UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Initio, Inc.
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(Name of Issuer)
Common Stock, $.01 Par Value
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(Title of Class of Securities)
457203-10-7
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(CUSIP Number)
Arnold N. Bressler, Esq.
One Pennsylvania Plaza, 49th Floor, New York, New York 10119-0165
- (212) 594-5300
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 25, 1998
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(Date of Event which Requires Filing
of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with the statement |_|. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such
class.)(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior coverage page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
I:\INIT\80039MAL.041
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CUSIP NO. 457203-10-7 PAGE 1
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1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
MARTIN FOX
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2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |_|
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3 SEC Use Only
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4 Source of Funds*
OO
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5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Item
2(d) or 2(e) |_|
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6 Citizenship or Place of Organization
USA
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7 Sole Voting Power
Number of
Shares 1,397,604
Beneficially --------------------------------------------------------
Owned By 8 Shared Voting Power
Each
Reporting 136,984
Person --------------------------------------------------------
With 9 Sole Dispositive Power
1,397,604
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10 Shared Dispositive Power
136,984
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,534,588
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12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* |_|
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13 Percent of Class Represented By Amount in Row (11)
30.8%
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14 Type of Reporting Person*
IN
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This initial Schedule 13D of Martin Fox (the "Schedule 13D") relates to
the common stock, par value $.01 per share, issued by Initio, Inc.
Item 1.
This Schedule 13D relates to the shares of common stock, par value $.01
per share (the "Common Stock"), of Initio, Inc., a Nevada corporation (the
"Company"). The address of the principal executive office of the Company is 2500
Arrowhead Drive, Carson City, Nevada 89706.
Item 2. Identity and Background
1. (a) Martin Fox.
(b) Mr. Fox's business address is 2500 Arrowhead
Drive, Carson City, Nevada 89706.
(c) Mr. Fox is a director and President of the Company.
(d-e) During the last five years, Mr. Fox has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) and
was not a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, Federal or state securities laws or finding
any violations with respect to such laws.
(f) Mr. Fox is a citizen of the United States.
Item 5. Interest in Securities of the Issuer.
(a)-(b) Mr. Fox is the beneficial owner of 1,534,588 shares of the
Company's common stock. This represents 30.8% of the Company's issued and
outstanding shares. Mr. Fox 's beneficial ownership is comprised of (i)
currently exercisable options to acquire 125,000 shares, over which Mr. Fox
would have sole voting and dispositive power, if exercised, (ii) 1,170,808
shares over which he has sole voting and dispositive power, (iii) 85,941 and
15,855 shares held by the Martin Fox Retirement Plan Trust and the LFM
Associates, Inc. Retirement Trust, respectively, over which Mr. Fox, as Trustee
of each trust has sole voting and dispositive power, (iv) 80,449 and 56,535
shares held by the Samantha Fox Trust and the Joshua Fox Trust, respectively,
over which Mr. Fox, as a Trustee of each trust has shared voting and dispositive
power.
Page 2 of 4 Pages
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Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer.
On February 25, 1998, the Company entered into the Debenture Commitment
Agreement with Pioneer Ventures Associates Limited Partnership ("PVALP")
pursuant to which PVALP has agreed to make certain loans to the Company to be
repaid by the Company in accordance with the terms of convertible subordinated
debentures (the "Debentures"). PVALP has initially loaned $3,000,000 to the
Company and the Company has issued the First Subordinated Debenture due May 1,
2003 (the "First Debenture").
The terms of the First Debenture include the condition that the principal
stockholders of the Company (the "Principal Stockholders"), which include Mr.
Fox, enter into the Voting Agreement.
The Voting Agreement provides that so long as there is any unpaid
principal amount or interest outstanding under the Debentures or so long as the
conversion shares are held by PVALP, the Principal Stockholders will vote all of
their Common Stock for the election of PVALP's designee as a director of the
Company. In addition, in the event of a default under the Debenture Commitment
Agreement, the Principal Shareholders agree to elect that number of nominees to
the Board of Directors designated by PVALP such that the Board of Directors
becomes comprised of a majority of nominees of PVALP. The Principal Shareholders
also agree to vote in favor of the PVALP nominees so long as any interest or
principal remains unpaid.
The Voting Agreement also provides that the Principal Shareholders may not
transfer any Common Stock to any affiliate without PVALP's prior written
consent. "Affiliate" is defined in the Voting Agreement as (a) any spouse,
parent, parent-in-law, grandparent, grandchild, sibling, uncle, aunt, niece,
nephew or first cousin of the transferor or (b) any person which the transferor
directly or indirectly controls or (c) any transfer to a person if the
transferor remains a beneficial owner, as that term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended, of the transferred shares.
Item 7. Material to be Filed as Exhibits.
The following are attached as exhibits hereto:
Exhibit 1. Debenture Commitment Agreement, dated as of
February 25, 1998, by and between the Company and
PVALP.
Exhibit 2. Convertible Subordinated Debenture due May
1, 2003.
Exhibit 3. Voting Agreement, dated as of February 25, 1998,
by and between PVALP and the Principal Stockholders.
Page 3 of 4 Pages
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SIGNATURES
After reasonable inquiry, and to the best of the knowledge and belief of
the undersigned, the undersigned hereby certifies that the information set forth
in this statement is true, complete and correct.
/s/ Martin Fox
----------------------------
Martin Fox
Dated: March 13, 1998
Page 4 of 4 Pages
DEBENTURE COMMITMENT AGREEMENT
February , 1998
Initio, Inc.
