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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 27, 1999
Commission file number 0-22432
DIPLOMAT DIRECT MARKETING CORPORATION
(Exact name of registrant as specified in its charter)
(Formerly Diplomat Corporation)
Delaware 13-3727399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 Alfred Avenue
Teaneck, New Jersey 07666
(Address of principal executive offices) (Zip Code)
(201) 833-4450 (Registrant's telephone number, including area code)
Item 5. OTHER EVENTS
The information below in this Current Report on Form 8-K is a summary
of the transactions discussed herein and is qualified in its entirety by the
exhibits hereto.
STRATEGIC ALLIANCE WITH TADEO HOLDINGS, INC.
Diplomat Direct Marketing Corporation consummated a joint internet
and marketing strategic alliance with Tadeo Holdings, Inc. dated as of June
30, 1999. Under this strategic alliance:
o Diplomat and Tadeo entered into a Web Site Design and Consulting
Agreement and Online Hosting Agreement,
o Diplomat will provide direct marketing consulting services to Tadeo,
o Tadeo purchased $1,000,000 of Diplomat's Series G Preferred Stock, and
o Diplomat and Tadeo exchanged $1,000,000 of common stock.
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Diplomat entered into a Web Site and Development Agreement with Tadeo
E-Commerce Corp., a wholly owned subsidiary of Tadeo Holdings, Inc. Tadeo
Holdings, through its operating subsidiaries, is engaged in the software and
e-commerce development business. Under the terms of the agreements, Tadeo is
providing all necessary consulting and development services to design,
maintain and enhance Diplomat's electronic commerce internet sites and other
related electronic commerce marketing vehicles, as well as to host those sites
on behalf of Diplomat. In addition to fees as provided in schedules to the
agreements, Tadeo will receive a royalty of 5% of net revenues derived from
Diplomat's e-commerce business up to $500,000 and 20% of net profits
thereafter.
In connection with assistance provided to Tadeo's electronic commerce
development activities, Tadeo paid Diplomat $500,000 for Diplomat's provision
of content and marketing consulting services.
To enhance the strategic alliance between the parties, Tadeo made a
$1,000,000 cash investment in Diplomat's Series G Preferred Stock. The Series
G Preferred Stock is convertible into common stock based on the average of the
closing bid prices for the lowest five of the twenty trading days immediately
preceding the date of conversion. Assuming a conversion price of $0.75, the
closing bid price of Diplomat's common stock on July 27, 1999, Tadeo would
receive on conversion 1,333,333 shares of common stock. The Series G Preferred
Stock is redeemable at Diplomat's option, but must be redeemed out of the
proceeds of any public offering in excess of $9 million. Diplomat also granted
Tadeo a right of first refusal on any future securities offerings while the
Series G Preferred Stock is outstanding. The Rubin Family Irrevocable Stock
Trust pledged 300,000 shares of Tadeo Holdings common stock to secure the
repayment of the Series G Preferred Stock to Tadeo.
Finally, Diplomat exchanged $1,000,000 worth of Diplomat's common
stock (1,066,098 shares) for $1,000,000 worth of Tadeo's common stock
(285,715 shares), based on the companies' stock prices as of June 7, 1999. The
Tadeo common stock acquired by Diplomat was pledged as additional collateral to
secure the asset based loan facility provided by First Source Financial LLP.
The Rubin Family Irrevocable Stock Trust, which owns a majority of
Diplomat's outstanding voting securities, owns approximately 9% of Tadeo's
outstanding common stock.
INCREASE AVAILABLE FUNDS UNDER FIRST SOURCE LOAN FACILITY
On July 26, 1999, Diplomat and First Source Financial LLP, Diplomat's
asset based lender amended the Secured Credit Agreement dated May 12, 1999 to
allow for an additional $1.1 million in additional funds available under the
loan facility. This additional availability was secured by a pledge by the
Rubin Family Irrevocable Stock Trust of 400,000 shares of Tadeo Holdings, Inc.
common stock.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
2
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(a), (b) Financial Statements - None
(c) Exhibits
3.1 Certificate of Designation of Series G Preferred Stock
10.1 Securities Purchase Agreement between Diplomat Direct Marketing
Corporation, Tadeo Holdings, Inc. and Tadeo E-Commerce Corp. dated
June 30, 1999 (schedules omitted)
10.2 Registration Rights Agreement between Diplomat Direct Marketing
Corporation and Tadeo E-Commerce Corp. dated June 30, 1999
10.3 Web Site Design and Consulting Agreement between Diplomat Direct
Marketing Corporation and Tadeo Holdings, Inc., dated June 1, 1999
(exhibits omitted)
10.4 Online Hosting Agreement between Diplomat Direct Marketing
Corporation and Tadeo E-Commerce Corp. dated June 30, 1999 (exhibits
omitted)
10.5 Pledge Security Agreement between Diplomat Direct Marketing
Corporation, the Rubin Family Irrevocable Stock Trust, and Tadeo
E-Commerce Corp. dated June 30, 1999
10.6 First Amendment to Secured Credit Agreement and Related Documents,
Waiver and Consent dated July 13, 1999 (schedules omitted)
10.7 Second Amendment to Secured Credit Agreement and Waiver dated July
26, 1999 (schedules omitted)
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIPLOMAT DIRECT MARKETING CORPORATION
Dated: August 4, 1999 By: /s/ WARREN H. GOLDEN
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Warren H. Golden
President and Chief Executive Officer
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EXHIBIT INDEX
3.1 Certificate of Designation of Series G Preferred Stock
10.1 Securities Purchase Agreement between Diplomat Direct Marketing
Corporation, Tadeo Holdings, Inc. and Tadeo E-Commerce Corp. dated
June 30, 1999 (schedules omitted)
10.2 Registration Rights Agreement between Diplomat Direct Marketing
Corporation and Tadeo E-Commerce Corp. dated June 30, 1999
10.3 Web Site Design and Consulting Agreement between Diplomat Direct
Marketing Corporation and Tadeo Holdings, Inc., dated June 1, 1999
(exhibits omitted)
10.4 Online Hosting Agreement between Diplomat Direct Marketing
Corporation and Tadeo E-Commerce Corp. dated June 30, 1999 (exhibits
omitted)
10.5 Pledge Security Agreement between Diplomat Direct Marketing
Corporation, the Rubin Family Irrevocable Stock Trust, and Tadeo
E-Commerce Corp. dated June 30, 1999
10.6 First Amendment to Secured Credit Agreement and Related Documents,
Waiver and Consent dated July 13, 1999 (schedules omitted)
10.7 Second Amendment to Secured Credit Agreement and Waiver dated July
26, 1999 (schedules omitted)
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CERTIFICATE OF DESIGNATION
OF
SERIES G PREFERRED STOCK
OF
DIPLOMAT DIRECT MARKETING CORPORATION
Pursuant to Section 151 of the Delaware General Corporation
Law, Diplomat Direct Marketing Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the Delaware
General Corporation Law, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of the Corporation, the Board, at a meeting duly called and held on May 20,
1999, adopted the following resolution authorizing the creation and issuance
of a series of 10,000 shares of Series G Preferred Stock (the "Series G
Preferred Stock") under the terms of this Certificate of Designation (the
"Certificate"), which resolution is as follows:
RESOLVED, that pursuant to authority expressly granted to
and vested in the Board of Directors by the Certificate of Incorporation, as
amended, of the Corporation, the Board hereby creates a series of 10,500
shares of Series G Preferred Stock, of the Corporation and authorizes the
issuance thereof, and hereby fixes the designation thereof, preferences and
relative, participating, optional and other special limitations or
restrictions thereon (in addition to the designations, preferences and
relative, participating and other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation, as amended, of the Corporation, which are applicable to the
preferred stock of all series, if any) as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1. Definitions. The terms defined in this Article whenever used in
this Certificate have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section 6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
(c) "Average Price" per share of Common Stock means the average of the closing
bid prices as reported on the Nasdaq Small Cap Market ("NASDAQ") for the
lowest five of the twenty Trading Days immediately preceding the Conversion
Date.
(d) "Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
(e) "Capital Shares" means the Common Shares and any other shares of any other
class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon
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dissolution, liquidation or winding-up) of the Corporation.
(f) "Closing Date" means June 7, 1999.
(g) "Closing Price" per share of Common Stock means the closing sale price as
reported on NASDAQ for the Trading Day for which a determination is to be
made.
(h) "Common Shares" or "Common Stock" means shares of common stock,
$.01 par value, of the Corporation.
(i) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series G Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class
or series into which the Series G Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however
designated.
(j) "Conversion Date" means any day on which all or any portion of shares of
the Series G Preferred Stock is converted in accordance with the provisions
hereof.
(k) "Conversion Notice" has the meaning set forth in Section 6.2.
(l) "Conversion Price" means on any date of determination the applicable price
for the conversion of shares of Series G Preferred Stock into Common Shares on
such day as set forth in Section 6.1.
(m) Reserved.
(n) "Corporation" means Diplomat Direct Marketing Corporation, a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(o) "Current Market Price" on any date of determination means the Closing
Price of a Common Share on such day as reported on the NASDAQ.
(p) "Default Dividend Rate" shall be equal to the Preferred Stock Dividend
Rate plus an additional 4% per annum.
(q) "Holder" means Tadeo E-Commerce Corp., any successor thereto, or any
Person to whom the Series G Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(r) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of Common Shares on the NASDAQ.
(s) Reserved.
(t) Reserved.
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(u) "Outstanding" when used with reference to Common Shares or Capital Shares
(collectively, "Shares"), means, on any date of determination, all issued and
outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares directly or indirectly
owned or held by or for the account of the Corporation or any Subsidiary of
the Corporation shall not be deemed "Outstanding" for purposes hereof.
(v) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(w) "Registration Rights Agreement" means that certain Registration Rights
Agreement of even date herewith between the Corporation and Tadeo E-Commerce
Corp.
(x) "SEC" means the United States Securities and Exchange Commission.
(y) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(z) "Securities Purchase Agreement" means that certain Securities purchase
Agreement of even date herewith between the Corporation and Tadeo E-Commerce
Corp.
(aa) "Series G Preferred Stock" means the Series G Preferred Stock of the
Corporation or such other preferred stock exchanged therefor.
(bb) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(cc) "Trading Day" means any day on which purchases and sales of securities
authorized for quotation on the NASDAQ are reported thereon and on which non
Market Disruption Event has occurred.
(dd) "Valuation Event" has the meaning set forth in Section 6.1.
(ee) "Valuation Period" means the five Trading Day period immediately
preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United States of
America.
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ARTICLE 2.
RESERVED
ARTICLE 3.
RANK
SECTION 3.1.
The Series G Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created other than "Pari Passu Securities"
(collectively, with the Common Stock, "Junior Securities"); and (iii) pari
passu with the Corporation's Series B, C, D, E and F Preferred Stock and any
class or series of capital stock of the Corporation hereafter created
specifically ranking on parity with the Series G Preferred Stock ("Pari Passu
Securities").
ARTICLE 4.
DIVIDENDS
SECTION 4.1.
(a)(i) The Holder shall be entitled to receive, the Board of
Directors shall be obligated to declare and the Corporation shall be obligated
to pay, out of funds legally available for the payment of dividends, dividends
in cash (subject to Sections 4.1(a) (ii) at the rate of ten percent (10%) per
annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the
Liquidation Value (as defined below) of each share of Series G Preferred Stock
on and as of the most recent Dividend Payment Due Date (as defined below) with
respect to each Dividend Period (as defined below). Dividends on the Series G
Preferred Stock shall be cumulative from the Closing Date, whether or not
declared for any reason, including if such declaration is prohibited under any
outstanding indebtedness or borrowings of the Corporation or any of its
Subsidiaries, or any other contractual provision binding on the Corporation or
any of its Subsidiaries, and whether or not there shall be funds legally
available for the payment thereof.
(ii) Each dividend, other than the first dividend payable on
June 30, 1999 (which shall reflect accrual only from the Closing Date), shall
be payable in equal quarterly amounts on each succeeding September 30,
December 31, March 31 and June 30 of each year (each, a "Dividend Payment Due
Date"), commencing June 30, 1999, to the holders of record of shares of the
Series G Preferred Stock, as they appear on the stock records of the
Corporation at the close of business on any record date, not more than 60 days
or less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board of Directors. For the purposes hereof, "Dividend Period" means the
quarterly period commencing on and including the day after the immediately
preceding Dividend Payment Date and ending on and including the immediately
subsequent Dividend Payment Date. Accrued and unpaid dividends for any past
Dividend Period may be declared and paid at any time, without reference to any
Dividend Payment Due Date, to holders of record on such date, which shall be
not more than 15 days preceding the payment date thereof.
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(iii) At the option of the Corporation, the dividend shall
be paid in cash or through the issuance of duly and validly authorized and
issued, fully paid and non-assessable, shares of the Common Stock valued at
the Average Price measured as of the Dividend Payment Date [rather than as of
the Conversion Date, as specified in Section 1.1(c)]. The Common Stock to be
issued in lieu of cash payments shall be registered for resale in the
Registration Statement to be filed by the Corporation to register the Common
Stock issuable upon conversion of the shares of Series G Preferred Stock as
set forth in the Registration Rights Agreement.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series G Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
the Series G Preferred Stock that may be in arrears.
(c) So long as any shares of the Series G Preferred Stock are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been
or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series G Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment
of the dividend on such class or series of Pari Passu Securities. When
dividends are not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, all dividends declared upon shares of the Series G
Preferred Stock and all dividends declared upon any other class or series of
Pari Passu Securities shall be declared ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the Series G
Preferred Stock and accumulated and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series G Preferred Stock are outstanding, no
dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired [other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution")] for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such
stock) by the Corporation, directly or indirectly, unless in each case (i) the
full cumulative dividends required to be paid in cash on all outstanding
shares of the Series G Preferred Stock and any other Pari Passu Securities
shall have been paid or set apart for payment for all past Dividend Periods
with respect to the Series G Preferred Stock and all past dividend periods
with respect to such Pari Passu Securities, and (ii) sufficient funds shall
have been paid or set apart for the payment of the dividend for the current
Dividend Period with respect to the Series G Preferred Stock and the current
dividend period with respect to such Pari Passu Securities.
ARTICLE 5.
LIQUIDATION PREFERENCE
SECTION 5.1.
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(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in
an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
make an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or
order for relief in respect of the Corporation shall be entered by a court
having jurisdiction in the premises in an involuntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of thirty (30) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (each such event being considered a "Liquidation Event"), no
distribution shall be made to the holders of any shares of capital stock of
the Corporation upon liquidation, dissolution or winding up unless prior
thereto, the holders of shares of Series G Preferred Stock, subject to Article
5, shall have received the Liquidation Preference (as defined in Section
5.1(d)) with respect to each share. If upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of
the Series G Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series G Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate liquidation preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of disposition of all
or substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is
not the survivor shall be deemed to be a liquidation, dissolution or winding
up of the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to, such transaction an
amount equal to 100% of the Liquidation Preference with respect to each
outstanding share of Series G Preferred Stock in accordance with and subject
to the terms of this Article 5 (a "Preference Liquidation Event"); provided,
that all holders of Series G Preferred Stock shall be deemed to elect the
option set forth above if at least a majority in interest of such holders
elect such option. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
(c) In addition to events referred to in Section 5.1(b) above, the sale, lease
or exchange of all or substantially all of the Corporation's assets, or the
merger or consolidation of the Corporation which results in the holders of
Common Stock of the Corporation receiving in exchange for such Common Stock
cash, notes, debentures or other evidences of indebtedness or obligations to
pay cash, or preferred stock of the surviving entity (whether or not such
surviving entity is the Corporation) which ranks on a parity with or senior to
the Series G Preferred Stock as to dividends or upon liquidation, dissolution
or winding-up, shall be deemed to be a
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Preference Liquidation Event within the meaning of Section 5.1(b). In the case
of mergers or consolidations of the Corporation where holders of Common Stock
of the Corporation receive, in exchange for such Common Stock, common stock or
preferred stock in the surviving entity (whether or not such surviving entity
is the Corporation) of such merger or consolidation, or common stock or
preferred stock of another entity (in either case, such preferred stock to be
received in exchange for common stock is herein referred to as "Exchanged
Preferred Stock"), which is junior as to dividends and upon liquidation,
dissolution or winding up to the Series G Preferred Stock, in the event that
the holders of Series G Preferred Stock fail to exercise the redemption option
provided in Section 5.1(b), if applicable, the merger agreement or
consolidation agreement shall expressly provide that the Series G Preferred
Stock shall become preferred stock of such surviving entity or other entity,
as the case may be, with the same annual dividend rate, redemption rights and
otherwise equivalent rights to the rights set forth in this Certificate;
provided however, that if the Exchange Preferred Stock is to be mandatorily
redeemed in whole or in part through the operation of a sinking fund, or
otherwise, the merger or consolidation agreement shall expressly provide that,
or other provisions shall be made so that, all shares of the Series G
Preferred Stock or securities received in exchange therefor shall be
mandatorily redeemed prior to the first mandatory redemption of the Exchange
Preferred Stock; and provided further, that in the event the Corporation or an
affiliate of the Corporation, or its successor by merger, consolidation or
otherwise optionally redeems or otherwise acquires any or all of the then
outstanding shares of Exchanged Preferred Stock, all shares of Series G
Preferred Stock or securities received in exchange therefor shall be redeemed.
In the event of a merger or consolidation of the Corporation where the
consideration received by the holders of Common Stock consists of two or more
types of the consideration set forth above, in the event that the holders of
Series G Preferred Stock fail to exercise the redemption option provided in
Section 5.1(b), if applicable, the holders of the Series G Preferred Stock
shall be entitled to receive either cash or securities based upon the
foregoing in the same proportion as the holders of Common Stock of the
Corporation are receiving cash or debt securities, or equity securities, in
the surviving entity or other entity. Unless otherwise specified in this
Section 5.1(c), any redemption of the Series G Preferred Stock under the terms
hereof shall be at the Liquidation Preference amount (as defined in Section
5.1(d)).
(d) For purposes hereof, the "Liquidation Preference" with respect to a share
of the Series G Preferred Stock shall mean amount equal to the sum of (i) One
Hundred Dollars ($100.00) per share (the "Stated Value" thereof) plus (ii) the
aggregate of all accrued and unpaid dividends on such share of Series G
Preferred Stock until the later of the most recent Dividend Payment Date or
the closing date of any event specified above in this Article 5 which gives
rise to a right of redemption; provided, that, in the event of an actual
liquidation, dissolution or winding up of the Corporation, the amount referred
to in clause (ii) above shall be calculated by including accrued and unpaid
dividends to the actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
ARTICLE 6.
CONVERSION AND REDEMPTION OF PREFERRED STOCK
SECTION 6.1. Conversion; Conversion Price. At the option of the Holder, the
shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares
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(calculated as to each such conversion to the nearest 1/100th of a share), at
any time, and from time to time, at a Conversion Price equal to the Average
Price. At the Holder's option, with the consent of the Corporation, the amount
of accrued and unpaid dividends as of the Conversion Date may be paid in cash as
of the Conversion Date rather than converted into Common Stock; if the amount of
accrued and unpaid dividends at the Conversion Date (the "Accrued Amount") is
converted into Common Stock, the Common Stock issued to the Holder shall be
valued by dividing such aggregate amount by the Conversion Price.
The number of shares of Common Stock due upon conversion of
Series G Preferred Stock shall be (i) the number of shares of Series G
Preferred Stock to be converted, multiplied by (ii) the Stated Value, with the
addition of the Accrued Amount, if applicable, and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a
Valuation Event, the Corporation shall send notice (the "Valuation Event
Notice") of such occurrence to the Holder. Notwithstanding anything to the
contrary contained herein, if a Valuation Event occurs during any Valuation
Period, a new Valuation Period shall begin on the Trading Day Immediately
following the occurrence of such Valuation Event and end on the Conversion
Date; provided that, if a Valuation Event occurs on the fifth day of a
Valuation Period, then the Conversion Price shall be the Current Market Price
of the Common Shares on such day; and provided, further, that the Holder may,
in its discretion, postpone such Conversion Date to a Trading Day which is no
more than five (5) Trading Days after the occurrence of the latest Valuation
Event by delivering a notification to the Corporation within two (2) Business
Days of the receipt of the Valuation Event Notice. In the event that the
Holder deems the Valuation Period to be other than the five (5) Trading Days
immediately prior to the Conversion Date, the Holder shall give written notice
of such fact to the Corporation in the related Conversion Notice at the time
of conversion.
Notwithstanding anything to the contrary contained herein,
if a Valuation Event occurs after the date hereof as a result of which the
number of Common Shares Outstanding (assuming for purposes of such
determination, the issuance of all such shares pursuant to an exercise or
conversion (as the case may be) of options, warrants, and other securities
issued as part of such Valuation Event) shall be increased or decreased, then
the Conversion Price shall automatically be proportionately decreased or
increased, respectively, by multiplying the then effective Conversion Price by
an appropriate percentage [which shall apply until a subsequent Valuation
Event occurs], and the number of Common Shares reserved for issuance pursuant
to the conversion of the then outstanding Series G Preferred Stock shall be
automatically proportionately increased or decreased, respectively, in all
cases so as to appropriately reflect the effects of such Valuation Event,
effective immediately upon the effectiveness of such Valuation Event. The
adjustment required by the foregoing sentence shall be effectuated each time a
separate Valuation Event shall occur, and such adjustments shall therefore be
cumulative.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
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(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above,
at a price per share less, or for other consideration lower, than the then
applicable Conversion Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities, to officers,
directors or employees of the Company, or otherwise under the Company's 1996
Employee Stock Option Plans;
(d) issues any warrants, options or other rights to subscribe for or purchase
any Additional Capital Shares and the price per share for which Additional
Capital Shares may at any time thereafter be issuable pursuant to such
warrants, options or other rights shall be less than the Current Market Price
in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidence of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or
substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Section s 6.1(a) through 6.1(e));
or
(g) takes any action affecting the number of Outstanding Capital Shares, other
than an action described in any of the foregoing Sections 6.1(a) through
6.1(f), inclusive, which in the opinion of the Corporation's Board of
Directors, determined in good faith, would have a material adverse effect upon
the rights of the Holder at the time of a conversion of the Preferred Stock.
