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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICA'S SHOPPING MALL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
NEVADA 5961 13-4045313
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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<TABLE>
<S> <C>
10 HENRY STREET 10 HENRY STREET
TETERBORO, NEW JERSEY 07608 TETERBORO, NEW JERSEY 07608
(201) 462-0970 (ADDRESS OF PRINCIPAL PLACE OF BUSINESS
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) OR INTENDED PRINCIPAL PLACE OF BUSINESS)
</TABLE>
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With a copy to:
IRWIN SCHNEIDMILL ROBERT W. VIETS
10 HENRY STREET EMMET, MARVIN & MARTIN, LLP
TETERBORO, NEW JERSEY 07608 120 BROADWAY
(201) 462-0970 NEW YORK, NEW YORK 10286
(212) 238-3000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
NUMBER OF MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS UNITS TO PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share........... 2,320,948(2) $ 1.01 $ 2,344,157 $ 618.86
Common Stock, par value $0.001 per share........... 1,200,000(3) $ 3.50(4) $ 4,200,000 $ 1,108.80
Common Stock, par value $0.001 per share........... 1,000,000(5) $ 4.50(6) $ 4,500,000 $ 1,188.00
Common Stock, par value $0.001 per share........... 636,362(7) $ 5.50(4) $ 3,499,991 $ 924.00
Totals............................................. 5,157,310 $14,544,148 $ 3,839.66
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Shares of common stock issued and outstanding.
(3) Issuable upon conversion of 10,000 shares of Series A senior convertible
preferred stock.
(4) Based on the conversion price per share.
(5) Issuable upon exercise of 1,000,000 warrants.
(6) Based on the exercise price per share.
(7) Issuable upon conversion of $3,500,000 principal amount of convertible
debentures.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
PROSPECTUS
5,157,310 SHARES
AMERICA'S SHOPPING MALL, INC.
COMMON STOCK
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5,157,310 shares of our common stock may be offered by certain of our
shareholders. Of these shares, 2,320,948 shares are currently outstanding and
2,836,362 shares are reserved for issuance upon exercise of warrants or upon
conversion of certain convertible securities held by these shareholders. We will
not receive any proceeds from the sale of the shares by these selling
shareholders. We may, however, receive up to $4,500,000 in the event all the
warrants held by a shareholder are exercised.
We have applied to have our shares approved for listing on the OTC Bulletin
Board with the symbol "AMMA."
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The selling shareholders have not advised us of their specific plans for
the distribution of their shares covered by this prospectus. We anticipate that
the selling shareholders may sell their shares from time to time primarily in
transactions (which may include block transactions) in the over-the-counter
market at the market price then prevailing. However, the selling shareholders
may also make sales in negotiated transactions or otherwise.
INVESTING IN OUR SHARES INVOLVES RISKS. CONSIDER CAREFULLY THE "RISK
FACTORS" BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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PROSPECTUS DATED , 1999.
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TABLE OF CONTENTS
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Prospectus Summary.................................................................... 1
Risk Factors.......................................................................... 3
Use of Proceeds....................................................................... 7
Dividend Policy....................................................................... 7
Market for Common Stock............................................................... 8
Summary Financial Data................................................................ 9
Management's Discussion and Analysis.................................................. 10
Business.............................................................................. 13
Management............................................................................ 21
Indemnification of Directors and Officers............................................. 22
Executive Compensation................................................................ 24
Security Ownership of Certain Beneficial Owners and Management........................ 24
Certain Relationships and Related Transactions........................................ 27
Description of Capital Stock.......................................................... 28
Plan of Distribution.................................................................. 31
Selling Shareholders.................................................................. 32
Legal Matters......................................................................... 36
Experts............................................................................... 36
Where You Can Find Additional Information............................................. 36
Index to Financial Statements......................................................... F-1
</TABLE>
Please read this prospectus carefully. It describes our business, products,
services and finances. We have prepared this prospectus so that you will have
the information necessary to make an investment decision.
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling shareholders are offering to sell, and
seeking offers to buy, their shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of the prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock. Neither the delivery
of this prospectus nor any sales made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of America's
Shopping Mall, Inc. since the date hereof.
We intend to furnish shareholders with annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports containing unaudited financial information for the first three quarters
of each year.
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America's Shopping Mall internet address is www.americasshoppingmall.com.
Information contained on this website is not part of this prospectus.
The terms "America's Shopping Mall," "we," "our," and "us" refer to
America's Shopping Mall, Inc. and its subsidiaries unless the context suggests
otherwise. The term "you" refers to a prospective investor. The term fiscal 1999
and similar terms refers to our fiscal year ending on April 30 of that year.
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The Deerskin and Joan Cook names and logos are trademarks of America's
Shopping Mall, Inc.
Unless this prospectus states otherwise, all information concerning our
common stock reflects a 30-to-one reverse split in July 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this document. For a more
complete description of the offering and America's Shopping Mall, you should
carefully read this entire document, including the "Risk Factors" and the
financial statements.
AMERICA'S SHOPPING MALL
We are primarily a specialty catalog and online retailer and direct
marketer of men's and women's leather clothing, footwear and accessories,
household goods, jewelry and gift items and specialty office products. We also
conduct a specialty advertising and promotional products business. We sell goods
through three distinct print and internet catalogs.
Two of our catalogs have been in business for decades. Our Deerskin catalog
operation has been supplying fine leather goods and apparel since 1944. Joan
Cook, our gifts, jewelry and houseware catalog was founded in 1956. Our third
catalog, Remarkable Office Products, was founded in 1982 as a supplier of
specialized office products featuring time management and organizational tools.
All three of these catalogs now have an on-line store on the internet.
Our three internet catalog stores can be found at our "virtual" shopping
mall, www.americasshoppingmall.com. This web site links together the three
catalog web sites in a single convenient location in order to expand our
customers' options and enhance their convenience of purchasing.
Our principal executive offices are located at 10 Henry Street, Teterboro,
New Jersey 07608. Our telephone number there is (201) 462-0970.
THE OFFERING
Various of our shareholders may offer for sale up to 5,157,310 shares of
our common stock which either have been previously issued or are issuable upon
the exercise of warrants or upon conversion of convertible debentures or
convertible preferred stock also previously issued by us. The selling
shareholders may sell all or part of their shares pursuant to this prospectus.
Because these shares will be sold by our shareholders, we will not receive any
proceeds from the sale of the shares. We may, however, receive up to $4,500,000
in the event all the warrants held by a shareholder are exercised. For more
information on the selling shareholders, please refer to "Selling Shareholders"
on page 28 and "Plan of Distribution" on page 31.
FORWARD-LOOKING STATEMENTS MAY PROVE TO BE INACCURATE
We have made forward-looking statements in this document. These
forward-looking statements include statements regarding new products or services
we may introduce in the future, statements about our business strategy and
plans, statements about the adequacy of our working capital and other financial
resources and other statements that are not of a historical nature. When we use
words such as "plans," "intends," "believes," "expects," "seek," "anticipates"
or similar expressions, we are making forward-looking statements. You should
note that forward-looking statements rely on a number of assumptions concerning
future events and are subject to a number of uncertainties and other factors,
many of which are outside of our control, that could cause actual results to
differ materially from the statements. These factors include those discussed
under the caption "Risk Factors" and "Management's Discussion and Analysis" in
this prospectus. We disclaim any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
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SUMMARY FINANCIAL INFORMATION
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YEAR ENDED APRIL 30,
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HISTORICAL PRO FORMA THREE MONTHS
--------------------- ----------- ENDED
1998 1999 1999 JULY 31, 1999
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................................. $ -- $ -- $12,050,155 $ 1,457,849
-------- --------- ----------- -----------
Net loss................................................... $ (7,714) $(118,040) $(2,018,452) $ (648,758)
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Net loss per share......................................... $ (.01) $ (.14) $ (.87) $ (.29)
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Weighted average number of common stock
outstanding.............................................. 822,573 836,751 2,320,906 2,230,327
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
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HISTORICAL PRO FORMA
--------------------- ----------- JULY 31,
1998 1999 1999 1999
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<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................... -- $ 206,509 $ 9,422,476 $9,629,969
Total stockholders' equity................................. -- 149,487 2,902,407 2,351,668
</TABLE>
2
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RISK FACTORS
Before purchasing our common stock, you should carefully consider the
following risk factors and the other information contained in this prospectus.
RISKS RELATED TO OPERATIONAL MATTERS
WE HAVE JUST ACQUIRED FOUR BUSINESSES AND HAVE LITTLE COMBINED OPERATING
HISTORY.
Our predecessor company, Advanced Medical Sciences, Inc. was formed over
ten years ago. Between 1995 and May 1999, it had been dormant and had not
conducted business or generated revenues. We have since acquired three operating
catalog businesses and an advertising specialty company. These businesses have
been managed by us only since May 1999 and had been operating as separate
entities under other management before that time. There can be no assurance that
we will be able to successfully integrate the operations of these businesses or
institute the necessary company-wide systems and procedures to successfully
integrate and manage the combined enterprise on a profitable basis. Our
management group has been assembled only recently, and there can be no assurance
that it will be able to effectively manage the combined company or effectively
implement our growth strategy. The combined historical financial results of
America's Shopping Mall and its subsidiaries included in this prospectus cover
periods before the subsidiaries were brought under America's Shopping Mall's
control and management and, therefore, may not be indicative of our future
financial or operating results. Our inability to successfully integrate our
recent acquisitions will have a material adverse effect on our business,
financial condition and results of operations.
WE ARE IN THE PROCESS OF CONSOLIDATING OUR FOUR BUSINESSES AND EXPECT TO INCUR
GREATER THAN NORMAL OPERATING EXPENSES DURING THE NEXT THREE FISCAL QUARTERS AND
MAY EXPERIENCE UNFORESEEN DIFFICULTIES.
We have recently acquired three catalog businesses and an advertising
specialty concern and are in the process of moving and consolidating our various
facilities and personnel. We expect that this process will continue through the
next three fiscal quarters. In the process of moving and consolidating our
facilities, we expect to incur greater than normal operating costs and expenses.
Furthermore, we may experience unforeseen difficulties in integrating our
services, products or personnel. Our consolidation efforts may also cause a
disruption in our ongoing business, distract our management and other personnel
and make it difficult to maintain our standards, controls and procedures.
WE RELY ON KEY PERSONNEL.
We depend upon the efforts of our officers and other key personnel. The
loss of certain of our key employees, particularly our Chief Executive Officer,
Irwin Schneidmill, could have a material adverse effect on us. Although we have
entered into an employment agreement with him, we cannot assure you that we will
be able to retain him or our other key employees in the future. Furthermore, we
expect that we will need to employ additional executives and key employees in
order to successfully implement our business plan. Our success will depend on
our ability to retain key employees, employ additional capable executives and
implement an effective management structure.
WE HAVE A HISTORY OF NET LOSSES AND MAY NOT BECOME PROFITABLE.
We have incurred a net loss from operations of $629,580 for the three
months ended July 31, 1999 and a net loss from operations of $2,018,452 for the
year ended April 30, 1999 (on a pro forma basis). We can not assure you that we
will achieve or sustain profitability. If we cannot achieve operating
profitability we may not be able to meet our debt service or working capital
requirements, which would have a material adverse effect on our ability to
continue in business.
ANY FACTORS NEGATIVELY AFFECTING OUR BUSINESS DURING OUR THIRD FISCAL QUARTER IN
ANY YEAR, INCLUDING UNFAVORABLE ECONOMIC CONDITIONS, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND MAY
CAUSE CONSIDERABLE FLUCTUATIONS IN OUR STOCK PRICE.
The market value of our common stock will likely vary significantly in
response to changes in our quarterly results of operations. We have experienced,
and expect to continue to experience, substantial seasonal fluctuations in our
sales and operating results. This seasonality is typical of many catalog-based
specialty retailers, as well as of many other retailers of consumer goods, but
may be more pronounced in our case due to our product mix. Due to the importance
of the fall selling season, which includes Thanksgiving and
3
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Christmas, the third quarter of our fiscal year (November through January) has
historically contributed, and is expected to continue to contribute, a majority
of our operating income and net income for the entire fiscal year. We expect
this pattern to continue during the current fiscal year and anticipate that in
subsequent years the first two months of our third fiscal quarter will continue
to contribute disproportionately to our operating results. Our quarterly results
of operations may also fluctuate significantly as a result of a variety of other
factors, including shifts in the timing of holidays and changes in our product
mix.
BECAUSE OF OUR PRODUCT LINES, OUR BUSINESS IS MORE SEASONAL THAN MOST CATALOG
AND INTERNET RETAILERS.
Our Deerskin catalog, which accounts for approximately three-quarters of
our revenues, specializes in leather apparel, particularly leather coats,
jackets, gloves and hats. These items are sold principally during the fall and
early winter. Furthermore, our Remarkable Products catalog specializes in
calendars and planners intended for businesses, governmental units and
educational institutions. These items tend to sell mainly toward the end of the
calendar year and in early summer before the beginning of governmental fiscal
years and the beginning of the school year. The highly seasonal nature of our
products, coupled with the seasonal nature of the catalog retail industry,
creates a larger than usual seasonal effect on our quarterly results of sales
and earnings.
OUR BUSINESS COULD BE HURT BY OUR DEPENDENCE ON FOREIGN-SOURCED MERCHANDISE.
We import most of the products in our Deerskin catalog from manufacturers
and suppliers in China, India and, to a lesser extent, South America. Changes in
governments, changes in U.S. and foreign laws and regulations, and political
instability may cause disruption of trade from the countries in which our
suppliers are located. Such disruptions could adversely affect our sales and
financial performance. Risks involved in buying products manufactured abroad
include increases in customs duties and changes in the interpretation of
regulations by the United States Customs Service. Dependence on foreign
suppliers also subjects us to other risks such as foreign exchange risks, import
controls and trade barriers (including the unilateral imposition of import
quotas), loss of most-favored-nation trading status by supplier countries,
restrictions on the transfer of funds, negative publicity from certain work or
trade practices and economic uncertainties.
WE MAY BE UNABLE TO OBTAIN THE CAPITAL REQUIRED FOR FUTURE GROWTH.
Our business is capital intensive and will require a substantial infusion
of additional capital if we are to achieve growth. We will require additional
capital to finance acquisition opportunities and develop new products and
services. Future investments, acquisitions or other transactions may require
additional debt or equity financing. Adequate funds may not be available when
needed, in necessary amounts, or on terms acceptable to us. Insufficient funds
may require us to delay, scale back or eliminate some or all of our product or
market development plans and could have an adverse effect on our future
performance.
WE FACE SUBSTANTIAL COMPETITION IN OUR JOAN COOK AND REMARKABLE PRODUCTS CATALOG
AND INTERNET RETAIL BUSINESSES. MANY OF OUR COMPETITORS ARE LARGER AND HAVE MORE
RESOURCES THAN WE HAVE. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH EXISTING
OR FUTURE COMPETITORS.
The markets for much of our merchandise are highly competitive, and the
recent national growth in mail order and internet sales has encouraged the entry
of many new competitors as well as increased competition from established
companies. Our Joan Cook and Remarkable Products catalog businesses currently
have numerous significant competitors and all of our businesses may face new
competition from new entrants or existing competitors who focus on market
segments currently served by us. These competitors include large retail stores,
including some with catalog operations, other catalog and direct marketing
companies and internet retailers. Increased competition could result in pricing
pressures, increased marketing expenditures and loss of market share and could
have a material adverse effect on our results of operations.
FLUCTUATIONS IN COSTS OF PAPER AND POSTAGE MAY HAVE A MATERIAL EFFECT ON OUR
OPERATING COSTS.
Paper and postage are significant components of our operating costs. Paper
stock represents the largest element of the cost of printed merchandise catalogs
and paper packaging products, such as shipping cartons, constitute a significant
element of distribution expense. Paper prices historically have been
volatile-they increased dramatically in 1995, declined in 1996 and 1997 and have
remained steady throughout 1998 and 1999. Future paper price increases could
have a material adverse effect
4
<PAGE>
on our results of operations. Postage for catalog mailings also is a significant
element of our operating expense. Postage rates have increased periodically in
recent years and can be expected to increase in the future. Although we
generally have been able to pass on increases in shipping costs to our
customers, there can be no assurance competitive pressures will permit us to
continue to do so and that future increases will not adversely impact our
operating margins.
THE RATE OF MERCHANDISE RETURNS WILL HAVE A MATERIAL EFFECT ON OUR RESULTS OF
OPERATIONS.
As part of our customer service commitment, we maintain conditional
merchandise return policies for goods purchased from each of our three catalogs.
Fluctuations in merchandise returns particularly affect the results of
operations for the Deerskin and Joan Cook catalogs. All products purchased from
the Deerskin catalog may be returned at any time within one year of the date of
shipment, as long as they are unused and unaltered, for replacement or exchange
or for a full refund (excluding shipping and handling charges). Merchandise
purchased from the Joan Cook catalog, except personalized items, may be returned
within 60 days of the date of shipment for a full refund (excluding shipping and
handling charges). Although personalized items from the Joan Cook catalog cannot
be returned, we exchange items damaged in shipping. We have established an
allowance for merchandise returns based on historical return rates. There can be
no assurance that our merchandise returns will not exceed our reserves. Any
significant increase in our merchandise return rate could have a material
adverse effect on our results of operations.
THE NATURE OF OUR BUSINESSES REQUIRES A RELATIVELY HIGH LEVEL OF FIXED COSTS.
Operation and maintenance of our call center, distribution center and
management information systems involve substantial fixed costs. Catalog mailings
entail substantial paper, printing, postage, merchandise acquisition and human
resource costs, including costs associated with catalog development and
inventory purchases, virtually all of which are incurred prior to the mailing of
the catalog. If net sales from catalog mailings are substantially below
expectations, our results of operations may be adversely effected.
WE DEPEND ON THIRD-PARTY SHIPPERS TO DELIVER OUR PRODUCTS IN A TIMELY MANNER.
Our product distribution relies instead on third-party delivery services,
primarily the United States Postal Service and to a much lesser extent Federal
Express and United Parcel Service. Strikes and other interruptions may delay the
timely delivery of customer orders, and customers may refuse to purchase our
products or demand refunds for merchandise ordered because of our inability to
deliver goods promptly.
RISKS RELATED TO OUR CAPITAL STRUCTURE AND THE OTC BULLETIN BOARD
THE SALE OF A LARGE AMOUNT OF OUR COMMON STOCK IN THE OPEN MARKET COULD CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS
IS DOING WELL.
All our outstanding common stock is free of restrictions on transfer or sale and
may be sold at any time. Another 2,836,362 shares not yet issued will be freely
tradable immediately upon issuance. The shares that are not yet issued but which
will be freely tradable immediately upon issuance represent an increase in our
presently outstanding common stock of approximately 122%. The market price of
our common stock could drop significantly if the holders of all our freely
tradable shares sell them or are perceived by the market as intending to sell
them. The 2,836,362 shares not yet issued includes 1,200,000 shares issuable
upon conversion of 10,000 shares of Series A Senior Convertible Preferred Stock,
1,000,000 shares issuable upon exercise of 1,000,000 warrants and 636,362 shares
issuable upon conversion of $3,500,000 principal amount of convertible
debentures. See "Selling Shareholders" on page 28.
OUR COMMON STOCK IS TRADED IN AN ILLIQUID MARKET. IN THE PAST IT HAS
EXPERIENCED, AND WE EXPECT IT TO CONTINUE TO EXPERIENCE, SIGNIFICANT PRICE AND
VOLUME VOLATILITY WHICH SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS
OWNING OUR COMMON STOCK.
Our common stock is traded in the over-the-counter market and our stock
prices are reported on the OTC Bulletin Board. Trading in issues quoted on the
OTC Bulletin Board frequently is sporadic and the volume of shares traded often
is light. Because of the limited trading market for our common stock, and
because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. The inability to sell your
shares in a rapidly declining market may substantially increase your risk of
loss.
5
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WE ARE NOT REQUIRED TO MEET OR MAINTAIN ANY LISTING STANDARDS FOR OUR COMMON
STOCK TO BE QUOTED ON THE OTC BULLETIN BOARD.
The OTC Bulletin Board is separate and distinct from The Nasdaq Stock
Market. Although the OTC Bulletin Board is a regulated quotation service
operated by The Nasdaq Stock Market that displays real-time quotes, last sale
prices, and volume information in over-the-counter equity securities like our
common stock, we are not required to meet or maintain any qualitative or
quantitative standards for quotations in our common stock to be included on the
OTC Bulletin Board. Our common stock does not meet the minimum listing standards
for listing on The Nasdaq Stock Market or any national securities exchange.
OUR MANAGEMENT AND A FEW SHAREHOLDERS OWN OR CONTROL LARGE PERCENTAGES OF OUR
VOTING STOCK.
Our current chief executive officer owns approximately 22% of our
outstanding common stock and several other shareholders of America's Shopping
Mall own or have voting control over a substantial majority of our outstanding
shares of common stock. Accordingly, these individuals have the ability to
control the election of our directors. This concentration of ownership may also
have the effect of delaying, deterring or preventing a change in control. See
"Security Ownership of Certain Beneficial Owners and Management" on page 21.
RISKS RELATED TO TECHNOLOGY MATTERS
SYSTEM FAILURES, DELAYS AND CAPACITY RESTRAINTS COULD ADVERSELY AFFECT OUR
OPERATIONAL AND FINANCIAL PERFORMANCE AND CAUSE OUR STOCK PRICE TO DECLINE.
Our business depends on the efficient and uninterrupted operation of our
computer and communications systems. Our principal computer center and
communications systems are located at our operations headquarters in Carson
City, Nevada Any systems interruptions that cause malfunctions or result in
slower response times could result in losses of data and customer orders.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events. We do not presently have a formal
disaster recovery plan and our insurance may not be sufficient to cover losses
from these events. In addition, we rely on our existing management information
systems for operating and monitoring all major aspects of our business,
including sales, warehousing, distribution, purchasing, inventory control,
merchandise planning and replenishment, as well as various financial functions.
Any failure by us to upgrade such systems or unexpected difficulties encountered
with such systems as our business expands, or in general any disruption in these
systems, could adversely affect our results of operations and financial
performance.
FAILURE OF OUR COMPUTER SYSTEMS TO RECOGNIZE THE YEAR 2000 COULD DISRUPT THE
OPERATION OF OUR BUSINESS AND TECHNICAL SYSTEMS.
Many existing computer programs and systems use only two digits to identify
year. These programs and systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, these
computer applications could fail or create erroneous results by, at or beyond
the year 2000. We use internally developed software in our order fulfillment and
shipment system and software, computer technology and other services provided by
third-party vendors, some of which may fail due to the year 2000 problem. In
reasonably likely worst-case scenarios:
o we could experience disruptions to our operations, including an inability
of our customers to reach our call center to make purchases and our
inability to process customer orders and ship products;
o failures of computer systems could disable one or more of our web sites;
and
o we could experience increased expenses associated with stabilization of
operations after critical systems failure and implementation of remedial
measures.
Our operations also depend on the performance of software and systems used
by our vendors and service providers. We cannot assure you that our vendors and
service providers have or will have operating software and systems that are year
2000 compliant. Year 2000-related failures in the software or systems of our
vendors or third-party service providers could interrupt our operations or
require us to incur significant unexpected expenses. In addition, disruptions
caused by year 2000 problems could affect internet usage generally.
OUR USE OF CERTAIN INTERNET PROCESSES AND TECHNOLOGIES MAY SUBJECT US TO CLAIMS
FOR ROYALTIES OR SUITS FOR PATENT INFRINGEMENT.
Our internet web site is designed to permit customers to select products
from all three of our on line stores and purchase and pay for their selections
in a single transaction. At least one other internet retailer employing a
similar selection and
6
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payment system has been sued by a person claiming a patent for the method of
simplifying the online shopping process by allowing consumers to use a universal
shopping cart to buy products on line. We do not know whether our internet
shopping system is sufficiently similar to the one employed by the other
internet retailer to fall under the claim of the patent involved in the
litigation, and we have not received any communications or claims from the
patent holder. Nevertheless, many persons are now asserting intellectual
property rights in various internet commerce processes and technologies. We
cannot assure you that we will not be subjected to claims for royalties or
litigation alleging patent infringement as a result of the operation of our
internet web site and on line stores. Any such claims or litigation may
materially increase our costs of doing business or require us to eliminate or
modify certain features of our internet shopping mall.
RISKS RELATED TO REGULATORY MATTERS
WE MAY ENCOUNTER REGULATORY COSTS OR CONFLICTS IN OUR ATTEMPT TO PROMOTE ON LINE
SALES, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO EXPAND THIS BUSINESS.
Few laws or regulations are currently directly applicable to certain
activities on the internet. However, because of the internet's popularity and
growth, new laws and regulations are being adopted or under consideration by
state, local and foreign governments relating to various aspects of internet
commerce. Such government regulations may impose additional burdens on our
business and the business of other internet retailers. They may also impede the
growth in internet commerce and decrease the demand for our products and
services via the internet. It is difficult to predict the cumulative effect on
internet commerce of these disparate legislative and regulatory initiatives;
however excessively restrictive or conflicting laws and regulations could
increase our costs of doing on line business and have the effect of impeding or
stifling the growth of our internet sales.
OTHER GOVERNMENTAL REGULATIONS ALSO AFFECT US.
Our direct mail operations are subject to regulation by the U.S. Postal
Service, the Federal Trade Commission and various state, local and private
consumer protection and other regulatory authorities. In general, these
regulations govern the manner in which orders may be solicited, the form and
content of advertisements, information which must be provided to prospective
customers, the time within which orders must be filled, obligations to customers
if orders are not shipped within a specified period of time and the time within
which refunds must be paid if the ordered merchandise is unavailable or
returned. To date, such regulation has not had a material adverse effect on our
business, financial condition or results of operations. However, there can be no
assurance that any future regulatory requirements or actions will not have a
material adverse effect on our business, financial condition or results of
operations.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common
stock by our shareholders. We may, however, receive up to $4,500,000 in the
event that all the warrants held by a shareholder are exercised. Should the
warrant holder exercise its warrants, we expect to use those proceeds for
working capital, to retire outstanding debt or to and make complementary
business acquisitions.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
intend to retain any earnings for use in the operation and expansion of our
business and, therefore, do not anticipate paying any cash dividends in the
foreseeable future. We have outstanding preferred stock that requires us to
declare and pay dividends of approximately $84,000 every quarter. The holders of
our outstanding preferred stock are entitled to receive all accrued unpaid
dividends before we can pay any dividends on our common stock. In addition to
the terms of our outstanding preferred stock, it is anticipated that the terms
of future debt and/or equity financings may further restrict the payment of cash
dividends. Therefore, the payment of any cash dividends on our common stock is
highly unlikely.
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MARKET FOR COMMON STOCK
The following table lists the high and low closing bid and asked prices for
our common stock for the periods indicated, as reported by the National
Quotation Bureau LLC. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
The market price information given below is presented to comply with SEC
disclosure requirements. However, quotations for periods before May 1999 reflect
limited and sporadic trading in the stock of our predecessor company during a
period when it was dormant and had no operating business or revenues. Stock
price quotations published for dates following the acquisitions of our new
businesses in May 1999 and the subsequent reincorporation and reverse stock
split described in this prospectus have appeared without the benefit of any
publicly available information concerning America's Shopping Mall. Consequently,
the prices shown in the following table are not a meaningful record of the past
market value of our common stock or a reliable indication of prices to be
expected in the future.
The quotations given in the table are composites which give effect to the
following events:
o For periods up to July 16, 1999, the quotations relate to the common
stock of our predecessor, Advanced Medical Sciences, which was listed on
the OTC Bulletin Board operated by NASDAQ under the trading symbol
"AMDS."
o Effective July 19, 1999, the trading symbol of our common stock was
changed to "AMMA" due to the merger of Advanced Medical Sciences into
America's Shopping Mall. The merger resulted in each shareholder of
Advanced Medical Sciences receiving one one-thirtieth (1/30) of a share
of America's Shopping Mall common stock for every one share of Advanced
Medical Sciences common stock held by the shareholder on the date of the
merger. All quotations for periods before July 16, 1999, have been
adjusted to reflect this 30-to-one reverse split.
o On August 3, 1999, our common stock was delisted from the OTC Bulletin
Board. Quotations for the period from August 2, 1999 through October 29,
1999 have appeared in the "pink sheets" published by the National
Quotation Bureau.
We expect that after the date of this prospectus our common stock will
again be quoted on the OTC Bulletin Board under the trading symbol "AMMA."
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASKED
----------------- -----------------
PERIOD HIGH LOW HIGH LOW
- ------------------------------------------------------------------------ ------- ------ ------- ------
<S> <C> <C> <C> <C>
Fiscal Year Ended April 30, 1998:
First Quarter......................................................... $2.40 $1.875 $3.75 $3.30
Second Quarter........................................................ 1.875 1.875 3.30 2.25
Third Quarter......................................................... 1.875 1.875 2.40 2.25
Fourth Quarter........................................................ 1.875 1.875 2.40 2.40
Fiscal Year Ended April 30, 1999:
First Quarter......................................................... 1.50 1.20 1.80 1.50
Second Quarter........................................................ 1.20 1.20 1.80 1.80
Third Quarter......................................................... 1.20 1.20 1.80 1.80
Fourth Quarter........................................................ 6.90 1.20 8.40 1.80
Fiscal Year Ending April 30, 2000:
May 3, 1999--July 16, 1999............................................ 6.5625 3.750 6.5625 5.10
July 19, 1999--July 30, 1999.......................................... 5.00 3.625 6.00 5.375
August 2, 1999--October 29, 1999...................................... 5.00 4.00 7.00 5.00
</TABLE>
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At November 29, 1999, there were approximately 96 holders of record of our
common stock. Based on information furnished by brokers and other nominees, we
estimate that there are approximately 59 additional beneficial owners of our
common stock.
SUMMARY FINANCIAL INFORMATION
The following table presents, for the periods and dates indicated, summary
historical and pro forma financial data and other data of America's Shopping
Mall. The pro forma statement of operations and balance sheet for the year ended
April 30, 1999 gives effect to the acquisition of Creadis Promotions, Inc.
Dynamic Products Corp. and Subsidiary and the Deerskin and Joan Cook catalog
businesses (all of which were consummated in May 1999) as if they had been
consolidated at May 1, 1998.
The pro forma adjustments also give effect to the purchase by Pioneer
Ventures Associates Limited Partnership of 10,000 preferred shares of America's
Shopping Mall for $4,200,000.
This information should be read in conjunction with "Management's
Discussion and Analysis" the Pro Forma Unaudited Condensed Financial Statements
and the notes thereto, and the other financial statements and notes thereto
included elsewhere herein.
The pro forma data set forth below is not necessarily indicative of what
the actual results of operations or balance sheet would have been had the
transactions occurred at the dates referred to above, nor do they purport to
indicate the results of future operations.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------ THREE
MONTHS
HISTORICAL PRO FORMA ENDED
--------------------- ----------- JULY 31,
1998 1999 1999 1999
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................................ $ -- $ -- $12,050,155 $1,457,849
Cost of merchandise sold................................. -- -- 4,811,660 491,191
-------- --------- ----------- ----------
Selling, general and administrative expenses............. (7,714) (118,040) 8,706,217 1,534,950
Operating loss........................................... (7,714) (118,040) (1,467,722) (568,292)
Interest expense......................................... -- -- 550,730 167,705
Net loss before other income............................. (7,714) (118,040) (2,018,452) (735,997)
Other income, net........................................ -- -- -- 87,239
-------- --------- ----------- ----------
Net loss................................................. $ (7,714) $(118,040) $(2,018,452) $ (648,758)
-------- --------- ----------- ----------
-------- --------- ----------- ----------
Net loss per share....................................... $ (.01) $ (.14) $ (.87) $ (.29)
-------- --------- ----------- ----------
-------- --------- ----------- ----------
Weighted average number of common stock outstanding...... 822,573 836,751 2,320,906 2,230,327
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------
HISTORICAL PRO FORMA
--------------------- ----------- JULY 31,
1998 1999 1999 1999
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. -- -- $ 1,590,223 $ 35,454
Working capital........................................... -- $ 92,978 3,382,929 2,941,567
Total assets.............................................. -- 206,509 9,422,476 9,629,969
Short-term borrowings..................................... -- -- 450,690 448,621
Total long-term debt, including current maturities........ -- -- 5,619,598 5,616,955
Total stockholders' equity................................ -- 149,487 2,902,407 2,351,668
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the financial
information included elsewhere in this prospectus. It contains forward-looking
statements that involve numerous assumptions and uncertainties and may be
affected unforeseen and events, including changes in business and economic
conditions. Our actual results may differ materially from the results
contemplated in this discussion as a result of many factors, including those
discussed below and elsewhere in this prospectus.
BACKGROUND
America's Shopping Mall has been in business in its present form only since
May 1999. We are the successor by merger to Advanced Medical Sciences, Inc. At
one time, Advanced Medical Sciences was engaged in the health care and
pharmaceutical business. During 1995 and 1996, it abandoned its health care and
pharmaceutical business and effectively ceased operations. Between 1996 and
April 1999, Advanced Medical Sciences remained dormant.
In May 1999, with $4,200,000 of financing that we raised by selling 10,000
shares of our Series A Senior Preferred Stock to a venture capital fund, we
purchased the assets related to the Deerskin and Joan Cook catalog businesses
and Creadis Promotions, Inc. The next month, in June 1999, we purchased the
Remarkable Products catalog business. In connection with those purchases we also
issued or assumed $5,500,000 of debt securities maturing in 2003 and 2004.
Finally, in July 1999, Advanced Medical Sciences changed its name and its
state of incorporation by merging itself into America's Shopping Mall. We are
the combined company that resulted from the merger.
PLAN OF OPERATION
We plan to make a number of significant changes in the acquired businesses
during the remainder of this fiscal year and the following fiscal year that will
have a material effect on our operations and financial results. Several of these
changes are already in the process of being implemented:
o We intend to achieve cost savings by consolidating our acquired
businesses and eliminating uneconomic operations. In March 2000, we will
consolidate our executive and administrative offices, our merchandising,
purchasing and catalog production operations, as well as the Creadis
Promotions advertising specialty business in new leased offices in Upper
Saddle River, Jersey. Those operations are conducted, at present, from
two separate facilities in Teterboro, New Jersey and Monsey, New York. We
also intend to bring together under one roof our order entry, data
processing, warehousing and distribution operations, and close the
facilities in Carson City, Nevada and Monsey, New York that we currently
use for those purposes. We are in the process of closing our close-out
store in Danvers, Massachusetts. See "Business--Property" below. We
expect that this consolidation eventually will produce substantial cost
savings by eliminating duplication of overhead expenses, personnel costs
and other inefficiencies that currently result from operating from
separate locations.
o We are attempting to reduce the seasonality of our business and the
disproportionate contribution to revenues of our third fiscal quarter by
adding products to our catalogs that have less seasonal appeal. We
recently added a line of perfumes and colognes to both our Joan Cook and
Deerskin catalogs and are adding non-leather apparel to our Deerskin
catalog, such as short sleeve shirts and khaki pants.
o We are working to improve our marketing efforts by updating the look of
our catalogs with new models and improved photographs, and by refreshing
the graphic design of the catalogs and rewriting product descriptions and
other copy. At the same time we are increasing the circulation of our
catalogs by making wider mailings to present and former customers and
purchasing mailing lists. We have increased the number of Joan Cook
catalogs mailed during recent months by approximately 30% over the same
period last year.
o We will try to direct more commerce to our America's Shopping Mall
internet web site. We shortly will add a store for our Creadis Promotions
business and a close-out store for excess inventory to
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replace our Danvers, Massachusetts store. We also are investigating the
feasibility of generating fee income by adding storefronts operated by
unaffiliated catalog merchants to the America's Shopping Mall site.
ANALYSIS OF FINANCIAL CONDITION
We have included audited financial statements of the businesses acquired
earlier this year in this prospectus. The unaudited pro forma information
included in Summary Financial Information and elsewhere in this prospectus gives
effect to those acquisitions as if they had occurred as of the beginning of our
last fiscal year. However, the pro forma financial statements do not necessarily
indicate what the combined results of those businesses would have been under our
management, nor are they indicative of the results to be expected in the future.
The financial statements reflect the financial condition and results of
operations of those businesses when each of them was operating as a separate
entity under different management. In view of our limited operating history as a
combined company, we believe that a comparison of our first quarter operating
results to our pro forma results for the preceding fiscal year should not be
relied on as an indication of future performance. Also, we believe that any
attempt to extrapolate financial results for this fiscal year from the results
for the first quarter would be highly misleading. Not only are we making major
changes to the operation that are not reflected in the first quarter's results,
but, as explained under "Risk Factors," our business is very seasonal, with most
of our revenues being generated during our third fiscal quarter. Even though we
are operating businesses that have been established for some time, our prospects
must be considered in light of the risks, expenses and difficulties encountered
by companies in their early stage of development, particularly companies in new
and rapidly evolving markets such as online commerce.
Total Revenues. Total revenues consist of sales of products and services,
net of allowances for product returns and refunds. We recognize revenues when
products are shipped. Our future revenues will depend on many factors,
including:
o Our success in attracting new customers and retaining old customers
through our catalogs and web sites;
o The frequency of customer purchases;
o The quantity and mix of products that our customers purchase;
o The prices we charge for our products; and
o The level of customer returns and refunds that we experience. Returns and
refunds during the fiscal year ended April 30, 1999 were approximately
18% of gross sales from the Deerskin catalog and approximately 9% of
sales from the Joan Cook catalog.
Cost of Merchandise Sold. Cost of merchandise sold consists primarily of
the costs of merchandise sold to customers. We value our inventories at the
lower of cost (determined on a first-in, first-out basis) or market. The cost of
merchandise sold was approximately 39.9% of our net sales in the fiscal year
ended April 30, 1999 (on a pro forma basis) and approximately 33.7% of our net
sales during the first quarter of this fiscal year. We expect the cost of
merchandise sold as a percentage of net sales to remain relatively constant in
the future. We may, however, as a result of competitive pressures be obliged to
alter our pricing structures and policies. These changes could negatively affect
gross margins. Our gross margins will fluctuate based on many factors,
including:
o The prices charged by our suppliers for our products, including the
extent of purchase volume discounts we are able to obtain from them;
o Our pricing strategy for various categories of products and our catalog
lines in general; and
o The mix of products purchased by our customers from our various catalogs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of advertising and promotional expenditures,
including catalog design, production and mailing expenses, customer service,
distribution expenses, including order processing and fulfillment charges, net
shipping costs, equipment and supplies, payroll and related expenses for
employees engaged in these activities as well as for
11
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executive and administrative personnel and rental and related expenses for the
facilities in which we conduct our business. We expect to achieve savings in
personnel and overhead expenses as a result of the consolidation of our
operations and the elimination of redundant job functions. However, any cost
savings that we may achieve during the next three to four fiscal quarters from
consolidating our operations will be offset by: 1) the costs associated with
leasing new office and warehouse space and purchasing and leasing new furniture,
fixtures and equipment; 2) the costs of moving records, furniture, equipment,
inventory and personnel to the new facilities; and 3) continuing rental expenses
associated with closed facilities. The total costs of moving and consolidating
our facilities are expected to be in excess of $500,000.
Interest Expense. Interest expense consists principally of interest on
$2,000,000 of 8% subordinated debentures that we assumed, and $3,500,000 of 8%
convertible debentures that we issued, in connection the acquisitions of our new
businesses. Interest expense may be reduced in future years if the holder of our
convertible debentures elects to convert all or a portion of them into our
common stock.
Net Loss. We incurred a net loss of $2,018,452 on a pro forma basis for
our fiscal year ended April 30, 1999 and a net loss of $735,997 (before other
income) on our operations for the three months ended July 31, 1999. We expect
that we will continue to experience losses for the foreseeable future. The costs
of the planned relocations of our operations will negatively affect our earnings
during the next three to four fiscal quarters. Also, amortization of good will
and other intangibles and increased interest and preferred dividend expenses
resulting from our recent acquisitions will affect our ability to achieve
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Our businesses currently are generating sufficient cash flow to sustain our
business at the present level for at the least the next fiscal year. We expect
to be able to finance the costs of our consolidation and relocation from cash
and marketable securities on hand and from available cash flow from operations.
At some point, however, we expect to require additional outside financing to
expand our current business or acquire additional businesses.
YEAR 2000 COMPLIANCE
We use computer technology and other services internally developed and
provided by third-party vendors that may fail due to the failure of computer
applications to properly recognize and process dates commencing in the year
2000. For example, we employ internally developed software, which includes
software for use in order processing and fulfillment, including credit card
processing and distribution functions, accounting and database systems. We
depend on the financial institutions that process our customers' credit card
payments for most of our revenues, and we depend on third parties that host our
web servers. We also depend on telecommunications vendors to maintain our
telephone systems and to transfer order information and other data from our
Nevada call center to our Monsey, New York warehouse and distribution facility,
and we depend on the U.S. Postal Service and third-party carriers to deliver
products to our customers.
We are in the process of reviewing the year 2000 compliance of the
software, computer technology and other services on which we rely. Based on our
assessment to date, be believe that our internally developed software is year
2000 compliant. This review and assessment has been conducted with our internal
management information systems specialists and the marginal costs have not been
material.
Our ability to assess the reliability of the systems operated by third
parties is based solely on generally available news reports, information in
trade publications and informal inquiries to vendors and service providers.
Based on these sources, we believe that the operators of the most important
services are reviewing and taking action to address and correct issues relating
to year 2000 compliance, but it is not possible to predict whether these efforts
will be successful in reducing or eliminating the potential negative impact of
year 2000 issues.
We have not developed a contingency plan to address situations that may
result if we or our vendors or service providers are unable to achieve year 2000
compliance. Any failure of our material systems, our vendors' material systems
or the internet to be year 2000 compliant could have negative consequences for
our business. See "Risk Factors--Risks Related to Technology Matters."
12
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BUSINESS
GENERAL
We are primarily a specialty catalog and online retailer and direct
marketer of men's and women's leather apparel and small leather goods, household
goods, jewelry and gift items and specialty office products. We also conduct a
specialty advertising and promotional products business.
We sell consumer and business products at retail through three distinct
print and internet catalogs:
o The "Deerskin" catalog, founded in 1944 as Deerskin Trading Post, sells
men's and women's leather outerwear, footwear, other leather apparel and
leather accessories.
o The "Joan Cook" catalog has sold a wide assortment of houseware, jewelry
and gift items since 1956.
o The "Remarkable Products" catalog since 1982 has sold specialized office
products featuring a full line of erasable time management and
organizational planners.
We also operate an advertising specialty and promotional products business
under the trade name "Creadis Promotions." It furnishes marketing and
promotional campaign consulting services, provides supplies for sales meetings
and conventions, and designs and sells business promotional gifts, premiums and
give-aways.
BACKGROUND AND RECENT ACQUISITIONS
America's Shopping Mall has been in business in its present form only since
May 1999. We are the successor by merger to the business formerly conducted by
Advanced Medical Sciences, Inc., a Virginia corporation formed more than ten
years ago. At one time, Advanced Medical Sciences was engaged in the health care
and pharmaceutical business. However, during 1995 and 1996, it abandoned its
health care and pharmaceutical business and effectively ceased operations.
Between 1996 and April 1999, Advanced Medical Sciences remained dormant while
its management investigated potential acquisitions of new businesses.
By May 1999, Advanced Medical Sciences' management had completed its
acquisition plan. It incorporated a new subsidiary named America's Shopping
Mall, Inc. in the State of Nevada. On May 21, 1999 Advanced Medical Sciences
obtained $4,200,000 in venture capital financing by causing America's Shopping
Mall to issue 10,000 shares of Series A Senior Convertible Preferred Stock and
warrants to purchase 1,000,000 shares of its common stock to Pioneer Ventures
Associates Limited Partnership. On the same day that it obtained this financing,
America's Shopping Mall purchased the assets related to the Deerskin and Joan
Cook catalog businesses, including the inventory, pre-paid advertising, pre-paid
expenses, fixed assets, accounts receivable, security deposits, material
agreements, customer lists, catalog production materials, computer software,
intellectual property rights, and unshipped orders, books of account and
records, from Deerskin Trading Post, Inc. a subsidiary of Initio, Inc.
At the same time that it acquired the Joan Cook and Deerskin businesses,
America's Shopping Mall purchased all of the outstanding stock of Creadis
Promotions, Inc. from Irwin Schneidmill and Kathleen N. Patten. Mr. Schneidmill
was the chief executive officer and a director of Advanced Medical Sciences (the
same offices that he holds in America's Shopping Mall). Mrs. Patten was a
substantial holder of stock in Advanced Medical Sciences and continues to be the
beneficial owner, together with her husband, of over 42% of the outstanding
common stock of the present company.
The next month, in June 1999, America's Shopping Mall purchased all of the
issued and outstanding common stock of Dynamic Products Corp. from its
shareholders. Dynamic, through a wholly-owned subsidiary, Remarkable Office
Products, Inc., operated the Remarkable Products catalog business. Dynamic
Products Corp. and Remarkable Office Products, Inc. were subsequently merged
into our subsidiary, The Remarkable Group, Inc. Irwin Schneidmill, Kathleen
Patten, and various other members of the Patten family, were the largest
shareholders of Dynamic and received additional shares of common stock of
Advanced Medical Sciences in connection with that acquisition.
Finally, in July 1999, Advanced Medical Sciences changed its name and its
state of incorporation by merging itself into America's Shopping Mall, Inc. We
are the surviving company that resulted from the merger.
13
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See "Certain Relationships and Related Transactions" and the Notes to
Financial Statements of America's Shopping Mall, Inc. for additional information
concerning these acqusitions. Information concerning the present share ownership
of certain persons who participated in these transactions can be found under
"Security Ownership of Certain Beneficial Owners and Management" below.
CATALOGS AND PRODUCTS
We currently operate three distinct catalog sales operations. Two of these
catalogs have individual consumers as their target customers. The third catalog
is directed at business customers, municipalities and other governmental units,
and educational institutions.
Leather Products:
Our Deerskin catalog is distinctive in its focus on leather apparel and
small leather goods. Through this catalog we sell a wide selection of men's and
women's leather coats, jackets, suits, shirts, pants, hats, gloves and other
clothing items, as well as leather shoes, boots and slippers. Deerskin catalog
offerings also include leather handbags, business bags, belts, wallets and other
leather accessory items, and range in price from as low as $9 to as much as
$1,195. Most of these items are manufactured to our designs and specifications.
Household Goods, Gifts and Novelties:
The Joan Cook catalog offers a wide variety of inexpensive to moderately
priced products including bed, bath and kitchen products, home furnishings,
health and beauty products, seasonal merchandise, electronics, houseware,
jewelry, novelties, apparel and accessories, most of which are priced under
$100.
Specialized Office Products:
Our Remarkable Products catalog is directed to businesses, municipalities
and other governmental units, and educational institutions, and offers
specialized office products, including large desk and erasable laminated wall
planning calendars, dry erase boards and wall maps, workplace posters on
motivational topics, health topics (smoke-free and drug-free), legal topics
(sexual harassment, labor law, etc.), and safety topics, employee training books
and first aid kits.
Return policies for goods purchased from our three catalogs vary. All
products purchased from the Deerskin catalog may be returned at any time within
one year of the date of shipment, as long as they are unused and unaltered, for
replacement or exchange, or for a full refund of the price (excluding shipping
and handling charges). Merchandise purchased from the Joan Cook catalog, except
personalized items, may be returned within 60 days of the date of shipment for a
full refund (excluding shipping and handling charges). Although personalized
items from the Joan Cook catalog cannot be returned, we exchange items damaged
in shipping. All Remarkable Products merchandise is sold under a 30-day "no
questions asked" money-back guarantee. We refund the full price (excluding
shipping and handling charges) of any merchandise purchased from the Remarkable
Products catalog and returned within 30 days of shipment.
Returns of merchandise and refunds have represented a significant
percentage of Deerskin and Joan Cook catalog sales. Returns and refunds during
the fiscal year ended April 30, 1999 were approximately 18% of sales from the
Deerskin catalog and approximately 9% of sales from the Joan Cook catalog.
Returns and refunds generally represent an insignificant percentage of sales
from the Remarkable Products catalog.
INTERNET SALES
In September 1999 we launched our new combined America's Shopping Mall
internet web site at the URL address "www.americasshoppingmall.com." This site
is undergoing further development, but is fully functional. Our new site, like a
conventional shopping mall, is a location where each of our catalogs maintains a
"storefront"--a home page with an icon representing each of our catalogs that
the viewer can click to navigate to a separate web site for that catalog.
The Deerskin web site was launched in September 1998, the Joan Cook web
site in January 1999, and the Remarkable web site in September 1999,
respectively. Each of these web sites permits customers to view and order all of
the items in each of our print catalogs. Customers can select products from any
or all of the three catalog web sites and combine them in a single order for
purchase, without having to re-enter address and credit card information at each
catalog web site.
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These electronic stores provide us with a lower-cost way to offer customers with
internet access detailed product information and the convenience of on line
purchasing.
We operate the America's Shopping Mall, the Joan Cook and the Remarkable
Products web sites with our in-house staff. The Deerskin web site is operated
for us by an unaffiliated specialty direct marketer under a site development and
hosting agreement.
To date, sales of products through our web mall stores have not been
significant. Nevertheless, while we believe that printed catalogs and print
advertisements will continue to remain an important means of marketing our
various product lines, we expect that internet sales will become increasingly
important in future years.
Our internet strategy is to provide one convenient location where customers
can shop electronically for a wide range of products. By bringing our separate
catalog operations together and providing the convenience of one-stop shopping,
we attempt to encourage impulse buying and translate sales from one catalog into
additional sales from our affiliated catalogs. To that end, we plan to add more
"storefronts" to the America's Shopping Mall web site as we acquire or develop
additional mail order catalog or other related businesses. We shortly will add a
store for our Creadis Promotions business and a close-out store for excess
inventory. We also are investigating the feasibility of generating fee income by
adding storefronts operated by unaffiliated catalog merchants to the America's
Shopping Mall site.
MARKETING
We employ multiple marketing approaches to reach existing and prospective
customers, including catalogs, internet advertising and print media advertising.
We believe our ability to segment, test and analyze mailing lists, and to
select appropriate recipients for a particular mailing, are a significant factor
in our business. In general, we seek to mail catalogs only to those segments of
our mailing lists, and at times and frequencies, that are expected to maximize
sales responses. We maintain proprietary customer data bases for our catalogs
which are used for catalog mailing lists and for statistical modeling purposes.
We employ special computer programs to search the mailing lists for each of our
catalogs for prospects for our other catalogs based on various statistical
criteria. In addition, we rent lists from and exchange lists with other direct
marketers in an attempt to gain new customers.
Our catalogs are produced by an in-house art department in our Teterboro,
New Jersey facility. Each catalog contains full-color photographs and detailed
product descriptions. Sample products are photographed in our studios, and
graphic artists then use Macintosh desktop publishing equipment to edit images,
insert textual copy, and prepare catalog and media layouts and individual
mailing pieces. Independent photographers and models are engaged on a contract
basis as needed. The in-house preparation of most portions of the catalog and
other advertising material expedites the production process, providing for
greater flexibility and creativity in catalog production. It allows for
last-minute changes in pricing and format and results in significant cost
savings.
After completion of the design, transparencies, mechanicals and electronic
data are sent out to a commercial printer for production of the catalogs. A
mailing list service provider takes our proprietary data bases, as well as any
rented mailing lists, and merges the lists, purges duplicate names and
addresses, and produces a mailing list on magnetic tape for each edition of a
particular catalog. The mailing list tapes are delivered to the catalog printer,
which ink jets addresses on the catalogs and the included order form and
delivers the catalogs, palletized and sorted by zip code according to bulk mail
regulations, to the U.S. Postal Service for mailing.
We vary the quantity of our catalogs mailed based on the selling season and
the anticipated response rates. In fiscal 1999, we produced three different
editions of our Deerskin catalog and made 11 mailings totaling approximately 3.9
million catalogs. Each Deerskin catalog consists of between 56 and 84 pages and
offers between 378 and 478 items. In fiscal 1999, we produced four editions of
our Joan Cook catalog, and made 12 mailings totaling approximately 2.5 million
catalogs. These Joan Cook catalogs consisted of between 52 and 60 pages and each
catalog offered between 277 and 318 items.
In recent periods, we have not produced complete catalogs for Remarkable
Products, but have relied on smaller specialized fliers mailed to existing and
prospective customers. In April or May we make a mailing featuring July to June
reusable
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calendars which are used by academic professionals, school districts and
municipalities. In September, October and November, we make solo mailings which
feature Remarkable Products' main reusable January to December calendars. Solo
mailings for law posters are event-driven and are made in response to changes in
laws and regulations affecting employers. To make these solo mailings
distinctive, they are packaged to look like a bank check, making the consumer
more likely to open the mailing. During fiscal 1999, we mailed approximately
492,000 seasonal mailing pieces for Remarkable Products in six separate
mailings.
PRODUCTION AND DISTRIBUTION COSTS
We expend significant amounts on paper, ink, printing and postage to
produce and distribute our catalogs. We also use substantial amounts of packing
supplies and corrugated paper for boxes in which we ship our products. The price
of paper and ink depends on supply and demand in the marketplace and can be
subject to material increases or decreases within a relatively short period of
time. In recent years, the U.S. Postal Service has increased its rates for both
catalogs and packages. The latest rate increase, in January 1999, averaged
approximately 3%. We do not anticipate a postal rate increase during the
remainder of our current fiscal year, but we can give no assurance that postal
rates will not continue to increase in the future.
Our catalog production and mailing costs in the fiscal year ended April 30,
1999 on a pro forma basis totaled approximately $3,772,000. While we cannot
estimate the magnitude of future paper and postage increases or decreases, such
changes may have a material effect on our future earnings.
ORDER FULFILLMENT AND SHIPMENT
Customer orders from our catalogs are received and processed at our
facility in Carson City, Nevada. Data processing and most customer service
operations are also conducted at this location. We offer nationwide toll-free
telephone numbers for customers to use in placing orders from our catalogs.
Calls are received by trained order entry representatives who utilize on-line
terminals to enter customer orders into a computerized order processing system.
The order entry representatives also may use their terminals to access
information about products, pricing and promotions in order to provide better
service and answer customer questions. We employ approximately eight people on a
permanent basis in the call center and may employ up to 30 people during the
peak order season. Mail orders are opened by other employees, compared to
payments, and, together with facsimile and internet orders, are entered into the
computer system. All credit card charges are pre-authorized prior to shipping
the order. Credit authorization is obtained automatically via electronic
communications links during order processing.
After data entry and credit authorization or payment verification, orders
are transmitted electronically to our warehouses for fulfillment. Distribution
and warehousing activities for our Deerskin and Joan Cook catalogs are conducted
in the same facility in Carson City, Nevada where our order entry and data
processing operations are located. Orders from our Remarkable Products catalog
are batch processed and transmitted daily by an electronic data link to our
facility in Monsey, New York. We plan to consolidate our warehousing, receiving
and shipping and order fulfillment operations under one roof in the near future.
See "Management's Discussion and Analysis" above and "Property" below.
Orders are filled at packing stations where a packer chooses the
merchandise corresponding to the customer order displayed on a computer terminal
or a printed packing slip. The packer uses a bar code scanner which scans the
information on a picking ticket attached to the piece of merchandise into the
computer system. The computer compares the information on the picking tickets to
the customer order to ensure that the merchandise being packed to fulfill the
order is correct and complete. Once the computer verifies that an order is
correct and complete, the merchandise is packed with a bar coded shipping label
attached. The package is then delivered by a conveyor to a shipping station
where the information on the shipping label is scanned to verify that the order
is valid and has not been previously shipped, and to record the method of
shipment and create the shipping manifest. While most orders are shipped via the
U.S. Postal Service, we also offer express service to customers for an
additional fee. Most orders of in-stock merchandise are shipped within one
business day after receipt.
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PURCHASING
Deerskin catalog products are obtained principally from numerous foreign
suppliers and manufacturers. Many of the items are manufactured for us in
accordance with our designs and specifications and are exclusive to the Deerskin
catalog. In excess of 90% of the imported merchandise sold through the Deerskin
catalog is manufactured in the Peoples Republic of China and India. Other items
are purchased from suppliers in Pakistan, Korea, Colombia and Chile. No one
manufacturer is material to our operations. Numerous other manufacturers of
leather goods in these countries and elsewhere are available. There is only a
minimal risk that we would not be able to obtain an alternate source of supply
if the manufacturer of any of our Deerskin products were to experience a
prolonged work stoppage or economic difficulties. However, because of our use of
foreign suppliers, we are subject to the risks of doing business abroad,
including changes in United States trade n policies, economic events and changes
in the value of the U.S. dollar relative to foreign currencies. Our foreign
exchange risk, however, is mitigated by the fact that the price of leather, the
principal cost component of our Deerskin products, typically is set in U.S.
dollars throughout the world. To date, the recent Asian economic downturn has
not materially affected our ability to acquire products in that region.
Products offered in our Joan Cook catalogs are manufactured by hundreds of
manufacturers. Unlike the Deerskin catalog products, less than 10% of the
merchandise sold through the Joan Cook catalogs is purchased outside the United
States. No one supplier accounted for more than 10% of our purchases for the
Joan Cook catalog during the fiscal year ended April 30, 1999. We believe ample
alternate sources of supply exist, should any present supplier relationship be
disrupted for any reason.
The main products in our Remarkable Products catalog, the various reusable
calendars and our federal law posters, are manufactured specifically for us. Our
in-house art department does the layout and graphics for each calendar or
poster. We then order the appropriate paper from an independent paper vendor,
and the paper and camera ready art work produced by our graphic designers are
sent to one of two printing firms that we employ. Once the artwork is printed on
the paper, the printed sheets are sent to a laminator which applies a plastic
coating and creates the finished product. There are many vendors of the
materials and services required to produce our reusable calendars and poster
products throughout the country. We believe we could easily replace any of our
current vendors and that the loss of any of them would not cause a serious
interruption of our business or have a material adverse effect on it. Other
products which we sell through the Remarkable Products catalog, such as the
markers, erasers and cleaning fluids for the reusable calendars are purchased
from a variety of vendors, none of which are individually significant. There are
adequate alternative sources of supply for most, if not all, of our Remarkable
Products catalog items.
Our inventory management strategy is designed to maintain inventory levels
that provide optimum in-stock positions while maximizing inventory turnover
rates and minimizing the amount of unsold merchandise at the end of each season.
We manage inventory levels by monitoring sales and fashion and product trends,
making purchasing adjustments as necessary, and by promotional sales.
MERCHANDISE LIQUIDATION
We have operated a close-out store to dispose of excess inventory from our
catalog operations in Danvers, Massachusetts. This store, however, will be
closed by the end of 1999. See "Property" below. We plan to replace this store
with an internet close-out store on our web site.
ADVERTISING SPECIALTY AND PROMOTIONAL PRODUCTS
Our Creadis Promotions subsidiary conducts an advertising specialty and
promotional products business. Creadis provides marketing consulting and
promotional campaign recommendations, as well as product proposals and supplies
for sales meetings and conventions, sales incentives and awards, business and
promotional gifts, and other types of business programs and activities. In
addition, it provides design services, including layouts, text, photography and
printing for leaflets, mailings, packaging, point of purchase displays and
business cards and stationery. Creadis also provides order fulfillment and
warehousing services from our warehouse facility in Monsey, New York, for
clients who purchase promotional products from it. To date, Creadis Promotions
has derived approximately 65% of its business from the pharmaceutical industry.
Design work for Creadis Promotions is performed primarily by the same
in-house graphic
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artist staff that we employ for our catalog design and production, but we also
employ independent graphic designers on a contract basis as required. The
promotional products, gifts and supplies furnished by Creadis to customers
generally are purchased from importers and distributors of such products to fill
specific client orders. The variety of promotional products supplied by Creadis
and the relatively small number of items required to fill each order makes it
uneconomical for Creadis to carry products in inventory. The types of products
and supplies furnished by Creadis to its customers are available from numerous
suppliers.
TRADEMARKS, ETC.
We own federally registered trademarks for "Deerskin" and "Joan Cook." We
believe that these trademarks have significant value because of their market
recognition as a result of many years of use and the significant quantity of
catalogs circulated. We also own other intellectual property rights such as
copyrights and service marks on designs of our products, none of which
individually is material to our business.
SEASONALITY
Our business is seasonal. Historically, a substantial portion of the
revenues and net income of our catalog businesses have been realized during the
period September through February. Revenues and net income have been
substantially lower during the period March through August. Although seasonality
is a general pattern associated with mail order businesses, our seasonality is
considerably greater than the industry norm due to the nature of our Deerskin
leather products line which sells principally during the fall and early winter.
Further discussion of the effect of seasonality on revenues and income is
contained in "Risk Factors" and "Management's Discussion and Analysis."
GOVERNMENT REGULATION
The direct response business is subject to the Mail and Telephone Order
Merchandise Rule and 1996 Telemarketing Sales Rule and related regulations
promulgated by the Federal Trade Commission and comparable regulation by state
agencies. In addition, U.S. and foreign laws regulate certain users of customer
information and the development and sale of mailing lists. We believe we are in
compliance with all rules and regulations governing our marketing practices and
have implemented programs and systems to assure ongoing compliance. However, new
restrictions may arise in this area that could have an adverse effect on our
business.
Due to the increasing popularity and use of the internet and other
commercial online services, it is possible that additional laws and regulations
may be adopted with respect to electronic commerce. These laws may cover issues
such as user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services. The applicability to the
internet and other commercial online services of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Any new legislation or regulation, or the application of existing laws and
regulations to the internet, could have the effect of decreasing the growth of
electronic commerce or increasing our cost of doing business on the internet.
At present, we collect state sales tax only on sales of products to
residents of New Jersey, New York, Massachusetts and Nevada. Various states have
tried to require direct marketers to collect state sales taxes on the sale of
products shipped to their residents. In 1992, the United States Supreme Court
reaffirmed its 1967 decision in National Bellas Hess v. Department of Revenue,
which held that it is unconstitutional for a state to impose sales tax
collection obligations on an out-of-state mail order company whose only contacts
with the state are the distribution of catalogs and other advertising materials
through the mail and subsequent delivery of purchased goods by parcel post and
interstate common carriers. It is possible, however, that legislation may be
passed to overturn the Court's decision. It currently is uncertain whether
internet sales activities will be subject to state sales tax. The imposition of
new state sales tax collection obligations would increase our administrative
expenses and might decrease our ability to compete effectively on the basis of
price.
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PROPERTY
Our business is conducted in the following facilities:
<TABLE>
<CAPTION>
LOCATION USE
- ---------------------------------- --------------------------------------------------------------------
<S> <C>
Carson City, Nevada Order entry, data processing, distribution and warehousing;
administrative offices
Teterboro, New Jersey Principal executive and administrative offices, merchandising,
purchasing and catalog production
Danvers, Massachusetts Retail close-out store
Monsey, New York Administrative offices, distribution and warehousing
</TABLE>
In Carson City, Nevada, we lease an approximately 81,000 square foot
building and the adjacent parking lot. Annual rent for this property is $336,000
and we are also responsible for all structural repairs, utilities and any real
estate taxes due on the property. The lease expires on April 30, 2000. This
facility is primarily used for order entry and data processing for all three of
our catalog businesses and distribution and warehousing for the Deerskin and
Joan Cook catalog businesses.
We have assumed a lease to occupy 6,300 square feet of a building located
in Teterboro, New Jersey, where we currently maintain our principal executive
and administrative offices and our merchandising, purchasing and catalog
production departments. Annual rent, excluding utilities, repairs and future
increases in taxes is $57,000. This lease expires on March 14, 2004.
In Danvers, Massachusetts we lease a 24,000 square foot building which has
been used as a retail close-out store for our catalog merchandise. Annual rent
for this property is $12,600, plus real estate taxes. The lease expires on
April 30, 2000, and we do not intend to renew it. We intend to close this store
by the end of 1999 and have begun selling its fixtures and liquidating the
remaining inventory.
Administrative offices, distribution and warehouse facilities for the
Remarkable Products catalog are located in Monsey, New York, in a 10,000 square
foot leased building. A lease covering 5,200 square feet of the space expires
March 31, 2000; another lease covering 2,400 square feet of space expires on
June 30, 2000; and the lease covering the remaining 2,400 square feet expires on
December 30, 2002. The combined annual rent, excluding utilities, repairs and
taxes is $62,920.
In September 1999, we executed two leases covering 10,343 square feet of
office space in a building located in Upper Saddle River, New Jersey. We plan to
move and consolidate our Teterboro, New Jersey and Monsey, New York facilities
in this building, commencing in March 2000. Once our relocation is complete, our
corporate headquarters, principal executive and administrative offices, and our
merchandising, purchasing and catalog production operations for the Deerskin,
Joan Cook and Remarkable Products catalogs, as well as our Creadis Promotions
business, will all be located in the same facility. The initial term of the
leases is five years, with an option to renew for an additional five years, and
commences on February 1, 2000. The annualized rent for the facility $195,054
plus a maximum additional amount of $20,676 per year for electric service. We
are also required to pay our proportional share for real estate taxes and
various other expenses.
We are attempting to obtain releases from our obligations under the
Teterboro, New Jersey and Monsey, New York leases once we relocate the
operations housed in those facilities. However, we may be required to pay the
full rent until the expiration of the leases or else make substantial payments
to the landlords to terminate the leases earlier. These rental payments,
combined with the rents on our new facilities, are expected to have an adverse
impact on our earnings during the remainder of this fiscal year and the effect
of our increased rental costs may continue into our next fiscal year.
In addition to consolidating our administrative and merchandising
operations in New Jersey, we also plan to move and consolidate our order entry,
data processing, warehousing and distribution facilities for the Deerskin, Joan
Cook and Remarkable Products catalogs and Creadis Promotions business from
Carson City, Nevada and Monsey, New York to a new, single location some time
during our next two to three fiscal quarters. No definitive plans have yet been
made and we are investigating the feasibility of several locations.
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We consider that, in general, our physical properties are well maintained,
in good operating condition, and are suitable and adequate for our present
purposes. We believe that our properties are adequately covered by insurance.
LEGAL PROCEEDINGS
From time to time we may be a party to routine litigation and proceedings
in the ordinary course of our business. No litigation or other proceedings are
pending or, as far as we know, threatened that would have a material adverse
effect on our business, results of operations or financial condition.
EMPLOYEES
As of November 30, 1999, we employed approximately 40 people on a full-time
basis. We also employ up to 47 additional people on a part-time or seasonal
basis to meet unusual and seasonal increases in our business. None of our
employees are covered by collective bargaining agreements. We consider our
employee relations to be satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors are elected at the annual meeting of the
shareholders and hold office for one year or until their successors are elected
and qualify. The officers serve at the pleasure of the Board of Directors. The
following table sets forth certain information with respect to each of our
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- -----------------------
<S> <C> <C>
Irwin Schneidmill...... 46 Director and Chief
Executive Officer
Dennis J. McNany....... 50 Director and Chief
Financial Officer
Debra Solan............ 44 Senior Vice President
of Purchasing and
Merchandising, The
Deerskin Companies,
Inc.
Michael A.
DeVarti ........ ...... 34 Vice President, Chief
Information Officer,
The Deerskin
Companies, Inc.
Robert W. Trause....... 57 Director and Secretary
Chase A. Caro.......... 41 Director
Richard Truzzolino..... 60 Director
John Ferraro........... 65 Director
</TABLE>
Irwin Schneidmill was president and a director of Advanced Medical Sciences
from July 29, 1998 until its merger into America's Shopping Mall. Since we were
incorporated, Mr. Schneidmill has served as our chief executive officer and as a
director. Mr. Schneidmill joined Remarkable Office Products, Inc., a New Jersey
corporation and direct-mail catalog retailer which is now owned by America's
Shopping Mall, in October 1995. See "Certain Relationships and Related
Transactions." Prior to joining Remarkable Office Products, Inc.,
Mr. Schneidmill had been the sole stockholder from July 1993 through October
1994 of Irwin Schneidmill, P.C., a public accounting firm. Mr. Schneidmill also
currently serves as president, chief executive officer and a director of
Celestial Ventures Corporation, a reporting company.
Dennis J. McNany was a director of Advanced Medical Sciences from December
1998 until its merger into America's Shopping Mall. Since we were incorporated,
Mr. McNany has served as our chief financial officer and as a director. From
1992 until joining us, Mr. McNany served as a financial consultant for an
independent venture capitalist and for First Occupational Center of New Jersey,
a large non-profit entity serving the disabled and disadvantaged population.
Debra Solan is the Senior Vice President of Purchasing and Merchandising
for our wholly-owned subsidiary, The Deerskin Companies, Inc., and has been
working with the Deerskin and Joan Cook catalog businesses since 1977. She is
responsible for overseeing the buying and merchandising activities for the
catalogs. Furthermore, she manages all aspects of the creative process involved
in developing the catalogs. This includes overseeing the artwork, presentation,
printing and production of the catalogs. She is also responsible for developing
the marketing plan and projecting sales for the Deerskin catalog.
Michael A. DeVarti is the Vice President and Chief Information Officer for
our wholly-owned subsidiary, The Deerskin Companies, Inc. and has been working
for the Deerskin and Joan Cook catalog businesses since 1991. He is responsible
for evaluating, managing, and implementing technology in support of all facets
of the two catalog businesses. He oversees systems designs, programming,
telecommunications, networking, data processing, customer service, internet,
marketing and fulfillment for America's Shopping Mall.
Robert W. Trause was secretary and a director of Advanced Medical Sciences
since July 29, 1998 until its merger into America's Shopping Mall. Since our
incorporation, Mr. Trause has served as our secretary and as a director.
Mr. Trause is a professional insurance broker and has significant experience in
property and casualty insurance as well as business life insurance and estate
planning. From 1991 through 1997, Mr. Trause was a commercial lines account
executive for Professional Insurance Associates, Inc. and since 1997 has been a
senior commercial account specialist for that firm. Mr. Trause also serves as a
director of Celestial Ventures Corporation, a reporting company.
Chase A. Caro has been a director of America's Shopping Mall since May
1999. Mr. Caro is an attorney practicing in the areas of corporate law,
commercial and securities litigation and arbitration. From September 1994
through December 1997, Mr. Caro was the managing partner of the law firm Caro &
Graifman, P.C. From January 1998 through the present time he has been the
managing partner of the law firm Caro &
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Associates P.C. During the period from August 1998 through February 1999 he also
was a partner in Robinson Brog Leinwand Greene Genovese & Gluck, P.C.
Richard Truzzolino has been a director of America's Shopping Mall since May
1999. For the last 20 years, Mr. Truzzolino has owned and managed a sandwich
shop and for the last 10 years has also managed a real estate partnership.
John Ferraro has been a director of America's Shopping Mall since May 21,
1999. Mr. Ferraro also serves as chief executive officer and chairman of the
board of Thermodynetics, Inc. Thermodynetics is engaged in the design,
manufacture and sale of enhanced surface metal tubing and related assemblies
used primarily for heat transfer applications. Mr. Ferraro is also a director of
Pioneer Ventures Management Partners LLC, the general partner of Pioneer
Ventures Associates Limited Partnership, and is the designee of Pioneer Ventures
Associates Limited Partnership on our Board. See "Security Ownership of Certain
Beneficial Owners and Management--Potential Change of Control" below.
Mr. Ferraro also serves as a director of American Interactive Media, Inc. Both
Thermodynetics and American Interactive Media are reporting companies.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed a compensation committee consisting of
Irwin Schneidmill, John Ferraro and Chase Caro. It also has appointed an audit
committee consisting of Irwin Schneidmill, Dennis McNany and Robert Trause. The
compensation and audit committees both will serve until the next annual meeting
of the Board of Directors.
COMPENSATION OF DIRECTORS
We currently do not have a compensation or expense reimbursement policy for
our directors. Although we have not yet issued any options to purchase shares of
our common stock to any directors, we do anticipate that we may do so in the
future. Grant of such future options will be at the discretion of our Board of
Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection 1 of Section 78.751 of the Nevada General Corporation Law
("NGCL") empowers us to indemnify any person who was or is a party or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (except in an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
America's Shopping Mall. We may indemnify this person against all reasonable
expenses, incurred by him in connection with such action, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to our best
interests. With respect to any criminal action or proceedings, he must have had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to our best interests. With respect to any
criminal action or proceeding, he must have reasonable cause to believe his
action was unlawful.
Subsection 2 of Section 78.751 empowers us to indemnify any person against
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above. No indemnification may be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom to be liable to us or for amounts paid in settlement to us unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction determines that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
The NGCL also provides that to the extent that a director, officer,
employee or agent of America's Shopping Mall has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections 1 and 2 of Section 78.751, or in the defense of any claim, therein,
he must be indemnified by us against all reasonable expenses, incurred by him in
connection with the defense. Furthermore, any indemnification under
subsection 1 and 2, unless ordered by a court or advanced pursuant to
subsection 5 of Section 78.751 described below, must be made only as authorized
in the specific case upon a determination that indemnification of the person is
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<PAGE>
proper in the circumstances. The determination must be made by the stockholders,
by a majority vote of a quorum of the board of directors who were not parties to
the act, suit or proceeding, or in specified circumstances, by independent legal
counsel in a written opinion.
Subsection 5 of Section 78.751 states that the articles of incorporation,
bylaws or an agreement made by us may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, must be paid by
America's Shopping Mall as they are incurred and in advance of the final
disposition of such action, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court that he is not entitled to be indemnified by the corporation.
The indemnification provided for by Section 78.751 of the NGCL is not
exclusive of any other rights to which the indemnified party may be entitled.
The scope of indemnification continues to those who have ceased to hold such
positions, and to their heirs, executors and administrators. If a final
adjudication establishes that an indemnified party's acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was material
to the cause of action they cannot be indemnified.
Our bylaws provide for indemnification of officers, directors and others to
the fullest extent permitted by Nevada law.
The Employment Agreement dated as of May 1, 1999, between America's
Shopping Mall and Irwin Schneidmill also provides that we shall, to the fullest
extent permitted by the laws of the State of Nevada, defend, indemnify and hold
Mr. Schneidmill harmless from and against any and all judgments, fines, amounts
paid in settlement, reasonable and necessary out of pocket expenses (including
reasonable attorneys' fees), liabilities, damages, costs and claims actually
incurred by or asserted against him. Such indemnifiable expenses may arise out
of, result from or relate to any threatened, pending or completed action, suit
or proceeding made by a party by reason of his being or having been a director
or officer of America's Shopping Mall. Mr. Schneidmill is also indemnified
against any threatened, pending or completed action, suit or proceeding
instituted by or in the right of America's Shopping Mall to procure a judgment
in its favor and to which Mr. Schneidmill is a party.
All expenses incurred by Mr. Schneidmill which are indemnifiable by us are
to be paid or reimbursed as and when statements therefor are rendered.
Section 78.752 of the NGCL empowers us to purchase and maintain insurance
on behalf of a director, officer, employee or agent of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
authority to indemnify him against such liabilities and expenses.
We have agreed in our employment agreement with Irwin Schneidmill to use
our best efforts to obtain and maintain in full force and effect during the term
of the agreement, directors' and officers' liability insurance policies
providing full and adequate protection to Mr. Schneidmill in his various
capacities. The Board of Directors, however, has no obligation to purchase such
insurance if, in its opinion, coverage is available only on unreasonable terms
that would have a materially adverse effect on our financial condition. To date,
we have not been able to obtain a directors' and officers' liability insurance
policy on terms that we consider reasonable and affordable.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
America's Shopping Mall pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities covered by this prospectus, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of the issue.
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EXECUTIVE COMPENSATION
CASH AND OTHER COMPENSATION
The table which follows sets forth certain information concerning
compensation paid to, earned by or awarded to Irwin Schneidmill, our chief
executive officer, during the fiscal years ended April 30, 1997, 1998 and 1999.
During this time, Mr. Schneidmill served as chief executive officer of Advanced
Medical Sciences and as president of Remarkable Office Products. All information
presented below is shown on a consolidated basis. In June 1999, we acquired
Remarkable Office Products and in July 1999, Advanced Medical Sciences merged
into America's Shopping Mall.
No other executive officer's salary and bonus exceeded $100,000 for the
fiscal year ended April 30, 1999.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ------------------------------------------------------------------------------- ------ -------- ------------
<S> <C> <C> <C>
Irwin Schneidmill ............................................................. 1999 $145,000 $ 60,000
Chief Executive Officer and President 1998 102,000 --
1997 100,500 --
</TABLE>
No options or stock appreciation rights have been granted or exercised. At
this time, no long-term incentive plans exist, although we do anticipate that we
may consider such a plan in the future. Any such plan will be adopted by the
compensation committee of the Board of Directors and approved by the Board of
Directors as a whole.
EMPLOYMENT CONTRACTS
Irwin Schneidmill Effective May 1, 1999, Mr. Schneidmill entered into an
employment agreement with America's Shopping Mall. Under his employment
agreement, Mr. Schneidmill will serve as president and chief executive officer
of America's Shopping Mall and each of our direct or indirect subsidiaries.
Furthermore, we shall, during the term of the employment agreement, ensure the
election and retention of Mr. Schneidmill as a director as well.
Mr. Schneidmill is required to devote substantially his full time and energies
during normal business hours to our affairs. Although Mr. Schneidmill may have
outside business interests from which he profits separately, these interests may
not interfere with the performance of his duties or conflict with our interests.
The employment agreement expires April 30, 2004. During the term of the
employment agreement, Mr. Schneidmill is to receive a base salary at the annual
rate of $250,000 plus any additional incentive compensation which shall be paid
at the discretion of the Board of Directors. Mr. Schneidmill may also
participate in any health, disability, profit sharing or insurance plan we adopt
as well as any stock option plan or similar arrangement for the benefit of
senior executive officers. We will also provide exclusive use of an automobile
to Mr. Schneidmill, the cost of the lease or purchase financing of which shall
not exceed $1,000 per month. The employment agreement also contains covenants by
Mr. Schneidmill not to compete with our business. A state court may determine
not to enforce, or partially enforce this covenant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning those persons
(including any "group") who are known by us to be the beneficial owners of more
than five percent of any class of our voting securities. It also shows the
voting securities owned by our directors and executive officers individually,
and by all of our directors and executive officers as a group. Unless otherwise
indicated in the footnotes, each person named below has sole voting power and
investment power over the shares indicated.
All information is as of November 29, 1999. As of such date, 2,320,948
shares of common stock were issued and outstanding.
24
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP OF CLASS
- ---------------------------------------------------------------------------- -------------- ---------- --------
<S> <C> <C> <C>
Pioneer Ventures Associates Limited Partnership ............................ Preferred 10,000 100.0%
651 Day Hill Road, P.O. Box 40 Stock
Windsor, CT 06095
Pioneer Ventures Associates Limited Partnership ............................ Common Stock 3,598,697(1) 79.6%
651 Day Hill Road, P.O. Box 40
Windsor, CT 06095
Deerskin Trading Post, Inc. ................................................ Common Stock 618,181(2) 21.0%
2500 Arrowhead Drive
Carson City, NV 89706
Kathleen N. Patten(3) ...................................................... Common Stock 825,981(4) 35.6%
5 Saddle Hill Road
Far Hills, NJ 07931
John L. Patten(3) .......................................................... Common Stock 158,289(5) 6.8%
5 Saddle Hill Road
Far Hills, NJ 07931
Irwin Schneidmill .......................................................... Common Stock 510,000(6) 22.0%
10 Henry Street
Teterboro, NJ 07608
Gordon & Co. ............................................................... Common Stock 170,000 7.3%
One Gateway Center, Suite 516 West
Newton, MA 02154
Cachro International Holdings Ltd. ........................................ Common Stock 128,333 5.5%
ATTN: Dianne B. Maynard
Bay & Deveaux Street, 2nd Floor, P.O. Box N-1000
Nassau NP, Bahamas
Dennis McNany .............................................................. Common Stock 10,000(7) 0.4%
10 Henry Street
Teterboro, NJ 07608
Robert Trause .............................................................. Common Stock 10,000(7) 0.4%
429 Hackensack Street
Carlstadt, NJ 07072
Richard Truzzolino ......................................................... Common Stock 27 <1%
84 Tanglewood Road
East Hanover, NJ 07936
Chase Caro ................................................................. -- -- --
300 Mamaroneck Avenue
White Plains, NY 10605
John Ferraro ............................................................... -- --(8) --(8)
651 Day Hill Road, P.O. Box 40
Windsor, CT 06095
Debra Solan ................................................................ Common Stock 667 <1%
10 Henry Street
Teterboro, NJ 07608
All directors and executive officers as a group ............................ Common Stock 530,694 22.9%
</TABLE>
(Footnotes on next page)
25
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Includes 1,200,000 shares of common stock issuable upon conversion of 10,000
shares of Series A Senior Convertible Preferred Stock held by Pioneer
Ventures Associates Limited Partnership and 1,000,000 shares of common stock
issuable upon the exercise of warrants to purchase common stock held by
Pioneer. The shares beneficially owned by Pioneer also include a total of
1,398,697 shares of common stock held by Kathleen N. Patten, Mary C. Patten,
Sara E. Patten, Anne L. Patten, Irwin Schneidmill, Dennis McNany, Robert
Trause, and certain other shareholders of America's Shopping Mall, with
respect to which Pioneer has shared voting power under a voting and
shareholders agreement. See "Potential Change in Control" below.
(2) Consists of 618,181 shares of common stock which are issuable upon
conversion of a $3,400,000 convertible debenture due June 1, 2004.
(3) John L. Patten and Kathleen N. Patten are husband and wife, and may be
deemed to be a "group" for purposes of section 13(d) of the Securities
Exchange Act of 1934.
(4) Includes 714,834 shares held by Mrs. Patten in her own name, with respect to
which she has sole investment power and shared voting power (see note 1
above), 64,147 shares held by Mrs. Patten as custodian for her daughter Mary
C. Patten and 24,000 shares held by Mrs. Patten as custodian for her
daughter Sara E. Patten, as to which she has sole investment power and
shared voting power, and 23,000 shares held by her daughter Anne L. Patten,
with respect to which Mrs. Patten may be deemed to have shared investment
power and shared voting power.
(5) Includes 108,466 shares held by Mr. Patten in his own name with sole
investment and voting power. Mr. Patten may be deemed the beneficial owner
of 29,809 shares held by Benchmark Capital LLC, 20,000 shares held by
Patform Development Corp. and 14 shares held by Adwell Inc. since he is
president of each of these companies, over which he may be deemed to have
sole investment and voting power.
(6) Includes 507,750 shares held by Mr. Schneidmill with sole investment power
and shared voting power (see note 1 above). Mr. Schneidmill may be deemed
the beneficial owner of 2,250 shares held by his wife Amy Schneidmill.
(7) Held with sole investment power and shared voting power (see note 1 above).
(8) Mr. Ferraro does not hold any shares of stock in his own name. However,
Mr. Ferraro is a director of the general partner of Pioneer and its designee
to the Board of Directors of America's Shopping Mall pursuant to the terms
of the voting and shareholders agreement. See "Potential Change in Control"
below. Accordingly, Mr. Ferraro may be deemed the beneficial owner of
Pioneer's 10,000 shares of Series A Senior Convertible Preferred Stock, the
1,200,000 shares of common stock issuable upon conversion of the preferred
stock and the 1,000,000 shares of common stock issuable upon the exercise of
warrants to purchase common stock held by Pioneer, with respect to which he
may be deemed to have shared investment and voting power.
POTENTIAL CHANGE IN CONTROL
Pioneer Ventures Associates Limited Partnership and certain principal
shareholders of America's Shopping Mall are parties to a Voting and Shareholders
Agreement, dated as of May 21, 1999. The agreement provides that so long as
(a) Pioneer owns any of our Series A Convertible Preferred Stock, or (b) common
stock obtained through the conversion of this preferred stock, or (c) any
amounts remain outstanding under a $2,000,000 subordinated debenture due May 1,
2003, then each party to the voting agreement shall vote all of their shares of
common stock to elect one person designated by Pioneer as a director at any
meeting of our shareholders at which such designee shall be nominated.
The voting agreement provides that if a default under, or breach of the
voting agreement occurs which Pioneer believes adversely affects it or its
rights under the voting agreement or the agreement relating to its investment in
America's Shopping Mall, the parties to the voting agreement will call a special
meeting of the shareholders and will vote their shares to elect a new Board of
Directors of which persons nominated by Pioneer shall constitute a majority of
the members. Pioneer designated directors will remain a majority of our Board
for so long as Pioneer, its partners or affiliates own the preferred stock or
the common stock obtained through the conversion of the preferred stock or there
remains any amount outstanding under their subordinated debenture.
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 9, 1999, Advanced Medical Sciences sold the following people
shares of its common stock. These shares were later converted into shares of
America's Shopping Mall common stock as a result of the merger of Advanced
Medical Sciences into America's Shopping Mall:
o 14,500,000 shares were sold to John L. Patten for $290,000 previously
paid in cash. Mr. Patten has since gifted these shares to various members
of his immediate family. These shares were converted into 483,334 shares
of our common stock. See "Security Ownership of Certain Beneficial Owners
and Management" above.
o 3,750,000 shares were sold to John L. Patten for $75,000 in cash.
Mr. Patten has since gifted these shares to various members of his
immediate family. These shares were converted into 125,000 shares of our
common stock.
o 3,000,000 shares were sold to Irwin Schneidmill in consideration for
$30,000 of unpaid consulting fees due to him. These shares were later
converted into 100,000 shares of our common stock. See "Security
Ownership of Certain Beneficial Owners and Management" above.
On May 11, 1999, Advanced Medical Sciences sold 10,000,000 shares of its
common stock to Kathleen N. Patten for $200,000 in cash. These shares were
converted into 333,334 shares of our common stock as a result of the merger.
On May 20, 1999, America's Shopping Mall, through our wholly-owned
subsidiary, The Remarkable Group, Inc., purchased all of the outstanding stock
of Creadis Promotions Inc. The stock was purchased from Irwin Schneidmill and
from Kathleen N. Patten. Mr. Schneidmill and Mrs. Patten, together, were paid
cash totaling $400,000, and each received 350,000 shares of our common stock for
their interests in Creadis.
In December 1998, Creadis purchased all of the operating assets of Heyden
Corporation. The purchase price consisted of $75,000 in cash, an 8% secured
promissory note in the amount of $245,557 due in full on February 8, 1999, and
an 8% unsecured promissory note in the amount of $42,298 to be paid in sixty
equal monthly installments. Creadis simultaneously entered into a five-year
consulting agreement with McKenzie Consulting, Inc. requiring Creadis to pay
McKenzie Consulting an aggregate of $367,200 in sixty equal monthly payments.
The obligations under the two promissory notes and the consulting agreement were
secured by guarantees executed by Mr. Schneidmill and John L. Patten.
In connection with the Deerskin and Joan Cook asset purchase, in May 1999,
James T. Patten, the brother of John L. Patten, received a $100,000 unsecured 8%
convertible debenture due June 1, 2004 from America's Shopping Mall. The
debenture is currently convertible into 18,181 shares of our common stock.
On June 3, 1999, America's Shopping Mall, through its wholly-owned
subsidiary, The Remarkable Group, Inc., purchased all of the outstanding stock
of Dynamic Products Corp. We issued a total of 240,000 shares of our common
stock to Dynamic's shareholders for their interests. Dynamic's stock was held by
certain parties related to America's Shopping Mall. The following related
parties received shares of our common stock in exchange for their interests in
Dynamic:
o Irwin Schneidmill received 57,500 shares;
o Amy Schneidmill, the wife of Irwin Schneidmill, received 2,250 shares;
o Kathleen N. Patten received 31,500 shares; and
o Sara Patten, Mary Patten, and Ann Patten, Kathleen Patten's daughters,
each received 15,000 shares.
27
<PAGE>
DESCRIPTION OF CAPITAL STOCK
America's Shopping Mall, Inc.'s amended articles of incorporation authorize
us to issue 20,000,000 shares of common stock, par value $0.001 per share, and
20,000 shares of preferred stock, par value $0.001 per share.
As of December 9, 1999, we had 2,320,948 shares of common stock and 10,000
shares of Series A Senior Convertible Preferred Stock issued and outstanding.
Another 2,836,362 shares of common stock are reserved for issuance upon the
exercise of warrants or upon conversion of certain convertible securities.
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share
owned of record on all matters voted upon by stockholders, and a majority vote
of the outstanding shares present in person or by proxy at a stockholders'
meeting is required for most actions to be taken by stockholders. Our directors
are elected by a plurality of the votes cast. The holders of the common stock do
not have cumulative voting rights. Accordingly, the holders of a majority of the
voting power of the shares voting for the election of directors can elect all of
the directors if they choose to do so. The common stock bears no preemptive
rights, and is not subject to redemption, sinking fund or conversion provisions.
Holders of common stock are entitled to receive dividends if, as and when
declared by our Board of Directors out of funds legally available for dividends,
subject to the dividend and liquidation rights of our outstanding preferred
stock and any other series of preferred stock that we may issue in the future
and subject to any dividend restriction contained in any credit facility which
we may enter into in the future. Any dividends declared with respect to shares
of common stock will be paid pro rata in accordance with the number of shares of
common stock held by each stockholder. America's Shopping Mall does not,
however, anticipate paying any cash dividends in the foreseeable future.
In the event of our liquidation, dissolution or winding up, the holders of
our common stock are entitled to share equally and ratably in the assets, if
any, remaining after the payment of all of our debts and liabilities and payment
of the liquidation preference of the holders of the Preferred Stock. The
outstanding shares of common stock are, and the shares of common stock offered
by the selling shareholders hereby will be, fully paid and nonassessable.
See "Security Ownership of Certain Beneficial Owners and
Management--Potential Change in Control" on page 23 for additional information.
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK
The Board of Directors has designated 20,000 shares of preferred stock as
Series A Senior Convertible Preferred Stock of which 10,000 shares are currently
issued and outstanding.
Each share of preferred stock is convertible at the option of Pioneer
Ventures Associates Limited Partnership, the holder of the preferred stock, at
any time into a number of shares of America's Shopping Mall common stock equal
to the "Stated Value" (currently $420.00 per share and subject to adjustment) of
the shares of preferred stock to be converted (plus accumulated dividends, if so
elected by the holder) divided by $3.50. Currently, the 10,000 shares of
preferred stock issued and outstanding may be converted into 1,200,000 shares of
common stock. The conversion price may be reset to a lower value in the future
should the average closing bid price of our common stock as reported on the OTC
Bulletin Board be below $3.50. The conversion price and the number of shares of
common stock issuable upon conversion of the preferred stock is also subject to
further adjustment in certain circumstances in order to protect against
dilution.
Pioneer is entitled an 8% cumulative annual cash dividend payable quarterly
($8.40 per share per quarter) in arrears on each March 31, June 30, September
30, and December 31 out of funds legally available for the payment of dividends
under Nevada law. We may, upon approval by a majority of our entire Board of
Directors, elect to pay dividends on the preferred stock, by issuing additional
shares of preferred stock with identical terms and provisions to the existing
preferred stock. If we elect to pay any dividend by issuing additional preferred
stock in lieu of a cash dividend, the amount of the dividend will be at the rate
of 13% per annum, or $13.65 per share per quarter. The failure to pay any
dividend when due is an event of default under the Certificate of Designation of
the preferred stock and results in
28
<PAGE>
additional dividend payments at the default rate. Furthermore, any event default
under the Certificate of Designation will trigger the change of control
provisions pursuant of the Voting and Shareholders Agreement, described above
under "Security Ownership of Certain Beneficial Owners and Management-Potential
Change of Control" on page .
Upon our liquidation, dissolution or winding-up, Pioneer is entitled to a
liquidation preference of $1,000 per share and an amount equal to any accrued
and unpaid dividends to the payment date. Pioneer is entitled to receive these
amounts before any payment or distribution is made to the holders of our common
stock or any other equity securities of America's Shopping Mall.
Pioneer is also entitled
o to purchase or subscribe for any capital stock, equity or debt securities
or any options, warrants, rights to purchase any such securities or
rights of America's Shopping Mall proposed to be issued by us; and
o provide any debt financing proposed to be obtained by America's Shopping
Mall.
This right of first refusal is subject to certain conditions and
exceptions.
The preferred stock has full voting rights and votes together with the
common stock as a single class. Each share of preferred stock entitles the
holder to cast the number of votes to which he would be entitled if the
preferred stock had been converted into shares of common stock on the
appropriate record date.
So long as an aggregate of at least 5% of the outstanding preferred stock
(including in the denominator any preferred stock which has been converted into
common stock) is held by Pioneer, America's Shopping Mall may not, without the
affirmative vote or consent of the holders of a majority of all outstanding
shares of the preferred stock voting separately as a class, do any of the
following:
o Amend, alter or repeal any provision of its Articles of Incorporation or
By-Laws so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the preferred stock.
o Authorize or issue any additional equity securities of any subsidiaries
(with certain exceptions).
o Approve any merger, consolidation, compulsory share exchange or sale of
assets which we are a party.
o Repurchase or redeem any equity securities or pay dividends or other
distributions on any equity securities.
o Liquidate, dissolve, recapitalize or reorganize.
o Incur any indebtedness for borrowed money or guarantee indebtedness of
other persons, directly or indirectly, except indebtedness of any
wholly-owned subsidiaries.
o Effect any fundamental changes in the nature of our business, including
acquiring or investing in another business entity.
o Approve the sale or transfer of any material intangible or intellectual
property, other than the issuance of licenses.
We have the right to redeem any or all of the preferred stock on any
quarterly dividend payment date provided written notice is first given. The
redemption price for each share of preferred stock to be redeemed shall be paid
by in cash in an amount equal to the stated value of such share ($420.00), plus
an amount sufficient such that the holder thereof receives an annual rate of
return equal to 25%, for the period from the original issue to the redemption
date, on a compounded basis.
WARRANTS
As of June 30, 1999, Pioneer held warrants to purchase 1,000,000 shares of
our common stock.
Exercise Price and Term. Each of the warrants entitles the holder thereof
to purchase at any time until May 21, 2004, one share of common stock at an
exercise price of $4.50 per share, subject to adjustment. The holder of warrant
may exercise it by surrendering the warrant certificate to us, together with a
notice of exercise. The notice of exercise must be accompanied by payment in
full of the exercise price.
Adjustments. The exercise price and number of shares of common stock
purchasable upon the exercise are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, combinations and
29
<PAGE>
reclassification of the common stock. Additionally, an adjustment would be made
in the case of a reclassification or exchange of the common stock, consolidation
or merger of America's Shopping Mall with another corporation (other than a
consolidation or merger in which we are the surviving corporation) or sale of
all or substantially all of our assets. These adjustment provisions are intended
to enable the warrant holder to acquire the kind and number of shares of stock
or other property receivable in a consolidation by the holder of the like number
of shares of common stock, that might otherwise have been purchased upon the
exercise. The warrants do not confer upon the holder any voting, dividend or
other rights as shareholders of America's Shopping Mall.
TRANSFER AGENT
The Transfer Agent for our common stock is Continental Stock Transfer &
Trust Company, New York, New York.