2500 Arrowhead Drive
Carson City, Nevada 89701
Ladies and Gentlemen:
This is to set forth the agreement and understanding between Initio,
Inc. (the "Company") and the Pioneer Ventures Associates Limited Partnership,
having an address at 651 Day Hill Road, Windsor, Connecticut 06095 (the "Limited
Partnership") and the Limited Partnership's General Partner, Ventures Management
Partners LLC (the "General Partner") as follows:
1. The Limited Partnership hereby agrees to lend to the Company the
sum of $3,000,000 which shall be evidenced by and repaid by the Company in
accordance with the Convertible Subordinated Debenture attached hereto as
Exhibit A (the "First Subordinated Debenture"), which will be executed and
delivered by the Company to the Limited Partnership concurrently with the
funding of the loan evidenced thereby. Such loan shall be made by the Limited
Partnership to the Company within 15 business days of the date hereof by wire
transfer of immediately available funds to an account(s) specified by the
Company. The proceeds of such loan shall be used to repay in full the Company's
indebtedness to Summit Bank and for general working capital purposes.
2. In addition, the Limited Partnership hereby commits to lend to
the Company the sum of $2,000,000, which shall be evidenced by and repaid by the
Company in accordance with a second series of convertible subordinated
debentures (collectively, the "Second Subordinated Debenture") having the same
terms and conditions as the First Subordinated Debenture except that (a) the
maturity date thereof shall be five years from the date such loan is made and
(b) the amount of $3.00 per share in Section 5.1 shall be changed to $5.00 per
share (retaining all other terms). The $2,000,000 loan shall be made in
accordance with certain notice provisions, but such commitment shall expire at
5:00 p.m. New York time on February 28, 1999. This second and subsequent loan
may be made in minimum increments of $500,000. As a condition precedent to
closing of each Second Subordinated Debenture (i) the Limited Partnership and
the Company shall each make the representations set forth in Sections 7, 8 and
satisfy all of the conditions set forth in Section 10 hereof with respect to the
Second Subordinated
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Debenture, provided, however, that the term "Financial Statements" used in
Section 8(f) shall be deemed to refer to the most recent audited and unaudited
financial statements of the Company and the date in Section 8(g) shall be
changed to the date of the most recent quarterly or annual report of the
Company, whichever is later and (ii) all of the closing documents delivered in
connection with the First Subordinated Debenture shall be updated and delivered
in connection with the closing of each Second Subordinated Debenture. Such loan
shall be made by the Limited Partnership to the Company by wire transfer of
immediately available funds to an account(s) specified by the Company within 15
business days of the Company's written request made on or before February 28,
1999, which request shall set forth in reasonable detail the proposed
application of the proceeds of such Second Subordinated Debenture for
acquisitions (including working capital for an acquisition) and/or development
of an Internet site, provided, however, that the undersigned shall not be
required to make the loan contemplated by this paragraph if there shall then
exist an Event of Default (as that term is defined in the First Subordinated
Debenture). It is understood and agreed that a condition to the Limited Partner-
ship's funding the Second Subordinated Debenture is that the funds be used for
the purposes set forth herein. Each Second Subordinated Debenture will be
executed and delivered by the Company to the Limited Partnership concurrently
with the funding of the loan evidenced thereby.
3. Fees.
(a) Legal Fees. The Company shall pay at the First Subordinated
Debenture closing the attorneys fees and out-of-pocket expenses of counsel for
the Limited Partnership in connection with the transactions contemplated hereby;
such attorneys fees and out-of-pocket expenses shall equal $15,000. This fee
shall be all inclusive for any subsequent closing of the Second Subordinated
Debenture. 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 reasonably requested to
effect the closing.
(b) Expenses. The Company will reimburse the General Partner of the
Limited Partnership for its out-of-pocket expenses incurred in connection with
visits to the Company's facilities and other costs and expenses actually
incurred in connection with its due diligence investigation of the Company,
provided, however, that in no event shall the Company be required to pay more
than $5,000 in connection therewith. The General Partner of
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Page 3
the Limited Partnership hereby acknowledges receipt from the Company of a check
in the amount of $20,000 in payment of the fees and expenses set forth in
Sections 3(a) and 3(b).
(c) Investment Banking Fees. The Company shall pay an investment
banking fee of $21,000 to the General Partner of the Limited Partnership
concurrently with its execution and delivery of the First Subordinated
Debenture. In the event that the entire $20,000 being delivered to the General
Partner of the Limited Partnership concurrently with the execution hereof is not
used for the purposes set forth in Sections 3(a) and 3(b) at the execution and
delivery of the Second Subordinated Debenture, the General Partner of the
Limited Partnership shall apply any excess to the investment banking fee payable
with respect to the Second Subordinated Debenture. Concurrently with the
Company's execution and delivery of the Second Subordinated Debenture, the
Company will pay an investment banking fee of $14,000 to the General Partner of
the Limited Partnership.
(d) Break-Up Fee. At any time prior to the funding of the First
Subordinated Debenture, the Company may terminate this Agreement by written
notice without any obligation or liability other than to deliver a payment of
$15,000 to the General Partner of the Limited Partnership concurrently with such
written notice.
