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Exhibit 4.1
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT ("Agreement") is made and entered in duplicate
effective the 31st day of March, 1999 ("Effective Date"), by and among
International Trading & Manufacturing Corporation, a Nevada corporation
("Company"), and Minnesota Communications Group, a Minnesota non profit
corporation ("Purchaser"). The Company and the Purchaser may hereinafter, also,
be referred to, individually, as a "party" and, collectively, as the "parties."
RECITALS
A. The Company is a corporation duly organized pursuant to the laws of the
State of Nevada.
B. The Purchaser is a non profit corporation duly organized pursuant to
the laws of the State of Minnesota.
C. The Company desires to receive funds to enable the Company to develop,
promote, market, sell, distribute and otherwise exploit the Company's Genius,
Baby Genius, Little Genius, Kid Genius and Child Genius music products and
services (collectively, the "Genius Business").
D. The Company desires that the Purchaser undertake and agree to provide
funds to the Company, during the two (2) year period commencing on the
Effective Date, in accordance with the terms of this Agreement, which the
Company shall use solely for the purpose of developing, promoting, marketing,
selling, distributing and otherwise exploiting the Genius Business.
E. As a result, to accomplish such funding, the Company desires to sell,
issue, deliver and set over to the Purchaser, and the Purchaser desires to
purchase from the Company during that two (2) year period, up to one million
(1,000,000) "restricted" (as that term is defined by the provisions of Rule 144
promulgated pursuant to the provisions of the Security Act of 1933, as amended
("Act")) shares of the Company's $.001 par value common stock (the "Common
Stock"), to provide the funds to the Company necessary and appropriate to
enable the Company to develop, produce, promote, market, sell, distribute and
otherwise exploit the Genius Business. A copy of that Rule 144 has been made
available to the Purchaser and the provisions of which, by this reference, are
made a part of this Agreement as though specified completely and specifically
verbatim in this Agreement.
F. The Company also desires to grant to the Purchaser the option to
purchase an additional five hundred thousand (500,000) "restricted" shares of
Common Stock (hereinafter also referred to as the "Subject Shares") on the
terms set forth herein.
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G. Concurrently herewith, the Company has entered into a License
Agreement with the Purchaser providing, among other things, for a license and
certain services (the "MCG Agreement") in the form attached hereto as Exhibit
"A."
H. Concurrently herewith, the Company has entered into a License
Agreement with Minnesota Public Radio, a Minnesota non profit corporation,
providing for, among other things, a license and certain services (the "MPR
Agreement") in the form attached hereto as Exhibit "B."
I. Concurrently herewith, the principal shareholders of the Company have
entered into a Shareholders Agreement with the Purchaser in the form attached
hereto as Exhibit "C."
J. Concurrently herewith, counsel for the Company has delivered to the
Purchaser its opinion in the form attached hereto as Exhibit "D."
NOW, THEREFORE, IN CONSIDERATION OF THE RECITALS SPECIFIED ABOVE THAT
SHALL BE DEEMED TO BE A SUBSTANTIVE PART OF THIS AGREEMENT, AND THE MUTUAL
COVENANTS, PROMISES, AGREEMENTS, REPRESENTATIONS AND WARRANTIES SPECIFIED IN
THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED
LEGALLY AND EQUITABLY, THE PARTIES DO HEREBY COVENANT, PROMISE, AGREE,
REPRESENT AND WARRANT AS FOLLOWS:
1. Incorporation of Recitals. The recitals to this Agreement, by this
reference, are made a part of this Agreement as though specified completely and
specifically verbatim in this Agreement.
2. Funding Commitment and Purchase and Sale of the Subject Shares.
2.1. Purchase and Sale of Subject Shares. Upon the terms and subject
to all of the conditions specified in this Agreement and upon the
performance by the parties of their obligations specified by the provisions
of this Agreement, during that two (2) year period commencing on the
Effective Date, the Company shall issue, sell, set over and deliver to the
Purchaser, and the Purchaser shall purchase from the Company, that number
of its shares of Common Stock (the "Subject Shares") which is determined by
the then funding requirements for the Genius Business, which funding
requirements will be determined by the Company, in its sole discretion.
Notwithstanding the foregoing, in the event the Company determines that it
has additional funding requirements for the Genius Business, the Company
agrees that, unless the Purchaser otherwise consents in writing, it will
make a Funding Request (as defined hereunder) prior to seeking alternative
funding sources.
2.2. Purchase Price. The full, entire and complete purchase price
that shall be paid by the Purchaser to the Company for each Subject Share shall
be One Dollar
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($1.00), appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes effected after the
Effective Date ("Purchase Price").
2.3. Initial Purchase of Subject Shares. On the Effective Date, the
Company shall issue, sell, transfer, convey and set over to the Purchaser, and
the Purchaser shall purchase from the Company, five hundred thousand (500,000)
Subject Shares. As consideration for those five hundred thousand (500,000)
Subject Shares, on that date, the Purchaser shall pay to the Company Five
Hundred Thousand Dollars ($500,000).