SECTION 6.2. Exercise of Conversion Privilege. (a) Conversion of the Series G
Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation . Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a
Conversion Date. The Corporation shall convert the Preferred Stock and issue
the Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series G Preferred Stock to the Corporation by express courier within five (5)
Business Days following the date on which the telecopied Conversion Notice has
been transmitted to the Corporation. Upon surrender for conversion, the
Preferred Stock shall be accompanied by a proper assignment hereof to the
Corporation or be endorsed in blank. As
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promptly as practicable after the receipt of the Conversion Notice as
aforesaid, but in any event not more than five Business Days after the
Corporation's receipt of such Conversion Notice, the Corporation shall (i)
issue the Common Stock issued at Conversion in accordance with the provisions
of this Article 6, and (ii) cause to be mailed for delivery by overnight
courier to the Holder (X) a certificate or certificate(s) representing the
number of Common Shares to which the Holder is entitled by virtue of such
conversion, (Y) cash, as provided in Section 6.3, in respect of any fraction
of a Share issuable upon such conversion and (Z) cash in the amount of accrued
and unpaid dividends as of the Conversion Date, if applicable. Holder shall
indemnify the Corporation for any damages to third parties as a result of a
claim by such third party to ownership of the Preferred Stock converted prior
to the receipt of the Preferred Stock by the Corporation. Such conversion
shall be deemed to have been effected at the time at which the Conversion
Notice indicates so long as the Preferred Stock shall have been surrendered as
aforesaid at such time, and at such time the rights of the Holder of the
Preferred Stock, as such, shall cease and the Person and Persons in whose name
or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a contract between
the Holder and the Corporation, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription
(and for any cash adjustment to which it is entitled pursuant to Section 6.4),
to surrender the Preferred Stock and to release the Corporation from all
liability thereon. No cash payment aggregating less than $1.50 shall be
required to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Preferred Stock
into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is
not and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of
the Preferred Stock into Common Shares, then the Holder shall have the right,
following a resolution of either such challenge or dispute in favor of Holder
before a panel of the American Arbitration Association (the "AAA"), sitting in
New York, New York, which panel shall be instructed to effect a full
resolution of the issues within sixty (60) days after filing with the AAA, by
written notice to the Corporation to require the Corporation to promptly
redeem the Series G Preferred Stock for cash at a redemption price equal to,
in the case of (i), one hundred and twenty-five percent (125%) of the Stated
Value thereof together with all accrued and unpaid dividends thereon and, in
the case of (ii), one hundred and fifteen percent (115%) of the Stated Value
thereof together with all accrued and unpaid dividends thereon (each, the
"Mandatory Purchase Amount"). Under any of the circumstances set forth above,
the Corporation shall be responsible for the payment of all costs and expenses
of the Holder, including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder) to the extent that resolution of
the dispute is made in favor of Holder.
SECTION 6.3. Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series G Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable
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upon conversion of the Series G Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fraction in an amount equal to the same
fraction. No cash payment of less than $1.50 shall be required to be given
unless specifically requested by the Holder.
SECTION 6.4. Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series G Preferred Stock remains outstanding
and any shares thereof have not been converted, in case of any
reclassification or change of Outstanding Common Shares issuable upon
conversion of the Series G Preferred Stock (other than a change in par value,
or from par value to no par value per share, or from no par value per share to
par value or as a result of a subdivision or combination of outstanding
securities issuable upon conversion of the Series G Preferred Stock) or in
case of any consolidation, merger or mandatory share exchange of the
Corporation with or into another corporation (other than a merger or mandatory
share exchange with another corporation in which the Corporation is a
continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value
per share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of the
Corporation as an entirety or substantially as an entirety, the Corporation,
or such successor, resulting or purchasing corporation, as the case may be,
shall, without payment of any additional consideration therefor, execute a new
Series G Preferred Stock providing that the Holder shall have the right to
convert such new Series G Preferred Stock (upon terms and conditions not less
favorable to the Holder than those in effect pursuant to the Series G
Preferred Stock) and to receive upon such exercise, in lieu of each Common
Share theretofore issuable upon conversion of the Series G Preferred Stock,
the kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger,
mandatory share exchange, sale or transfer by the holder of one Common Share
issuable upon conversion of the Series G Preferred Stock had the Series G
Preferred Stock been converted immediately prior to such reclassification,
change, consolidation, merger, mandatory share exchange or sale or transfer.
The provisions of this Section 6.4 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
SECTION 6.5. Adjustments to Conversion Price. For so long as any shares of the
Series G Preferred Stock are outstanding, if the Corporation (i) issues and
sells pursuant to an exemption from registration under the Securities Act (A)
Common Shares at a purchase price on the date of issuance thereof that is
lower than the then applicable Conversion Price, or (B) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the then applicable Conversion Price on the date of issuance or conversion, as
applicable, of such convertible, exchangeable or exercisable securities,
except for stock option agreement under the Corporation's 1996 Employee Stock
Option Plans and (ii) grants the right to the purchaser(s) thereof to demand
that the Corporation register under the Securities Act such Common Shares
issued or the Common Shares for which such warrants or options may be
exercised or such convertible, exchangeable or exercisable securities may be
converted, exercised or exchanged, then the Conversion Price shall be reduced
to equal the lowest of any such lower prices.
SECTION 6.6. Optional Redemptions Under Certain Circumstances. At anytime
after the Closing Date until the Offering Closing Date (as defined below), the
Corporation, upon notice delivered to the Holder as provided in Section 6.7,
may redeem the
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Series G Preferred Stock, at one hundred percent (100%) of the Stated Value
thereof (the "Optional Redemption Price"), together with all accrued and
unpaid dividends thereon to the date of redemption specified in the notice of
redemption (the "Redemption Date"). Except as provided in Article 6 hereof,
the Corporation shall not have the right to prepay or redeem the Series G
Preferred Stock.
SECTION 6.7. Notice of Redemption. Notice of redemption pursuant to Section
6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
thirty (30) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 and this Section 6.7.
SECTION 6.8. Surrender of Preferred Stock. Upon any redemption of the Series G
Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall either
deliver the Series G Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt
of the Series G Preferred Stock (as provided in this Section 6.8) by wire
transfer of immediately available funds to such account(s) as the Holder shall
specify to the Corporation. If payment of such redemption price is not made in
full by the Offering Closing Date or the Redemption Date, as the case may be,
the Holder shall again have the right to convert the Series G Preferred Stock
as provided in Article 6 hereof.
SECTION 6.9. Mandatory Redemption. In the event that the Corporation completes
a public offering of securities the gross proceeds of which equal or exceed
Nine Million Dollars ($9,000,000.00) (the "Offering"), the Corporation shall
redeem all outstanding shares of the Series G Preferred Stock by payment to
the Holder(s) thereof on the Closing date of the Offering (the "Offering
Closing Date") out of the proceeds thereof the Optional Redemption Price
thereof, together with all accrued and unpaid dividends thereon to the
Offering Closing Date.
ARTICLE 7.
VOTING RIGHTS
The Holders of the Series G Preferred Stock have no voting
power, except as otherwise provided by the Delaware General Corporation Law
("DCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide
each Holder of Series G Preferred Stock with prior notification of any meeting
of the shareholders (and copies of proxy materials and other information sent
to shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed
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liquidation, dissolution or winding up of the Corporation, the Corporation
shall mail a notice to each Holder, at least thirty (30) days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such action is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the DCL the vote of the holders of
the Series G Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the
shares of the Series G Preferred Stock represented at a duly held meeting at
which a quorum thereof is present or by written consent of a majority of the
shares of Series G Preferred Stock (except as otherwise may be required under
the DCL) shall constitute the approval of such action by the class. To the
extent that under the DCL holders of the Series G Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one
class, each share of Series G Preferred Stock shall be entitled to 100 votes.
Holders of the Series G Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents of shareholders of the Corporation
(and copies of proxy materials and other information sent to shareholders)
with respect to which they would be entitled to vote or consent, which notice
would be provided pursuant to the Corporation's bylaws and the DCL.
ARTICLE 8.
PROTECTIVE PROVISIONS
So long as shares of Series G Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by the DCL) of the holders of at
least a majority of the then outstanding shares of Series G Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series G
Preferred Stock;
(b) create any new class or series of capital stock having a preference over,
or being Pari Passu Securities to, the Series G Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation ("Senior Securities") or alter or change the rights, preferences
or privileges of any Senior Securities so as to affect adversely the Series G
Preferred Stock;
(c) increase the authorized number of shares of Series G Preferred Stock; or
(d) do any act or thing not authorized or contemplated by this Amendment which
would result in taxation of the holders of shares of the Series G Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or
any comparable provision of the Internal Revenue Code as hereafter from time
to time amended).
In the event holders of at least a majority of the then outstanding shares of
Series G Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the
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shares of Series G Preferred Stock, pursuant to subsection (a) above, so as to
affect the Series G Preferred Stock, then the Corporation will deliver notice
of such approved change to the holders of the Series G Preferred Stock that
did not agree to such alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of thirty (30) days to
convert pursuant to the terms of this Amendment as they exist prior to such
alteration or change or continue to hold their shares of Series G Preferred
Stock.
ARTICLE 9.
MISCELLANEOUS
SECTION 9.1. Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series G Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series G Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series G Preferred Stock, new shares of Series G Preferred
Stock of like tenor. The Series G Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 9.1 are exclusive
with respect to the replacement of mutilated, destroyed, lost or stolen shares
of Series G Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement of negotiable instruments or
other securities without the surrender thereof.
SECTION 9.2. Who Deemed Absolute Owner. The Corporation may deem the Person in
whose name the Series G Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series G Preferred Stock for the purpose of receiving payment of dividends on
the Series G Preferred Stock, for the conversion of the Series G Preferred
Stock and for all other purposes, and the Corporation shall not be affected by
any notice to the contrary. All such payments and such conversion shall be
valid and effectual to satisfy and discharge the liability upon the Series G
Preferred Stock to the extent of the sum or sums so paid or the conversion so
made.
SECTION 9.3. Notice of Certain Events. In the case of the occurrence of any
event described in Article 6 of this Certificate, the Corporation shall cause
to be mailed to the Holder of the Series G Preferred Stock at its last address
as it appears in the Corporation's security registry, at least twenty (20)
days prior to the applicable record, effective or expiration date hereinafter
specified (or, if such twenty (20) days notice is not practicable, at the
earliest practicable date prior to any such record, effective or expiration
date), a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, issuance or granting of rights,
options or warrants, or if a record is not to be taken, the date as of which
the holders of record of Series G Preferred Stock to be entitled to such
dividend, distribution, issuance or granting of rights, options or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of record of Series G Preferred Stock will be entitled to exchange
their shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution,
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liquidation or winding-up.
SECTION 9.4. Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series G Preferred Stock. Upon any transfer of the Series G Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series G Preferred Stock register.
The Corporation may deem the person in whose name the Series
G Preferred Stock shall be registered upon the registry books of the
Corporation to be, and may treat it as, the absolute owner of the Series G
Preferred Stock for the purpose of receiving payment of dividends on the
Series G Preferred Stock, for the conversion of the Series G Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversions shall be valid
and effective to satisfy and discharge the liability upon the Series G
Preferred Stock to the extent of the sum or sums so paid or the conversion or
conversions so made.
SECTION 9.5. Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the
Series G Preferred Stock.
SECTION 9.6. Headings. The headings of the Articles and Sections of this
Certificate are inserted for convenience only and do not constitute a part of
this Certificate.
[Signatures on following Page]
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IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed in its name and on its behalf by its President and
attested to this 10th day of June, 1999.
DIPLOMAT DIRECT MARKETING
CORPORATION
By: /s/ WARREN H. GOLDEN
--------------------------------
Warren Golden, President
and Chief Executive Office
ATTESTED
/s/ JULIA ARYEH
Secretary
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ANNEX I
[FORM OF CONVERSION NOTICE]
TO: --------------------------------
--------------------------------
--------------------------------
The undersigned owner of this Series G 10% Convertible
Preferred Stock (the "Series G Preferred Stock") issued by Diplomat Direct
Marketing Corporation (the "Corporation") hereby irrevocably exercises its
option to convert ___________ shares of the Series G Preferred Stock into
shares of the common stock, $.0001 par value, of the Corporation ("Common
Stock"), in accordance with the terms of the Amendment. The undersigned hereby
instructs the Corporation to convert the number of shares of the Series G
Preferred Stock specified above into Shares of Common Stock Issued at
Conversion in accordance with the provisions of Article 6 of the Amendment.
The undersigned directs that the Common Stock issuable and certificates
therefor deliverable upon conversion, the Series G Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, being issued in the
name of and delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Amendment.
Dated:
------------------
- --------------------------------------
Signature
Fill in for registration of Series G Preferred Stock:
Please print name and address
(including zip code number):
- ------------------------------------------------------------------------------
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<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of June 30, 1999,
between Diplomat Direct Marketing Corporation, a Delaware corporation with
principal executive offices located at 414 Alfred Avenue, Teaneck, N.J. 07666
(the "Company"), Tadeo Holdings, Inc., having an address at 5 Hanover Square,
New York, New York 10004 ("Tadeo") and the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to sell, and the Buyer desires
to purchase, upon the terms and subject to the conditions of this Agreement,
10,000 shares of newly created Series G 10% Convertible Preferred Stock of the
Company, $.01 par value (the "Preferred Stock"), having the rights,
preferences and privileges set forth in the Certificate of Designations to the
Certificate of Incorporation of the Company attached hereto as Annex I (the
"Amendment");
WHEREAS, the Company has agreed to register on behalf of
Buyer the Conversion Shares (as hereinafter defined) acquired upon conversion
of the Preferred Stock, under the terms of that certain Registration Rights
Agreement, of even date herewith, by and among the Company, and Buyer (the
"Registration Agreement");
WHEREAS, the Company and Tadeo desire to exchange that
number of shares of the Common Stock of the Company, $.0001 par value (the
"Company Common Stock"), for that number of shares of the Common Stock of
Tadeo, $.0001 par value (the "Tadeo Common Stock"), in each case having a
Market Value equal to $1,000,000 at the close of trading on June 7, 1999,
which Market Value shall be determined to be the last sale price of a share of
Company Common Stock or of Tadeo Common Stock as reported by The Nasdaq Stock
Market, Inc., with the shares of Company Common Stock so received by Tadeo
being referred to as the "Company Exchange Shares" and the shares of Tadeo
Common Stock so received by the Company being referred to as the "Tadeo
Exchange Shares;"
WHEREAS, upon the terms and subject to the conditions set
forth in the Amendment, the Preferred Stock is convertible into shares of
Company Common Stock and is redeemable by the Company under certain
conditions;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to the Buyer in a
transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the
Preferred Stock; and Company and Tadeo agree to exchange the Company Exchange
Shares for the Tadeo Exchange Shares.
<PAGE>
B. Purchase Price; Form of Payment. The purchase price (the "Preferred
Purchase Price") for the Preferred Stock to be purchased by Buyer hereunder
shall be equal to $1,000,000, which shall be payable in cash on the Closing
Date; and the purchase price (the "Company Exchange Purchase Price") for the
Company Exchange Shares shall be the Tadeo Exchange Shares, and the purchase
price (the "Tadeo Exchange Purchase Price") for the Tadeo Exchange Shares
shall be the Company Exchange Shares, which Tadeo Exchange Purchase Price and
Company Exchange Purchase Price shall be exchanged on the Closing Date.
II. BUYER'S AND TADEO'S REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each of Buyer and Tadeo severally represents and warrants to and
covenants and agrees with the Company, with each such company only making
representations which refer to its own activities or to information concerning
its own operations, as follows:
A. Buyer is purchasing the Preferred Stock and the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Conversion Shares", and
collectively with the Preferred Stock, the "Securities"), and Tadeo is
purchasing the Company Exchange Shares, for its own account, for investment
purposes only and not with a view towards or in connection with the public
sale or distribution thereof in violation of the Securities Act.
B. Each of Buyer and Tadeo is (i) experienced in making investments of
the kind contemplated by this Agreement, (ii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iii) able to afford the loss of its
investment in the Securities or in the Company Exchange Shares, respectively.
C. Each of Buyer and Tadeo understands that the Securities and the
Company Exchange Shares, respectively, are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's and Tadeo's
compliance with, each of Buyer's and Tadeo's representations, warranties and
covenants, respectively and severally, as set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer and
Tadeo to purchase the Securities;
D. Each of Buyer and Tadeo has been furnished with or provided access to
all materials relating to the business, financial position and results of
operations of the Company, and all other materials requested by Buyer and
Tadeo, respectively, to enable it to make an informed investment decision with
respect to the Securities and the Company Exchange Shares, respectively.
E. Each of Buyer and Tadeo acknowledges that it has been furnished with
copies of the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1998 and all other reports and documents heretofore filed by the
Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act and the Securities
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<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act"), since September 30,
1998 (collectively the "Commission Filings").
F. Each of Buyer and Tadeo acknowledges that in making its decision to
purchase the Securities and the Company Exchange Shares, respectively, it has
been given an opportunity to ask questions of and to receive answers from the
Company's executive officers, directors and management personnel concerning
the terms and conditions of the private placement of the Securities and
Company Exchange Shares, respectively, by the Company.
G. Each of Buyer and Tadeo understands that the Securities and Company
Exchange Shares, respectively, have not been approved or disapproved by the
Commission or any state securities commission and that the foregoing
authorities have not reviewed any documents or instruments in connection with
the offer and sale to it of the Securities and Company Exchange Shares,
respectively, and have not confirmed or determined the adequacy or accuracy of
any such documents or instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by each of Buyer and Tadeo and is a valid and binding agreement of
each of Buyer and Tadeo enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally.
I. Authority; Validity and Enforceability. Each of Buyer and Tadeo, to
the extent it is a signatory, has the requisite corporate power and authority
to enter into this Agreement, the Registration Agreement and the Pledge
Security Agreement of even date herewith between the Company, the Buyer, the
Rubin Family Irrevocable Stock Trust (the "Rubin Trust"), a copy of which is
annexed hereto as Annex II (the "Pledge Agreement"). The execution, delivery
and performance by each of Tadeo and Buyer, to the extent it is a signatory of
this Agreement, the Registration Agreement and the Pledge Agreement, and the
consummation by each of Buyer and Tadeo of the transactions contemplated
hereby and thereby has been duly authorized by all necessary corporate action
on the part of each of Buyer and Tadeo, respectively. Each of this Agreement,
the Registration Agreement and the Pledge Agreement has been duly validly
executed and delivered by each of Buyer and Tadeo, to the extent it is a
signatory, and each such instrument constitutes a valid and binding obligation
of each of Buyer and Tadeo enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The Tadeo Exchange Shares have been duly and validly
authorized for issuance by Tadeo.
J. Commission Filings. None of the Tadeo Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and all other reports and documents
heretofore filed by Tadeo with the Commission pursuant to the Securities Act
and the Exchange Act since June 30, 1998 (the "Tadeo Commission Filings")
contained at the time they were filed any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
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<PAGE>
K. Financial Statements; No Undisclosed Liabilities. Tadeo has delivered
to the Company true and complete copies of its audited balance sheet as at
June 30, 1998 and the related audited statements of operations and cash flows
for the three fiscal years ended June 30, 1998, including the related notes
and schedules thereto, as well as the same financial statements as of and for
the three, six and nine month periods ended March 31, 1999 (collectively, the
"Financial Statements"). Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with United
States General Accepted Accounting Principles ("GAAP") (subject, in the case
of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes) and in conformity with the practices consistently
applied by Tadeo without modification of the accounting principles used in the
preparation thereof, and fairly presents the financial position, results of
operations and cash flows of Tadeo as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of Tadeo as at June
30, 1998 is hereinafter referred to as the "Balance Sheet" and June 30, 1998
is hereinafter referred to as the "Balance Sheet Date". Tadeo has no
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise
described in the Balance Sheet or the notes thereto or otherwise described and
reflected in the Financial Statements, or was not incurred in the ordinary
course of business consistent with Tadeo's past practices since the Balance
Sheet Date.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer and Tadeo that:
A. Capitalization. 1. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.0001 par value (the "Company
Common Stock"), of which 15,245,813 shares are outstanding on the date hereof
and 1,000,000 shares of preferred stock, of which 444,014 shares are
outstanding on the date hereof which can be converted into a maximum of
15,388,972 shares of Common Stock (not including the payment of dividends
thereon in additional shares of Common Stock), subject to anti-dilution and
similar provisions. All of the issued and outstanding shares of Common Stock
and preferred stock have been duly authorized and validly issued and are fully
paid and non-assessable. As of the date hereof, the Company has outstanding
stock options and warrants to purchase 1,654,900 shares of Common Stock. The
Securities have been duly and validly authorized and reserved for issuance by
the Company, and when issued by the Company pursuant to the terms of this
Agreement will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive, subscription, "call" or other similar
rights to acquire the Common Stock or the Company's preferred stock that have
been issued or granted to any person, except as disclosed on Schedule III.
A.1.
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2. The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity, except as disclosed on Schedule III.A.2.
B. Organization; Reporting Company Status. 1. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified as a foreign corporation
in all jurisdictions in which the failure to so qualify would have a material
adverse effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of
any of the transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company has registered the Common Stock pursuant to Section 12 of
the Exchange Act and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common Stock is
listed and traded on the NASDAQ SmallCap Stock Market ("NASDAQ") and except
for a letter dated ___, 1999, a copy of which is annexed hereto as Schedule
III B.2, the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section
III.C. a Conversion Price (as defined in the Amendment) of not greater than
$.30. The Company understands and acknowledges the potentially dilutive effect
to the Common Stock of the issuance of the Preferred Stock. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Stock in accordance with this Agreement and the
Preferred Stock is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to enter into this Agreement, the Amendment, the
Registration Agreement and the Pledge Agreement. The execution, delivery and
performance by the Company of this Agreement, the Amendment, the Registration
Agreement and the Pledge Agreement, and the consummation by the Company of the
transactions contemplated hereby and thereby (the issuance of the Preferred
Stock, the registration of the Conversion Shares and the pledge of collateral
pursuant to the Pledge Agreement), has been duly authorized by all necessary
corporate action on the part of the Company. Each of this Agreement, the
Amendment, the Registration Agreement and the Pledge Agreement has been duly
validly executed and delivered by the Company and each instrument constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Securities have been duly and
validly authorized for issuance by the Company.