30
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of our common stock described in this
prospectus for the shareholders named below under the caption "Selling
Shareholders." We are registering the common stock in order to provide our
shareholders with freely tradable shares, but we do not know whether any of them
have specific plans to sell their shares. Our shareholders may, without
limitation and from time to time, sell all or a portion of their shares of
common stock covered by this prospectus on any stock exchange (should we
eventually become listed on an exchange), over-the-counter market or trading
facility on which the common stock is traded, at market prices prevailing at the
time of sale, at fixed prices or at negotiated prices. The common stock may,
without limitation, be sold by selling shareholders by one or more of the
following methods:
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o Block trades in which the broker-dealer engaged by the selling
shareholder will attempt to sell the common stock as agent for the
selling shareholder but may position and resell a portion of the block as
principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by such
broker-dealer for its account;
o Privately negotiated transactions;
o In accordance with Rule 144 promulgated under the Securities Act of 1933,
as amended, rather than pursuant to this prospectus;
o A combination of any such methods of sale; or
o Any other method permitted pursuant to applicable law.
Such transactions may or may not involve brokers or dealers. To our
knowledge, the shareholders have not entered into any agreements, understandings
or arrangements with any underwriters or broker-dealers regarding the sale of
their securities, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of the shares by the selling shareholders.
Selling shareholders may sell their shares directly to purchasers or to or
through broker-dealers, which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the selling shareholders or the purchasers of the shares for
whom such broker-dealers may act as agents or to whom they sell as principal, or
both. Such compensation as to a particular broker-dealer might be in excess of
customary commissions.
In effecting sales, brokers-dealers engaged by selling shareholders may
arrange for other broker-dealers to participate in such sales. Broker-dealers
may agree with selling shareholders to sell a specified number of shares at a
stipulated price, and, to the extent such broker-dealer is unable to do so
acting as agent for the selling shareholders, to purchase as principal any
unsold common stock at the price required to fulfill the broker-dealer
commitment to the selling shareholders.
The selling shareholders may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with such selling
shareholder, including in connection with distributions of the common stock by
such broker-dealers. The selling shareholders may enter into option or other
transactions with broker-dealers that involve the delivery of their shares to
the broker-dealers, who may then resell or otherwise transfer such shares. The
selling shareholders may also loan or pledge their shares to a broker-dealer and
the broker-dealer may sell the shares so loaned or, upon a default, may sell or
otherwise transfer the pledged shares.
Selling shareholders and any broker-dealers or agents that participate with
the selling shareholders in sales of shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933, as amended.
Because certain selling shareholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, these selling
shareholders will be subject to the prospectus
31
<PAGE>
delivery requirements of the Securities Act. We have informed such selling
shareholders that the anti-manipulative rules under the Securities Exchange Act,
including Regulation M, may apply to their sales in the market.
Upon our being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of such
selling shareholder's shares of common stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, we will, if required, file a supplement or an amendment to
this prospectus disclosing the name of each such selling shareholder and of the
participating broker-dealer(s), the number of shares involved, the price at
which such shares were sold, the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, that such broker-dealer(s)
did not conduct any investigation to verify the information set out in this
prospectus, and the other facts material to the transaction. In addition, upon
our being notified by a selling shareholder that a donee or pledgee intends to
sell more than 500 shares, we will file a supplement to this prospectus.
Sales of a substantial number of shares of the common stock in the public
market by shareholders or even the potential of such sales could adversely
affect the market price for our common stock, which could have a direct impact
on the value of the shares being offered by the selling shareholder.
America's Shopping Mall will pay all fees and expenses incident to the
registration of our common stock pursuant to this prospectus, other than
underwriting discounts, selling commissions and brokerage fees, if any, which
will be borne by the selling shareholders.
SELLING SHAREHOLDERS
The following table sets forth the name, number of shares of common stock
and the number of shares underlying the convertible securities owned by each
shareholder. As indicated below, certain shareholders may hold a position,
office or other material relationship with us. Since the shareholders may sell
all, a portion or none of their shares, no estimate can be made of the aggregate
number of shares that may actually be sold by our shareholders.
The shares offered by this prospectus may be offered from time to time by
the shareholders named below (based on the number of shares of common stock, and
shares issuable upon conversion of the convertible securities held on
November 29, 1999).
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING
WARRANTS OR
CONVERTIBLE TOTAL SHARES
NAME SECURITIES COMMON STOCK TO BE SOLD
- -------------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Pioneer Ventures Associates Limited Partnership..................... 2,200,000 2,200,000
Irwin Schneidmill................................................... 507,750 507,750
Kathleen Patten..................................................... 714,834 714,834
Sterling/Carl Marks Capital, Inc.................................... 46,346 46,346
CMCO, Inc........................................................... 18,827 18,827
Robert Davidoff..................................................... 18,827 18,827
Sara Patten......................................................... 15,000 15,000
Mary Patten......................................................... 64,133 64,133
Anne Patten......................................................... 23,000 23,000
Philip Failla....................................................... 12,000 12,000
Brian Ugles......................................................... 3,000 3,000
Cathy Santo......................................................... 3,000 3,000
Amy Schneidmill..................................................... 2,250 2,250
Janice Ewenstein.................................................... 1,500 1,500
Deerskin Trading Post, Inc.......................................... 618,181 618,181
James T. Patten..................................................... 18,181 18,181
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING
WARRANTS OR
CONVERTIBLE TOTAL SHARES
NAME SECURITIES COMMON STOCK TO BE SOLD
- -------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
ABJM................................................................ 1,167 1,167
Adwell Inc.......................................................... 14 14
Dorothy Bechtel..................................................... 667 667
Matthew Bechtel..................................................... 167 167
Stacey Bechtel...................................................... 167 167
Sila Bhattachaya.................................................... 300 300
Bohemond Corporation................................................ 1,667 1,667
Cherry Hill Inc..................................................... 6,500 6,500
Marvin Edoff........................................................ 500 500
Elvena Inc.......................................................... 14,792 14,792
Walter Essman....................................................... 667 667
Joseph R. Ford, custodian for Amanda Ford (UGMA NJ)................. 334 334
Joseph R. Ford, custodian for Kelly Ford (UGMA NJ).................. 334 334
Edson P. Foster, Jr................................................. 2 2
Samuel Fox.......................................................... 2,500 2,500
Greene Family Partnership........................................... 667 667
Thomas Hardy........................................................ 1,667 1,667
Elizabeth F. Haselkorn.............................................. 834 834
David Haselkorn..................................................... 534 534
William J. Jaxtheimer............................................... 500 500
Beverly M. Lopinto.................................................. 2,700 2,700
Carl G. Love........................................................ 334 334
Krystyna Sternal-McGrath............................................ 34 34
Dennis McNany....................................................... 10,000 10,000
Barbara P. Melera................................................... 834 834
Meridian Capital & Investment Corp.................................. 4,167 4,167
Jules T. Mitchell................................................... 1,600 1,600
Alfonse Nesta & Celina Nesta JT/TEN................................. 2 2
789974 Ontario Limited.............................................. 1,914 1,914
OPCO, nominee for Olson Payne & Company............................. 834 834
Mae Parker.......................................................... 40,000 40,000
Michele M. Rozinski Parker.......................................... 3 3
Carmen S. Patten, Sr................................................ 40,000 40,000
James J. Patten..................................................... 90,000 90,000
Kathleen N. Patten, custodian for Mary C. Patten (UGMA NJ).......... 14 14
Kathleen N. Patten, custodian for Sara E. Patten (UGM NJ)........... 9,000 9,000
Abraham Pennock..................................................... 500 500
Robert Portman...................................................... 11,667 11,667
Bhupat Rawal........................................................ 240 240
Robsal Inc.......................................................... 3,334 3,334
Gail Rock........................................................... 1,600 1,600
Richard Rodman, custodian for Alison Rodman (UGMA NJ)............... 47 47
Abraham J. Salaman.................................................. 834 834
Mark Salaman........................................................ 167 167
Michael Salaman..................................................... 167 167
Steven Salaman...................................................... 167 167
Selig Consultants Inc............................................... 35,000 35,000
Brijendra S. Srivastava & Madhu Srivastava JT/TEN................... 34 34
Laxmi S. Srivastava & Prem L. Srivastava JT/TEN..................... 150 150
Antonina Sternal.................................................... 834 834
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING
WARRANTS OR
CONVERTIBLE TOTAL SHARES
NAME SECURITIES COMMON STOCK TO BE SOLD
- -------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Russell B. Stevenson, Jr............................................ 834 834
Russell B. Stevenson................................................ 834 834
Robert Trause....................................................... 10,000 10,000
Richard Truzzolino.................................................. 27 27
Philip J. Watrous................................................... 30,000 30,000
Hamet A. Watt....................................................... 800 800
Owen Weislow........................................................ 300 300
Florence M. Woelfling............................................... 167 167
Cede & Co........................................................... 4,763 4,763
Davis Aronoff & Millie Aronoff & Judith Trupin JT/TEN............... 2 2
N. George Avram..................................................... 2 2
Thomas J. Boorman................................................... 1 1
Ray Camire.......................................................... 2 2
Ludmila Chmeliwksij................................................. 2 2
Jill Choder......................................................... 2 2
John Desimone, custodian for Johnathan Desimone (UGMA CT)........... 4 4
Ernest A. Evans & Ralph Brooks JT/TEN............................... 1 1
Diane Fackenberg.................................................... 1 1
Anna Feldi.......................................................... 2 2
Sherman Haugh, custodian for Brandon Haugh (UGMA CT)................ 1 1
Atty. George V. Lawler.............................................. 2 2
Pauli R. Lehto...................................................... 1 1
Paul A. Mayotte & Barbara J. Mayotte JT/TEN......................... 1 1
Robert G. Miner..................................................... 1 1
Brian D. Pane....................................................... 1 1
Paul L. Forchheimer & Co............................................ 8 8
Ralph Quitadamo..................................................... 1 1
Arthur Salaman...................................................... 14 14
Tim Schoechle & Mary Schoechle JT/TEN............................... 6 6
Mark Silberstein.................................................... 2 2
Bruce Sundack....................................................... 2 2
Richard G. Trott.................................................... 1 1
Patrick A. Zecco.................................................... 4 4
Michael V. Zona..................................................... 1 1
Gordon & Co......................................................... 170,000 170,000
Cachro Intl. Holdings Ltd........................................... 128,333 128,333
John L. Patten...................................................... 108,466 108,466
John J. Cunningham.................................................. 41,766 41,766
Benchmark Capital LLC............................................... 29,809 29,809
Patform Development Corp............................................ 20,000 20,000
Nanci Urban......................................................... 18,726 18,726
Robert S. Portman................................................... 10,000 10,000
John J. Cunningham and Karen J. Cunningham JT/TEN................... 6,450 6,450
Helen E. Patten..................................................... 4,966 4,966
Greater Metropolitan Investment Services Inc........................ 4,000 4,000
Ace International Corp.............................................. 2,066 2,066
Wolcot Capital Inc. M/P/P/P Delaware Charter Trustee................ 834 834
Wolcot Capital Inc.................................................. 800 800
Debra L. Solan...................................................... 667 667
USCC Trading Domestic Pink Sheets................................... 567 567
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING
WARRANTS OR
CONVERTIBLE TOTAL SHARES
NAME SECURITIES COMMON STOCK TO BE SOLD
- -------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Richard Greene...................................................... 500 500
John J. Cunningham & Karen J. Cunningham JT/TEN..................... 500 500
Ann Greene.......................................................... 500 500
William P. Bennett.................................................. 462 462
Steven Tobias....................................................... 334 334
Pershing Limited.................................................... 334 334
Charles A. Sisto.................................................... 333 333
Carl Donald Fraley IRRA FBO Carl Donald Fraley...................... 333 333
Henry Macuga & May Dudek JT/TEN..................................... 333 333
Sander Jacobs....................................................... 234 234
Robert Lobel & Dorothy Lobel JT/TEN................................. 167 167
Pedro P. Cancel Jr.................................................. 166 166
Dharm V. Singh & Sita Singh JT/TEN.................................. 116 116
Muhammed S. Barwari................................................. 91 91
Sandy Butler........................................................ 79 79
Fritz Surman........................................................ 74 74
Sunita Garg & Prem Garg JT/TEN...................................... 66 66
Jose A. Rosa........................................................ 46 46
Ms. Kimberly M. Calderaro & Mr. Michael Borozan JT/TEN.............. 40 40
Leon Lewenstein..................................................... 34 34
Delecia Ann Holt, custodian for Isabel Dorien Eva
Holt-Moreno (UCUTMA, until Age 21)................................ 34 34
Knights Securities, L.P............................................. 34 34
Diane Alburtus...................................................... 34 34
Matthew J. Henry, custodian for MaryGrace Henry (UGMA NJ)........... 33 33
Metthew J. Henry, custodian for John F. Henry (UGMA NJ)............. 33 33
Suzanne Jungdahl.................................................... 33 33
Kingswood Inc. NV................................................... 30 30
Philip R. Cypher and Charlotte L. Cypher JT/TEN..................... 21 21
Barbara Poaline..................................................... 20 20
Robert E. Bloch..................................................... 17 17
Stephan Baroni...................................................... 16 16
George C. Hill...................................................... 10 10
Robert F. Schweizer................................................. 10 10
Mr. Harold M. Cornell & Arlene Cornell JT/TEN....................... 7 7
John Schweizer...................................................... 6 6
Walter P. Sterling.................................................. 1 1
James H. Eacott, Jr................................................. 1 1
Shirley T. Johnson.................................................. 1 1
Olgierd W. Zacharski................................................ 1 1
---------- ---------- ----------
Total:.............................................................. 2,836,362 2,320,948 5,157,310
</TABLE>
35
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
America's Shopping Mall by Emmet, Marvin & Martin, LLP, New York, New York.
EXPERTS
The financial statements of America's Shopping Mall included in this
prospectus have been audited by Arthur Yorkes & Company, independent public
accountants, and Smallberg Sorkin & Company, LLP, independent public
accountants, as set forth in their reports, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed, with the Securities and Exchange Commission, Washington, DC,
a registration statement on Form SB-2 under the Securities Act with respect to
the common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement, the exhibits and schedules.
For further information, about our common stock and us, please refer to the
registration statement, exhibits and schedules. Statements made in this
prospectus as to the contents of any contract, agreement or other documents
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.
The registration statement, exhibits and schedules may be inspected without
charge and copied at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the SEC's
regional offices located at Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may be obtained at prescribed rates from such
offices upon the payment of the fees proscribed by the SEC. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330.
The SEC maintains a web site that contains registration statements,
reports, proxy and other information regarding registrants that file
electronically with the SEC. The address for the internet site is
http://www.sec.gov.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA:
AMERICA'S SHOPPING MALL, INC. AND SUBSIDIARIES
Pro forma Unaudited Condensed Financial Statements......................................................... F-2
Pro forma Unaudited Condensed Balance Sheet................................................................ F-3
Pro forma Unaudited Condensed Statement of Operations...................................................... F-4
Notes to Pro forma Unaudited Condensed Financial Statements................................................ F-5
HISTORICAL:
AMERICA'S SHOPPING MALL, INC.
Independent Auditors' Report............................................................................... F-6
Balance Sheet.............................................................................................. F-7
Statement of Operations and Comprehensive Loss............................................................. F-8
Statements of Shareholders' Equity......................................................................... F-9
Statements of Cash Flows................................................................................... F-10
Notes to Financial Statements.............................................................................. F-11
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
Independent Auditors' Report............................................................................... F-17
Statement of Assets Acquired Subject to Certain Liabilities................................................ F-18
Statements of Revenues and Direct Operating Expenses of Business Acquired.................................. F-19
Statement of Cash Flows.................................................................................... F-20
Notes to Financial Statements.............................................................................. F-21
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
Independent Auditors' Report............................................................................... F-23
Consolidated Balance Sheet................................................................................. F-24
Consolidated Statement of Operations and Accumulated Deficit............................................... F-25
Consolidated Statement of Cash Flows....................................................................... F-26
Notes to Financial Statements.............................................................................. F-27
Independent Auditors' Report............................................................................... F-30
Consolidated Balance Sheet................................................................................. F-31
Consolidated Statement of Operations and Accumulated Deficit............................................... F-32
Consolidated Statement of Cash Flows....................................................................... F-33
Notes to Consolidated Financial Statements................................................................. F-34
CREADIS PROMOTIONS, INC.
Independent Auditors' Report............................................................................... F-37
Balance Sheet.............................................................................................. F-38
Statement of Operations.................................................................................... F-39
Statement of Cash Flows.................................................................................... F-40
Notes to Financial Statements.............................................................................. F-41
HEYDEN INCORPORATED
Independent Auditors' Report............................................................................... F-43
Statement of Assets Acquired............................................................................... F-44
Statement of Revenues and Direct Operating Expenses of Business Acquired................................... F-45
Statement of Cash Flows.................................................................................... F-46
Notes to Financial Statements.............................................................................. F-47
</TABLE>
F-1
<PAGE>
AMERICA'S SHOPPING MALL, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
The following entities which are included in these pro forma unaudited
financial statements are defined below:
America's Shopping Mall, Inc. -- the "Company"
Advanced Medical Sciences, Inc. -- "Sciences"
Deerskin and Joan Cook Catalog Businesses -- "Deerskin"
Dynamic Products Corp. and Subsidiary -- "Dynamic"
Creadis Promotions, Inc. -- "Creadis"
Heyden Incorporated -- "Heyden"
The Remarkable Group, Inc. -- "Remarkable"
The unaudited pro forma statement of operations of Creadis reflects the
operations of the predecessor company, Heyden, for the period May 1, 1998
through December 9, 1998 combined with the operation of Creadis from the date of
acquisition, December 10, 1998, through April 30, 1999.
With the exception of Dynamic, the pro forma unaudited financial statements
are as of April 30, 1999, and for the year then ended. The pro forma unaudited
financial statements of Dynamic are as of June 30, 1999, and for the year then
ended.
The following unaudited pro forma condensed balance sheet at April 30, 1999
and the unaudited pro forma condensed statement of operations for the year ended
April 30, 1999 of the Company and its wholly-owned subsidiaries, all of which
were acquired at various dates after April 30, 1999 reflect the following
transactions:
(A) The purchase by an investment group on May 21, 1999 of 10,000 shares of
convertible preferred stock of the Company for $4,200,000.
(B) The merger, in July 1999, of Sciences into the Company and the
conversion of each common share of Sciences into 1/30th of a common
share of the Company.
(C) The purchase by Sciences in April 1999, of certain assets of Initio,
Inc., which are being operated by Deerskin for $3,500,000 above book
value. The consideration of approximately $5,975,000 consisted of the
Company issuing $3,500,000, 8% convertible debentures due June 1, 2004,
cash in the amount of $473,328, and the assumption of a $2,000,000, 8%
subordinated debenture of the seller, due May 1, 2003.
(D) The purchase by Remarkable, a newly formed wholly-owned subsidiary of
the Company, of all the shares of Dynamic for 240,000 common shares of
the Company.
(E) The purchase, by Remarkable, of all the outstanding shares of Creadis
for $400,000 and 700,000 common shares of the Company.
The unaudited pro forma condensed balance sheet assumes all of the above
transactions occurred as of April 30, 1999. The unaudited pro forma condensed
statement of operations assumes all of the above transactions had occurred
May 1, 1998.
These pro forma condensed financial statements should be read in
conjunction with the Notes to Pro Forma Unaudited Condensed Financial
Statements, and the financial statements of the Company and the acquired
companies and the related notes thereto.
The pro forma condensed financial statements are not necessarily indicative
of what the actual financial position and results of operations would have been
had the transactions occurred on May 1, 1998 nor do they purport to represent
the future financial condition or future operations of the Company.
F-2
<PAGE>
AMERICA'S SHOPPING MALL, INC.
PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
APRIL 30, 1999
<TABLE>
<CAPTION>
AMERICA'S SHOPPING DEERSKIN DYNAMIC
MALL, INC. AND JOAN COOK PRODUCTS CORP.
(FORMERLY ADVANCED CATALOG AND SUBSIDIARY
MEDICAL SCIENCES, INC.) BUSINESSES (JUNE 30, 1999)
----------------------- ----------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ (4,522) $ 3,600 $ (17,232)
Accounts receivable, net of allowances..... 14,582 33,787
Inventory.................................. 1,934,969 101,778
Due from Creadis Promotions, Inc........... 5,000 16,869
Due from Deerskin.......................... 34,000 (34,000) 4,482
Due from Dynamic Products Corp. &
Subsidiary............................... 17,509
Subscriptions receivable................... 140,000
Prepaid and other current assets........... 10,000 377,099 3,741
----------- ----------- -----------
201,987 2,296,250 143,425
Property and equipment, net.................. 254,122 20,737
Intangible assets, net of amortization....... 3,500,000 1,022,683
Other assets:................................ 7,360
Rent deposit.................................
Investment in subsidiaries...................
----------- ----------- -----------
$ 201,987 $ 6,050,372 $ 1,194,205
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities................ $ 22,500 $ 77,044 $ 182,505
Due to Advanced Medical Sciences, Inc...... 43,500
Due to seller.............................. 3,973,328
Loans payable..............................
Due to America's Shopping Mall, Inc........ 38,498
Current portion of long-term debt.......... 80,120
Due to Dynamic Products Corp. &
Subsidiary...............................
Due to shareholders........................ 30,000 420,690
----------- ----------- -----------
Total current liabilities.................... 52,500 4,050,372 765,313
Long-term debt:
Subordinated debenture payable............. 2,000,000
Convertible debenture payable..............
----------- ----------- -----------
2,000,000
----------- ----------- -----------
Total liabilities............................ 52,500 6,050,372 765,313
----------- ----------- -----------
Shareholders' equity:
Preferred stock............................
Additional paid-in capital--preferred
stock....................................
Common stock............................... 1,048 7,750
Additional paid-in capital--common stock... 1,442,542 1,770,000
Common stock subscribed.................... 200,000
Accumulated deficit........................ (1,494,103) (1,348,858)
----------- ----------- -----------
149,487 428,892
----------- ----------- -----------
$ 201,987 $ 6,050,372 $ 1,194,205
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
PRO FORMA
CREADIS ADJUSTMENTS
PROMOTIONS, INC. DB (CR) TOTAL
------------------------ ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 3,422 $ 4,200,000 (A) $1,590,223
(1,438,498) (D)
(400,000) (B)
(22,219) (G)
(473,328) (I)
(205,000) (J)
(56,000) (K)
Accounts receivable, net of allowances..... 154,427 202,796
Inventory.................................. 35,770 2,072,517
Due from Creadis Promotions, Inc........... (21,869) (H)
Due from Deerskin.......................... (4,482) (G)
Due from Dynamic Products Corp. &
Subsidiary............................... 38,498 (D)
26,701 (G)
(38,498) (F)
(44,210) (H)
Subscriptions receivable................... 140,000
Prepaid and other current assets........... 6,622 397,462
-------- ----------- ----------
200,241 1,561,095 4,402,998
Property and equipment, net.................. 26,966 301,825
Intangible assets, net of amortization....... 128,750 4,651,433
Other assets:................................ 2,860 10,220
Rent deposit................................. 56,000 (K) 56,000
(1,400,000) (F)
1,400,000 (D)
Investment in subsidiaries................... 400,000 (B)
1,260,000 (B)
(1,660,000) (E)
432,000 (B)
(432,000) (E)
-------- ----------- ----------
$358,817 $ 1,617,095 $9,422,476
-------- ----------- ----------
-------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities................ $167,732 $ 449,781
Due to Advanced Medical Sciences, Inc...... 5,000 48,500 (H)
Due to seller.............................. 3,973,328 (I)
Loans payable.............................. 39,478 39,478
Due to America's Shopping Mall, Inc........ 38,498 (F)
Current portion of long-term debt.......... 80,120
Due to Dynamic Products Corp. &
Subsidiary............................... 17,579 17,579 (H)
Due to shareholders........................ 450,690
-------- ----------- ----------
Total current liabilities.................... 229,789 4,077,905 1,020,069
Long-term debt:
Subordinated debenture payable............. 2,000,000
Convertible debenture payable.............. (3,500,000) (I) 3,500,000
-------- ----------- ----------
(3,500,000) 5,500,000
-------- ----------- ----------
Total liabilities............................ 229,789 577,905 6,520,069
-------- ----------- ----------
Shareholders' equity:
Preferred stock............................ (10) (A) 10
Additional paid-in capital--preferred
stock.................................... (4,199,990) (A) 3,994,990
205,000 (J)
7,752 (C)
Common stock............................... 2 (940) (B) 1,988
1,400,000 (F)
Additional paid-in capital--common stock... 249,998 (1,691,060) (B) 1,669,352
2,092,000 (E)
(7,752) (C)
Common stock subscribed.................... 200,000
Accumulated deficit........................ (120,972) (2,963,933)
-------- ----------- ----------
129,028 (2,195,000) 2,902,407
-------- ----------- ----------
$358,817 $(1,617,095) $9,422,476
-------- ----------- ----------
-------- ----------- ----------
</TABLE>
See notes to pro forma unaudited condensed financial statements.
F-3
<PAGE>
AMERICA'S SHOPPING MALL, INC.
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
AMERICA'S SHOPPING
MALL, INC. DEERSKIN
(FORMERLY AND JOAN COOK DYNAMIC PRODUCTS
ADVANCED MEDICAL CATALOG CORP. AND SUBSIDIARY CREADIS PRO FORMA
SCIENCES, INC.) BUSINESSES (JUNE 30, 1999) PROMOTIONS, INC. ADJUSTMENTS
------------------- --------------- -------------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ -- $ 9,682,096 $ 937,683 $1,527,876 $ (97,500) (L)
Cost of goods sold................. -- 3,478,436 192,310 1,140,914 --
--------- ----------- ---------- ---------- -----------
Gross profit..................... -- 6,203,660 745,373 386,962 (97,500)
(205,000) (S)
250,000 (R)
57,710 (M)
338,333 (Q)
336,000 (O)
Selling, general and
administrative................... 118,040 6,397,462 948,254 562,918 (97,500) (L)
--------- ----------- ---------- ---------- -----------
Operating loss..................... (118,040) (193,802) (202,881) (175,956) 777,043
440,000 (P)
Interest expense................... -- -- 260,808 -- (150,078) (N)
--------- ----------- ---------- ---------- -----------
Net loss........................... $(118,040) $ (193,802) $ (463,689) $ (175,956) $1,066,965
--------- ----------- ---------- ---------- -----------
--------- ----------- ---------- ---------- -----------
Net loss per share................. $ (0.14)
---------
---------
Weighted average
shares outstanding............... 836,751
---------
---------
<CAPTION>
TOTAL
-----------
<S> <C>
Net revenues....................... $12,050,155
Cost of goods sold................. 4,811,660
-----------
Gross profit..................... 7,238,495
Selling, general and
administrative................... 8,706,217
-----------
Operating loss..................... (1,467,722)
Interest expense................... 550,730
-----------
Net loss........................... $(2,018,452)
-----------
-----------
Net loss per share................. $ (0.87)
-----------
-----------
Weighted average
shares outstanding............... 2,320,906
-----------
-----------
</TABLE>
See notes to pro forma unaudited condensed financial statements.
F-4
<PAGE>
AMERICA'S SHOPPING MALL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1999
The following transactions are reflected in the pro forma adjustments
column of the balance sheet:
(A) To record the sale of 10,000 shares of Series A Senior Convertible
Preferred Stock, par value $.001, of the Company in May 1999 for
$4,200,000.
(B) To record the purchase of all the common shares of Creadis and Dynamic
by Remarkable for $400,000 and 940,000 common shares of the Company
valued at $1.80 per share.
(C) To eliminate the common stock of Dynamic and Creadis upon the purchase
of their shares by Remarkable.
(D) To reflect the payments made by the Company to Dynamic in May and June
1999.
(E) To eliminate investments in Dynamic and Creadis.
(F) To eliminate the intercompany investments and loans in Dynamic.
(G) To record intercompany transactions with Dynamic for May and June 1999.
(H) To eliminate intercompany balances.
(I) To record the cash and debenture payable portion of the purchase price
of the Deerskin assets.
(J) To record payment of finance and professional fees of $205,000 in
connection with the sale of convertible preferred shares (See Note A).
(K) To record a security deposit paid to assume the lease of the warehouse
used by Deerskin.
The following transactions are reflected in the pro forma adjustments
column of the statement of operations:
(L) To eliminate intercompany management fees of $97,500 between Creadis
and Dynamic.
(M) To record additional amortization expense and consulting fees of
Creadis for the period May 1, 1998 through December 9, 1998 which are
not reflected in the statement of operations of Creadis.
(N) To record reductions of interest expense of Dynamic related to the
retirement of certain long-term debt.
(O) To record annual rent expense of $336,000 under the lease for the
Deerskin warehouse entered into in May 1999.
(P) To record interest expense on debentures issued in connection with the
purchase of Deerskin assets.
(Q) To record amortization of intangible assets of Deerskin over periods
ranging from 5 to 15 years.
(R) To record officer compensation agreement entered into in May 1999.
(S) To eliminate officer's compensation and consulting fees recorded by
Remarkable and Sciences.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
America's Shopping Mall, Inc.
Monsey, New York
We have audited the accompanying balance sheet of America's Shopping Mall, Inc.
(formerly Advanced Medical Sciences, Inc.) as at April 30, 1999 and the related
statements of operations, shareholders' equity (deficiency), and cash flows for
each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America's Shopping Mall, Inc.
as at April 30, 1999 and the results of its operations and cash flows for each
of the two years then ended, in conformity with generally accepted accounting
principles.
ARTHUR YORKES & COMPANY
New York, New York
July 30, 1999
F-6
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
CONSOLIDATED
JULY 31,
APRIL 30, 1999
1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ -- $ 35,454
Investment in marketable securities at market value............................... -- 682,034
Accounts receivable, net of allowance for doubtful accounts of $12,009............ -- 330,468
Inventory......................................................................... -- 3,260,550
Prepaid advertising............................................................... -- 329,018
Other prepaid expenses............................................................ 10,000 53,441
Common stock subscribed........................................................... 140,000 --
----------- ------------
Total current assets........................................................... 150,000 4,690,965
Property and equipment, net of accumulated depreciation............................. -- 284,761
Intangible assets, net of accumulated amortization.................................. -- 4,555,577
Other assets........................................................................ 56,509 98,666
----------- ------------
$ 206,509 $ 9,629,969
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................................................................... $ 4,522 $ --
Accounts payable.................................................................. 22,500 798,794
Accrued expenses payable.......................................................... -- 413,931
Due to shareholders............................................................... 30,000 448,621
Notes payable, current portion.................................................... -- 88,052
----------- ------------
Total current liabilities...................................................... 57,022 1,749,398
----------- ------------
Long-term debt:
Debenture payable................................................................. -- 5,500,000
Long-term debt, net of current portion............................................ -- 28,903
----------- ------------
-- 5,528,903
----------- ------------
Commitments (Note 8)
Shareholders' equity:
Series A Senior Convertible Preferred Stock $.001 par value, authorized 20,000
shares: issued and outstanding 10,000 shares................................... -- 10
Paid-in-capital-preferred stock................................................... -- 3,994,990
Common stock, $.001 par value; authorized 20,000,000 shares:
1,047,573 shares and 2,320,948 shares issued and outstanding at
April 30, 1999 and July 31, 1999, respectively (as retroactively
adjusted for the 1-for-30 conversion in July 1999)............................. 1,048 2,321
Paid-in-capital-common stock...................................................... 1,442,542 1,869,019
Deficit........................................................................... (1,494,103) (3,495,494)
Common stock subscribed (333,334 shares).......................................... 200,000 --
Other comprehensive loss.......................................................... -- (19,178)
----------- ------------
149,487 2,351,668
----------- ------------
$ 206,509 $ 9,629,969
----------- ------------
----------- ------------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
CONSOLIDATED
FOR THE YEARS ENDED ------------
FOR THE
APRIL 30, THREE MONTHS
---------------------- ENDED
1998 1999 JULY 31,
1999
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................................................ $ -- $ -- $1,457,849
Cost of sales........................................................... -- -- 491,191
--------- --------- ----------
Gross profit....................................................... -- -- 966,658
Selling, general and administrative expenses............................ 7,714 118,040 1,534,950
--------- --------- ----------
Operating loss.......................................................... (7,714) (118,040) (568,292)
Interest expense........................................................ -- -- 167,705
--------- --------- ----------
Net loss before other income............................................ (7,714) (118,040) (735,997)
--------- --------- ----------
Other income:
Net realized gain on sale of securities............................... -- -- 102,603
Dividend and interest income.......................................... -- -- 3,814
--------- --------- ----------
Total other income................................................. -- -- 106,417
--------- --------- ----------
Net loss................................................................ (7,714) (118,040) (629,580)
Unrealized holding loss during the period............................... -- -- (19,178)
--------- --------- ----------
Comprehensive loss...................................................... $ (7,714) $(118,040) $ (648,758)
--------- --------- ----------
--------- --------- ----------
Net loss per common share............................................... $ (.01) $ (.14) $ (.29)
--------- --------- ----------
--------- --------- ----------
Weighted average outstanding shares (retroactively adjusted for
1-for-30 conversion).................................................. 822,573 836,751 2,230,327
--------- --------- ----------
--------- --------- ----------
</TABLE>
See notes to financial statements.
F-8
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -----------------------------------
ADDITIONAL SHARES ADDITIONAL AMOUNT
PAR PAID-IN- SHARES SUBSCRIBED PAR PAID-IN- SUBSCRIBED
VALUE CAPITAL ISSUED FOR VALUE CAPITAL FOR
----- ---------- ---------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 1, 1997.................... 10,177,200 14,500,000 $ 50,886 $ 997,704 $ 290,000
Net loss for the year ended April 30,
1998................................ -- -- -- -- --
---------- ----------- -------- ----------- ----------
Balance, April 30, 1998................. 10,177,200 14,500,000 50,886 997,704 290,000
Common stock subscribed for........... 10,000,000 -- -- 200,000
Common stock issued................... 21,250,000 (14,500,000) 106,250 288,750 (290,000)
Net loss for the year ended April 30,
1999................................ -- -- -- -- --
---------- ----------- -------- ----------- ----------
Balance, April 30, 1999................. 31,427,200 10,000,000 $157,136 $ 1,286,454 $ 200,000
---------- ----------- -------- ----------- ----------
---------- ----------- -------- ----------- ----------
As retroactively adjusted for 1-for-30
conversion in July 1999............. 1,047,614 333,334 $ 1,048 $ 1,442,542 $ 200,000
Common stock issued................... -- -- 333,334 (333,334) 333 199,667 (200,000)
Common stock issued on acquisition of
subsidiaries........................ -- -- 940,000 -- 940 1,691,060 --
Accumulated deficits and
paid-in-capital of merged companies
at May 1, 1999...................... -- -- -- -- -- 627,750 --
Elimination of investment in merged
companies........................... -- -- -- -- -- (2,092,000) --
Preferred stock issued................ $10 $4,199,990
Issue costs of preferred stock........ -- (205,000) -- -- -- -- --
Net loss for the three months ended
July 31, 1999....................... -- -- -- -- -- -- --
Unrealized loss on marketable
securities.......................... -- -- -- -- -- -- --
Preferred dividends paid.............. -- -- -- -- -- -- --
--- ---------- ---------- ----------- -------- ----------- ----------
Balance July 31, 1999 (unaudited)....... $10 $3,994,990 2,320,948 -- $ 2,321 $ 1,869,019 $ --
--- ---------- ---------- ----------- -------- ----------- ----------
--- ---------- ---------- ----------- -------- ----------- ----------
<CAPTION>
UNREALIZED
LOSS ON
MARKETABLE
SECURITIES DEFICIT
---------- -----------
<S> <C> <C>
Balance, May 1, 1997.................... $(1,368,349)
Net loss for the year ended April 30,
1998................................ (7,714)
-----------
Balance, April 30, 1998................. (1,376,063)
Common stock subscribed for........... --
Common stock issued................... --
Net loss for the year ended April 30,
1999................................ (118,040)
-----------
Balance, April 30, 1999................. $(1,494,103)
-----------
-----------
As retroactively adjusted for 1-for-30
conversion in July 1999............. $(1,494,103)
Common stock issued................... -- --
Common stock issued on acquisition of
subsidiaries........................ -- --
Accumulated deficits and
paid-in-capital of merged companies
at May 1, 1999...................... -- (1,335,411)
Elimination of investment in merged
companies........................... -- --
Preferred stock issued................
Issue costs of preferred stock........ -- --
Net loss for the three months ended
July 31, 1999....................... -- (629,580)
Unrealized loss on marketable
securities.......................... $(19,178)
Preferred dividends paid.............. -- (36,400)
-------- -----------
Balance July 31, 1999 (unaudited)....... $(19,178) $(3,495,494)
-------- -----------
-------- -----------
</TABLE>
See notes to financial statements.
F-9
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CONSOLIDATED
------------
FOR THE
FOR THE YEAR FOR THE YEAR THREE MONTHS
ENDED ENDED ENDED
APRIL 30, 1998 APRIL 30, 1999 JULY 31,
1999
-------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash used for operating activities:
Net loss............................................................. $ (7,714) $ (118,040) $ (648,758)
-------- ---------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities, net of acquisition:
Depreciation and amortization.................................... -- -- 136,350
Write-off of organization fees................................... -- -- 41,006
Unrealized loss on marketable securities......................... -- -- 19,178
(Increase) in:
Marketable securities......................................... -- -- (701,212)
Accounts receivable........................................... -- -- (127,407)
Inventory..................................................... -- -- (1,189,998)
Prepaid assets and other assets............................... -- -- (55,017)
Increase (decrease) in:
Advance to companies subsequently acquired.................... -- (56,509) --
Prepaid expenses.............................................. -- (10,000) --
Accounts payable and accrued expenses......................... 7,473 (14,973) 601,993
-------- ---------- ------------
Total adjustments........................................... 7,473 (81,482) (1,275,107)
-------- ---------- ------------
Cash used in operating activities.................................... (241) (199,522) (1,923,865)
-------- ---------- ------------
Cash provided by investing activities:
Purchase of equipment............................................ -- -- (10,040)
Acquisition of business.......................................... -- -- (873,328)
-------- ---------- ------------
Net cash used in investing activities................................ -- -- (883,368)
-------- ---------- ------------
Cash provided by financing activities:
Payments received toward common stock subscribed..................... -- 195,000 140,000
Issuance of preferred stock.......................................... -- -- 3,995,000
Preferred stock dividends paid....................................... -- -- (36,400)
Decrease in:
Due to shareholders................................................ -- -- (20,101)
Notes payable...................................................... -- -- (1,191,812)
Loans payable...................................................... -- -- (39,478)
-------- ---------- ------------
Net cash provided by financing activities.............................. -- 195,000 2,847,209
-------- ---------- ------------
Increase (decrease) in cash and cash equivalents....................... (241) (4,522) 39,976
Cash and cash equivalents beginning of period.......................... 241 -- (4,522)
-------- ---------- ------------
Cash and cash equivalents end of period................................ $ -- $ (4,522) $ 35,454
-------- ---------- ------------
-------- ---------- ------------
Supplemental cash flows information:
Cash paid for interest............................................... $ -- $ -- $ 146,260
-------- ---------- ------------
Details of acquisitions:
Assets acquired...................................................... -- -- 7,680,953
Liabilities assumed.................................................. -- -- 4,415,286
-------- ---------- ------------
-- -- 3,265,667
-------- ---------- ------------
Debentures given upon acquisitions................................... -- -- 3,500,000
Accumulated deficits and paid-in-capital
of merged companies................................................ -- -- (707,661)
Value of common stock issued in mergers.............................. -- -- 1,692,000
Elimination of investment in merged companies........................ -- -- (2,092,000)
-------- ---------- ------------
$ -- $ -- $ 2,392,339
-------- ---------- ------------
-------- ---------- ------------
Cash paid for acquisition.............................................. $ -- $ -- $ 873,328
-------- ---------- ------------
-------- ---------- ------------
</TABLE>
See notes to financial statements.
F-10
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
1. ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND HISTORICAL DATA:
Organization:
In July 1999 America's Shopping Mall, Inc. (the "Company"), which was
incorporated on May 4, 1999, merged with Advanced Medical Sciences, Inc.
("Sciences") (see Note 6A) and became the surviving company.
During 1995 and 1996, Sciences abandoned its health care and
pharmaceutical business and ceased operations.
At April 30, 1999, the Company's management had been seeking merger
possibilities with active companies, see subsequent events (Note 6).
Nature of operations:
The Company is engaged in mail order retail sale of consumer products
principally through mail order catalogs and the sale of customized products
used primarily in sales promotions.
Principles of consolidation:
The unaudited consolidated financial statements as of July 31, 1999
and for the three months then ended include the accounts of the Company and
its wholly-owned subsidiaries, The Remarkable Group, Inc. ("Remarkable")
and the Deerskin and Joan Cook Catalog Businesses ("Deerskin"). Remarkable,
a newly formed subsidiary of the Company, had purchased all the outstanding
common shares of Dynamic Products Corp. and Creadis Promotions.
Intercompany balances and transactions have been eliminated in
consolidation.
All of these acquisitions occurred in May 1999 (see subsequent event,
Footnote 6).
Inventory:
Inventories, consisting principally of finished goods, are valued at
the lower of cost (first-in, first-out basis) or market.
Property and equipment:
Property and equipment are stated at cost less accumulated
depreciation. Depreciation will be provided over the estimated useful lives
of the assets using the straight-line method principally over 10 years.
Prepaid advertising costs:
Advertising catalog costs are amortized over the anticipated revenue
flow. The Company makes write downs on a continuing basis as required.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and
F-11
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
1. ORGANIZATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND HISTORICAL
DATA:--(CONTINUED)
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Unaudited financial statements:
The financial statements as of July 31, 1999 and for the three months
ended July 31, 1999 are unaudited and are not necessarily indicative of the
results that may be expected for the year ending April 30, 2000. In the
opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of the Company's financial position and results of operations.
Intangible assets:
The cost of customer lists, trademarks, trade-names and copyrights and
telephone numbers are being amortized over 10 to 15 years; software and
artwork and a covenant not to complete are being amortized over 5 years;
and goodwill is being amortized over 15 years.
Earnings (loss) per share:
Earnings (loss) per share is calculated based on the weighted average
number of shares outstanding during the period. The effect of possible
conversion of debentures and preferred shares and the exercise of warrants
have not been included in the calculation of earnings per share as their
effect would be anti-dilutive.
2. PROPERTY AND EQUIPMENT:
Major classifications of property and equipment are summarized as
follows:
<TABLE>
<CAPTION>
JULY 31,
1999
--------
<S> <C>
Equipment............................................................... $191,369
Transportation equipment................................................ 49,471
Furniture and fixtures.................................................. 72,039
Leasehold improvement................................................... 56,205
--------
369,084
Less: Accumulated depreciation and amortization......................... 84,323
--------
$284,761
--------
--------
</TABLE>
F-12
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AMORTIZED
OVER
AMOUNT YEARS
---------- ---------
<S> <C> <C>
Customer lists............................................ $2,950,000 10-15
Trademarks and copyrights................................. 495,000 10-15
Telephone numbers......................................... 50,000 15
Software and artwork...................................... 175,000 5
Covenant not to compete................................... 45,000 5
Goodwill.................................................. 1,274,250 15
----------
4,989,250
Less: Accumulated amortization............................ 433,673
----------
$4,555,577
----------
----------
</TABLE>
The Company is amortizing the intangible assets on a straight-line
basis based on its analysis and estimate of the expected useful life of the
assets.
4. SUBSCRIBED SHARES:
On February 12, 1997, one of the shareholders of Sciences agreed to be
personally liable for, and to pay $290,000 due the Company's creditors in
exchange for 14,500,000 of Sciences common shares. These shares were issued
in April 1999.
In March and April 1999, shareholders of Sciences subscribed for a
total of 16,750,000 common shares (including the 3,000,000 shares mentioned
below) at a total price of $305,000. At April 30, 1999, $140,000 of the
purchase price was still unpaid. In May 1999, the balance was received by
the Company. 6,750,000 shares were issued in April 1999 and 10,000,000
shares in May 1999.
In April 1999, $30,000 of unpaid consulting fees due the President of
Sciences were converted into a total of 3,000,000 common shares.
5. CONSULTING AND MANAGEMENT AGREEMENTS:
The Company had a consulting agreement with its President which
provided for a monthly fee of $7,500 through March 31, 1999.
In addition, the Company had a management agreement with a corporation
controlled by the President of the Company to provide office space,
secretarial, telephone and other services for a monthly fee of $2,500
through April 30, 1999.
6. SUBSEQUENT EVENTS:
In May and June of 1999, the following events took place:
(A) Sciences merged with and into the Company, a newly formed
subsidiary incorporated by Sciences on May 4, 1999 under the name
America's Shopping Mall, Inc., which became the surviving
Corporation. In connection with the merger, each outstanding
common share of
F-13
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
6. SUBSEQUENT EVENTS:--(CONTINUED)
Sciences was converted into 1/30th of a common share of the Company,
and all fractional shares were rounded up to the nearest whole
share.
An investment group purchased 10,000 shares of Series A
Senior Convertible Preferred Stock of the Company for
$4,200,000 which are convertible into 1,200,000 common shares
subject to certain adjustments. The holder of the preferred
shares is entitled to an 8% cumulative annual cash dividend and
a liquidating preference of $1,000 per share subject to certain
adjustments. The preferred shareholder acquired warrants to
purchase 1,000,000 common shares of the Company at $4.50 per
share at any time until May 21, 2004, subject to certain
adjustments.
The preferred shares have equal voting rights with the
common shares, as if the preferred shares were converted into
common shares. The Company has the right to redeem the
preferred shares at the stated value ($420 per share) plus an
annual return of 25% from the original issue date to the date
of redemption.
The Company may, upon approval by a majority of its entire
board of directors, elect to pay dividends on the preferred
shares, by issuance of additional preferred shares which shall
have identical terms and provisions to the existing preferred
shares. If the Company elects to pay any dividend by the
issuance of preferred shares in lieu of a cash dividend, the
amount of such dividend shall be thirteen percent (13% or
$13.65 per share per quarter).
The preferred and certain principal common shareholders
are parties to a Voting and Shareholders Agreement dated
May 21, 1999 whereby, as long as the preferred shareholder owns
any of the preferred or common shares obtained through
conversion of the preferred shares or any amounts are
outstanding under the $2,000,000 subordinated debenture due May
1, 2003, each of the parties shall vote all of their common
shares to elect one designee of the preferred shareholder as a
director. In the event of default under the Voting Agreement,
the Investment Agreement or the subordinated debenture, the
parties to the Voting Agreement have agreed to vote in favor of
a number of designees selected by the preferred shareholder
that will constitute a majority of the board of directors.
(B) In May 1999, the Company purchased assets subject to certain
liabilities of Initio, Inc., a public company, for total
consideration of approximately $5,975,000 payable by:
I. The Company assuming a $2,000,000, 8% subordinated debenture
due May 1, 2003 of the seller with 8% interest per annum due
to the holder of the preferred shares.
II. The Company issuing $3,500,000 of 8% convertible debentures
due June 1, 2004.
III. The Company making a cash payment of approximately $475,000.
The assets acquired are operated by a wholly-owned subsidiary of the
Company, The Deerskin Companies, Inc.
(C) In May 1999, a newly formed wholly-owned subsidiary of the
Company, The Remarkable Group, Inc. ("Remarkable") purchased all
outstanding common shares of Dynamic Products Corp. ("Dynamic")
for 240,000 common shares of the Company. Certain former
shareholders of Dynamic are principal shareholders of the Company.
F-14
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
6. SUBSEQUENT EVENTS:--(CONTINUED)
In May 1999, Remarkable purchased all the outstanding
shares of Creadis Promotions, Inc. ("Creadis") for $400,000 in
cash and 700,000 common shares of the Company. Creadis is a
corporation formed by certain principal shareholders of the
Company in December 1998 to purchase the operating assets of
Heyden Incorporated for cash and notes of approximately
$360,000.
(D) In May 1999 the Company entered into a compensation agreement with
the President of the Company for an annual salary of $250,000. The
agreement expires on April 30, 2004.
7. LONG-TERM DEBT:
Long-term debt consists of:
(A) A $2,000,000 subordinated debenture due May 1, 2003 with 8%
interest per annum payable quarterly. Such indebtedness is senior
to the $3,500,000 of convertible debentures (see below) and
subordinated to all senior indebtedness as defined.
(B) $3,500,000 of convertible debentures due June 1, 2004 with 8%
interest per annum payable quarterly. The debentures may be
redeemed in whole or in part at the option of the Company on or
after June 1, 2001 at a redemption price equal to the percentage
of the principal amount set forth below:
If redeemed during the 12 month period beginning on June
1st of each of the years indicated as below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICES
- ------------------------------------------------------------- ----------
<S> <C>
2001......................................................... 105%
2002......................................................... 104%
2003......................................................... 103%
</TABLE>
and at 100% of the principal amount thereafter.
The debentures are convertible into common shares at a
conversion price of $5.50 per share, provided, however, if on
or before December 31, 1999 the Company shall repay to the
holder of $3,400,000 principal amount of the debentures,
$400,000 of such principal amount plus interest accrued to the
date of such payment, the initial conversion price shall be
increased from $5.50 to $6.00.
The debentures are secured by a security interest in
certain intangible assets of the Company, including customer
lists, mail order software, artwork, trademarks and copyrights.
(C) A note payable in the amount of $37,363, due in 60 monthly
installment of $705 plus interest at 8% per annum. Final payment
is due in December 2003. The note is guaranteed by two of the
Company's shareholders.
8. COMMITMENTS:
The Company is obligated at July 31, 1999 under various leases for
warehouse and office facilities expiring from March 2000 through March
2004. The warehouse lease for annual rent of $336,000 expires in April
2000.
F-15
<PAGE>
AMERICA'S SHOPPING MALL, INC.
(FORMERLY ADVANCED MEDICAL SCIENCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JULY 31, 1999 AND THE
THREE MONTHS THEN ENDED IS UNAUDITED)
8. COMMITMENTS:--(CONTINUED)
In September 1999, the Company entered into two leases of space in a
New Jersey building for five years commencing in February 2000 at an annual
aggregate rental of $195,054. The Company intends to move and consolidate
its existing facilities in this region into this new building, and is
currently negotiating for release of its obligations under the existing
leases totaling $299,466 for the remaining term of the leases. The Company,
as of July 31, 1999, has not recognized any provision for losses in regards
to these negotiations with the landlords.
Rent for the three months ended July 31, 1999 amounted to $111,400.
Annual rent commitments are as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
INCLUSIVE OF
LEASES BEING LEASES BEING
NEGOTIATED NEGOTIATED
APRIL 30 FOR RELEASE FOR RELEASE
-------- ------------ ------------
<S> <C> <C> <C>
2000........................................ $465,873 $ 467,931 $ 48,996
2001........................................ 77,020 269,214 74,160
2002........................................ 74,160 269,214 74,160
2003........................................ 68,440 259,204 64,150
2004........................................ 52,250 233,054 38,000
2005........................................ -- 97,527 --
-------- ---------- --------
$737,743 $1,596,144 $299,466
-------- ---------- --------
-------- ---------- --------
</TABLE>
The Company is obligated to make payments of $4,000 and $6,120 per
month under consulting agreements expiring in December 1999 and December
2003, respectively.
9. COMMON SHARES RESERVED FOR ISSUANCE:
Common shares of the Company are reserved for issuance as follows upon
the possible:
Conversion of preferred shares................................. 1,200,000
Conversion of debentures....................................... 636,362
Exercise of warrants........................................... 1,000,000
---------
2,836,362
---------
---------
10. INCOME TAXES:
The Company's net operating losses through April 30, 1999 are
effectively eliminated under the change in ownership rules of the Internal
Revenue Service. Valuation allowances have been provided against the income
tax benefit of net losses for the quarter ended July 31, 1999 in the amount
of $220,000.
11. DUE TO SHAREHOLDERS:
Loans payable to shareholders in the amount of $448,621 bear interest
at 7% per annum.
Interest expense to shareholders for the three months ended July 31,
1999 amounted to $6,979.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
America's Shopping Mall, Inc.
Monsey, New York
We have audited the accompanying statements of assets acquired subject to
certain liabilities of Deerskin and Joan Cook Catalog Businesses as of April 30,
1999 and the related statements of revenues and direct operating expenses of
business acquired, and cash flows for each of the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired subject to certain liabilities as of
April 30, 1999 and the results of its operations and cash flows for each of the
two years then ended, in conformity with generally accepted accounting
principles.
ARTHUR YORKES & COMPANY
New York, New York
September 10, 1999
F-17
<PAGE>
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
STATEMENT OF ASSETS ACQUIRED SUBJECT TO CERTAIN LIABILITIES
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 3,600
Accounts receivable............................................................................... 14,582
Inventory......................................................................................... 1,934,969
Prepaid advertising and other prepaid expenses.................................................... 362,333
Other current assets.............................................................................. 14,766
----------
Total current assets................................................................................ 2,330,250
Property and equipment.............................................................................. 254,122
Intangible assets................................................................................... 3,500,000
----------
$6,084,372
----------
----------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................................................................. $ 77,044
Due to affiliated company......................................................................... 34,000
----------
Total current liabilities........................................................................... 111,044
Long term debt:
Subordinated debenture payable.................................................................... 2,000,000
----------
Total liabilities................................................................................... 2,111,044
Commitments (Note 3)
Equity in acquired assets........................................................................... 3,973,328
----------
$6,084,372
----------
----------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF BUSINESS ACQUIRED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL
30,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Revenues.......................................................................... $9,682,096 $11,133,544
Cost of goods sold................................................................ 3,478,436 4,632,363
---------- -----------
6,203,660 6,501,181
Selling, general and administrative expenses...................................... 6,397,462 7,114,686
---------- -----------
Operating loss.................................................................... $ (193,802) $ (613,505)
---------- -----------
---------- -----------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
APRIL 30,
-----------------------
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)........................................................................... $(193,802) $ (613,505)
--------- ----------
Adjustment to reconcile net loss to cash provided by operating activities:
Depreciation and amortization................................................... 94,063 103,898
(Increase) decrease in:
Inventory.................................................................... (144,710) 1,457,146
Prepaid assets and other assets.............................................. 202,717 438,353
Decrease in accounts payable, accrued expenses and other current liabilities.... (18,015) (321,166)
--------- ----------
Total adjustments............................................................ 134,055 1,678,231
--------- ----------
Net cash provided by (used in) operating activities............................. (59,747) 1,064,726
--------- ----------
Cash flows from investing activities:
Purchase of fixed assets............................................................. (189,718) (39,268)
--------- ----------
Net cash used in investing activities.................................................. (189,718) (39,268)
--------- ----------
Adjustment to cash flows for items not included in acquisition......................... 253,065 (1,025,458)
--------- ----------
Increase in cash and cash equivalents.................................................. 3,600 --
Cash and cash equivalents beginning of period.......................................... -- --
--------- ----------
Cash and cash equivalents end of period................................................ $ 3,600 $ --
--------- ----------
--------- ----------
</TABLE>
See notes to financial statements.
F-20
<PAGE>
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Deerskin and Joan Cook Catalog Businesses ("Deerskin") is engaged in mail
order retail sale of consumer products principally through mail order catalogs.
Basis of presentation
The financial statements reflect the assets acquired subject to certain
liabilities from an operating company (Initio, Inc.) as of May 1, 1999 by
America's Shopping Mall, Inc. and the results of the operations purchased for
each of the two years ended April 30, 1999 and 1998.
These assets and liabilities were assigned to Deerskin subsequent to May 1,
1999.
Inventory
Inventories, consisting principally of finished goods, are valued at the
lower of cost (first-in, first-out basis) or market.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation will be provided over the estimate useful lives of the assets using
the straight-line method principally over 10 years.
Prepaid advertising costs
Advertising catalog costs are amortized over the anticipated revenue flow.
Write downs are made on a continuing basis as required.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ASSETS ACQUIRED SUBJECT TO LIABILITIES
The net assets acquired from the selling company by America's Shopping
Mall, Inc. for approximately $5,975,000 was paid by the:
I. Assumption of a $2,000,000 obligation of the seller by a subordinated
debenture.
II. Issuance of $3,500,000, 8% convertible debentures of the seller due
June 1, 2004.
III. Cash payment of approximately $475,000.
3. COMMITMENTS:
America's Shopping Mall, Inc. entered into a lease for warehouse facilities
located in Carson City, Nevada in May 1999 for a one year period ending
April 30, 2000 for an annual rental of $336,000.
F-21
<PAGE>
DEERSKIN AND JOAN COOK CATALOG BUSINESSES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1999 AND 1998
3. COMMITMENTS:--(CONTINUED)
America's Shopping Mall, Inc. has also assumed a lease for the office
premises in Teterboro, New Jersey expiring in March 2004 for an annual rental of
$57,000 and is paying a monthly rental of $1,050 for property in Danvers,
Massachusetts through April 30, 2000.
Annual rental commitments are as follows:
APRIL 30, AMOUNT
- -------------------------------------------------------------- --------
2000.......................................................... $405,600
2001.......................................................... 57,000
2002.......................................................... 57,000
2003.......................................................... 57,000
2004.......................................................... 52,250
4. CONSULTING AGREEMENT
The Company has entered into an agreement dated May 1999 to pay a
consulting fee to the former officers of the selling company for a total of
$4,000 per month through December 31, 1999.
5. PRO FORMA ADJUSTMENT
All of the Company's cost of doing business are reflected in the statement
of revenues and direct operating expenses of business acquired except for the
costs associated with the warehouse which was not purchased by the Company.
The following pro forma statement of operations reflect the rent expense of
the warehouse leased by the Company in May 1999:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Revenues......................................................... $9,682,096 $11,133,544
Costs and expenses............................................... 9,875,898 11,747,049
---------- -----------
Net loss as reported............................................. (193,802) (613,505)
Pro forma adjustment:
Rent expense under lease entered into.......................... 336,000 336,000
---------- -----------
Pro forma loss................................................... $ (529,802) $ (949,505)
---------- -----------
---------- -----------
</TABLE>
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dynamic Products Corp. and Subsidiary
Monsey, New York
We have audited the accompanying consolidated balance sheet of Dynamic Products
Corp. and Subsidiary as of June 30, 1999 and the related consolidated statement
of operations, accumulated deficit, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Dynamic Products
Corp. and Subsidiary as of June 30, 1998 were audited by other auditors whose
report dated July 23, 1998 on these statements included an explanatory paragraph
relating to a going concern uncertainty due to net capital and working capital
deficiencies as well as losses from operations.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic Products
Corp. and Subsidiary as of June 30, 1999, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
See management plans in regards to working capital deficiency (Note 2).
ARTHUR YORKES & COMPANY
New York, New York
August 17, 1999
F-23
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowances of $12,009................................................ $ 33,787
Inventory........................................................................................ 101,778
Due from affiliated companies.................................................................... 21,351
Prepaid assets and other current assets.......................................................... 3,741
-----------
Total current assets............................................................................... 160,657
Property and equipment, net........................................................................ 20,737
Intangible and other assets........................................................................ 1,030,043
-----------
$ 1,211,437
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft................................................................................... $ 17,232
Accounts payable, accrued expenses and other current liabilities................................. 182,504
Due to affiliated companies...................................................................... 81,998
Notes payable.................................................................................... 80,120
Due to former shareholders....................................................................... 420,690
-----------
Total current liabilities.......................................................................... 782,544
-----------
Commitments (Note 7)
Shareholders' equity:
Common stock, 25,000 shares authorized; no par value;
775 shares issued and outstanding............................................................. 7,750
Additional paid-in-capital....................................................................... 1,770,000
Retained earnings (deficit)...................................................................... (1,348,857)
-----------
428,893
-----------
$ 1,211,437
-----------
-----------
</TABLE>
See notes to financial statements.
F-24
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Net revenues....................................................................... $ 937,683 $ 885,558
Cost of goods sold................................................................. 192,310 227,632
----------- ---------
Gross profit.................................................................. 745,373 657,926
Selling, general and administrative expenses....................................... 948,254 972,100
----------- ---------
Operating loss..................................................................... (202,881) (314,174)
Interest expense................................................................... 260,808 195,739
----------- ---------
Net loss...................................................................... (463,689) (509,913)
Accumulated deficit, beginning of year............................................. (885,168) (375,255)
----------- ---------
Accumulated deficit, end of year................................................... $(1,348,857) $(885,168)
----------- ---------
----------- ---------
</TABLE>
See notes to financial statements.
F-25
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30,
------------------------
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (463,689) $(509,913)
----------- ---------
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization.................................................. 155,699 114,589
Decrease in:
Accounts receivable......................................................... 37,214 38,931
Inventory................................................................... 14,099 23,930
Prepaid assets and other assets............................................. 22,100 57,180
Decrease in:
Accounts payable, accrued expenses and other current liabilities............ (55,832) (49,115)
----------- ---------
Total adjustments................................................................... 173,280 185,515
----------- ---------
Net cash used in operating activities................................................. (290,409) (324,398)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................................................. (2,819) --
----------- ---------
Net cash used in investing activities................................................. (2,819) --
----------- ---------
Cash flows from financing activities:
Payments of notes and loans payable................................................. (1,305,371) (315,641)
Increase in:
Notes payable.................................................................... -- 623,698
Due to former shareholders....................................................... 120,690 --
Due to affiliates................................................................ 60,647 --
Equity investment by parent company.............................................. 1,400,000 --
----------- ---------
Net cash provided by financing activities............................................. 275,966 308,057
----------- ---------
Net decrease in cash and cash equivalents............................................. (17,262) (16,341)
Cash at beginning of year............................................................. 30 16,371
----------- ---------
Cash (overdraft) at end of year....................................................... $ (17,232) $ 30
----------- ---------
----------- ---------
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest......................................................................... $ 145,968 $ 142,223
</TABLE>
See notes to financial statements.
F-26
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations:
Dynamic Products Corp. ("Dynamic") was organized under the laws of the
State of Nevada on October 2, 1996. On November 21, 1996 (effective October 1,
1996) Dynamic purchased all of the issued and outstanding capital stock of
Remarkable Office Products, Inc. ("Remarkable") for $1,406,250. Dynamic is
engaged in mail order retail sale of consumer products principally through mail
order catalogues.
In May 1999, a newly formed wholly-owned subsidiary of America's Shopping
Mall, Inc. purchased all the shares of Dynamic.
Principles of consolidation:
The consolidated financial statements include the accounts of Dynamic and
its wholly-owned subsidiary, Remarkable. Intercompany balances and transactions
have been eliminated in consolidation.
Inventory:
Inventory, consisting primarily of finished goods, is valued at the lower
of cost (first-in, first-out basis) or market.
Property and equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method, principally 5-7 years,
over the estimated useful lives of the assets.
Intangible assets:
The costs of the customer list, trademarks and telephone numbers acquired
are being amortized on a straight-line basis over 15 years based on management's
analysis and estimates of the expected useful life of the assets. Goodwill,
which arose from the purchase of Remarkable, is being amortized on a
straight-line basis over 15 years.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. MANAGEMENT'S PLAN:
In June 1999, the parent company had invested $1,400,000 in the Company.
Dynamic has a working capital deficiency of $621,887 at June 30, 1999; however,
the management of the parent company intends to continue financing any future
working capital requirements of Dynamic.
F-27
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
3. PROPERTY AND EQUIPMENT:
Major classification of property and equipment are summarized as follows:
<TABLE>
<S> <C>
Equipment.......................................................................... $60,950
Furniture and fixtures............................................................. 6,040
Leasehold improvements............................................................. 9,740
-------
76,730
Less: Accumulated depreciation and amortization.................................... 55,993
-------
$20,737
-------
-------
</TABLE>
4. OTHER ASSETS
<TABLE>
<S> <C> <C>
Other assets are summarized as follows:
Intangible assets:
Customer list.......................................................... $ 850,000
Trademarks............................................................. 100,000
Telephone numbers...................................................... 50,000
----------
1,000,000
Less: Accumulated amortization............................................ $ 266,667 $ 733,333
---------- ----------
Goodwill............................................................... 354,250
Less: Accumulated amortization............................................ 64,900 289,350
---------- ----------
1,022,683
Security deposits........................................................... 7,360
----------
$1,030,043
----------
----------
</TABLE>
5. DUE TO FORMER SHAREHOLDERS
Loans payable to former shareholders in the amount of $420,690 bear
interest at the rate of 7% per annum.
Interest expense to former shareholders for the year ended June 30, 1999
and 1998 amounted to $28,875 and $27,000, respectively.
6. RELATED PARTY TRANSACTIONS
Dynamic received reimbursement for salaries and benefits of shared
employees with a related company of approximately $5,000 per week. This income
amounted to $97,500 for the period ended April 30, 1999.
7. COMMITMENTS
Dynamic is obligated under two leases for office space. One of the leases
expires March 31, 2000 and the other expires December 30, 2002. The Company's
obligation under these leases, net of reimbursements from an affiliated company
is $2,730 per month. Rent expense amounted to $38,463 for the year ended
June 30, 1999 and $86,060 for the year ended June 30, 1998.
F-28
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
7. COMMITMENTS--(CONTINUED)
Future minimum payments are as follows:
JUNE 30, AMOUNT
- --------------------------------------------------- -------
2000................................................ $27,888
2001................................................ 17,160
2002................................................ 17,160
2003................................................ 8,580
-------
$70,788
-------
-------
8. INCOME TAXES
Dynamic has net operating losses which will be effectively eliminated under
the change of ownership rules of the Internal Revenue Service.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Dynamic Products Corp.
382 Route 59
Monsey, NY 10952
We have audited the accompanying consolidated balance sheet of Dynamic Products
Corp. and Subsidiary and the related consolidated statements of operations and
accumulated deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynamic Products Corp. and
Subsidiary as of June 30, 1998, and the results of its operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company has suffered a loss from
operations for the year ended June 30, 1998 and has a net capital and working
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note B. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
SMALLBERG SORKIN & COMPANY LLP
July 23, 1998
New York, New York
F-30
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 30
Accounts receivable, less allowance for doubtful accounts of $10,000.............................. 71,002
Inventories....................................................................................... 115,877
Prepaid expenses.................................................................................. 16,690
----------
Total current assets................................................................................ 203,599
Property and equipment, at cost, less accumulated depreciation of $39,906........................... 34,004
Other assets........................................................................................ 1,178,807
----------
Total assets........................................................................................ $1,416,410
----------
----------
LIABILITIES LESS CAPITAL DEFICIENCY
Current liabilities:
Current maturities of long-term debt.............................................................. $ 136,271
Accounts payable.................................................................................. 184,049
Loans payable--Foothill Capital Corp.............................................................. 160,651
Others............................................................................................ 499,840
Accrued expenses and other current liabilities.................................................... 54,288
----------
Total current liabilities........................................................................... 1,035,099
Long-term debt...................................................................................... 888,729
----------
Total liabilities................................................................................... 1,923,828
Commitments
Capital deficiency:
Common stock:
25,000 shares authorized, no par value
775 shares issued and outstanding.............................................................. 7,750
Additional paid in capital........................................................................ 370,000
Accumulated deficit (Exhibit B)................................................................... (885,168)
----------
Net capital deficiency.............................................................................. (507,418)
----------
Total liabilities less capital deficiency........................................................... $1,416,410
----------
----------
</TABLE>
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-31
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C> <C>
Net revenues............................................................................ $ 885,558
Cost of goods sold...................................................................... 227,632
----------
Gross profit............................................................................ 657,926
Operating expenses:
Selling............................................................................... $266,031
General and administrative............................................................ 711,116
Interest.............................................................................. 195,739
--------
Total operating expenses................................................................ 1,172,886
----------
Loss before income tax credit........................................................... (514,960)
Income tax credit....................................................................... (5,047)
----------
Net loss................................................................................ (509,913)
Accumulated deficit--beginning of year.................................................. (375,255)
----------
Accumulated deficit--end of year........................................................ $ (885,168)
----------
----------
</TABLE>
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-32
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Cash flows used in operating activities:
<S> <C> <C>
Net loss............................................................................... $ (509,913)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation........................................................................ $ 15,982
Amortization........................................................................ 98,607
(Increase) decrease in:
Accounts receivable............................................................... 38,931
Inventories....................................................................... 23,930
Prepaid expenses.................................................................. 56,220
Other assets...................................................................... 960
Increase (decrease) in:
Accounts payable.................................................................. (75,250)
Accrued expenses and other current liabilities.................................... 26,135
---------
Total adjustments.............................................................. 185,515
-----------
Net cash used in operating activities: (324,398)
Cash flows from (used in) financing activities:
Increase in loans payable:
Foothill Capital Corp............................................................... 123,858
Others.............................................................................. 499,840
Payments of long-term debt............................................................. (315,641)
---------
Net cash flows from financing activities................................................. 308,057
-----------
Net decrease in cash..................................................................... (16,341)
Cash--beginning of year.................................................................. 16,371
-----------
Cash--end of year........................................................................ $ 30
-----------
-----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................................ $ 142,223
</TABLE>
The accompanying auditor's report and notes
are an integral part of these financial statements.
F-33
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations. Dynamic Products Corp. (the "Company") was
organized under the laws of the State of Nevada on October 2, 1996. On
November 21, 1996 (effective October 1, 1996) the Company purchased all
of the issued and outstanding capital stock of Remarkable Office
Products, Inc. ("Remarkable") from Celestial Ventures Corporation for
$1,406,250.
2. Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
Remarkable. Intercompany balances and transactions have been eliminated
in consolidation.
3. Inventories. Inventories, consisting primarily of finished goods, is
valued at the lower of cost (first-in, first-out basis) or market.
4. Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method.
5. Intangible Assets. The costs of the customer list, trademarks and
telephone numbers acquired are being amortized on a straight-line basis
over 15 years. Goodwill, which arose from the purchase of Remarkable, is
being amortized on a straight-line basis over 15 years.
6. Income Taxes. Current income taxes are based on the taxable income for
the year, as measured by the current year's tax returns. Deferred income
taxes arise primarily due to various temporary differences between
financial and income tax reporting. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to
be realized.
7. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
B. MANAGEMENT'S PLANS
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of the carrying amounts of assets and
liquidation of liabilities in the normal course of business. The Company has a
working capital deficiency of $831,500 and a capital deficiency of $507,418 at
June 30, 1998.
Continuation of the Company as a going concern is dependent upon achieving
profitable operations and obtaining adequate financing. The Company's financial
statements do not include any adjustments relating to the realization of assets
and liquidation of liabilities that might be necessary should the Company be
unable to continue as a going concern.
F-34
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
C. PROPERTY AND EQUIPMENT
Major classification of property and equipment and their respective
depreciable lives are summarized below:
<TABLE>
<CAPTION>
DEPRECIABLE
LIVES
-------------
<S> <C> <C>
Equipment.............................................................. $ 58,130 5 years
Furniture and fixtures................................................. 6,040 5-7 years
Leasehold improvements................................................. 9,740 Life of lease
-------------
73,910
Less: Accumulated depreciation and amortization.......................... 39,906
-------------
$ 34,004
-------------
-------------
</TABLE>
D. OTHER ASSETS
<TABLE>
<S> <C> <C>
Other assets are summarized as follows:
Intangible assets:..........................................................
Customer list............................................................... $ 850,000
Trademarks.................................................................. 100,000
Telephone numbers........................................................... 50,000
-------------
1,000,000
Less: Accumulated amortization.............................................. 200,000
-------------
$ 800,000
Goodwill.................................................................... 354,250
Less: Accumulated amortization.............................................. 41,300
-------------
312,950
Loan origination fees....................................................... 58,424
Less: Accumulated amortization.............................................. 9,078 49,346
------------- -------------
1,162,296
Security deposits........................................................... 15,376
Other.............................................................................. 1,135
-------------
$ 1,178,807
-------------
-------------
</TABLE>
E. LOANS PAYABLE--OTHERS
Loans payable--others includes $305,000 owed to stockholders. Such
obligations were loaned to the Company, with interest at 7% per annum, to
support the cash flow needs of the Company. As of June 30, 1998, interest has
been accrued or paid.
F-35
<PAGE>
DYNAMIC PRODUCTS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
F. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
(1) Loan payable--Sterling Commercial Capital, Inc. CMCO, Inc. and
Robert Davidoff ("Sterling").............................................................. $ 725,000
(2) Note payable--John Patten................................................................ 300,000
----------
1,025,000
Less: Current maturities.................................................................. 136,271
----------
$ 888,729
----------
----------
</TABLE>
(1) In May 1997 the Company obtained a $725,000 loan from Sterling. The
loan, as amended on June 25, 1998 is payable in 65 installments of $14,940,
including interest, at an annual rate of 14%, commencing January 1999 with a
final payment in June 2004. The loan is secured by all of the assets of the
Company and is subordinated to the indebtedness of Foothill Capital Corp. The
loan holders have warrants to purchase 35% of the common stock of the Company
through May 2004 for $100.
(2) Note Payable--John Patten (a shareholder) is payable at an amount not
to exceed $100,000 in any one year, commencing after June 30, 1998. Such payment
is to be based upon "Available Cash Flow" which is defined as net income plus
depreciation and amortization, less payment on debt owed to Sterling. Interest
at the annual rate of 9% is to be paid monthly commencing July 1997. The note is
subordinated to the debt to Sterling.
Maturities of long-term debt are as follows:
1999........................................................ $ 136,271
2000........................................................ 180,573
2001........................................................ 192,605
2002........................................................ 106,436
2003........................................................ 122,330
Thereafter.................................................. 286,785
----------
$1,025,000
----------
----------
Maturities in 1999, 2000 and 2001 include $100,000 annually for note
payable--John Patten.
G. LOAN PAYABLE--FOOTHILL CAPITAL CORP.
In December 1996 Remarkable obtained a $500,000 line of credit payable on
demand from Foothill Capital Corp. As of June 30, 1998 the outstanding loan was
$160,651 and is secured by substantially all of the assets of Remarkable and is
subject to interest at an annual rate of 3% above the prime the rate (at
June 30, 1998, the prime rate was 8 1/2%).
H. COMMITMENTS
Rent expense, including real estate taxes, for the year ended June 30, 1998
amounted to $104,263. Future minimum annual rental commitments under
noncancellable leases in effect on June 30, 1998, are $64,000 in 1999 and
$26,000 in 2000.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Creadis Promotions, Inc.
Monsey, New York
We have audited the accompanying balance sheet of Creadis Promotions, Inc. as of
April 30, 1999 and the related statements of operations, accumulated deficit,
and cash flows for the period December 10, 1998 through April 30, 1999. The
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Creadis Promotions, Inc. as of
April 30, 1999, and the results of its operations and its cash flows for the
period December 10, 1998 through April 30, 1999 in conformity with generally
accepted accounting principles.
ARTHUR YORKES & COMPANY
New York, New York
August 17, 1999
F-37
<PAGE>
CREADIS PROMOTIONS, INC.
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................................... $ 3,422
Account receivable................................................................................. 154,427
Inventory.......................................................................................... 35,770
Prepaid assets and other current assets............................................................ 6,622
---------
Total current assets................................................................................. 200,241
Property and equipment, net of depreciation.......................................................... 26,966
Intangible assets, net of amortization............................................................... 128,750
Other assets......................................................................................... 2,860
---------
$ 358,817
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other current liabilities................................... $ 167,732
Note payable--current portion...................................................................... 8,460
Due to affiliates.................................................................................. 22,579
---------
Total current liabilities............................................................................ 198,771
---------
Notes payable--net of current portion................................................................ 31,018
---------
Commitments (Note 5)
Shareholders' equity:
Common stock $.01 par value; 200 shares authorized, issued, and outstanding........................ 2
Additional paid-in-capital......................................................................... 249,998
Retained earnings (deficit)........................................................................ (120,972)
---------
129,028
---------
$ 358,817
---------
---------
</TABLE>
See notes to financial statements.
F-38
<PAGE>
CREADIS PROMOTIONS, INC.
STATEMENT OF OPERATIONS
DECEMBER 10, 1998 THROUGH APRIL 30, 1999
<TABLE>
<S> <C>
Net revenues..................................................................... $ 632,120
Cost of goods sold............................................................... 487,921
---------
144,199
Selling, general and administrative expenses..................................... 265,171
---------
Operating loss................................................................... (120,972)
Retained earnings, beginning..................................................... --
---------
Retained earnings (deficit), end of year......................................... $(120,972)
---------
---------
</TABLE>
See notes to financial statements.
F-39
<PAGE>
CREADIS PROMOTIONS, INC.
STATEMENT OF CASH FLOWS
DECEMBER 10, 1998 THROUGH APRIL 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................................... $(120,972)
---------
Adjustment to reconcile net loss to cash used in operating activities, net of acquisition:
Depreciation and amortization................................................................. 7,476
(Increase) decrease in:
Accounts receivable........................................................................ 491,339
Inventory.................................................................................. 8,900
Prepaid assets and other assets............................................................ (9,482)
Decrease in:
Accounts payable, accrued expenses and other current liabilities........................... (296,184)
---------
Total adjustments............................................................................. 202,049
---------
Net cash provided by operating activities............................................................ 81,077
---------
Cash flows from investing activities:
Purchase of fixed assets........................................................................... (26,856)
Acquisition of assets.............................................................................. (362,856)
---------
Net cash used in investment activities............................................................... (389,712)
---------
Cash flows from financing activities:
Proceeds from issuance of common stock............................................................. 250,000
Increase in:
Due to affiliates............................................................................... 22,579
Notes payable................................................................................... 39,478
---------
Net cash provided by financing activities............................................................ 312,057
---------
Increase in cash and cash equivalents................................................................ 3,422
Cash and cash equivalents, beginning of period....................................................... --
---------
Cash and cash equivalents, end of period............................................................. $ 3,422
---------
---------
</TABLE>
See notes to financial statements.
F-40
<PAGE>
CREADIS PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed by the Company in the preparation
of the accompanying financial statements are summarized below.
General:
Creadis Promotions, Inc. (the "Company") principal business is the sales of
customized products used primarily in sales promotions. The Company's activities
include the operations of promotions under which the Company operates certain
lines.
Inventory:
Inventories are stated at the lower of cost or market generally on the
first-in, first-out basis.
Depreciation:
Property, plant and equipment are valued at cost. Assets are depreciated
using the accelerated method, generally three years for vehicles, five years for
furniture and fixtures, and computer equipment. Improvements to leased property
are being amortized over the estimated service lives of the improvements.
Cash and cash equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INTANGIBLE ASSETS:
The Company recorded the following intangible assets in relation to the
purchase of assets of Heyden Corporation on December 10, 1998. Amortization is
over 15 years, except for a covenant not to compete which is amortized over
5 years.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Goodwill.......................................................................... $ 45,000
Trade Name........................................................................ 45,000
Covenant not to compete........................................................... 45,000
--------
135,000
Accumulated amortization.......................................................... 6,250
--------
$128,750
--------
--------
</TABLE>
F-41
<PAGE>
CREADIS PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1999
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Machinery and equipment............................................................ $16,189
Office furniture................................................................... 3,919
Computer equipment................................................................. 8,084
-------
28,192
Accumulated depreciation........................................................... 1,226
-------
$26,966
-------
-------
</TABLE>
4. NOTE PAYABLE:
The Company provided an unsecured note to the seller of the assets of
Heyden Corporation. The note is due in 60 monthly installments of $705 plus
interest at 8% per annum. Interest paid during the period ended April 30, 1999
was approximately $1,400. This note was guaranteed by two of the Company's
shareholders.
5. COMMITMENTS:
The Company has an agreement to pay a consulting fee of $6,120 per month
for a period of sixty months through December 2003. The consulting fee paid
under this agreement for the period ended April 30, 1999 amounted to $24,480.
This agreement is personally guaranteed by two of the Company's shareholders.
The Company is also obligated to pay their portion of salaries and benefits
for shared employees with a related company of approximately $5,000 per week.
This expense amounted to $97,500 for the period ended April 30, 1999.
The Company is obligated under a lease for office space. The current lease,
which expired June 30, 1999 was renewed for one year ending June 30, 2000. For
the period ending April 30, 1999, the company was obligated to pay $1,300 per
month. The renewal option, commencing July 1, 1999 requires a monthly rent of
$1,430 per month.
The Company also has an agreement with an affiliated company to pay 50% of
the affiliated Company's rent. The Company's share of the lease approximates
$1,200 per month, and expires on March 31, 2000. Rent expense amounted to
$12,961 for the period ended April 30, 1999.
Future minimum payments due under the lease are $30,007 for the year ended
April 30, 2000 and $2,860 for the year ended April 30, 2001.
6. INCOME TAXES:
The Company has a net operating loss which will be effectively eliminated
upon the subsequent exchange of all of its common shares in May of 1999 under
the change of ownership rules of the Internal Revenue Service.
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Creadis Promotions, Inc.
Monsey, New York
We have audited the accompanying statements of assets acquired subject to
certain liabilities from Heyden Incorporated as at December 10, 1998 and the
related statements of revenues and direct operating expenses of business
acquired, and cash flows for the period January 1, 1998 through December 10,
1998 and the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired subject to certain liabilities from
Heyden Incorporated as at December 10, 1998 and the results of its operations
and cash flows for the period January 1, 1998 through December 10, 1998 and the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR YORKES & COMPANY
New York, New York
April 8, 1999
F-43
<PAGE>
HEYDEN INCORPORATED
STATEMENT OF ASSETS ACQUIRED SUBJECT TO CERTAIN LIABILITIES
DECEMBER 10, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable................................................................................. $ 645,766
Inventory........................................................................................... 44,670
----------
Total current assets.................................................................................. 690,436
Warehouse equipment................................................................................... 1,336
Intangible assets..................................................................................... 135,000
----------
$ 826,772
----------
----------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................................................................... $ 463,916
Net equity in assets acquired by buyer................................................................ 362,856
----------
$ 826,772
----------
----------
</TABLE>
See notes to financial statements.
F-44
<PAGE>
HEYDEN INCORPORATED
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES OF
BUSINESS ACQUIRED
<TABLE>
<CAPTION>
JANUARY 1, 1998
THROUGH YEAR ENDED
DECEMBER 10, DECEMBER 31,
1998 1997
--------------- ------------
<S> <C> <C>
Revenues........................................................................... $ 1,461,860 $1,728,191
Cost of goods sold................................................................. 1,066,821 1,205,699
----------- ----------
395,039 522,492
Selling, general and administrative expenses....................................... 412,801 388,387
----------- ----------
Net income (loss) before income taxes.............................................. (17,762) 134,105
Income taxes....................................................................... -- 42,000
----------- ----------
Net income (loss).................................................................. $ (17,762) $ 92,105
----------- ----------
----------- ----------
</TABLE>
See notes to financial statements.
F-45
<PAGE>
HEYDEN INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, 1998
THROUGH YEAR ENDED
DECEMBER 10, DECEMBER 31,
1998 1997
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ (17,762) $ 92,105
--------- --------
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation................................................................ -- 1,325
(Increase) decrease in:
Accounts receivable...................................................... (316,739) 5,786
Inventory................................................................ 1,895 (12,580)
Increase (decrease) in:
Accounts payable......................................................... 307,616 10,862
Other liabilities........................................................ (79,823) 29,398
--------- --------
Total adjustments...................................................... (87,051) 34,791
--------- --------
Net cash provided by (used in) operating activities................................ (104,813) 126,896
Net cash effect of assets and liabilities not included in acquisition.............. 1,109 52,474
--------- --------
Increase (decrease) in cash........................................................ (105,922) 74,422
Cash at beginning of period........................................................ 105,922 31,500
--------- --------
Cash at end of period.............................................................. $ -- $105,922
--------- --------
--------- --------
</TABLE>
See notes to financial statements.
F-46
<PAGE>
HEYDEN INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 10, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed by the Company in the preparation
of the accompanying financial statements are summarized below.
General:
Heyden Incorporated (the "Company") was in the principal business of sales
of customized products used primarily in sales promotions. The Company's
activities include the operations of promotions under which the Company operates
certain lines.
Inventory:
Inventory is stated at the lower of cost or market generally on the
first-in, first-out basis.
Depreciation:
Property and equipment are valued at cost. Assets are depreciated using the
accelerated method, generally three years for vehicles, five years for furniture
and fixtures, and computer equipment. Improvements to leased property are being
amortized over the estimated service lives of the improvements.
Cash and cash equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SALE OF ASSETS:
On December 10, 1998, substantially all of the assets and liabilities of
the Company with a net market value of approximately $225,000 were sold for cash
and notes totaling approximately $363,000 as follows:
<TABLE>
<S> <C>
Cash at closing--December 1998.................................................... $ 75,000
Note payable--due February 1999 plus interest at 8% per annum..................... 245,557
Note payable--due in 60 monthly installments of $705 plus interest at 8% per
annum........................................................................... 42,298
----------
$ 362,855
----------
----------
</TABLE>
3. PRIOR LEASE OBLIGATION:
The Company was obligated under a lease for its production and warehouse
location.
The lease with extension expired November 30, 1998. The monthly rent
including escalation was $2,813 per month.
Rent expense, including escalation provisions, amounted to $30,427 and
$33,750 for the period ended December 10, 1998 and the year ended December 31,
1997, respectively.
F-47
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to "Management--Indemnification of Directors and
Officers" in the prospectus included in Part I.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby. All amounts are
estimated except the Commission registration fee.
SEC registration fee.......................................... $ 3,840
Accounting fees and expenses.................................. 35,000
Printing and engraving expenses...............................
Legal fees and expenses....................................... 75,000
Miscellaneous fees and expenses...............................
--------
Total....................................................
--------
--------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following securities have been sold by America's Shopping Mall, Inc. or
its predecessor, Advanced Medical Sciences, Inc. within the past three years
without registering the securities under the Securities Act:
(1) On March 9, 1999, Advanced Medical Sciences' Board of Directors sold
14,500,000 shares of its common stock to John L. Patten for $290,000
previously paid in cash. The sale was deemed to be exempt from
registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving any public offering.
(2) On March 9, 1999, Advanced Medical Sciences' Board of Directors sold
3,750,000 shares of common stock to John L. Patten for $75,000 in cash.
The sale was deemed to be exempt from registration by virtue of
Section 4(2) of the Securities Act as a transaction not involving any
public offering.
(3) On March 9, 1999, Advanced Medical Sciences' Board of Directors sold
3,000,000 shares of common stock to Irwin Schneidmill, president and a
director of Advanced Medical Sciences, in consideration of $30,000 of
unpaid consulting fees due to him. The sale was deemed to be exempt
from registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving any public offering.
(4) On May 11, 1999, Advanced Medical Sciences' Board of Directors sold
10,000,000 shares of common stock to Kathleen N. Patten for $200,000 in
cash. The offer and sale of securities was deemed to be exempt from
registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving any public offering.
(5) Pursuant to an asset purchase agreement dated as of April 21, 1999
whereby America's Shopping Mall acquired the Deerskin and Joan Cook
catalog businesses, the purchase price of the acquired assets was paid
through the issuance of certain unregistered securities, including (a)
on May 1, 1999, the assumption by America's Shopping Mall of an 8%
subordinated debenture due May 1, 2003 of the seller in the principal
amount of $2,000,000 held by Pioneer Ventures Associates Limited
Partnership; (b) on May 21, 1999, the issuance of an 8% convertible
debenture due June 1, 2004 in the principal amount of $3,400,000 to
Deerskin Trading Post, Inc. which is secured by the customer list,
artwork, software and intellectual property purchased under the asset
purchase agreement; and (c) on May 21, 1999, the issuance of an 8%
convertible debenture due June 1, 2004 in the principal
II-1
<PAGE>
amount of $100,000 to James T. Patten. The $3,500,000 8% convertible
debentures due June 1, 2004 are convertible into America's Shopping
Mall common stock at a conversion price of $5.50 per share. However, if
on or before December 31, 1999 America's Shopping Mall prepays to
Deerskin Trading Post, Inc. $400,000 of the principal amount of the
debenture held by it plus interest accrued to the date of such payment,
then the conversion price shall be increased from $5.50 to $6.00 per
share. The assumption and issuance of these debentures were deemed to
be exempt from registration by virtue of Section 4(2) of the Securities
Act as transactions not involving any public offering. The common
shares underlying the convertible debentures are being registered
herewith.
(6) On May 20, 1999, America's Shopping Mall through its wholly-owned
subsidiary, The Remarkable Group, Inc. purchased all of the outstanding
stock of Creadis Promotions, Inc. America's Shopping Mall paid $400,000
cash and issued 700,000 shares of common stock on May 20, 1999 to two
of Creadis Promotions' former shareholders for their interests. The
shares were issued in a private placement and were deemed to be exempt
from registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving any public offering.
(7) On June 3, 1999, America's Shopping Mall through its wholly-owned
subsidiary, The Remarkable Group, Inc. purchased all of the outstanding
stock of Dynamic Products Corp. America's Shopping Mall issued an
aggregate 240,000 shares of common stock on June 3, 1999 to thirteen of
Dynamic Products' former shareholders for their interests. The shares
were issued in a private placement and were deemed to be exempt from
registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving any public offering.
(8) On May 21, 1999, America's Shopping Mall completed a $4,200,000
financing. Pursuant to the terms of the transaction, America's Shopping
Mall issued the following unregistered securities to Pioneer Ventures
Associates Limited Partnership: (a) 10,000 shares of Series A Senior
Convertible Preferred Stock, $.001 par value per share; and (b)
1,000,000 warrants each of which will entitle the holder thereof to
purchase one share of America's Shopping Mall common stock at $4.50 per
share at any time until May 21, 2004. The Series A Senior Convertible
Preferred Stock is currently convertible into 1,200,000 shares of
America's Shopping Mall common stock. At the closing, America's
Shopping Mall paid an investment banking fee of $105,000 to Ventures
Management Partners LLC, the general partner of Pioneer Ventures
Associates Limited Partnership and a $5,000 non-accountable expense
allowance to Ventures Management Partners LLC for its out-of-pocket
expenses incurred in connection with the transaction. The issuance of
the Series A Senior Convertible Preferred Stock and the warrants were
deemed to be exempt from registration by virtue of Section 4(2) of the
Securities Act as a transaction not involving any public offering. The
common shares underlying the Series A Senior Convertible Preferred
Stock and the warrants are being registered herewith.
(9) On July 14, 1999, Advanced Medical Sciences merged into America's
Shopping Mall. Pursuant to the terms of the Amended and Restated Plan
of Merger dated June 24, 1999, each share of common stock of Advanced
Medical Sciences issued and outstanding immediately prior to the
effective time of the merger was converted into one-thirtieth (1/30) of
a share of common stock of America's Shopping Mall. No fractional
shares of common stock were issued as a result of the merger and all
fractional shares were rounded to the next larger whole number.
America's Shopping Mall intended that this transaction would constitute
an exchange of its common stock with Advanced Medical Sciences'
shareholders exclusively where no commission or other remuneration was
paid or given directly or indirectly for soliciting such exchange, and
that, therefore, the securities issued would constitute exempt
securities under Section 3(a)(9) of the Securities Act. America's
Shopping Mall has been advised by its counsel, however, that such
exemption was not then available to it by reason of the requirements
contained in Rule 145. America's Shopping Mall has no other basis to
claim exemption from registration for this transaction. In order to
rectify this inadvertent error, America's Shopping Mall is registering
all of its issued and outstanding shares of common stock as well as all
of the shares of its common stock which may be issued pursuant to
conversion of convertible securities or the exercise of warrants
II-2
<PAGE>
previously issued. No proceeds will be received by America's Shopping
Mall upon any subsequent sales (if any) of its common stock registered
hereunder, but it may realize up to $4,500,000 if all of the 1,000,000
warrants issued by it (see item 8 above) are exercised.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Asset Purchase Agreement dated as of April 21, 1999, between Advanced Medical Sciences, Inc. and
Deerskin Trading Post, Inc.
2.2 -- Stock Purchase Agreement dated as of May 1, 1999, among Remarkable Acquisition Corp., Irwin
Schneidmill and Kathleen Patten for the purchase of all of the issued and outstanding capital stock
of Creadis Promotions, Inc.
2.3 -- Stock Purchase Agreement dated as of May 1, 1999, among Remarkable Acquisition Corp., and the selling
shareholders of Dynamic Products Corp for the purchase of all of the issued and outstanding capital
stock of Dynamic Products Corp.
2.4 -- Amended and Restated Plan of Merger dated as of June 24, 1999, between Advanced Medical Sciences,
Inc. and America's Shopping Mall, Inc.
3.1 -- Articles of Incorporation of America's Shopping Mall, Inc., as filed with the Secretary of State of
the State of Nevada on May 4, 1999.
3.2 -- Articles of Amendment of the Articles of Incorporation of America's Shopping Mall, Inc., as filed with
the Secretary of State of the State of Nevada on May 21, 1999.
3.3 -- Articles of Merger of Advanced Medical Sciences, Inc. and America's Shopping Mall, Inc., as filed with
the Secretary of State of the State of Nevada on July 14, 1999.
3.4 -- Composite copy of Articles of Incorporation of America's Shopping Mall, Inc., as amended.
3.5 -- By-laws of America's Shopping Mall, Inc.
4.1 -- Investment Agreement dated as of May 21, 1999, between Pioneer Ventures Associates Limited
Partnership and America's Shopping Mall, Inc for purchase of 10,000 shares of Series A Senior
Convertible Preferred Stock.
4.2 -- Certificate of Designation of the Series A Senior Convertible Preferred Stock of America's Shopping
Mall, Inc.
4.3 -- $3,400,000 Convertible Debenture due May 1, 2004 to Deerskin Trading Post, Inc. from Advanced Medical
Sciences, Inc., dated May 21, 1999.
4.4 -- $100,000 Convertible Debenture due May 1, 2004 to James T. Patten from America's Shopping Mall, Inc.,
dated May 21, 1999.
4.5 -- Amendment, dated July 22, 1999 to $3,400,000 Convertible Debenture due May 1, 2004.
4.6 -- $2,000,000 Subordinated Debenture due May 1, 2003 to Pioneer Ventures Associates Limited Partnership
from America's Shopping Mall, Inc., dated May 1, 1999.
4.7 -- Warrant to purchase 1,000,000 shares of common stock to Pioneer Ventures Associates Limited
Partnership from America's Shopping Mall, Inc., dated May 21, 1999.
*5.1 -- Opinion of Emmet, Marvin & Martin, LLP.
9.1 -- Voting and Shareholders Agreement dated as of May 21, 1999 by and among Advanced Medical Sciences,
Pioneer Ventures Associates Limited, and certain shareholders of Advanced Medical Sciences, Inc.
10.1 -- Employment Agreement dated as of May 1, 1999 between America's Shopping Mall, Inc. and Irwin
Schneidmill.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C>
10.2 -- Assignment and Assumption Agreement, dated as of May 21, 1999, among Initio, Inc., America's Shopping
Mall, Inc. and Pioneer Ventures Associates Limited Partnership.
10.3 -- Assignment and Assumption Agreement, dated May 21, 1999, between Deerskin Trading Post, Inc. and
America's Shopping Mall, Inc.
10.4 -- Indenture of Lease, dated May 21, 1999, between Deerskin Trading Post, Inc. and America's Shopping
Mall, Inc.
10.5 -- Lease, dated September 22, 1999, between Whitney Associates and America's Shopping Mall, Inc. (2,708
square feet).
10.6 -- Lease, dated September 22, 1999, between Whitney Associates and America's Shopping Mall, Inc. (7,635
square feet).
