<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_________________________to
- -------------------------------------------------------------------------------
COMMISSION FILE NUMBER: 33-2205-D
NEUROCORP., LTD.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0446395
- ------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
150 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(914) 631-3315
- -------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15 (d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [XX] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY AS OF THE LATEST PRACTICABLE DATE: 11,213,806 SHARES AS OF JANUARY 1,
1999
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I - FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
Consolidated balance sheets at September 30, 1998 (unaudited)
and December 31, 1997 1
Consolidated statements of operations (unaudited)
for the three months ended September 30, 1998 and 1997 2
Consolidated statements of operations (unaudited)
for the nine months ended September 30, 1998 and 1997 3
Consolidated statement of stockholders' equity (unaudited)
for the nine months ended September 30, 1998 4
Consolidated statements of cash flows (unaudited)
for the nine months ended September 30, 1998 and 1997 5
Notes to consolidated financial statements 6 - 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7 - 13
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 14 - 15
ITEM 6- EXHIBITS 16 - 19
</TABLE>
THIS REPORT ON FORM 10-Q SB CONTAINS FORWARD-LOOKING STATEMENTS
THAT ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AS DESCRIBED IN THE
COMPANY'S REGISTRATION STATEMENT, ANNUAL REPORT ON FORM 10-K SB
FOR THE YEAR ENDED DECEMBER 31, 1997, AND OTHER PERIODIC REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ALL STATEMENTS,
OTHER THAN STATEMENTS OF HISTORICAL FACTS, WHICH ADDRESS THE
COMPANY'S EXPECTATIONS OF SOURCES OF CAPITAL OR WHICH EXPRESS THE
COMPANY'S EXPECTATION FOR THE FUTURE WITH RESPECT TO FINANCIAL
PERFORMANCE OR OPERATING STRATEGIES CAN BE IDENTIFIED AS FORWARD
LOOKING STATEMENTS. AS A RESULT, THERE CAN BE NO ASSURANCE THAT
THE COMPANY'S FUTURE RESULTS WILL NOT BE MATERIALLY DIFFERENT FROM
THOSE DESCRIBED HEREIN AS BELIEVED, ANTICIPATED, ESTIMATED OR
EXPECTED, WHICH REFLECT THE CURRENT VIEWS OF THE COMPANY WITH
RESPECT TO FUTURE EVENTS. THE COMPANY HEREBY EXPRESSLY DISCLAIMS
ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY SUCH STATEMENTS TO REFLECT ANY CHANGE IN THE
COMPANY'S EXPECTATIONS OR ANY CHANGE IN EVENTS, CONDITIONS OR
CIRCUMSTANCES ON WHICH SUCH STATEMENT IS BASED.
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
Current assets: (unaudited)
<S> <C> <C>
Cash $ 618,901 $ 1,597,825
Accounts receivable, net of allowance for doubtful accounts of
$5,547 at September 30, 1998 and $40,777 at December 31, 1997 408,451 650,505
Inventory 134,241 132,727
Prepaid expenses and taxes 59,991 152,979
Other current assets 56,728 61,629
----------- -----------
Total current assets 1,278,312 2,595,665
----------- -----------
Equipment and fixtures, net 622,308 236,002
----------- -----------
Other assets:
Database development costs, net 1,138,549 1,228,189
Computer system product development costs, net 278,397 371,888
Other 50,848 178,266
----------- -----------
Total other assets 1,467,794 1,778,343
----------- -----------
Total assets $ 3,368,414 $ 4,610,010
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 423,016 $ 271,129
Accrued expenses 142,218 215,252
Stockholder notes and loans payable 302,367 386,332
----------- -----------
Total current liabilities 867,601 872,713
----------- -----------
Long-term liabilities:
Deferred income taxes 240,000 240,000
----------- -----------
Commitments and contingencies (Note 4) --
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, issued as follows: Cumulative
Preferred stock, class B, series 1, no par value, issued and
outstanding 150,000 shares, full liquidation value $150,000 1,150,000 150,000
Common stock, $.001 par value, 100,000,000 shares authorized,
11,213,806 & 10,813,806 issued and outstanding 26,925 21,514
Additional paid-in capital 7,157,952 6,751,897
Accumulated deficit (6,074,064) (3,426,114)
----------- -----------
Total stockholders' equity 2,260,813 3,497,297
----------- -----------
Total liabilities and stockholders' equity $ 3,368,414 $ 4,610,010
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 91,383 $ 439,431
Cost of sales, including amortization expense
of $22,218 and $68,187, respectively 515,948 173,103
------------ ------------
Gross profit (424,565) 266,328
------------ ------------
Expenses:
General and administrative expenses 906,608 708,366
Research and development -- 36,789
------------ ------------
Total expenses 906,608 745,155
------------ ------------
Loss from operations before other income (expense)
and income tax expense (1,331,173) (478,827)
------------ ------------
Other income (expense):
Interest income 988 5,420
Other, net (1,443) --
Interest expense (9,081) (7,499)
------------ ------------
Total other income (expense) (9,536) (2,079)
------------ ------------
Loss before income tax expense (1,340,709) (480,906)
Income tax expense (benefit) -- (165)
------------ ------------
Net loss $ (1,340,709) $ (481,071)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (1,340,709) $ (481,071)
------------ ------------
------------ ------------
Loss per common equivalent share:
Basic:
Net loss $ (.12) $ (.06)
------------ ------------
Net loss applicable to common shares $ (.12) $ (.06)
------------ ------------
Weighted average number of shares outstanding 11,213,806 8,015,486
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 300,711 $ 1,026,431
Cost of sales, including amortization expense
of $202,896 and $204,591, respectively 733,766 466,166
------------ ------------
Gross (loss) profit (433,055) 560,265
------------ ------------
Expenses:
General and administrative expenses 2,521,601 1,553,296
Research and development -- 88,917
------------ ------------
Total expenses 2,521,601 1,642,213
------------ ------------
Loss from operations before other income (expense)
and income tax expense (2,954,656) (1,081.948)
------------ ------------
Other income (expense):
Interest income 8,189 27,128
Other, net (3,068) --
Interest expense (29,608) (85,474)
------------ ------------
Total other income (expense) (24,487) (58,346)
------------ ------------
Loss before income tax expense (2,979,143) (1,140,294)
Income tax expense -- --
------------ ------------
Net (loss) $ (2,979,143) $ (1,140,294)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (2,979,143) $ (1,140,294)
------------ ------------
Loss per common equivalent share:
Basic:
Net loss $ (.27) $ (.14)
------------ ------------
Net loss applicable to common shares $ (.27) $ (.14)
------------ ------------
Weighted average number of shares outstanding 10,969,490 8,015,486
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Additional
Class B, Series C Class B, Series 1 Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
------ -------- ------------ ----------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 0 0 150,000 $ 150,000 10,813,806 $ 21,514 $ 6,751,897
Exercise of 400,000 warrants -- -- 400,000 400 399,600
Pioneer Investment 333,333 1,000,000 (1,000,000)
Preferred stock dividend -- -- -- -- --
Net loss for the nine months
ended September 30, 1998 -- -- -- -- -- -- --
------- --------- ------- ----------- ---------- ----------- -----------
Balances at September 30, 1998 333,333 1,000,000 150,000 $ 150,000 11,213,806 $ 21,914 $ 7,151,497
------- --------- ------- ----------- ---------- ----------- -----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
Total
(Accumulated Stockholders'
Deficit) Equity
------------- ------------
<S> <C> <C>
Balances at December 31, 1997 $(3,426,114) $ 3,497,297
Exercise of 400,000 warrants -- 400,000
Pioneer Investment 1,000,000
Preferred stock dividend
(7,500) (7,500)
Net loss for the nine months
ended September 30, 1998 (2,979,243) (2,979,243)
---------- ----------
Balances at September 30, 1998 $(7,412,857) $ 1,910,655
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows for operating activities:
Net loss from operations $(2,979,143) $(1,140,294)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 274,921 235,329
Amortization of deferred financing costs -- 53,516
Decrease (increase) in:
Accounts receivable 242,054 (358,990)
Prepaid expenses and taxes 92,988 (37,052)
Other current assets 4,898 21,813
Inventory (1,514) (66,092)
Increase (decrease) in:
Accounts payable 151,887 6,658
Billings in excess of costs and estimated earnings on uncompleted contracts -- (193,346)
Accrued expenses (73,034) (11,204)
----------- -----------
Net cash flows used for operating activities (2,286,943) (1,489,662)
----------- -----------
Cash flows for investing activities:
Other assets -- (149,368)
Proceeds from sale of automobile -- 1,660
Database development costs capitalized (14,353) (95,376)
Purchase of equipment and fixtures (336,325) (132,983)
----------- -----------
Net cash flows used for investing activities (350,678) (376,067
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants and sale of common stock 1,742,662 600,000
Principal payments on long-term debt -- (54,217)
Registration costs incurred -- (114,035)
Repayments of stockholder loans (83,965) (102,181)
----------- -----------
Net cash flows provided by financing activities 1,658,697 329,567
----------- -----------
Net (decrease) increase in cash (978,924) (1,536,162)
Cash at beginning of period 1,597,825 1,851,114
----------- -----------
Cash at end of period $ 618,901 $ 314,952
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NEUROCORP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NOTE 1 - GENERAL
The Company is primarily involved in two business. Through its
wholly-owned subsidiary, HZI Research Center, Inc. ("HZI"),
the Company contracts clinical research and performs data
analysis for health agencies, research organizations and
pharmaceutical companies. In addition, as an outgrowth of its
research activities, the Company also designs diagnostic
testing software and equipment for neuropsychiatric
applications and performs neurological testing services for
hospital and physicians. Through its wholly-owned subsidiary
Memory Centers of America, Inc. ("MCAI"), the Company provides
non-medical management of facilities as well as education and
consultation services to individuals who suffer from memory
disturbances. Revenues from this wholly-owned subsidiary were
immaterial for the three and nine months ended September 30,
1998 and 1997.
The Company conducts its operations in Tarrytown and,
Manhattan, New York.
The unaudited interim financial statements for the three and
nine months ended September 30, 1998 and 1997 included herein
have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission and, in the opinion of the Company, reflect all
adjustments (consisting only of normal recurring adjustments)
and disclosures which are necessary for a fair presentation.
The results of operations for the interim period are not
necessarily indicative of the results for the full year. For
further information, refer to the Company's audited financial
statements and footnotes thereto at December 31, 1997,
included in Form 10-KSB filed with the Securities and Exchange
Commission.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. For the years ended December 31, 1997 and 1996, the
Company incurred losses of $2,423,602 and $1,634,675
respectively. Additionally, the Company generated negative
cash flows from operations of $2,568,380 and $897,382 for the
years ended December 1997 and 1996, respectively. The
Company's ability to continue as a going concern is currently
dependent on its ability to successfully attain profitability
and positive cash flows from operations as well as obtain
capital or other financing to fund future losses and intended
expansion. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The
financial statements do not include adjustments relating to
the recoverability and realization of assets and
classification of liabilities that might be necessary should
the Company be unable to continue in operation.
The Company's financial condition has been mitigated as
follows:
On April 7, 1998, the Company signed a Letter of Intent with
Pioneer Ventures Associates Limited Partnership ("Pioneer")
whereby the Company would receive a minimum of $2,000,000 to a
maximum of $4,500,000 in exchange for issuing shares of an 8%
cumulative preferred stock at $3 per share convertible into
common stock on a share-for-share basis. Prior to the Company
receiving any funds, Pioneer performed a due diligence which
was completed, and resulted in the Company receiving an
initial $2,000,000. Pioneer has imposed certain other
conditions which resulted in the Company bringing in a new
chief executive officer and the election of two (2) Pioneer
representatives to the Board of Directors.
6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NOTE 2 - GOING CONCERN (Cont'd)
The Company received an initial investment of $1,000,000 from
Pioneer on July 30, 1998 for which it issued 333,333 shares of
a new class of Series C 8% Senior Convertible Preferred Stock.
Pioneer is evaluating the capital requirements of MCAI and
HZI's contract research division and will invest up to a total
of $4,500,000 based on terms and conditions to be agreed upon.
The Company is also exploring additional options to obtain
capital or financing.
The Company received an additional $1,000,000 from Pioneer on
December 4, 1998 for which it issued 400,000 shares of Series
C Senior Convertible Preferred Stock.
In order to maintain its liquidity and economic viability in
the interim, the Company is continuing its ongoing marketing
efforts to obtain contracts for its contract research division
and has implemented several measures including payroll and
expense reductions and aggressive collection efforts on its
receivables.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in the State of Nevada on March
18, 1987 with the name Tamarac Ventures, Ltd. On November 23,
1994, in connection with the reverse acquisition of HZI
Research Center, Inc. ("HZI"), the Company amended its
Certificate of Incorporation to change its name to NeuroCorp,
Ltd. and to reduce its authorized common stock from
200,000,000 shares to 100,000,000 shares and to authorize
5,000,000 shares of preferred stock.
The Company is primarily involved in two businesses: (i) it
contracts clinical research and performs data analysis for
health agencies, research organizations and pharmaceutical
companies, and (ii) it manages two facilities that diagnose
and treat memory disturbances. In addition, as an outgrowth of
its research activities, the Company also designs diagnostic
testing software and equipment for neuropsychiatric
applications and the Company performs neurological testing
services for hospitals and physicians. The Company conducts
these activities through two wholly owned subsidiaries, HZI
Research Center, Inc. ("HZI"), a New York corporation and
Memory Centers(TM) of America, Inc. ("MCAI"), a Delaware
Corporation. In MarCH 1996, the Company established MCAI to
provide non-medical management, educational, consultation and
marketing services to licensed physicians and entities
controlled by them. These physicians offer professional
diagnostic and treatment services, to persons who suffer from
memory disturbances. There are currently two Memory
Centers(TM), one located in New York CiTY (Manhattan), one in
Tarrytown, New York. A third Memory Center, in Bakersfield,
California, completed its first contracted year and is
currently negotiating terms for renewal with the Company.
During January 1998, the Company commenced the construction of
a signature Memory Center in Manhattan, New York. Such Memory
Center was completed November 1, 1998.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
OVERVIEW (Cont'd)
Revenues from this wholly-owned subsidiary were $41,450 and
$16,000 for the nine months ended September 30, 1998 and 1997,
respectively.
The Company recognizes revenue and costs from its contracts
under the percentage of completion method. Cost of revenues
include all direct material and labor costs and those indirect
costs related to contract performance. General and
administrative expenses are accounted for as period costs and
are, therefore, not included in the calculation of the
estimates to complete contracts in progress. Changes in each
contract's performance, conditions and estimated profitability
including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs
and income and are recognized in the period in which the
revisions are determined. In addition, losses are recognized
in full when determinable.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1997
The Company reported a net loss of $1,340,709 for the three
months ended September 30, 1998 as compared to a net loss of
$481,071 for the three months ended September 30, 1997.
Revenues for the three months ended September 30, 1998 and
1997 amounted to $91,383 and $439,431, respectively. Gross
(loss) profit for the three months ended September 30, 1998
and 1997 amounted to $(424,565) and $266,328, respectively or
a net decrease of $(690,893). The Company includes
amortization of its database and computer system product
development costs in the cost of sales. Commencing January 1,
1996 the Company revised its estimate of the useful life of
the software development cost from 17 years to 7 years. This
change was made to better reflect the estimated period during
which the assets will remain in service. For the three months
ended September 30, 1998 and 1997 amortization charges
amounted to $66,847 and $68,197, respectively. The decrease in
sales and increase in the net loss reported during the three
months ended September 30, 1998 as compared to the net loss
three months ended September 30, 1997 is attributable to the
following:
1. The Company has not entered into any major multi-million
dollar new long-term contracts since December 31, 1993 and
major contracts recorded prior to this period were
substantially completed during the December 31, 1995 and 1994
year end. For the years ended December 31, 1997 and 1996, the
Company received $405,700 and $759,000, respectively, of new
contracts. Revenues from contracts for the three months ended
September 30, 1998 as compared to the three months ended
September 30, 1997 amounted to $55,985 and $85,047,
respectively. The contract division's low revenues for the
September 30, 1998 and 1997 quarters is attributable to the
Company's lack of new contracts. The Company believes that
demand for more effective central nervous system drugs with
fewer negative side effects will continue to stimulate the
demand for contract research on central nervous system drugs,
and the Company is making efforts to secure new research
contracts.
The increase in net loss for the three months ended September
30, 1998, as compared to the net loss three months ended
September 30, 1997, is the result of reduced revenues, cost of
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1997 (Cont'd)
sales, including amortization charges, related to contract
research, continuing general and administrative expenses
including costs associated with the opening of the Company's
Manhattan Signature Memory Center, as noted below.
General and administrative expenses include overhead,
administrative salaries, selling and consulting costs.
Further, the Company classifies the costs of planning,
designing and establishing the technological feasibility of
its computer system products as research and development costs
and charges those costs to expense when incurred. After
technological feasibility has been established, costs of
producing a marketable product and its prototype are
capitalized. Capitalized database and computer system
development costs are composed mainly of payroll and other
direct employee costs. Costs associated with the above, which
are not capitalized during the period, are charged to either
general and administrative or research and development
expense.
2. Memory Center-TM- management fees for the three months ended
September 30, 1998 and 1997 amounted to $12,000 and $9,000,
respectively. $0 and $9,000 of this revenue for the three
months ended September 30, 1998 and September 30, 1997 was
derived from Manhattan Westchester Medical Services, P.C.
("Manhattan Westchester") through a program conducted under
the management of MCAI and the $12,000 revenue for the three
months ended September 30, 1998 was from U.S. Neurology, P.C.
Manhattan Westchester is a medical practice that is wholly
owned by the Company's Chairman. Effective March 1, 1998,
Manhattan Westchester has not been providing such medical
services to MCAI. The Company is undergoing negotiations with
physicians to provide medical services to MCAI.
General and administrative expenses for the three months ended
September 30, 1998 were $906,608 as compared to the three
months ended September 30, 1997 of $708,366 or an increase of
$198,242 or 28%. The increase in general and administrative
expenses for the three months ended September 30, 1998 is
primarily due to the Company opening its Manhattan Signature
Center for MCAI.
Research and development costs ("R&D") for the three months
ended September 30, 1998 were $0 as compared to the three
months ended September 30, 1997 of $36,789 or a decrease of
$36,789. The decrease in R&D costs is principally due the
Company's concentrating its efforts on contract research and
the opening of the Manhattan Signature Memory Center.