4. Agreements Concerning Directors.
(a) Generally. Effective immediately prior to or concurrently with
the funding of the First Subordinated Debenture, Robert A. Lerman or the nominee
of the General Partner shall be elected a director of the Company for a three
year term. So long as any principal and/or interest payment shall remain
outstanding under either the First Subordinated Debenture or the Second
Subordinated Debenture (collectively, the "Debentures") and so long as the
Limited Partnership shall own any Conversion Shares (as that term is defined in
the Debentures), the Company shall nominate, include in the list of candidates
for directors recommended by the Board of Directors, and use its best efforts to
have elected either Robert A. Lerman or the nominee of the General Partner. In
furtherance of the foregoing, Martin Fox, Daniel DeStefano and certain other
shareholders of the Company shall simultaneously execute and deliver to the
Limited Partnership a Voting Agreement in substantially the form of Exhibit B
attached hereto.
(b) On Default. In the event that the Company shall default in the
due and punctual payment of any installment of interest on the Debentures when
and as the same shall become due and payable and such default shall continue for
30 days, in
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Page 4
addition to the other remedies available to the Limited Partnership, the Company
shall nominate, and use its best efforts to have promptly elected or appointed
such number of individuals as shall, when added to the director referred to in
Section 4(a), give the Limited Partnership a majority of the total number of
directors of the Company for so long as any principal amount shall remain
outstanding under the Debentures. To facilitate the foregoing, the Company has,
concurrently with the execution hereof, amended its by-laws in a manner
satisfactory to the Limited Partnership and the Company shall not change such
amended provision of its by-laws without the Limited Partnership's prior written
consent. Failure to obtain such prior written consent to any such change shall
constitute an Event of Default under the Debentures.
5. Indemnification of the Limited Partnership. The Company will indemnify
and hold harmless the Limited Partnership, the General Partner and each of its
managers, officers and agents and each person, if any, who controls the Limited
Partnership within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively, the "Indemnified Persons") against
any losses, claims, damages or liabilities, joint or several, to which the
Limited Partnership or the Indemnified Persons may become subject, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (a) any material inaccuracy or inadequacy in or
breach or default of any of the Company's representations, warranties, covenants
or agreements in this Agreement or the Debentures or any filings or press
releases made by the Company pursuant to the Exchange Act ("Exchange Act
Filings"), (b) any untrue statement of any material fact contained in any
registration statement contemplated by Section 6 of the Debentures (the
"Registration Statement") or any Exchange Act filings, (c) the omission or
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any Exchange Act filings or necessary to make the
statements in the Registration Statement or any Exchange Act filings not
misleading, or (d) any violation by the Company of the Securities Act of 1933,
as amended (the "Securities Act") or the Exchange Act and will reimburse, within
30 days of incurring such expenses, the Limited Partnership and the Indemnified
Persons for any legal or other expenses reasonably incurred by the Limited
Partnership and the Indemnified Persons in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any
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Page 5
Exchange Act filings in reliance upon and in conformity with written information
furnished by and with respect to the Limited Partnership specifically for use in
the preparation thereof. In the event that a claim is made hereunder, the
Company shall defend such claim at its own expense. The Company shall not be
required to indemnify the Limited Partnership and the Indemnified Persons for
any payment made to any claimant in settlement of any suit or claim made by the
Limited Partnership unless such payment is approved in writing by the Company.
6. [INTENTIONALLY OMITTED].
7. Representations of the Limited Partnership. The Limited Partnership
hereby represents and warrants the following to the Company:
(a) Accredited Investor. It is an accredited investor within the
meaning of Rule 501 of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act").
(b) Investment Purpose. It is acquiring the Debentures and any
shares of the Company's Common Stock which it may acquire upon the conversion of
Debentures (the Debentures and such shares are hereinafter referred to as the
"Securities") for investment and not with a view to the sale or distribution
thereof, for its own account and not on behalf of others (except its limited
partners) and has not granted any other person any right or option or any
participation or beneficial interest in any of the Securities. The Limited
Partnership acknowledges its understanding that the Securities constitute
restricted securities within the meaning of Rule 144 of the Commission under the
Securities Act, and that none of the Securities may be sold except pursuant to
an effective registration statement under the Securities Act or in a transaction
exempt from registration under the Securities Act, and acknowledges that it
understands the meaning and effect of such restriction. The Limited Partnership
is aware that no federal or state regulatory agency or authority has passed upon
the sale of the Securities or the terms of the sale or the accuracy or adequacy
of any material being provided to the Limited Partnership and that the price of
the Securities was negotiated between the Company and the Limited Partnership
and does not necessarily bear any relationship to the underlying assets or value
of the Company. The Limited Partnership understands that an investment in the
Securities involves a high degree of risk.
(c) Opportunity to Meet with Management. The General Partner on
behalf of the Limited Partnership acknowledges that it
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Page 6
has had an opportunity to meet with and ask questions of the Company's
management.
(d) Authorization; Validity. This Agreement has been duly authorized
and constitutes the valid and legally binding obligation of the Limited
Partnership 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.
(e) 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 Limited Partnership of, or the performance or
satisfaction of any agreement of the Limited Partnership contained in or
contemplated by, this Agreement.
8. Representations of the Company. The Company hereby represents and
warrants the following to the Limited Partnership:
(a) Corporate Organization, Standing and Subsidiaries. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power, legal right
and authority to conduct its business and own, lease and operate its properties
as and in the places where such business is now conducted and such properties
are now owned, leased or operated. The Company has no subsidiaries except as set
forth in the 1997 10-KSB (as that term is hereinafter defined). Such
subsidiaries are hereinafter referred to as the "Subsidiaries". Each of the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power, legal right and authority to conduct its business and own,
lease and operate its properties as and in the places where such business is now
conducted and such properties are now owned, leased or operated. Each of the
Subsidiaries is wholly owned by the Company.