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E. Non-contravention. The execution and delivery by the Company of this
Agreement, the Amendment and the Pledge Agreement, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or constitute
a default (or an event which, with notice, lapse of time or both, would
constitute a default) under (i) the articles of incorporation or by-laws of
the Company or (ii) except for such conflict, breach or default which would
not have a Material Adverse Effect, any indenture, mortgage, deed of trust or
other material agreement or instrument to which the Company is a party or by
which its properties or assets are bound, or any law, rule, regulation,
decree, judgment or order of any court or public or governmental authority
having jurisdiction over the Company or any of the Company's properties or
assets, including the Rules of The Nasdaq Stock Market, Inc.
F. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Stock to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. Commission Filings. None of the Commission Filings contained at the
time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
H. Absence of Certain Changes. Except as disclosed on Schedule III.A.I.,
Schedule III.A.II, or Schedule III.H. or in the Financial Statements (as
defined in Section III.L. hereto), since the Balance Sheet Date (as defined in
Section III.L.), there has not occurred any change, event or development in
the business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably likely
to have, a Material Adverse Effect.
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably would
be expected to have a Material Adverse Effect or (ii) reasonably would be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement, the Amendment, the
Warrants or the Pledge Agreement.
J. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened,
by or before any court or public or governmental authority, or under the aegis
of the Listing Investigations Division of The Nasdaq Stock Market, Inc.,
which, if determined adversely to the Company, would have a Material Adverse
Effect.
K. Absence of Events of Default. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse
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of time or both, would constitute an Event of Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
L. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
September 30, 1998 and the related audited statements of operations and cash
flows for the three fiscal years ended September 30, 1998, including the
related notes and schedules thereto, as well as the same financial statements
as of and for the three and six month periods ended March 31, 1999
(collectively, the "Financial Statements"), and all management letters, if
any, from the Company's independent auditors relating to the dates and periods
covered by the Financial Statements. Each of the Financial Statements is
complete and correct in all material respects, has been prepared in accordance
with United States General Accepted Accounting Principles ("GAAP") (subject,
in the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the accounting
principles used in the preparation thereof, and fairly presents the financial
position, results of operations and cash flows of the Company as at the dates
and for the periods indicated. For purposes hereof, the audited balance sheet
of the Company as at September 30, 1998 is hereinafter referred to as the
"Balance Sheet" and September 30, 1998 is hereinafter referred to as the
"Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the Balance Sheet or
in the notes thereto in accordance with GAAP, which was not fully reflected
in, reserved against or otherwise described in the Balance Sheet or the notes
thereto or otherwise described and reflected in the Financial Statements, or
was not incurred in the ordinary course of business consistent with the
Company's past practices since the Balance Sheet Date.
M. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. Related Party Transactions. Except as disclosed on Schedule III.N. or
the Commission Filings, neither the Company nor any of its officers, directors
or "Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act)
has borrowed any moneys from or has outstanding any indebtedness or other
similar obligations to the Company. Neither the Company nor any of its
officers, directors or Affiliates (i) owns any direct or indirect interest
constituting more than a one percent equity (or similar profit participation)
interest in, or controls or is a director, officer, partner, member or
employee of, or consultant to or lender to or borrower from, or has the right
to participate in the profits of, any person or entity which is (x) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company, (y) engaged in a business related to the business of the Company , or
(z) a participant in any transaction to
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which the Company is a party (other than in the ordinary course of the
Company's business) or (ii) is a party to any contract, agreement, commitment
or other arrangement with the Company.
O. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and
has no knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
P. Securities Law Matters. Based, in part, upon the several
representations and warranties of Buyer and Tadeo set forth in Section II
hereof, the offer and sale by the Company of the Securities and Company
Exchange Shares is exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification
provisions of all applicable state securities and "blue sky" laws. Other than
pursuant to an effective registration statement under the Securities Act, the
Company has not issued, offered or sold preferred stock (including for this
purpose any securities of the same or a similar class as the preferred stock,
or any securities convertible into or exchangeable or exercisable for
preferred stock or any such other securities) or Company Common Stock other
than the Company's Series F Preferred Stock which was sold to a single
"accredited investor" as defined in Rule 501 promulgated under the Securities
Act (an "Accredited Investor") and 100,000 shares of Company Common Stock
which was sold to a single Accredited Investor at $1.00 per share within the
six-month period next preceding the date hereof, except as disclosed on
Schedule III.P., and the Company shall not directly or indirectly take, and
shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action [including, without limitation, any offering or
sale to any person or entity of preferred stock or Company Common Stock (or
securities of the same or similar class as the Preferred Stock or Company
Common Stock)], so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to Buyer
and Tadeo of the Preferred Stock and Company Common Stock as contemplated by
this Agreement. No form of general solicitation or advertising has been used
or authorized by the Company or any of its officers, directors or Affiliates
in connection with the offer or sale of the Preferred Stock or Company Common
Stock as contemplated by this Agreement or any other agreement to which the
Company is a party.
Q. Environmental Matters. 1. The operations of the Company are in
material compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. To its knowledge, the Company has obtained or applied for all material
permits required under all applicable Environmental Laws necessary to operate
its business;
3. The Company is not the subject of any outstanding written order of or
agreement with any governmental authority or person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of Hazardous Materials;
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4. The Company has not received, since the Balance Sheet Date, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law, or
may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
6. To the Company's knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the
imposition of any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of the Company any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally related audits,
studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or
operated properties of the Company.
For purposes of this Section III.Q.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or rule of common law as now or hereafter in effect in
any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. Section 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), and the regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state
or local governmental authority including, without limitation, petroleum and
its by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or toxic substance" under any provision of any
Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
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"Remedial Action" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and care.
R. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees
has made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company. There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or,
to the knowledge of the Company, threatened against or involving the Company.
There are no unfair labor practice charges, grievances or complaints pending
or, to the knowledge of the Company, threatened by or on behalf of any
employee or group of employees of the Company.
S. ERISA Matters. The Company and its ERISA Affiliates are in compliance
in all material respects with all provisions of ERISA applicable to it.
Neither the Company nor any ERISA Affiliate maintains, contributes, maintained
or contributed to a plan subject to the provisions of Title IV of ERISA or
Section 412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the final regulations promulgated thereunder,
as the same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code").
T. Tax Matters. 1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects
and have been prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are required to
be shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts
paid or owing to any employee, stockholder, creditor or other third parties;
and since the Balance Sheet Date, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for
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deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated
as ending on the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority;
and, except as disclosed above, no written notice indicating an intent to open
an audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to Section 7121
of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or
is required to make any adjustments pursuant to Section 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law
by reason of a change in accounting method initiated by the Company or has any
knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)
(2) of the Internal Revenue Code during the applicable period specified in
Section 897(c) (1) (A) (ii) of the Internal Revenue Code.
3. The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
For purposes of this Section III.T.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real
or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties, additions
to tax, and interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
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U. Property. The Company has good and marketable title to all real and
personal property owned by it, free and clear of all liens, encumbrances and
defects except as disclosed in the Commission Filings or the Financial
Statements such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under lease
by the Company are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company.
V. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being
conducted. To the best of the Company's knowledge, the Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. No claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
W. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by
which its properties are bound are executed with management's authorization;
(ii) the reported accountability of the Company's assets is compared with
existing assets at regular intervals; (iii) access to the Company's assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its properties are
bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with U.S. generally accepted
accounting principles.
X. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment of Company funds to any foreign or domestic
government official or employee; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Y. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer or
Tadeo pursuant to this Agreement, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
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Z. Right of First Refusal. The Company has not granted any right of first
refusal to any person with respect to the issuance of Common Stock, preferred
stock or securities convertible into Common Stock which is currently in
effect.
AA. Company is purchasing the Tadeo Exchange Shares for its own account,
for investment purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the Securities Act.
BB. Company is (i) experienced in making investments of the kind
contemplated by this Agreement, (ii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iii) able to afford the loss of its
investment in the Tadeo Exchange Shares.
CC. Company understands that the Tadeo Exchange Shares are being offered
and sold by Tadeo in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that Tadeo is relying upon the accuracy of, and Company's
compliance with, Company's representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption and the
eligibility of Company to purchase the Tadeo Exchange Shares;
DD. Company has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of
Tadeo, and all other materials requested by Company to enable it to make an
informed investment decision with respect to the Tadeo Exchange Shares.
EE. Company acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998
and all other reports and documents heretofore filed by Tadeo with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since June 30, 1998 (collectively the "Tadeo Commission
Filings").
FF. Company acknowledges that in making its decision to purchase the
Tadeo Exchange Shares it has been given an opportunity to ask questions of and
to receive answers from Tadeo's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Tadeo Exchange Shares by Tadeo.
GG. Company understands that the Tadeo Exchange Shares have not been
approved or disapproved by the Commission or any state securities commission
and that the foregoing authorities have not reviewed any documents or
instruments in connection with the offer and sale to it of the Tadeo Exchange
Shares and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.
HH. Neither Company nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or
position with respect to the Tadeo Common Stock and
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neither Company nor any of its affiliates nor any person acting on its or
their behalf will use at any time shares of Tadeo Common Stock acquired
pursuant to this Agreement to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Each of Tadeo and Buyer, on the one hand, and
Company, on the other hand, acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities and the Company Exchange Shares,
and the Tadeo Exchange Shares, respectively, shall have endorsed thereon a
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Preferred Stock, the Company Exchange Shares
and the Tadeo Exchange Shares):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. Each of Tadeo, Buyer and the Company shall make all necessary
SEC, Nasdaq and "blue sky" filings required to be made by Tadeo, Buyer and the
Company, respectively, in connection with the sale of the Securities, the
Company Exchange Shares and the Tadeo Exchange Shares as contemplated under
the terms of this Agreement, and as required by all applicable laws and the
Rules of The Nasdaq Stock Market, Inc., and shall provide copies thereof to
the Buyer, Tadeo and the Company, as relevant, promptly after such filing.
C. Reporting Status. So long as the Buyer and/or Tadeo beneficially owns
any of the Securities or Company Exchange Shares, on the one hand, and so long
as the Company beneficially owns any of the Tadeo Exchange Shares, on the
other hand, the Company and Tadeo, respectively, each shall use its best
efforts timely to file all reports required to be filed by it with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Reserved.
E. Listing. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange or the Nasdaq National Market System, the Company
shall use its best efforts to maintain its listing of the Common Stock on the
NASDAQ.
F. Reserved Conversion Shares. The Company at all times from and after
the date hereof shall have a sufficient number of shares of Common Stock duly
and validly authorized and reserved for issuance to satisfy the conversion, in
full, of the Preferred Stock
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(assuming for purposes of this Section IV.F., a Conversion Price of not
greater than $.30). In the event the Current Market Price (as defined in the
Amendment) declines to $.30, the Company shall, within 10 days of the
occurrence of such event, authorize and reserve for issuance such additional
shares of Common Stock sufficient in number for the conversion, in full, of
the Preferred Stock, assuming for purposes of this Section IV.F. a Conversion
Price of not greater than $.15 per share.
G. Right of First Refusal. If the Company should propose (the "Proposal")
to issue Common Stock or securities convertible into Common Stock, or to
become obligated for any indebtedness having equity or other non-debt features
at less than par value (e.g., having any attendant equity or other features
other than strictly calling for repayment of full face principal and accrued
interest), or to issue any debt securities or other indebtedness having an
effective annual interest rate in excess of 9.9% (each a "Right of First
Refusal Security" and collectively, the "Right of First Refusal Securities"),
in each case on the date of issuance, during any period during which the
Preferred Stock is issued and outstanding (the "Right of First Refusal
Period"), the Company shall be obligated to offer the Buyer on the terms set
forth in the Proposal (the "Offer") and the Buyer shall have the right, but
not the obligation, to accept such Offer on such terms. If during the Right of
First Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then the Buyer shall have ten (10) business days to accept or
reject such Offer in writing. If the Company fails to: (i) provide such
written notice to the Buyer of a Proposal during the Right of First Refusal
Period, (ii) offer the Buyer the opportunity to complete the transaction as
set forth in the Proposal, or (iii) enter into an agreement with the Buyer, at
such terms after the Buyer has accepted the Offer, then the Company shall pay
to the Buyer, as liquidated damages, an amount in total equal to ten percent
(10%) of the amount paid to the Company for the Right of First Refusal
Securities. The foregoing Right of First Refusal is and shall be senior in
right to any other right of first refusal issued by the Company to any other
person. Notwithstanding the foregoing, the Buyer shall have no rights under
this paragraph 4.G. in respect of Common Stock or any other securities of the
Company issuable (i) upon the exercise or conversion of options, warrants or
other rights to purchase securities of the Company outstanding as of the date
hereof, or (ii) under the Company's ____ Employee Stock Option Plan (in the
form and with respect to the number of shares of Common Stock to which such
plan is subject on the date hereof).
H. Director Designation. Until such time as Buyer shall have sold,
redeemed, or converted, all of its shares of Preferred Stock acquired pursuant
to this Agreement, Tadeo shall have the right to designate an ex officio
member of the Company's Board of Directors, which designee shall receive
notices of (and related materials for discussion at), and shall be entitled to
attend and participate in all meetings of the Company's Board of Directors, as
well as all meetings of committees of the Company's Board of Directors, which
notices (and related materials) shall be delivered to such designee at the
same time and in the same manner as such communications are given to members
of the Company's Board of Directors. Such designee shall be reimbursed for the
costs and expenses of his/her attendance at all such meetings in the same
manner and in the same amounts as are members of the Company's Board of
Directors, and such designee shall receive the same compensation for
attendance at meetings of the Company's Board of Directors (including
Committee meetings) as is received by members of the Company's Board of
Directors.
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<PAGE>
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Company Exchange Shares
and/or Conversion Shares pursuant to an effective Securities Act registration
statement will be given to its transfer agent for the Company Exchange Shares
and/or Conversion Shares and that the Company Exchange Shares and the
Conversion Shares issuable upon conversion of the Preferred Stock otherwise
shall be freely transferable on the books and records of the Company as and to
the extent provided in this Agreement, the Registration Rights Agreement and
applicable law. Nothing contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of such Company Exchange Shares and/or Conversion Shares. If,
at any time, Buyer or Tadeo provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of the resale by
Buyer and Tadeo of such Company Exchange Shares and/or Conversion Shares is
not required under the Securities Act and that the removal of restrictive
legends is permitted under applicable law, the Company shall permit the
transfer of such Company Exchange Shares and/or Conversion Shares and,
promptly instruct the Company's transfer agent to issue one or more
certificates for Company Common Stock without any restrictive legends endorsed
thereon.
B. Tadeo undertakes and agrees that no instructions other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Tadeo Exchange Shares
pursuant to an effective Securities Act registration statement will be given
to its transfer agent for Tadeo Exchange Shares and that the Tadeo Exchange
Shares otherwise shall be freely transferable on the books and records of
Tadeo as and to the extent provided in this Agreement and applicable law.
Nothing contained in this Section V.B. shall affect in any way the Company's
obligations and agreement to comply with all applicable securities laws upon
resale of such Tadeo Exchange Shares. If, at any time, Company provides Tadeo
with an opinion of counsel reasonably satisfactory to Tadeo that registration
of the resale by Company of such Tadeo Exchange Shares is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Tadeo shall permit the transfer of such Tadeo
Exchange Shares and, promptly instruct Tadeo's transfer agent to issue one or
more certificates for Tadeo Common Stock without any restrictive legends
endorsed thereon.
C. The Company shall permit Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion
to the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company shall transmit the certificates
evidencing the shares of Company Common Stock issuable upon conversion of any
Preferred Stock (together with certificates evidencing any Preferred Stock not
being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the
Notice of Conversion (the "Delivery Date"). Within five business days after
Buyer delivers the Notice of Conversion to the Company, Buyer shall deliver to
the Company the Preferred Stock being converted. Buyer shall indemnify the
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Company for any damages to third parties as a result of a claim by such third
party to ownership of the Preferred Stock converted prior to receipt of the
Preferred Stock by the Company.
D. The Company understands that a delay in the issuance of the shares of
Company Common Stock upon the conversion of the Preferred Stock could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as
a penalty), the Company agrees to pay to Buyer for late issuance of Company
Common Stock issuable upon conversion of the Preferred Stock in accordance
with the following schedule (where "No. Business Days" is defined as the
number of business days beyond five (5) days from the Delivery Date):
Compensation For Each 500 Shares of
Preferred Stock Not Converted
No. Business Days Timely
----------------- -----------------------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
More than 10 $250 + $100 for each
Business Day Late beyond 10
days
The Company shall pay to Buyer the compensation described above by the
transfer of immediately available funds upon Buyer's demand. Nothing herein
shall limit Buyer's right to pursue actual damages for the Company's failure
to issue and deliver Company Common Stock to Buyer (which actual damages shall
be reduced by the amount of any compensation paid by the Company as described
above in this Section V.D.), and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Company Common Stock within five business days
after the relevant Delivery Date, Buyer shall be entitled to rescind the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
VI. DELIVERY INSTRUCTIONS.
The Securities, Company Exchange Shares and the Tadeo Exchange Shares
shall be delivered by the Company, on the one hand, and by Tadeo, on the other
hand, on a "delivery-against-payment basis" at the Closing.
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<PAGE>
VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock,
Company Exchange Shares and Tadeo Exchange Shares (the "Closing Date") shall
be the date hereof or such other as shall be mutually agreed upon in writing.
The issuance and sale of the Securities, the Company Exchange Shares and the
Tadeo Exchange Shares shall occur on the Closing Date at the offices of Nixon,
Hargrave, Devans & Doyle LLP, 437 Madison Avenue, New York, New York.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer and Tadeo each understands that the Company's obligation to
sell the Securities and the Company Exchange Shares on the Closing Date to
Buyer and Tadeo pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer and Tadeo of the Preferred Purchase Price and the
Company Exchange Purchase Price, respectively;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer and Tadeo contained in this Agreement
as if made on the Closing Date (except for representations and warranties
which, by their express terms, speak as of and relate to a specified date, in
which case such accuracy shall be measured as of such specified date) and the
performance by Buyer and Tadeo in all material respects on or before the
Closing Date of all covenants and agreements of Buyer required to be performed
by it pursuant to this Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S AND TADEO'S OBLIGATIONS.
The Company understands that the several obligations of Buyer to purchase
the Securities and of Tadeo to purchase the Company Exchange Shares on the
Closing Date pursuant to this Agreement is each conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement,
and delivery to Buyer of a fully-executed copy of this Agreement, the
Registration Agreement and the Pledge Agreement (including all collateral
subject thereto, along with executed stock powers in blank and related
medallion signature guarantees); and Delivery by Company of one or more
certificates (I/N/O Tadeo) evidencing the Company Exchange Shares to be
purchased by Tadeo pursuant to this Agreement, and delivery to Tadeo of a
fully-executed copy of this Agreement.
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<PAGE>
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as
if made on the Closing Date (except for representations and warranties which,
by their express terms, speak as of and relate to a specified date, in which
case such accuracy shall be measured as of such specified date) and the
performance by the Company in all material respects on or before the Closing
Date of all covenants and agreements of the Company required to be performed
by it pursuant to this Agreement on or before the Closing Date;
C. Buyer and Tadeo having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory
to the Buyer and Tadeo.
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeable would have
a Material Adverse Effect.
F. The Company shall have delivered to Buyer and Tadeo reimbursement of
Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by the Note and this Agreement (including the fees
and disbursements of Buyer's legal counsel of $20,000).
G. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this
Agreement.
H. Buyer and Tadeo shall have received such written consents, in form
acceptable to Buyer and Tadeo, to the transactions contemplated by this
Agreement and the Amendment, as necessary to permit consummation thereof,
including but not limited to consents to the Company's payment of dividends on
the Preferred Stock out of legally available funds, the mandatory redemption
of the Preferred Stock under certain circumstances and the conversion to
Conversion Shares of the Preferred Stock, all in accordance with the terms and
conditions of the Amendment; provided, that such consents shall include
written consents from FINOVA Mezzanine Capital Inc. and from First Source
Financial LLP.
X. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company, on the one hand, and Buyer and Tadeo, on the other hand, in this
Agreement, the annexes,
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<PAGE>
schedules and exhibits hereto and in each instrument, agreement and
certificate entered into and delivered by them pursuant to this Agreement,
shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of
any investigation made by or on behalf of such party on or prior to the
Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer and
Tadeo, their Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for
all out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by the Buyer Indemnitees and
to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
2. any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement.
C. Buyer and Tadeo, severally, hereby agree to indemnify and hold
harmless the Company, its Affiliates and their respective officers, directors,
partners and members (collectively, the "Company Indemnitees"), from and
against any and all Losses, and agrees to reimburse the Company Indemnitees
for all out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by the Company Indemnitees
and to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact, or breach of any
of Buyer or Tadeo's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by Buyer or Tadeo
pursuant to this Agreement; or
2. any failure by Buyer or Tadeo to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or
delivered by Buyer or Tadeo pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim,
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<PAGE>
proceeding or other action in respect of which indemnification is being sought
(each, a "Claim"), the Indemnified Party promptly shall notify the party
against whom indemnification pursuant to this Section XI is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so
notify the Indemnifying Party shall not relieve it from any liability that it
otherwise may have to the Indemnified Party, except to the extent that the
Indemnifying Party is materially prejudiced and forfeits substantive rights
and defenses by reason of such failure. In connection with any Claim as to
which both the Indemnifying Party and the Indemnified Party are parties, the
Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel (together with appropriate local counsel) and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of- pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have
agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified
Party and the Indemnifying Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified
Party that are in addition to or disparate from those available to the
Indemnifying Party and which can not be presented by counsel to the
Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If
the Indemnified Party employs separate legal counsel in circumstances other
than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable for the fees and
expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or consent
to the entry of any judgment that does not include an unconditional release of
the Indemnified Party from all liabilities with respect to such Claim or
judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon
any award rendered by any arbitrators may be entered in any court having
competent jurisdiction thereof.