During November and December 1997, the Company liquidated
several loans which were convertible into common stock. As a
result of these conversions, interest expense for the three
months ended September 30, 1998 as compared to the three
months ended September 30, 1997 decreased by $4,472.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1997
Revenues for the nine months ended September 30, 1998 and 1997
amounted to $300,711 and $1,026,431, respectively. Gross
(loss) profit for the nine months ended September 30, 1998 and
1997 amounted to $(433,055) and $560,265, respectively. The
Company includes in the cost of sales amortization of its
database and computer system product development costs.
Commencing, January 1, 1996 the Company revised its estimate
of the useful life of the software development cost from 17
years to 7 years. This change was made to better reflect the
estimated period during which the assets will remain in
service. For the nine months ended September 30, 1998 and 1997
amortization charges amounted to $202,896 and $204,591,
respectively. The increase in net loss is a result of an
overall decrease in revenues during the nine months ended
September 30, 1998 and an increase in costs of sales,
including amortization expense.
Furthermore, the decrease in sales and gross profit during the
nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997 is attributable to the
following:
1. The Company has not entered into any major new contracts since
December 31, 1993 and major contracts recorded prior to this
period were substantially completed during the December 31,
1995 and 1994 year end. For the years ended December 31, 1997
and 1996, the Company received $405,700 and $759,000,
respectively, of new contracts. Revenues from contracts for
the nine months ended September 30, 1998 as compared to the
nine months ended September 30, 1997 amounted to $211,393 and
$383,059, respectively, or a net decrease of $171,666. The
contract division's low revenues for the September 30, 1998
and 1997 quarters is attributable to the Company's lack of
major new contracts. The Company believes that demand for more
effective central nervous system drugs with fewer negative
side effects will continue to stimulate the demand for
contract research on central nervous system drugs, and the
Company is making efforts to secure new research contracts.
2. Memory Center-TM- management fees for the nine months ended
September 30, 1998 and 1997 amounted to $34,140 and $26,629,
respectively. $6,000 and $16,000 of this revenue for the nine
months ended September 30, 1998 and 1997 was derived from
Manhattan Westchester through a pilot program conducted under
the management of MCAI and $18,000 of the revenue for the nine
months ended September 30, 1998 was from the Company's
Bakersfield Memory Center.
General and administrative expenses for the nine months ended
September 30, 1998 were $2,521,601 as compared to the nine
months ended September 30, 1997 of $1,553,296 or an increase
of $968,305 or 67%. The increase in general and administrative
expenses for the September months ended September 30, 1998 is
primarily due to the Company opening its Manhattan Signature
Center for MCAI.
During November and December 1997, the Company liquidated
several loans which were convertible into common stock. As a
result of these conversions, interest expense for the nine
months ended September 30, 1998 as compared to the nine months
ended September 30, 1997 decreased by $55,866.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 and December 31, 1997, the Company had
working capital of $605,872 and $1,464,877, respectively. The
Company's cash balance at September 30, 1998 amounted to
approximately $618,901 after giving effect to an influx of
$1,000,000 of capital on July 30, 1998. The Company's net
accounts receivable amounted to $408,451 at September 30,
1998. As of September 30, 1998, of the Company's current
liabilities amounting to $867,601, $300,000 represents
stockholder loans which remain unpaid as of December 31, 1998.
The Company expects to repay the remaining debt from
internally generated funds or additional public or private
sales of its securities.
For the nine months ended September 30, 1998 and 1997, the
Company used cash for operations of $2,286,943 and $1,489,662,
respectively, resulting in increased use of cash for
operations by $797,281. The net increase for the nine months
ended September 30, 1998 is the result of loss from operations
amounting to $2,979,143 compared to the loss from operations
for the nine months ended September 30, 1997 of $1,140,294.
For the nine months ended September 30, 1998 and 1997 cash
used by investing activities amounted to $350,678 and
$376,067, respectively, or a net decrease in use of cash of
$25,389. The decrease use in cash for investing activities for
the nine months ended September 30, 1998 as compared to the
nine months ended September 30, 1997 was attributable to the
following: (i) capitalized database development costs of
$14,353 and $95,376 for the nine months ended September 30,
1998 and 1997 (ii) decrease in purchases of other assets to $0
for September 30, 1998 from $149,368 for the nine months ended
September 30, 1997.
For the nine months ended September 30, 1998 and 1997 cash
provided by financing activities amounted to $1,658,697 and
$329,567, respectively. For the nine months ended September
30, 1998, 400,000 shares were issued in connection with
exercise of 400,000 warrants. For the nine months ended
September 30, 1997, the Company received $600,000 in
connection with the exercise of 200,000 Class B and 200,000
Class C warrants, which resulted in the Company issuing
400,000 shares of common stock. The Company incurred
registration costs for the nine months ended September 30,
1998 and 1997 amounting to $0 and $114,035, respectively, in
connection with registering shares of common stock and
warrants pursuant to contractual obligations with certain
stockholders. At September 30, 1998 and 1997, the Company
accrued $7,500 and $7,500 of dividends for Series 1 preferred
stock as required under the terms of the preferred stock.
On April 7, 1998, the Company entered into a letter of intent
"(LOI") with Pioneer Ventures Associates Limited Partnership
("Pioneer"), whereby Pioneer would invest up to $4,500,000 in
the Company in return for Senior Series C convertible
preferred stock, 8% dividend, convertible on a share-for-share
basis into common stock. Upon execution of the final contract,
Pioneer invested $1,000,000. In connection with the
transaction, a new Chief Executive Officer has been named and,
in addition, a marketing and financial team will be assembled
for the Company, and two seats on the Board of Directors are
held by Pioneer representatives. The Company incurred costs of
approximately $120,000 to complete this transaction. The
Company completed the first phase of this transaction on July
30, 1998. In consideration for the initial investment of
$1,000,000, the Company issued 333,333 shares of a new class
of Series C Senior Convertible Preferred Stock.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
Based on meeting certain financial, business improvements and
other requirements, the Company completed the second phase of
this transaction on December 4, 1998. In consideration for an
additional investment of $1,000,000, the Company issued
400,000 shares of a new class of Series C Senior Convertible
Preferred Stock. The remaining $2,500,000 investment is
subject to the satisfactory completion by the Company of
certain conditions as well as agreed to milestones to be
achieved.
The Company expects that the available cash balance, together
with projected cash generated from operations and additional
funding, will be sufficient to fund its activities for the
next 12 months.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), was issued in June 1997. This
statement establishes standards for the way public business
enterprises report information about operating segments. It
also establishes standards for related disclosure about
products and services, geographical areas, and major
customers. The Company will adopt the disclosure prescribed by
SFAS 131 in its 1998 Annual Report as required.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", was issued in June 1997. The
statement establishes standards for reporting and display of
comprehensive income in financial statements. This statement
was adopted effective January 1, 1998 and such adoption is not
expected to have a material effect on the Company's financial
statements.
EFFECTS ON INFLATION AND EXCHANGE RATES
The Company has not been materially affected by inflation or
changes in foreign exchange rates. However, there can be no
assurance that the Company's business will not be affected by
inflation or foreign exchange rates in the future.
YEAR 2000
The Company's current data processing systems are not yet
fully Year 2000 compliant. The Company has developed and is
currently executing a comprehensive plan designed to make its
computer systems, applications and facilities Year 2000 ready.
The plan covers four stages including (i) inventory, (ii)
assessment, (iii) remediation, and (iv) testing and
certification. At year end 1998, the Company had substantially
completed the inventory stage for its Company-owned systems
and applications. The assessment and remediation processes are
currently underway and the Company is utilizing both internal
and external resources to reprogram, or replace where
necessary, and test the software for Year 2000 modifications.
The remediation process is targeted to be largely completed by
August 31, 1999. Testing and certification of these systems
and applications are targeted for completion by end-third
quarter 1999.
The Company is embodying the Year 2000 issue with planned
system augmentations. Total Year 2000 costs for Company-owned
systems and applications are currently estimated to be
approximately $25,000 in 1999. A large majority of these costs
are currently believed
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
YEAR 2000 (Cont'd)
to be incremental expenses that will not recur in the Year
2000 or thereafter.
The Company is initiating communications with its critical
external relationships to determine the extent to which the
Company may be vulnerable to such parties' failure to resolve
their own Year 2000 issues. Where practicable, the Company
will assess and attempt to mitigate its risks with respect to
the failure of these entities to be Year 2000 ready. The
effect, if any, on the Company's results of operations from
the failure of such parties to be Year 2000 ready, is not
presently reasonably estimable.
MANAGEMENTS'S PLAN
NeuroCorp's business plan centers around the following main
objectives:
First, to focus primarily on the development of MCAI and
Signature Center in Manhattan. This required the
completion of an advertising/marketing strategy which was
completed in November 1998. Once the Signature Center is a
profitable on-going operation, expansion into other sites
through physicians or other health care entities will follow.
It is expected that expansion into other sites will begin in
the second quarter of 1999.
Secondly, the Company continues its quest for new and
continuing contract research through its HZI operation.
Several important proposals for contracts are in their second
of three phases of negotiations, and it is expected that HZI
will be contracting for an additional $500,000 in new business
by late March/early April of 1999.
Third, the Company is considering to joint venture or possibly
license some of its other business opportunities
(Tele-Map-TM-, 2 channel QPEEG-TM- system, development of
Memory Centers internationally) with other organizations. The
Company's objective is to enhance the Company's cash flow in
the near term, while allowing a more rapid growth of these
other product lines, in which the Company will continue to
retain some or all of its ownership rights.
As a completed revised business plan is finalized, looking
into year 2000 and beyond, the Company believes that both MCAI
and HZI will provide substantial cash flow and profitability,
once MCAI enters into its anticipated growth phase, expanding
into 25 plus sites in 2000 and over 100 by 2001. This will
require additional capital of approximately $8-10 million over
the next 6 to 9 months. While the Company is currently
pursuing additional financing opportunities, there is no
assurance that such financing can be obtained.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Defaults Upon Senior Securities:
None
ITEM 4 - Submission of Matters to a Vote of Security Holders:
None
ITEM 5 - Other Information:
On July 30, 1998 the Company entered into an Investment Agreement
with Pioneer Ventures Associates Limited Partnership, located in
Windsor, Connecticut ("Pioneer") pursuant to which Pioneer would
invest up to $4,500,000 in the Company in exchange for the issuance
of shares of a new class of preferred stock designated Series C
Senior Convertible Preferred Stock ("Preferred Stock"). Each share of
Preferred Stock is convertible into one share of the Company's Common
Stock at any time and from time to time and holders of the Preferred
Stock are entitled to an 8% cumulative quarterly cash dividend
payable quarterly in arrears. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the Company
holders of Preferred Stock are entitled to a liquidation preference
of $10 per share. The investment is to be made in stages and is
subject to various terms and conditions and the continued compliance
thereof, as well as the market price of the Company's stock and the
completion of certain milestones.
So long as Pioneer owns Preferred Stock or Common Stock of the
Company, the Company is required to use its best efforts to cause two
nominees of Pioneer to be elected as directors of the Company.
On July 30, 1998 Pioneer made its first investment of $1,000,000 in
exchange for 333,333 shares of the Company's Preferred Stock. In
connection with this first investment and as a condition thereof,
Vernon L. Wells was named Chief Executive Officer of the Company
replacing Dr. Turan M. Itil, who continues as Chairman of the Board.
Messrs. Joseph DioGuardi, I. Ronald Horowitz, Richard Katz, Martin
Katz and Pierre Le Bars resigned as Directors; the number of
Directors was reduced to five and Mr. Wells and James M. Coady and
Dr. Paul Lerman (both nominees of Pioneer) were elected to the Board
with Dr. Itil and Kurt Z. Itil continuing as Directors.
Information regarding each of Messrs. Wells, Coady and Lerman is set
forth below:
Vernon Wells, President and CEO, NeuroCorp, Ltd. is 40 years old. He
was the Vice President and General Manager of Quest Diagnostics, Inc.
in Teterboro, N.J., from 1984 to 1997.
James Coady, 51, has been Treasurer and a Director of Pioneer
Ventures Corp. and a manager of Ventures Management Partners, LLC,
the General Partner of Pioneer Ventures Associates Limited
Partnership since their founding in July 1997. From 1984 to 1998, Mr.
Coady served as President
14
<PAGE>
PART II - OTHER INFORMATION (Cont'd.)
ITEM 5 - Other Information (Cont'd.)
and Registered Principal of Constitution Securities, Inc. (a Broker
Dealer licensed by the National Association of Securities Dealers and
the Securities and Exchange Commission). This Company is no longer
active as a Broker Dealer.
Paul Lerman, Ph.D., 58, has been the Dean of the Silberman College of
Business Administration at Fairleigh Dickinson University, in
Harrington Park, N.J., since 1990.
Dr. Lerman and Mr. Coady are the two directors designated by Pioneer
Ventures Associates, L.P. under the terms of the Investment
Agreement. Dr. Lerman is a cousin of and Mr. Coady is the son-in-law
of Robert Lerman, the General Partner of PVALP.
In addition, and as a condition of entering into the Investment
Agreement, Pioneer required that Dr. Turan M. Itil, Kurt Z. Itil,
Yasmin Itil Le Bars, Eleonore Itil, I. Ronald Horowitz, Pierre Le
Bars, Aileen Kunitz, Richard Katz, Emin Eralp and Joseph DioGuardi
(the "Principal Shareholders") enter into a Voting and Shareholders
Agreement which provides that so long as Pioneer owns any Preferred
Stock or Common Stock of the Company the Principal Shareholders agree
to vote their shares of Common Stock for Pioneer's two (2) designees
to the Board of Directors. This Agreement also restricts sales and
transfer of Common Stock of the Company without Pioneer's consent and
provides for certain co-sale rights.
A previous Voting Trust Agreement in favor of the Chairman, entered
into by all of the following persons other than Messrs. Horowitz and
DioGuardi, was terminated.
Further, in connection with the first investment by Pioneer the
Employment Agreement between Dr. Turan M. Itil and the Company was
modified to provide that he will be retained by the Company as a
director and consultant until September 20, 2002 with annual
compensation of $150,000 subject to continuance until September 20,
2005 if certain specified objections are satisfied and if they are
not satisfied the Agreement is subject to earlier termination.
Pending the finalization of a two (2) year Employment Agreement with
the Company, Mr. Wells is being paid at the rate of $675 per day plus
out of pocket expenses, including travel, and lodging.
On December 4, 1998 Pioneer made its second investment of $1,000,000
in exchange for 400,000 shares of the Company's Preferred Stock
pursuant to a Modification to the Investment Agreement entered into
on that date.
Assuming the conversion of the 733,333 shares of Preferred Stock
owned by Pioneer into a like number of shares of the Company's Common
Stock and based on 11,213,806 shares outstanding as of January 1,
1999, Pioneer would own approximately 6.14% of the Company's Common
Stock after giving effect to such assumed conversion.
In connection with the second investment by Pioneer, the Company's
Board of Directors authorized the Company to indemnify and hold
harmless Pioneer Ventures Associates Limited Partnership; Ventures
Management Partner LLC; Pioneer Ventures Corp. and each and all of
their respective members, managers, officers, directors and attorneys
from any claims made by or actions brought by Dr. Turan M. Itil in
connection with his Employment Agreement with the Corporation and
further authorized the Company to deposit $100,000 of the proceeds
from the second investment in an escrow or segregated account to be
used for the defense of any ligitation brought against any of those
entities or individuals intended to be covered by the foregoing
indemnification.
15
<PAGE>
PART II - OTHER INFORMATION (Cont'd.)
ITEM 6 - Exhibits and Reports on Form 8-K:
a) Exhibits
Exhibit Number:
10 (m) Investment Agreement dated as of July 30, 1998 between the
Company and Pioneer Ventures Association LP
The following Exhibits to the Investment Agreement are omitted and
will be provided to the Commission upon request:
<TABLE>
<CAPTION>
TITLE EXHIBIT NO.
----- ----------
<S> <C>
Series C Senior Convertible Preferred Stock............................ 1.1
The Financial Statements............................................... 4.7-A
The Financial Statements............................................... 4.7-B
Patents, Trademarks, Etc............................................... 4.8
Schedule of Documents.................................................. 4.12
Loans and Liens........................................................ 4.18
Related Party Transactions............................................. 4.23
</TABLE>
(m) (i) First Modification to the Investment Agreement dated
December 4, 1998
10 (n) Voting and Shareholders Agreement dated as of July 30, 1998
(n) (i) First Modification to Voting and Shareholders Agreement
dated as of October, 1998
27 Financial Data Schedule
b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NeuroCorp., Ltd.
Date: January 29, 1999 By: /s/ Vernon L. Wells
------------------------- ---------------------------
Vernon L. Wells
President/CEO/acting CFO
17
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NUMBER:
10 (m) Investment Agreement dated as of July 30, 1998 between the
Company and Pioneer Ventures Association LP
The following Exhibits to the Investment Agreement are omitted and
will be provided to the Commission upon request:
<TABLE>
<CAPTION>
TITLE EXHIBIT NO.
----- ----------
<S> <C>
Series C Senior Convertible Preferred Stock.......................................1.1
The Financial Statements..........................................................4.7-A
The Financial Statements..........................................................4.7-B
Patents, Trademarks, Etc..........................................................4.8
Schedule of Documents............................................................4.12
Loans and Liens..................................................................4.18
Related Party Transactions.......................................................4.23
</TABLE>
(m) (i) First Modification to the Investment Agreement dated
December 4, 1998
10 (n) Voting and Shareholders Agreement dated as of July 30, 1998
(n) (i) First Modification to Voting and Shareholders Agreement
dated as of October, 1998
27 Financial Data Schedule
18
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated July 30, 1998 ("AGREEMENT") by and between PIONEER
VENTURES ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited partnership with
offices at 651 Day Hill Road, Windsor, Connecticut 06095 ("PIONEER VENTURES"),
AND NEUROCORP, LTD., a Nevada corporation with offices at 150 White Plains Road,
Tarrytown, New York 10591 (the "COMPANY").
WHEREAS, the Company desires to obtain funds to finance its operations
and products, market certain development efforts, develop memory centers and
engage in clinical research studies pertaining to the human brain and memory
function.