11.1 -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of the registrant.
23.1 -- Consent of Arthur Yorkes & Company.
23.2 -- Consent of Smallberg Sorkin & Company, LLP.
*23.3 -- Consent of Emmet, Marvin & Martin, LLP.
24.1 -- Powers of Attorney. See Signatures on page II-5.
27 -- Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
Rule 415
America's Shopping Mall, Inc. will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-4
<PAGE>
COMMISSION POLICY ON INDEMNIFICATION
Reference is made to "Management--Indemnification of Directors and
Officers" in the prospectus included in Part I.
Rule 430A
America's Shopping Mall, Inc. will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us under Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New York
State of New York on December 10, 1999.
AMERICA'S SHOPPING MALL, INC.
By:/s/ IRWIN SCHNEIDMILL
---------------------------------
Irwin Schneidmill
President
Each person whose signature appears below constitutes and appoints Irwin
Schneidmill, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, in his name, place and stead, in any and all
capacities, to sign any or all further amendments (including post-effective
amendments) to this Registration Statement (and any additional Registration
Statement related hereto permitted by Rule 462(b) promulgated under the
Securities Act of 1933 (and all further amendments, including post-effective
amendments, thereto)), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ IRWIN SCHNEIDMILL Director; Chief Executive Officer December 10, 1999
- ------------------------------------------
Irwin Schneidmill
/s/ DENNIS J. MCNANY Director: Chief Financial Officer December 10, 1999
- ------------------------------------------
Dennis J. McNany
/s/ CHASE CARO Director December 10, 1999
- ------------------------------------------
Chase Caro
/s/ JOHN FERRARO Director December 10, 1999
- ------------------------------------------
John Ferraro
/s/ ROBERT W. TRAUSE Director December 10, 1999
- ------------------------------------------
Robert W. Trause
/s/ RICHARD TRUZZOLINO Director December 10, 1999
- ------------------------------------------
Richard Truzzolino
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
2.1 -- Asset Purchase Agreement dated as of April 21, 1999, between Advanced Medical Sciences,
Inc. and Deerskin Trading Post, Inc.
2.2 -- Stock Purchase Agreement dated as of May 1, 1999, among Remarkable Acquisition Corp.,
Irwin Schneidmill and Kathleen Patten for the purchase of all of the issued and
outstanding capital stock of Creadis Promotions, Inc.
2.3 -- Stock Purchase Agreement dated as of May 1, 1999, among Remarkable Acquisition Corp., and
the selling shareholders of Dynamic Products Corp for the purchase of all of the issued
and outstanding capital stock of Dynamic Products Corp.
2.4 -- Amended and Restated Plan of Merger dated as of June 24, 1999, between Advanced Medical
Sciences, Inc. and America's Shopping Mall, Inc.
3.1 -- Articles of Incorporation of America's Shopping Mall, Inc., as filed with the Secretary
of State of the State of Nevada on May 4, 1999.
3.2 -- Articles of Amendment of the Articles of Incorporation of America's Shopping Mall, Inc.,
as filed with the Secretary of State of the State of Nevada on May 21, 1999.
3.3 -- Articles of Merger of Advanced Medical Sciences, Inc. and America's Shopping Mall, Inc.,
as filed with the Secretary of State of the State of Nevada on July 14, 1999.
3.4 -- Composite copy of Articles of Incorporation of America's Shopping Mall, Inc., as amended.
3.5 -- By-laws of America's Shopping Mall, Inc.
4.1 -- Investment Agreement dated as of May 21, 1999, between Pioneer Ventures Associates
Limited Partnership and America's Shopping Mall, Inc for purchase of 10,000 shares of
Series A Senior Convertible Preferred Stock.
4.2 -- Certificate of Designation of the Series A Senior Convertible Preferred Stock of
America's Shopping Mall, Inc.
4.3 -- $3,400,000 Convertible Debenture due May 1, 2004 to Deerskin Trading Post, Inc. from
Advanced Medical Sciences, Inc., dated May 21, 1999.
4.4 -- $100,000 Convertible Debenture due May 1, 2004 to James T. Patten from America's Shopping
Mall, Inc., dated May 21, 1999.
4.5 -- Amendment, dated July 22, 1999 to $3,400,000 Convertible Debenture due May 1, 2004.
4.6 -- $2,000,000 Subordinated Debenture due May 1, 2003 to Pioneer Ventures Associates Limited
Partnership from America's Shopping Mall, Inc., dated May 1, 1999.
4.7 -- Warrant to purchase 1,000,000 shares of common stock to Pioneer Ventures Associates
Limited Partnership from America's Shopping Mall, Inc., dated May 21, 1999.
*5.1 -- Opinion of Emmet, Marvin & Martin, LLP.
9.1 -- Voting and Shareholders Agreement dated as of May 21, 1999 by and among Advanced Medical
Sciences, Pioneer Ventures Associates Limited, and certain shareholders of Advanced
Medical Sciences, Inc.
10.1 -- Employment Agreement dated as of May 1, 1999 between America's Shopping Mall, Inc. and
Irwin Schneidmill.
10.2 -- Assignment and Assumption Agreement, dated as of May 21, 1999, among Initio, Inc.,
America's Shopping Mall, Inc. and Pioneer Ventures Associates Limited Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
10.3 -- Assignment and Assumption Agreement, dated May 21, 1999, between Deerskin Trading Post,
Inc. and America's Shopping Mall, Inc.
10.4 -- Indenture of Lease, dated May 21, 1999, between Deerskin Trading Post, Inc. and America's
Shopping Mall, Inc.
10.5 -- Lease, dated September 22, 1999, between Whitney Associates and America's Shopping Mall,
Inc. (2,708 square feet).
10.6 -- Lease, dated September 22, 1999, between Whitney Associates and America's Shopping Mall,
Inc. (7,635 square feet).
11.1 -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of the registrant.
23.1 -- Consent of Arthur Yorkes & Company.
23.2 -- Consent of Smallberg Sorkin & Company, LLP.
*23.3 -- Consent of Emmet, Marvin & Martin, LLP.
24.1 -- Powers of Attorney. See Signatures on page II-5.
27 -- Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AGREEMENT made the 21st day of April, 1999 by and between ADVANCED MEDICAL
SCIENCES, INC. ("Buyer") a Virginia corporation having an office at 382 Rte. 59,
#310, Monsey, New York 10952 and DEERSKIN TRADING POST, INC. (the "Seller" or
"Deerskin"), a Nevada corporation having an office at 2500 Arrowhead Drive,
Carson City, Nevada 89706.
W I T N E S S E T H:
WHEREAS, Seller owns certain assets used in connection with its mail order
business for the sale of leather apparel, other leather merchandise, housewares
and related items (the "Mail Order Business");
WHEREAS, Deerskin is a wholly-owned subsidiary of Initio, Inc., a Nevada
corporation ("Initio");
WHEREAS, Seller desires to sell and Buyer desires to purchase certain
specific, but not all, of the assets used in the Mail Order Business, and to
assume certain specific; but not all, liabilities, on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the respective agreements hereinafter
set forth, the parties agree as follows:
ARTICLE I. SALE OF ASSETS, CONSIDERATION, PAYMENT AND RELATED MATTERS.
On the basis of the representations and warran-
<PAGE>
ties contained in and subject to the terms and conditions of this Agreement:
1.01 Sale.
(a) Seller shall at the Closing (as hereinafter defined) sell, assign,
transfer, convey and deliver to Buyer, and Buyer shall purchase, certain of
the assets, rights and entitlements (the "Acquired Assets") used by Seller
in the Mail Order Business, free and clear of all liens, claims, charges,
equities, encumbrances and restrictions of every kind, including without
limitation:
(i) all inventory related to the Mail Order Business located at
Seller's facilities in Carson City, Nevada, Teterboro, New Jersey and
Danvers, Massachusetts (including inventory in transit, for which
Seller has made payment), as of the close of business on April 30,
1999 ("Inventory"). The close of business on April 30, 1999 is
sometimes hereinafter referred to as the "Effective Date".
(ii) pre-paid advertising, including an accrual for the
advertising attributable to Unfilled Orders (as that term is
hereinafter defined) as of the Effective Date ("Pre-paid
Advertising").
(iii) other prepaid expenses as of the Effective Date ("Other
Pre-paid Expenses").
(iv) all of Seller's fixed assets as of the Effective Date
("Fixed Assets") including, but not limited to,
- 2 -
<PAGE>
computer and telephone systems (including the right to use the related
telephone and fax numbers), materials handling equipment, all
furniture and fixtures and other fixed assets (other than leasehold
improvements in Carson City, Nevada) located in Carson City, Nevada,
Teterboro, New Jersey and Danvers, Massachusetts, excluding the assets
set forth in Exhibit A attached hereto (the "Excluded Assets").
(v) accounts receivable with respect to list rentals and loans
made to employees engaged in the Mail Order Business (including
accrued interest, if any) as of the Effective Date (the "Accounts
Receivable"). Schedule 1.01 sets forth the amount and interest rate of
loans currently outstanding to employees engaged in the Mail Order
Business, which are included within the Acquired Assets. Such loans
accelerate if the employee's employment terminates.
(vi) all security deposits as of the Effective Date held by the
lessors in connection with the leases of the Teterboro, New Jersey and
Danvers, Massachusetts facilities as well as all utility deposits
maintained by Seller (the "Security Deposits"). Schedule 1.01 sets
forth with respect to the Security Deposits the amount of each such
Security Deposit and the holder thereof.
(vii) all agreements material to operating the Mail Order
Business including, without limitation, Seller's agreements with
Globix Corporation, LinkShare Corporation, Seller's pending agreement
with Hanover Direct, Inc. for Internet
- 3 -
<PAGE>
related services all open purchase orders as of the Effective Date all
service contracts with respect to the Fixed Assets, contracts for
discount rates for the telephone services and T-1 lines and a contract
for printing services with RR Donnelly & Company (the "Material
Agreements"). Buyer agrees that Seller may enter into agreements with
LinkShare Corporation and/or Hanover Direct, Inc. for Internet related
services after the Effective Date and such acts shall be deemed to
have been in the usual, regular and ordinary course of business of the
Seller. Seller will use its best efforts to assign the Material
Agreements to Buyer. Buyer understands that certain of the Material
Agreements may not be assignable without the consent of the other
party thereto. Seller agrees to work with Buyer to obtain such
consent.
(viii) customer list of the Mail Order Business in
machine-readable form as such list is presently maintained by Cornwall
Data Services (the "Customer List").
(ix) separations, photographs and other material relating to the
preparation or printing of artwork used in the Mail Order Business and
Seller's e-commerce business (the "Artwork").
(x) the Deerskin proprietary mail order computer software systems
(the "Deerskin Software").
(xi) all right, title and interest of Seller in trademarks,
copyrights, service marks, trade names, domain names using the words
"Deerskin", "Joan Cook" and variations thereof,
- 4 -
<PAGE>
and other intellectual property rights, together, in each case, with
all registrations, applications, recordings, reissuances, extensions,
renewals, licenses and rights, if any, and all claims against third
parties for violation or infringement of any thereof (the foregoing
and the Deerskin Software are hereinafter called the "Intellectual
Property"), together with the goodwill of the Mail Order Business (the
"Goodwill", and together with the Customer List, the Artwork, the
Deerskin Software and the Intellectual Property, the "Intangibles").
(xii) all unshipped orders from customers as of the Effective
Date (the "Unfilled Orders") and credit card numbers (and the right to
collect monies pursuant thereto) which customers have tendered in
payment for such Unfilled Orders.
(xiii) Subject to the provisions of Section 1.06 below, all of
Seller's books of account and records, licenses, permits, sales and
manufacturing data, software programs, computer printouts, data bases
and related items, and other records, documents and instruments
relating to the Acquired Assets (or the employees to be employed by
Buyer pursuant to Section 7.01) and all copies thereof (collectively
"Records").
(b) Concurrently with the execution and delivery of this Agreement,
Seller is delivering to Buyer Schedule 1.01, which is a summary of the
Acquired Assets as at January 31, 1999. The Unaudited Schedules (as that
term is hereinafter defined) will be prepared in a manner consistent with
and will use substantially the same format as such Schedule 1.01.
- 5 -
<PAGE>
1.02 Purchase Price. In addition to Buyer assuming the Assumed Liabilities
(as that term is hereinafter defined), the purchase price (the "Purchase Price")
for the Acquired Assets shall be an amount equal to the net book value of the
Acquired Assets at the Effective Date plus $3,500,000, subject to adjustment as
hereinafter set forth. For purposes of this Agreement the "net book value" of an
Acquired Asset shall mean the net book value as shown on the books and records
of Seller maintained in accordance with generally accepted accounting principles
applied consistently with Seller's past practices, provided however, that for
purposes of this Section the net book value of the Intangibles and the Material
Agreements shall be deemed to be zero.
1.03 Payment. The Purchase Price shall be paid as follows:
(a) $2,000,000 shall be paid to Seller by the assumption by Buyer of
an equal amount of Initio's indebtedness to Pioneer Ventures Associates
Limited Partnership ("Pioneer") and the concurrent release by Pioneer of
all obligations of Initio pursuant to the indebtedness so assumed (as
contemplated by Section 6.02(c)) (the "Initio-Pioneer Agreement").
(b) Not more than $3,500,000, subject to adjustment as hereinafter set
forth, shall be paid by Buyer delivering a convertible debenture,
substantially in the form of Exhibit B attached hereto (the "Convertible
Debenture") which Convertible
- 6 -
<PAGE>
Debenture shall be secured as set forth in the security agreement attached
hereto as Exhibit C (the "Security Agreement").
(c) In the event the net book value of the Acquired Assets as at the
Effective Date less the Assumed Liabilities (as that term is hereinafter
defined) as at the Effective Date shall be more than $2,000,000, Buyer
shall pay to Seller at the Closing the difference by certified or bank
check or wire transfer of immediately available funds. In the event the net
book value of the Acquired Assets as at the Effective Date less the Assumed
Liabilities as at the Effective Date shall be less than $2,000,000, then
the difference shall be deducted from the Convertible Debenture (which
Convertible Debenture shall be rounded down to the next $100,000) issued by
Buyer to Seller at the Closing and the balance, if any, shall be paid by
Buyer to Seller at the Closing by certified or bank check or wire transfer
of immediately available funds.
1.04 Allocation of Purchase Price. It is hereby agreed that the Purchase
Price with respect to the Acquired Assets shall be allocated in accordance with
the net book value of the items thereof as reflected on the books of the Seller
as at the Effective Date and the balance shall be allocated to the Intangibles
and the Material Agreements. Buyer and Seller will consult with each other in
the preparation of their respective tax returns so that such tax returns are
consistent with the provisions of this Section.
1.05 Assumption of Liabilities.
- 7 -
<PAGE>
(a) Buyer shall assume and be liable to pay and discharge and hold
Seller harmless from all of the following (collectively, the "Assumed
Liabilities").
(i) all merchandise trade balances associated with the Mail Order
Business as at the Effective Date.
(ii) all letters of credit with respect to Inventory issued by
Seller outstanding at the Effective Date.
(iii) accrued expenses, including, but not limited to, customer
refunds and exchanges, in connection with the Mail Order Business as
at the Effective Date.
(iv) all customer deposits relating to the Mail Order Business as
at the Effective Date.
(b) Concurrently with the execution and delivery of this Agreement,
Seller is delivering to Buyer Schedule 1.05, which is a summary of the
Assumed Liabilities as at January 31, 1999. The Unaudited Schedules (as
that term is hereinafter defined) will be prepared in a manner consistent
with and will use substantially the same format as such Schedule 1.05.
1.06 Determination of Inventory. On April 30, 1999, or shortly thereafter
(but no later than May 30, 1999), Seller shall conduct an inventory count of all
merchandise located at Carson City, Nevada, Teterboro, New Jersey and Danvers,
Massachusetts to establish the net book value of the Inventory as of the
Effective Date. Buyer shall have a representative and Seller shall have its
accountant ("Seller's Accountant") present during the inventory count.
- 8 -
<PAGE>
1.07 Seller's Records.
(a) Anything in Section 1.01 to the contrary notwithstanding, the
Acquired Assets shall not include (i) Seller's corporate books, stock books
and records and similar corporate documents (collectively, "Corporate
Records") and (ii) Seller's accounting books of original entry, general
ledgers and such other books and records, accounting and other, as are
required by law to be retained by Seller (collectively, "Other Records").
Notwithstanding the foregoing, however, true, correct and complete copies
of the Other Records, or such of them as Buyer may reasonably designate,
shall be delivered by Seller to Buyer from time to time promptly upon
request therefor at and following the time of the Closing.
(b) For a period of seven (7) years following the Closing or such
other period as the parties may agree, (i) Seller shall retain, and Buyer
shall have access at all reasonable times for proper purposes to, and shall
be entitled to make copies of, both the Corporate Records and the Other
Records insofar as they relate to any period through the date of Closing,
provided, however, that Seller may at any time deliver the same, or any
part thereof, to Buyer, and (ii) Buyer shall retain, and Seller shall have
access at all reasonable time for proper purposes to, and shall be entitled
to make copies of, all books, records and documents transferred or
delivered by Seller to Buyer pursuant to this Agreement (including any such
delivered pursuant to the proviso to the preceding clause (i)). Subsequent
to the
- 9 -
<PAGE>
expiration of such seven-year (or other) period, Seller and Buyer, as
applicable, upon not less than 30-days' prior notice to the other, may
destroy any or all of the books and records so retained or held unless
within such 30-day period the other party requests the delivery to it of
any of the books and records which are proposed to be so destroyed, in
which event the same shall be delivered to such other party at its expense.
1.08 Unaudited Schedules; Audited Balance Sheet; Adjustment Procedure.
(a) As soon as practicable, Seller shall deliver to Buyer, on an
unaudited basis, Schedules 1.01 and 1.05 as at the Effective Date (the
"Unaudited Schedules"). The Unaudited Schedules shall be prepared in
accordance with generally accepted accounting principles consistently
applied with Seller's past practices. On or before August 15, 1999, Initio
shall deliver to Buyer its audited balance sheet as at the Effective Date
(the "Audited Balance Sheet"), together with a certificate of its chief
executive officer or chief financial officer, certifying final Schedules
1.01 and 1.05 (the "Final Schedules") based on and consistent with the
audited financial statements of Initio filed with the Securities and
Exchange Commission as part of Initio's annual report on Form 10-KSB (the
"Initio Financial Statement"). The Initio Financial Statement shall be
prepared in accordance with generally accepted accounting principles
applied consistently with Initio's past practices.
- 10 -
<PAGE>
(b) Seller agrees that its books and records, including, without
limitation, the work papers of Seller's Accountant with respect to the
Initio Financial Statements, shall be available for inspection and copying
by Buyer's accountant ("Buyer's Accountant") during normal business hours
after it delivers the Final Schedules. Buyer shall have the right to notify
Seller in writing within 30 days of its receipt of the Final Schedules that
Buyer disagrees with the Final Schedules. In the event Buyer shall so
notify Seller of one or more objections within such period, the parties'
respective accountants shall attempt to resolve such objection within a
period of 30 days after the receipt of such notice by Seller. In the event
that such objection cannot be resolved within such 60- day period, the
Buyer's Accountant and the Seller's Accountant shall appoint a third firm
of public accountants (the "Third Firm") which shall resolve such
objections based solely on discussions with the Buyer's Accountant and the
Seller's Accountant and a review of their respective work papers. The
determination of the Third Firm shall be final and binding upon Buyer and
Seller. The expense of engaging the Third Firm shall be borne equally by
Buyer and Seller unless the purchase price shall increase by more than
$25,000 as a result of the forgoing procedure, in which event the expense
of engaging the Third Firm shall be borne by the Seller or the Purchase
Price shall decrease by more than $25,000, in which event the expense of
engaging the Third Firm shall be borne by Buyer.
- 11 -
<PAGE>
(c) In the event that the Final Schedules shall require an increase or
decrease in the Purchase Price of less than $25,000, no adjustment to the
Purchase Price shall be made. In the event that the Final Schedules shall
require an increase in the Purchase Price of more than $25,000, Buyer shall
pay the amount of such increase within ten days after the final
determination of such amount. In the event that the Final Schedules shall
require a decrease in the Purchase Price of more than $25,000, then Seller
shall, at its option, within ten days after the final determination of such
amount, either pay the amount of such decrease to Buyer in cash, or deliver
the Convertible Debenture to Buyer in exchange for a new Convertible
Debenture having a principal amount rounded down to the next lowest
$100,000, together with any difference payable in cash by Buyer.
1.09 Bulk Transfer. The parties have agreed to waive compliance with the
procedures set forth in all applicable bulk transfer, bulk sales and similar
laws and requirements of all jurisdictions in connection with the transactions
provided for in this Agreement.
1.10 Sales Taxes. All sales taxes applicable to the transfer of Acquired
Assets to Buyer pursuant to this Agreement shall be paid by Buyer. A check(s) in
payment of such sales taxes to the order of the appropriate taxing authorities
will be delivered by Buyer to Seller at Closing.
- 12 -
<PAGE>
ARTICLE II. CLOSING AND RELATED MATTERS.
2.01 Closing. Consummation of the transactions provided for in this
Agreement ("Closing") shall be made at the offices of Milberg Weiss Bershad
Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119, on that
date which is not more than five days after the delivery by Seller to Buyer of
the Unaudited Schedules, or at such other place or date as the parties hereto
shall agree in writing, provided, however, that this Agreement shall terminate
and be of no further force or effect if the Closing does not take place on or
before June 15, 1999.
2.02 Liquidated Damages; Break-Up Fee. The parties hereto agree that in the
event either party breaches this Agreement and fails to consummate the
transactions contemplated herein without good cause, the damage or injury to the
other party would be irreparable, the exact amount of which would be difficult
to ascertain and that for such reason the party in breach shall pay to the other
party as liquidated damages or a break-up fee the amount of $100,000.00, payable
within five days after demand by the party which is not in breach. It is agreed
that the failure of either party to consummate the transactions contemplated
herein because of the failure or refusal of Pioneer to (i) consummate the
transactions contemplated either by the Letter Proposal (as that term is here
and after defined) or (ii) release Seller as contemplated by Sections 1.03 and
6.02(c) shall not be deemed a breach of this Agreement for purposes of this
Section.
- 13 -
<PAGE>
2.03 Documents and Actions. At the Closing, each of the parties shall
appropriately execute and deliver all such bills of sale, instruments of
transfer, assignment and assumption, certificates and other instruments and
documents and take all such other actions as are, or as may be necessary or
required to consummate and give full effect to the transactions, provided for in
this Agreement. Promptly following the Closing, Seller shall take all such steps
as may be necessary or required to put Buyer in actual possession and operating
control of the Acquired Assets.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to and agree with Buyer as set forth in
Exhibit 3 to this Agreement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to and agrees with Seller as set forth in
Exhibit 4 to this Agreement.
ARTICLE V. PRE-CLOSING MATTERS.
5.01 Information as to Operations of Buyer. Until the Closing:
(a) Seller shall afford to Buyer, its attorneys, accountants and other
representatives, upon reasonable request, full and free access during
normal business hours to all properties, books, records and other documents
of Seller, including the right to make extracts therefrom or copies
thereof, and shall furnish Buyer with, or with copies of, all such
agreements, documents and records, financial and operating data
- 14 -
<PAGE>
and other information concerning Seller as Buyer may reasonably request.
Buyer shall hold in strict confidence and shall not use or otherwise
publicly disclose, and shall cause its officers, attorneys, accountants and
other representatives to hold in strict confidence and not to use or
publicly disclose, all information so furnished or made available by Seller
which Seller indicates in advance is confidential, other than information
which is or becomes publicly available or otherwise in the public domain.
Should this Agreement be terminated or the transactions contemplated hereby
not be consummated for any reason, Buyer shall, upon request, return to
Seller all written information so furnished and all copies thereof and
extracts therefrom.
(b) Seller shall refrain from taking or omitting to take any action or
entering into any transaction which, had such action been taken or omitted
or such transaction entered into immediately prior to execution of this
Agreement, would have caused any of the representations, warranties or
agreements of Seller in this Agreement to be untrue, incorrect or
inaccurate in any material respect as of the time of execution of this
Agreement or would cause any such representations, warranties or agreements
to be untrue, incorrect or inaccurate in any material respect as of the
time immediately following such action, omission or transaction or as of
the date of Closing. Without limiting the generality of the foregoing,
except as otherwise set forth or provided in this Agreement, Seller shall
(i) conduct its business only in the usual, regular and ordinary course in
the
- 15 -
<PAGE>
same manner as heretofore, (ii) use its best efforts to preserve its
business, properties and assets, maintain its business organization intact,
keep available the services of its present officers and employees and
preserve its goodwill and existing relationships with customers, suppliers
and others having dealings with it, (iii) maintain its properties in
customary repair, order and condition, reasonable use and wear and tear
excepted, (iv) maintain insurance on its properties and with respect to the
conduct of its business in amounts not less than and of such kinds as are
comparable to the insurance in effect on the date of this Agreement, (v)
maintain its books, accounts and records in the usual, regular and ordinary
manner, (vi) refrain from entering into any employment agreement with any
employee which cannot be terminated on less than 30 days notice to such
employee, (vii) refrain from granting any salary increases or bonuses
without the prior written consent of Buyer, (viii) refrain from forgiving
in whole or in part any of the Accounts Receivable, without Buyer's prior
written consent, and (ix) refrain from making any additional loans to
employees engaged in the Mail Order Business, without Buyer's prior written
consent.
5.02 Adverse Circumstances.
(a) Seller shall promptly notify Buyer, as soon as it obtains
knowledge, of any facts, circumstances or occurrences which have adversely
affected or might reasonably be expected to adversely affect its business,
properties, assets, financial condition or prospects or which could or
reasonably might be
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expected to cause any of the representations, warranties or agreements in
this Agreement to be untrue, incorrect or inaccurate in any material
respect.
(b) Should Buyer elect to consummate the Closing after receipt of any
notice pursuant to subsection 5.02(a), then, anything elsewhere in this
Agreement to the contrary notwithstanding, Buyer shall be deemed to have
waived any rights or claims which it might possess under this Agreement, or
otherwise, against Seller with respect to the matters referred to in such
notice.
5.03 Operations between the Effective Date and Closing.
(a) Seller and Buyer agree that for the period from the Effective Date
through Closing, Seller shall conduct the Mail Order Business for the
benefit and account of Buyer as follows:
(i) all sales of the Mail Order Business shall be credited to
Buyer;
(ii) all costs incurred during this period of the Mail Order
Business shall be charged to Buyer;
(iii) all costs of payroll and benefits for employees at Carson
City, Nevada, Teterboro, New Jersey and Danvers, Massachusetts, except
for Martin Fox, Daniel DeStefano and one secretary based in Teterboro,
New Jersey and one driver based in Teterboro, New Jersey, shall be
charged to Buyer;
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(iv) all expenses of occupancy of Carson City, Nevada, Teterboro,
New Jersey and Danvers, Massachusetts shall be charged to Buyer.
(b) It is anticipated that the Mail Order Business will require more
cash than will be received during the period from May 1, 1999 through the
date of Closing. Buyer agrees to deposit with Seller on or before April 28,
1999, the amount of $34,000, representing the approximate rents due for the
month of May 1999 for the Carson City, Nevada, Teterboro, New Jersey and
Danvers, Massachusetts facilities. In addition, Buyer shall transfer to
Seller the sum of $10,000 every seventh day after such date by wire
transfer of immediately available funds, which the parties agree is the
estimated short fall of the Mail Order Business' cash flow prior to
Closing. In addition, prior to Closing, Buyer shall pay to Seller such
additional funds as Seller shall deem necessary to provide sufficient cash
flow for the ordinary operations of the Mail Order Business, which shall be
consistent with the Seller's past practices. Preliminary adjustment for all
of the above shall be made at Closing. A final adjustment for the above
shall be made concurrently with any adjustment required by reason of the
delivery of the Final Schedule. Such adjustments shall also include
adjustments for miscellaneous accrued expenses and prepaid expenses
incurred in the ordinary course of the Mail Order Business, including,
without limitation, with respect to utilities and insurance.
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(c) As promptly as practicable after the Effective Date, Seller will
send to Buyer by telecopier or such other means as Buyer shall reasonably
request such information concerning the operations of the Mail Order
Business as Buyer shall request, including without limitation, daily check
runs, daily sales reports and daily deposits.
(d) In the event this Agreement terminates in accordance with Section
2.01, Seller shall within five business days after such termination pay to
Buyer an amount equal to the amounts transferred pursuant to Subsection (b)
above unless Seller shall be entitled to liquidated damages pursuant to
Section 2.02 in which event Buyer shall be entitled to a credit for the
amounts so transferred. In the event Seller shall be entitled to liquidated
damages pursuant to Section 2.02 and the amount transferred pursuant to
Subsection (b) above shall exceed the amount specified in Section 2.02,
Seller shall pay within five business days after the termination of this
Agreement the excess to Buyer.
ARTICLE VI. CONDITIONS PRECEDENT.
6.01 Conditions Precedent to Obligation of Buyer. The obligation of Buyer
to consummate the transactions provided for in this Agreement shall be subject
to the fulfillment at or prior to the Closing of each of the following
conditions (any or all of which may be waived, in whole or in part, by Buyer in
its discretion):
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(a) Each of the representations and warranties of Seller in, or in any
instrument delivered in connection with or pursuant to, this Agreement
shall, except as otherwise contemplated or permitted by this Agreement, be
true and correct in all material respects on and as of the date of Closing.
Seller shall have duly performed and complied in all material respects with
all agreements, covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing. Buyer shall
have received Seller's certificate, dated the date of Closing, to the
foregoing effect.
(b) A lease of the property owned by Seller located in Carson City,
Nevada shall have been entered into in substantially the form of Exhibit D
attached hereto.
(c) A Consulting Agreement shall have been entered into by Seller in
substantially the form of Exhibit E attached hereto.
(d) Martin Fox and Daniel DeStefano (the "Principal Shareholders") and
Initio shall execute and deliver to Buyer an agreement pursuant to which
each agrees to be bound by the terms of Section 7.08.
(e) Buyer shall receive at the Closing an opinion of Milberg Weiss
Bershad Hynes & Lerach LLP in the form of Exhibit F attached hereto.
6.02 Conditions Precedent to Obligation of Seller. The obligation of Seller
to consummate the transactions provided for in this Agreement shall be subject
to the fulfillment at or
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<PAGE>
prior to the Closing of each of the following conditions (any or all of which
may be waived, in whole or in part, by Seller in its discretion):
(a) Each of the representations and warranties of Buyer in, or in any
instrument delivered in connection with or pursuant to, this Agreement
shall, except as otherwise contemplated or permitted by this Agreement, be
true and correct in all material respects on and as of the date of Closing.
Buyer shall have duly performed and complied in all material respects with
all agreements, covenants, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing. Seller shall
have received Buyer's certificate, dated the date of Closing, to the
foregoing effect.
(b) Buyer shall have consummated its transactions with Pioneer and its
acquisition of Remarkable Products and Creadis Promotions, Inc. as
contemplated by the Letter Proposal between Buyer and Pioneer, dated March
12, 1999.
(c) Initio shall have been released from $2,000,000 of its convertible
subordinated debenture by Pioneer and Initio shall have issued a
replacement convertible subordinated debenture in the amount of $1,000,000
for the balance of such convertible subordinated debenture. Such
replacement convertible subordinated debenture shall have the same terms
and conditions as currently exist, provided however, that the conversion
price thereunder shall be adjusted to be the greater of $2.50 or the book
value per share of Initio after taking into account the
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<PAGE>
consummation of the transactions contemplated by this Agreement and the tax
benefit attributable to the then net operating loss carry forward of
Initio, but in no event shall the conversion price be more than $3.00 per
share.
(d) Buyer shall have completed its reverse stock split so that, at the
Closing, Buyer shall have outstanding no more than 3,000,000 common shares.
(e) Buyer shall have completed its reincorporation in the State of
Nevada (under the name America's Shopping Mall, Inc.).
(f) Buyer shall have assumed the lease of Seller's property located in
Teterboro, New Jersey pursuant to an Agreement executed by Initio in
substantially the form of Exhibit G attached hereto.
(g) Seller shall receive at the Closing an opinion of Caro &
Associates, P.C., in the form of Exhibit H attached hereto.
6.03 Compliance with Conditions. All of the conditions to the respective
obligations of the parties set forth in Sections 6.01 and 6.02 are and shall be
deemed covenants by the other, Seller on the one hand and Buyer on the other, to
comply with and satisfy as promptly as practicable each such condition as
requires action by it (to the extent within its power) and to use its
commercially reasonable efforts to obtain compliance with and satisfaction of
each such condition as
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requires action by any other party or persons, including any person not a
party.
ARTICLE VII. ADDITIONAL AGREEMENTS OF THE PARTIES.
7.01 Employees. All employees of Deerskin except for those named in
Schedule 7.01 attached hereto, shall become employees of Buyer and Buyer shall
assume responsibility for all salaries and benefits for such employees accrued
after the Effective Date. The foregoing shall not be deemed to require Buyer to
assume Seller's medical plan or to retain any of Seller's employees for any
specified period of time, provided, however, that Seller shall assign to Buyer
and Buyer shall assume the Seller's cafeteria plan as of the Effective Date. The
net balance of such cafeteria plan shall be either added to or subtracted from
the Purchase Price, as appropriate, and shall be payable at the Closing in cash.
7.02 Real Estate Matters. Seller and Buyer have agreed that Seller shall
remain the lessee at Seller's facility in Danvers, Massachusetts, which lease
expires May 31, 2000. All costs incurred pursuant to Seller's lease of the
Danvers facility and all costs of utilities and ordinary maintenance incurred in
connection with such facility after the Effective Date shall be paid by Buyer
within three (3) days of receipt of Seller's request for such payment. Seller's
request for payment shall include copies of bills or invoices requiring payment.
7.03 Refunds. Seller shall reimburse Buyer for amounts of refunds less the
value of merchandise determined in
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accordance with Seller's practices and procedures (applied prior to the
Effective Date on a consistent basis) made to customers of the Mail Order
Business, for items Seller shipped on or before April 30, 1999, provided,
however, that Seller shall not be required to reimburse Buyer for any refund
made after July 31, 1999. All returned merchandise which is the subject of a
refund shall be Buyer's property.
7.04 Material Agreements; Purchase Orders. All Material Agreements,
including all open purchase orders, as of the Effective Date, which remain open
at the date of Closing, relating to the Mail Order Business shall be assumed by
Buyer.
7.05 Pre-paid Advertising Adjustment. Book value of Pre-paid Advertising is
calculated based upon the percent complete for such advertising event and an
adjustment will be made such that if such percent complete is too high, Buyer
shall remit to Seller, and, if too low, Seller shall remit to Buyer the
appropriate amount provided, however, if such amount is less than $5,000 no
payment shall be made by either party. If such amount is greater than $5,000,
the entire amount due under this section shall be paid within ten days of the
date used to make the calculation. The first adjustment under this section shall
be made as of July 31, 1999 and the final adjustment under this section shall be
made as of January 31, 2000. It is agreed that an advertising event shall be
deemed 100% complete by the end of 13 months after issuance.
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7.06 Letters of Credit. With respect to Letters of Credit relating to
purchases of inventory written by Seller prior to the Effective Date, which
remain outstanding as of the Closing Date, Buyer at the Closing will deposit
with the issuing bank such funds as shall be required to obtain the issuing
bank's release of Seller's liability for such Letters of Credit. With respect to
Letters of Credit relating to purchase of inventory which will be written by
Seller after the Effective Date but prior to the Closing Date, Buyer will
provide a letter of credit facility, provided, however, in the event this
Agreement is terminated, title to the merchandise subject to such Letter of
Credit shall pass to Seller and Seller shall remit Buyer's actual cost within
three (3) days of the receipt of merchandise.
7.07 Change of Corporate Name. At the Closing, Seller shall take all such
corporate actions, and shall execute and promptly following the Closing file all
such appropriate certificates and documents, as are necessary to change its
corporate name to a name which does not contain the words "Deerskin", "Trading
Post", "Joan Cook" or any variation thereof.
7.08 Covenant Not to Compete. In order to induce Buyer to enter into and
consummate the transactions provided for in this Agreement, Seller covenants and
agrees on behalf of itself, Initio and the Principal Shareholders that (i)
during the period of three (3) years following the date of Closing neither
Seller, nor Initio nor the Principal Shareholders, will directly or indirectly,
whether for itself or himself or for any other
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person, firm, corporation or entity, engage in, or have any interest in any
business or other entity which engages in, the business of selling by mail order
leather apparel or other leather merchandise of the type currently sold by
Seller anywhere in the continental United States or goods of the type included
in the Deerskin Holiday 1998 catalog or (ii) at any time after the Closing,
unless such employee's employment with Buyer had previously been terminated
without being solicited by Seller, Initio or the Principal Shareholder, hire any
of Buyer's employees, provided, however, that the foregoing shall not prohibit
Initio or the Principal Shareholder, at any time from owning in the aggregate
not more than 10% of the stock or other equity interest of any publicly-traded
entity.
7.09 Payment of Liabilities. Seller will pay or, in the event of a dispute,
adequately reserve against, all of its liabilities arising prior to the
Effective Date which are not included within the Assumed Liabilities and shall
hold Buyer harmless therefrom.
7.10 Further Assurances. From and after the date of this Agreement and the
date of Closing, the parties hereto shall from time to time, at the request of
any other party and without further consideration, do, execute and deliver, or
cause to be done, executed and delivered, all such further acts, things and
instruments as may be reasonably requested or required more
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effectively to evidence and give effect to the transactions
provided for in this Agreement.
ARTICLE VIII. SURVIVAL AND INDEMNIFICATION.
8.01 Survival. All of the provisions of, and all of the representations,
warranties, covenants and agreements of the parties in, or in any document or
other instrument executed or delivered pursuant to or in connection with, this
Agreement shall, unless waived, survive and continue in full force and effect
from and after the date of Closing.
8.02 Indemnification. Buyer and Seller:
(a) Shall each indemnify and hold the other free and harmless from and
against and shall reimburse the other for any and all claims, liabilities,
damages, losses, judgments, costs and expenses including reasonable counsel
fees and other reasonable out-of-pocket expenses (the foregoing being
hereinafter collectively referred to as "damages") arising out of or
resulting from any inaccuracy or inadequacy in or breach or default of any
of its representations, warranties, covenants or agreements in, or in any
document or other instrument executed or delivered pursuant to or in
connection with, this Agreement, provided, however, that notwithstanding
the foregoing Seller shall not be liable to Buyer hereunder for damages in
excess of the Purchase Price.
(b) Shall give the other written notice of any claim, demand, action,
suit or proceeding raised, brought, threatened, made or commenced against
it relating to any matter to which the
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indemnification provisions of this Section 8.02 apply, and the party
receiving such notice shall have the right, at its expense, to control the
settlement and defense thereof using counsel of its own choice. Nothing
herein shall limit the right of any party to settle any claim, demand,
action, suit or proceeding brought or threatened against it, provided,
however, that in any such event any other party shall not be bound by the
amount or terms of any such settlement not consented to by it.
(c) The provisions of this Section 8.02 shall not be construed as a
waiver by any party of any other rights or remedies which it may possess,
whether under this Agreement, at law or in equity, arising out of or
resulting from any breach or default of or inaccuracy or inadequacy in any
other party's representations, warranties, covenants or agreements. All of
such other rights and remedies shall be cumulative with the rights and
remedies set forth herein.
8.03 Survival of Representations. The representations and warranties of
Buyer and Seller shall survive the Closing and remain in full force and effect
for a period of one year after the final calculation of the Purchase Price
pursuant to Section 1.08.
8.04 Products Liability Insurance. To the extent that Seller's product
liability insurance is a "claims made" policy, Seller hereby agrees that it will
maintain such product liability insurance in full force and effect at current
policy levels for at least one year after the date of the Closing.
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ARTICLE IX. MISCELLANEOUS.
9.01 Brokers. Seller and Buyer each represents and warrants to the other
that it has had no dealings with and has not employed any broker, agent, finder
or other person and that no such person brought about or is entitled to any
commission, brokerage or finder's fee or similar payment in connection with, or
with the transactions provided for in, this Agreement.
9.02 Expenses. Each party shall bear and pay all legal, accounting and
other fees and expenses incurred by it in connection with, and with the
transactions provided for in, this Agreement and the performance of all its
obligations and agreements hereunder.
9.03 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by first
class registered or certified mail return receipt requested, or by first class
mail if received, addressed to the parties at their respective addresses set
forth or referred to on the first page and signature page of this Agreement,
with copies to their respective counsel, Milberg Weiss Bershad Hynes & Lerach
LLP, Att: Arnold N. Bressler, Esq., One Pennsylvania Plaza, New York, New York
10119, in the case of Seller, and Caro & Associates, P.C., Attention: Chase A.
Caro, Esq., 60 East 42nd Street, Suite 2001, New York, New York 10165, in the
case of Buyer or to such other person or address as may be designated by like
notice hereunder.
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<PAGE>
9.04 Parties in Interest. This Agreement shall be binding upon, and shall
inure to the benefit of and be enforceable by, the parties hereto and their
respective legal representatives, successors and assigns, but no other person
shall acquire or have any rights under this Agreement.
9.05 Entire Agreement; Modification; Waiver. This Agreement (as below
defined) contains the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior
negotiations and understandings, if any, and there are no agreements,
representations or warranties other than those set forth, provided for or
referred to herein. All exhibits and schedules to this Agreement are expressly
made a part of this Agreement as fully as though completely set forth herein,
and all references to this Agreement herein, in any of such writings or
elsewhere shall be deemed to refer to and include all such writings. Neither
this Agreement nor any provisions hereof may be modified, amended, waived,
discharged or terminated, in whole or in part, except in writing signed by the
party to be charged. Any party may extend the time for or waive performance of
any obligation of any other party or waive any inaccuracies in the
representations or warranties of any other party or compliance by any other
party with any of the provisions of this Agreement. No waiver of any such
provisions or of any breach of or default under this Agreement shall be deemed
or shall constitute a waiver of any other provisions,
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breach or default, nor shall any such waiver constitute a continuing waiver.
9.06 Interpretation.
(a) This Agreement shall be governed and construed and enforced in
accordance with the laws of the State of New York applicable to contracts
made and to be performed exclusively in that State without giving effect to
the principles of conflict of laws.
(b) All pronouns and words used in this Agreement shall be read in the
appropriate number and gender, the masculine, feminine and neuter shall be
interpreted interchangeably and the singular shall include the plural and
vice versa, as the circumstances may require.
9.07 Headings; Counterparts. The article and section headings in this
Agreement are for reference purposes only and shall not define, limit or affect
the meaning or interpretation of this Agreement. This Agreement is being
executed in two or more counterparts, each of which shall be deemed an original
but
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all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ADVANCED MEDICAL SCIENCES, INC.
By /s/ Irwin Schneidmill
----------------------------
Irwin Schneidmill, President
DEERSKIN TRADING POST INC.
By /s/ Martin Fox
----------------------------
Martin Fox, Chairman
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EXHIBIT 3
to
ASSET PURCHASE AGREEMENT
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer that except as otherwise set forth
or referred to in this Agreement and a separate letter or schedule dated and
executed contemporaneously herewith from the Seller to (and received by) Buyer
(hereinafter referred to as the "Seller's Schedule"):
3.01 Corporate Organization, Good Standing and Corporate Power. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
conduct its business and own, lease and operate its properties as and in the
places where such business is now conducted and such properties are now owned,
leased or operated. Seller is duly qualified to do business in the states where
it is required to be so qualified and is not required to be qualified or
licensed as a foreign corporation in any other jurisdiction. Seller has no
subsidiaries. The execution delivery and performance by Seller of this Agreement
are within Seller's corporate powers and have been duly authorized by all
corporate action.
3.02 No Violations. No provision of Seller's Certificate of Incorporation
or By-laws, or of any agreement, instrument or understanding, or of any law,
regulation, rule, order, judgment, decree, of any court or governmental
authority,
<PAGE>
to which Seller is a party or by which it is bound or subject, has been or will
be violated by the execution by Seller of, or the performance or satisfaction of
any agreement or condition upon its part to be performed or satisfied under,
this Agreement,
3.03 Books and Records. The books and records of the Seller have been
prepared in conformity with generally accepted accounting principles and
practices consistently applied through the periods covered and fairly present in
all material respects the financial condition and results of operations of the
Seller as at the dates thereof and for the periods covered thereby. The books of
account and other financial records of Seller are in all material respects
complete and correct. Seller does not maintain a separate financial statement
for itself.
3.04 Reports. Seller has delivered to Buyer the annual report on Form
10-KSB of Initio for fiscal 1998 and the quarterly reports on Form 10-QSB of
Initio for fiscal 1999, which reports are accurate and complete.
3.05 Property; Leases.
(a) Other than the Excluded Assets the Acquired Assets are
substantially all the material assets used by Seller in operating the Mail
Order Business as it is currently being operated. For purposes of the
foregoing only, it is agreed that an asset having a value of less than
$30,000 shall not be considered material.
(b) Seller has good and marketable title to all of its assets,
personal, tangible and intangible, which are the subject
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of this Agreement, including without limitation, the Acquired Assets, in
each case free and clear of all liens, security interests, claims, charges
and encumbrances except as expressly set forth in the Seller's Schedule.
(c) All machinery, fixtures, equipment and similar assets, which are
material to operating the Mail Order Business as it is currently being
operated, are in good operating condition and repair, reasonable wear and
tear excepted. Buyer recognizes that from time to time such equipment will
not be functioning and will require repair or replacement and Buyer is
acquiring such equipment "as is."
(d) All leases to which Seller is a party are in good standing, and
are valid, binding and enforceable in accordance with the respective
provisions thereof.
3.06 Default. Neither Seller nor, to the best of Seller's knowledge, any
other party thereto is in material violation 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 material breach of or default under, or give any other person the right to
terminate, as the case may be, any material indenture, mortgage, security, loan,
lease or other agreement (including, without limitation, those listed or
referred to in the Seller's Schedule) to which Seller is a party or by which it
is bound or to which any of its assets are subject
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or result in the creation, imposition or acceleration of any material lien,
encumbrance, charge, equity or restriction of any nature in favor of any other
person upon any of the assets of Seller.
3.07 Permits; Compliance with Laws. Seller possesses all necessary valid
licenses, permits, franchises, consents, authorizations and approvals of or from
governmental departments, agencies and instrumentalities for the business and
operations of Seller as presently conducted and is not in material default with
respect to nor in violation of, and has not received notice of any violation of
or of any proceedings for the termination or revocation (other than by reason of
normal expiration according to their terms) of, any such license, permit,
franchise, consent, authorization or approval or, to the best of its knowledge,
any applicable Federal, state, local or foreign law, statute, ordinance,
regulation, order or requirement relating to its business, operations or assets,
or the use thereof, which default or violation could have a materially adverse
affect upon its business, operations or assets. The Seller's Schedule includes a
list (including expiration dates) of all material licenses, permits, consents,
authorizations and approvals of or from governmental departments, agencies and
instrumentalities held by Deerskin in the conduct of the Mail Order Business.
3.08 Intellectual Property. Seller owns and has good and marketable title to the
Intellectual Property, free and clear of any and all liens, security interests,
claims, charges and
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encumbrances. The use of the Intellectual Property by Seller does not conflict
in any material respect with any rights, including, without limitation,
copyrights or trademark rights, of others. No litigation or other proceedings
have been instituted or are pending or threatened which challenge the ownership
or use of the Intellectual Property. Seller has not entered into any license or
other agreement granting to anyone the right to use any of the Intellectual
Property and, to the best of Seller's knowledge, none of the Intellectual
Property is being used or infringed in any material respect by any other person.
The Intellectual Property includes all material intangible and similar rights
presently owned or used by Seller. The only Intellectual Property which Seller
has registered with the U.S. Patent and Trademark Office are set forth in the
Seller's Schedule. Other than standard licenses in connection with its computer
systems, Seller's Mail Order Business is not dependant on any intellectual
property licensed from another person, firm or entity.
3.09 Customer List. Seller hereby represents and warrants to Buyer that,
prior to the date hereof, it has not disclosed the Customer List of the Mail
Order Business to any person, other than to Seller's employees and agents and
other than in the ordinary course of Seller's list rental business. Seller
agrees to maintain the confidentiality of such Customer List after the date
hereof and after the Closing.
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3.10 Litigation. Except as set forth in Seller's Schedule, there are no
actions, suits, claims, arbitrations, administrative or other proceedings or
governmental investigations pending or, to the best of Seller's knowledge,
threatened against, relating to or affecting Seller or the business, operations
or assets of Seller, whether or not fully covered by insurance, or which
question or seek to prevent consummation of the transactions provided for in
this Agreement, whether at law or in equity, or before or by any Federal, state,
local, foreign or other governmental department, agency or instrumentality nor
to the best of Seller's knowledge is there any basis therefor. Seller is 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.
3.11 Authorization, Validity. This Agreement and each of the other
instruments executed or to be executed by Seller pursuant to this Agreement has
been duly authorized and constitutes the valid and legally binding obligation of
Seller in accordance with its terms except as enforcement may be limited by
applicable bankruptcy, insolvency and other laws relating to or affecting
creditors' rights generally and subject also to general principles of equity
affecting the right to specific performance and injunctive relief.
3.12 Authorizations; Approvals. No authorization or approval of, or filing
with, or compliance with any applicable
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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 Seller of,
or the performance or satisfaction of any agreement of Seller contained in or
contemplated by, this Agreement.
3.13 Employees. Except as set forth in Seller's Schedule, Seller has no
employment agreement with any employee nor does Seller maintain any pension
plans. Prior to the date hereof, Seller has not been notified by any employee
earning in excess of $50,000 per annum of an intention to terminate his or her
employment.
3.14 Payment of Taxes. Seller has paid or adequately reserved against all
taxes, assessments and governmental charges and levies imposed upon it
including, without limitation all sales taxes.
3.15 Disclosure. Neither this Agreement nor the schedules and exhibits to
this Agreement nor any other written certificate, statement or document
furnished or to be furnished by Seller in connection with the transactions
provided for in this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which made, not misleading, and to the best of Seller's
knowledge and belief, all such material books, records, agreements, documents,
financial
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and operating data and other information of or relating to Seller as Buyer has
requested or may request has heretofore been or will be made available to Buyer.
Without limiting the generality of the foregoing, to the best of Seller's
knowledge, there has not occurred and does not exist in any event, circumstance
or development not disclosed to Buyer relating to Seller (as contrasted with
general industry, economic or business conditions) which has materially
adversely affected or in the future reasonably may, so far as Seller can now
foresee, materially adversely affect the business, operations or assets of
Seller.
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EXHIBIT 4
to
ASSET PURCHASE AGREEMENT
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to and agrees with Seller that:
4.01 Corporate Organization; Good Standing and Corporate Power. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia. The execution delivery and performance by Buyer of
this Agreement are within Buyer's corporate powers and have been duly authorized
by all corporate action.
4.02 No Violations; Validity. No provision of Buyer's Certificate of
Incorporation or By-laws, or of any agreement, instrument or understanding, or
of any law, regulation, rule, order, judgment, decree of any court or
governmental authority, to which Buyer is a party or by which it is bound or
subject, has been or will be violated by the execution by Buyer of, or the
performance or satisfaction of any agreement or condition upon its part to be
performed or satisfied under, this Agreement.
4.03 Letter Proposal. The Letter Proposal between Pioneer and America's
Shopping Mall, Inc., dated March 12, 1999 (the "Letter Proposal") is in full
force and effect and was entered into on behalf of Buyer using the trade name
"America's Shopping Mall, Inc."
4.04 Permits; Compliance with Laws. Buyer possesses all necessary valid
licenses, permits, franchises, consents,
<PAGE>
authorizations and approvals of or from governmental departments, agencies and
instrumentalities for the business and operations of Buyer as presently
conducted and is not in material default with respect to nor in violation of,
and has not received notice of any violation of or of any proceedings for the
termination or revocation (other than by reason of normal expiration according
to their terms) of, any such license, permit, franchise, consent, authorization
or approval or, to the best of its knowledge, any applicable Federal, state,
local or foreign law, statute, ordinance, regulation, order or requirement
relating to its business, operations or assets, or the use thereof, which
default or violation could have a materially adverse affect upon its business,
operations or assets.
4.05 Litigation. There are no actions, suits, claims, arbitrations,
administrative or other proceedings or governmental investigations pending or,
to the best of Buyer's knowledge, threatened against, relating to or affecting
Buyer or the business, operations or assets of Buyer, whether or not fully
covered by insurance, or which question or seek to prevent consummation of the
transactions provided for in this Agreement, whether at law or in equity, or
before or by any Federal, state, local, foreign or other governmental
department, agency or instrumentality nor to the best of Buyer's knowledge is
there any basis therefor. Buyer is not bound or adversely affected by or in
default with respect to any judgment, order, writ, injunction
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or decree of any court or of any governmental department, agency or
instrumentality.
4.06 Authorization, Validity. This Agreement and each of the other
instruments executed or to be executed by Seller pursuant to this Agreement has
been duly authorized and constitutes the valid and legally binding obligation of
Buyer in accordance with its terms except as enforcement may be limited by
applicable bankruptcy, insolvency and other laws relating to or affecting
creditors' rights generally and subject also to general principles of equity
affecting the right to specific performance and injunctive relief.
4.07 Authorizations; Approvals. No authorization or approval of, or filing
with, or compliance with any applicable order, judgment, decree, statute, rule
or regulation of, any court or governmental authority, or approval, consent,
release or action of any third party, is required in connection with the
execution and delivery by Buyer of, or the performance or satisfaction of any
agreement of Buyer contained in or contemplated by, this Agreement.
4.08 Disclosure. Neither this Agreement nor the schedules and exhibits to
this Agreement nor any other written certificate, statement or document
furnished or to be furnished by Buyer in connection with the transactions
provided for in this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary in
order to make the statements contained herein or
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therein, in light of the circumstances under which made, not misleading, and to
the best of Buyer's knowledge and belief, all such material books, records,
agreements, documents, financial and operating data and other information of or
relating to Buyer as Seller has requested or may request has heretofore been or
will be made available to Seller. Without limiting the generality of the
foregoing, to the best of Buyer's knowledge, there has not occurred and does not
exist in any event, circumstance or development not disclosed to Seller relating
to Buyer (as contrasted with general industry, economic or business conditions)
which has materially adversely affected or in the future reasonably may, so far
as Buyer can now foresee, materially adversely affect the business, operations
or assets of Buyer.
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SCHEDULE 7.01
Excluded Employees
Martin Fox
Daniel DeStefano
Oscar Atkinson
<PAGE>
EXHIBIT A
Excluded Assets
1. Cash and Marketable Securities
2. Real property located in Carson City, Nevada.
3. Real property located in Peabody, Massachusetts.
4. 1990 Limousine
5. 1995 Limousine
6. Chrysler Automobile
7. Daniel DeStefano's Office Furniture Martin Fox's Office Furniture
8. 1 Fax Machine located in Teterboro, New Jersey
9. 1 Copy Machine located in Teterboro, New Jersey
10. 1990 Mazda Automobile
11. Loan Receivable with respect to loan made to Michael Divardi
<PAGE>
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of May 1, 1999, by
and among Remarkable Acquisition Corp., a Nevada corporation ("Buyer"), Irwin
Schneidmill, an individual resident in New York ("A"), and Kathleen Patten, an
individual resident in New Jersey ("B" and, collectively with A, "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Shares") of capital stock of Creadis Promotions,
Inc., a New York corporation (the "Company"), for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Applicable Contract" means any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound.
"Balance Sheet" is defined in Section 3.4.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"Breach" means a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"Buyer" is defined in the first paragraph of this Agreement.
"Closing" is defined in Section 2.3.
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"Closing Date" means the date and time as of which the Closing actually
takes place.
"Company" is defined in the Recitals of this Agreement.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" means all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Shares and exercise of
control over the Company.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" is defined in Section 10.2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup,
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removal, containment, or other remediation or response actions ("Cleanup")
required by applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. section 9601 et seq., as amended
("CERCLA").
"Environmental Law" means any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles, tank cars, and
rolling stock) currently or formerly owned or operated by the Company.
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"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4(b) were prepared.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" means as defined in Section 3.20.
"Interim Balance Sheet" is defined in Section 3.4.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
4
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"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Organizational Documents" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person" mans with respect to a particular individual:
(a) each other member of such individual's Family;
5
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(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse and former spouses, (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities.
"Representative" means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Sellers" is defined in the first paragraph of this Agreement.
"Shares" is defined in the Recitals of this Agreement.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that
6
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corporation's or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" means a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
Shares will be $400,000 plus 700,000 shares of America's Shopping Mall, Inc.
common stock, par value $.001.
2.3 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Caro & Associates, P.C., on May 20,
1999 or at such other time and place as the parties may agree. Subject to the
provisions of Section 9, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
2.4 Closing Obligations. At the Closing:
(a) Sellers will deliver to Buyer certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock powers); and
(b) Buyer will deliver to Sellers:
(i) $400,000 aggregate amount payable by check to the order of A
and B, respectively, in the amount the Sellers so determine; and
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(ii) 700,000 shares of America's Shopping Mall, Inc. common
stock, par value $.001, issued to A and B, respectively: 350,000
shares to A and 350,000 shares to B.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 Organization and Good Standing.
(a) The Organizational Documents contain complete and accurate
information for the Company, including its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each
stockholder and the number of shares held by each). The Company is a
corporation duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation, with full corporate power
and authority to conduct its business as it is now being conducted, to own
or use the properties and assets that it purports to own or use, and to
perform all its obligations under Applicable Contracts. The Company is duly
qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of
the activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 Authority, No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its
terms. Sellers have the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and to perform their
obligations under this Agreement.
(b) Except as previously disclosed, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of the Company, or (B)
any resolution adopted by the board of directors or the stockholders
of the Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any
of the Contemplated Transactions or to exercise any remedy or obtain
any relief under,
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any Legal Requirement or any Order to which the Company or either
Seller, or any of the assets owned or used by the Company, may be
subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or any of the assets owned or
used by, the Company;
(iv) cause Buyer or the Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be reassessed
or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by the
Company.
No Seller or the Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of the Company consist
of 200 shares of common stock, par value $.01, of which 200 shares are issued
and outstanding and constitute the Shares. Sellers are and will be on the
Closing Date the record and beneficial owners and holders of the Shares, free
and clear of all Encumbrances. A owns 100 of the Shares and B owns 100 of the
Shares. No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, or has any Contract to
acquire, any equity securities or other securities of any Person (other than the
Company) or any direct or indirect equity or ownership interest in any other
business.
3.4 Financial Statements. Sellers have delivered to Buyer: (a) an unaudited
consolidated balance sheets of the Company as at December 31, 1996, and the
related audited consolidated statements of income, changes in stockholders'
equity, and cash flow for the fiscal year then ended, (b) an audited
consolidated balance sheet of the Company as at December 31, 1997 and
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1998 (including the notes thereto, the "Balance Sheet"), and the related
consolidated statements of income, changes in stockholders' equity, and cash
flow for the fiscal year then ended, together with the report thereon of Arthur
Yorkes & Company, independent certified public accountants, and (c) an unaudited
consolidated balance sheet of the Company as at April 30, 1999 (the "Interim
Balance Sheet") and the related unaudited consolidated statements of income,
changes in stockholders' equity, and cash flow for the four months then ended.
Such financial statements and notes fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of the
Company as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP, subject, in the case of
interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the Balance Sheet); the financial statements
referred to in this Section 3.4 reflect the consistent application of such
accounting principles throughout the periods involved. No financial statements
of any Person other than the Company are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 Books and Records. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct and have been maintained in accordance with
sound business practices and the requirements of Section 13(b)(2) of the
Securities Exchange Act of 1934, as amended (regardless of whether or not the
Company are subject to that Section), including the maintenance of an adequate
system of internal controls. The minute books of the Company contain accurate
and complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company.
3.6 Title to Properties; Encumbrances. The Company has no title to real
property or other interests therein. The Company owns all the assets (whether
tangible or intangible) that they purport to own located in the facilities
operated by the Company, including all of the assets reflected in the Balance
Sheet and the Interim Balance Sheet, and all of the assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet. All
material assets reflected in the Balance Sheet and the Interim Balance Sheet are
free and clear of all Encumbrances and are not subject to any limitations of any
nature except, with respect to all such assets, (a) security interests shown on
the Balance Sheet or the Interim Balance Sheet as securing specified liabilities
or obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) security
interests incurred in connection with the purchase of property or assets after
the date of the Interim Balance Sheet (such security interests being limited to
the property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
and (c) liens for current taxes not yet due.
3.7 Condition and Sufficiency of Assets. The equipment of the Company is
structurally sound, in good operating condition and repair, and is adequate for
the uses to which they are
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being put, and none of such equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The equipment of the Company is sufficient for the continued
conduct of the Company' businesses after the Closing in substantially the same
manner as conducted prior to the Closing.
3.8 Accounts Receivable. All accounts receivable of the Company that are
reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting
records of the Company as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible net of the respective reserves shown
on the Balance Sheet or the Interim Balance Sheet or on the accounting records
of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Balance Sheet represented of the Accounts Receivable reflected therein and will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any set-off,
within ninety days after the day on which it first becomes due and payable.
There is no contest, claim, or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
3.9 Inventory. All inventory of the Company, whether or not reflected in
the Balance Sheet or the Interim Balance Sheet, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheet or the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or market. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable in the present circumstances of the Company.
3.10 No Undisclosed Liabilities. Except previously disclosed, the Company
has no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet or the Interim
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
3.11 Taxes.
(a) The Company have filed or caused to be filed all Tax Returns that
are or were required to be filed, pursuant to applicable Legal
Requirements. Sellers have delivered or made available to Buyer copies of
all such Tax Returns. The Company has paid, or made provision for the
payment of, all Taxes that have or may have become due pursuant to those
Tax Returns or otherwise, or pursuant to any assessment received by Sellers
or the Company, except such Taxes, if any, as previously disclosed and are
being contested in
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good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Balance Sheet and the Interim Balance
Sheet.
(b) All Tax Returns filed by (or that include on a consolidated basis)
the Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by the Company after the date of
this Agreement. The Company is not, or within the five-year period
preceding the Closing Date has been, an "S" corporation.
3.12 No Material Adverse Change. Since the date of the Balance Sheet, there
has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of the Company, and no event has
occurred or circumstance exists that may result in such a material adverse
change.
3.13 Employee Benefits. The Buyer has had access to all relevant books and
records concerning employee benefits of the Company.
3.14 Legal Proceedings; Orders.
(a) Except as previously disclosed, there is no pending Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
(b) To the Knowledge of Sellers and the Company, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Sellers have delivered to Buyer copies
of all pleadings, correspondence, and other documents relating to any
Proceeding. Any current Proceedings disclosed to Buyer will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
3.15 Absence of Certain Changes and Events. Except as previously disclosed,
since the date of the Balance Sheet, the Company have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital stock;
or declaration or payment of any dividend or other distribution or payment
in respect of shares of capital stock;
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(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
any material Contract or transaction
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset of the Company or
pledge, or imposition of any lien or other encumbrance on any material
asset of the Company, including the sale, lease, or other disposition of
any of the Intellectual Property Assets;
(h) cancellation or waiver of any material claims or rights to the
Company;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of
the foregoing.
3.16 Contracts; No Defaults.
(a) Sellers have delivered to Buyer true and complete copies (if
applicable), of:
(i) each material Applicable Contract that involves performance
of services or delivery of goods or materials by the Company;
(ii) each material Applicable Contract that was not entered into
in the Ordinary Course of Business and that involves expenditures or
receipts;
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or personal property; and
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(iv) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct
payments for goods;
(b) Except as previously disclosed, each Contract identified is in
full force and effect and is valid and enforceable in accordance with its
terms.
(c) Except as previously disclosed:
(i) the Company is in full compliance with all applicable terms
and requirements of each Contract under which the Company has or had
any obligation or liability or by which the Company or any of the
assets owned or used by the Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an the Company has or had any
rights is in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) the Company has not given to or received from any other
Person any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract.
(d) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
the Company under current or completed Contracts with any Person and, to
the Knowledge of Sellers and the Company, no such Person has made written
demand for such renegotiation.
(e) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in
the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in
violation of any Legal Requirement.
3.17 Insurance.
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to
which the Company is a party or under which the Company, or any
director of the Company, is or has been covered at any time; and
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(ii) true and complete copies of all pending applications for
policies of insurance.
3.18 Environmental Matters. Except as previously disclosed:
(a) The Company is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. No Seller or the Company has any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be
held to be responsible received, any actual or Threatened order, notice, or
other communication.
(b) There are no pending or, to the Knowledge of Sellers and the
Company, Threatened claims, Encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which Sellers or the Company has or had an
interest.
(c) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining
property.
3.19 Employees.
(a) The Sellers have disclosed all of the following available
information for each employee or director of the Company.
(b) No employee or director of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect (i) the
performance of his duties as an employee or director of the Company, or
(ii) the ability of the Company to conduct its business, including any
Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Sellers' Knowledge, no director, officer, or other
key employee of the Company intends to terminate his employment with the
Company.
3.20 Intellectual Property.
(a) Intellectual Property Assets--The term "Intellectual Property
Assets" includes:
(i) the Company's name, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and
applications (collectively, "Marks");
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(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "Trade
Secrets"); owned, used, or licensed by the Company as licensee or
licensor.
(b) Agreements--The Sellers have disclosed all Contracts relating to
the Intellectual Property Assets to which the Company is a party or by
which the Company is bound. There are no outstanding and, to Sellers'
Knowledge, no Threatened disputes or disagreements with respect to any such
agreement.
(c) Know-How Necessary for the Business--The Intellectual Property
Assets are all those necessary for the operation of the Company' businesses
as they are currently conducted. The Company is the owner of all right,
title, and interest in and to each of the Intellectual Property Assets,
free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to use without
payment to a third party all of the Intellectual Property Assets.
(d) Trademarks
(i) the Sellers have disclosed all Marks. The Company is the
owner of all right, title, and interest in and to each of the Marks,
free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days
after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Sellers' Knowledge, no such
action is Threatened with the respect to any of the Marks.
(iv) To Sellers' Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark is infringed or, to Sellers' Knowledge, has been
challenged or threatened in any way. None of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark,
or service mark of any third party.
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(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(e) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in detail
and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any
individual.
(ii) Sellers and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of
their Trade Secrets.
(iii) One or more of the Company has good title and an absolute
(but not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or literature, and,
to Sellers' Knowledge, have not been used, divulged, or appropriated
either for the benefit of any Person (other than one or more of the
Company) or to the detriment of the Company. No Trade Secret is
subject to any adverse claim or has been challenged or threatened in
any way.
3.21 Disclosure.
(a) No representation or warranty of Sellers in this Agreement omits
to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
(c) There is no fact known to either Seller that has specific
application to either Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects the assets,
business, prospects, financial condition, or results of operations of the
Company (on a consolidated basis) that has not been set forth in this
Agreement.
3.22 Brokers or Finders. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
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4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and to perform its obligations under
this Agreement.
(b) Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the Contemplated Transactions by
Buyer will give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may
be bound.
(c) Buyer is not and will not be required to obtain any Consent from
any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
4.3 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.4 Brokers or Finders. Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Sellers harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
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5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 Access and Investigation. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause the Company and its Representatives
to, (a) afford Buyer and its Representatives and prospective lenders and their
Representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
5.2 Operation of the Business of the Company. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use their Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations
and good will with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report periodically to Buyer concerning the status of
the business, operations, and finances of the Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers will
not, and will cause the Company not to, without the prior consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in Section
3.15 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date of this
Agreement, Sellers will, and will cause the Company to, make all filings
required by Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Sellers will, and will cause the Company to, (a) cooperate with Buyer with
respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents.
5.5 Notification. Between the date of this Agreement and the Closing Date,
each Seller will promptly notify Buyer in writing if such Seller or the Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of Sellers' representations and warranties as of the date of this Agreement,
or if such Seller or the Company becomes aware of the
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occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Seller will promptly notify Buyer of the
occurrence of any Breach of any covenant of Sellers in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause the Company
and each of their Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to, or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than Buyer) relating
to any transaction involving the sale of the business or assets (other than in
the Ordinary Course of Business) of the Company, or any of the capital stock of
the Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
5.7 Best Efforts. Between the date of this Agreement and the Closing Date,
Sellers will use their Best Efforts to cause the conditions in Sections 7 and 8
to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable after the
date of this Agreement, Buyer will, and will cause each of its Related Persons
to, make all filings required by Legal Requirements to be made by them to
consummate the Contemplated Transactions.
6.2 Best Efforts. Between the date of this Agreement and the Closing Date,
Buyer will use its Best Efforts to cause the conditions in Sections 7 and 8 to
be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. All of Sellers' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
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7.2 Sellers' Performance.
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered must have been delivered,
and each of the other covenants and obligations must have been performed
and complied with in all respects.
7.3 Additional Documents. Sellers must have caused the delivery of such
other documents as Buyer may reasonably request for the purpose of (i)
evidencing the accuracy of any of Sellers' representations and warranties, (ii)
evidencing the performance by either Seller of, or the compliance by either
Seller with, any covenant or obligation required to be performed or complied
with by such Seller, (iii) evidencing the satisfaction of any condition referred
to in this Section 7, or (iv) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
7.4 No Proceedings. Since the date of this Agreement, there must not have
been commenced or Threatened against Buyer, or against any Person affiliated
with Buyer, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, any of the Company, or (b) is entitled to all or any
portion of the Purchase Price payable for the Shares.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
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8.2 Buyer's Performance.
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer and must have made the cash payments and delivered
shares of America's Shopping Mall, Inc. common stock required to be made by
Buyer pursuant to Sections 2.4(b)(i) and 2.4(b)(ii).
8.3 Additional Documents. Buyer must have caused the delivery of such other
documents as Sellers may reasonably request for the purpose of (i) evidencing
the accuracy of any representation or warranty of Buyer, (ii) evidencing the
performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (iii) evidencing
the satisfaction of any condition referred to in this Section 8, or (iv)
otherwise facilitating the consummation of any of the Contemplated Transactions.
9. TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach has
not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of Sellers to comply with their obligations under this
Agreement) and Sellers have not waived such condition on or before the
Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before May
21, 1999, or such later date as the parties may agree upon.
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9.2 Effect of Termination. Each party's right of termination under Section
9.1 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 9.1, all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Sections 11.1 and 11.3 will survive; provided, however, that if
this Agreement is terminated by a party because of the Breach of the Agreement
by the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification not Affected by Knowledge. All
representations, warranties, covenants, and obligations in this Agreement and
any other document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by Sellers. Sellers, jointly
and severally, will indemnify and hold harmless Buyer, the Company, and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in
this Agreement or any other document delivered by Sellers pursuant to this
Agreement;
(b) any Breach of any representation or warranty made by Sellers in
this Agreement as if such representation or warranty were made on and as of
the Closing Date.
(c) any Breach by either Seller of any covenant or obligation of such
Seller in this Agreement; and
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made
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by any such Person with either Seller or the Company (or any Person acting
on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by Buyer. Buyer will indemnify
and hold harmless Sellers, and will pay to Sellers the amount of any Damages
arising, directly or indirectly, from or in connection with (a) any Breach of
any representation or warranty made by Buyer in this Agreement, (b) any Breach
by Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any
claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions.
10.4 Time Limitations. If the Closing occurs, Sellers will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.11, and 3.18, unless on
or before May 20, 2000 Buyer notifies Sellers of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Buyer; a
claim with respect to Section 3.3, 3.11, or 3.18, or a claim for indemnification
or reimbursement not based upon any representation or warranty or any covenant
or obligation to be performed and complied with prior to the Closing Date, may
be made at any time. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, unless on or before May 20, 2000 Sellers notify Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Sellers.
10.5 Limitations on Amounts - Sellers. Sellers will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
10.2 until the total of all Damages with respect to such matters exceeds
$400,000. In no event shall Sellers have any liability (for indemnification or
otherwise) for any such Damages in excess of $1,800,000. However, this Section
10.5 will not apply to any Breach of any of Sellers' representations and
warranties of which either Seller had Knowledge at any time prior to the date on
which such representation and warranty is made or any intentional Breach by
either Seller of any covenant or obligation, and Sellers will be jointly and
severally liable for all Damages with respect to such Breaches.
10.6 Limitation on Amount - Buyer. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
10.3 until the total of all Damages with respect to such matters exceeds
$400,000. In no event shall Buyer have any liability (for indemnification or
otherwise) for any such Damages in excess of $1,800,000. However, this Section
10.6 will not apply to any Breach of any of Buyer's representations and
warranties of which Buyer had Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional Breach by Buyer of
any covenant or obligation, and Buyer will be liable for all Damages with
respect to such Breaches.
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10.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 10.2,
10.3, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party
of the commencement of such Proceeding, the indemnifying party will, unless
the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense of
such Proceeding with counsel satisfactory to the indemnified party and,
after notice from the indemnifying party to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party
will not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Section 10 for any fees of other counsel or
any other expenses with respect to the defense of such Proceeding, in each
case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation.
If the indemnifying party assumes the defense of a Proceeding, (i) it will
be conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on
any other claims that may be made against the indemnified party, and (B)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected
without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within
ten days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding,
the indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its
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affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the indemnified party
may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party
will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such Proceeding or the matters alleged therein,
and agree that process may be served on Sellers with respect to such a
claim anywhere in the world.
10.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 Expenses. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by another
party.
11.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines.
11.3 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
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SELLERS: Irwin Schneidmill
20 Roble Road
Suffern, New York 10901
Telecopier No.: (914) 369-0136
Kathleen Patten
5 Saddle Hill Road
Far Hills, New Jersey 07931
Telecopier No.: (908) 781-2101
BUYER: Remarkable Acquisition Corp.
382 Route 59, #310
Monsey, New York 10952
Telecopier No. (914) 369-0136
11.4 Jurisdiction; Service of Process. The parties agree that they shall be
deemed to have agreed to binding arbitration with respect to the entire subject
matter of any and all disputes relating to or arising under this Agreement. Any
such arbitration shall be by a panel of three arbitrators and pursuant to the
commercial rules then existing of the American Arbitration Association in New
York County, New York. In all arbitrations, judgment upon the arbitration award
may be entered in any court having jurisdiction. The parties agree, further,
that the prevailing party in any such arbitration as determined by the
arbitrators shall be entitled to attorney's fees, if any, in connection with
such arbitration as may be awarded by arbitrators.
11.5. Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.6 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
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11.7 Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.8 Assignments, Successors, and No Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, which will not be unreasonably withheld, except that Buyer may
assign any of its rights under this Agreement to any Subsidiary or parent of
Buyer. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
11.9 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction or panel of arbitrators,
the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
11.10 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.11 Governing Law. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
11.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Buyer:
REMARKABLE ACQUISITION CORP.
By: /s/ Robert W. Trause
---------------------------
Name: Robert W. Trause
Title: Secretary
Sellers:
/s/ Irwin Schneidmill
------------------------------
Irwin Schneidmill
/s/ Kathleen Patten
------------------------------
Kathleen Patten
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EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of May 1, 1999, by
and among Remarkable Acquisition Corp., a Nevada corporation ("Buyer") and the
Persons listed as Sellers on the signature pages of this Agreement as the
holders of Shares of Dynamic Products Corp., a Nevada corporation (collectively,
the "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Shares") of capital stock of Dynamic Products
Corp., a Nevada corporation (the "Company"), for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Acquired Companies" means the Company and its Subsidiaries, collectively.
"Applicable Contract" means any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"Balance Sheet" is defined in Section 3.4.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"Breach" means a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"Buyer" is defined in the first paragraph of this Agreement.
<PAGE>
"Closing" is defined in Section 2.3.
"Closing Date" means the date and time as of which the Closing actually
takes place.
"Company" is defined in the Recitals of this Agreement.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" means all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Shares and exercise of
control over the Acquired Companies.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" is defined in Section 10.2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
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(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. section 9601 et seq., as amended
("CERCLA").
"Environmental Law" means any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by any Acquired
Company.
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"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4(b) were prepared.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" means as defined in Section 3.20.
"Interim Balance Sheet" is defined in Section 3.4.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
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"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Organizational Documents" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Representative" means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
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"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Sellers" is defined in the first paragraph of this Agreement.
"Shares" is defined in the Recitals of this Agreement.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" means a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
Shares will be 240,000 shares of America's Shopping Mall, Inc. common stock, par
value $.001.
2.3 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Emmet Marvin & Martin, LLP, on June
2, 1999 or at such other time and place as the parties may agree. Subject to the
provisions of Section 9, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
2.4 Closing Obligations. At the Closing:
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(a) Sellers will deliver to Buyer certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock powers).
(b) Buyer will deliver to Sellers 240,000 shares of America's Shopping
Mall, Inc. common stock, par value $.001, issued in the following manner:
NAME SHARES
Sterling/Carl Marks Capital, Inc. 46,346
Robert Davidoff 18,827
CMCO, Inc. 18,827
Irwin Schneidmill 57,750
Amy Schneidmill 2,250
Brian Ugles 3,000
Cathy Santo 3,000
Janice Ewenstein 1,500
Philip Failla 12,000
Sara Patten 15,000
Mary Patten 15,000
Ann Patten 15,000
Kathleen Patten 31,500
-------
TOTAL 240,000
=======
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 Organization and Good Standing.
(a) The Organizational Documents contain complete and accurate
information for each Acquired Companies, including its name, its
jurisdiction of incorporation, other jurisdictions in which it is
authorized to do business, and its capitalization (including the identity
of each stockholder and the number of shares held by each). Each Acquired
Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own
or use, and to perform all its obligations under Applicable Contracts. Each
Acquired Company is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or other jurisdiction
in which either the ownership or use of the properties owned or used by it,
or the nature of the activities conducted by it, requires such
qualification.
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of the each Acquired Company, as currently in effect.
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3.2 Authority, No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its
terms. Sellers have the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and to perform their
obligations under this Agreement.
(b) Except as previously disclosed, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of the Acquired
Companies, or (B) any resolution adopted by the board of directors or
the stockholders of any Acquired Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any
of the Contemplated Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which and
Acquired Company or either Seller, or any of the assets owned or used
by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or any of the assets owned
or used by, any Acquired Company;
(iv) cause Buyer or any Acquired Company to become subject to, or
to become liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired Company to be
reassessed or revalued by any taxing authority or other Governmental
Body;
(vi) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by any
Acquired Company.
No Seller or Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
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3.3 Capitalization. The authorized equity securities of the Company consist
of 25,000 shares of common stock, no par value, of which 1,600 shares are issued
and outstanding and constitute the Shares. Sellers are and will be on the
Closing Date the record and beneficial owners and holders of the Shares, free
and clear of all Encumbrances. Sellers own a proportional number of Shares to
that which they are being issued by America's Shopping Mall, Inc. With the
exception of the Shares (which are owned by Sellers), all of the outstanding
equity securities and other securities of each Acquired Company are owned of
record and beneficially by one or more of the Acquired Companies, free and clear
of all Encumbrances. No legend or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of any Acquired
Company. All of the outstanding equity securities of each Acquired Company have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any Acquired Company. None of the outstanding
equity securities or other securities of any Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than Acquired Companies) or any direct or
indirect equity or ownership interest in any other business.
3.4 Financial Statements. Sellers have delivered to Buyer: (a) consolidated
balance sheets of the Acquired Companies as at June 30, 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the fiscal years then ended, together with the report thereon
of Smallberg Sorkin & Company LLP, independent certified public accountants, (b)
a consolidated balance sheet of the Acquired Companies as at June 30, 1998
(including the notes thereto, the "Balance Sheet"), and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for the
fiscal year then ended, together with the report thereon of Smallberg Sorkin &
Company LLP, independent certified public accountants, and (c) an unaudited
consolidated balance sheet of the Acquired Companies as at April 30, 1999 (the
"Interim Balance Sheet") and the related unaudited consolidated statements of
income, changes in stockholders' equity, and cash flow for the ten (10) months
then ended, including in each case the notes thereto. Such financial statements
and notes fairly present the financial condition and the results of operations,
changes in stockholders' equity, and cash flow of the Acquired Companies as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and the
absence of notes (that, if presented, would not differ materially from those
included in the Balance Sheet); the financial statements referred to in this
Section 3.4 reflect the consistent application of such accounting principles
throughout the periods involved. No financial statements of any Person other
than the Acquired Companies are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 Books and Records. The books of account, minute books, stock record
books, and other records of the Acquired Companies, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices and the requirements of Section
13(b)(2) of the Securities Exchange Act of 1934, as amended (regardless of
whether or not the Acquired Companies are subject to that Section), including
the
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maintenance of an adequate system of internal controls. The minute books of the
Acquired Companies contain accurate and complete records of all meetings held
of, and corporate action taken by, the stockholders, the Boards of Directors,
and committees of the Boards of Directors of the Acquired Companies, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Acquired Companies.
3.6 Title to Properties; Encumbrances. The Acquired Companies have no title
to real property or other interests therein. The Acquired Companies own all the
assets (whether tangible or intangible) that they purport to own located in the
facilities operated by the Acquired Companies, including all of the assets
reflected in the Balance Sheet and the Interim Balance Sheet, and all of the
assets purchased or otherwise acquired by the Acquired Companies since the date
of the Balance Sheet. All material assets reflected in the Balance Sheet and the
Interim Balance Sheet are free and clear of all Encumbrances and are not subject
to any limitations of any nature except, with respect to all such assets, (a)
security interests shown on the Balance Sheet or the Interim Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) security interests incurred in connection with the purchase
of property or assets after the date of the Interim Balance Sheet (such security
interests being limited to the property or assets so acquired), with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, and (c) liens for current taxes not yet due.
3.7 Condition and Sufficiency of Assets. The equipment of the Acquired
Companies are structurally sound, in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of such
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The equipment
of the Acquired Companies are sufficient for the continued conduct of the
Acquired Companies businesses after the Closing in substantially the same manner
as conducted prior to the Closing.
3.8 Accounts Receivable. All accounts receivable of the Acquired Companies
that are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Acquired Companies as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Balance Sheet or the
Interim Balance Sheet or on the accounting records of the Acquired Companies as
of the Closing Date (which reserves are adequate and calculated consistent with
past practice and, in the case of the reserve as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing Date
than the reserve reflected in the Interim Balance Sheet represented of the
Accounts Receivable reflected therein and will not represent a material adverse
change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off, within ninety days after the day
on which it first becomes due and payable. There is no contest, claim, or right
of set-off, other than returns in the Ordinary Course of Business, under any
Contract
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with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable.
3.9 Inventory. All inventory of the Acquired Companies, whether or not
reflected in the Balance Sheet or the Interim Balance Sheet, consists of a
quality and quantity usable and salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Balance Sheet or
the Interim Balance Sheet or on the accounting records of the Acquired Companies
as of the Closing Date, as the case may be. All inventories not written off have
been priced at the lower of cost or market on a first in, first out basis. The
quantities of each item of inventory (whether raw materials, work-in-process, or
finished goods) are not excessive, but are reasonable in the present
circumstances of the Acquired Companies.
3.10 No Undisclosed Liabilities. Except previously disclosed, the Acquired
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 Taxes.
(a) The Acquired Companies have filed or caused to be filed all Tax
Returns that are or were required to be filed, pursuant to applicable Legal
Requirements. Sellers have delivered or made available to Buyer copies of
all such Tax Returns. The Acquired Companies have paid, or made provision
for the payment of, all Taxes that have or may have become due pursuant to
those Tax Returns or otherwise, or pursuant to any assessment received by
Sellers or the Acquired Companies, except such Taxes, if any, as previously
disclosed and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the
Balance Sheet and the Interim Balance Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in
accordance with GAAP) and are at least equal to that Acquired Company's
liability for Taxes. There exists no proposed tax assessment against any
Acquired Company. All Taxes that any Acquired Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(c) All Tax Returns filed by (or that include on a consolidated basis)
any Acquired Company are true, correct, and complete. There is no tax
sharing agreement that will require any payment by any Acquired Company
after the date of this Agreement. No Acquired Company is, or within the
five-year period preceding the Closing Date has been, an "S" corporation.
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3.12 No Material Adverse Change. Since the date of the Balance Sheet, there
has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of any Acquired Company, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
3.13 Employee Benefits. The Buyer has had access to all relevant books and
records concerning employee benefits of the Acquired Companies.
3.14 Legal Proceedings; Orders.
(a) Except as previously disclosed, there is no pending Proceeding:
(i) that has been commenced by or against any Acquired Company or
that otherwise relates to or may affect the business of, or any of the
assets owned or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
(b) Except as previously disclosed, to the Knowledge of Sellers and
the Acquired Companies, (1) no such Proceeding has been Threatened, and (2)
no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such Proceeding. Sellers have
delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to any Proceeding. Any current Proceedings disclosed to
Buyer will not have a material adverse effect on the business, operations,
assets, condition, or prospects of any Acquired Company.
(c) Except as previously disclosed:
(i) there is no Order to which any of the Acquired Companies, or
any of the assets owned or used by any Acquired Company, is subject;
(ii) neither Seller is subject to any Order that relates to the
business of, or any of the assets owned or used by, any Acquired
Company; and
(iii) to the Knowledge of Sellers and the Acquired Companies, no
officer, director, agent, or employee of any Acquired Company is
subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or
practice relating to the business of any Acquired Company.
3.15 Absence of Certain Changes and Events. Except as previously disclosed,
since the date of the Balance Sheet, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
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(a) change in any Acquired Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital
stock of any Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition,
or prospects of the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
any material Contract or transaction
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset of any Acquired Company
or pledge, or imposition of any lien or other encumbrance on any material
asset of any Acquired Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any material claims or rights to any
Acquired Company;
(i) material change in the accounting methods used by any Acquired
Company; or
(j) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
3.16 Contracts; No Defaults.
(a) Sellers have delivered to Buyer true and complete copies (if
applicable), of:
(i) each material Applicable Contract that involves performance
of services or delivery of goods or materials by one or more Acquired
Companies;
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(ii) each material Applicable Contract that involves performance
of services or delivery of goods or materials to any Acquired Company;
(iii) each material Applicable Contract that was not entered into
in the Ordinary Course of Business and that involves expenditures or
receipts of one or more Acquired Companies;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or personal property;
(v) each licensing agreement or other material Applicable
Contract with respect to patents, trademarks, copyrights, or other
intellectual property, including agreements with current or former
employees, consultants, or contractors regarding the appropriation or
the non-disclosure of any of the Intellectual Property Assets;
(vi) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by any Acquired Company with any other Person;
(vii) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of any Acquired Company
or limit the freedom of an Acquired Company to engage in any line of
business or to compete with any Person;
(viii) each Applicable Contract providing for payments to or by
any Person based on sales, purchases, or profits, other than direct
payments for goods;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by any Acquired Company to be responsible for
consequential damages;
(xi) each material Applicable Contract for capital expenditures;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any
Acquired Company other than in the Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
(b) Except as previously disclosed:
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(i) no Seller (and no Related Person of any Seller) has or may
acquire any rights under, and neither Seller has or may become subject
to any obligation or liability under, any Contract that relates to the
business of, or any of the assets owned or used by, any Acquired
Company; and
(ii) to the Knowledge of Sellers and the Acquired Companies, no
officer, director, agent, employee, consultant, or contractor of any
Acquired Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or
practice relating to the business of any Acquired Company, or (B)
assign to any Acquired Company or to any other Person any rights to
any invention, improvement, or discovery.
(c) Except as previously disclosed, each Contract identified is in
full force and effect and is valid and enforceable in accordance with its
terms.
(d) Except as previously disclosed:
(i) each Acquired Company is in full compliance with all
applicable terms and requirements of each Contract under which any
Acquired Company has or had any obligation or liability or by which
such Acquired Company or any of the assets owned or used by any
Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which any Acquired Company has or
had any rights is in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give any Acquired Company or
other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) no Acquired Company has given to or received from any other
Person any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
any Acquired Company under current or completed Contracts with any Person
and, to the Knowledge of Sellers and the Acquired Companies, no such Person
has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Acquired Companies have been
entered into in the Ordinary
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Course of Business and have been entered into without the commission of any
act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.17 Insurance.
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to
which any Acquired Company is a party or under which any Acquired
Company, or any director of any Acquired Company, is or has been
covered at any time; and
(ii) true and complete copies of all pending applications for
policies of insurance.
3.18 Environmental Matters. Except as previously disclosed:
(a) Each Acquired Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. No Seller or Acquired Company has any basis
to expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or Threatened
order, notice, or other communication.
(b) There are no pending or, to the Knowledge of Sellers and the
Acquired Companies, Threatened claims, Encumbrances, or other restrictions
of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with
respect to or affecting any of the Facilities or any other properties and
assets (whether real, personal, or mixed) in which Sellers or any Acquired
Company has or had an interest.
(c) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining
property.
3.19 Employees.
(a) The Sellers have disclosed all of the following available
information for each employee or director of the Acquired Companies.
(b) No employee or director of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect (i) the
performance of his duties as an employee or director of any Acquired
Company, or (ii) the ability of any Acquired Company to conduct its
business, including any Proprietary Rights Agreement with Sellers or any
Acquired Company by any such employee or director.
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3.20 Intellectual Property.
(a) Intellectual Property Assets -- The term "Intellectual Property
Assets" includes:
(i) any Acquired Company's name, all fictional business names,
trading names, registered and unregistered trademarks, service marks,
and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "Trade
Secrets"); owned, used, or licensed by any Acquired Company as
licensee or licensor.
(b) Agreements -- The Sellers have disclosed all Contracts relating to
the Intellectual Property Assets to which any Acquired Company is a party
or by which any Acquired Company is bound. Except as previously disclosed,
there are no outstanding and, to Sellers' Knowledge, no Threatened disputes
or disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business -- The Intellectual Property
Assets are all those necessary for the operation of any Acquired Company's
businesses as they are currently conducted. The Acquired Companies are the
owner of all right, title, and interest in and to each of the Intellectual
Property Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and has the right to use
without payment to a third party all of the Intellectual Property Assets.
(d) Trademarks
(i) The Sellers have disclosed all Marks. The Acquired Companies
are the owners of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not
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subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) Except as previously disclosed, no Mark has been or is now
involved in any opposition, invalidation, or cancellation and, to
Sellers' Knowledge, no such action is Threatened with the respect to
any of the Marks.
(iv) Except as previously disclosed, to Sellers' Knowledge, there
is no potentially interfering trademark or trademark application of
any third party.
(v) Except as previously disclosed, no Mark is infringed or, to
Sellers' Knowledge, has been challenged or threatened in any way. None
of the Marks used by any Acquired Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any third
party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(e) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in detail
and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any
individual.
(ii) Sellers and the Acquired Companies have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of
their Trade Secrets.
(iii) One or more of the Acquired Companies has good title and an
absolute (but not necessarily exclusive) right to use the Trade
Secrets. The Trade Secrets are not part of the public knowledge or
literature, and, to Sellers' Knowledge, have not been used, divulged,
or appropriated either for the benefit of any Person (other than one
or more of the Acquired Companies) or to the detriment of the Acquired
Companies. No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
3.21 Disclosure.
(a) No representation or warranty of Sellers in this Agreement omits
to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
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(c) There is no fact known to either Seller that has specific
application to either Seller or any Acquired Company (other than general
economic or industry conditions) and that materially adversely affects the
assets, business, prospects, financial condition, or results of operations
of the Acquired Companies (on a consolidated basis) that has not been set
forth in this Agreement.
3.22 Brokers or Finders. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and to perform its obligations under
this Agreement.
(b) Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the Contemplated Transactions by
Buyer will give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may
be bound.
(c) Buyer is not and will not be required to obtain any Consent from
any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
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4.3 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.4 Brokers or Finders. Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Sellers harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 Access and Investigation. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause each Acquired Company and its
Representatives to, (a) afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, "Buyer's Advisors") full and
free access to each Acquired Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Buyer may reasonably
request, and (c) furnish Buyer and Buyer's Advisors with such additional
financial, operating, and other data and information as Buyer may reasonably
request.
5.2 Operation of the Business of the Company. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause each Acquired
Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
such Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report periodically to Buyer concerning the status of
the business, operations, and finances of such Acquired Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers will
not, and will cause each Acquired Company not to, without the prior consent of
Buyer, take any affirmative action, or fail to take any reasonable action within
their or its control, as a result of which any of the changes or events listed
in Section 3.15 is likely to occur.
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5.4 Required Approvals. As promptly as practicable after the date of this
Agreement, Sellers will, and will cause each Acquired Company to, make all
filings required by Legal Requirements to be made by them in order to consummate
the Contemplated Transactions. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause each Acquired Company to, (a)
cooperate with Buyer with respect to all filings that Buyer elects to make or is
required by Legal Requirements to make in connection with the Contemplated
Transactions, and (b) cooperate with Buyer in obtaining all consents.
5.5 Notification. Between the date of this Agreement and the Closing Date,
each Seller will promptly notify Buyer in writing if such Seller or any Acquired
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of Sellers' representations and warranties as of the date of this
Agreement, or if such Seller or any Acquired Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Seller will promptly notify Buyer of the
occurrence of any Breach of any covenant of Sellers in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause each Acquired
Company and each of their Representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any Person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the Ordinary Course of Business) of any Acquired Company, or any of the
capital stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
5.7 Best Efforts. Between the date of this Agreement and the Closing Date,
Sellers will use their Best Efforts to cause the conditions in Sections 7 and 8
to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable after the
date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
6.2 Best Efforts. Between the date of this Agreement and the Closing Date,
Buyer will use its Best Efforts to cause the conditions in Sections 7 and 8 to
be satisfied.
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7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. All of Sellers' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
7.2 Sellers' Performance.
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered must have been delivered,
and each of the other covenants and obligations must have been performed
and complied with in all respects.
7.3 Additional Documents. Sellers must have caused the delivery of such
other documents as Buyer may reasonably request for the purpose of (i)
evidencing the accuracy of any of Sellers' representations and warranties, (ii)
evidencing the performance by either Seller of, or the compliance by either
Seller with, any covenant or obligation required to be performed or complied
with by such Seller, (iii) evidencing the satisfaction of any condition referred
to in this Section 7, or (iv) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
7.4 No Proceedings. Since the date of this Agreement, there must not have
been commenced or Threatened against Buyer, or against any Person affiliated
with Buyer, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, any of the Acquired Companies, or (b) is entitled to all
or any portion of the Purchase Price payable for the Shares.
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8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2 Buyer's Performance.
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer and must have delivered shares of America's Shopping
Mall, Inc. common stock required to be made by Buyer pursuant to Sections
2.4(b).
8.3 Additional Documents. Buyer must have caused the delivery of such other
documents as Sellers may reasonably request for the purpose of (i) evidencing
the accuracy of any representation or warranty of Buyer, (ii) evidencing the
performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (iii) evidencing
the satisfaction of any condition referred to in this Section 8, or (iv)
otherwise facilitating the consummation of any of the Contemplated Transactions.
9. TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach has
not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure
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of Sellers to comply with their obligations under this Agreement) and
Sellers have not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
December 31, 1999, or such later date as the parties may agree upon.