(b) Property. The Company, either directly or indirectly through the
Subsidiaries, has good and marketable title to all its material assets in each
case free and clear of all liens, except (i) liens disclosed in Exhibit C
attached hereto, (ii) the lien, if any, of current taxes not yet due and
payable, (iii) such minor imperfections in title and encumbrances, if any, as do
not materially detract from the value
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Page 7
or interfere with the present use thereof and (iv) liens created pursuant to
equipment finance leases.
(c) Default. The Company and the Subsidiaries are not in violation
of, breach of or default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in this
Agreement) has occurred which with the passage of time or notice from or action
by any party thereto or otherwise could result in a violation of or default
under, or give any other person the right to terminate, as the case may be, any
indenture, mortgage, security, loan, lease or other material agreement to which
the Company or any of the Subsidiaries is a party or by which it is bound or
result in the creation, imposition or acceleration of any material lien of any
nature in favor of any other person.
(d) Permits; Compliance with Laws. The Company and the Subsidiaries
possess all necessary valid licenses, permits, franchises, consents,
authorizations and approvals of or from governmental departments, agencies and
instrumentalities for the business and operations of the Company and the
Subsidiaries 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 of, any such license, permit,
franchise, consent, authorization or approval or, to the best of its knowledge,
any applicable Federal, state, local or foreign law, statute, ordinance,
regulation, order or requirement relating to its business, operations or assets,
or the use thereof, which default or violation could have a materially adverse
affect upon its business or operations. Without limiting the generality of the
foregoing, the Company has not received any notice of delisting from Nasdaq.
(e) Litigation. Except as set forth in a separate letter from the
Company to the Limited Partnership, there are no actions, suits, claims,
arbitrations, administrative or other proceedings or governmental investigations
seeking $10,000 or more in damages pending or, to the best of 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
governmental department, agency or instrumentality nor to the best of its
knowledge is there any basis therefor. The Company and the Subsidiaries are not
bound or adversely affected by or in default with respect to any judgment,
order, writ,
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Page 8
injunction or decree of any court or of any governmental department, agency or
instrumentality.
(f) Financial Statements. The Financial Statements (as that term is
hereinafter defined) are true, correct and complete in all material respects and
in conformity with the books and records of the Company, have been prepared in
accordance with generally accepted accounting principles and practices
consistently applied through the periods covered (except as otherwise stated
therein) and fairly present in all material respects the financial condition and
results of operations of the Company, as at the dates thereof and for the
periods covered thereby.
(g) No Adverse Changes. Since October 31, 1997 there have been no
changes in the financial condition, assets, liabilities, operating results or
business of the Company or the Subsidiaries, other than changes in the ordinary
course of business, which has been, individually or in the aggregate, materially
adverse, nor has there been any material damage, destruction or loss of any of
its property, and the business and operations of the Company and each of the
Subsidiaries has been conducted only in the usual, regular and ordinary course.
(h) Taxes. The Company and each of the Subsidiaries (i) 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 (ii) is not a
party to any pending action or proceeding by any governmental authority for the
assessment or collection of any taxes, assessments, franchise fees or other
governmental charges and no claim for any thereof is pending.
(i) Authorization; Validity. This Agreement has been duly authorized
and constitutes the valid and legally binding obligations of the Company 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.
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Page 9
(j) 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.
(k) Capital Stock; Ownership. The authorized securities of the
Company consists of 10,000,000 shares of Common Stock, $.01 par value, of which,
as of the date hereof, 4,850,398 are outstanding. The Company has reserved
596,400 shares of Common Stock for issuance pursuant to stock options which are
either outstanding but not yet exercised, or authorized under a stock option
plan but not subject to a grant. The Company has no other outstanding stock
options, warrants or other convertible securities. Set forth as Exhibit D
attached hereto is a list of certain shareholders of the Company.
(l) 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
Limited Partnership, including any and all documents filed with the Securities
and Exchange Commission within the past 12 months, pursuant hereto or otherwise,
in connection with the transactions contemplated hereby, has contained, contains
or will contain at the closing date any untrue statement of a material fact or
has omitted, omits or will omit at the closing date a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading. Without limiting the generality of the foregoing, the Company is
current in all filings required under the Exchange Act.
(m) Additional Representations. The Company represents and warrants
that:
(i) The Investment to be consummated by the Limited
Partnership in the Company is NOT opposed by its board of
directors;
(ii) The Company is NOT a real estate or real estate operating
company;
(iii) The Company is NOT undergoing a bankruptcy
liquidation;
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Page 10
(iv) 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;
(v) 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 Debentures, a
participant in an international boycott
illegal under United States law or opposed by
the United States government;
(vi) The Company is NOT an investment company registered or
required to be registered under the Investment Company
Act of 1940, as amended;
(vii) The Company conducts NO operations in Northern
Ireland and will ensure that at the time of
the conversion or partial conversion of any of
the Debentures that it conducts NO operations
in Northern Ireland unless the Company com-
plies with the MacBride principles and the
Limited Partnership agrees that the Company
complies with the MacBride principles. For
purposes of this Certificate, a corporation
will be considered to be "conducting opera-
tions in Northern Ireland" if it has facili-
ties and employees in Northern Ireland, either
directly or through one or more subsidiaries;
and
(viii) 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.
(n) Use of Proceeds. The Company represents it shall use and apply
the proceeds from the loan funded through the First (Second) Subordinated
Debenture only for such purpose as set forth in this Agreement.