XI. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state. Each of
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the parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
XII. NOTICES.
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid,
or by a nationally recognized overnight courier service, and shall be deemed
given when so delivered personally or by overnight courier service, or, if
mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to the Company, to: (3) if to Tadeo, to
Diplomat Direct Marketing Corporation Tadeo Holdings, Inc.
414 Alfred Avenue 5 Hanover Square
Teaneck, NJ 07666 New York, NY 10004
Attention: Warren Golden, President Attention: Alexander Kalpaxis,
Executive Vice-President
With a copy to: with a copy to:
Gersten, Savage & Kaplowitz LLP Nixon, Hargrave, Devans & Doyle LLP
101 East 52nd Street 437 Madison Avenue
New York, New York 10022 New York, New York 10022-7001
Attention: Frederic J. Gruder Attention: Peter W. Rothberg, Esq.
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(2) if to Buyer, to
Tadeo E-Commerce Corp.
5 Hanover Square
New York, New York 10004
Attention: Damon Testaverde, President
with a copy to:
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
Attention: Peter W. Rothberg, Esq.
The Company, or Buyer or Tadeo may change its foregoing address by notice
given pursuant to this Section XII.
XIII. CONFIDENTIALITY.
Each of the Company, Buyer and Tadeo agrees to keep confidential and not
to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required
to be disclosed by law (including, without limitation, pursuant to Item 10 of
Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XIV. ASSIGNMENT.
This Agreement shall not be assignable by any of the parties hereto prior
to the Closing without the prior written consent of the other party, and any
attempted assignment contrary to the provisions hereby shall be null and void;
provided, however, that Buyer or Tadeo may assign its rights and obligations
hereunder, in whole or in part, to any affiliate of Buyer or Tadeo who
furnishes to the Company the representations and warranties set forth in
Section II hereof and otherwise agrees to be bound by the terms of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
DIPLOMAT DIRECT MARKETING CORPORATION
By: /s/ WARREN H. GOLDEN
--------------------
Name: Warren Golden
Title: President
TADEO HOLDINGS, INC.
By: /s/ ALEXANDER KAPLAXIS
----------------------
Name: Alexander Kaplaxis
Title: Executive Vice President
BUYER:
TADEO E-COMMERCE CORP.
By: /s/ DAMON TESTAVERDE
--------------------
Name: Damon Testaverde
Title: President
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Dated as of June 30, 1999
By and Between
DIPLOMAT DIRECT MARKETING CORPORATION
and
TADEO E-COMMERCE CORP.
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 30, 1999, by and between DIPLOMAT DIRECT MARKETING
CORPORATION a corporation organized and existing under and by virtue of the
laws of the State of Delaware (the "Company"), and TADEO E-COMMERCE CORP., a
corporation organized and existing under and by virtue of the laws of the
State of Delaware (the "Investor").
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of June 30, 1999, by and among the Company, Tadeo Holdings, Inc. and
the Investor (the "Securities Agreement"). The Company has agreed to provide
the Investor the registration rights with respect to the Registerable
Securities, as defined and set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the closing of the Securities
Purchase Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Agreement shall have the meanings ascribed to
them as set forth in the Securities Purchase Agreement.
The parties hereby agree as follows:
1. Securities Subject to this Agreement
(a) Definitions. The term "Registerable Securities" means both the
Conversion Shares and the Company Exchange Shares as defined in the Securities
Purchase Agreement, as well as any shares of Company Common Stock issued as
dividends by the Company under the terms of Section 4.1(iii) of the Amendment.
The term "1933 Act" means the securities Act of 1933, as amended. The term
"1934 Act" means the Securities Exchange Act of 1934, as amended. The terms
"register", "registered", and "registration" refer to a registration effected
by preparing and filing a registration statement or similar document in
compliance with the 1933 Act, and the declaration or ordering of effectiveness
of such registration statement or document.
<PAGE>
(b) Restricted Securities. The Conversion Shares are "restricted
securities", as that term is defined in Rule 144 promulgated under the 1933
Act (the "Restricted Securities"). For the purposes of this Agreement, any
Registerable Security will cease to be a Restricted Security when (i) a
registration statement covering such Restricted Security has been declared
effective by the United States Securities and Exchange Commission (the
"Commission"), and the Restricted Security has been disposed of pursuant to
such effective registration statement; (ii) it can be distributed to the
public pursuant to Rule 144 (or any similar provision then in force) under the
1933 Act; or (iii) it is exchanged (without additional cost, expense or tax
liability to the Investor) for an identical or substantially identical
security which is or has been registered under the 1933 Act or may be sold and
disposed of without an effective registration statement under the 1933 Act.
(c) Registerable Securities. As to any particular Registerable
Security, such security will cease to be a Registerable Security when it
ceases to be a Restricted Security.
(d) Holders of Registerable Securities. A Person is deemed to be a
holder of Registerable Securities whenever such Person owns Registerable
Securities or has a right to acquire such Registerable Securities, whether or
not such acquisition has actually been effected; provided, that in no event
will any Registerable Security be deemed to be owned by more than one Person.
(e) Stock Splits, Dividends, etc. The provisions of this Agreement
shall apply to any shares or other securities resulting from any stock split
or reverse split, stock dividend, reclassification of the capital stock of the
Company, consolidation or reorganization of the Company, and any shares or
other securities of the Company or of any successor company which may be
received by the Investor by virtue of its ownership of Registerable
Securities.
2. Required Registration
(a) Demand Registration. (i) If the Company is then eligible to file
with the SEC a registration statement on Form S-3, the Company agrees to file
within 30 days of the written request of Investor, and (ii) if the Company is
not then eligible to file with the SEC a registration statement on Form S-3
the Company agrees to file within 60 days of the written request of Investor,
one "shelf" registration statement on any appropriate form pursuant to Rule
415 under the 1933 Act and/or any similar rule that may be adopted by the SEC
with respect to the Registerable Securities (the "Shelf Registration"). The
Company agrees to use its best efforts to have the Shelf Registration declared
effective as soon as reasonably practicable after such filing, and to keep the
Shelf Registration continuously effective (x) for a period of three (3) years
in the case of subprovision (i) above and (y) for a period of nine (9) months
in the case of subprovision (ii) above, in either case with respect to the
Conversion Shares (or, if for any reason the effectiveness of the Shelf
Registration is suspended, such period shall be extended by the aggregate
number of days of each such suspension), following the date on which the Shelf
Registration is declared effective; provided, however, that the effectiveness
of the Shelf Registration may be terminated earlier with respect to any issue
of securities if and to the extent that none of the securities of such issue
registered therein are Restricted Securities or are outstanding.
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The Company further agrees if necessary, to supplement or amend any
Shelf Registration, as required by the registration form utilized by the
Company or by the instructions applicable to such registration form or by the
1933 Act or the rules and regulations thereunder, and the Company agrees to
furnish to the holders of Registerable Securities copies of any such
supplement or amendment prior to its being used and/or filed with the SEC. The
Company agrees to pay all of its Registration Expenses (as hereinafter
defined) in connection with the Shelf Registration, whether or not it becomes
effective.
The holders of the Registerable Securities to be registered shall
pay, pro rata, all underwriting discounts and commissions or placement fees of
any investment banker or bankers and/or manager or managers used in connection
with the sale of their Registerable Securities pursuant to the Registration
Statement.
(b) Piggy-Back Registration
(i) Other than with respect to the Company's registration statement
on Form S-1 which is filed on or before June 15, 1999, in the event that the
Company proposes to register any shares of its common stock, $.0001 par value
(the "Common Stock"), under the 1933 Act, other than (i) pursuant to a
registration statement on Forms S-4 or S-8 or any successor to such Forms and
(ii) other than pursuant to Section 2(a) above, for the purpose of the sale of
Common Stock by the Company for its own account, or of Common Stock owned by
any present or future holder of Common Stock, or any other obligation of the
Company to register securities on Form S-1, S-2 or S-3, or any successor to
such Forms, the Company shall mail or deliver to all holders of Registerable
Securities, at least 10 days prior to the filing with the SEC of the
registration statement covering such Common Stock, a written notice (a
"Registration Notice") of its intention so to register such Common Stock.
(ii) In the event that a Registration Notice shall have been so
mailed or delivered, each holder of Registerable Securities may elect to
include in such registration statement such percentage of its Registerable
Securities as equals the percentage derived by adding all of the shares of
Common Stock registered on behalf of each of the holders on whose behalf such
registration statement is being filed (excluding the holders of Registerable
Securities) and dividing such number by the total number of shares of Common
Stock owned by such holders (excluding the holders of Registerable
Securities). To the extent that a holder of Registerable Securities chooses to
include such Registerable Securities as it is entitled to include pursuant to
the preceding sentence such holder shall mail or deliver to the Company, a
written notice (a "Supplemental Notice") (A) specifying the number of shares
of Registerable Securities proposed to be sold or otherwise transferred by
such holder, (B) describing the proposed manner of sale or other transfer
thereof under the Securities Act; provided, however, that such Supplemental
Notice shall be so mailed or delivered by such holder not more than 5 days
after the date of delivery to such holder of a Registration Notice.
3. Holdback Agreement; Restrictions on Public Sale by Holders of
Registerable Securities.
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In connection with the piggyback registration statement referred to
in Section 2 above, to the extent not inconsistent with applicable law, each
holder of Registerable Securities whose securities are included in such
registration statement agrees not to effect any public sale or distribution of
the issue being registered or a similar security of the Company or any
securities convertible into or exchangeable or exercisable for such
securities, including a sale pursuant to Rule 144 under the Act, during the 14
Business Days prior to, and for such period of time following the effective
date not to exceed a 9-month period as the Company or any managing underwriter
of an offering of securities subject to such piggyback registration may
specify, if and to the extent timely notified of such restriction in writing
by the Company, in the case of a non-underwritten public offering, or by the
managing underwriter or underwriters, in the case of an underwritten public
offering, and the Company or such underwriter(s) provide a written opinion to
the effect that earlier sale of the Registerable Securities would materially,
adversely affect the Company's primary offering of securities.
4. Registration Expenses
Subject to the limitation on expenses provided in Section 2, all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees,
all fees and expenses associated with filings required to be made with the
National Association of Securities Dealers, Inc. ("NASD") and/or The NASDAQ
Stock Market ("NASDAQ"), as may be required by the rules and regulations of
the NASD or NASDAQ, fees and expenses of compliance with securities or blue
sky laws (including fees and disbursements of counsel in connection with blue
sky qualifications of the Registerable Securities), rating agency fees,
printing expenses (including expenses of printing certificates for the
Registerable Securities in a form eligible for deposit with the Depositary
Trust Company and of printing prospectuses if the printing of prospectuses is
requested by a holder of Registerable Securities), messenger and delivery
expenses, internal expenses (including, without limitation, all, salaries and
expenses of their officers and employees performing legal or accounting
duties), fees and expenses of counsel for the Company and its independent
certified public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance),
securities acts liability insurance (if the Company elects to obtain such
insurance), fees and expenses of other Persons retained by the Company (all
such expenses being herein called "Registration Expenses") will be borne by
the Company; provided that in no event shall Registration Expenses include any
underwriting discounts, commissions or fees attributable to the sale of the
Registerable Securities.
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5. Further Obligations of the Company
(a) The Company shall, as soon as reasonably possible, use its best
efforts to register and qualify the Registrable Securities covered by any
registration statement described herein under such other securities or "blue
sky" laws of such jurisdictions as shall be reasonably requested by the
Investor, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions
unless the Company is already subject to such service in such jurisdiction and
except as may be required by the 1933 Act.
(b) The Company shall as soon, as reasonably possible, furnish to the
Investor (or one broker or agent designated by the Investor) such numbers of
copies of a prospectus in conformity with the requirement of the 1933 Act, and
such other documents as the Investor may reasonably request in order to
facilitate the resale or other disposition of the Registerable Securities
owned by them.
(c) Prior to filing any registration statement pursuant to this
Agreement, the Company shall provide a draft of the registration statement to
the Investor and its counsel within 10 days prior to filing, and the Company
shall use commercially reasonable efforts to include the comments of the
Investor and its counsel in the registration statement.
6. Indemnification: Contribution
(a) Indemnification by the Company. The Company agrees to indemnify
each holder of Registerable Securities, its general partners, general partners
of the general partner, limited partners, officers, directors, employees and
agents and each Person who controls such holder (within the meaning of the
1933 Act), against all losses, damages, liabilities (joint or several) and
expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any registration statement, prospectus or
preliminary prospectus, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus or preliminary prospectus, in light of the circumstances under
which they are made) not misleading, except insofar as the same are contained
in any information with respect to such holder furnished in writing to the
Company by such holder expressly for use therein or any violation by the
Company of the 1933 Act, 1934 Act, or the rules promulgated thereunder that
does not result from conduct by the Persons indemnifiable by the Company under
this Section 6(a). The Company also agrees to reimburse each such holder and
each such officer, director, partner and controlling Person for any legal or
other expenses reasonably incurred by such holder or such officer, director,
partner or controlling person in connection with investigating or defending
any such loss, damage, liability or action to the extent that the same are not
incurred in connection with the proviso of the preceding sentence.
(b) Indemnification by Holders of Registerable Securities. In
connection with any registration statement in which a holder of Registerable
Securities is participating, each such holder will furnish to the Company in
writing, such information and affidavits with respect to
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<PAGE>
such holder as the Company reasonably requests for use in connection with any
such registration statement or prospectus and agrees to indemnify, to the
extent permitted by law, the Company, the directors, officers, employees and
agents and each Person who controls the Company (within the meaning of the
Act), and any investment advisor thereof or agent therefor against any losses,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement
or omission is contained in or failed to be contained in any information or
affidavit with respect to such holder so furnished in writing by such holder
specifically for inclusion therein or resulting from the violation of
applicable securities laws by such holder or its agents in connection with the
sale of the Registerable Securities.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of
the commencement of any action, suit, proceeding against such person or
investigation thereof made in writing for which such person will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of counsel to such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim which would not permit the same counsel to
represent the indemnifying and indemnified parties, permit the indemnifying
party to assume the defense of such claim with counsel reasonably satisfactory
to such indemnified party. If the indemnifying party is not entitled to, or
elects not to, assume the defense of a claim (including as the result of a
conflict of interest which, in the reasonable judgment of counsel to such
indemnified party, does not permit the same counsel to represent the
indemnified and indemnifying parties), it will not be obligated to pay the
fees and expenses of more than one counsel with respect to such claim other
than counsel to the indemnifying party. No indemnifying party will be required
to 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
of such claim or litigation. The indemnifying party will not be subject to any
liability for any settlement made without its consent. The failure of any
indemnified party to give such notice as provided herein shall not relieve the
indemnifying party of its obligations under this Agreement unless, and only to
the extent that, the failure of the indemnified party to give such notice is
(i) deliberate and wilful and (ii) results in actual harm to the indemnifying
party.
(d) Contribution. If the indemnification provided for in this Section
6 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, damages, liabilities or expenses referred to therein
by reason other than that set forth in the exception in the first sentence of
Section 6(a) hereof and Section 6(b) hereof, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions or inactions which resulted in such losses, damages,
liabilities or expenses, as well as any other relevant equitable
considerations.
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<PAGE>
The relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying party or indemnified
parties, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 6(c), any legal or other fees or expenses reasonably incurred
by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 6(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 6(d).
In the event that any provision of an indemnification clause in an
underwriting agreement executed by or on behalf of a holder of Registerable
Securities differs from a provision in this Section 6, such provision in the
underwriting agreement shall determine such holder's rights in respect
thereof.
7. Participation in Underwritten Registrations.
The Investor may not participate in any underwritten registration
with respect to the Registerable Securities unless it (a) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements (including applicable "lock-up" arrangements
described in Section 3 of this Agreement) and (b) agrees to pay its pro rata
portion of all underwriting discounts, commissions and fees.
8. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the 1933 Act and the 1934 Act and the rules and regulations
adopted by the SEC thereunder (or, if it is not required to file such reports,
it will make publicly available such information including information
required by Rule 15c2-11 promulgated under the 1934 Act as will enable the
holders of Registerable Securities to sell any Registerable Securities held by
them without registration as described in this Section 8); and it will take
such further action as any holder of Registerable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registerable Securities without registration under the 1933 Act within
the
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<PAGE>
limitation of the exemptions provided by (a) Rule 144 under the 1933 Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the reasonable request of any
holder of Registerable Securities, the Company will deliver to such holder a
written statement as to filings made by the Company with the SEC.
9. Miscellaneous
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of holders of at least a
majority of the then outstanding Registerable Securities affected by such
amendment, modification, supplement, waiver or departure.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery, facsimile (with
confirmation back), nationally recognized overnight courier, or registered
first-class mail:
(i) if to a holder of Registerable Securities, at the most current
address, and with a copy to be sent to each additional address given by
such holder to the Company, in writing, with a copy to each of such
holder's (i) litigation counsel and (ii) securities counsel which
current information is as follows:
With a copy to:
Tadeo E-Commerce Corp.
5 Hanover Square
New York, NY 10004
Attention: Damon Testaverde, President
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022
Attention: Peter W. Rothberg, Esq.
Telephone #: 212-940-3000
Facsimile: 212-940-3111
(ii) if to the Company at:
Diplomat Direct Marketing Corporation
414 Alfred Avenue
Teaneck, NJ 07666
Attention: Warren Golden, President
With a copy to:
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Gersten Savage & Kaplowitz LLP
101 East 52nd Street
New York, New York 10022
Telephone #: (212) 752-9700
Facsimile #: (212) 980-5192
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered, upon receipt if
delivered by facsimile, one-day after delivery to overnight courier priority
delivery, or five Business Days after being deposited in the mail, postage
prepaid, if mailed.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties
hereto.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed wholly within that jurisdiction. The parties hereto
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.
(g) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
holders of Registerable Securities shall be enforceable to the fullest extent
permitted by law.
(h) Entire Agreement. This Agreement, together with the Purchase
Agreement the Warrant and the Settlement Agreement, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement and the Purchase Agreement
(including the exhibits and schedules thereto) supersede all prior agreements,
negotiations, and understandings between the parties with respect to such
subject matter.
(i) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is successfully
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
DIPLOMAT DIRECT MARKETING
CORPORATION
By: /s/ WARREN H. GOLDEN
THE INVESTOR:
TADEO E-COMMERCE CORP.
By: /s/ DAMON TESTAVERDE
Name: Damon Testaverde
Title: President
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<PAGE>
WEB SITE DESIGN AND CONSULTING AGREEMENT
Agreement, effective as of June 1, 1999, by and between TADEO
E-COMMERCE CORP, a Delaware corporation having an address at 5 Hanover Square,
New York, NY 10004 ("Developer") and DIPLOMAT DIRECT MARKETING CORPORATION, a
Delaware corporation having an address at 414 Alfred Avenue, Teaneck, NJ 07666
("Client"), regarding Client's interest in securing the services of Developer
to design, develop, test, implement, launch and service a World Wide Web Site
which will be owned by Client and to provide various additional consulting and
other services after the site is successfully launched (the "Project").
The parties hereby agree as follows:
1. The Site. Client is planning to launch a new World Wide Web Site
tentatively entitled "_______" in conjunction and with the cooperation of
Developer as the initial hosting company (with the hosting company being
identified as the "Collaborator") and which will be devoted, at least
initially, to issues related to the women's apparel and accessories industry
and infants' apparel and accessories industry, and the Client's products and
services, including but not limited to women's apparel and accessories,
infants' apparel and accessories, and other materials and services
manufactured and/or distributed, or otherwise provided, by the Client (the
"Site"). The Site, as presently contemplated, will consist of the initial
components set forth in Exhibit A (the "Site Components"). The Site
Components, as well as the contents therein and all aspects whatsoever of the
Site, may change as the Site is designed and developed, and, thereafter from
time to time as specified by Client (subject to Developer's right to terminate
this Agreement under Paragraph 9.1). All aspects of the Site shall be subject
to Client's approval, in its reasonable discretion. As between Developer and
Client, Client shall be solely responsible for the editorial content of the
Site.
2. Developer's Services. Developer confirms that it is experienced in the
custom design, development, launch and delivery of web sites and agrees to
provide the following services for the Site, all subject to Client's approval:
a) The Site and Launch Module. During Phase I of the Project, the
Developer shall design, develop, test, implement and launch the overall Site
structure and programming and shall develop the Site Components, both for the
initial version of the Site to be launched (the "Launch Module") and so as to
accommodate Additional Modules (see Paragraph 2(b) below). During Phase I of
the Project Developer shall deliver to Client's reasonable satisfaction all
materials, information, software, source code, documentation, guides, manuals
and similar material as are necessary for Client to maintain, update, edit,
modify, terminate, redesign and otherwise operate and service the Site.