WHEREAS, Pioneer Ventures desires to provide funds to the Company for
such purposes on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Pioneer
Ventures agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK
1.1 SERIES C SENIOR CONVERTIBLE PREFERRED STOCK. (a) Upon the terms and
subject to the conditions hereinafter set forth, at the various closings (as
hereinafter defined and set forth), the Company shall issue, sell, transfer
and deliver to Pioneer Ventures an aggregate of one million five hundred
thousand (*1,500,000*) shares of the Company's Series C Senior Convertible
Preferred Stock, $.001 par value (the "PREFERRED STOCK") at the Purchase
Price set forth in Section 1.2 hereof; the Preferred Stock shall have the
terms and be issued subject to the conditions as set forth herein and in the
Series C Certificate of Designation to be filed and recorded with the
Secretary of State of the State of Nevada upon the occurrence of the First
Closing as set forth below. (b) At the first closing ("FIRST CLOSING") on
July __ 1998, the Company shall issue, sell, transfer and deliver to Pioneer
Ventures three hundred thirty-three thousand three hundred thirty-three
(*333,333*) shares of Preferred Stock upon payment of the Purchase Price
therefor and satisfaction of the conditions contemplated herein. (c) At the
second closing ("SECOND CLOSING") which shall not occur prior to
<PAGE>
Page 2
the hire and commencement of full time service of a chief executive officer
which hiring shall be made by the reconstituted board of directors and shall be
approved in writing by Pioneer Ventures (the "CEO-TO-BE-HIRED"), as well as
completion of the Milestones for such closing set forth in Section 1.13 hereof,
the Company shall issue, sell, transfer and deliver to Pioneer Ventures three
hundred thirty-three thousand three hundred thirty-four (*333,334*) shares upon
payment of the Purchase Price therefor and satisfaction of the conditions
contemplated herein. (d) At one or more subsequent closings ("SUBSEQUENT
CLOSINGS"), the Company shall issue, sell, transfer and deliver to Pioneer
Ventures an additional eight hundred thirty-three thousand three hundred
thirty-three (*833,333*) shares of Preferred Stock upon payment of the Purchase
Price therefor and satisfaction of the conditions contemplated herein and upon
the conditions to be determined in accordance herewith as well as completion of
the Milestones for such closing set forth in Section 1.13 hereof. (e) At the
First Closing, the Company shall reserve one million one hundred sixty-six
thousand six hundred sixty-six (*1,166,666*) shares to be delivered in whole or
in part at the Second Closing and at the Subsequent Closings. (f) Upon sale and
issuance to Pioneer Ventures each share of Preferred Stock shall be free and
clear of all manner of liens, pledges, encumbrances, charges and claims thereon.
Certificates evidencing the Preferred Stock shall be delivered by the Company to
Pioneer Ventures at the Closing. Such certificates shall also be accompanied by
evidence satisfactory to Pioneer Ventures of the Company's payment of any
applicable transfer and franchise taxes. Said stock will not be issued in a
transaction registered with the U.S. Securities and Exchange Commission
("COMMISSION") and shall, therefore, be restricted from resale to the public.
The Preferred Stock Certificate shall be in the form annexed hereto as EXHIBIT
1.1.
1.2 PURCHASE PRICE AND PAYMENT AND TIMING. The Purchase Price for the
Preferred Stock to be sold to Pioneer Ventures pursuant to this Investment
Agreement shall be three ($3.00) dollars per share. Upon the occurrence and
consummation of the First Closing, and in consideration therefor, Pioneer
Ventures shall pay the Company at that Closing, in cash, by wire transfer or
by check, the sum of one million ($1,000,000.00) dollars as full
consideration for its subscription therefor; (b) upon the occurrence and
consummation of the Second Closing, if it is so consummated, and in
consideration therefor, Pioneer Ventures shall pay the Company at that
Closing, in cash, by
<PAGE>
Page 3
wire transfer or by check, the sum of one million ($1,000,000.00)
dollars as full consideration for its subscription therefor; and (c) upon the
occurrence and consummation of all of the Subsequent Closings, if it is so
consummated, and in consideration therefor, Pioneer Ventures shall pay the
Company at that Closing, in cash, by wire transfer or by check, the sum of two
million five hundred thousand ($2,500,000.00) dollars as full consideration for
its subscription therefor. See Section 1.13 and Article VII for the requirements
of each closing.
1.3 CONVERTIBLE INTO COMMON. Each share of Preferred Stock shall be
convertible at the option of the holder into one (1) share of the Common
Stock of the Company, $.01 par value (the "COMMON STOCK") at any time and
from time-to-time. The number of shares of Common Stock issuable upon
conversion of the Preferred Stock will be subject to adjustment in certain
circumstances upon any recapitalizations, including but not limited to stock
splits, readjustments or reclassifications, to protect against dilution, as
set forth in more detail in Section 1.7 hereof.
1.4 CUMULATIVE DIVIDEND. Holders of the Preferred Stock shall also be
entitled to an eight (8%) percent cumulative quarterly cash dividend, payable
quarterly in arrears calculated on a 360-day year consisting of twelve 30-day
months, and payable immediately out of the assets of the Company legally
available therefor. The Preferred Stock dividend shall be paid before any
dividend shall be set apart or paid on the Common Stock for such quarter. If
less than the full preferential dividend is paid (as a partial payment or if
no dividend is paid) to the holders of the Preferred Stock in any quarter,
the unpaid amount shall accumulate and be added to the preferential dividends
due in any subsequent quarter, in which case such unpaid amounts shall be
paid first and the newly accrued dividends of the then current quarter, to
the extent are unpaid, shall accumulate until paid. No dividends shall be
paid to the holders of the Common Stock if any dividends are unpaid on the
Preferred Stock. Upon Pioneer Ventures' consent the dividends may be paid, in
whole or in part, by the issuance of additional shares of Series C Preferred
Stock upon the same terms as cash dividends payable hereunder except at an
interest rate of 13%. In addition, if there is a Dividend Arrearage an
Additional Dividend shall be calculated using, as one factor, the Liquidation
Preference.
<PAGE>
Page 4
1.5 LIQUIDATION. In cases of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of shares of the Preferred
Stock shall be entitled to receive a liquidation preference equal to ten (10)
dollars per share (the "LIQUIDATION PREFERENCE") and subject to the adjustments
as provided in this section, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of Common Stock. Neither a consolidation or merger of the Company with
another corporation nor a sale or transfer of all or part of the Company's
assets for cash, securities or other property will be considered a liquidation,
dissolution or winding up of the Company, provided that all accrued but unpaid
dividends on the Preferred Stock will be due and paid upon the occurrence of
such event or upon the public offering of the Company's securities.
1.6 RESERVATION OF SHARES; SHARES TO BE FULLY PAID. As of the date hereof,
the Company has reserved, free from preemptive rights, out of its authorized
but unissued shares of Common Stock, or out of shares of Common Stock held in
its treasury, sufficient shares to provide for the conversion of the
Preferred Stock. Before taking any action which would cause an adjustment
reducing the conversion value below the then par value, if any, of the shares
of Common Stock issuable upon conversion of the Preferred Stock, the Company
shall promptly take all corporate action which may be necessary in order that
the Company may validly and legally issue shares of such Common Stock at such
adjusted conversion price. The Company covenants that all shares of Common
Stock which may be issued upon conversion of the Preferred Stock will upon
issue be fully paid and nonassessable.
1.7 ANTI-DILUTION RIGHTS. In order to allow the holders of the Preferred
Stock to maintain their PRO RATA share of the Company's capital stock on a
fully diluted basis, except as set forth in the next sentence of this
Section 1.7 and solely with respect to this Section 1.7, the holders of the
Preferred Stock shall be entitled, as of right, to purchase or subscribe for
PRO RATA any stock of the Company to be issued by reason of an increase of
the authorized stock of the Company or the creation a new class of
securities, and the issuance of such securities (collectively referred to as
"NEW SECURITIES"). The anti-dilution rights set forth hereinabove shall not
be applicable to (i) currently authorized but
<PAGE>
Page 5
unissued securities of the Company, (ii) securities issued to employees,
consultants or directors of the Company pursuant to any stock option plan or
stock purchase or stock bonus arrangement approved by the Board of Directors, up
to a maximum amount as provided in Section 6.5, (iii) securities offered to the
public pursuant to a registration statement filed pursuant to the Securities
Act, and (iv) securities issued pursuant to an acquisition of another
corporation by the Company by merger, purchase of all or substantially all of
the assets or other reorganization whereby the Company owns not less than
fifty-one (51%) percent of the voting stock of such corporation.
(a) NOTICE AND EXERCISE OF ANTI-DILUTION RIGHTS. In the event the Company
proposes to issue New Securities, it shall give the holders of the
Preferred Stock written notice of its intention, describing the type of New
Securities, the price and general terms upon which the Company proposes to
issue the same. In exercising such anti-dilutive rights, the holders of the
Preferred Stock shall be given thirty (30) days from the receipt of such
notice to agree to purchase or subscribe for such New Securities, at the
same price and on the same terms, in the proportion that the number of
shares of Common Stock that underlies the Preferred Stock, if converted,
bears to the sum of (1) the total number of shares of Common Stock issued
and outstanding and (2) the number of such underlying shares.
(b) OVER-ALLOTMENT. The holders of the Preferred Stock shall have the
right of over-allotment such that, in the event other holders having anti-
dilutive rights fail to exercise such right to purchase all of the New
Securities, the remaining holders of the Preferred Stock may purchase the
non-purchasing holders' New Securities not so purchased, on a PRO RATA
basis, based upon the respective fully diluted Common Stock ownership in
the Company of each such remaining holder of Preferred Stock, within ten
(10) days from the date the non-purchasing holders fail to exercise their
rights hereunder. The holders of the Preferred Stock shall be required to
commit in writing, at the time they exercise their anti-dilution rights,
the maximum amount of over-allotment shares they agree to purchase, if any
become available.
1.8 PERCENTAGE OF FULLY DILUTED SHARES. The shares of Preferred Stock to be
delivered
<PAGE>
Page 6
by the Company to Pioneer Ventures as set forth above shall, if converted,
constitute two and seventy-one thousandths (2.71%) percent of the fully diluted
issued and outstanding Common Stock of the Company as of the Closing Date, as
hereinafter defined. The term "FULLY DILUTED" as used in this Agreement shall
mean the number of shares of the Common Stock of the Company to be outstanding
upon the exercise or conversion of all warrants, options or other securities
convertible into the Common Stock of the Company outstanding as of the Closing
Date, including the Preferred Stock to be issued on the Closing Date.
1.9 VOTING RIGHTS AND PROHIBITIVE COVENANTS. The Preferred Stock shall have
full voting rights and shall be voted together with the Common Stock as one
class, each share to entitle the holder thereof to the number of votes equal
to the number of shares of Common Stock into which it is convertible on the
appropriate record date. So long as any of the Preferred Stock is
outstanding, the Company shall not without the affirmative vote or consent of
the holders of a majority of all outstanding shares of the Preferred Stock
voting separately as a class (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the bylaws of the Company so as to adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Preferred Stock, (ii) authorize or issue any additional
equity securities of the Company or any subsidiaries, however such consent
shall not be unreasonably withheld, (iii) approve any merger, consolidation,
compulsory share exchange or sale of assets to which the Company is a party,
however such consent shall not be unreasonably withheld, (iv) repurchase or
redeem any equity securities or pay dividends or other distributions on any
equity securities, except as provided for the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) guarantee
indebtedness, directly or indirectly, of other persons, (vii) effect any
fundamental changes in the nature of the Company's business, including but
not limited to acquiring or investing in another business entity, and (viii)
approve the sale or transfer of intangible or intellectual property, other
than the issuance of licenses in the ordinary course of business.
1.10 VOTING AGREEMENTS CONCERNING DIRECTORS.
(a) GENERALLY. Effective immediately prior to or concurrently with the
First Closing, two
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(2) nominees of Pioneer Ventures, James M. Coady and Dr. Paul Lerman,
shall each be elected a director of the Company for successive
one-year terms. So long as Pioneer Ventures shall own any Preferred
Stock or Common Stock, the Company shall nominate and include in the
list of candidates for directors recommended by the Board of
Directors, and use its best efforts to have elected two nominees of
Pioneer Ventures. At or prior to the First Closing, the board of
directors shall be reconstituted so that five (5) board members shall
be elected, of which the Company's "CEO-to-be-hired" shall be entitled
to one board seat, the Company shall be entitled to select nominees to
two board seats, and Pioneer Ventures shall be entitled to select
nominees to two board seats, all subject to Section 1.10(b) hereof. In
furtherance of the foregoing, Turan M. Itil, Kurt Z. Itil, Eleonore
Itil, I. Ronald Horowitz, Pierre Le Bars, Aileen Kunitz, Richard Katz,
Emin Eralp, Joseph DioGuardi, and Yasmin Itil Le Bars, or any trustees
(collectively "PRINCIPAL SHAREHOLDERS") holding the voting rights to
their shares, shall simultaneously execute and deliver to Pioneer
Ventures a Voting and Shareholders Agreement confirming the terms of
Sections 1.10 and 6.4 hereof.
(b) ADDITIONAL NOMINEES OF PIONEER VENTURES ON DEFAULT. In the event
that the Company shall default in the due and punctual payment of any
installment of the cumulative dividends on the Preferred Stock when and
as the same shall become due and payable and such default shall
continue for 30 days, in addition to the other remedies available to
Pioneer Ventures, 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 two directors referred to in Section 1.10(a),
be a sufficient number of nominees to the board which nominees are
selected by Pioneer Ventures to constitute a majority of the total
number of directors of the board of directors of the Company for so
long thereafter as Pioneer Ventures shall own any Preferred Stock or
Common Stock. To facilitate the foregoing, the Company has,
concurrently with the execution hereof, amended its by-laws in a manner
satisfactory to Pioneer Ventures. The Company hereby covenants it shall
not change such amended provision of its by-laws without Pioneer
Ventures' prior written consent. Failure to obtain such prior written
consent to any such change shall constitute an additional Event of
Default
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under the Preferred Stock.
1.11 TRANSFER AGENT. The Company agrees to engage and charge the transfer
agent for the Common Stock as and with the duties of the transfer agent and
registrar of the Class C Preferred Stock. However, should the Company desire,
it may select Continental Stock Transfer Company as the transfer agent and
registrar for the preferred stock.
1.12 USE OF PROCEEDS.
A. FIRST CLOSING
The proceeds from the First Closing shall be applied and used to:
(i) prepare, develop and open the "Signature Memory Center" in New York
City and expend no more than $200,000 to accomplish such opening;
(ii) support the Company's operations in its contract research services
currently conducted by its Subsidiary, HZI, and expend no more than
$100,000;
(iii) pay certain accounts payable in accord with the approximately $509,200
July 15, 1998 combined accounts payable listing of the Company and its
Subsidiaries, provided however, Dr. Jeffrey Blau or a representative of
Ventures Management Partners LLC shall approve such payments before the
payments are made, including the settlements required under Sections
7.10, 7.11 and 7.12;
(iv) pay the costs of the Closing; and
(v) add the balance to the Company's working capital.
B. SECOND CLOSING
The proceeds of the Second Closing shall be used to:
(i) hire a Chief Financial Officer and re-engineer the financial systems;
the maximum amount of proceeds from the Second Closing which may be
allocated to this use is $30,000;
(ii) pursue and secure new contract research business; the maximum amount of
proceeds from the Second Closing which may be allocated to this use is
$30,000;
(iii) cover on-going marketing support/advertising to support and expand the
patient base of the Signature Center; the maximum amount of proceeds
from the Second Closing which may be allocated to this use is $40,000;
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(iv) cover on-going operation expenses of NeuroCorp for the three months
following the Second Closing; the maximum amount of proceeds from the
Second Closing which may be allocated to this use is $300,000;
(v) additional monies to be applied as defined by NeuroCorp's business
plan, which plan is to be developed by the new CEO and approved by
PVALP.
C. SUBSEQUENT CLOSINGS
The proceeds from the Subsequent Closings shall be applied and used as shall be
defined in the Business Plan to be developed by the CEO-to-be-hired, which
Business Plan is subject to approval by Pioneer Ventures. Pioneer Ventures may
require modifications to the Business Plan.
1.13 CONDITIONS PRECEDENT TO CLOSING.
A. FIRST CLOSING
In addition to the conditions precedent in Article VII, the conditions precedent
which shall be required to be completed by the Company prior to Pioneer Ventures
agreeing to consummate the First Closing are:
(a) the salary and wages of the Company on an annualized basis shall be
reduced a MINIMUM of 20% as compared with the aggregate salary and
wages paid or payable, on an annualized basis, at March 31, 1998. The
calculation of the 20% salary and wage reduction shall be exclusive of
reductions of tax obligations of the Company (E.G. FICA, Social
Security, etc.), fringe benefits or perks afforded to employees (E.G.
health insurance contribution obligations of the Company, automobile
allowances, bonuses, expense allowances, ETC.), or other Company
expenditures pertaining to employees; such calculation shall not
include the salary of the CEO-to-be-hired. The Company shall document
and certify such expense reduction prior to the Closing. The Company
shall maintain such reduced payroll amounts until at least the Company
shall become cash flow positive; such reductions shall not be
deferred, accrued or paid subsequently. New employment contracts shall
be entered into for the Company's key employees. Such contracts shall
be acceptable to Pioneer Ventures in form and substance. All
previously existing employment contracts shall be cancelled and voided
prior to Closing without penalty, liability or giving rise to any
early termination benefit or other claim whatsoever.
(b) the Company shall be actively pursuing new research contracts.
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(c) the Company shall become cash flow positive as soon as is practicable
consistent with the Business Plan to be generated with the
CEO-to-be-hired.
(d) the market price of the Company's Common Stock having a closing
bid price of no less than $5.00 for a period of thirty (30)
consecutive calendar days within five (5) calendar days of closing.
AND
(e) continuing compliance with and satisfaction of the terms and conditions
of this Agreement, and the Voting and Shareholders Agreement by the
Company and the Principal Shareholders.
B. SECOND CLOSING
The conditions precedent which shall be required to be completed by the Company
prior to Pioneer Ventures agreeing to consummate the Second Closing are:
(a) the hiring and commencement of full-time service of a CEO-to-be-hired,
which CEO shall be acceptable to Pioneer Ventures.
(b) the Company shall document and certify its reduced payroll expenses
prior to the First Closing, document and certify that the Company has
maintained such reduced payroll levels since the First Closing and that
such reductions have not been deferred, accrued or paid subsequently.
(c) the Company shall be in the process of securing new commitments for its
contract research services and shall document its progress to the
satisfaction of Pioneer Ventures.