(o) Summit Bank. The Company represents and warrants it shall pay in
full all loans issued by Summit Bank with the proceeds of the First Subordinated
Debenture.
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Page 11
(p) Insurance. The Company represents and warrants that it has
general liability insurance with a maximum limit of $10,467,000 and a deductible
of 2% with a $25,000 minimum, which management of the Company believes is
sufficient to replace a substantial loss of its assets.
9. Receipt of Disclosure Documents. The General Partner of the Limited
Partnership acknowledges that it has received and reviewed copies of the
following (the "Financial Statements") from the Company: (i) its Annual Report
on Form 10-KSB for the fiscal year ended April 30, 1997 (the "1997 10-KSB"),
including, without limitation, its audited consolidated balance sheets as of
April 30, 1997 and 1996, the consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended April 30, 1997
and 1996, and the related notes thereto, which have been certified by Arthur
Andersen LLP, independent public accountants, and (ii) its Quarterly Report on
Form 10-QSB for the quarter ended October 31, 1997, including, without
limitation, its unaudited consolidated balance sheets as of October 31, 1997 and
the unaudited consolidated statements of operations, stockholders' equity and
cash flows for the six months ended October 31, 1997 and 1996 and notes thereto.
10. Conditions Precedent.
(a) Conditions Precedent to Obligation of the Limited Partnership.
The obligation of the Limited Partnership 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 the General Partner of the Limited Partnership
in its discretion):
(i) Each of the representations and warranties made by the
Company in 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 as if made at and as of such time; the Company shall have each
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; and the Limited Partnership shall have
received the Company's certificates, dated the date of closing, to the foregoing
effect.
(ii) the Company shall execute and deliver to the Limited
Partnership such agreements, instruments and documents as the Limited
Partnership shall reasonably request to effectuate the transactions contemplated
by this Agreement.
<PAGE>
Page 12
(b) Conditions Precedent to Obligation of the Company. The
obligation of the Company 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 the Company in its discretion):
(i) Each of the representations and warranties of the Limited
Partnership 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 as if made at and as of such time; the Limited Partnership 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; and the Company shall have received the
General Partner's certificate on behalf of the Limited Partnership, dated the
date of closing, to the foregoing effect.
(ii) the General Partner on behalf of the Limited Partnership
shall execute and deliver to the Company such agreements, instruments and
documents as the Company shall reasonably request to effectuate the transactions
contemplated by this Agreement.
11. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or the Debentures shall be in writing
and shall be deemed to have been duly given if delivered by overnight delivery
service and telecopier, addressed to the parties at their respective addresses
set forth or referred to on the first page of this Agreement, with copies to
their respective counsel, Milberg Weiss Bershad Hynes & Lerach LLP, Attention:
Arnold N. Bressler, Esq., One Pennsylvania Plaza, New York, New York 10119
(telecopier no. (212) 868 - 1229), in the case of the Company and Kenneth
Lerman, Esq., 651 Day Hill Road, Windsor, Connecticut 06095 (telecopier no.
(860) 285 - 0139) in the case of the Limited Partnership, or to such other
person or address as may be designated by like notice hereunder. The current
telecopier numbers of the Company and the Limited Partnership are (201) 392 -
1118 and (860) 285 - 0139, respectively.
12. Modifications. This Agreement may not be modified or discharged
orally, but only in writing duly executed by the party to be charged.
13. Successors and Assigns. All the covenants, stipulations, promises and
agreements in this Agreement shall
<PAGE>
Page 13
bind the parties' respective successors and assigns, whether so expressed or
not, provided, however, that the Company's agreements set forth in Section 4
hereof may not be assigned by the Limited Partnership.
14. 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.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
16. 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.
If the foregoing is in accordance with your understanding, kindly so
indicate by signing this letter in the place provided below.
Very truly yours,
PIONEER VENTURES ASSOCIATES
LIMITED PARTNERSHIP
By: Ventures Management
Partners, LLC, Its
General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By /s/ Robert A. Lerman
-----------------------------
Robert A. Lerman, President
AGREED:
INITIO, INC.
By /s/ Martin Fox, President
-----------------------------
Martin Fox, Pres.
<PAGE>
EXHIBIT C
1. Substantially all of the Company's assets are subject to a
security interest granted to Summit Bank (as successor to United Jersey Bank),
which security interest will be released concurrently with the closing.
2. The Company's Carson City, Nevada property is subject to a
mortgage in favor of Sierra Bank of Nevada, securing a loan, the principal
amount and outstanding interest of which is less than $1,000,000.
3. The land on which the Company's Carson City, Nevada warehouse
facility is situated is leased from an unrelated third party. The lease expires
on September 30, 2037.
<PAGE>
EXHIBIT D
Principal Shareholders
No. of %
Name Shares Ownership
---- ------ ---------
(1)Daniel DeStefano 737,358 15.20
(1)Daniel DeStefano 112,138 2.31
Retirement Plan Trust
Trustee: Daniel DeStefano
DeStefano Children Trust 530,546 10.94
c/o John McConeghy
42 Sterling Lane
Wayne, New Jersey 07470
Trustees: John McConeghy
Alfred DeStefano
(1)Martin Fox 1,170,808 21.56
(1)Martin Fox Retirement 85,941 1.77
Plan Trust
(1)LFM Associates, Inc. 15,855 .33
Retirement Trust
(1)Samantha Fox Trust 80,449 1.66
Trustees: Martin Fox,
Rita Fox, Melvyn I. Weiss
(1)Joshua Fox Trust 56,535 1.16
Trustees: Martin Fox,
Rita Fox, Melvyn I. Weiss
- --------
(1) The address for these individuals and entities is c/o Initio, Inc.,
2001 Tonnelle Avenue, North Bergen, New Jersey 07047.
<PAGE>
Page 16
To facilitate the foregoing, each of the current directors is delivering to
________________ (the "Escrow Agent"), pursuant to the terms and conditions of
the Escrow Agreement between the Escrow Agent, the Company and the Limited
Partnership, dated the date hereof, undated, signed resignations. The Company
undertakes to deposit with the Escrow Agent undated, signed resignations from
each director who may hereafter be elected d director of the Company for so long
as any principal amount remains outstanding under the Debentures.