2.4. Funding Commitment of the Purchaser. During that two (2) year period
commencing with the Effective Date, the Company will provide to the Purchaser
thirty (30) days written notice of the Company's request for additional funding
(a "Funding Request") and the amount of that funding. Thirty (30) days after
the date such notice is given to the Purchaser (or if such date is not a
business day or is less than forty five (45) days after the last Funding Due
Date, as herein defined, on the first business day following such thirty (30)
day notice or that is forty-five (45) days after the last Funding Due Date, as
the case may be) (the "Funding Due Date"), the Purchaser shall purchase from
the Company, and the Company shall issue, sell, transfer, convey, deliver and
set over to the Purchaser, that number of Subject Shares determined by dividing
the amount of the requested additional funding by One Dollar ($1.00), as
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes effected after the Effective Date. For
example, in the event the Company requires additional funding in the principal
amount of One Hundred Thousand Dollars ($100,000), on the Funding Due Date the
Company shall sell to the Purchaser, and on that date the Purchaser shall
purchase from the Company, one hundred thousand (100,000) shares ($100,000
[divided by sign] $1.00 = 100,000). Any and all funding requested by the
Company pursuant hereto shall be installments of not greater than One Hundred
Thousand Dollars ($100,000) each, and such funding requests shall not be made
more frequently than once each forty-five (45) days. If, by the end of the two
year period, the Company has not requested the full amount of the commitment,
the Purchaser shall, in addition to its rights under Section 2.6, have the
right to purchase shares representing the difference between the funding
requested by the Company and the commitment, as though purchased pursuant to
Section 2.6.
2.5. Limitation on Funding Obligation. Any other provision of this
Agreement notwithstanding, the total funding commitment of the Purchaser to the
Company shall be, and hereby is, limited to One Million Dollars ($1,000,000).
Five Hundred Thousand Dollars ($500,000) of that commitment shall be satisfied
by the Purchaser's purchase of five hundred thousand (500,000) Subject Shares
on the Effective Date of this Agreement. Additionally, any other provision of
this Agreement notwithstanding, the Purchaser's funding commitment pursuant to
the provisions of this Agreement shall be subject to the following conditions:
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(a) No more than one Funding Request shall be made during any
forty five (45) day period;
(b) Purchaser shall have received from the Chief Financial Officer
of the Company a certificate to the following effect:
(i) The representations and warranties of the Company set forth
herein are true and correct as of the Funding Due Date as if made on and
as of such date and the Company is not in violation of any of its
covenants set forth herein;
(ii) The Company has a positive equity of at least $100,000
immediately prior to the Funding Due Date;
(iii) The Company is not in default under any indenture, credit
agreement, security agreement, mortgage, guarantee, promissory note or
other contract relating to the borrowing of money;
(iv) There has been no material adverse change in the business,
results of operations or financial condition of the Company since the last
Funding Request;
(v) The Company has achieved the milestones set forth in Exhibit
"E" which, as contemplated by Exhibit "E," were to be achieved prior to
such Funding Due Date;
(vi) The Company has not issued after the Effective Date any shares
of Common Stock or options, warrants, call, subscriptions, convertible
securities or other rights which obligate the Company to issue, transfer
or sell any shares of Common Stock for a consideration of less than the
Purchase Price;
(vii) The Company's shares of Common Stock, to the extent publicly
traded, have not traded for less than the Purchase Price in the thirty
(30) days preceding such notice of a Funding Request or during the thirty
(30) days between the Funding Request and the Funding Due Date;
(c) The Company shall not be in default under either the MCG Agreement
or the MPR Agreement; and
(d) The Company has secured and continues to maintain a relationship
with a retail partner for the sale of Baby Genius products which is in form and
substance satisfactory to the Purchaser.
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The Purchaser's and the Company's rights under Section 2.4 and this
Section 2.5 will expire on that date which is exactly two (2) years following
the Effective Date.
2.6. In addition to the Purchaser's funding commitment under Section
2.5, the Purchaser shall have the right, but not the obligation, to purchase up
to an additional five hundred thousand (500,000) Subject Shares at the Purchase
Price at any time during the two (2) year period following the Effective Date.
2.7. Delivery of Certificates. As soon as commercially practical,
after Subject Shares are purchased, the Company shall cause to be delivered to
the Purchaser a stock certificate issued by the Company representing those
Subject Shares.
2.8. Segregation and Separation of Funds. All funds received by the
Company from the Purchaser's purchase of the Subject Shares, other than Subject
Shares purchased pursuant to Section 2.6, shall be utilized by the Company
exclusively to fund and develop the Genius Business. The Company shall deposit
those funds into a separate bank account ("Account") and shall segregate those
funds, such that no other funds shall be commingled therewith. Only Xxxxxxx
Xxxxxx, the Company's Chief Operating Officer or his duly appointed successor,
shall be authorized to sign on the Account on behalf of the Company and, at the
request of the Purchaser, the Company will provide the Purchaser with period
reports on its use of funds in the Account. Funds received by the Company from
the Purchaser's purchase of the Subject Shares pursuant to Section 2.6 shall
not be subject to the restrictions of this Section 2.8.
3. Representations and Warranties.
3.1. Representations and Warranties of Company. The Company
represents and warrants to the Purchaser that:
3.1.1. Issue and Sale of Acquired Stock. The Company has the
absolute and unconditional right to issue, sell, deliver and set over
the Subject Shares to the Purchaser in accordance with the provisions of
this Agreement and upon issuance of the Subject Shares in accordance
with this Agreement, the Subject Shares will be validly issued, fully
paid and non-assessable.
3.1.2. Due Organization; Good Standing; Authority of Company.
The Company is a corporation duly organized, validly existing and in
good standing pursuant to the laws of the State of Nevada. The Company
has full and complete right, power, and authority to own its properties
and assets, and to carry on its business as a Nevada corporation. The
Company is duly licensed, classified and authorized to do business as a
foreign corporation, and is in good standing, in each jurisdiction in
which the properties and assets
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owned by it or the nature of the business conducted by it makes such licensing,
qualification and authorization legally necessary.