(d) the Company shall have begun to implement new methods as to its
financial viability with the specific purpose and intent to become cash
flow positive as soon as is practicable.
(e) the market price of the Company's Common Stock shall have a closing bid
price of no less than $5.00 for a period of thirty (30) consecutive
calendar days within five (5) calendar days of closing.
(f) the Preferred Stock shall not be in default and all dividends due
thereunder shall have been paid in full to Pioneer Ventures.
(g) Accounting expenses shall be reduced so that its independent auditor
shall be paid an annualized rate of $25,000. Further, the Company is
authorized to hire a financial controller and a bookkeeper at annual
salaries of $75,000 and $55,000 respectively. All other material
accounting or bookkeeping expenses shall be eliminated.
(h) such other terms and conditions required in good faith by the General
Partner of Pioneer Ventures. And
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(i) the performance of the conditions precedent set forth in Article VII
hereof, and the continuing compliance with and satisfaction of the
terms and conditions of this Agreement, and the Voting and Shareholders
Agreement by the Company and the Principal Shareholders.
C. SUBSEQUENT CLOSINGS
Pioneer Ventures shall invest, in its sole discretion, up to an additional two
million five hundred thousand ($2,500,000) dollars provided that the Business
Plan to be developed and written, as is then modified, is approved by Pioneer
Ventures. The investment of the $2,500,000 shall be made in one or more
increments where each increment shall be no less than $250,000 and shall be
applied against specific milestones contained in the Business Plan. The
Milestones which, at a minimum, shall be required to be completed prior to
Pioneer Ventures agreeing to consummate the Subsequent Closing(s) are:
(a) the completion of a Business Plan prepared by the CEO-to-be-hired,
and approved by the General Partner of Pioneer Ventures,
(b) the completion and full operation of the Signature Memory Center as
defined in the Business Plan, and the completion and full operation of
at least two (2) other memory centers as defined in the Business Plan,
(c) the Company shall have secured contracts for clinical research to
generate gross revenues (excluding pass-through expenses) of $1,000,000
no later than December 31, 1998,
(d) the market price of the Company's Common Stock having a closing bid
price of no less than $5.00 for a period of six (6) consecutive months
within five (5) days of each subsequent closing.
(e) the Preferred Stock shall not be in default and all dividends due
thereunder shall have been paid,
(f) the Company shall maintain the 20% reduced payroll amounts required
under ss.1.13(a) hereof until at least the Company shall become cash
flow positive for a minimum period of three (3) consecutive months;
such reductions shall not be deferred, accrued or paid subsequently;
all increases in salary or wages by more than five (5%) percent per
employee or more than ten (10%) of total payroll shall be approved in
writing by Pioneer Ventures prior to implementing such increase.
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(g) Accounting expenses shall be maintained at the levels required by
Section.1.13(g) No other material accounting or bookkeeping expenses
shall be permitted without the prior approval of Pioneer Ventures. And
(h) such other terms and conditions required in good faith by the General
Partner of Pioneer Ventures.
(i) if the Company is not cash flow positive after December 31, 1998 and
fails to remain cash flow positive on a quarter-to-quarter to basis
thereafter, Pioneer Ventures shall have the right to nominate a
majority of the board of directors of the Company.
(j) the performance of the conditions precedent set forth in Article VII
hereof, and the continuing compliance with and satisfaction of the
terms and conditions of this Agreement, and the Voting and Shareholders
Agreement by the Company and the Principal Shareholders.
D. INTERIM MILESTONES
(a) The milestones for the first 3 months following the hiring of the new CEO
are:
i) develop a Strategic Plan for the Company which plan shall be subject
to approval by Pioneer Ventures;
ii) develop a business plan for a minimum of one year (which plan shall be
acceptable to Pioneer Ventures; and
iii) define and develop the management team of the Company and support
personnel, including responsibilities and expectations associated with
each position.
ARTICLE II. REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION. The Company agrees that promptly upon the request
of Pioneer Ventures or its assigns (the "HOLDERS"), for so long as such
Holders in the aggregate, are holders of ten (10%) percent or more of the
Preferred Stock or Common Stock ("INITIATING HOLDERS"), on one (1) occasion,
shall, at the Company's sole cost and expense, use its best efforts to cause
any or all of the Preferred Stock and/or the underlying securities issuable
upon conversion of the Preferred Stock (collectively the "REGISTRABLE
SECURITIES"), to be the subject of an appropriate Registration Statement, so
as to enable the Initiating Holders to publicly offer without restriction
such securities. Upon receipt of a written request by the Initiating Holders,
the Company will
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promptly give written notice of the proposed registration to all other Holders
and as soon as practicable, use its diligent best efforts to effect such
registration with the Commission (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate qualification
filings under applicable state securities (blue sky) laws and appropriate
compliance with applicable regulations issued under the 1933 Act). The Company
shall file such registration statement pursuant to the Securities Act of 1933,
as amended (the "1933 ACT") to register the Registrable Securities for resale.
The Company shall use its best efforts to cause such registration statement to
become and remain effective (including the taking of such steps as are
reasonably necessary to obtain the removal of any stop order) on a timely basis.
2.2 PIGGYBACK REGISTRATION. (a) So long as Pioneer Ventures or its assigns
are the holders of Preferred Stock or Common Stock, if the Company shall
register any of its securities for sale pursuant to any appropriate
Registration Statement under the 1933 Act, the Company shall be required to
offer the Holders the opportunity to register any or all the Registrable
Securities, without cost to the Holders thereof. In connection with these
piggy-back registration rights, the Company shall give all of the Holders of
such securities notice by certified mail at least thirty (30) business days
prior to the filing of such Registration Statement under the Act. The Holders
shall then have twenty-five (25) days to elect to include all or a portion of
its Registrable Securities for sale in the Registration Statement. (b) The
registration requirement shall not apply to a Registration Statement filed by
the Company pursuant to Form S-8 or S-4 with the sole and express purpose of
registering shares for employees or for stock incentive plans, or any other
inappropriate form. (c) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
will so advise the Holders. In such event, these registration rights shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter selected by the Company. In the event
that the lead or managing underwriter in its good faith judgment determines
that material adverse market factors require a limitation on the number of
shares to be underwritten, the underwriter may limit
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the number of Registrable Securities. In such event, the Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated PRO RATA among all Holders and other participants in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration statement at the time of filing the registration statement. If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter,
provided such notice is delivered within 60 days of full disclosure of such
terms to such Holder, without thereby affecting the right of such Holder to
participate in subsequent offerings hereunder.
2.3 REGISTRATION COVENANTS. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(i) Keep such registration effective for a minimum period of 270 days or
until the Holder or Holders have completed the distribution described
in the registration statement relating thereto, whichever first
occurs; PROVIDED, HOWEVER, that in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on
a continuous or delayed basis, such 270 day period shall be extended,
if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective
amendment which (1) includes any Prospectus required by Section
10(a)(3) of the Securities Act, or (2) reflects facts or events
representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (1) and (2) above to be
contained in periodic
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reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(ii) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(iii) In connection with any underwritten offering, the Company and the
Holders will enter into any underwriting agreement reasonably
necessary to effect the offer and sale of Registrable Securities,
provided such agreement contains customary underwriting provisions and
provided further that if the underwriter so requests the underwriting
agreement will contain customary contribution provisions.
2.4 BLUE SKY REGISTRATION. The Company will use its best efforts to
register or qualify the Registrable Securities covered by any registration
statement under the 1933 Act and under such securities or blue sky laws in
such jurisdictions within the United States as Pioneer Ventures may
reasonably request; PROVIDED, HOWEVER, that the Company reserves the right,
in its sole discretion, not to register or qualify such shares of Common
Stock in any jurisdiction in which such shares of Common Stock do not satisfy
the requirements of such jurisdiction or in which the Company would be
required to qualify as a foreign corporation to do business in such
jurisdiction and is not so qualified therein. The Company covenants that
notwithstanding the above, that it shall, at a minimum, register or qualify
the Registrable Securities in the States of Connecticut and New York.
2.5 DEREGISTRATION. In the event the Company has not sold all of the
Registrable Securities included in the registration statement or prior to the
expiration of the 270 day registration period under Section 2.3, Pioneer
Ventures hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of Pioneer Ventures covered by the
registration statement but not sold on or prior to such date. The Company
agrees that it will notify Pioneer Ventures of the filing and effective date
of each such post-effective amendment.
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2.6 RIGHT TO DELAY. The Company shall have the one-time right, after it
shall have received written notice pursuant to Section 2.1, to elect not to
file or to delay any such proposed registration statement by not more than 60
days, or to withdraw the same after the filing but prior to the effective
date thereof; such withdrawal shall renew the Demand Registration rights
under Section.2.1. In addition, the Company may delay the filing of any
registration statement requested pursuant to Section 2.1 hereof by not more
than 60 days if the Company, prior to the time it would otherwise have been
required to file such registration statement, determines in good faith that
the filing of the registration statement would require the disclosure of
non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a
financing, acquisition, disposition, merger or other material transaction.
2.7 SELECTION OF UNDERWRITERS. If a Demand Registration pursuant to
Section 2.1 hereof involves an underwritten offering, both Pioneer Ventures
and the Company shall have the right to approve the investment banker or
investment bankers and manager or managers that will serve as the underwriter
with respect to the underwritten offering, and such approval shall not be
unreasonably withheld or delayed without a material reason stated in writing.
2.8 PRINCIPAL SHAREHOLDERS. The Company will not file a registration
statement on behalf of any Principal Shareholder (as that term is defined in
the Voting and Shareholders Agreement between Pioneer Ventures and certain
shareholders of the Company, dated the date hereof) as selling shareholders
without the prior written approval of Pioneer Ventures, which approval shall
not be unreasonably withheld.
2.9 TRANSFERABILITY OF REGISTRATION RIGHTS. The registration rights
described in Sections 2.1 and 2.2 are freely transferable by the holders of
Registrable Securities to any person to whom such holder transfers its
Registrable Securities.
2.10 INDEMNIFICATION BY COMPANY RE REGISTRATION RIGHTS. The Company will
indemnify each Holder, each of its officers, directors and partners, and each
person controlling such Holder,
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with respect to which registration, qualification or compliance has been
effected pursuant to this Article II, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering statement, notification or the like incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors and
partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, PROVIDED THAT the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such Holder
or underwriter and stated to be specifically for use therein.
2.11 INDEMNIFICATION BY HOLDER. Each Holder will, if Registrable Securities
or other securities held by him are included in the securities as to which
such registration, qualification, or compliance is being effected, indemnify
the Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other such
Holder and each of their officers, directors, and partners, and each person
controlling such Holder, for a period of one year from the effective date of
such registration statement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or
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necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein provided, however, that the obligations of such Holders hereunder shall
be limited to an amount equal to the proceeds to each such Holder of securities
sold pursuant to this Article II.
2.12 NOTICE OF INDEMNITY AND DEFENSE. Each party entitled to
indemnification under this Section (the "INDEMNIFIED PARTY") shall give
notice to the party requiring to provide indemnification (the "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Article II. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with the defense of such
claim and litigation resulting therefrom.
ARTICLE III. CO-SALE PROVISIONS
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3.1 THIRD-PARTY OFFER AND NOTICE. Any voluntary or involuntary transfer of
the capital stock of the Company by any Principal Shareholder will be subject
to a participation right of co-sale by Pioneer Ventures or its assigns on a
PRO RATA fully diluted basis. If any one or more of the Principal
Shareholders obtains from a third party ("THIRD PARTY PURCHASER") an offer to
purchase any amount of their Shares, such Principal Shareholders shall submit
a written notice (the "CO-SALE NOTICE") to Pioneer Ventures disclosing the
amount of Shares proposed to be sold, the offered purchase price, the
proposed closing date, and the total number of Shares owned by the Principal
Shareholders.
3.2 CO-SALE RIGHT OF PARTICIPATION. Upon receipt of a Co-Sale Notice from
any Principal Shareholders, Pioneer Ventures or its assigns may elect to
participate in such transaction and shall have the right to offer its
securities, at the same price and on the same terms, on a fully diluted PRO
RATA basis with the proposed selling shareholder(s) as set forth in the offer
made by the Third Party Purchaser. Each participating selling party shall in
turn be entitled to receive at the applicable closing the net proceeds of the
sale allocable to the securities sold on behalf of each selling shareholder,
after deduction of such selling shareholder's proportionate share of the
reasonable expenses of the sale. These co-sale provisions will not apply to
any sale of securities pursuant to a distribution to the public, whether
pursuant to a registered public offering, Rule 144 or otherwise. If less than
all of a shareholder's securities are being sold pursuant to this Article
III, the securities to be sold shall be determined on a PRO RATA fully
diluted basis.
3.3 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If Pioneer Ventures wishes
to participate in any sale under this Article III, then Pioneer Ventures
shall notify the selling Principal Shareholders in writing of such intention
as soon as practicable after such Pioneer Ventures' receipt of the Co-Sale
Notice made pursuant to Section 3.1, and in any event within fifteen (15)
days after the date of such Co-Sale Notice has been received. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholders at the Company's offices.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to
Pioneer Ventures each of which shall be deemed material, and Pioneer Ventures,
in executing, delivering and consummating this Agreement, have relied and will
rely upon the correctness and completeness of each of such representations and
warranties:
4.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Nevada and has all corporate power necessary to engage in
the lines of business in which it is presently engaged. The Company is not
qualified to transact business as a foreign corporation in any jurisdiction;
such lack of qualification shall not have a material adverse effect on the
business and operations of the Company. The Company shall use its best efforts
to apply and qualify in the State of New York immediately after the First
Closing for such foreign corporation qualification.
4.2 SUBSIDIARIES. The Company has no subsidiaries or affiliated entities,
nor is it the subsidiary or affiliate of any other corporation or business
entity EXCEPT for (a) Memory Centers of America, Inc., (b) HZI Research
Center, Inc., (c) Telemap, Inc. (collectively "SUBSIDIARIES"), (d) New York
Institute for Medical Research, Inc., (e) Manhattan Westchester Medical
Services, P.C. and (e) NeuroCare, Ltd. (collectively "AFFILIATES"). The
Subsidiaries are all wholly owned by the Company. The ownership of the
affiliates are as follows: ____________. The Subsidiaries and affiliates are
corporations duly organized and validly existing and in good standing under
the laws of the States of__________ and _________, respectively; are each
duly qualified to transact business as foreign corporations and in good
standing in the states of New York, ____________ being all states in which
their respective activities require qualification and the failure to be so
qualified would have a material adverse effect on the business and operations
of the Company or its Subsidiaries or affiliates; and have all corporate
power necessary to engage in the business in which they are presently
engaged. The Subsidiaries are controlled by the Company, as such term is
governed by Section 20(a) of the 1933 Act. For purposes of this section, the
term "SUBSIDIARY" is defined to mean any
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corporation or other business entity, a majority of whose outstanding voting
stock or ownership interests entitled to vote for the election of directors or
such other governing body is, at the time, owned by the Company and/or one or
more other subsidiaries. The term "AFFILIATE" is defined as that term is defined
in the federal securities laws and the regulations of the Commission pursuant to
those laws, excluding the term "individuals".
4.3 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance by
the Company of this Investment Agreement and all other documents and
instruments contemplated hereby have been duly authorized by all requisite
corporate action. A true, correct and valid copy of the Company's Board of
Director's resolution(s) authorizing the transactions and securities to be
issued hereunder has been delivered to Pioneer Ventures. Neither the
execution and delivery of this Agreement nor compliance by the Company with
any of the provisions hereof nor the consummation of the transactions
contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or bylaws of the Company or its Subsidiaries or any
contract to which the Company or any of its Subsidiaries is bound;
(b) violate or, alone or with notice or the passage of time, result
in the material breach or termination of, or otherwise give any contracting
party the right to terminate, or declare a material default under, the
terms of any material agreement or other document or undertaking, oral
or written to which the Company or any of its Subsidiaries is a party
or by which it or its properties or assets may be bound (except for
such violations, conflicts, breaches or defaults as to which required
waivers or consents by other parties have been, or will be obtained,
prior to the Closing);
(c) result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument;
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(d) violate any judgment, order, injunction, decree or award against,
or binding upon the Company or any of its Subsidiaries or affiliates or
upon their properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to
either the Company or any of its respective securities, assets or
properties or of any of its Subsidiaries or affiliates.
4.4 VALIDITY. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
4.5 GOVERNMENT APPROVAL. No registration or filing with, or consent or
approval of, or other action by, any federal, state or other governmental
agency or instrumentality is or will be necessary for the valid execution,
delivery and performance of this Investment Agreement or any other document
contemplated hereby.
4.6 CAPITALIZATION. There are (a) one hundred million (100,000,000) shares
of Common Stock, $.001 par value, and (b) one hundred fifty thousand
(150,000) shares of Class B Preferred Stock, no par value, and (c) two
million (2,000,000) shares of Class C Preferred Stock, $0.001 par value,
authorized for issuance under the Company's certificate of incorporation, as
amended (delivered along with the Company's bylaws to Pioneer Ventures).
Immediately prior to the Closing Date, there will be eleven million two
hundred thirteen thousand eight hundred six (11,213,806) shares of Common
Stock issued and outstanding and one hundred fifty thousand (150,000) shares
of Class B Preferred Stock issued and outstanding, no Class A Preferred Stock
of any series are currently issued and outstanding, and no Class C Preferred
Stock of any series shall have been issued. No shares of Common Stock are
issuable pursuant to existing agreements and there are no outstanding
warrants, options or other securities convertible into the Common Stock of
the Company, EXCEPT the Class A and Class B warrants of which each are
convertible into one (1) share of common stock at an exercise price of $1.00
per share. No other shares of Common Stock are
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issued or outstanding or committed for issuance EXCEPT those committed for
issuance upon conversion of the Preferred Stock to be issued to Pioneer Ventures
hereunder, and employee and consultants' options to purchase an aggregate of
three hundred fifty thousand (350,000) shares of common stock.