9.2 Effect of Termination. Each party's right of termination under Section
9.1 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 9.1, all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Sections 11.1 and 11.3 will survive; provided, however, that if
this Agreement is terminated by a party because of the Breach of the Agreement
by the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification not Affected by Knowledge. All
representations, warranties, covenants, and obligations in this Agreement and
any other document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by Sellers. Irwin Schneidmill
and Kathleen Patten (the "Representative Sellers"), jointly and severally, will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
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(a) any Breach of any representation or warranty made by Sellers in
this Agreement or any other document delivered by Sellers pursuant to this
Agreement;
(b) any Breach of any representation or warranty made by Sellers in
this Agreement as if such representation or warranty were made on and as of
the Closing Date.
(c) any Breach by any Seller of any covenant or obligation of any such
Seller in this Agreement; and
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller or any
Acquired Company (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions.
No Seller other than a Representative Seller may be liable for, or will be
required to pay to the Indemnified Persons any amount for any Damages, arising,
directly or indirectly, from or in connection with this Agreement. No Seller
other than a Representative Seller shall be liable for Damages with respect to
any Breaches. The Representative Sellers solely will be jointly and severally
liable for any and all Damages with respect to any Breaches or otherwise. The
only other remedy that may be available to Buyer or the other Indemnified
Persons against any Seller other than a Representative Seller is rescission.
10.3 Indemnification and Payment of Damages by Buyer. Buyer will indemnify
and hold harmless Sellers, and will pay to Sellers the amount of any Damages
arising, directly or indirectly, from or in connection with (a) any Breach of
any representation or warranty made by Buyer in this Agreement, (b) any Breach
by Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any
claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions.
10.4 Time Limitations. If the Closing occurs, Representative Sellers will
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, other than those in Sections 3.3, 3.11,
and 3.18, unless on or before June 2, 2000 Buyer notifies Representative Sellers
of a claim specifying the factual basis of that claim in reasonable detail to
the extent then known by Buyer; a claim with respect to Section 3.3, 3.11, or
3.18, or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before June
2, 2000 Sellers notify Buyer of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Sellers.
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10.5 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 10.2,
10.3, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party
of the commencement of such Proceeding, the indemnifying party will, unless
the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense of
such Proceeding with counsel satisfactory to the indemnified party and,
after notice from the indemnifying party to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party
will not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Section 10 for any fees of other counsel or
any other expenses with respect to the defense of such Proceeding, in each
case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation.
If the indemnifying party assumes the defense of a Proceeding, (i) it will
be conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on
any other claims that may be made against the indemnified party, and (B)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected
without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within
ten days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding,
the indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary
damages for which it would be entitled to
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indemnification under this Agreement, the indemnified party may, by notice
to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will not
be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) Representative Sellers hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the matters
alleged therein, and agree that process may be served on Sellers with
respect to such a claim anywhere in the world.
(e) No Seller other than a Representative Seller may be liable for, or
will be required to pay to any Indemnified Persons or Third Party any
amount for any Damages, arising, directly or indirectly, from or in
connection with this Agreement. No Seller other than a Representative
Seller shall be liable to any Indemnified Persons or Third Party for
Damages with respect to any Breaches. The Representative Sellers solely
will be jointly and severally liable to any Indemnified Persons or third
party for any and all Damages with respect to any Breaches or otherwise.
(f) Should any Seller other than a Representative Seller be found
liable or have to pay to any Third Party any amount for any Damages,
arising, directly or indirectly, from or in connection with this Agreement,
Representative Sellers agree to jointly and severally indemnify and hold
harmless such Seller for any such Damages, and will pay to any such Seller
the full amount of Damages.
10.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 Expenses. Except as otherwise expressly provided in this Agreement,
the Representative Sellers will bear all expenses incurred in connection with
the preparation, execution, and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants.
11.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines.
11.3 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when
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received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
SELLERS: Selling Shareholders of Dynamic Products Corp.
c/o Irwin Schneidmill
20 Roble Road
Suffern, New York 10901
Telecopier No.: (914) 369-0136
Sterling/Carl Marks Capital, Inc., CMCO, Inc. and/or Robert Davidoff
c/o Sterling/Carl Marks Capital, Inc.
175 Great Neck Road
Great Neck, New York 11021
Telecopier No.: (516) 487-0781
BUYER: Remarkable Acquisition Corp.
382 Route 59, #310
Monsey, New York 10952
Telecopier No. (914) 369-0136
11.4 Jurisdiction; Service of Process. The parties agree that they shall be
deemed to have agreed to binding arbitration with respect to the entire subject
matter of any and all disputes relating to or arising under this Agreement. Any
such arbitration shall be by a panel of three arbitrators and pursuant to the
commercial rules then existing of the American Arbitration Association in New
York County, New York. In all arbitrations, judgment upon the arbitration award
may be entered in any court having jurisdiction. The parties agree, further,
that the prevailing party in any such arbitration as determined by the
arbitrators shall be entitled to attorney's fees, if any, in connection with
such arbitration as may be awarded by arbitrators.
11.5. Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.6 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation
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of the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.
11.7 Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.8 Assignments, Successors, and No Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, which will not be unreasonably withheld, except that Buyer may
assign any of its rights under this Agreement to any Subsidiary or parent of
Buyer. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
11.9 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction or panel of arbitrators,
the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
11.10 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.11 Governing Law. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
11.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Buyer:
REMARKABLE ACQUISITION CORP.
By: /s/ Robert W. Trause
------------------------------
Name: Robert W. Trause
Title: Secretary
Sellers:
/s/ Irwin Schneidmill
--------------------------------
Irwin Schneidmill
/s/ Amy Schneidmill
--------------------------------
Amy Schneidmill
/s/ Kathleen Patten
--------------------------------
Kathleen Patten
/s/ Brian Ugles
--------------------------------
Brian Ugles
/s/ Cathy Santo
--------------------------------
Cathy Santo
/s/ Janice Ewenstein
--------------------------------
Janice Ewenstein
/s/ Philip Failla
--------------------------------
Philip Failla
/s/ Sara Patten
--------------------------------
Sara Patten
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Sellers (cont.):
/s/ Mary Patten
--------------------------------
Mary Patten
/s/ Anne Patten
--------------------------------
Ann Patten
/s/ Robert Davidoff
--------------------------------
Robert Davidoff
STERLING/CARL MARKS
CAPITAL, INC.
By: /s/ Harvey Rosenblatt
----------------------------
Name: Harvey Rosenblatt
Title: Executive Vice President
CMCO, INC.
By: /s/ Robert Davidoff
----------------------------
Name: Robert Davidoff
Title: Managing Director
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EXHIBIT 3.1
FILED #C10914.99
MAY 04 1999
IN THE OFFICE OF
/S/DEAN HELLER
DEAN HELLER SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
AMERICA'S SHOPPING MALL, INC.
-----
The undersigned incorporator, for the purpose of forming a corporation
under the General Corporation Law of the State of Nevada (Title 7, Chapter 78 of
Nevada Revised Statutes (the "Act"), and the acts amendatory thereof), does
hereby adopt the following Articles of Incorporation:
ARTICLE I
The name of the corporation (which is hereinafter called the "Corporation")
is AMERICA'S SHOPPING MALL, INC.
ARTICLE II
The name of the corporation's resident agent in the State of Nevada is
Laughlin Associates, and the street address of the said resident agent where
process may be served is 2533 North Carson Street, Carson City, Nevada 89706.
ARTICLE III
The number of shares which the corporation shall have the authority to
issue is 120,000,000, of which 100,000,000 shall be designated Common Stock,
$.001 par value per share, and 20,000,000 shares shall be designated as Series A
Senior Convertible Preferred Stock, $.001 par value per share. All shares are to
be non-assessable.
ARTICLE IV
No holder of any of the shares of the corporation shall, as such holder,
have any right to purchase unissued or treasury stock of the Corporation or
subscribe for any shares of any class which the corporation may issue or sell,
whether or not such shares are exchangeable for any shares of the corporation of
any other class or classes, and whether such shares are issued out of the number
of shares authorized by the Articles of Incorporation of the corporation as
originally filed, or by any amendment thereof, or out of shares of the
corporation acquired by it after the issue thereof, nor shall any holder of any
of the shares of the corporation, as such holder, have any right to purchase or
subscribe for any obligations which the corporation may issue or sell that shall
be convertible into, or exchangeable for, any shares of the corporation of any
class or classes, or to which shall be attached or shall appertain any warrant
or warrants or other
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instrument or instruments that shall confer upon the holder thereof the right to
subscribe for, or purchase from the corporation any shares of any class or
classes.
ARTICLE V
The purpose for which the corporation is organized, in addition to engaging
in any lawful act or activity for which a corporation may be organized pursuant
to the General Corporation Law of the State of Nevada, and without limiting the
generality of the foregoing, are as follows:
(1) To engage in the business of mail order catalogues and to facilitate
the marketing and distribution of the catalogues; and in general to do all
things necessary and proper for the successful conduct of such a business.
(2) To conduct research, to develop new products and to refine existing
products;
(3) To purchase, lease, or otherwise acquire, in whole or in part, the
business, the good will, rights, franchises and property of every kind, and to
undertake the whole or any part of the assets or liabilities, of any person,
firm, association, non-profit or profit corporation, or own property necessary
or suitable for its purposes, and to pay the same in cash, in the stocks or
bonds of this company or otherwise, to hold or in any manner dispose of the
whole or any part of the business or property so acquired and to exercise all of
the powers necessary or incidental to the conduct of such business.
(4) To discount and negotiate promissory notes, drafts, bill of exchange
and other evidence of debts, and to collect for others money due them on notes,
checks, drafts, bill of exchange, commercial paper and other evidence of
indebtedness.
(5) To purchase or otherwise acquire, own, hold, lease, sell, exchange,
assign, transfer, mortgage, pledge, or otherwise dispose of, to guaranty,
invest, trade, and deal in and with personal property of every class and
description.
(6) To enter into any kind of contract or agreement, cooperative or profit
sharing plan with its officers or employees that the corporation may deem
advantageous or expedient or otherwise to reward or pay such persons for their
services as the directors may deem fit.
(7) To lend or borrow money and to negotiate and make loans, either on its
own account or as agent, or broker for others.
(8) To enter into, make, perform and carry out contracts of every kind and
for any lawful purpose, without limit as to amount with any person, firm,
association, cooperative profit or non-profit corporation, municipality, State
of Government or any subdivision, district or department thereof.
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(9) To buy, sell, exchange, negotiate, or otherwise deal in, or hypothecate
securities, stocks, bonds, debentures, mortgages, notes or other collateral or
securities, created or issued by any corporation wherever organized including
this corporation, within such limits as may be provided by law, and while owner
of any such stocks or other collateral to exercise all rights, powers and
privileges of ownership, including the right to vote the same; to subscribe for
stock of any corporation to be organized, other than to promote the organization
thereof.
(10) To purchase or otherwise acquire, own, hold, lease, sell, exchange,
assign, transfer, mortgage, pledge, license, or otherwise dispose of any
letters, patents, copyrights, or trademarks of every class and description.
(11) To carry out all or any part of the foregoing objects as principal,
broker, factor, agent, contractor, or otherwise, either alone or through or in
conjunction with any person, firm, association or corporation, and in any part
of the world, and in carrying on its business and for the purposes of attaining
or furthering any of its objects and purposes, and to make and perform any
contracts and to do any acts and things, and to exercise any power suitable,
convenient, or proper for the accomplishment of any of the objects and purposes
herein enumerated or incidental to the powers herein specified, or which at any
time may appear conducive or expedient for the accomplishment of any such
objects and purposes;
(12) To carry out all or any part of the objects and purposes, and to
conduct its business in all or any of its branches and in any or all states,
territories, districts, and possessions of the United States of America and in
foreign countries; and to maintain offices and agencies in any or all states,
territories, districts, and possessions of the United States of America and in
foreign countries; and
(13) In general, to possess and exercise all the powers and privileges
granted by the Act or by any other law of Nevada or by these Articles of
Incorporation together with any powers incidental thereto. The foregoing
enumeration of the purposes, objects, and business of the corporation is made in
furtherance and not in limitation of the powers conferred upon the corporation
by law and it is not intended by the mention of any particular purpose, object
or business in any manner to limit or restrict the generality of any other
purposes, object or business mentioned or to limit or restrict any of the powers
of the Corporation, and the said Corporation shall have, enjoy and exercise all
of the powers and rights now or hereafter conferred by statue upon corporations
of a similar character, it being the intention that the purposes, objects, and
powers specified in each of the paragraphs of this Article of the Articles of
Incorporation shall, except as otherwise expressly provided, in no way be
limited or restricted by reference to or inference from the terms of any other
clause or paragraph of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent, and construed as
powers as well as objects and purposes; provided, however that nothing herein
contained shall be deemed to authorize or permit the corporation to carry on any
business or exercise any power, or do any Act which a corporation under the laws
of Nevada may not at the time lawfully carry on or do.
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ARTICLE VI
The governing board of the Corporation shall consist of directors of the
Corporation. The number of directors constituting the initial Board Directors of
the Corporation is five (5). The board of directors by majority vote may from
time to time by resolution change the number of directors of the Corporation.
The directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where this Act provides that the
directors may act in certain instances where the Articles of Incorporation
authorize such action by the directors, the directors are hereby given authority
to act in such instances without specifically numerating such potential action
or instance herein. The directors are specifically given the authority to
mortgage or pledge any or all assets of the business without stockholders'
approval.
The names and addresses including street and number of persons who are to
serve as directors until the next annual meeting of the shareholders or until
their successors are elected and shall qualify are:
NAME ADDRESS
Dennis McNany 11 Benedict Drive
Hopatcong, New Jersey 07849
Robert Trause 429 Hackensack Street
Carlstadt, New Jersey 07072
Irwin Schneidmill 382 Route 59, Section 3 10
Monsey, New York 10952
Chase Caro 60 East 42nd Street, Suite 2001
New York, New York 10165
Richard Truzzolino 84 Tanglewood Drive
East Hanover, New Jersey 07936
ARTICLE VII
The corporation shall, to the fullest extent legally permissible under the
provisions of the General Corporation Law of the State of Nevada, as the same
may be amended and supplemented, indemnify and hold harmless any and all persons
whom it shall have power to indemnify under said provisions from and against any
and all liabilities (including expenses)
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<PAGE>
imposed upon or reasonably incurred by him in connection with any action, suit
or other proceeding in which he may be involved or with which he may be
threatened, or other matters referred to in or covered by said provisions both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director or officer of the corporation. Such indemnification provided shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, Agreement or Resolution adopted by the shareholders
entitled to vote thereon after notice.
ARTICLE VIII
No contract or other transaction between this corporation and any one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors or officers are financially interested, shall
be either void or voidable because of such relationship or interest, or because
such director or directors are present at the meeting of the Board of Directors,
or a committee thereof, which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted of such purpose if (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested director, or (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by vote
or written consent, and (c) the contract or transaction is fair and reasonable
to the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE IX
The personal liability of all of the directors of the corporation is hereby
eliminated to the fullest extent allowed as provided by the Nevada General
Corporation Law, as the same may be supplemented and amended.
ARTICLE X
The name and address of the incorporator of the Corporation is as follows:
NAME ADDRESS
Galina Stiler 60 East 42nd Street
New York, New York 10165
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ARTICLE XI
The period of duration of the corporation shall be perpetual.
The undersigned incorporator has executed these Articles of Incorporation
this 30th day of April, 1999.
/s/ Galina Stiler
----------------------
Galina Stiler
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Before me, a Notary Public in and for said county and state, personally
appeared, Galina Stiler, who is known to me to be the same person who executed
the foregoing Articles of Incorporation and duly acknowledged execution of the
same. In witness whereof, I have hereunto subscribed my name and affixed my
official seal, this 30 day of April, 1999.
/s/ Sybil C. Kierstedt
-----------------------------
Notary Public
SYBIL C. KIERSTEDT
Notary Public, State of New York
No. 01KI4949643
Qualified in Kings County
Commission Expires April 17, 2001
<PAGE>
EXHIBIT 3.2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
MAY 21 1999
No. C10914-99
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF
AMERICA'S SHOPPING MALL, INC.
A Nevada Corporation
The undersigned being the President and Secretary of AMERICA'S SHOPPING
MALL, INC., a Nevada corporation (the "Corporation"), organized and existing
under the laws of the State of Nevada (the "Corporation"), hereby certify as
follows:
1. The present name of the corporation is America's Shopping Mall, Inc.
2. The date of filing of its original Articles of Incorporation with the
Secretary of the State of Nevada was May 4, 1999.
3. The Board of Directors of the Corporation acting unanimously and the
sole stockholder of the Corporation outstanding and entitled to vote, have
authorized and approved the following amendment:
WITNESSETH:
The number of shares which the corporation shall have the authority to
issue is 20,020,000 of which 20,000,000 shall be designed Common Stock, $.001
par value per share, and 20,000 shares shall be designated as Series A Senior
Convertible Preferred Stock, $.001 par value per share. All shares are to be
fully paid and non-assessable. The Series A Senior Convertible Preferred Stock
shall have such rights and preferences set forth in the Certificate of
Designation of Series A Senior Convertible Preferred Stock attached to this
Amendment as an Exhibit. The Board of Directors shall file with the Nevada
Secretary of State such a Certificate of Designation.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to the Articles of Incorporation of the Corporation to be signed by Irwin
Schneidmill, its President, an attested by Robert Trause, its Secretary, this
21st day of May, 1999.
By: /s/ Irwin Schneidmill, President
--------------------------
Irwin Schneidmill
President
Attest: /s/ Robert Trause
----------------------
Robert Trause
Secretary
<PAGE>
State of New York )
)
County of New York )
On May 21st, 1999, personally appeared before me, Notary Public, Irwin
Schneidmill, President of America's Shopping Mall, Inc. who acknowledged that he
executed the above Articles of Amendment to the Articles of Incorporation.
/s/ Chase Caro
---------------
NOTARY PUBLIC
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK OF
AMERICA'S SHOPPING MALL, INC.
Section 1. Designation, Amount and Par Value. The series of Preferred Stock
shall be designated as the Series A Senior Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 20,000. The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $420.00 per share (the "Stated
Value"). All terms defined in the Investment Agreement, dated May 21, 1999,
between the Company and the Purchaser therein (the "Investment Agreement") and
not otherwise defined herein shall have for purposes hereof the meanings
provided for therein.
Section 2. Dividends.
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum (or 13% per annum in the case of
dividends paid in shares of Preferred Stock under Section 2(c) hereof) (subject
to reset as provided below in this Section 2(a) and to increase pursuant to
Section 2(e) hereof), in cash or (as provided for herein) shares of Preferred
Stock, payable quarterly in arrears on the last day of each March, June,
September and December during the term of the Preferred Stock (each such date, a
"Dividend Payment Date"). Any arrears in payment of dividends with respect to
any share of Preferred Stock shall be payable on the Conversion Date (as defined
in Section 5(b)) applicable to such share or earlier if so determined by the
Company at the default rates set forth in Section 2(e) hereof. Dividends on
shares of the Preferred Stock shall accrue daily commencing on the Issue Date of
such shares, shall be calculated based on the actual number of days in such
quarterly period in a 360-day year and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend Payment Date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable Dividend Payment Date. A
transfer of the right to receive payments hereunder shall be transferable only
through an appropriate entry in the register (the "Register") to be maintained
by the Company through the Transfer Agent, in which shall be entered the names
and addresses of the registered holder of shares of Preferred Stock and all
transfers of such shares. References to the Holder or Holders shall mean the
Person listed in the Register as the registered holder of such shares. The
ownership of such shares shall be proved by the Register, absent manifest error.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued on account of the Preferred Stock,
such payment shall be distributed ratably among the holders of Preferred Stock
based upon the number of shares held by each Holder. Dividends due hereunder on
a Dividend Payment Date may, if so determined by a majority of the Company's
entire Board of Directors, be paid in shares of Preferred Stock calculated based
upon the Stated Value per share. Other than payment of dividends in shares of
Preferred Stock all other amounts due hereunder
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at any time shall be paid in immediately available funds. The Conversion Price
shall be subject to reset as follows. In the event that the average closing bid
price per share of the Company's Common Stock on the NASD OTC Bulletin Board,
the Nasdaq SmallCap Market, the Nasdaq National Market or such other trading
market or exchange on which the Common Stock shall then be traded for the twenty
(20) trading days immediately preceding the ninetieth (90th) day following the
date that the Company's Common Stock is eligible for public trading is below
Three Dollars and Fifty Cents ($3.50) (the "Reset Average Price"), the
Conversion Price shall be reset to a price per share of Common Stock equal to
seventy-five percent (75%) of the Reset Average Price. Once reset in accordance
with the provisions of this Section 2(a), the Conversion Price shall remain at
the reset Conversion Price, subject to adjustment in accordance with Section
5(d) below.
b. Notwithstanding anything to the contrary contained herein, the Company
may not, without the prior written consent of each Holder, in each instance,
issue shares of Preferred Stock in payment of dividends (and must deliver
immediately available funds in respect thereof) on the Preferred Stock if:
(i) the number of shares of Preferred Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in
shares of Preferred Stock; or
(ii) if ten Business Days shall have elapsed from the date an Event of
Default (as defined in Section 7) shall have been declared
hereunder as having occurred and the Company shall not have cured
such Event of Default.
c. If the Company elects to issue shares of Preferred Stock in satisfaction
of the Company's obligation to pay dividends on any previously outstanding
shares of Preferred Stock such dividends shall be paid at an annual rate of
thirteen percent (13%) per share (calculated as a percentage of the Stated Value
per share) and not the eight percent (8%) dividend rate applicable to cash
dividends.
d. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
e. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default and for so long as such Event of Default is
continuing, the dividend rate otherwise applicable specified in Section 2(a)
shall be increased to 13% per annum, paid in cash (or, in the case of shares of
Preferred Stock issued in satisfaction of dividends, 18%) or, if less, the
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<PAGE>
maximum rate permitted by applicable law until such time as the applicable Event
of Default is cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations under the Investment Agreement, or
limit the Company's liability for damages to any holder occasioned by such Event
of Default.
Section 3. Voting Rights. In addition to any voting rights provided by law,
the holders of the Preferred Stock shall have voting rights entitling them to
one vote for each share of Common Stock into which shares of Preferred Stock
held by them are then convertible. The holders of Preferred Stock shall vote
with the holders of Common Stock as one class on all matters submitted to the
holders of Common Stock for a vote. However, so long as any shares of Preferred
Stock are outstanding, the Company shall not, without the affirmative vote of
the holders of a majority in interest of the shares of the Preferred Stock then
outstanding, (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the By-Laws of the Company so as to adversely affect the
relative rights, preferences, qualifications, limitations or restrictions of the
Preferred Stock, (ii) authorize or issue any additional equity securities of the
Company or of any subsidiaries other than those issuable (x) upon the
conversion, exchange or exercise of securities or rights outstanding on the
Closing Date and (y) pursuant to grants of options previously granted and
outstanding on the Closing Date under the Company's Stock Option plan; provided,
however, that such consent shall not be unreasonably withheld, (iii) approve any
merger, consolidation, compulsory share exchange or sale of assets to which the
Company is a party; provided, however that such consent shall not be
unreasonably withheld, (iv) repurchase or redeem any equity securities or pay
dividends or other distributions on any equity securities, except as provided
pursuant to the terms of the Preferred Stock, (v) liquidate, dissolve,
recapitalize or reorganize the Company, (vi) incur any indebtedness for borrowed
money, or guarantee indebtedness, of other persons, directly or indirectly
except with respect to any wholly owned subsidiaries, (vii) effect any
fundamental changes in the nature of the Company's business, including but not
limited to acquiring or investing in another business entity; provided, however
that such consent shall not be unreasonably withheld, or (viii) approve the sale
or transfer of any material intangible or intellectual property, other than the
issuance of licenses or sales of equipment in the ordinary course of business;
provided, however, that such approval shall not be unreasonably withheld.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the holders of
shares of Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of Preferred
Stock an amount equal to One Thousand Dollars ($1,000) per share of Preferred
Stock, plus an amount equal to accrued but unpaid dividends per share, whether
declared or not, before any distribution or payment shall be made to the holders
of any Junior Securities, and if the assets of the Company shall be insufficient
to pay such amounts in full, then the entire assets of the Company to be
distributed shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33 1/3% of the voting power of the Company is disposed
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<PAGE>
of, or a consolidation or merger of the Company with or into any other company
or companies or a reclassification of the Common Stock shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 60 days
prior to the payment date stated therein, to each record holder of Preferred
Stock.
Section 5. Conversion.
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in
whole or in part at any time and from time to time after the Issue
Date of such share of Preferred Stock. The holder of the Preferred
Stock shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the holder
of Preferred Stock delivers such Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date
that the Holder Conversion Notice is deemed delivered pursuant to
Section 5(j). Each Holder Conversion Notice, once given, shall be
irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates
tendered by such holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(c)) a certificate for such
number of shares of Preferred Stock as have not been converted.
b. On the tenth anniversary of the Issue Date (the "Company Conversion
Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically
convertible into shares of Common Stock at the then applicable
Conversion Price; provided, however, that no shares of Preferred Stock
shall be converted (i) unless the Company shall have duly reserved for
issuance to the holder a sufficient number of shares of Common Stock
to issue upon such conversion; or (ii) if an Event of Default shall
have occurred hereunder and is continuing. In connection with such
conversion, the Company shall deliver to the holders of such shares of
Preferred Stock a written notice in the form attached hereto as
Exhibit B (the "Company Conversion Notice"). The Company Conversion
Notice shall specify the number of shares of Preferred Stock that will
be subject to automatic conversion on the Company Conversion Date. The
Company shall deliver or cause to be delivered the Company Conversion
Notice at least five (5) Trading Days before the Company Conversion
Date. The holders of the Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or
the Transfer
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Agent not later than five (5) Trading Days after the Company
Conversion Date. Each of a Holder Conversion Notice and a Company
Conversion Notice is sometimes referred to herein as a "Conversion
Notice," and each of a "Holder Conversion Date" and a "Company
Conversion Date" is sometimes referred to herein as a "Conversion
Date."
c. Not later than five (5) Trading Days after the Conversion Date, the
Company will, or will cause the Transfer Agent to deliver to the
holder of Preferred Stock (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock, including certificates
representing the number of shares of Common Stock as equals the
accrued but unpaid dividends thereon divided by the average Per Share
Market Value, and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted. If, at the time of
any conversion of Preferred Stock, there shall be an effective
Registration Statement applicable to the shares of Common Stock
available for such conversion, any certificates representing shares of
Common Stock to be delivered upon such conversion hereunder shall be
free of restrictive legends and trading restrictions on the stock
transfer books of the Company. The Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock and the counting of
Trading Days for purposes of any consequences under this Section for a
failure to deliver such certificates under this Section shall not
begin until certificates representing the shares of Preferred Stock to
be converted are either delivered for conversion to the Transfer Agent
for the Common Stock, or until the holder notifies the Company that
such certificates representing the shares of Preferred Stock have been
lost, stolen or destroyed and (if requested by the Company or the
Transfer Agent) provides a bond and other supporting documentation
reasonably satisfactory to the Company and the Transfer Agent (or
other adequate security reasonably acceptable to the Company and the
Transfer Agent) to indemnify the Company from any loss incurred by it
in connection therewith, provided that, if the Company or the Transfer
Agent receives the original certificates representing the shares of
Preferred Stock being converted on or prior to the time specified for
the delivery of such shares of Common Stock or on or prior to the time
at which liquidated damages begin to accrue, the date of the Holder
Conversion Notice shall be deemed to be the date of delivery of such
original certificates representing the shares of Preferred Stock. The
Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section 5(c) electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions. If such certificate or
certificates are not delivered by the date required under this Section
5(c), the holder shall be entitled by written notice to the Company
and the Transfer Agent at any time on or before its receipt of such
certificate or certificates, to rescind such conversion, in which
event the Company shall immediately instruct the Transfer Agent to
return the certificates representing
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the shares of Preferred Stock subject to such conversion that were
tendered for conversion.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of
shares, or (c) combine outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(i) shall become
effective immediately upon the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
ii. If the Company, at any time while any shares of Preferred Stock
are outstanding, shall issue shares of Common Stock or securities
convertible into Common Stock at a conversion price, or rights or
warrants exercisable for shares of Common Stock at an exercise
price, per share less than the Conversion Price at the record
date mentioned below (the "Adjustment Issue Date"), the
Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which
the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Conversion Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an
adjustment in the Conversion Price
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designated pursuant to this Section (5)(d)(ii), if any such right
or warrant shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to
the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
Notwithstanding anything in this Section 5(d)(ii), there shall be
no adjustment pursuant to this Section 5(d)(ii) for issuances of
Common Stock or securities convertible into Common Stock (i) for
any of the transactions with respect to which an adjustment is
provided for pursuant to any other section of this Certificate of
Designation, (ii) upon exercise or conversion of any other
options, warrants or securities outstanding on the date hereof,
(iii) upon the conversion of Preferred Stock issued pursuant to
the Investment Agreement or (iv) for issuances under the
Company's stock option plan duly approved by the Compensation
Committee of the Board of Directors.
iii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the Conversion Price, and of
which the numerator shall be such Conversion Price on such record
date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average
7
<PAGE>
of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the
holders of Preferred Stock of the portion of assets or evidences
of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
iv. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
v. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i), (ii), (iii) or (iv), the Company shall, or shall
instruct the Transfer Agent to, promptly mail to the holders of
Preferred Stock a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
vi. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as would be payable to the
holders of the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(d)(vi) upon any conversion
following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
8
<PAGE>
vii. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a subdivision
of the outstanding shares of Common Stock) or shall
authorize a repurchase or redemption or otherwise enter into
any other transaction (including a stock split,
recapitalization or other transaction) which would cause a
decrease in the number of its shares of Common Stock issued
and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock into which
shares of Preferred Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(4) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
repurchase, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, repurchase, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date
9
<PAGE>
as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
e. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of Preferred
Stock (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock) or if
at any time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing
the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the
holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price
(including, if necessary, any adjustment as to the securities into
which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without
diluting the rights of the holders of shares of Preferred Stock;
provided, however that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average
of the adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion
of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
f. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon
conversion of Preferred Stock, as herein provided, out of its
authorized and unissued Common Stock free from preemptive rights or
any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock
as would be issuable upon conversion of all of the shares of the
Preferred Stock that are authorized for issuance hereunder as if all
such shares were issued on, and such conversion had occurred on, the
Issue Date and (ii) covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock as
herein provided, free from preemptive rights or any other actual or
contingent purchase rights of persons other than the holders of
Preferred Stock, the number of shares of Common
10
<PAGE>
Stock as shall be issuable (taking into account the reset provisions
of Section 2(a) and the adjustments and restrictions of Section 5(d)
hereof) upon the conversion of the aggregate of all outstanding shares
of Preferred Stock that are authorized for issuance hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable and free of all preemptive rights, liens
and encumbrances.
g. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Conversion Price. If the
Company elects not to, or is unable to, make such a cash payment, the
holder of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
h. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Preferred Stock paid
as dividends, shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the
holder of such shares of Preferred Stock so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
i. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares
of preferred stock.
j. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Operating Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company and if applicable to the Transfer Agent. Any
and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the holder at the facsimile telephone number or address
of the holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on
11
<PAGE>
the earliest of (i) the date of transmission, if delivered via
facsimile at the facsimile telephone number specified in the
Investment Agreement prior to 4:30 p.m. (Eastern Time) on a Trading
Day, (ii) the Trading Day after the date of transmission, if delivered
via facsimile at the facsimile telephone number specified in the
Investment Agreement later than 4:30 p.m. (Eastern Time) on any date
and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. Redemption.
(a) The Company shall have the right, subject to each Holder's right to
convert all or any portion of its shares of Preferred Stock in accordance with
Section 5 hereof on or prior to the Redemption Date, to redeem any or all of the
shares of Preferred Stock on any Quarterly Dividend Payment Date (for purposes
of this Section 6 such date shall be the "Redemption Date"), provided written
demand as set forth below is given. The redemption price for each share of
Preferred Stock to be redeemed shall be paid by the Company in cash in an amount
equal to the stated value of such share, plus an amount sufficient such that the
holder thereof receives an annual rate of return equal to twenty-five percent
(25%), for the period from the original Issue Date of such share until the
Redemption Date, on a compounded basis (the "Redemption Price").
(b) Thirty (30) days prior to the Redemption Date, the Company shall
provide each holder of Preferred Stock with a written demand ("Redemption
Notice") (addressed to the holder at its address as it appears on the stock
transfer books of the Company) to redeem shares of Preferred Stock as provided
above, which notice shall specify the estimated Redemption Price and the number
of shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
(c) On or prior to the Redemption Date, each holder of Preferred Stock
shall surrender his or its certificate or certificates representing the shares
of Preferred Stock to be redeemed, in the manner and at the place designated in
the Redemption Notice and if the Holder elects to convert any or all of the
shares of Preferred Stock, a Holder Conversion Notice in conformance with
Section 5 hereof. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price and interest at the rate of
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.
Section 7. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
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<PAGE>
"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company hereafter designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but unpaid dividends thereon through and including
the applicable Conversion Date.
"Conversion Price" means Three Dollars and Fifty Cents ($3.50) per share of
Common Stock, subject to reset or adjustment according to the provisions of the
Investment Agreement and this Certificate of Designation.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
a. any default by the Company to pay when due and payable dividends on any
shares of Preferred Stock, either on a Dividend Payment Date or Conversion Date,
or any other amounts hereunder, by acceleration or otherwise, or, within five
(5) Business Days following the delivery of notice to the Company, any fees or
any other amounts payable (and not otherwise referred to in this clause (a)) by
the Company under the Investment Agreement;
b. the Company shall fail to timely observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Certificate of Designation or the Investment Agreement and such failure or
breach shall not have been remedied within five (5) Business Days after the date
on which such failure or breach shall have occurred or such other cure period as
may specifically be provided herein or in such other agreements with respect to
any particular covenant, agreement or warranty;
c. the Company or any of its subsidiaries shall commence a voluntary case
under the United States Bankruptcy Code as now or hereafter in effect or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of such involuntary case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced
13
<PAGE>
against the Company any such proceeding which remains undismissed for a period
of 60 days; or the Company is adjudicated insolvent or bankrupt; or any other
order of relief or other order approving any such case or proceeding is entered;
or the Company suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or the Company makes a general assignment for the
benefit of creditors; or the Company shall call a meeting of its creditors with
a view to arranging a composition or adjustment of its debts; or the Company
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;
d. the Company shall fail to pay any amount of principal or interest on any
mortgage, credit agreement or other facility, indenture or other instrument
under which there may be issued, or by which there may be secured or evidenced,
any indebtedness of the Company in an amount exceeding fifty thousand dollars
($50,000), or any amount owed to the Pioneer Partnership, its partners or
affiliates (collectively, "Indebtedness"), whether such Indebtedness now exists
or shall hereafter be created, when and as the same shall become due and
payable, or the Company shall fail to observe or perform any term, covenant or
agreement contained in any agreement or instrument evidencing or governing any
of such Indebtedness if the cure period for such term, covenant or agreement
contained in such agreement or instrument has run and the holder or holders of
such Indebtedness or a trustee on their behalf shall have the right to cause
such Indebtedness to become due prior to its stated maturity;
e. the Common Stock shall not be registered under Section 12, 13 or 15 of
the Securities Exchange Act of 1934, as amended, within one hundred and eighty
(180) days after the Closing Date (or if earlier, on the date on which the
registration statement relating to the shares of Common Stock into which shares
of Preferred Stock are convertible, as contemplated by the Investment Agreement,
is declared effective by the Commission);
f. the trading in the Common Stock shall have been suspended by the
Commission, the NASD OTC Bulletin Board or, once the Common Stock is listed on
the Nasdaq National Market or the Nasdaq SmallCap Market, by Nasdaq or any other
federal or state regulatory authority having jurisdiction over the Common Stock
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except, if, at
the time there is any suspension on the Nasdaq Market, the Common Stock is then
listed and approved for trading on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq SmallCap Market, or the Nasdaq National
Market within two (2) Trading Days thereof);
g. once listed on any Nasdaq market, the Company shall have its Common
Stock delisted from the Nasdaq Market for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on either the New York Stock Exchange,
the American Stock Exchange, the Nasdaq SmallCap Market or the Nasdaq National
Market within such ten (10) Trading Days; or
14
<PAGE>
h. the entry of any judgments against the Company aggregating more than
$100,000, which unpaid or unsatisfied.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, other than the Series A Senior Convertible Preferred
Stock.
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NASD OTC Bulletin Board, the Nasdaq National Market or Nasdaq SmallCap Stock
Market or principal national securities exchange or market on which the Common
Stock has been listed or quoted, or (b) if the Common Stock is not listed or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market or any principal
national securities exchange or market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by Bloomberg, L.P., the
National Quotation Bureau Incorporated or any similar organization or agency
succeeding its functions or reporting prices.
15
<PAGE>
EXHIBIT 3.3
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 14 1999
No. C10914-99
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF MERGER
OF
ADVANCED MEDICAL SCIENCES, INC.
AND
AMERICA'S SHOPPING MALL, INC.
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 92A, Nevada Revised Statutes, the
foreign corporation and the domestic corporation herein named do hereby adopt
the following Articles of Merger.
1. Annexed hereto and made a part hereof is the Amended and Restated Plan
of Merger dated as of June 24, 1999 (the "Plan") for merging Advanced Medical
Sciences, Inc., a business corporation organized under the laws of the
Commonwealth of Virginia, with and into America's Shopping Mall, Inc., a
business corporation organized under the laws of the State of Nevada. The
Amended and Restated Plan of Merger has been adopted by the Board of Directors
of Advanced Medical Sciences, Inc. and by the Board of Directors of America's
Shopping Mall, Inc. and supercedes the Plan and Articles of Merger dated May 10,
1999 in its entirety.
2. The merger of Advanced Medical Sciences, Inc. with and into America's
Shopping Mall, Inc. is permitted by the laws of the Commonwealth of Virginia,
the jurisdiction of organization of Advanced Medical Sciences, Inc., and has
been authorized in compliance with such laws, pursuant to which Advanced Medical
Sciences, Inc. is governed.
3. The Plan was submitted to the stockholders of Advanced Medical Sciences,
Inc. in accordance with and pursuant to the provisions of the laws of the
Commonwealth of Virginia. The Board of Directors did not condition the
submission on any basis.
4. The authorized capital stock of Advanced Medical Sciences, Inc. consists
of 105,000,000 shares of common stock, par value $.005 per share, of which
41,427,200 shares are outstanding. Each holder of common stock is entitled to
cast one vote for each share held for or against the Plan.
<PAGE>
The total number of votes cast for the Plan by the holders of common stock
is 28,550,000, and the total number of shares cast against the Plan is 0.
The number of votes cast for the Plan by the holders of common stock was in
excess of two-thirds of the number of shares entitled to vote and therefore was
sufficient for approval by that voting group.
5. The Plan was approved by the unanimous written consent of the holders of
the outstanding shares of common stock and the Series A Senior Convertible
Preferred Stock of America's Shopping Mall, Inc. and adopted by its Board of
Directors pursuant to the provisions of Chapter 92A, Nevada Revised Statutes.
6. When the merger herein provided for becomes effective, the Articles of
Incorporation of America's Shopping Mall, Inc. are amended pursuant to the
annexed Plan as follows:
(A) Each of Article IV (relating to preemptive rights of
shareholders), Article VII (relating to indemnification) and Article VIII
(relating to transactions between the corporation and its directors) of the
Articles of Incorporation shall be deleted in its entirety, it being the
intention of the parties that the matters covered by the deleted articles
shall, at and after the Effective Time, be governed by the applicable
provisions of the Nevada Revised Statutes;
(B) Articles V, VI, IX, X and XI of the Articles of Incorporation
shall be renumbered Articles IV, V, VI, VII and VIII, respectively; and
(C) Article IV of the Articles of Incorporation (formerly Article V)
shall be deleted in its entirety and the following new Article IV shall be
substituted in its place:
"ARTICLE IV
The purposes for which the corporation is organized are:
To engage in a specialty advertising business and a retail
catalogue business; and in connection therewith to purchase and
otherwise acquire, hold for sale, advertise for sale by catalogues or
other means, and sell and otherwise dispose of by means of mail
orders, telephone orders, or otherwise, goods of every type and
description, and in general to do all lawful things necessary or
convenient for the conduct of such a business; and
- 2 -
<PAGE>
To engage in any lawful act or activity for which a corporation
may be organized pursuant to the General Corporation Law of the State
of Nevada, except that the corporation is not organized to engage in
any act or activity requiring the consent or approval of any official,
department, board, agency or other body of the State of Nevada without
such consent or approval first being obtained."
Said Articles of Incorporation as amended by the Plan shall continue in full
force and effect until further amended and changed in the manner prescribed by
the provisions of the Nevada Revised Statutes.
7. The Merger shall become effective in the State of Nevada at the time
that both (i) a Certificate of Merger of Advanced Medical Sciences, Inc. into
America's Shopping Mall, Inc. shall have been issued by the State Corporation
Commission of the Commonwealth of Virginia, and (ii) Articles of Merger of
Advanced Medical Sciences, Inc. into America's Shopping Mall, Inc. shall have
been filed with the Secretary of State of the State of Nevada.
[Signature Pages Follow]
- 3 -
<PAGE>
Signed on July 12, 1999
ADVANCED MEDICAL SCIENCES, INC.
By: /s/ Irwin Schneidmill
----------------------------
Irwin Schneidmill
President
By: /s/ Robert Trause
----------------------------
Robert Trause
Secretary
AMERICA'S SHOPPING MALL, INC.
By: /s/ Irwin Schneidmill
---------------------------
Irwin Schneidmill
President
By: /s/ Robert Trause
---------------------------
Robert Trause
Secretary
- 4 -
<PAGE>
STATE OF NEW YORK )
)SS.:
COUNTY OF ROCKLAND )
On July 13, 1999, personally appeared before me, a Notary Public in and for the
State and County aforesaid, Irwin Schneidmill, to me known, who, being by me
duly sworn, did depose and say that he is President of Advanced Medical
Sciences, Inc., one of the corporations described in and which executed the
foregoing instrument and in the said capacity, by order of the Board of
Directors of said corporation, acknowledged that he executed the said
instrument.
/s/ William J. Corbett
- -------------------------------
Notary Public
WILLIAM J. CORBETT
Notary Public, State of New York
No. 4938089
Qualified in Orange County
Commission Expires July 25, 2000
STATE OF NEW YORK )
)SS.:
COUNTY OF ROCKLAND )
On July 13, 1999, personally appeared before me, a Notary Public in and for the
State and County aforesaid, Irwin Schneidmill, to me known, who, being by me
duly sworn, did depose and say that he is President of America's Shopping Mall,
Inc., one of the corporations described in and which executed the foregoing
instrument and in the said capacity, by order of the Board of Directors of said
corporation, acknowledged that he executed the said instrument.
/s/ William J. Corbett
- -------------------------------
Notary Public
WILLIAM J. CORBETT
Notary Public, State of New York
No. 4938089
Qualified in Orange County
Commission Expires July 25, 2000
- 5 -
<PAGE>
AMENDED AND RESTATED PLAN OF MERGER
THIS AMENDED AND RESTATED PLAN OF MERGER, dated as of June 24, 1999, is by
and between ADVANCED MEDICAL SCIENCES, INC., a corporation organized under the
laws of the Commonwealth of Virginia ("AMS") with its principal place of
business at 382 Route 59, #310, Monsey, New York 10952, and AMERICA'S SHOPPING
MALL, INC., a corporation organized under the laws of the State of Nevada (the
"Company") with its principal place of business at 382 Route 59, #310, Monsey,
New York 10952.
RECITALS:
On May 10, 1999, the Boards of Directors of AMS and the Company each
determined that it is in the best interests of their respective shareholders for
AMS to merge with and into the Company and adopted a Plan and Articles of Merger
(the "Original Plan") providing for the merger of AMS with and into the Company
upon the terms and subject to the conditions set forth therein.
On June 24, 1999, the Board of Directors of AMS and the Company adopted
this Amended and Restated Plan of Merger to amend in certain respects and
restate in its entirety the Original Plan.
In consideration of the premises and the mutual agreements set forth
herein, AMS and the Company agree as follows:
1. Merger. At the Effective Time (as defined below), AMS shall be merged
with and into the Company in accordance with the provisions of Article 12 of the
Virginia Stock Corporation Act and Chapter 92A of the Nevada Revised Statutes
(the "Merger"). The separate corporate existence of AMS shall cease at the
Effective Time, and the Company, as the surviving entity (the "Surviving
Corporation"), shall continue its corporate existence under the laws of the
State of Nevada under its present name. The Merger shall have the effect set
forth in ss. 92A.250 of the Nevada Revised Statutes. The terms and conditions of
the Merger and the mode of carrying the same into effect shall be as set forth
in this Plan.
2. Effective Time. The Merger shall become effective at the time that both
(i) a Certificate of Merger of AMS into the Company shall have been issued by
the State Corporation Commission of the Commonwealth of Virginia, and (ii)
Articles of Merger of AMS into the Company shall have been filed with the
Secretary of State of the State of Nevada (the "Effective Time").
3. Articles of Incorporation. The Articles of Incorporation of the Company
as in effect at the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation, except that:
<PAGE>
(A) Each of Article IV (relating to preemptive rights of
shareholders), Article VII (relating to indemnification) and Article VIII
(relating to transactions between the corporation and its directors) of the
Articles of Incorporation shall be deleted in its entirety, it being the
intention of the parties that the matters covered by the deleted articles
shall, at and after the Effective Time, be governed by the applicable
provisions of the Nevada Revised Statutes;
(B) Articles V, VI, IX, X and XI of the Articles of Incorporation
shall be renumbered Articles IV, V, VI, VII and VIII, respectively; and
(C) Article IV of the Articles of Incorporation (formerly Article V)
shall be deleted in its entirety and the following new Article IV shall be
substituted in its place:
"ARTICLE IV
The purposes for which the corporation is organized are:
To engage in a specialty advertising business and a retail
catalogue business; and in connection therewith to purchase and
otherwise acquire, hold for sale, advertise for sale by catalogues or
other means, and sell and otherwise dispose of by means of mail
orders, telephone orders, or otherwise, goods of every type and
description, and in general to do all lawful things necessary or
convenient for the conduct of such a business; and
To engage in any lawful act or activity for which a corporation
may be organized pursuant to the General Corporation Law of the State
of Nevada, except that the corporation is not organized to engage in
any act or activity requiring the consent or approval of any official,
department, board, agency or other body of the State of Nevada without
such consent or approval first being obtained."
Said Articles of Incorporation as amended by this Plan shall continue in full
force and effect until further amended and changed in the manner prescribed by
the provisions of the Nevada Revised Statutes.
4. By-Laws. The by-laws of the Company as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation and will continue in full
force and effect until changed, altered, or amended as therein provided and in
the manner prescribed by the provisions of the Nevada Revised Statutes.
2
<PAGE>
5. Directors. The directors of the Company at the Effective Time shall, at
and after the Effective Time, be the directors of the Surviving Corporation and
shall hold their offices until their successors have been duly elected or
appointed and qualified, or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
by-laws and the applicable provisions of the Nevada Revised Statutes.
6. Officers. The officers of the Company at the Effective Time shall, at
and after the Effective Time, be the officers of the Surviving Corporation and
shall hold their offices until their successors have been duly elected or
appointed and qualified, or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
by-laws and the applicable provisions of the Nevada Revised Statutes.
7. Conversion of Shares in the Merger.
(a) At the Effective Time of the Merger, by virtue of the Merger and
without any action on the part of AMS, the Company or any shareholder thereof:
(i) Subject to Paragraph 7(b) below, each share of common stock, $.005
par value, of AMS issued and outstanding immediately prior to the Effective
Time shall be converted into one-thirtieth (1/30) of a share of common
stock, $.001 par value, of the Surviving Corporation (the "Common Stock");
(ii) Each share of common stock, $.001 par value, of the Company
issued and outstanding immediately prior to the Effective Time shall be and
remain one (1) share of Common Stock; and
(iii) Each share of Series A Senior Convertible Preferred Stock, $.001
par value, of the Company issued and outstanding immediately prior to the
Effective Time shall be and remain one (1) share of Series A Senior
Convertible Preferred Stock, $.001 par value, of the Surviving Corporation.
(b) No fractional shares of Common Stock shall be created or issued as a
result of the Merger. If any holder of common stock of AMS would be entitled to
receive a fraction of a share of Common Stock as a result of the conversion of
his shares pursuant to Paragraph 7(a)(i), the aggregate number of shares of
common stock of AMS represented by all certificates registered in the name of
such holder shall instead be converted by dividing such number by 30 and
rounding the quotient up to the next larger whole number.
(c) All shares of common stock of AMS shall, upon conversion into shares of
Common Stock, cease to be outstanding and shall automatically be cancelled and
retired, and each holder of a certificate previously evidencing shares of AMS
common stock shall thereafter cease to have any rights with respect to such
shares, except
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<PAGE>
the right to receive for each of his shares, upon surrender of his certificate
to the Surviving Corporation, a certificate representing that number of shares
of Common Stock into which his shares of AMS were converted pursuant to this
Paragraph 7.
(d) Each share of common stock of the Company held by AMS immediately prior
to the Effective Time shall be cancelled and extinguished without conversion and
shall cease to exist.
8. Conditions to Effectiveness. This Plan and the Merger shall not become
effective until this Plan and the Merger contemplated hereby shall have been
duly approved:
(i) by the affirmative vote of holders of two-thirds of the
outstanding shares of common stock of AMS at a meeting duly called and held
for such purpose in accordance with the Articles of Incorporation of AMS
and applicable provisions of the Virginia Stock Corporation Act; and
(ii) by the affirmative vote of holders of a majority of the
outstanding shares of common stock of the Company, voting separately as a
class, and by the holders of a majority of the shares of Series A Senior
Convertible Preferred Stock of the Company, voting separately as a class,
or by the unanimous written consent of such holders, in accordance with the
Articles of Incorporation of the Company and applicable provisions of the
Nevada Revised Statutes.
9. Articles of Merger. Subject to approval of this Plan in accordance with
Paragraph 8, AMS and the Company shall promptly prepare, or cause to be
prepared, and execute Articles of Merger in the prescribed forms, and shall
promptly file the same with the State Corporation Commission of the Commonwealth
of Virginia and the Secretary of State of the State of Nevada, and shall do or
cause to be done all other acts and things necessary to effectuate the Merger.
10. Authority of Officers. The proper officers of AMS and the Company,
respectively, are hereby authorized, empowered, and directed to do any and all
acts and things, and to make, execute, deliver, file, and/or record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of this Plan
or the Merger herein provided for.
4
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Plan of Merger has been duly
executed and delivered by the duly authorized officers of the parties hereto as
of the date first above written.
ADVANCED MEDICAL SCIENCES, INC.
By: /s/ Irwin Schneidmill
---------------------------
Irwin Schneidmill
President
AMERICA'S SHOPPING MALL, INC.
By: /s/ Irwin Schneidmill
-------------------------
Irwin Schneidmill
President
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EXHIBIT 3.4
ARTICLES OF INCORPORATION
OF
AMERICA'S SHOPPING MALL, INC.
(COMPOSITE COPY, AS AMENDED)
-----
The undersigned incorporator, for the purpose of forming a corporation
under the General Corporation Law of the State of Nevada (Title 7, Chapter 78 of
Nevada Revised Statutes (the "Act"), and the acts amendatory thereof), does
hereby adopt the following Articles of Incorporation:
ARTICLE I
The name of the corporation (which is hereinafter called the "Corporation")
is AMERICA'S SHOPPING MALL, INC.
ARTICLE II
The name of the corporation's resident agent in the State of Nevada is
Laughlin Associates, and the street address of the said resident agent where
process may be served is 2533 North Carson Street, Carson City, Nevada 89706.
ARTICLE III
The number of shares which the corporation shall have the authority to
issue is 20,020,000 of which 20,000,000 shall be designed Common Stock, $.001
par value per share, and 20,000 shares shall be designated as Series A Senior
Convertible Preferred Stock, $.001 par value per share. All shares are to be
fully paid and non-assessable. The Series A Senior Convertible Preferred Stock
shall have such rights and preferences set forth in the Certificate of
Designation of Series A Senior Convertible Preferred Stock. The Board of
Directors shall file with the Nevada Secretary of State such a Certificate of
Designation.
ARTICLE IV
The purposes for which the corporation is organized are:
To engage in a specialty advertising business and a retail catalogue
business; and in connection therewith to purchase and otherwise acquire, hold
for sale, advertise for sale by catalogues or other means, and sell and
otherwise dispose of by means of mail orders, telephone orders, or otherwise,
goods of every type and description, and in general to do all lawful things
necessary or convenient for the conduct of such a business; and
To engage in any lawful act or activity for which a corporation may be
organized pursuant to the General Corporation Law of the State of Nevada, except
that the corporation is not organized to engage in any act or activity requiring
the consent or approval of any official, department, board, agency or other body
of the State of Nevada without such consent or approval first being obtained.
<PAGE>
ARTICLE V
The governing board of the Corporation shall consist of directors of the
Corporation. The number of directors constituting the initial Board Directors of
the Corporation is five (5). The board of directors by majority vote may from
time to time by resolution change the number of directors of the Corporation.
The directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where this Act provides that the
directors may act in certain instances where the Articles of Incorporation
authorize such action by the directors, the directors are hereby given authority
to act in such instances without specifically numerating such potential action
or instance herein. The directors are specifically given the authority to
mortgage or pledge any or all assets of the business without stockholders'
approval.
The names and addresses including street and number of persons who are to
serve as directors until the next annual meeting of the shareholders or until
their successors are elected and shall qualify are:
NAME ADDRESS
Dennis McNany 11 Benedict Drive
Hopatcong, New Jersey 07849
Robert Trause 429 Hackensack Street
Carlstadt, New Jersey 07072
Irwin Schneidmill 382 Route 59, Section 3 10
Monsey, New York 10952
Chase Caro 60 East 42nd Street, Suite 2001
New York, New York 10165
Richard Truzzolino 84 Tanglewood Drive
East Hanover, New Jersey 07936
ARTICLE VI
The personal liability of all of the directors of the corporation is hereby
eliminated to the fullest extent allowed as provided by the Nevada General
Corporation Law, as the same may be supplemented and amended.
ARTICLE VII
The name and address of the incorporator of the Corporation is as follows:
NAME ADDRESS
Galina Stiler 60 East 42nd Street
New York, New York 10165
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ARTICLE VIII
The period of duration of the corporation shall be perpetual.
3
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EXHIBIT 3.5
BYLAWS
OF
AMERICA'S SHOPPING MALL, INC.
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ARTICLE I
STOCKHOLDERS
Section 1.01 Annual Meeting. An annual meeting of the stockholders of the
corporation shall be held on the date and at the time and place as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, for the purpose of electing directors of the corporation to
serve during the ensuing year and for the transaction of such other business as
may properly come before the meeting. If the election of the directors is not
held on the day designated herein for any annual meeting of the stockholders, or
at any adjournment thereof, the president shall cause the election to be held at
a special meeting of the stockholders as soon thereafter as is convenient.
Section 1.02 Special Meetings.
(a) Special meetings of the stockholders may be called by the chairman, the
president or the Board of Directors and shall be called by the chairman, the
president or the Board of Directors at the written request of the holders of not
less than 10% of the voting power of any class of the corporation's stock
entitled to vote.
(b) No business shall be acted upon at a special meeting except as set
forth in the notice calling the meeting, unless one of the conditions for the
holding of a meeting without notice set forth in Section 1.05 shall be
satisfied, in which case any business may be transacted and the meeting shall be
valid for all purposes.
(c) In the event of a default under, or a breach of which (in the judgment
of the Pioneer Partnership) adversely affects the Pioneer Partnership, or the
Investment Agreement, or the Certificate of Designation of Preferred Stock under
which the Pioneer Partnership or its assigns are a holder of Preferred Stock, or
under the Debenture the Principal Shareholders agree to call and the Company
agrees to pay the expenses associated with a special meeting of the Shareholders
at the sole expense of the Company, and the principal Shareholders each agree
that they shall vote in favor of that number of and those nominees to the Board
of Directors designated by the Pioneer Partnership such that the nominees of the
Pioneer Partnership, taken in the aggregate,
<PAGE>
shall constitute a majority of the directors of the Company, after any such
defaults, for so long as the Pioneer Partnership, its partners or affiliates own
Preferred Stock, Warrants or Common Stock obtained through the conversion of
Preferred Stock or the exercise of Warrants or there remains any amount
outstanding under the Debenture. The Principal Shareholders hereby agree to take
no action to contravene, limit or otherwise terminate the Pioneer Partnership
board of election mechanism. The Principal Shareholders agree to vote in favor
of such Pioneer Partnership nominees for so long as the Partnership, its
partners or affiliates own Preferred Stock, Warrants or Common Stock obtained
through the conversion of Preferred Stock or the exercise of Warrants or there
remains any amount outstanding under the Debenture.
Section 1.03 Place of Meetings. Any meeting of the stockholders of the
corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by stockholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The president, a vice president, the secretary, an assistant secretary
or any other individual designated by the Board of Directors shall sign and
deliver written notice of any meeting at least ten (10) days, but not more than
sixty (60) days, before the date of such meeting. The notice shall state the
place, date and time of the meeting and the purpose or purposes for which the
meeting is called.
(b) In the case of an annual meeting, any proper business may be presented
for action, except that action on any of the following items shall be taken only
if the general nature of the proposal is stated in the notice:
(1) Action with respect to any contract or transaction between the
corporation and one or more of its directors or officers or between the
corporation and any corporation, firm or association in which one or more
of the corporation's directors or officers is a director or officer or is
financially interested;
(2) Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to a merger, share exchange, reorganization,
partial or complete liquidation, or dissolution of the corporation.
(c) A copy of the notice shall be personally delivered or mailed postage
prepaid to each stockholder of record entitled to vote at the meeting at the
address appearing on the records of the corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such stockholder. If the address of any stockholder does not
appear upon the records of the corporation, it
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will be sufficient to address any notice to such stockholder at the registered
office of the corporation.
(d) The written certificate of the individual signing a notice of meeting,
setting forth the substance of the notice or having a copy thereof attached, the
date the notice was mailed or personally delivered to the stockholders and the
addresses to which the notice was mailed, shall be prima facie evidence of the
manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a signed writing,
either before or after the meeting.
Section 1.05 Meeting Without Notice.
(a) Whenever all persons entitled to vote at any meeting consent, either
by:
(1) A writing on the records of the meeting or filed with the
secretary; or
(2) Presence at such meeting and oral consent entered on the minutes;
or
(3) Taking part in the deliberations at such meeting without
objection;
The actions of such meeting shall be as valid as if had at a meeting
regularly called and noticed.
(b) At such meeting any business may be transacted that is not excepted
from the written consent or to the consideration of which no objection for want
of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of the meeting
may be ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meeting.
(d) Such consent or approval may be by proxy or attorney, but all such
proxies and powers of attorney must be in writing.
Section 1.06 Determination of Stockholders of Record.
(a) For the purpose of determining the stockholders entitled to notice of
and to vote at any meeting of stockholders or any adjournment thereof, or to
express
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consent to corporate action in writing without a meeting, or entitled to receive
payment of any distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action.
(b) If no record date is fixed, the record date for determining
stockholders: (i) entitled to notice of and to vote at a meeting of stockholders
shall be at the close of business on the business day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held; (ii) entitled
to express consent to corporate action in writing without a meeting shall be the
day on which the first written consent is signed; and (iii) for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 1.07 Quorum; Adjourned Meetings.
(a) Unless the Articles of Incorporation provide for a different
proportion, stockholders holding at least a majority of the voting power of the
corporation's stock, which includes the voting power that is present in person
or by proxy, regardless of whether the proxy has authority to vote on all
matters, are necessary to constitute a quorum for the transaction of business at
any meeting.
(b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
stockholders meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
Section 1.08 Voting.
(a) Unless otherwise provided in the Articles of Incorporation or in the
resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Articles of Incorporation, at every meeting of the stockholders, each holder of
shares of stock shall
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<PAGE>
be entitled to cast one (1) vote in person or by proxy for each share of stock
standing in his or her name on the transfer books of the Corporation.
(b) Except as otherwise provided herein, all votes with respect to shares
standing in the name of an individual on the record date (including pledged
shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, or by a guardian, conservator, custodian or trustee, votes
may be cast by such holder upon proof of capacity, even though the shares do not
stand in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of a
minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another corporation,
partnership, limited liability company or other legal entity on the record date,
votes may be cast: (i) in the case of a corporation, by such individual as the
bylaws of such other corporation prescribe, by such individual as may be
appointed by resolution of the board of directors of such other corporation or
by such individual (including the officer making the authorization) authorized
in writing to do so by the chairman of the board of directors, president or any
vice-president of such corporation and (ii) in the case of a partnership,
limited liability company or other legal entity, by an individual representing
such stockholder upon presentation to the corporation of satisfactory evidence
of his authority to do so.
(d) Notwithstanding anything to the contrary herein contained, no votes may
be cast for shares owned by this corporation or its subsidiaries, if any. If
shares are held by this corporation or its subsidiaries, if any, in a fiduciary
capacity, no votes shall be cast with respect thereto on any matter except to
the extent that the beneficial owner thereof possesses and exercises either a
right to vote or to give the corporation holding the same binding instructions
on how to vote.
(e) Any holder of shares entitled to vote on any matter may cast a portion
of the votes in favor of such matter and refrain from casting the remaining
votes or cast the same against the proposal, except in the case of elections of
directors. If such holder entitled to vote fails to specify the number of
affirmative votes, it will be conclusively presumed that the holder is casting
affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a stockholder voting agreement or
otherwise and shares held by two or
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<PAGE>
more persons (including proxy holders) having the same fiduciary relationship in
respect to the same shares, votes may be cast in the following manner:
(1) If only one person votes, the vote of such person binds all.
(2) If more than one person casts votes, the act of the majority so
voting binds all.
(3) If more than one person casts votes, but the vote is evenly split
on a particular matter, the votes shall be deemed cast proportionately, as
split.
(g) If a quorum is present, unless the Articles of Incorporation or these
Bylaws provide for a different proportion, action by the stockholders on any
matter other than the election of directors is approved if the number of votes
cast in favor of the action exceeds the number of votes cast in opposition to
the action. Directors of the Corporation shall be elected by a plurality of the
votes cast at the election.
(h) Each of the Principal Shareholders agrees that, so long as (i) the
Pioneer Partnership, its Partners or affiliates shall own any Preferred Stock,
Warrants or Common Stock obtained either through conversion of the Preferred
Stock or exercise of the Warrants, or (ii) any amounts remain outstanding under
the Debenture each of the Principal Sharehoulders shall vote all of their Common
Shares, whether now owned or hereafter acquired, for the election as a
director(s) of the Company of the designee(s) of the Pioneer Partnership in
accordance with paragraph 1.10 of the Investment Agreement at any meeting of the
Company's shareholders at which such designee shall be nominated as a director.
Without limiting the generality of the foregoing, the Principal Shareholders
agree to execute and deliver any and all documents, agreements and instruments,
including, without limitation, proxies, as the Pioneer Partnership shall
reasonably request so that at least one (1) designee of the Pioneer Partnership
shall be a director of the Company at all times while any Preferred Stock or
such Common Stock is held by the Pioneer Partnership or any amounts remain
outstanding under the Debenture.
Section 1.09 Proxies. At any meeting of stockholders, any holder of shares
entitled to vote may designate, in a manner permitted by the laws of the State
of Nevada, another person or persons to act as a proxy or proxies. No proxy is
valid after the expiration of six (6) months from the date of its creation,
unless it is coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Nevada.
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<PAGE>
Section 1.10 Order of Business. At the annual stockholders meeting, the
regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum, in
person or by proxy:
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, and, if any, of the president,
treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
Section 1. 11 Absentees' Consent to Meetings. Transactions of any meeting
of the stockholders are as valid as though such transaction had taken place at a
meeting duly held after regular call and notice if a quorum is represented,
either in person or by proxy, and if, either before or after the meeting, each
of the persons entitled to vote, not represented in person or by proxy (and
those who, although present, either object at the beginning of the meeting to
the transaction of any business because the meeting has not been lawfully called
or convened or expressly object at the meeting to the consideration of matters
not included in the notice which are legally required to be included therein),
signs a written waiver of notice or consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records and made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person objects at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not properly included in the notice if
such objection is expressly made at the time any such matters are presented at
the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders need be specified in any written
waiver of notice or consent, except as otherwise provided in Section 1.04(a) and
(b) of these Bylaws.
Section 1.12 Telephonic Meetings. Stockholders may participate in a meeting
of the stockholders by means of a telephone conference or similar method of
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communication by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 1.12 constitutes
presence in person at the meeting.
Section 1.13 Action Without Meeting. Except as provided in the Articles of
Incorporation, any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if a written consent thereto is
signed by stockholders holding at least a majority of the voting power, except
that if a different proportion of voting power is required for such an action at
a meeting, then that proportion of written consents is required.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure, and Qualifications. Unless a larger number is
required by the laws of the State of Nevada or the Articles of Incorporation or
until changed in the manner provided herein, the Board of Directors of the
Corporation shall consist of at least three (1) individual who shall be elected
at the annual meeting of the stockholders of the corporation and who shall hold
office for one (1) year or until his or her successor or successors are elected
and qualify.
Section 2.02 Change in Number. Subject to any limitations in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors or the stockholders.
Section 2.03 Reduction In Number. No reduction of the number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
Section 2.04 Resignation. Any director may resign effective upon giving
written notice to the chairman of the Board of Directors, the president, the
secretary, or in the absence of all of them, any other officer, unless the
notice specifies a later time for effectiveness of such resignation. A majority
of the remaining directors, though less than a quorum, may appoint a successor
to take office when the resignation becomes effective, and each director so
appointed to hold office during the remainder of the term of office of the
resigning director.
Section 2.05 Removal. Any director may be removed from office by the vote
or written consent of stockholders representing not less than two-thirds of the
voting power of the issued and outstanding stock entitled to vote, except that
if the corporation's Articles of Incorporation provide for the election of
directors by cumulative voting, no director may be removed from office except
upon the vote of
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stockholders owning sufficient shares to have prevented such director's election
to office in the first instance.
Section 2.06 Vacancies. All vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, though less than a quorum, unless it is otherwise provided
in the Articles of Incorporation. In the case of the replacement of a director,
the appointed director shall hold office during the remainder of the term of
office of the replaced director, and in the case of an increase in the number of
directors, the appointed director shall hold office until the next meeting of
stockholders at which directors are elected.
Section 2.07 Annual and Regular Meetings. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected, other than pursuant to Section
2.06 of this Article, the Board of Directors, including newly elected directors,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date
and hour for holding regular meetings between annual meetings.
Section 2.08 Special Meetings. Special meetings of the Board of Directors
may be called by the chairman, or if there is no chairman, by the president or
secretary, and shall be called by the chairman, the president or the secretary
upon the request of one (1) director. If the chairman refuses or, if there is no
chairman, if both the president and secretary refuse or neglect to call such
special meeting, a special meeting may be called by notice signed by any 1
director.
Section 2.09 Place of Meetings. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of Directors
may designate or, in the absence of such designation, at the place designated in
the notice calling the meeting.
Section 2.10 Notice of Meetings. Except as otherwise provided in Section
2.07, there shall be delivered to all directors, at least two (2) days before
the time of a meeting, a copy of a written notice of the meeting, by delivery of
such notice personally, by mailing such notice postage prepaid, or by fax. If
mailed, the notice shall be deemed delivered two (2) business days following the
date the same is deposited in the United States mail, postage prepaid. Any
director may waive notice of any meeting, and the attendance of a director at a
meeting and oral consent entered on the Minutes of the meeting or taking part in
deliberations of the meeting without objection shall constitute a waiver of
notice of such meeting. Attendance for the express purpose of objecting to the
transaction of business thereat because the meeting is not properly called or
convened shall not constitute presence nor a waiver of notice for purposes
hereof.
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Section 2.11 Quorum; Adjourned Meetings.
(a) A majority of the directors in office, at a meeting duly assembled, is
necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is not present,
a majority of those present may adjourn, from time to tome, until a quorum is
present, and no notice of such adjournment shall be required. At any adjourned
meeting where a quorum is present, any business may be transacted which could
have been transacted at the meeting originally called.
Section 2.12 Board of Directors' Decisions. Except as otherwise stated
elsewhere in these Bylaws and the Articles, the affirmative vote of a majority
of the directors present at a meeting at which a quorum is present is the act of
the Board of Directors.
Section 2.13 Telephonic Meeting. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
2.13 constitutes presence in person at the meeting.
Section 2.14 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
Section 2.15 Powers and Duties.
(a) Except as otherwise restricted by Nevada law or the Articles of
Incorporation, the Board of Directors has full control over the affairs of the
corporation. The Board of Directors may delegate any of its authority to manage,
control or conduct the business of the corporation to any standing or special
committee or to any officer or agent and to appoint any persons to be agents of
the corporation with such powers, including the power to subdelegate, and upon
such terms as may be deemed fit.
(b) The Board of Directors may present at annual meetings of the
stockholders, and when called for by a majority vote of the stockholders at an
annual meeting or a special meeting of the stockholders shall present, a full
and clear report of the condition of the corporation to the stockholders.
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(c) The Board of Directors, in its discretion, may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or
any special meeting properly called for the purpose of considering any such
contract or act, provided a quorum is present.
Section 2.16 Compensation. The directors and members of committees shall be
allowed and paid all necessary expenses incurred in attending any meetings of
the Board of Directors or committees. Subject to any limitations contained in
the laws of the State of Nevada, the Articles of Incorporation or any contract
or agreement to which the corporation is a party, directors may receive
compensation for their services as directors as determined by the Board of
Directors, but only during such times as the corporation may legally declare and
pay distributions on its stock, unless the payment of such compensation is first
approved by the stockholders entitled to vote for the election of directors.
Section 2.17 Board of Directors' Officers. At its annual meeting, the Board
of Directors shall elect, from among its members, a chairman who may serve as
the chief executive officer of the corporation and who shall preside at meetings
of the Board of Directors and may preside at meetings of the stockholders. The
Board of Directors may also elect such other officers of the Board of Directors
and for such term as it may from time to time deem advisable.
Section 2.18 Additional Nominees of the Pioneer Partnership on Default. In
the event that (i) this corporation 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, (ii) such default shall
continue for 30 days and (iii) provided the Pioneer Partnership and/or its
limited partners and affiliates shall be the holder(s) of an aggregate of at
least five (5%) percent of the outstanding Preferred Stock (included in such 5%
calculation for the denominator shall be any Preferred Stock which has then been
converted into Common Stock), in addition to the other remedies available to the
Pioneer Partnership shall have the right to nominate, and the Board of Directors
of this corporation shall use its best efforts to have promptly elected or
appointed such number of individuals nominated by the Pioneer Partnership such
additional number of designees of the Pioneer Partnership as shall be necessary
to ensure that the Pioneer Partnership designees on the Board shall constitute a
simple majority of the Board of Directors. The Pioneer Partnership shall have
the right to continue to appoint a simple majority of the Board of Directors for
so long as as this corporation shall be in default on the payments of the
dividends as described in this Paragraph 2.18.
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ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its annual meeting, shall
elect a president, a secretary and a treasurer to hold office for a term of one
(1) year or until their successors are chosen and qualify. Any individual may
hold two or more offices. The Board of Directors may, from time to time, by
resolution, elect one or more vice-presidents, assistant secretaries and
assistant treasurers and appoint agents of the corporation, prescribe their
duties and fix their compensation.
Section 3.02 Removal: Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it only for cause. Any
officer may resign at any time upon written notice to the corporation. Any such
removal or resignation shall be subject to the rights, if any, of the respective
parties under any contract between the corporation and such officer or agent.
Section 3.03 Vacancies. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 President.
(a) The president shall be the chief executive or operating officer of the
corporation, subject to the supervision and control of the Board of Directors,
and shall direct the corporate affairs, with full power to execute all
resolutions and orders of the Board of Directors not expressly delegated to some
other officer or agent of the corporation. If the Chairman of the Board of
Directors elects not to preside or is absent, the president shall preside at
meetings of the stockholders and of the Board of Directors and perform such
other duties as shall be prescribed by the Board of Directors.
(b) The president shall have full power and authority on behalf of the
corporation to attend and to act and to vote, or designate such other officer or
agent of the corporation to attend and to act and to vote, at any meetings of
the stockholders of any corporation in which the corporation may hold stock and,
at any such meetings, shall possess and may exercise any and all rights and
powers incident to the ownership of such stock. The Board of Directors, by
resolution from time to time, may confer like powers on any person or persons in
place of the president to exercise such powers for these purposes.
Section 3.05 Vice-Presidents. The Board of Directors may elect one or more
vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
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Section 3.06 Secretary. The secretary shall keep, or cause to be kept, the
minutes of proceedings of the stockholders and the Board of Directors in books
provided for that purpose. The secretary shall attend to the giving and service
of all notices of the corporation, may sign with the president in the name of
the corporation all contracts in which the corporation is authorized to enter,
shall have the custody or designate control of the corporate seal, shall affix
the corporate seal to all certificates of stock duly issued by the corporation,
shall have charge or designate control of stock certificate books, transfer
books and stock ledgers, and such other books and papers as the Board of
Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
Section 3.07 Assistant Secretaries. The Board of Directors may appoint one
or more assistant secretaries who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the secretary.
Section 3.08 Treasurer. The treasurer shall be the chief financial officer
of the corporation, subject to the supervision and control of the Board of
Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all monies received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall perform all acts incident
to the position of treasurer subject to the control of the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
Section 3.09 Assistant Treasurers. The Board of Directors may appoint one
or
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more assistant treasurers who shall have such powers and perform such duties as
may be prescribed by the Board of Directors or the treasurer. The Board of
Directors may require an assistant treasurer to give a bond to the corporation
in such sum and with such security as it may approve, for the faithful
performance of the duties of assistant treasurer, and for restoration to the
corporation, in the event of the assistant treasurer's death, resignation,
retirement or removal from office, of all books, records, papers, vouchers,
money and other property in the assistant treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
ARTICLE IV
STOCK
Section 4.01 Issuance. Shares of the corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
corporation may be a party, be issued in such manner, at such times, upon such
conditions and for such consideration as shall be prescribed by the Board of
Directors.
Section 4.02 Certificates. Ownership in the corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the corporation and shall be
manually signed by the president or a vice-president and also by the secretary
or an assistant secretary; provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then facsimile of the signatures of said officers of the
corporation may be printed or lithographed upon the certificate in lieu of the
actual signatures. Each certificate shall contain the name of the record holder,
the number, designation, if any, class or series of shares represented, a
statement or summary of any applicable rights, preferences, privileges or
restrictions thereon, and a statement, if applicable, that the shares are
assessable. All certificates shall be consecutively numbered. If provided by the
stockholder, the name, address and federal tax identification number of the
stockholder, the number of shares, and the date of issue shall be entered in the
stock transfer records of the corporation.
Section 4.03 Surrendered, Lost or Destroyed Certificates. All certificates
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any stockholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with the stockholder's affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity
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bond in an amount not less than twice the current market value of the stock, and
upon such terms as the treasurer or the Board of Directors shall require, to
indemnify the corporation against any loss, damage, cost or inconvenience
arising as a consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive distributions or exercise any other
rights of stockholders of record until the holder has complied with the order,
but the order operates to suspend such rights only after notice and until
compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid as
against the corporation except on surrender and cancellation of the certificates
therefor accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer in the records of the
corporation.
Section 4.06 Transfer Agent: Registrars. The Board of Directors may appoint
one or more transfer agents, transfer clerk and registrars of transfer and may
require all certificates for shares of stock to bear the signature of such
transfer agent, transfer clerk and/or registrar of transfer.
Section 4.07 Stock Transfer Records. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of distributions as provided in
Article V hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be transferable
for purposes of Article V and no voting rights shall be deemed transferred
during such periods. Subject to the forgoing limitations, nothing contained
herein shall cause transfers during such periods to be void or voidable.
Section 4.08 Miscellaneous. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of the corporation's stock.
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ARTICLE V
DISTRIBUTIONS
Section 5.01 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock or any other medium. The Board of Directors
may fix in advance a record date, as provided in Section 1.06, prior to the
distribution for the purpose of determining stockholders entitled to receive any
distribution. The Board of Directors may close the stock transfer books for such
purpose for a period of not more than ten (10) days prior to the date of such
distribution.
ARTICLE VI
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
Section 6.01 Records. All original records of the corporation shall be kept
by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
Section 6.02 Directors' and Officers' Right of Inspection. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the corporation's books, records and documents of every kind and to
inspect the physical properties of the corporation and its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
Section 6.03 Corporate Seal. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
Section 6.04 Fiscal Year-End. The fiscal year-end of the corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
Section 6.05 Reserves. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
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ARTICLE VII
INDEMNIFICATION
Section 7.01 Civil and Criminal Action. This corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was an officer or
director, and this corporation may, in the discretion of the board of directors,
indemnify any person who was or is an employee or agent of this corporation, or
is or was serving at the request of this corporation as director, officer,
employee or agent of another corporation, against expenses, including attorneys'
fees, judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of this corporation, and, with respect to a criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
does not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interest of this corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his conduct was
unlawful.
Section 7.02 Derivative Suits. This corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of this corporation to
procure a judgment in its favor by reason of the fact that he is or was an
officer or director, and this corporation may, in the discretion of the board of
directors, indemnify any person who was or is an employee or agent of this
corporation, or is or was serving at the request of this corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the actions or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of this corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to this corporation or for amounts paid in settlement to this
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
Section 7.03 Success On Merits. To the extent that a director, officer,
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employee or agent of this corporation entitled to, or otherwise granted,
indemnification has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 1 and 2, or in defense of any
claim, issue or matter therein, he must be indemnified by this Corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
Section 7.04 Decision On Indemnification. Any indemnification under
sections 7.01 and 7.02, unless ordered by a court or advanced pursuant to
section 7.05 below, must be made by this corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The determination
must be made:
(a) By the stockholders;
(b) By the Board of Directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
Section 7.05 Expenses. The expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding shall be paid by this
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by
this corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
Section 7.06 Other Rights; Continuation. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to this
Article VII:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the Articles of
Incorporation or any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to section 7.02 above or for
the advancement of expenses made pursuant to section 7.05
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above, may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VIII
AMENDMENT OR REPEAL
Section 8.01 Amendment. Except as otherwise restricted in the Articles of
Incorporation or these Bylaws:
(a) Any provision of these Bylaws may be altered, amended or repealed at
the annual or any regular meeting of the Board of Directors without prior
notice, or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal is contained in the notice of such special
meeting.
(b) These Bylaws may also be altered, amended, or repealed by the
stockholders. The stockholders may provide by resolution that any Bylaw
provision repealed, amended, adopted or altered by them may not be repealed,
amended, adopted or altered by the Board of Directors.
ARTICLE IX
CONFLICT WITH ARTICLES OF INCORPORATION
Section 9.01. Conflict . Whenever these Bylaws or any amendments hereto are
in conflict with the Articles of Incorporation or any amendments thereto, the
Articles of Incorporation or any amendments thereto shall control.
CERTIFIED TO BE THE BYLAWS OF:
AMERICA'S SHOPPING MALL, INC.
BY: /s/ Robert Trause
------------------------
Robert Trause, Secretary
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EXHIBIT 4.1
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
Investment Agreement
by and between
Pioneer Ventures Associates Limited Partnership
and
America's Shopping Mall, Inc.
May 21, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale and Transfer of Stock.....................................1
1. Series A Senior Convertible Preferred Stock..................1
1.2 Purchase Price, and Payment..................................2
1.3 Preferred Convertible into Common............................2
1.4 Cumulative Dividend..........................................3
1.5 Liquidation..................................................3
1.6 Reservation of Shares; Shares to be Fully Paid; Seniority....4
1.7 Anti-Dilution Rights; Right of First Refusal.................4
1.8 Percentage of Fully Diluted Shares...........................5
1.9 Voting Rights and Prohibitive Covenants......................5
1.10 Voting Agreements Concerning Directors.......................6
1.11 Transfer Agent...............................................7
1.12 Use of Proceeds..............................................7
1.13 Redemption...................................................9
ARTICLE II. Registration Rights............................................9
2.1 Demand Registration..........................................9
2.2 Piggy-back Registration.....................................10
2.3 Registration Covenants......................................11
2.4 Blue Sky Registration.......................................11
2.5 Deregistration..............................................12
2.6 Post-Effective Amendments...................................12
2.7 Right to Delay..............................................12
2.8 Selection of Underwriters...................................12
2.9 Principal Shareholders......................................13
2.10 Transferability of Registration Rights......................13
2.11 Indemnification by Company re Registration Rights...........13
2.12 Indemnification by Holder...................................13
2.13 Notice of Indemnity and Defense.............................14
ARTICLE III. Co-Sale Provisions............................................15
3.1 Third-Party Offer and Co-Sale Notice........................15
3.2 Co-Sale Right of Participation..............................15
3.3 Excluded Sales..............................................15
3.4 Notice of Intent to Participate in Co-Sale..................15
ARTICLE IV. Representations and Warranties of the Company.................16
4.1 Organization, Qualification and Corporate Power.............16
4.2-A Subsidiaries................................................16
4.2-B Affiliates..................................................16
11249/436.3
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4.2-C Joint Ventures..............................................17
4.3 Authorization of Agreement..................................17
4.4 Validity....................................................17
4.5 Government Approval.........................................18
4.6 Capitalization..............................................18
4.7 Annual Report and the Financial Statements..................18
4.8 Patents, Trademarks, Etc....................................19
4.9 Taxes.......................................................20
4.10 Approvals...................................................20
4.11 Litigation..................................................20
4.12 Acquisition Agreements; Schedule of Documents...............21
4.13 No Defaults.................................................22
4.14 Lack of Felonies............................................22
4.15 No Judgments................................................22
4.16 Insurance...................................................22
4.17 No Brokers..................................................22
4.18 Loans and Liens.............................................23
4.19 Solvency....................................................23
4.20 Registration Rights.........................................23
4.21 Compliance with Securities Laws.............................23
4.22 Transfer Restrictions.......................................24
4.23 Related Party Transactions..................................24
4.24 Miscellaneous...............................................24
4.25 Additional Representations..................................24
4.26 Use of Proceeds ..................................26
4.27 Industry Specific Regulations...............................26
4.28 Wages and Salary............................................27
4.29 Compliance with ERISA and other Benefit Plans...............27
4.30 Environmental Matters.......................................27
4.31 Confidentiality Agreements..................................27
4.32 Officer and Director Questionnaires.........................28
4.33 Complete Disclosure.........................................28
ARTICLE V. Representations and Warranties of the Pioneer Partnership.....28
5.1 Organization................................................28
5.2 No Breach...................................................28
5.3 Authority for and Binding Nature of Agreement...............29
5.4 Brokers.....................................................29
5.5 Securities Laws Matters.....................................29
5.6 Additional Matters..........................................30
11249/436.3
iii
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ARTICLE VI. Covenants.....................................................30
6.1 Financial...................................................30
6.2 Access......................................................31
6.3 Books of Record and Account.................................31
6.4 Membership on Board.........................................32
6.5 Stock Option Plan...........................................32
6.6 Rule 144 Transfers..........................................32
6.7 Undertaking to Register its Securities
pursuant to the Exchange Act..............................33
6.8 Undertaking to File Exchange Act Filings
and to be Listed on NASDAQ................................33
6.9 Dividend Restriction Waiver.................................34
6.10 Rights if Trading in Common Stock is Suspended..............34
6.11 Public Dissemination of Information; Filings & Names........35
6.12 Lock-Up.....................................................35
6.13 Notice of Material Adverse Events...........................35
6.14 Tax Return..................................................35
6.15 No Breach...................................................35
6.16 Assumption of Debt..........................................36
ARTICLE VII. Conditions Precedent to the Obligations of
the Pioneer Partnership to Close............................36
7.1 Representations and Warranties..............................36
7.2 Covenants...................................................36
7.3 No Actions..................................................36
7.4 Consents, Licenses and Permits..............................37
7.5 Certificate.................................................37
7.6 Legal Opinion...............................................37
7.7 No Material Adverse Change..................................37
7.8 Agreements with Principals..................................38
7.9 Key Person Insurance........................................38
7.10 Intellectual Property.......................................38
7.11 Approval of Counsel.........................................38
7.12 No Suspensions of Trading in Common Stock...................38
7.13 Change of Control...........................................39
7.14 Acquisition Agreements......................................39
7.15 Additional Documents........................................39
ARTICLE VIII. Conditions Precedent to the Obligations
of the Company to Close.....................................39
8.1 Representations and Warranties..............................39
8.2 Covenants...................................................40
8.3 No Actions..................................................40
8.4 Additional Documents........................................40
8.5 Approval of Counsel.........................................40
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ARTICLE IX. Closing.......................................................40
9.1 Location....................................................40
9.2 Items to be Delivered by the Company........................40
9.3 Items to be Delivered by the Pioneer Partnership............41
ARTICLE X. Survival of Representations; Indemnification..................41
10.1 Survival....................................................41
10.2 Indemnification.............................................42
10.3 Defense of Claims...........................................42
10.4 Rights without Prejudice....................................42
ARTICLE XI. Fees..........................................................42
11.1 Investment Banking Fees.....................................42
11.2 Expenses....................................................43
11.3 Legal Fees..................................................43
ARTICLE XII. Termination and Waiver........................................43
12.1 Termination.................................................43
12.2 Waiver......................................................44
ARTICLE XIII. Miscellaneous Provisions......................................44
13.1 Expenses....................................................44
13.2 Modification, Termination or Waiver.........................44
13.3 Notices.....................................................44
13.4 Binding Effect and Assignment...............................45
13.5 Entire Agreement............................................45
13.6 Calendar Days...............................................45
13.7 Exhibits....................................................45
13.8 Governing Law...............................................46
13.9 Consent to Jurisdiction.....................................46
13.10 Counterparts................................................46
13.11 Section Headings............................................46
13.12 Gender......................................................46
13.13 Use of Term "Pioneer Partnership"...........................46
SIGNATURE PAGE
11249/436.3
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated May 21, 1999 ("Agreement") by and between
Pioneer Ventures Associates Limited Partnership, a Connecticut limited
partnership with offices at 651 Day Hill Road, Windsor, Connecticut 06095 (the
"Pioneer Partnership"), and America's Shopping Mall, Inc., a Nevada corporation
with offices at 382 Route 59 #310, Monsey, New York 10952 (the "Company").
WHEREAS, the Company is engaged in various direct marketing businesses.
WHEREAS, the Company desires to obtain funds to complete the acquisition of
all the capital stock of Remarkable Products and Creadis Promotions, Inc. and
(such transactions referred to sometimes herein as the "Acquisitions"), and for
working capital purposes.
WHEREAS, the Pioneer Partnership desires to provide funds to the Company
for such purposes through a purchase of shares of the Company's Series A Senior
Convertible Preferred Stock on the terms and subject to the conditions set forth
below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Pioneer Partnership agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK
1. Series A Senior Convertible Preferred Stock.
(a) Upon the terms and subject to the conditions hereinafter set forth, at
the Closing (as hereinafter defined and set forth), the Company shall
issue, sell, transfer and deliver to the Pioneer Partnership an
aggregate of ten thousand (10,000) shares of the Company's Series A
Senior Convertible Preferred Stock, $.001 par value per share (the
"Preferred Stock") at the Purchase Price set forth in section 1.2
hereof; the Preferred Stock shall have the terms and be issued subject
to the conditions as set forth herein and in the Certificate of
Designation of the Preferred Stock to be filed and recorded with the
Secretary of State of the State of Nevada prior to the occurrence of
the Closing as set forth below.
(b) At the closing ("Closing") on May 21, 1999 or such other date no later
than June 15, 1999 as the Company and the Pioneer Partnership may
agree (the "Closing Date"), the Company shall issue, sell, transfer
and deliver to the Pioneer Partnership ten thousand (10,000) shares of
Preferred Stock upon payment of the Purchase Price therefor and
satisfaction of the conditions contemplated herein.
11249/436.3
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(c) At the Closing, the Company shall reserve (i) One Million Two Hundred
Thousand (1,200,000) shares of Common Stock issuable upon conversion
of all of the Preferred Stock, representing 34.1% of the Company's
Common Stock on a fully diluted basis (assuming the conversion of all
shares of Preferred Stock and any other securities convertible, and
the exercise of all options and warrants exercisable for, shares of
Common Stock other than the Warrants (as hereinafter defined)).
(d) Upon sale and issuance to the Pioneer Partnership each share of
Preferred Stock shall be fully paid, non-assessable and free and clear
of all manner of liens, pledges, encumbrances, charges and claims
thereon.
(e) Certificates evidencing the Preferred Stock shall be delivered by the
Company to the Pioneer Partnership at the Closing. Such certificates
shall also be accompanied by evidence satisfactory to the Pioneer
Partnership of the Company's payment of any applicable transfer taxes.
The Preferred Stock and the shares of Common Stock issuable upon
conversion of Preferred Stock shall be "restricted securities" as that
term is defined in Rule 144 promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"). Certificates evidencing the Preferred
Stock shall be in the form annexed hereto as Exhibit 1.1.
1.2 Purchase Price and Payment.
The Purchase Price for the Preferred Stock shall be four hundred and twenty
dollars ($420.00) per share (such amount per share being sometimes referred to
herein as the "Stated Value"), equal to an aggregate investment of four million
two hundred thousand ($4,200,000) dollars. Upon the occurrence and consummation
of the Closing, and in consideration therefor, the Pioneer Partnership shall pay
to the Company at the Closing, by method of payment selected by the Pioneer
Partnership, the sum of four million two hundred thousand ($4,200,000) dollars
as full consideration for its subscription for the Preferred Stock.
1.3 Preferred Convertible into Common.
Each share of Preferred Stock shall be convertible at the option of the
holder at any time and from time-to-time into such number of shares of the
Company's common stock, $.001 par value (the "Common Stock"), as shall be equal
to the Stated Value of such share of Preferred Stock to be converted (plus
accumulated dividends, if so elected by the Holder) divided by Three Dollars and
Fifty Cents ($3.50) (the "Conversion Price"). If the average closing bid price
of the Company's Common Stock on the NASD OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market or such other trading market or
exchange upon which the Common Stock shall then be traded for the twenty (20)
trading days immediately preceding the ninetieth (90th) day following the date
that the Company's Common Stock is eligible for public trading is below Three
Dollars and Fifty Cents ($3.50) (the "Reset Average Price"), the Conversion
Price shall be reset to a price per
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share of Common Stock equal to seventy-five percent (75%) of the Reset Average
Price. The date the Conversion Price is reset is sometimes referred to herein as
the "Reset Date." The Conversion Price and number of shares of Common Stock
issuable upon conversion of the Preferred Stock will also be subject to
adjustment in certain circumstances upon any recapitalizations, including but
not limited to stock splits, readjustments or reclassifications, to protect
against dilution, as set forth in more detail in section 1.7 hereof.
1.4 Cumulative Dividend.
Holders of the Preferred Stock shall be entitled to an eight (8%) percent
cumulative annual cash dividend ($33.60 per share of Preferred Stock) calculated
on the basis of a 360-day year consisting of twelve 30-day months, and shall be
payable quarterly ($8.40 per share of Preferred Stock) in arrears on each March
31, June 30, September 30, and December 31 out of the assets of the Company
legally available therefor. Dividends shall accrue daily commencing on the Issue
Date whether or not earned or declared and whether or not there are profits,
surplus or other funds of the Company legally available for the payment of
dividends. The Preferred Stock dividend shall be paid before any dividend shall
be set apart or paid on the Common Stock for such quarter or for any other class
of capital stock. If less than the full preferential dividend is paid (whether
as a partial payment or if no dividend is paid) to the holders of the Preferred
Stock in any quarter, the unpaid amount shall accumulate and be added to the
preferential dividends due in the immediately subsequent quarter, in which case
such unpaid amounts shall be paid first and the newly accrued dividends of the
then current quarter, to the extent are unpaid, shall accumulate until paid. No
dividends shall be paid to the holders of the Common Stock or any other security
of the Company if any dividends are unpaid on the Preferred Stock. No dividends
shall be paid to the holders of any class of capital stock of the Company unless
and until all dividends accrued and unpaid on the Preferred Stock are paid in
full. The Company may, upon approval by a majority of its entire Board of
Directors, elect to pay dividends upon the Preferred Stock, by the issuance of
additional shares of Preferred Stock which shall have terms and conditions
identical to other shares of Preferred Stock. If the Company elects to pay any
dividend by the issuance of Preferred Stock in lieu of a cash dividend, the
amount of such dividend shall be thirteen (13%) percent ($54.60 per share of
Preferred Stock per annum; or $13.65 per share per quarter) based on the Stated
Value thereof. The failure to pay any dividend when due shall be an Event of
Default under the Certificate of Designation of the Preferred Stock and shall
result in additional dividend payments at the default rates as set forth
therein.
1.5 Liquidation.
In the event of the voluntary or involuntary liquidation, bankruptcy,
receivership, dissolution or winding up of the Company, holders of shares of the
Preferred Stock shall be entitled to receive a liquidation preference equal to
one thousand dollars ($1,000) per share and, subject to the adjustments as
provided in this section, an amount equal to any accrued and unpaid dividends to
the payment date (the "Liquidation Preference"), before any payment or
distribution is made to the holders of Common Stock or any other securities of
the Company. Neither a consolidation or merger of the Company with another
corporation nor a sale or transfer of all or part of the
11249/436.3
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<PAGE>
Company's assets for cash, securities or other property will be considered a
liquidation, dissolution or winding up of the Company, provided that all accrued
but unpaid dividends on the Preferred Stock (including any interest due thereon)
are paid upon the occurrence of such event.
1.6 Reservation of Shares; Shares to be Fully Paid; Seniority.
As of the date hereof, the Company has reserved, free from preemptive
rights, out of its authorized but unissued shares of Common Stock, or out of
shares of Common Stock held in its treasury, such number of shares of its Common
Stock as would be issuable upon conversion of all shares of Preferred Stock. The
Company covenants that all shares of Common Stock which may be issued upon
conversion of the Preferred Stock will upon issue be fully paid and
nonassessable, and free of all preemptive rights, liens and encumbrances. So
long as there are any shares of Preferred Stock outstanding, the Preferred Stock
shall be senior to all other classes of stock and/or securities issued or to be
issued by the Company.