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.
$3,000,000
INITIO, INC.
CONVERTIBLE SUBORDINATED DEBENTURE DUE MAY 1, 2003
FOR VALUE RECEIVED, the undersigned, INITIO, INC., a corporation
duly organized and existing under the laws of the State of Nevada (the "Payor"),
with its principal business address at 2500 Arrowhead Drive, Carson City, Nevada
89701, 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 Three Million
Dollars ($3,000,000) 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 the following redemption prices (expressed in percentages of the
principal amount thereof to be redeemed):
If redeemed
during the
12-month period Redemption
beginning May 1 Price
--------------- -----
1999 110%
2000 106%
2001 104%
2002 102%
and thereafter at 100% of the principal amount thereof, 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
Payee shall surrender this Debenture to the Payor's counsel, Milberg Weiss
Bershad Hynes & Lerach LLP, as escrow agent (the "Escrow Agent"), pursuant to
the Escrow Agreement between the Payor, the Payee and the Escrow Agent, dated
the date hereof (the "Escrow Agreement"), and the Payor shall execute and
deliver to the Escrow Agent in accordance with the Escrow Agreement 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. Upon notice
to Payee from Payor that the Debenture is to be redeemed in whole or in part,
Payee shall have the right for 45 days to convert any amount of the Debenture
into common stock. Any amounts not so converted and thereafter 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
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<PAGE>
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,
whether outstanding on the date hereof or hereafter created, 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, provided, however, that Payor shall not permit any Senior
Institutional Indebtedness secured by a real property mortgage on its Carson
City, Nevada property to exceed $1,000,000 in the aggregate outstanding at any
time. 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 its other subsidiaries or by the Payor in conjunction with one or more of its
other subsidiaries.
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
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<PAGE>
(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 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.
4.1 Other Creditors. 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).
4.2 Notice to Senior Institutional Indebtedness. So long as Senior
Indebtedness remains outstanding, the Payee shall not commence litigation
against Payor to enforce its remedies without first providing to the holder of
the Senior Indebtedness written notice; such notice shall be effected by
forwarding such notice to the holder of the Senior Indebtedness in care of the
Payor at least 45 days prior to such commencement of litigation.
- 4 -
<PAGE>
5. Conversion.
5.1 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 of equal to the lesser of (i) $3.00 per share or (ii)
120% of the current market price per share of Common Stock on the date hereof,
computed in accordance with Section 5.4(c) hereof (subject to adjustment as
hereinafter provided) by surrender of this Debenture in the manner provided in
Section 5.2.
5.2 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 Escrow
Agent in accordance with the Escrow Agreement 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 Escrow Agent in accordance with the Escrow
Agreement a certificate or certificates for the number of full shares issuable
upon the conversion of such 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 5.3 of this Debenture. In each case this Debenture shall be
surrendered for partial conversion, the Payor shall also promptly execute and
deliver to the Escrow Agent in accordance with the Escrow Agreement 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
- 5 -
<PAGE>
prior to the date it is surrendered or for 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.
5.3 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 5.4.
5.4 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 he 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
Common Stockholders and/or any other security holder of 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
- 6 -
<PAGE>
numerator shall be the current market price per share (as defined in
subsection (c) of this Section 5.4) 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. Such adjustment 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 5.4, the current market price per share of Common Stock
at any date shall be deemed to be the average of the daily closing prices
for the thirty consecutive trading days commencing thirty-five 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
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<PAGE>
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.
5.5 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.
5.6 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.
- 8 -
<PAGE>
5.7 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 Section 10.4 hereof,
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.
6. Registration Rights.
6.1 Grant of Piggyback Right. So long as there shall be outstanding any
principal or interest under this Debenture or Payee shall hold any shares of
Common Stock issuable to Payee pursuant to this Debenture ("Conversion Shares"),
Payor shall send written notice to Payee in accordance with Section 10.4 hereof
at least one month prior to the filing by Payor of any
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<PAGE>
registration statement filed by 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 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, Payee must give written notice to Payor within 15 days
after the date of Payee's receipt of written notice from Payor indicating the
number of Conversion Shares requested to be included for sale in such
registration statement. Upon receipt of such notice from Payee, 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 Payor (exclusive of underwriter's spread and commissions with respect
to stock sold by Payee or fees and disbursements of Payee's counsel). If the
registration statement to be filed by Payor pertains to an underwritten public
offering of shares of common stock to be sold solely for the account of Payor
and, if in the judgment of the prospective managing or lead underwriter for
Payor as set forth in a letter to Payor, the registration of the Conversion
Shares would materially adversely affect the proposed public offering by Payor,
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.