3.1.3. Validity of Agreement. The Company, and any officer, director or
representative executing this Agreement for and on behalf of the Company, has
the legal capacity and authority to enter into and deliver this Agreement. This
Agreement is a valid and legally binding obligation of the Company and is fully
enforceable against the Company in accordance with its terms.
3.1.4. No Brokerage. The Company has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agent's
commissions, or similar compensation in connection with this Agreement or the
transactions contemplated by the provisions of this Agreement.
3.1.5. Governing Documents. The Company has delivered to the Purchaser
true, correct and complete copies of its articles of incorporation and by-laws
and any agreement among its shareholders.
3.1.6. Capital Stock and Ownership. The authorized capital stock of the
Company consists of twenty five million (25,000,000) shares of Common Stock, of
which exactly eight million three hundred thirty four thousand and sixty three
(8,334,063) shares are issued and outstanding on the date hereof (each a
"Previously Issued Share" and together, the "Previously Issued Shares").
Schedule 3.1.6 attached hereto contains a true, correct and complete statement
as of the date hereof of every holder of more than 5% of the capital stock of
the Company. Each Previously Issued Share is fully paid and non-assessable and
no Previously Issued Share was issued in violation of the articles of
incorporation or by-laws of the Company, any provision of law or any pre-emptive
right (or other right) of any shareholder of the Company or any other person. No
pre-emptive right exists with respect to any capital stock of the Company.
Except as set forth on Schedule 3.1.6 attached hereto, the Previously Issued
Shares (on the date hereof) represent each and every equity interest of any
nature in the Company, and no person or entity of any nature holds (or is or
will be entitled to receive), including, without limitation, under any agreement
or trust, any option, warrant, convertible instrument or security, put, call,
contract or commitment of any nature whereby any person or entity has or may
receive any interest in or right to acquire any equity interest of any nature in
the Company. The Company has no subsidiaries and does not own any equity
interest of any nature in any entity.
3.1.7. Financial Statements. True, correct and complete copies of the
audited balance sheets of the Company as of December 31, 1996 and December 31,
1997, and the unaudited balance sheet of the Company as of September 30, 1998,
and its audited statements of operations and retained earnings for each of the
two years ended December 31, 1996 and December 31, 1997 and for the
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nine month period ended September 31, 1998 and any notes thereto (with all of
the foregoing collectively referred to herein as the "Financial Statements")
are attached hereto as Schedule 3.1.7. The Financial Statements are accurate
and complete and fairly present, in accordance with generally accepted
accounting principles ("GAAP"), the financial condition of the Company as of
December 31, 1996, December 31, 1997 and September 30, 1998, and the results of
its operations for each of the periods then ended. Each financial statement
delivered pursuant to Section 4.3 will be accurate, complete and fairly present,
in accordance with GAAP, the financial condition of the Company as of its
respective date. All transactions of the Company have been recorded in the
appropriate financial records and books of account of the Company in accordance
with GAAP and are reflected on the financial statements of the Company.
3.1.8. Tax Returns and Payment of Taxes.
(a) Except as disclosed in Schedule 3.1.8, the Company has properly
prepared and filed all tax returns and reports that it is required to file,
whether Federal, state, local or foreign. All such returns and reports are
correct and complete, and all taxes, interest and penalties of any kind shown
due thereon, or otherwise attributable to any operations, activities or
transactions of the Company, have been paid (or, solely in the case of taxes
that are not payable until after the date hereof, reserved for on the financial
statements and the books of the Company in amounts deemed adequate by the
Company).
(b) No claims are pending, or, to the knowledge of the Company, are
threatened against the Company for taxes, interest or penalties, whether
Federal, state, local or foreign, and no tax examination of the Company is
being conducted by Federal, state, local or foreign agents. No claim has ever
been made by an authority in a jurisdiction where the Company does not file tax
returns that it is, or may be, subject to taxation by that jurisdiction. The
Company has not waived any statute of limitations in respect of taxes or agreed
to an extension of time with respect to the assessment of any tax deficiency.
(c) The Company has not filed any consent under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company is not, and
has not been at any time, a party to any tax allocation or sharing agreement.
The Company is not, and has not been at any time, a member of an affiliated
group of corporations filing consolidated Federal income tax returns or
consolidated or combined returns under state law.
(d) Except as disclosed on Schedule 3.1.8, the Company has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party.
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3.1.9. Absence of Liabilities and Claims, Insurance.
(a) Except for (i) the current liabilities of the Company, determined
in accordance with GAAP and shown on the Financial Statements, (ii) the
liabilities stated as "long-term debt" on the Financial Statements, (iii)
contractual obligations that are not then in default or overdue and (iv) other
liabilities incurred in the ordinary course of business after the date of the
Financial Statements or which were not required to be disclosed in the Financial
Statements in accordance with GAAP, the Company has no material liabilities of
any nature.
(b) No action, suit, proceeding, investigation or claim (including,
without limitation, any assertion of any claim for taxes, interest or penalties)
is pending or, to the Company's knowledge, threatened against or with respect to
the Company or any properties or assets of the Company, nor is there any basis
for any such action, suit, proceeding, investigation or claim.