1.7 Anti-Dilution Rights; Right of First Refusal.
The Pioneer Partnership, so long as it, its partners or affiliates owns any
Preferred Stock, (and, if applicable, the Common Stock acquired pursuant to the
conversion of the Preferred Stock) shall be entitled, as of right, (i) to
purchase or subscribe for any capital stock or equity or debt securities or any
options, warrants, rights to purchase any such securities or rights of the
Company proposed to be issued by the Company (collectively referred to as "New
Securities") and (ii) provide any debt financing proposed to be obtained by the
Company. The Company acknowledges that the Pioneer Partnership shall have the
right of first refusal under this section 1.7. The right of first refusal set
forth hereinabove shall not be applicable to (i) securities issued to employees,
consultants or directors of the Company pursuant to any stock option plan or
stock purchase or stock bonus arrangement approved by the Board of Directors of
the Company; provided, however, such plan, purchase or arrangement shall not
exceed the maximum amount as provided in section 6.5, (ii) securities offered to
the public pursuant to a registration statement filed pursuant to the Securities
Act, (iii) securities issued pursuant to an acquisition of another corporation
by the Company by merger, share exchange, purchase of all or substantially all
of the assets or other reorganization whereby the Company is the surviving
corporation, in the case of a merger or consolidation, and the then existing
shareholders of the Company own not less than fifty-one percent (51%) of the
voting stock of the Company on a fully diluted basis following such merger or
consolidation, or in the case of a share exchange, the Company owns not less
than fifty-one (51%) percent of the voting stock of such acquired corporation,
(iv) any shares of Common Stock issued pursuant to the exercise of options,
warrants or other securities outstanding on the Closing Date, (v) any shares of
Common Stock or warrants, options, rights or securities convertible into or
exchangeable for capital stock of the Company in connection with any stock
split, stock dividend or similar event affecting the Company Common Stock, and
(vi) the Preferred Stock and the Common Stock to be issued pursuant to
conversion of the Preferred Stock under this Investment Agreement.
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<PAGE>
The rights of the Pioneer Partnership under this section 1.7 may, in the
discretion of the Pioneer Partnership, be assigned pro rata to any transferees
of the Preferred Stock.
(a) Notice and Exercise of Rights. In the event the Company proposes to
issue New Securities or to obtain any financing, it shall give to the Pioneer
Partnership and any other holders of Preferred Stock (and holders of any Common
Stock received upon conversion of the Preferred Stock) written notice of its
intention, describing the type of New Securities to be issued or debt to be
incurred, the price and general terms upon which the Company proposes to issue
the same. In exercising their rights, the Pioneer Partnership (or, if
applicable, the transferees of such Preferred Stock to whom shares of Preferred
Stock have been assigned) shall be given thirty (30) days from the receipt of
such notice to agree to purchase or subscribe for such New Securities or make or
arrange such loan, in whole or in part, at the same price and/or on the same
terms as proposed.
(b) Over-Allotment. The Pioneer Partnership shall have the right of
over-allotment to purchase all of the New Securities or to make or arrange a
loan to purchase such New Securities. The Company shall provide notice to the
Pioneer Partnership of the availability of such over-allotment, and the Pioneer
Partnership shall be required to exercise its over-allotment rights, in whole or
in part within fifteen (15) business days from the date of receipt of such
notice. The Pioneer Partnership shall be required to commit in writing, at the
time it exercises its rights under this section 1.7, the maximum amount of
over-allotment of New Securities it agrees to purchase or the amount of loans(s)
it intends to make or arrange, if any become available.
(c) Nothing herein shall prevent the Pioneer Partnership, or its respective
partners, shareholders or affiliates from purchasing additional securities of
the Company from the Company, in the open market or otherwise, thereby
increasing its ownership percentage.
1.8 Percentage of Fully Diluted Shares.
The shares of Preferred Stock to be delivered by the Company to the Pioneer
Partnership as set forth above shall, if converted, constitute thirty-four and
one-tenth percent (34.1%) percent of the fully diluted issued and outstanding
Common Stock of the Company as of the Closing Date. The term "fully diluted" as
used in this Agreement shall mean the number of shares of the Common Stock of
the Company to be outstanding assuming the exercise or conversion of all
warrants, options or other securities convertible into or exchangeable for the
Common Stock of the Company as of the Closing Date, including the Preferred
Stock to be issued on the Closing Date, but not the Warrants.
1.9 Voting Rights and Prohibitive Covenants.
The Preferred Stock shall have full voting rights and shall be voted
together with the Common Stock as one class, and the shares of Preferred Stock
shall entitle the holder thereof to the number of votes as if the Preferred
Stock had been converted into shares of Common Stock on the appropriate record
date. So long as an aggregate of at least five percent (5%) of the outstanding
Preferred Stock (included in such 5% calculation for the denominator shall be
any Preferred Stock
11249/436.3
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<PAGE>
which has then been converted into Common Stock) is held by the Pioneer
Partnership, the Company shall not without the affirmative vote or consent of
the holders of a majority of all outstanding shares of the Preferred Stock
voting separately as a class (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the By-Laws of the Company so as to adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Preferred Stock, (ii) authorize or issue any additional
equity securities of the Company or of any subsidiaries other than those
issuable (x) upon the conversion, exchange or exercise of securities or rights
outstanding on the Closing Date and (y) pursuant to grants of options previously
granted and outstanding on the Closing Date under the Company's Stock Option
plan; provided, however, that such consent shall not be unreasonably withheld,
(iii) approve any merger, consolidation, compulsory share exchange or sale of
assets to which the Company is a party; provided, however that such consent
shall not be unreasonably withheld, (iv) repurchase or redeem any equity
securities or pay dividends or other distributions on any equity securities,
except as provided pursuant to the terms of the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) incur any indebtedness
for borrowed money, or guarantee indebtedness, of other persons, directly or
indirectly except with respect to any wholly owned subsidiaries, (vii) effect
any fundamental changes in the nature of the Company's business, including but
not limited to acquiring or investing in another business entity; provided,
however that such consent shall not be unreasonably withheld, or (viii) approve
the sale or transfer of any material intangible or intellectual property, other
than the issuance of licenses or sales of equipment in the ordinary course of
business; provided, however, that such approval shall not be unreasonably
withheld.
1.10 Voting Agreements Concerning Directors.
(a) Generally. On the Closing Date, one (1) nominee of the Pioneer
Partnership (who may be John F. Ferraro or another designee of the Pioneer
Partnership) shall be elected a director of the Company for a period from the
Closing Date until the next regularly scheduled annual meeting of the
shareholders of the Company (or longer if the applicable terms of directors are
set for longer periods). So long as the Pioneer Partnership shall own any
Preferred Stock or Common Stock, the Board of Directors of the Company shall
nominate and include in the list of candidates for directors recommended by the
Board of Directors, and use its best efforts to have elected by the shareholders
at least one nominee of the Pioneer Partnership. Should any Pioneer Partnership
nominee decline to be nominated or elected, another of the Pioneer Partnership's
designees shall have the right to receive notice of and to attend any and all
meetings of the Board of Directors of the Company, and the Company shall be
required to deliver notice to such designee as if such designee were a director.
In furtherance of the foregoing, the persons named in Exhibit 1.10(a) hereto,
and any trusts, or other entities or affiliates related to them (collectively
"Principal Shareholders") holding the voting rights to their shares, shall at
the Closing execute and deliver to the Pioneer Partnership a Voting and
Shareholders' Agreement in the form annexed hereto as Exhibit 1.10(a) hereto.
(b) Additional Nominees of the Pioneer Partnership On Default. In the event
that (i) the Company shall default in the due and punctual payment of any
installment of the cumulative
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<PAGE>
dividends on the Preferred Stock when and as the same shall become due and
payable, (ii) such default shall continue for 30 days and (iii) provided the
Pioneer Partnership and/or its limited partners and affiliates shall be the
holder(s) of an aggregate of at least five (5%) percent of the outstanding
Preferred Stock (included in such 5% calculation for the denominator shall be
any Preferred Stock which has then been converted into Common Stock), in
addition to the other remedies available to the Pioneer Partnership, the Pioneer
Partnership shall have the right to nominate, and the Board of Directors of the
Company shall use its best efforts to have promptly elected or appointed such
number of individuals nominated by the Pioneer Partnership such additional
number of designees of the Pioneer Partnership as shall be necessary to ensure
that the Pioneer Partnership designees on the Board shall constitute a simple
majority of the Board of Directors. Upon such appointment, the Pioneer
Partnership shall have the right to continue to appoint a simple majority of the
Board of Directors for so long thereafter as the Pioneer Partnership, and its
partners and affiliates shall own any Preferred Stock or Common Stock acquired
upon conversion of any Preferred Stock. To facilitate the foregoing, the Company
has, concurrently with the execution hereof, amended its by-laws to provide for
the terms of this section 1.10(b). A copy of the Company's By-Laws, as amended
to the Closing Date, is annexed hereto as Exhibit 4.1(b). The Company hereby
covenants it shall not change such amended provision of its By-Laws without the
Pioneer Partnership's prior written consent. Failure to obtain such prior
written consent to any such change shall constitute an additional Event of
Default under the Preferred Stock.
1.11 Transfer Agent.
Continental Stock Transfer & Trust Company has been engaged and charged as
the transfer agent for the Common Stock and with the duties of the transfer
agent and registrar of the Preferred Stock (the "Transfer Agent").
1.12 Use of Proceeds.
(a) The net proceeds to be received by the Company, after deduction of all
applicable (and previously unpaid) expenses of the Closing will be approximately
$4,020,000, and the gross proceeds shall be used and applied substantially as
follows:
Costs of Closing:
Pioneer Partnership's
Attorneys fees: $40,000
Company's Attorney's fees: $25,000
Company's Accounting Fees: $5,000
Pioneer Partnership's Non-
accountable expense allowance: $5,000
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Investment Banking Fees: $105,000
Net Proceeds: $4,020,000
Acquisition of Remarkable Products, Inc.
Payoff existing loan - Sterling Carl Marks $800,000
Payoff existing loan - Officer loans 300,000
Payoff existing loan - Paul Elmowsky 80,000
Payoff existing loan - Roy Failla 15,000
Legal Fees Caro & Associates 5,000
----------
$1,200,000
==========
Acquisition of Creadis Promotions, Inc.
Repayment to shareholders for funds and
working capital used to purchase business $400,000
Audit-fees - Arthur Yorkes & Company 12,500
Legal fees Caro & Associates 5,000
--------
$417,500
========
Working Capital $2,402,500
TOTAL $4,200,000
(b) The Company shall expend these funds for the purposes indicated. No
portion of the proceeds will be paid to the Principal Shareholders, officers,
directors, or their affiliates or associates. However, funds allocated generally
to working capital may be used for salaries and wages of the general employee
population, and for board approved salaries of its executive officers and board
approved consulting, directors' and advisors' fees either (i) at rates currently
in effect at the Closing Date or (ii) as are ratified at one or more board
meetings at which the Pioneer Partnership nominee is in attendance. Without the
approval of the Compensation Committee of the Company's Board of Directors
(which committee shall have at least one Pioneer Partnership designee as a
voting member), the Company and its officers and directors shall not authorize
or implement any material increases in compensation for salaries, wages or fees
as compared to those in effect on the Closing Date, as disclosed in Exhibit
4.28. Material increases for purposes of this section 1.12 shall mean an annual
increase of ten (10%) percent or greater. No portion of the proceeds of the
Closing will be used to pay cash finder's fees with respect to this investment,
nor will the Company issue securities in payment of finder's fees with respect
to the investment to any person including the Principal Shareholders, officers,
directors, or their affiliates or associates.
(c) Margin Requirements. The Company does not intend to, and will not, use
the proceeds of the offer and sale of the Preferred Stock hereunder, directly or
ultimately, (i) to purchase or carry Margin Stock (as such term is defined under
Regulation U of the Board of Governors of the Federal Reserve System, as in
effect from time to time) or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose,
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or (ii) for any purpose which entails a violation of, or which is inconsistent
with, the provisions of Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System.
1.13 Redemption.
The Company shall have the right to redeem any or all of the shares of
Preferred Stock on any Quarterly Dividend Payment Date (for purposes of this
section 1.13 such date shall be the "Redemption Date"), provided written demand
as set forth below is given. The redemption price for each share of Preferred
Stock to be redeemed shall be paid by the Company in cash in an amount equal to
the stated value of such share, plus an amount sufficient such that the holder
thereof receives an annual rate of return equal to twenty-five percent (25%),
for the period from the original Issue Date of such share until the Redemption
Date, on a compounded basis.
Thirty (30) days prior to the Redemption Date, the Company shall provide
each holder of Preferred Stock with a written demand ("Redemption Notice")
(addressed to the holder at its address as it appears on the stock transfer
books of the Company) to redeem shares of Preferred Stock as provided above,
which notice shall specify the estimated Redemption Price and the number of
shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
On or prior to the Redemption Date, each holder of Preferred Stock shall
surrender his or its certificate or certificates representing the shares of
Preferred Stock to be redeemed, in the manner and at the place designated in the
Redemption Notice. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price and interest at the rate of 8%
per annum, on the basis of a 360-day year for the actual number of days elapsed
from the Redemption Date to the date the Redemption Price is actually paid in
the event payment is not made within 20 days after the Redemption Date), and
such shares shall not be deemed to be outstanding for any purpose whatsoever.
ARTICLE II. REGISTRATION RIGHTS
2.1 Demand Registration.
The Company agrees that, on one (1) occasion from any date that is six (6)
months from the initial Issue Date in any eighteen (18) month period, it shall
promptly upon the written request of the Pioneer Partnership, at the Company's
sole cost and expense, file such registration statement pursuant to the
Securities Act to register the shares of Common Stock into which the Preferred
Stock may be converted (the "Registrable Securities") for continuous resale
under Rule 415 promulgated by the Commission under the Securities Act. The
Company shall use its best efforts to cause such registration statement to
become and remain effective (including the taking of such steps as are
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reasonably necessary to obtain the removal of any stop order) on a timely basis.
The Company shall also execute an undertaking to file post-effective amendments,
appropriate qualification filings under applicable state securities (blue sky)
laws and appropriate compliance with applicable regulations issued under the
Securities Act.
2.2 Piggy-back Registration.
(a) So long as the Pioneer Partnership or its partners or affiliates are
the holders of Preferred Stock or Common Stock, if the Company shall register
any of its securities for sale pursuant to any appropriate registration
statement under the Securities Act, the Company shall be required to offer to
such holders the opportunity to register any or all the Registrable Securities,
without cost to the holders thereof. In connection with these piggy-back
registration rights, the Company shall give all of the Holders notice by
certified mail at least thirty (30) business days prior to the filing of such
Registration Statement under the Act. The holders shall then have twenty-five
(25) days to elect to include all or a portion of its Registrable Securities for
sale in the Registration Statement.
(b) The registration requirement shall not apply to a Registration
Statement filed by the Company pursuant to Form S-8 or S-4 or any successor form
or forms with the sole and express purpose of registering shares for employees
or for stock incentive plans, or any other inappropriate form.
(c) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company will so advise
the holders. In such event, these registration rights shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting to the extent provided
herein. All holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter selected by the Company. In the event that the lead or managing
underwriter in its good faith judgment determines that material adverse market
factors require a limitation on the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities. In such event, the
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated pro rata among all holders and
other participants, including the Company, in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration
statement at the time of filing the registration statement. If any holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter, provided such
notice is delivered within 60 days of full disclosure of such terms to such
holder, without thereby affecting the right of such holder to participate in
subsequent offerings hereunder.
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2.3 Registration Covenants.
In the case of each registration effected by the Company pursuant to this
Article II, the Company will keep each Holder advised in writing as to the
initiation, progress, and declaration of effectiveness of each registration and
as to the completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a minimum period of two (2) years
or until the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that in the case of any registration of Registrable Securities on Form
S-3 which are intended to be offered on a continuous or delayed basis, such two
(2) year period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment, permit, in lieu of filing a post-effective amendment which (1)
includes any prospectus required by section 10(a)(3) of the Securities Act, or
(2) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (1) and (2) above to be
contained in periodic reports filed pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act') in the
registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(c) Furnish the Pioneer Partnership with copies of all correspondence with
the Commission; and
(d) In connection with any underwritten offering, the Company and the
Holders will enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Registrable Securities, provided such agreement
contains customary underwriting provisions.
2.4 Blue Sky Registration.
(a) The Company will use its best efforts to register or qualify the
Registrable Securities covered by any registration statement under the
Securities Act and under such securities or blue sky laws in such jurisdictions
within the United States as the Pioneer Partnership may reasonably request;
provided, however, that the Company reserves the right, in its sole discretion,
not to register or qualify such shares of Common Stock in any jurisdiction in
which such shares of Common Stock do not satisfy the requirements of such
jurisdiction. The Company covenants that notwithstanding the above, that it
shall use its best efforts, at a minimum, to register or qualify the Registrable
Securities in the States of Connecticut and New York.
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(b) The Company shall (i) advise the Pioneer Partnership promptly after
obtaining knowledge thereof, and, if requested by the Pioneer Partnership,
confirm such advice in writing, of the issuance by the Commission or any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Registrable Securities for offer or sale in
any jurisdiction, or the initiation of any proceeding for such purpose the
Commission or by any state securities commission or other regulatory authority,
(ii) use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Registrable
Securities under any state securities or Blue Sky laws, and (iii) if at any time
the Commission or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Registrable Securities under any such laws, use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
2.5 Deregistration.
In the event the Pioneer Partnership has not sold all of the Registrable
Securities included in the registration statement prior to the second
anniversary of the effective date of such registration statement, the Pioneer
Partnership hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of the Pioneer Partnership covered by the
registration statement but not sold on or prior to such date.
2.6 Post-Effective Amendments.
The Company agrees that it will notify the Pioneer Partnership of the
filing and effective date of each such post-effective amendment.
2.7 Right to Delay.
The Company shall have the one-time right, after it shall have received
written notice pursuant to section 2.1, to elect not to file or to delay any
such proposed registration statement by not more than 60 days, or to withdraw
the same after the filing but prior to the effective date if the Company
determines in good faith that the filing or amendment of the registration
statement would require the disclosure of non-public material information that,
in its judgment, would be detrimental to the Company if so disclosed or would
otherwise adversely affect a financing, acquisition, disposition, merger or
other material transaction. Any withdrawal of a registration statement under
this section 2.7 shall renew the Demand Registration rights under section 2.1.
2.8 Selection of Underwriters.
If a Demand Registration pursuant to section 2.1 hereof involves an
underwritten offering, either the Pioneer Partnership or the Company shall have
the right to select the investment banker or investment bankers and manager or
managers that will serve as the underwriter with respect to the underwritten
offering; provided, however that the party not selecting such underwriter shall
have the
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right to approve the underwriter and such approval shall not be unreasonably
withheld or delayed without a material reason stated in writing.
2.9 Principal Shareholders.
For so long as the Pioneer Partnership, its partners or affiliates owns any
Preferred Stock or any Common Stock received upon conversion of Preferred Stock,
the Company will not file a registration statement on behalf of any Principal
Shareholder (as that term is defined in the Voting and Shareholders' Agreement
between the Pioneer Partnership and certain shareholders of the Company, dated
as of the Closing Date) as selling shareholders without the prior written
approval of the Pioneer Partnership.
2.10 Transferability of Registration Rights.
The registration rights described in section 2.1 and section 2.2 are freely
transferable by the holders of Registrable Securities to any person to whom such
holder transfers its Registrable Securities.
2.11 Indemnification by Company re Registration Rights.
The Company will indemnify each Holder, each of its officers, directors and
partners, and each person controlling such Holder, with respect to which
registration, qualification or compliance has been effected pursuant to this
Article II, and each underwriter, if any, and each person who controls any
underwriter against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
statement, notification or the like incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
2.12 Indemnification by Holder.
Each Holder will, if Registrable Securities or other securities held by him
are included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities
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covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each other such Holder and each of their officers,
directors, and partners, and each person controlling such Holder, for a period
of one (1) year from the effective date of such registration statement, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the proceeds to each such Holder of securities sold pursuant to
a registration statement required by this Article II.
2.13 Notice of Indemnity and Defense.
Each party entitled to indemnification under this Article II (the
"Indemnified Party") shall give notice to the party requiring to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Article II. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
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ARTICLE III. CO-SALE PROVISIONS
3.1 Third-Party Offer and Co-Sale Notice.
Any proposed sale of the capital stock of the Company by any Principal
Shareholder will be subject to a participation right of co-sale by the Pioneer
Partnership and its assigns on a pro rata fully diluted basis. If any one or
more of the Principal Shareholders obtains from a third party ("Third Party
Purchaser") an offer to purchase any amount of their shares of capital stock of
the Company, such Principal Shareholders shall submit a written notice (the
"Co-Sale Notice") to the Pioneer Partnership disclosing the amount of shares
proposed to be sold, the offered purchase price, the proposed closing date, and
the total number of shares owned by the Principal Shareholders.
3.2 Co-Sale Right of Participation.
Upon receipt of a Co-Sale Notice from any Principal Shareholder, the
Pioneer Partnership and its assigns may elect to participate in such transaction
and shall have the right to offer its securities, at the same price and on the
same terms as contained in the Co-Sale Notice. Each participating selling party
who elects to participate in such sale shall be entitled to sell his Pro Rata
Share (as herein defined) of the number of shares the Third Party Purchaser is
willing to purchase. "Pro Rata Share" as used in the preceding sentence means
the product of the number of shares owned by such selling shareholder and a
fraction, the numerator of which is the number of fully diluted shares held by
such selling shareholder participating in a subject sale, and the denominator of
which is the total number of fully diluted shares held by all shareholders
participating in a subject sale. Each participating selling party shall in turn
be entitled to receive at the applicable closing the net proceeds of the sale
allocable to the securities sold on behalf of such selling shareholder, after
deduction of such selling shareholder's proportionate share of the reasonable
expenses of the sale.
3.3 Excluded Sales.
These co-sale provisions will not apply to any sale of securities pursuant
to a distribution to the public, whether pursuant to a registered public
offering, Rule 144 under the Securities Act or otherwise.
3.4 Notice of Intent to Participate in Co-Sale.
If the Pioneer Partnership and/or its assignees wish to participate in any
sale under this Article III, then the Pioneer Partnership and/or its assignees
shall notify the selling Principal Shareholders in writing of such intention
within fifteen (15) business days after the Pioneer Partnership's receipt of the
Co-Sale Notice made pursuant to section 3.1. Such notification shall be
delivered in person or by facsimile to the Principal Shareholders at the
Company's offices.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to the
Pioneer Partnership each of which shall be deemed material, and the Pioneer
Partnership, in executing, delivering and consummating this Agreement, has
relied and will rely upon the correctness and completeness of each of such
representations and warranties:
4.1 Organization, Qualification and Corporate Power.
The Company (i) is a corporation duly organized and validly existing and in
good standing under the laws of the State of Nevada; (ii) is duly qualified to
transact business as a foreign corporation and in good standing in the State of
New York, being all states or foreign jurisdictions in which its activities
require qualification and the failure to be so qualified would have a material
adverse effect on the business and operations of the Company; and (iii) has all
corporate power necessary to engage in the business in which it is presently
engaged and to enter into and consummate the transactions contemplated by this
Agreement. Annexed hereto as Exhibit 4.1(a) and 4.1(b), respectively, are true,
accurate and complete copies of the Certificate of Incorporation and the By-Laws
of the Company, each as amended to date.
4.2-A Subsidiaries.
The Company has no subsidiaries, nor is it the subsidiary of any other
corporation or entity except for Creadis Promotions, Inc. (collectively
"Subsidiaries"). The Subsidiaries are all wholly owned by the Company. The
Subsidiaries and affiliates are entities duly organized and validly existing and
in good standing under the laws of the State set forth on Exhibit 4.2-A.
The Subsidiaries are controlled by the Company, as such term is defined in
section 20(a) of the Securities Act. For purposes of this section, the term
"Subsidiary" is defined to mean any corporation or other business entity, a
majority of whose outstanding voting stock or ownership interests entitled to
vote for the election of directors or such other governing body is, at the time,
owned by the Company and/or one or more other subsidiaries.
4.2-B Affiliates.
The Company has no affiliated entities, nor is it the affiliate of any
other corporation or entity except for the affiliates listed on Exhibit 4.2-B
(collectively "Affiliates"). The Affiliates are wholly owned by the Company
and/or by the Principal Shareholders. The term "affiliate" is defined as that
term is defined in the federal securities laws and the regulations of the
Commission pursuant to those laws, and any entity in which the Company is (or
the Principal Shareholders are) the beneficial owner(s) of five (5%) or more
such affiliate. Upon the completion of the Acquisitions, Creadis, and Remarkable
will be the only Affiliates of the Company.
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4.2-C Joint Ventures.
Except as set forth in Exhibit 4.2-C, the Company is not a party to any
partnership, management, shareholder, joint venture, or similar agreements.
4.3 Authorization of Agreement.
The execution, delivery and performance by the Company of this Investment
Agreement and all other documents and instruments contemplated hereby have been
duly authorized by all requisite corporate action. A true, correct and valid
copy of the Company's Board of Director's resolution(s) authorizing the
transactions and securities to be issued hereunder, in the form annexed as
Exhibit 4.3 hereto, has been delivered to the Pioneer Partnership. Neither the
execution and delivery of this Agreement nor compliance by the Company with any
of the provisions hereof nor the consummation of the transactions contemplated
hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of the Company or its Subsidiaries or Affiliates or any
contract to which the Company or any of its Subsidiaries or Affiliates or any of
the properties or assets is bound;
(b) violate or, alone or with notice or the passage of time or both, result
in the material breach or termination of, or otherwise give any contracting
party the right to terminate, or declare a material default under, the terms of
any material agreement or other document or undertaking, oral or written to
which the Company or any of its Subsidiaries or Affiliates is a party or by
which it or its or their properties or assets may be bound (except for such
violations, conflicts, breaches or defaults as to which required waivers or
consents by other parties have been, or will be obtained, prior to the Closing);
(c) result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its Subsidiaries or Affiliates pursuant to the terms of any such agreement or
instrument;
(d) violate any judgment, order, injunction, decree or award against, or
binding upon the Company or any of its Subsidiaries or Affiliates or upon its or
their properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to either
the Company any Subsidiary or Affiliate or any of their respective securities,
assets or properties.
4.4 Validity.
This Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms.
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4.5 Government Approval.
Except for filing a Form D with the Commission (to the extent necessary)
and any applicable Blue Sky filings, including the State of Connecticut, and
filing the Certificate of Designation of the Preferred Stock with the Secretary
of State of the State of Nevada, no registration or filing with, or consent or
approval of, or other action by, any federal, state or other governmental agency
or instrumentality is or will be necessary for the valid execution, delivery and
performance of this Investment Agreement or any other document or transaction
contemplated hereby.
4.6 Capitalization.
The authorized capital stock of the Company consists of: (a) Twenty Million
(20,000,000) shares of Common Stock, $.001 par value, and (b)Twenty Thousand
(20,000) shares of Preferred Stock, $.001 par value, authorized for issuance
under the Company's certificate of incorporation, as amended. One share of
Common Stock was issued to Advanced Medical Sciences, Inc. ("Advanced") so that
the Company is currently a wholly owned subsidiary of Advanced. The Company and
Advanced are parties to an Agreement and Plan of Merger dated as of May 21, 1999
pursuant to which Advanced will be merged with and into the Company. In
connection with that merger, 1,379,740 shares of the Company's Common Stock have
been reserved for issuance to the shareholders of Advanced. The Company has also
reserved for issuance 700,000 shares of its Common Stock in connection with its
acquisition of all the issued and outstanding shares of Common Stock of Creadis
Promotions, Inc. and 240,000 shares are reserved for issuance in connection with
the Company's acquisition of substantially all the assets of Remarkable
Products, Inc. Accordingly, if converted at the Conversion Price of $3.50 per
share, the 10,000 shares of Preferred Stock would be convertible into 1,200,000
shares of Common Stock or 34.1% of the outstanding shares of Common Stock, on a
fully diluted basis. Upon consummation of the merger of Advanced into the
Company, the one share held by Advanced will be returned to the Company's
treasury. Except as set forth in Exhibit 4.6, no shares of Common Stock are
issuable pursuant to existing agreements and there are no outstanding warrants,
options or other securities convertible into or exchangeable for the Common
Stock of the Company, and no other shares of Common Stock are issued or
outstanding or committed for issuance except those committed for issuance upon
conversion of the Preferred Stock to be issued hereunder.
4.7 Annual Report and the Financial Statements.
(a) The Company has heretofore furnished to the Pioneer Partnership copies
of (i) the Company's consolidated audited financial statements for its fiscal
year ended December 31, 1998 (hereinafter the "Audited Financial Statements"),
and (ii) the Company's consolidated unaudited interim financial statement as at
and for the three months ended March 31, 1999 (hereinafter collectively referred
to as the "Interim Financial Statements"); if the term "Audited Financial
Statements" is used herein, then the unaudited Interim Financial Statements are
excluded from such reference. However, reference to "Financial Statements" shall
mean both the Audited Financial Statements, and all of the Interim Financial
Statements, collectively. Such Financial Statements are
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true, correct and complete in all material respects, and accurately set forth,
in all material respects, the financial condition of the Company and its
Subsidiaries as of their respective dates, and the results of operations for the
fiscal periods involved, and were prepared in conformity with generally accepted
accounting principles and practices consistently applied ("GAAP") and are
annexed hereto as Exhibit 4.7-A. The Financial Statements fairly present in all
material respects the financial condition and results of operations of the
Company and its Subsidiaries at the dates thereof and for the periods covered
thereby. Except as set forth in Exhibit 4.7 hereto, since March 31, 1999, the
Company and/or its Subsidiaries has incurred no material (defined as $10,000 or
more for purpose of this section 4.7) obligation or liability, whether absolute,
accrued, contingent or otherwise, that is not set forth in the Financial
Statements.
(b) The Company and/or its Subsidiaries have good and marketable title to
all of its property and assets and such property and assets are not subject to
any mortgage, pledge, lien or other encumbrance except as disclosed in Exhibit
4.7-B annexed hereto and made a part hereof.
(c) The Company and/or its Subsidiaries had no obligations, liabilities or
commitments, contingent or otherwise, of a material nature which were not
provided for except as set forth in Exhibit 4.7-C and except those not exceeding
$10,000 in the aggregate and which were incurred in the normal course of
business since March 31, 1999.
(d) Since March 31, 1999, there has been no materially adverse change in
the nature of the business of the Company and/or its Subsidiaries nor in any of
their financial condition or property, other than changes in the usual or
ordinary course of business, and the Company has incurred no obligations or
liabilities nor made any commitments other than in the usual and ordinary course
of business or as disclosed in Exhibit 4.7-D.
(e) The Company and/or its Subsidiaries are not a party to any employment
contract with any officer, director, or stockholder, or to any lease, agreement
or other commitment not in the usual and ordinary course of business, nor to any
pension, insurance, profit-sharing or bonus plan, except as disclosed in Exhibit
4.7-E.
4.8 Patents, Trademarks, Etc.
All of the officers, directors, principals and employees of and consultants
to the Company have assigned and transferred all of their Intellectual Property
as defined below, to the Company, and are contractually bound to assign or
transfer all of their Patents to the Company whether now existing or hereafter
created or acquired, all in connection with their duties to the Company. The
Company and/or its Subsidiaries own or possess, without any adverse claims with
respect thereto, and without known conflict with the rights of others, except as
disclosed in Exhibit 4.8, the rights to the patents, trademarks, service marks,
trade names, copyrights and licenses listed in Exhibit 4.8 hereto and the same
constitute all of the patents, trademarks, service marks, service names,
copyrights, and licenses necessary, used or useful in the conduct of the
business of the Company (collectively the "Intellectual Property"). The Company
protects all technical, trade secret and
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confidential information developed by and belonging to the Company and/or its
Subsidiaries, which has not been patented, by maintaining the secrecy relating
thereto, and the Company and/or its Subsidiaries will continue to seek to
protect all such information, technology and intellectual property by
maintenance of secrecy related thereto.
4.9 Taxes.
Except as set forth in Exhibit 4.9 annexed hereto, the Company and each of
the Subsidiaries has filed all applicable federal, state, county and local tax
and franchise returns and reports required to be filed by it and has paid (or,
as to taxes not currently due and payable, has made adequate provision in
accordance with generally accepted accounting principles for the payment of) all
income and other taxes, assessments, franchise fees and other governmental
charges required by law (including, without limitation, withholding, social
security, payroll and similar taxes) and all interest and penalties, if any,
thereon and all federal, state, local and other taxes accruable since the filing
of such returns have been properly accrued. No adverse proceedings or other
actions are pending or have been taken for the assessment or collection of
additional taxes of any kind from the Company and/or its Subsidiaries for any
period, and to the Company's knowledge, no investigation by the Internal Revenue
Service or any taxing authority affecting the Company and/or its Subsidiaries is
now pending. All taxes that the Company and/or its Subsidiaries are required by
law to withhold or collect have been withheld or collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment.
4.10 Approvals.
No authorization or approval of, or filing with, or compliance with any
applicable order, judgment, decree, statute, rule or regulation of, any court or
governmental authority, or approval, consent, release or action of any third
party, is required in connection with the execution and delivery by the Company
of, or the performance or satisfaction of any agreement of the Company contained
in or contemplated by, this Agreement, except for claiming an exemption from
section 5 of the Securities Act of 1993 by filing a Form D or otherwise, and by
claiming an exemption from registration from applicable state Blue Sky laws
(including but not limited to the laws of Connecticut) and any filings required
thereunder.
4.11 Litigation.
Except as set forth on Exhibit 4.11 hereto, neither the Company nor any of
its Subsidiaries, or affiliates is a defendant, nor are they a plaintiff against
whom a counter-claim has been asserted in any actions, suits, claims,
arbitrations, administrative or other proceedings or governmental investigations
seeking $5,000 or more in damages, or any equitable relief, pending or, to the
best of the Company's knowledge, threatened against, relating to or affecting
the Company or any of the Subsidiaries, or their respective business, operations
or assets, whether or not fully covered by insurance, or which question or seek
to prevent consummation of the transactions provided for in this Agreement,
whether at law or in equity, or before or by any Federal, state, local, foreign
or other
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governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. Neither the Company nor any Subsidiary is
bound or adversely affected by or in default with respect to any judgment,
order, writ, injunction or decree of any court or of any governmental
department, agency or instrumentality.
4.12 Acquisition Agreements; Schedule of Documents.
The Acquisition Agreements set forth in Exhibit 4.12 have been duly
authorized, executed and delivered by all of the parties thereto and each of the
Acquisition Agreements is valid, binding and enforceable against all the parties
thereto. No breach, or state of facts that with the lapse of time would
constitute a breach, exists under any Acquisition Agreement. No condition to
Closing under any Acquisition Agreement remains unfulfilled other than the
payment of the purchase price thereunder utilizing the sale of the proceeds of
the Preferred Stock under this Agreement in accordance with section 1.12 hereof.
The schedule of contracts including a summary in tabular form of all
material terms (including but not limited to the purpose of the contract,
economic terms, covenants, warranties, representations, restrictions) attached
hereto as Exhibit 4.12 lists any and all material (material for purposes of this
paragraph only shall mean $10,000) contracts or other material commitments or
obligations relating to the Company and its Subsidiaries, (a) to which a
Principal Shareholder and/or officer or director of the Company or any
Subsidiary is a party, (b) all leases of real and/or personal property, (c)
union collective bargaining, employment, management and consulting agreements to
which the Company or any Subsidiary is a party, (d) compensation plans, bonus
plans, deferred compensation arrangements, pension and retirement plans, profit
sharing plans, stock purchase and stock option plans, (e) loan agreements and
notes, (f) options to purchase property, (g) stockholder agreements, and (h) all
other material contracts or commitments to which the Company is a party
(collectively, the "Material Agreements"). Except as listed on Exhibit 4.12,,
neither the Company nor any of its Subsidiaries is a party to or bound by any
contract or commitment (or group of related contracts or commitments), other
than contracts, or agreements in the ordinary course of business; nor is the
Company nor any of its Subsidiaries bound by any charter, contractual or other
corporate restriction that materially and adversely affect or could affect its
business, financial condition or prospects, or which restricts its right or
ability to operate its business as conducted or proposed to be conducted or to
pay dividends on the Preferred Stock. On or prior to the date hereof, the
Company has delivered to the Pioneer Partnership or a representative thereof, a
true and correct copy of each of the documents listed in Exhibit 4.12.
All Material Agreements are in full force and effect, are the legal, valid
and binding obligations of the Company and the other parties thereto,
enforceable in accordance with their terms (except as such enforceability may be
limited by bankruptcy and insolvency laws or by general principles of equity,
whether consolidated in a proceeding in law or in equity).
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4.13 No Defaults.
Neither the Company nor any Subsidiary is in violation of, breach of or
default under, and no event (including, without limitation, execution of and
consummation of the transactions provided for in this Agreement) has occurred
which with the passage of time or notice from or action by any party thereto or
otherwise could result in a violation of or default under, or give any other
person the right to terminate, as the case may be, any indenture, mortgage,
security, loan, lease or other material agreement to which the Company or any of
the Subsidiaries is a party or by which any of them is bound or result in the
creation, imposition or acceleration of any material lien of any nature in favor
of any other person, other than defaults that will be cured (within the terms of
the applicable agreements) with the application of proceeds set forth in section
1.12 hereof.
4.14 Lack of Felonies.
Neither the Company nor its Subsidiaries nor any of their respective
principals, directors, or executive officers have ever been convicted of or pled
guilty at any time within the past (10) years to any felony under the laws of
the United States or any state thereof. No criminal arrests, proceedings or
actions are pending, nor have any been threatened in the last thirty-six (36)
months against any of such persons.
4.15 No Judgments.
There are no judgments, decrees, binding decisions outstanding against the
Company or any of its Subsidiaries which were issued in any legal proceeding of
any kind by any court, arbitrator, panel, or other governing or determining
authority.
4.16 Insurance.
The Company and its Subsidiaries are covered by policies of general
liability insurance with coverage of at least $2,000,000 with a deductible of
$1,000, and workers' compensation insurance and extended coverage on its
property. There does not exist, nor has there been, any lapse in the coverage
under such insurance policies. Such policies are carried by a reputable and
financially stable insurance company and are sufficient to cover risks as are
customarily insured against by similar businesses. The Company represents it has
adequate insurance to replace a substantial amount of its assets.
4.17 No Brokers.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on directly with the Pioneer Partnership
by the Company, without the intervention of any broker, finder, investment
banker (except Ventures Management Partners LLC or Pioneer Ventures Corp.), or
other third party. The Company has not engaged, consented to, or authorized
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any broker, finder, investment banker or other third party to act on its behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
4.18 Loans and Liens.
Attached hereto as Exhibit 4.18 is a complete and accurate list of all
secured and unsecured loans to which the Company or any of its Subsidiaries is a
party as a borrower, debtor, guarantor or as a party obligated thereunder and
all other financial obligations or judgments to which they are subject. Such
schedule sets forth in tabular form the identity of the borrower, lender, any
guarantors, the original principal amount, the principal amount due at a date
within 90 days hereof, the interest rate, the current standing of such
obligation, the next payment due date, the amount of principal and interest next
due, the maturity date, and a summary of any other material provisions not
requested herein.
4.19 Solvency.
The Company has not admitted in writing or otherwise an inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had ever a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other laws of the United
States or any other jurisdiction.
4.20 Registration Rights.
Except as provided for herein and as otherwise provided on Exhibit 4.20
annexed hereto, the Company is not a party to any agreement or commitment that
obligates the Company to register under the Securities Act any of the Company's
presently outstanding securities or any of the Company's securities that may
hereafter be issued.
4.21 Compliance with Securities Laws.
The offer, grant, sale, and/or issuance of the Preferred Stock and the
Common Stock issuable upon conversion of the Preferred Stock shall not be in
violation of the Securities Act, the Exchange Act, any state securities or "blue
sky" laws, or the Company's organization documents such as the certificate of
incorporation or bylaws, when offered, sold and/or issued in accordance with
this Agreement. The Company has not (i) distributed any offering materials in
connection with the offering and sale of the Preferred Stock or (ii) solicited
any offer to buy or sell the Preferred Stock by means of any form of general
solicitation or advertising.
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4.22 Transfer Restrictions.
There are no restrictions on the transfer of capital stock of the Company
imposed by its certificate of incorporation, bylaws, other organization
documents, any agreement to which the Company is a party (other than those
agreements expressly contemplated by, or disclosed in the Exhibits to, this
Agreement), any order of any court or any governmental agency to which the
Company is subject, or any statute other than those imposed by relevant state
and federal securities laws.
4.23 Related Party Transactions.
There are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors or other "affiliates" (as defined
in Rule 405 promulgated under the Securities Act) which involve transactions
exceeding $5,000 in amount, except as outlined on Exhibit 4.23.
4.24 Miscellaneous.
Except as set forth in Exhibit 4.12, Exhibit 4.7-A or Exhibit 4.7-B or the
Audited Financial Statements or notes thereto, (a) the Company is not a party to
or bound by any distribution, sales agency, franchise or similar agreement or
understanding that relates to the sale or distribution of its products and
services, (b) the Company does not have a sole-source supplier of significant
goods and services (other than utilities) with respect to which practical
alternative sources are not available on comparable terms and conditions, (c)
there are neither pending, nor threatened, any labor negotiations involving or
affecting the Company, and no organizing activities involving union
representation exists in respect of any of its employees, (d) except in the
ordinary course of business, the Company is not bound by any warranties relating
to its products or services, such warranties include those for merchantability
and fitness for a particular purpose, and (e) there has been no assertion of any
breach of product or service warranties that could have a material (greater than
$10,000) adverse affect on the business, financial condition or prospects of the
Company and its Subsidiaries, considered in the aggregate. Neither the Company
nor any of its employees, consultants, officers or directors is prohibited from
engaging in any business activity that is currently carried on or contemplated
by the Company or any Subsidiary, by reason of any restrictive covenant or
agreement, including but not limited to, a covenant not-to-compete.
4.25 Additional Representations. The Company represents and warrants that:
(a) The investment to be consummated by the Pioneer Partnership in the
Company is NOT opposed by its board of directors;
(b) The Company is NOT engaged as a business in real estate investments,
and is not a real estate operating company;
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(c) The Company is NOT undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the investment are
either exercisable for, or convertible into, equity securities at a
pre-determined exercise price or conversion ratio, except for the reset
provisions of this Agreement;
(e) The Company is NOT offering as an investment or otherwise any uncovered
options, or any transaction in which securities are sold short in an uncovered
transaction or which would be in violation of section 16(c) of the Exchange Act,
provided, however, that nothing in this subsection (e) shall prevent the Pioneer
Partnership from acquiring options or warrants exercisable for, or other
securities convertible into, equity securities or assets at a pre-determined
exercise price or conversion ratio;
(f) The Company and its subsidiaries are NOT domiciled in any country that
is, at the time of the closing of the investment and will ensure that, at the
time of the conversion or partial conversion of any of the securities, a
participant in an international boycott illegal under United States law or
opposed by the United States government;
(g) The Company is NOT an investment company registered or required to be
registered under the Investment Company Act of 1940, as amended;
(h) The Company conducts NO operations in Northern Ireland and will ensure
that at the time of the conversion or partial conversion of any of the shares of
Preferred Stock that it conducts NO operations in Northern Ireland unless the
Company complies with the McBride principles to the satisfaction of the Pioneer
Partnership. The McBride principles consist of, but are not limited to, the
following:
1) increasing the representation of individuals from under-represented
religious groups in the workforce, including managerial, supervisory,
administrative, clerical and technical jobs;
2) providing adequate security for the protection of minority employees
at the workplace and while traveling to and from work;
3) banning provocative religious or political emblems from the workplace;
4) publicly advertising all job openings and making special recruitment
efforts to attract applicants from under-represented religious groups;
5) layoff, recall and termination procedures which do not in practice
favor particular religious groupings;
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6) abolishing job reservations, apprenticeship restrictions and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin;
7) developing training programs that will prepare substantial numbers of
current minority employees for skilled jobs, including the expansion
of existing programs and the creation of new programs to train,
upgrade and improve the skills of minority employees;
8) establishing procedures to assess, identify and actively recruit
minority employees with potential for further advancement; and
9) appointing a senior management staff member to oversee the company's
affirmative action efforts and the setting up of timetables to carry
out affirmative action principles.
For purposes of this section 4.25, a corporation will be considered to be
"conducting operations in Northern Ireland" if it has facilities and employees
in Northern Ireland, either directly or through one or more subsidiaries;
(i) The Company is NOT and shall NOT be engaged in any form of business in
Iran which could be considered contrary to the foreign policy or national
interests of the United States; and
(j) The Company, if it is an entity organized outside of the United States,
covenants that it shall obtain, on or before closing, a written opinion of
counsel, which counsel and opinion letter shall be addressed to and be
acceptable to the Pioneer Partnership (in addition to that opinion required by
section 7.6 or incorporated within such opinion), to the effect that as a result
of the investment in the Company by the Pioneer Partnership neither the limited
partners, the general partner nor the Pioneer Partnership will be liable, either
directly or indirectly, for any claim, obligation, or liability of the Company.
4.26 Use of Proceeds.
The Company represents it shall use and apply the proceeds from the Closing
only for such purposes as set forth in section 1.12 hereof.
4.27 Industry Specific Regulations.
The Company and the Subsidiaries and their operations do not violate any
state or federal laws or regulations with respect to the U.S. Environmental
Protection Agency, OSHA, or the FCC, and or their state corollary agencies, or
any other laws or regulations to which the Company or its Subsidiaries are
subject. No notices of deficiency or notices of any kind which may inhibit the
operations of the Company or its Subsidiaries has been received from any
governmental agency
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including but not limited to the U.S. Environmental Protection Agency, OSHA, or
the U.S. Food and Drug Administration, or their state corollary agencies, or any
other governmental agency or authority.
4.28 Wages and Salary.
Appended hereto as Exhibit 4.28 is a listing of wages, salaries and fees of
all officers, directors and Principal Shareholders and all other parties whose
compensation from the Company and/or any Subsidiary exceeds $50,000 per year.
Other than as set forth in Exhibit 4.28 hereto, at no time since the date of the
fiscal year end of the Audited Financial Statements has the Company or its
officers or directors authorized or implemented any material increases in
compensation for salaries, wages or fees in excess of whichever is most recent.
Material increases for purposes of this section shall mean a ten (10%) percent
or greater increase.
4.29 Compliance with ERISA and other Benefit Plans.
Neither the Company nor any of its Subsidiaries has any employee benefit or
pension plans or arrangements that are covered by ERISA or is subject to the
minimum funding standards under section 412 of the Internal Revenue Code of
1986, as amended. The Company's existing benefit plans (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans), relating to the employees of the Company
are duly registered where required by, and are in good standing in all material
respects under, all applicable laws; all required employer and employee
contributions and premiums under such benefit plans to the date hereof have been
made; the respective fund or funds established under such benefit plans are
funded in accordance with applicable laws; and no past service funding
liabilities exist thereunder.
4.30 Environmental Matters.
The costs and liabilities associated with Environmental Laws (including the
cost of compliance therewith) will not have a Material Adverse Effect on the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary. Each of the Company
and the Subsidiaries conducts its businesses in compliance in all material
respects with all applicable Environmental Laws currently in effect.
4.31 Confidentiality Agreements.
Except as set forth in Exhibit 4.31, all employees of the Company and its
Subsidiaries have executed and delivered to the Company a non-compete and
confidentiality agreement (the "Confidentiality Agreement") in the form
previously provided to the Pioneer Partnership and have assigned to the Company
all rights, title and interest in and to any inventions, copyrights, patents,
trademarks and similar intellectual property relating in any way to business of
the Company and its Subsidiaries. The Confidentiality Agreements constitute the
legal, valid and binding obligations of
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the respective employees who have executed and delivered them and are
enforceable by the Company in accordance with their terms. Neither the Company
nor any Subsidiary has taken any action to waive any rights of the Company under
any Confidentiality Agreement or to publish any confidential information of the
Company in any way so as to render any Confidentiality Agreement unenforceable.
The Company covenants to obtain the signatures of the remaining employees named
in Exhibit 4.31 as soon as practicable, but in no event more than thirty (30)
days, following the Closing Date.
4.32 Officer and Director Questionnaires.
To the best knowledge of the Company, after due inquiry, the officer and
directors questionnaires delivered to the Pioneer Partnership in connection with
the transactions contemplated by this Agreement are true, accurate and complete
and contain no material misstatements of fact, nor do they fail to state any
fact required to make the facts stated therein not misleading.
4.33 Complete Disclosure.
No representation, warranty or statement, written or oral, made by the
Company in this Agreement or in any schedule, exhibit, certificate or other
document furnished or to be furnished to the Pioneer Partnership, pursuant
hereto or otherwise, in connection with the transactions contemplated hereby,
has contained, contains or will contain at the Closing Date any untrue statement
of a material fact or has omitted, omits or will omit at the Closing Date a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PIONEER PARTNERSHIP
The Pioneer Partnership represents and warrants as follows:
5.1 Organization.
The Pioneer Partnership is a limited partnership duly organized and validly
existing under the laws of the State of Connecticut.
5.2 No Breach.
The execution and delivery of this Agreement by the Pioneer Partnership and
the consummation of the transactions contemplated hereby will not violate any
judgment, order, injunction, decree, or award against, or binding upon, the
Pioneer Partnership or upon its properties or assets.
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5.3 Authority for and Binding Nature of Agreement.
This Agreement and the documents delivered pursuant hereto have been duly
executed and delivered by the Pioneer Partnership and are valid and binding upon
it in accordance with their respective terms.
5.4 Brokers.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on directly with the Company by the
Pioneer Partnership without the intervention of any broker, finder, investment
banker (except Ventures Management Partners LLC or Pioneer Ventures Corp.), or
other third party. The Pioneer Partnership has not engaged, consented to, or
authorized any broker, finder, investment banker (except Pioneer Ventures
Corp.), or other third party to act on its behalf, directly or indirectly, as a
broker or finder in connection with the transactions contemplated by this
Agreement.
5.5 Securities Laws Matters.
(a) The Pioneer Partnership recognizes and understands that the Preferred
Stock and the Common Stock into which the Preferred Stock is convertible
(collectively, the "Securities") will not on the Closing Date be registered
under the Securities Act, or under the securities laws of any state (the
"Securities Laws").
(b) The Pioneer Partnership represents and warrants that (i) Pioneer
Partnership has business knowledge and experience, such experience being based
on actual participation therein, (ii) Pioneer Partnership is capable of
evaluating the merits and risks of an investment in the Securities and the
suitability of an investment therein, (iii) the securities to be acquired by the
Pioneer Partnership in connection with this Agreement will be acquired solely
for investment and not with a view toward resale or redistribution in violation
of the securities laws, and (iv) Pioneer Partnership is an "accredited investor"
within the meaning of Regulation D promulgated by the Commission pursuant to the
Securities Act.
(c) The Pioneer Partnership has consulted with Pioneer Partnership's own
counsel in regard to the Securities Laws and is aware (i) of the circumstances
under which the Pioneer Partnership is required to hold the Securities, (ii) of
the limitations on the transfer or disposition of the Securities, (iii) that the
Securities must be held indefinitely unless the transfer thereof is registered
under the Securities Laws or an exemption from registration is available, and
(iv) that no exemption from registration is likely to become available for at
least one year from the date of acquisition of the Securities. The Pioneer
Partnership has been advised by Pioneer Partnership's counsel as to the
provisions of Rules 144 and 145 as promulgated by the Commission under the
Securities Act and has been advised of the applicable limitations thereof. The
Pioneer Partnership acknowledges that the Company is relying upon the truth and
accuracy of the representations and warranties in this
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section 5.5 by the Pioneer Partnership in consummating the transactions
contemplated by this Agreement without registering the Securities under the
Securities Laws.
(d) The Pioneer Partnership and the Company agree that the certificates
representing the securities to be acquired pursuant to this Agreement will be
imprinted with the following legend, the terms of which are specifically agreed
to:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND ARE
"RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
The Pioneer Partnership understands and agrees that appropriate stop transfer
notations will be placed in the records of the Company and with its transfer
agent in respect of the Securities which are to be issued to the Pioneer
Partnership.
5.6 Additional Matters.
The Pioneer Partnership agrees that neither the Pioneer Partnership nor its
general partner shall sell any shares of the Common Stock or otherwise engage in
short-selling efforts during the 90 days prior to the Closing Date or the twenty
(20) trading days immediately preceding the Reset Date.
ARTICLE VI. COVENANTS
The Company hereby warranties and covenants that:
6.1 Financial.
Since the date of its Audited Financial Statements, except as contemplated
or disclosed in Exhibit 6.1 hereto or elsewhere in this Agreement, the Company
has not (i) paid or declared any
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dividends on, or made any distributions in respect of, or issued, purchased or
redeemed, any of the outstanding shares of its capital stock, or (ii) made or
authorized any changes in its Certificate of Incorporation or in any amendment
thereto or in its bylaws, or (iii) made any commitments or disbursements or
incurred any obligations or liabilities of a substantial nature and which are
not in the usual and ordinary course of business, or (iv) other than as set
forth in Exhibit 4.7-B mortgaged or pledged or subjected to any lien, charge or
other encumbrance any of its assets, tangible or intangible, or (v) sold,
leased, or transferred or contracted to sell, lease or transfer any assets,
tangible or intangible or entered into any other transactions, except in the
usual and ordinary course of business, or (vi) made any loan or advance to any
stockholder, officer or director of the Company or to any other person, firm, or
corporation, or (vii) other than disclosed in Exhibit 4.28, made any material
change in any existing employment agreement or materially increased the
compensation payable or made any arrangement for the payment of any bonus to any
officer, director, employee or agent.
6.2 Access.
For so long as either the Pioneer Partnership and/or its partners own five
(5%) percent or more of the Company's Common Stock directly or through the
possible conversion of its Preferred Stock on a fully diluted basis, the Company
shall afford, at its sole cost and expense, to the officers, attorneys,
accountants and other authorized representatives of the Pioneer Partnership
and/or its assigns free and full access, during regular business hours and upon
reasonable notice, to the books, records, personnel, accountants, attorneys, and
properties of the Company so that the Pioneer Partnership may have full
opportunity to make such review, examination and investigation as it may desire
of its respective business and affairs. The Company will cause its employees,
accountants, and attorneys to cooperate fully with said review, examination and
investigation and to make full disclosure to the Pioneer Partnership of all
material facts affecting its financial condition and business operation. Nothing
herein shall limit the rights of the Pioneer Partnership and/or its assigns
which are available under or granted by applicable statutes with respect to
access, review, examination and investigations. Interference with said rights or
delay in accommodating such rights by the Company shall be an Event of Default
of the terms of the Preferred Stock.
6.3 Books of Record and Account.
The Company shall maintain at all times proper books of record and account
in accordance with GAAP. For so long as either the Pioneer Partnership or its
partners own five (5%) percent or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock on a fully diluted basis,
the Company will provide the Pioneer Partnership, within 45 days of the end of
each fiscal quarter, copies of quarterly unaudited financial statements, within
90 days of the end of each fiscal year, copies of annual audited financial
statements consisting of balance sheets, statements of operations, statements of
cash flows, statements of changes in stockholders' equity, notes, and the
accountants' or auditors' opinions thereto, all prepared in accordance with GAAP
and copies of any periodic reports or other filings required to be filed with
the Commission under the Securities Act and the Exchange Act. The annual
financial statements shall be audited by an accounting firm acceptable to the
Pioneer Partnership. Interference with said rights or delay in
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accommodating such rights by the Company, or in providing such reports, shall be
an Event of Default of the terms of the Preferred Stock.
6.4 Membership on Board.
The Company's By-laws provide for a three (3) person Board of Directors
subject to increase pursuant to the By-Laws. Promptly upon the Closing Date and
for so long as the Pioneer Partnership or its partners own any shares of the
Company's Preferred Stock or Common Stock directly or through the possible
conversion of Preferred Stock all on a fully diluted basis, the Company's
Principal Shareholders shall cause one (1) designee from the Pioneer Partnership
to be nominated and elected to serve as a director of the Company. Except as
provided for in section 1.10(b) in connection with an Event of Default or
elsewhere in this Agreement, additional membership on the Board shall require
majority approval of the remaining members of the Board of Directors or election
at a meeting of shareholders. Both a Compensation Committee and an Audit
Committee of the Board of Directors shall have been established prior to the
Closing Date. The Compensation Committee shall consist of a maximum of three
directors, including a designee of the Pioneer Partnership. The Audit Committee
shall consist of a maximum of three directors, including a designee of the
Pioneer Partnership. The Compensation Committee shall be maintained to consider
and recommend to the Board of Directors matters concerning the compensation of
executives, awards of stock options, and other incentive compensation.
6.5 Stock Option Plan.
The Company may retain its current stock option, bonus or stock incentive
plan(s), or cancel such plan(s) and adopt a new stock incentive plan in order to
have the ability to provide incentives to its key employees, future employees
and others. The aggregate stock incentive pool shall consist of that number of
shares of the Common Stock of the Company as is approved by the Compensation
Committee. Except as set forth in Exhibit 6.5 annexed hereto, no person
beneficially owning more than ten percent (10%) of the Company's fully diluted
capital stock shall be eligible to participate in such plan.
6.6 Rule 144 Transfers.
(a) Rule 144 Compliance. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the shares to the public without registration, at all times after ninety
(90) days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
or at all times after the Company has a class of Securities registered under the
Exchange Act, the Company agrees to use its best efforts to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144 under the Securities Act; (ii) use its best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; (iii) furnish to each
holder of Registrable Securities forthwith upon request, a written statement by
the Company as to the Company's compliance with
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the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration; and (iv) use the Company's best efforts to satisfy the
requirements of all such rules and regulations (including the requirements for
current public information, registration under the Exchange Act and timely
reporting to the Commission) at the earliest possible date after its first
registered public offering.
(b) Supplemental Information. If at any time the Company is not subject to
the requirements of section 13 or 15(d) of the Exchange Act, the Company will
promptly furnish at its expense, upon request, for the benefit of the Pioneer
Partnership or its partners, and prospective purchasers of the Preferred Stock
or the Common Stock issuable upon conversion of the Preferred Stock, information
satisfying the information requirements of Rule 144 under the Securities Act.
(c) Acceptable Counsel. The Company acknowledges and agrees that counsel to
the Pioneer Partnership, including, but not limited to Kenneth B. Lerman,
Esquire, and Harrington, Ocko & Monk, LLP, shall be acceptable counsel to the
Company for purposes of issuing an opinion of counsel with respect to transfers
of securities to its affiliates, or with respect to transfers of securities
under Rule 144 or such successor regulation.
6.7 Undertaking to Register its Securities pursuant to the Exchange Act.
In the event the Company shall not have its Common Stock registered under
section 12 of the Exchange Act, the Company undertakes to use its best efforts
to register the Common Stock under the Exchange Act no later than the date that
is six (6) months from the Closing Date. The Company shall (i) advise the
Pioneer Partnership promptly after obtaining knowledge thereof, and, if
requested by the Pioneer Partnership, confirm such advice in writing, of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Preferred Stock or the
Common Stock for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, or (ii) use its best efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption from
qualification of the Preferred Stock or the Common Stock under any state
securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Preferred Stock under any
such laws, use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
6.8 Undertaking to File Exchange Act Filings and to be Listed on NASDAQ.
Provided the Company has securities which are publicly traded, or has one
or more classes of securities registered under the Exchange Act or subject to an
undertaking to file periodic reports with the Commission: (a) The Company
undertakes to continue filing its proxy statement, its annual
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reports on Form 10-K and its quarterly reports on Form 10-Q, or on such other
appropriate forms, with the Commission for so long as the Pioneer Partnership or
its partners hold any Preferred Stock or Common Stock received upon the
conversion of Preferred Stock; (b) Once the Company qualifies, the Company
undertakes to use its best efforts to obtain and maintain a listing on the
Nasdaq SmallCap Stock Market, the NASDAQ National Market System, or such other
national stock exchange upon which the Common Stock shall be qualified for so
long as the Pioneer Partnership holds any Preferred Stock, or Common Stock
obtained through conversion of the Preferred Stock. The Company shall take all
reasonable action to maintain such listing after it is so approved and listed. A
delisting from the NASD OTC Bulletin Board, the Nasdaq SmallCap Stock Market,
the NASDAQ National Market System, or such other national stock exchange upon
which the Common Stock is listed, and without the simultaneous listing on
another national stock exchange, shall be an Event of Default of the terms of
the Preferred Stock; and (c) The Company agrees that any and all future filings
(e.g. Schedule 13D or 13G) required to be made by the Pioneer Partnership or its
nominees as directors shall be prepared by and filed by the Company on such
parties behalf with such parties' consent and cooperation; the expense of such
filings including the legal fees incurred therewith shall be borne by the
Company.
6.9 Dividend Restriction Waiver.
The Company (and its Subsidiaries if applicable) shall obtain prior to the
Closing a signed original waiver and estoppel certificate (addressed to each of
them and to the Pioneer Partnership) from each of its lenders, certifying and
agreeing either that the issuance and delivery of the Preferred Stock, the
declaration and payment of dividends on the Preferred Stock, the conversion of
Preferred Stock into shares of Common Stock, the issuance and delivery of the
Common Stock and the full compliance of the Company with the terms of this
Agreement and the Certificate of Designation of the Preferred Stock shall not
constitute an event of default or require or enable the lender to accelerate any
indebtedness of the Company.
6.10 Rights if Trading in Common Stock is Suspended.
In the event that at any time within the period commencing when the first
Registration Statement is declared effective under the Securities Act by the
Commission and ending three years after the Closing Date, trading in the shares
of the Common Stock is suspended on the NASD OTC Bulletin Board, the Nasdaq
Small Cap Stock Market, the Nasdaq National Market or such other stock exchange
upon which the Common Stock shall then be listed for trading (other than as a
result of the suspension of trading in securities on such market generally or
temporary suspensions pending the release of material information), then, at the
Pioneer Partnership's option exercisable by written notice to the Company, the
Company shall redeem, as applicable, all of the Preferred Stock and converted
Common Stock owned by the Pioneer Partnership at an aggregate purchase price
equal to the Redemption Price set forth in the Certificate of Designation for
the Preferred Stock, plus interest at the rate of 13% per annum on such amount
accruing from the 7th day after such notice until the Redemption Price is paid
in full.
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6.11 Public Dissemination of Information; Filings & Names.
Prior to the inclusion of any name associated with the Pioneer Partnership
in any notice, filing, press release, other public communication or
communication with any governmental entity, a draft shall be submitted to the
Pioneer Partnership for prior written approval and such draft shall have all
incidences of such affiliated names highlighted and clearly marked. The
associated names are: Pioneer Ventures Associates Limited Partnership, Pioneer
Ventures 1st Parallel Limited Partnership, any other Pioneer Ventures
partnership, which may hereafter be formed and becomes a record holder of the
Company's securities, Ventures Management Partners LLC, Pioneer Ventures Corp.,
Robert A. Lerman, John F. Ferraro, and James M. Coady. Additional names
affiliated with the Pioneer Partnership are: Allied Capital Management, LLC and
Geoffrey Rowntree, and any Pioneer Partnership nominee to the Company's Board of
Directors.
6.12 Lock-Up.
The Principal Shareholders shall agree to restrict all sales of their
securities of the Company for a period of not less than one (1) year from the
date of the Closing. However, the Pioneer Partnership, in its sole discretion,
may waive such restriction for a particular transfer upon request, prior to such
transaction.
6.13 Notice of Material Adverse Events.
The Company undertakes to notify the Pioneer Partnership within twenty (20)
days of the occurrence of a material adverse event which has not been cured
within said 20 days. A material adverse event shall include but not be limited
to: litigation or other legal proceeding involving $10,000 or greater in claims
or subject matter, bankruptcy, receivership, insolvency, a change in
circumstances that, if the representations in Article IV hereof were required to
be made on such future date, such representation could no longer truthfully or
accurately be made.
6.14 Tax Return.
The Company shall, on or prior to December 31, 1999, file any tax returns
required to be filed for the current and prior periods.
6.15 No Breach.
The Company will (i) use its best efforts to assure that all of its
representations and warranties contained herein are true in all material
respects as of the Closing Date as if repeated at and as of such time, and that
no material breach or default shall occur with respect to any of its covenants,
representations or warranties contained herein that has not been cured by the
Closing Date; (ii) not voluntarily take any action or do anything which will
cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify the Pioneer Partnership of any event or
fact which represents, or is likely to cause, such a breach or default.
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6.16 Assumption of Debt.
On or prior to the Closing Date, the Company shall have entered into an
agreement with Initio, Inc. ("Initio") pursuant to which the Company shall have
agreed to assume the obligation to pay $2,000,000 of the principal amount (and
associated interest) of Initio's Debenture dated as of February 25, 1998 to the
Pioneer Partnership, and have agreed to be bound by the terms and conditions of
the Debenture Commitment Agreement.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE PIONEER PARTNERSHIP TO CLOSE
Conditions Precedent to the Obligations of the Pioneer Partnership to
Close. The obligation of the Pioneer Partnership to enter into and complete the
Closing is subject to the fulfillment, prior to or on the Closing Date, of each
of the following conditions, any one or more of which may be waived by the
Pioneer Partnership (except when the fulfillment of such condition is a
requirement of law), as well as the satisfactory completion (in the sole opinion
of the Pioneer Partnership) of (i) an audit or review of the books, records and
accounts of the Company, and (ii) legal and other due diligence.
7.1 Representations and Warranties.
All representations and warranties of the Company contained in this
Agreement and in any written statement, exhibit, certificate, schedule or other
document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.
7.2 Covenants.
The Company shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed or
complied with by it prior to or at the Closing.
7.3 No Actions.
No action, suit, proceeding or investigation shall have been instituted,
and be continuing before a court or before or by a governmental body or agency,
or shall have been threatened and be unresolved, to restrain or to prevent or to
obtain damages in respect of, the carrying out of the transactions contemplated
hereby, or which might materially affect the right of the Pioneer Partnership to
own the Company's stock or to operate or control the assets, properties and
business of the Company after the Closing Date, or which might have a materially
adverse effect thereon.
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7.4 Consents, Licenses and Permits.
The Company shall have obtained all consents, licenses and permits of third
parties necessary for the performance of its obligations under this Agreement,
and such other consents, if any, to prevent (i) agreements of the Company from
terminating, the termination of which, in the aggregate, would have a material
adverse effect on the business, financial condition or assets of the Company, or
(ii) any material indebtedness of the Company from becoming due or being subject
to becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provision of this Agreement to the
contrary notwithstanding.
7.5 Certificate.
The Pioneer Partnership shall have received a certificate in form
satisfactory to its counsel, dated at the Closing Date, signed by an authorized
representative of the Company, confirming the substance and effect of the
representations and warranties set forth in Article IV hereto, and as to the
satisfaction of the conditions contained in Article VII.
7.6 Legal Opinion.
(a) The Pioneer Partnership shall have received a written opinion of the
Company's Counsel, dated the Closing Date, in form and substance satisfactory to
the Pioneer Partnership and its counsel, confirming the substance and effect of
certain of the representations and warranties set forth in Articles II and IV
hereto, that the Acquisition Agreements, any agreements associated with the
assumption of the Initio debt under section 7.14 hereof, and this Agreement are
the valid and binding obligation of the Company, enforceable in accordance with
its terms, and as to such other matters as the Pioneer Partnership may request.
Such opinion shall be substantially in the form of Exhibit 7.6 hereto.
(b) The Pioneer Partnership shall have received a written opinion of
counsel to the Principal Shareholders, dated the Closing Date, in form and
substance satisfactory to the Pioneer Partnership and its counsel, confirming
the substance and effect of the representations and warranties set forth in the
Voting and Shareholders' Agreement, and any modification, supplements or
subsequent agreements thereto confirming that such agreement is the valid and
binding obligation of the Principal Shareholders, enforceable in accordance with
its terms, and as to such other matters as the Pioneer Partnership may request.
7.7 No Material Adverse Change.
There shall have been no materially adverse change at the Closing Date in
the business, assets, properties, financial status or prospects of the Company
from March 31, 1999, except as disclosed in Exhibit 7.7 hereof.
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7.8 Agreements with Principals.
The Company shall have received and presented to the Pioneer Partnership
agreements, in the form contained in Exhibit 7.8, from all officers, directors
and the Principal Shareholders of the Company containing the substantive
provisions of this Agreement with respect to registration rights, co-sale
rights, voting agreement as to Board membership, lock-up, restricted stock,
restricted transfer provisions as well as customary and satisfactory
non-competition and confidentiality agreements between the Company and its
officers and key employees. Reference is hereby made to the Voting and
Shareholders' Agreement between the Pioneer Partnership and the Principal
Shareholders named therein. Exhibit 7.8 shall provide that any amendment,
renewal or extension to said agreements shall require the written consent of the
Pioneer Partnership. Further, any shares which are acquired as a result of such
agreements or are subject to a proxy or voting agreement shall otherwise be
subject to the substantive provisions of this Agreement with respect to
anti-dilution rights, voting agreement as to Board membership, restricted stock,
registration rights and co-sale provisions.
7.9 Key Person Insurance.
The Company shall have applied for Key-Person term life insurance, from a
licensed and reputable insurance company in the minimum face amount of at least
$1,000,000 each, insuring the lives of the President and CEO, COO, Executive
Vice President and/or chairman for a minimum of three (3) years. The Company
shall be the designated beneficiary. Renewal of the policies after the first
three years shall be at the discretion of the Company's Board of Directors.
7.10 Intellectual Property.
All of the officers, directors, principals and the affiliates of the
Company shall have assigned and transferred all of the Intellectual Property to
the Company.
7.11 Approval of Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement, or incidental thereto, and all other related legal matters shall
have been approved as to form and substance by the Pioneer Partnership's
counsel, which approval shall not be unreasonably withheld or delayed.
7.12 No Suspensions of Trading in Common Stock.
The trading in the Common Stock shall not have been suspended by the
Commission or by the National Association of Securities Dealers, Inc. or any
federal or state regulatory authority having jurisdiction over the Common Stock.
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7.13 Change of Control.
No Change of Control shall have occurred prior to or on the Closing Date.
"Change of Control" means the occurrence of any of the following: (i) an
acquisition after the date hereof by an individual or legal entity of in excess
of 50% of the voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's Board of Directors which is not
approved by those individuals who are members of the board of directors on the
date hereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
7.14 Acquisition Agreements; Assumption of Debt.
The Company shall have, on or prior to May 21, 1999 entered into each of
the Acquisition Agreements and any and all agreements necessary to evidence the
Company's assumption of Initio's debt to the Pioneer Partnership as set forth in
section 6.16, above, and the sole condition to the closing of the Acquisition
Agreements and any agreements associated with the assumption of the Initio debt
shall be the payment of the purchase price under the Acquisition Agreements
through the application of the proceeds of the sale of the Preferred Stock under
and in conformance with the terms of this Agreement.
7.15 Additional Documents.
The Company shall have delivered all such other certificates and documents
as the Pioneer Partnership or their counsel may have reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE
Conditions Precedent to the Obligations of the Company to Close. The
obligation of the Company to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 Representations and Warranties.
All representations and warranties of the Pioneer Partnership contained in
this Agreement and in any written statement, exhibit, certificate, schedule or
other document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.
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8.2 Covenants.
The Pioneer Partnership shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing.
8.3 No Actions.
No action, suit, proceeding, or investigation shall have been instituted,
and be continuing before a court or before a governmental body or agency, or
have been threatened and be unresolved, to restrain or prevent, or obtain
damages in respect of, the carrying out of the transactions contemplated hereby.
8.4 Additional Documents.
The Pioneer Partnership shall have delivered all such other certificates
and documents as the Company or its counsel may have reasonably requested.
8.5 Approval of Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement or incidental thereto, and all other related legal matters, shall
have been approved as to form and substance by the Company's counsel, which
approval shall not be unreasonably withheld or delayed.
ARTICLE IX. CLOSING
9.1 Location.
The Closing provided for herein (the "Closing") shall occur at the offices
of the attorneys for the Pioneer Partnership, or at such place and upon such
date as the Company and the Pioneer Partnership may mutually agree.
9.2 Items to be Delivered by the Company.
At the Closing, the Company will deliver or cause to be delivered to the
Pioneer Partnership:
(a) duly executed Investment Agreement;
(b) duly executed Voting and Shareholders' Agreement;
(c) duly executed resolutions;
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(d) duly executed and recorded Certificate of Designation of the Preferred
Stock;
(e) validly issued original certificates representing the Preferred Stock
in accordance with Article I hereof.
(f) the certificate required by section 7.5 hereof;
(g) the opinions of the Company's counsel and counsel to the Principal
Shareholders, as required by section 7.6 hereof;
(h) the agreements required by sections 7.8, 7.11 and 7.14 hereof;
(i) the insurance binder and paid receipt required by section 7.9 hereof;
(j) separate checks for $5,000 and $95,000 payable to Ventures Management
Partners LLC (the General Partner of the Pioneer Partnership) as
required by sections 11.1, 11.2, and 11.3 hereof;
(k) a check payable to Harrington, Ocko & Monk, LLP in the amount of
$30,000 plus out-of-pocket expenses as required by section 11.3
hereof;
(l) such other certified resolutions, exhibits, instruments, documents and
certificates as are required to be delivered by the Company pursuant
to the provisions of this Agreement and pursuant to the checklists
presented by the Pioneer Partnership or its counsel.
9.3 Items to be Delivered by the Pioneer Partnership.
At the Closing, the Pioneer Partnership will deliver or cause to be
delivered to the Company a check or checks in the aggregate amount of four
million two hundred thousand dollars ($4,200,000) dollars, as specified in
Article I hereof.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
10.1 Survival.
The parties hereto agree that their respective representations, warranties,
covenants and agreements contained in this Agreement shall survive the Closing
for a period of six (6) years.
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10.2 Indemnification.
The Company agrees to save, defend and indemnify the Pioneer Partnership
and its limited and general partners and their respective officers, directors,
managing members and the agents, as well as the attorneys, accountants, or other
representatives of such parties (jointly or severally "indemnified parties")
against, and hold them harmless from any and all liabilities, of every kind,
nature and description, fixed or contingent (including, without limitation,
reasonable counsel fees, expert witness fees, and expenses in connection with
any action, claim or proceeding relating to such liabilities) arising out of a
breach of any of the representations and warranties contained herein and/or any
transaction or event commencing or occurring on or prior to the Closing Date,
which is not fully disclosed or provided for in this Agreement or in the
exhibits hereto.
10.3 Defense of Claims.
The Pioneer Partnership agrees to notify the Company promptly of any claim
asserted against it in which the Company may be liable under this Agreement,
which notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of calculation thereof. The Company shall
have the right to defend any such claim(s) at its own expense and with counsel
of its choice; provided that the Pioneer Partnership may participate in such
defense, if it so chooses, with its own counsel and at its expense. The Company
agrees that if any of the representations and warranties made by it in this
Agreement shall be finally determined not to have been true, correct or complete
when made, then the Company shall pay to the Pioneer Partnership at the time of
such final determination an amount sufficient to indemnify the Pioneer
Partnership and the other indemnified parties hereto to the full extent of its
losses and expenses sustained by reason thereof, including attorneys,
accountants, expert witnesses, and other professional fees and expenses.
10.4 Rights without Prejudice.
The rights of the Pioneer Partnership under this Article are without
prejudice to any other rights or remedies that it may have by reason of this
Agreement or as otherwise provided by law.
ARTICLE XI. FEES
11.1 Investment Banking Fees.
At the Closing, the Company shall pay an investment banking fee of one
hundred and five thousand dollars ($105,000) to Ventures Management Partners
LLC, the General Partner of the Pioneer Partnership, concurrently with its
execution and delivery of this Agreement. Such General Partner hereby
acknowledges receipt from the Company of a check in the amount of $10,000 in
payment of the commitment fee (the "Commitment Fee") which shall be credited
against the Investment Banking fee set forth in this section 11.1. In the event
that this Agreement is terminated
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as described in Article XII, the Commitment Fee shall be forfeited by the
Company and retained by the General Partner of the Pioneer Partnership.
11.2 Expenses.
At the Closing, the Company shall pay and reimburse the General Partner of
the Pioneer Partnership a non-accountable expense allowance of $5,000 for its
out-of-pocket expenses incurred in connection with visits to the Company's
facilities and other costs and expenses in connection with its due diligence
investigation of the Company.
11.3 Legal Fees.
The Company shall pay at the Closing the attorneys fees plus out-of-pocket
expenses of counsel for the Pioneer Partnership in connection with the
transactions contemplated hereby; such attorneys fees shall equal Forty Thousand
($40,000) dollars, excluding out-of-pocket expenses which are to be billed at or
after the Closing in addition to the legal fees. It is acknowledged that $10,000
has been paid prior to the Closing. In addition, the Company shall pay its own
counsel's fees and all of the expenses of the Closing, including all search
fees, filing fees, governmental certification fees, third party investigation or
other due diligence fees for reports, filings or certifications requested by the
Pioneer Partnership to effect the Closing.
ARTICLE XII. TERMINATION AND WAIVER
12.1 Termination.
Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and the transactions provided for herein abandoned
at any time prior to the Closing Date:
(a) by mutual consent of the Pioneer Partnership and the Company;
(b) by the Pioneer Partnership if any of the conditions set forth in
Article VII and Sections 1.12 and 1.13 hereof, in its sole opinion, shall not
have been fulfilled on or prior to Closing, or shall become incapable of
fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to Closing, or shall have
become incapable of fulfillment, and shall not have been waived;
(d) by any party if any material legal action or proceeding shall have been
instituted or threatened seeking to restrain, prohibit, invalidate or otherwise
affect the consummation of the transactions contemplated by this Agreement.
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In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
sections 11.1 and 11.3 hereof.
12.2 Waiver.
Any condition to the performance of the Company or of the Pioneer
Partnership which legally may be waived on or prior to the Closing Date may be
waived at any time by the party entitled to the benefit thereof by action taken
or authorized by an instrument in writing executed by the relevant party or
parties. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver by any party of the breach of any
term, covenant, representation or warranty contained in this Agreement as a
condition to such party's obligations hereunder shall release or affect any
liability resulting from such breach, and no waiver of any nature, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or of any
breach of any other term, covenant, representation or warranty of this
Agreement.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 Expenses.
Except as set forth in Article XI, each of the parties hereto shall bear
its own expenses in connection herewith.
13.2 Modification, Termination or Waiver.
This Agreement may be amended, modified, superseded or terminated, and any
of the terms, covenants, representations, warranties or conditions hereof may be
waived, but only by a written instrument executed by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same.
13.3 Notices.
Any notice or other communication required or which may be given hereunder
shall be in writing and either be delivered personally or be mailed, certified
or registered mail, postage prepaid, and shall be deemed given when so delivered
personally, or if mailed, five (5) days after the date of mailing, as follows:
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If to the Pioneer Partnership, to: Copies to:
Pioneer Ventures Associates Martin W. Enright, Esquire
Limited Partnership Harrington, Ocko & Monk, LLP
651 Day Hill Road 81 Main Street
P.O. Box 40 White Plains, New York 10601
Windsor, Connecticut 06095
Attn: John F. Ferraro
Director
If to the Company, to: Copies to:
America's Shopping Mall, Inc. Caro & Associates, P.C.
382 Route 59 #310 60 East 42nd St., Suite 2001
Monsey, New York 10952 New York, New York 10165
Attn: Irwin Schneidmill, President
and Chief Executive Officer
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 Binding Effect and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 Entire Agreement.
This Agreement, including the Exhibits hereto and the agreements entered
into in connection herewith, contains the entire Agreement between the parties
with respect to the subject matter hereof.
13.6 Calendar Days.
All references to "days" in this agreement with respect to the amount of
time allocated for notices, performance or other periods shall mean calendar
days, unless otherwise specified.
13.7 Exhibits.
All Exhibits annexed hereto and the documents and instruments referred to
herein or required to be delivered simultaneously herewith or at the Closing are
expressly made a part of this Agreement as fully as though completely set forth
herein, and all references to this Agreement herein or in any such Exhibits,
documents or instruments shall be deemed to refer to and include all such
Exhibits, documents and instruments. Any execution of this Agreement is subject
to the receipt of current and complete exhibits.
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13.8 Governing Law.
This Agreement shall be governed by, and construed in accordance with
the laws of the State of New York.
13.9 Consent to Jurisdiction.
The parties hereto consent to the jurisdiction of the Courts of the States
of Connecticut and New York and to the U.S. District Court in the Southern
District of New York and the District Court of Connecticut.
13.10 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but which together shall constitute one and the same
instrument.
13.11 Section Headings.
The section headings contained in this Agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
13.12 Gender.
Whenever the content of this Agreement permits, the masculine, neuter or
third person genders shall include the feminine, third person and neuter
genders, and reference to singular or plural shall be interchangeable with the
other.
13.13 Use of Term "Pioneer Partnership".
Notwithstanding any provision of this Agreement to the contrary, included
in the definition and meaning of the "Pioneer Partnership" shall be any one or
more parallel limited partnerships which have been or shall be organized by
Ventures Management Partners LLC as the general partner to invest in parallel
with Pioneer Ventures Associates Limited Partnership on the same economic terms
and pro rata based upon their aggregate subscriptions. The limited partners of
Pioneer Ventures Associates Limited Partnership and the parallel partnerships
shall be referred to herein as the "limited partners".
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Pioneer Ventures Associates Limited Partnership
By: Pioneer Ventures Corp.
Managing Member of the
Partnership's General Partner,
Ventures Management Partners LLC
By: /s/ John F. Ferraro
---------------------------
John F. Ferraro, Director
America's Shopping Mall, Inc.
By: /s/ Irwin Schneidmill
---------------------------
Irwin Schneidmill, President
and Chief Executive Officer
Attest:
By:
---------------------------
Secretary
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EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK OF
AMERICA'S SHOPPING MALL, INC.
Section 1. Designation, Amount and Par Value. The series of Preferred Stock
shall be designated as the Series A Senior Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 20,000. The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $420.00 per share (the "Stated
Value"). All terms defined in the Investment Agreement, dated May 21, 1999,
between the Company and the Purchaser therein (the "Investment Agreement") and
not otherwise defined herein shall have for purposes hereof the meanings
provided for therein.
Section 2. Dividends.
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum (or 13% per annum in the case of
dividends paid in shares of Preferred Stock under Section 2(c) hereof) (subject
to reset as provided below in this Section 2(a) and to increase pursuant to
Section 2(e) hereof), in cash or (as provided for herein) shares of Preferred
Stock, payable quarterly in arrears on the last day of each March, June,
September and December during the term of the Preferred Stock (each such date, a
"Dividend Payment Date"). Any arrears in payment of dividends with respect to
any share of Preferred Stock shall be payable on the Conversion Date (as defined
in Section 5(b)) applicable to such share or earlier if so determined by the
Company at the default rates set forth in Section 2(e) hereof. Dividends on
shares of the Preferred Stock shall accrue daily commencing on the Issue Date of
such shares, shall be calculated based on the actual number of days in such
quarterly period in a 360-day year and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend Payment Date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable Dividend Payment Date. A
transfer of the right to receive payments hereunder shall be transferable only
through an appropriate entry in the register (the "Register") to be maintained
by the Company through the Transfer Agent, in which shall be entered the names
and addresses of the registered holder of shares of Preferred Stock and all
transfers of such shares. References to the Holder or Holders shall mean the
Person listed in the Register as the registered holder of such shares. The
ownership of such shares shall be proved by the Register, absent manifest error.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued on account of the Preferred Stock,
such payment shall be distributed ratably among the holders of Preferred Stock
based upon the number of shares held by each Holder. Dividends due hereunder on
a Dividend Payment Date may, if so determined by a majority of the Company's
entire Board of Directors, be paid in shares of Preferred Stock calculated based
upon the Stated Value per share. Other than payment of dividends in shares of
Preferred Stock all other amounts due hereunder
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at any time shall be paid in immediately available funds. The Conversion Price
shall be subject to reset as follows. In the event that the average closing bid
price per share of the Company's Common Stock on the NASD OTC Bulletin Board,
the Nasdaq SmallCap Market, the Nasdaq National Market or such other trading
market or exchange on which the Common Stock shall then be traded for the twenty
(20) trading days immediately preceding the ninetieth (90th) day following the
date that the Company's Common Stock is eligible for public trading is below
Three Dollars and Fifty Cents ($3.50) (the "Reset Average Price"), the
Conversion Price shall be reset to a price per share of Common Stock equal to
seventy-five percent (75%) of the Reset Average Price. Once reset in accordance
with the provisions of this Section 2(a), the Conversion Price shall remain at
the reset Conversion Price, subject to adjustment in accordance with Section
5(d) below.
b. Notwithstanding anything to the contrary contained herein, the Company
may not, without the prior written consent of each Holder, in each instance,
issue shares of Preferred Stock in payment of dividends (and must deliver
immediately available funds in respect thereof) on the Preferred Stock if:
(i) the number of shares of Preferred Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in
shares of Preferred Stock; or
(ii) if ten Business Days shall have elapsed from the date an Event of
Default (as defined in Section 7) shall have been declared
hereunder as having occurred and the Company shall not have cured
such Event of Default.
c. If the Company elects to issue shares of Preferred Stock in satisfaction
of the Company's obligation to pay dividends on any previously outstanding
shares of Preferred Stock such dividends shall be paid at an annual rate of
thirteen percent (13%) per share (calculated as a percentage of the Stated Value
per share) and not the eight percent (8%) dividend rate applicable to cash
dividends.
d. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
e. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default and for so long as such Event of Default is
continuing, the dividend rate otherwise applicable specified in Section 2(a)
shall be increased to 13% per annum, paid in cash (or, in the case of shares of
Preferred Stock issued in satisfaction of dividends, 18%) or, if less, the
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maximum rate permitted by applicable law until such time as the applicable Event
of Default is cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations under the Investment Agreement, or
limit the Company's liability for damages to any holder occasioned by such Event
of Default.
Section 3. Voting Rights. In addition to any voting rights provided by law,
the holders of the Preferred Stock shall have voting rights entitling them to
one vote for each share of Common Stock into which shares of Preferred Stock
held by them are then convertible. The holders of Preferred Stock shall vote
with the holders of Common Stock as one class on all matters submitted to the
holders of Common Stock for a vote. However, so long as any shares of Preferred
Stock are outstanding, the Company shall not, without the affirmative vote of
the holders of a majority in interest of the shares of the Preferred Stock then
outstanding, (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the By-Laws of the Company so as to adversely affect the
relative rights, preferences, qualifications, limitations or restrictions of the
Preferred Stock, (ii) authorize or issue any additional equity securities of the
Company or of any subsidiaries other than those issuable (x) upon the
conversion, exchange or exercise of securities or rights outstanding on the
Closing Date and (y) pursuant to grants of options previously granted and
outstanding on the Closing Date under the Company's Stock Option plan; provided,
however, that such consent shall not be unreasonably withheld, (iii) approve any
merger, consolidation, compulsory share exchange or sale of assets to which the
Company is a party; provided, however that such consent shall not be
unreasonably withheld, (iv) repurchase or redeem any equity securities or pay
dividends or other distributions on any equity securities, except as provided
pursuant to the terms of the Preferred Stock, (v) liquidate, dissolve,
recapitalize or reorganize the Company, (vi) incur any indebtedness for borrowed
money, or guarantee indebtedness, of other persons, directly or indirectly
except with respect to any wholly owned subsidiaries, (vii) effect any
fundamental changes in the nature of the Company's business, including but not
limited to acquiring or investing in another business entity; provided, however
that such consent shall not be unreasonably withheld, or (viii) approve the sale
or transfer of any material intangible or intellectual property, other than the
issuance of licenses or sales of equipment in the ordinary course of business;
provided, however, that such approval shall not be unreasonably withheld.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the holders of
shares of Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of Preferred
Stock an amount equal to One Thousand Dollars ($1,000) per share of Preferred
Stock, plus an amount equal to accrued but unpaid dividends per share, whether
declared or not, before any distribution or payment shall be made to the holders
of any Junior Securities, and if the assets of the Company shall be insufficient
to pay such amounts in full, then the entire assets of the Company to be
distributed shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33 1/3% of the voting power of the Company is disposed
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of, or a consolidation or merger of the Company with or into any other company
or companies or a reclassification of the Common Stock shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 60 days
prior to the payment date stated therein, to each record holder of Preferred
Stock.
Section 5. Conversion.
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in
whole or in part at any time and from time to time after the Issue
Date of such share of Preferred Stock. The holder of the Preferred
Stock shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the holder
of Preferred Stock delivers such Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date
that the Holder Conversion Notice is deemed delivered pursuant to
Section 5(j). Each Holder Conversion Notice, once given, shall be
irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates
tendered by such holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(c)) a certificate for such
number of shares of Preferred Stock as have not been converted.
b. On the tenth anniversary of the Issue Date (the "Company Conversion
Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically
convertible into shares of Common Stock at the then applicable
Conversion Price; provided, however, that no shares of Preferred Stock
shall be converted (i) unless the Company shall have duly reserved for
issuance to the holder a sufficient number of shares of Common Stock
to issue upon such conversion; or (ii) if an Event of Default shall
have occurred hereunder and is continuing. In connection with such
conversion, the Company shall deliver to the holders of such shares of
Preferred Stock a written notice in the form attached hereto as
Exhibit B (the "Company Conversion Notice"). The Company Conversion
Notice shall specify the number of shares of Preferred Stock that will
be subject to automatic conversion on the Company Conversion Date. The
Company shall deliver or cause to be delivered the Company Conversion
Notice at least five (5) Trading Days before the Company Conversion
Date. The holders of the Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or
the Transfer
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Agent not later than five (5) Trading Days after the Company
Conversion Date. Each of a Holder Conversion Notice and a Company
Conversion Notice is sometimes referred to herein as a "Conversion
Notice," and each of a "Holder Conversion Date" and a "Company
Conversion Date" is sometimes referred to herein as a "Conversion
Date."
c. Not later than five (5) Trading Days after the Conversion Date, the
Company will, or will cause the Transfer Agent to deliver to the
holder of Preferred Stock (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock, including certificates
representing the number of shares of Common Stock as equals the
accrued but unpaid dividends thereon divided by the average Per Share
Market Value, and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted. If, at the time of
any conversion of Preferred Stock, there shall be an effective
Registration Statement applicable to the shares of Common Stock
available for such conversion, any certificates representing shares of
Common Stock to be delivered upon such conversion hereunder shall be
free of restrictive legends and trading restrictions on the stock
transfer books of the Company. The Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock and the counting of
Trading Days for purposes of any consequences under this Section for a
failure to deliver such certificates under this Section shall not
begin until certificates representing the shares of Preferred Stock to
be converted are either delivered for conversion to the Transfer Agent
for the Common Stock, or until the holder notifies the Company that
such certificates representing the shares of Preferred Stock have been
lost, stolen or destroyed and (if requested by the Company or the
Transfer Agent) provides a bond and other supporting documentation
reasonably satisfactory to the Company and the Transfer Agent (or
other adequate security reasonably acceptable to the Company and the
Transfer Agent) to indemnify the Company from any loss incurred by it
in connection therewith, provided that, if the Company or the Transfer
Agent receives the original certificates representing the shares of
Preferred Stock being converted on or prior to the time specified for
the delivery of such shares of Common Stock or on or prior to the time
at which liquidated damages begin to accrue, the date of the Holder
Conversion Notice shall be deemed to be the date of delivery of such
original certificates representing the shares of Preferred Stock. The
Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section 5(c) electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions. If such certificate or
certificates are not delivered by the date required under this Section
5(c), the holder shall be entitled by written notice to the Company
and the Transfer Agent at any time on or before its receipt of such
certificate or certificates, to rescind such conversion, in which
event the Company shall immediately instruct the Transfer Agent to
return the certificates representing
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the shares of Preferred Stock subject to such conversion that were
tendered for conversion.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of
shares, or (c) combine outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(i) shall become
effective immediately upon the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
ii. If the Company, at any time while any shares of Preferred Stock
are outstanding, shall issue shares of Common Stock or securities
convertible into Common Stock at a conversion price, or rights or
warrants exercisable for shares of Common Stock at an exercise
price, per share less than the Conversion Price at the record
date mentioned below (the "Adjustment Issue Date"), the
Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which
the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Conversion Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an
adjustment in the Conversion Price
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designated pursuant to this Section (5)(d)(ii), if any such right
or warrant shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to
the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
Notwithstanding anything in this Section 5(d)(ii), there shall be
no adjustment pursuant to this Section 5(d)(ii) for issuances of
Common Stock or securities convertible into Common Stock (i) for
any of the transactions with respect to which an adjustment is
provided for pursuant to any other section of this Certificate of
Designation, (ii) upon exercise or conversion of any other
options, warrants or securities outstanding on the date hereof,
(iii) upon the conversion of Preferred Stock issued pursuant to
the Investment Agreement or (iv) for issuances under the
Company's stock option plan duly approved by the Compensation
Committee of the Board of Directors.
iii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the Conversion Price, and of
which the numerator shall be such Conversion Price on such record
date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average
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of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the
holders of Preferred Stock of the portion of assets or evidences
of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
iv. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
v. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i), (ii), (iii) or (iv), the Company shall, or shall
instruct the Transfer Agent to, promptly mail to the holders of
Preferred Stock a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
vi. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as would be payable to the
holders of the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(d)(vi) upon any conversion
following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
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vii. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a subdivision
of the outstanding shares of Common Stock) or shall
authorize a repurchase or redemption or otherwise enter into
any other transaction (including a stock split,
recapitalization or other transaction) which would cause a
decrease in the number of its shares of Common Stock issued
and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock into which
shares of Preferred Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(4) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
repurchase, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, repurchase, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date
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as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
e. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of Preferred
Stock (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock) or if
at any time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing
the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the
holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price
(including, if necessary, any adjustment as to the securities into
which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without
diluting the rights of the holders of shares of Preferred Stock;
provided, however that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average
of the adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion
of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
f. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon
conversion of Preferred Stock, as herein provided, out of its
authorized and unissued Common Stock free from preemptive rights or
any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock
as would be issuable upon conversion of all of the shares of the
Preferred Stock that are authorized for issuance hereunder as if all
such shares were issued on, and such conversion had occurred on, the
Issue Date and (ii) covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock as
herein provided, free from preemptive rights or any other actual or
contingent purchase rights of persons other than the holders of
Preferred Stock, the number of shares of Common
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Stock as shall be issuable (taking into account the reset provisions
of Section 2(a) and the adjustments and restrictions of Section 5(d)
hereof) upon the conversion of the aggregate of all outstanding shares
of Preferred Stock that are authorized for issuance hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable and free of all preemptive rights, liens
and encumbrances.
g. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Conversion Price. If the
Company elects not to, or is unable to, make such a cash payment, the
holder of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
h. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Preferred Stock paid
as dividends, shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the
holder of such shares of Preferred Stock so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
i. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares
of preferred stock.
j. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Operating Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company and if applicable to the Transfer Agent. Any
and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the holder at the facsimile telephone number or address
of the holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on
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the earliest of (i) the date of transmission, if delivered via
facsimile at the facsimile telephone number specified in the
Investment Agreement prior to 4:30 p.m. (Eastern Time) on a Trading
Day, (ii) the Trading Day after the date of transmission, if delivered
via facsimile at the facsimile telephone number specified in the
Investment Agreement later than 4:30 p.m. (Eastern Time) on any date
and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. Redemption.
(a) The Company shall have the right, subject to each Holder's right to
convert all or any portion of its shares of Preferred Stock in accordance with
Section 5 hereof on or prior to the Redemption Date, to redeem any or all of the
shares of Preferred Stock on any Quarterly Dividend Payment Date (for purposes
of this Section 6 such date shall be the "Redemption Date"), provided written
demand as set forth below is given. The redemption price for each share of
Preferred Stock to be redeemed shall be paid by the Company in cash in an amount
equal to the stated value of such share, plus an amount sufficient such that the
holder thereof receives an annual rate of return equal to twenty-five percent
(25%), for the period from the original Issue Date of such share until the
Redemption Date, on a compounded basis (the "Redemption Price").
