 and 7.11 hereof;
(i) the insurance binder and paid receipt required by section 7.9
hereof;
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(j) Separate checks for $75,000 and $5,000 payable to Ventures Management
Partners LLC (the General Partner of the Pioneer Partnership) as required
by sections 11.1, 11.2, and 11.4 hereof;
(k) a check for $15,000 payable to Kenneth B. Lerman, Esquire 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 First
Closing, the Pioneer Partnership will deliver or cause to be delivered to the
Company:
(a) a check or checks or evidence of wire transfer in the aggregate amount
of four million six hundred ninety-nine thousand nine hundred eighty
($4,699,980) dollars, as specified in Article I hereof; and
9.4 ITEMS TO BE DELIVERED BY THE COMPANY AT SUBSEQUENT CLOSINGS.
At each Subsequent Closing the Company shall deliver or cause to deliver
such documents, certificates, funds, or such other items as required to be
delivered by the Company pursuant to the provisions of this Agreement and as
reasonably requested by the Pioneer Partnership. Requests for materials or
updates to materials previously submitted shall be deemed a reasonable request;
in addition, previously unrequested materials may be so requested by the Pioneer
Partnership as it deems necessary in its business judgment in order to complete
its investment in the Company.
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9.5 ITEMS TO BE DELIVERED BY THE PIONEER PARTNERSHIP AT SUBSEQUENT
CLOSINGS. At each Subsequent Closing, the Pioneer Partnership will deliver or
cause to be delivered to the Company:
(a) a check or checks or evidence of wire transfer in an amount equal to
the product of (i) the number of shares of Preferred Stock to be purchased
by the Pioneer Partnership at such Subsequent Closing TIMES (ii) $60.00,
subject to the provisions of ss.1.2 and ss.1.7; PROVIDED, HOWEVER, the
aggregate of all such amounts from aLL Subsequent Closings shall not
exceed the amount of one million three hundred thousand twenty
($1,300,020) dollars, as specified in Article I hereof; and
(b) such other certified resolutions, documents and certificates as are
required to be delivered by the Pioneer Partnership pursuant to the
provisions of this Agreement.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
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.
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 material breach (a "material breach" shall be any
breach with a potential liability in excess of $5,000 as estimated by the
Pioneer Partnership) 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 EXHIBIT 4.7-A,
EXHIBIT 4.7-B, and the accounts payable listing dated June 16, 1998 attached
thereto, this Agreement or the several exhibits hereto, including, without
limitation, any tax liabilities to the extent not so reflected or reserved
against in the Balance Sheet.
Investment Agreement
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10.3 DEFENSE OF CLAIMS. The Pioneer Partnership agrees to notify the
Company with reasonable promptness of any claim asserted against them in respect
of 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. The Company shall pay an investment banking
fee of $85,000 to the General Partner of the Limited Partnership (Ventures
Management Partners LLC) concurrently with its execution and delivery of the
this Agreement. The General Partner of the Pioneer Partnership hereby
acknowledges receipt from the Company of a check in the amount of $10,000 in
payment of the commitment fee and expenses set forth in this Section 11.1.
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11.2 EXPENSES. The Company shall promptly 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 First Closing the attorneys
fees and out-of-pocket expenses of counsel for the Pioneer Partnership in
connection with the transactions contemplated hereby; such attorneys fees and
out-of-pocket expenses shall equal $25,000. It is acknowledged that $10,000 has
been paid prior to 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.
11.4 ACCOUNTING FEES. Not applicable.
11.4 BREAK-UP FEE. At any time prior to the funding of the investment, the
Company may terminate this Agreement by written notice without any obligation or
liability other than to forfeit the pre-payment of $10,000 paid as a commitment
fee to the General Partner of the Pioneer Partnership as then recharacterized as
the non-refundable Break-up fee and the legal fee paid.
ARTICLE XII. TERMINATION AND WAIVER
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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
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
Section 11.5 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.
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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:
If to the Pioneer Partnership, to: Copies to:
PIONEER VENTURES ASSOCIATES Kenneth B. Lerman, Esquire
LIMITED PARTNERSHIP KENNETH B. LERMAN, P.C.
651 Day Hill Road 651 Day Hill Road
P.O. Box 40 Windsor, Connecticut 06095-0040
Windsor, Connecticut 06095
Attention: Robert A. Lerman
Managing Director
If to the Company, to: Copies to:
Investment Agreement
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Office of the Chairman Phillip M. Renfro, Esquire
TRISTAR CORPORATION FULLBRIGHT & JAWORSKI L.L.P.
12500 San Pedro Avenue 300 Convent Street, Suite 2200
Suite 500 San Antonio, Texas 78205-3792
San Antonio, Texas 78216
Attention: Mr. Richard Rifenburgh, Chairman
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 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 here to consent to jurisdiction
of the Courts of the State of Connecticut and to the U.S. District Court in the
District 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 CONTROLLING DOCUMENT. To the extent that any provisions contained in
this Agreement are inconsistent with those contained in the Certificate of
Designation, the provisions of the Certificate of Designation shall control.
13.14 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
Investment Agreement
Page 61
partners of Pioneer Ventures Associates Limited Partnership and the parallel
partnerships shall be referred to herein as the "LIMITED PARTNERS". [Signature
Page Follows]
Investment Agreement
Page 62
WITNESS the execution of this Agreement as of the date first above
written.
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
BY: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
BY: Pioneer Ventures Corp.
Its Managing Member
BY: /s/ ROBERT A. LERMAN
Robert A. Lerman, President
TRISTAR CORPORATION
BY: /s/ RICHARD HOWARD
Name: Richard Howard
Title: President and COO
ATTEST:
(Corporate Seal)
BY: /s/ ROBERT VIOLA
Name: Robert Viola
Title: Vice President and CFO