(c) The Company maintains (and has maintained throughout the
three-year period ending on the date hereof) policies of insurance from
reputable and solvent insurance carriers with respect to all properties, assets
and business activities of the Company against such casualties, risks and
contingencies as are customarily insured against by entities owning similar
properties or assets or engaged in similar business activities.
3.1.10 Operations in Accordance with Law.
(a) The Company has been (and is being) operated, and its products
and services have been (and are being) processed, produced and sold in
compliance with all applicable laws, statutes, rules, regulations, ordinances
and other requirements, whether Federal, state, local or foreign, including,
without limitation, (i) those relating to worker health, welfare or safety, and
(ii) those relating to pollution or protection of the environment or emissions,
discharges or releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment and remediation
thereof;
(b) All licenses, permits and orders required of the Company to
conduct its business and to sell products and services have been obtained and
are in full force and effect; and
(c) The Company has not received (and has no knowledge of) any
notice, order or directive by any court, governmental agency or other authority
to the effect that the Company has violated or has failed to comply with any
law, statute, rule, regulation, ordinance or other requirement.
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3.1.11. Contracts.
(a) The Company is not a party to any contract that restricts its
business or operations in any material respect and the Company has not
breached in any material respect any contract, agreement or instrument
material to it.
(b) Issuance of the Subject Shares to the Purchaser will not cause
any breach of default on the part of the Company with respect to any
contract, agreement or instrument to which it is a party.
3.1.12. Title to Assets; Condition of Assets. The Company has good
title to all properties and assets, which individually or in the aggregate
are material to the Company, free and clear of all liens, charges or
encumbrances other than in connection with indebtedness of the Company
disclosed in the Financial Statements. The Company's properties and assets
are in good repair, working order and condition.
3.1.13. Patents, Trademarks, Royalties. Schedule 3.1.13 attached
hereto includes a true, correct and complete list and summary description
of (a) every xxxx, trademark, trade name, service name, patent, design,
license, franchise, proprietary know-how or other intellectual property,
whether or not registered, and registered copyrights which the Company
owns, has applied for, has rights under or an interest in or uses in its
business; (b) all royalties, license fees and other remuneration that the
Company is obligated to pay with respect to any such property; and (c) all
royalties, license fees and other remuneration that the Company is
entitled to receive with respect to any such property. The Company is not
(and has not been) infringing on any right of any person with respect to
any such property and has not made use of any work, invention, process,
technique, confidential information or trade secret in violation of any
right of any person where any such infringement or violation or
combination of such infringements or violations, individually or in the
aggregate, would have a material adverse effect on the Company.
3.1.14. Material Adverse Change. Since September 30, 1998, there has
been no material adverse change in the condition (financial or otherwise),
assets, liabilities, commitments or business of the Company.
3.1.15. Employee Benefit Plans. The Company does not have any
retirement plan in which any employees of the Company participate that is
subject to any provisions of the Employee Retirement Income Security Act
of 1974 and of the regulations adopted pursuant thereto ("ERISA").
3.1.16. Employees. To the best of the Company's knowledge, no
employee of the Company is subject to any secrecy or non-competition
agreement or any agreement or restriction of any kind that would impede in
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way the ability of such employee to carry out fully all activities of such
employee in furtherance of the business of the Company. To the best of the
Company's knowledge, no employer or former employer of any employee of the
Company has any claim of any kind whatsoever in respect of any of the rights
described in Section 3.1.13 hereof.
3.1.17. Y2K Problems. To the best knowledge of the Company, the Company
has in place all systems and software solutions necessary or appropriate to
address and accommodate Y2K Problems (as hereinafter defined). "Y2K Problems"
means the inability of computer hardware, software or equipment containing
embedded microchips to (a) manage and manipulate data involving all dates from
the twentieth and twenty-first centuries without functional or data abnormality
and without inaccurate results related to such dates; (b) have user interfaces
and data fields formatted to distinguish between dates from the twentieth and
twenty-first centuries; and (c) represent all data in a form that includes
indications of the millennium, century and decade as well as the actual year.
3.1.18. Accuracy of Statements. The Company has not knowingly withheld
from the Purchaser any material facts relating to the assets, business,
operations, financial condition or prospects of the Company. Neither this
Agreement nor the Financial Statements nor any schedule, statement or
instrument furnished in writing to the Purchaser by or on behalf of the Company
in connection with the transactions contemplated hereby contains any statement
of a material fact that is false or misleading, nor is there any omission
therefrom of a material fact that is necessary to make each representation and
warranty of the Company not misleading.
3.2. Representations and Warranties of the Purchaser. The Purchaser represents
and warrants to the Company that:
3.2.1. Purchase of Acquired Stock. The Purchaser has the absolute and
unconditional right to purchase the Subject Shares from the Company, in
accordance with the provisions of this Agreement.
3.2.2. Due Organization; Good Standing; Authority of Purchaser. The
Purchaser is a non profit corporation duly organized, validly existing and in
good standing pursuant to the laws of the State of Minnesota. The Purchaser has
full and complete right, power, and authority to own its properties and assets,
and to carry on its business as a Minnesota non profit corporation.
3.2.3. Validity of Agreement. The Purchaser, and any officer, director or
representative executing this Agreement for and on behalf of the Purchaser,
has the legal capacity and authority to enter into and deliver this Agreement.
This Agreement is a valid and legally binding obligation of the Purchaser and
is fully enforceable against the Purchaser in accordance with its terms, except
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as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors
rights generally.