4.7 THE FINANCIAL STATEMENTS. The Company has heretofore furnished to
Pioneer Ventures copies of (a) the Company's consolidated audited financial
statements for its fiscal year ended December 31, 1997, (b) the Company's
consolidated unaudited interim financial statement for the three months ended
March 31, 1998, and (c) the Company's consolidated unaudited interim
financial statement for the six months ended June 30, 1998, (hereinafter
collectively referred to as the "FINANCIAL STATEMENTS"). Such financial
statements are true, correct and complete in all material respects, and
accurately set forth, in all material respects, the financial condition of
the Company and its Subsidiaries as of their respective dates, and the
results of operations for the fiscal periods involved, and were prepared in
conformity with generally accepted accounting principles and practices
consistently applied and are annexed hereto as EXHIBIT 4.7-A. The financial
statements fairly present in all material respects the financial condition
and results of operations of the Company and its Subsidiaries at the dates
thereof and for the periods covered thereby. Except as set forth in such
financial statements, the Company and/or its Subsidiaries had, as of July 15,
1998, no material obligation or liability, whether absolute, accrued,
contingent or otherwise.
(a) The Company and/or its Subsidiaries have good and marketable title
to all of its property and assets subject to no mortgage, pledge, lien or
other encumbrance except as disclosed in EXHIBIT 4.7-B annexed hereto
and made a part hereof.
(b) The Company and/or its Subsidiaries had no obligations,
liabilities or commitments, contingent or otherwise, of a material nature
which were not provided for except as set forth in EXHIBIT 4.7-A and
EXHIBIT 4.7-B and except those incurred in the normal course of business
since December 31, 1997 and July 15, 1998.
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(c) Since December 31, 1997 there has been no materially adverse
change in the nature of the business of the Company and/or its Subsidiaries
nor in any of their financial condition or property, other than changes in
the usual or ordinary course of business, and the Company has incurred
no obligations or liabilities nor made any commitments other than in
the usual and ordinary course of business or as disclosed in EXHIBIT
4.7-A and EXHIBIT 4.7-B.
(d) The Company and/or its Subsidiaries are not a party to any
employment contract with any officer, director, or stockholder, or to any
lease, agreement or other commitment not in the usual and ordinary course
of business, nor to any pension, insurance, profit-sharing or bonus plan,
except as disclosed in EXHIBIT 4.7-A and EXHIBIT 4.7-B AND 4.12.
4.8 PATENTS, TRADEMARKS, ETC. All of the officers, directors, principals
and the affiliates of the Company have assigned and transferred all of their
Patents, as defined below, to the Company. The Company and/or its
Subsidiaries own or possess, without any adverse claims with respect thereto,
and without known conflict with the rights of others, except as disclosed in
EXHIBIT 4.8, the rights to the patents, trademarks, service marks, trade
names, copyrights and licenses listed in EXHIBIT 4.8 hereto and the same
constitute all of the patents, trademarks, service marks, service names,
copyrights, and licenses necessary, used or useful in the conduct of the
business of the Company (collectively the "PATENTS"). The Company protects
all technical, trade secret and confidential information developed by and
belonging to the Company and/or its Subsidiaries, which has not been
patented, by maintenance of secrecy relating thereto, and the Company and/or
its Subsidiaries will continue to seek to protect all such information,
technology and intellectual property by maintenance of secrecy related
thereto.
4.9 TAXES. The Company and each of the Subsidiaries has filed all
applicable federal, state, county and local tax and franchise returns and
reports required to be filed by it and has paid (or, as to taxes not
currently due and payable, has made adequate provision in accordance with
generally accepted accounting principles for the payment of) all income and
other taxes, assessments, franchise fees and other governmental charges
required by law (including, without
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limitation, withholding, social security, payroll and similar taxes) and all
interest and penalties, if any, thereon and all federal, state, local and other
taxes accruable since the filing of such returns have been properly accrued. No
adverse proceedings or other actions are pending or have been taken for the
assessment or collection of additional taxes of any kind from the Company and/or
its Subsidiaries for any period, and to the Company's knowledge, no
investigation by the Internal Revenue Service or any taxing authority affecting
the Company and/or its Subsidiaries is now pending. All taxes that the Company
and/or its Subsidiaries are required by law to withhold or collect have been
withheld or collected and have been paid over to the proper governmental
authorities or are properly held by the Company for such payment.
4.10 APPROVALS. No authorization or approval of, or filing with, or
compliance with any applicable order, judgment, decree, statute, rule or
regulation of, any court or governmental authority, or approval, consent,
release or action of any third party, is required in connection with the
execution and delivery by the Company of, or the performance or satisfaction
of any agreement of the Company contained in or contemplated by, this
Agreement.
4.11 LITIGATION. The Company and its Subsidiaries are not a defendant, nor
are they a plaintiff against whom a counter-claim has been asserted in any
actions, suits, claims, arbitrations, administrative or other proceedings or
governmental investigations seeking $5,000 or more in damages, or any
equitable relief, pending or, to the best of the Company's knowledge,
threatened against, relating to or affecting the Company or any of the
Subsidiaries, or their respective business, operations or assets, whether or
not fully covered by insurance, or which question or seek to prevent
consummation of the transactions provided for in this Agreement, whether at
law or in equity, or before or by any Federal, state, local, foreign or other
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, injunction or decree of any court or of any
governmental department, agency or instrumentality.
4.12 SCHEDULE OF DOCUMENTS. The schedule of contracts including a summary
in tabular
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form of all material terms attached hereto as EXHIBIT 4.12 lists any and all
material (material for purposes of this paragraph only shall mean $25,000)
contracts or other material commitments or obligations relating to the Company
and its Subsidiaries, (a) to which a Principal Shareholder and/or officer or
director of the Company or any Subsidiary is a party, (b) all leases of real
and/or personal property, (c) union collective bargaining, employment,
management and consulting agreements to which the Company or any Subsidiary is a
party, (d) compensation plans, bonus plans, deferred compensation arrangements,
pension and retirement plans, profit sharing plans, stock purchase and stock
option plans, (e) loan agreements and notes, (f) options to purchase property,
(g) stockholder agreements, and (h) all other material contracts or commitments
to which the Company is a party. Except as listed on EXHIBIT 4.12,, neither the
Company nor any of its Subsidiaries are a party to or bound by any contract or
commitment (or group of related contracts or commitments), other than contracts,
or agreements in the ordinary course of business; nor is the Company nor any of
its Subsidiaries bound by any charter, contractual or other corporate
restriction that materially and adversely affect or could affect its business,
financial condition or prospects, or which restricts its right or ability to
operate its business as conducted or proposed to be conducted. On or prior to
the date hereof, the Company has delivered to Pioneer Ventures or a
representative thereof, a true and correct copy of each of the documents listed
in EXHIBIT 4.12.
4.13 NO DEFAULTS. The Company and the Subsidiaries are not in violation of,
breach of or default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in this
Agreement) has occurred which with the passage of time or notice from or action
by any party thereto or otherwise could result in a violation of or default
under, or give any other person the right to terminate, as the case may be, any
indenture, mortgage, security, loan, lease or other material agreement to which
the Company or any of the Subsidiaries is a party or by which it is bound or
result in the creation, imposition or acceleration of any material lien of any
nature in favor of any other person.
4.14 LACK OF FELONIES. Neither the Company nor its Subsidiaries nor any of
their respective principals, directors, or executive officers have been
convicted of or pled guilty to any
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felony under the laws of the United States or any state thereof. No criminal
arrests, proceedings or actions are pending, nor have any been threatened in the
last thirty-six (36) months against any of such persons.
4.15 NO JUDGMENTS. There are no judgments, decrees, binding decisions
outstanding against the Company or any of its Subsidiaries which were issued in
any legal proceeding of any kind by any court, arbitrator, panel, or other
governing or determining authority.
4.16 INSURANCE. The Company and its Subsidiaries are covered by policies of
general liability insurance with coverage of at least $_________ with a
deductible of $5,000, and workers' compensation insurance and extended coverage
on its property. There does not exist, nor has there been, any lapse in the
coverage under such insurance policies. Such policies are carried by a reputable
and financially stable insurance company and are sufficient to cover risks as
are customarily insured against by similar businesses. The Company represents it
has adequate insurance to replace a substantial amount of its assets.
4.17 NO BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with Pioneer
Ventures by the Company, without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp.), or other third party. The
Company has not engaged, consented to, or authorized any broker, finder,
investment banker or other third party to act on its or his behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.
4.18 LOANS AND LIENS. Attached hereto as EXHIBIT 4.18 is a complete and
accurate list of all secured and unsecured loans to which the Company or any
of its Subsidiaries is a party as a borrower, debtor, guarantor or as a party
obligated thereunder and all other financial obligations or judgments to
which they are subject. Such schedule sets forth in tabular form the identity
of the borrower, lender, any guarantors, the original principal amount, the
principal amount due at a current date within 30 days hereof, the current
standing of such obligation, the due date, the interest rate, the
<PAGE>
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amount of interest due with in a recent date, and a summary of any material
provisions not requested herein.
4.19 SOLVENCY. The Company has not admitted in writing an inability to pay
its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other laws or of the
United States or any other jurisdiction.
4.20 REGISTRATION RIGHTS. Except as provided for herein, and except for the
registration statement last filed on December 9, 1997 which the Company is
obligated to complete, the Company is not a party to any agreement or commitment
that obligates the Company to register under the Securities Act of 1933, as
amended (the "1933 ACT"), any of the Company's presently outstanding securities
or any of the Company's securities that may hereafter be issued.
4.21 COMPLIANCE WITH SECURITIES LAWS. The offer, grant, sale, and/or
issuance of the Shares shall not be in violation of the 1933 Act, the
Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT") any state
securities or "blue sky" laws, or the Company's organization documents such
as the certificate of incorporation or bylaws, when offered, sold and issued
in accordance with this Agreement.
4.22 TRANSFER RESTRICTIONS. There are no restrictions on the transfer of
capital stock of the Company imposed by its certificate of incorporation,
bylaws, other organization documents, any agreement to which the Company is a
party (other than those agreements expressly contemplated by this Agreement),
any order of any court or any governmental agency to which the Company is
subject, or any statute other than those imposed by relevant state and
federal securities laws.
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4.23 RELATED PARTY TRANSACTIONS. There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
other "affiliates" (as defined in Rule 405 promulgated under the 1933 Act),
EXCEPT as outlined on EXHIBIT 4.23.
4.24 MISCELLANEOUS. Except as set forth in EXHIBIT 4.12, Exhibit 4.7-A or
Exhibit 4.7-B or the Financial Statements or notes thereto, (a) the Company is
not a party to or bound by any distribution, sales agency, franchise or similar
agreement or understanding that relates to the sale or distribution of its
products and services, (b) the Company does not have a sole-source supplier of
significant goods and services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (c) there are neither pending, nor threatened, any labor
negotiations involving or affecting the Company, and no organizing activities
involving union representation exists in respect of any of its employees, (d)
the Company is not bound by any warranties relating to its products or services,
and (e) there has been no assertion of any breach of product or service
warranties that could have a material adverse affect on the business, financial
condition or prospects of the Company. Neither the Company nor any of its
employees, consultants, officers or directors is prohibited from engaging in any
business activity that is currently carried on or contemplated by the Company,
by reason of any restrictive covenant or agreement, including but not limited
to, a covenant not-to-compete.
4.25 ADDITIONAL REPRESENTATIONS. The Company represents and warrants that:
(a) The Investment to be consummated by Pioneer Ventures in the
Company is NOT opposed by its board of directors;
(b) The Company is NOT engaged as a business in real estate
investments, and is not a real estate operating company;
(c) The Company is NOT undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the Investment
are either exercisable for, or convertible into, equity securities at a
pre-determined exercise price or conversion ratio;
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(e) The Company is NOT offering as an investment or otherwise any
uncovered options, or any transaction in which securities are sold short in
an uncovered transaction or which would be in violation of Section 16(c)
of the Securities Exchange Act of 1934, as amended, PROVIDED, HOWEVER,
that nothing in this subsection (e) shall prevent Pioneer Ventures from
acquiring options or warrants exercisable for, or other securities
convertible into, equity securities or assets at a pre-determined
exercise price or conversion ratio;
(f) The Company and its subsidiaries are NOT domiciled in any country
that is, at the time of the closing of the Investment and will ensure that,
at the time of the conversion or partial conversion of any of the
Debentures, a participant in an international boycott illegal under
United States law or opposed by the United States government;
(g) The Company is NOT an investment company registered or required to
be registered under the Investment Company Act of 1940, as amended;
(h) The Company conducts NO operations in Northern Ireland and will
ensure that at the time of the conversion or partial conversion of any of
the Debentures that it conducts NO operations in Northern Ireland unless
the Company complies with the McBride principles and Pioneer Ventures
agrees that the Company is in compliance with the McBride principles.
For purposes of this Certificate, a corporation will be considered to
be "conducting operations in Northern Ireland" if it has facilities and
employees in Northern Ireland, either directly or through one or more
subsidiaries; and
(i) The Company is NOT and shall NOT be engaged in any form of
business in Iran which could be considered contrary to the foreign policy
or national interests of the United States.
4.26 USE OF PROCEEDS. The Company represents it shall use and apply the
proceeds from the stock purchase through the First and Second Closings only
for such purposes as set forth in Section 1.12 hereof.
4.27 MEDICAL REGULATIONS. The Company and the Subsidiaries and their
operations do not violate any state or federal laws or regulations with
respect to the corporate practice of medicine, fee-splitting, anti-kickback
laws, physician referral laws, solicitation, payment, or receiving direct or
indirect remuneration in violation of Medicare, Medicaid, Stark II, the
Social Security Act, or any other laws or regulations to which the Company or
its Subsidiaries are subject. No notices of deficiency or notices of any kind
which may inhibit the operations of the Company or its Subsidiaries has been
received from the U.S. Food & Drug Administration, or any other
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governmental agency or authority.
4.28 COMPLETE DISCLOSURE. No representation, warranty or statement, written
or oral, made by the Company in this Agreement or in any schedule, exhibit,
certificate or other document furnished or to be furnished to the Pioneer
Ventures, including any and all documents filed with the U.S. Securities and
Exchange Commission ("COMMISSION") within the past 12 months, pursuant hereto
or otherwise, in connection with the transactions contemplated hereby, has
contained, contains or will contain at the closing date any untrue statement
of a material fact or has omitted, omits or will omit at the closing date a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading. Without limiting the generality
of the foregoing, the Company is current in all filings required under the
Exchange Act.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PIONEER VENTURES
Pioneer Ventures represents and warrants as follows:
5.1 ORGANIZATION. Pioneer Ventures is a limited partnership duly organized
and validly existing under the laws of the State of Connecticut.
5.2 NO BREACH. The execution and delivery of this Agreement by Pioneer
Ventures and the consummation of the transactions contemplated hereby will
not violate any judgment, order, injunction, decree, or award against, or
binding upon, Pioneer Ventures or upon its properties or assets.
5.3 AUTHORITY FOR AND BINDING NATURE OF AGREEMENT. This Agreement and the
documents delivered pursuant hereto have been duly executed and delivered by
Pioneer Ventures are valid and binding upon it in accordance with its terms.
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5.4 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the
Company by Pioneer Ventures without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp.), or other third party.
Pioneer Ventures has not engaged, consented to, or authorized any broker,
finder, investment banker (except Pioneer Ventures Corp.), or other third
party to act on its behalf, directly or indirectly, as a broker or finder in
connection with the transactions contemplated by this Agreement.
5.5 INVESTMENT. With respect to the shares to be issued to Pioneer
Ventures pursuant to Article 1, including the shares obtainable upon
conversion of the Preferred Stock, Pioneer Ventures hereby represents and
warrants that it is acquiring the shares for its own account for investment
purposes only and not with a view to any distribution or public offering
thereof. Pioneer Ventures represents that it is experienced in evaluating and
making investments of the type contemplated by this Investment Agreement and
is financially able to bear the risks of such investment. Pioneer Ventures
understands that a restrictive legend relating to the above will be placed on
the stock certificates delivered to them by the Company on the Closing Date.
ARTICLE VI. AFFIRMATIVE COVENANTS
The Company hereby warranties and covenants that:
6.1 FINANCIAL. Between the date of the December 31, 1997 financial
statements, referred to in Section 4.7 hereof and the Closing Date, except as
contemplated or disclosed in this Agreement, the Company shall not have (i)
paid or declared any dividends on, or made any distributions in respect of,
or issued, purchased or redeemed, any of the outstanding shares of its
capital stock, or (ii) made or authorized any changes in its Certificate of
Incorporation or in any amendment thereto or in its bylaws, or (iii) made any
commitments or disbursements or incurred any obligations or liabilities of a
substantial nature and which are not in the usual and ordinary course of
business, or (iv) mortgaged or pledged or subjected to any lien, charge or
other encumbrance any
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of its assets, tangible or intangible, or (v) sold, leased, or transferred or
contracted to sell, lease or transfer any assets, tangible or intangible or
entered into any other transactions, except in the usual and ordinary course of
business, or (vi) made any loan or advance to any stockholder, officer or
director of the Company or to any other person, firm, or corporation, or (vii)
made any material change in any existing employment agreement or increased the
compensation payable or made any arrangement for the payment of any bonus to any
officer, director, employee or agent.
6.2 ACCESS. For so long as either Pioneer Ventures and/or its assigns or
partners own five (5%) percent or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock all on a fully diluted
basis, the Company shall afford, at its sole cost and expense, to the officers,
attorneys, accountants and other authorized representatives of Pioneer Ventures
and/or its assigns free and full access, during regular business hours and upon
reasonable notice, to the books, records, personnel, accountants, attorneys, and
properties of the Company so that Pioneer Ventures may have full opportunity to
make such review, examination and investigation as it may desire of its
respective business and affairs. The Company will cause its employees,
accountants, and attorneys to cooperate fully with said review, examination and
investigation and to make full disclosure to Pioneer Ventures of all material
facts affecting its financial condition and business operation. Nothing herein
shall limit the rights of Pioneer Ventures and/or its assigns which are
available under or granted by applicable statutes with respect to access,
review, examination and investigations.
6.3 BOOKS OF RECORD AND ACCOUNT. The Company shall maintain at all times
proper books of record and account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied, and for so long as
either Pioneer Ventures and/or its assigns or limited partners own five (5%)
percent or more of the Company's Common Stock directly or through the
possible conversion of its Preferred Stock all on a fully diluted basis, it
will permit any of Pioneer Ventures' officers or any of their authorized
representatives or accountants to visit, upon reasonable notice, and inspect
offices and properties, examine its books of account and other records, and
discuss its affairs, finances and accounts with its appropriate officers,
accountants and auditors, all at such reasonable
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times and reasonable frequency as Pioneer Ventures may request. In addition,
Pioneer Ventures shall be provided with copies of quarterly and annual financial
statements consisting of balance sheets, statements of operations, statements of
cash flows, statements of changes in stockholders equity and notes thereto all
prepared in accordance with GAAP. The annual financial statements shall be
audited in accordance with GAAP by an accounting firm acceptable to Pioneer
Ventures.