Developer shall be
<PAGE>
responsible for the design, structure and implementation of all aspects of the
Site to Client's reasonable satisfaction (other than the gathering and
delivery to Developer of editorial content therefor, which shall be the
responsibility of Client). As part of Developer's services required hereunder,
but not in limitation thereof, Developer shall:
(i) work and confer with Client throughout the design process to
ascertain both Client and Collaborator's design needs and requirements for the
Site;
(ii) design the look, operation, and programming of the Site,
including, without limitation, the functional specifications, user interface
and user interface specifications, technical design specifications, search and
retrieval software and graphic elements of the Site design (such as layout,
typeface, illustrations and photographs), both to accommodate Client's current
needs and so as to accommodate modifications and additions thereto as the Site
expands and changes;
(iii) develop and deliver necessary HTML programming;
(iv) incorporate Client Content (as hereinafter defined in Paragraph
3.1) for the launch;
(v) transfer Site files to Client's server;
(vi) fully test (and correct where needed) the Site and all Site
Components and aspects (conduct a soft launch - a Beta test in the staging
area) to Client's reasonable satisfaction;
(vii) launch the Site;
(viii) provide Client with all technical and design documents as well
as a troubleshooting guide needed to ensure that Client can with ease
maintain, update, modify, edit, cancel and otherwise operate the Site;
b) Additional Modules. At Client's request from time to time during
the Development Term (as defined in Paragraph 5), as Phase II of the Project
Developer agrees, if requested, to design, develop, implement, test and launch
Additional Modules subject to the fee schedule contained on Exhibit B, but
only to the extent that the requests are made in accordance with the Schedule
annexed hereto as Exhibit B (the "Schedule"). Additional Modules may update
and expand the entire Site, but also may include new material for the original
Launch Module.
c) Delivery. Developer agrees to submit to Client for its approval,
and in accordance with the Schedule, all of the Phase I Deliverables set forth
in Exhibit C and all of the Phase II Deliverables for each Additional Module
requested in
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accordance with the conditions of Paragraph 2(b) above (collectively, the
"Deliverables," and each separate item a "Deliverable"). Upon receipt, Client
shall promptly review and determine whether each such Deliverable materially
satisfies the acceptance criteria set forth in Exhibit C (as supplemented for
the acceptance criteria with respect to any Additional Modules). Client shall
give Developer prompt written notice if Client determines that a Deliverable
does not materially satisfy the acceptance criteria, and such notice shall in
detail set forth the deficiencies found in the Deliverables by Client.
Developer shall, at no cost to Client, promptly correct any such deficiencies.
Upon completion of the corrective action by Developer, Client will reconsider
acceptance of the Deliverable. If the Deliverable still does not materially
satisfy the acceptance criteria within thirty (30) days of Client 's notice of
disapproval, and the end of such period is beyond the specific dates for
Deliverable delivery in the Schedule (as it may be supplemented), Client may:
(i) terminate this Agreement in accordance with Paragraph 9; or (ii) require
Developer to continue to attempt to correct the deficiencies, reserving the
right to terminate in accordance with Paragraph 9. It is understood that
Client may be obligated to obtain the approval also of Collaborator.
d) Ongoing Consultation. Developer agrees to consult, strategize and
coordinate with Client and, if requested by Client, with Collaborator,
throughout the provision of Developer's services hereunder to ensure Client's
reasonable satisfaction with and reasonable approval of each aspect of the
Site.
e) Maintenance, and Ongoing Service.
(i) If requested by Client, and for consideration to Developer as
specified on Exhibit D, Developer agrees to provide, at its sole cost and
expense, all maintenance required to correct defects, bugs, viruses, design
flaws and similar inherent problems in the Site, during the Development Term
and for a period of one year thereafter (the "Maintenance Term"); provided,
that the Developer is not obligated to provide additional maintenance services
requested by Client during periods beyond the Maintenance Term, without its
specific written approval, which approval may be withheld in Developer's full
discretion; and further provided, that the Developer shall at no time be
obligated to provide such maintenance services in the event that such services
are required due to Client's modification or editing of the Site without
Developer's written approval thereof, Client's destruction of the Site, or
Client's license of the Site for use and/or operation by any other person
without Developer's prior written consent.
(ii) In addition, but only during the Development Term, Developer
agrees to provide other specified design, maintenance and other services
requested by Client, at the fees set forth on Exhibit D; provided, that
Developer shall have the ability to reject such requests(s) based upon
Developer's reasonable determination of Client's inability to pay timely for
such services.
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<PAGE>
3. Client Provided Content.
3.1. Client shall be responsible for obtaining all licenses,
sublicenses, assignments, permissions, waivers or other rights or clearances
necessary for Developer 's incorporation of any content provided by Client
("Client Content") into the Deliverables. Client shall deliver one (1) copy of
each item of Client Content to be provided by Client to be incorporate into a
Deliverable. Client shall provide to Developer as part of that copy all
credits and/or attributions which must be included in the Deliverable.
Developer shall use each item of Client Content provided by Client only in
conjunction with the Deliverable for which it was provided.
3.2. In the event that Client does not obtain the licenses,
sublicenses, assignments, permissions, waivers or other rights or clearances
necessary to use particular materials as Client Content in a Deliverable,
Developer shall not be obligated to incorporate such materials into the
Deliverable.
4. Rights in Deliverable.
4.1. Developer acknowledges that Client shall retain all title to and
all rights in any intellectual property provided by Client to Developer under
this Agreement.
4.2. The original content component of the Deliverables produced by
Developer shall be considered to be works made for hire for all purposes,
including for purposes of interpretation under the U.S. Copyright Law, 17
U.S.C. ss.101 et seq. To the extent that such Deliverables are not construed
to be works made for hire, Developer shall, and hereby does, perpetually, and
without further consideration, assign all right, title and interest to such
Deliverables to Client. All right, title and interest in the original content
component of the Deliverables produced by Developer, including any copyright
or other proprietary right in the Deliverables, shall be the sole property of
Client. Notwithstanding the foregoing, except as provided in Section 4.3,
nothing herein should be construed to vest ownership of any right, title or
interest to any computer software component ("Software") of a Deliverable
under this Agreement.
4.3. Developer, or its licensors, shall retain all right, title and
interest to Software. Developer hereby grants, which Developer represents it
has full right, power and authority to grant, to Client a perpetual,
worldwide, royalty-free license, or sublicense, to duplicate, exhibit,
perform, transmit, broadcast, distribute, maintain and modify Software,
provided that such Software is only used by Client in accordance with this
Paragraph 4.3 in connection with substantially all of the content component of
the Deliverables provided by Developer to Client for use in connection with
the Site.
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4.4. Developer agrees to execute and deliver any documents and take
all such other actions as may be necessary or desirable in order to carry into
effect the provisions of this Paragraph 4, including, without limitation, the
execution of assignments, copyright registrations and patent applications.
5. Term. The term of this Agreement during which period Developer shall be
obligated to provide to Client the services described in Paragraph 2
(collectively, the "Developer Services") shall extend for a period of twelve
(12) months from the date of this Agreement (the "Development Term"). The
parties may extend the Development Term of this Agreement by mutual written
agreement.
6. Reserved.
7. Client's Services and Deliverables. Client shall be responsible for
a) obtaining and securing a domain name and address for the Site;
b) preparing, gathering and/or writing all Client Content (including
illustrations, photographs, charts, graphs and similar information and
material to accompany the editorial content) to be included in the Site,
including all licenses, etc., as referenced in Paragraph 3 of this Agreement;
c) delivering to Developer fully edited editorial content in a
mutually agreed upon digital format;
d) housing the Site on Client's server; and
e) coordinating with Collaborator on all aspects of the Site
development, design and operation.
8. The Schedule. In order to meet the Client's requirements for the Project,
Client and Developer have together developed the Schedule. Developer shall
provide all of its services under this Agreement in accordance with the
Schedule, unless Client and Developer agree otherwise. No changes may be made
in the Schedule without the written consent of Client and Developer.
9. Termination.
9.1.
a) Client may terminate upon ten (10) days' prior written notice this
Agreement in the event (i) Client has rejected any Deliverable in accordance
with the provisions of Paragraph 2(c) and Developer has failed to correct the
deficiencies during the specified time period, (ii) Developer fails to meet
any deadline in the Schedule (following a 15-day cure period), or (iii)
Developer
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otherwise materially breaches any of its obligations, representations or
warranties under this Agreement.
b) Developer may terminate this Agreement upon ten (10) days' prior
written notice in the event that (i) Client fails to pay to Developer when
due, after three (3) days' prior notice of such failure to pay, the
compensation amounts required to be paid pursuant to Paragraph 12 and Schedule
D, (ii) Client materially changes the parameters for development of the Site
or the Site Components, (iii) Collaborator, other than Developer, unreasonably
withholds its approval of Developer's work product under this Agreement to the
extent its approval is necessary to launch the Site (if the initial
collaborator is other than Developer) or augment or maintain the Site, or (iv)
Client otherwise materially breaches any of its obligations, representations
or warranties under this Agreement.
9.2. Either party may terminate this Agreement, effective immediately
upon written notice if: (i) all or a substantial portion of the assets of the
other party are transferred to an assignee for the benefit of creditors or to
a receiver or to a trustee in bankruptcy; (ii) a proceeding is commenced by or
against the other party for relief under bankruptcy or similar laws and such
proceeding is not dismissed within sixty (60) days; or (iii) the other party
is adjudged bankrupt or insolvent. Termination of this Agreement shall not
relieve either party of any obligation accrued prior to the termination date.
9.3. In the event Developer terminates this Agreement other than in
accordance with Paragraph 9.1(b) or Client terminates this Agreement in
accordance with Paragraph 9.1(a), then Client shall have no obligation to pay
any amounts owing under Paragraph 12, except for fees under Paragraph 12(a)
incurred prior to termination and the Royalties (as herein after defined) as
provided under Paragraph 12(b).
9.4. In the event Developer terminates this Agreement in accordance
with Paragraph 9.1(b) or Client terminates this Agreement other than in
accordance with Paragraph 9.1(a), then Client shall be obligated to pay (i)
the amounts owing under Paragraph 12(a) incurred prior to the date of
termination, (ii) in the event that such termination occurs prior to the
Developer's receipt from Client of aggregate Royalties of $500,000 Client
shall continue to be obligated to pay to Developer in cash (U.S. Dollars),
within thirty (30) days of the date of termination of this Agreement, the
difference between $500,000 and the aggregate amount of Royalties delivered to
Developer prior to the date of termination of this Agreement (which amount
shall be credited as the payment of Royalties for purposes of Paragraph
12(b)), and (iii) the Royalties owing under Paragraph 12(c).
9.5. Termination of this Agreement shall not limit either party from
pursuing any remedies available to it for any breach of this Agreement. All
obligations of
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either party set forth in Paragraphs 4,9,12,16 and 17 of this Agreement shall
survive termination of this Agreement.
10. Credit. Provided Developer fully performs its obligations hereunder,
Developer shall be entitled to receive the following credit in the Site, the
size and placement of which shall be mutually determined by Client and
Developer:
"----------------------"
11. Ownership. Client shall own the Site and all aspects thereof, except as
set forth in Paragraphs 3 and 4. Client shall have the right to modify, edit,
destroy, license, exploit or use the Site in any way, without compensation or
consultation with Developer, subject to the provisions of Paragraph 2(e).
12. Consideration. In recognition and acknowledgment of the market consulting
and e-commerce content services previously provided by Client to Developer,
for which services Developer has previously advanced $500,000 to Client, in
full consideration for all of Developer's services and Deliverables provided
hereunder for Phase I and Phase II through and including launch of Site and
completion and launch of the scheduled Additional Modules pursuant to
Paragraph 2(b), if any, and the Schedule, Client shall compensate Developer as
follows:
a) Developer shall receive the related fees and other compensation as
set forth on Exhibit D; and
b) Developer shall receive royalties (the "Royalties") based upon
sales (whether direct or indirect), fees, licenses, royalties, consulting, or
any other forms of revenue or compensation which are derived, directly or
indirectly, from electronic commerce [(which includes but is not limited to
commercial transactions which are in any way solicited, or initiated, or
conducted, or concluded, or otherwise consummated (subject to subsequent
delivery or transfer of the subject matter of the transactions) through use of
Worldwide Web Sites or otherwise through use of the Internet], with the
exception only of revenue or compensation generated under written agreements
entered into with Fashionmall.com, Inc. and Catalog City (the "Royalty
Activities"), which Royalties shall equal 5% of all quarterly revenues, net of
returned merchandise, generated by Client and its consolidated subsidiaries,
as determined under generally accepted accounting principles ("GAAP"),
consistently applied for purposes of Client's financial reporting obligations
with the Securities and Exchange Commission (the "SEC") from Royalty
Activities (which for purposes of this subparagraph, 12(b) only shall also
include revenue and compensation generated under written agreements entered
into with Fashionmall.com, Inc. and Catalog City), until Developer has
received Royalties in cash the aggregate amount of which equals $500,000. The
amount of Royalties for which Client is obligated to pay Developer under the
terms
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of this Subparagraph 12(b) shall be paid to Developer within forty-five days
following the last day of each fiscal quarter of client, commencing with the
quarter ended June 30.
c) Client shall pay to Developer annually, not later than the Payment
Date (as defined herein), Royalties equal to twenty percent (20%) of Net EBIT
(as defined herein) generated by Client and its consolidated subsidiaries,
from Royalty Activities, in perpetuity, as provided herein. The period during
which Developer shall receive Royalties equal to twenty percent (20%) of Net
EBIT shall commence after Developer receives $500,000 from Client as provided
in subparagraph 12(b) above. For purposes of Paragraph 12(c), all as
determined under GAAP consistently applied by the Client's regular auditor for
purposes of Client's financial reporting obligations with the SEC, the
capitalized terms shall have the following meanings:
"Net EBIT" shall mean the amount, but not below zero, equal to EBIT
for the applicable fiscal year less the amount, if any, in the Offset Account.
"EBIT" shall mean revenues, net of returned merchandise, generated by
Client and its consolidated subsidiaries from Royalty Activities, less the sum
of:
(i) all direct expenses incurred in the Royalty Activities,
including, without limitation, cost of goods sold, costs of maintaining the
Site and any other Royalty Activities - related world wide web sites developed
by the Client or its consolidated subsidiaries, but excluding interest,
amortization and income taxes allocable to the Royalty Activities;
(ii) all variable indirect expenses of Client and its consolidated
subsidiaries allocable to the Royalty Activities (consistent with Client's
normal accounting procedures and practice, as such practices and procedures
may be amended from time to time), including, without limitation, costs of
order-entry, distribution and fulfillment, allocated based on the ratio of net
revenue of the Royalty Activities to net aggregate revenue of the Client and
consolidated subsidiaries; and
(iii) all fixed indirect expenses of Client and its consolidated
subsidiaries allocable to the Royalty Activities (consistent with Client's
normal accounting procedures and practice, as such practices and procedures
may be amended from time to time), including, without limitation, catalog
production and mailing costs, merchandising and marketing costs, allocated in
accordance with GAAP and Client's consistently applied reasonable allocation
procedures, as such procedures may be amended from time to time in accordance
with GAAP;
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(iv) with the calculation of EBIT, and each component thereof, being
all as determined under GAAP consistently applied by Client's regular auditor
for purposes of Client's financial reporting obligations with the SEC.
"Offset Account" shall mean the amount equal to, but not below zero,
of the aggregate negative EBIT for all periods, reduced by any EBIT.
"Payment Debt" shall mean the 105th day after the last day of the
Client's fiscal year for purposes of Client's financial reporting obligations
with the SEC.
d) The obligation to pay Royalties to Developer, except by operation
of law, shall not be assignable by Client to any person without the written
consent of Developer, which consent may be withheld in Developer's full
discretion; and provided, further, that at the option of Developer, in the
event of the sale, conveyance or disposition of all or substantially all of
the assets of Client, the effectuation by the Client of a transaction or
series of related transactions in which more than 50% of the voting power of
the Client is disposed of, for the consolidation, merger or other business
combination of the Client with or into any other Person (as defined below) or
Persons when the Client is not the survivor, the Developer may terminate this
Agreement on ten (10) days' written notice and Client shall be required to
distribute, upon consummation of and as a condition to any such transaction(s)
an amount equal to the difference between $750,000 and the aggregate amount of
Royalties previously distributed to Developer (which amount shall be credited
as the payment of Royalties for purposes of this Paragraph 12). "Person" shall
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<PAGE>
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
e) Along with any payment of Royalties made under this Agreement,
Client shall provide to Developer a written statement showing the detailed
formula for and the calculation of such Royalties (the "Statement"), which
Statement shall be certified by the Client's Chief Financial Officer or
regular auditors that made the related calculation of Royalties. In the event
that Developer disputes the amount of any payment of Royalties made by Client
under the terms of this Agreement, Client and its Chief Financial Officer or
auditors shall promptly submit such documentation for review by Developer and
its representatives as shall be reasonably requested by Developer within five
business (5) days following written request being given by Developer therefor.
In the event that Developer and Client fail to agree upon the amount of the
related Royalties payment within twenty-one (21) days following Developer's
receipt of the Statement, Developer shall be entitled to submit, but not later
than 90 days following Developer's receipt of the Statement, such dispute to
arbitration by the American Arbitration Association ("AAA"), through the
adjudication by a single arbitrator, in New York, New York, with the decision
of such arbitrator to be final and binding upon all parties. The fees, costs
and expenses of such arbitration, as submitted by the AAA, shall be borne
equally by both Client and Developer; provided, that each of Client and
Developer shall pay the fees, costs and expenses of its own counsel,
accountants and other representatives in connection with such arbitration. The
parameters of the AAA proceedings undertaken in accordance with this
subparagraph 12(f) shall be prescribed such that a decision shall be rendered
within sixty (60) days following the initial written reference of the related
dispute to AAA arbitration by Developer. All disputes with respect to the
amount of any Royalties payment under the terms of this Agreement shall be
resolved by arbitration in accordance with this subparagraph 12(f).
13. No Obligation to Publish. Nothing in this Agreement shall obligate Client
to launch, publish or continue to publish the Site; provided, that in the
event that Client (i) fails to launch the Site on or before September 1, 1999,
or (ii) fails to continue to publish the site for a period of at least five
(5) years from the date hereof (the "Publication Period"), and at all times
during the Publication Period Client does not use its best efforts to generate
significant revenue from use of the Site, or otherwise from electronic
commerce generally, then within thirty (30) days following its receipt of
written notice from Developer of a breach by Client of either subprovision (i)
or (ii), Client shall be obligated to pay to Developer the difference between
$500,000 and the aggregate amount of Royalties previously distributed to
Developer (which amount shall be credited as the payment of Royalties for
purposes of Paragraph 12) within thirty (30) days of written notification
therefor given to Client by Developer.
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14. Representations and Warranties.
14.1. Developer represents and warrants to Client that: (i) Developer
has the full right, power and authority to enter into and to fully perform
this Agreement; (ii) the design of the Site and all design and programming
aspects of the Site as delivered by Developer shall be original and shall be
owned by Client as work for hire or by transfer of all rights, including the
copyright thereto; (iii) neither the design nor programming of the Site, nor
any other material or facet added to the Site by Developer (other than Client
Content supplied by Client) contains any libelous material or any material
which constitutes an invasion of privacy or publicity, or infringes any
trademark, copyright, patent, trade secret, or other intellectual property
right; and (iv) the Site as delivered by Developer shall be free of "bugs,"
viruses, defects or design flaws.
14.2. Client represents and warrants to Developer that: (i) Client
has the full right, power and authority to enter into and to fully perform
this Agreement; (ii) to the extent that Client is required to obtain rights,
permissions and credit and/or attribution information with respect to the
Client Content, Client will do so accurately and completely; and (iii) the
Client Content provided by Client will not contain any libelous material or
any material which constitutes an invasion of any right of privacy or
publicity, or infringes upon any trademark, copyright, patent, trade secret or
other intellectual property right.
14.3. No party shall in any circumstances be liable to the other
party or any other party for any loss of business or profits, or any other
indirect, consequential, incidental, punitive or similar damages arising from
the breach of this Agreement, even if it has been advised of the possibility
of such damages.
14.4. THE WARRANTIES STATED HEREIN ARE LIMITED WARRANTIES AND THE
ONLY WARRANTIES MADE BY THE PARTIES. THE PARTIES WAIVE ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
15. Indemnification.
15.1. During the Term of this Agreement and for one (1) year
thereafter, Developer shall indemnify and hold Client harmless from and
against any and all claims, demands, actions, losses, liabilities, damages,
costs and expenses (including, but not limited to, reasonable attorneys' fees)
arising out of or resulting from Developer 's material breach of Paragraph
14.1 of this Agreement, provided that Client (i) notifies Developer promptly
of any written claims or demands against Client, (ii) gives Developer the
opportunity to defend or settle any such claim at Developer 's expense, and
(iii) cooperates with Developer , at Developer 's expense, in defending or
settling such claim.
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<PAGE>
15.2. During the Development Term of this Agreement and for one (1)
year thereafter, Client shall indemnify and hold Developer harmless from and
against any and all claims, demands, actions, losses, liabilities, damages,
costs and expenses (including, but not limited to, reasonable attorneys' fees)
arising out of or resulting from Client's material breach of Paragraph 14.2 of
this Agreement, provided that Developer (i) notifies Client promptly of any
written claims or demands against Developer , (ii) gives Client the
opportunity to defend or settle any such claim at Client's expense, and (iii)
cooperates with Client, at Client's expense, in defending or settling such
claim.
16. Confidentiality.
16.1. Each party shall retain in confidence and shall not, without
the prior written consent of the other party (the "Disclosing Party"),
disclose in any manner or use, except under the terms and prior to the
termination of this Agreement, any materials disclosed to a party (the
"Receiving Party") by the Disclosing Party and either marked at the time of
disclosure as being confidential or identified in writing by the Disclosing
Party within thirty (30) days of disclosure to the Receiving Party as being
confidential ("Confidential Information"); provided, that if the receiving
Party is compelled by law (whether through court order or subpoena) to
disclose such Confidential Information, the Receiving Party shall provide the
Disclosing Party with prompt notice of such compelled disclosure.
16.2. This Paragraph 16 shall impose no obligation upon the Receiving
Party with respect to any Confidential Information: (i) in the public domain
at the time received by Receiving Party; (ii) which enters the public domain
other than by breach of the Receiving Party's obligations hereunder; (iii)
known to the Receiving Party prior to receipt from the Disclosing Party; (iv)
received by Receiving Party from a third party if such third party has the
right to make such disclosure; or (v) independently developed by the Receiving
Party without access to Confidential Information.
16.3. Upon the Disclosing Party's request or termination of this
Agreement, the Receiving Party will, at its election, either promptly deliver
to the Disclosing Party or destroy all Confidential Information in every form
in the Receiving Party's possession.