3.2.4. No Brokerage. The Purchaser has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agents's
commissions, or similar compensation in connection with this Agreement or the
transactions contemplated by the provisions of this Agreement.
3.2.5. The Purchaser's Acquisition Intention. The Subject Shares will be
acquired by the Purchaser (i) for the Purchaser's own account as a principal
and not as a nominee or as an agent; (ii) for investment purposes only; and
(iii) with no contemplation of, or for resale regarding, any distribution or
public offering of all or any portion of the Subject Shares within the meaning
of the Act. The Purchaser has no intention, agreement or arrangement to divide
the Subject Shares, or any of them, with any other person or to resell, assign,
transfer, convey or otherwise dispose of all or any part of the Subject Shares,
unless and until the Purchaser determines, at some future date, changed
circumstances, not in contemplation at the time of the acquisition of the
Subject Shares, make such disposition available.
3.2.6. Exemption from Registration. The Purchaser understands that the
Subject Shares and this Agreement (i) are "securities" as that term is defined
by the provisions of the Act and the Minnesota Uniform Securities Act ("Blue
Sky Law") and (ii) have not been (a) registered pursuant to the provisions of
the Act or (b) qualified or registered pursuant to the requirements of the Blue
Sky Law, by reason of the delivery of such Subject Shares in a transaction
exempt from the (1) registration requirements of the Act pursuant to the
provisions of Section 4(2) of the Act and (2) qualification requirements of the
Blue Sky Law pursuant to the provisions of Section 80A.15, Subd. 2(a) of the
Blue Sky Law and the rules and regulations promulgated pursuant thereto. The
Purchaser also understands that the Subject Shares (i) are "restricted
securities" as that term is defined by the provisions of Rule 144; and (ii)
must be held by the Purchaser indefinitely, unless a subsequent disposition of
the Subject Shares is registered pursuant to the provisions of the Act or is
exempt from such registration.
3.2.7. The Purchaser's Financial and Business Experience. By reason of the
Purchaser's financial and business experience, the Purchaser could be assumed
reasonably to have the capacity to protect the Purchaser's own interests in the
transactions contemplated by the provisions of this Agreement.
3.2.8. Material and Information about the Company. The Purchaser has had
access to such material and information about the Company, the
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Company's financial condition and the Company's business prospects as
the Purchaser has reasonably requested.
3.2.9. No Advertising. The Purchaser has not been furnished
with any advertising or offering literature regarding the acquisition
of the Subject Shares.
3.2.10. Response to Inquiries. The officers and directors of
the Company have answered all inquiries the Purchaser has asked of
such officers and directors concerning the Company and the Company's
proposed activities and all other matters regarding the acquisition of
the Subject Shares.
3.2.11. Evaluation of Risks. The Purchaser has such knowledge
and experience in business and financial matters that the Purchaser is
capable of evaluating the Company and the proposed activities thereof,
the risks and merits of the Subject Shares and of making an informed
decision thereon, and the Purchaser is not utilizing any other person
regarding the evaluation of those risks and merits.
3.2.12. Continued Action Regarding Exemption. The Purchaser
shall take any and all additional action which is necessary or
appropriate to maintain the exemptions from registration and
qualification provided by Section 4(2) of the Act and Section 80A.15,
Subd. 2(a) of the Blue Sky Law and the rules and regulations
promulgated pursuant thereto.
4. Covenants. The Company covenants and agrees (and for purposes of this
Article 4, "Company" shall also refer to any subsidiary of the Company hereafter
formed or acquired) that:
4.1. Corporate Existence. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or states thereof or of
any political subdivision thereof and of any governmental authority where
failure to so comply would have a material adverse impact on the Company or
its business or operations.
4.2. Books of Account and Reserves. The Company will keep books of
record and account in which full, true and correct entries are made of all
of its dealings, business and affairs, in accordance with GAAP. The Company
will employ certified public accountants selected by the Board of Directors
of the Company who are "independent" within the meaning of the accounting
regulations of the Securities and Exchange Commission (the "Commission"),
and have annual audits made by such independent public accountants in the
course of which such accountants shall make such examinations, in
accordance with generally accepted auditing standards, as will enable them
to give such reports or opinions with respect to the financial statements
of the Company as will satisfy the requirements of the Commission in effect
at such time with respect to certificates and opinions of accountants.