6.4 MEMBERSHIP ON BOARD. The Company's bylaws shall provide for a five (5)
person Board of Directors. Promptly upon the Closing Date and for so long as
Pioneer Ventures and/or its assigns or its limited partners collectively own
five (5%) percent or more of the Company's Common Stock directly or through the
possible conversion of Preferred Stock all on a fully diluted basis, the
Company's principal stockholders shall cause two (2) designees from Pioneer
Ventures to be nominated and elected to serve as directors of the Company.
Present Company management shall be entitled to designate two (2) directors to
serve on the Board; Mr. Coady and Dr. P. Lerman shall be deemed acceptable by
all parties hereto as the current remaining board members. And the
"CEO-to-be-hired" shall be entitled to the fifth board seat; these designations
are subject to Pioneer Ventures' rights set forth in Section 1.10(b) hereof.
Except as provided for herein, additional membership on the Board shall require
majority approval of the remaining members of the Board of Directors or election
at a meeting of shareholders. At the organizational or first meeting of the
reconstituted Board of Directors, a Compensation Committee of the Board shall be
established. The Compensation Committee shall consist of three directors; a
designee of the Pioneer Ventures, a designee of the Principal Stockholders, and
one other person selected by the Board. The Compensation Committee shall be
maintained to consider and recommend to the Board of Directors matters
concerning the compensation of executives and employee awards of stock options
and other incentive compensation.
6.5 STOCK OPTION PLAN. The Company may retain its current stock option,
bonus or stock incentive plan or cancel such plan(s) and adopt a new stock
incentive plan in order to have the ability to incentivize its key employees,
future employees and others. The aggregate stock option or stock bonus pool
shall consist of that number of shares of the Common Stock of the Company
which,
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without the prior written consent of Pioneer Ventures, shall not exceed ten
(10%) percent of the fully diluted number of shares of the Common Stock of the
Company immediately following the investment herein. No shareholder beneficially
owning 250,000 shares or more of the Company's stock shall be eligible to
participate in such plan.
6.6 RULE 144 COMPLIANCE. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the shares to the public without registration, at all times after
ninety (90) days after any registration statement covering a public offering
of securities of the Company under the 1933 Act shall have become effective,
or at all times after the Company has a class of Securities registered under
the Exchange Act, the Company agrees to use its best efforts to: (i) make and
keep public information available, as those terms are understood and defined
in Rule 144 under the 1933 Act; (ii) use its best efforts to file with the
Commission (as hereinafter defined) in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act of
1934; (iii) furnish to each holder of Registrable Securities forthwith upon
request, a written statement by the Company as to the Company's compliance
with the reporting requirements of Rule 144 and of the 1933 Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities
without registration; and (iv) use the Company's best efforts to satisfy the
requirements of all such rules and regulations (including the requirements
for current public information, registration under the Exchange Act and
timely reporting to the Commission) at the earliest possible date after its
first registered public offering.
6.7 UNDERTAKING TO FILE 34 ACT FILINGS. The Company undertakes to continue
filing its annual reports on Form 10-KSB and its quarterly reports on Form
10-QSB, or on such other appropriate forms, with the SEC for so long as Pioneer
Ventures holds a five (5%) percent or greater equity interest in the Company.
<PAGE>
Page 36
6.8 NO BREACH. The Company will (i) use its best efforts to assure that
all of its representations and warranties contained herein are true in all
material respects as of the Closing as if repeated at and as of such time, and
that no material breach or default shall occur with respect to any of its
covenants, representations or warranties contained herein that has not been
cured by the Closing; (ii) not voluntarily take any action or do anything which
will cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify Pioneer Ventures of any event or fact
which represents, or is likely to cause such a breach or default.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
PIONEER VENTURES TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PIONEER VENTURES TO CLOSE. In
addition to the conditions precedent in Section.1.13, the obligation of Pioneer
Ventures to enter into and complete the Closing is subject to the fulfillment,
prior to or on the Closing Date, of each of the following conditions, any one or
more of which may be waived by Pioneer Ventures (except when the fulfillment of
such condition is a requirement of law), as well as the satisfactory completion
(in the sole opinion of Pioneer Ventures) of (i) an audit or review of the
books, records and accounts of the Company, and (ii) legal and other due
diligence.
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Company contained in this Agreement and in any written statement,
exhibit, certificate, schedule or other document delivered pursuant hereto or
in connection with the transactions contemplated hereby shall be true and
correct in all material respects as at the Closing Date, as if made at the
Closing and as of the Closing Date.
7.2 COVENANTS. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by each of them prior to or at the
Closing.
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7.3 NO ACTIONS. No action, suit, proceeding or investigation shall
have been instituted, and be continuing before a court or before or by a
governmental body or agency, or shall have been threatened and be unresolved,
to restrain or to prevent or to obtain damages in respect of, the carrying
out of the transactions contemplated hereby, or which might materially affect
the right of Pioneer Ventures to own the Company's Stock or to operate or
control the assets, properties and business of the Company after the Closing
Date, or which might have a materially adverse effect thereon.
7.4 CONSENTS, LICENSES AND PERMITS. The Company shall have obtained
all consents, licenses and permits of third parties necessary for the
performance of its obligations under this Agreement, and such other consents,
if any, to prevent (i) agreements of the Company from terminating, the
termination of which, in the aggregate, would have a material adverse effect
on the business, financial condition or assets of the Company, or (ii) any
material indebtedness of the Company from becoming due or being subject to
becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provision of this Agreement to the
contrary notwithstanding.
7.5 CERTIFICATE. Pioneer Ventures shall have received a certificate
in the form satisfactory to its counsel, dated the Closing Date, signed by an
authorized representative of the Company, confirming the substance and effect
of the representations and warranties set forth in Article IV hereto, and as
to the satisfaction of the conditions contained in sections 7.1 and 7.2.
7.6 LEGAL OPINION. Pioneer Ventures shall have received the written
opinion of the Company's Counsel, dated the Closing Date, in form and
substance satisfactory to Pioneer Ventures and its counsel, confirming the
substance and effect of certain of the representations and warranties set
forth in Article II hereto, that this Agreement is the valid and binding
obligation of the Company, enforceable in accordance with its terms, and as
to such other matters as Pioneer Ventures may request.
<PAGE>
Page 38
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no materially
adverse change at the Closing Date in the business, assets, and properties,
financial status or prospects of the Company from December 31, 1997, except
as disclosed in EXHIBIT 4.7-A hereof.
7.8 AGREEMENTS WITH PRINCIPALS. The Company shall have received and
presented to Pioneer Ventures agreements from all officers, directors and the
Principal Shareholders of the Company containing the substantive provisions
of this Agreement with respect to co-sale rights, voting agreement as to
Board membership, restricted stock and restricted transfer provisions as well
as customary and satisfactory non-competition agreements between the Company
and its officers and key employees. Reference is hereby made to that certain
Voting and Shareholders Agreement between Pioneer Ventures and the Principal
Shareholders, and such agreement is of even date. That agreement provides
that any amendment, renewal or extension to said agreements shall require the
written consent of Pioneer Ventures. Further, any shares which are acquired
as a result of such agreements or are subject to a proxy or voting agreement
shall otherwise be subject to the substantive provisions of this Agreement
with respect to anti-dilution rights, voting agreement as to Board
membership, restricted stock and co-sale provisions.
7.9 KEY PERSON INSURANCE. The Company shall have applied for
Key-Person term life insurance, from a licensed and reputable insurance
company in the minimum face amount of $____________ each, insuring the lives
of __________________________. The Company shall be the designated
beneficiary and Pioneer Ventures shall be the designated loss payee. Renewal
of the policies after the first year term shall be at the discretion of the
Company's Board of Directors.
7.10 SETTLE WITH SKADDEN, ARPS.On or before the Second Closing the
Company shall have settled in full with the law firm of Skadden, Arps, Slate,
Meagher & Flom, L.L.P. for all payments owed for past legal services rendered
and expenses incurred. The settlement amount shall not exceed an amount which
shall be subject to the approval of Pioneer Ventures, and further, no amounts
from any of the Closings contemplated herein shall be permitted to be used
without the prior written approval of Pioneer Ventures. Final pay-off may
occur at Closing provided a signed settlement
<PAGE>
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agreement or pay-off letter from such firm has been delivered, and the Company
delivers a check for such amount to Pioneer Ventures for delivery to such firm.
7.11 SETTLE WITH OPTON HANDLER FEILER.On or before the First Closing
the Company shall have settled in full with the law firm of Opton, Handler,
Feiler & Landau, or Opton, Handler, Gottlieb, Feiler & Katz, L.L.P., and/or
any affiliate law firm thereof for all payments owed for past legal services
plus actual out-of-pocket disbursements made on behalf of the Company
rendered and expenses incurred. The Settlement amount shall not exceed
$1,609. Further, such law firm shall agree that no more than $29,500 plus
actual out-of-pocket disbursements not to exceed $2,000 shall be owed as a
result of legal services related to the closing contemplated herein. Final
pay-off may occur at Closing provided a signed settlement agreement or
pay-off letter from such firm has been delivered, and the Company delivers a
check for such amount to Pioneer Ventures for delivery to such firm.
7.12 SETTLE WITH SCARANO & LIPTON, P.C. AND SCARANO & TOMERO, P.C.
The Company shall have settled in full with the accounting and auditing firms
of Scarano & Lipton, P.C. and Scarano & Tomaro, P.C. for all payments owed
for past accounting or auditing services rendered and expenses incurred. The
settlement amount shall not exceed $__________. Final pay-off may occur at
Closing provided a signed settlement agreement or pay-off letter from such
firm has been delivered, and the Company delivers a check for such amount to
Pioneer Ventures for delivery to such firm. Further, in the event such
accounting firm is replaced within the next thirty-six (36) months, such firm
or its successor shall agree that it shall issue in original signature form
such number of restatements of its then issued audits and such number of
original signature consents to be included in any filings made with the
Commission at a fixed total price of $100 for a total of five (5) versions of
the financial statements and five (5) consents to each SEC filing; thus such
accountants shall issue 5 signed original copies of the financial statements
and 5 signed original consents for each Commission filing and receive a total
of $100 for each incidence of filing with the Commission.
<PAGE>
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7.13 PATENTS. All of the officers, directors, principals and the
affiliates of the Company shall have assigned and transferred all of their
Patents to the Company.
7.14 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement, or incidental thereto, and
all other related legal matters shall have been approved as to form and
substance by Pioneer Ventures' counsel, which approval shall not be
unreasonably withheld or delayed.
7.15 REDUCTION OF SALARIES AND MODIFICATION OF EMPLOYMENT
AGREEMENTS.The Company shall modify all compensation arrangements and
employment agreements to (a) reduce total salary and wage compensation by a
minimum of twenty (20%) percent in the aggregate. The calculation of the 20%
salary and wage reduction shall be exclusive of reductions of tax obligations
of the Company (E.G. FICA, Social Security, ETC.), fringe benefits or perks
afforded to employees (E.G. health insurance contribution obligations of the
Company, automobile allowances, bonuses, expense allowances, ETC.), or other
Company expenditures pertaining to employees.; (b) limit or eliminate certain
benefits, (c) include a confidentiality clause, and if appropriate a
non-competition clause, and (d) assign all patents from the employee to the
Company.
7.16 ACCOUNTING EXPENSES. Accounting expenses shall be reduced from
the annualized amount of $90,000 paid to its independent auditor to an
annualized rate of $25,000. Further, the Company is authorized to hire
financial controller and a bookkeeper at annual salaries of $75,000 and
$55,000 respectively. All other material accounting or bookkeeping expense
shall be eliminated.
7.17 CONSENTS, LICENSES AND PERMITS. The Company, shall have
obtained all consents, licenses and permits of third parties necessary for
the performance of its obligations under this Agreement, and such other
consents, if any, to prevent (i) agreements of the Company from terminating,
the termination of which, in the aggregate, would have a material adverse
effect on the business, financial condition or assets of the Company or (ii)
any material indebtedness of the Company from becoming due or being subject
to becoming due with the passage of time or on notice
<PAGE>
Page 41
as a result of the performance of this Agreement, any other provision of this
Agreement to the contrary notwithstanding.
7.18 ADDITIONAL DOCUMENTS. The Company shall have delivered all such
other certificates and documents as Pioneer Ventures or their counsel may
have reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE. The
obligation of the Company to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Pioneer Ventures contained in this Agreement and in any written
statement, exhibit, certificate, schedule or other document delivered
pursuant hereto or in connection with the transactions contemplated hereby
shall be true and correct in all material respects as at the Closing Date, as
if made at the Closing and as of the Closing Date.
8.2 COVENANTS. Pioneer Ventures shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing.
8.3 NO ACTIONS. No action, suit, proceeding, or investigation shall
have been instituted, and be continuing before a court or before a
governmental body or agency, or have been threatened and be unresolved, to
restrain or prevent, or obtain damages in respect of, the carrying out of the
transactions contemplated hereby.
<PAGE>
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8.4 ADDITIONAL DOCUMENTS. Pioneer Ventures shall have delivered all
such other certificates and documents as the Company or its counsel may have
reasonably requested.
8.5 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto, and all
other related legal matters, shall have been approved as to form and substance
by Company's counsel, Opton, Handler, Feiler & Landau which approval shall not
be unreasonably withheld or delayed.
ARTICLE IX. CLOSING
9.1 LOCATION. The Closing provided for herein (the "CLOSING") shall
occur the offices of Pioneer Ventures or at such place and upon such date as
the Company and Pioneer Ventures mutually agree.
9.2 ITEMS TO BE DELIVERED BY THE COMPANY. At the Closing, the
Company will deliver or cause to be delivered to Pioneer Ventures:
(a) validly issued original certificates representing the Preferred
Stock in accordance with Article I hereof.
(b) the certificates required by section 7.5 hereof;
(c) the opinion of the Company's counsel, as required by section 7.6
hereof;
(d) the agreements required by Article VII hereof;
(e) the insurance binder and paid receipt required by section 7.9
hereof;
<PAGE>
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(f) a draft or drafts for $70,000 payable to Ventures Management
Partners LLC as required by sections 11.1, 11.2, and 11.4 hereof;
(g) a draft for $15,250 payable to Kenneth B. Lerman, Esquire as
required by section 11.3 hereof; and
(h) such other certified resolutions, exhibits, instruments, documents
and certificates as are required to be delivered by the Company
pursuant to the provisions of this Agreement and pursuant to the
checklists presented by Pioneer Ventures or its counsel.
9.3 ITEMS TO BE DELIVERED BY PIONEER VENTURES. At the Closing, Pioneer
Ventures will deliver or cause to be delivered to the Company:
(a) a check or checks or evidence of wire transfer in the aggregate
amount of one million ($1,000,000) dollars, as specified in Article I
hereof; and
(b) such other certified resolutions, documents and certificates as are
required to be delivered by Pioneer Ventures pursuant to the provisions
of this Agreement.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
10.1 SURVIVAL. The parties hereto agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing for a period of three (3) years.
10.2 INDEMNIFICATION. the Company agrees to save, defend and indemnify
Pioneer Ventures and its limited and general partners and their respective
officers, directors, managing members and the agents, as well as the attorneys,
accountants, or other representatives of such parties (jointly or severally
"INDEMNIFIED PARTIES") against, and hold them harmless from any and all
<PAGE>
Page 44
liabilities, of every kind, nature and description, fixed or contingent
(including, without limitation, reasonable counsel fees, expert witness fees,
and expenses in connection with any action, claim or proceeding relating to such
liabilities) arising out of a material breach (a "material breach" shall be any
breach with a potential liability in excess of $5,000 as estimated by Pioneer
Ventures) of any of the representations and warranties contained herein and/or
any transaction or event commencing or occurring on or prior to the Closing
Date, which is not fully disclosed or provided for in EXHIBIT 4.7-A, EXHIBIT
4.7-B, and the accounts payable listing dated July 15, 1998 attached thereto,
this Agreement or the several exhibits hereto, including, without limitation,
any tax liabilities to the extent not so reflected or reserved against in the
Balance Sheet.
10.3 DEFENSE OF CLAIMS. Pioneer Ventures agrees to notify the
Company with reasonable promptness of any claim asserted against them in
respect of which the Company may be liable under this Agreement, which
notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of calculation thereof. The Company shall
have the right to defend any such claim(s) at its own expense and with
counsel of its choice; provided that Pioneer Ventures may participate in such
defense, if it so chooses, with its own counsel and at its expense. The
Company agrees that if any of the representations and warranties made by it
in this Agreement shall be finally determined not to have been true, correct
or complete when made, then the Company shall pay to Pioneer Ventures at the
time of such final determination an amount sufficient to indemnify Pioneer
Ventures and the other indemnified parties hereto to the full extent of its
losses and expenses sustained by reason thereof, including attorneys,
accountants, expert witnesses, and other professional fees and expenses.
10.4 RIGHTS WITHOUT PREJUDICE. The rights of Pioneer Ventures under
this Article are without prejudice to any other rights or remedies that it
may have by reason of this Agreement or as otherwise provided by law.
ARTICLE XI. FEES
<PAGE>
Page 45
11.1 INVESTMENT BANKING FEES. The Company shall pay an investment
banking fee of $75,000 to the General Partner of the Limited Partnership
(Ventures Management Partners LLC) concurrently with its execution and
delivery of the this Agreement. The General Partner of Pioneer Ventures
hereby acknowledges receipt from the Company of a check in the amount of
$10,000 in payment of the fees and expenses set forth in this Section 11.1.
11.2 EXPENSES. The Company shall promptly pay and reimburse the
General Partner of Pioneer Ventures a non-accountable expense allowance of
$5,000 for its out-of-pocket expenses incurred in connection with visits to
the Company's facilities and other costs and expenses in connection with its
due diligence investigation of the Company.
11.3 LEGAL FEES. The Company shall pay at the First Closing the
attorneys fees and out-of-pocket expenses of counsel for Pioneer Ventures in
connection with the transactions contemplated hereby; such attorneys fees and
out-of-pocket expenses shall equal $25,000. It is acknowledged that $10,000
has been paid prior to Closing. In addition, the Company shall pay its own
counsel's fees and all of the expenses of the closing, including all search
fees, filing fees, governmental certification fees, third party investigation
or other due diligence fees for reports, filings or certifications requested
by Pioneer Ventures to effect the closing.