(b) Thirty (30) days prior to the Redemption Date, the Company shall
provide each holder of Preferred Stock with a written demand ("Redemption
Notice") (addressed to the holder at its address as it appears on the stock
transfer books of the Company) to redeem shares of Preferred Stock as provided
above, which notice shall specify the estimated Redemption Price and the number
of shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
(c) On or prior to the Redemption Date, each holder of Preferred Stock
shall surrender his or its certificate or certificates representing the shares
of Preferred Stock to be redeemed, in the manner and at the place designated in
the Redemption Notice and if the Holder elects to convert any or all of the
shares of Preferred Stock, a Holder Conversion Notice in conformance with
Section 5 hereof. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price and interest at the rate of
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.
Section 7. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
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"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company hereafter designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but unpaid dividends thereon through and including
the applicable Conversion Date.
"Conversion Price" means Three Dollars and Fifty Cents ($3.50) per share of
Common Stock, subject to reset or adjustment according to the provisions of the
Investment Agreement and this Certificate of Designation.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
a. any default by the Company to pay when due and payable dividends on any
shares of Preferred Stock, either on a Dividend Payment Date or Conversion Date,
or any other amounts hereunder, by acceleration or otherwise, or, within five
(5) Business Days following the delivery of notice to the Company, any fees or
any other amounts payable (and not otherwise referred to in this clause (a)) by
the Company under the Investment Agreement;
b. the Company shall fail to timely observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Certificate of Designation or the Investment Agreement and such failure or
breach shall not have been remedied within five (5) Business Days after the date
on which such failure or breach shall have occurred or such other cure period as
may specifically be provided herein or in such other agreements with respect to
any particular covenant, agreement or warranty;
c. the Company or any of its subsidiaries shall commence a voluntary case
under the United States Bankruptcy Code as now or hereafter in effect or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of such involuntary case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced
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against the Company any such proceeding which remains undismissed for a period
of 60 days; or the Company is adjudicated insolvent or bankrupt; or any other
order of relief or other order approving any such case or proceeding is entered;
or the Company suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or the Company makes a general assignment for the
benefit of creditors; or the Company shall call a meeting of its creditors with
a view to arranging a composition or adjustment of its debts; or the Company
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;
d. the Company shall fail to pay any amount of principal or interest on any
mortgage, credit agreement or other facility, indenture or other instrument
under which there may be issued, or by which there may be secured or evidenced,
any indebtedness of the Company in an amount exceeding fifty thousand dollars
($50,000), or any amount owed to the Pioneer Partnership, its partners or
affiliates (collectively, "Indebtedness"), whether such Indebtedness now exists
or shall hereafter be created, when and as the same shall become due and
payable, or the Company shall fail to observe or perform any term, covenant or
agreement contained in any agreement or instrument evidencing or governing any
of such Indebtedness if the cure period for such term, covenant or agreement
contained in such agreement or instrument has run and the holder or holders of
such Indebtedness or a trustee on their behalf shall have the right to cause
such Indebtedness to become due prior to its stated maturity;
e. the Common Stock shall not be registered under Section 12, 13 or 15 of
the Securities Exchange Act of 1934, as amended, within one hundred and eighty
(180) days after the Closing Date (or if earlier, on the date on which the
registration statement relating to the shares of Common Stock into which shares
of Preferred Stock are convertible, as contemplated by the Investment Agreement,
is declared effective by the Commission);
f. the trading in the Common Stock shall have been suspended by the
Commission, the NASD OTC Bulletin Board or, once the Common Stock is listed on
the Nasdaq National Market or the Nasdaq SmallCap Market, by Nasdaq or any other
federal or state regulatory authority having jurisdiction over the Common Stock
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except, if, at
the time there is any suspension on the Nasdaq Market, the Common Stock is then
listed and approved for trading on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq SmallCap Market, or the Nasdaq National
Market within two (2) Trading Days thereof);
g. once listed on any Nasdaq market, the Company shall have its Common
Stock delisted from the Nasdaq Market for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on either the New York Stock Exchange,
the American Stock Exchange, the Nasdaq SmallCap Market or the Nasdaq National
Market within such ten (10) Trading Days; or
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h. the entry of any judgments against the Company aggregating more than
$100,000, which unpaid or unsatisfied.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, other than the Series A Senior Convertible Preferred
Stock.
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NASD OTC Bulletin Board, the Nasdaq National Market or Nasdaq SmallCap Stock
Market or principal national securities exchange or market on which the Common
Stock has been listed or quoted, or (b) if the Common Stock is not listed or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market or any principal
national securities exchange or market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by Bloomberg, L.P., the
National Quotation Bureau Incorporated or any similar organization or agency
succeeding its functions or reporting prices.
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EXHIBIT 4.3
THIS CONVERTIBLE DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
THEREUNDER EXCEPT IN ACCORDANCE WITH AN APPLICABLE EXEMPTION
FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF
1933, AS AMENDED.
$3,400,000
ADVANCED MEDICAL SCIENCES, INC.
CONVERTIBLE DEBENTURE DUE JUNE 1, 2004
FOR VALUE RECEIVED, the undersigned, ADVANCED MEDICAL
SCIENCES, INC., a corporation duly organized and existing under the laws of the
State of Virginia (the "Payor"), with its principal business address at 382 Rte.
59 #310, Monsey, New York 10952 hereby promises to pay to the order of DEERSKIN
TRADING POST, INC. (the "Payee"), with its principal business address at 2500
Arrowhead Drive, Carson City, Nevada 89701, the principal amount of Three
Million Four Hundred Thousand Dollars ($3,400,000) on June 1, 2004 (the
"Maturity Date"), plus interest at the rate of 8% per annum on the unpaid
principal balance, such interest to be paid on the last day of each July,
October, January and April prior to the Maturity Date and on the Maturity Date
together with the repayment of the principal balance and with all charges,
amounts, sums and interest which have accrued and have not been paid. All
payments to be made pursuant to this Debenture shall be made in such coin or
currency of the United States of America which, at the time of payment, is legal
tender for the payment of public and private debts. All such payments shall be
made by electronic funds wire transfer in accordance with the wire transfer
instructions submitted by Payee as the first payment method option; however,
Payee may designate that payments may be made by bank or certified check, at the
offices of the Payee set forth above or such other place as the Payee shall
designate in writing to the Payor. In the event that any installment of
principal or interest on this Debenture is not paid when due, such overdue
principal or interest shall bear interest from thirty days after the due date
until paid (to the extent permitted by law) at the rate of 15% per annum. In
addition, in the event such overdue principal or interest is not
<PAGE>
paid for a period of ten days after the date due, the Payor shall promptly pay
the Payee a late payment fee equal to 5% of such overdue principal or interest.
In the event the rate of interest hereunder shall exceed the maximum rate
permitted by applicable law, such rate of interest shall automatically and
without further action on the part of any person be reduced to the maximum rate
permitted by applicable law.
1. Optional Redemption. This Debenture may not be redeemed, called or
prepaid without Payee's prior written consent prior to June 1, 2001. Thereafter,
this Convertible Debenture will be subject to redemption at any time at the
option of the Payor, in whole or in part, on not less than 30 nor more than 60
days' prior notice in amounts of $100,000 or an integral multiple thereof at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12-month period beginning on June 1 of each of the years
indicated below:
Year Redemption Prices
---- -----------------
2001 105%
2002 104%
2003 103%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest if any, to the redemption date.
2. Security Interest. Concurrently with the issuance of this Debenture,
Payor is executing and delivering to Payee a Security Agreement dated as of the
date hereof (the "Security Agreement") pursuant to which the Payor has granted a
security interest in certain collateral to secure the payment of this Debenture.
3. Conversion.
3.1 Right to Convert. The Payee shall have the right, one or more times
at its option, at any time and from time to time, to convert the principal
amount of this Debenture, or any portion of such principal which is at least Two
Hundred Thousand Dollars ($200,000), into that number of fully-paid and
nonassessable shares of Common Stock of the Payor, obtained by dividing the
principal amount of the Debenture or portion thereof surrendered for conversion
by the conversion price equal to the lesser of (i) the current market price per
share of Payor's Common Stock on that date which is five days after the date
hereof (or if such day shall not be a business day, then the following business
day), computed in accordance with Section 3.4(c) hereof and (ii) the current
market price per share of Payor's Common Stock on June 1, 2000, computed in
accordance with Section 3.4(c) hereof, provided however, that no adjustment
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in the conversion price shall be required unless such adjustment would require a
decrease of at least 5% in such price.
3.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege, the Payee shall surrender this Debenture to the Payor and
shall give written notice of conversion in the form provided herein to the Payor
that the Payee elects to convert this Debenture or the portion thereof specified
in said notice.
As promptly as practicable (but not more than 10 days) after the
surrender of this Debenture and the receipt of such notice as aforesaid, the
Payor shall issue and shall deliver to the Payee a certificate or certificates
for the number of full shares issuable upon the conversion of this Debenture or
portion thereof in accordance with the provisions of this Debenture and a check
or cash in respect of any fractional interest in respect of a share of Common
Stock arising upon such conversion as provided in Section 3.3 of this Debenture.
In each case this Debenture shall be surrendered for partial conversion, the
Payor shall also promptly execute and deliver to the Payee a new Debenture or
Debentures in an aggregate principal amount equal to the unconverted portions of
the surrendered Debenture.
Each conversion shall be deemed to have been effected on the date on
which this Debenture shall have been surrendered and such notice shall have been
received by the Payor, as aforesaid, and the Payee shall be deemed to have
become on said date the holder of record of the shares issuable upon such
conversion; provided, however, that any such surrender on any date when the
stock transfer books of the Payor shall be closed shall constitute the Payee as
the record holder thereof for all purposes on the next succeeding day on which
such stock transfer books are open.
No adjustment of the number of shares to be issued upon conversion
shall be made for interest accrued on this Debenture prior to the date it is
surrendered or for cash dividends on any shares issued upon the conversion of
this Debenture prior to the date it is surrendered. However, all accrued
interest shall be payable by wire transfer, or in cash or cash equivalents.
3.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Debentures. If any fractional shares of stock would be issuable
upon the conversion of this Debenture, the Payor shall make a payout therefor in
cash at the current market value thereof. The current market value of a share of
Common Stock shall be the closing price of the day (which is not a legal
holiday) immediately preceding the day on which this Debenture (or specified
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portions thereof) is deemed to have been converted and such closing price shall
be determined as provided in subsection (c) of Section 3.4.
3.4 Adjustment of Conversion Price. The conversion price shall be
adjusted from time to time as follows:
(a) Dividends. In case the Payor shall on any one or
more occasions after the date of this Debenture (i) pay a
dividend or make a distribution in shares of its capital stock
(whether shares of Common Stock or of capital stock of any
other class), (ii) subdivide its outstanding Common Stock, or
(iii) combine its outstanding Common Stock into a smaller
number of shares, the conversion price in effect immediately
prior thereto shall be adjusted so that the holder of any
Debenture thereafter surrendered for conversion shall be
entitled to receive the number of shares of capital stock of
the Payor which it would have owned or have been entitled to
receive after the happening of any of the events described
above had this Debenture been converted immediately prior to
the happening of such event. An adjustment made pursuant to
this subsection (a) shall become effective immediately after
the record date.
(b) Other Distributions. The purpose of this
subsection is to provide a means to reduce the Payee's
conversion price in the event the assets of the Payor are
materially diluted through distributions to the Payor's common
stockholders and/or any other security holder of the Payor. In
case the Payor shall distribute to all holders of its Common
Stock evidence of its indebtedness or assets (excluding cash
dividends or distributions paid from retained earnings of the
Payor) or subscription rights or warrants, then in each such
case the conversion price shall be adjusted so that the same
shall equal the price determined by multiplying the conversion
price in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (c)
of this Section 3.4) of the Common Stock on the record date as
set forth below less the then fair market value (as determined
by the Board of Directors, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one (1) share of Common Stock, and the
denominator shall be the current market price per share (as
defined in subsection (c) below) of the Common Stock. In the
event that securities of a subsidiary of the Payor
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<PAGE>
shall be distributed to the Payor's common stockholders and/or
any other security holder of the Payor, such subsidiary shall,
no later than the date of such distribution, jointly assume
the obligation of repaying this Debenture and this Debenture
shall become convertible at, the Payee's option, into Common
Stock of such subsidiary, initially at a conversion price
equal to the reduction in the conversion price with respect to
the Payor's Common Stock as provided herein. Such adjustments
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
distribution.
(c) Conversion Price Adjustment. For the purpose of
any computation under this Section 3.4, the current market
price per share of Common Stock at any date shall be deemed to
be the average of the daily closing prices (disregarding the
three highest closing prices and the three lowest closing
prices) for the twenty six consecutive trading days commencing
thirty-one trading days before the day in question. The
closing price for each day shall be (i) the last sale price of
the Common Stock on the National Association of Securities
Dealers, Inc., Automated Quotation System or any other
automated quotation system or, if no sale occurred on such
date, the closing bid price of the Common Stock on such
quotation system on such date or (ii) if the Common Stock
shall be listed or admitted for trading on the New York or
American Stock Exchange or any successor exchange, the last
sale price, or if no sale occurred on such date, the closing
bid price of the Common Stock on such exchange, or (iii) if
the Common Stock shall not be included in any automated
quotation system or listed on any such exchange, the closing
bid quotation for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common
Stock on at least five of the ten preceding days. If none of
the conditions set forth above is met, the closing price of
Common Stock on any day or the average of such closing prices
for any period shall be the fair market value of Common Stock
as determined by a member firm of the New York Stock Exchange,
Inc. selected by the Board of Directors, provided such firm
shall be reasonably acceptable to Payee.
(d) No Nominal Adjustments. No adjustment in the
conversion price shall be required unless such adjustment
would require an increase or decrease of at least two percent
(2%) in such price; provided, however, that any adjustments
which by reason of this subsection (d) are not required to be
made shall be
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<PAGE>
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section shall be made
to the nearest cent or to the nearest one-hundredth (1/100th)
of a share, as the case may be.
(e) Conversion Price Adjustment Notice. Whenever the
conversion price is adjusted, as herein provided, the Payor
shall prepare a notice of such adjustment of the conversion
price setting forth the adjusted conversion price and the date
on which such adjustment becomes effective and shall mail such
notice of such adjustment of the conversion price to the
Payee.
3.5 Effect of Reclassification, Consolidation, Merger or Sale. If any
of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Payor is a party other than a
consolidation or merger in which the Payor is the continuing corporation and
which does not result in any reclassification of, or change (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) in, outstanding shares of
Common Stock, or (iii) any sale or conveyance of the properties and assets of
the Payor as, or substantially as, an entirety to any other corporation; then
this Debenture shall be convertible into the kind and amount of shares of stock
and other securities or property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon conversion of this Debenture immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. The
above provisions of this Section shall similarly apply to successive
reclassifications, consolidations, mergers and sales.
3.6 Reservation of Shares; Shares to be Fully Paid. As of the date
hereof, the Payor has reserved, free from preemptive rights, out of its
authorized but unissued shares, or out of shares held in its treasury,
sufficient shares to provide for the conversion of this Debenture. Before taking
any action which would cause an adjustment reducing the conversion price below
the then par value, if any, of the shares of Common Stock issuable upon
conversion of this Debenture, the Payor shall promptly take all corporate action
which may be necessary in order that the Payor may validly and legally issue
shares of such Common Stock at such adjusted conversion price. The Payor
covenants that all shares of Common Stock which may be issued upon conversion of
Debentures will upon issue be fully paid and nonassessable.
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<PAGE>
3.7 Notice to Payee Prior to Certain Actions. In case:
(a) the Payor shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of
retained earnings); or
(b) the Payor shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe
for or purchase any share of any class or any other rights or
warrants; or
(c) of any reclassification of the Common Stock of
the Payor (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value)
or, of any consolidation or merger to which the Payor is a
party and for which approval of any shareholders of the Payor
is required, or of the sale or transfer of all or
substantially all of the assets of the Payor; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Payor;
the Payor shall give notice to the Payee in accordance with this Debenture as
promptly as possible but, in any event, at least thirty days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up;
without limiting the definition of a breach of this Debenture, such failure
shall constitute a breach hereunder.
4. Registration Rights.
4.1 Grant of Piggyback Right. So long as there shall be outstanding any
principal or interest under this Debenture or the Payee shall hold any shares of
Common Stock issuable to the Payee pursuant to this Debenture ("Conversion
Shares"), the Payor
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<PAGE>
shall send written notice to the Payee in accordance with this Agreement at
least one month prior to the filing by the Payor of any registration statement
filed by the Payor on Form S-1, Form S-2, Form S-3 or Form SB-2, or any
successor form, covering the sale of common stock, and shall give to the Payee
the right to have included in any such registration statement any Conversion
Shares. In order to have the Conversion Shares included in such registration
statement, the Payee must give written notice to the Payor within 15 days after
the date of the Payee's receipt of written notice from the Payor indicating the
number of Conversion Shares requested to be included for sale in such
registration statement. Upon receipt of such notice from the Payee, the Payor
shall use its best efforts to cause all of the Common Stock specified in such
notice to be registered under the Securities Act of 1933, as amended (the
"Securities Act"). The registration expenses in connection with such
registration statement shall be paid by the Payor (exclusive of underwriter's
spread and commissions with respect to stock sold by the Payee or fees and
disbursements of the Payee's counsel). If the registration statement to be filed
by the Payor pertains to an underwritten public offering of shares of common
stock to be sold solely for the account of the Payor and, if in the judgment of
the prospective managing or lead underwriter for the Payor as set forth in a
letter to the Payor, the registration of the Conversion Shares would materially
adversely affect the proposed public offering by the Payor, the Payor shall not
be obligated to register such number of Conversion Shares in such registration
statement for inclusion in such public offering as such underwriter shall have
identified as having, in its judgment, such material adverse effect.
4.2 Demand Registration Right. If at any time after six months from the
date hereof while there shall be outstanding any principal or interest under
this Debenture or while the Payee shall hold Conversion Shares, the Payee shall
give notice to the Payor to the effect that the Payee desires to register under
the Securities Act any Conversion Shares, under such circumstances that a public
distribution (within the meaning of the Securities Act)of any such Conversion
Shares will be involved, then the Payor will as promptly as practicable after
receipt of such notice, but not later than ninety (90) days after receipt of
such notice, at the Payee's option, file a registration statement pursuant to
the Securities Act (the "Demand Registration") to the end that the Conversion
Shares may be publicly sold under the Securities Act as promptly as practicable
thereafter and the Payor will use its best efforts to cause such registration to
become and remain effective as provided herein (including the taking of such
steps as are reasonably necessary to obtain the removal of any stop order);
provided, that the Payee shall furnish the Payor with appropriate information in
connection therewith as the Payor may reasonably request; and provided that the
Payor shall not be required to file such a registration statement pursuant to
this Section on more than one occasion; and
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<PAGE>
provided, further, that the registration rights of the Payee under this Section
shall be subject to the "piggyback" registration rights of other holders of
securities of the Payor to include such securities in any registration statement
filed pursuant to this Section; however, all costs and expenses of the Demand
Registration shall then be shared proportionately with any other parties
desiring to piggyback onto the Payee's Demand Registration. The exercise by the
Payee of its demand registration right under this Section shall be deemed to be
an irrevocable election to convert this Debenture to the extent of the
Conversion Shares which the Payee has elected to have registered (but no more)
no later than the effective date of the registration statement required
hereunder. The Payee shall bear the entire cost and expense of any registration
of Conversion Shares initiated by it under this Section, provided, however, that
if the Payor registers any securities within six months of the effective date of
the Demand Registration, then the Payor shall reimburse the Payee its actual
costs incurred in registering its securities pursuant to the Section. The Payor
shall only be required to grant a Demand Registration as contemplated by this
Section on one occasion. The Payor shall not be required to grant a Demand
Registration as contemplated by this Section in the event that (i) the Payee
shall be able to sell Conversion Shares pursuant to Rule 144 under the
Securities Act, but only to the extent that Rule 144 is available for the sale
of Conversion Shares during the three month period immediately following demand,
(ii) such demand shall relate to less than the conversion of $1 million of
principal amount under this Debenture unless the entire unpaid principal amount
of this Debenture shall be less than $1 million and (iii) if "piggy back" rights
pursuant to Section 4.1 hereof had been extended to the Payee within six months
prior to its making such demand.
4.3 Undertaking to File Documents. The Payee shall execute, deliver
and/or file with or supply to the Payor, the Securities and Exchange Commission
and/or any state or other regulatory authority such information, documents,
representations, undertakings and/or agreements necessary to carry out the
provisions of the registration covenants contained herein and/or to effect the
registration or qualification of the Conversion Shares under the Securities Act
and/or any of the laws and regulations of any state or governmental
instrumentality.
4.4 Commitment to Keep Effective. The Payor will be obligated to keep
any registration statement filed by it hereunder and any registration or
qualification pursuant to Section 4.5 below effective under the Securities Act
for a period of six months after the actual effective date of such registration
statement and to prepare and file such supplements and amendments which may be
necessary to maintain an effective registration statement for such period. The
Payor will furnish
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<PAGE>
to the Payee such number of prospectuses and other appropriate documents as the
Payee may from time to time reasonably request.
4.5 Blue Sky Registration. The Payor will use its best efforts to
register or qualify the shares of Common Stock covered by any registration
statement under the Securities Act which includes Conversion Shares to be sold
on behalf of the Payee pursuant hereto under such securities or blue sky laws in
such jurisdictions within the United States as the Payee may reasonably request;
provided, however, that the Payor 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 Payor would be required to qualify as a foreign
corporation to do business in such jurisdiction and is not so qualified therein
or is required to file any general consent to service of process.
4.6 Deregistration. In the event the Payee has not sold all of the
Conversion Shares included in the registration statement or prior to the
expiration of the six-month period specified above, the Payee hereby agrees that
the Payor may deregister by post-effective amendment any Conversion Shares of
the Payee covered by the registration statement but not sold on or prior to such
date. The Payor agrees that it will notify the Payee of the filing and effective
date of each such post-effective amendment.
4.7 Right to Delay. The Payor shall have the right at any time after it
shall have received written notice pursuant to Section 4.1 to elect not to file
or to delay any such proposed registration statement, or to withdraw the same
after the filing but prior to the effective date thereof. In addition, the Payor
may delay the filing of any registration statement requested pursuant to Section
4.2 hereof by not more than 120 days if the Payor, 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 Payor if so disclosed or would otherwise adversely affect a
financing, acquisition, disposition, merger or other material transaction.
4.8 Selection of Underwriters. If a registration pursuant to Section
4.1 hereof involves an underwritten offering, the Payor shall have the right to
select the investment banker or investment bankers and manager or managers that
will serve as underwriter with respect to the underwritten offering. The Payee
may not participate in any underwritten offering under this Debenture unless the
Payee completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwritten
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offering, in each case, in the form and upon terms reasonably acceptable to the
Payor and the underwriters. The requested registration pursuant to Section 4.2
hereof shall not involve an underwritten offering unless the Payor shall first
give its written approval of each underwriter that participates in the offering,
such approval not to be unreasonably withheld.
4.9 Principal Shareholders. The Payor will not file a registration
statement on behalf of any person who beneficially owns more than 10% if the
Payor's issued and outstanding common stock (other than Pioneer Venture
Associates Limited Partnership), as a selling shareholder, without the prior
written approval of the Payee, which approval shall not be unreasonably
withheld.
5. Acceleration. In the event that (i) the Payor shall default in the
due and punctual payment of any installment of interest on this Debenture when
and as the same shall become due and payable and such default shall continue for
fifteen days after written notice from the Payee to the Payor or (ii) the Payor
shall be in default under the Security Agreement, after the passage of any
applicable grace period; or (iii) the Payor shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled "Bankruptcy"
as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code");
or (iv) in the event of the appointment of a custodian (as defined in the
Bankruptcy Code) for all or substantially all of the property of the Payor; or
(v) in the event the Payor shall commence any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction, whether now or
hereafter in effect, relating to the Payor or in the event of the commencement
against the Payor of any such proceeding which remains undismissed for a period
of 90 days; or (vi) if the Payor is adjudicated insolvent or bankrupt; or (vii)
if any order of relief or other order approving any such case or proceeding is
entered; or (viii) if the Payor shall allow any appointment of any custodian or
the like for it or any substantial part of its property to continue undischarged
or unstayed for a period of 90 days; or (ix) if the Payor shall make a general
assignment for the benefit of creditors; or (x) if the Payor shall cease doing
business as a going concern; or (xi) if the Payor shall take action for the
purpose of effecting any of the foregoing; (the foregoing being hereinafter
collectively referred to as "Events of Default") then, in any such Event of
Default and at any time thereafter while such Event of Default is continuing,
the Payee may, in addition to any other rights and remedies, the Payee may have
hereunder or otherwise, including, without limitation, the right to an increased
rate of interest and to late payment fees as set forth on the first page of this
Debenture, declare this Debenture to be due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived.
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6. Waivers; Modifications.
6.1 In General. No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Debenture shall operate as a
waiver nor as an acquiescence in any default. No single or partial exercise of
any right or remedy shall preclude any other or further exercise thereof or any
exercise of any other right or remedy.
6.2 Presentment, Etc.; Jury Trial Waived. The Payor hereby waives
presentment, demand, notice of dishonor, protest and notice of protest. The
Payor hereby waives all rights to a trial by jury in any litigation arising out
of or in connection with this Debenture.
6.3 Modifications. This Debenture may not be modified or discharged
orally, but only in writing duly executed by the Payee and the Payor.
7. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Debenture made by the Payor shall bind its successors and
assigns, whether so expressed or not, and inure to the benefit of the Payee and
its successors and assigns.
8. Miscellaneous.
8.1 Headings. The headings of the various paragraphs of this Debenture
are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Debenture.
8.2 Governing Law. This Debenture and the obligations of the Payor and
the rights of the Payee shall be governed by and construed in accordance with
the laws of the State of New York applicable to instruments made and to be
performed entirely within such State.
8.3 Collection Costs. The Payor shall pay all costs and expenses
incurred by the Payee to enforce its rights under this Debenture, including
reasonable counsel fees and other reasonable out-of-pocket expenses, provided,
however, that the foregoing shall not relate to the issuance of routine notices
sent no more frequently than once in any twelve-month period.
8.4 Notices. All notices, requests, demands and other communications
required or permitted under this Debenture shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by first
class registered or certified mail return receipt requested, or by first class
mail if received, addressed to the parties at their respective
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addresses set forth or referred to on the first page and signature page of this
Agreement, with copies to their respective counsel, Milberg Weiss Bershad Hynes
& Lerach LLP, Att: Arnold N. Bressler, Esq., One Pennsylvania Plaza, New York,
New York 10119, in the case of the Payee, and Caro & Associates, P.C.,
Attention: Chase A. Caro, Esq., 60 East 42nd Street, Suite 2001, New York, New
York 10165, in the case of Payor or to such other person or address as may be
designated by like notice hereunder.
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IN WITNESS WHEREOF, the Payor has caused this Debenture to be
signed in its corporate name by a duly authorized officer and to be dated as of
the day and year written below.
Dated: May 21, 1999
ADVANCED MEDICAL SCIENCES, INC.
By /s/ [ILLEGIBLE]
--------------------------------
(Title)
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FORM OF CONVERSION NOTICE
TO: Advanced Medical Sciences, Inc.
The undersigned owner of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or portion hereof (which is at
least $200,000) below designated, into shares of Common Stock of America's
Shopping Mall, Inc. in accordance with the terms of this Debenture and directs
that the shares issuable and deliverable upon the conversion, together with any
check in payment for fractional shares and any Debentures representing any
unconverted principal amount hereof, be issued and delivered to the registered
holder hereof.
Dated:
Name of Owner:__________________________
Signature:______________________________
Title:__________________________________
Address:________________________________
________________________________
Taxpayer Identification
No.:__________________________________
Amount to be Converted:_________________
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<PAGE>
EXHIBIT 4.4
THIS CONVERTIBLE DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
THEREUNDER EXCEPT IN ACCORDANCE WITH AN APPLICABLE EXEMPTION
FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF
1933, AS AMENDED.
$100,000
AMERICA'S SHOPPING MALL, INC.
CONVERTIBLE DEBENTURE DUE JUNE 1, 2004
FOR VALUE RECEIVED, the undersigned, AMERICA'S SHOPPING MALL,
INC., a corporation duly organized and existing under the laws of the State of
Nevada (the "Payor"), with its principal business address at 382 Rte. 59 #310,
Monsey, New York 10952 hereby promises to pay to the order of JAMES T. PATTEN
(the "Payee"), having an address at 460 Claremont Road, Bernardsville, New
Jersey 07945, the principal amount of One Hundred Thousand Dollars ($100,000) on
June 1, 2004 (the "Maturity Date"), plus interest at the rate of 8% per annum on
the unpaid principal balance, such interest to be paid on the last day of each
July, October, January and April prior to the Maturity Date and on the Maturity
Date together with the repayment of the principal balance and with all charges,
amounts, sums and interest which have accrued and have not been paid. All
payments to be made pursuant to this Debenture shall be made in such coin or
currency of the United States of America which, at the time of payment, is legal
tender for the payment of public and private debts. All such payments shall be
made by electronic funds wire transfer in accordance with the wire transfer
instructions submitted by Payee as the first payment method option; however,
Payee may designate that payments may be made by bank or certified check, at the
offices of the Payee set forth above or such other place as the Payee shall
designate in writing to the Payor. In the event that any installment of
principal or interest on this Debenture is not paid when due, such overdue
principal or interest shall bear interest from thirty days after the due date
until paid (to the extent permitted by law) at the rate of 15% per annum. In
addition, in the event such overdue principal or interest is not paid for a
period of ten days after the date due, the Payor shall promptly pay the Payee a
late payment fee equal to 5% of such overdue principal or interest. In the event
the rate of interest hereunder shall exceed the maximum rate permitted by
applicable law, such rate of interest shall automatically and without
<PAGE>
further action on the part of any person be reduced to the maximum rate
permitted by applicable law.
1. Optional Redemption. This Debenture may not be redeemed, called or
prepaid without Payee's prior written consent prior to June 1, 2001. Thereafter,
this Convertible Debenture will be subject to redemption at any time at the
option of the Payor, in whole or in part, on not less than 30 nor more than 60
days' prior notice in amounts of $100,000 or an integral multiple thereof at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12- month period beginning on June 1 of each of the years
indicated below:
Year Redemption Prices
---- -----------------
2001 105%
2002 104%
2003 103%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest if any, to the redemption date.
2. [INTENTIONALLY OMITTED.]
3. Conversion.
3.1 Right to Convert. The Payee shall have the right, one or more times
at its option, at any time and from time to time, to convert the principal
amount of this Debenture, or any portion of such principal which is at least One
Hundred Thousand Dollars ($100,000), into that number of fully-paid and
nonassessable shares of Common Stock of the Payor, obtained by dividing the
principal amount of the Debenture or portion thereof surrendered for conversion
by the conversion price equal to the lesser of (i) the current market price per
share of Payor's Common Stock on that date which is five days after the date
hereof (or if such day shall not be a business day, then the following business
day), computed in accordance with Section 3.4(c) hereof and (ii) the current
market price per share of Payor's Common Stock on June 1, 2000, computed in
accordance with Section 3.4(c) hereof, provided however, that no adjustment in
the conversion price shall be required unless such adjustment would require a
decrease of at least 5% in such price.
3.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege, the Payee shall surrender this Debenture to the Payor and
shall give written notice of conversion in the form provided herein to the Payor
that the Payee elects to convert this Debenture or the portion thereof specified
in said notice.
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<PAGE>
As promptly as practicable (but not more than 10 days) after the
surrender of this Debenture and the receipt of such notice as aforesaid, the
Payor shall issue and shall deliver to the Payee a certificate or certificates
for the number of full shares issuable upon the conversion of this Debenture or
portion thereof in accordance with the provisions of this Debenture and a check
or cash in respect of any fractional interest in respect of a share of Common
Stock arising upon such conversion as provided in Section 3.3 of this Debenture.
In each case this Debenture shall be surrendered for partial conversion, the
Payor shall also promptly execute and deliver to the Payee a new Debenture or
Debentures in an aggregate principal amount equal to the unconverted portions of
the surrendered Debenture.
Each conversion shall be deemed to have been effected on the date on
which this Debenture shall have been surrendered and such notice shall have been
received by the Payor, as aforesaid, and the Payee shall be deemed to have
become on said date the holder of record of the shares issuable upon such
conversion; provided, however, that any such surrender on any date when the
stock transfer books of the Payor shall be closed shall constitute the Payee as
the record holder thereof for all purposes on the next succeeding day on which
such stock transfer books are open.
No adjustment of the number of shares to be issued upon conversion
shall be made for interest accrued on this Debenture prior to the date it is
surrendered or for cash dividends on any shares issued upon the conversion of
this Debenture prior to the date it is surrendered. However, all accrued
interest shall be payable by wire transfer, or in cash or cash equivalents.
3.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Debentures. If any fractional shares of stock would be issuable
upon the conversion of this Debenture, the Payor shall make a payout therefor in
cash at the current market value thereof. The current market value of a share of
Common Stock shall be the closing price of the day (which is not a legal
holiday) immediately preceding the day on which this Debenture (or specified
portions thereof) is deemed to have been converted and such closing price shall
be determined as provided in subsection (c) of Section 3.4.
3.4 Adjustment of Conversion Price. The conversion price shall be
adjusted from time to time as follows:
(a) Dividends. In case the Payor shall on any one or
more occasions after the date of this Debenture (i) pay a
dividend or make a distribution in shares of its capital stock
(whether shares of Common Stock or of capital stock of any
other class), (ii) subdivide its
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outstanding Common Stock, or (iii) combine its outstanding
Common Stock into a smaller number of shares, the conversion
price in effect immediately prior thereto shall be adjusted so
that the holder of any Debenture thereafter surrendered for
conversion shall be entitled to receive the number of shares
of capital stock of the Payor which it would have owned or
have been entitled to receive after the happening of any of
the events described above had this Debenture been converted
immediately prior to the happening of such event. An
adjustment made pursuant to this subsection (a) shall become
effective immediately after the record date.
(b) Other Distributions. The purpose of this
subsection is to provide a means to reduce the Payee's
conversion price in the event the assets of the Payor are
materially diluted through distributions to the Payor's common
stockholders and/or any other security holder of the Payor. In
case the Payor shall distribute to all holders of its Common
Stock evidence of its indebtedness or assets (excluding cash
dividends or distributions paid from retained earnings of the
Payor) or subscription rights or warrants, then in each such
case the conversion price shall be adjusted so that the same
shall equal the price determined by multiplying the conversion
price in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (c)
of this Section 3.4) of the Common Stock on the record date as
set forth below less the then fair market value (as determined
by the Board of Directors, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one (1) share of Common Stock, and the
denominator shall be the current market price per share (as
defined in subsection (c) below) of the Common Stock. In the
event that securities of a subsidiary of the Payor shall be
distributed to the Payor's common stockholders and/or any
other security holder of the Payor, such subsidiary shall, no
later than the date of such distribution, jointly assume the
obligation of repaying this Debenture and this Debenture shall
become convertible at, the Payee's option, into Common Stock
of such subsidiary, initially at a conversion price equal to
the reduction in the conversion price with respect to the
Payor's Common Stock as provided herein. Such adjustments
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
distribution.
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<PAGE>
(c) Conversion Price Adjustment. For the purpose of
any computation under this Section 3.4, the current market
price per share of Common Stock at any date shall be deemed to
be the average of the daily closing prices (disregarding the
three highest closing prices and the three lowest closing
prices) for the twenty six consecutive trading days commencing
thirty-one trading days before the day in question. The
closing price for each day shall be (i) the last sale price of
the Common Stock on the National Association of Securities
Dealers, Inc., Automated Quotation System or any other
automated quotation system or, if no sale occurred on such
date, the closing bid price of the Common Stock on such
quotation system on such date or (ii) if the Common Stock
shall be listed or admitted for trading on the New York or
American Stock Exchange or any successor exchange, the last
sale price, or if no sale occurred on such date, the closing
bid price of the Common Stock on such exchange, or (iii) if
the Common Stock shall not be included in any automated
quotation system or listed on any such exchange, the closing
bid quotation for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common
Stock on at least five of the ten preceding days. If none of
the conditions set forth above is met, the closing price of
Common Stock on any day or the average of such closing prices
for any period shall be the fair market value of Common Stock
as determined by a member firm of the New York Stock Exchange,
Inc. selected by the Board of Directors, provided such firm
shall be reasonably acceptable to Payee.
(d) No Nominal Adjustments. No adjustment in the
conversion price shall be required unless such adjustment
would require an increase or decrease of at least two percent
(2%) in such price; provided, however, that any adjustments
which by reason of this subsection (d) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section
shall be made to the nearest cent or to the nearest
one-hundredth (1/100th) of a share, as the case may be.
(e) Conversion Price Adjustment Notice. Whenever the
conversion price is adjusted, as herein provided, the Payor
shall prepare a notice of such adjustment of the conversion
price setting forth the adjusted conversion price and the date
on which such adjustment becomes effective and shall mail such
notice of such adjustment of the conversion price to the
Payee.
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<PAGE>
3.5 Effect of Reclassification, Consolidation, Merger or Sale. If any
of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Payor is a party other than a
consolidation or merger in which the Payor is the continuing corporation and
which does not result in any reclassification of, or change (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) in, outstanding shares of
Common Stock, or (iii) any sale or conveyance of the properties and assets of
the Payor as, or substantially as, an entirety to any other corporation; then
this Debenture shall be convertible into the kind and amount of shares of stock
and other securities or property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon conversion of this Debenture immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. The
above provisions of this Section shall similarly apply to successive
reclassifications, consolidations, mergers and sales.
3.6 Reservation of Shares; Shares to be Fully Paid. As of the date
hereof, the Payor has reserved, free from preemptive rights, out of its
authorized but unissued shares, or out of shares held in its treasury,
sufficient shares to provide for the conversion of this Debenture. Before taking
any action which would cause an adjustment reducing the conversion price below
the then par value, if any, of the shares of Common Stock issuable upon
conversion of this Debenture, the Payor shall promptly take all corporate action
which may be necessary in order that the Payor may validly and legally issue
shares of such Common Stock at such adjusted conversion price. The Payor
covenants that all shares of Common Stock which may be issued upon conversion of
Debentures will upon issue be fully paid and nonassessable.
3.7 Notice to Payee Prior to Certain Actions. In case:
(a) the Payor shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of
retained earnings); or
(b) the Payor shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe
for or purchase any share of any class or any other rights or
warrants; or
(c) of any reclassification of the Common Stock of
the Payor (other than a subdivision or combination of its
outstanding Common Stock, or a change in par
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<PAGE>
value, or from par value to no par value, or from no par value
to par value) or, of any consolidation or merger to which the
Payor is a party and for which approval of any shareholders of
the Payor is required, or of the sale or transfer of all or
substantially all of the assets of the Payor; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Payor;
the Payor shall give notice to the Payee in accordance with this Debenture as
promptly as possible but, in any event, at least thirty days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up;
without limiting the definition of a breach of this Debenture, such failure
shall constitute a breach hereunder.
4. Registration Rights.
4.1 Grant of Piggyback Right. So long as there shall be outstanding any
principal or interest under this Debenture or the Payee shall hold any shares of
Common Stock issuable to the Payee pursuant to this Debenture ("Conversion
Shares"), the Payor shall send written notice to the Payee in accordance with
this Agreement at least one month prior to the filing by the Payor of any
registration statement filed by the Payor on Form S-1, Form S-2, Form S-3 or
Form SB-2, or any successor form, covering the sale of common stock, and shall
give to the Payee the right to have included in any such registration statement
any Conversion Shares. In order to have the Conversion Shares included in such
registration statement, the Payee must give written notice to the Payor within
15 days after the date of the Payee's receipt of written notice from the Payor
indicating the number of Conversion Shares requested to be included for sale in
such registration statement. Upon receipt of such notice from the Payee, the
Payor shall use its best efforts to cause all of the Common Stock specified in
such notice to be registered under the Securities Act of 1933, as amended (the
"Securities Act").
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<PAGE>
The registration expenses in connection with such registration statement shall
be paid by the Payor (exclusive of underwriter's spread and commissions with
respect to stock sold by the Payee or fees and disbursements of the Payee's
counsel). If the registration statement to be filed by the Payor pertains to an
underwritten public offering of shares of common stock to be sold solely for the
account of the Payor and, if in the judgment of the prospective managing or lead
underwriter for the Payor as set forth in a letter to the Payor, the
registration of the Conversion Shares would materially adversely affect the
proposed public offering by the Payor, the Payor shall not be obligated to
register such number of Conversion Shares in such registration statement for
inclusion in such public offering as such underwriter shall have identified as
having, in its judgment, such material adverse effect.
4.2 Demand Registration Right. If at any time after six months from the
date hereof while there shall be outstanding any principal or interest under
this Debenture or while the Payee shall hold Conversion Shares, the Payee shall
give notice to the Payor to the effect that the Payee desires to register under
the Securities Act any Conversion Shares, under such circumstances that a public
distribution (within the meaning of the Securities Act)of any such Conversion
Shares will be involved, then the Payor will as promptly as practicable after
receipt of such notice, but not later than ninety (90) days after receipt of
such notice, at the Payee's option, file a registration statement pursuant to
the Securities Act (the "Demand Registration") to the end that the Conversion
Shares may be publicly sold under the Securities Act as promptly as practicable
thereafter and the Payor will use its best efforts to cause such registration to
become and remain effective as provided herein (including the taking of such
steps as are reasonably necessary to obtain the removal of any stop order);
provided, that the Payee shall furnish the Payor with appropriate information in
connection therewith as the Payor may reasonably request; and provided that the
Payor shall not be required to file such a registration statement pursuant to
this Section on more than one occasion; and provided, further, that the
registration rights of the Payee under this Section shall be subject to the
"piggyback" registration rights of other holders of securities of the Payor to
include such securities in any registration statement filed pursuant to this
Section; however, all costs and expenses of the Demand Registration shall then
be shared proportionately with any other parties desiring to piggyback onto the
Payee's Demand Registration. The exercise by the Payee of its demand
registration right under this Section shall be deemed to be an irrevocable
election to convert this Debenture to the extent of the Conversion Shares which
the Payee has elected to have registered (but no more) no later than the
effective date of the registration statement required hereunder. The Payee shall
bear the entire cost and expense of any registration of Conversion Shares
initiated by it under this Section, provided, however,
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that if the Payor registers any securities within six months of the effective
date of the Demand Registration, then the Payor shall reimburse the Payee its
actual costs incurred in registering its securities pursuant to the Section. The
Payor shall only be required to grant a Demand Registration as contemplated by
this Section on one occasion. The Payor shall not be required to grant a Demand
Registration as contemplated by this Section in the event that (i) the Payee
shall be able to sell Conversion Shares pursuant to Rule 144 under the
Securities Act, but only to the extent that Rule 144 is available for the sale
of Conversion Shares during the three month period immediately following demand,
(ii) such demand shall relate to less than the conversion of $1 million of
principal amount under this Debenture unless the entire unpaid principal amount
of this Debenture shall be less than $1 million and (iii) if "piggy back" rights
pursuant to Section 4.1 hereof had been extended to the Payee within six months
prior to its making such demand.
4.3 Undertaking to File Documents. The Payee shall execute, deliver
and/or file with or supply to the Payor, the Securities and Exchange Commission
and/or any state or other regulatory authority such information, documents,
representations, undertakings and/or agreements necessary to carry out the
provisions of the registration covenants contained herein and/or to effect the
registration or qualification of the Conversion Shares under the Securities Act
and/or any of the laws and regulations of any state or governmental
instrumentality.
4.4 Commitment to Keep Effective. The Payor will be obligated to keep
any registration statement filed by it hereunder and any registration or
qualification pursuant to Section 4.5 below effective under the Securities Act
for a period of six months after the actual effective date of such registration
statement and to prepare and file such supplements and amendments which may be
necessary to maintain an effective registration statement for such period. The
Payor will furnish to the Payee such number of prospectuses and other
appropriate documents as the Payee may from time to time reasonably request.
4.5 Blue Sky Registration. The Payor will use its best efforts to
register or qualify the shares of Common Stock covered by any registration
statement under the Securities Act which includes Conversion Shares to be sold
on behalf of the Payee pursuant hereto under such securities or blue sky laws in
such jurisdictions within the United States as the Payee may reasonably request;
provided, however, that the Payor 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 Payor would be required to qualify as a foreign
corporation to do business in such jurisdiction and is not so qualified therein
or is required to file any general consent to service of process.
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4.6 Deregistration. In the event the Payee has not sold all of the
Conversion Shares included in the registration statement or prior to the
expiration of the six-month period specified above, the Payee hereby agrees that
the Payor may deregister by post-effective amendment any Conversion Shares of
the Payee covered by the registration statement but not sold on or prior to such
date. The Payor agrees that it will notify the Payee of the filing and effective
date of each such post-effective amendment.
4.7 Right to Delay. The Payor shall have the right at any time after it
shall have received written notice pursuant to Section 4.1 to elect not to file
or to delay any such proposed registration statement, or to withdraw the same
after the filing but prior to the effective date thereof. In addition, the Payor
may delay the filing of any registration statement requested pursuant to Section
4.2 hereof by not more than 120 days if the Payor, 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 Payor if so disclosed or would otherwise adversely affect a
financing, acquisition, disposition, merger or other material transaction.
4.8 Selection of Underwriters. If a registration pursuant to Section
4.1 hereof involves an underwritten offering, the Payor shall have the right to
select the investment banker or investment bankers and manager or managers that
will serve as underwriter with respect to the underwritten offering. The Payee
may not participate in any underwritten offering under this Debenture unless the
Payee completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwritten offering, in each case, in the form and upon terms
reasonably acceptable to the Payor and the underwriters. The requested
registration pursuant to Section 4.2 hereof shall not involve an underwritten
offering unless the Payor shall first give its written approval of each
underwriter that participates in the offering, such approval not to be
unreasonably withheld.
4.9 Principal Shareholders. The Payor will not file a registration
statement on behalf of any person who beneficially owns more than 10% if the
Payor's issued and outstanding common stock (other than Pioneer Venture
Associates Limited Partnership), as a selling shareholder, without the prior
written approval of the Payee, which approval shall not be unreasonably
withheld.
5. Acceleration. In the event that (i) the Payor shall default in the
due and punctual payment of any installment of interest on this Debenture when
and as the same shall become due and payable and such default shall continue for
fifteen days
10
<PAGE>
after written notice from the Payee to the Payor or (ii) the Payor shall be in
default under the Security Agreement, after the passage of any applicable grace
period; or (iii) the Payor shall commence a voluntary case concerning itself
under Title 11 of the United States Code entitled "Bankruptcy" as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or (iv)
in the event of the appointment of a custodian (as defined in the Bankruptcy
Code) for all or substantially all of the property of the Payor; or (v) in the
event the Payor shall commence any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction, whether now or hereafter in
effect, relating to the Payor or in the event of the commencement against the
Payor of any such proceeding which remains undismissed for a period of 90 days;
or (vi) if the Payor is adjudicated insolvent or bankrupt; or (vii) if any order
of relief or other order approving any such case or proceeding is entered; or
(viii) if the Payor shall allow any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 90 days; or (ix) if the Payor shall make a general assignment
for the benefit of creditors; or (x) if the Payor shall cease doing business as
a going concern; or (xi) if the Payor shall take action for the purpose of
effecting any of the foregoing; (the foregoing being hereinafter collectively
referred to as "Events of Default") then, in any such Event of Default and at
any time thereafter while such Event of Default is continuing, the Payee may, in
addition to any other rights and remedies, the Payee may have hereunder or
otherwise, including, without limitation, the right to an increased rate of
interest and to late payment fees as set forth on the first page of this
Debenture, declare this Debenture to be due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived.
6. Waivers; Modifications.
6.1 In General. No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Debenture shall operate as a
waiver nor as an acquiescence in any default. No single or partial exercise of
any right or remedy shall preclude any other or further exercise thereof or any
exercise of any other right or remedy.
6.2 Presentment, Etc.; Jury Trial Waived. The Payor hereby waives
presentment, demand, notice of dishonor, protest and notice of protest. The
Payor hereby waives all rights to a trial by jury in any litigation arising out
of or in connection with this Debenture.
6.3 Modifications. This Debenture may not be modified or discharged
orally, but only in writing duly executed by the Payee and the Payor.
11
<PAGE>
7. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Debenture made by the Payor shall bind its successors and
assigns, whether so expressed or not, and inure to the benefit of the Payee and
its successors and assigns.
8. Miscellaneous.
8.1 Headings. The headings of the various paragraphs of this Debenture
are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Debenture.
8.2 Governing Law. This Debenture and the obligations of the Payor and
the rights of the Payee shall be governed by and construed in accordance with
the laws of the State of New York applicable to instruments made and to be
performed entirely within such State.
8.3 Collection Costs. The Payor shall pay all costs and expenses
incurred by the Payee to enforce its rights under this Debenture, including
reasonable counsel fees and other reasonable out-of-pocket expenses, provided,
however, that the foregoing shall not relate to the issuance of routine notices
sent no more frequently than once in any twelve-month period.
8.4 Notices. All notices, requests, demands and other communications
required or permitted under this Debenture shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by first
class registered or certified mail return receipt requested, or by first class
mail if received, addressed to the parties at their respective addresses set
forth or referred to on the first page and signature page of this Agreement,
with a copy to Caro & Associates, P.C., Attention: Chase A. Caro, Esq., 60 East
42nd Street, Suite 2001, New York, New York 10165, in the case of Payor or to
such other person or address as may be designated by like notice hereunder.
IN WITNESS WHEREOF, the Payor has caused this Debenture to be signed in
its corporate name by a duly authorized officer and to be dated as of the day
and year written below.
Dated: May 21, 1999
AMERICA'S SHOPPING MALL, INC.
By /s/ [ILLEGIBLE]
---------------------------
(Title)
12
<PAGE>
FORM OF CONVERSION NOTICE
TO: America's Shopping Mall, Inc.
The undersigned owner of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or portion hereof (which is at
least $100,000) below designated, into shares of Common Stock of America's
Shopping Mall, Inc. in accordance with the terms of this Debenture and directs
that the shares issuable and deliverable upon the conversion, together with any
check in payment for fractional shares and any Debentures representing any
unconverted principal amount hereof, be issued and delivered to the registered
holder hereof.
Dated:
Name of Owner:__________________________
Signature:______________________________
Title:__________________________________
Address:________________________________
________________________________
Taxpayer Identification
No.:__________________________________
Amount to be Converted:_________________
13
<PAGE>
EXHIBIT 4.5
LETTER AGREEMENT
This Agreement is entered into between America's Shopping Mall, Inc., a
Nevada Corporation (formerly Advanced Medical Sciences, Inc.) and Initio, Inc.,
a Nevada Corporation.
WHEREAS, the parties hereto had heretofore entered into a certain Agreement
of Purchase and Sale dated May 21, 1999; and
WHEREAS, a difference of opinion regarding the interpretation of paragraph
3.1(i) of the Convertible Debenture concerning the initial conversion price of
therein has arisen;
NOW THEREFORE, the parties hereto do hereby agree as follows:
1) The conversion price shall be $5.50 per share (after giving effect to
the 1 for 30 exchange), provided, however, if on or before December
31, 1999 America's Shopping Mall shall repay to Initio $400,000 plus
interest accrued to the date of such payment, thereby reducing the
present indebtedness from $3,400,000 to $3,000,000, then, in that
event the initial conversion price shall be increased from $5.50 to
$6.00.
America's Shopping Mall, Inc.
/s/ Irwin Schneidmill
-----------------------------
By: Irwin Schneidmill,
President & C.E.O.
Initio, Inc.,
/s/ Martin Fox
-----------------------------
By: Martin Fox,
President & C.E.O.
Dated: July 22, 1999
Terms herein above confirmed
and agreed to:
- ----------------------------
Jim Patten
<PAGE>
EXHIBIT 4.6
THIS CONVERTIBLE SUBORDINATED DEBENTURE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT
REGISTRATION THEREUNDER EXCEPT IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED.
$2,000,000
AMERICA'S SHOPPING MALL, INC.
SUBORDINATED DEBENTURE DUE MAY 1, 2003
FOR VALUE RECEIVED, the undersigned, AMERICA'S SHOPPING MALL, INC., a
corporation duly organized and existing under the laws of the State of Nevada
(the "Payor"), with its principal business address at 382 Route 59, #310,
Monsey, New York 10952, hereby promises to pay to the order of PIONEER VENTURES
ASSOCIATES LIMITED PARTNERSHIP (the "Payee"), with its principal business
address at 651 Day Hill Road, Windsor, Connecticut 06095, the principal amount
of Two Million Dollars ($2,000,000) on May 1, 2003 (the "Maturity Date"), plus
interest at the rate of 8% per annum on the unpaid principal balance, such
interest to be paid on the last day of each April, July, October and January
prior to the Maturity Date and on the Maturity Date together with the repayment
of the principal balance and with all charges, amounts, sums and interest which
have accrued and have not been paid. All payments to be made pursuant to this
Debenture shall be made in such coin or currency of the United States of America
which, at the time of payment, is legal tender for the payment of public and
private debts. All such payments shall be made by electronic funds wire transfer
in accordance with the wire transfer instructions submitted by Payee as the
first payment method option; however, Payor may designate that payments may be
made by bank or certified check, at the offices of the Payee set forth above or
such other place as the Payee shall designate in writing to the Payor. In the
event that any installment of principal or interest on this Debenture is not
paid when due, such overdue principal or interest shall bear interest from
thirty days after the due date until paid (to the extent permitted by law) at
the rate of 15% per annum. In addition, in the event such overdue principal or
interest is not paid for a period of ten days after the date due, the Payor
shall promptly pay the Payee a late payment fee equal to 5% of such overdue
<PAGE>
principal or interest. In the event the rate of interest hereunder shall exceed
the maximum rate permitted by applicable law, such rate of interest shall
automatically and without further action on the part of any person be reduced to
the maximum rate permitted by applicable law.
1. Redemption. This Debenture may be redeemed on any date after the
first anniversary hereof and prior to the Maturity Date, at the option of the
Payor, as a whole at any time or in part from time to time, upon the notice
referred to below, at a redemption price equal to the principal amount being
redeemed, plus an amount necessary to provide Payee with a compound annual rate
of return of twenty-five percent (25%), calculated from the issue date of this
Debenture to and including the date the redemption price is paid in full,
together, in each case, with any and all charges then due to the Payee hereunder
and all accrued interest to the date fixed for redemption, provided, however,
that the Payor may not redeem this Debenture in part (i) for less than $500,000
in principal amount and (ii) more frequently than once in any 12-month period.
It is understood and agreed that any redemption shall be applied first to any
and all charges then due to the Payee hereunder, second to any unpaid interest
then due and thereafter to the principal amount due hereunder. The notice of
redemption to the Payee shall be given not less than 45 nor more than 60 days
before the date fixed for redemption. If this Debenture is to be redeemed only
in part, the Payor shall execute and deliver to the Payee a new Debenture in the
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Debenture so surrendered. Any amounts not so redeemed
shall remain subject hereto.
2. Subordination.
2.1 Senior Indebtedness. The indebtedness evidenced by this Debenture
shall be subordinate and subject in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness. "Senior Indebtedness" shall mean (i) indebtedness of the Payor or
with respect to which the Payor is a guarantor, outstanding on the date hereof
or hereafter created with the express written consent of the Payee, to banks,
insurance companies or other lending institutions regularly engaged in the
business of lending money, which is for money borrowed or the issuance of
letters of credit by the Payor or a subsidiary of the Payor, which is secured
("Senior Institutional Indebtedness"), and (ii) any deferrals, renewals or
extensions of any such Senior Institutional Indebtedness or any debentures,
notes or other evidence of indebtedness issued in exchange for such Senior
Institutional Indebtedness. As used herein, the term "subsidiary" shall mean a
corporation at least 50% of the voting securities, having ordinary voting power
not dependent on a default, of which is owned directly or indirectly by the
Payor or by one or more of
- 2 -
<PAGE>
its other subsidiaries or by the Payor in conjunction with one or more of its
other subsidiaries.
The indebtedness evidenced by this Debenture shall rank senior to the
Convertible Debenture dated April 21, 1999 from Payor to Initio, Inc. ("Initio")
in the principal amount of $_____ (the "Initio Debenture") and the Initio
Debenture shall be subordinate in right of payment, to the prior payment of all
principal, interest, penalties and any other charges or amounts under this
Debenture.
2.2 Subordination to Senior Indebtedness. Upon any payment or
distribution of the assets of the Payor upon any dissolution or winding up or
total liquidation or reorganization of the Payor (whether in bankruptcy,
insolvency, reorganization or receivership proceedings, or upon an assignment
for the benefit of creditors, or any other marshaling of the assets and
liabilities of the Payor, or otherwise):
(a) all Senior Indebtedness shall first be paid in full in cash, or
provision made for such payment, before the holder of this Debenture shall be
entitled to receive any payment or distributions from or by the Payor on account
of the principal of or interest on the indebtedness evidenced by this Debenture;
(b) any payment or distribution of assets of the Payor of any kind or
character, whether in cash, property or securities, to which the holder of this
Debenture would be entitled except for the provisions of this subsection shall
be paid or delivered by the Payor or by any trustee in bankruptcy, receiver,
assignee for benefit of creditors, or other liquidating agent making such
payment or distribution, directly to the holders of Senior Indebtedness or their
representative or representatives, or to such trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably (or otherwise in accordance with
their relative rights) according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the extent
necessary to pay all Senior Indebtedness in full after giving effect to any
concurrent payment or distribution, or provision therefor, to the holders of
such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Payor of any kind or character, whether in cash,
property or securities, shall be received by the holder of this Debenture before
all Senior Indebtedness is paid in full, or provision made for its payment, such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of
- 3 -
<PAGE>
such Senior Indebtedness may have been issued ratably (or otherwise) as
aforesaid, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness after giving
effect to any concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
3. Subordinate Position. Subject to the payment in full of all Senior
Indebtedness, the holder of this Debenture shall be subordinated only to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Payor made on the Senior Indebtedness until the
principal of and interest on this Debenture shall be paid in full, and for
purposes of such subordination, no such payments or distributions to the holders
of Senior Indebtedness of cash, property or securities, which otherwise would be
payable or distributable to the holder of this Debenture, shall as between the
Payor, its creditors other than the holders of Senior Indebtedness, and the
holder of this Debenture, be deemed to be a payment by the Payor to or on
account of this Debenture, it being understood that the provisions of this
section are intended solely for the purpose of defining the relative rights only
of the holder of this Debenture, on the one hand, and only the holders of Senior
Indebtedness, on the other hand.
4. Non-Impairment. Nothing contained in this Debenture is intended to
or shall impair the obligation of the Payor, which is absolute and
unconditional, to pay to the holder of this Debenture the principal of and
interest on this Debenture, as and when the same shall become due and payable in
accordance with its terms. Nor shall anything herein or therein prevent the
holder of this Debenture from exercising all remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default (as that term is
hereinafter defined).
5. Acceleration. In the event that (i) the Payor shall default in the
due and punctual payment of any installment of interest on this Debenture when
and as the same shall become due and payable and such default shall continue for
fifteen days after written notice from the Payee to the Payor or (ii) the Payor
shall fail to pay any principal or interest on any of the Senior Indebtedness
when due, so that the holder of such Senior Indebtedness declares such Senior
Indebtedness due prior to its stated maturity because of the Payor's default
thereunder, which default shall continue for a period of thirty days, provided,
however, that the Payor's failure to make such payment shall not be deemed a
default hereunder if same is being contested in good faith with a valid defense,
and so long as the Payor is vigorously defending or prosecuting a litigation
commenced within such thirty-day period; or (iii) the ratio of Senior
Indebtedness to Total Stockholders' Equity as set forth in any of the Payor's
annual reports on Form 10-KSB or quarterly reports on Form 10-QSB shall be
greater than 2:1 at the end of any fiscal quarter and
- 4 -
<PAGE>
shall remain so for a period of thirty days; or (iv) the Payor shall commence a
voluntary case concerning itself under Title 11 of the United States Code
entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto
(the "Bankruptcy Code"); or (v) in the event of the appointment of a custodian
(as defined in the Bankruptcy Code) for all or substantially all of the property
of the Payor; or (vi) in the event the Payor shall commence any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction,
whether now or hereafter in effect, relating to the Payor or in the event of the
commencement against the Payor of any such proceeding which remains undismissed
for a period of 90 days; or (vii) if the Payor is adjudicated insolvent or
bankrupt; or (viii) if any order of relief or other order approving any such
case or proceeding is entered; or (ix) if the Payor shall allow any appointment
of any custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 90 days; or (x) if the Payor
shall make a general assignment for the benefit of creditors; or (xi) if the
Payor shall cease doing business as a going concern; or (xii) if there shall be
any default or breach of the Investment Agreement dated as of May 21, 1999 by
and between Payor and Payee (the "Investment Agreement") regarding the purchase
by Payee of shares of Payor's Series A Senior Convertible Preferred Stock (the
"Series A Shares") or under the Certificate of Designation of the Series A
Shares, or under the Warrants issued to Payee under the Investment Agreement, or
under any of the Acquisition Agreements (as defined in the Investment Agreement)
or under the Initio Debenture, or any of the ancillary agreements executed and
delivered by Payor in connection with any thereof, this Debenture, or the Voting
Agreement between the Payee and the Principal Shareholders (as those terms are
defined in the Investment Agreement); or (xiii) if the Payor shall take action
for the purpose of effecting any of the foregoing; (the foregoing being
hereinafter collectively referred to as "Events of Default") then, in any such
Event of Default and at any time thereafter while such Event of Default is
continuing, the Payee may, in addition to any other rights and remedies, the
Payee may have hereunder or otherwise, including, without limitation, the right
to an increased rate of interest and to late payment fees as set forth on the
first page of this Debenture, declare this Debenture to be due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived.
6. Waivers.
6.1 In General. No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Debenture shall operate as a
waiver nor as an acquiescence in any default. No single or partial exercise of
any right or remedy
- 5 -
<PAGE>
shall preclude any other or further exercise thereof or any exercise of any
other right or remedy.
6.2 Presentment, Etc.; Jury Trial Waived. The Payor hereby waives
presentment, demand, notice of dishonor, protest and notice of protest. The
Payor hereby waives all rights to a trial by jury in any litigation arising out
of or in connection with this Debenture.
6.3 Modifications. This Debenture may not be modified or discharged
orally, but only in writing duly executed by the Payee and the Payor.
7. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Debenture made by the Payor shall bind its successors and
assigns, whether so expressed or not.
8. Miscellaneous.
8.1 Headings. The headings of the various paragraphs of this Debenture
are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Debenture.
8.2 Governing Law. This Debenture and the obligations of the Payor and
the rights of the Payee shall be governed by and construed in accordance with
the laws of the State of New York applicable to instruments made and to be
performed entirely within such State.
8.3 Collection Costs. The Payor shall pay all costs and expenses
incurred by the Payee to enforce its rights under this Debenture, including
reasonable counsel fees and other reasonable out-of-pocket expenses, provided,
however, that the foregoing shall not relate to the issuance of routine notices
sent no more frequently than once in any twelve-month period.
8.4 Notices. All notices, requests, demands and other communications
required or permitted under this Debenture shall be in writing and shall be
deemed to have been duly given by the Payor to the Payee if delivered by
overnight delivery service and telecopier, addressed to the Payee at its address
set forth or referred to on the first page of this Debenture, with a copy to
Martin W. Enright, Esq., Harrington, Ocko & Monk, LLP 81 Main Street, White
Plains, New York 10601 (telecopier no. (914) 686-4824), or to such other person
- 6 -
<PAGE>
or address as may be designated by the Payee. The current telecopier number of
the Payee is (860) 285-0139.
IN WITNESS WHEREOF, AMERICA'S SHOPPING MALL, INC. has caused this
Debenture to be signed in its corporate name by a duly authorized officer and to
be dated as of the day and year written below.
Dated: May 1, 1999
AMERICA'S SHOPPING MALL, INC.
By /s/ Irwin Schneidmill
-------------------------------
Irwin Schneidmill
President
- 7 -
<PAGE>
EXHIBIT 4.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES OR
BLUE SKY LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION, AND NEITHER THESE SECURITIES NOR ANY
INTEREST OR PARTICIPATION THEREIN MAY BE SOLD, ASSIGNED OR IN ANY OTHER MANNER
TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.
AMERICA'S SHOPPING MALL, INC.
WARRANT CERTIFICATE No.
Dated May 21, 1999
Warrants to Purchase Common Stock
AMERICA'S SHOPPING MALL, INC., a Nevada corporation (the "Company"), hereby
certifies that, for value received, Pioneer Ventures Associates Limited
Partnership ("Holder"), or its registered assigns, is the registered owner of
One Million (1,000,000) Warrants (the "Warrants"), each of which will entitle
the Holder thereof to purchase one share, as adjusted from time to time as
provided in Section 7, of the Common Stock, par value $.001 per share, of the
Company (the "Common Stock", each such share being a "Warrant Share" and all
such shares being the "Warrant Shares") at the exercise price of Four Dollars
and Fifty Cents ($4.50) per share (as adjusted from time to time as provided in
Section 3(e) or Section 7, the "Exercise Price") at any time on or after the
date hereof (the "Initial Exercise Date") until and including May 21, 2004 (the
"Expiration Date"), all subject to the following terms and conditions.
This Warrant is being issued and delivered pursuant to that certain
Investment Agreement between the Company and the Pioneer Ventures Associates
Limited Partnership (the "Investment Agreement"). Capitalized terms used and not
otherwise defined herein shall have the meanings given such terms in the
Investment Agreement.
For purposes of calculating the Exercise Price, the following definitions
shall apply:
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the Nasdaq National Market
or other stock exchange on which
<PAGE>
the Common Stock is then listed, as reported on Bloomberg, L.P. or if there is
no such bid price on such date, then the last closing bid price on such exchange
on the date nearest preceding such date, as reported on Bloomberg, L.P., or (b)
if the Common Stock is not listed on the Nasdaq National Market or any stock
exchange, the closing bid price for a share of Common Stock on such date on the
Nasdaq SmallCap Market or the OTC Bulletin Board, as reported on Bloomberg, L.P.
(or similar organization or agency succeeding to its functions of reporting
prices), or (c) if the Common Stock is no longer reported on Bloomberg, L.P. (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" bids on such date, or (d) if the Common
Stock is no longer publicly traded, the fair market value of a share of Common
Stock as determined by an Appraiser (as defined below) selected in good faith by
the Holder; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Trading Day" means (a) a day on which the Common Stock is traded on the
Nasdaq National Market or Nasdaq SmallCap Market or principal national
securities exchange or market on which the Common Stock has been listed or
quoted, or (b) if the Common Stock is not listed or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market or any principal national securities
exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
1. Registration of Warrants. The Company shall register each Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder of such Warrant from time to time.
The Company may deem and treat the registered Holder of each Warrant as the
absolute owner thereof for the purpose of any exercise thereof or any
distribution to the Holder thereof, and for all other purposes, and the Company
shall not be affected by the notice to the contrary.
2. Registration of Transfers and Exchanges.
a. The Company shall register, or instruct the Transfer Agent to register,
the transfer of any Warrants in the Warrant Register, upon surrender of this
Warrant Certificate, with the Form of Assignment attached hereto duly completed
and signed, to the Transfer Agent or the Company at the office specified in or
pursuant to Section 3(c). Upon any such registration of transfer, a new Warrant
Certificate, in substantially the form of this Warrant Certificate ("New
Warrants"), evidencing the Warrants so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining Warrants not so
transferred, if any, shall be issued to the then registered holder thereof.
b. This Warrant Certificate is exchangeable, upon the surrender hereof by
the holder hereof to the Transfer Agent or at the office of the Company
specified in or pursuant to Section 3(c), for New Warrants evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder, each of such New Warrants to be dated the
<PAGE>
date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by said holder hereof at the time of such
surrender.
3. Duration and Exercise of Warrants.
a. Warrants shall be exercisable by the registered holder thereof on any
business day before 5:00 P.M., Eastern time, at any time and from time to time
on or after the Initial Exercise Date to and including the Expiration Date. At
5:00 P.M., Eastern time, on the Expiration Date, each Warrant not exercised
prior thereto shall be and become void and of no value.
b. Subject to the limitations set forth in Section 3(c) and to the other
provisions of this Warrant Certificate, including adjustments to the number of
Warrant Shares issuable on the exercise of each Warrant and to the Exercise
Price pursuant to Section 3(e) and Section 7, the Holder of this Warrant shall
have the right to purchase from the Company (and the Company shall be obligated
to issue and sell to the Holder) at the Exercise Price one fully paid Warrant
Share which is non-assessable.
c. Subject to Sections 2(b), 4 and 8, upon surrender of this Warrant
Certificate, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 382 Route 59, #310,
Monsey, N.Y., 10952, Attention: Irwin Schneidmill, President, or at such other
address as the Company may specify in writing to the then registered Holder of
the Warrants, and upon payment of the Exercise Price multiplied by the number of
Warrant Shares then issuable upon exercise of the Warrants being exercised in
lawful money of the United States of America, all as specified by the Holder of
this Warrant Certificate in the Form of Election to Purchase, the Company shall
promptly issue and cause to be delivered to or upon the written order of the
registered Holder of such Warrants, and in such name or names as such registered
Holder may designate, a certificate for the Warrant Shares issued upon such
exercise of such Warrants, free of restrictive legends other than legends that
may be required in the opinion of the Company's counsel in the event at such
time there is not an effective Registration Statement as contemplated by the
Investment Agreement. Any person so designated to be named therein shall be
deemed to have become Holder of record of such Warrant Shares as of the Date of
Exercise of such Warrants.
The "Date of Exercise" of any Warrant means the date on which the Transfer
Agent or the Company shall have received (i) this Warrant Certificate (or any
New Warrant, as applicable) with the Form of Election to Purchase attached
hereto (or thereto) appropriately completed and duly signed, and (ii) payment of
the Exercise Price for such Warrant.
d. The Warrants evidenced by this Warrant Certificate shall be exercisable,
either as an entirety or, from time to time, for part of the number of Warrants
evidenced by this Warrant Certificate so long as at least twenty-five hundred
(2,500) Warrant Shares are exercised. If less than all of the Warrants evidenced
by this Warrant Certificate are exercised at any time, the Company shall issue,
at its expense, a New Warrant for the remaining number of Warrants evidenced by
this Warrant Certificate.
<PAGE>
e. The Exercise Price shall be subject to reset as follows. In the event
that the Per Share Market Value for the twenty (20) trading days immediately
preceding the ninetieth (90th) day after the Company's Common Stock is eligible
for public trading (the "Reset Average Price"), the Exercise Price shall be
reset to a price per share of Common Stock equal to seventy-five percent (75%)
of the Reset Average Price. Once reset in accordance with the provisions of this
Section 3(e), the Conversion Price shall remain at the reset Conversion Price,
subject to adjustment in accordance with Section 7, below.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of the Warrants
represented by this Warrant Certificate; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver the certificates for Warrant Shares unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring the
Warrants represented by this Warrant Certificate or receiving the Warrant Shares
under this Warrant Certificate.
5. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company may in its discretion issue in exchange and substitution
for and upon cancellation hereof, or in lieu of and substitution for this
Warrant, a new Warrant of like tenor, but only upon receipt of evidence
reasonably satisfactory to the Company and the Transfer Agent of such loss,
theft or destruction and bond or other indemnity, if requested, satisfactory to
it. Applicants for a substitute Warrant certificate also shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
6. Reservation of Warrant Shares. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon exercise of the Warrants, a number of shares of
Common Stock equal to at least the maximum number of Warrant Shares (as adjusted
from time to time pursuant to Section 7 hereof) which may then be deliverable
upon the exercise of this Warrant and all other outstanding warrants issued and
sold pursuant to the Investment Agreement. The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
thereof, be duly and validly authorized, issued and fully paid, and
nonassessable.
7. Adjustment to the Number of Warrant Shares Issuable. The number of
Warrant Shares issuable upon the exercise of this Warrant is subject to
adjustment from time to time as set forth in Section 3(e) and this Section 7.
Upon each such adjustment of the Exercise Price pursuant to Section 3(e) or this
Section 7, the Holder shall thereafter prior to the Expiration Date be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number of
Warrant Shares obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon exercise
of this Warrant immediately prior to such
<PAGE>
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. In the event the Company and the holders of the Warrants issued
pursuant to the Investment Agreement that are then outstanding disagree as to
any adjustment to the Exercise Price hereunder, an Appraiser selected by the
holders of a majority of the Warrants issued pursuant to the Investment
Agreement that are then outstanding (the "Majority Holders") shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 7), of the Exercise Price; provided, however that
the Company, after receipt of the determination by such Appraiser, shall have
the right to promptly select an additional Appraiser, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions; provided, however, that
no such adjustment of the Exercise Price shall be made which in the opinion of
the Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Exercise Price to more than the Exercise Price then in effect.
a. If the Company, at any time while this Warrant is outstanding, (i) shall
pay a stock dividend or otherwise make a distribution or distributions on shares
of its Junior Securities (as such term is defined in the Convertible Debentures)
payable in shares of its capital stock (whether payable in shares of its Common
Stock or of capital stock of any class), (ii) subdivide outstanding shares of
Common Stock into a larger number of shares, (iii) combine outstanding shares of
Common Stock into a smaller number of shares, or (iv) issue by reclassification
of shares of Common Stock any shares of capital stock of the Company, the
Exercise Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section 7(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification.
b. In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, then the Holder shall have the right thereafter to exercise
this Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock into which this Warrant
could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 7(c) upon
any exercise following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
<PAGE>
c. For the purposes of this Section 7, the following clauses shall also be
applicable:
(i) Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in convertible securities, or (B)
to subscribe for or purchase Common Stock or convertible securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock for the purposes of this subsection (e).
(iii) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of any
Exercise Price in case of the issuance of the Preferred Stock, the Warrants, the
Underlying Shares and the Warrant Shares pursuant to the Investment Agreement,
or in the event that the Company shall grant options to purchase the Company's
Common Stock pursuant to a bona fide employee stock option, stock purchase or
non-employee director plan duly adopted by its shareholders in accordance with
the Investment Agreement or for (i) securities issued upon the exercise or
conversion of the Debentures or (ii) any shares of Common Stock issued pursuant
to the exercise of options, warrants or other securities, options, rights or
securities convertible into or exchangeable for capital stock of the Company in
connection with any stock split, stock dividend or similar event affecting the
Company Common Stock.
d. If:
i. the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a subdivision
of the outstanding shares of Common Stock) or shall
authorize a repurchase or redemption or otherwise enter into
any other transaction (including stock split,
recapitalization or other transaction) which would cause a
decrease in the number of its shares of Common Stock issued
and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock for which this
Warrant is exercisable); or
ii. the Company shall declare a special nonrecurring cash
dividend on its then-outstanding Common Stock; or
<PAGE>
iii. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights, or
iv. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property, or
v. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least thirty (30) days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, repurchase, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distributions, repurchase, redemption,
rights or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
e. In any case in which this Section 7 shall require that an adjustment be
made effective as of the record date for a specified event, the Company may
elect to defer until occurrence of such event (A) issuing to the Holder, if this
Warrant is exercised after such record date, the Warrant Shares and other
capital stock of the Company, if any, issuable upon such exercise over and above
the Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price prior to adjustment and (B)
paying to the Holder any amount in cash in lieu of a fractional share pursuant
to Section 8 hereof, provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's right
to receive such additional Warrant Shares, other capital stock and/or cash upon
the occurrence of the event requiring such adjustment.
<PAGE>
f. Any determination that the Company or the Board of Directors must make
pursuant to this Section 7 shall be conclusive if made in good faith.
g. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially affect the
rights of the Holders (different than or distinguished from the effect generally
on rights of holders of any class of the Company's capital stock) or if at any
time such conditions are expected to arise by reason of any action contemplated
by the Company, the Company shall mail a written notice briefly describing the
action contemplated and the material adverse effects of such action on the
rights of the Holders at least 30 calendar days prior to the effective date of
such action, and an Appraiser selected by the Holders of majority in interest of
the Warrants shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in Section 7(e)), of the Exercise
Price (including, if necessary, any adjustment as to the Warrant Shares to be
purchased upon exercise of this Warrant) and any distribution which is or would
be required to be preserved without diluting the rights of the Holders.
8. Fractional Shares. The Company shall not be required to issue fractional
Warrant Shares on the exercise of this Warrant. The number of full Warrant
Shares which shall be issuable upon the exercise of this Warrant shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of this Warrant so presented. If any fraction of a Warrant Share would,
except for the provisions of this Section 8, be issuable on the exercise of this
Warrant, the Company shall, at its option (a) pay an amount in cash equal to the
Exercise Price multiplied by such fraction or (b) shall round the number of
Warrant Shares issuable, up to the next whole number of such shares.
9. Warrant Agent.
a. The Company shall serve as warrant agent under this Warrant. Upon thirty
(30) days' notice to the holders of Warrants issued pursuant to the Investment
Agreement, the Company and the Majority Holders may appoint a new warrant agent.
b. Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the register maintained by the warrant agent pursuant to this Warrant.
10. Notices. All notices or other communications hereunder shall be given,
and shall be deemed duly given and received if given, by facsimile and by mail,
postage prepaid: (1) if to the Company, addressed as follows: America's Shopping
Mall, Inc., 382 Route 59 #310, Monsey, New
<PAGE>
York 10952, Attention: Irwin Schneidmill, President, or by facsimile to
914-369-0136; or (ii) if to the Holder, addressed to the Holder at the facsimile
telephone number and address of the Holder appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 10. Any such notice shall be deemed given and
effective upon the earliest to occur of (i) receipt of such facsimile at the
facsimile telephone number specified in this Section 10, (ii) five (5) Business
Days after deposit in the United States mails or (iii) upon actual receipt by
the party to whom such notice is required to be given.
11. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns (provided that the Company's
obligation to a transferee of this Warrant arises only if such transfer is made
in accordance with the terms of the Investment Agreement and the transferee
agrees to be bound by the terms of the Investment Agreement and the other
Documents executed in connection therewith).
b. Subject to Section 11(a) above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company, the
Holder and any registered holder of Warrant Shares any legal or equitable right,
remedy or cause under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company, the Holder and any other registered holder of
Warrant Shares.
c. This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
e. In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
AMERICA'S SHOPPING MALL, INC.
By: /s/ Irwin Schneidmill
--------------------------
Name: Irwin Schneidmill
Title: President
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise Warrants
Evidenced by the Foregoing Warrant Certificate)
To America's Shopping Mall, Inc.:
The undersigned hereby irrevocably elects to exercise ________ Warrants
evidenced by the foregoing Warrant Certificate for, and to purchase thereunder,
__________ full shares of Common Stock issuable upon exercise of said Warrants
and delivery of $________ in cash and any applicable taxes payable by the
undersigned pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued in the
name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
If said number of Warrants shall not be all the Warrants evidenced by the
foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercise be issued in the name of and
delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:______________________, 19 Name of Holder:
(Print)___________________________
(By:)_____________________________
(Title:)
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, hereby sells, assigns, and transfers to each assignee
set forth below all of the rights of the undersigned in and to the number of
Warrants (as defined in and evidenced by the foregoing Warrant Certificate) set
opposite the name of such assignee below and in and to the foregoing Warrant
Certificate with respect to said Warrants and the shares of Common Stock
issuable upon exercise of said Warrants:
Name of Assignee Address Number of Warrants
- ---------------- ------- ------------------
If the total of said Warrants shall not be all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so assigned be issued in the name of and
delivered to the undersigned.
Dated:________________, 19__ Name of Holder:
(Print)_______________________________
(By:)_________________________________
(Title:)
<PAGE>
EXHIBIT 9.1
VOTING AND SHAREHOLDERS AGREEMENT dated as of May 21, 1999 by and among
Advanced Medical Sciences, Inc., a Virginia corporation ("Advanced"), the sole
shareholder of America's Shopping Mall, Inc., a Nevada corporation (the
"Company"), Pioneer Ventures Associates Limited Partnership, having an office at
651 Day Hill Road, Windsor, Connecticut 06095 (the "Pioneer Partnership"), AND
certain Shareholders of Advanced, who are parties hereto (collectively
hereinafter referred to as the "Principal Shareholders").
WHEREAS, the Principal Shareholders have "beneficial ownership," as that
term is defined under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") of an aggregate of 28,550,000 shares of common stock, $.001 par
value per share ("Common Shares") of Advanced as more specifically set forth in
Exhibit A attached hereto;
WHEREAS, pursuant to a certain Investment Agreement dated the date hereof
(the "Investment Agreement"), the Pioneer Partnership is investing in the
Company through the purchase of Preferred Stock and Warrants and may make
additional investments in the Company through the exercise of the Warrants in
the future and the Company is assuming Two Million Dollars ($2,000,000) in
principal amount of debt owed from Initio, Inc. to the Company and, in
connection therewith is issuing to the Pioneer Partnership a debenture in the
principal amount of Two Million Dollars ($2,000,000) of even date herewith (the
"Debenture"); and
WHEREAS, Advanced and the Company are parties to an Agreement and Plan of
Merger dated May 21, 1999 pursuant to which Advanced is to be merged into the
Company (the "Merger");
WHEREAS, the execution of this Agreement by the parties hereto is a
condition precedent to the consummation of the transactions provided for in the
Investment Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
ARTICLE I.
1.1 Voting by Principal Shareholders; Agreement to Vote.
Each of Advanced and the Principal Shareholders agrees that, so long as (i)
the Pioneer Partnership, its Partners or affiliates shall own any Preferred
Stock, Warrants or Common Stock obtained either through conversion of the
Preferred Stock or exercise of the Warrants, or (ii) any amounts remain
outstanding under the Debenture Advanced, and upon consummation of the Merger,
each of the Principal Shareholders shall vote all of their Common Shares,
whether now owned or hereafter acquired, for the election as a director(s) of
the Company of the designee(s) of the Pioneer Partnership in accordance with
paragraph 1.10 of the Investment Agreement at any meeting of the Company's
shareholders at which such designee shall be nominated as a director. Without
limiting the generality of the foregoing, Advanced and the Principal
Shareholders agree to execute and deliver any and all documents, agreements and
instruments, including, without limitation, proxies,
<PAGE>
as the Pioneer Partnership shall reasonably request so that at least one (1)
designee of the Pioneer Partnership shall be a director of the Company at all
times while any Preferred Stock or such Common Stock is held by the Pioneer
Partnership or any amounts remain outstanding under the Debenture.
1.2 Special Meeting Upon Default.
In the event of a default under, or a breach of, this Agreement which (in
the judgment of the Pioneer Partnership) adversely affects the Pioneer
Partnership, or the Investment Agreement, or the Certificate of Designation of
Preferred Stock under which the Pioneer Partnership or its assigns are a holder
of Preferred Stock, or under the Debenture, Advanced and the Principal
Shareholders agree to call and the Company agrees to pay the expenses associated
with a special meeting of the Shareholders at the sole expense of the Company,
and Advanced and the Principal Shareholders each agree that they shall vote in
favor of that number of and those nominees to the Board of Directors designated
by the Pioneer Partnership such that the nominees of the Pioneer Partnership,
taken in the aggregate, shall constitute a majority of the directors of the
Company, after any such defaults, for so long as the Pioneer Partnership, its
partners or affiliates own Preferred Stock, Warrants or Common Stock obtained
through the conversion of Preferred Stock or the exercise of Warrants or there
remains any amount outstanding under the Debenture. Advanced and the Principal
Shareholders hereby agree to take no action to contravene, limit or otherwise
terminate the Pioneer Partnership board election mechanism. Advanced and the
Principal Shareholders agree to vote in favor of such Pioneer Partnership
nominees for so long as the Pioneer Partnership, its partners or affiliates own
Preferred Stock, Warrants or Common Stock obtained through the conversion of
Preferred Stock or the exercise of Warrants or there remains any amount
outstanding under the Debenture.
1.3 Preservation of Bylaws.
The provisions of Sections 1(a) and 1(b) above are in consonance with the
amendments to of the Bylaws of the Company as set forth in the minutes of a
special meeting (Unanimous Written Consent) of the Board of Directors of the
Company, attached hereto as Exhibit B, and incorporated herein by this reference
(the "Resolutions"). If the directors or the shareholders of the Company further
amend such Bylaws at any time during which the Pioneer Partnership shall own any
Preferred Stock, Warrants or Common Stock obtained upon conversion of Preferred
Stock or exercise of Warrants or there remains any amount outstanding under the
Debenture, notice shall be given to the Pioneer Partnership, and upon the
written demand therefor by the Pioneer Partnership, Advanced or the Principal
Shareholders shall promptly call a special meeting of the Shareholders and the
Company hereby agrees to pay all expenses in connection with such meeting, at
the sole expense of the Company, and Advanced and the Principal Shareholders
each agree that they shall vote all of their Common Shares, whether now owned or
hereafter acquired, for the Bylaws to be restored to or retained, as the case
may be, to the form as set forth in the Resolutions, in accordance with the
Bylaws.
2
<PAGE>
ARTICLE II. Transfers
2.1 Transfer of Common Shares to Affiliates.
During the term of this Agreement, neither Advanced, the Principal
Shareholders nor any other person who shall become a party to or bound by this
Agreement shall transfer any Common Shares, whether now or hereafter acquired,
other than (i) to any person who agrees to be bound by and be subject to the
terms and conditions of this Agreement with the same force and effect as if such
person were named as a party to this Agreement or as a Principal Shareholder
hereunder, provided that the Pioneer Partnership consents to such transfer, such
consent not to be unreasonably withheld, and (ii) beginning May 21, 2000,
pursuant to any sale of securities pursuant to a distribution to the public,
whether pursuant to a registered public offering, a Rule 144 sale or otherwise,
provided that the Pioneer Partnership consents to such sale, such consent not to
be unreasonably withheld.
2.2 Legend on Stock Certificates.
Advanced and the Principal Shareholder shall submit to the Transfer Agent
for the Common Stock the certificates evidencing the Common Stock owned by
Advanced or the Principal Shareholders at any time during the term of this
Agreement (the "Restricted Shares") and the Company shall cause the Transfer
Agent to imprint upon such certificates (or replacement certificates) a
restrictive legend as follows:
The shares of stock represented by this certificate are subject to all of
the terms of a certain Voting and Shareholders Agreement dated May 21, 1999, a
copy of which is on file at the offices of the issuer of this certificate. The
shares are subject to certain voting, co-sale and transfer restrictions. Any
actions taken in contravention to that agreement shall be null and void.
The terms of such endorsement and restrictions are hereby expressly
consented to and accepted.
ARTICLE III. Co-Sale Provisions
3.1 Third-Party Offer and Notice.
Any voluntary or involuntary transfer of the Common Shares by Advanced or
any Principal Shareholder will be subject to a participation right of co-sale by
the Pioneer Partnership or its assigns on a pro rata fully diluted basis. If any
one or more of Advanced or the Principal Shareholders obtain from a third party
("Third Party Purchaser") an offer to purchase any amount of his or her Shares,
and Advanced or the Principal Shareholder(s) wish to accept such offer, Advanced
or the Principal Shareholder(s) shall submit a written notice (the "Co-Sale
Notice") to the Pioneer Partnership disclosing the amount of Common Shares
proposed to be sold, the offered
3
<PAGE>
purchase price, the proposed closing date, and the total number of Common Shares
owned by the Principal Shareholder(s).
3.2 Co-Sale Right of Participation.
Upon receipt of a Co-Sale Notice from Advanced or any Principal
Shareholder, the Pioneer Partnership or its assigns may elect to participate in
such transaction and shall have the right to offer its securities, at the same
price and on the same terms, on a fully diluted pro rata basis with the proposed
selling shareholder(s) as set forth in the offer made by the Third Party
Purchaser. 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. 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, a Rule 144 sale or otherwise. If less than all of a shareholder's
securities are being sold pursuant to this Article III, the securities to be
sold shall be determined on a pro rata fully diluted basis.
3.3 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 Advanced or the selling
Principal Shareholder(s) in writing of such intention as soon as practicable
after such Pioneer Partnership's receipt of the Co-Sale Notice made pursuant to
Section 3.1, and in any event within fifteen (15) business days after the date
of such Co-Sale Notice has been delivered. Such notification shall be delivered
in person or by facsimile to Advanced or the Principal Shareholder(s) at the
Company's offices.
ARTICLE IV. Remedies
4.1. Violation of Agreement; Consent to Injunctive Relief.
Each of Advanced and the Principal Shareholders recognizes and agrees that
any violation of any of his or her obligations set forth in this Agreement would
cause irreparable damage which could not be compensated by monetary damages.
Such violation shall constitute an Event of Default under the Investment
Agreement. Accordingly, in the event of any breach of any obligations of
Advanced or any Principal Shareholder under this Agreement, Advanced or such
Principal Shareholder consents to the entry of injunctive relief, including the
remedy of specific performance, by a court of competent jurisdiction restraining
any such violation or threatened violation, and/or granting full voting
authority to the Pioneer Partnership for purposes of this Agreement, in addition
to any other remedies available at law or in equity. Advanced or the Principal
Shareholders agree to pay the reasonable costs of the Pioneer Partnership,
including reasonable attorneys fees, incurred in enforcing the provisions of
this Article IV.
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ARTICLE V. Miscellaneous
5.1. Representations.
Advanced and the Principal Shareholders represent and warrant that, at the
date hereof, they are the sole record and beneficial owners of the securities of
the Company set forth opposite his name on Exhibit A to this Agreement and has
full power to enter into this Agreement and to perform its obligations
hereunder. Each of Advanced and the Principal Shareholders represents that
he/she is not the beneficial owner of any Common Shares or any warrants,
options, rights to acquire or securities convertible into Common Shares NOT
disclosed herein, whether directly, through any affiliate or otherwise.
5.2 Term.
This Agreement shall terminate on the earlier to occur of (i) ten (10)
years from the Closing Date or (ii) the date upon which the Pioneer Partnership,
its partners and affiliates no longer own five percent (5%) of the Preferred
Stock (including for purposes of such calculation all shares of Common Stock
received upon conversion of the Preferred Stock), and no amounts remain
outstanding under the Debenture.
5.3 Further Assurances.
From and after the date of this Agreement, the parties hereto shall
from time to time, at the request of any other party and without further
consideration, do, execute and deliver, or cause to be done, executed and
delivered, all such further acts, things and instruments as may be reasonably
requested or required more effectively to evidence and give effect to the
transactions provided for in this Agreement.
5.4 Notices.
All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given if personally delivered or if mailed by first class registered
or certified mail return receipt requested, or by first class mail or overnight
courier if received, addressed to the parties at their respective addresses set
forth on the first page of this Agreement, or to such other person or address as
may be designated by like notice hereunder.
5.5 Modifications.
This Agreement may not be modified or discharged orally, but only in
writing duly executed by the party to be charged. In the event the Merger is
consummated, Advanced shall cease to exist as a separate corporation and this
Agreement shall remain in full force and effect between Pioneer and the
Principal Shareholders.
5
<PAGE>
5.6 Successors and Assigns.
All the covenants, stipulations, promises and agreements in this
Agreement shall bind the parties' respective heirs, successors and assigns,
whether so expressed or not.
5.7 Headings.
The headings of the various sections of this Agreement are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Agreement.
5.8 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada applicable to instruments made and to be performed
entirely within such State.
5.9 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same document.
5.10 Gender.
All pronouns used herein are inserted for convenience only and shall be
applied in the masculine, feminine, or third person as appropriate for each
party signing hereto.
5.11 Use of Term "Pioneer Partnership". Notwithstanding any provision of
this Agreement to the contrary, included in the definition and meaning of the
"Pioneer Partnership" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures Management Partners LLC as the
general partner to invest in parallel with Pioneer Ventures Associates Limited
Partnership on the same economic terms and pro rata based upon their aggregate
subscriptions. The limited partners of Pioneer Ventures Associates Limited
Partnership and the parallel partnerships shall be referred to herein as the
"limited partners".
5.12 Capitalized terms use in this Agreement but not otherwise defined
herein shall have the meanings given to them in the Investment Agreement.
[ SIGNATURE PAGE TO FOLLOW ]
6
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date and year first above written.
By the Pioneer Partnership:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: Pioneer Ventures Corp.,
Managing Member
of the General Partner
Ventures Management Partners LLC
By: /s/ John F. Ferraro
-------------------------------
John F. Ferraro, Director
ADVANCED MEDICAL SCIENCES, INC.
By: /s/ Irwin Schneidmill, President
---------------------------------
Name:
Title:
Consented to, and the obligation set forth in Article I to pay for such special
meetings of the Shareholders is hereby agreed to:
AMERICA'S SHOPPING MALL, INC.
By: /s/ Irwin Schneidmill, President
---------------------------------
Name:
Title:
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By: /s/ Irwin Schneidmill
------------------------------------
Irwin Schneidmill
By: /s/ Dennis McNany
------------------------------------
Dennis McNany
By: /s/ Robert Trause
------------------------------------
Robert Trause
By: /s/ Carmen S. Patten
------------------------------------
Carmen S. Patten Sr.
By: /s/ Mae Parker
------------------------------------
Mae Parker
By: /s/ Mary C. Patten
------------------------------------
Mary C. Patten
By: /s/ Ann L. Patten
------------------------------------
Ann L. Patten
By: /s/ Kathleen Patten
------------------------------------
Kathleen Patten
By: /s/ Kathleen Patten
------------------------------------
Kathleen Patten
Cust. Sara Patten
By: /s/ Helen E. Patten
------------------------------------
Helen E. Patten
8
<PAGE>
EXHIBIT A
to
VOTING AGREEMENT
Principal Shareholders No. of Common Shares
Irwin Schneidmill 3,000,000
Dennis McNany 300,000
Robert Trause 300,000
Carmen S. Patten Sr. 1,200,000
Mae Parker 3,000,000
Mary C. Patten 2,740,000
Ann L. Patten 2,840,000
Kathleen Patten 10,000,000
Kathleen Patten
Cust. Sara Patten 2,670,000
Helen E. Patten 2,500,000
----------
28,550,000
==========
9
<PAGE>
EXHIBIT B
to
VOTING AGREEMENT
(Resolutions approved by Board of Directors)
10
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of May, 1999 between AMERICA'S SHOPPING
MALL, INC., a Nevada corporation (the "Company"), with offices at 382 Route 59,
Section 310, Monsey, New York and IRWIN SCHNEIDMILL (the "Executive"), with a
residence at 20 Roble Road, Suffern, New York 10901.
BACKGROUND
The Executive and the Company desire that Executive shall be employed
directly by the Company as President and Chief Executive Officer and that this
Agreement shall supersede and replace any and all pre-existing employment
agreements between the Executive and the Company.