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4.3 Furnishing of Financial Statements and Information. The Company will
deliver to the Purchaser (which may be accomplished through delivery to the
Purchaser's designated representative on the Board of Directors of the Company):
(a) as soon as practicable, but in any event within thirty (30) days
after the close of each month, unaudited consolidated balance sheets of the
Company as of the end of such month, together with the related consolidated
statements of operations and cash flow for such month, setting forth the
budgeted figures for such month prepared and submitted in connection with
the Company's annual plan as required under Section 4.5 hereof and in
comparative form figures for the corresponding month of the previous fiscal
year, all in reasonable detail, subject to year-end adjustments;
(b) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year, a consolidated balance sheet of the
Company, as of the end of such fiscal year, together with the related
consolidated statements of operations, shareholders' equity and cash flow
for such fiscal year, setting forth in comparative form figures for the
previous fiscal year, all in reasonable detail and duly certified by the
Company's independent public accountants, which accountants shall have
given the Company an opinion, unqualified as to the scope of the audit,
regarding such statements;
(c) promptly after the submission thereof to the Company, copies of
all reports and recommendations submitted by independent public accountants
in connection with any annual or interim audit of the accounts of the
Company made by such accountants;
(d) promptly upon transmission thereof, copies of all reports, proxy
statements, registration statements and notifications filed by it with the
Commission pursuant to any act administered by the Commission or furnished
to shareholders of the Company;
(e) with reasonable promptness, such other financial data relating to
the business, affairs and financial condition of the Company as is
available to the Company and as from time to time the Purchaser may
reasonably request;
(f) promptly following the issuance of any Additional Shares of Common
Stock, or any options, warrants or other rights to purchase Additional
Shares of Common Stock, as hereinafter defined, written notice of the
amount of securities so issued and the total consideration received
therefor;
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(g) at least twenty (20) days prior to the earlier of (i) the
execution of any agreement relating to any merger or consolidation of the
Company with another corporation, or a plan of exchange involving the
outstanding capital stock of the Company, or the sale, transfer or other
disposition of all or substantially all of the property, assets or business
of the Company to another corporation, or (ii) the holding of any meeting
of the shareholders of the Company for the purpose of approving such
action, written notice of the terms and conditions of such proposed merger,
consolidation, plan of exchange, sale, transfer or other disposition; and
(h) within fifteen (15) days after the Company learns in writing of
the commencement or threatened commencement of any material suit, legal or
equitable, or of any material administrative, arbitration or other
proceeding against the Company or its businesses, assets or properties,
written notice of the nature and extent of such suit or proceeding.
4.4 Inspection. The Company will permit the Purchaser and any of its
officers or employees, or any outside representatives designated by the
Purchaser and reasonably satisfactory to the Company, to visit and inspect at
the Purchaser's expense any of the properties of the Company, including its
books and records (and to make photocopies thereof or make extracts therefrom),
and to discuss its affairs, finances, and accounts with its officers, lawyers
and accountants, except with respect to trade secrets and similar confidential
information, all to such reasonable extent and at such reasonable times and
intervals as the Purchaser may reasonably request. Except as otherwise required
by laws or regulations applicable to the Purchaser, the Purchaser shall
maintain, and shall require its representatives to maintain, all information
obtained pursuant to Section 4.3 hereof, this Section 4.4 and Section 4.5
hereof on a confidential basis.
4.5 Preparation and Approval of Budgets. At least one month prior to the
beginning of each fiscal year of the Company, the Company shall prepare and
submit to its Board of Directors, for its review and approval, an annual plan
for such year, which shall include monthly capital and operating expense
budgets, cash flow statements and profit and loss projections itemized in such
detail as the Board of Directors may reasonably request. Each annual plan shall
be modified as often as is necessary in the judgment of the Board of Directors
to reflect changes required as a result of operating results and other events
that occur, or may be reasonably expected to occur, during the year covered by
the annual plan, and copies of each such modification shall be submitted to the
Board of Directors.
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4.6 Payment of Taxes and Maintenance of Properties. The Company will:
(a) pay and discharge promptly, or cause to be paid and discharged
promptly when due and payable, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or upon any of its
properties, as well as all material claims of any kind (including claims
for labor, material and supplies) which, if unpaid, might by law become a
lien or charge upon its property; provided, however, that the Company shall
not be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Company shall have set
aside on its books reserves (segregated to the extent required by GAAP)
deemed adequate by it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to
time make, or cause to be made, all repairs and renewals and replacements
which in the opinion of the Company are necessary and proper so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; the Company will maintain or cause
to be maintained back-up copies of all valuable papers and software.
4.7 Insurance. The Company will obtain and maintain in force such property
damage, public liability, business interruption, worker's compensation,
indemnity bonds and other types of insurance as the Company's executive
officers, after consultation with an accredited insurance broker, shall
determine to be necessary or appropriate to protect the Company from the
insurable hazards or risks associated with the conduct of the Company's
business. The Company's executive officers shall periodically report to the
Board of Directors on the status of such insurance coverage.
4.8 Directors' Meetings. The Company agrees, as a general practice, to
hold a meeting of its Board of Directors at least once every quarter.
4.9 Filing of Reports. The Company will as promptly as reasonably
practicable file and use its best effort to cause to become effective a
Registration Statement on Form 10S-B with the Commission pursuant to the
Securities and Exchange Act of 1934, as amended and the rules promulgated
thereunder (the "Exchange Act"). The Company will, from and after such time as
it has securities registered pursuant to Section 12 of the Exchange Act, as
amended, or has securities registered pursuant to the Act, make timely filing of
such reports as are required to be filed by it with the Commission so that Rule
144 under the Act or any successor provision thereto will be available to the
security holders of the Company who are otherwise able to take advantage of the
provisions of such Rule.
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4.10. Patents and Other Intangible Rights. The Company will apply for, or
obtain assignments of, or licenses to use, all patents, trademarks, trademark
rights, trade names, trade name rights and copyrights which in the opinion of a
prudent and experienced businessman operating in the industry in which the
Company is operating are desirable or necessary for the conduct and protection
of the business of the Company.
4.11. Insurance on Lives of Key Personnel. The Company will maintain life
insurance under a policy or policies issued by insurers of recognized standing
in the amounts set forth in Exhibit "F" hereto on the lives of the persons
specified in such Exhibit, to the extent such persons are insurable and so long
as they are employees of the Company. Such policy or policies shall name the
Company as the beneficiary thereunder, and shall be in addition to any policy
or policies maintained by the Company to fund potential stock repurchase
obligations of the Company.