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<PAGE>
17. General.
17.1. The relationship between the parties shall be that of
independent contractors. Nothing in this Agreement shall create, or be deemed
to imply the creation of, any partnership, joint venture or other
relationship. Neither party shall have the authority to incur any obligation,
contractual or otherwise, in the name or on behalf of the other party. Each
party shall bear its own costs and expenses in connection with performance of
this Agreement.
17.2. This Agreement and any exhibits or appendices hereto constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous communications. Neither
this Agreement nor any exhibits or appendices hereto shall be modified except
by a written agreement dated subsequent to the date of this Agreement and
signed on behalf of the parties by their respective duly authorized
representatives.
17.3. If this Agreement shall be terminated or held by a court of
competent jurisdiction to be invalid, illegal or unenforceable as to
particular provisions, this Agreement shall remain in full force and effect as
to the remaining provisions.
17.4. No waiver of any breach of any provisions of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof or thereof, and no waiver shall be
effective unless made in writing and signed by the duly authorized
representative of the party to be charged.
17.5. All notices that Developer or Client may give to the other
pursuant to this Agreement shall be in writing and shall be hand delivered or
sent by registered or certified mail postage prepaid, return receipt
requested, by facsimile (with confirmation back), or by overnight courier
service, postage prepaid, to the parties at the addresses provided above or to
such other address or as either party shall designate by written notice given
in accordance with this Section, with notice being deemed given five days'
after being deposited with the United States mail, upon hand delivery, upon
receipt of confirmation back that a facsimile was received and one day after
deliver to a nationally recognized overnight courier service (if so deposited
or delivered as described above).
17.6. This Agreement shall be binding on Developer and Client and the
respective successors and permitted assigns of each party. Except as permitted
in this Agreement, no party may assign any of its rights or delegate any of
its obligations under this Agreement to any third party without the express
written consent of the other party, which consent may be withheld in either
party's sole discretion.
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17.7. This Agreement between Developer and Client is not exclusive
and the parties are free to engage in other relationships of a similar nature
with other parties.
17.8. Client hereby grants Developer its permission to (i) disclose
to potential customers of Developer that Client is a customer of Developer ,
and (ii) duplicate, exhibit, perform, transmit, broadcast and distribute
Deliverables to potential customers of Developer for purposes of publicizing
Developer's services.
17.9. This Agreement shall be governed and construed in accordance
with the internal substantive laws of the State of New York without regard to
its conflicts of laws principles.
17.10. The section headings contained in this Agreement are for
purposes of convenience and reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
17.11. Neither party shall be in material breach if failure to
perform any obligation hereunder is caused solely by supervening conditions
beyond that party's control, including acts of God, civil commotions, strikes,
labor disputes and governmental demands or requirements.
17.12. This Agreement may be executed in counterparts which, when
taken together, shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto, each acting with proper
authority, have executed this Agreement under seal as of the 27TH day of July,
1999.
TADEO E-COMMERCE CORP. DIPLOMAT DIRECT MARKETING CORPORATION
By: /s/ DAMON TESTAVERDE By: /s/ WARREN H. GOLDEN
---------------------------- ----------------------------
Damon Testaverde, President Warren H. Golden, President
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ONLINE HOSTING AGREEMENT
This Online Hosting Agreement (this "Agreement") is being entered
into effective as of the 1st day of June, 1999 and is entered into by and
between Diplomat Direct Marketing Corporation, a Delaware corporation
("Diplomat"), and Tadeo E-Commerce Corp., a Delaware corporation ("Tadeo").
R E C I T A L S
A. Historically, Diplomat has been engaged directly in, among other
things, the business of offering consumers the opportunity to place apparel
orders directly with Diplomat through its toll free telephone number and its
web site (the "Direct Access Business").
B. Recently, Tadeo was formed and Tadeo and Diplomat have entered
into a Web Design and Consulting Agreement of even date herewith (the "Web
Agreement") pursuant to which Tadeo has agreed to assist Diplomat in
developing the technology, and providing other services necessary, to further
Diplomat's Direct Access Business, including the hosting and maintenance of
Diplomat's web site (the "Web Site").
C. In connection with Diplomat's operation of its Direct Access
Business, Diplomat desires to obtain various online hosting services
("Services") from Tadeo, and Tadeo desires to provide such Services to
Diplomat.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
Section 1. Services.
Tadeo shall provide, directly or through a third party vendor
reasonably satisfactory to Diplomat, the Online Hosting Services described on
Exhibit A hereto, at the cost specified and on the other terms and conditions
as set forth on Exhibit A.
Section 2. Compensation.
Diplomat will pay to Tadeo when due a fee for each of the Services
equal to the amount described in Exhibit A hereto relating to each such
Service; provided, that in the event Diplomat terminates this Agreement in
accordance with Section 3 hereof, the fee for the provision of each terminated
Service shall cease to accrue on and after the effective date of such
termination. In the event that Diplomat terminates this Agreement other than
in accordance with Section 3, Diplomat shall be obligated to pay for the
Services in accordance with the fee schedule contained
<PAGE>
on Exhibit A throughout the balance of the Period (as hereinafter defined) as
though Tadeo continued to provide the terminated Services through the balance of
the Period. Late payments shall accrue interest at a rate equal to fifteen (15%)
percent per annum.
Section 3. Term.
(a) The term of this Agreement shall begin on the date hereof (the
"Effective Date") and shall continue for a period of 12 months thereafter (the
"Period") in full force and effect until it is terminated in accordance with
this Section 3.
(b) Diplomat or Tadeo, if such party is not in default of the terms
of this Agreement, may extend the term of this Agreement for an additional one
year ("Additional Period"), provided the extending party gives the other party
at least sixty (60) days advance written notice before the end of the Period.
If either party elects to extend the Agreement for the Additional Period, all
other terms and conditions of this Agreement shall continue during the
Additional Period.
(c) Tadeo shall have the right (but not the obligation) to terminate
this Agreement and the rights granted to Diplomat hereunder if:
(i) Diplomat is in material breach of any of its obligations
hereunder, which breach is not cured within five days of receipt of written
notice from Tadeo of such breach;
(ii) The Web Agreement is terminated by any of Tadeo, Diplomat, or
any other party thereto [in the event the rights and obligations of any
party(ies) to such Web Agreement have been duly assigned to a third party(ies)
under the terms thereof] in accordance with the terms of the Web Agreement,
but not if the Web Agreement is terminated by Tadeo or its assignee(s) other
than in accordance with the terms of the Web Agreement;
(iii) Diplomat is the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency, receivership, liquidation
or composition for the benefit of creditors, if such petition or proceeding is
not dismissed within 60 days of filing, or becomes the subject of any
involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within 60 days of
filing;
(iv) Diplomat involuntarily dissolves or is dissolved;
<PAGE>
(v) Diplomat is judicially adjudicated insolvent or generally is
unable to pay its debts as they mature or makes an assignment for the benefit
of its creditors; or
(vi) Upon Tadeo giving Diplomat at least sixty (60) days advance
written notice of termination of this Agreement.
(d) Diplomat shall have the right (but not the obligation) to
terminate this Agreement and the rights granted to Tadeo hereunder if:
(i) Tadeo is in material breach of any of its obligations hereunder,
which breach is not cured within five days of receipt of written notice from
Diplomat of such breach;
(ii) The Web Agreement is terminated by any of Tadeo, Diplomat, or
any other party thereto [in the event the rights and obligations of any
party(ies) to such Web Agreement have been duly assigned to a third party(ies)
under the terms thereof] in accordance with the terms of the Web Agreement,
but not if the Web Agreement is terminated by Diplomat or its assignee(s)
other than in accordance with the terms of the Web Agreement;
(iii) Tadeo is the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is
not dismissed within 60 days of filing, or becomes the subject of any
involuntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is
not dismissed within 60 days of filing.
(iv) Tadeo involuntarily dissolves or is dissolved;
(v) Tadeo is judicially adjudicated insolvent or generally is unable
to pay its debts as they mature or makes an assignment for the benefit of its
creditors; or
(vi) Upon Diplomat giving Tadeo at least sixty (60) days advance
written notice of termination of this Agreement.
(e) Tadeo will have the right (but not the obligation) to terminate
this Agreement and the rights granted to Diplomat hereunder, upon 60 days
written notice to Diplomat, following the acquisition of all or substantially
all of the assets of Diplomat by any Permitted Assignee (as defined in Section
9(a) of this Agreement), or the acquisition of the beneficial ownership of at
least 20% (the "Threshold") of the voting power represented by the voting
securities of Diplomat, any successor thereto or any Permitted Assignee by any
person or
<PAGE>
"group" within the meaning of Sections 13(d)(3) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision to either of the foregoing, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act or any successor provision thereof (a
"group") other than The Rubin Family Irrevocable Stock Trust U/A dated April 30,
1997, organized under the laws of the State of New York (the "Trust"), Robert M.
Rubin ("Rubin"), or any affiliate of Rubin or the Trust. For purposes of this
Agreement, (i) the term "beneficial ownership" shall have the meaning set forth
in Rule 13d-3 of the Exchange Act or any successor provisions thereof, (ii) the
term "voting securities' means the common Stock, par value $.0001 per share, of
Diplomat and any other securities issued by Diplomat having the power to vote
generally in the election of directors of Diplomat and (iii) the term
"affiliate" means a person or entity directly or indirectly controlled by,
controlling or under common control with another person. For purposes of this
Section 3, an acquisition shall not include (A) the acquisition by a person of
voting securities of Diplomat pursuant to an involuntary disposition through
foreclosure or similar event, or (B) the acquisition by a person of voting
securities of Diplomat pursuant to a dividend intended to be on a tax-free basis
(a "Tax-Free Spin-Off") under the Internal Revenue Code of 1986, as amended from
time to time, but shall include a subsequent acquisition of voting securities
pursuant to a disposition by the person that acquired the voting securities in
such involuntary disposition or such Tax-Free Spin-Off. In the event any person
acquires beneficial ownership of voting power in excess of the Threshold as a
result of a transaction described in the immediately preceding sentence, the
Threshold with respect to such person shall be adjusted to an amount equal to
the percentage of beneficial ownership held by such person immediately following
such transaction.
(f) A party may exercise its right to terminate pursuant to this
Section 3 by sending appropriate written notice to the other party. No
exercise by a party of its rights under this Section will limit its remedies
by reason of the other party's default, the party's rights to exercise any
other rights under this Section 3, or any of that party's other rights.
Section 4. Records and Accounts.
Tadeo will maintain accurate books, records and accounts of all
transactions relating to the Services performed by it pursuant to this
Agreement. Diplomat may, at its own expense, examine and copy those books and
records as provided in this Section 4. Such books, records and accounts will
be maintained in a manner that allows Diplomat to separate these matters from
those relating to Tadeo's other operations. Such books, records and accounts
will reflect such information as would normally be examined by an independent
accountant in performing an audit pursuant to United States generally accepted
auditing standards for the purpose of certifying financial statements, and to
permit verification thereof by governmental agencies. Diplomat may make
examinations pursuant hereto during Tadeo's usual business hours, and at the
place in the continental United States where Tadeo regularly keeps these books
and records. Diplomat will be required to notify Tadeo at least five business
days before the date of planned examination. If Diplomat's examination is not
completed within one month from commencement, Tadeo at any time may require
Diplomat to terminate such examination on
<PAGE>
seven days' notice to Diplomat; provided that Tadeo has cooperated with
Diplomat in the examination of such books and records.
Section 5. No Restrictions.
Nothing in this Agreement shall limit or restrict the right of any of
Diplomat's directors, officers or employees or any of Tadeo's directors,
officers or employees to engage directly or indirectly in the same or similar
business activities or lines of business as Diplomat or, respectively, or
limit or restrict the right of Diplomat or Tadeo as the case may be, to engage
in any other business or to render or obtain, as the case may be, services of
any kind to or from, as the case may be , any corporation, firm, individual,
trust or association.
Section 6. Independent Contractors.
Tadeo and Diplomat are independent contractors. There is no
relationship of partnership, joint venture, employment, franchise or agency
between Tadeo and Diplomat. Neither Tadeo nor Diplomat shall have the power to
bind the other or incur obligations on the other's behalf without the other's
prior written consent. When Tadeo's employees act under the terms of this
Agreement, they shall be deemed at all times to be under the supervision and
responsibility of Tadeo and no person employed by Tadeo and acting under the
terms of this Agreement shall be deemed to be acting as agent or employee of
Diplomat or any customer of Diplomat for any purpose whatsoever.
Section 7. Confidentiality.
Tadeo and Diplomat each agree to hold in strict confidence, and to
use reasonable efforts to cause each of their employees and representatives to
hold in strict confidence, all confidential information concerning Tadeo or
Diplomat, as the case may be, furnished to or obtained by the other party, in
the course of performing the obligations provided for under this Agreement
except to the extent that (a) such information has been in the public domain
through no fault of Tadeo or Diplomat, as the case may be, (b) disclosure or
release is compelled by judicial or administrative process, or (c) in the
opinion of counsel to Tadeo or Diplomat, as the as may be, disclosure or
release is necessary pursuant to requirements of law or the requirements of
any governmental entity including, without limitation, disclosure requirements
under the securities laws of the United States or similar laws of other
jurisdictions applicable to Tadeo or Diplomat, as the case may be.
Section 8. Proprietary Rights of Tadeo.
All materials, including but not limited to any computer software (in
object code and source code form), data or information developed or provided
by Tadeo, or its suppliers under this Agreement, and any know-how,
methodologies, equipment, or processes used by Tadeo to provide the Services
to Diplomat, including, without limitation, all copy-rights, trademarks,
<PAGE>
patents, trade secrets, and any other proprietary rights inherent therein and
appurtenant thereto (collectively, "Host Materials") shall remain the sole and
exclusive property of Tadeo or its suppliers. To the extent, if any, that
ownership of the Hose Materials does not automatically vest in Tadeo by virtue
of this Agreement or otherwise, Diplomat hereby transfers and assigns to Tadeo
all rights, title and interest which Diplomat may have in and to the Host
Materials. Diplomat acknowledges and agrees that Tadeo is in the business of
designing and hosting web sites, and that Tadeo shall have the right to
provide to third parties services which are the same or similar to the
Services, and to use or otherwise exploit any Host Materials in providing such
services.
Section 9. Diplomat Content.
(a) Diplomat assumes sole responsibility for (i) acquiring any
authorization(s) necessary for hypertext links to third party web sites, (ii)
the accuracy of materials on the Web Site, including, without limitation,
provision of the Content (as hereinafter defined), descriptive claims,
warranties, guarantees, nature of business, and address where business is
conducted, and (iii) ensuring that the Content does not infringe or violate
any right of any third party. Notwithstanding the foregoing, Tadeo reserves
the right, in its sole discretion, to exclude or remove from the Web Site any
hypertext links to third party web sites, any Content, or other content not
supplied by Tadeo which, in Tadeo's sole reasonable discretion, may violate or
infringe any law or third party rights or which otherwise exposes or
potentially exposes Tadeo to civil or criminal liability or public ridicule;
provided, that such right shall not place an obligation on Tadeo to monitor or
exert editorial control over the Web Site.
(b) Diplomat shall place and cause to be placed on the Web Site
Content that does not contain any content or materials which are obscene,
threatening, malicious, which infringe on or violate any applicable law or
regulation or any proprietary, contract, moral, Tadeo privacy or other third
party right, or which otherwise exposes Tadeo to civil or criminal liability.
Any such materials placed on the Web Site which do not satisfy the foregoing
requirements shall be deemed to be a material breach of this Agreement.
(c) Chat rooms, bulletin boards and discussion forums shall not be
included in the Web Site and may not be implemented by or on behalf of
Diplomat without prior written approval of Tadeo.
(d) For purposes of this Agreement, Content shall mean all materials
comprising the Web Site, including but not limited to, any images,
photographs, illustrations, graphics, audio clips, video clips or text, which
shall be in correct format. The Content shall be properly adapted and
translated by, or on behalf of, Diplomat for posting to Tadeo's server so that
the Web Site can be accessed via the Internet.
<PAGE>
Section 10. Warranties.
(a) Tadeo represents and warrants that (i) Tadeo has the power and
authority to enter into and perform its obligations under this Agreement, and
(ii) the Services under this Agreement shall be performed in a workmanlike
manner.
(b) Diplomat represents and warrants that: (i) Diplomat has the power
and authority to enter into and perform its obligations under this Agreement;
(ii) the Content does not and shall not contain any content, materials,
advertising or services that are inaccurate or that infringe on or violate any
applicable law, regulation or right of a third party, including, without
limitation, export laws, or any proprietary, contract, moral, or privacy right
or any other third party right, and that Diplomat owns the Content or
otherwise has the right to place the Content on the Web Site; and (iii)
Diplomat has obtained any authorization(s) necessary for hypertext links from
the Web Site to other third party web sites. Should Diplomat receive notice of
a claim regarding the Web Site, Diplomat shall promptly provide Tadeo with
written notice of such claim.
(C) EXCEPT FOR THE LIMITED WARRANTY SET FORTH IN SECTION 10(a) ABOVE,
TADEO MAKES NO WARRANTIES HEREUNDER, AND TADEO EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Section 11. Indemnification.
(a) Diplomat agrees to indemnify, defend, and hold harmless Tadeo,
its directors, officers, employees and agents, and defend any action brought
against same with respect to any claim, demand, cause of action, debt or
liability, including reasonable attorneys' fees, to the extent that such
action is based upon a claim that: (i) if true, would constitute a breach of
any of Diplomat's representations, warranties, or agreements hereunder; (ii)
arises out of the gross negligence or willful misconduct of Diplomat; or (iii)
any of the Content to be provided by Diplomat hereunder or other material on
the Web Site infringes or violates any rights of third parties, including
without limitation, rights of publicity, rights of privacy, patents,
copyrights, trademarks, trade secrets, and/or licenses.
(b) Tadeo agrees to indemnify, defend, and hold harmless Diplomat,
its directors, officers, employees and agents, and defend any action brought
against same with respect to any claim, demand, cause of action, debt or
liability, including reasonable attorneys' fees, to the extent that such
action arises out of the gross negligence or willful misconduct of Tadeo in
connection with Tadeo's performance under this Agreement.
<PAGE>
Section 12. Limitation of Liability.
TADEO SHALL HAVE NO LIABILITY FOR UNAUTHORIZED ACCESS TO, OR
ALTERATION, THEFT OR DESTRUCTION OF, THE WEB SITE OR DIPLOMAT'S DATA FILES,
PROGRAMS OR INFORMATION THROUGH ACCIDENT, FRAUDULENT MEANS OR DEVICES. TADEO
SHALL HAVE NO LIABILITY WITH RESPECT TO TADEO'S OBLIGATIONS UNDER THIS
AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, INCIDENTAL, OR
PUNITIVE DAMAGES EVEN IF TADEO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN ANY EVENT, THE LIABILITY OF TADEO TO DIPLOMAT FOR ANY REASON AND
UPON ANY CAUSE OF ACTION SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID BY
DIPLOMAT UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS IMMEDIATELY
PRECEDING THE DATE ON WHICH SUCH CLAIM ACCRUED. THIS LIMITATION APPLIES TO ALL
CAUSES OF ACTION IN THE AGGREGATE, INCLUDING, WITHOUT LIMITATION, TO BREACH OF
CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY,
MISREPRESENTATIONS, AND OTHER TORTS.
Section 13. Dispute Resolution.
(a) In the event that any party to this Agreement has any claim,
right or cause of action against any other party to this Agreement, which the
parties shall be unable to settle by agreement between themselves, such claim,
right or cause of action, to the extent that the relief sought by such party
is for monetary damages or awards, shall be determined by arbitration in
accordance with the Rules of the American Arbitration Association ("AAA"),
through the adjudication by a single arbitrator, in New York, New York, with
the decision of such arbitrator to be final and binding upon all parties. The
fees, costs and expenses of such arbitration, as submitted by the AAA, shall
be borne equally by both Tadeo and Diplomat; provided, that each of Tadeo and
Diplomat shall pay the fees, costs and expenses of its own counsel,
accountants and other representatives in connection with such arbitration. The
parameters of the AAA proceedings undertaken in accordance with this Section
13 shall be prescribed such that a decision shall be rendered within sixty
(60) days following the initial written reference of the related dispute to
AAA arbitration.
(b) Notwithstanding any other provisions of this Section 13,
in the event that a party against whom any claim, right or cause of action is
asserted commences, or has commenced against it, bankruptcy, insolvency or
similar proceedings, the party or parties asserting such claim, right or cause
of action shall have no obligations under this Section 13 and may assert such
claim, right or cause of action in the manner and forum it deems appropriate,
subject to applicable laws. No determination or decision by the arbitrators
pursuant to this Section 13 shall limit or restrict the ability of any party
hereto to obtain or seek in any appropriate forum, any relief or remedy that
is not a monetary award or money damages.
<PAGE>
Section 14. Miscellaneous.
(a) Neither party any assign this Agreement, or their
respective rights and obligations hereunder, in whole or in part, without the
other party's prior written consent; provided, however, that Tadeo shall be
entitled to assign all of its rights and obligations hereunder to any
subsidiary or affiliated entity without the consent of Diplomat. Any attempt
to assign this Agreement without such consent (if required) shall be void and
of no effect ab initio. Notwithstanding the immediately preceding sentence,
either party may assign this Agreement or all, but not less than all, of its
rights and obligations hereunder to any entity that acquires it by purchase of
stock or by merger or otherwise, or by obtaining all or substantially all of
its assets (a "Permitted Assignee"); provided, that any such Permitted
Assignee thereafter succeeds to all of the rights and is subject to all of the
obligations of the assignor under this Agreement; and provided, however, that
the provisions of this Section 9(a) shall in no way modify the provisions of
Section 3(d).
(b) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State. Each party shall comply in
all respects with all laws and regulations applicable to its activities under
this Agreement.