11.4 ACCOUNTING FEES. The Company shall pay at the First Closing the
accounting fees and out-of-pocket expenses of such accountants for Pioneer
Ventures in connection with the transactions contemplated hereby. Such fees
shall not exceed $3,000.
11.5 BREAK-UP FEE. At any time prior to the funding of the
investment, the Company may terminate this Agreement by written notice
without any obligation or liability other than to forfeit the pre-payment of
$10,000 paid as a commitment fee to the General Partner of the Limited
Partnership as then recharacterized as the non-refundable Break-up fee and
the legal fee paid.
ARTICLE XII. TERMINATION AND WAIVER
<PAGE>
Page 46
12.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
provided for herein abandoned at any time prior to the Closing Date:
(a) by mutual consent of Pioneer Ventures and the Company;
(b) by Pioneer Ventures if any of the conditions set forth in Article
VII and Sections 1.12 and 1.13 hereof, in its sole opinion, shall not
have been fulfilled on or prior to closing, or shall become incapable
of fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to Closing, or shall
have become incapable of fulfillment, and shall not have been waived;
(d) by any party if any material legal action or proceeding shall have
been instituted or threatened seeking to restrain, prohibit, invalidate
or otherwise affect the consummation of the transactions contemplated
by this Agreement
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
Section 11.5 hereof.
12.2 WAIVER. Any condition to the performance of the Company or of
Pioneer Ventures which legally may be waived on or prior to the Closing Date
may be waived at any time by the party entitled to the benefit thereof by
action taken or authorized by an instrument in writing executed by the
relevant party or parties. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the
right of such party at a later time to enforce the same. No waiver by any
party of the breach of any term, covenant, representation or warranty
<PAGE>
Page 47
contained in this Agreement as a condition to such party's obligations hereunder
shall release or affect any liability resulting from such breach, and no waiver
of any nature, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any such
condition or of any breach of any other term, covenant, representation or
warranty of this Agreement.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 EXPENSES. Except as set forth in Article XI, each of the parties
hereto shall bear its own expenses in connection herewith.
13.2 MODIFICATION, TERMINATION OR WAIVER. This Agreement may be
amended, modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right of such party at a later time to enforce
the same.
13.3 NOTICES. Any notice or other communication required or which
may be given hereunder shall be in writing and either be delivered personally
or be mailed, certified or registered mail, postage prepaid, and shall be
deemed given when so delivered personally, or if mailed, five (5) days after
the date of mailing, as follows:
If to Pioneer Ventures, to: Copies to:
PIONEER VENTURES ASSOCIATES Kenneth B. Lerman, Esquire
LIMITED PARTNERSHIP KENNETH B. LERMAN, P.C.
651 Day Hill Road 651 Day Hill Road
P.O. Box 40 Windsor, Connecticut 06095-0040
Windsor, Connecticut 06095
Attention: Robert A. Lerman
Managing Director
<PAGE>
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If to the Company, to: Copies to:
Office of the Chairman, Dr. Turan Itil Peter Landau, Esquire
NEUROCORP, LTD. OPTON, HANDLER, FEILER & LANDAU
150 White Plains Road 52 Vanderbilt Avenue
Tarrytown, New York 10591 New York, New York 10017
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 BINDING EFFECT AND ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties with respect to the subject matter hereof.
13.6 EXHIBITS. All Exhibits annexed hereto and the documents and
instruments referred to herein or required to be delivered simultaneously
herewith or at the Closing are expressly made a part of this Agreement as
fully as though completely set forth herein, and all references to this
Agreement herein or in any such Exhibits, documents or instruments shall be
deemed to refer to and include all such Exhibits, documents and instruments.
Any execution of this Agreement is subject to the receipt of current and
complete exhibits.
13.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of Connecticut.
13.8 CONSENT TO JURISDICTION. The parties here to consent to
jurisdiction of the Courts of the State of Connecticut and to the U.S.
District Court in the District of Connecticut.
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Page 49
13.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
13.10 SECTION HEADINGS. The section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.
13.11 GENDER. Whenever the content of this Agreement permits, the
masculine, neuter or third person genders shall include the feminine, third
person and neuter genders, and reference to singular or plural shall be
interchangeable with the other.
WITNESS the execution of this Agreement as of the date first above
written.
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
BY: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
BY: Pioneer Ventures Corp.
Its Managing Member
BY:
------------------------------
Robert A. Lerman, President
NEUROCORP, LTD.
BY:
-------------------------------
Turan M. Itil, Chairman
ATTEST:
(Corporate Seal)
BY:
-------------------------------
<PAGE>
Page 50
Vernon Wells, Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I. Sale and Transfer of Stock.........................................................................1
1.1 Series C Senior Convertible Preferred Stock..............................................................1
1.2 Purchase Price and Payment and Timing....................................................................2
1.3 Convertible into Common..................................................................................3
1.4 Cumulative Dividend......................................................................................3
1.5 Liquidation..............................................................................................4
1.6 Reservation of Shares; Shares to be Fully Paid...........................................................4
1.7 Anti-Dilution Rights.....................................................................................4
1.8 Percentage of Fully Diluted Shares.......................................................................5
1.9 Voting Rights and Prohibitive Covenants..................................................................6
1.10 Voting Agreements Concerning Directors................................................................6
1.11 Transfer Agent........................................................................................8
1.12 Use of Proceeds.......................................................................................8
1.13 Conditions Precedent to Closing.......................................................................9
ARTICLE II. Registration Rights..............................................................................12
2.1 Demand Registration.....................................................................................12
2.2 Piggyback Registration..................................................................................13
2.3 Registration Covenants..................................................................................14
2.4 Blue Sky Registration...................................................................................15
2.5 Deregistration..........................................................................................15
2.6 Right to Delay..........................................................................................16
2.7 Selection of Underwriters...............................................................................16
2.8 Principal Shareholders..................................................................................16
2.9 Transferability of Registration Rights..................................................................16
2.10 Indemnification by Company re Registration Rights....................................................17
2.11 Indemnification by Holder............................................................................17
2.12 Notice of Indemnity and Defense......................................................................18
ARTICLE III. Co-Sale Provisions...............................................................................19
3.1 Third-Party Offer and Notice............................................................................19
3.2 Co-Sale Right of Participation..........................................................................19
3.3 Notice of Intent to Participate in Co-Sale..............................................................19
ARTICLE IV. Representations and Warranties of the Company....................................................20
4.1 Organization, Qualification and Corporate Power.........................................................20
4.2 Subsidiaries............................................................................................20
4.3 Authorization of Agreement..............................................................................21
4.4 Validity. ...........................................................................................22
4.5 Government Approval.....................................................................................22
4.6 Capitalization..........................................................................................22
4.7 The Financial Statements................................................................................23
4.8 Patents, Trademarks, Etc................................................................................24
4.9 Taxes. ...........................................................................................24
4.10 Approvals............................................................................................25
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4.11 Litigation...........................................................................................25
4.12 Schedule of Documents................................................................................26
4.13 No Defaults..........................................................................................26
4.14 Lack of Felonies.....................................................................................27
4.15 No Judgments.........................................................................................27
4.16 Insurance............................................................................................27
4.17 No Brokers...........................................................................................27
4.18 Loans and Liens......................................................................................27
4.19 Solvency.............................................................................................28
4.20 Registration Rights..................................................................................28
4.21 Compliance with Securities Laws......................................................................28
4.22 Transfer Restrictions................................................................................28
4.23 Related Party Transactions...........................................................................29
4.24 Miscellaneous........................................................................................29
4.25 Additional Representations...........................................................................29
4.26 Use of Proceeds......................................................................................30
4.27 Medical Regulations..................................................................................30
4.28 Complete Disclosure..................................................................................31
ARTICLE V. Representations and Warranties of Pioneer Ventures................................................31
5.1 Organization............................................................................................31
5.2 No Breach...............................................................................................31
5.3 Authority for and Binding Nature of Agreement...........................................................32
5.4 Brokers.................................................................................................32
5.5 Investment..............................................................................................32
ARTICLE VI. Affirmative Covenants............................................................................32
6.1 Financial. ...........................................................................................32
6.2 Access..................................................................................................33
6.3 Books of Record and Account.............................................................................33
6.4 Membership on Board.....................................................................................34
6.5 Stock Option Plan.......................................................................................35
6.6 Rule 144 Compliance.....................................................................................35
6.7 Undertaking to File 34 Act Filings......................................................................35
6.8 No Breach...............................................................................................36
ARTICLE VII. Conditions Precedent to the Obligations of......................................................36
Pioneer Ventures to Close........................................................................................36
7.1 Representations and Warranties..........................................................................36
7.2 Covenants...............................................................................................37
7.3 No Actions..............................................................................................37
7.4 Consents, Licenses and Permits..........................................................................37
7.5 Certificate. ...........................................................................................37
7.6 Legal Opinion...........................................................................................37
7.7 No Material Adverse Change..............................................................................38
7.8 Agreements with Principals..............................................................................38
7.9 Key Person Insurance....................................................................................38
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7.10 Settle with Skadden, Arps............................................................................38
7.11 Settle with Opton Handler Feiler.....................................................................39
7.12 Settle with Scarano & Lipton, P.C. and Scarano & Tomero, P.C.........................................39
7.13 Patents ...........................................................................................40
7.14 Approval of Counsel..................................................................................40
7.15 Reduction of Salaries and Modification of Employment Agreements......................................40
7.16 Accounting Expenses..................................................................................40
7.17 Consents, Licenses and Permits.......................................................................40
7.18 Additional Documents.................................................................................41
ARTICLE VIII. Conditions Precedent to the Obligations of the Company to Close................................41
8.1 Representations and Warranties..........................................................................41
8.2 Covenants ...........................................................................................41
8.3 No Actions..............................................................................................41
8.4 Additional Documents....................................................................................42
8.5 Approval of Counsel.....................................................................................42
ARTICLE IX. Closing..........................................................................................42
9.1 Location. ...........................................................................................42
9.2 Items to be Delivered by the Company....................................................................42
ARTICLE X. Survival of Representations; Indemnification; Fees................................................43
10.1 Survival.............................................................................................43
10.2 Indemnification......................................................................................44
10.3 Defense of Claims....................................................................................44
10.4 Rights without Prejudice.............................................................................45
ARTICLE XI. Fees................................................................................................45
11.1 Investment Banking Fees..............................................................................45
11.2 Expenses.............................................................................................45
11.3 Legal Fees...........................................................................................45
11.4 Accounting Fees......................................................................................45
11.5 Break-Up Fee.........................................................................................46
ARTICLE XII. Termination and Waiver..........................................................................46
12.1 Termination..........................................................................................46
12.2 Waiver. ...........................................................................................47
ARTICLE XIII. Miscellaneous Provisions.......................................................................47
13.1 Expenses.............................................................................................47
13.2 Modification, Termination or Waiver..................................................................47
13.3 Notices. ...........................................................................................47
Opton, Handler, Feiler & Landau..................................................................................48
13.4 Binding Effect and Assignment........................................................................48
13.5 Entire Agreement.....................................................................................48
13.6 Exhibits.............................................................................................48
13.7 Governing Law........................................................................................49
13.8 Consent to Jurisdiction..............................................................................49
13.9 Counterparts.........................................................................................49
13.10 Section Headings.....................................................................................49
<PAGE>
Page iv
13.11 Gender ...........................................................................................49
</TABLE>
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT TITLE SECTION
------- ----- -------
<S> <C> <C>
Exhibit 1.1 Series C Senior Convertible Preferred Stock........................................1.1
Exhibit 4.7-A The Financial Statements...........................................................4.7
Exhibit 4.7-B The Financial Statements...........................................................4.7
Exhibit 4.8 Patents, Trademarks, Etc...........................................................4.8
Exhibit 4.12 Schedule of Documents ..........................................................4.12
Exhibit 4.18 Loans and Liens...................................................................4.18
Exhibit 4.23 Related Party Transactions........................................................4.23
</TABLE>
<PAGE>
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
INVESTMENT AGREEMENT
by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
and
NEUROCORP, LTD.
July 30, 1998
<PAGE>
FIRST MODIFICATION
TO
INVESTMENT AGREEMENT
FIRST MODIFICATION TO INVESTMENT AGREEMENT ("AGREEMENT") dated December ____,
1998 by and between PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, a
Connecticut limited partnership with offices at 651 Day Hill Road, Windsor,
Connecticut 06095 ("PIONEER VENTURES"), AND NEUROCORP, LTD., a Nevada
corporation with offices at 150 White Plains Road, Tarrytown, New York 10591
(the "COMPANY").
WHEREAS, Pioneer Ventures and the Company entered into a certain
Investment Agreement dated July 30, 1998 (the "INVESTMENT AGREEMENT").
WHEREAS, the Company desires to obtain funds under the terms of the
Investment Agreement to finance its operations and products, market certain
development efforts, develop memory centers and engage in clinical research
studies pertaining to the human brain and memory function.
WHEREAS, Pioneer Ventures desires to provide funds under the terms of
the Investment Agreement to the Company for such purposes on the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Pioneer
Ventures agree to modify the Investment Agreement as follows:
FIRST: Section.1.1 OF ARTICLE I IS HEREBY DELETED AND REPLACED WITH THE
FOLLOWING:
1.1 SERIES C SENIOR CONVERTIBLE PREFERRED STOCK. (a) Upon the terms and
subject to the conditions hereinafter set forth, at the various closings (as
hereinafter defined and set forth), the Company shall issue, sell, transfer and
deliver to Pioneer Ventures a minimum of an aggregate of one million five
hundred thousand sixty-six thousand six hundred sixty-seven (*1,566,667*) shares
of the Company's Series C Senior Convertible Preferred Stock, $.001 par value
(the "PREFERRED STOCK") at the Purchase Price set forth in Section 1.2 hereof;
the Preferred Stock shall have the terms
<PAGE>
First Modification To Investment Agreement
Page 2
and be issued subject to the conditions as set forth herein and in the Series C
Certificate of Designation to be filed and recorded with the Secretary of State
of the State of Nevada upon the occurrence of the First Closing as set forth
below. (b) At the first closing ("FIRST CLOSING") on July 30, 1998, the Company
shall issue, sell, transfer and deliver to Pioneer Ventures three hundred
thirty-three thousand three hundred thirty-four (*333,334*) shares of Preferred
Stock upon payment of the Purchase Price therefor and satisfaction of the
conditions contemplated herein. (c) At the second closing ("SECOND CLOSING")
which shall not occur prior to the hire and commencement of full time service of
a chief executive officer which hiring shall be made by the reconstituted board
of directors and shall be approved in writing by Pioneer Ventures (the
"CEO-TO-BE-HIRED"), as well as completion of the Milestones for such closing set
forth in Section 1.13 hereof, the Company shall issue, sell, transfer and
deliver to Pioneer Ventures four hundred thousand (*400,000*) shares upon
payment of the Purchase Price therefor and satisfaction of the conditions
contemplated herein. (d) At one or more subsequent closings ("SUBSEQUENT
CLOSINGS"), the Company shall issue, sell, transfer and deliver to Pioneer
Ventures at least an additional eight hundred thirty-three thousand three
hundred thirty-three (*833,333*) shares of Preferred Stock upon payment of the
Purchase Price therefor and satisfaction of the conditions contemplated herein
and upon the conditions to be determined in accordance herewith as well as
completion of the Milestones for such closing set forth in Section 1.13 hereof.
(e) At the Second Closing, the Company shall reserve one million four hundred
thousand (*1,400,000*) shares of which at least 1,233,333 shares are to be
delivered in whole or in part at the Second Closing and at the Subsequent
Closings. (f) Upon sale and issuance to Pioneer Ventures each share of Preferred
Stock shall be free and clear of all manner of liens, pledges, encumbrances,
charges and claims thereon. Certificates evidencing the Preferred Stock shall be
delivered by the Company to Pioneer Ventures at the Closing. Such certificates
shall also be accompanied by evidence satisfactory to Pioneer Ventures of the
Company's payment of any applicable transfer and franchise taxes. Said stock
will not be issued in a transaction registered with the U.S. Securities and
Exchange Commission ("COMMISSION") and shall, therefore, be restricted from
resale to the public. The Preferred Stock Certificate shall be in the form
annexed hereto as EXHIBIT 1.1.
<PAGE>
First Modification To Investment Agreement
Page 3
SECOND: ARTICLE VII OF THE INVESTMENT AGREEMENT IS HEREBY AMENDED BY ADDING
Section.7.19 AS FOLLOWS.
7.19 ADDITIONAL CONDITIONS PRECEDENT TO THE SECOND CLOSING
(a) The Company shall represent and warrant that the July 30, 1998
First Modification to Employment Agreement between the Company
and Dr. Turan M. Itil is of full force and effect, and it is
binding and a legal obligation on the Company and Dr. Turan M.
Itil.
(b) Any and all legal fees of the firm Akabas & Cohen incurred
with respect to modifying Dr. Turan Itil's employment
agreement shall be paid by Dr. Turan Itil directly. If any
payments have been made by the Company, such legal fees shall
be deducted from Dr. Itil's compensation. The Company warrants
it has not and shall not pay such fees.
(c) The life insurance policy premiums for any and all life
insurance policies insuring the life of Dr. Turan Itil
accruing after or paid after July 30, 1998 shall be Dr. Itil's
sole responsibility. If any such payments have been made by
the Company, the Company shall be reimbursed by deducting the
costs of such premiums from Dr. Itil's compensation. The
Company warrants it has not and shall not pay such premiums.
(d) All Conditions Precedent to the Second Closing, including the
condition that Vernon Wells shall enter into an employment
agreement satisfactory to Pioneer Ventures, shall all be
conditions precedent to the Third Closing, or any Subsequent
Closing and have not been waived by Pioneer Ventures.
(e) The condition precedent that the Company develop a business
plan/strategic plan satisfactory to Pioneer Ventures shall be
required to be submitted by February 28, 1999, and if it is
not approved by Pioneer Ventures, then the Company shall have
45 days to cure such plan. If the plan is not then cured, the
Company shall be in default under the Investment Agreement and
the 13% default dividend rate shall be in effect.