4.12. Rights to Purchase Additional Securities. If the Company should
decide to issue and sell additional shares of any capital stock of the Company
or any warrants, securities convertible into capital stock of the Company or
other rights to subscribe for or to purchase any capital stock of the Company,
other than (a) shares of Common Stock sold to the public pursuant to a
registration statement filed under the Act, if such offering is underwritten on
a firm commitment basis by an underwriter, or group of underwriters represented
by an underwriter or underwriters, which is a member of the New York Stock
Exchange, (b) shares of Common Stock awarded or issued upon the exercise of
options granted pursuant to employee and consultant benefit plans adopted by the
Company, and the grant of such options themselves, provided that the aggregate
number of shares thus awarded and issued and issuable pursuant to the exercise
of all such options shall not be in excess of 5,000,000 (appropriately adjusted
to reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes effected after the Effective Date) or (c) shares of Common Stock
which are issued in satisfaction of an obligation or liability of the Company
and not for cash consideration or which are issued in connection with the
acquisition by the Company of another business (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in (a), (b) and (c) above, being hereinafter sometimes
collectively referred to as "Additional Securities"), the Company shall first
offer to sell to the Purchaser, upon the same terms and conditions as the
Company is proposing to issue and sell such Additional Securities to others, the
Purchaser's pro rata share of such Additional Securities. Such offer shall be
made by written notice given to the Purchaser and specifying therein the amount
of the Additional Securities being offered, the purchase price and other terms
of such offer. The Purchaser shall have a period of ten (10) days from and after
the date of receipt by it of such notice within which to accept such offer and
shall pay for such Additional Securities within the timeframe contemplated by
the Company for the issuance of such Additional Securities to a third party. If
the Purchaser elects to accept such offer in whole or in part, the Purchaser
shall so accept by written notice to the Company given within such 10-day
period. If
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the Purchaser fails to accept such offer in whole or in part within such
10-day period, any of such Additional Securities not purchased by the Purchaser
pursuant to such offer may be offered for sale to others by the Company for a
period of ninety (90) days from the last day of such 10-day period, but only on
the same terms and conditions as set forth in the initial offer to the
Purchaser, free and clear of the restrictions imposed by this Section 4.12.
4.13 Restrictions. The Company will not without the prior approval of the
Purchaser:
(a) guarantee, endorse or otherwise be or become contingently liable,
or, in connection with the obligations, securities or dividends of any person,
firm, association or corporation, other than the Company, except that the
Company may endorse negotiable instruments for collection in the ordinary course
of business; or
(b) make loans or advances to any person (including without
limitation to any officer, director or shareholder of the Company), firm,
association or corporation, except loans and advances to the Company and
advances to suppliers and employees made in the ordinary course of business; or
(c) purchase or invest, in the stock or obligations of any other
person, firm or corporation;
(d) pay compensation, whether by way of salaries, bonuses,
participations in pension or profit sharing plans, fees under management
contracts or for professional services or fringe benefits to any officer in
excess of amounts fixed by the Board of Directors of the Company prior to any
payment to such officer; or
(e) amend the Company's articles of incorporation or by-laws.
5. Captions and Interpretations. Captions of the articles and sections of
this Agreement are for convenience and reference only, and the words specified
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction, or meaning of the provisions of this Agreement.
The language in all parts to this Agreement, in all cases, shall be construed
in accordance with the fair meaning of that language as if prepared by all
parties and not strictly for or against any party. Each party and counsel for
such party have reviewed this Agreement. The rule of construction, which
requires a court to resolve any ambiguities against the drafting party, shall
not apply in interpreting the provisions of this Agreement.
6. Entire Agreement. This Agreement and the Exhibits and the schedules to
this Agreement are the final written expression and the complete and exclusive
statement of all the agreements, conditions, promises, representations,
warranties and covenants between the
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parties with respect to the subject matter of this Agreement, and this
Agreement supersedes all prior or contemporaneous agreements, negotiations,
representations, warranties, covenants, understandings and discussions by and
between and among the parties, their respective representatives, and any other
person, with respect to the subject matter specified in this Agreement.
7. Choice of Law and Consent to Jurisdiction. This Agreement shall be
deemed to have been entered into in the County of San Diego, State of
California. All questions concerning the validity, interpretation, or
performance of any of the terms, conditions and provisions of this Agreement or
of any of the rights or obligations of the parties shall be governed by, and
resolved in accordance with, the laws of the State of Nevada, without regard to
conflicts of law principles.
8. Waiver and Modification. No modification, supplement or amendment of
this Agreement or of any covenant, condition, or limitation specified in this
Agreement shall be valid unless the same is made in writing and duly executed
by both parties. No waiver of any covenant, condition, or limitation specified
in this Agreement shall be valid unless the same is made in writing and duly
executed by the party making the waiver. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
9. Number and Gender. Whenever the singular number is used in this
Agreement and, when required by the context, the same shall include the plural,
and vice versa, the masculine gender shall include the feminine and the neuter
genders, and vice versa, and the word "person" shall include individual,
company, sole proprietorship, corporation, joint venture, association, joint
stock company, fraternal order, cooperative, league, club, society,
organization, trust, estate, government agency, political subdivision or
authority, firm, municipality, congregation, partnership, or other form of
entity. As used in this Agreement, the word "affiliate," as it relates to a
person, shall be defined as and mean a parent, spouse, brother or sister, or
natural or adopted lineal descendent or spouse of such descendent of such
person, and any proprietorship, corporation, partnership, congregation,
organization, firm, estate, association, league, club, society, joint venture,
trust or other form of entity in which such person or parent, spouse, brother
or sister, or natural or adopted lineal descendent or spouse of such descendent
or such person may have any equity interest or in which such person or parent,
spouse, brother or sister, or natural or adopted lineal descendent or spouse of
such descendent of such person is a proprietor, partner, officer, director,
shareholder, employee, consultant, independent contractor, owner, co-venturer,
employer, agent, representative, settlor or beneficiary.