In consideration of the mutual covenants and agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency which
is hereby acknowledged, the parties hereby agree as follows:
1. Employment, Acceptance and Term.
1.1 Subject to the terms and conditions of this Agreement, the Company
hereby agrees to employ the Executive, and the Executive hereby agrees to
serve the Company, as President and Chief Executive Officer of the Company,
and, each additional direct or indirect subsidiary of the Company formed or
acquired hereafter (the Company together with any additional direct and
indirect subsidiaries shall collectively be referred to as the"Company").
The Company shall, during the term hereof, insure the election and
retention of the Executive as a member of the boards of directors, or other
governing bodies of any direct or individual subsidiary, is subject to the
Executive's approval.
1.2.1 The term of the Executive's employment under this Agreement
shall be five (5) years, and shall commence effective May 1, 1999 and shall
end at the close of business on April 30, 2004.
2. Duties and Authority. During the term of this Agreement:
2.1.1 the Executive shall use his best efforts, skill and abilities
(a) to promote and protect the interests of the Company; (b) to serve in
the positions set forth in Section 1.1 hereof and as a director of the
Company and (c) to diligently perform, to the best of his abilities, the
duties set forth in this Section 2, including such duties (consistent with
his titles as set forth in Section 1.1 hereof and the description of his
duties set forth in this Section 2) as may from time to time be assigned to
him by the boards of directors, or other governing bodies, of the Company.
<PAGE>
2.1.2 (a) Subject to the exception noted in sub-paragraph (b) below,
the Executive shall devote substantially his full business time and
energies during normal business hours to the business and affairs of the
Company; and shall not accept any other employment outside the Company
(whether or not for compensation), nor shall he permit such personal
business interests as he may have, as permitted by sub-paragraph (b), to
interfere with the performance of his duties hereunder or conflict with the
interests of the Company; provided, however, that, so long as it does not
interfere with the proper performance of his duties and obligations under
the terms of this Agreement, nothing contained herein shall preclude the
Executive from engaging in charitable and community affairs (including
serving as a member of a board of directors or other governing body of a
not-for-profit organization); managing his personal investments; subject to
the approval of the board of directors of the Company, serving as a member
of the board of directors or other governing body of any other company or
organization; delivering lectures, fulfilling speaking engagements and any
writing or publication relating to his areas of expertise; and serving as a
consultant in his areas of expertise;
(b) Notwithstanding anything to the contrary in subparagraph (a)
above, it is expressly understood and agreed that Executive has outside
business interests from which he shall continue to profit separately, and
nothing in this Agreement shall be construed as precluding the Executive
from engaging in or profiting from such activity.
2.1.3 Subject to the bylaws of the Company and the respective bylaws
of those direct and indirect subsidiaries of the Company and to the
direction and control of the board of directors (or other governing body)
of the Company and the respective boards of directors, or other governing
bodies, of these direct and indirect subsidiaries of the Company, the
Executive shall have supervision and control over, and responsibility for,
among other things, the executive, business and financial operations of the
Company and shall have the customary powers, responsibilities and
authorities of those serving in the capacities set forth in Section 1.1
hereof for corporations of the size, type and nature of the Company. No
other officer of any of the Company will be appointed with authority
superior to that of the Executive; and
2.1.4 the Executive's principal place of business will be the
Company's executive offices currently located in Monsey, New York;
provided, however, that the Executive shall be available to travel at such
times and to such places as may from time to time be necessary or desirable
in performance of the Executive's duties and the furtherance of the
business of the Company. The Company's executive offices shall not be moved
without the Executive's consent and the Executive shall not be required to
move his present residence in order to perform the services contemplated
hereby.
3. Compensation.
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<PAGE>
3.1.1 During the term of this Agreement, the Company shall pay to the
Executive in accordance with the Company's compensation payment policies:
(a) (i) a base salary at the annual rate of Two Hundred Fifty Thousand
Dollars ($250,000) plus (b) any additional incentive compensation ("Bonus")
which shall be paid solely in the discretion of the Company's Board of
Directors.
3.2.1 The compensation provided for in Section 3.1 hereof shall be
inclusive of any and all fees and other compensation to which the Executive
may at any time be entitled with respect to this Agreement for services
rendered as an officer or director of the Company or any of respective
subsidiaries or affiliated entities.
3.2.2 All references herein to compensation to be paid to the
Executive are to the gross amounts thereof which are due hereunder. The
Company shall have the right to deduct therefrom all sums which may be
required to be deducted or withheld under any provision of U.S. federal,
state or local law (including, but not limited to, social security
payments, income tax withholding, and any other deduction required by law)
now in effect or which may become effective at any time during the term of
this Agreement.
4. Expenses. In addition to the compensation payable to the Executive
pursuant to Section 3 hereof, the Company shall, upon submission of proper
vouchers in respect thereof, pay or reimburse the Executive in accordance with
the Company's policy for all business and entertainment expenses reasonable in
amount and necessarily incurred by him during the term of this Agreement, it
being understood that the Executive will need to incur substantial expenses of
this type in the proper performance of his duties, given the Company's
anticipated acquisitions and multiple business locations.
5. Additional Benefits. In addition to the compensation and expenses to be
paid or reimbursed to the Executive under Sections 3 and 4 hereof, and except as
otherwise expressly provided herein, during the term of the Agreement:
5.1.1 the Executive shall be entitled to participate (subject to
uniformly applicable requirements for participation), in any health,
disability, profit sharing or insurance plan now in force or hereafter
adopted by the Company for the benefit of its Executives generally at the
Executive's level;
5.1.2 the Executive shall be entitled to an annual vacation of four
(4) weeks each year in accordance with the Company's policies. Vacations
are to be taken at such time or times so as not to interfere with the
operation of the business;
5.1.3 the Executive shall be entitled to participate, subject to
uniformly applicable requirements to participation, in any stock option
plans or arrangements now in force for the benefit of senior executive
officers generally of the Company. In addition, if as a result of the
termination of the Executive's employment hereunder, the Executive is
unable to exercise any of his options, the Company shall cause the
Executive to be reimbursed for the amount paid by the Executive for such
options;
3
<PAGE>
5.1.4 to assist the Executive in carrying out his duties, to promote
the best interests of the Company, and in recognition of the fact that the
Executive frequently is called upon to pick up business associates in the
Executive's automobile, and to entertain such business associates, and
given the Company's anticipated acquisitions and multiple business
locations, the Company has deemed it to be in its best interest to make
available, and the Company shall make available, to the Executive the
exclusive use of an automobile (the cost of the lease or purchase financing
which shall not exceed One Thousand Dollars ($1000) per month) reasonably
selected by the Executive (which vehicle shall be replaced every three (3)
years); provided, however, that the Executive may elect to replace such
automobile prior to the end of any such three-year period, on the condition
that if the cost of acquiring, leasing, maintaining or insuring any
replacement automobile exceeds the cost of acquiring, leasing, maintaining
or insuring the automobile which was provided by the Company, the Executive
shall pay such incremental cost of such replacement automobile from his
personal funds until the end of the applicable three-year period);
6. Discharge. The Company shall have the right to discharge the Executive
at any time with "cause". For the purposes of this Agreement, "cause" shall
consist only of: (a) breach (whether by willful act or willful omission or
through gross and continuing neglect) by the Executive of any material term or
provision of this Agreement (it being understood that no act or failure to act
on the part of the Executive shall be considered 'willful' unless done, or
omitted to be done, by him in bad faith and without the reasonable belief that
his action or omission was in the best interest of the Company), (b) the
Executive's willful and continued failure (other than any such failure resulting
from his incapacity due to physical or mental illness) to act subject to and in
accordance with any proper and lawful specific direction of the Board of
Directors of the Company or the internal rules and policies established by the
Company (as published and delivered to the Executive from time to time) after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors of the Company which specifically identifies the manner in
which the Board believes that he has not substantially performed his duties, (c)
fraud or dishonesty on the part of the Executive or the Executive's commission
of any act of moral turpitude materially adversely the Company, or (d) the
Executive's violation (except at the written direction of the Board of Directors
of the Company) of any material statute governing the business of the Company,
or of any material rules or regulations promulgated by any regulatory body
governing the business of the Company.
7. Termination of Employment. Notwithstanding the provisions of Section 1
hereof to the contrary, the Executive's employment under this Agreement shall
terminate as follows upon the happening of any of the following events,
whereupon the Company shall have no further obligations to the Executive
hereunder, other than to pay the Executive: (a) his Base Salary up to and
including his last day of employment; and (b) if applicable, amounts pursuant to
the applicable provision of this Section 7:
4
<PAGE>
7.1.1 automatically and without notice, if the Executive shall die
during the term hereof;
7.1.2 (a) upon not less than sixty (60) days prior written notice to
the Executive, if the Executive shall become "disabled" as defined in any
group disability policy maintained by the Company for the benefit of its
Executives, provided that in the event of such termination, the Executive
shall be entitled to receive all compensation and benefits payable to him
pursuant to Sections 3, 4 and 5 hereof until the date set forth in such
notice and (b) during the period that the Executive shall be receiving
compensation as provided in clause (a) above, he shall for all purposes
continue to be considered an employee of the Company;
7.1.3 automatically and without notice, if the Executive voluntarily
terminates his employment with the Company other than for "Good Reason" (as
defined in Section 7.4 below) without the written consent of the Company's
Board of Directors, in which event, notwithstanding anything to the
contrary herein, the Executive shall forfeit his unpaid Bonus;
7.1.4 upon termination of the Executive's employment with the Company
by mutual agreement between the Company's Board of Directors and the
Executive; and
7.1.5 upon written notice to the Executive of action taken by the
Board of Directors of the Company to discharge the Executive for cause
pursuant to Section 6 of this Agreement, in which case, notwithstanding
anything to the contrary herein, the Executive shall be paid his Base
Salary and reimbursable expenses up to and including his last day of
employment.
7.1.6 upon written notice from the Executive to the effect that he is
terminating his employment for "Good Reason", in which event, the Executive
shall be paid his Base Salary and reimbursable expenses up to and including
his last day of employment, in monthly installments, for the balance of the
term of this Agreement or, if longer, for one year. For the purposes of
this Agreement, "Good Reason" shall mean:
(a) without the express written consent of the Executive, the
assignment to him of any duties grossly inconsistent with his
positions, duties, responsibilities and status with the Company, or a
change in his reporting responsibilities, titles, or offices, or any
removal of him from or any failure to re-elect him to any of such
positions, except because of the termination of his employment for
Cause, Disability or Retirement or as a result of his death; or
(b) the breach by the Company of Section 2.1.3. or 2.1.4 hereof.
7.2 The right to receive the benefits as set forth in this Section 7
and in Section 17.2 below shall be the Executive's sole remedy with respect
to a breach or termination of this Agreement by the Company.
5
<PAGE>
8. Non-Competition. The Executive agrees that during his employment
hereunder, the Executive shall not, in any manner, directly or indirectly, as an
officer, director, stockholder, partner, associate, executive, consultant,
owner, agent, creditor, coventurer, or otherwise, be or become interested in or
be associated (whether or not for compensation) with any other corporation,
firm, business or person that is not a subsidiary or affiliate of the Company
engaged in a business competitive with that of the Company or any of the
subsidiaries or affiliates of the Company (to the extent that the Executive
shall have been involved therein or have become familiar therewith in his
capacity as President and Chief Executive of the Company) as conducted or
planned to be conducted by them, respectively, prior to the termination of the
Executive's employment hereunder. Nothing herein contained shall be deemed to
limit or prohibit the Executive from trading in stocks, securities, stock
options, commodities, commodities futures instruments or similar instruments for
his own account only on any exchange or over-the-counter market.
9. Confidential Information.
9.1 The Executive agrees that he shall not at any time (whether during
the period of his employment hereunder or at any time thereafter) use,
outside the scope of his employment hereunder or disclose to any person,
corporation, firm, partnership or other entity whatsoever, or to any
officer, director, stockholder, partner, associate, employee, agent or
representative of any thereof, any confidential information or trade
secrets of or relating to any of the Company. Notwithstanding anything to
the contrary contained in this Section 9.1: (a) the Company agrees that
information relating to the Company, its subsidiaries or affiliates, which
is generally available to the public other than due to disclosure by the
Executive, shall not be considered confidential information pursuant to
this Section 9.1 and (b) after prior written notice to the Company, the
Executive shall be permitted to disclose confidential information to the
extent he is compelled to do so by a court of relevant jurisdiction or
governmental body under applicable statute or regulation.
9.2 Upon leaving the employ of the Company, the Executive shall not
take with him, without the written consent of the then chief executive
officer of the Company, any confidential information of the Company.
10. Notices. All notices hereunder and other communications required or
6
<PAGE>
permitted to be given to either party hereto shall be in writing and delivered
by hand or sent by registered mail, postage prepaid, or by telegram, addressed
to such party at its address referred to above, or at such address as such party
may from time to time designate by written notice to the other party hereto,
given in accordance with the provisions of this Section 10. Any such notice or
other communication shall be deemed to have been given on the date delivered by
hand or on the fifth (5th) day after the mailing thereof.
11. Assignment. This is a personal services agreement and the Executive may
not assign this Agreement to any third party. The Company may assign this
Agreement and the benefits hereunder without the consent of the Executive and
without being relieved from any liability hereunder, to any of its direct or
indirect "affiliates" or "associates" (as such terms are defined in Rule 405 of
the Rules and Regulations promulgated under the Securities Act of 1933) and to
any entity with which or into which the Company may be merged or combined.
12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to its
principles of conflicts of laws.
13. Captions. All captions and headings herein contained are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
14. Indemnification of the Executive.
14.1.1 The Company shall, at all times during the term of this
Agreement and thereafter, to the fullest extent permitted by the
Corporation Law of the State of Nevada (as amended from time to time),
defend, indemnify and hold the Executive harmless from and against any and
all judgments, fines, amounts paid in settlement, reasonable and necessary
out of-pocket expenses (including reasonable attorneys' fees), liabilities,
damages, costs and claims actually incurred by or asserted against him
arising out of, resulting from or relating to:
14.1.2 any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to
which the Executive is a party or is threatened to be made a party by
reason of his being or having been a director, officer, employee or agent
of the Company or by reason of his serving or having served at the request
of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust or other enterprise; or
14.1.3 any threatened, pending or completed action, suit or proceeding
instituted by or in the right of the Company to procure a judgment in its
favor and to which the Executive is a party or is threatened to be made a
party by reason of his being or having been a director, officer, employee
or agent of the Company, or by reason of his serving or having served at
the request of the Company as a director, officer, employee or agent of any
other corporation, partnership, joint venture, trust or other enterprise.
7
<PAGE>
14.2 The Executive agrees to immediately notify the Company of any
claim or proceeding which might result in any liability of the Company
under this Section 14 and agrees to fully cooperate with the Company in
resolving such claim or proceeding. The Company shall have the right to
retain counsel for the Executive in connection with any such claim or
proceeding.
14.3 All expenses incurred by the Executive which, are indemnifiable
by the Company under this Section 14 shall be paid by the Company or
reimbursed to the Executive as and when statements therefor are rendered.
14.4 The Company shall use its best efforts to obtain and maintain in
full force and effect during the term of this Agreement, directors' and
officers' liability insurance policies providing full and adequate
protection to the Executive for his capacities, provided that the Board of
Directors of the Company shall have no obligation to purchase such
insurance if, it its opinion, coverage as available only on unreasonable
terms [such as would have a materially adverse effect on the financial
condition of the Company.].
15. Right to Sell Shares.
15.2 The Executive shall do whatever is reasonably necessary in order
to enable the Company to maintain key man life insurance on his life with
all benefits payable to the Company. Upon termination of this Agreement,
the Executive shall have the right to require the Company to terminate such
insurance or to assume the obligation to pay the premiums for such
insurance and to require the Company to name designees of the Executive as
beneficiaries thereof
17. Legal Costs.
17.1 Upon presentation of a proper invoice therefor, the Company
agrees to reimburse the Executive for all of the attorney's fees and costs,
up to One Thousand Dollars ($1,000), incurred by the Executive in
connection with the negotiation and preparation of this Agreement.
17.2 In the event that there is legal action between the Company and
the Executive for an alleged breach of any provision of this Agreement, and
in the event the Executive's action is finally adjudicated or arbitrated
primarily in his favor, all reasonably necessary legal fees and expenses
incurred by the Executive pursuant to such legal action will be reimbursed
to the Executive by the Company within ten (10) days after the Executive
has presented an invoice therefor to the Company. The provisions of this
Section 16.2 shall survive any termination of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties here executed this Agreement as of the day
and year first above written.
AMERICA'S SHOPPING MALL
By: /s/ Robert Trause
----------------------------
Robert Trause, Director
/s/ Irwin Schneidmill
- ---------------------------
Irwin Schneidmill
9
<PAGE>
EXHIBIT 10.2
SITE DEVELOPMENT AND HOSTING AGREEMENT
This SITE DEVELOPMENT AND HOSTING AGREEMENT (the "Agreement")
dated as of August 9, 1999 is made between Hanover Direct, Inc. ("HDI"), a New
Jersey Corporation, located at 1500 Harbor Boulevard, Weehawken, NJ 07087, and
The Deerskin Companies, Inc. (the "Company"), a Nevada corporation, located at
2500 Arrowhead Drive, Carson City, NV 89706. Each of the parties hereto shall be
referred to as a "Party".
In consideration of the mutual promises and covenants set
forth below, HDI and the Company agree as follows:
1. HDI's Responsibilities.
1.1 HDI shall design, develop, implement, operate, maintain
and manage, and enable the Company to establish a presence on the World Wide Web
("Site") to make available to Internet users on demand, men's and women's
apparel and accessories from the Deerskin Catalog ("Deerskin Products"). As used
in this Agreement, "Deerskin Products" shall not include (i) closeout
merchandise which the Company may identify as "Deerskin" branded items, if such
is the case, nor (ii) products from the Company's Joan Cook Catalog.
1.2 HDI shall bear all costs associated with the design,
development, implementation, operation, maintenance and management of the Site,
including, without limitation, technology and labor.
1.3 HDI shall host and maintain the Site on a server provided
by HDI.
1.4 HDI shall provide the Company with access to, and
<PAGE>
the right to use, a computer system on which the Site will be stored and
operated, with a direct Internet connection of shared but greater than T-1
bandwidth, plus capacity to process continuously during burst periods. HDI shall
also provide the Company with access to HDI's software and Content
administration tools for purposes of allowing the Company to monitor current
catalog information.
1.5 For the purposes of collecting orders for Deerskin
Products from the Site and to communicate to the Site the unavailability of
certain Deerskin Products, HDI shall provide export files in the format provided
by the Company. HDI shall bear the programming and software costs relating to
efforts required to create order export files and receive and process import
files of the Company's inventory information.
1.6 HDI shall have the Site fully operational and accessible
on demand by users of the Internet no later than sixty (60) days from the date
this Agreement has been executed by both Parties. In the event that HDI fails to
have the Site fully operational within seventy (70) days from the date of this
Agreement, the Company shall have the right to terminate this Agreement without
penalty.
1.7 HDI shall distribute the Site through the world wide
protocol of the Internet using distribution channels used by HDI sites and other
similar distribution channels.
1.8 HDI agrees that it shall promote the Site and Deerskin
Products no less favorably than it promotes HDI's
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catalog titles. HDI's promotion of the Site and Deerskin Products shall include,
but not be limited to, the incorporation of the Site and Deerskin Products into
HDI's promotion calendars with Xoom.com and Excite for the term of this
Agreement. HDI agrees that the costs of any such promotions shall be borne by
HDI.
2. Company's Responsibilities.
2.1 The Company shall provide all Content to HDI to be
included in the Site no later than ten (10) days from the date this Agreement
has been executed by both Parties.
2.2 The Company shall bear all costs associated with the
processing of customer orders.
3. Fees; Payment.
3.1 The Company shall pay HDI thirty percent (3016) of the Net
Sales in excess of Eleven Thousand Dollars ($11,000) per calendar month. "Net
Sales" shall mean all revenues from the sale of Deerskin Products on the Site
including shipping and handling charges, minus refunds and exchanges.
3.2 Payments to HDI shall be due monthly within thirty (30)
days of the end of each calendar month and shall be accompanied by documentation
reasonably detailing the calculation of the payment.
3.3 Quarterly reconciliation of payments shall be conducted
within thirty (30) days of the end of each calendar quarter to adjust for
refunds and exchanges not taken into account in payments made to HDI.
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<PAGE>
3.4 HDI's General Manager (as hereinafter defined), may upon
no less than thirty (30) days prior written notice to the Company, have the
right to inspect the records of the Company's General Manager reasonably related
to the calculation of such payments during the Company's normal business hours.
The fees incurred by HDI in connection with the inspection shall be borne by
HDI.
4. Term; Termination; Termination Payment.
4.1 Term; Termination. This Agreement shall be effective as of
that date (the "Effective Date") the Site becomes fully operational as set forth
in writing and executed by both Parties and shall continue for a period of one
(1) year from the Effective Date. This Agreement shall be automatically renewed
for an additional one year period on each anniversary of the Effective Date,
unless terminated by either Party hereto upon ninety (90) days written notice to
the other. Such notice shall specify the date on which this Agreement is to be
terminated (the "Termination Date").
4.2 Termination Payment.
(a) In the event the Company terminates this Agreement, the
Company shall pay to HDI a termination payment, (the "Termination Payment") the
amount of which shall be an amount equal to the aggregate Net Sales for the
twelve (12) months preceding the Termination Date less $800,000, the balance of
which shall be divided by two.
(b) In the event that the amount of the Termination
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Payment is determined pursuant to this Section 4.2 to be less than or equal to
zero, then no Termination Payment shall be due to HDI nor shall HDI be required
to make any termination payment to the Company if the amount is determined to be
less than zero.
(c) The Termination Payment, if any, shall be payable by the
Company in eight (8) equal payments to be made quarterly, commencing thirty (30)
days after the termination date.
5. Site; Site Management.
5.1 URL. The Uniform Resource Locator, or address on the
World Wide Web for the Site ("URL") shall be as mutually agreed by the Parties
and shall be established and registered as necessary by HDI at no cost to the
Company.
5.2 The Company shall have exclusive artistic and editorial
control over the Site, including, without limitation, the implementation of the
Content on the Site and the design and look and feel of the Site. Neither the
Site nor any portion of thereof shall be deemed accepted and approved by the
Company unless and until the Company accepts and approves same in writing to
HDI. No portion of the Site shall be made available on the Internet without the
consent of the Company.
5.3 The Company shall be deemed the "merchant of record" for
all commercial transactions on the Site related to Deerskin Products. Until the
sale of the Deerskin Products to the consumer from the Site all title to the
Deerskin Products shall remain with the Company.
5.4 Each of HDI and the Company shall appoint a
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General Manager of its own to act as liaison with the other Party for the Site
(each a "General Manager") who shall bear sole responsibility for bookkeeping
and business operations of the Site on a day-today basis. Each General Manager
shall have the authority to make and convey decisions on behalf of each Party
and to be the liaison with the other Party for all production and Content
matters.
6. Exclusivity.
6.1 Except as provided in Section 6.2, during the term of this
Agreement, the Company shall not participate in any project similar to the Site
on the Internet with respect to Deerskin Products or products substantially
similar to Deerskin Products (including, without limitation, the products of
Wilson's House of Leather, Excelled and companies similar to Wilson's House of
Leather and Excelled) and HDI shall have the exclusive right to use of the
"Deerskin" brand for a self-contained web site for the offering of Deerskin
Products directly to the consumer on the Internet.
The Company hereby grants to HDI a non-exclusive, limited,
non-transferable license to use the Company's "Deerskin" trademarks, service
marks, and logos (collectively, "Marks") solely for the purpose of carrying out
its obligations under this Agreement. Except as provided herein, no licenses of
the Company's Marks are granted or implied under this Agreement.
6.2 The Company retains the right to establish a web site on
the Internet for the purpose of offering closeout
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merchandise which may be identified as "Deerskin" branded products, if such is
the case.
6.3 During the term of this Agreement and for a period of two
years after the expiration date of this Agreement, HDI shall not participate in
any project similar to the Site on the Internet from which products
substantially similar to Deerskin Products (including, without limitation, the
products of Wilson's House of Leather, Excelled and and companies similar to
Wilson's House of Leather and Excelled) are offered for sale to consumers on the
Internet.
7. Cross-Promotions.
7.1 Joint Efforts. The Parties agree to cross-promote one
another's products through the use of their respective customer e-mail lists on
a reciprocal and equitable basis. The Parties specifically agree that the form,
content and design of any and all advertisements or promotional materials
featuring the other Party or such Party's products shall continue to be
developed by or on behalf of such Party and shall be subject to such Party's
final approval. The Parties agree further that any promotions or advertisements
involving the use of a Party's customer e-mail list by the other Party shall be
subject to the prior approval of such Party.
7.2 Mutual Covenants as to Advertisements. The Parties hereby
covenant and agree that their respective marketing and advertising efforts
provided for herein shall at all times comply with all applicable laws rules and
regulations and will
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not contain any material which is obscene, threatening, fraudulent, harassing,
libelous, infringing of third party intellectual property rights, otherwise
illegal or, in the reasonable judgment of the Party required to display or
transmit the advertisement, offensive.
8. Confidentiality.
8.1 Unless otherwise agreed to in writing by the Company, HDI
shall maintain the strict confidentiality and shall not disclose to any third
party the existence of, or terms and conditions of this Agreement. In addition,
HDI, in performing the Services for the Company hereunder, may have access to or
be exposed to, directly or indirectly, Content, user information, data,
knowledge and proprietary and trade secret information of the Company in oral,
graphic, written, electronic or machine readable form (hereinafter collectively
referred to as "Confidential Information"). Confidential Information shall not
include information which can be demonstrated: (a) to have been rightfully in
the possession of HDI from a source other than the Company prior to the time of
disclosure of said information to HDI hereunder ("Time of Receipt"); (b) to have
been in the public domain prior to the Time of Receipt; (c) to have become part
of the public domain after the Time of Receipt by a publication or by any other
means except an unauthorized act or omission or breach of this Agreement on the
part of HDI, its employees, or agents; or (d) to have been supplied to HDI after
the Time of Receipt by a third party who is under no obligation to the
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Company to maintain such information in confidence.
8.2 HDI Obligations. All Confidential Information of the
Company shall be held in strict confidence by HDI and shall not be disclosed or
used without express written consent of the Company, except as may be required
by law. HDI shall use reasonable measures and reasonable efforts to provide
protection for Confidential Information, including measures at least as strict
as those HDI uses to protect its own Confidential Information.
8.3 Company's Obligations. The Company acknowledges that it
may receive confidential information of HDI relating to its technical,
marketing, product and/or business affairs. All such confidential information of
HDI shall be-held in strict confidence by the Company and shall not be disclosed
or used without express written consent of HDI, except as may be required by
law. The Company shall use reasonable measures and reasonable efforts to provide
protection for such confidential information of HDI, including measures at least
as strict as those the Company uses to protect its own Confidential Information.
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<PAGE>
9. Warranties.
(a) Each Party represents and warrants to the other Party
that (1) it is a corporation organized, validly existing and in goodstanding
under the laws of the state of its incorporation; (2) it has the full right
power and authority to enter into, and to perform the obligations contemplated
in this Agreement, and the person signing on its behalf has the full right,
power and authority to enter into this Agreement on behalf of the Party; (3)
this Agreement constitutes a legal valid and binding obligation of the Party,
enforceable in accordance with its terms; and (4) the execution of this
Agreement will not conflict in any way with any pre-existing agreements or
understandings of the Party with any person or entity.
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<PAGE>
(b) HDI acknowledges that the Company is currently a party to
a web-hosting agreement with Globix Corporation (the "Globix Agreement") for the
Company's web site offering Deerskin Products to Internet customers. HDI agrees
that the Company shall not be deemed in breach of any provision of this
Agreement by virtue of the Globix Agreement remaining in effect after this
Agreement has been executed by both Parties, provided, that the Globix Agreement
is terminated on or prior to the Effective Date
10. General Provisions.
10.1 Notices. Any notice under this Agreement will be in
writing and delivered by personal delivery, express courier, confirmed
facsimile, or certified or registered mail, return receipt requested and will be
deemed given upon personal delivery, one (1) day after deposit with express
courier, upon confirmation of receipt of facsimile or five (5),days after
deposit in the mail. Notices will be sent to a Party at its address set forth
above or such other address as that Party may specify in writing pursuant to
this Section.
10.2 No Joint Venture. The Parties agree that and acknowledge
that the relationship of the Parties is in the nature of an independent
contractor. This Agreement shall not be deemed to create a partnership or joint
venture and neither Party is the other's agent, partner, employee or
representative. Neither Party shall have any right, power or authority to enter
into any agreement for or on behalf of, or to assume or create any obligation,
liability, or responsibility on behalf of the other.
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<PAGE>
This Agreement will not be construed to create or imply an association, joint
venture, co-ownership, or partnership between the Parties or to impose any
partnership obligation or liability upon either Party.
10.3 Assignment. This Agreement shall be binding upon, and
shall inure to the benefit of and be enforceable by, the parties hereto and
their respective legal representatives, successors and assigns, but no other
person shall acquire or have any rights under this Agreement.
10.4 Waiver of Breach. The failure of either Party at any time
to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provisions, or in any way to affect the
right of any Party hereto to thereafter enforce each and every provision of this
Agreement. No waiver of any breach of any provisions of this Agreement shall be
effective unless set forth in writing and executed by the Party against which
enforcement of such waiver is sought; and no waiver of any such breach shall be
construed or deemed to be a waiver of any other or subsequent breach.
10.5 Governing Law. This Agreement shall be governed and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed exclusively in that State
without giving effect to the principles of conflict of laws.
10.6 Severability. If any provision of this Agreement is
declared invalid or otherwise determined to be unenforceable
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for any reason, such provision shall be deemed to be severable from the
remaining provisions of this Agreement, which shall otherwise remain in full
force and effect.
10.7 Survival. Sections 6.3, 7, 9 and 10 of this Agreement
shall survive and continue in full force and effect for a period of two years
from the expiration or termination of this Agreement.
10.7 Entire Agreement. This Agreement is the complete and
exclusive agreement between the Parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both written and
oral) regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both Parties.
10.8 Headings; Counterparts. The section headings in this
Agreement are for reference purposes only and shall not define, limit or affect
the meaning or interpretation of this Agreement. This Agreement is being
executed in two or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
THE DEERSKIN COMPANIES, INC. HANOVER DIRECT, INC.
By By
------------------------------ --------------------------
Name: Irwin Schneidmill Name: Rakesh K. Kaul
Tilte: President Title:President
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<PAGE>
EXHIBIT 10.3
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of May 21, 1999 by and
among Initio, Inc., a Nevada corporation with its principal place of business at
2500 Arrowhead Drive, Carson City, NV ("Initio"), America's Shopping Mall, a
Nevada corporation with its principal place of business at 382 Route 59, #310,
Monsey, NY 10952 ("ASM") and Pioneer Ventures Associates Limited Partnership, a
Connecticut limited partnership with its principals place of business at 651 Day
Hill Road, Windsor, CT 06095 ("Pioneer"):
WHEREAS, Initio and Pioneer are parties to a Debenture Commitment
Agreement dated February 25, 1998 (the "Debenture Agreement") whereby Pioneer
made a loan in the principal amount of Three Million Dollars ($3,000,000) (the
"Loan") and Initio issued to Pioneer a Convertible Subordinated Debenture Due
May 1, 2003 in the principal amount of Three Million Dollars ($3,000,000)
evidencing Initio's obligation to repay the Loan and providing for other terms
and conditions (the "Initio Debenture"); and
WHEREAS, Initio has entered into an Asset Purchase Agreement dated
April 21, 1999 with ASM pursuant to which Initio has agreed to sell to ASM and
ASM has agreed to purchase from Initio certain assets of Initio specified
therein (the "Asset Purchase Agreement"); and
WHEREAS, ASM and Pioneer have entered into an Investment Agreement
dated May 21, 1999 pursuant to which Pioneer has agreed to invest $4,200,000
into ASM and ASM has agreed to issue to Pioneer 10,000 shares of ASM's Series A
Senior Convertible Preferred Stock (the "Series A Shares") and 1,000,000 common
stock purchase warrants (the "Investment Agreement"); and
WHEREAS, in connection with the transactions contemplated by the Asset
Purchase Agreement and the Investment Agreement, (i) Initio wishes to assign and
delegate to ASM, and ASM has agreed to assume, Initio's obligations with respect
to Two Million Dollars ($2,000,000) in principal amount of the Initio Debenture,
with Initio remaining obligated with respect to the remaining One Million
Dollars ($1,000,000) in principal amount of the Initio Debenture, (ii) the
parties wish to provide for the issuance of a substitute Initio Debenture in the
principal amount of $1,000,000 in the form attached hereto as Exhibit A (the
"Substitute Debenture") and the issuance of a debenture from ASM to Pioneer in
the principal amount of $2,000,000 evidencing ASM's obligations to Pioneer in
the form attached hereto as Exhibit B (the "ASM Debenture") and (iii) Pioneer
wishes to consent to such delegation and assumption and the issuance of the
Substitute Debenture and the ASM Debenture, all upon the terms and subject to
the conditions of this Agreement:
NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises contained herein, and intending to be legally bound do hereby agree as
follows:
1. Partial Assignment of Initio Debenture and Delegation of
Obligations.
(a) Initio hereby assigns to ASM, and delegates to ASM, Initio's
obligations as to $2,000,000 in principal amount of the Initio Debenture,
together with all associated obligations under the Debenture Agreement and the
Loan (collectively, the "Initio Obligations").
<PAGE>
(b) ASM hereby accepts the assignment and delegation by Initio to ASM
of the Initio Obligations and agrees to be bound by the terms of the Debenture
Agreement applicable to Initio to the fullest extent as if ASM had been an
initial party thereto.
(c) Pioneer hereby consents to the assignment and delegation by Initio
to ASM of the Initio Obligations, the surrender of the Initio Debenture and the
issuance of the Substitute Debenture and the ASM Debenture;
all pursuant to the terms, and subject to the conditions, contained in this
Agreement.
The assignments and assumptions under this Agreement shall be effective
as of May 1, 1999.
2. Debenture Agreement in Full Force and Effect.
Other than the reduction in the principal amount of the Initio
Debenture from $3,000,000 to $1,000,000 the Debenture Agreement shall remain in
full force and effect without modification of any kind. Any provisions of the
Debenture Agreement applicable to the Initio Debenture shall automatically,
without any further action of the parties, be applicable to the Substitute
Debenture.
3. Issuance of Substitute Debentures.
At the Closing hereunder, (i) Pioneer shall surrender the Initio
Debenture to Milberg Weiss Bershad Hynes & Lerach LLP, as Escrow Agent under the
Escrow Agreement among Initio, Pioneer and the Escrow Agent entered into in
connection with the Debenture Agreement, (ii) Initio shall issue and deliver to,
and for the benefit of, Pioneer the Substitute Debenture and ASM shall issue and
deliver to, and for the benefit of, Pioneer the ASM Debenture.
4. Representations and Warranties of Initio.
Initio hereby represents and warrants to and for the benefit of
Pioneer:
(a) all of the representations and warranties of Initio in the
Debenture Agreement remain true, accurate and complete as of the date hereof;
(b) (i) Initio has fully complied with the terms and conditions of the
Debenture and the Debenture Agreement applicable to Initio, (ii) the Principal
Shareholders of Initio have fully complied with the terms and conditions of the
Voting Agreement among the Principal Shareholders and Pioneer and (iii) there is
no event of default existing under the Initio Debenture, the Debenture Agreement
or the Voting Agreement, nor is there any state of events currently existing
that, with notice or the passage of time, or both would constitute such an event
of default; and
(c) there have been no conversions or redemptions under the Initio
Debenture, nor have any notices been given or received by Initio relating to any
such conversion or redemption.
<PAGE>
5. Representations and Warranties of ASM.
ASM hereby represents and warrants to and for the benefit of Pioneer:
(a) all of the representations and warranties of ASM contained in the
Investment Agreement are true, accurate and complete; and
(b) there is no event of default existing under the Investment
Agreement, the certificate of designation for the Series A Shares, the Warrants,
the Voting Agreement among the Principal Shareholders of ASM and Pioneer dated
May 21, 1999, or any of the Acquisition Agreements (as defined in the Investment
Agreement) nor is there any state of events currently existing that, with notice
or the passage of time, or both would constitute such an event of default.
6. Expenses.
Initio and ASM jointly and severally agree to indemnify Pioneer from
any and all expenses resulting from the surrender and cancellation of the Initio
Debenture and the issuance of the Substitute Debenture and the ASM Debenture,
including without limitation any transfer taxes.
7. Binding Effect.
This Agreement shall be binding upon the successors and assigns of the
parties. The parties shall execute and deliver such further and additional
instruments, agreements, and other documents as may be necessary to evidence or
carry out the provisions of this Agreement.
8. Notices.
All notices or other documents under this Agreement shall be in writing
and delivered personally or mailed by certified mail, postage prepaid, addressed
to the parties at their respective addresses first above written.
9. Waiver; Modifications.
This Assignment and Assumption Agreement may only be modified in a
writing signed by the all parties hereto.
10. Headings.
Headings in this Agreement are for convenience only and shall not be
used to interpret or construe its provisions.
11. Governing Law.
This agreement shall be governed by the laws of The State of New York
without effect to its conflicts of law provisions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
INITIO, INC.
By:________________________
Name:
Title:
AMERICA'S SHOPPING MALL, INC.
By: /s/ [ILLEGIBLE]
--------------------------
Name:
Title:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: Pioneer Ventures Corp.
Managing Member of the
Partnership's General Partner,
Ventures Management Partners LLC
By: /s/ John F. Ferraro
--------------------------
John F. Ferraro
Director
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") made the 21st day of
May, 1999 by DEERSKIN TRADING POST, INC. ("Deerskin"), as Tenant, a Nevada
corporation having an office at 2500 Arrowhead Drive, Carson City, Nevada 89706
and AMERICA'S SHOPPING MALL, INC. ("Assignee") a Nevada corporation having an
office at 382 Rte. 59, #310, Monsey, New York 10952.
W I T N E S E T H:
WHEREAS, Deerskin is party to a lease agreement dated October 13, 1998
(the "Lease"), with Green Street Corner, Inc. ("Landlord"), a copy of which is
attached hereto as Exhibit A;
WHEREAS, Deerskin possesses all right, title and interest in and to the
Lease, as tenant, and desires to sell, assign, and transfer the Lease to
Assignee, and Assignee desires to accept such sale, assignment and transfer,
upon the terms and conditions hereinafter set forth; and
WHEREAS, so far as is known, Deerskin and the Landlord have no claims
or defenses against the other by reason of the Lease.
NOW THEREFORE, in consideration of the mutual promises contained
herein, and for $10 and other good and valuable consideration, the receipt of
which is acknowledged, the parties agree as follows:
1. Assignment. Deerskin hereby sells, assigns and transfers to Assignee
all of Deerskin's right, title and interest in and to the Lease. The foregoing
sale, assignment and transfer
<PAGE>
is made without any recourse whatsoever to Deerskin and without any
representations or warranties, express or implied, of any nature whatsoever.
2. Acceptance and Indemnification. Assignee hereby accepts the
foregoing sale, assignment, and transfer and promises to pay all rent and
additional rent and to faithfully perform all other covenants, stipulations,
agreements, and obligations under the Lease accruing on and after the date
hereof, or otherwise attributable to the period commencing on said date and
continuing thereafter, and Deerskin shall be responsible for the period prior
thereto, subject to the provisions of the Asset Purchase Agreement between
Deerskin and Assignee, dated April 21, 1999. Assignee shall indemnify and save
Deerskin harmless from any and all claims, demands, actions, causes of action,
suits, proceedings, damages, liabilities and costs and expenses of every nature
whatsoever which relate to the Lease or the premises demised thereunder arising
on or after the date hereof.
3. Consent of Landlord. Deerskin agrees to use its best efforts to
obtain the Landlord's consent to the assignment of the Lease and the release of
Deerskin's obligations under the Lease. In the event Deerskin is unable to
obtain such consent, Deerskin shall use its best efforts to obtain for Assignee
the benefits of the Lease.
4. Assignee's Expenses. All taxes and other governmental charges and
fees, including, without limitations, any and all transfer taxes, stamp taxes,
sales taxes, and
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<PAGE>
recording fees, relating to the transaction evidenced by this Agreement shall be
paid by Assignee.
5. Binding Effect. This Agreement shall be binding upon the successors
and assigns of the parties. The parties shall execute and deliver such further
and additional instruments, agreements, and other documents as may be necessary
to evidence or carry out the provisions of this Agreement.
6. Entire Agreement. This Agreement supersedes all agreements
previously made between the parties relating to its subject matter.
7. Notices. All notices or other documents under this Agreement shall
be in writing and delivered personally or mailed by certified mail, postage
prepaid, addressed to the parties at their respective addresses first above
written.
8. Non-waiver. No delay or failure by either party to exercise any
right under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
9. Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
10. Governing Law. This Agreement shall be construed
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<PAGE>
in accordance with and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AMERICA'S SHOPPING MALL, INC.
By /s/ [ILLEGIBLE]
--------------------------------
(Title)
DEERSKIN TRADING POST INC.
By /s/ Martin Fox
--------------------------------
Martin Fox, Chairman
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<PAGE>
EXHIBIT 10.4
L E A S E
THIS INDENTURE OF LEASE (hereinafter called "Lease") dated this 21st
day of May, 1999 between DEERSKIN TRADING POST, INC., having offices at 10 Henry
Street, Teterboro, New Jersey 07068 (hereinafter called "Landlord"), and
AMERICA'S SHOPPING MALL, INC., (formerly Advanced Medical Sciences, Inc.) 382
Rte. 59 #310, Monsey, New York 10952 (hereinafter referred to as "Tenant").
W I T N E S S E T H:
ARTICLE 1
DEMISED PREMISES - TITLE - TERM OF LEASE
Section 1.1 - Demised Premises. In consideration of the rents,
covenants and agreements hereinafter reserved and contained on the part of the
Tenant to be observed and performed, Landlord does hereby lease and demise to
the Tenant and the Tenant does hereby hire, lease and take from Landlord, for
the term subject to and upon the covenants and conditions hereinafter set forth,
the entire building and parking lot ("Demised Premises" or "Premises") located
at 2500 Arrowhead Drive, Carson City, Nevada 89701 (hereinafter referred to as
"Building").
Section 1.2 - Title. At the commencement of the term of the Lease
("Term"), Landlord shall own the fee title to the Demised Premises, subject to
restrictions and encumbrances of record, if any, zoning regulations affecting
such Premises and any state of facts shown on an accurate survey or as a visual
inspection of the Premises would disclose.
Section 1.3 - Term of Lease. To have and to hold unto the Tenant, its
successors and permitted assigns, for the term which shall commence currently
with the Closing, as that term is defined in the Asset Purchase Agreement
between Landlord and Tenant, dated April 21, 1999 (the "Asset Purchase
Agreement"), ("Commencement Date") and terminate on April 30, 2000. The
aforesaid period shall be referred to as the "Term" or "Lease Term".)
ARTICLE 2
USE OF PREMISES
The Tenant shall use and occupy the Premises only for a mail order
retail business consistent with Landlord's prior use of the Premises. Tenant
shall not permit gambling to be conducted at the Premises. Tenant shall not
store or sell gasoline or fuel at the Premises. The Premises shall not be used
as a drug treatment/rehabilitation center, methadone clinic, or alcohol
treatment/rehabilitation center. The Premises will not be used for residential
purposes. The Tenant will not permit the Premises to be used for any obscene or
pornographic purposes and
<PAGE>
will not permit any obscene or pornographic material to be brought on the
Premises. Any of the aforementioned uses shall be deemed to be a breach of a
substantial obligation of the Lease. The Tenant shall not use or occupy or
permit the leased property to be used or occupied, nor do or permit anything to
be done in or on the leased property, in a manner which will in any way violate
any Certificate of Occupancy affecting the leased property, or make void or
voidable any insurance then in force with respect thereto, or which will make it
impossible to obtain fire or other insurance, or which will cause or be likely
to cause structural damage to the Building or any part thereof, or which will
constitute a public or private nuisance, or which would adversely affect the
then value thereof, and shall not use or occupy or permit the leased property to
be used or occupied in any manner which will violate any present or future laws
or regulations of any governmental authority. Other than as set forth above,
nothing herein contained shall be deemed or construed to constitute a
representation or guaranty by the Landlord that any specific business may be
conducted in the Premises or any particular use is lawful under the Certificate
of Occupancy.
ARTICLE 3
RENT AND OTHER CHARGES
Section 3.1 - Rent.
A. During the Term the Annual Basic Rent to be paid by Tenant
to Landlord shall be $336,000.
B. Said rent, additional rent and all other payments due under
this Lease shall be paid to the Landlord at the address hereinabove first
specified, or as the Landlord may otherwise direct in writing. Rent shall be
payable in monthly installments due and payable on the first day of each and
every month in advance. Failure to pay rent by the fifth day of the month shall
be deemed to be a breach of a substantial obligation of the Lease. Additionally,
if Tenant fails to pay the annual basic rent or additional rent on or before the
7th day of the month, (in addition to all other remedies Landlord may have
hereunder) Tenant shall pay one hundred fifty ($150.00) dollars as a late fee.
Said fee shall be deemed to be additional rent. Interest shall accrue on any
unpaid rent or additional rent at twenty-four (24%) percent per annum or at the
highest legal rate allowable pursuant to law, whichever amount shall be less.
C. If Tenant shall submit any check to Landlord for payment of
any obligation hereunder and said check is returned unpaid ("bounced" check),
Tenant shall pay one hundred fifty ($150.00) dollars to Landlord for the
bookkeeping charge incurred. In the event Tenant submits more than one "bounced"
check during the Term, Tenant shall be obligated to make all
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payments to Landlord by certified check or bank check. In such event, if Tenant
fails to submit a certified check or bank check to Landlord, said failure shall
be deemed to be a substantial breach of the terms of this Lease. The one hundred
fifty ($150) dollar bookkeeping charge is in addition to any other remedies
Landlord may have pursuant to the terms of this Lease.
Section 3.2 - Additional Rent. All payments Tenant is required to make
pursuant to this Lease, other than annual basic rent payments (including but not
limited to refurnishing of security or payment of additional security), shall
constitute additional rent and, if Tenant defaults in any such payment so as to
create an Event of Default (as hereinafter defined), Landlord shall have (in
addition to any rights and remedies granted hereby) all rights and remedies
provided by law for nonpayment of rent.
Section 3.3 - Persistent Late Payment of Rent. If Tenant shall default
in the payment of the rent reserved herein, or any item of additional rent
herein mentioned, or any part of either, during any two (2) months, whether or
not consecutive, during the Term and (i) such default continues for more than
ten business (10) days after written notice of such default by Landlord to
Tenant, and (ii) Landlord, after the expiration of such ten business (10) day
period, commences a proceeding or action to dispossess Tenant in each such
instance, then, notwithstanding that such defaults may have been cured prior to
the entry of a judgment against Tenant, any further default in the payment of
any money due Landlord hereunder which shall continue for more than ten business
(10) days after Landlord shall give a written notice of such default shall be
deemed to be deliberate and Landlord may thereafter serve a written three (3)
day notice of cancellation of this Lease and the term hereunder shall end and
expire as fully and completely as if the expiration of such three (3) day period
were the day herein definitely fixed for the end and expiration of this Lease
and the term thereof, and Tenant shall then quit and surrender the Premises to
Landlord, but Tenant shall remain liable as elsewhere provided in this Lease.
Section 3.4 - Last Month's Rent. Concurrently with the execution
hereof, Tenant is paying to Landlord the last month's portion of the Annual
basic rent in the amount of twenty-eight thousand dollars ($28,000).
ARTICLE 4
REAL ESTATE TAXES,
INSURANCE, AND BUILDING MAINTENANCE
Section 4.1 - Net Lease. It is hereby mutually agreed and it is the
intention of the parties hereto that this lease shall be deemed a "net lease"
with respect to the Premises. Tenant shall make all repairs structural and
non-structural to the
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premises. Other than as specifically set forth herein, Landlord shall not be
expected or required to make any payments of any kind or be under any liability
or have any obligation with respect to the Premises. Tenant agrees to pay, or
cause to be paid all costs necessary to maintain the Premises including, but not
limited to, real estate taxes, taxes assessed against the Premises (including
building, land and vault if any), taxes assessed against the rent, or taxes
assessed against use of the Premises, insurance costs, and maintenance costs.
Section 4.2 - Real Estate Taxes. Presentment of a xeroxed copy of the
real estate tax bill by the Landlord shall be deemed conclusive as to the amount
of additional rent for Real Estate Taxes to be paid by the Tenant. The
additional rent for Real Estate Taxes shall be due ten (10) days after Tenant is
presented with a copy of the tax bill. Tenant shall pay as additional rent the
entire amount of taxes as assessed against use of the Premises, insurance costs
and maintenance costs.
Section 4.3 - Late Payment. In the event Tenant's late payment of the
additional rent for real estate taxes causes a penalty and/or interest to be
incurred, said penalty and/or interest, shall be deemed to be additional rent
and shall be paid by Tenant to the Landlord.
Section 4.4 - Certiorari Proceedings. Either party may commence a
proceeding to challenge the tax assessment (hereinafter "Certiorari
Proceeding"). In the event landlord maintains a Certiorari Proceeding during the
Term, the cost of said proceeding shall be borne by the Tenant. Said cost shall
be deemed additional rent. In the event Tenant commences a Certiorari Proceeding
in any year of the term Landlord shall cooperate with the Tenant in the filing
of such proceeding. The cost and expense of the Certiorari Proceeding shall be
borne exclusively by the Tenant.
ARTICLE 5
UTILITY EXPENSE
Section 5.1 - Utility Expense. A. The Tenant agrees to pay, or cause to
be paid, all charges for gas, sewage, electricity, water, light,
air-conditioning, heat, power, or service used, rendered or supplied upon or in
connection with the Premises throughout the term of this Lease and any renewal
thereof, and to indemnify the Landlord and save it harmless against any
liability or damages on such account. The Tenant shall also, at its sole cost
and expense, procure any and all necessary permits, licenses and other
authorizations required for the lawful and proper installation and maintenance
upon the Premises of Tenant's own wires, pipes, conduits, tubes and other
equipment and appliances for use in supplying any such service to and upon the
Premises. Water for the standby sprinkler and sewer
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charges, if any, shall be an obligation of the Tenant. Tenant shall at its own
cost and expense install any and all utility meters which may be required by law
or which are necessary to provide utility service to the Premises.
Section 5.2 - Telephone Services. Tenant shall procure and pay for its
own telephone and communication services.
ARTICLE 6
SECURITY
Section 6.1 - Security. Tenant will deposit the sum of Twenty-Eight
Thousand dollars ($28,000.00) with the Landlord, payable upon execution hereof.
Landlord may use, apply or retain the whole or any part of the security to the
extent required to cure any default of Tenant's and reimburse Landlord for any
damages or expenses (including, without limitation, counsel fees) incurred by
reason of such default, including, but not limited to, any damages, deficiency
or expenses in reletting of the Premises, whether accrued before or after
summary proceedings or other re-entry by Landlord. If Tenant complies with all
its obligations hereunder, the security shall be returned to it thirty (30) days
after the end of the Term and delivery of possession of the Premises to
Landlord. In the event the Landlord shall sell or assign the Premises, then upon
transfer, Landlord agrees to transfer this security to such transferee and
Landlord shall thereupon be released from all liability with respect to such
security. Tenant shall not assign or encumber the security and neither Landlord
nor its successors or assigns shall be bound by any such assignment or
encumbrance. Provided Tenant has furnished Landlord with its Federal tax
identification number in the space provided below, Landlord agrees to deposit
the security in an FDIC insured account. The interest or dividends that accrue
on such security shall be deemed part of the security and credited to Tenant if
it is not in default of the terms of this Lease, less an amount equal to 1% of
the security deposit hereunder which amount shall be retained by the Landlord as
an annual administration fee.
Section 6.2 - Tax ID Number. Tenant's Federal tax identification number
is _____________.
ARTICLE 7
REPAIRS
Section 7.1 - Structural Repairs. Tenant shall be required to make or
cause to be made all interior and exterior repairs whether structural or
non-structural to the Premises. Any repair or alteration requiring expenditure
of ten thousand ($10,000.00) dollars or more shall require the consent of the
Landlord, which consent shall not be unreasonably withheld. In the event of a
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break-in, Tenant shall repair (and/or replace) the damage caused to the
Premises. Tenant is responsible for all damages to Premises incurred as a result
of a break-in.
Section 7.2 - Violations. Tenant shall do whatever is necessary to
remove any violations issued by any Federal, State or local governmental or
quasi-governmental agencies or units, within a reasonable period of time. The
aforesaid shall only apply to violations issued or which accrue prior to the
date Tenant vacates or the Term expires, whichever date shall be later. Tenant's
obligation to make said repairs and correct violations shall survive the
termination of this Lease so long as the obligations accrued prior to the date
of termination.
Section 7.3 - HVAC and Roof. At the date of termination of this Lease,
the electrical, plumbing heating ventilation and air conditioning system (HVAC),
shall be in good and working order and the Premises shall be in good repair. The
roof shall be free of leaks and the parking lot shall be paved and lined at the
termination of the Lease. These obligations shall survive termination of the
Lease.
ARTICLE 8
AFFIRMATIVE OBLIGATIONS AND COVENANTS OF TENANT
Section 8.1 - Affirmative Obligations. Tenant covenants and agrees, at
its own cost and expense, at all times during the Term, except as stated in
Article 8 hereof to:
A. Repairs. Keep, maintain in good order, condition and repair
the Premises and each and every part thereof including, without limitation, air
conditioning systems, interior plumbing units and systems; sprinkler systems;
electrical systems; equipment; alarm systems; parking lot; sidewalks, facilities
and fixtures which are at the Premises and the aforesaid obligation of Tenant
shall also include the replacement of any of the aforesaid items and the
replacement of any glass which may be damaged or broken. The aforesaid items
shall be in good and working order at the expiration of the Lease. This
obligation shall survive the termination of the Lease.
B. Keep Premises Clean and Attractive. Keep and maintain the
Premises in a neat and clean condition, including maintenance of any steps and
sidewalk adjacent to the Premises.
C. Comply with Laws. Promptly comply with all laws,
ordinances, rules and regulations of governmental authorities (including, but
not limited to, zoning ordinances and building codes) affecting the Premises.
D. Garbage. Handle and dispose of all rubbish, garbage and
waste from Tenant's operation in accordance with, all
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laws and ordinances, and reasonable regulations established by Landlord. Tenant
shall not permit the accumulation (unless in concealed enclosed containers), or
burning of any rubbish or garbage in, on or about any part of the Premises.
Tenant shall sort its garbage in accordance with all applicable laws and
regulations. All waste shall be removed from the Premises at least five times a
week and disposed of with a licensed carter.
ARTICLE 9
COVENANT AGAINST LIENS
Section 9.1 - No Liens. Tenant shall neither create nor permit to be
created any lien or encumbrance affecting the Premises and shall discharge,
promptly upon notice, any lien or encumbrance arising out of any act or omission
of Tenant. Notice is hereby given that Landlord shall not be liable for any work
performed or to be performed at the Premises for Tenant, or for any materials
furnished or to be furnished at the Premises for Tenant, and that no mechanic's
or other lien for such work or materials shall attach to or affect the interest
of Landlord in and to the Premises. Any contractors or subcontractors who shall
do work at the building on behalf of Tenant shall be licensed and insured in an
amount of not less than two million ($2,000,000.00) dollars. Moreover, such
workers shall be properly bonded and licensed. At least thirty (30) days prior
to commencement of any work at the Premises, Tenant shall submit proposed plans
to the Landlord. Moreover, Tenant shall, upon submission of the plans, submit
the name and address of the contractor, a copy of the contract, and an insurance
certificate naming the Landlord as an additional insured. Failure to submit this
documentation shall be deemed to be a breach of a substantial obligation of this
Lease. Landlord will not unreasonably withhold its consent to any proposed work,
so long as the aforesaid documentation is submitted in a timely manner.
ARTICLE 10
EASEMENT
Tenant shall permit Landlord or its assignees to show the
Premises to any person that Landlord deems appropriate. Such showings, visits or
repairs shall be done upon reasonable notice to Tenant, and so far as
practicable, in such manner as to avoid unreasonably interfering with or
adversely affecting Tenant's use of the Premises. It is hereby agreed that the
aforesaid easement does not grant Landlord dominion and control over the
Premises therefore such easement shall not relieve Tenant of indemnifying
Landlord from any and all liability for any injury which may be sustained by any
person on the Premises.
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ARTICLE 11
ADDITIONAL NEGATIVE OBLIGATIONS AND COVENANTS OF TENANT
Section 11.1 - Additional Covenants. Tenant covenants and agrees that
at all times during the Term it shall not at any time without first obtaining
Landlord's prior written consent:
A. Alterations. Make any alterations, improvements, and/or
additions to the Premises or any part thereof in excess of ten thousand
($10,000.00) dollars without the prior written consent of the Landlord, which
consent will not be unreasonably withheld.
B. Not Change Exterior Architecture. Change (whether by
alteration, replacement, rebuilding or otherwise) the exterior color and/or
architectural treatment of the Premises without the prior written consent of the
Landlord, which consent will not be unreasonably withheld.
C. Not Misuse Plumbing Facilities. Use the plumbing facilities
for any purpose other than that for which they were constructed, or dispose of
any garbage or other foreign substance therein.
D. No Liens. Subject any fixtures, furnishing or equipment in
or on the Premises which are affixed to the realty, to any mortgages, liens,
conditional sales agreements, security interest or encumbrances.
E. Not Damage the Premises. Perform any act or carry on any
practice which may damage, mar or deface the Premises.
F. Not Exceed Floor Loads. Place a load on any floor in the
Premises, which is in excess of the floor load per square foot as established by
standard engineering principles; or install, operate or maintain therein any
heavy item or equipment except in such manner as to achieve a proper
distribution of the weight.
G. Not Exceed Electrical Load. Install, operate or maintain in
the Premises, any electrical equipment which does not bear underwriters'
approval, and would overload the electrical system therein, or any part thereof,
beyond its reasonable capacity for proper and safe operation.
H. Not Permit Odors, etc. Suffer, allow or permit any
offensive or obnoxious vibration, noise, odor or other undesirable effect to
emanate from the Premises, or any machine or other installation therein, or
otherwise suffer, allow or permit the same to constitute a nuisance or otherwise
unreasonably interfere therefore with the safety, comfort or convenience of the
area surrounding the Premises; upon notice by
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Landlord to Tenant that any of the aforesaid is occurring, Tenant shall
forthwith (but in all events within five (5) days) remove or control the same.
I. Not Interfere with Insurance; Compliance; Improper Use. Use
or occupy the Premises or do not permit anything to be done thereon in any
manner which shall prevent Landlord from obtaining at standard rates any
insurance required or desired, or which would invalidate or increase the cost of
Landlord of any existing insurance, or which might cause structural injury to
the building, or which would constitute a public or private nuisance or which
would violate any present or future laws, regulations, ordinances or
requirements (ordinary or extraordinary, foreseen or unforeseen) of the federal,
state or municipal governments, or of any department, subdivisions, bureaus or
offices thereof, or of any other governmental public or quasi-public authorities
now existing or hereafter created having jurisdiction of the Premises.
J. Utilization of the Premises in Conformity with the
Certificate of Occupancy. Not utilize the Premises in violation of the use
clause set forth in this Lease or use the Premises in a manner which is not in
conformance with the Certificate of Occupancy.
K. Permits. Not do any work at the Premises without complying
with all laws, regulations, ordinances, affecting such work and obtaining all
necessary and proper permits. Tenant shall not submit any applications to any
governmental agency which have not been signed by the Landlord. Tenant shall, if
required, or if requested by Landlord use union labor for all alteration or
repair work performed at the Premises.
ARTICLE 12
INSURANCE CASUALTY, CONDEMNATION
Section 12.1 - Required Insurance. a. Tenant shall, at its own cost and
expense, maintain comprehensive public liability insurance (containing the
so-called "occurrence clause") against claims for personal injury, death and
property damage occurring in or about the Premises, such insurance shall afford
minimum protection (including umbrella policies) of Eleven Million ($11,000,000)
dollars with respect to the personal injury or death of any one person; Eleven
Million ($11,000,000) dollars with respect to personal injury or death occurring
or resulting from one occurrence.
b. Tenant shall at its own cost and expense maintain
casualty insurance (including coverage for fire, natural disasters and water
damage) in the amount of Three Million ($3,000,000) dollars. Landlord shall be
named as additional named insured and primary loss payee on said policy. Tenant
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shall also maintain rental insurance in an amount so that the annual basic rent
and additional rent are paid in the event the Premises are partially or wholly
destroyed. Said rental insurance shall be payable not more than 30 days after
the date of the casualty.
Section 12.2 - Required Provisions. All insurance maintained pursuant
to Article 12 shall:
A. Be provided by policies which may not be canceled or
modified with respect to the Premises without at least thirty (30) days prior
written notice by the insurer to Landlord;
B. Provide that no act or omission of Landlord or Tenant shall
affect the coverage afforded thereunder;
C. Name Landlord as an additional insured party and, if
obtainable, (even if at additional cost to the Tenant) provide that the insurer
waives all right of subrogation against Landlord for losses insured thereunder.
D. Be provided by an insurer with at least an "A" rating.
Section 12.3 - Landlord's Non-Liability, Tenant's Own Insurance.
A. Tenant hereby waives all right of recovery which it might
have against Landlord, Landlord's agents and employees, for loss or damage to
Tenant's furniture, inventory, furnishings, fixtures, equipment, chattels and
articles of personal property located on the Premises, notwithstanding that such
loss or damage may result from the passive negligence or fault of Landlord.
Tenant shall obtain insurance policies covering its furnishings, inventory,
fixtures, equipment and articles of personal property (collectively, "Personal
Property") in the Premises, and Tenant shall cause Landlord to be named as an
additional insured party under such policies (without entitling Landlord to
receive any loss proceeds thereof) and obtain the insurer's waiver of all rights
of subrogation against Landlord with respect to losses insured under such
policies. All policies obtained by the Tenant (including any liability or
casualty policies) shall provide that the insurer waives all rights of
subrogation against the Landlord for losses insured thereunder.
B. Tenant shall advise Landlord promptly of the applicable
provisions of such insurance policies and notify Landlord promptly of any
cancellation or change therein. Tenant shall provide copies of original
insurance policies to Landlord evidencing the insurance coverage required by
this Article.
Section 12.4 - Exculpation of Landlord. As a consideration for the
making of this Lease, the Landlord shall not be liable
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for any failure of water supply or electric current, nor for injury or damage
which may be sustained to any person or property by the Tenant or any other
person caused by or resulting from steam, electricity, gas, water, rain, ice, or
snow which may leak or flow from or into any part of said Building or the
Premises or from the breakage, leakage, obstruction or other defect of the
pipes, wiring, appliances, plumbing or lighting fixtures of the same, the
condition of said Premises or any part thereof, or from the street or
subsurface, or from any other source or cause whatsoever, unless such damage or
injury shall be caused by or be due to the gross negligence of the Landlord, the
Landlord's agents, servants or employees. Tenant acknowledges that it will
obtain appropriate insurance to cover any of the contingencies set forth above
Section 12.5 - Safety Compliance. Tenant agrees, at its own cost and
expense, to comply with all of the rules and regulations of the Fire Insurance
Rating Organization having jurisdiction and any similar body. If Tenant installs
any electrical equipment that overloads the lines of the Building, Tenant shall,
at its own cost and expense, promptly make whatever changes are necessary to
remedy such condition and to comply with all requirements of the Landlord and
the Board of Fire Insurance Underwriters and any similar body and any
governmental authority having jurisdiction thereof.
Section 12.6 - Fire or Other Casualty.
A. Rent and additional rent shall not be apportioned for any
month hereunder, in which the Premises are substantially damaged. In the event
the Premises shall be damaged or destroyed Tenant shall be obligated to rebuild
the Premises. Landlord shall tender any proceeds received from Tenant's casualty
insurance to contractors involved with the rebuilding of the Premises.
B. Notwithstanding anything to the contrary contained in the
preceding Paragraph A of this Section or elsewhere in this Lease, Tenant, or
Landlord at its option, may terminate this Lease on twenty-five (25) days notice
to the other party, given within sixty (60) days after the Premises shall be
damaged or destroyed, if the cost to repair the same shall amount to fifty (50%)
percent or more of the cost of replacement thereof; the term "cost of
replacement" shall be determined by the company or companies selected by
Landlord insuring Landlord against the casualty in question. Landlord shall be
entitled to retain all proceeds of any payment made under the casualty insurance
policy obtained by Tenant pursuant to this Article.
Section 12.7 - Condemnation.
A. Total or Substantial Partial Condemnation. If the whole of
the Premises shall be taken for any public or any
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quasi-public use under any statute or by right of eminent domain, or by private
purchase in lieu thereof, then this Lease shall automatically terminate as of
the date that title shall be taken. If a substantial part of the Premises shall
be taken so as to substantially interfere with the operation of Tenant's
business, then Landlord and Tenant shall each have the right to terminate this
Lease on thirty (30) days' notice to the other given within ninety (90) days
after the date of such taking. In the event that this Lease shall terminate or
be terminated, the rent shall, if and as necessary, be equitably adjusted.
B. Disposition of Proceeds. All compensation awarded or paid
upon such a total or partial taking of the Premises shall belong to and be the
property of Landlord without any participation by Tenant. Nothing herein shall
preclude Tenant from asserting any claim against the municipality enforcing the
condemnation.
ARTICLE 13
TENANT'S INDEMNIFICATION OF LANDLORD AGAINST LIABILITY
Tenant shall indemnify Landlord against all liability and
expense (including reasonable architects' and attorneys' fees) incurred by
Landlord (unless caused by the gross negligence of the Landlord) by reason of:
A. Any action commenced by Tenant (or by Landlord to cure an
event of default as hereinafter defined) on or about the Premises;
B. Any use, non-use or maintenance of the Premises or adjacent
area;
C. Any negligence of Tenant;
D. Any injury or damage to any person or property occurring on
or about the Premises (including the commencement of an action as a result of
such damage or injury) or adjacent area and it is admitted by Tenant that
Landlord has no liability for any such injury since Tenant has control of the
Premises; or
E. Any failure by Tenant to perform its obligations under the
Lease.
ARTICLE 14
LANDLORD'S REMEDIES IN EVENT OF TENANT'S DEFAULT OR BANKRUPTCY
Section 14.1 - Events of Default. Tenant shall be in default of this
Lease if any one or more of the following events (referred to herein as "events
of default") occurs:
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A. Tenant shall default in payment of any installments of
rent, additional rent or other sums required to be paid by Tenant under this
Lease, which default shall continue for five (5) days after written notice
thereof by Landlord to Tenant or in the observance or performance of any other
covenant or provision of this Lease and such default continues for ten (10) days
after notice of such default from Landlord.
B. Tenant shall make an assignment for the benefit of
creditors or shall assign or sublet;
C. A voluntary petition is filed by Tenant under any laws for
the purpose of adjudication of Tenant as a bankrupt or the extension of the time
of payment, composition, arrangement, adjustment, modification, settlement or
satisfaction of the liabilities of Tenant, or the reorganization of Tenant under
the Bankruptcy Act of the United States or any future laws of the United States
having the same general purpose, or receivers appointed for Tenant by reason of
insolvency or alleged insolvency of Tenant; an involuntary petition shall be
filed against Tenant for such relief and shall not be dismissed within ninety
(90) days.
Section 14.2 - Termination of Lease. Landlord, notwithstanding any
other right or remedy it may have under the Lease, at law or in equity, may, in
the event of Tenant's material breach of this Lease and its failure to cure as
set forth above, terminate the Lease, by written notice to Tenant setting forth
the basis therefor and effective not less than five (5) days thereafter,
whereupon, upon such effective date, the Lease shall terminate (with the same
effect as if such date were the date fixed herein for the natural expiration of
the Term), Tenant shall surrender the Premises to Landlord and Tenant shall have
no further rights hereunder, but Tenant, shall remain liable as hereinafter
provided. In such event, Landlord may, without further notice, enter the
Premises, repossess the same and dispossess Tenant and all other persons and
property therefrom.
Section 14.3 - Landlord's Damages.
A. If Landlord so terminates the Lease, Tenant shall pay
Landlord, as damages:
i. A sum which represents any excess of (i) the
aggregate of the rent, impositions and additional rent for the balance of the
Term if the Lease were not so terminated, over (ii) the net rental value of the
Premises at the effective date of such termination, both discounted at the rate
of 1% per month; or, at Landlord's option,
ii. Sums equal to the rent, impositions and
additional rent, when the same would have been payable if not for such
termination, less any net rents received by Landlord from
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any reletting, after deducting all costs incurred in connection with such
termination and reletting (but Tenant shall not receive any excess of such net
rents over such sums). Brokerage fees and reasonable legal fees incurred by the
Landlord in re-letting the Premises and the costs of repairing or doing
construction necessary to subdivide for any new tenant or tenants shall be
deemed to be costs incurred in re-letting.
Section 14.4 - Discovery of Damages. Landlord may commence actions or
proceedings to recover such damages or installments thereof at any lawful time.
No provisions hereof shall be construed to preclude Landlord's recovery from
Tenant of any other damages to which Landlord is lawfully entitled. Landlord
shall be entitled to payment of its reasonable legal fees in any action
commenced against Tenant by reason of Tenant's breach of any term of this Lease.
Section 14.5 - Nonexclusivity. No right or remedy herein conferred upon
Landlord is intended to be exclusive of any other right or remedy herein or by
law provided, but each shall be cumulative and subject to the grace and notice
provisions of Section 14.1 hereof, in addition to every other right or remedy
given herein or now or hereafter existing at law or in equity or by statute.
Section 14.6 - Landlord's Right to Perform Tenant's Covenants. If
Tenant shall fail to maintain the Premises or shall fail to make any other
payment or perform any other act which Tenant is obligated to make or perform
under this Lease, and Tenant has not proceeded to diligently cure such failure
to pay or perform after written notice by Landlord to Tenant stating such
nonperformance, then Landlord, after ten (10) day written notice to Tenant, may
perform for the account of Tenant any covenant in the performance of which
Tenant is in default. Tenant shall pay to the Landlord as additional rent, upon
demand, any amount paid by Landlord in the performance of such covenant in any
amount which Landlord shall have paid by reason of failure of Tenant to comply
with any covenant or provision of this Lease, including reasonable accounts of
fees incurred in connection with the prosecution or defense of any proceedings
instituted by reason of default of Tenant, together with interest at the rate of
twenty-four (24%) percent per annum or the highest rate allowed by law whichever
amount shall be less. Interest shall accrue from the date any outstanding amount
is due.
Section 14.7 - No Waiver. The failure of the Landlord to seek redress
for violation of, or to insist upon the strict performance of any covenant or
condition of this Lease shall not prevent a subsequent act which would have
originally constituted a violation from having all the force and effect of an
original violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach and no
provision of this Lease shall be deemed to
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have been waived by Landlord unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease. No act or thing done by Landlord or
Landlord's agents during the Term shall be deemed an acceptance of a surrender
of said Premises, and no agreement to accept such surrender shall be valid
unless in writing signed by Landlord. No employee of Landlord or Landlord's
agent shall have any power to accept the keys of the Premises prior to the
termination of the Lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the Lease or a surrender of the Premises.
Section 14.8 - Right of Re-Entry. Tenant waives any and all right to a
trial by jury in the event that summary proceedings shall be instituted by
Landlord. The terms "enter", "re-enter", "entry" or "re-entry", as used in this
Lease are not restricted to their technical legal meaning.
ARTICLE 15
NO ASSIGNMENT AND SUBLETTING
Tenant shall not have the right to assign this Lease, or sublet all or
any part of the Demised Premises at any time during the Term.
ARTICLE 16
SUBORDINATION OF LEASE TO MORTGAGES ON THE PREMISES
Section 16.1 - Subordination. The Lease shall be subject and
subordinate to any mortgage on the Premises ("Mortgage") and any renewal,
replacement, extension or consolidation thereof.
Section 16.2 - Attornment Agreement. This Article shall be
self-operative but Tenant shall promptly, upon Landlord's request, execute and
deliver proper instruments subordinating the Lease to the Mortgage, agreeing to
attorn to the Mortgagee (at the Mortgagee's request) in the event the Mortgagee,
by foreclosure or otherwise, terminates Landlord's interest in the Premises and
agreeing further to notify the Mortgagee of any default by Landlord hereunder
and afford the Mortgagee reasonable opportunity to remedy such default should it
wish to do so.
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ARTICLE 17
ACCESS TO PREMISES
The Landlord is hereby given the right during usual business hours to
enter the Premises and to exhibit the same for the purposes of sale or hire of
all or a part of the Premises provided at least twenty-four (24) hours written
notice is given to Tenant. Landlord shall during the final six (6) months of the
Term be entitled to display, on the Premises in such manner as not unreasonably
to interfere with the Tenant's business, the usual "For Sale" or "To Let" signs
or such other signage indicating Landlord's proposed development plans for the
Premises, and the Tenant agrees that such signs may remain unmolested upon the
Premises.
ARTICLE 18
NOTICES
All notices, demands and requests which may or are required to be given
by either party to the other shall be in writing. All notices, demands and
requests by the Tenant to the Landlord shall be sent by United States Certified
Mail (return receipt requested), postage prepaid, addressed to the Landlord at
the address shown on the first page of this Lease or at such other place as the
Landlord may from time to time designate in a written notice to the Tenant. A
copy of any notice to Landlord shall be sent to Milberg Weiss Bershad Hynes &
Lerach LLP, One Pennsylvania Plaza, New York, New York 10119, attn: Arnold N.
Bressler. All notices, demands and requests by the Landlord to the Tenant shall
be sent by United States Certified Mail, postage prepaid, Return Receipt
Requested, addressed to the Tenant at the address shown on the first page of
this Lease or at such other place as the Tenant may from time to time designate
in a written notice to the Landlord. A copy of any notice to Tenant shall be
sent to Caro & Associates, P.C. 60 East 42nd Street, Suite 2001, New York, New
York 10165, attn: Chase A. Caro. Notices, demands and requests which shall be
served upon the Landlord or the Tenant in the manner aforesaid shall be deemed
sufficiently served or given for all purposes hereunder two (2) days after such
notice, demand or request shall be mailed. Tenant hereby appoints any person
employed at the Premises as his agent authorized to accept service of any papers
or service of process.
ARTICLE 19
ACCEPTANCE
Neither the Landlord nor its agents have made any representations with
respect to the Building, the land upon which it is erected except as expressly
set forth herein and no rights,
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easements, or licenses are acquired by the Tenant by this Lease. The taking of
possession of the leased property by the Tenant shall be conclusive evidence
that the Tenant will have accepted the same "as is" at the time of the
commencement of the term hereof. In no event shall the Landlord be liable for
any defect, latent or otherwise, in such property or for any limitation on its
use.
ARTICLE 20
QUIET ENJOYMENT - CONVEYANCE BY LANDLORD
Section 20.1 - Quiet Enjoyment. Tenant, upon paying the rent and all
additional rent and other charges herein provided for and performing all
covenants and conditions of this Lease, on its part to be performed, shall
quietly have and enjoy the Premises during the term, without hindrance or
molestation by Landlord or any other person claiming through Landlord.
Section 20.2 - Conveyance by Landlord. If Landlord shall convey the
Premises, all liabilities and obligations on the part of Landlord under this
Lease accruing subsequent to such transfer shall terminate upon such conveyance
and thereafter all such liabilities and obligations shall be the liabilities and
obligations of such transferee and shall be binding upon such transferee of the
Premises.
ARTICLE 21
ESTOPPEL CERTIFICATE
Within ten (10) days after the request therefrom by Landlord, or if on
a sale, assignment of hypothecation by Landlord of its interest in the Premises,
or any part thereof, an estoppel certificate shall be required from Tenant and
Tenant shall deliver, in recordable form, a certificate to any proposed
mortgagee or purchaser, or to Landlord, certifying if such be the case that this
Lease is in full force and effect, the date of Tenant's most recent payment of
rent, and that there are no defenses or offsets outstanding, or stating those
claimed by Tenant. Tenant's failure to deliver said statement shall be
conclusive upon Tenant that (l) this Lease is in full force and effect without
modification except as may be represented by Landlord, (2) there are no uncured
defaults in Landlord's performance and Tenant has no right of offset, counter
claim or deduction, and (3) that no more than one (l) month's rent has been paid
in advance.
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ARTICLE 22
NO ABATEMENT OF RENT
Section 22.1 - No Abatement of Rent. Except as otherwise specifically
provided in this Lease, there shall be no abatement, diminution or deduction of
rent charges or other compensation due to the Landlord by the Tenant or any
person claiming under it, under any circumstances including but not limited to
the complete or partial destruction of the Building or any inconveniences,
discomfort, interruption of business or otherwise caused by a taking or
destruction of the Premises except as otherwise specifically provided herein.
Section 22.2 - Declaratory Judgment. Tenant waives its rights to bring
a declaratory judgment action with respect to any provision of this Lease, or
with respect to any notice sent pursuant to the provisions of this Lease, and
expressly agrees not to seek injunctive relief which would stay, extend or
otherwise toll any of the time limitations or provisions of this Lease, or any
notice sent pursuant thereto. Any breach of this paragraph shall constitute a
breach of substantial obligations of the tenancy, and shall be grounds for the
immediate termination of this Lease. It is further agreed that in the event
injunctive relief is sought, such relief shall be denied, and the Landlord shall
be entitled to recover the costs of opposing such an application or action,
including its attorneys' fees actually incurred.
ARTICLE 23
SURRENDER
Section 23.1 - Required Conditions. On the last day or sooner
termination of the Lease, Tenant shall quit and surrender the Premises broom
clean, in good condition and repair, exclusive of all alterations, additions and
improvements which may have been made in, on, or to the Premises (including, but
not limited to, replacement of any walls which were removed and removal of any
partitions or walls installed), movable furniture or unattached movable trade
fixtures normal wear and tear excepted. If the Premises are not surrendered as
and when aforesaid, Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding occupant founded on such
delay. Tenant's obligations under this section shall survive the expiration or
sooner termination of the term. In the event Tenant remains in possession of the
Premises after the expiration of the term created hereunder, and without the
execution of a new lease, Tenant, shall be deemed to be occupying the Premises
as a Tenant from month-to-month, at a monthly rental equal to three (3) times
the annual rent payable for the last month of the term or any renewal thereof.
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Section 23.2 - Abandoned Property. Any property left at the Premises by
the Tenant at the expiration of the Term or, when Tenant abandons the Premises,
shall be deemed abandoned. Landlord may sell or dispose of said property in any
manner it deems appropriate. Any costs of disposal incurred by Landlord shall be
paid by Tenant. This obligation shall survive termination of the Lease.
ARTICLE 24
MISCELLANEOUS
Section 24.1 - Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of Nevada.
Section 24.2 - No Broker. Landlord and Tenant each represents and
warrants to the other that it has not employed any realtor, broker or agent in
connection with this Lease and the renting of the Premises hereunder. Landlord
and Tenant each agrees to indemnify the other and hold it harmless from all
liabilities arising from any claim that it incurred a commission, brokerage or
finder's fee including, without limitation, reasonable counsel fees in
connection therewith.
Section 24-3 - No Examination of Deed. In any summary proceeding
commenced by Landlord against Tenant, Tenant waives any rights it may have to
examine the deed for the Premises.
Section 24.4 - No Jury Trial. Anything herein contained to the contrary
notwithstanding, the Tenant agrees and does hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant and/or
Tenant's use or occupancy of the Premises.
Section 24.5 - Counterclaim, Etc. Anything herein contained to the
contrary notwithstanding, in any action or summary proceeding brought for the
collection of any of the rent or additional rent provided for herein or for the
nonpayment thereof to the Landlord, or for any proceeding or action wherein
Tenant has violated the terms of this Lease, the Tenant hereby waives and agrees
not to introduce any noncompulsory counterclaims which the Tenant now has or
hereafter may have. The Tenant, however, shall have the right to litigate any
such claim in a separate independent action, and such independent action shall
at no time be joined or consolidated. Moreover, Tenant shall not assert as an
affirmative defense, in any summary proceeding commenced by the Landlord, any
claim which is based on Landlord's alleged negligence. Subject to the terms of
this Lease, Tenant may assert any negligence claims against Landlord in a
plenary action brought against Landlord.
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Section 24.6. Tenant accepts the Premises "as is". Tenant has carefully
inspected the Premises and is fully familiar with the condition of the Premises.
Section 24.7 - Legal Fees. Tenant shall pay as additional rent all
reasonable legal fees incurred by Landlord in any action or proceeding to
collect rent, additional rent or to enforce any provision of this Lease and for
which Landlord successfully prosecutes. Such fees shall be payable to Landlord
if it is defending any action commenced by Tenant or in the defense of any
counterclaims brought by Tenant.
Section 24.8 - Sign. Tenant shall only be entitled to erect a sign at
the Premises upon receipt of written approval from the Landlord, which shall not
be unreasonably withheld. If the Landlord approves the erection of such a sign,
Tenant shall be required to obtain all governmental approvals prior to erecting
the sign. Tenant shall be obligated to maintain the sign and Tenant will be
obligated to remove the sign when it vacates the Premises.
Section 24.9 - Interest. Interest shall accrue on all rent and
additional rent which has accrued but which is unpaid at the rate of twenty-four
(24%) percent per annum or the highest rate allowed by law whichever rate shall
be less.
Section 24.10. Any breach of the terms of this Lease by Tenant shall be
deemed substantial.
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the
date first above written.
Landlord: DEERSKIN TRADING POST, INC.
By: /s/ [ILLEGIBLE]
------------------------------
(title)
Tenant: AMERICA'S SHOPPING MALL, INC.
By: /s/ [ILLEGIBLE]
------------------------------
(title)
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EXHIBIT 10.5
LEASE AGREEMENT
BY AND BETWEEN:
WHITNEY ASSOCIATES
a New Jersey General Partnership
"LANDLORD"
-and-
AMERICA'S SHOPPING MALL, INC.
"TENANT"
<PAGE>
LEASE, made the 22nd day of September 1999 between Whitney Associates a
New Jersey general partnership, whose address is 600 East Crescent Avenue, Upper
Saddle River, New Jersey 07458 (hereinafter called "Lessor") and America's
Shopping Mall, Inc. whose address is 382 Route 59, Suite 310, Monsey, New York
10952, (hereinafter called "Lessee").
WITNESSETH:
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Lessor and Lessee agree as follows:
DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires
from Lessor, the following space 2,708 Rentable square feet on the Lower Level
North West side (hereinafter called "Demised Premises" or "Premises") which
includes an allocable share of the common facilities, as shown on the plan or
plans, initialed by the parties hereto, marked Exhibit A attached hereto and
made part of this Lease in the Building commonly known as SHERBROOKE OFFICE
CENTER I located at 600 East Crescent Avenue, Upper Saddle River, New Jersey
07458 ("hereinafter called the Building") which is situated on that certain
parcel of land hereinafter called "Office Building Area") as described on
Exhibit A-1 attached hereto and made part of this lease, together with the right
to use in common with other lessees of the Building, their invitees, customers
and employees, those public areas of the common facilities as hereinafter
defined.
2. TERM . The Premises are leased for a term of Sixty (60) months
commencing on February 1, 2000 and ending at 12:00 o'clock midnight, on March
31, 2005.
3. BASIC RENT. The Lessee shall pay to the Lessor during the term basic
rent in an amount no less than $135,420.00 calculated in accordance with the
following formula:
2,708 square feet at $10.00 per ft. $ 2,257.00 per month
Annual Rent $ 27,084.00
Total Rent for (60) Months $ 135,420.00
The basic rent is payable in such coin or currency of the United States
of America at the time of payment as shall be legal tender for the payment of
public and private debts.
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The basic rent shall accrue at the yearly rate of $135,420.00 each year
of the term and shall be payable in advance, on the first day of each calendar
month during the term in installments of $2,257.00 the first installment being
due upon execution of this Lease.
In addition, Lessee shall pay $2.00 Per Sq. Ft. x 2,708 sq. ft. for
office electric service on a monthly basis in the amount of $451.00 which
service is otherwise described in this lease. In the event Lessor elects to
measure electrical service as set forth in paragraph 22, any amounts payable by
Lessee pursuant to paragraph 22 shall be reduced by amounts paid pursuant to
this paragraph.
4. USE AND OCCUPANCY. Lessee shall use and occupy the Premises as
general offices and for no other purpose.
5. CARE AND REPAIR OF PREMISES. Lessee shall commit no act of waste and
shall take good care of the Premises and the fixtures and appurtenances therein,
and shall, in the use and occupancy of the premises, comply with all applicable
laws, orders and regulations of the federal, state and municipal governments or
any of their departments; Lessor shall make all necessary repairs to the
Premises, including without limitation, all plumbing, electrical, HVAC and other
systems servicing the Premises, common facilities and to the assigned parking
areas, if any. In the event that the repair has been made necessary by misuse or
neglect by Lessee or Lessee's agents, servants, visitors or licensees, Lessor
shall nevertheless make the repair. Except to the extent covered by the waiver
of subrogation expressed in Paragraph 10 of this Lease, Leasee shall pay to
Lessor, as additional rent, immediately upon demand, the costs therefor. All
improvements made by Lessee to the Premises, which are so attached to the
Premises that they cannot be removed without material injury to the Premises,
shall become the property of Lessor, upon installation. Not later than the last
day of the term, Lessee shall, at Lessee's expense, remove all Lessee's personal
property and those improvements made by Lessee which have not become the
property of Lessor, including trade fixtures, cabinet work, moveable paneling,
partitions and the like; repair all injury done by or in connection with the
installation or removal of said property and improvements and surrender the
Premises in as good condition as they were at the beginning of the term,
reasonable wear and damage by fire, the elements, casualty or other cause not
due to the misuse or neglect by Lessee, Lessee's agents, servants, visitors or
licensees excepted. All other property of Lessee remaining on the Premises ten
(10) days after the last day of the term of this Lease shall be conclusively
deemed abandoned and may be removed by Lessor, and Lessee shall reimburse Lessor
for the cost of such removal. Lessor may have any such property stored at
Lessee's risk and expense.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. Lessee shall not, without
first obtaining the written consent of Lessor, make any alterations, additions
or improvements in, to or about the Premises. The Lessor shall not unreasonably
withhold its consent for same.
7. ACTIVITIES INCREASING FIRE INSURANCE RATES. Lessee shall not due or
suffer anything to be done on the premises which will increase the rate of fire
insurance on the Building.
8. ASSIGNMENT AND SUBLEASE. Lessee may assign or sublease the
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within Lease to any party subject to the following.
(A) In the event that the Lessee desires to sublease all or a part of
the Premises, or to assign the Premises to any other party, the terms
and provisions of such sublease or assignment shall be communicated to
the Lessor in writing and within thirty (30 ) days of the Lessee's
notice of its intention to sublease or assign as aforesaid, the Lessor
shall have the option, exercisable in writing to the Lessee to
recapture the within Lease, if an assignment shall have been proposed,
or, to recapture that portion to be sublet if a sublease shall have
been proposed, and in such event, the within Lessee shall, if an
assignment, be fully released from any and all of its obligations
hereunder, or, if a sublease, released with respect to said space
proposed to be sublet.
(B) In the event that the Lessor elects not to recapture the Lease as
hereinabove provided or the space proposed to be sublet, the Lessee
may nevertheless assign this Lease or sublet the whole or any portion
of the Premises, subject to the Lessor's prior written consent, which
consent shall not be unreasonably withheld, on the basis of the
following terms and conditions:
(1) The Lessee shall provide to the Lessor the name and
address of the assignee or sublessee.
(2) The assignee or sublessee shall assume, by written
instrument, all of the obligations of this Lease, and a copy of such
assumption agreement shall be furnished to the Lessor within ten (10)
days of its execution.
(3) The Lessee and each assignee shall be and remain liable
for the observance of all the covenants and provisions of this Lease,
including, but not limited to, the payment of rent reserved herein,
through the entire term of this Lease, as the same may be renewed,
extended or otherwise modified. Notwithstanding anything contained
herein to the contrary, no such modification, extension or renewal
will occur without Lessee's consent which will expand Lessee's
obligations hereunder, and if any of the aforesaid occur without
Lessee's consent, Lessee's liability hereunder shall be limited to
that existing prior to said modification, extension or renewal.
(4) The Lessee and any assignee shall promptly pay to Lessor
one-half (1/2) of any consideration received for any assignment or
one-half (1/2) of the rent, both exclusive of any reasonable expenses
or brokerage
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incurred in connection with the sublease or assignment, as and when
received, in excess of the rent required to be paid by Lessee for the
area sublet, computed on the basis of an average square foot rent for
the gross square footage Lessee has leased.
(5) In any event, the acceptance by the Lessor of any rent
from the assignee or from any of the subtenants or the failure of the
Lessor to insist upon a strict performance of any of the terms,
conditions and covenants herein shall not release the Lessee herein,
nor any assignee assuming this Lease, from any and all of the
obligations herein during and for the entire term of this Lease.
(6) Lessor shall require a One Hundred and 00/100 ($100.00)
Dollar payment to cover its handling charges for consent to any sublet
or assignment prior to its consideration of the same. Lessor shall
respond to each request within ten (10) days from receipt of the same,
provided the request is accompanied by full and complete financial and
biographical information. Lessee acknowledges that its sole remedy
with respect to any assertion that Lessor's failure to consent to any
sublet or assignment is unreasonable shall be the remedy of specific
performance and Lessee shall have no other claim or cause of action
against Lessor as a result of Lessor's actions in refusing to consent
to a proposed subtenant or assignee (i) whose business is not
compatible to the type of occupancy of the Building; (ii) violates any
exclusive granted to any other tenant in the Building; (iii) if such
business will create increased use of the common facilities of the
Building and Office Building Area; (iv) if such business is: an
employment agency or executive search agency, a state, federal or
local government agency or bureau; with doctors and other
professionals under the jurisdiction of the New Jersey Board of
Medical Examiners, dentists, psychologists, or marriage counselors.
(C) Any sublet or assignment to an affiliated company shall not be
subject to the provisions of subsections (A) or (B) (4) hereof and
shall not require Lessor's prior written consent all other provisions
of this Paragraph shall apply.
9. COMPLIANCE WITH RULES AND REGULATIONS. Lessee shall observe and
comply with the rules and regulations hereinafter set forth in Exhibit B
attached hereto and made a part hereof and with such further reasonable rules
and regulations as Lessor may prescribe, on written notice to the Lessee, for
the safety, care and cleanliness of the Building and the comfort, quiet and
convenience of other occupants of the Building. Lessee shall not place a load
upon any floor of the Demised Premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Lessor reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations
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shall be placed and maintained by Lessee, at Lessee's expense, in settings
sufficient, in Lessor's judgment, to absorb and prevent vibration, noise and
annoyance.
10. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonably estimated by Lessor, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (exclusive of foundations) just
prior to the occurrence of the damage, then Lessor may, no later than the
sixtieth (60th) day following the damage, give Lessee a notice of election to
terminate this lease, or if the cost of restoration will equal or exceed fifty
(50%) percentage of such replacement value or if the damage to the Premises
reasonably will take more than 120 days to restore and if the Premises shall not
be reasonably usable for the purpose in which they are leased hereunder, then
Lessee may, no later than the sixtieth (60th) day following the damage, give
Lessor a notice of election to terminate this Lease. In either said event of
election, this Lease shall be deemed to terminate on the thirtieth (30th) day
after the giving of said notice, and Lessee shall surrender possession of the
Premises within a reasonable time thereafter, and the basic rent, and any
additional rent, shall be apportioned as of the date of said surrender and any
basic or additional rent paid for any period beyond said date shall be repaid to
Lessee. If the cost of restoration as estimated by Lessor shall amount to less
than twenty-five (25%) percent of said replacement value of the Building, or if,
despite the cost, Lessor does not elect to terminate this Lease, Lessor shall
restore the Building and the Premises with reasonable promptness, subject to
force majeure, and Lessee shall have no right to terminate this Lease.
In any case in which use of the Premises is affected by any damage to
the Building, there shall be either an abatement or an equitable reduction in
basic rent depending on the period for which and the extent to which the
Premises are not reasonably usable for the purpose for which they are leased
hereunder. The words "restoration" and "restore" as used in this Paragraph 10
shall include repairs. If the damage results from the fault of the Lessee, or
Lessee's agents, servants, visitors or licensees, Lessee shall not be entitled
to any abatement or reduction in basic rent, except to the extent of any rent
insurance maintained and received by Lessor.
Notwithstanding the provisions of this Paragraph 10 of the Lease, in
any event of loss or damage to the Building, the Premises and/or any contents,
each party shall look only to any insurance in its favor before making any claim
against the other party, or in the case of Lessee, against any other tenant of
the Building and to the extent possible without additional cost, each party
shall obtain, for each policy of insurance, provisions permitting waiver of any
claim against the other party (and against any other tenant(s) in the Building)
for loss or damage within the scope of such insurance, and each party, to such
extent permitted, for itself and its insurers waives all such insured claims
against the other party and other Building tenants.
11. EMINENT DOMAIN. If Lessee's use of the Premises is materially
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affected due to the taking by eminent domain of (a) the Premises or any part
thereof or any estate therein; or (b) any other part of the Building; then, in
either event, this Lease shall terminate on the date when title vests pursuant
to such taking. The rent, and any additional rent, shall be apportioned as of
said termination date and any basic or additional rent paid for any period
beyond said date shall be repaid to Lessee. Lessee shall not be entitled to any
part of the award for such taking or any payment, in lieu thereof, but Lessee
may file a separate claim for any taking of fixtures and improvements owned by
Lessee which have not become the Lessor's property, and for moving expenses,
provided the same shall in no way affect or diminish Lessor's award. In the
event of a partial taking which does not effect a termination of this lease but
does deprive Lessee of the use of a portion of the Demised Premises, there shall
either be an abatement or an equitable reduction of the basic rent, and an
equitable adjustment reducing the Base Costs as hereinafter defined depending on
the period for which and the extent to which the Premises so taken are not
reasonably usable for the purpose for which they are leased hereunder.
12. INSOLVENCY OF LESSEE. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors, or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act, shall
constitute a default of this Lease by Lessee, and Lessor may terminate this
Lease forthwith and upon notice of such termination Lessee's right to
Possession of the Demised Premises shall cease, and Lessee shall then quit and
surrender the Premises to Lessor but Lessee shall remain liable as hereinafter
provided in Paragraph 14 hereof. Notwithstanding anything contained herein to
the contrary so long as Lessee is not in default in the payment of basic rent
and additional rent and is otherwise in compliance with the other covenants and
conditions herein, the insolvency of Lessee shall not constitute a default of
this Lease.
13. LESSOR'S REMEDIES ON DEEAULT. If Lessee defaults in the payment of
basic rent, or any additional rent, or defaults in the performance of any of the
other covenants and condition hereof or permits the premises to become deserted,
abandoned or vacated, Lessor may give Lessee notice of such default, and if
Lessee does not cure any basic rent or additional rent default within five (5)
business days or other default within fifteen (15) business days after giving of
such notice (or if such other default is of such nature that it cannot be
completely cured within such period, if Lessee does not commence such curing
within such fifteen (15) business days and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Lessor may terminate
this lease on not less than ten (10) business days' notice to Lessee, and on the
date specified in said notice, Lessee's right to possession of the Demised
Premises shall cease, and Lessee shall quit and surrender the Premises to
Lessor, but Lessee shall remain liable as hereinafter provided. If this Lease
shall have been so terminated by Lessor pursuant to Paragraphs 12 or 13 hereof,
Lessor may at any time thereafter resume possession of the Premises by any
lawful means and remove Lessee or other occupants and their effects.