6.2 Demand Registration Right. If at any time while there shall be
outstanding any principal or interest under this Debenture or if at any time
while 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 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 6.2 on more than one occasion;
and provided, further, that the registration rights of the Payee under this
Section 6.2 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 6.2; however, all costs
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<PAGE>
and expenses of this Demand Registration shall then be shared proportionately
with any other parties desiring to piggyback onto Payee's Demand Registration.
The exercise by the Payee of its demand registration right under this Section
6.2 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 6.2,
provided, however, that if the Payor registers any securities within six months
of the effective date of the Demand Registration, then Payor shall reimburse
Payee its actual costs incurred in registering its securities pursuant to this
Demand Registration Right. The Payor shall only be required to grant a demand
registration as contemplated by this Section 6.2 on one occasion, it being
understood and agreed that such demand registration may apply to this Debenture
or this Debenture and the Second Subordinated Debenture (as that term is defined
in the Debenture Commitment Agreement, between Payor and Payee, dated the date
hereof (the "Debenture Commitment Agreement")) or only the Second Subordinated
Debenture but in no event shall the Payor be required to undertake such demand
registration more than once.
6.3 Undertaking to File Documents. Payee shall execute, deliver and/or
file with or supply to 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.
6.4 Commitment to Keep Effective. Payor will be obligated to keep any
registration statement filed by it hereunder and any registration or
qualification pursuant to Section 6.5 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. Payor
will furnish to Payee such number of prospectuses and other appropriate
documents as each Payee may from time to time reasonably request.
6.5 Blue Sky Registration. 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
Payee pursuant hereto under such securities or blue sky laws in such
jurisdictions within the United States as Payee may reasonably request;
provided, however, that 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
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<PAGE>
not satisfy the requirements of such jurisdiction or in which 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.
6.6 Deregistration. In the event Payor 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, Payee hereby agrees that Payor may deregister
by post-effective amendment any Conversion Shares of Payee covered by the
registration statement but not sold on or prior to such date. Payor agrees that
it will notify Payee of the filing and effective date of each such
post-effective amendment.
6.7 Right to Delay. The Payor shall have the right at any time after it
shall have received written notice pursuant to Section 6.1 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
6.2 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.
6.8 Selection of Underwriters. If a registration pursuant to Section 6.1
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 6.2 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.
6.9 Principal Shareholders. The Payor will not file a registration
statement on behalf of any Principal Shareholder (as that term is defined in the
Voting Agreement between the Payee and certain shareholders of the Payor, dated
the date hereof) as selling shareholders without the prior written approval of
the Payee, which approval shall not be unreasonably withheld.
7. Acceleration. In the event that (i) the Payor shall default in the due
and punctual payment of any installment of
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<PAGE>
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
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 Debenture Commitment Agreement on the part of the
Payor, the Escrow Agreement on the part of the Payor, this Debenture, or the
Voting Agreement between the Payee and the Principal Shareholders (as that term
is therein defined), dated the date hereof; 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.
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<PAGE>
8. Waivers.
8.1 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.
8.2 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.
8.3 Modifications. This Debenture may not be modified or discharged
orally, but only in writing duly executed by the Payee and the Payor.
9. 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.
10. Miscellaneous.
10.1 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.
10.2 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 Nevada applicable to instruments made and to be
performed entirely within such State.
10.3 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.
10.4 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
Kenneth Lerman, Esq., 651 Day Hill Road, Windsor, Connecticut 06095 (telecopier
no. (860) 285 - 0139), or to such other person
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<PAGE>
or address as may be designated by the Payee. The current telecopier number of
the Payee is (860) 285 - 0139.
IN WITNESS WHEREOF, INITIO, 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: February 25, 1998
By /s/
-----------------------------
Martin Fox, Pres.
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<PAGE>
FORM OF CONVERSION NOTICE
TO: INITIO, 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 Initio, 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:
PIONEER VENTURES ASSOCIATES
LIMITED PARTNERSHIP
By: Ventures Management Partners,
LLC, Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By
-----------------------------
(Title)
Address:
---------------------------------
---------------------------------
Taxpayer Identification
No.:
------------------------------------
Amount to be Converted:
-------------------
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VOTING AGREEMENT
AGREEMENT dated as of the day of , 1998 by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, having an office at 651 Day
Hill Road, Windsor, Connecticut 06095 ("PVALP"), and the persons and entities
set forth on the signature page hereof (collectively hereinafter referred to as
the "Principal Shareholders").
WHEREAS, the Principal Shareholders have sole or shared voting power
over the common shares, $.01 par value per share ("Common Shares"), of Initio,
Inc. (the "Company") as more specifically set forth in Exhibit A attached
hereto;
WHEREAS, pursuant to a certain Debenture Commitment Agreement dated
the date hereof (the "Debenture Commitment Agreement"), PVALP is making a loan
to the Company through a First Subordinated Debenture and may make a second loan
to the Company through a series of Second Subordinated Debentures in the future;
and
WHEREAS, the execution of this Agreement by the parties hereto is a
condition precedent to the consummation of the transactions provided for in the
Debenture Commitment Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Voting by Principal Shareholders.
(a) Each of the Principal Shareholders agrees that, so long as there
shall remain outstanding any principal amount and/or unpaid interest under the
Debentures (as that term is
<PAGE>
defined in the Debenture Commitment Agreement) and so long as PVALP shall own
any Conversion Shares (as that term is defined in the Debentures (as that term
is defined in the Debenture Commitment Agreement)), each of them shall vote all
of his Common Shares, whether now owned or hereafter acquired, for the election
as a director(s) of the Company of the designee(s) of PVALP in accordance with
paragraph 4 of the Debenture Commitment 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 PVALP shall reasonably request so
that a designee of PVALP shall at all times while there shall remain outstanding
any principal amount and/or unpaid interest under the Debentures be a director
of the Company.