10. Successors and Assigns. This Agreement and each of its provisions
shall inure to the benefit of the heirs, executors, administrators, successors,
and assigns of each of the parties. The Purchaser shall not, however, assign
any of its rights under this Agreement without the consent of the Company and
no holder of the Subject Shares or any assignee shall have any rights of the
Purchaser to purchase the Subject Shares pursuant to Article 2, to enforce the
covenants in Article 4 or under the Shareholders' Agreement. Nothing herein
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shall restrict the Purchaser's right to transfer or assign the Subject Shares
and any holder of the Subject Shares shall take such shares subject to and be
entitled to rely on the representations and warranties set forth in Article 3.
11. Third Party Beneficiaries. Except as expressly specified by the
provisions of this Agreement, this Agreement shall not be construed to confer
upon or give to any person, other than the parties hereto, any right, remedy or
claim pursuant to, or by reason of, this Agreement or of any term or condition
of this Agreement.
12. Severability. In the event any part of this Agreement, for any
reason, is determined by a court of competent jurisdiction to be invalid, such
determination shall not affect the validity of any remaining portion of this
Agreement, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated.
It is hereby declared the intention of the parties that they would have
executed the remaining portion of this Agreement without including any such
part, parts, or portion which, for any reason, may be hereafter determined to
be invalid.
13. Governmental Rules and Regulations. The transactions contemplated by
the provisions of this Agreement are and shall remain subject to any and all
present and future orders, rules and regulations of any duly constituted
authority having jurisdiction of those transactions.
14. Execution in Counterparts. This Agreement may be prepared in multiple
copies and forwarded to each of the parties for execution. All of the
signatures of the parties may be affixed to one copy or to separate copies of
this Agreement and when all such copies are received and signed by all parties,
those copies shall constitute one agreement which is not otherwise separable or
divisible. Counsel for the Company shall keep all of such signed copies and
shall conform one copy to show all of those signatures and the dates thereof
and shall mail a copy of such conformed copy to each of the parties within
thirty (30) days after the receipt by such counsel of the last signed copy, and
such counsel shall cause one such conformed copy to be filed in the principal
office of such counsel.
15. Reservation of Rights. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect or diminish any right of
such party failing to require strict performance to demand strict compliance
and performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
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16. Survival of Covenants, Representations and Warranties. All covenants,
representations, and warranties made by each party to this Agreement shall be
deemed made for the purpose of inducing the other party to enter into and
execute this Agreement. The representations, warranties, and covenants
specified in this Agreement shall survive the Closing and shall survive any
investigation by either party whether before or after the execution of this
Agreement.
17. Force Majeure.
(a) If any party is rendered unable, completely or partially, by the
occurrence of an event of "force majeure" (hereinafter defined) to perform
such party's obligations created by the provisions of this Agreement,
other than the obligation to make payments of money, such party shall give
to the other party prompt written notice of the event of "force majeure"
with reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations
are affected by the event of "force majeure," shall be suspended during,
but no longer than, the continuance of the event of "force majeure." The
party affected by such event of "force majeure" shall use all reasonable
diligence to resolve, eliminate and terminate the event of "force majeure"
as quickly as practicable.
(b) The requirement that an event of "force majeure" shall be
remedied with all reasonable dispatch as hereinabove specified, shall not
require the settlement of strikes, lockouts or other labor difficulties by
the party involved, contrary to such party's wishes, and the resolution of
any and all such difficulties shall be handled entirely within the
discretion of the party concerned.
(c) The term "force majeure" as used herein shall be defined as and
mean any act of God, strike, civil disturbance, lockout or other
industrial disturbance, act of the public enemy, war, blockade, public
riot, earthquake, tornado, hurricane, lightning, fire, public
demonstration, storm, flood, explosion, governmental action, governmental
delay, restraint or inaction, unavailability of equipment, and any other
cause or event, whether of the kind enumerated specifically herein, or
otherwise, which is not reasonably within the control of the party
claiming such suspension.
18. Expenses. Each party shall pay all costs and expenses incurred or to
be incurred by that party in negotiating and preparing this Agreement and in
closing and consummating the transaction contemplated by the provisions of this
Agreement.
19. Concurrent Remedies. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to,
every other right and remedy specified in this Agreement or now or hereafter
existing at law or in equity or by statute or otherwise, and may be enforced
concurrently therewith or from time to time. The termination of this
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Agreement for any reason whatsoever shall not prejudice any right or remedy
which any party may have, either at law, in equity, or pursuant to the
provisions of this Agreement.
[The remainder of this page left intentionally blank.]
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IN WITNESS WHEREOF the parties have executed this Agreement in duplicate to
be effective on the Effective Date.
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION,
a Nevada corporation
By: /s/ XXXXX XXXXXXX
------------------------------------
Its: Director
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By: /s/ XXXXXXX XXXXXX
------------------------------------
Its: COO
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MINNESOTA COMMUNICATIONS GROUP,
a Minnesota non profit corporation
By:
-----------------------------------
Its:
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