(c) Notwithstanding the provisions of Section 8, each party
hereto irrevocably submits to the exclusive jurisdiction of (a) the courts of
the State of New York, New York County, or (b) the Untied States District
Court for the southern District of New York, for the purposes of any suit,
action or other proceeding arising out of this Agreement or any transaction
contemplated hereby or thereby. Each of Diplomat and Tadeo agrees to commence
any such action, suit or proceeding either in the Untied States District Court
for the Southern District of New York, or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
courts of the State of New York County. Each of Diplomat and Tadeo further
agrees that service of any process, summons, notice or documents by U.S.
registered mail to such party's respective address set forth below shall be
effective service of process for any action, suit or proceeding in New York
with respect to any matters to which it has submitted to jurisdiction in this
Section 9(c). Each of Diplomat and Tadeo irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby and
thereby in (i) the courts of the State of New York County, or (ii) the United
States District Court for the Southern District of New York, and hereby and
thereby further irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
(d) If any provisions of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision hereof (or the
<PAGE>
remaining portion thereof) or the application of such provision to any other
persons or circumstances.
(e) All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand, by
facsimile (with confirmation back), or sent, postage prepaid, by registered,
certified or express mail or nationally recognized overnight courier service
and shall be deemed given when so delivered by hand, by facsimile (with
confirmation back), or if mailed, three days after mailing (one business day
in the case of express mail or overnight courier service), as follows:
(i) if to Tadeo:
Tadeo E-Commerce Corp.
5 Hanover Square
New York, New York 10004
Attention: Damon Testaverde, President
(ii) if to Diplomat:
Diplomat Direct Marketing Corporation
414 Alfred Avenue
Teaneck, New Jersey 07666
Attention: Warren H. Golden, President
(f) The provisions of Sections 7, 8, 9, 10, 11, 12, 13 and 14
hereof shall survive any termination of this Agreement.
(g) No failure to either party to exercise or enforce any of
its rights under this Agreement shall act as a waiver of such right.
(h) This Agreement, along with the Exhibit hereto, contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. Neither party shall be liable
or bound to any other party in any manner by any representations, warranties
or convenants relating to such subject matter expect as specifically set forth
herein.
(i) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
(j) This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
<PAGE>
(k) This Agreement is for the sole benefit of the parties
hereto and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto any legal or equitable
rights hereunder.
(l) The headings contained in this Agreement or in any
Exhibit hereto are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All Exhibits annexed hereto
or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any capitalized terms used in any
Exhibit but not otherwise defined therein, shall have the meaning as defined
in this Agreement. When a reference is made in this Agreement to a Section or
an Exhibit, such reference shall be to a Section of, or an Exhibit to, this
Agreement unless otherwise indicated.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of June 30, 1999.
TADEO E-COMMERCE CORP.
By: /s/ DAMON TESTAVERDE
Damon Testaverde
President
DIPLOMAT DIRECT MARKETING CORP.
By: /s/ WARREN H. GOLDEN
Warren H. Golden
President
<PAGE>
PLEDGE SECURITY AGREEMENT
PLEDGE SECURITY AGREEMENT, dated June 30, 1999, made by DIPLOMAT DIRECT
MARKETING CORPORATION, a Delaware corporation having its principal office and
place of business at 414 Alfred Avenue, Teaneck N.J. 07666 (the "Borrower"),
RUBIN FAMILY IRREVOCABLE STOCK TRUST, having an address at 25 Highland
Boulevard, Dix Hills, N.Y. 11746 (the "Pledgor"), and TADEO E-COMMERCE CORP., a
Delaware corporation, having an office at 5 Hanover Square, New York, NY 10004
("Lender").
W I T N E S S E T H:
Borrower is the issuer of 10,000 shares of Series G Preferred Stock,
$.01 par value (the "Preferred Stock"), to Lender pursuant to a Securities
Purchase Agreement, dated as of June 30, 1999, between Lender and Borrower (the
"Securities Agreement"); and
WHEREAS, it is a condition to Lender's obligations under the Securities
Agreement that Pledgor pledge certain collateral to Lender, in form and amount
satisfactory to Lender, as security for Borrower's obligations with respect to
the shares of Preferred Stock sold to Lender under the Securities Agreement,
including but not limited to obligations for redemption and payment of
cumulative dividends, which obligations are specified under the terms of the
Securities Agreement and the Certificate of Designation, as filed with the
Secretary of State of Delaware, which creates the Preferred Stock (the
"Certificate"); and
WHEREAS, Pledgor is a principal stockholder of Borrower and the legal
and beneficial owner of the Collateral described in Section 1 and Exhibit A
hereof, and, to induce Lender to purchase the Preferred Stock from Borrower
pursuant to the Securities Agreement, Pledgor desires to pledge the Collateral
to Lender;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Borrower and Pledgor hereby agree with Lender as follows:
1. Definitions.
(a) "Debt" means all debts, liabilities and obligations of
Borrower to Lender (or to Lender's successor(s) as a holder of the Preferred
Stock) pursuant to and under the Securities Agreement and pursuant to the
Certificate with respect to the Preferred Stock, and all amendments to either,
and any extensions and renewals thereof or of a part thereof, together with
interest, fees, charges, expenses and costs of collection (including reasonable
attorneys' fees).
(b) "Collateral" means all securities specifically described
on Exhibit A, together with any substitutions or replacements thereto and all
securities which are added thereto as a result of a stock split or similar event
with respect to the collateral (including, without limitation, any stock
dividend or distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights, whether as an addition to, in substitution of, or in exchange for any
shares of any Collateral, or otherwise,
<PAGE>
-2-
and all proceeds thereof. Exhibit A hereto will be deemed to be amended
automatically and immediately upon the addition, substitution or replacement of
the securities listed on Exhibit A and upon such events, Pledgor shall promptly
deliver all substitute, replacement or additional securities to Lender as
additional Collateral hereunder.
2. Grant of Security Interest and Pledge.
(a) Pledgor hereby grants to Lender a first priority security
interest in and lien upon the Collateral as security for the Debt and all costs,
expenses and attorneys' fees incurred by Lender in collecting the Debt or
enforcing the Loan Agreement and the Note.
(b) Concurrently with the execution of this Pledge Security
Agreement, Pledgor shall deliver to the Lender, all certificates representing
the Collateral and, if the Collateral is uncertificated, shall sign one or more
financing statements evidencing the pledge of such Collateral to the Lender.
Notwithstanding any contrary provision or inference herein or elsewhere, Lender
shall have no right to vote the Collateral (if applicable) at any time unless
and until an Event of Default has occurred. The security interest in and lien
upon the Collateral granted to Lender hereunder shall attach upon delivery of
the Collateral to the Lender. Lender shall have, in addition to the rights and
remedies described in this Pledge Security Agreement, all the rights and
remedies of a secured party under the New York Uniform Commercial Code. Pledgor
irrevocably appoints Lender as its lawful attorney and agent on Pledgor's behalf
to execute any UCC-1 financing statements or UCC-3 amendments, to file such
documents signed by Lender alone in any appropriate public office, and to
register a pledge of any of the Collateral with any issuer of the Collateral.
(c) If, while this Agreement is in effect, Pledgor shall
become entitled to receive or shall receive any securities or any stock
certificate (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights, whether as an addition to, in substitution of, or in exchange for any
shares of any Collateral, or otherwise, then Pledgor agrees to accept the same
as Lender's agent and to hold the same in trust on behalf of and for the benefit
of Lender and to deliver the same forthwith to the Lender in the exact form
received, with the endorsement of Pledgor when necessary and/or appropriate
undated stock powers duly executed in blank, to be held by the Lender, subject
to the terms hereof, as additional collateral security for the Debt. Any sums
paid upon or in respect of the Collateral upon the liquidation or dissolution of
any issuer of securities constituting Collateral shall be paid over to the
Lender to be held by it in trust as additional collateral security for the
Debts; and in case any distributions of capital shall be made on or in respect
of the Collateral or any property shall be distributed upon or with respect to
the Collateral pursuant to the recapitalization or reclassification of the
capital of any issuer of securities constituting Collateral or pursuant to the
reorganization thereof, the property so distributed shall be delivered to the
Lender to be held by it as additional collateral security for the Debt. All sums
of money and property so paid or distributed in respect of the Collateral which
are received by Pledgor shall, until paid or delivered to the Lender, be held by
Pledgor in trust as additional collateral security for the Debt.
<PAGE>
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(d) Pledgor will not sell, transfer, pledge, exchange, assign
or otherwise dispose of or encumber the Collateral, or any interest therein or
any proceeds thereof, whether by operation of law or otherwise.
(e) This Agreement is in addition to and without limitation of
any right of Lender under the Securities Agreement, the Certificate, or any
other agreement, security agreement, mortgage or guaranty granted by the
Borrower or Pledgor to Lender. This Agreement is absolute and without any
conditions. Lender can enforce its rights in the Collateral immediately upon an
Event of Default without having first to attempt any collection from Borrower or
Pledgor.
(f) This Pledge Agreement and the obligations hereunder are
non-recourse against the Pledgor.
3. Representations and Warranties.
Pledgor represents and warrants to Lender as follows:
(a) Pledgor owns and holds the Collateral free from any
security interest, lien, encumbrance or restriction whatsoever. No one (other
than Lender by reason of this Pledge Security Agreement) has any right, title,
claim or interest of any kind or nature in or to the Collateral.
(b) The security interest herein conferred upon Lender
constitutes the first and paramount lien upon all the Collateral.
(c) The securities which constitute the Collateral are fully
paid and non-assessable.
(d) The delivery of the Collateral to the Lender by Pledgor
under the terms of this Pledge Security Agreement and the compliance by Pledgor
with the other terms of this Pledge Security Agreement will not require the
consent of any governmental or regulatory authority or violate any provision of
or result in default under any other agreement to which Pledgor is a party or to
which its properties and assets are subject. Pledgor represents and warrants
that it is duly authorized to enter into this Pledge Security Agreement and the
transactions contemplated hereunder and that the person(s) signing this Pledge
Security Agreement on behalf of Pledgor is duly authorized to act on its behalf.
Each delivery of additional Collateral and each
delivery of Collateral for substitution hereunder shall, in and of itself,
constitute a reaffirmation by Pledgor of the representations and warranties set
forth above.
4. Events of Default and Remedies.
(a) Each of the following shall constitute an Event of Default
under this Pledge Security Agreement:
1. An event occurs which constitutes an Event
of Default under the Securities Agreement
and/or the Certificate;
<PAGE>
-4-
2. The perfection of the security interest
granted Lender in the Collateral is impaired
or is about to become impaired; or
3. Borrower and/or Pledgor fails to perform any
term, condition or covenant of this
Agreement, or any representation or warranty
made by Pledgor and/or Borrower in this
Agreement, or by Borrower in the Securities
Agreement and/or the Certificate, or in
connection therewith is determined to be
false.
(b) Upon the occurrence of one or more of the foregoing Events
of Default, Lender may liquidate so much of the Collateral as is required to pay
the Debt and the costs, expenses and fees described in 2(a) hereof.
Upon the occurrence of an Event of Default, without limiting any other
right or remedy of Lender which may be available at law or in equity, Lender,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, assign, give an option or options to
purchase, contract to sell or otherwise dispose of and deliver said Collateral,
or any part thereof, at public or private sale or sales, at any exchange,
brokers' board or elsewhere upon such terms and conditions as Lender may deem
advisable. Lender or its agent shall pay over the net proceeds of any such
collection, receipt, appropriation, realization or sale, after deduction of all
reasonable costs and expenses of every kind incurred therein or in any way
relating to the rights of Lender hereunder, including reasonable attorneys' fees
and legal expenses, to Lender for application by Lender to the payment, in whole
or in part, of the Debt, Borrower remaining liable for any deficiency remaining
unpaid after such application, and only after so paying over such net proceeds
and after the payment by Lender of any other amount required by any provision of
law need Lender account for the surplus, if any, to Pledgor. Pledgor agrees that
Lender need not give more than ten days' notice of the time and place of any
public sale or of the time after which a private sale or other intended
disposition is to take place and that such notice is reasonable notification of
such matters. No notification need be given to Pledgor if it has signed after an
Event of Default a statement renouncing or modifying any right to notification
of sale or other intended disposition. In addition to the rights and remedies
granted to Lender in this Agreement, Lender shall have all the rights and
remedies of a secured party under the Uniform Commercial Code of the State of
New York.
5. Duration and Waivers.
Irrespective of any action, omission or course of dealing whatever by
Lender, this Pledge Security Agreement shall remain in full effect until the
Debt to Lender shall have been paid in full. Without limiting the generality of
the foregoing, Pledgor and Borrower (a) agree that Lender shall have no duty to
make any presentment or collection or to preserve any right of any kind with
reference to the Collateral, (b) agree that Lender shall at all times have the
right to grant any indulgence to Borrower and to deal in any other manner with
Borrower including (without limitation) the granting of any extension or
renewal, the increase or decrease of any rate of interest, the forbearance from
exercising any right, power or privilege, including (without limitation) any
right to demand security, the release of any security or of any obligor, the
<PAGE>
-5-
effecting of any other release, compromise or settlement, the forbearance from
proceeding against any security or obligor, the substitution of security (even
if of a different character or value), and (c) waive presentment, demand,
protest or notice of protest or nonpayment of the Debt to Lender or any part
thereof or of the Collateral or any part thereof, waive notice of any default by
Borrower, waive notice of any act, omission, or course of dealing by Lender and
waive any other notice to which Pledgor or Borrower might be entitled but for
the within waiver.
6. Payment of Debt.
Upon payment in full and cancellation of the debt secured hereby,
Lender shall, upon the request of Pledgor, promptly release the Collateral to
the Pledgor.
7. Interest and Income from the Collateral.
Lender shall have no right to any interest or income paid or payable on
the Collateral and all such interest or income shall be the property of and
owned by Pledgor, unless and until an Event of Default has occurred.
8. Disposition of Collateral. Pledgor recognizes that Lender may be
unable to effect a public sale of any or all the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933 and applicable state
securities laws, but may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obliged to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or sale thereof. Pledgor acknowledges
and agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner.
9. Notices.
All notices, statements, requests and demands given to or made upon
Lender, Borrower, or Pledgor in accordance with the provisions of this Pledge
Security Agreement shall be deemed to have been given or made when deposited in
the mail, postage prepaid, or in the case of telegraphic notice, when delivered
to the telegraph company, charges prepaid, addressed as follows:
If to Pledgor:
Rubin Family Irrevocable Stock Trust
25 Highland Boulevard
Dix Hills, New York 11746
Attn: Marjorie Rubin, Co-Trustee
If to Lender:
Tadeo E-Commerce Corp.
5 Hanover Square
New York, NY 10004
Attn: Damon Testaverde, President
<PAGE>
-6-
If to Borrower:
Diplomat Direct Marketing Corporation
414 Alfred Avenue
Teaneck, New Jersey 07666
Attn: Warren Golden, President
or such other person, firm, officer, or address as any party shall for itself
from time to time designate by written notice to the other parties hereto,
provided, however, that notices may be given by telex, telecopier, courier
service, telephone, personal delivery or otherwise, effective the date of such
communication; provided that notices given by such means of communication are
confirmed by mail as aforesaid postmarked within one business day after such
other form of communication. All notices mailed hereunder in the manner required
by this paragraph shall be effective when delivered.
10. General Provisions.
Each right, power or privilege specified or referred to in this Pledge
Security Agreement is in addition to any other rights, powers and privileges
that Lender may otherwise have or acquire by operation of law, by other contract
or otherwise. No course of dealing in respect of, nor any omission or delay in
the exercise of, any right, power or privilege by Lender shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
further or other exercise thereof, as each right, power or privilege may be
exercised by Lender either independently or concurrently with other rights,
powers and privileges as often and in such order as Lender may deem expedient.
No waiver or consent granted by any party in respect of this Pledge Security
Agreement shall be binding upon that party unless specifically granted in
writing, which writing shall be strictly construed. This Pledge Security
Agreement shall not be altered or modified except by a written agreement
executed by the party(ies) to be charged by such amendment. This Pledge Security
Agreement shall bind Pledgor, Borrower, Lender and their respective successors
and assigns. The provisions of this Pledge Security Agreement, and the
respective rights and duties of Borrower, Pledgor and Lender hereunder shall be
governed by and construed in accordance with the laws of the State of New York.
11. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of Lender, Pledgor and/or Borrower will execute
and deliver such financing statements, assignments and further documents and do
such further acts and things as Lender may reasonably request in order to
establish, perfect and maintain a valid security interest in the Collateral as
security for the Debt and to effect the purposes of this Agreement.
<PAGE>
-7-
IN WITNESS WHEREOF, Pledgor, Borrower and Lender have executed this
Pledge Security Agreement as of the date first above written.
PLEDGOR:
RUBIN FAMILY IRREVOCABLE STOCK TRUST
By: /s/ MAJORIE RUBIN
------------------------------------------------
Marjorie Rubin, Trustee
By: /s/ ROBERT SCHULMAN
------------------------------------------------
Robert Schulman, Trustee
AGREED AND ACCEPTED:
LENDER: BORROWER:
TADEO E-COMMERCE CORP. DIPLOMAT DIRECT MARKETING
CORPORATION
By: /s/ DAMON TESTAVERDE By: /s/ WARREN H. GOLDEN
Name: Damon Testaverde Warren Golden, President
Title: President
<PAGE>
EXHIBIT A
Identification of Collateral:
- ----------------------------
Number of Shares
Name of Company of Common Stock
--------------- ---------------
TADEO HOLDINGS, INC. 300,000
<PAGE>
FIRST AMENDMENT TO
SECURED CREDIT AGREEMENT AND RELATED DOCUMENTS,
WAIVER AND CONSENT
This FIRST AMENDMENT TO SECURED CREDIT AGREEMENT AND RELATED DOCUMENTS
(this "Amendment"), dated as of July 13, 1999, is among BROWNSTONE HOLDINGS,
INC., a Delaware corporation ("Brownstone"), ECOLOGY KIDS, INC., a Delaware
corporation ("Ecology Kids"), DIPLOMAT HOLDINGS, INC., a California corporation
("Diplomat") and LEW MAGRAM LTD., a New York corporation ("Lew Magram");
Brownstone, Ecology Kids, Diplomat and Lew Magram are hereinafter referred to,
collectively, as "Borrowers" and individually, as a "Borrower"), FIRST SOURCE
FINANCIAL LLP, an Illinois registered limited liability partnership ("Lender")
and DIPLOMAT DIRECT MARKETING CORPORATION, a Delaware corporation ("Parent"), in
its capacity as Guarantor and in its capacity as funds administrator and
borrowing agent for the Borrowers (in such capacity, the "Funds Administrator")
(this and all other capitalized terms used herein are defined in Section 1 of
the Credit Agreement defined below).
R E C I T A L S:
A. Borrowers, Parent and Lender are parties to that certain Secured
Credit Agreement dated as of May 12, 1999 (the "Credit Agreement") and certain
other Related Documents, subject to the terms and conditions of which Lender has
agreed to make loans and other financial accommodations to Borrowers.
B. Parent has entered and intends to enter into a series of
transactions with Tadeo Holdings Inc. ("Tadeo") and Tadeo E - Commerce Corp.
("Tadeo E - Commerce") including the issuance by the Parent of Series G
Preferred Stock and a stock swap between Tadeo and Parent.
C. Borrowers and Parent have requested modifications to the Credit
Agreement and the Guaranty to, among other things, waive the mandatory
prepayment of the Term B Loan, and Lender is willing to agree to such request
subject to the terms and conditions of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, and subject to the terms and conditions hereof,
Parent, Borrowers and Lender hereby agree as follows:
1. Definitions. All capitalized terms used but not elsewhere defined in
this Amendment shall have the respective meanings ascribed thereto in the Credit
Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is amended as
follows:
2.01. The following definitions appearing in Section 1.1 of the Credit
Agreement are hereby deleted and the following definitions substituted in lieu
thereof:
<PAGE>
"Pledge Agreements" shall mean the (i) Pledge Agreements from
Parent dated May 12, 1999 and June 30, 1999, respectively and (ii) Pledge
Agreement from Robert Rubin dated May 12, 1999, each in favor of Lender as the
same may, in each case, be amended, modified, supplemented or replaced from time
to time.
"Preferred Stock Documents" shall mean the Certificates of
Designation (as amended and filed with the Delaware Secretary of State) for
Series B, C, D, E, F and G Preferred Stock of Parent."
2.02. Section 1.1 of the Credit Agreement is hereby amended by
inserting the following new definition in the alphabetically appropriate place
therein:
"Tadeo Stock" shall mean the common stock of Tadeo Holdings
Inc. now owned or hereafter acquired by Parent or any Borrower."
2.03. Schedules 1.1(a), 10.6(b) and 11.10 are hereby deleted and the
new Schedules 1.1(a), 10.6(b) and 11.10 attached to this Amendment are
substituted in lieu thereof.
3. Waiver of Mandatory Prepayment. Lender hereby waives the mandatory
prepayment required by Section 2.5(b) of the Credit Agreement relating to the
issuance of 10,500 shares of Series G Preferred Stock of the Parent.
4. Amendments to Guaranty. The Guaranty is amended as follows:
4.01. Section 7.5 of the Guaranty is hereby deleted and the following
substituted in lieu thereof:
"7.5 Fundamental Business Changes. Engage in any business other than
the ownership of the Borrower's Equity Interests and the Tadeo Stock."
5. Consent Relating to Tadeo Stock. Notwithstanding Sections 7.5 and
7.7 of the Guaranty to contrary, Lender hereby consents to Parent's acquisition
of the Tadeo Stock.
6. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of all of the following conditions in a
manner, form and substance satisfactory to Lender:
(a) Delivery of Documents. The following shall have been
delivered to Collateral Agent, each duly authorized and executed:
(1) this Amendment;
<PAGE>
(2) a certificate of designation for the Series G
Preferred Stock of Parent in form and substance satisfactory
to Lender;
(3) the contracts between Tadeo, Tadeo E - Commerce
and Parent;
(4) the Pledge Agreement dated as of even date
herewith relating to the Tadeo Stock, the Tadeo Stock, stock
powers therefor and an Irrevocable Proxy, each in form and
substance satisfactory to Lender;
(5) an opinion of Gersten, Savage and Kaplowitz
relating to the transactions contemplated by this Amendment,
in form and substance satisfactory to Lender;
(6) the consent of Robert Rubin to this Amendment in
the form set forth below;
(7) to the extent a default exists or would occur as
a result of the transactions contemplated by this Amendment, a
consent and/or waiver by FINOVA Mezzanine Capital Inc. to cure
or prevent any defaults under the Subordinated Debt Documents;
and
(8) such other instruments, documents, certificates,
consents, waivers and opinions as Lender reasonably may
request.