14. DEFICIENCY. In any case where Lessor has recovered possession of
the Premises by reason of Lessee's default, Lessor may, at Lessor's option,
occupy
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the Premises or cause the premises to be redecorated, altered, divided,
consolidated with other adjoining premises, or otherwise changed or prepared for
reletting, or use its best efforts to relet the Premises or any part thereof as
agent of Lessee or otherwise, for a term or terms to expire prior to, at the
same time as, or subsequent to, the original expiration date of this Lease, at
Lessor's option, and receive the rent therefor. Rent so received shall be
applied first to the payment of such expenses as Lessor may have incurred in
connection with the recovery of possession, redecorating, altering, dividing,
consolidating with other adjoining premises, or otherwise changing or preparing
for reletting, and the reletting, excluding any capital improvements, but
including brokerage and reasonable attorney's fees, and then to the payment of
damages in amounts equal to the rent hereunder and to the costs and expenses of
performance of the other covenants of Lessee as herein provided. Lessee agrees,
in any such case, whether or not Lessor has relet, to pay to Lessor damages
equal to the basic and additional rent and other sums herein agreed to be paid
by Lessee, less the net proceeds of the reletting, if any, as ascertained from
time to time, and the same shall be payable by Lessee on the several rent days
above specified. Lessee shall not be entitled to any surplus accruing as a
result of any such reletting. In reletting the Premises as aforesaid, Lessor may
grant reasonable rent concessions. No such reletting shall constitute a
surrender and acceptance or be deemed evidence thereof. If Lessor elects,
pursuant hereto, actually to occupy and use the Premises, or any part thereof
during any part of the balance of the term as originally fixed or since
extended, there shall be allowed against Lessee's obligation for rent or
damages as herein defined, during the period of Lessor's occupancy, the
reasonable value of such occupancy, not to exceed in any event the basic and
additional rent herein reserved and such occupancy shall not be construed as a
release of Lessee's liability hereunder.
Alternatively, in any case where Lessor has recovered possession of
the Premises by reason of Lessee's default, Lessor may at Lessor's option, end
at any time thereafter, and without notice of other action by Lessor, and
without prejudice to any other rights or remedies it might have hereunder or at
law or equity, become entitled to recover from Lessee, as damages for such
breach, in addition to such other sums herein agreed to be paid by Lessee, to
the date of re-entry, expiration and/or dispossess, an amount equal to the
difference between the rent and additional rent reserved in this Lease from the
date of such default to the date of expiration of the original term demised and
the then fair and reasonable rental value of the Premises for the same period.
Said damages shall become due and payable to Lessor immediately upon such breach
of this Lease and without regard to whether this Lease be terminated or not, and
if this Lease be terminated, without regard to the manner in which it is
terminated. In the computation of such damages, the difference between any
installments of rent (basic and additional) thereafter becoming due and the fair
and reasonable rental value of the premises for the period for which such
installment was payable shall be discounted to the date of such default at the
rate of not more than four (4%) per cent per annum.
Lessee hereby waives all right of redemption to which Lessee or any
person under Lessee might be entitled by any law now or hereafter in force.
Lessor's remedies hereunder are in addition to any remedy allowed by law.
15. SUBORDINATION OF LEASE. This Lease shall, at Lessee's option,
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or at the option of any holder of any underlying lease or holder of any first
mortgage of deed of trust, be subject and subordinate to any such underlying
leases and to any such first mortgage and/or trust deed which may now or
hereafter affect the real property of which the Premises form a part, and also
to all renewals, modifications, consolidations and replacements of said
underlying leases and said first mortgage and trust deed. Although no instrument
or act on the part of Lessee shall be necessary to effectuate such
subordination, Lessee will, nevertheless, execute and deliver such further
instruments confirming such subordination of this lease as may be desired by the
holders of said first mortgage and trust deeds or by any of the Lessors under
such underlying leases. Lessee hereby appoints Lessor attorney-in-fact,
irrevocably, to execute and deliver any such instrument for Lessee. If any
underlying lease to which this Lease is subject terminates, Lessee shall, on
timely request, attorn to the owner of the reversion.
16. SECURITY DEPOSIT. Lessee has on deposit with Lessor on the signing
of this lease the sum of $4,514.00 (Four Thousand Five Hundred Fourteen Dollars)
as security for the performance of Lessee's obligation under this lease.
Lessor, in the event that the Demised Premises are sold, shall transfer and
deliver the security, as such, to the purchaser of the Demised Premises and
shall notify Lessee thereof, and thereupon Lessor shall be discharged from any
further liability in reference thereto. Said security deposit shall be returned
to Lessee upon termination of Lease subject however to claims of Lessor as
provided herein. No interest will be paid on said security deposit by Lessor.
17. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or
condition of this lease, Lessor may, on "reasonable" written notice to Lessee
(except that no notice need be given in case of emergency), cure such breach at
the expense of Lessee and the reasonable amount of all expenses incurred by
Lessor in so doing shall be deemed additional rent payable on demand.
18. MECHANIC'S LIENS. Lessee shall, within fifteen (15) days after
notice from Lessor, discharge or satisfy by bonding or otherwise any mechanic's
liens for materials or labor claimed to have been furnished to the Premises on
Lessee's behalf.
19. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this lease) at any reasonable time on reasonable notice to Lessee (except that
no notice need be given in case of emergency) for the purpose of inspection or
the making of such repairs, replacements or additions, in, to, on and about the
Premises of the Building, as Lessor deems necessary or desirable. Lessee shall
have no claims or cause of action against Lessor by reason thereof. In no event
shall Lessee have any claim against Lessor for interruption to Lessee's
business, however occurring, including but not limited to those arising from the
negligence of Lessor, its agents, servants or invitee.
20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION. Subject to
intervening laws, ordinances, regulations and executive orders while Lessee is
not in default under any of the provisions of this Lease, Lessor agrees to
furnish, except on holidays as set forth on Exhibit E
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attached hereto and made a part hereof:
(A) The cleaning services, as set forth on Exhibit D attached
hereto and made a part hereof, and subject to the conditions therein
stated. Except as set forth on Exhibit D, Lessee shall pay the cost of
all other cleaning services required by Lessee.
(B) Heating, ventilation and air conditioning (herein "HVAC")
as appropriate for the season and as set forth on Exhibit C attached
hereto and made a part hereof, together with common facilities lighting
and electric energy all during "Building Hours," as hereinafter
defined.
(C) Cold and hot water for drinking and lavatory purposes.
(D) Elevator service during Building Hours.
(E) Restroom supplies and exterior window cleaning when
reasonably required.
(F) Notwithstanding the requirements of Exhibit C or D (as to
HVAC or any other provision of this lease, Lessor shall not be liable
for failure to furnish any of the aforesaid services when such failure
is due to force majeure, as hereinafter defined. In the absence of
Lessor's gross negligence, Lessor shall not be liable for any defects,
errors or omissions in the construction or design of the Demised
Premises and/or the Building, including the structural and
non-structural portions thereof, for loss of or injury to Lessee or to
property, however occurring, through or in connection with or
incidental to the furnishing of, or failure to furnish, any of the
aforesaid services or for any interruption to Lessee's business however
occurring.
21. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any service
maintained in the Building or at the Office Building Area, if caused by force
majeure, as hereinafter defined, shall not entitle Lessee to any claim against
Lessor or to any abatement in rent, and shall not constitute a constructive or
partial eviction, unless Lessor fails to take measures as may be reasonable
under the circumstances to restore the service without undue delay. If the
Premises rendered untenantable in whole or in part, for a period of five (5)
consecutive business days, by the making of repairs, replacements or additions,
either then those made with Lessee's consent or caused by misuse or neglect by
Lessee, or Lessee's agent servants, visitors or licensees, there shall be a
proportionate abatement of rent, relating back to the first day of such
interruption and continuing for the period of
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such untenantability. In no event shall Lessee be entitled to claim a
constructive eviction from the Premises unless Lessee shall first have notified
Lessor in writing of the condition or conditions giving rise thereto, and, if
the complaints be justified, unless Lessor shall have failed, within a
reasonable time after receipt of such notice, to remedy, or commence and proceed
with due diligence to remedy, such condition or conditions, all subject to force
majeure as hereinafter defined.
22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE. (A) for so long as
Lessee is not in default with respect to this Lease, Lessor agrees to
redistribute Building Standard Office Electrical Service (as hereinafter
defined), to the Premises, consistent with the requirements as set forth on
Exhibit C, attached hereto and made a part hereof (not exceeding the present
electrical capacity at the Premises) upon the following terms and conditions:
(1) Lessee agrees that an independent electrical engineering
consultant selected by Lessor and paid by Lessor, shall make a survey
of the electric power "demand" of the electric lighting fixtures and
the electric equipment of Lessee used in the Premises to determine the
average monthly electric consumption thereof. After Lessor's consultant
has submitted its report, Lessee shall pay to Lessor, within ten (10)
days after demand therefor by Lessor, the amount determined by said
consultant as owing from the Lease Term's commencement, and the then
expired months, to include the then current month and thereafter, on
the first day of every month, in advance, the amount set forth as the
monthly consumption in said report. Said amounts shall be treated as
Additional Rent due hereunder. Proportionate sums shall be payable for
periods of less than a full month if the term commences or ends on any
other than the first or last day of the month.
Not withstanding the above, should Lessee dispute the
determination made by Lessor's independent electrical engineering
consultant then the Lessee shall be free to, at the Lessee's sole cost
and expense, employ the services of a qualified independent electrical
engineering consultant who shall conduct a survey of Lessee's electric
lighting fixtures and electric equipment to determine the average
monthly electric consumption utilized by Lessee. If the Lessor's
consultant and the Lessee's consultant cannot agree on the Lessee's
average monthly electric consumption then, in such case the consultants
will agree on an independent third electrical engineering consultant
acceptable to both whose decision shall be final and binding upon the
parties. The parties shall share equally in the cost of any such third
consultant. Pending resolution of the issue Lessee shall pay to Lessor
the charge established by Lessor's consultant, subject to adjustment
upon final determination of this issue.
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(11) In the event that there shall be an increase or decrease
in the rate schedule (including surcharges or demand adjustments), of
the public utility for the supply of Building Standard Office
Electrical Service, or the imposition of any tax with respect to such
service or increase in any such tax following the Lease term's
commencement, the Additional Rent payable hereunder shall be adjusted
equitably to reflect the increase or decrease in rate or imposition or
increase in the aforesaid tax. All computations shall be made on the
basis of Lessee's surveyed usage as if a meter measuring such usage to
the Premises exclusively was in place.
(111) Any additional electrical energy used by the Building
or Office Building Area in excess of the aggregate of all Building
Standard Office Electrical Service shall be conclusively deemed for
common area electric or lighting and shall be treated pursuant to
Paragraph 23B hereof.
(IV) Lessee covenants that it shall notify Lessor immediately
upon the introduction of any office equipment or lighting different
from that on the Premises as of Lessor's electrical survey or in
addition to the aforesaid equipment or lighting on the Premises as of
said survey. The introduction of any new or different equipment or
lighting may be cause for additional expense. Lessor reserves the right
to inspect the Premises to insure compliance with this provision.
(V) Lessor shall not be liable in any way to Lessee for any
loss, damage or expense which Lessee may sustain or incur as a result
of any failure, defect, or change in the quantity or character of
electrical energy available for redistribution to the Premises pursuant
to this Paragraph nor for any interruption in the supply and Lessee
agrees that such supply may be interrupted for inspection, repairs and
replacement in emergencies. In any event, the full measure of Lessor's
liability for any interruption in the supply due to Lessors acts or
omissions shall be an abatement of rent and additional rent. In no
event shall Lessor be liable for any business interruption suffered by
Lessee.
(VI) Lessor shall furnish and install all replacement lighting
tubes, lamps, ballasts and bulbs required in the Premises.
(VII) Lessee shall make no alteration to the existing
electrical risers, wiring and other conductors or outlets, as
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shown on Exhibit C, without Lessor's consent. Should Lessor consent,
all such alterations shall be provided by Lessor and the cost therefor
paid for by Lessee upon demand as Additional Rent and the provisions of
Paragraph 22(a) (IV) shall become applicable, unless Lessor's price is
unreasonable.
(B) Lessor reserves the right to, at any time, install a meter to measure
Building Standard Office Electrical Service in which event from and after the
installation of said meter (hereinafter "Standard Electric Meter") the following
shall apply with respect to Lessee's charges for Building Standard Office
Electrical Service.
(I) Lessee shall pay its proportionate share, as hereinafter
defined, of the gross electrical energy consumed in providing Building
Standard Office Electrical Service to the entire Building as measured
by Standard Electric Meter measuring said service.
(II) The reasonable cost, as estimated by Lessor's electrical
consultant, of any electrical service required to the Premises in
excess of Building Standard Office Electrical Service shall, for Lessee
and for any other Building tenant requiring said excess service, be
paid for in full by the party requesting said excess service and the
cost of gross electrical energy consumed as measured by the Standard
Electric Meter shall be appropriately adjusted so that Lessee and all
other Building tenants pay their proportionate share applied against
the gross electrical energy consumed as measured by the Standard
Electric Meter net of any such excess or separately metered Building
Standard Office Electrical Service if Lessor installs a separate meter
for any tenant.
(III) Lessor shall not be liable in any way to Lessee for any
loss, damage or expense which Lessee may sustain or incur as a result
of any failure, defect or change in the quantity or character of
electrical energy available for redistribution to the Premises pursuant
to this Paragraph nor for any interruption in the supply and Lessee
agrees that such supply may be interrupted for inspection, repairs,
replacement and in emergencies.
(C) In the event the public utility company that furnishes electric
energy to the Lessor for redistribution to Lessee, declines to continue
furnishing electric energy for that purpose, Lessor reserves the right to
discontinue distributing Building Standard Office Electric Service to Lessee at
any time upon reasonable notice to Lessee. If Lessor exercises such right of
termination, this Lease shall continue in full force and effect and shall be
unaffected thereby, except only that from and after the effective date of such
termination, Lessee shall not be obligated to pay Lessor for said Building
Standard Office Electrical Service. If Lessor so discontinues distribution the
aforesaid electrical service, Lessee shall
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arrange to obtain electric energy directly from the public utility furnishing
electric energy to the Building. Lessee may obtain such electric energy by means
of the then-existing Building system feeders, risers and wiring to the extent
the same are available, suitable and safe for such purposes. All meters and
additional panel boards, feeders, risers wiring and other conductors and
equipment which may be required to obtain electric energy from the public
utility company shall be installed and maintained by Lessee at its sole expense.
If lessee is unable to obtain such electric service after diligent efforts,
Lessee may cancel this Lease.
(D) For purposes of this Paragraph 22, "Building Standard Office
Electrical Service" shall mean the electrical energy required to provide the
lighting and operate general office equipment such as typewriters, calculators
and copiers consistent with the requirements as shown on Exhibit C, provided
such lighting and equipment does not require greater than a 15-amp line (except
as otherwise shown on Exhibit C but in no event to include electrical energy for
the operation of any computer installation or data processing equipment, which
energy shall be provided during "Building Hours" as hereinafter defined.
23. ADDITIONAL RENT. It is expressly agreed that Lessee will pay in
addition to the basic rent, provided in Paragraph 3 above, an additional rental
to cover Lessee's proportionate share, as hereinafter defined, of the increased
cost to Lessor, for each of the categories enumerated herein, over the "Base
Period Costs" for twelve month period commencing the first of the month
subsequent to the date of occupancy (as hereinafter defined) for said
categories.
(A) 0PERATING COST ESCALATION. If the Operating Costs incurred
for the Building in which the Demised Premises are located and Office
Building Area for any calendar year or proportionate part thereof
during the Lease term shall be greater than Base Operating Costs
(adjusted proportionately for periods less than a Lease Year), then
Lessee shall pay to Lessor, as additional rent, the proportionate
share, as hereinafter defined, of all such excess Operating Costs,
provided however, that the annual escalation of Operating Costs shall
not exceed five percent (5%) with respect to the following expenses:
1. Management fees
2. Payroll (reasonable wages and/or salary) of Building
Superintendent
3. Social security taxes, and other taxes which may be
levied against Lessor upon such wages and salaries.
Other operating costs, which are not subject to the foregoing cap, may
include:
4. Real estate taxes
5. Electric, gas and water
6. Cleaning and maintenance
7. Repairs and maintenance
8. Fire and other insurance
9. Trash removal, Lawn care and snow removal
10. Elevator maintenance
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11. Decorations and security
12. Reasonable general office expenses (i.e. telephones
stationery, office supplies (collectively "Operating
Costs").
Operating costs shall not include any work performed exclusively for a Building
tenant; depreciation of Building or equipment, interest, income or excess
profit taxes; costs of maintaining the Lessor's corporate existence; franchise
taxes, any expenditures required to be capitalized for federal income tax
purposes, unless said expenditures are for the Office Building Area, in which
event the costs thereof shall be included.
(B) FUEL, UTILITIES AND ELECTRIC COST ESCALATION. (hereinafter
"Utility and Energy Costs") If the Utility and Energy Costs, including
any fuel surcharges or adjustments with respect thereto, incurred for
water, sewer, other utilities and heating, ventilating and air
conditioning for the Building to include all leased and leasable areas
and common area electric, lighting, water, sewer and other utilities
for the Building and Office Building Area, for any Lease Year or
proportionate part thereof, during the Lease term, shall be greater
than the Base Utility and Energy Costs (adjusted proportionately for
periods less than a Lease Year), then Lessee shall pay to Lessor as
additional rent, its proportionate share, as hereinafter defined, of
all such excess Utility and Energy Costs. As used in this paragraph
23(B), the Base Utility and Energy Costs shall be the usage incurred
(including surcharges and/or adjustments) during the Base Year
multiplied by the rates in effect (including surcharges and/or
adjustments) during the first twelve (12) months of Lessee's occupancy
multiplied by the rates in effect (including surcharges and/or
adjustments during.)
(C) TAX ESCALATION. If the Real Estate taxes for the Building
and Office Building Area at which the Demised Premises are located for
any Lease Year or proportionate part thereof, during the Lease Term,
shall be greater than the Base Real Estate Taxes (adjusted
proportionately for periods less than a Lease Year), then Lessee shall
pay to Lessor an additional rent, its proportionate share, as
hereinafter defined, of all such excess Real Estate Taxes.
As used in this Paragraph 23(C), the words and terms which
follow mean and include the following:
(1) "Base Real Estate Taxes" shall mean those real estate
taxes determined by multiplying the lowest tax rate in effect any time
between Calendar Year and the year in which the Building is assessed as
a fully completed building (to include the aforesaid years), times the
assessment for the Office Building Area and Building
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as Real Estate Taxes payable during calendar year 2000.
(11) "Real Estate Taxes" shall mean the property taxes and
assessments imposed upon the Building and Office Building Area, as
such, payable to the Lessor. If due to a future change in the method
of taxation, any franchise, income or profit tax shall be levied
against Lessor in substitution for, or in lieu of, or in addition to,
any tax which would otherwise constitute a Real Estate Tax, such
franchise, income or profit tax shall be deemed to be a Real Estate Tax
for the purposes hereof conversely, any additional real estate tax
hereafter imposed in substitution for, or in lieu of any franchise,
income or profit tax (which is not in substitution for, or in lieu of,
or in addition to, a Real Estate Tax as hereinbefore provided) shall
not be deemed a Real Estate Tax for the purposes hereof.
(D) LEASE YEAR, As used in this Paragraph 23, Lease Year shall
mean the twelve (12) month period commencing when possession is
delivered, and each twelve (12) month period thereafter. Once the base
costs are established, in the event any lease period is less than
twelve (12) months, then the Base Period Costs for the categories
listed above shall be adjusted to equal the proportion that said period
bears to twelve (12) months and Lessee shall pay to Lessor an
additional rent for such period, an amount equal to Lessee's
proportionate share, as hereinafter defined, of the excess for said
period over the adjusted base with respect to each of the aforesaid
categories.
(E) PAYMENT. At any time, and from time to time, after the
establishment of the Base Period Costs for each of the categories
categories referred to above, Lessor shall advise the Lessee in writing
of Lessee's proportionate share with respect to each of the categories
as estimated for the next twelve (12) month period (and for each
succeeding twelve (12) month period or proportionate part thereof if
the period prior to the Lease's termination is less than twelve (12)
months as then known to the Lessor, and thereafter, the Lessee shall
pay an additional rent, its proportionate share as hereinafter defined,
of these costs for then current period affected by such advice (as the
same may be periodically revised by Lessor as additional costs are
incurred) in equal monthly installments, such new rates being applied
to any months for which the rental shall have already been paid which
are affected by the Operating Cost Escalation and/or Utility and Energy
Cost Escalation and/or Tax Escalation Costs above referred to, as well
as the unexpired months of the current period, the adjustment for the
then expired months to be made at the payment of the next succeeding
monthly rental, all subject to final adjustment at the expiration of
each Lease Year as defined in Subparagraph (D) hereof (or proportionate
part hereof, if the last period prior to the Lease's termination is
less than twelve
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(12) months). However, Lessor shall be reimbursed by Lessee monthly during
the first year of the Lease Term for additional Utility and Energy Cost
Escalations resulting from an increase in the monthly rate over the Base
Utility Rate.
Notwithstanding anything herein contained to be contrary, in the event
the last period prior to the Lease's termination is less than twelve (12)
months, the Base Period Costs during said period shall be proportionately
reduced to correspond to the duration of said final period.
(F). BOOKS AND RECORDS. For the protection of Lessee Lessor shall
maintain books of account which shall be open to Lessee and its
representatives at all reasonable times so that Lessee can determine that
such Operating, Utility, Energy and Tax Costs have, in fact been paid or
incurred. Any disagreement with respect to any one or more of said charges
if not satisfactorily settled between Lessor and Lessee shall be referred
by either party to an independent certified public accountant to be
mutually agreed upon, and if such an accountant cannot be agreed upon, the
American Arbitration Association may be asked by either party to select an
arbitrator, whose decision on the dispute will be final and binding upon
both parties, who shall jointly share any cost of such arbitration.
24. LESSEE'S ESTOPPEL. Lessee shall, from time to time not less than
(10) days' prior written request by Lessor, execute, acknowledge and
deliver to Lessor a written statement certifying that the Lease is
unmodified and in full force and effect, or that the lease is in full force
and effect as modified and listing the instruments of modification; the
dates to which the rents and charges have been paid; and, to the best of
Lessee's knowledge, whether or not Lessor is in default hereunder, and if
so, specifying the nature of the default. It is intended that any such
statement delivered pursuant to this paragraph may be relied on by a
prospective purchaser of Lessor's interest or mortgagee of Lessor's
interest or assignee of any mortgage of Lessor's interest. Lessee shall
require One Hundred and 00/100 Dollars ($100.00.)
25. HOLDOVER TENANCY. If Lessee holds possession of the premises after
the term of this Lease, Lessee shall become a tenant from month to month
under the provisions herein provided, but at a monthly basic rental as
provided for pursuant to N.J.S.A. 2:42-6 and without the requirement for
demand or notice by Lessor to Lessee demanding delivery of possession of
said Premises (but Additional Rent shall continue as provided in this
Lease), which sum shall be payable in advance on the first day of each
month, as such tenancy shall continue until terminated by Lessor, or until
Lessee shall have given to Lessor, at least sixty (60) days prior to the
intended date of termination, a written notice of intent to terminate such
tenancy.
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26. RIGHT TO SHOW PREMISES. Lessor may show the Premises to prospective
purchasers and mortgagees; and, during the twelve (12) months prior to
termination of this Lease, to prospective tenants, during business hours on
reasonable notice to Lessee.
27. LESSOR'S WORK-LESSOR'S DRAWINGS. (A) Lessor agrees that at
Lessors' expense prior to the commencement of the term of this lease, it
will do substantially all of the work in the Demised premises in accordance
with Exhibit C attached hereto and made a part hereof, subject only to
normal punch list items.
(B) Lessee will timely supply such drawings and information to
Lessor as set forth in Exhibit C. Any delay occasioned by Lessee's
failure to timely supply such drawings and information shall not delay
the commencement date of the term and Lessee's obligations hereunder and
the same shall commence on the date the Premises would have been delivered
to Lessee pursuant to Paragraph 2, but for Lessee's delay.
28. WAIVER OF TRIAL BY JURY. To the extent such waiver is permitted by
law, the parties waive trial by jury in any action or preceding brought in
connection with this Lease or the Premises.
29. LATE CHARGE. Anything in this lease to the contrary
notwithstanding, at Lessor's option, Lessee shall pay a "Late Charge" of
eight (8%) percent of any installment of rent or additional rent paid more
than fifteen (15) days after the due date thereof, to cover the extra
expenses involved in handling delinquent payments.
30. LESSEE'S INSURANCE. Lessee covenants to provide on or before the
Commencement Date a comprehensive policy of general liability insurance
naming the Lessor as an additional insured, insuring Lessee against any
liability commonly insured against and occasioned by accident resulting
from any act or omission on or about the Premises and any appurtenances
thereto. Such policy is to be written by an Insurance company qualified to
do business in the State of New Jersey reasonably satisfactory to Lessor.
The policy shall be with limits not less than One Million and 00/100
($1,000,000.00) Dollar's in respect to any one person, in respect to any
one accident, and in respect of property damage. Said limits shall be
subject to periodic review and Lessor reserves the right to increase said
coverage limits, if in the reasonable opinion of Lessor, said coverage
becomes inadequate and is less than that commonly maintained by tenants in
similar buildings in the area by tenants making similar uses. At least
fifteen (15) days prior to the expiration or termination date of any
policy, the Lessee shall deliver a renewal or replacement policy with proof
of payment of the premium therefor.
31. NO OTHER REPRESENTATION. No representations or
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promises shall be binding on the parties hereto except those
representations and promises contained herein or in some future writing
signed by the party making such representation(s) or promises.
32. QUIET ENJOYMENT. Lessor covenants that, and so long as, Lessee pays
the rent, and any additional rent as herein provided, and performs the
covenants hereto, Lessor shall do nothing to affect Lessee's right to
peaceably and quietly have, hold and enjoy the Premises for the herein
mentioned) subject to the provisions of this Lease.
33. INDEMNIFICATION. Notwithstanding anything to the contrary
contained in the Lease and subject to the third paragraph of Section 10 of
the Lease, each party hereto shall remain liable for its own negligent or
otherwise tortious acts, errors, or omissions. Lessee agrees to indemnify
and hold Landlord harmless against and from any and all costs, expenses,
claims, demands, obligations and liabilities, rising out of Lessee's
negligence or willful misconduct in connection with the condition of, state
of, construction, repair, or use of the building in which the Premises are
located and any of its common areas, including all adjacent sidewalks,
alleys and parking lots.
34. PARAGRAPH HEADINGS. The paragraph headings in this lease and
position of its provisions are intended for convenience only and shall not
be taken into consideration in any construction or interpretation of this
Lease for any of its provisions.
35. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease
shall apply to, bind and inure to the benefit of Lessor and Lessee, and
their respective heirs, successors, legal representatives and assigns. It
is understood that the term "Lessor" as used in this Lease means only the
owner, a mortgagee in possession or a term Lessee of the Building, so that
in the event of any sale of the Building or of any lease thereof, or if a
mortgagee shall take possession of the Premises, the Lessor named herein
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Lessor hereunder accruing thereafter, and it shall be deemed
without further agreement that the purchaser, the term Lessee of the
Building, or the mortgagee in possession has assumed and agreed to carry
out any and all covenants and obligations of Lessor hereunder.
36. PARKING SPACES. Lessee's occupancy of the Demised Premises shall
include the use of four parking spaces for each 1,000 sq. ft. of Demises
Office Space.
Lessee shall, upon request, promptly furnish to Lessor the license
numbers of the cars operated by Lessee and its subtenants, invitees,
concessionaires, officers and employees. If any vehicle of the Lessee, or
of any subtenant, licensee, concessionaire, or of their respective
officers, agents or employees, is parked in any part of the
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Common Area other than the employee parking area (s) designated therefor by
Lessor, Lessee shall pay to Lessor such penalty as may be fixed by Lessor
from time to time. All amounts due under the provisions of this Paragraph
shall be deemed to be additional rent.
37. LESSOR'S LIABILITY FOR LOSS OF PROPERTY. In the absence of
Lessor's gross negligence, Lessor shall not be liable for any loss of
property from any cause whatsoever, including but not limited to theft or
burglary from the Demised Premises, and any such loss arising from the acts
of Lessor, its agents, servants or invitees, or from defects, errors or
omissions in the construction or design of the Demised Premises and/or the
Building including the structural and non-structural portions thereof, and
Lessee covenants and agrees to make no claim for any such loss at any time.
38. PARTIAL INVALIDITY. If any of the provisions of this lease, or the
application thereof to any person or circumstances, shall to any extent, be
invalid or unenforceable, the remainder of this lease, or the application
of such provision or provisions to persons or circumstances other than
those as to whom or which it is held invalid or unenforceable, shall not
be effected thereby, and every provision of this lease shall be valid and
enforceable to the fullest extent permitted by Law.
39. BROKER. Lessee and Lessor represents and warrants that REMAX
SERVICES has negotiated in bringing about this lease and Lessee agrees to
indemnify and hold Lessor and its mortgagee(s) harmless from any and all
claims of other brokers and expenses in connection therewith arising out of
or in connection with the negotiation of or the entering into this Lease by
Lessor and Lessee. In no event shall the Lessee have any obligation to
any broker involved in this transaction, including Remax Services.
40. PERSONAL LIABILITY, Notwithstanding anything to the contrary
provided in this Lease, it is specifically understood and agreed, such
agreement being a primary consideration for the execution of this lease by
Lessor, that there shall be absolutely no personal liability on the part of
Lessor, its successors, assigns or any mortgagee in possession (for the
purpose of this paragraph collectively referred to as "Lessor"), with
respect to any of the terms, covenants and conditions of this lease, and
that Lessee shall look solely to the equity of Lessor in the Building for
the satisfaction of each and every remedy of Lessee in the event of any
breach by Lessor of any of the terms, covenants and conditions of this
Lease to be performed by Lessor, such exculpation of liability to be
absolute and without any exceptions whatsoever.
41. NO OPTION. The submission of this Lease Agreement for examination
does not constitute a reservation of or option for the
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Premises and this Lease Agreement becomes effective as a Lease Agreement
only upon execution and delivery thereof by Lessor and Lessee.
42. DEFINITIONS. (A) PROPORTIONATE SHARE. Lessee's Proportionate Share,
wherever that phrase is used, shall be 2.1 per cent which the parties agree
reflects and will be continually adjusted to reflect the ratio of the gross
square feet of the area rented to Lessee (including an allocable share of
all common facilities) as compared with the total number of gross square
feet of the entire Building (or additional buildings that may be
constructed with the Office Building Area) measured outside wall to outside
wall but excluding therefrom any storage areas. Lessor shall have the right
to make changes or revisions in the common facilities of the Building so as
to provide additional leasing area. Lessor shall also have the right to
construct additional buildings in the Office Building Area for such
purposes as Lessor may deem appropriate, and subdivide the lands for that
purpose if necessary, and upon so doing, the Office Building Area shall
become the subdivided lot on which the Building in which the Demised
Premises is located. However, if any service provided for in Paragraph
23(A) or any utility provided for in paragraph 23(B) is separately billed
or separately metered within the Building, then the square footage so
billed or metered shall be subtracted from the denominator (the Building's
total number of gross square feet) and the Lessee's Proportionate Share for
such service and/or utility shall be separately computed, and the Base
Costs for such item shall not include any charges attributable to said
square footage.
(B) COMMON FACILITIES. Common facilities shall mean the non-assigned
parking spaces; lobby; elevator(s), fire alarm, public hallways; public
lavatories; all other general Building facilities that service all Building
tenants; air conditioning rooms; fan rooms, janitors' closets; telephone
closets; elevator shafts and machine rooms; flues; stacks; pipe shafts and
vertical ducts with their enclosing walls. Lessor may at any time close
temporarily any Common Area to make repairs or changes therein or to effect
construction, repairs or changes within the Building, or to discourage
non-tenant parking, and may do such other acts in and to the Common Area as
in its judgment may be desirable to improve the convenience thereof
(C) FORCE MAJEURE. Force majeure shall mean and include those
situations beyond Lessor's control, including by way of example and not by
way of limitation, acts of God; accidents; repairs; strikes; shortages of
labor, supplies or materials; inclement weather; or where applicable, the
passage of time while waiting for an adjustment of insurance proceeds.
(D) BUILDING HOURS. As used in this lease the "Building Hours" shall be
Monday through Friday, 8:00 a.m. to 6:00 p.m., and
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on Saturdays from 8:00 a.m. to 1:00 p.m. excluding those holidays as set
forth on Exhibit E attached hereto and made a part hereof, except that
common area lighting in the Building and Office Building Area shall be
maintained for such additional hours as, in Lessor's sole judgment, is
necessary to be desirable to insure proper operation of the Building and
Building Area.
43. LEASE COMNIENCEMENT. Notwithstanding anything contained herein to
the contrary, if Lessor, for any reason whatsoever, including Lessor's
negligence, except as provided for in Paragraph 27(B) cannot deliver
possession of the Premises s provided for in Paragraph 27(A) to Lessee at
the commencement of the agreed term as set forth in Paragraph 2, this lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any
loss or damage resulting therefrom, but in that event, the Lease Term shall
be for the full term as specified above to commence from and after the date
Lessor shall have delivered possession of the premises to Lessee or from
the date Lessor would have delivered possession of the premises to Lessee
but for Lessee's failure to timely supply to Lessor such drawings and/or
information required by Exhibit C (herein the "Commencement Date") and to
terminate midnight on the day preceding the second anniversary of the
Commencement Date, and if requested by Lessor, Lessor and Lessee shall, by
a writing signed by the parties, ratify and confirm said commencement and
termination dates.
44. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered
personally or sent by registered mail or certified mail in a postpaid
envelope addressed, if to Lessee, at the above described Building; if to
Lessor, at Lessor's address as set forth above; or, to either at such other
address as Lessee or Lessor, respectively, may designate in writing.
Notice shall be deemed to have been duly given, if delivered personally, on
delivery thereof, and if mailed, upon the tenth (10th) day after the
mailing thereof.
45. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor
of a lesser amount than the rent and additional charges payable hereunder
shall be deemed to be other than a payment on account of the earliest
stipulated basic rent and additional rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment for
rent or additional rent be deemed an accord and satisfaction, and Lessor
may accept such check or payment without prejudice to Lessor's right to
recover the balance of such rent and additional rent or pursue any other
remedy provided herein or by law.
46. EFFECT OF WAIVERS. No failure by Lessor to insist upon the strict
performance of any covenant agreement, term or condition of this Lease, or
to exercise any right or remedy consequent
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upon a breach thereof and no acceptance of full or partial rent during the
continuance of any such breach, shall constitute a waiver of any such
breach or of such covenant, agreement, term or condition. No consent or
waiver, express or implied, by Lessor to or of any breach of any covenant,
condition or duty of Lessee shall be construed as a consent or waiver to or
of any other breach of the same or any other covenant, condition or duty,
unless in writing signed by Lessor.
47. LEASE CONDITION. This lease is expressly conditioned upon Lessor
receiving the consent and approval of Lessor's mortgagee to its terms and
provisions not later than thirty (30) days after its execution by Lessee,
and delivery to Lessor. Should said consent not be received within the
aforesaid time period, Lessor may, at Lessor's sole option, cancel this
lease and return the first month's rent and security to Lessee, which
Lessee has deposited with Lessor upon execution of this Lease, and
thereafter the parties shall have no further obligations to each other with
respect to this Lease.
48. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE. Lessee agrees to give
any mortgagees and/or trust deed holders, by Registered Mail, a copy of any
notice of default served upon the Lessor, provided that, prior to such
notice, Lessee has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such mortgagees and/or
trust deed holders. Lessee further agrees that, if Lessor shall have failed
to cure such default within the time provided for in this lease, then the
mortgagees and/or trust deed holders shall have an additional thirty (30)
days within which to cure such default or if such default cannot be cured
within that time, then such additional time as may be necessary if within
such thirty (30) days, any mortgagee and/or trust deed holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being so diligently pursued
49. OPTION TO RENEW. Provided Lessee is not then in default under any
of the terms or provisions on the within Lease, Lessee shall be accorded an
option to renew the within Lease Agreement for an additional term of Five
(5) years, at a basic rental which is then (95%) percent of Lessor's
determination of fair market rental value, based upon comparable rentals
within a five (5) mile radius. In no event however, shall the annual basic
rent for the following five years be less then the annual basic rent
payable during the first five (5) years of the term. In order to exercise
the within option, Lessee must give notice, in writing, on or before March
31, 2004. In the event Lessee fails to provide said notice, delivered to
Lessor during the period herein stated, the option to renew the subject
premises shall be waived. Upon receipt of notice from Lessee that it
intends to exercise the within option Lessor shall, within thirty (30)
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days thereafter inform Lessee of the basic rent for said option period and
Lessee shall within thirty (30) days of receipt of notice by Lessor of the
basic rent, advise. Lessee whether it shall complete or rescind the
exercise of its option to renew for a term of Five (5) years at the basic
rent provided.
50. ATTORNEY'S FEES. Should Lessor cure Lessee's breach or be
successful in any litigated dispute Lessor and Lessee, or should Lessor be
required to defend itself in any action in which Lessee is a defendant and
in which Lessor is ultimately found to have no Liability or culpability in
the matter by a Court of competent jurisdiction, then Lessor shall be
entitled to reasonable attorney's fees from Lessee. Correspondingly, should
Lessee be successful in any litigated dispute between Lessee and Lessor,
then Lessee shall be entitled to reasonable attorney's fees from Lessor.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
WHITNEY ASSOCIATES
BY:
- ---------------------- -----------------------------------
WITNESS Frank N. Bovino, General Partner
AMERICA'S SHOPPING MALL, INC.
BY:
- ---------------------- -----------------------------------
WITNESS
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EXHIBIT 10.6
LEASE AGREEMENT
BY AND BETWEEN:
WHITNEY ASSOCIATES
a New Jersey General Partnership
"LANDLORD"
-and-
AMERICA'S SHOPPING MALL, INC.
"TENANT"
<PAGE>
LEASE, made the 22nd day of September 1999 between Whitney
Associates a New Jersey general partnership, whose address is 600 East Crescent
Avenue, Upper Saddle River, New Jersey 07458 (hereinafter called "Lessor") and
America's Shopping Mall, Inc. whose address is 382 Route 59, Suite 310, Monsey,
New York 10952, (hereinafter called "Lessee").
WITNESSETH:
-----------
For and in consideration of the covenants herein contained, and
upon the terms and conditions herein set forth, Lessor and Lessee agree as
follows:
DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires
from Lessor, the following space 7,635 Rentable square feet on the Second Floor
North West side (hereinafter called "Demised Premises" or "Premises") which
includes an allocable share of the common facilities, as shown on the plan or
plans, initialed by the parties hereto, marked Exhibit A attached hereto and
made part of this Lease in the Building commonly known as SHERBROOKE OFFICE
CENTER I located at 600 East Crescent Avenue, Upper Saddle River, New Jersey
07458 ("hereinafter called the Building") which is situated on that certain
parcel of land hereinafter called "Office Building Area") as described on
Exhibit A-1 attached hereto and made part of this lease, together with the right
to use in common with other lessees of the Building, their invitees, customers
and employees, those public areas of the common facilities as hereinafter
defined.
2. TERM. The Premises are leased for a term of Sixty (60) months
commencing on February 1, 2000 and ending at 12:00 o'clock midnight, on March
31, 2005.
3. BASIC RENT. The Lessee shall pay to the Lessor during the term basic
rent in an amount no less than $839,820.00 calculated in accordance with the
following formula:
7,635 square feet at $22.00 per ft. $ 13,997.00 per month
Annual Rent $ 167,970.00
Total Rent for (60) Months $ 839,820.00
The basic rent is payable in such coin or currency of the United States
of America at the time of payment as shall be legal tender for the payment of
public and private debts.
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The basic rent shall accrue at the yearly rate of $167,970.00 each
year of the term and shall be payable in advance, on the first day of each
calendar month during the term in installments of $13,997.00 the first
installment being due upon execution of this Lease.
In addition, Lessee shall pay $2.00 Per Sq. Ft. x 7,635 sq. ft. for
office electric service on a monthly basis in the amount of $1,272.00 which
service is otherwise described in this lease. In the event Lessor elects to
measure electrical service as set forth in paragraph 22, any amounts payable by
Lessee pursuant to paragraph 22 shall be reduced by amounts paid pursuant to
this paragraph.
4. USE AND OCCUPANCY. Lessee shall use and occupy the Premises as
general offices and for no other purpose.
5. CARE AND REPAIR OF PREMISES. Lessee shall commit no act of waste
and shall take good care of the Premises and the fixtures and appurtenances
therein, and shall, in the use and occupancy of the premises, comply with all
applicable laws, orders and regulations of the federal, state and municipal
governments or any of their departments; Lessor shall make all necessary repairs
to the Premises, including without limitation, all plumbing, electrical, HVAC
and other systems servicing the Premises, common facilities and to the assigned
parking areas, if any. In the event that the repair has been made necessary by
misuse or neglect by Lessee or Lessee's agents, servants, visitors or licensees,
Lessor shall nevertheless make the repair. Except to the extent covered by the
waiver of subrogation expressed in Paragraph 10 of this Lease, Lessee shall pay
to Lessor, as additional rent, immediately upon demand, the costs therefor. All
improvements made by Lessee to the Premises, which are so attached to the
Premises that they cannot be removed without material injury to the Premises,
shall become the property of Lessor, upon installation. Not later than the last
day of the term, Lessee shall, at Lessee's expense, remove all Lessee's personal
property and those improvements made by Lessee which have not become the
property of Lessor, including trade fixtures, cabinet work, moveable paneling,
partitions and the like; repair all injury done by or in connection with the
installation or removal of said property and improvements and surrender the
Premises in as good condition as they were at the beginning of the term,
reasonable wear and damage by fire, the elements, casualty or other cause not
due to the misuse or neglect by Lessee, Lessee's agents, servants, visitors or
licensees excepted. All other property of Lessee remaining on the Premises ten
(10) days after the last day of the term of this Lease shall be conclusively
deemed abandoned and may be removed by Lessor, and Lessee shall reimburse Lessor
for the cost of such removal. Lessor may have any such property stored at
Lessee's risk and expense.
6. ALTERATIONS. ADDITIONS OR IMPROVEMENTS. Lessee shall not, without
first obtaining the written consent of Lessor, make any alterations, additions
or improvements in, to or about the Premises. The Lessor shall not unreasonably
withhold its consent for same.
7. ACTIVITIES INCREASING FIRE INSURANCE RATES. Lessee shall not due or
suffer anything to be done on the premises which will increase the rate of fire
insurance on the Building.
8. ASSIGNMENT AND SUBLEASE. Lessee may assign or sublease the
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within Lease to any party subject to the following.
(A) In the event that the Lessee desires to sublease all or a part of
the Premises, or to assign the Premises to any other party, the terms
and provisions of such sublease or assignment shall be communicated to
the Lessor in writing and within thirty (30) days of the Lessee's
notice of its intention to sublease or assign as aforesaid, the Lessor
shall have the option, exercisable in writing to the Lessee to
recapture the within Lease, if an assignment shall have been proposed,
or, to recapture that portion to be sublet if a sublease shall have
been proposed, and in such event, the within Lessee shall, if an
assignment, be fully released from any and all of its obligations
hereunder, or, if a sublease, released with respect to said space
proposed to be sublet.
(B) In the event that the Lessor elects not to recapture the Lease as
hereinabove provided or the space proposed to be sublet, the Lessee may
nevertheless assign this Lease or sublet the whole or any portion of
the Premises, subject to the Lessor's prior written consent, which
consent shall not be unreasonably withheld, on the basis of the
following terms and conditions:
(1) The Lessee shall provide to the Lessor the name and
address of the assignee or sublessee.
(2) The assignee or sublessee shall assume, by written
instrument, all of the obligations of this Lease, and a copy of such
assumption agreement shall be furnished to the Lessor within ten (10)
days of its execution.
(3) The Lessee and each assignee shall be and remain liable
for the observance of all the covenants and provisions of this Lease,
including, but not limited to, the payment of rent reserved herein,
through the entire term of this Lease, as the same may be renewed,
extended or otherwise modified. Notwithstanding anything contained
herein to the contrary, no such modification, extension or renewal
will occur without Lessee's consent which will expand Lessee's
obligations hereunder, and if any of the aforesaid occur without
Lessee's consent, Lessee's liability hereunder shall be limited to
that existing prior to said modification, extension or renewal.
(4) The Lessee and any assignee shall promptly pay to Lessor
one-half (1/2) of any consideration received for any assignment or
one-half (1/2) of the rent, both exclusive of any reasonable expenses
or brokerage
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incurred in connection with the sublease or assignment, as and when
received) in excess of the rent required to be paid by Lessee for the
area sublet, computed on the basis of an average square foot rent for
the gross square footage Lessee has leased.
(5) In any event, the acceptance by the Lessor of any rent
from the assignee or from any of the subtenants or the failure of the
Lessor to insist upon a strict performance of any of the terms,
conditions and covenants herein shall not release the Lessee herein,
nor any assignee assuming this Lease, from any and all of the
obligations herein during and for the entire term of this Lease.
(6) Lessor shall require a One Hundred and 00/100 ($ 100.00)
Dollar payment to cover its handling charges for consent to any sublet
or assignment prior to its consideration of the same. Lessor shall
respond to each request within ten (10) days from receipt of the same,
provided the request is accompanied by full and complete financial and
biographical information. Lessee acknowledges that its sole remedy with
respect to any assertion that Lessor's failure to consent to any sublet
or assignment is unreasonable shall be the remedy of specific
performance and Lessee shall have no other claim or cause of action
against Lessor as a result of Lessor's actions in refusing to consent
to a proposed subtenant or assignee (I) whose business is not
compatible to the type of occupancy of the Building; (II) violates any
exclusive granted to any other tenant in the Building; (III) if such
business will create increased use of the common facilities of the
Building and Office Building Area; (IV) if such business is: an
employment agency or executive search agency, a state, federal or local
government agency or bureau; with doctors and other professionals under
the jurisdiction of the New Jersey Board of Medical Examiners,
dentists, psychologists, or marriage counselors.
(C) Any sublet or assignment to an affiliated company shall not be
subject to the provisions of subsections (A) or (B)(4) hereof and
shall not require Lessor's prior written consent all other provisions
of this Paragraph shall apply.
9. COMPLIANCE WITH RULES AND REGULATIONS. Lessee shall observe and
comply with the rules and regulations hereinafter set forth in Exhibit B
attached hereto and made a part hereof and with such further reasonable rules
and regulations as Lessor may prescribe, on written notice to the Lessee, for
the safety, care and cleanliness of the Building and the comfort, quiet and
convenience of other occupants of the Building. Lessee shall not place a load
upon any floor of the Demised Premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Lessor reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations
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shall be placed and maintained by Lessee, at Lessee's expense, in settings
sufficient, in Lessor's judgment, to absorb and prevent vibration, noise and
annoyance.
10. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonably estimated by Lessor, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (exclusive of foundations) just
prior to the occurrence of the damage, then Lessor may, no later than the
sixtieth (60th) day following the damage, give Lessee a notice of election to
terminate this lease, or if the cost of restoration will equal or exceed fifty
(50%) percentage of such replacement value or if the damage to the Premises
reasonably will take more than 120 days to restore and if the Premises shall not
be reasonably usable for the purpose in which they are leased hereunder, then
Lessee may, no later than the sixtieth (60th) day following the damage, give
Lessor a notice of election to terminate this Lease. In either said event of
election, this Lease shall be deemed to terminate on the thirtieth (30th) day
after the giving of said notice, and Lessee shall surrender possession of the
Premises within a reasonable tune thereafter, and the basic rent, and any
additional rent, shall be apportioned as of the date of said surrender and any
basic or additional rent paid for any period beyond said date shall be repaid to
Lessee. If the cost of restoration as estimated by Lessor shall amount to less
than twenty-five (25%) percent of said replacement value of the Building, or if,
despite the cost, Lessor does not elect to terminate this Lease, Lessor shall
restore the Building and the Premises with reasonable promptness, subject to
force majeure, and Lessee shall have no right to terminate this Lease.
In any case in which use of the Premises is affected by any damage to
the Building, there shall be either an abatement or an equitable reduction in
basic rent depending on the period for which and the extent to which the
Premises are not reasonably usable for the purpose for which they are leased
hereunder. The words "restoration" and "restore" as used in this Paragraph 10
shall include repairs. If the damage results from the fault of the Lessee, or
Lessee's agents, servants, visitors or licensees, Lessee shall not be entitled
to any abatement or reduction in basic rent, except to the extent of any rent
insurance maintained and received by Lessor.
Notwithstanding the provisions of this Paragraph 10 of the Lease, in
any event of loss or damage to the Building, the Premises and/or any contents,
each party shall look only to any insurance in its favor before making any claim
against the other party, or in the case of Lessee, against any other tenant of
the Building and to the extent possible without additional cost, each party
shall obtain, for each policy of insurance, provisions permitting waiver of any
claim against the other party (and against any other tenant(s) in the,
Building) for loss or damage within the scope of such insurance, and each party,
to such extent permitted, for itself and its insurers waives all such insured
claims against the other party and other Building tenants.
11. EMINENT DOMAIN. If Lessee's use of the Premises is materially
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affected due to the taking by eminent domain of (a) the Premises or any part
thereof or any estate therein; or (b) any other part of the Building; then, in
either event, this Lease shall terminate on the date when title vests pursuant
to such taking. The rent, and any additional rent, shall be apportioned as of
said termination date and any basic or additional rent paid for any period
beyond said date shall be repaid to Lessee. Lessee shall not be entitled to any
part of the award for such taking or any payment, in lieu thereof, but Lessee
may file a separate claim for any taking of fixtures and improvements owned by
Lessee which have not become the Lessor's property, and for moving expenses,
provided the same shall in no way affect or diminish Lessor's award. In the
event of a partial taking which does not effect a termination of this lease but
does deprive Lessee of the use of a portion of the Demised Premises, there shall
either be an abatement or an equitable reduction of the basic rent, and an
equitable adjustment reducing the Base Costs as hereinafter defined depending on
the period for which and the extent to which the Premises so taken are not
reasonably usable for the purpose for which they are leased hereunder.
12. INSOLVENCY OF LESSEE. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors, or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act, shall
constitute a default of this Lease by Lessee, and Lessor may terminate this
Lease forthwith and upon notice of such termination Lessee's right to Possession
of the Demised Premises shall cease, and Lessee shall then quit and surrender
the Premises to Lessor but Lessee shall remain liable as hereinafter provided in
Paragraph 14 hereof. Notwithstanding anything contained herein to the contrary
so long as Lessee is not in default in the payment of basic rent and additional
rent and is otherwise in compliance with the other covenants and conditions
herein, the insolvency of Lessee shall not constitute a default of this Lease.
13. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of
basic rent, or any additional rent, or defaults in the performance of any of the
other covenants and condition hereof or permits the premises to become deserted,
abandoned or vacated, Lessor may give Lessee notice of such default, and if
Lessee does not cure any basic rent or additional rent default within five (5)
business days or other default within fifteen (15) business days after giving of
such notice (or if such other default is of such nature that it cannot be
completely cured within such period, if Lessee does not commence such curing
within such fifteen (15) business days and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Lessor may terminate
this lease on not less than ten (10) business days' notice to Lessee, and on the
date specified in said notice, Lessee's right to possession of the Demised
Premises shall cease, and Lessee shall quit and surrender the Premises to
Lessor, but Lessee shall remain liable as hereinafter provided. If this Lease
shall have been so terminated by Lessor pursuant to Paragraphs 12 or 13 hereof,
Lessor may at any time thereafter resume possession of the Premises by any
lawful means and remove Lessee or other occupants and their effects.
14. DEFICIENCY. In any case where Lessor has recovered possession of
the Premises by reason of Lessee's default, Lessor may, at Lessor's option,
occupy
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the Premises or cause the premises to be redecorated, altered, divided,
consolidated with other adjoining premises, or otherwise changed or prepared for
reletting, or use its best efforts to relet the Premises or any part thereof as
agent of Lessee or otherwise, for a term or terms to expire prior to, at the
same time as, or subsequent to, the original expiration date of this Lease, at
Lessor's option, and receive the rent therefor. Rent so received shall be
applied first to the payment of such expenses as Lessor may have incurred in
connection with the recovery of possession, redecorating, altering, dividing,
consolidating with other adjoining premises, or otherwise changing or preparing
for reletting, and the reletting, excluding any capital improvements, but
including brokerage and reasonable attorney's fees, and then to the payment of
damages in amounts equal to the rent hereunder and to the costs and expenses of
performance of the other covenants of Lessee as herein provided. Lessee agrees,
in any such case, whether or not Lessor has relet, to pay to Lessor damages
equal to the basic and additional rent and other sums herein agreed to be paid
by Lessee, less the net proceeds of the reletting, if any, as ascertained from
time to time, and the same shall be payable by Lessee on the several rent days
above specified. Lessee shall not be entitled to any surplus accruing as a
result of any such reletting. In reletting the Premises as aforesaid, Lessor may
grant reasonable rent concessions. No such reletting shall constitute a
surrender and acceptance or be deemed evidence thereof. If Lessor elects,
pursuant hereto, actually to occupy and use the Premises or any part thereof
during any part of the balance of the term as originally fixed or since
extended, there shall be allowed against Lessee's obligation for rent or damages
as herein defined, during the period Of Lessor's occupancy, the reasonable value
of such occupancy, not to exceed in any event the basic and additional rent
herein reserved and such occupancy shall not be construed as a release of
Lessee's liability hereunder.
Alternatively, in any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may at Lessor's option, end at
any time thereafter, and without notice of other action by Lessor, and without
prejudice to any other rights or remedies it might have hereunder or at law or
equity, become entitled to recover from Lessee, as damages for such breach, in
addition to such other sums herein agreed to be paid by Lessee, to the date of
re-entry, expiration and/or dispossess, an amount equal to the difference
between the rent and additional rent reserved in this Lease from the date of
such default to the date of expiration of the original term demised and the then
fair and reasonable rental value of the Premises for the same period. Said
damages shall become due and payable to Lessor immediately upon such breach of
this Lease and without regard to whether this Lease be terminated or not, and if
this Lease be terminated, without regard to the manner in which it is
terminated. In the computation of such damages, the difference between any
installments of rent (basic and additional) thereafter becoming due and the fair
and reasonable rental value of the premises for the period for which such
installment was payable shall be discounted to the date of such default at the
rate of not more than four (4%) per cent per annum.
Lessee hereby waives all right of redemption to which Lessee or any
person under Lessee might be entitled by any law now or hereafter in force.
Lessor's remedies hereunder are in addition to any remedy allowed by law.
15. SUBORDINATION OF LEASE. This Lease shall, at Lessor's option,
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or at the option of any holder of any underlying lease or holder of any first
mortgage of deed of trust, be subject and subordinate to any such underlying
leases and to any such first mortgage and/or trust deed which may now or
hereafter affect the real property of which the Premises form a part, and also
to all renewals, modifications, consolidations and replacements of said
underlying leases and said first mortgage and trust deed. Although no instrument
or act on the part of Lessee shall be necessary to effectuate such
subordination, Lessee will, nevertheless, execute and deliver such further
instruments confirming such subordination of this lease as may be desired by the
holders of said first mortgage and trust deeds or by any of the Lessors under
such underlying leases. Lessee hereby appoints Lessor attorney-in-fact,
irrevocably, to execute and deliver any such instrument for Lessee. If any
underlying lease to which this Lease is subject terminates, Lessee shall, on
timely request, attorn to the owner of the reversion.
16. SECURITY DEPOSIT. Lessee has on deposit with Lessor on the signing
of this lease the sum of $27,994.00 (Twenty-seven Thousand Nine Hundred Ninety
Four Dollars) as security for the performance of Lessee's obligation under this
lease. Lessor, in the event that the Demised Premises are sold, shall transfer
and deliver the security, as such, to the purchaser of the Demised Premises and
shall notify Lessee thereof, and thereupon Lessor shall be discharged from any
further liability in reference thereto. Said security deposit shall be returned
to Lessee upon termination of Lease subject however to claims of Lessor as
provided herein. No interest will be paid on said security deposit by Lessor.
17. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or
condition of this lease, Lessor may, on "reasonable" written notice to Lessee
(except that no notice need be given in case of emergency), cure such breach at
the expense of Lessee and the reasonable amount of all expenses incurred by
Lessor in so doing shall be deemed additional rent payable on demand.
18. MECHANIC'S LIENS. Lessee shall, within fifteen (15) days after
notice from Lessor, discharge or satisfy by bonding or otherwise any mechanic's
liens for materials or labor claimed to have been furnished to the Premises on
Lessee's behalf.
19. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this lease) at any reasonable time on reasonable notice to Lessee (except that
no notice need be given in case of emergency) for the purpose of inspection or
the making of such repairs, replacements or additions, in, to, on and about the
Premises of the Building, as Lessor deems necessary or desirable. Lessee shall
have no claims or cause of action against Lessor by reason thereof. In no event
shall Lessee have any claim against Lessor for interruption to Lessee's
business, however occurring, including but not limited to those arising from the
negligence of Lessor, its agents, servants or invitee.
20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION. Subject to
intervening laws, ordinances, regulations and executive orders while Lessee is
not in default under any of the provisions of this Lease, Lessor agrees to
furnish, except on holidays as set forth on Exhibit E
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attached hereto and made a part hereof
(A) The cleaning services, as set forth on Exhibit D attached
hereto and made a part hereof, and subject to the conditions therein
stated. Except as set forth on Exhibit D, Lessee shall pay the cost of
all other cleaning services required by Lessee.
(B) Heating, ventilation and air conditioning (herein "HVAC")
as appropriate for the season and as set forth on Exhibit C attached
hereto and made a part hereof, together with common facilities lighting
and electric energy all during "Building Hours," as hereinafter
defined.
(C) Cold and hot water for drinking and lavatory purposes.
(D) Elevator service during Building Hours.
(E) Restroom supplies and exterior window cleaning when
reasonably required.
(F) Notwithstanding the requirements of Exhibit C or D (as to
HVAC or any other provision of this lease, Lessor shall not be liable
for failure to furnish any of the aforesaid services when such failure
is due to force majeure, as hereinafter defined. In the absence of
Lessor's gross negligence, Lessor shall not be liable for any defects,
errors or omissions in the construction or design of the Demised
Premises and/or the Building, including the structural and
non-structural portions thereof, for loss of or injury to Lessee or to
property, however occurring, through or in connection with or
incidental to the furnishing of, or failure to furnish, any of the
aforesaid services or for any interruption to Lessee's business however
occurring.
21. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any
service maintained in the Building or at the Office Building Area, if caused by
force majeure, as hereinafter defined, shall not entitle Lessee to any claim
against Lessor or to any abatement in rent, and shall not constitute a
constructive or partial eviction, unless Lessor fails to take measures as may be
reasonable under the circumstances to restore the service without undue delay.
If the Premises rendered untenantable in whole or in part, for a period of five
(5) consecutive business days, by the making of repairs, replacements or
additions, either then those made with Lessee's consent or caused by misuse or
neglect by Lessee, or Lessee's agent servants, visitors or licensees, there
shall be a proportionate abatement of rent, relating back to the first day of
such interruption and continuing for the period of
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such untenantability. In no event shall Lessee be entitled to claim a
constructive eviction from the Premises unless Lessee shall first have notified
Lessor in writing of the condition or conditions giving rise thereto, and, if
the complaints be justified, unless Lessor shall have failed, within a
reasonable time after receipt of such notice, to remedy, or commence and proceed
with due diligence to remedy, such condition or conditions, all subject to force
majeure as hereinafter defined.
22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE. (A) for so long as
Lessee is not in default with respect to this Lease, Lessor agrees to
redistribute Building Standard Office Electrical Service (as hereinafter
defined), to the Premises, consistent with the requirements as set forth on
Exhibit C, attached hereto and made a part hereof (not exceeding the present
electrical capacity at the Premises) upon the following terms and conditions:
(1) Lessee agrees that an independent electrical engineering
consultant selected by Lessor and paid by Lessor, shall make a survey
of the electric power "demand" of the electric lighting fixtures and
the electric equipment of Lessee used in the Premises to determine the
average monthly electric consumption thereof. After Lessor's consultant
has submitted its report, Lessee shall pay to Lessor, within ten (10)
days after demand therefor by Lessor, the amount determined by said
consultant as owing from the Lease Term's commencement, and the then
expired months, to include the then current month and thereafter, on
the first day of every month, in advance, the amount set forth as the
monthly consumption in said report. Said amounts shall be treated as
Additional Rent due hereunder. Proportionate sums shall be payable for
periods of less than a full month if the term commences or ends on any
other than the first or last day of the month.
Not withstanding the above, should Lessee dispute the
determination made by Lessor's independent electrical engineering
consultant then the Lessee shall be free to, at the Lessee's sole cost
and expense, employ the services of a qualified independent electrical
engineering consultant who shall conduct a survey of Lessee's electric
lighting fixtures and electric equipment to determine the average
monthly electric consumption utilized by Lessee. If the Lessor's
consultant and the Lessee's consultant cannot agree on the Lessee's
average monthly electric consumption then, in such case the
consultants will agree on an independent third electrical engineering
consultant acceptable to both whose decision shall be final and
binding upon the parties. The parties shall share equally in the cost
of any such third consultant. Pending resolution of the issue Lessee
shall pay to Lessor the charge established by Lessor's consultant,
subject to adjustment upon final determination of this issue.
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(11) In the event that there shall be an increase or decrease
in the rate schedule (including surcharges or demand adjustments), of
the public utility for the supply of Building Standard Office
Electrical Service, or the imposition of any tax with respect to such
service or increase in any such tax following the Lease term's
commencement, the Additional Rent payable hereunder shall be adjusted
equitably to reflect the increase or decrease in rate or imposition or
increase in the aforesaid tax. All computations shall be made on the
basis of Lessee's surveyed usage as if a meter measuring such usage to
the Premises exclusively was in place.
(111) Any additional electrical energy used by the Building or
Office Building Area in excess of the aggregate of all Building
Standard Office Electrical Service shall be conclusively deemed for
common area electric or lighting and shall be treated pursuant to
Paragraph 23B hereof
(IV) Lessee covenants that it shall notify Lessor immediately
upon the introduction of any office equipment or lighting different
from that on the Premises as of Lessor's electrical survey or in
addition to the aforesaid equipment or lighting on the Premises as of
said survey. The introduction of any new or different equipment or
lighting may be cause for additional expense. Lessor reserves the
right to inspect the Premises to insure compliance with this
provision.
(V) Lessor shall not be liable in any way to Lessee for any
loss, damage or expense which Lessee may sustain or incur as a result
of any failure, defect, or change in the quantity or character of
electrical energy available for redistribution to the Premises
pursuant to this Paragraph nor for any interruption in the supply and
Lessee agrees that such supply may be interrupted for inspection,
repairs and replacement in emergencies. In any event, the full measure
of Lessor's liability for any interruption in the supply due to
Lessor's acts or omissions shall be an abatement of rent and
additional rent. In no event shall Lessor be liable for any business
interruption suffered by Lessee.
(VI) Lessor shall furnish and install all replacement lighting
tubes, lamps, ballasts and bulbs required in the Premises.
(VII) Lessee shall make no alteration to the existing
electrical risers, wiring and other conductors or outlets, as
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shown on Exhibit C, without Lessor's consent. Should Lessor consent,
all such alterations shall be provided by Lessor and the cost therefor
paid for by Lessee upon demand as Additional Rent and the provisions of
Paragraph 22(a) (IV) shall become applicable, unless Lessor's price is
unreasonable.
(B) Lessor reserves the right to, at any time, install a meter to measure
Building Standard Office Electrical Service in which event from and after the
installation of said meter (hereinafter "Standard Electric Meter") the following
shall apply with respect to Lessee's charges for Building Standard Office
Electrical Service.
(I) Lessee shall pay its proportionate share, as hereinafter
defined, of the gross electrical energy consumed in providing Building
Standard Office Electrical Service to the entire Building as measured
by Standard Electric Meter measuring said service.
(II) The reasonable cost, as estimated by Lessor's electrical
consultant, of any electrical service required to the Premises in
excess of Building Standard Office Electrical Service shall, for
Lessee and for any other Building tenant requiring said excess
service, be paid for in full by the party requesting said excess
service and the cost of gross electrical energy consumed as measured
by the Standard Electric Meter shall be appropriately adjusted so that
Lessee and all other Building tenants pay their proportionate share
applied against the gross electrical energy consumed as measured by
the Standard Electric Meter net of any such excess or separately
metered Building Standard Office Electrical Service if Lessor installs
a separate meter for any tenant.
(III) Lessor shall not be liable in any way to Lessee for any
loss, damage or expense which Lessee may sustain or incur as a result
of any failure, defect or change in the quantity or character of
electrical energy available for redistribution to the Premises
pursuant to this Paragraph nor for any interruption in the supply and
Lessee agrees that such supply may be interrupted for inspection,
repairs, replacement and in emergencies.
(C) In the event the public utility company that furnishes electric
energy to the Lessor for redistribution to Lessee, declines to continue
finishing electric energy for that purpose, Lessor reserves the right to
discontinue distributing Building Standard Office Electric Service to Lessee at
any time upon reasonable notice to Lessee. If Lessor exercises such right of
termination, this Lease shall continue in full force and effect and shall be
unaffected thereby, except only that from and after the effective date of such
termination, Lessee shall not be obligated to pay Lessor for said Building
Standard Office Electrical Service. If Lessor so discontinues distribution the
aforesaid electrical service, Lessee shall
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arrange to obtain electric energy directly from the public utility furnishing
electric energy to the Building. Lessee may obtain such electric energy by means
of the then-existing Building system feeders, risers and wiring to the extent
the same are available, suitable and safe for such purposes. All meters and
additional panel boards, feeders, risers wiring and other conductors and
equipment which may be required to obtain electric energy from the public
utility company shall be installed and maintained by Lessee at its sole expense.
If lessee is unable to obtain such electric service after diligent efforts,
Lessee may cancel this Lease.
(D) For purposes of this Paragraph 22, "Building Standard Office
Electrical Service" shall mean the electrical energy required to provide the
lighting and operate general office equipment such as typewriters, calculators
and copiers consistent with the requirements as shown on Exhibit C, provided
such lighting and equipment does not require greater than a 15-amp line (except
as otherwise shown on Exhibit C but in no event to include electrical energy for
the operation of any computer installation or data processing equipment, which
energy shall be provided during "Building Hours" as hereinafter defined.
23. ADDITIONAL RENT. It is expressly agreed that Lessee will pay in
addition to the basic rent, provided in Paragraph 3 above, an additional rental
to cover Lessee's proportionate share, as hereinafter defined, of the increased
cost to Lessor, for each of the categories enumerated herein, over the "Base
Period Costs" for twelve month period commencing the first of the month
subsequent to the date of occupancy (as hereinafter defined) for said
categories.
(A) OPERATING COST ESCALATION, If the Operating Costs
incurred for the Building in which the Demised Premises are
located and Office Building Area for any calendar year or
proportionate part thereof during the Lease term shall be
greater than Base Operating Costs (adjusted proportionately
for periods less than a Lease Year), then Lessee shall pay to
Lessor, as additional rent, the proportionate share, as
hereinafter defined, of all such excess Operating Costs,
provided however, that the annual escalation of Operating
Costs shall not exceed five percent (5%) with respect to the
following expenses:
1. Management fees
2. Payroll (reasonable wages and/or salary) of
Building Superintendent
3. Social security taxes, and other taxes which may
be levied against Lessor upon such wages and
salaries.
Other operating costs, which are not subject to the foregoing
cap, may include:
4. Real estate taxes
5. Electric, gas and water
6. Cleaning and maintenance
7. Repairs and maintenance
8. Fire and other insurance
9. Trash removal, Lawn care and snow removal
10. Elevator maintenance
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11. Decorations and security
12. Reasonable general office expenses (i.e.
telephones stationery, office supplies
(collectively "Operating Costs").
Operating costs shall not include any work performed exclusively for a Building
tenant; depreciation of Building or equipment, interest, income or excess profit
taxes; costs of maintaining the Lessor's corporate existence; franchise taxes,
any expenditures required to be capitalized for federal income tax purposes,
unless said expenditures are for the Office Building Area, in which event the
costs thereof shall be included.
(B) FUEL, UTILITIES AND ELECTRIC COST ESCALATION.
(hereinafter "Utility and Energy Costs") If the Utility and
Energy Costs, including any fuel surcharges or adjustments
with respect thereto, incurred for water, sewer, other
utilities and heating, ventilating and air conditioning for
the Building to include all leased and leasable areas and
common area electric, lighting, water, sewer and other
utilities for the Building and Office Building Area, for any
Lease Year or proportionate part thereof, during the Lease,
term, shall be greater than the Base Utility and Energy Costs
(adjusted proportionately for periods less than a Lease
Year), then Lessee shall pay to Lessor as additional rent, its
proportionate share, as hereinafter defined, of all such
excess Utility and Energy Costs. As used in this paragraph
23(B), the Base Utility and Energy Costs shall be the usage
incurred (including surcharges and/or adjustments) during the
Base Year multiplied by the rates in effect (including
surcharges and/or adjustments) during the first twelve (12)
months of Lessee's occupancy multiplied by the rates in effect
(including surcharges and/or adjustments during.)
(C) TAX ESCALATION. If the Real Estate taxes for the
Building and Office Building Area at which the Demised
Premises are located for any Lease Year or proportionate part
thereof, during the Lease Term, shall be greater than the Base
Real Estate Taxes (adjusted proportionately for periods less
than a Lease Year), then Lessee shall pay to Lessor an
additional rent, its proportionate share, as hereinafter
defined, of all such excess Real Estate Taxes.
As used in this Paragraph 23(C), the words and terms
which follow mean and include the following:
(1) "Base Real Estate Taxes" shall mean those real
estate taxes determined by multiplying the lowest tax rate in
effect any time between Calendar Year and the year in which
the Building is assessed as a fully completed building (to
include the aforesaid years), times the assessment for the
Office Building Area and Building
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as Real Estate Taxes payable during calendar year 2000.
(11) "Real Estate Taxes" shall mean the property
taxes and assessments imposed upon the Building and Office
Building Area, as such, payable to the Lessor. If due to a
future change in the method of taxation, any franchise, income
or profit tax shall be levied against Lessor in substitution
for, or in lieu of, or in addition to, any tax which would
otherwise constitute a Real Estate Tax, such franchise, income
or profit tax shall be deemed to be a Real Estate Tax for the
purposes hereof; conversely, any additional real estate tax
hereafter imposed in substitution for, or in lieu of any
franchise, income or profit tax (which is not in substitution
for, or in lieu of, or in addition to, a Real Estate Tax as
hereinbefore provided) shall not be deemed a Real Estate Tax
for the purposes hereof.
(D) LEASE YEAR. As used in this Paragraph 23, Lease
Year shall mean the twelve (12) month period commencing when
possession is delivered, and each twelve (12) month period
thereafter. Once the base costs are established, in the event
any lease period is less than twelve (12) months, then the
Base Period Costs for the categories listed above shall be
adjusted to equal the proportion that said period bears to
twelve (12) months and Lessee shall pay to Lessor an
additional rent for such period, an amount equal to Lessee's
proportionate share, as hereinafter defined, of the excess for
said period over the adjusted base with respect to each of the
aforesaid categories.
(E) PAYMENT. At any time, and from time to time,
after the establishment of the Base Period Costs for each of
the categories referred to above, Lessor shall advise the
Lessee in writing of Lessee's proportionate share with respect
to each of the categories as estimated for the next twelve
(12) month period (and for each succeeding twelve (12) month
period or proportionate part thereof if the period prior to
the Lease's termination is less than twelve (12) months as
then known to the Lessor, and thereafter, the Lessee shall pay
an additional rent, its proportionate share as hereinafter
defined, of these costs for then current period affected by
such advice (as the same may be periodically revised by Lessor
as additional costs are incurred) in equal monthly
installments, such new rates being applied to any months for
which the rental shall have already been paid which are
affected by the Operating Cost Escalation and/or Utility and
Energy Cost Escalation and/or Tax Escalation Costs above
referred to, as well as the unexpired months of the current
period, the adjustment for the then expired months to be made
at the payment of the next succeeding monthly rental, all
subject to final adjustment at the expiration of each Lease
Year as defined in Subparagraph (D) hereof (or proportionate
part hereof, if the last period prior to the Lease's
termination is less than twelve
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(12) months). However, Lessor shall be reimbursed by Lessee
monthly during the first year of the Lease Term for additional
Utility and Energy Cost Escalations resulting from an increase
in the monthly rate over the Base Utility Rate.
Notwithstanding anything herein contained to be
contrary, in the event the last period prior to the Lease's
termination is less than twelve (12) months, the Base Period
Costs during said period shall be proportionately reduced to
correspond to the duration of said final period.
(F) BOOKS AND RECORDS. For the protection of Lessee
Lessor shall maintain books of account which shall be open to
Lessee and its representatives at all reasonable times so that
Lessee can determine that such Operating, Utility, Energy and
Tax Costs have, fact been paid or incurred. Any disagreement
with respect to any one or more of said charges if not
satisfactorily settled between Lessor and Lessee shall be
referred by either party to an independent certified public
accountant to be mutually agreed upon, and if such an
accountant cannot be agreed upon, the American Arbitration
Association may be asked by either party to select an
arbitrator, whose decision on the dispute will be final and
binding upon both parties, who shall jointly share any cost of
such arbitration.
24. LESSEE'S ESTOPPEL. Lessee shall, from time to time not less than
(10) days' prior written request by Lessor, execute, acknowledge and deliver to
Lessor a written statement certifying that the Lease is unmodified and in full
force and effect, or that the lease is in full force and effect as modified and
listing the instruments of modification; the dates to which the rents and
charges have been paid; and, to the best of Lessee's knowledge, whether or not
Lessor is in default hereunder, and if so, specifying the nature of the default.
It is intended that any such statement delivered pursuant to this paragraph may
be relied on by a prospective purchaser of Lessor's interest or mortgagee of
Lessor's interest or assignee of any mortgage of Lessor's interest. Lessee shall
require One Hundred and 00/100 Dollars ($100.00.)
25. HOLDOVER TENANCY. If Lessee holds possession of the premises after
the term of this Lease, Lessee shall become a tenant from month to month under
the provisions herein provided, but at a monthly basic rental as provided for
pursuant to N.J.S.A. 2:42-6 and without the requirement for demand or notice by
Lessor to Lessee demanding delivery of possession of said Premises (but
Additional Rent shall continue as provided in this Lease), which sum shall be
payable in advance on the first day of each month, as such tenancy shall
continue until terminated by Lessor, or until Lessee shall have given to Lessor,
at least sixty (60) days prior to the intended date of termination, a written
notice of intent to terminate such tenancy.
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26. RIGHT TO SHOW PREMISES. Lessor may show the Premises to prospective
purchasers and mortgagees; and, during the twelve (12) months prior to
termination of this Lease, to prospective tenants, during business hours on
reasonable notice to Lessee.
27. LESSOR'S WORK -LESSOR'S DRAWINGS. (A) Lessor agrees that at
Lessors' expense prior to the commencement of the term of this lease, it will do
substantially all of the work in the Demised premises in accordance with
Exhibit C attached hereto and made a part hereof, subject only to normal punch
list items.
(B) Lessee will timely supply such drawings and information to Lessor
as set forth in Exhibit C. Any delay occasioned by Lessee's failure to timely
supply such drawings and information shall not delay the commencement date of
the term and Lessee's obligations hereunder and the same shall commence on the
date the Premises would have been delivered to Lessee pursuant to Paragraph 2,
but for Lessee's delay.
28. WAIVER OF TRIAL BY JURY. To the extent such waiver is permitted by
law, the parties waive trial by jury in any action or preceding brought in
connection with this Lease or the Premises.
29. LATE CHARGE. Anything in this lease to the contrary
notwithstanding, at Lessor's option, Lessee shall pay a "Late Charge" of eight
(8%) percent of any installment of rent or additional rent paid more than
fifteen (15) days after the due date thereof, to cover the extra expenses
involved in handling delinquent payments.
30. LESSEE'S INSURANCE. Lessee covenants to provide on or before the
Commencement Date a comprehensive policy of general liability insurance naming
the Lessor as an additional insured, insuring Lessee against any liability
commonly insured against and occasioned by accident resulting from any act or
omission on or about the Premises and any appurtenances thereto. Such policy is
to be written by an Insurance company qualified to do business in the State of
New Jersey reasonably satisfactory to Lessor. The policy shall be with limits
not less than One Million and 00/100 ($1,000,000.00) Dollars in respect to any
one person, in respect to any one accident, and in respect of property damage.
Said limits shall be subject to periodic review and Lessor reserves the right to
increase said coverage limits, if in the reasonable opinion of Lessor, said
coverage becomes inadequate and is less than that commonly maintained by tenants
in similar buildings in the area by tenants making similar uses. At least
fifteen (15) days prior to the expiration or termination date of any policy, the
Lessee shall deliver a renewal or replacement policy with proof of payment of
the premium therefor.
31. NO OTHER REPRESENTATION. No representations or
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promises shall be binding on the parties hereto except those representations and
promises contained herein or in some future writing signed by the party making
such representation(s) or promises.
32. QUIET ENJOYMENT. Lessor covenants that, and so long as, Lessee pays
the rent, and any additional rent as herein provided, and performs the covenants
hereto, Lessor shall do nothing to affect Lessee's right to peaceably and
quietly have, hold and enjoy the Premises for the herein mentioned, subject to
the provisions of this Lease.
33. INDEMNIFICATION. Notwithstanding anything to the contrary contained
in the Lease and subject to the third paragraph of Section 10 of the Lease, each
party hereto shall remain liable for its own negligent or otherwise tortious
acts, errors, or omissions. Lessee agrees to indemnify and hold Landlord
harmless against and from any and all costs, expenses, claims, demands,
obligations and liabilities, arising out of Lessee's negligence or willful
misconduct in connection with the condition of, state of, construction, repair,
or use of the building in which the Premises are located and any of its common
areas, including all adjacent sidewalks, alleys and parking lots.
34. PARAGRAPH HEADINGS. The paragraph headings in this lease and
position of its provisions are intended for convenience only and shall not be
taken into consideration in any construction or interpretation of this Lease for
any of its provisions.
35. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease
shall apply to, bind and inure to the benefit of Lessor and Lessee, and their
respective heirs, successors, legal representatives and assigns. It is
understood that the term "Lessor" as used in this Lease means only the owner, a
mortgagee in possession or a term Lessee of the Building, so that in the event
of any sale of the Building or of any lease thereof, or if a mortgagee shall
take possession of the Premises, the Lessor named herein shall be and hereby is
entirely freed and relieved of all covenants and obligations of Lessor hereunder
accruing thereafter, and it shall be deemed without further agreement that the
purchaser, the term Lessee of the Building, or the mortgagee in possession has
assumed and agreed to carry out any and all covenants and obligations of Lessor
hereunder.
36. PARKING SPACES. Lessee's occupancy of the Demised Premises shall
include the use of four parking spaces for each 1,000 sq. ft. of Demises Office
Space.
Lessee shall, upon request, promptly furnish to Lessor the license
numbers of the cars operated by Lessee and its subtenants, invitees,
concessionaires, officers and employees. If any vehicle of the Lessee, or of any
subtenant, licensee, concessionaire, or of their respective officers, agents or
employees, is parked in any part of the
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<PAGE>
Common Area other than the employee parking area(s) designated therefor by
Lessor, Lessee shall pay to Lessor such penalty as may be fixed by Lessor from
time to time. All amounts due under the provisions of this Paragraph shall be
deemed to be additional rent.
37. LESSOR'S LIABILITY FOR LOSS OF PROPERTY. In the absence of Lessor's
gross negligence, Lessor shall not be liable for any loss of property from any
cause whatsoever, including but not limited to theft or burglary from the
Demised Premises, and any such loss arising from the acts of Lessor, its agents,
servants or invitees, or from defects, errors or omissions in the construction
or design of the Demised Premises and/or the Building including the structural
and non-structural portions thereof, and Lessee covenants and agrees to make no
claim for any such loss at any time.
38. PARTIAL INVALIDITY. If any of the provisions of this lease, or the
application thereof to any person or circumstances, shall to any extent, be
invalid or unenforceable, the remainder of this lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be effected
thereby, and every provision of this lease shall be valid and enforceable to
the fullest extent permitted by Law.
39. BROKER. Lessee and Lessor represents and warrants that REMAX
SERVICES has negotiated in bringing about this lease and Lessee agrees to
indemnify and hold Lessor and its mortgagee(s) harmless from any and all claims
of other brokers and expenses in connection therewith arising out of or in
connection with the negotiation of or the entering into this Lease by Lessor and
Lessee. In no event shall the Lessee have any obligation to any broker involved
in this transaction, including REMAX SERVICES.
40. PERSONAL LIABILITY. Notwithstanding anything to the contrary
provided in this Lease, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this lease by Lessor, that
there shall be absolutely no personal liability on the part of Lessor, its
successors, assigns or any mortgagee in possession (for the purpose of this
paragraph collectively referred to as "Lessor"), with respect to any of the
terms, covenants and conditions of this lease, and that Lessee shall look
solely to the equity of Lessor in the Building for the satisfaction of each and
every remedy of Lessee in the event of any breach by Lessor of any of the terms,
covenants and conditions of this Lease to be performed by Lessor, such
exculpation of liability to be absolute and without any exceptions whatsoever.
41. NO OPTION. The submission of this Lease Agreement for examination
does not constitute a reservation of or option for the
19
<PAGE>
Premises and this Lease Agreement becomes effective as a Lease Agreement only
upon execution and delivery thereof by Lessor and Lessee.
42. DEFINITIONS. (A) PROPORTIONATE SHARE. Lessee's Proportionate Share,
wherever that phrase is used, shall be 10.9 per cent which the parties agree
reflects and will be continually adjusted to reflect the ratio of the gross
square feet of the area rented to Lessee (including an allocable share of all
common facilities) as compared with the total number of gross square feet of the
entire Building (or additional buildings that may be constructed with the Office
Building Area) measured outside wall to outside wall but excluding therefrom any
storage areas. Lessor shall have the right to make changes or revisions in the
common facilities of the Building, so as to provide additional leasing area.
Lessor shall also have the right to construct additional buildings in the Office
Building Area for such purposes as Lessor may deem appropriate, and subdivide
the lands for that purpose if necessary, and upon so doing, the Office Building
Area shall become the subdivided lot on which the Building in which the Demised
Premises is located. However, if any service provided for in Paragraph 23(A) or
any utility provided for in paragraph 23(B) is separately billed or separately
metered within the Building, then the square footage so billed or metered shall
be subtracted from the denominator (the Building's total number of gross square
feet) and the Lessee's Proportionate Share for such service and/or utility shall
be separately computed, and the Base Costs for such item shall not include any
charges attributable to said square footage.
(B) COMMON FACILITIES. Common facilities shall mean the non-assigned
parking spaces; lobby; elevator(s), fire alarm, public hallways; public
lavatories; all other general Building facilities that service all Building
tenants; air conditioning rooms; fan rooms, janitors' closets; telephone
closets; elevator shafts and machine rooms; flues; stacks; pipe shafts and
vertical ducts with their enclosing walls. Lessor may at any time close
temporarily any Common Area to make repairs or changes therein or to effect
construction, repairs or changes within the Building, or to discourage
non-tenant parking, and may do such other acts in and to the Common Area as in
its judgment may be desirable to improve the convenience thereof.
(C) FORCE MAJEURE. Force majeure shall mean and include those
situations beyond Lessor's control, including by way of example and not by way
of limitation, acts of God; accidents; repairs; strikes; shortages of labor,
supplies or materials; inclement weather; or where applicable, the passage of
time while waiting for an adjustment of insurance proceeds.
(D) BUILDING HOURS. As used in this lease the "Building Hours" shall be
Monday through Friday, 8:00 a.m. to 6:00 p.m., and
20
<PAGE>
on Saturdays from 8:00 a.m. to 1:00 p.m. excluding those holidays as set forth
on Exhibit E attached hereto and made a part hereof, except that common area
lighting in the Building and Office Building Area shall be maintained for such
additional hours as, in Lessor's sole judgment, is necessary to be desirable to
insure proper operation of the Building and Building Area.
43. LEASE COMMENCEMENT. Notwithstanding anything contained herein to
the contrary, if Lessor, for any reason whatsoever, including Lessor's
negligence, except as provided for in Paragraph 27(B) cannot deliver possession
of the Premises's provided for in Paragraph 27(A) to Lessee at the commencement
of the agreed term as set forth in Paragraph 2, this lease shall not be void or
voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting
therefrom, but in that event, the Lease Term shall be for the full term as
specified above to commence from and after the date Lessor shall have delivered
possession of the premises to Lessee or from the date Lessor would have
delivered possession of the premises to Lessee but for Lessee's failure to
timely supply to Lessor such drawings and/or information required by Exhibit C
(herein the "Commencement Date") and to terminate midnight on the day preceding
the second anniversary of the Commencement Date, and if requested by Lessor,
Lessor and Lessee shall, by a writing signed by the parties, ratify and confirm
said commencement and termination dates.
44. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered
personally or sent by registered mail or certified mail in a postpaid envelope
addressed, if to Lessee, at the above described Building; if to Lessor, at
Lessor's address as set forth above; or, to either at such other address as
Lessee or Lessor, respectively, may designate in writing. Notice shall be
deemed to have been duly given, if delivered personally, on delivery thereof,
and if mailed, upon the tenth (10th) day after the mailing thereof.
45. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor
of a lesser amount than the rent and additional charges payable hereunder shall
be deemed to be other than a payment on account of the earliest stipulated basic
rent and additional rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment for rent or additional rent be
deemed an accord and satisfaction, and Lessor may accept such check or payment
without prejudice to Lessor's right to recover the balance of such rent and
additional rent or pursue any other remedy provided herein or by law.
46. EFFECT OF WAIVERS. No failure by Lessor to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease, or to
exercise any right or remedy consequent
21
<PAGE>
upon a breach thereof and no acceptance of full or partial rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of such covenant, agreement, term or condition. No consent or waiver, express or
implied, by Lessor to or of any breach of any covenant, condition or duty of
Lessee shall be construed as a consent or waiver to or of any other breach of
the same or any other covenant, condition or duty, unless in writing signed by
Lessor.
47. LEASE CONDITION. This lease is expressly conditioned upon Lessor
receiving the consent and approval of Lessor's mortgagee to its terms and
provisions not later than thirty (30) days after its execution by Lessee, and
delivery to Lessor. Should said consent not be received within the aforesaid
time period, Lessor may, at Lessor's sole option, cancel this lease and return
the first month's rent and security to Lessee, which Lessee has deposited with
Lessor upon execution of this Lease, and thereafter the parties shall have no
further obligations to each other with respect to this Lease.
48. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE. Lessee agrees to give
any mortgagees and/or trust deed holders, by Registered Mail, a copy of any
notice of default served upon the Lessor, provided that, prior to such notice,
Lessee has been notified in writing (by way of notice of assignment of rents and
leases, or otherwise) of the address of such mortgagees and/or trust deed
holders. Lessee further agrees that, if Lessor shall have failed to cure such
default within the time provided for in this lease, then the mortgagees and/or
trust deed holders shall have an additional thirty (30) days within which to
cure such default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.
49. OPTION TO RENEW. Provided Lessee is not then in default under any
of the terms or provisions on the within Lease, Lessee shall be accorded an
option to renew the within Lease Agreement for an additional term of Five (5)
years, at a basic rental which is then (95%) percent of Lessor's determination
of fair market rental value, based upon comparable rentals within a five (5)
mile radius. In no event, however, shall the annual basic rent for the
following five years be less then the annual basic rent payable during the first
five (5) years of the term. In order to exercise the within option, Lessee must
give notice, in writing, on or before March 31, 2004. In the event Lessee fails
to provide said notice, delivered to Lessor during the period herein stated, the
option to renew the subject premises shall be waived. Upon receipt of notice
from Lessee that it intends to exercise the within option Lessor shall, within
thirty (30)
22
<PAGE>
days thereafter inform Lessee of the basic rent for said option period and
Lessee shall within thirty (30) days of receipt of notice by Lessor of the basic
rent, advise. Lessee whether it shall complete or rescind the exercise of its
option to renew for a term of Five (5) years at the basic rent provided.
50. ATTORNEY'S FEES. Should Lessor cure Lessee's breach or be
successful in any litigated dispute Lessor and Lessee, or should Lessor be
required to defend itself in any action in which Lessee is a defendant and in
which Lessor is ultimately found to have no inability or culpability in the
matter by a Court of competent jurisdiction, then Lessor shall be entitled to
reasonable attorney's fees from Lessee. Correspondingly, should Lessee be
successful in any litigated dispute between Lessee and Lessor, then Lessee shall
be entitled to reasonable attorney's fees from Lessor.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
WHITNEY ASSOCIATES
/s/ illegible By: /s/ Frank N. Bovino
- -------------------------- ---------------------------------------------
WITNESS Frank N. Bovino, General Partner
AMERICA'S SHOPPING MALL, INC.
By: /s/ illegible
- -------------------------- ---------------------------------------------
WITNESS
23
<PAGE>
EXHIBIT 11.1
AMERICA'S SHOPPING MALL, INC.
COMPUTATION OF EARNINGS PER SHARE
Weighted average number of shares
Year ended April 30, 1998
<TABLE>
<CAPTION>
Date Shares # of days
---- ------ ---------
<S> <C> <C> <C>
May-97 24,677,200 31 764,993,200
Jun-97 24,677,200 30 740,316,000
Jul-97 24,677,200 31 764,993,200
Aug-97 24,677,200 31 764,993,200
Sep-97 24,677,200 30 740,316,000
Oct-97 24,677,200 31 764,993,200
Nov-97 24,677,200 30 740,316,000
Dec-97 24,677,200 31 764,993,200
Jan-98 24,677,200 31 764,993,200
Feb-98 24,677,200 28 690,961,600
Mar-98 24,677,200 31 764,993,200
Apr-98 24,677,200 30 740,316,000
--- -------------
365 9,007,178,000
=== =============
Average shares outstanding 24,677,200
=============
Shares outstanding -
adjusted for 1-for-30
conversion in July 1999 822,573
=============
</TABLE>
<PAGE>
Weighted average number of shares
Year ended April 30, 1999
<TABLE>
<CAPTION>
Date Shares # of days
---- ------ ---------
<S> <C> <C> <C>
May-98 24,677,200 31 764,993,200
Jun-98 24,677,200 30 740,316,000
Jul-98 24,677,200 31 764,993,200
Aug-98 24,677,200 31 764,993,200
Sep-98 24,677,200 30 740,316,000
Oct-98 24,677,200 31 764,993,200
Nov-98 24,677,200 30 740,316,000
Dec-98 24,677,200 31 764,993,200
Jan-99 24,677,200 31 764,993,200
Feb-99 24,677,200 28 690,961,600
Mar-99 24,677,200 31 764,993,200
April 1 - April 7, 1999 24,677,200 7 172,740,400
April 8- April 30, 1999 31,427,200 23 722,825,600
--- -------------
365 9,162,428,000
=== =============
Average shares outstanding 25,102,542
=============
Shares outstanding -
adjusted for 1-for-30
conversion in July 1999 836,751
=============
</TABLE>
<PAGE>
Weighted average number of shares
May 1, 1999 to July 31, 1999
<TABLE>
<CAPTION>
Date Shares # of days
---- ------ ---------
<S> <C> <C> <C>
May 1- May 25, 1999(A) 1,987,614 25 49,690,350
May 26- May 31, 1999 2,320,948 6 13,925,688
Jun-99 2,320,948 30 69,628,440
Jul-99 2,320,948 31 71,949,388
-- -----------
92 205,193,866
== ===========
Average shares outstanding 2,230,368
===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
(A) 30-Apr-99 31,427,200
---------- = 1,047,614
30
May 1, 1999 shares issued 940,000
-----------
1,987,614
===========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AMERICA'S SHOPPING MALL, INC.
America's Shopping Mall, Inc.
The Deerskin Companies, Inc., a Nevada corporation, does business under the
names "Deerskin" and "Joan Cook."
The Remarkable Group, Inc., a Nevada corporation, does business under the
names "Creadis Promotions" and "Remarkable Products."
Creadis Promotions, Inc., a New York corporation.
Dynamic Products Corp., a Nevada corporation.
Remarkable Office Products, Inc., a New Jersey corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the America's Shopping Mall, Inc. Registration
Statement on Form SB-2 of our reports dated July 30, 1999 for America's Shopping
Mall, Inc., September 10, 1999 for the Deerskin and Joan Cook Catalog
Businesses, August 17, 1999 for Dynamic Products Corp. and Subsidiary, August
17, 1999 for Creadis Promotions, Inc. and April 8, 1999 for Heyden Incorporated,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
/s/ Arthur Yorkes & Company
Arthur Yorkes & Company
New York, New York
December 9, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form SB-2 and
the related prospectus relating to the offering of 5,157,310 shares of Common
Stock of America's Shopping Mall, Inc. of our report, dated July 23, 1998, on
the consolidated financial statements of Dynamic Products Corp. and Subsidiary
contained herein, and to the use of our name and the statements with respect to
us appearing under the heading "Experts" in the prospectus.
/s/ Smallberg Sorkin & Company LLP
SMALLBERG SORKIN & COMPANY LLP
New York, NY
December 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-2000
<PERIOD-END> APR-30-1999 JUL-31-1999
<CASH> 0 35,454
<SECURITIES> 0 682,034
<RECEIVABLES> 0 330,468
<ALLOWANCES> 0 0
<INVENTORY> 0 3,260,550
<CURRENT-ASSETS> 150,000 4,690,965
<PP&E> 0 369,084
<DEPRECIATION> 0 84,323
<TOTAL-ASSETS> 206,509 9,629,969
<CURRENT-LIABILITIES> 57,022 1,749,398
<BONDS> 0 5,528,903
0 0
0 3,995,000
<COMMON> 149,487 1,871,340
<OTHER-SE> 0 (3,514,672)
<TOTAL-LIABILITY-AND-EQUITY> 206,509 9,629,969
<SALES> 0 1,457,849
<TOTAL-REVENUES> 0 1,457,849
<CGS> 0 491,191
<TOTAL-COSTS> 0 491,191
<OTHER-EXPENSES> 118,040 1,534,950
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 167,705
<INCOME-PRETAX> (118,040) (735,997)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (118,040) (735,997)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (118,040) (648,758)
<EPS-BASIC> (0.14) (0.29)
<EPS-DILUTED> (0.14) (0.29)
</TABLE>