THIRD: ARTICLE XIII OF THE INVESTMENT AGREEMENT IS HEREBY AMENDED BY ADDING
Section.13.12 AS FOLLOWS:
13.12: USE OF TERM "PIONEER VENTURES". Notwithstanding any provision of the
Investment Agreement to the contrary, included in the definition and meaning of
the "Pioneer Ventures" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures
<PAGE>
First Modification To Investment Agreement
Page 4
Management Partners LLC as the general partner to invest in parallel with
Pioneer Ventures Associates Limited Partnership on the same economic terms and
PRO RATA based upon their aggregate subscriptions. The limited partners of
Pioneer Ventures Associates Limited Partnership and the parallel partnerships
shall be referred to herein as the "LIMITED PARTNERS".
WITNESS the execution of this First Modification to Investment
Agreement as of the date first above written.
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
BY: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
BY: Pioneer Ventures Corp.
Its Managing Member
BY:
------------------------------
Robert A. Lerman, President
NEUROCORP, LTD.
BY:
---------------------------------------
Vernon Wells, Chief Executive Officer
ATTEST:
(Corporate Seal)
BY:
---------------------------------------
Kurt Itil, Vice President
<PAGE>
VOTING AND SHAREHOLDERS AGREEMENT
VOTING AND SHAREHOLDERS AGREEMENT dated as of July ____, 1998
by and between PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, having an office
at 651 Day Hill Road, Windsor, Connecticut 06095 ("PVALP"), AND TURAN M. ITIL,
KURT Z. ITIL, YASMIN ITIL LE BARS, ELEONORE ITIL, I. RONALD HOROWITZ, PIERRE LE
BARS, AILEEN A. KUNITZ, RICHARD KATZ, EMIN ERALP, and JOSEPH DIOGUARDI
(collectively hereinafter referred to as the "PRINCIPAL SHAREHOLDERS").
WHEREAS, the Principal Shareholders have sole or shared voting
power over an aggregate of at least 3,978,000 the common shares, $.001 par value
per share ("COMMON SHARES"), of NeuroCorp, Ltd. (the "COMPANY") as more
specifically set forth in EXHIBIT A attached hereto;
WHEREAS, pursuant to a certain Investment Agreement dated the
date hereof (the "INVESTMENT AGREEMENT"), PVALP is investing in the Company
through the purchase of Preferred Stock and may make a additional investments in
the Company through one or more Preferred Stock investments 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 Investment.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
ARTICLE I. VOTING BY PRINCIPAL SHAREHOLDERS.
1.1 AGREEMENT TO VOTE. Each of the Principal Shareholders agrees
that, so long as PVALP shall own any Preferred Stock or Common Stock, each of
them shall vote all of his/hers 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 1.10 of the Investment Agreement at any
meeting of the Company's shareholders at which such designee shall be
<PAGE>
Page 2
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 at least two designees of PVALP shall be
directors of the Company at all times while any Preferred Stock or Common Stock
is held by PVALP.
1.2 SPECIAL MEETING UPON DEFAULT. In the event of the default under,
or a breach of, this Agreement, or the Investment Agreement, or the
Certificate of Designation of Preferred Stock under which PVALP or its
assigns are a holder of Preferred Stock, the Principal Shareholders agree to
call a special meeting of the Shareholders at the sole expense of the Company
and they each agree that they shall vote in favor of that number of and those
nominees to the Board of Directors designated by PVALP such that the Board of
Directors of the Company shall then become 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 to vote in favor of such PVALP nominees for as
long as any interest or principal remains unpaid under such Preferred Stocks.
1.3 PRESERVATION OF BYLAWS. The provisions of Sections 1(a) and 1(b)
above are in consonance with the amendments to Section 2 of Article II of the
Bylaws of the Company as set forth in the Unanimous Written Consent of the
Board of Directors of NeuroCorp, Ltd., dated July 22, 1998, attached hereto
as EXHIBIT B, respectively, and incorporated herein by this reference (the
"RESOLUTIONS"). If the directors or the shareholders of the Company further
amend Section 2 of Article II of the Bylaws at any time during which PVALP
shall own any Preferred Stock or Common Stock, upon the written demand
therefor by PVALP, each of the Principal Shareholders shall call a special
meeting of the Shareholders at the sole expense of the Company and they each
agree that they shall vote all of their Common Shares, whether now
<PAGE>
Page 3
owned or hereafter acquired, for Section 2 of Article II of the Bylaws to be
restored to or retained, as the case may be, to the form as set forth in the
Resolutions, in accordance with Article VII of the Bylaws.
ARTICLE II. TRANSFERS
2.1 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 or her, (i) to any person
without the prior written consent of PVALP which consent will not be
unreasonably withheld, (ii) to any affiliate, as hereinafter defined, without
first obtaining the prior written consent of PVALP which consent shall not be
unreasonably withheld, and 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 (iii) pursuant to a
registration statement without the prior written approval of PVALP which
consent will not be unreasonably withheld, or (iv) such that the aggregate
holdings of the Principal Shareholders shall not equal less than fifty and
one-tenth of one percent (50.1%) on a fully diluted basis including all of
the authorized Series C Preferred Stock whether or not actually issued. 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.
ARTICLE III. CO-SALE PROVISIONS
3.1 THIRD-PARTY OFFER AND NOTICE. Any voluntary or involuntary
transfer of the Common Shares by any Principal Shareholder will be subject to
a participation right of co-sale
<PAGE>
Page 4
by Pioneer Ventures or its assigns on a PRO RATA fully diluted basis. If any one
or more of the Principal Shareholders obtains from a third party ("THIRD PARTY
PURCHASER") an offer to purchase any amount of his or her Shares, such Principal
Shareholders shall submit a written notice (the "CO-SALE NOTICE") to Pioneer
Ventures disclosing the amount of Common Shares proposed to be sold, the offered
purchase price, the proposed closing date, and the total number of Common Shares
owned by the Principal Shareholders.
3.2 CO-SALE RIGHT OF PARTICIPATION. Upon receipt of a Co-Sale Notice
from any Principal Shareholders, Pioneer Ventures or its assigns may elect to
participate in such transaction and shall have the right to offer its
securities, at the same price and on the same terms, on a fully diluted pro
rata basis with the proposed selling shareholder(s) as set forth in the offer
made by the Third Party Purchaser. Each participating selling party shall in
turn be entitled to receive at the applicable closing the net proceeds of the
sale allocable to the securities sold on behalf of each selling shareholder,
after deduction of such selling shareholder's proportionate share of the
reasonable expenses of the sale. These co-sale provisions will not apply to
any sale of securities pursuant to a distribution to the public, whether
pursuant to a registered public offering, Rule 144 or otherwise. If less than
all of a shareholder's securities are being sold pursuant to this Article
III, the securities to be sold shall be determined on a pro rata fully
diluted basis.
3.3 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If Pioneer Ventures
wishes to participate in any sale under this Article III, then Pioneer
Ventures shall notify the selling Principal Shareholders in writing of such
intention as soon as practicable after such Pioneer Ventures' receipt of the
Co-Sale Notice made pursuant to Section 3.1, and in any event within fifteen
(15) days after the date of such Co-Sale Notice has been delivered. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholders at the Company's offices.
<PAGE>
Page 5
ARTICLE IV. REMEDIES
4.1. VIOLATION OF AGREEMENT; CONSENT TO INJUNCTIVE RELIEF. Each of the
Principal Shareholders recognizes and agrees that any violation of any of
his/her obligations set forth in this Agreement would cause irreparable damage
which could not be compensated by monetary damages. Such violation shall
constitute an Event of Default under the Investment Agreement. Accordingly, in
the event of any breach of 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, and/or granting full voting authority to PVALP for
purposes of this Agreement, in addition to any other remedies available at law
or in equity.
ARTICLE V. MISCELLANEOUS
5.1. REPRESENTATIONS. Each of the Principal Shareholders represents and
warrants that, at the date hereof, he/she or it is the sole record and
beneficial owner of the Common Shares set forth opposite his/her name on EXHIBIT
A to this Agreement. Each of the Principal Shareholders represents that he/she
is not the beneficial owner of any Common Shares NOT disclosed herein through
any affiliate or otherwise.
5.2 FURTHER ASSURANCES. From and after the date of this Agreement, the
parties hereto shall from time to time, at the request of any other party and
without further consideration, do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, things and instruments as may be
reasonably requested or required more effectively to evidence and give effect to
the transactions provided for in this Agreement.
5.3. 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
<PAGE>
Page 6
respective addresses set forth on the first page of this Agreement, or to such
other person or address as may be designated by like notice hereunder.
5.4 MODIFICATIONS. This Agreement may not be modified or discharged
orally, but only in writing duly executed by the party to be charged.
5.5 SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises
and agreements in this Agreement shall bind the parties' respective heirs,
successors and assigns, whether so expressed or not.
5.6 HEADINGS. The headings of the various sections of this Agreement
are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Agreement.
5.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada applicable to instruments made
and to be performed entirely within such State.
5.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
5.9 GENDER. All pronouns used herein are inserted for convenience only
and shall be applied in the masculine, feminine, or third person as appropriate
for each party signing hereto.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
and year first above written.
<PAGE>
Page 7
BY PVALP:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: Ventures Management Partners LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
BY:
-----------------------------
Robert A. Lerman, President
<PAGE>
Page 8
BY THE PRINCIPAL SHAREHOLDERS:
- ------------------------------------ ------------------------------------
Turan M. Itil Kurt Z. Itil
- ------------------------------------ ------------------------------------
Yasmin Itil Le Bars Eleonore Itil
- ------------------------------------ ------------------------------------
I. Ronald Horowitz Pierre Le Bars
- ------------------------------------ ------------------------------------
Aileen A. Kunitz Richard Katz
- ------------------------------------ ------------------------------------
Joseph DioGuardi Emin Eralp
CONSENTED TO, AND THE OBLIGATION SET FORTH IN ARTICLE I TO PAY FOR
SUCH SPECIAL MEETINGS OF THE SHAREHOLDERS IS HEREBY AGREED TO:
NEUROCORP, LTD.
BY:
-------------------------------------
Turan M. Itil, Chairman and President
<PAGE>
EXHIBIT A
TO
VOTING AGREEMENT
PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) NO. OF PERCENTAGE
- -------------------- SHARES OWNERSHIP
------ ----------
<S> <C> <C>
Turan M. Itil 897,200 8.30%
Kurt Z. Itil 1,138,800 10.16%
Yasmin Itil Le Bars 723,000 6.69%
Eleonore Itil 522,000 4.83%
I. Ronald Horowitz(2) 0 0.00%
Pierre Le Bars 210,000 1.94%
Aileen A. Kunitz(3) 87,000 0.008%
Richard Katz 147,000 1.36%
Joseph DioGuardi 3,000 0.00027%
Emin Eralp 84,000 0.007%
------
Total(4) 3,812,000
</TABLE>
- -----------------
(1) The address for these individuals and entities is c/o NeuroCorp, Ltd., 150
White Plains Road, Tarrytown, New York 10591.
(2) Mr. Horowitz has 250,000 options to purchase common stock, which would
equal 2.18% on a fully diluted basis.
(3) Excludes 3,800 shares held by Ms. Kunitz's son and daughter.
(4) Total shares issued and outstanding at June 30, 1998 equals 11,213,806
shares plus the 250,000 options to purchase shares held by Mr. Horowitz.
<PAGE>
EXHIBIT B
(Resolutions approved by Board of Directors)
<PAGE>
FIRST MODIFICATION
TO
VOTING AND SHAREHOLDERS AGREEMENT
(Turan M. Itil and Eleonore Itil)
FIRST MODIFICATION TO VOTING AND SHAREHOLDERS AGREEMENT dated
as of October ____, 1998 by and between PIONEER VENTURES ASSOCIATES LIMITED
PARTNERSHIP, having an office at 651 Day Hill Road, Windsor, Connecticut 06095
("PVALP"), AND TURAN M. ITIL, and ELEONORE ITIL (referred to as the "MODIFYING
PRINCIPAL SHAREHOLDERS").
WHEREAS, the Modifying Principal Shareholders have sole voting
power over an aggregate of at least 1,419,200 common shares, $.001 par value per
share ("COMMON SHARES"), of NeuroCorp, Ltd. (the "COMPANY") as more specifically
set forth in Exhibit A attached hereto;
WHEREAS, pursuant to a certain Investment Agreement dated July
30, 1998 (the "INVESTMENT AGREEMENT"), PVALP made its first investment in the
Company through the purchase of Preferred Stock and may make additional
investments in the Company;
WHEREAS, PVALP and the Modifying Principal Shareholders and
others are entering into a Voting and Shareholders Agreement dated July 30, 1998
(the "V&S AGREEMENT"); and
WHEREAS, the execution of this Agreement by the parties
hereto is an accommodation by PVALP to Turan M. Itil.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
ARTICLE I. SALES BY MODIFYING PRINCIPAL SHAREHOLDERS.
1.1 PERMITTED SALES.
(a) Subject to the terms set forth below in this Article I, the Modifying
Principal Shareholders may collectively sell publicly up to 40,000 Common Shares
per year without the
<PAGE>
Page 2
requirement of providing PVALP with its co-sale rights as set forth in
Article III of the V&S Agreement. The permitted sales shall be subject to the
requirement that the aggregate holdings of all of the Principal Shareholders
under the V&S Agreement shall not equal less than fifty and one-tenth of one
percent (50.1%) on a fully diluted basis including all of the authorized
Series C Preferred Stock whether or not actually issued.
(b) Subject to the terms set forth below in this Article I, the Modifying
Principal Shareholders may collectively donate an additional 35,000 Common
Shares per year to charitable institutions without the requirement of providing
PVALP with its co-sale rights as set forth in Article III of the V&S Agreement.
1.1 NOTICE OF PERMITTED PUBLIC SALES. The Modifying Principal Shareholders
must deliver notice to the Company and to PVALP of an intent to sell any such
Common Shares at least ten (10) business days prior to such sale. PVALP or its
designee first (1st), and the Company second (2nd), shall each have the right to
purchase such Common Shares on the terms proposed as described in such notice of
shares to be sold at the closing sale price in the public market, or, if such
price is unavailable, the average of the closing bid and asked prices in the
public market on the date of such notice. PVALP and the Company shall exercise
their rights of first and second refusal by notice to the Modifying Principal
Shareholders within ten (10) business days following receipt of such notice.
1.2 NOTICE OF PERMITTED DONATIONS. The Modifying Principal Shareholders
must deliver notice to the Company and to PVALP of an intent to donate any such
Common Shares at least ten (10) business days prior to any donation of the
Common Shares to a charitable institution. The Modifying Principal Shareholders
shall deliver along with such notice the signed agreement of such institution
which shall grant a right of first (1st) refusal to PVALP or its designee, and
right of second (2nd) refusal to the Company, to purchase the Common Shares on
the terms described in the institution's notice of shares to be sold (such
notice shall be delivered to
<PAGE>
Page 3
PVALP and the Company at least fifteen (15) business days prior to any transfer
or sale to invoke the 1st and 2nd rights of refusal) at the closing sale price
in the public market, or, if such price is unavailable, the average of the
closing bid and asked prices in the public market on the date of such notice.
PVALP or its designee and the Company shall exercise their rights of first and
second refusal by notice to the Modifying Principal Shareholders within ten (10)
business days following receipt of such notice. The Modifying Principal
Shareholders shall cause a restrictive legend to be imprinted on the back of
each stock certificate to be delivered to such institution.
1.3 REMOVAL FROM V&S AGREEMENT. Upon the sale of securities which are sold
into the public marketplace as permitted hereby, such securities shall then not
be covered by the V&S Agreement.
1.4 CESSATION OF RIGHT TO SELL UPON OFFERINGS.
(a) The Modifying Principal Shareholders' right to sell and donate shares under
Section 1.1, shall cease during the period commencing upon the earlier of either
the Company's board of directors' approval to commence an underwritten public
offering of securities of the Company ("UNDERWRITTEN OFFERING") and extend up to
one year following an Underwritten Offering for which the underwriter requires
the directors and/or executive officers of the Company to refrain in whole or in
part from selling or otherwise disposing of securities of the Company.
(b) The Modifying Principal Shareholders' right to sell shares under Section
1.1, shall cease upon notice from PVALP to the Company of a request of a Demand
Registration or Piggyback Registration as provided for in the Investment
Agreement at Article II thereof and such cessation shall extend up to one year
following such offering.
1.1 VOTING FOR TURAN M. ITIL AS DIRECTOR. Except as provided in Article I
of the V&S Agreement, the Modifying Principal Shareholders may vote for Turan M.
Itil as a director of the
<PAGE>
Page 4
Company.
1.2 NOTICES. Notices to the Modifying Principal Shareholders hereunder and
under the V&S Agreement shall also be sent to their home address.
1.3 REAFFIRMATION. Except as modified hereby, the V&S Agreement is hereby
readopted and reaffirmed in its entirety, and shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
and year first above written.
BY PVALP:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: Ventures Management Partners LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
BY:
-------------------------------------
Robert A. Lerman, President
BY THE MODIFYING PRINCIPAL SHAREHOLDERS:
- ----------------------------- -----------------------------------------
Turan M. Itil Eleonore Itil
CONSENTED TO AND AGREED TO:
NEUROCORP, LTD.
BY:
---------------------------------------
<PAGE>
Page 5
Vernon Wells, Chief Executive Officer
<PAGE>
EXHIBIT A
TO
VOTING AGREEMENT
PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
NO. OF PERCENTAGE
NAME AND ADDRESS SHARES OWNERSHIP
---------------- ------ -----------
<S> <C> <C>
Turan M. Itil
59 Tweed Boulevard 897,200 8.30%
Nyack, New York 10960
Eleonore Itil
59 Tweed Boulevard 522,000 4.83%
Nyack, New York 10960
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,569,087
<SECURITIES> 0
<RECEIVABLES> 6,565,600
<ALLOWANCES> 66,724
<INVENTORY> 3,360,437
<CURRENT-ASSETS> 21,859,456
<PP&E> 12,284,175
<DEPRECIATION> 3,416,886
<TOTAL-ASSETS> 30,726,745
<CURRENT-LIABILITIES> 3,615,469
<BONDS> 0
0
0
<COMMON> 85,279
<OTHER-SE> 21,626,363
<TOTAL-LIABILITY-AND-EQUITY> 30,726,745
<SALES> 14,142,748
<TOTAL-REVENUES> 16,474,462
<CGS> 10,366,567
<TOTAL-COSTS> 12,200,429
<OTHER-EXPENSES> 3,530,433
<LOSS-PROVISION> 22,500
<INTEREST-EXPENSE> 284,042
<INCOME-PRETAX> 956,317
<INCOME-TAX> 44,000
<INCOME-CONTINUING> 912,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 912,317
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