(b) In the event of a default under the Debenture Commitment
Agreement, or of this Agreement, or any debenture issued by the Company of which
PVALP or its assigns are a holder, the Principal Shareholders shall vote in
favor of that number of nominees to the Board of Directors designated by PVALP
such that the Board of Directors of the Company then becomes comprised of a
majority of nominees of PVALP, after and during the continuation of any such
defaults. The Principal Shareholders hereby agree to take no action to
contravene, limit or otherwise terminate such PVALP board majority mechanism.
The Principal Shareholders agree
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<PAGE>
to vote in favor of such PVALP nominees for as long as any interest or principal
remains unpaid under such debentures.
2. Transfer of Common Shares to Affiliates. During the term of this
Agreement, neither 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 by him, (i) to any affiliate, as hereinafter
defined, without first obtaining the written agreement of such affiliate to be
bound by and subject to the terms and conditions of this 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 or (ii) pursuant to a registration
statement without the prior written approval of PVALP, which approval shall not
be unreasonably withheld. The term "affiliate" shall mean (a) any spouse,
parent, parent-in-law, grandparent, child, grandchild, sibling, uncle, aunt,
niece, nephew or first cousin of the transferor or (b) any person which the
transferor directly or indirectly controls or (c) any transfer to a person if
the transferor remains a beneficial owner, as that term is used in Section 13(d)
of the Securities Exchange Act of 1934, as amended, of the transferred shares.
3. Other Transfers of Common Shares. Except for transfers pursuant to
Paragraph 2 of this Agreement, nothing in this Agreement shall be construed to
prohibit any transfer of Common Shares owned by any party to this Agreement free
from the voting and transfer restrictions contained in this Agreement.
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<PAGE>
4. Violation of Agreement; Consent to Injunctive Relief. Each of the
Principal Shareholders recognizes and agrees that any violation of any of his
obligations set forth 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 Debentures (as that term is defined in the Debenture
Commitment Agreement). Accordingly, in the event of any breach of a Principal
Shareholder's obligations under this Agreement, such Principal Shareholder
consents to the entry of injunctive relief by a court of competent jurisdiction
restraining any such violation or threatened violation in addition to any other
remedies available at law or in equity.
5. Representations. Each of the Principal Shareholders represents and
warrants that, at the date hereof, he or it is the sole record and beneficial
owner of the Common Shares set forth opposite his or its name on Exhibit A to
this Agreement. Each of the Principal Shareholders represents that it is not the
beneficial owner of any Common Shares not disclosed herein through any
affiliate, other than Common Shares, which the trustee (other than Martin Fox
and Daniel DeStefano) of a trust which is a Principal Shareholder may own for
his own account or which a Principal Shareholder may own as a trustee for
unrelated third parties.
6. 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,
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<PAGE>
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.
7. 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.
8. Modifications. This Agreement may not be modified or discharged orally,
but only in writing duly executed by the party to be charged.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada
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<PAGE>
applicable to instruments made and to be performed entirely within such State.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date and year first above written.
PIONEER VENTURES ASSOCIATES
LIMITED PARTNERSHIP
By: Ventures Management
Partners, LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By /s/ Robert A. Lerman
-----------------------------
Robert A. Lerman, President
/s/ Martin Fox
-----------------------------
Martin Fox
/s/ Daniel DeStefano
-----------------------------
Daniel DeStefano
DANIEL DESTEFANO RETIREMENT PLAN TRUST
By /s/ Daniel DeStefano
-----------------------------
Daniel DeStefano, Trustee
MARTIN FOX RETIREMENT PLAN TRUST
By /s/ Martin Fox
-----------------------------
Martin Fox, Trustee
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<PAGE>
LFM ASSOCIATES, INC. RETIREMENT TRUST
By /s/ Martin Fox
-----------------------------
Martin Fox, Trustee
SAMANTHA FOX TRUST
By /s/ Martin Fox
-----------------------------
Martin Fox, Trustee
JOSHUA FOX TRUST
By /s/ Martin Fox
-----------------------------
Martin Fox, Trustee
DeSTEFANO CHILDREN'S TRUST
By /s/ Alfred DeStefano
-----------------------------
Alfred DeStefano, Trustee
- 7 -
<PAGE>
EXHIBIT A
to
VOTING AGREEMENT
Principal Shareholders
No. of %
Name Shares Ownership
---- ------ ---------
(1)Daniel DeStefano 737,358 15.20
(1)Daniel DeStefano 112,138 2.31
Retirement Plan Trust
Trustee: Daniel DeStefano
DeStefano Children Trust 530,546 10.94
c/o John McConeghy
42 Sterling Lane
Wayne, New Jersey 07470
Trustees: John McConeghy
Alfred DeStefano
(1)Martin Fox 1,170,808 21.56
(1)Martin Fox Retirement 85,941 1.77
Plan Trust
(1)LFM Associates, Inc. 15,855 .33
Retirement Trust
(1)Samantha Fox Trust 80,449 1.66
Trustees: Martin Fox,
Rita Fox, Melvyn I. Weiss
(1)Joshua Fox Trust 56,535 1.16
Trustees: Martin Fox,
Rita Fox, Melvyn I. Weiss
- --------
(1) The address for these individuals and entities is c/o Initio, Inc.,
2001 Tonnelle Avenue, North Bergen, New Jersey 07047.