(b) Payment of Amendment Fee. The Borrowers shall have paid to
Lender a fee in the amount $25,000 for entering into this Amendment.
Lender and Borrowers agree such fee shall be paid from the proceeds of
a Revolving Loan which the Funds Administrator hereby requests Lender
to make on the date hereof.
(c) No Material Adverse Effect. No Material Adverse Effect
shall have occurred since the date of the most recent financial
statements for Parent and Borrowers received by Lender.
(d) Payment of Costs. Borrowers shall have paid or caused to
be paid to Lender all out of pocket expenses of Lender relating to this
Amendment and the transactions contemplated herein, including, without
limitation, the expenses and reasonable fees of Lender's counsel.
(e) Satisfaction of Lender's Counsel. All legal matters
incident to the transactions contemplated hereby shall be reasonably
satisfactory to counsel for Lender.
The date on which all of the conditions set forth in this Paragraph 6 have been
satisfied (or waived by Lender) is referred to herein as the "Effective Date."
<PAGE>
7. References. From and after the Effective Date, all references in the
Credit Agreement and the Related Documents to the Credit Agreement shall be
deemed to refer to the Credit Agreement and Guaranty, as amended hereby.
8. Current Defaults. The Borrowers have failed to comply with various
provisions of the Credit Agreement (the "Current Defaults"), including but not
limited to the following: (i) Borrowers have failed to comply with the Borrowing
Base limitations (Section 2.7), (ii) failed to comply with limitations on
intercompany loans (Section 11.21) and (iii) failed to deliver financial
statements in a timely manner (Section 11.1). As a result of the Current
Defaults, Lender has elected to impose the Default Rate provided for in Section
4.2 of the Cedit Agreement, and has so notified the Borrowers in writing.
Nothing herein, or actions taken or not taken by Lender pursuant hereto
or pursuant to the Loan Documents, shall or be deemed to (i) constitute a waiver
of the Current Defaults described herein or any other Event of Default now
existing or hereafter arising, (ii) constitute a waiver of any rights, claims
and/or remedies under the Loan Documents and/or applicable law, or (iii)
constitute a course of dealing among the parties. Lender specifically reserves
each of its rights and remedies under the Credit Agreement and the other Related
Documents.
9. Representations and Warranties. Parent and each Borrower represents
and warrants to Lender that (a) it has full power and authority to execute and
deliver this Amendment and to perform its obligations hereunder, (b) upon the
execution and delivery hereof, this Amendment will be valid, binding and
enforceable upon it in accordance with its terms, (c) the execution and delivery
of this Amendment does not and will not contravene, conflict with, violate or
constitute a default under (A) the organizational documents or operating
agreement of Parent or any Borrower or (B) any applicable law, rule, regulation,
judgment, decree or order of which Parent or any Borrower has knowledge or any
agreement, indenture or instrument to which Parent or any Borrower is a party or
is bound or which is binding upon or applicable to all or any portion of its
property, and (d) no Material Adverse Effect has occurred since the date of the
last financial statements delivered by Borrowers to Lender.
10. Costs and Expenses. Borrowers agree, jointly and severally, to
reimburse Lender for all out of pocket expenses incurred in the preparation,
negotiation and execution of this Amendment and the consummation of the
transactions contemplated hereby, including, without limitation, the expenses
and fees of counsel for Lender.
11. No Further Amendments; Ratification of Liability. Except as amended
hereby, the Credit Agreement and each of the Related Documents shall remain in
full force and effect in accordance with their respective terms. Parent and each
Borrower hereby ratifies and confirms its liabilities, obligations and
agreements under the Credit Agreement and the Related Documents to which it is a
party, all as amended by this Amendment, and the liens and security interests
created thereby, and each acknowledges that (a) it has no defenses, claims or
set-offs to the enforcement of such liabilities, obligations and
<PAGE>
agreements, (b) Lender has fully performed all obligations to Borrowers and
Parent which it may have had or have on and as of the date hereof and (c) other
than as specifically set forth herein, Lender does not waive, diminish or limit
any term or condition contained in any of the Credit Agreement or the Related
Documents. Lender's agreement to the terms of this Amendment or any other
amendment of the Credit Agreement or Related Documents shall not be deemed to
establish or create a custom or course of dealing among Lender on the one hand,
and Parent and Borrowers on the other hand. This Amendment and the documents
executed and delivered pursuant to this Amendment contain the entire agreement
among Lender, Parent and Borrowers with respect to the transactions contemplated
by this Amendment.
12. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
13. Further Assurances. Parent and each Borrower covenants and agrees
that it will at any time and from time to time do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, documents and instruments as reasonably may be required by
Lender in order to effectuate fully the intent of this Amendment.
14. Severability. If any term or provision of this Amendment or the
application thereof to any party or circumstance shall be held to be invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
the validity, legality and enforceability of the remaining terms and provisions
of this Amendment shall not in any way be affected or impaired thereby, and the
affected term or provision shall be modified to the minimum extent permitted by
law so as most fully to achieve the intention of this Amendment.
15. Captions. The captions in this Amendment are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Amendment or any of the provisions hereof.
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment at Chicago, Illinois as of the day and year first above written.
DIPLOMAT DIRECT MARKETING CORPORATION, in its
capacity as Guarantor and Funds Administrator
By: /s/ WARREN H. GOLDEN
------------------------------------------------
Name Printed: Warren Golden
Its: President and Chief Executive Officer
BROWNSTONE HOLDINGS, INC.
By: /s/ WARREN H. GOLDEN
------------------------------------------------
Name Printed: Warren Golden
Its: Vice President
ECOLOGY KIDS, INC.
By: /s/ WARREN H. GOLDEN
------------------------------------------------
Name Printed: Warren Golden
Its: Chief Financial Officer
DIPLOMAT HOLDINGS, INC.
By: /s/ WARREN H. GOLDEN
------------------------------------------------
Name Printed: Warren Golden
Its: Chief Financial Officer
LEW MAGRAM LTD.
By: /s/ WARREN H. GOLDEN
-------------------------------------------------
Name Printed: Warren Golden
Its: Executive Vice President
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.
Its: Manager
By: /s/ CHESTER R. ZARA
------------------------------------------------
Name Printed: Chester R. Zara
Its: Senior Vice President
<PAGE>
Guarantor's Consent
The undersigned, Robert Rubin, has heretofore executed and delivered to
the Lender a Guaranty dated as of May 12, 1999 and hereby consents to the
Amendment as set forth above and confirms that its Guaranty and all of the
undersigned's obligations thereunder remain in full force and effect. The
undersigned further agrees that the consent of the undersigned to any further
amendments to the Credit Agreement shall not be required as a result of this
consent having been obtained, except to the extent, if any, required by the
Guaranty referred to above.
/s/ ROBERT RUBIN
----------------------------
ROBERT RUBIN
<PAGE>
SECOND AMENDMENT TO
SECURED CREDIT AGREEMENT
AND WAIVER
This SECOND AMENDMENT TO SECURED CREDIT AGREEMENT (this "Amendment"),
dated as of July 26, 1999, is among BROWNSTONE HOLDINGS, INC., a Delaware
corporation ("Brownstone"), ECOLOGY KIDS, INC., a Delaware corporation ("Ecology
Kids"), DIPLOMAT HOLDINGS, INC., a California corporation ("Diplomat") and LEW
MAGRAM LTD., a New York corporation ("Lew Magram"); Brownstone, Ecology Kids,
Diplomat and Lew Magram are hereinafter referred to, collectively, as
"Borrowers" and individually, as a "Borrower"), FIRST SOURCE FINANCIAL LLP, an
Illinois registered limited liability partnership ("Lender") and DIPLOMAT DIRECT
MARKETING CORPORATION, a Delaware corporation, in its capacity as funds
administrator and borrowing agent for the Borrowers (in such capacity, the
"Funds Administrator") (this and all other capitalized terms used herein are
defined in Section 1 of the Credit Agreement defined below).
R E C I T A L S:
A. Borrowers, Parent and Lender are parties to that certain Secured
Credit Agreement dated as of May 12, 1999, as amended (the "Credit Agreement"),
subject to the terms and conditions of which Lender has agreed to make loans and
other financial accommodations to Borrowers.
B. Borrowers have not complied with the Borrowing Base and intercompany
loan restrictions under the Credit Agreement, and Borrowers have requested
Lender to increase availability under the Borrowing Base by providing an advance
against additional Collateral pledged by The Rubin Family Irrevocable Stock
Trust U/A Dated April 30, 1997 (the "Trust").
C. Borrowers are in non-compliance with certain covenants contained in
the Credit Agreement (the "Existing Defaults") and have indicated they expect to
be in non-compliance with certain financial covenants as of June 30, 1999 (the
"Financial Defaults"; the Existing Defaults and the Financial Defaults are
referred to collectively as the "Current Defaults"), and Borrowers have
requested Lender to waive the Current Defaults.
D. Subject to the terms and conditions of this Amendment, Lender has
agreed to include the additional Collateral pledged by the Trust in the
Borrowing Base and waive the Current Defaults.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, and subject to the terms and conditions hereof,
Funds Administrator, Borrowers and Lender hereby agree as follows:
1. Definitions. All capitalized terms used but not elsewhere defined in
this Amendment shall have the respective meanings ascribed thereto in the Credit
Agreement.
<PAGE>
2. Amendments to Credit Agreement. The Credit Agreement is amended as
follows:
2.01. Section 1.1 of the Credit Agreement is hereby amended by amending
and restating the following definitions in their entirety:
"Change of Control" shall mean (i) failure of Parent to own,
legally and beneficially, one hundred percent of the issued and outstanding
capital stock of any Borrower or (ii) when any Person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
other than Parent, Borrowers, any of their wholly-owned Subsidiaries or any of
their employee benefit plans, becomes the beneficial owner of the Parent's
Equity Interests having fifty percent (50%) or more of the combined voting power
of the then outstanding Equity Interests of the Parent that may be cast for the
election of directors of the Parent (other than as a result of issuance of
Equity Interests initiated by Parent in the ordinary course of business), or
(iii) two-thirds of the Parent's Board of Directors is removed or not
re-elected, or (iv) any two of Warren H. Golden (President and Chief Executive
Officer), Irving Magram (Director of Catalogs), and Mark J. McSweeney (Chief
Financial Officer), shall resign or be terminated, other than for cause and
other than as a result of death or disability, from their respective current
offices and capacities with the Parent and the Borrowers, and a successor or
successors acceptable to Lender shall not have been elected or appointed, as
applicable, within ninety (90) days after such resignation or termination;
provided, that if no such successor is elected or appointed, as applicable, an
Event of Default shall be deemed to have occurred and be continuing from and
after the date of such resignation or termination.
"Pledge Agreements" shall mean the (i) Pledge Agreement from
Parent dated of even date herewith; (ii) Pledge Agreement from Robert Rubin
dated of even date herewith and (iii) Pledge Agreement from the Trust dated as
of July 26, 1999, each in favor of Lender, as the same may, in each case, be
amended, modified, supplemented or replaced from time to time.
"Pledged Cash Collateral" shall mean any certificates of
deposit or other Cash Equivalent deposits or cash in depositary accounts (i)
pledged by Robert Rubin or Trust to Lender and maintained at the Master Account
Bank pursuant to a pledge or security agreement in form and substance
satisfactory to the Lender and the Master Account Bank and (ii) in which Lender
shall have a valid and perfected first priority Lien. Notwithstanding the
foregoing to the contrary, Pledged Cash Collateral shall also include, through
the period ending August 31, 1999, the value, calculated based upon the bid
price reported as of the previous Business Day by the Securities Intermediary,
of the common stock of Tadeo Holdings, Inc. pledged by Trust pursuant to the
Pledge Agreement executed by Trust dated as of July 26, 1999; provided that (i)
such stock continues to be actively traded on the Nasdaq stock market (ii) the
bid price of such stock is never less than $2.00 and (iii) for the period ending
July 30, 1999, the maximum value of each share of Tadeo Holdings, Inc. stock
shall, for the purposes of each Borrowing base, be $3.25,
<PAGE>
and (iv) thereafter, the maximum value of each share of Tadeo Holdings, Inc.
stock shall, for the purposes of each Borrowing Base, be $2.75.
2.02. Section 1.1 of the Credit Agreement is hereby amended by
inserting the following new definitions in the alphabetically appropriate places
therein:
"Securities Intermediary" shall mean the Master Account Bank
or Salomon Brothers Smith Barney, Inc.
"Trust" shall mean The Rubin Family Irrevocable Stock Trust
U/A Dated April 30, 1997.
2.03. Schedule 10.21 is hereby deleted and Schedule 10.21 attached to
this Amendment is substituted in lieu thereof, provided, however, Lender does
not waive any noncompliance with any provision of the Credit Agreement arising
from the attachment of any Lien for failure to pay taxes.
3. Waivers.
(a) Borrowers have failed to submit monthly financial statements as
required by Section 11.1(c) of the Credit Agreement for April and May
in 1999;
(b) Borrowers are currently in noncompliance with Section 2.7 of the
Credit Agreement requiring mandatory prepayment of Revolving Loans;
(c) Borrowers are currently in noncompliance with Section 11.21(ii) of
the Credit Agreement restricting intercompany loans; and
(d) Borrowers have indicated they expect to be in noncompliance with
Sections 11.34(a), 11.34(b) and 11.34(c) of the Credit Agreement for
the period ending June 30, 1999.
Upon satisfaction of the conditions precedent set forth in Section 4 of
this Amendment, the Lender hereby waives Borrowers' noncompliance with the
foregoing sections of the Credit Agreement, but only with regard to the specific
instances described above. From and after the date of this Amendment with
respect to clauses (a) - (c) above, and for each measurement period ending after
June 30, 1999 with respect to clause (d) above, Borrowers shall comply with the
terms and conditions of the Credit Agreement, which shall remain in full force
and effect.
4. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of all of the following conditions in a
manner, form and substance satisfactory to Lender:
<PAGE>
(a) Delivery of Documents. The following shall have been
delivered to Collateral Agent, each duly authorized and executed:
(1) this Amendment;
(2) a Limited Recourse Guaranty of Trust in form and
substance satisfactory to the Lender;
(3) a Pledge Agreement executed by Trust in favor of
the Lender in form and substance satisfactory to the Lender
together with UCC financing statements relating thereto;
(4) a safekeeping or other account agreements with
the Securities Intermediary, in form and substance
satisfactory to the Lender which shall provide, among other
things, sale of the Pledged Tadeo Stock (defined below) and
delivery of all proceeds to an account at the Master Account
Bank subject to an Assignment of Deposit Agreement dated as of
even date herewith;
(5) the Securities Intermediary shall have confirmed
receipt of 300,000 unrestricted shares of the common stock of
Tadeo Holdings, Inc. (the "Pledged Tadeo Stock");
(6) an Assignment of Deposit Agreement contemplated
by clause (4) above from Trust and acknowledged by the Master
Account Bank;
(7) counsel to Tadeo shall have rendered an opinion
that there are no restrictions regarding the sale of the
Pledged Tadeo stock;
(8) counsel to Trust shall have rendered an opinion
to Lender regarding the execution and delivery of the Related
Documents executed by Trust in form and substance satisfactory
to Lender;
(9) such other instruments, documents, certificates,
consents, waivers and opinions as Lender reasonably may
request.
(b) Payment of Fee. The Borrowers shall have paid to Lender a
fee in the amount $50,000 as consideration for the waivers provided in
Section 3 of this Amendment and for including the Pledged Tadeo Stock
in the Borrowing Base. Lender and Borrowers agree such fee shall be
paid from the proceeds of a Revolving Loan which the Funds
Administrator hereby requests Lender to make on the date hereof.
<PAGE>
(c) No Material Adverse Effect. No Material Adverse Effect
shall have occurred since the date of the most recent financial
statements for Parent and Borrowers received by Lender.
(d) Payment of Costs. Borrowers shall have paid or caused to
be paid to Lender all out of pocket expenses of Lender relating to this
Amendment and the transactions contemplated herein, including, without
limitation, the expenses and reasonable fees of Lender's counsel.
(e) Satisfaction of Lender's Counsel. All legal matters
incident to the transactions contemplated hereby shall be reasonably
satisfactory to counsel for Lender.
The date on which all of the conditions set forth in this Paragraph 4 have been
satisfied (or waived by Lender) is referred to herein as the "Effective Date."
5. References. From and after the Effective Date, all references to the
Credit Agreement shall be deemed to refer to the Credit Agreement as amended
hereby.
6. Current Defaults. Nothing herein, or actions taken or not taken by
Lender pursuant hereto or pursuant to the Loan Documents, shall or be deemed to
(i) constitute a waiver of any Event of Default or Unmatured Event of Default
except for the Current Defaults or (ii) constitute a course of dealing among the
parties.
7. Representations and Warranties. Each Borrower hereby confirms to
Lender that the representations and warranties set forth in the Credit Agreement
and the Related Documents to which it is a party are true and correct as of the
date hereof after giving effect to this Amendment, except to the extent such
representations and warranties expressly relate to an earlier date and except as
disclosed in the schedules attached to the most recent Notice Prime Rate
Activity, Notice of LIBOR Activity or LC Guaranty Request. Each Borrower
represents and warrants to Lender that (a) it has full power and authority to
execute and deliver this Amendment and to perform its obligations hereunder, (b)
upon the execution and delivery hereof, this Amendment will be valid, binding
and enforceable upon it in accordance with its terms, (c) the execution and
delivery of this Amendment does not and will not contravene, conflict with,
violate or constitute a default under (A) the organizational documents or
operating agreement of any Borrower or (B) any applicable law, rule, regulation,
judgment, decree or order of which any Borrower has knowledge or any agreement,
indenture or instrument to which any Borrower is a party or is bound or which is
binding upon or applicable to all or any portion of its property, and (d) no
Material Adverse Effect has occurred since the date of the last financial
statements delivered by Borrowers to Lender.
8. Costs and Expenses. Borrowers agree, jointly and severally, to
reimburse Lender for all out of pocket expenses incurred in the preparation,
negotiation and execution
<PAGE>
of this Amendment and the consummation of the transactions contemplated hereby,
including, without limitation, the expenses and fees of counsel for Lender.
9. No Further Amendments; Ratification of Liability. Except as amended
hereby, the Credit Agreement and each of the Related Documents shall remain in
full force and effect in accordance with their respective terms. Each Borrower
hereby ratifies and confirms its liabilities, obligations and agreements under
the Credit Agreement and the Related Documents to which it is a party, all as
amended by this Amendment, and the liens and security interests created thereby,
and each acknowledges that (a) it has no defenses, claims or set-offs to the
enforcement of such liabilities, obligations and agreements, (b) Lender has
fully performed all obligations to Borrowers which it may have had or have on
and as of the date hereof and (c) other than as specifically set forth herein,
Lender does not waive, diminish or limit any term or condition contained in any
of the Credit Agreement or the Related Documents. Lender's agreement to the
terms of this Amendment or any other amendment of the Credit Agreement or
Related Documents shall not be deemed to establish or create a custom or course
of dealing among Lender on the one hand, and the Borrowers on the other hand.
This Amendment and the documents executed and delivered pursuant to this
Amendment contain the entire agreement among Lender and Borrowers with respect
to the transactions contemplated by this Amendment.
10. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
11. Further Assurances. Each Borrower covenants and agrees that it will
at any time and from time to time do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
documents and instruments as reasonably may be required by Lender in order to
effectuate fully the intent of this Amendment.
12. Severability. If any term or provision of this Amendment or the
application thereof to any party or circumstance shall be held to be invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
the validity, legality and enforceability of the remaining terms and provisions
of this Amendment shall not in any way be affected or impaired thereby, and the
affected term or provision shall be modified to the minimum extent permitted by
law so as most fully to achieve the intention of this Amendment.
13. Captions. The captions in this Amendment are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Amendment or any of the provisions hereof.
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment at Chicago, Illinois as of the day and year first above written.
DIPLOMAT DIRECT MARKETING CORPORATION, in its
capacity as Funds Administrator
By: /s/ WARREN H. GOLDEN
-------------------------------------------------
Name Printed: Warren Golden
Its: President and Chief Executive Officer
BROWNSTONE HOLDINGS, INC.
By: /s/ WARREN H. GOLDEN
--------------------------------------------------
Name Printed: Warren Golden
Its: Vice President
ECOLOGY KIDS, INC.
By: /s/ WARREN H. GOLDEN
-------------------------------------------------
Name Printed: Warren Golden
Its: Chief Financial Officer
DIPLOMAT HOLDINGS, INC.
By: /s/ WARREN H. GOLDEN
-------------------------------------------------
Name Printed: Warren Golden
Its: Chief Financial Officer
LEW MAGRAM LTD.
By: /s/ WARREN H. GOLDEN
-------------------------------------------------
Name Printed: Warren Golden
Its: Executive Vice President
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.
Its: Manager
By: /s/ CHESTER R. ZARA
--------------------------------------------------
Name Printed: Chester R. Zara
Its: Senior Vice President
<PAGE>
Guarantor's Consent
The undersigned, Robert Rubin, has heretofore executed and delivered to
the Lender a Guaranty dated as of May 12, 1999 and hereby consents to the
Amendment as set forth above and confirms that its Guaranty and all of the
undersigned's obligations thereunder remain in full force and effect. The
undersigned further agrees that the consent of the undersigned to any further
amendments to the Credit Agreement shall not be required as a result of this
consent having been obtained, except to the extent, if any, required by the
Guaranty referred to above.
/s/ ROBERT RUBIN
---------------------------------------
ROBERT RUBIN
